CCA explains when IRS personnel must report third-party contacts

Plain-English summary

Chief Counsel Advice addresses when IRS personnel must report communications with third parties on Form 12175. The advice explains the statutory exceptions for authorized contacts, jeopardy to collection, fear of reprisal, and criminal investigations, along with regulatory exceptions for litigation, experts, and government officials providing public information. It states that issuing a third-party summons with proper notice satisfies section 7602(c), and recommends reporting even non-substantive contacts when the rules may apply. The advice also discusses responsibility for logging contacts, missed forms, corporations, parallel investigations, and reprisal concerns.

Ruling snapshot

• Question: Which IRS contacts with third parties must be reported on Form 12175, and how should exceptions and unusual situations be handled?
• Outcome: Advice given, the CCA provides internal guidance on third-party contact reporting.
• Key authorities: IRC §§ 7602(c), 7433, and 7701(a)(1), (14); Treas. Reg. § 301.7602-2; IRM §§ 4.11.57.4.2, 4.11.57.4.2.3, 4.11.57.4.3, and 4.11.57.5.1(1).

Full text (IRS public release)

ID: CCA_2013071915074952
Office: ----------
UILC: 7602.00-00
Number: 201330036
Release Date: 7/26/2013
From: -----------------------
Sent: Friday, July 19, 2013 3:07:52 PM
To: ---------------
Cc: -----------------
Subject: Third party contacts

Below are responses provided by -------regarding third party contacts.

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From: ----------------
Sent: Thursday, July 18, 2013 5:12 PM
To: -----------------------
Cc: ---------------------------
Subject: RE: ------------ Form 12175 Questions ------------------------

Hi ------ -

Below is our response to the questions you posed to us. If you have further questions, please feel free to
call me to discuss.

1) What kind of third party contacts must IRS personnel report on a Form 12175? Are there any
contacts that do not need to be reported on Form 12175?

In general, all third-party contacts must be reported on Form 12175. A third-party contact is defined as a
"communication which (1) is initiated by an IRS employee; (2) is made to a person other than the
taxpayer; (3) is made with respect to the determination or collection of the tax liability of such taxpayer; (4)
discloses the identity of the taxpayer being investigated; and (5) discloses the association of the IRS
employee with the IRS." Treas. Reg. § 301.7602-2(b). Section 7602(c)(3) does provide four exceptions,
however. Contacts are not considered reportable third-party contacts where the taxpayer has authorized the
contact, where providing notice of the contact would jeopardize the collection of any tax, where the person
contacted fears reprisal, and where the contact is made with respect to any criminal investigation. I.R.C. §
7602(c)(3). Further, there are three non-statutory exceptions. Contacts regarding an issue or matter in
litigation, contacts made to an expert or consultant hired by the IRS, and contacts with government officials
for information generally available to the public are all excepted from the third-party

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notice requirements. See Treas. Reg. § 301.7602-2(f)(7) (litigation contacts); (c)(1)(B) (experts subject to
disclosure restrictions pursuant to a written agreement); (f)(5) (government officials for publically available
information).

Where the contact need not be reported, due to an exception, there are a number of procedures to follow. In
some cases, such as the criminal investigation exception, the IRS does not fill out form 12175. In other cases,
such as jeopardy, the form is filled out, but not forwarded to the Third-Party Contact Coordinator until the
jeopardy situation no longer exists. Please see IRM 4.11.57.4.2 for complete details.

Where the IRS issues a third-party summons, providing the taxpayer with proper notice of the summons
satisfies section 7602(c). See Treas. Reg. § 301.7602-2(e)(3); Anderson v. United States Internal Revenue
Service, No. MC 12-12-BLG-CSO, 2013 WL 1747796, at *5 (D. Mont. April 23, 2013). Thus, while issuing a
third-party summons is a third-party contact, the Revenue Agent need not record the summons on Form
12175. IRM 4.11.57.5.1(1).

2) Is there a substance test for third party contacts? For example, if a Revenue Agent contacts a third
party merely to schedule a meeting, must that phone call be reported? Must text messages with third party
contacts be reported?

There is no substance test, per se, for third-party contacts. However, as noted above, for a contact to be
considered a third-party contact, the contact must be made "with respect to the determination or collection of
the tax liability of such taxpayer." Treas. Reg. § 301.7602-2(b)(3). It is possible that a contact where the RA
merely schedules a meeting would be a third-party contact because scheduling the meeting could be seen as an
"administrative action to ascertain the correctness of a return." See Treas. Reg. §
301.7602-2(c)(3)(B). Nevertheless, there are no reported cases construing the language of this portion of the
regulation, so it is difficult to say whether a court might take a narrow or wide view of the phrase
"administrative action." The safest approach is to include non-substantive contacts.

