[Federal Register Volume 74, Number 146 (Friday, July 31, 2009)]
[Rules and Regulations]
[Pages 38095-38098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18380]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9455]
RIN 1545-BC55


Suspension of Running of Period of Limitations During a 
Proceeding To Enforce or Quash a Designated or Related Summons

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding the use of 
designated summonses and related summonses and the effect on the period 
of limitations on assessment when a case is brought with respect to a 
designated or related summons. These final regulations reflect changes 
to section 6503 of the Internal Revenue Code of 1986 made by the 
Omnibus Budget Reconciliation Act of 1990 and the Small Business Job 
Protection Act of 1996. These final regulations affect corporate 
taxpayers that are examined under the coordinated industry case (CIC) 
program and are served with designated or related summonses. These 
final regulations also affect third parties that are served with 
designated or related summonses for information pertaining to the 
corporate examination.

DATES: Effective Date: These regulations are effective on July 31, 
2009.
    Applicability Date: For the date of applicability, see Sec.  
301.6503(j)-1(e).

FOR FURTHER INFORMATION CONTACT: Elizabeth Rawlins, (202) 622-3620 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains final regulations amending the Procedure and 
Administration regulations (26 CFR part 301) under section 6503. 
Section 11311 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 
101-508, 104 Stat. 1388) amended section 6503(k) to suspend the period 
of limitations on assessment when a case is brought with respect to a 
designated or related summons. Section 6503(k) was redesignated as 
section 6503(j) by section 1702(h)(17)(A) of the Small Business Job 
Protection Act of 1996 (Pub. L. 104-188, 110 Stat. 1874).
    On April 28, 2008, the IRS published in the Federal Register a 
notice of proposed rulemaking (REG-208199-91; 73 FR 22879), 
interpreting section 6503(j) and withdrawing a prior notice of proposed 
rulemaking, hereinafter referred to as the 2003 proposed regulations, 
published in the Federal Register on July 31, 2003 (68 FR 44905). 
Written comments from one commentator were received. No request for a 
public hearing was received, nor was one held. The proposed regulations 
are adopted as final regulations with one minor clarifying change.
    As described more fully in the preamble to the proposed 
regulations, these regulations generally provide that the period of 
limitations on assessment provided for in section 6501 is suspended 
with respect to any return of tax by a corporation that is the subject 
of a designated or related summons if a court proceeding to enforce or 
quash is instituted with respect to that summons. These final 
regulations define a designated summons, a related summons, and the 
period of suspension. The final regulations also provide guidance 
regarding the component concepts of judicial enforcement period, court 
proceeding, the date when the proceeding is no longer pending, final 
resolution, compliance, and the date when compliance occurs. These 
regulations also provide special rules on the number of designated and 
related summonses that may be issued, the time within which court 
proceedings must be brought to suspend the period of limitations on 
assessment, the computation of the suspension period if multiple court 
proceedings are instituted, the effect on the suspension provisions 
under section 7609(e), and the application of section 7503 when the 
last day of an assessment period falls on a Saturday, Sunday, or legal 
holiday.

Comments on the Proposed Regulations

Sec.  301.6503(j)-1(c)(5)(ii)--Date Compliance Occurs

    Proposed Sec.  301.6503(j)-1(c)(5)(ii) provides, in pertinent part, 
that ``[c]ompliance with a court order that grants enforcement, in 
whole or in part, of a designated or related summons, occurs on the 
date it is determined that the testimony given, or the books, papers, 
records, or other data produced, or both, by the summoned party fully 
satisfy the court order concerning the summons. The determination of 
whether there has been full compliance will be made within a reasonable 
time, given the volume and complexity of the records produced, after 
the later of the giving of all testimony or the production of all 
records requested by the summons or required by any order enforcing any 
part of the summons.'' The commentator suggested that this provision be 
changed

