[Federal Register Volume 71, Number 132 (Tuesday, July 11, 2006)]
[Rules and Regulations]
[Pages 38985-38988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6110]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9274]
RIN 1545-BB16


Disclosure of Return Information by Certain Officers and 
Employees for Investigative Purposes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
disclosure of return information pursuant to section 6103(k)(6) of the 
Internal Revenue Code (Code). The final regulations describe the 
circumstances under which Internal Revenue and Office of Treasury 
Inspector General for Tax Administration (TIGTA) employees may disclose 
return information to the extent necessary to obtain information or to 
accomplish properly any activity connected with certain official 
duties. These regulations clarify and elaborate on the facts and 
circumstances in which disclosure pursuant to section 6103(k)(6) is 
authorized.

DATES: Effective Date: These regulations are effective July 11, 2006.
    Applicability Date: For dates of applicability, see Sec.  
301.6103(k)(6)-1(e).

FOR FURTHER INFORMATION CONTACT: Helene R. Newsome, 202-622-4570 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Under section 6103(a), returns and return information are 
confidential unless the Code authorizes disclosure. Section 6103(k)(6) 
authorizes an internal revenue officer or employee and an officer or 
employee of TIGTA, in connection with official duties relating to any 
audit, collection activity, civil or criminal tax investigation, or 
offense under the internal revenue laws, to disclose return information 
to a person other than the taxpayer to whom such return information 
relates (or his or her representative) to the extent that such 
disclosure is necessary to obtain information not otherwise reasonably 
available with respect to the correct determination of tax, liability 
for tax, or the amount to be collected, or with respect to the 
enforcement of any other provision of the Code or related statutes. 
Disclosure depends on situations and conditions prescribed by 
regulation.
    On July 10, 2003, temporary regulations (TD 9073) under section 
6103(k)(6) were published in the Federal Register (68 FR 41073). A 
notice of proposed rulemaking (REG-140808-02) cross-referencing the 
temporary regulations was published in the Federal Register for the 
same day (68 FR 41089).
    These regulations reflected a legislative amendment to section 
6103(k)(6) clarifying that officers or employees of TIGTA are among 
those individuals authorized to make disclosures under section 
6103(k)(6). See Consolidated Appropriations Act, 2001, Public Law 106-
554 (114 Stat. 2763), section 1 enacting H.R. 5662, Community Renewal 
Tax Relief Act of 2000, section 313(c).
    These regulations also clarified the standard for determining 
whether disclosures are authorized under section 6103(k)(6). In 
particular, the regulations addressed the issues surrounding the 
disclosures that occur when internal revenue or TIGTA employees 
introduce themselves to third party witnesses or communicate in 
writing, e.g., using official letterhead that reveals affiliation with 
the IRS or TIGTA. The regulations also clarified that section 
6103(k)(6) does not limit internal revenue or TIGTA employees with 
respect to the initiation or conduct of an investigation. Finally, the 
regulations clarified that section 6103 does not require internal 
revenue and TIGTA employees to contact a taxpayer for information 
before contacting third party witnesses.
    No comments were received from the public in response to the notice 
of proposed rulemaking. No public hearing was requested or held. In 
this Treasury decision, the proposed regulations are adopted as revised 
below.

Explanation of Revisions

    The proposed and temporary regulations provide that internal 
revenue and TIGTA employees may identify themselves, their 
organizational affiliation, and the nature of their investigation, when 
making an oral, written, or electronic contact with a third party 
witness through the use and presentation of any identification media 
(including, but not limited to, a Federal agency badge, credential, or 
business card) or through the use of an information document request, 
summons, or correspondence on Federal agency letterhead or which bears 
a return address or signature block that reveals affiliation with the 
Federal agency. In the final regulations, Sec.  301.6103(k)(6)-1(a)(3) 
has been revised to make clear that internal revenue and TIGTA 
employees may identify themselves, their organizational affiliation, 
and the nature of their investigation, when making any oral, written, 
or electronic contact with a third party witness, not just when making 
a contact with a third party witness through the use and presentation 
of identification media, or through the use of an information document 
request, summons, or correspondence. This revision is intended as a 
clarification rather than a change in the effect of the regulations.
    The proposed and temporary regulations define the term disclosure 
of return information to the extent necessary. The fourth sentence of 
Sec.  301.6103(k)(6)-1(c)(1) states that section 6103(k)(6) does not 
limit or restrict IRS or TIGTA officers and employees with respect to 
initiating or conducting an investigation. The final regulations revise 
this sentence to clarify that section 6103(k)(6) applies to all 
internal revenue officers and employees, not just IRS officers and 
employees. There are individuals, in addition to IRS officers and 
employees, who are internal revenue officers and employees because they 
are responsible for administering and enforcing certain tax 
administration provisions. This revision is intended as a clarification 
rather than a change in the effect of the regulations.
    The proposed and temporary regulations define the term internal 
revenue employee as an officer or employee of the IRS or Office of 
Chief Counsel for the IRS. The final regulations add a phrase to Sec.  
301.6103(k)(6)-1(c)(4) to encompass individuals responsible for 
administering and enforcing certain tax administration provisions who 
are not officers and employees of the IRS or the Office of Chief 
Counsel for the IRS. Pursuant to the duties and powers established by 
the Homeland Security Act of 2002, Public Law 107-296, section 1111 et 
seq., (116 Stat. 2135 (2002)), the Tax and Trade Bureau (TTB) in the 
Department of the Treasury has the responsibility for administering and 
enforcing the taxes under Chapters 32 (Part III of Subchapter D), 51, 
and 52 of the Code, and the Bureau of Alcohol, Tobacco, Firearms, and 
Explosives (ATF) in the Department of Justice has the responsibility 
for administering and enforcing the taxes under Chapter 53 of

