- 25.5.6 Summonses on Third-Party Witnesses
- 188.8.131.52 Program Scope and Objectives
- 184.108.40.206.1 Background
- 220.127.116.11.2 Authority
- 18.104.22.168.3 Responsibilities
- 22.214.171.124.4 Program Management
- 126.96.36.199.5 Program Controls
- 188.8.131.52.6 Definitions and Acronyms
- 184.108.40.206.7 Related Resources
- 220.127.116.11 General
- 18.104.22.168 Definitions
- 22.214.171.124.1 Summons Subject to IRC 7609 Third-Party Notice and Waiting Period Requirements
- 126.96.36.199.1.1 Identifying Third-Party Summonses
- 188.8.131.52.1.2 Summons Served to Examine a Married Person's Joint Return
- 184.108.40.206.1.3 Summons Served on an Officer, Employee or Other Representative of an Entity
- 220.127.116.11.1.4 TEFRA Proceedings: Summons Served on a Partner or Member in an Individual Capacity, Not as the Representative of the TEFRA Entity
- 18.104.22.168.2 Third-Party Recordkeeper
- 22.214.171.124.2.1 Service on a Third-Party Recordkeeper
- 126.96.36.199.3 Records
- 188.8.131.52.4 John Doe Summons
- 184.108.40.206.5 Numbered Bank Account
- 220.127.116.11.6 Proceeding to Quash
- 18.104.22.168.7 Intervention
- 22.214.171.124.8 Noticee
- 126.96.36.199.9 Date of Service of Notice
- 188.8.131.52 Statutory Requirements for Third-Party Summonses
- 184.108.40.206.1 Procedures for Summonses Issued to Investigate Liabilities for the Trust Fund Recovery Penalty
- 220.127.116.11 Exceptions to Notice Requirements
- 18.104.22.168.1 Scope of the Exception for Summonses Issued in Aid of Collection
- 22.214.171.124.2 Sharing Information Obtained by a Collection Summons With IRS Personnel Conducting Examinations or Criminal Investigations
- 126.96.36.199 Procedures for Notice, Petition to Quash the Summons, and Compliance or Enforcement
- 188.8.131.52.1 Period in Which Service Is Required To Give Notice
- 184.108.40.206.2 Right to File Petition to Quash Summons
- 220.127.116.11.3 Compliance or Enforcement of Summons
- 18.104.22.168.3.1 Collection
- 22.214.171.124.3.2 Suspension of the Periods of Limitation When a Summoned Third Party Fails to Fully Comply for 6 Months After Service With a Summons
- 126.96.36.199.3.3 Determination of Final Resolution
- 188.8.131.52.3.4 Contemporaneous Documentation Requirement
- 184.108.40.206.4 Notice and Instructions to Noticee, Third-Party Summons
- 220.127.116.11.5 Waiver of Right to Notice and To Petition to Quash the Summons
- 18.104.22.168.6 Duty and Rights of a Summoned Third Party
- 22.214.171.124.7 Coordination of Summons Issuance and Enforcement Actions
- 126.96.36.199 Banks
- 188.8.131.52 Summonses for Foreign Records of Corporate Slush Funds
- 184.108.40.206 Records of Foreign Companies
- 220.127.116.11 Software Trade Secret Protection Under IRC 7612
- 18.104.22.168.1 Conditions For Summoning a Source Code
- 22.214.171.124.2 Safeguards to Ensure Protection of Trade Secrets and Other Confidential Information
- 126.96.36.199.3 Definitions
- 188.8.131.52.4 Effective Date
- 184.108.40.206.5 Miscellaneous
- 220.127.116.11 Summonses Served On an Educational Institution
- 18.104.22.168 Information From Federal Officials and Employees
- Exhibit 25.5.6-1 Form 14465
- Exhibit 25.5.6-2 Sample Language for a Letter For Limiting a Response for Records for Multiple Potentially-Responsible Persons
- Exhibit 25.5.6-3 Letter 4432
Part 25. Special Topics
Chapter 5. Summons
Section 6. Summonses on Third-Party Witnesses
March 10, 2017
(1) This transmits revised 25.5.6, Summons, Summonses on Third-Party Witnesses.
(1) IRM 22.214.171.124, revised title and added content to comply with the new Internal Management Documents System, Internal Revenue Manual (IRM) internal control requirements.
(2) IRM 126.96.36.199(1) a), added guidance to send notice to the taxpayer’s authorized representative.
(3) IRM 188.8.131.52.1.1(1), clarified that notice procedures apply to almost all third-party summonses issued for an examination purpose.
(4) IRM 184.108.40.206.2(1), included Form 6639 in Note.
(5) IRM 220.127.116.11.2.1(3), added guidance on how to serve a summons to third parties who are not third-party recordkeepers.
(6) IRM 18.104.22.168.8(1), clarified who gets notice of the summons.
(7) IRM 22.214.171.124(1) a), clarified that the witness does not get notice of the summons.
(8) IRM 126.96.36.199.1(1), clarified that the collection exception to notice includes assessed liability or judgment against the taxpayer.
(9) IRM 188.8.131.52.2(3), clarified that a person not entitled to notice does not have the right to quash the summons.
(10) IRM 184.108.40.206.4(1), included Form 6639 for instructions on sending notice to noticees and provided guidance to send a copy of the notice to the taxpayer’s authorized representative.
(11) IRM 220.127.116.11.4(3), added guidance to copy the certification of serving the summons for each noticee.
(12) IRM Exhibit 25.5.6-3, replaced copy of Letter 4432 with a link to the PDF fillable form.
(13) The revision to this IRM section includes editorial changes, formatting, and IRM reference corrections throughout.
Kristen E. Bailey
Director, Collection Policy
Small Business Self Employed
The Summons Handbook provides guidelines for all IRS functions in one multifunctional handbook.
Purpose: This IRM provides instructional procedures relating to summonses issued to third-party witnesses.
Audience: All employees authorized to issue or approve a summons to a third-party witness.
Policy Owner: Director, Collection Policy.
Program Owner: Collection Policy Headquarters, an organization within the Small Business/Self-Employed (SB/SE) division.
Primary Stakeholders: Employees who require testimony or the production of records from a third-party witness.
Program Goals: Provide guidance and procedures relating to summonses issued to third-party witnesses.
A third-party summons is a summons directed to a person other than the person with respect to whose liability or return the summons is issued, or any officer or employee of such person. See IRM 18.104.22.168.1, Summons Subject to IRC 7609 Third-Party Notice and Waiting Period Requirements, for help identifying third-party summonses.
IRC 7602 provides the Service with summons authority. See IRM 22.214.171.124.1, Statutory Authority.
IRC 7609 provides the Service with special procedures for third-party summonses.
IRM 126.96.36.199, Delegation Order 25-1, provides the levels of authority delegated to various Service officials to approve and perform activities concerning summonses.
IRM 188.8.131.52(9), Delegation Order 25-1, lists the employees delegated to issue a summons.
The approval of the issuing officer's manager, or any supervisory official above that level is required on a summons to a third party witness. See IRM 184.108.40.206(8), Delegation Order 25-1. The approval is evidenced by the supervisor's signature on the summons, or by a statement on the summons, signed by the issuing officer, that he or she had prior authorization to issue the summons and stating the name and title of the authorizing official and date of authorization.
In general, the Service should issue summonses only when the taxpayer (or other witness) will not produce the desired records or other information voluntarily. A summons is specific to each case. There are no program reports that track summonses to third-party witnesses.
The Service employee who issued the summons keeps a copy of the original summons, Page 1 of the summons labelled "Original" . The original summons is needed when referring a summons for enforcement. See IRM 25.5.10, Enforcement of Summons.
Definitions pertaining to summonses served on third-party witnesses can be found in IRM 220.127.116.11, Definitions.
The table below lists commonly used acronyms and their definitions.
