[Federal Register Volume 89, Number 57 (Friday, March 22, 2024)]
[Proposed Rules]
[Pages 20371-20377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05968]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG-117542-22]
RIN 1545-BQ96
Advance Notice of Third-Party Contacts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to the
notice that the IRS must provide to a taxpayer in advance of IRS
contact with a third party with respect to the determination or
collection of the taxpayer's tax liability, to reflect amendments made
to the applicable tax law by the Taxpayer First Act of 2019. The
regulations would affect taxpayers to whom the IRS must provide advance
notice of IRS contact with such third parties.
DATES: Electronic or written comments and requests for a public hearing
must be received by May 21, 2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at https://www.regulations.gov (indicate IRS and IRS
REG-117542-22) by following the online instructions for submitting
comments. Requests for a public hearing must be submitted as prescribed
in the ``Comments and Requests for Public Hearing'' section. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The Department of the Treasury (Treasury Department) and
the IRS will publish any comments submitted electronically or on paper
to the public docket. Send paper submissions to: CC:PA:01:PR (REG-
117542-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Brittany Harrison of the Office of the Associate Chief Counsel
(Procedure and Administration), (202) 317-6833 (not toll-free number);
concerning the submission of comments and requests for a public
hearing, Vivian Hayes, (202) 317-6901 (not toll-free number) or by
sending an email to [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed regulations that would amend the
Procedure and Administration Regulations (26 CFR part 301) relating to
the advance notice of IRS contact with third parties that must be
provided to taxpayers under section 7602(c) of the Internal Revenue
Code (Code).
Generally, the Federal tax system relies upon taxpayers' self-
assessment and reporting of their tax liabilities. The expansive
information-gathering authority that Congress has granted to the
Secretary of the Treasury or her delegate (Secretary) under the Code
includes the IRS's broad examination and summons authority, which
allows the IRS to determine the accuracy of that self-assessment. See
United States v. Arthur Young & Co., 465 U.S. 805, 816 (1984). Section
7602(a) provides that, for the purpose of ascertaining the correctness
of any return, making a return in cases in which none has been made,
determining the liability of any person for any internal revenue tax,
or collecting any such liability, the Secretary is authorized to
examine books and records, issue summonses seeking documents and
testimony, and take testimony from witnesses under oath as may be
relevant or material. Section 7602(b) further provides that the
purposes for which the Secretary may examine books and records, issue
summonses, and take testimony under oath include the purpose of
inquiring into any offense connected with the administration or
enforcement of the internal revenue laws.
Section 7602(c) was added to the Code by section 3417 of the
Internal Revenue Service Restructuring and Reform Act of 1998, Public
Law 105-206, 112 Stat. 685 (RRA 98). Section 7602(c)(1), as added by
RRA 98, required that the IRS provide the taxpayer ``reasonable notice
in advance'' before it contacted a third party with respect to the
determination or collection of the tax liability of such taxpayer.
Final regulations interpreting and implementing section 7602(c) as
enacted by RRA 98 were promulgated in 2002. TD 9028 (67 FR 77419).
Section 301.7602-2(d)(1) of the Procedure and Administration
Regulations provides that the pre-contact notice may be given
[[Page 20372]]
either orally or in writing. If notice is written, it may be given in
any manner that the IRS employee who gives such notice reasonably
believes will be received by the taxpayer prior to the contact with the
third party. Written notice is considered reasonable if it is mailed to
the taxpayer's last known address, given in person, left at the
taxpayer's dwelling or usual place of business, or actually received by
the taxpayer. Section 301.7602-2(d)(2) provides that taxpayers need not
be given pre-contact notice for contacts with third parties of which
advance notice otherwise has been provided to the taxpayer pursuant to
another statute, regulation, or administrative procedure.
Section 1206 of the Taxpayer First Act of 2019 (TFA), Public Law
116-25 (133 Stat. 981), which was enacted into law on July 1, 2019,
amended section 7602(c)(1) to provide that IRS officers or employees
may not contact a third party with respect to the determination or
collection of the tax liability of a taxpayer unless the IRS first
provides the taxpayer with advance notice meeting certain requirements.
The notice must specify the period, not to exceed one year, during
which the IRS intends to make the contact. The IRS must provide the
notice to the taxpayer no later than 45 days before the beginning of
such period, except as otherwise provided by the Secretary. The IRS may
issue multiple notices to the same taxpayer with respect to the same
tax liability that, taken together, cover an aggregate period greater
than one year. The IRS may not issue a notice under section 7602(c)
unless the IRS intends, at the time the notice is issued, to contact
third parties during the period specified in that notice. The IRS may
meet this intent requirement based on the assumption that the
information sought to be obtained by the contact will not be obtained
by other means before such contact. The TFA amendments apply to notices
provided, and contacts made, after August 15, 2019.
