A change-of-accounting-method file may be disclosed under the 6103 transaction test, but only the parts tied to the issue

Plain-English summary

This is Chief Counsel email advice about when one taxpayer's return information can be disclosed in another taxpayer's proceeding. An IRS employee asked whether a change of accounting method (CAM) legal file could be disclosed under section 6103(h)(4)(C), the so-called transaction test. That test allows disclosure when the information directly affects the resolution of an issue, even if it is not strictly necessary to or dispositive of that issue. The advice concluded that disclosure appears permissible because a third party's understanding of the transaction seems directly related to the principal issue in the primary case. But it must be limited: only the statements or explanations attached to the Form 3115 that pertain to the specific issue should be disclosed, so that unrelated information stays protected. It matters because it shows how narrowly the IRS reads the transaction test before releasing one taxpayer's file in another's case.

Ruling snapshot

• Question: May a change-of-accounting-method legal file be disclosed under the section 6103(h)(4)(C) transaction test, and if so, how broadly?
• Outcome: Advice given (disclosure permissible, but limited to the parts of the Form 3115 file tied to the specific issue)
• Key authorities: IRC § 6103(h)(4)(C); First W. Gov't Sec., Inc. v. United States, 578 F. Supp. 212 (D. Colo. 1984), aff'd, 796 F.2d 356 (10th Cir. 1986)

Full text (IRS public release)

ID: CCA_2021080314123814 [Third Party Communication:

UILC: 6103.11-00
Date of Communication: Month DD, YYYY]

Number: 202147013
Release Date: 11/26/2021
From: -------------------
Sent: Tuesday, August 3, 2021 2:12:38 PM
To: --------------------
Cc: --------------------
Bcc: -------------------
Subject: RE: 6103(h)(4)(C)

Hi ----------,

I have reviewed your request and agree that disclosure of the change of accounting method (CAM) legal file appears to be permissible under the transaction test, as provided in section 6103(h)(4)(C), with some limitation. The transaction test requires that the information (to be disclosed) directly affect the resolution of the issues although the information does not need to be necessary to, or dispositive of, the resolution of the issues in the tax proceeding. First W. Gov’t Sec., Inc. v. United States, 578 F. Supp. 212, 217-18 (D. Colo. 1984), aff’d, 796 F.2d 356 (10th Cir. 1986). Because the third party’s understanding of the transaction (at issue) seems directly related to the resolution of the principal issue in your primary case, disclosure under 6103(h)(4)(C) of some information within the CAM legal file appears to be appropriate. However, it’s not clear from the details below what type of information is contained in the CAM legal file. To avoid disclosing any information not directly related to the issue at hand, disclosure should be limited to any statements/explanations attached to Form 3115 that pertain only to the specific issue discussed in your request. Please let me know if you have any questions.

Thanks,
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