[[Page 38986]]

the Code. Pursuant to section 412 of the Homeland Security Act, the 
United States Customs Service continues to have the responsibilities it 
had when it was a bureau within the Department of the Treasury, which 
include administering and enforcing certain provisions of Chapters 51 
and 52 of the Code. Pursuant to section 821 of the Homeland Security 
Act, the United States Secret Service continues to have the 
responsibilities it had when it was a bureau within the Department of 
the Treasury, which include investigating tax refund check fraud under 
18 U.S.C. 510. Accordingly, paragraph (c)(4) of the final regulations 
has been revised to state that internal revenue employee means an 
officer or employee of the IRS or Office of Chief Counsel for the IRS, 
or an officer or employee of a Federal agency responsible for 
administering and enforcing taxes under Chapters 32 (Part III of 
Subchapter D), 51, 52, or 53 of the Code, or investigating tax refund 
check fraud under 18 U.S.C. 510. This revision is intended as a 
clarification rather than a change in the effect of the regulations.
    The proposed and temporary regulations address the disclosure of 
return information in connection with investigations that affect or may 
affect the personnel or employment status of Treasury employees or the 
status of persons authorized to practice before the Treasury 
Department. The final regulations revise Sec.  301.6103(k)(6)-1(b) to 
clarify that it applies to employees of ATF, United States Customs 
Service, and United States Secret Service, as well as to employees of 
the Treasury Department and that Federal officers and employees who are 
responsible for the investigations and who are properly in possession 
of relevant return information are authorized to disclose such return 
information for the purpose of obtaining, verifying, or establishing 
other information which is or may be relevant and material to the 
investigation. This revision is intended as a clarification rather than 
a change in the effect of the regulations.
    The proposed and temporary regulations contain an example involving 
a private letter ruling request. Section 301.6103(k)(6)-1(d) Example 4. 
The final regulations revise this example to reflect a more common 
factual scenario involving a private letter ruling request. This 
revision is intended as a clarification rather than a change in the 
effect of the regulations.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that 5 U.S.C. 553(b), the Administrative Procedure Act, does 
not apply to these regulations, and because the regulation does not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, the proposed regulations preceding these 
regulations were submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on their impact on small 
business.

Drafting Information

    The principal author of these regulations is Helene R. Newsome, 
Office of the Associate Chief Counsel (Procedure and Administration), 
Disclosure and Privacy Law Division.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
an entry in numerical order to read, in part, as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 301.6103(k)(6)-1 also issued under 26 U.S.C. 6103(k)(6); 
* * *


0
Par. 2. Section 301.6103(k)(6)-1 is added to read as follows:


Sec.  301.6103(k)(6)-1  Disclosure of return information by certain 
officers and employees for investigative purposes.