Explanation of Provisions
I. Overview
These proposed regulations would update the regulations in Sec.
301.7602-2(a) and (d) pertaining to the advance notice that must be
provided to taxpayers prior to IRS contact with third parties to
conform to the new statutory language of section 7602(c). These
proposed regulations also would provide, pursuant to the Secretary's
authority in section 7602(c)(1)(B), exceptions to the 45-day advance
notice requirement if delaying contact with third parties for 45 days
after providing notice to the taxpayer would impair tax administration.
In these situations, the 45-day advance notice period is proposed to be
reduced or eliminated to ensure sufficient time for the IRS to properly
conduct certain time-sensitive examination or collection activities.
II. Notice of Third-Party Contacts
The proposed regulations would amend Sec. 301.7602-2(a) and (d)
pertaining to third-party contacts to implement the amendments made to
section 7602(c)(1) by section 1206 of the TFA. Like existing Sec.
301.7602-2(a), proposed Sec. 301.7602-2(a)(1) would provide that,
subject to the exceptions in existing Sec. 301.7602-2(f), IRS officers
or employees may not contact third parties with respect to the
determination or collection of the tax liability of a taxpayer unless
the requirements of section 7602(c) and proposed Sec. 301.7602-2(d)
have been satisfied. The exceptions in existing Sec. 301.7602-2(f)
implement the statutory exceptions set forth in section 7602(c)(3)
prior to, and unaffected by, the TFA.
In cases not covered by the exceptions in section 7602(c)(3) and
existing Sec. 301.7602-2(f), proposed Sec. 301.7602-2(d)(1) would
implement the requirements of section 7602(c)(1) as amended by the TFA
that IRS officers or employees may not contact third parties with
respect to the determination or collection of the tax liability of a
taxpayer unless the IRS provides advance notice to the taxpayer (third-
party contact notice). The third-party contact notice must specify a
period, not to exceed one year, during which the contact is intended to
occur and inform the taxpayer that third-party contacts are intended to
be made during such period. Proposed Sec. 301.7602-2(d)(1) further
provides that the third-party contact notice must be in writing. The
requirement that the third-party contact notice be in writing is
intended to ensure compliance with the advance notice requirement and
to eliminate any potential confusion as to the date on which notice was
provided to the taxpayer or the contents of the third-party contact
notice. Subject to certain enumerated exceptions described in part III
of this Explanation of Provisions, proposed Sec. 301.7602-2(d)(1)(iii)
would implement the requirement of section 7602(c)(1)(B) that the
third-party contact notice generally must be provided to the taxpayer
no later than 45 days before the beginning of the period in which the
contact is intended to be made (45-day advance notice period). Proposed
Sec. 301.7602-2(d)(2) would further provide the methods by which the
IRS will provide a third-party contact notice to the taxpayer, which
are similar to the methods set forth in existing Sec. 301.7602-
2(d)(1)(i) through (iv).
As provided in the second sentence of section 7602(c)(1), proposed
Sec. 301.7602-2(d)(3) provides that the IRS is not prevented from
issuing successive notices to the same taxpayer with respect to the
same tax liability for periods (each not greater than one year) that,
in the aggregate, exceed one year.
As provided in the third and fourth sentences of section
7602(c)(1), proposed Sec. 301.7602-2(d)(4) would provide that no
third-party contact notice will be issued under proposed Sec.
301.7602-2(d) unless there is an intent at the time such notice is
issued to contact persons other than the taxpayer during the period
specified in such notice, which intent may be met by the IRS on the
basis of the assumption that the information sought to be obtained by
the third-party contact will not be obtained by other means before such
contact.
III. Exceptions to the 45-Day Advance Notice Requirement
Proposed Sec. 301.7602-2(d)(5) provides several exceptions to the
45-day advance notice requirement, in particular with respect to the
IRS's fuel compliance program, nonjudicial redemption investigations,
and in limited time-sensitive circumstances involving assessment or
collection of tax.