Acronym Definition AIMS Audit Information Management Systems BAL DUE Balance Due Account ATAT Abusive Tax Avoidance Transactions CI Criminal Investigation DEL RET Delinquent Return Investigation DOJ Department of Justice FERPA Family Educational Rights and Privacy Act IDR Information Document Request IRC Internal Revenue Code IRM Internal Revenue Manual ITG Indian Tribal Government LB&I Large Business and International RFPA Right to Privacy Act RRA 98 Restructuring and Reform Act of 1998 SB/SE Small Business/Self Employed SEC Securities and Exchange Commission TEFRA Tax Equity and Fiscal Responsibility Act TE/GE Tax Exempt and Government Entities TFRP Trust Fund Recovery Penalty U.S.C United States Code U.S.C.A. United States Annotated Code W&I Wage and Investment
IRM 25.5, Summons Handbook, provides guidelines for all IRS functions in one multifunctional handbook. The sections are:
IRM 25.5.1, Introduction
IRM 25.5.2, Preparation
IRM 25.5.3, Procedures
IRM 25.5.4, Examination of Books and Witnesses
IRM 25.5.5, Summons for Taxpayer Records and Testimony
IRM 25.5.6, Summonses on Third-Party Witnesses
IRM 25.5.7, Special Procedures for John Doe Summonses
IRM 25.5.8, Use of Summons Special Applications
IRM 25.5.9, Fees and Costs for Summoned Witnesses
IRM 25.5.10, Enforcement of Summons
IRM 25.5.11, Title 31 Bank Secrecy Act Investigations
The basic legal concepts governing the use and enforcement of administrative summonses can be found in IRM 5.17.6, Legal Reference Guide for Revenue Officers, Summonses.
The Service must follow the notice and waiting period requirements described below for all third-party summonses (except for the particular types described in IRC 7609(c)(2)(B)-(E) and (c)(3)and discussed in IRM 18.104.22.168,Exceptions to Notice Requirements, of this handbook):
The Service must give notice to the taxpayer identified in the heading of the summons (and as a courtesy, to the taxpayer’s authorized representative) and to any other person identified in the description of summoned records.
The date for compliance of the summoned party is no sooner than 23 full days after the date notice is given to the taxpayer and to any other person entitled to notice.
The summoned party cannot comply at an earlier time unless the taxpayer and all other noticees waive in writing the 23 day waiting period. The records cannot be accepted until the 24th day after the date of notice, and only if no person entitled to notice brought a timely proceeding to quash.
Occasionally a summoned third party, such as a bank, will mail the summoned records to the Service before the 23 day period expires. In that case, the Service employee must not examine the records; the records should be sealed in a box or envelope and must not be examined until the 23 day period expires without a timely petition to quash being filed. Also, on rare occasion, the 23 day waiting period may expire before the Service employee receives notice that the taxpayer or other noticee has filed a timely petition to quash the third-party summons. If the Service employee has already begun reviewing the summoned records, the employee should stop the review immediately and seal the summoned records, noting the date and time on which the seal occurred. The records should not be accessed until the summons litigation process is concluded.
A third party need only produce a summoned document if it is in his or her possession, custody, or control and if the summons complies with all legal requirements. The witness may claim his or her individual right against self-incrimination. Summoned persons who conceal records and falsely state that they have been stolen may be prosecuted under 18 U.S.C. 1001 (false statements) and 18 U.S.C. 1503 (obstructing justice).
If the summons was served on a third-party witness, the taxpayer and any other person entitled to notice can bring a proceeding to quash the summons (subject to the exceptions discussed in IRM 22.214.171.124, Exceptions to Notice Requirements). In that proceeding, the taxpayer (or other noticee) can challenge the validity of the summons or assert privileges against production.
The 10 day waiting period provided by IRC 7605(a) still applies to those narrow categories of third-party summonses (described in IRM 126.96.36.199) that are excepted from the notice requirements and 23 day waiting period required by IRC 7609(a)(1). The 10 day waiting period is for the benefit of the person to whom the summons is directed. The taxpayer has no standing to object to a waiver of this provision.
The following definitions pertain to summonses served on third-party witnesses.
Summons Subject to IRC 7609 third-party requirements:
Is an administrative summons issued under IRC 7602(a) or under 6420(e)(2), 6421(g)(2), 6427(j)(2), and 7612,
That requires testimony on or relating to the taxpayer or other noticee, or
The production of any portion of records made or kept on or relating to any person who is identified in the summons (other than the summoned third party), or
The production of any computer software source code with respect to the taxpayer or other noticee (defined in IRC 7612(d)(2)).
Notice procedures apply to almost all third-party summonses issued for an examination purpose. Therefore, the Service must accurately distinguish third-party summonses from those served on a taxpayer. In most situations, this distinction is obvious. However, it is less obvious in at least three circumstances: those involving married couples who file joint returns; those involving employees, corporate officers, partners, and others who are summoned in a representative capacity; and those involving Tax Equity and Fiscal Responsibility Act (TEFRA) entities in which a summons is captioned "In the matter of" the TEFRA entity and is served on a partner or member in an individual capacity, not as the representative of the TEFRA entity (see below). (For more information on TEFRA entities refer to IRM 4.31.1, Pass-Through Entity Handbook, Introduction, and IRM 4.31.2, TEFRA Examinations -- Field Office Procedures.)
When the Service examines the correctness of a married couple's jointly filed return to determine if additional tax is owed and the IRS employee must summon information from one of the married taxpayers, the Service must treat such a summons as a third-party summons and give notice to the other spouse.
If only one spouse is summoned, the other spouse is entitled to notice under IRC 7609(a) as a person identified in the summons. Even when both spouses are summoned (by issuing and serving separate summonses), each spouse is entitled to notice of the other's summons. This procedure preserves each spouse's opportunity to move to quash the summons served on his or her spouse and/or claim his or her individual right against self-incrimination.
Summonses are treated and drafted differently when they are served to investigate the separate liabilities of married persons who failed to file a return for a year being investigated (i.e., a delinquent return investigation). They should not be captioned in the names of both the Taxpayer-Husband and Taxpayer-Wife because the married couple did not file a joint return. Instead, separate summonses should be issued for each person, and they should be captioned "In the matter of Taxpayer-Husband" and "In the matter of Taxpayer-Wife" , respectively
Moreover, these summonses are not third-party summonses if they are directed to the taxpayer identified in the caption of the summons. Thus, a summons captioned "In the matter of Taxpayer-Wife" and directed to the Taxpayer-Wife is not a third-party summons, and no notice should be given to the Taxpayer-Husband, even if he is identified in the description of summoned records.
When the Service is examining an entity (such as a corporation or partnership) and summons officers, employees, or other individuals as representatives of the entity, those summonses are excepted from the third-party summons procedures by IRC 7609(c)(2)(A). Therefore, the 23 day waiting period and the notice requirement of IRC 7609(a) do not apply to such summonses.
A summons issued in a TEFRA proceeding and served on a partner in the partner's individual capacity, not as the representative of the TEFRA entity, is treated as a third-party summons to which the notice and waiting period requirements of IRC 7609 apply. The TEFRA entity identified in the caption of the summons and every person identified in the description of the summoned records must be given notice of the summons, and all such persons are entitled to petition to quash.
A third-party recordkeeper is:
Any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under Federal or State law, any bank (as defined in IRC 581), or any credit union (within the meaning of IRC 501(c)(14)(A);
Any consumer reporting agency (as defined under section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f));
Any person extending credit through the use of credit cards or similar devices;
Any broker (as defined in section 3(a)(4) of the Securities Exchanges Act of 1934 (15 U.S.C. 78c 3(a)(4));
Any barter exchange (as defined in IRC 6045(c)(3);
Any regulated investment company (as defined in IRC 851) and any agent of such regulated investment company when acting as an agent thereof;
Any enrolled agent; and
Any owner or developer of a computer software source code (as defined in IRC 7612(d)(2)), but only if the summons requires the production of the source code or the program and data described in IRC 7612(b)(1)(A)(ii) to which the source code relates.