[[Page 38096]]

to conform to the language appearing in the 2003 proposed regulation, 
which in pertinent part provides ``[c]ompliance with a court order that 
grants enforcement * * * occurs on the date the Commissioner or his 
delegate (Commissioner) determines that * * * the summoned party fully 
satisf[ied] the court order * * *. The determination whether there has 
been compliance will be made as soon as practicable after the testimony 
is given or the materials are produced.'' In particular, the 
commentator recommended that the phrase ``as soon as practicable,'' 
used in the 2003 proposed regulations, be substituted for the phrase 
``within a reasonable time,'' used in the 2008 proposed regulations. 
The commentator indicated this suggestion was intended to protect 
cooperative taxpayers from uncertainty about the suspension of their 
period of limitations.
    This suggestion has not been adopted. The 2008 proposed regulations 
identify the facts and circumstances to which the phrase ``within a 
reasonable time'' is intended to relate, including whether a 
determination is ``practicable,'' by adding the phrase ``given the 
volume and complexity of the records produced.'' Moreover, the term 
``reasonable'' is a term that is routinely interpreted by the courts.
    The commentator also expressed concern over the 2008 proposed 
regulatory phrase ``it is determined,'' appearing in the phrase 
``occurs on the date it is determined that the testimony given * * * or 
other data produced * * * by the summoned party fully satisfy the court 
order.'' Although the commentator did not expressly suggest other 
language, the commentator did note that the 2003 proposed regulations 
had provided ``the Commissioner or his delegate determines'' and 
expressed the view that the 2008 phrase ``it is determined'' is 
ambiguous and will leave the taxpayer without guidance as to who will 
actually make the determination.
    CIC corporate taxpayers and their tax advisors are aware that the 
first point of inquiry for any matter involving the examination is the 
examination team conducting the audit and the team's management and 
supervisory chain of command. These are the persons who will examine 
the summoned information and, under Internal Revenue Manual (IRM) 
procedures that will be issued based on these regulations, will decide 
whether the summoned person's production satisfies the court's order. 
The final regulations amend the proposed regulations to clarify this 
understanding and practice.

Section 301.6503(j)-1(d)--Special Rules

    Proposed Sec.  301.6503(j)-1(d)(1) through (5) provides several 
special rules that apply to designated and related summonses, such as 
the rule limiting the number of designated summonses that may be 
issued. Proposed Sec.  301.6503(j)-1(d) does not include provisions 
appearing in the 2003 proposed regulations as Sec.  301.6503(j)-1(d)(6) 
and (7), containing a procedure whereby a summoned person could request 
from the IRS a determination that the summoned person had fully 
complied with a designated or related summons to the extent required by 
court order. According to this 2003 proposed regulatory procedure, 
unless the taxpayer's request was responded to timely, the summons 
would be treated as having been fully complied with as of the 180th 
day. This proposed procedure was not included in the 2008 proposed 
regulations.
    The commentator suggested that this provision be revised to include 
2003 proposed Sec.  301.6503(j)-1(d)(6) and (7), with one modification. 
The commentator suggested that the ``fully complied with'' procedure be 
reinstated and that a new provision be added to permit the taxpayer to 
request a ``fully complied with'' determination in cases where the 
summons was served on a third party. The commentator suggested that 
reinserting the procedure would protect cooperative CIC taxpayers from 
receiving unnecessary designated summonses, assist CIC taxpayers in 
knowing the date on which the suspension terminates, and avoid 
unnecessary litigation.
    This commentator's suggestion has not been adopted. The final 
regulations and existing extensive safeguard protect cooperative CIC 
taxpayers from receiving unnecessary designated summonses. For example, 
pursuant to section 1003 of the Taxpayer Bill of Rights 2 of 1996 (Pub. 
L. 104-168, 110 Stat. 1468), Congress requires the Treasury Department 
to report on an annual basis the number of designated summonses issued 
in the preceding year. Also, pursuant to section 6503(j)(2)(A)(i), 
Congress requires preissuance review by a high ranking executive of the 
Office of Chief Counsel. The IRS and these regulations require 
preissuance review by both the Division Counsel of the Office of Chief 
Counsel and the Division Commissioner for the organizations that have 
jurisdiction over the corporate taxpayer. Additionally, the Office of 
Chief Counsel requires that the National Office provide preissuance 
review of all designated summonses. IRM 34.6.3.1(6)c. The public may 
access the IRM at http://www.irs.gov/irm/index.html. To obtain approval 
for the issuance of a designated summons, the issuing office must 
explain why the corporate taxpayer refused to extend the period of 
limitations on assessment, and if the summons is to be issued near the 
end of the period permitted by section 6503(j), the issuing office must 
explain why the summons was not issued at an earlier date. IRM 
25.5.3.3(3)b. The effectiveness of these safeguards is evidenced by the 
IRS's circumspect use of the designated summons authority.
    The IRS also will issue IRM provisions that will include procedures 
whereby the CIC taxpayer will be promptly informed of whether the 
production of summoned information fully complies with the summons. The 
IRM procedures depend on the issuance of the interpretative rules in 
these regulations, particularly the definition of final resolution and 
compliance, and cannot be published until these final regulations are 
effective. Once these regulations are effective, the IRM procedures 
will be published. Moreover, even without such IRM procedures, a CIC 
taxpayer may ascertain when the IRS determined full compliance and when 
the suspension terminated by contacting the examining agent.
    The final regulations also effectively prevent unnecessary 
litigation. In addition to the extensive safeguards discussed above, 
the IRS is committed to examining the summoned information and 
determining whether the production satisfies the enforcement order 
within a reasonable time given the volume and complexity of the 
information produced. The CIC taxpayer may contact the IRS at any time 
to inquire about the status of the suspension.