A. Fuel Compliance Program
Section 4081 of the Code imposes an excise tax on certain motor and
aviation fuels. Section 4082 of the Code exempts diesel fuel and
kerosene from such tax if used for certain nontaxable purposes
specified in section 4082(b), including fuel sold for use or used in a
train, school bus, or intracity transportation; for farm use; or for an
off-highway business use, as defined in section 6421(e)(2) of the Code,
except mobile machinery, as defined in section 6421(e)(2)(C). Tax-
exempt fuel is required to be indelibly dyed in a minimum concentration
specified in Sec. 48.4082-1(b)(1) of the Manufacturers and Retailers
Excise Tax Regulations (26 CFR part 48) or otherwise pre-approved by
the IRS. Section 4083(d) of the Code provides that in administering
sections 4081 through 4084 of the Code the Secretary may enter any
place at which taxable fuel is produced or is stored (or may be stored)
for purposes of examining the equipment used to determine the amount or
composition of such fuel and the equipment used to store such fuel,
taking and removing samples of such fuel, and inspecting any
[[Page 20373]]
books and records and any shipping papers pertaining to fuel. Section
4083(d) further provides that the Secretary may also detain, for these
purposes, any container that contains or may contain any taxable fuel.
Refusal to admit entry or other refusal to permit an action authorized
by section 4083(d) may result in certain penalties under sections 6717
and 7342 of the Code.
Section 6715(a) of the Code provides that a penalty in the amount
prescribed in section 6715(b) will be imposed, in addition to any tax,
if (1) any dyed fuel is sold or held for sale by any person for any use
which such person knows or has reason to know is not a nontaxable use
of such fuel, (2) any dyed fuel is held for use or used by any person
for a use other than a nontaxable use and such person knew, or had
reason to know, that such fuel was so dyed, (3) any person willfully
alters, chemically or otherwise, or attempts to so alter, the strength
or composition of any dye or marking done pursuant to section 4082 in
any dyed fuel, or (4) any person who has knowledge that a dyed fuel
which has been altered (as described in section 6715(a)(3)) sells or
holds for sale such fuel for any use which the person knows or has
reason to know is not a nontaxable use of such fuel. Section 6715(d)
provides that if a penalty is imposed under section 6715 on any
business entity, each officer, employee, or agent of such entity who
willfully participated in any act giving rise to such penalty is
jointly and severally liable with such entity for such penalty.
Section 6715A of the Code provides that a person who tampers with a
mechanical dye injection system used to indelibly dye fuel for purposes
of section 4082, or any operator of a mechanical dye injection system
used to indelibly dye fuel for purposes of section 4082 who fails to
maintain the security standards for such system as established by the
Secretary, must pay a penalty in the amount prescribed in section
6715A(b) in addition to any tax. As with section 6715, if a penalty is
imposed under section 6715A on any business entity, each officer,
employee, or agent of such entity who willfully participated in any act
giving rise to such penalty is jointly and severally liable with such
entity for such penalty.
Section 6720A(a) of the Code provides that any person who knowingly
transfers for resale, sells for resale, or holds out for resale any
liquid for use in a diesel-powered highway vehicle or a diesel-powered
train that does not meet applicable Environmental Protection Agency
regulations must pay, in addition to any tax, a penalty of $10,000 for
each such transfer, sale, or holding out for resale. In addition,
section 6720A(b) provides that any person who knowingly holds out for
sale (other than for resale) any liquid described in section 6720A(a)
must pay a penalty of $10,000 for each such holding out for sale, in
addition to any tax on such liquid.
Under the IRS's Fuel Compliance Program, fuel compliance officers
and agents (FCO/As) conduct field inspections authorized under section
4083(d). If they discover an improper use of dyed fuel or an improper
dye concentration, they determine how the fuel came to be in the
vehicles inspected. The individuals and entities inspected by FCO/As
may be classified as either taxpayers or third parties, depending on
the facts of a given inspection. FCO/As typically cannot know how to
classify the parties involved until the inspection is conducted.
One type of inspection conducted by FCO/As occurs after fuel is
removed via a terminal rack into a transporting truck or railcar. A
terminal is a taxable fuel storage and distribution facility that is
supplied by pipeline or vessel and from which taxable fuel may be
removed at a rack. A rack is a mechanism capable of delivering taxable
fuel, usually through pipes, into a means of transport other than a
pipeline or vessel. See Sec. 48.4081-1(b). The owner of the terminal
rack could be liable for a penalty if the dye concentration is
incorrect. Because the transport truck drivers are typically not
employed by the owner of the terminal, they may be considered third
parties relative to the owner of the terminal. FCO/As require immediate
access to the fuel in the loaded transport trucks to determine the
correct dye concentration prior to the fuel being delivered into the
fuel distribution system. FCO/As also conduct inspections of various
vehicles other than those leaving the terminal racks; for example, they
may inspect a truck at a weigh station to determine if the truck
contains dyed fuel. In such situations FCO/As require the ability to
quickly investigate the origin of dyed fuel if impermissible dyed fuel
is discovered. For example, if the driver of the vehicle is a company
employee and the driver tells the FCO/A that the company owner
instructed the driver to use dyed fuel, then the FCO/A ordinarily would
want to conduct an investigation at the company's yard as soon as
possible to determine culpability.