A text message is a form of contact and, therefore, would fall within the third-party contact rules.

3) --------------------------------------------------------------------; who is responsible for making sure each contact
was properly logged?

In general, the employee who makes the third-party contact is responsible for ensuring that the contact is
properly logged. IRM 4.11.57.4.3(3).

4) What processes does the IRS have in place to ensure that third party contacts are being properly
reported?

------ - it seems that the client is in a better position to answer this question than we are. Neither the
statute nor the regulations set forth a review process. There are Third-Party Contact Coordinators in each
office who should be able to assist.

5) Practically speaking, what happens if a Revenue Agent or Officer forgets to complete a Form 12175?

As a practical matter, if a Revenue Agent or Officer forgets to complete Form 12175, they should complete
the form as soon as possible. There is no independent cause of action for violating third-party contact rules.
As far as we are aware, the IRS has never been sued for violating the third-party contact rules, though
taxpayers have occasionally attempted to assert these types of violations as a defense to summons
enforcement or collection actions. In theory, a violation of section 7602(c) might support a suit by a taxpayer
against the IRS under section 7433. However, section 7433 only allows a taxpayer to recover actual, direct
economic damages and court costs. It is unclear what actual, direct economic damage a taxpayer would suffer
as a result of a violation of section 7602(c).

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6) Is any part of this process automated from the IRS’s ICS History?

------ - we will defer on this question to you and the client.

7) If our case was directed to a corporation rather than an individual, would we still be required to
comply with 7206(c)?

We assume that "7206(c)" is a typo and that the question refers to section 7602(c). This section applies to
corporations as well as individuals. Section 7602(c) provides for notice to "taxpayers." Taxpayers are
defined as "any person subject to any internal revenue tax." I.R.C. § 7701(a)(14). Person is defined as
including corporations. I.R.C. § 7701(a)(1). We also note that a number of the examples in the regulations
under section 7602(c) refer to businesses.

8) What happens if the IRS contacts a third-party during a parallel investigation? For example, if the IRS
is investigation potential penalty conduct for Person A, and also investigating a business associate, Person B
for related penalty conduct, are the IRS’s third party contacts in the parallel investigation of Person B
reported to Person A? What if a third party sits for an interview with the IRS in which they discuss potential
penalty conduct by two different people; how is that reported?

In this situation, the contact is only a third-party contact with regards to Person A. The regulations explicitly
state, "While a contact made for the purpose of determining a particular taxpayer's tax liability may also affect
the tax liability of one or more other taxpayers, such contact is not for that reason alone a contact 'with
respect to' the determination or collection of those other taxpayers' tax liabilities." Treas. Reg. §
301.7602-2(c)(3)(A); see also Treas. Reg. § 301.7602-2(c)(3)(D)(ii) Example 1.

If the IRS asks a third-party to an interview to discuss Person A and the witness discusses Person A and B,
this remains a third-party contact only with regards to Person A, so long as the purpose of the contact was an
investigation of Person A. See Treas. Reg. § 301.7602-2(c)(3)(D)(ii) Example 2.

9) What happens if a third party is not asked during the initial interview about the fear of reprisal, but
later comes to the IRS (or the DOJ) and expresses concerns? Can the Service retroactively flag a third party
contact as fearing reprisal? Once a third party contact expresses fear of reprisal, is that contact always
shielded from disclosure, even in future contacts?

We first note that the IRS should be asking, at the initial interview, whether the third-party witness fears
reprisal. IRM 4.11.57.4.2.3(4). Should a third-party witness, after the initial interview, state that they now fear
reprisal, nothing in the statute or regulations would prevent the IRS from retroactively flagging the contact as
fearing reprisal, though we are not aware of any procedure in the IRM for doing so.

Once a third-party witness states that they fear reprisal from a particular taxpayer, then contacts of that
witness with regards to that particular taxpayer are shielded. Nevertheless, further contacts must be
documented as set forth in IRM 4.11.57.4.2.3(2). Further, should that witness be contacted regarding a
different taxpayer, the IRS ought to make a new reprisal determination, though the IRS may consider case
history in making that determination. IRM 4.11.57.4.2.3(6).