As stated throughout this chapter, the Service is required to follow the notice and waiting period requirements with all third-party summonses, except for those enumerated in IRC 7609(c)(2)-(3). The third-party recordkeeper definition signifies a unique class of summonses that may be served by certified or registered mail. It also identifies the only group of third-party summonses for which a Special Agent must observe the notice and waiting period requirements of IRC 7609(a).
As stated above, third-party recordkeepers can receive service of the summons by registered or certified mail pursuant to IRC 7603(b), as well as by delivery in hand and the other traditional methods of service permitted by IRC 7603(a) and discussed in IRM 25.5.3, Summons Handbook, Procedures.
If it is unclear as to whether a summoned party falls within the definition of third-party recordkeeper, seek the advice of Associate Area Counsel.
A summons to a third party who is not a third-party recordkeeper as defined in IRM 188.8.131.52.2(1) above, must be served by hand delivery, or if the summoned person is an individual, the summons may be left at that person’s last and usual place of abode.
Records - This term includes books, papers, or other data. The concept of records has been broadly construed to include an executable copy of a commercial tax software program used to prepare returns. However, a summons for a computer software source code cannot be issued unless certain conditions set forth in IRC 7612 are satisfied.
Examples of third-party records are:
Hospital records, excluding nature of illness;
Partnership records; and
Records of an unincorporated labor union concerning transactions of its officers.
John Doe Summons - This is any summons that does not identify the taxpayer being investigated. For further information about John Doe summonses see IRM 25.5.7, Summons Handbook, Special Procedures for John Doe Summonses.
Numbered bank account - An account with a bank or similar financial institution through which a person may authorize transactions solely through the use of a number, symbol, code name or similar arrangement not involving disclosure of the account owner’s identity.
Proceeding to quash - A civil action begun in the appropriate U.S. District Court to prevent compliance by a summoned third-party witness.
Intervention - The act of a person, who is not originally a party to a summons proceeding, becoming a party in order to protect his or her interests. Under IRC 7609(b)(1), any person who is entitled to notice of a third-party summons (i.e. a noticee) may intervene in any proceeding brought by the Government to enforce that summons. Also, under IRC 7609(b)(2)(C), the summoned third party has the right to intervene in any proceeding brought by a noticee to quash the summons.
Noticee - The persons entitled to notice of a third-party summons are the taxpayer identified in the heading of the summons and every person identified in the description of summoned records (other than the person summoned). The taxpayer identified in the caption of the summons is always a noticee, even though his name may not appear in the description of summoned records. A noticee has the right to be given notice of the summons, to intervene in a summons enforcement proceeding, and to bring a proceeding to quash the summons.
Where a summons is served on a bank for account records and the IRS agent or officer knows before serving the summons that an account is styled in the names of more than one person, then each person should be named in the description of summoned records and should receive notice. For example, if the agent or officer knows that bank accounts are listed in the joint names of husband and wife, then both the husband and wife should be identified in the description of summoned records and both should be given separate notice, even if they reside at the same address. When records of a partnership are requested in the description of summoned records, notice to one general partner is sufficient.
In general, IRC 7609 provides that:
The taxpayer and every person (other than the summoned witness) identified in the description of summoned records must be notified if a summons has been served on a third party, unless the summons is subject to the exceptions listed in IRC 7609(c)(2)-(3);
Any person who has the right to notice must file a timely petition to quash the summons in the appropriate U.S. District Court if he or she wishes to prevent the summoned third-party witness from complying with the summons (see IRM 184.108.40.206.2, Right to File Petition to Quash Summons, for rules regarding timeliness);
Notice is not required when the Service first obtains a court order based on allegations that reasonable cause exists to believe notice may lead to material interference with the investigation or examination;
The filing of a petition to quash the summons by the taxpayer or his or her agent suspends the running of the statute of limitation for assessment and criminal prosecution during the period when a court proceeding and appeals related thereto are pending;
A dispute between a summoned third party and the IRS that is not resolved within six months after the service of a summons suspends the statutes of limitation on assessment and criminal prosecution until the final resolution of the summoned person's response; and
A John Doe summons can only be served pursuant to a court order.
Refer to IRM 220.127.116.11.1, Description of Summons (Form 2039), to determine the appropriate summons instrument to use in a given situation.
The notice procedures of IRC 7609(a) apply to third-party summonses issued to investigate persons who may be responsible for the trust fund recovery penalty (TFRP).
When investigating the persons who may be responsible for the TFRP, the Service often summonses a bank (or other third party) to obtain records of the corporation's accounts. In many cases, the Service knows of several corporate officers or employees who may be responsible for the penalty. In such cases, the Service should issue a separate summons for each potentially responsible person and should follow the notice and waiting period requirements of IRC 7609(a). Each such summons should only have one potentially responsible person's name typed in the heading. The bank need only provide one set of documents for multiple summonses with identical document requests. See Exhibit 25.5.6-2, Sample Language for a Letter for Limiting a Response for Records for Multiple Potentially-Responsible Persons.
The Service should not list the names of all of the potentially responsible persons in the heading of one summons. Doing so could raise disclosure problems because each potentially responsible person will receive the IRC 7609(a) notice of the summons form showing all of their names. The potentially responsible persons may not have a sufficient transactional relationship with each other (concerning their TFRP liability) to overcome the IRC 6103 prohibition against disclosure of return information. A redacted copy will not satisfy this requirement because the employee serving the summons must certify that the notice copies are true and correct copies of the original. Therefore, the Service must issue a separate summons for each potentially responsible person whom it investigates.
The potentially responsible person should be identified in the heading of the summons by name and by his or her capacity as an employee or officer of the corporation. For example, where two potentially responsible persons (an officer and an employee) have been identified, two summonses would be issued. A summons investigating the liability of John Smith, president of Corporation XYZ, Inc. would be captioned as "In the matter of John Smith, President of Corporation XYZ, Inc." A separate summons concerning the liability of an employee, John Smith, Jr., would be captioned "In the matter of John Smith, Jr., Employee of Corporation XYZ, Inc." (Since the corporate name is identified in the heading of the summons, the corporation is a noticee as well as the individual named in the heading and both the corporation and individual are required to receive notice per IRC 7609(a)(1).)
In many situations, the Service will know the identity of many potentially responsible persons but perhaps not all. For example, Corporation A has failed to pay its employment taxes for several past quarters and there are five potentially responsible persons. If the Service knows the identity of four of the five potentially responsible persons, the Service will serve four summonses on the bank even though one of the summonses seeks the production of all of the documents the Service requires for all four investigations. As a matter of law, IRC 7609 does not require the Service to serve all four summonses; however, the Service will serve all four as a matter of practice. To do otherwise would vitiate a taxpayer's opportunity to seek to quash a third-party summons that the Service issued to investigate his or her liability. Eliminating the taxpayer's opportunity to petition to quash would be inconsistent with Congressional intent (as expressed in RRA 98) to broaden the taxpayer's access to judicial review of third-party summonses. However, the Service need not later serve on the bank a summons that names the fifth person unless more records are required to determine that person's liability.
When serving multiple, identical summonses on a bank (or other third party) to investigate the persons potentially liable for the TFRP, inform the summoned person that the Service need only receive one copy of the summoned information. See Exhibit 25.5.6-2 for sample language for a cover letter to accompany summonses in this situation.