Requiring that the IRS provide 45 days advance notice of third-
party contacts in the context of these fuel compliance examinations
would significantly impair the enforcement work performed by FCO/As.
Because these inspections are conducted in real time and are not based
on a tax return, it is imperative that FCO/As have the ability to
obtain information, develop facts, and determine potential liability in
real time, given the risk that any delay would result in an inability
to properly conduct the examination as information dissipates. For
example, dyed diesel fuel may be removed or replaced from an oil
drilling rig before the FCO/A is able to complete an investigation.
Proposed Sec. 301.7602-2(d)(5)(i) therefore would provide that the IRS
may provide same-day third-party contact notices to the taxpayer with
respect to contacts intended to be made by the IRS, which would be made
after the provision of the third-party contact notice on that day, in
connection with investigations involving potential liability for
penalties under section 6715, 6715A, or 6720A or in connection with the
IRS's exercise of authority under section 4083(d). The IRS would
therefore be able to make third-party contacts in these types of
investigations immediately after providing the taxpayer with a third-
party contact notice.
B. Nonjudicial Sale Redemption Investigations
Creditors may foreclose on property through judicial or nonjudicial
processes, as provided by State law. Pursuant to section 7425(b) of the
Code, a nonjudicial foreclosure sale will discharge a junior Federal
tax lien from real or personal property if a notice of Federal tax lien
has been filed more than 30 days before the sale and the foreclosing
creditor gives the IRS notice of the sale at least 25 days in advance.
Under section 7425(d) of the Code, however, the IRS has 120 days from
the date of the nonjudicial foreclosure sale (or longer if provided by
State law) to redeem real property from the purchaser. Redemption is
accomplished by paying the purchaser the amount paid at the sale,
interest, and certain expenses. The purpose of the redemption is for
the IRS to sell the real property for a higher amount, a result which
would benefit the taxpayer as well, as any additional sale proceeds
would satisfy more of the taxpayer's liability or potentially lead to a
surplus over the amount of the liability.
Prior to redeeming the property, the IRS must undertake an
investigation in order to determine the potential benefits and
viability of a potential redemption. The IRS's Civil Enforcement
Advisory and Support Office (CEASO) has primary responsibility for
receiving and
[[Page 20374]]
screening nonjudicial sale notices for redemption potential. Generally,
if the property value significantly exceeds the nonjudicial sale price,
the CEASO refers the case to a revenue officer for a more thorough
investigation and, if appropriate, redemption action. Such an
investigation may involve the CEASO or the assigned revenue officer
discussing the property and foreclosure with third parties. For
example, it may be necessary for the IRS to determine the value of the
property by researching records or consulting valuation specialists; to
gather information about the nonjudicial sale by researching the
balances of encumbrances against the property and inquiring about
issues that could affect the amount realized through a redemption sale,
for example, renter's claims; to notify the nonjudicial sale purchaser
of the possible redemption; to secure a guaranteed bidder for the post-
redemption sale by contacting prospective bidders or advertising for
bids; to obtain management approval for the redemption; to secure
funding for the redemption from the revolving fund for redemption of
real property under section 7810 of the Code; to deliver the redemption
check to the sale purchaser; and to complete the redemption by filing
the necessary documentation with the recording office within 120 days
from the date of sale. Some of these contacts may be considered third
party contacts subject to the 45-day advance notice requirement.
The 45-day advance notice requirement of section 7602(c) would
jeopardize the IRS's ability to redeem property. The redemption
investigation cannot begin in earnest until after the foreclosure sale,
at which point the sale price is known, and which commences the 120-day
redemption period. The earliest date that the IRS could give the
taxpayer advance notice of third-party contacts is on the date the
CEASO receives notice of the sale. The 45-day advance notice period
would thus necessarily start after the beginning of the 120-day
redemption period, and the IRS may not be able to notify the sale
purchaser of the possible redemption until the 46th day of the
redemption period. As a consequence, the IRS would have fewer than 74
days to fully determine the redemption potential, negotiate with the
purchaser on potentially releasing the IRS's redemption rights, canvas
for bidders, secure funding, and complete the redemption process. This
is highly unlikely to be feasible. Therefore, proposed Sec. 301.7602-
2(d)(5)(ii) would reduce the 45-day advance notice period to 10 days of
advance notice in these situations.
