CCA 1120001: six-month summons waiting period suspends the assessment limitations period

Plain-English summary

Chief Counsel Advice addressed how to calculate the suspension period under IRC § 7609(e)(2) when a third-party summons remains unresolved. It advised that the six-month waiting period begins on the date the summons is served, the suspension starts exactly six months later, and the suspension continues through final resolution. The limitations period resumes on the day after final resolution, and the suspended time can be added to the original assessment statute expiration date. The advice relied on the statute, Treasury regulations, and Tax Court decisions involving John Doe summonses.

Ruling snapshot

• Question: How is the period of suspension under IRC § 7609(e)(2) calculated?
• Outcome: Advice given.
• Key authorities: IRC §§ 6501, 6531, 7503, 7609, and 7690; Treas. Reg. § 301.7609-5.

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201120001
       Release Date: 5/20/2011
       CC:PA:06
       GL-148973-09

UILC: 7609.04-00

date: February 07, 2011

 to:   Thomas R. Mackinson
       Associate Area Counsel (San Francisco, Group 1)
       (Small Business/Self-Employed)

from: William V. Spatz
Senior Counsel
(Procedure & Administration)

subject: Calculating Tolling of the Period of Suspension under I.R.C. § 7609(e)(2)

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent. This Chief Counsel Advice is meant to supplement
       advice previously given in this case.

       ISSUE

       How should the I.R.C. § 7609(e)(2) period of suspension be calculated.

       CONCLUSIONS

       When I.R.C. § 7609(e)(2) applies in a third-party summons situation, the assessment
       statute expiration date (“ASED”) may be recalculated to reflect the period of suspension.
       The sixth-month waiting period begins on the day the summons is served. The
       suspension period starts on the day that is exactly six months after the service of the
       summons. The suspension continues through the day of the final resolution. The
       period of limitations resumes running the day after the day of the final resolution.

       FACTS

       The facts are described in our prior advice.

GL-148973-09 2

LAW AND ANALYSIS

Section 7609(e)(2) provides that if the third-party recipient of a summons fails to comply
with the summons for six months after service, then the periods of limitations under
I.R.C. §§ 6501 and 6531 are suspended, with respect to any person with respect to
whose liability the summons was issued. The period of suspension begins six months
after the summons was served and ends when the dispute is resolved. This suspension
provision applies to third-party summonses that are subject to the notice requirements
of section 7609(a), to a John Doe summons under section 7690(f), and to a third-party
summons issued without notice after court approval under section 7609(g). See also
Treas. Reg. § 301.7609-5(d). 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 that
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. See I.R.C. § 7609(e)(2)(B); Treas. Reg. § 301.7609-
5(e)(3); IRM 25.5.6.6.3.3.

We have previously determined that section 7609(e)(2) applies in this case. The issue
you have asked us to now address is how the suspension of the period of limitations
actually works. The statute states that the period of limitations begins six months after
the summons was served and ends when the dispute is resolved, and the applicable
regulation provides an illustrative example. Treas. Reg. § 301.7609-5 provides an
example of how the suspension of the period of limitations begins on the date that is six
months after the service of the summons and ends on the date on which the response
to the summons is finally resolved. The example provides that a John Doe summons is
issued on April 1, 2004, with respect to tax years 2001 and 2002. The district court
approves service of the summons on April 30, 2004, and the summons is served on the
promoter on May 3, 2004. The promoter does not provide the names of the
participants. The periods of limitation for the participants’ income tax liabilities and
criminal prosecution for 2001 and 2002 are suspended under section 7609(e)(2)
beginning on November 3, 2004, 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. Treas. Reg. § 301.7609-5(d)(2).

Two cases demonstrate how the tolling is meant to work. In Kligfeld Holdings v.
Commissioner, 128 T.C. 192 (2007), the IRS served Jenkens & Gilchrist with a John
Doe summons on June 18, 2003. The tolling of section 6501’s three-year limit began
on December 18, 2003, six months after the service of the summons, and continued
until May 17, 2004, when the responsive information was provided with respect to the
summons. When the tolling began, there were 133 days remaining in the limitations
period for this John Doe taxpayer; therefore, when the tolling ended, there were still 133
days remaining and the limitations period was extended for this John Doe taxpayer from
April 29, 2004 to September 26, 2004. The court found the period of limitations was
suspended starting six months after the service of the summons. The tolling period
GL-148973-09 3

ended on the date of final resolution and the period began running the next day. The
court then applied the suspended period to the original ASED in order to calculate the
new ASED. The court engaged in a similar calculation in Highwood Partners v.
Commissioner, 133 T.C. 1 (2009), involving the same John Doe summons served upon
Jenkins & Gilchrist and different John Doe taxpayers. The court adhered to the same
method of calculation as the Kligfeld court, but started with one day later for service of
the John Doe summons. These cases demonstrate that the six-month waiting period
begins on the actual day that the summons is served and the period of limitations
begins the day that is exactly six months after the service of the summons. When this
period is tacked on to the date of the original ASED, the length of the period of
suspension begins the day after the original ASED. In other words, the date that is one
day after the date of the original ASED is day one for counting out the period of
suspension in order to calculate the new ASED.

In summary, when section 7609(e)(2) applies, the requisite six-month waiting period
begins on the exact date that the summons is served and the suspension period starts
exactly six months after that. The suspension continues through the date of final
resolution and the period of limitations resumes running the day of the final resolution.
If the last day for mailing the notice of deficiency is a weekend or a holiday, then it
should be shifted to the next weekday, pursuant to I.R.C. § 7503.

CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS

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