There is no IRC 7609 notice requirement in the following instances:
Service of a John Doe summons;
The summoned witness is the taxpayer, officer or employee of the taxpayer;
Each person entitled to notice gives up this right by executing a waiver;
The summons is served to determine whether records of the business transactions or affairs of an identified person have been made or kept;
The summons is issued in aid of the collection of an assessment made or judgment rendered against the person regarding whose liability the summons is issued, or the liability at law or in equity of any transferee or fiduciary of the taxpayer (see IRM 18.104.22.168.1, Scope of the Exception for Summonses Issued in Aid of Collection, for more detailed information);
Notice under IRC 7609(a) is required for third-party summonses issued for Delinquent Return Investigations (DEL RET), for records to establish the liability for the trust fund recovery penalty, or for any other investigation where no liability has been assessed or an additional liability is being proposed. Notification is not required for third-party summonses issued for Balance Due Accounts (BAL DUE) or any other investigation where the Service is seeking to collect a liability assessed against the taxpayer identified in the heading of the summons.
Summonses issued by a criminal investigator to a third party who is not a third-party recordkeeper;
Summonses issued solely to determine the identity of a person having a numbered bank account (see IRM 22.214.171.124.5, Numbered Bank Account).
Summonses issued pursuant to a court order:
Notice shall not be required if, upon petition by the Service, the district court determines reasonable cause exists to believe that giving notice may lead to attempts to conceal, destroy, or alter records relevant to the examination; to prevent the communication of information from other persons through intimidation, bribery, or collusion; or to flee to avoid prosecution, testifying, or production of records. The petition must be filed before issuing the summons, in the United States District Court for the area within which the summoned person resides or is found.
In the hearings required under (a) above, as well as those referred to in this Handbook regarding John Doe summonses, the determination shall be made ex parte based solely upon the Government's petition and supporting affidavits. An order denying the petition is deemed a final order which may be appealed.
Forward requests for court orders to the Associate Area Counsel for processing. Include in the memorandum a request that the person(s) to be summoned refrain from informing the taxpayer (or any other person to whom the summoned information relates) of the summons.
Advise the summoned third party that, pursuant to a court order, the taxpayer and anyone else identified in the court order are not to be notified of the summons and, if appropriate, that notifying them could subject the person summoned to a contempt citation.
IRC 7609(c)(2)(D)(i) and (ii) provide exceptions from the notice requirement of IRC 7609(a) for two different categories of collection summonses. The first category is codified in IRC 7609(c)(2)(D)(i), which provides an exception for summonses issued to aid in collecting an assessment made or a judgment rendered "against the person with respect to whose liability the summons is issued." That phrase refers to the taxpayer identified in the heading of the summons as the person being investigated. If the Service does not have an assessed liability or judgment against that taxpayer, then it cannot use the collection exception for any third-party summons it issues in that investigation. As a result of this rule, the Service must give notice under IRC 7609(a) when serving a summons on a third party to investigate the liability of those persons who are potentially responsible for the trust fund recovery penalty because those taxpayers' liabilities are not yet assessed. The Service cannot rely on the assessment against the corporation to satisfy the collection exception for these summonses, nor may it caption such summonses as issued "In the matter of the Corporation-Taxpayer." These summonses must be captioned as in the matter of the individuals being investigated as potentially responsible persons. See IRM 126.96.36.199.1, Procedures for Summonses Issued to Investigate Liabilities for the Trust Fund Recovery Penalty.
A fraudulent conveyance investigation or a nominee lien investigation will not result in a new, separate assessment against a person other than the taxpayer whose liability the Service is trying to collect. Thus, summonses issued to pursue fraudulent conveyance or nominee lien investigations are excepted from the notice requirement by IRC 7609(c)(2)(D)(i)so long as the Service has assessed against the taxpayer the liabilities it seeks to collect, or has a judgment against the taxpayer.
The second category of collection summonses is described in IRC 7609(c)(2)(D)(ii), which provides an exception for summonses issued to aid in collecting the liability at law or in equity of any transferee or fiduciary of a taxpayer against whom the Service has made an assessment or obtained a judgment. The scope of this exception is limited to summonses issued to collect a transferee (or fiduciary) liability that has been assessed pursuant to IRC 6901 or otherwise finally determined by a judgment. It does not apply to summonses issued to determine whether a person is liable as a transferee pursuant to IRC 6901.
At times, the Service may be pursuing a civil examination or a criminal investigation of a taxpayer's unassessed liabilities while it is also pursuing (or has finished pursuing) collection actions against the same taxpayer for assessed liabilities. In these circumstances, the Service's collection functions may have obtained information by a collection summons that was excepted by IRC 7609(c)(2)(D) from the notice requirement of IRC 7609(a). In general, the Service may share the information gathered pursuant to an excepted collection summons with examiners and criminal investigators, even though the examiners and criminal investigators would have had to give notice of the summons had they issued it. However, as explained in the scenarios discussed below, the Service must not engage in any subterfuge by having collection personnel summon information that is only needed for the examination or criminal investigation. The collection employee must act in good faith and must have a legitimate collection purpose for summoning the information.
In the first scenario, a special agent is conducting a criminal investigation and is working with a cooperating revenue officer. Under these circumstances, the special agent should issue any third-party summons and give notice as required by IRC 7609(a) (unless the special agent's summons is not served on a third-party recordkeeper and is thus excepted from the notice requirement by IRC 7609(c)(2)(E)). To do otherwise would constitute an attempt to disguise the criminal nature of the investigation by having the collection employee issue the summons. See United States v. Tweel, 550 F.2d 297 (5th Cir. 1977) (revenue agent concealed involvement of special agent and court suppressed all evidence obtained by IRS's deceit). Moreover, such a summons would be unlikely to meet the requirements of a collection summons under IRC 7609(c)(2)(D).
In the second scenario, the collection employee issues a third-party summons to collect an assessed liability. After gathering the summoned information, the collection employee finds indications of criminal activity and refers the case to Criminal Investigation. The collection employee can share the summoned information with Criminal Investigation (and Criminal Investigation does not need to repeat the summons process and give notice). If the summoned information may be exculpatory then that information must be shared with Criminal Investigation. After the case is referred to Criminal Investigation, the collection employee must coordinate any further summons activity with Criminal Investigation and should follow all policies and procedures for parallel investigations. See Policy Statement P-4–26 at IRM 188.8.131.52.11, Policy Statements for the Examining Process.
A third-party collection summons must not be solely used to pursue a criminal investigation. To do so would constitute a subterfuge and would jeopardize the criminal investigation. See United States v. Tweel, 550 F.2d 297 (5th Cir. 1977). Using a collection summons solely to further a criminal investigation would also circumvent the IRC 7609(a) notice requirement if the summons were directed to a third-party recordkeeper. The collection employee's purpose for issuing the summons must be to collect the tax, not solely to develop a criminal case.
As noted above, after a case is referred to Criminal Investigation, the collection employee must coordinate any further summons activity with Criminal Investigation. In particular, the collection employee must ask whether the Service has referred the case to the Department of Justice for criminal prosecution or to begin a grand jury investigation. If such referral has been made, the Service is precluded by IRC 7602(d) from issuing a summons or seeking to enforce a summons against the same taxpayer for the same periods and the same tax liabilities that are the subject of the criminal referral. Seek the assistance of the local Criminal Tax Counsel and the Associate Area Counsel (SB/SE) on issues involving IRC 7602(d).
The third scenario occurs when an IRS examiner is determining a taxpayer's liabilities (e.g., by examining the taxpayer's returns) and an IRS collection employee is working to collect assessed liabilities owed by the same taxpayer for periods other than those being examined. For example, the collection employee issues a third-party summons to collect taxes assessed for the years A and B, while the examiner is investigating the taxpayer's liabilities for years C and D. So long as the collection employee summonses information that "may be relevant," within the meaning of IRC 7602(a), to collecting the assessed taxes for years A and B, then the collection employee can share the summoned information with the examiner. This is appropriate because the collection employee is only summoning information that would otherwise be summoned if there were no ongoing, separate examination. However, if the examiner needs additional information, then he or she must obtain that information independently by issuing a separate third-party summons, if necessary, and by giving notice as required by IRC 7609(a).