C. Statutory Period for Assessment Expiring in One Year or Less
Section 6501(a) of the Code provides that the IRS generally has
three years after an original return is filed or three years from the
due date of the original return, whichever is later, within which to
assess tax with respect to a particular tax year (statutory assessment
period). Taxpayers and the IRS may extend the statutory assessment
period by agreement under section 6501(c)(4). If the IRS needs to
contact third parties in situations in which certain circumstances are
present and one year or less remains on the statutory assessment
period, tax administration would be impaired if the IRS were required
to provide 45 days advance notice to the taxpayer before contacting the
third parties.
1. Certain Examination Cases
Proposed Sec. 301.7602-2(d)(5)(iii) would reduce the 45-day
advance notice requirement to 10 days of advance notice in certain
examinations in which the statutory assessment period will expire one
year or less from the date the IRS intends to contact third parties and
delaying such contacts for 45 days will impair the government's ability
to expeditiously determine and assess tax. This proposed reduction
would allow the IRS to move forward and promptly conduct examination
activities in cases in which the time to do so is limited and a delay
will impair the government's ability to expeditiously determine and
assess tax.
The 45-day advance notice period would be reduced to 10 days of
advance notice if both the IRS has requested that the taxpayer provide,
and the taxpayer has not provided within the time requested, a Form
872, Consent to Extend the Time to Assess Tax, to extend the statutory
assessment period for a period necessary to complete the examination
and other administrative actions, and the IRS case involves an issue or
issues with respect to which the burden of proof would rest with the
IRS in a court proceeding. The amount of evidence necessary to support
the IRS's position will generally be greater in cases in which the IRS
would have the burden of proof if a case were to proceed to trial (for
example, in cases involving unreported income). The IRS therefore needs
additional time within which to attempt to gather this evidence through
the use of, among other things, contacts with third parties. Requiring
the IRS to wait 45 days prior to making contact with third parties
after notifying the taxpayer that such contacts are intended to be made
would hinder the IRS's ability to complete its investigation prior to
the end of the statutory assessment period and would negatively impact
its ability to meet its burden. Proposed Sec. 301.7602-2(d)(5)(iii)
would therefore reduce the 45-day advance notice period to 10 days of
advance notice in these situations.
2. Trust Fund Recovery Penalty Cases
Proposed Sec. 301.7602-2(d)(5)(iv) would reduce the 45-day advance
notice period to 10 days of advance notice in cases in which the IRS's
contact with third parties is made as part of an investigation into
potential liability for the trust fund recovery penalty (TFRP) under
section 6672 of the Code that includes one or more tax periods with one
year or less remaining on the assessment statute of limitations as of
the date the IRS intends to contact third parties. A revenue officer
investigating potential TFRP liability must determine whether a person
is both responsible and willful, and multiple persons may be liable for
the same TFRP liability, making such investigations highly fact-
intensive and challenging. As a result, an investigating revenue
officer who is faced with a statutory assessment period that is ending
will need to obtain information and documentation from third parties
expeditiously in order to identify all responsible persons liable for
the TFRP before the statutory assessment period ends. Waiting 45 days
to contact third parties may prevent the revenue officer from
identifying all responsible persons and from completing the TFRP
investigation before the statutory assessment period ends. For example,
if a potentially responsible person does not provide requested
information and documentation by the deadline set by the revenue
officer, provides only part of the information and documentation by the
deadline, or asks for one or more extensions of time to respond, a
revenue officer faced with a statutory assessment period that is ending
will need to obtain information and documentation from third parties.
Waiting 45 days before contacting third parties could result in
assessments against some but not all responsible persons, assessments
made against persons who were not responsible, or assessments against
responsible persons who were not willful for some of the tax periods
for which the trust fund taxes were not turned over to the IRS.
[[Page 20375]]
D. Statutory Period for Collection Expiring in One Year or Less
Section 6502 of the Code provides that the length of the period for
collection after assessment of a tax liability generally is 10 years
(statutory collection period). The end of the statutory collection
period ends the government's right to pursue collection of an unpaid
tax liability. If the IRS needs to contact third parties in situations
in which certain circumstances are present and one year or less remains
on the statutory collection period, tax administration would be
impaired if the IRS were required to provide 45 days advance notice to
the taxpayer before contacting the third parties.
Proposed Sec. 301.7602-2(d)(5)(v) would reduce the 45-day advance
notice requirement to 10 days of advance notice in two situations in
which there is one year or less remaining before the statutory
collection period ends as of the date the IRS intends to make contact
with third parties. The first situation is if providing 45 days advance
notice would prevent the IRS from having sufficient time to prepare a
suit referral and deliver it to the Department of Justice (DOJ). The
second situation is if reducing the 45-day advance notice period to 10
days of advance notice is necessary to allow sufficient time for
collection activities.