    (a) General rule. (1) Pursuant to the provisions of section 
6103(k)(6) and subject to the conditions of this section, an internal 
revenue employee or an Office of Treasury Inspector General for Tax 
Administration (TIGTA) employee, in connection with official duties 
relating to any examination, administrative appeal, collection 
activity, administrative, civil or criminal investigation, enforcement 
activity, ruling, negotiated agreement, prefiling activity, or other 
proceeding or offense under the internal revenue laws or related 
statutes, or in preparation for any proceeding described in section 
6103(h)(2) (or investigation which may result in such a proceeding), 
may disclose return information, of any taxpayer, to the extent 
necessary to obtain information relating to such official duties or to 
accomplish properly any activity connected with such official duties, 
including, but not limited to--
    (i) Establishing or verifying the correctness or completeness of 
any return or return information;
    (ii) Determining the responsibility for filing a return, for making 
a return if none has been made, or for performing such acts as may be 
required by law concerning such matters;
    (iii) Establishing or verifying the liability (or possible 
liability) of any person, or the liability (or possible liability) at 
law or in equity of any transferee or fiduciary of any person, for any 
tax, penalty, interest, fine, forfeiture, or other imposition or 
offense under the internal revenue laws or related statutes or the 
amount thereof for collection;
    (iv) Establishing or verifying misconduct (or possible misconduct) 
or other activity proscribed by the internal revenue laws or related 
statutes;
    (v) Obtaining the services of persons having special knowledge or 
technical skills (such as, but not limited to, knowledge of particular 
facts and circumstances relevant to a correct determination of a 
liability described in paragraph (a)(1)(iii) of this section or skills 
relating to handwriting analysis, photographic development, sound 
recording enhancement, or voice identification) or having recognized 
expertise in matters involving the valuation of property if relevant to 
proper performance of official duties described in this paragraph;
    (vi) Establishing or verifying the financial status or condition 
and location of the taxpayer against whom collection activity is or may 
be directed, to locate assets in which the taxpayer has an interest, to 
ascertain the amount of any liability described in paragraph 
(a)(1)(iii) of this section for collection, or otherwise to apply the 
provisions of the Internal Revenue Code relating to establishment of 
liens against such assets, or levy, seizure, or sale on or of the 
assets to satisfy any such liability;
    (vii) Preparing for any proceeding described in section 6103(h)(2) 
or conducting an investigation which may result in such a proceeding; 
or
    (viii) Obtaining, verifying, or establishing information concerned 
with making determinations regarding a taxpayer's liability under the 
Internal Revenue Code, including, but not limited to, the 
administrative appeals process and any ruling, negotiated agreement, or 
prefiling process.

[[Page 38987]]

    (2) Disclosure of return information for the purpose of obtaining 
information to carry out properly the official duties described by this 
paragraph, or any activity connected with the official duties, is 
authorized only if the internal revenue or TIGTA employee reasonably 
believes, under the facts and circumstances, at the time of a 
disclosure, the information is not otherwise reasonably available, or 
if the activity connected with the official duties cannot occur 
properly without the disclosure.
    (3) Internal revenue and TIGTA employees may identify themselves, 
their organizational affiliation (e.g., Internal Revenue Service (IRS), 
Criminal Investigation (CI) or TIGTA, Office of Investigations (OI)), 
and the nature of their investigation, when making an oral, written, or 
electronic contact with a third party witness. Permitted disclosures 
include, but are not limited to, the use and presentation of any 
identification media (such as a Federal agency badge, credential, or 
business card) or the use of an information document request, summons, 
or correspondence on Federal agency letterhead or which bears a return 
address or signature block that reveals affiliation with the Federal 
agency.
    (4) This section does not address or affect the requirements under 
section 7602(c) (relating to contact of third parties).
    (b) Disclosure of return information in connection with certain 
personnel or claimant representative matters. In connection with 
official duties relating to any investigation concerned with 
enforcement of any provision of the Internal Revenue Code, including 
enforcement of any rule or directive prescribed by the Secretary or the 
Commissioner of Internal Revenue under any provision of the Internal 
Revenue Code, or the enforcement of any provision related to tax 
administration, that affects or may affect the personnel or employment 
rights or status, or civil or criminal liability, of any former, 
current, or prospective employee of the Treasury Department, Bureau of 
Alcohol, Tobacco, Firearms, and Explosives, United States Customs 
Service, United States Secret Service, or any successor agency, or the 
rights of any person who is, or may be, a party to an administrative 
action or proceeding pursuant to 31 U.S.C. 330 (relating to practice 
before the Treasury Department), an internal revenue, TIGTA, or other 
Federal officer or employee who is responsible for investigating such 
employees and persons and is properly in possession of relevant return 
information is authorized to disclose such return information to the 
extent necessary for the purpose of obtaining, verifying, or 
establishing other information which is or may be relevant and material 
to the investigation.
    (c) Definitions. The following definitions apply to this section--
    (1) Disclosure of return information to the extent necessary means 
a disclosure of return information which an internal revenue or TIGTA 
employee, based on the facts and circumstances, at the time of the 
disclosure, reasonably believes is necessary to obtain information to 
perform properly the official duties described by this section, or to 
accomplish properly the activities connected with carrying out those 
official duties. The term necessary in this context does not mean 
essential or indispensable, but rather appropriate and helpful in 
obtaining the information sought. Nor does necessary in this context 
refer to the necessity of conducting an investigation or the 
appropriateness of the means or methods chosen to conduct the 
investigation. Section 6103(k)(6) does not limit or restrict internal 
revenue or TIGTA employees with respect to the decision to initiate or 
the conduct of an investigation. Disclosures under this paragraph 
(c)(1), however, may not be made indiscriminately or solely for the 
benefit of the recipient or as part of a negotiated quid pro quo 
arrangement. This paragraph (c)(1) is illustrated by the following 
examples:

    Example 1. A revenue agent contacts a taxpayer's customer 
regarding the customer's purchases made from the taxpayer during the 
year under investigation. The revenue agent is able to obtain the 
purchase information only by disclosing the taxpayer's identity and 
the fact of the investigation. Depending on the facts and 
circumstances known to the revenue agent at the time of the 
disclosure, such as the way the customer maintains his records, it 
also may be necessary for the revenue agent to inform the customer 
of the date of the purchases and the types of merchandise involved 
for the customer to find the purchase information.
    Example 2. A revenue agent contacts a third party witness to 
obtain copies of invoices of sales made to a taxpayer under 
examination. The third party witness provides copies of the sales 
invoices in question and then asks the revenue agent for the current 
address of the taxpayer because the taxpayer still owes money to the 
third party witness. The revenue agent may not disclose that current 
address because this disclosure would be only for the benefit of the 
third party witness and not necessary to obtain information for the 
examination.
    Example 3. A revenue agent contacts a third party witness to 
obtain copies of invoices of sales made to a taxpayer under 
examination. The third party witness agrees to provide copies of the 
sales invoices in question only if the revenue agent provides him 
with the current address of the taxpayer because the taxpayer still 
owes money to the third party witness. The revenue agent may not 
disclose that current address because this disclosure would be a 
negotiated quid pro quo arrangement.

    (2) Disclosure of return information to accomplish properly an 
activity connected with official duties means a disclosure of return 
information to carry out a function associated with official duties 
generally consistent with established practices and procedures. This 
paragraph (c)(2) is illustrated by the following example:

    Example. A taxpayer failed to file an income tax return and pay 
the taxes owed. After the taxes were assessed and the taxpayer was 
notified of the balance due, a revenue officer filed a notice of 
federal tax lien and then served a notice of levy on the taxpayer's 
bank. The notices of lien and levy contained the taxpayer's name, 
social security number, amount of outstanding liability, and the tax 
period and type of tax involved. The taxpayer's assets were levied 
to satisfy the tax debt, but it was determined that, prior to the 
levy, the revenue officer failed to issue the taxpayer a notice of 
intent to levy, as required by section 6331, and a notice of right 
to hearing before the levy, as required by section 6330. The 
disclosure of the taxpayer's return information in the notice of 
levy is authorized by section 6103(k)(6) despite the revenue 
officer's failure to issue the notice of intent to levy or the 
notice of right to hearing. The ultimate validity of the underlying 
levy is irrelevant to the issue of whether the disclosure was 
authorized by section 6103(k)(6).

    (3) Information not otherwise reasonably available means 
information that an internal revenue or TIGTA employee reasonably 
believes, under the facts and circumstances, at the time of a 
disclosure, cannot be obtained in a sufficiently accurate or probative 
form, or in a timely manner, and without impairing the proper 
performance of the official duties described by this section, without 
making the disclosure. This definition does not require or create the 
presumption or expectation that an internal revenue or TIGTA employee 
must seek information from a taxpayer or authorized representative 
prior to contacting a third party witness in an investigation. Neither 
the Internal Revenue Code, IRS procedures, nor these regulations 
require repeated contacting of an uncooperative taxpayer. Moreover, an 
internal revenue or TIGTA employee may make a disclosure to a third 
party witness to corroborate information provided by a taxpayer. This 
paragraph (c)(3) is illustrated by the following examples:

    Example 1. A revenue agent is conducting an examination of a 
taxpayer. The taxpayer

[[Page 38988]]

refuses to cooperate or provide any information to the revenue 
agent. Information relating to the taxpayer's examination would be 
information not otherwise reasonably available because of the 
taxpayer's refusal to cooperate and supply any information to the 
revenue agent. The revenue agent may seek information from a third 
party witness.
    Example 2. A special agent is conducting a criminal 
investigation of a taxpayer. The special agent has acquired certain 
information from the taxpayer. Although the special agent has no 
specific reason to disbelieve the taxpayer's information, the 
special agent contacts several third party witnesses to confirm the 
information. The special agent may contact third party witnesses to 
verify the correctness of the information provided by the taxpayer 
because the IRS is not required to rely solely on information 
provided by a taxpayer, and a special agent may take appropriate 
steps, including disclosures to third party witnesses under section 
6103(k)(6), to verify independently or corroborate information 
obtained from a taxpayer.