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 been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to this regulation, and because the 
regulation does not impose a collection of information requirement on 
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
does not apply. Pursuant to section 7805(f), the notice of proposed 
rulemaking preceding this final regulation was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

[[Page 38097]]

Drafting Information

    The principal author of these regulations is Elizabeth Rawlins of 
the Office of the Associate Chief Counsel, Procedure and 
Administration, Internal Revenue Service.

Lists of Subjects in 26 CFR Part 301

0
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 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *.


0
Par. 2. Section 301.6503(j)-1 is added to read as follows:


Sec.  301.6503(j)-1  Suspension of running of period of limitations; 
extension in case of designated and related summonses.

    (a) General rule. The running of the applicable period of 
limitations on assessment provided for in section 6501 is suspended 
with respect to any return of tax by a corporation that is the subject 
of a designated or related summons if a court proceeding is instituted 
with respect to that summons.
    (b) Period of suspension. The period of suspension is the time 
during which the running of the applicable period of limitations on 
assessment provided for in section 6501 is suspended under section 
6503(j). If a court requires any compliance with a designated or 
related summons by ordering that any record, document, paper, object, 
or items be produced, or the testimony of any person be given, the 
period of suspension consists of the judicial enforcement period plus 
120 days. If a court does not require any compliance with a designated 
or related summons, the period of suspension consists of the judicial 
enforcement period, and the period of limitations on assessment 
provided in section 6501 shall not expire before the 60th day after the 
close of the judicial enforcement period.
    (c) Definitions--(1) A designated summons is a summons issued to a 
corporation (or to any other person to whom the corporation has 
transferred records) with respect to any return of tax by such 
corporation for a taxable period for which such corporation is being 
examined under the coordinated industry case program or any other 
successor to the coordinated examination program if--
    (i) The Division Commissioner and the Division Counsel of the 
Office of Chief Counsel (or their successors) for the organizations 
that have jurisdiction over the corporation whose tax liability is the 
subject of the summons have reviewed the summons before it is issued;
    (ii) The Internal Revenue Service (IRS) issues the summons at least 
60 days before the day the period prescribed in section 6501 for the 
assessment of tax expires (determined with regard to extensions); and
    (iii) The summons states that it is a designated summons for 
purposes of section 6503(j).
    (2) A related summons is any summons issued that--
    (i) Relates to the same return of the corporation under examination 
as the designated summons; and
    (ii) Is issued to any person, including the person to whom the 
designated summons was issued, during the 30-day period that begins on 
the day the designated summons is issued.
    (3) The judicial enforcement period is the period that begins on 
the day on which a court proceeding is instituted with respect to a 
designated or related summons and ends on the day on which there is a 
final resolution as to the summoned person's response to that summons.
    (4) Court proceeding--(i) In general. For purposes of this section, 
a court proceeding is a proceeding filed in a United States district 
court either to quash a designated or related summons under section 
7609(b)(2) or to enforce a designated or related summons under section 
7604. A court proceeding includes any collateral proceeding, such as a 
civil contempt proceeding.
    (ii) Date when proceeding is no longer pending. A proceeding to 
quash or to enforce a designated or related summons is no longer 
pending when all appeals (including review by the Supreme Court) are 
disposed of or after the expiration of the period in which an appeal 
may be taken or a request for further review (including review by the 
Supreme Court) may be made. If, however, following an enforcement 
order, a collateral proceeding is brought challenging whether the 
testimony given or production made by the summoned party fully 
satisfied the court order and whether sanctions should be imposed 
against the summoned party for a failure to so testify or produce, the 
proceeding to quash or to enforce the summons shall include the time 
from which the proceeding to quash or to enforce the summons was 
brought until the decision in the collateral proceeding becomes final. 
The decision becomes final on the date when all appeals (including 
review by the Supreme Court) are disposed of or when all appeal periods 
or all periods for further review (including review by the Supreme 
Court) expire. A decision in a collateral proceeding becomes final when 