1. Preparation and Delivery of Suit Referral to DOJ
Proposed Sec. 301.7602-2(d)(5)(v)(A) would reduce the 45-day
advance notice period to 10 days of advance notice in cases in which
one year or less remains before the statutory collection period ends as
of the date the IRS intends to contact third parties and the IRS plans
to prepare a suit referral requesting that DOJ file suit to reduce
assessments to judgment or to foreclose Federal tax liens before the
statutory collection period ends. In these types of cases, collection
cannot be accomplished by administrative methods within the normal
statutory period. The United States' success in litigation, however, is
highly dependent upon the full and complete development of factual and
legal issues before the suit is filed. The IRS therefore needs as much
time as possible to develop its case prior to making the referral, and
requiring a revenue officer to wait 45 days to contact third parties
after notifying the taxpayer that such contact is intended to be made
would impair the IRS's ability to timely make the referral. A suit
recommendation to foreclose Federal tax liens against specific property
titled in the name of someone other than the taxpayer, for example, may
require a revenue officer to develop evidence, including by issuing
third-party summonses, to prove the taxpayer's property was
fraudulently transferred or that a person holds the property as the
taxpayer's nominee. The IRS's Office of Chief Counsel must then review
and approve the suit recommendation before a referral is made to DOJ.
Finally, DOJ reviews the recommendation, drafts the pleadings, and
files suit. Depending on the complexity of facts, this process can take
a significant amount of time. Therefore, in these situations, proposed
Sec. 301.7602-2(d)(5)(v)(A) would provide that the IRS may contact the
third parties 10 days after providing the third-party contact notice to
the taxpayer.
2. Insufficient Time for Collection Activities
Proposed Sec. 301.7602-2(d)(5)(v)(B) would reduce the 45-day
advance notice period to 10 days of advance notice in cases in which
there is one year or less remaining before the statutory collection
period ends as of the date the revenue officer intends to contact third
parties and the revenue officer is unable to contact the taxpayer or
the taxpayer refuses to pay, if the revenue officer concludes that the
period should be reduced in order to maximize the amount of unpaid tax
that can be collected by levy within the time remaining before the
statutory collection period expires. This reduction in advance notice
will allow the IRS sufficient time for investigative work, including to
serve collection summonses, to find assets on which to levy, and to
execute levies. Proposed Sec. 301.7602-2(d)(5)(vi) would provide that
a revenue officer is considered unable to contact the taxpayer if the
taxpayer fails to respond to the revenue officer's reasonable attempts
to contact the taxpayer directly within the time requested by the
revenue officer.
Proposed Sec. 301.7602-2(d)(5)(vii) would provide that the
category of taxpayers who are considered to have refused to pay
includes: (1) taxpayers who have the ability to pay their currently due
and owing taxes including required tax deposits and estimated tax
payments and to pay their delinquent taxes through an alternative
collection method but will not do so; (2) taxpayers who cannot pay
currently due taxes or pay their delinquent taxes, but who have assets
in excess of amounts exempt from levy that will yield net proceeds and
are unwilling or unable to borrow against or liquidate these assets;
(3) taxpayers who are accruing employment tax liabilities without
making required tax deposits; (4) taxpayers who use frivolous tax
arguments and continue to resist the requirements to file and pay; (5)
taxpayers who will not cooperate with the IRS (for example, taxpayers
that evade contact or will not provide financial information); (6)
taxpayers who will not comply with the results of the IRS's financial
analysis or will not enter into an installment agreement or offer in
compromise; (7) taxpayers who are wage earners who have not paid their
tax liability and will not adjust their withholdings to prevent future
delinquencies; (8) taxpayers who are self-employed, have not paid their
tax liability, and will not make estimated tax payments to prevent
future delinquencies; and (9) taxpayers who do not meet their
commitments (without a valid reason) as required by an installment
agreement, offer in compromise, or extension of time to pay. Proposed
Sec. 301.7602-2(d)(5)(vii) does not provide an exhaustive list of
taxpayers who are considered to have refused to pay, and taxpayers who
engage in conduct not specifically listed in the text of proposed Sec.
301.7602-2(d)(5)(vii) may be considered to have refused to pay.
In these situations, the IRS faces significant delays in carrying
out its collection activities and often must contact third parties.
Requiring the IRS to wait 45 days prior to making contact with third
parties after notifying the taxpayer that such contacts are intended to
be made would hinder the IRS's ability to complete its collection
activities in time. Therefore, in these situations, proposed Sec.
301.7602-2(d)(5)(v)(B) and (d)(5)(vii) would provide the IRS the
ability to contact third parties 10 days after providing the third-
party contact notice to the taxpayer.