    (4) Internal revenue employee means, for purposes of this section, 
an officer or employee of the IRS or Office of Chief Counsel for the 
IRS, or an officer or employee of a Federal agency responsible for 
administering and enforcing taxes under Chapters 32 (Part III of 
Subchapter D), 51, 52, or 53 of the Internal Revenue Code, or 
investigating tax refund check fraud under 18 U.S.C. 510.
    (5) TIGTA employee means an officer or employee of the Office of 
Treasury Inspector General for Tax Administration.
    (d) Examples. The following examples illustrate the application of 
this section:

    Example 1. A revenue agent is conducting an examination of a 
taxpayer. The taxpayer has been very cooperative and has supplied 
copies of invoices as requested. Some of the taxpayer(s invoices 
show purchases that seem excessive in comparison to the size of the 
taxpayer(s business. The revenue agent contacts the taxpayer(s 
suppliers for the purpose of corroborating the invoices the taxpayer 
provided. In contacting the suppliers, the revenue agent discloses 
the taxpayer(s name, the dates of purchase, and the type of 
merchandise at issue. These disclosures are permissible under 
section 6103(k)(6) because, under the facts and circumstances known 
to the revenue agent at the time of the disclosures, the disclosures 
were necessary to obtain information (corroboration of invoices) not 
otherwise reasonably available because suppliers would be the only 
source available for corroboration of this information.
    Example 2. A revenue agent is conducting an examination of a 
taxpayer. The revenue agent asks the taxpayer for business records 
to document the deduction of the cost of goods sold shown on 
Schedule C of the taxpayer(s return. The taxpayer will not provide 
the business records to the revenue agent, who contacts a third 
party witness for verification of the amount on the Schedule C. In 
the course of the contact, the revenue agent shows the Schedule C to 
the third party witness. This disclosure is not authorized under 
section 6103(k)(6). Section 6103(k)(6) permits disclosure only of 
return information, not the return (including schedules and 
attachments) itself. If necessary, a revenue agent may disclose 
return information extracted from a return when questioning a third 
party witness. Thus, the revenue agent could have extracted the 
amount of cost of goods sold from the Schedule C and disclosed that 
amount to the third party witness.
    Example 3. A special agent is conducting a criminal 
investigation of a taxpayer, a doctor, for tax evasion. 
Notwithstanding the records provided by the taxpayer and the 
taxpayer's bank, the special agent decided to obtain information 
from the taxpayer's patients to verify amounts paid to the taxpayer 
for his services. Accordingly, the special agent sent letters to the 
taxpayer(s patients to verify these amounts. In the letters, the 
agent disclosed that he was a special agent with IRS-CI and that he 
was conducting a criminal investigation of the taxpayer. Section 
6103(k)(6) permits these disclosures (including the special agent 
disclosing his affiliation with CI and the nature of the 
investigation) to confirm the taxpayer(s income. The decision 
whether to verify information already obtained is a matter of 
investigative judgment and is not limited by section 6103(k)(6).
    Example 4. Corporation A requests a private letter ruling (PLR) 
as to the tax consequences of a planned transaction. Corporation A 
has represented that it is in compliance with laws administered by 
Agency B that may relate to the tax consequences of the proposed 
transaction. Further information is needed from Agency B relating to 
possible tax consequences. Under section 6103(k)(6), the IRS may 
disclose Corporation A(s return information to Agency B to the 
extent necessary to obtain information from Agency B for the purpose 
of properly considering the tax consequences of the proposed 
transaction that is the subject of the PLR.

    (e) Effective date. This section is applicable on July 11, 2006.


Sec.  301.6103(k)(6)-1T  [Removed]

0
Par. 3. Section 301.6103(k)(6)-1T is removed.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: July 5, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary for Tax Policy.
[FR Doc. 06-6110 Filed 7-6-06; 10:02 am]
BILLING CODE 4830-01-P