Partnership relationship may permit limited tax information disclosure
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This page covers one taxpayer's ruling from 2017, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Plain-English summary
Chief Counsel considered whether information from a closing agreement could be disclosed for use in another taxpayer's examination. Section 6103(h)(4)(C) permits disclosure when the parties have a transactional relationship and the return information directly affects resolution of an issue in the proceeding. The advice concluded that a partnership can supply the required transactional relationship because it is organized to carry on business. Disclosure was therefore likely permissible if the information directly helped resolve the examination issue. Any disclosure had to be limited to the information needed, rather than the entire closing agreement.
Ruling snapshot
- Question: May closing-agreement information be disclosed in a related examination under section 6103(h)(4)(C)?
- Outcome: advice given
- Key authorities: IRC §§ 761(a), 6103(h)(4)(C)
Full text (IRS public release)
ID: CCA_2017092815120912
UILC: 6103.00-00, 6103.11-00
Number: 201742024
Release Date: 10/20/2017
From:
Sent: Thursday, September 28, 2017 3:12:09 PM
To:
Cc:
Bcc:
Subject: RE: Disclosure Question
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Your disclosure question was referred to me for response. Under the facts you pose,
disclosure may be permissible if the “transaction test” of § 6103(h)(4)(C) is
satisfied. Under the transaction test, if there is a transactional relationship, and the
information on the return “directly affects the resolution of an issue in the proceeding,”
then that which is necessary for resolution may be disclosed.
The Tax Court has noted that “to ‘transact’ means simply ‘to carry on business’.”
Mescalero Apache Tribe v. C.I.R., 28120-14., 2017 WL 1278708 at *4 (Tax Apr. 5,
2017.) As such, a partnership (i.e. an unincorporated entity organized to carry on
business per § 761(a)) qualifies as a “transactional relationship” within the purview of §
6103(h)(4)(C). Therefore, if the information you wish to disclose in the Closing
Agreement will directly help resolve an issue in C’s exam, disclosure under §
6103(h)(4)(C) is likely permissible.
Note that disclosure should be limited to that which is necessary to resolve C’s issue,
rather than the whole Closing Agreement. See Guarantee Mut. Life Co. v. U.S., Civ. No.
77-0-407, 1978 WL 4574, at *3 (D. Neb. Aug. 28, 1978) (“A clear policy in favor of the
privacy of the individual exists under the Internal Revenue Code”).
Please let us know if you have any further questions.
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