The fourth scenario is similar to the third, except both the collection employee and the examiner are pursuing separate and independent investigations of the same taxpayer for the same year. This may occur where the Service has assessed a trust fund recovery penalty for periods A, B, and C, and is also examining the taxpayer's income tax liabilities for those same years. The analysis and conclusions are the same as for the third scenario. So long as the collection employee only summonses information appropriate to his or her case, then he or she should be able to share that information with the examiner. The collection employee must avoid summoning information solely to assist with the examination; all of the summoned information must be of a nature that may be relevant to the collection activity.
This section covers the following:
Period in Which Service is Required to Give Notice,
Right to File Petition to Quash Summons, and
Compliance or Enforcement of Summons.
When summoning a third party for records or testimony, serve notice on the taxpayer and all other noticees within three days of serving the summons.
No examination of the summoned records is allowed before the close of the 23rd full day after notice is given. Therefore, set the date for appearance:
No sooner than the 24th day after giving notice to ensure sufficient time for the noticee to receive notice and, if desired, file a petition to quash, and
On a workday.
A noticee who wishes to prevent summons compliance by the third party must begin a civil action in U.S. District Court to quash the summons not later than the 20th day after the day notice of the summons is given. When the last day to file a petition to quash falls on a Saturday, Sunday, or legal holiday, the petition to quash may be timely filed on the next business day.
A noticee who brings a proceeding to quash the summons must mail (registered or certified) copies of the petition to the summoned third party and a copy to the IRS employee who issued the summons within the 20 day period.
In instances where a summons is served on a third party for records or testimony and the description of summoned records identifies another person (other than the taxpayer or summoned witness), notice will be given to such person. This person has the right to file a petition to quash the summons. A person not entitled to notice does not have the right to file a petition to quash the summons.
No examination of the summoned records is allowed before the 24th day after notice is given, or if a proceeding to quash is begun until the court so orders, or until every person that is entitled to notice consents. Form 14465, Waiver of Rights to Notice or Right to Petition to Quash, may be used to document the noticee’s consent. (Exhibit 25.5.6-1, Form 14465.)
Service employees who receive a petition to quash will notify Associate Area Counsel by telephone on the same day. Within six workdays, the employee will forward to Associate Area Counsel a memorandum report or Form 4443, Summons Referral, to include the following:
The name, full address, and taxpayer identification number of the taxpayer under examination or investigation;
A brief summary of the facts in the case, including whether it involves, or is related to, the Special Enforcement Program or promoter of or participant in an abusive tax scheme (ATAT - Abusive Tax Avoidance Transactions) case;
An explanation of the relevance of the summoned information;
All information supporting the validity or non-validity of each assertion in the petition to quash;
A recommendation for or against defense of the petition to quash the summons; and
The original summons and a copy of the petition to quash the summons.
Tolling of the periods of limitation on assessment and criminal prosecution when the taxpayer intervenes or brings a proceeding to quash, or when a third party fails to produce the summoned records within six months of being served:
If the taxpayer (or the taxpayer’s agent, nominee, or other person acting under the taxpayer’s direction or control) intervenes in a summons enforcement suit or brings a proceeding to quash, then all periods of limitation under IRC 6501 (for assessing the taxpayer’s liability for the periods listed in the summons) and all periods of limitation under IRC 6531 (for criminally prosecuting the taxpayer for the periods listed in the summons) are tolled. The periods are tolled during the time the proceeding is pending or appealed; and
If the taxpayer does not intervene in a summons enforcement suit or bring a proceeding to quash, and the summoned third party fails to comply with the summons for six months after being served, then the period of limitation under IRC 6501 and IRC 6531 (pertaining to the taxpayer’s liability) shall be suspended beginning six months after the summons was served and ending when the dispute is resolved.
Intervention by a person other than the taxpayer or his or her agent will not suspend the running of the statutes of limitation.
The Service and the person summoned must be sent (by certified or registered mail) a copy of the noticee’s petition to quash not later than the close of the 20 day period. If a petition to quash is not mailed to the Service timely, the summoned person should immediately produce the summoned information. If he or she does not, the employee should immediately forward the summons for enforcement.
Collection personnel who receive a petition to quash will notify Advisory (or Associate Area Counsel depending on local procedures) by telephone on the day of receipt. If local procedures are to notify Advisory, Advisory will notify Associate Area Counsel immediately.
Within six work days of receiving a petition to quash, prepare a memorandum or Form 4443, Summons Referral, to include the items listed above under IRM 184.108.40.206.3(1), Compliance or Enforcement of Summons, and forward to Advisory (or Associate Area Counsel if direct referral). Advisory will review the memorandum (or Form 4443) and forward to Associate Area Counsel, as appropriate.
If a third party that is served with either a third-party summons to which the notice requirement of IRC 7609(a) applies or a John Doe summons fails to fully comply with the summons within six months of being served, the taxpayer's periods of limitation on assessment (under IRC 6501) and on criminal prosecution (under IRC 6531) shall be suspended under IRC 7609(e)(2). The suspension only applies to those taxable periods that are the subject of the summons. Under IRC 7609(e)(2), the suspension shall begin on the date that is six months after the summons was served and shall end on the date on which there is a final resolution of the third party's response to the summons.
The date on which the suspension under IRC 7609(e)(2) begins is illustrated by this example. A John Doe summons was prepared on April 1, 2000, for issuance to a promoter of a tax shelter and seeks the names of all participants in the shelter in order to investigate the participants' income tax liabilities for 1997 and 1998. The district court approves the service of the summons on April 30, 2000, and the summons is served on the promoter on May 1, 2000. The promoter does not turn over the names of the participants. The periods of limitation for the participants' income tax liabilities for 1997 and 1998 are suspended under IRC 7609(e)(2) beginning November 1, 2000, the date which is six months after the date the John Doe summons was served, until the date on which the promoter's response to the summons is finally resolved.
The decision to use the suspension under IRC 7609(e)(2) for any period of limitations on assessment or criminal prosecution must be approved in writing by the examiner's group manager or a higher level manager. Before approving the use of this suspension, both the examiner and the manager must ensure that the document requirements of IRM 220.127.116.11.3.4, Contemporaneous Documentation Requirement, are satisfied and will continue to be satisfied until the suspension terminates. If IRM 25.6.23, Examination Process -- Assessment Statute of Limitations Controls, applies to the examiner's business operating division (or other organizational component), the Manual requirements contained therein must also be followed. For example, IRM 18.104.22.168.6.2(4), Reliance on IRC Provisions which Extend Normal Assessment Statute, and IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS, provide that the Territory Manager's written approval must be obtained in advance if the examiner and immediate manager intend to rely on IRC 7609(e)(1) or IRC 7609(e)(2) to suspend the statute.
IRM 25.6.23, Statute of Limitations Handbook, Examination Process -- Assessment Statute of Limitations Controls, contains information on assessment statute controls for all LB&I, SB/SE, and W&I organizational components conducting examinations of tax returns, including supporting activities and examination activities by the campuses and TE/GE. (IRM 25.6.23 does not apply to CI, but the Summons Handbook, specifically IRM 22.214.171.124.3.3 through IRM 126.96.36.199.3.4, does.)
For purposes of the suspension of the periods of limitation under IRC 7609(e)(2)(B), final resolution of a summoned party's response to a third-party summons or any order enforcing any part of a third-party summons occurs when the Service determines that the summoned person has fully complied with the summons or any order enforcing any part of the summons and when all appeals are disposed of or the period in which an appeal may be taken or a request for further review may be made has expired.
The Service will determine whether the summoned third party has fully complied within a reasonable time after the summoned information is turned over. The amount of time that is reasonable will be determined based on the volume and complexity of the records produced, after the later of the giving of all testimony or the production of all records requested by the summons. The following are non-exclusive examples of reasonable time periods within which to determine whether the summoned third party has fully complied with a summons. These examples do not constitute suggested time frames because each case is different and will turn on its own facts and circumstances:
The Service summoned a third party to produce its retained copy of a financing statement the taxpayer submitted when applying for a loan. Ten months after the summons was served, the third party produces the financing statement, which consists of ten pages written in English. The examiner should require no more than two days to review the document and determine that it is complete and that the summons is satisfied. Final resolution occurred ten months and two days after the summons was served.
