Changes in third-party summons rules.

• Author: Whisenant, Lori A.
• Position: IRS procedure

The Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98) significantly expanded the scope of taxpayer protections under the "third-party recordkeeper" summons rules. The first (and perhaps most important) change is that these rules now apply to summonses issued to all third parties, not just to third-party recordkeepers. The IRSRRA '98 also allows the IRS to serve a summons either in person or by certified or registered mail, and requires it to provide reasonable advance notice that it may need to contact third parties in connection with its examination or collection activities. Although these changes do not restrict the Service's ability to contact or obtain information from third parties, they do alter the process for doing so. In addition, the IRSRRA '98 provides taxpayers with additional information on third-party contacts and a degree of additional protection when the IRS uses its broad information-gathering and summons authority inappropriately.

IRS Summons Power

The Service has authority to issue summonses for the production of books, records or other materials, and to compel testimony from taxpayers under Sec. 7602. Under Sec. 7609, special procedures and rules previously applied to summonses issued to "third-party recordkeepers" a particular category of third parties. A third-party recordkeeper is defined as any (1) 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, or bank or credit union, (2) consumer reporting agency, (3) person extending credit through the use of credit cards or similar devices, (4) broker, (5) attorney, (6) accountant, (7) barter exchange, (8) regulated investment company (RIC) and agent of such RIC when acting as an agent thereof and (9) enrolled agent.

Because a summons is not self-enforcing, the Department of Justice (on behalf of the IRS) must file a petition with the district court and demonstrate that the requirements under Powell, 379 US 48 (1964), have been met. At the enforcement hearing, the government must show that (1) the summons was issued in an investigation conducted pursuant to a legitimate purpose, (2) the information summoned may be relevant to the investigation, (3) the information sought is not within the Service's possession and (4) the administrative steps required by the Code have been followed.

A taxpayer may...