Proposed Applicability Date
The proposed regulations are proposed to apply to any contacts made
on or after the date 30 days after the date of publication of final
regulations in the Federal Register.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
[[Page 20376]]
II. Regulatory Flexibility Act
The Secretary of the Treasury hereby certifies that these proposed
regulations will not have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). This certification is based on
the fact that the regulation solely provides for the elimination or
reduction of the time period between when the IRS informs a taxpayer
that it intends to contact third parties and when the actual contact
may take place in certain situations. Accordingly, a regulatory
flexibility analysis under the Regulatory Flexibility Act is not
required.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. This rule does not include any Federal mandate that may
result in expenditures by State, local, or Tribal governments, or by
the private sector in excess of that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to comments that are submitted timely to
the Treasury Department and the IRS as prescribed in this preamble
under the ADDRESSES heading. The Treasury Department and the IRS
request comments on all aspects of the proposed regulations. Any
electronic and paper comments submitted will be available at https://www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any
person that timely submits electronic or written comments. Requests for
a public hearing are encouraged to be made electronically. If a public
hearing is scheduled, notice of the date, time, and place for the
public hearing will be published in the Federal Register.
Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides
that public hearings will be conducted in person, although the IRS will
continue to provide a telephonic option for individuals who wish to
attend or testify at a hearing by telephone. Any telephonic hearing
will be made accessible to people with disabilities.
Drafting Information
The principal author of these temporary regulations is Brittany
Harrison of the Office of the Associate Chief Counsel (Procedure and
Administration). However, other personnel from the Treasury Department
and the IRS participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and IRS propose to amend 26
CFR part 301 as follows:
PART 301--PROCEDURE AND ADMINISTRATION
0
Paragraph 1. The authority citation for part 301 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805.
0
Par. 2. Section 301.7602-2 is amended by revising paragraphs (a), (d),
and (g) to read as follows:
Sec. 301.7602-2 Third party contacts.
(a) Advance notice of third-party contacts--(1) In general. Subject
to the exceptions in paragraph (f) of this section, no officer or
employee of the Internal Revenue Service (IRS) may contact any person
other than the taxpayer with respect to the determination or collection
of such taxpayer's tax liability unless the requirements of section
7602(c) of the Internal Revenue Code (Code) and paragraph (d) of this
section have been satisfied.
(2) Record of contacts. A record of persons so contacted must be
made and given to the taxpayer upon the taxpayer's request in
accordance with paragraph (e) of this section.
* * * * *
(d) Notice of third-party contacts--(1) In general. An officer or
employee of the IRS may not make third-party contacts with respect to
the determination or collection of the liability of a taxpayer unless
such contact occurs during a period (not greater than one year) that is
specified in a written notice (third-party contact notice) that--
(i) The IRS provides to the taxpayer in accordance with paragraph
(d)(2) of this section;
(ii) Informs the taxpayer that third-party contacts are intended to
be made during such period; and
(iii) Except as set forth in paragraph (d)(5) of this section, is
provided to the taxpayer no later than 45 days before the beginning of
such period (45-day advance notice period).
(2) Provision of third-party contact notice. A third-party contact
notice must be--
(i) Mailed to the taxpayer's last known address;
(ii) Given in person to the taxpayer;
(iii) Left at the taxpayer's dwelling or usual place of business;
or
(iv) Actually received by the taxpayer.
(3) Successive notices. Nothing in paragraph (d)(1) of this section
prevents the IRS from issuing successive notices to the same taxpayer
with respect to the same tax liability for periods (each not greater
than one year) that, in the aggregate, exceed one year.
(4) Intent to contact. A third-party contact notice will not be
issued under paragraph (d) of this section unless there is an intent at
the time such notice is issued to contact persons other than the
taxpayer during the period specified in such notice. Nothing in the
preceding sentence will prevent the issuance of a third-party contact
notice if the requirement of such sentence is met on the basis of the
assumption that the information sought to be obtained by such contact
will not be obtained by other means before such contact.
(5) Exceptions to 45-day advance notice period. The 45-day advance
notice period of section 7602(c)(1)(B) of the Code and paragraph (d)(1)
of this section is reduced in the case of third-party contacts
described in paragraphs (d)(5)(i) through (v) of this section.
(i) Fuel compliance program. The 45-day advance notice period is
reduced to
[[Page 20377]]
zero days, and the IRS may make a third-party contact at any time after
the third-party contact notice has been given to the taxpayer, if--
(A) The IRS officer or employee intends to make a third-party
contact in connection with its investigation of potential liability for
penalties under section 6715, 6715A, or 6720A of the Code; or
(B) The IRS officer or employee intends to make a third-party
contact in connection with its exercise of authority under section
4083(d) of the Code.