The Service summoned a third party to produce ten leases entered into by three foreign business entities that the taxpayer controlled. Ten months after the summons was served, the third party produces the ten documents. Six of the documents are written in English and are under ten pages each in length, but four documents are written in an obscure foreign language and total 40 pages. The Service has no employees who can interpret the documents and must contract with an outside source to have the documents translated. The process of obtaining an outside contractor and receiving the English translation takes three months. The examiner obtains the translation and takes five business days to review the leases and determine that they are complete and that the summons is satisfied. Final resolution occurred 13 months and 5 business days after the summons was served.
The Service summoned a tax shelter promoter to produce all documents, described both generically and as specifically as possible in the summons, that relate to transactions characterized as listed transactions as of the date of the summons. Eleven months after the summons is served, the third party turns over 50 boxes of information, containing approximately 800 documents, written in English. The documents are not indexed, nor are they arranged in any discernible order. It takes a team of three revenue agents eight months to organize, catalog, and review the documents and then compare the information to the summons request. Once the comparison is complete, the agents conclude that the summoned third party complied with the summons. Final resolution occurred 19 months after the summons was served.
If a summons is ordered enforced by a court and any collateral proceeding (such as a contempt proceeding) is brought to challenge whether the summoned party's production fully satisfies the court order and whether sanctions should be imposed against the summoned party for failing to do so, the suspension of the periods of limitation shall continue until the summons or any order enforcing any part of the summons is fully complied with (to be determined by the Service within a reasonable time, consistent with the same principles described above in subsection IRM 188.8.131.52.3.3(1) a) 1-3) and the decision in the collateral proceeding becomes final. A decision in a collateral proceeding becomes final when all appeals are disposed of or when the period in which an appeal may be taken or a request for further review may be made has expired.
The decision to use the suspension provision under IRC 7609(e)(2) must be approved by the examiner's immediate manager or higher level manager. The approval must be written, and must contain the approving official's dated signature and title. If IRM 25.6.23, Examination Process -- Assessment Statute of Limitations Controls, applies to the examiner's business operating division (or other organizational component), the Manual requirements contained therein must also be followed. See above IRM 184.108.40.206.3.2, Suspension of the Periods of Limitation When a Summoned Third Party Fails to Fully Comply for 6 Months After Service With a Summons.
As soon as the summoned third person produces any of the summoned information, the examiner will determine, consistent with the reasonable time standard discussed above in IRM 220.127.116.11.3.3, Determination of Final Resolution, whether the production constitutes full compliance. The examiner will keep contemporaneous, written records in the administrative file of all matters concerning the summoned third person's compliance or failure to comply with the summons. The purpose for keeping a written record as part of the administrative file is to establish and preserve a contemporary evidentiary basis to support the Service's determination of final resolution in court.
If the summoned third person's production does not fully comply with the summons, either in whole or in part, the examiner shall promptly contact the summoned person in writing, using Letter 4432 shown in Exhibit 25.5.6-3, which will state that the production is insufficient and will describe the information that the summoned person must produce to comply with the summons. A copy of this letter will be mailed to the taxpayer on the same date on which it is mailed to the summoned person. This letter will inform both the summoned person and the taxpayer that the summoned third person's failure to fully comply with the summons for 6 months will cause the taxpayer's periods of limitation to be suspended beginning 6 months after the summons is served and continuing until the summoned person fully complies with the summons. This procedure should be followed every time the summoned third person produces information pursuant to the summons.
The purpose for providing the taxpayer with copies of the form letters is to keep the taxpayer informed of the events that may cause the periods of limitation to be suspended. The letter also contains a provision advising the taxpayer that he may contact the examiner for information concerning the suspension under IRC § 7609(e)(2).
In cases in which the documents produced are voluminous, written in a foreign language, or present any other complicating factor, the examiner will document the particular complication in the administrative file to enable the Government to credibly show a court why it took the time spent to determine final resolution.
Form 2039, Summons, and Form 6639, Financial Records Summons, include a notice concerning the noticee’s right to contest the administrative summons ( Part D). Serve Part D on the noticee with a copy of the summons (Part C), by certified or registered mail to the noticee's last known address. Use registered mail when the notice is mailed to persons in foreign countries. The law also permits service of notice by hand delivering both documents to the noticee, or by leaving them at the noticee’s last and usual place of abode. In the absence of a last known address of the noticee, both documents can be left with the person summoned. In addition, send a copy of the notice to the taxpayer’s authorized representative, as a courtesy.
If the Service has been advised under IRC 6903 of the existence of a fiduciary relationship, mail notice of the summons to the last known address of the fiduciary of the person entitled to notice, even if such a person or fiduciary is now deceased, under a legal disability, or no longer exists. The filing of a power of attorney or tax information authorization does not qualify as the creation of a fiduciary relationship under this provision.
Complete certification of serving the summons and of giving notice on the reverse side of the original summons, Service of Summons, Notice and Recordkeeper Certificates. If there is more than one noticee, copy the form to document how notice was given to each noticee.
A noticee who files a petition to quash the summons must mail (registered or certified) copies of the petition to the summoned third party and to the Service employee whose name and address are shown on the face of the summons. If a summons enforcement action is instituted against the third party, the noticee has the right to intervene in the action. DOJ will serve the third party with process and will notify the noticee of the action via certified or registered mail.
A copy of the back of the original summons, which certifies the service of the summons and notice, will be given to the summoned third party upon request for proof of notice.
If the third party requests it, furnish a copy of the back of the original summons which certifies that the period for beginning a proceeding to quash the summons has expired and that no such proceeding was instituted within such period, or that the noticee consents to the examination per IRC 7609(i)(2).
A person who is entitled to notice and to file a petition to quash when a summons is issued may waive such rights via a general waiver form. Exhibit 25.5.6-1, Form 14465 Waiver of Rights to Notice or Right to Petition to Quash, is suggested for waiver purposes. All third parties involved in the waiver should be given a copy of the letter for their records. Prepare the waiver in triplicate; retain the original, give one copy to the summoned party and one copy to the noticee.
If all persons entitled to notice waive their rights, the time and place of examination must not be less than 10 days from the date of service. The witness may voluntarily comply at an earlier time.
Payments for mileage, witness fees, and expenses may be made to the third party if a summons is issued. See IRM 25.5.9, Summons Handbook, Fees and Costs for Summoned Witnesses.
The third party:
Has the right to intervene in the proceeding to quash the summons, and
Is bound by any decision in the proceeding, even if he or she does not intervene.
The law provides that the third party will, upon receipt of the summons:
Proceed to assemble the summoned records (or such portion as the Service employee indicates), and
Be prepared to produce the records on the day on which the records are to be examined whether or not a noticee files a petition to quash the summons.
A third party is not liable to any customer or other person for such disclosure if the disclosure of records was made in good faith reliance on the Service's certification that:
The period for beginning to quash a summons has expired and no such proceeding began within such period, or
The taxpayer and every other person entitled to notice consented to the examination.
Attempt to coordinate the service of summonses pertaining to the same person at or near the same time, if possible. Likewise, make requests to the court for the exemption from the requirement of notice relative to the same person at the same time.
Use the following codes:
Statute of limitations, alpha code LL, to update AIMS to identify these cases on the monthly AIMS tables 4.0 or 4.1.
AIMS database should be updated by an examiner, to reflect the correct statute date.
When closing the case, use Form 3198, Special Handling Notice for Examination Case Processing, and Form 895Notice of Statute Expiration, to indicate that the new statute date has been determined under IRC 7609 as a result of the third-party summons when the statute was suspended per IRC 7609(e).
Indian Tribal Governments shall be treated as states for certain purposes per IRC 7871. Therefore, a unique relationship exists between Indian Tribal Governments and the United States government. This relationship requires a heightened level of sensitivity with respect to compliance efforts.