all appeals (including review by the Supreme Court) are disposed of or 
when all appeal periods or all periods for further review (including 
review by the Supreme Court) expire.
    (5) Compliance--(i) In general. Compliance is the giving of 
testimony or the performance of an act or acts of production, or both, 
in response to a court order concerning the designated or related 
summons and the determination that the terms of the court order have 
been satisfied.
    (ii) Date compliance occurs. Compliance with a court order that 
wholly denies enforcement of a designated or related summons is deemed 
to occur on the date when all appeals (including review by the Supreme 
Court) are disposed of or when the period in which an appeal may be 
taken or a request for further review (including review by the Supreme 
Court) may be made expires. Compliance with a court order that grants 
enforcement, in whole or in part, of a designated or related summons, 
occurs on the date the IRS determines that the testimony given, or the 
books, papers, records, or other data produced, or both, by the 
summoned party fully satisfy the court order concerning the summons. 
The IRS will determine whether there has been full compliance within a 
reasonable time, given the volume and complexity of the records 
produced, after the later of the giving of all testimony or the 
production of all records requested by the summons or required by any 
order enforcing any part of the summons. If, following an enforcement 
order, collateral proceedings are brought challenging whether the 
production made by the summoned party fully satisfied the court order 
and whether sanctions should be imposed against the summoned party for 
a failing to do so, the suspension of the periods of limitations shall 
continue until the order enforcing any part of the summons is fully 
complied with and the decision in the collateral proceeding becomes 
final. A decision in a collateral proceeding becomes final when all 
appeals are disposed of, the period in which an appeal may be taken has 
expired or the period in which a request

[[Page 38098]]

for further review may be made has expired.
    (6) Final resolution occurs when the designated or related summons 
or any order enforcing any part of the designated or related summons is 
fully complied with and all appeals or requests for further review are 
disposed of, the period in which an appeal may be taken has expired or 
the period in which a request for further review may be made has 
expired.
    (d) Special rules--(1) Number of summonses that may be issued--(i) 
Designated summons. Only one designated summons may be issued in 
connection with the examination of a specific taxable year or other 
period of a corporation. A designated summons may cover more than one 
year or other period of a corporation. The designated summons may 
require production of information that was previously sought in a 
summons (other than a designated summons) issued in the course of the 
examination of that particular corporation if that information was not 
previously produced.
    (ii) Related summonses. There is no restriction on the number of 
related summonses that may be issued in connection with the examination 
of a corporation. As provided in paragraph (c)(2) of this section, 
however, a related summons must be issued within the 30-day period that 
begins on the date on which the designated summons to which it relates 
is issued and must relate to the same return as the designated summons. 
A related summons may request the same information as the designated 
summons.
    (2) Time within which court proceedings must be brought. In order 
for the period of limitations on assessment to be suspended under 
section 6503(j), a court proceeding to enforce or to quash a designated 
or related summons must be instituted within the period of limitations 
on assessment provided in section 6501 that is otherwise applicable to 
the tax return.
    (3) Computation of suspension period if multiple court proceedings 
are instituted. If multiple court proceedings are instituted to enforce 
or to quash a designated or one or more related summonses concerning 
the same tax return, the period of limitations on assessment is 
suspended beginning on the date the first court proceeding is brought. 
The suspension shall end on the date that is the latest date on which 
the judicial enforcement period, plus the 120 day or 60 day period 
(depending on whether the court requires any compliance) as provided in 
paragraph (b) of this section, expires with respect to each summons.
    (4) Effect on other suspension periods--(i) In general. Suspensions 
of the period of limitations under section 6501 provided for under 
subsections 7609(e)(1) and (e)(2) do not apply to any summons that is 
issued pursuant to section 6503(j). The suspension under section 
6503(j) of the running of the period of limitations on assessment under 
section 6501 is independent of, and may run concurrent with, any other 
suspension of the period of limitations on assessment that applies to 
the tax return to which the designated or related summons relates.
    (ii) Examples. The rules of paragraph (d)(4)(i) of this section are 
illustrated by the following examples:

    Example 1. The period of limitations on assessment against 
Corporation P, a calendar year taxpayer, for its 2007 return is 
scheduled to end on March 17, 2011. (Ordinarily, Corporation P's 
returns are filed on March 15th of the following year, but March 15, 
2008, was a Saturday, and Corporation P timely filed its return on 
the subsequent Monday, March 17, 2008, making March 17, 2011 the 
last day of the period of limitations on assessment for Corporation 
P's 2007 tax year.) On January 4, 2011, a designated summons is 
issued to Corporation P concerning its 2007 return. On March 3, 2011 
(14 days before the period of limitations on assessment would 
otherwise expire with respect to Corporation P's 2007 return), a 
court proceeding is brought to enforce the designated summons issued 
to Corporation P. On June 6, 2011, the court orders Corporation P to 
comply with the designated summons. Corporation P does not appeal 
the court's order. On September 6, 2011, agents for Corporation P 
deliver material that they state are the records requested by the 
designated summons. On October 13, 2011, a final resolution to 
Corporation P's response to the designated summons occurs when it is 
determined that Corporation P has fully complied with the court's 
order. The suspension period applicable with respect to the 
designated summons issued to Corporation P consists of the judicial 
enforcement period (March 3, 2011, through October 13, 2011) and an 
additional 120-day period under section 6503(j)(1)(B), because the 
court required Corporation P to comply with the designated summons. 
Thus, the suspension period applicable with respect to the 
designated summons issued to Corporation P begins on March 3, 2011, 
and ends on February 10, 2012. Under the facts of this Example 1, 
the period of limitations on assessment against Corporation P 
further extends to February 24, 2012, to account for the additional 
14 days that remained on the period of limitations on assessment 
under section 6501 when the suspension period under section 6503(j) 
began.
    Example 2. Assume the same facts set forth in Example 1, except 
that in addition to the issuance of the designated summons and 
related enforcement proceedings, on April 5, 2011, a summons 
concerning Corporation P's 2007 return is issued and served on 
individual A, a third party. This summons is not a related summons 
because it was not issued during the 30-day period that began on the 
date the designated summons was issued. The third-party summons 
served on individual A is subject to the notice requirements of 
section 7609(a). Final resolution of individual A's response to this 
summons does not occur until February 15, 2012. Because there is no 
final resolution of individual A's response to this summons by 
October 5, 2011, which is six months from the date of service of the 
summons, the period of limitations on assessment against Corporation 
P is suspended under section 7609(e)(2) to the date on which there 
is a final resolution to that response for the purposes of section 
7609(e)(2). Moreover, because final resolution to the summons served 
on individual A does not occur until after February 10, 2012, the 
end of the suspension period for the designated summons, the period 
of limitations on assessment against Corporation P expires 14 days 
after the date that the final resolution as provided for in section 
7609(e)(2) occurs with respect to the summons served on individual 
A.

    (5) Computation of 60-day period when last day of assessment period 
falls on a weekend or holiday. For purposes of paragraph (c)(1)(ii) of 
this section, in determining whether a designated summons has been 
issued at least 60 days before the date on which the period of 
limitations on assessment prescribed in section 6501 expires, the 
provisions of section 7503 apply when the last day of the assessment 
period falls on a Saturday, Sunday, or legal holiday.
    (e) Effective/applicability date. This section is applicable on 
July 31, 2009.

    Approved: July 15, 2009.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Michael Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-18380 Filed 7-30-09; 8:45 am]
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