(ii) Nonjudicial sale redemption investigations. The 45-day advance
notice period is reduced to 10 days if the IRS officer or employee
intends to make a third-party contact in connection with an
investigation into a potential nonjudicial sale redemption.
(iii) Examination cases involving certain issues in which statutory
period for assessment expiring within one year or less. The 45-day
advance notice period is reduced to 10 days in cases under examination
in which there is one year or less remaining before the expiration of
the period for assessment under section 6501(a) of the Code determined
with regard to extensions (statutory assessment period) for any period
included in the examination as of the date the IRS intends to make a
third-party contact if:
(A) The case involves an issue with respect to which the IRS would
have the burden of proof in any court proceeding; and
(B) The IRS has requested that the taxpayer provide the IRS with an
unrestricted, signed Form 872, Consent to Extend the Time to Assess
Tax, to extend the statutory assessment period by a period necessary to
complete the examination and other administrative actions, and the
taxpayer has not provided the requested signed Form 872 within the time
requested.
(iv) Trust fund recovery penalty investigations in which statutory
period for assessment expiring within one year or less. The 45-day
advance notice period is reduced to 10 days in investigations into
potential liability for penalties under section 6672 of the Code if
there is one year or less remaining before the expiration of the
statutory assessment period for any period included in the
investigation as of the date the IRS intends to make a third-party
contact.
(v) Statutory period for collection expiring within one year or
less. The 45-day advance notice period is reduced to 10 days if there
is one year or less remaining in the time period (or, in cases
involving multiple time periods, in any time period in the case) under
section 6502 of the Code within which the IRS may collect an assessed
tax by levy or by a proceeding in court (statutory collection period)
as of the date the IRS intends to make a third-party contact and
either--
(A) The IRS intends to prepare and deliver to the Department of
Justice (DOJ) a suit referral requesting that DOJ file suit to reduce
assessments to judgment or to foreclose Federal tax liens before the
expiration of the statutory collection period; or
(B) The revenue officer is unable to contact the taxpayer (as
defined in paragraph (d)(5)(vi) of this section), or the taxpayer
refuses to pay (as defined in paragraph (d)(5)(vii) of this section),
and the revenue officer concludes that the advance notice period should
be reduced in order to maximize the amount of unpaid tax that can be
collected by levy within the time remaining before the statutory
collection period expires.
(vi) Unable to contact the taxpayer. The revenue officer is unable
to contact the taxpayer for purposes of paragraph (d)(5)(v)(B) of this
section if the taxpayer fails to respond to the revenue officer's
reasonable attempts to contact the taxpayer directly within the time
requested by the revenue officer.
(vii) Taxpayer refuses to pay. The category of taxpayers who are
considered to have refused to pay for purposes of paragraph
(d)(5)(v)(B) of this section includes taxpayers described in this
paragraph (d)(5)(vii). This paragraph (d)(5)(vii) is not an exhaustive
list of taxpayers considered to have refused to pay, and taxpayers who
engage in conduct not specifically described in this paragraph
(d)(5)(vii) may be considered to have refused to pay.
(A) Taxpayers who have the ability to pay their currently due and
owing taxes including required tax deposits and estimated tax payments
and to pay their delinquent taxes through an alternative collection
method but will not do so.
(B) Taxpayers who cannot pay currently due taxes or pay their
delinquent taxes, but who have assets in excess of amounts exempt from
levy that will yield net proceeds and are unwilling or unable to borrow
against or liquidate these assets.
(C) Taxpayers who are accruing employment tax liabilities without
making required tax deposits.
(D) Taxpayers who use frivolous tax arguments and continue to
resist the requirements to file returns and pay their tax liability.
(E) Taxpayers who will not cooperate with the IRS (for example,
taxpayers that evade contact or will not provide financial
information).
(F) Taxpayers who will not comply with the results of the IRS's
financial analysis or will not enter into an installment agreement or
offer in compromise.
(G) Taxpayers who are wage earners who have not paid their tax
liability and will not adjust their withholdings to prevent future
delinquencies.
(H) Taxpayers who are self-employed, have not paid their tax
liability, and will not make estimated tax payments to prevent future
delinquencies.
(I) Taxpayers who do not meet their commitments (without a valid
reason) as required by an installment agreement, offer in compromise,
or extension of time to pay.
* * * * *
(g) Applicability dates--(1) In general. Except as provided for in
paragraph (g)(2) of this section, this section is applicable on
December 18, 2002.
(2) Exceptions. Paragraphs (a)(1) and (d) of this section apply to
third-party contacts made on or after 30 days after [DATE OF
PUBLICATION OF FINAL RULE].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2024-05968 Filed 3-21-24; 8:45 am]
BILLING CODE 4830-01-P