The Indian Tribal Government (ITG) office in the Tax Exempt and Government Entities (TE/GE) Operating Division coordinates all aspects of tax administration as it impacts Indian tribes. ITG serves as the central point for all Service contacts with Federally recognized Indian tribes. ITG Specialists must stay involved in material interactions between the tribal government and the IRS.
Do not serve a summons on a tribal government or a third party for information concerning a tribal government without coordinating with ITG. This coordination includes any summons issued by the Service, including those summonses issued to investigate the Trust Fund Recovery Penalty (TFRP) of a tribal entity. A summons initiated by Criminal Investigation is excepted from this requirement.
Due to the unique laws affecting Indian tribes, Service employees issuing summonses to a tribal entity must ensure that the information being sought is legally obtainable and that the summons can be enforced if necessary. A copy of the proposed summons should be forwarded to the area ITG manager through the employee’s manager. ITG area managers can be located at Indian Tribal Governments, Contacting ITG at http://www.irs.gov/Government-Entities/Indian-Tribal-Governments/How-to-Contact-ITG. The area ITG manager will forward the summons to the ITG Field Operations Manager for concurrence of the summons. The Field Operations Manager will review the summons and send concurrence via secure E-mail to the originating employee’s manager. The employee’s manager can then approve the summons for issuance.
Additional ITG information is located in IRM 4.86.1, Indian Tribal Governments Administration and Policy, IRM 4.88.1, Examination Issues Pertaining to ITG Cases and IRM 18.104.22.168.2.1, Enforcement Action on ITG Cases.
Frequent demands for information are made upon banks. A depositor at a bank has no proprietary interest in the bank’s books and records. The bank cannot refuse production of its records because some of the entries relate to transactions of persons other than the designated taxpayer. On the other hand, a bank will not be required to produce all of its records so that the Service can determine whether any of them contain information relating to an examination or investigation.
The Right to Financial Privacy Act (RFPA) provides account owners with the right to be given notice when banks release account information to government authorities. However, section 3413(c) of that Act allows the Service to obtain a taxpayer’s financial records without providing notice as long as the records are obtained pursuant a procedure authorized by the IRC. The Service interprets IRC 7602 as providing the procedure for its employees to request and receive taxpayer account information without issuing a summons. Consequently, the Service routinely requests and accepts a financial institution’s voluntary production of a taxpayer’s records of account, except in situations governed by the Tenth Circuit’s precedents. (Refer to IRM 22.214.171.124.1(3), Documents from Financial Institutions in the Tenth Circuit, for a list of these situations). The Tenth Circuit does not interpret IRC 7602 as providing the procedure required by section 3413(c) of the RFPA. Instead, the circuit court interpreted IRC 7609 as such a procedure. Therefore, that circuit court has ruled that a bank’s voluntary disclosure of a customer’s financial records to the Service, without prior notice to the customer, violates the RFPA. Accordingly, in situations governed by the Tenth Circuit’s precedents, the Service may only obtain account records from a bank by serving a summons and providing notice consistent with IRC 7609.
In RRA 1998, Congress enacted IRC 7609(j), which provides that nothing in IRC 7609 shall be construed to limit the Service’s ability to obtain information, other than by summons, through formal or informal procedures authorized by IRC 7601 and IRC 7602. IRC 7609(j) supports the position that the Service’s ability to informally seek the voluntary exchange of records, i.e., without a summons, constitutes a procedure authorized by the Code. Nevertheless, the Service will follow the Tenth Circuit’s ruling in situations described in IRM 126.96.36.199.1(3).
A summons on a domestic bank to produce records of one of its foreign branches may be enforceable even if compliance would constitute a violation of the laws of the foreign country. The basis for compelling production of records is that a bank, like any other corporation, is presumed to be in possession and control of its own books and records. Courts have reasoned that any officer or agent of the corporation, who has power to cause the branch records to be sent from a branch to the home office for any corporate purpose, has sufficient control to cause them to be sent when summoned pursuant to IRC 7602.
In determining whether to enforce a summons where the laws of the country in which the information is located bar such production, the courts balance the interests of the foreign country in blocking production of the records against the importance of the records to the United States. The courts have used the following 5–part test to determine whether a foreign blocking law should be recognized:
The importance to the Government’s investigation or litigation of the documents or other information requested;
The degree of specificity of the request;
Whether the information originated in the United States;
The availability of alternative means of securing the information;
The extent to which noncompliance with the request would undermine important interests of the United States, or of the state where the information is located.
Compliance employees cannot issue a summons directly to an individual or entity located outside the United States. See IRM 188.8.131.52, Records Outside the United States, for additional information.
The United States courts have jurisdiction over a domestic branch of a foreign corporation and over its records located in this country.
A domestic branch that sends its records to a foreign bank for storage may have relinquished control over such records. The question of whether a summons for such records served on the domestic branch of the foreign bank could be enforced depends on whether the foreign bank or a corporation resides in or can be found in this country for the service of a summons and judicial process, and on whether the domestic branch has sufficient control over the records to be able to produce them in response to a summons.
The following procedures have been established for summoning foreign records related to corporate slush funds:
The Field Territory Manager forwards a copy of the proposed summons for records relating to corporate slush funds and improper payments to Associate Area Counsel.
Associate Area Counsel coordinates the review of this summons with Associate Chief Counsel (International).
Associate Chief Counsel coordinates the matter with the Director, Compliance.
Include with the proposed summons a statement describing:
The circumstances and efforts made to secure the records and data from the taxpayer or other witness.
The reasons provided by the taxpayer or other witness for lack of cooperation.
The Field Territory Manager may obtain advice from Associate Area Counsel by telephone in emergency situations.
See IRC 162(c) and IRC 952(a)(4)-(5).
Whether a foreign corporation must produce its records for inspection by the Service and other federal agencies depends, in general, on whether it is found to be doing business in this country or has an agent doing business here.
A foreign corporation has been required to comply with a grand jury subpoena (the summons power of the IRS is comparable to the subpoena power of a federal grand jury or summons) in instances where:
The foreign corporation had a bank account and salaried employees in the U.S. and shipped newsprint into this country.
The foreign corporation was found to be doing business through wholly owned subsidiaries, in this country.
The corporate president, who was served with a subpoena, conducted all of the business of a Mexican mining corporation, except the actual operation of its mines, from his home in Arizona. The corporate records were in Mexico, but the court pointed out that if the Mexican law forbade their removal to this country, the SEC could inspect them at the Mexican office or have authenticated copies made and submitted.
To determine the accuracy of a return, the Service may need to examine a computer software source code.
Source code is the computer programming language that tells the computer how to manipulate the data.
Source code comes in numerous languages including C, C+, C++, COBAL, and Fortran.
The computer software industry has resisted the Service’s efforts to obtain the relevant source code because sensitive trade secrets bound up in the source code may be lost if the information turned over pursuant to a summons is not treated with heightened sensitivity.
Congress determined that the intellectual property rights of the developers and owners of computer software programs should be respected. Congress is concerned that the examination of computer programs and source code by the Service could lead to the diminution of intellectual property rights through the inadvertent disclosure of trade secrets and the special protection against inadvertent disclosure should be established. As a result of these concerns, Congress enacted IRC 7612, which addresses summonses issued to obtain computer software source codes.
Generally prohibits the Service from issuing a summons or enforcing a summons to produce or analyze any tax related computer software source code (unless conditions below are satisfied);
Establishes a number of protections against the disclosure and improper use of trade secrets and confidential information that the Service acquires in the course of any examination with respect to any taxpayer; and
Requires the Service to demonstrate three things before issuing a summons for a computer software source code.
Before issuing a summons for a computer software code, the Service must demonstrate:
An inability to reasonably ascertain the correctness of an item on a return from the taxpayer’s books, papers, records or other data, or by using the executable code and associated data to which the source code relates;
Reasonably specific identification of the portion, item, or component of the source code it needs to verify the correctness of such item on the return; and
That the need for the portion, item, or component of such source code outweighs the risks of unauthorized disclosure of trade secrets.
This determination must be made by a management official not lower than the group/case manager. The group/case manager should contact Associate Area Counsel regarding how this determination should be made.
The general prohibition does not apply to:
Criminal tax investigations;
Tax-related computer software source code acquired or developed by the taxpayer or a related person primarily for internal use;
Communications between the owner of the tax-related computer software source code and the taxpayer or related persons; and
Tax-related computer software source code which is required to be provided or made available under another Code provision.
Cooperation Required: If the taxpayer fails to turn over the executable code and the associated data, and the owner fails to turn over the executable code within 180 days, the Service does not have to demonstrate that it is unable to otherwise reasonably ascertain the correctness of any item on a return from the taxpayer’s books, papers, records, or other data, or from the executable code and any associated data, and the Service does not have to identify the portion, item, or component of the source code needed to verify the correctness of such item on the return before a summons for the computer software source code may be issued.
Actions required by the Service to trigger the 180 day period under IRC 7612(b)(3) are:
A group manager or higher level management official must make a determination that it is not feasible to determine the correctness of an item without access to the executable code and associated data.
A group manager or higher level management official must also make a determination that the need for the computer software source code or any portion thereof outweighs the risk of unauthorized disclosure of trade secrets.
An initial Information Document Request (IDR) must be issued to the taxpayer for the executable code and associated data. The IDR shall recommend that the taxpayer advise the software owner of the request for the executable code. Since the Service must show the executable code and associated data have not been provided within 180 days before taking additional action, the Service may require a limited time response period for the initial IDR.
If the taxpayer fails to turn over the executable code and associated data in response to the IDR, correspondence requesting the executable code and associated data will be issued to the taxpayer, and correspondence requesting the executable code will be issued to the software owner advising the taxpayer and the software owner that the requests are being made pursuant to IRC 7612(b)(3)(B).
The 180 day period starts with the issuance of the formal requests. Summonses for the executable code and associated data may be issued with the formal requests, but must be coordinated with Associate Area Counsel to ensure adherence to IRC 7612. Follow business unit guidelines for issuance of an IDR.
Under IRC 7612(c), in any proceeding to enforce a summons for any portion of software (which includes both source code and the executable code), a court may issue a protective order to prevent the disclosure of such software. In addition, any software that the Service obtains during the course of any examination is subject to the safeguards listed below. However, prior to receiving any software, whether by court order or voluntarily from the taxpayer or the software owner, Associate Area Counsel must be consulted in order to establish the procedures that must be followed to comply with the statutory (and judicial, where applicable) requirements for safeguarding the software. The safeguards include:
Complying with any protective order entered by a court;
Only using the software in connection with the examination of the taxpayer’s return with regard to which it was received, and related Appeals and judicial proceedings;
Providing, in advance, to the taxpayer and owner of the software a written list of all individuals who will analyze or otherwise have access to the software;
Maintaining the software in a secure area or place, and in the case of computer software source code, not removing it from the owner’s place of business without the owner’s consent, unless the removal is pursuant to a court order;
Copying the software only when necessary in connection with the analysis and numbering any copies made, and certifying in writing no other copies have been (or will be) made;
Returning to the owner the software and all copies at the conclusion of the proceedings, permanently deleting any working copies;
Not decompiling or disassembling the software; and
Treating the software as return information for purposes of IRC 6103.
In an examination controlled by the Coordinated Examination Program, the Case Manager has the ultimate responsibility for adherence to the required safeguards and completion of all necessary documentation. He or she will insure that all team members are aware of and follow all of the required provisions of this section. In a general program case, the revenue agent conducting the examination is responsible for the safeguards and documentation. Examiners must coordinate all source code and software summonses through Associate Area Counsel, who will coordinate with the Chief Counsel Procedure & Administration Division, Branches 6 and 7.
The following definitions apply for purposes of IRC 7612:
Software includes computer software source code and computer software executable code.
Computer software source code means:
• The code written by a programmer using a programming language which is comprehensible to appropriately trained persons and is not capable of directly being used to give instructions to a computer;
• Related programmers' notes, design documents, memoranda, and similar documentation; and
•Related customer communications.
Computer software executable code means:
• Any object code, machine code, or other code readable by a computer when loaded into its memory and used directly by such computer to execute instructions; and
• Any related user manuals.
Owner shall, with respect to any software, include the developer of the software.
Related person shall be treated as related to another person if such persons are related persons under IRC 267 or IRC 707(b).
Tax-related computer software source code means the computer source code for any computer software program intended for accounting, tax return preparation or compliance, or tax planning.
The new summons rules are effective for summonses issued, and software acquired, after 7/22/98.
The software protection rules apply to
On some occasions, the IRS has found it helpful to employ outside experts to assist in the analysis of a particular source code. The outside expert used must agree in writing:
Not to disclose the software to any person other than persons entitled to disclosure under IRC 6103; and
Not to participate for two years in the development of similar software.
The Service must provide the taxpayer and the owner of any interest in the software with a written agreement between the Service and any person who is not an officer or employee of the United States and who will analyze or have access to such software which contains the above agreement.
The Family Educational Rights and Privacy Act (FERPA), 20 U.S.C.A. 1232g, generally protects a student's privacy interests in "education records," which is defined as "records, files, documents, and other materials [that] contain information directly related to the student, and are maintained by an educational agency or institution or [its agent]."
FERPA generally requires that an educational institution obtain the prior written consent of a minor student's parent or the consent of a student who is at least 18 years old or attending a post-secondary educational institution before disclosing education records to a third party (20 U.S.C.A. 1232g(b)(2)(A)). However, FERPA contains an exception for when the disclosure is made to comply with a lawfully issued subpoena. The Department of Education administers FERPA and has long viewed an IRS summons as falling within the definition of a "lawfully issued subpoena" for the purposes of FERPA.
If a summoned educational institution expresses concern about its responsibilities under FERPA if it complies with the summons, the Service can refer the summoned person to the Department of Education's Family Policy Compliance Office at Ferpa@ed.gov for informal advice concerning IRS summonses as "lawfully issued subpoenas."
In general, no summons will be issued to federal agencies, their officials, and employees for information related to their official responsibilities. Such information may ordinarily be obtained through liaison with the agency.
In rare instances, such as when a high-ranking executive from another federal agency requests a summons, it may be appropriate to serve a summons on the other agency. Any proposal to do so must first be coordinated with and approved by the Office of Chief Counsel, Procedure and Administration, Branches 6 or 7.
Any summons served on another federal agency cannot be enforced in a district court. If the summoned federal agency refuses to provide the summoned information, the dispute will ultimately be resolved by the Office of Legal Counsel at the Department of Justice
Waiver of Rights to Notice or Right to Petition to Quash
Form 14465 is now a PDF fillable form and can be found at http://publish.no.irs.gov/getpdf.cgi?catnum=61776F.
Dear (Name of Summoned Party):
Today you have been served with multiple separate summonses. Each of these summonses was issued to determine the liability of a different person associated with the corporation for the periods under investigation. The records sought in each summons are identical and pertain to the affairs of the corporation and the liabilities of the person under investigation.
We request that you assemble only one set of the records requested, as you are required to do under IRC 7609(i)(1), and that you produce such set of records. Pursuant to IRC 7609(i) (2), a certificate will be issued to you upon your request indicating either that a particular taxpayer or taxpayer(s) has (have) consented to the examination of the records or that a timely proceeding to quash a particular summons or summonses has (have) not been filed. Because we are asking that each document be provided only once, costs incurred in supplying duplicates of records in response to these summonses will not be reimbursed.
If you have any questions regarding how to respond to these summonses, please call (Name of Contact Person) at (Telephone Number). Thank you for your cooperation.