[Federal Register Volume 83, Number 60 (Wednesday, March 28, 2018)]
[Proposed Rules]
[Pages 13206-13208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06242]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 83, No. 60 / Wednesday, March 28, 2018 / 
Proposed Rules  

[[Page 13206]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-132434-17]
RIN 1545-B012


Certain Non-Government Attorneys Not Authorized To Participate in 
Examinations of Books and Witnesses as a Section 6103(n) Contractor

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations to amend 
regulations under section 7602(a) of the Internal Revenue Code relating 
to administrative proceedings. Current regulations permit any person 
authorized to receive returns and return information under section 
6103(n) and the regulations thereunder to receive and review summoned 
books, papers, and other data, and, in the presence and under the 
guidance of an IRS officer or employee, participate fully in the 
interview of a witness in a summons interview. These proposed 
regulations significantly narrow the scope of the current regulations 
by excluding non-government attorneys from receiving summoned books, 
papers, records, or other data or from participating in the interview 
of a witness summoned by the IRS to provide testimony under oath, with 
a limited exception. These proposed regulations affect taxpayers 
involved in a federal tax examination and other persons whose books and 
records or testimony are sought to be examined by the IRS under section 
7602(a).

DATES: Written or electronic comments and requests for a public hearing 
must be received by June 26, 2018.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-132434-17), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
132434-17), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW, Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS-REG-132434-17).

FOR FURTHER INFORMATION CONTACT: Concerning submission of comments, 
Regina Johnson, (202) 317-6901; concerning the proposed regulations, 
William V. Spatz at (202) 317-5461 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    These proposed regulations amend Procedure and Administration 
Regulations (26 CFR part 301) under section 7602(a) of the Internal 
Revenue Code relating to participation by persons described in section 
6103(n) and Treas. Reg. Sec.  301.6103(n)-1(a) in receiving and 
reviewing summoned books, papers, records, or other data and in 
interviewing a summoned witness under oath. These proposed regulations 
narrow the scope of the current regulations by providing that certain 
non-government attorneys hired by the IRS are not authorized to 
participate in an examination.
    On June 18, 2014, temporary regulations (TD 9669) regarding 
participation in a summons interview of a person described in section 
6103(n) were published in the Federal Register (79 FR 34625). A notice 
of proposed rulemaking (REG-121542-14) cross-referencing the temporary 
regulations was published in the Federal Register (79 FR 34668) the 
same day. No public hearing was requested or held. The Internal Revenue 
Service received two comments on the proposed regulations. One comment 
recommended that the regulations be revised to remove the provision 
permitting a contractor to question a witness under oath or to ask a 
witness's representative to clarify an objection or assertion of 
privilege. The other comment recommended that the proposed and 
temporary regulations be withdrawn. After consideration of these 
comments, the proposed regulations were adopted in final regulations 
(TD 9778) published in the Federal Register (81 FR 45409) on July 14, 
2016 (``Summons Interview Regulations''). The only change from the 
temporary regulations in the final regulations was to replace the word 
``examine'' with ``review'' in the phrase describing what contractors 
may do with books, papers, records, or other data received by the IRS 
under a summons. The preamble to the final regulations explains that 
this was intended to clarify that the regulations do not authorize 
contractors to direct audits of a taxpayer's return. See 81 FR 45410.

Description of Summons Interview Regulations

    The United States tax system relies upon taxpayers' self-assessment 
and reporting of their tax liability. The expansive information-
gathering authority that Congress granted to the IRS under the Code 
includes the IRS's broad examination and summons authority, which 
allows the IRS to determine the accuracy of that self-assessment. See 
United States v. Arthur Young & Co., 65 U.S. 805, 816 (1984). Section 
7602(a) provides that, for the purpose of ascertaining the correctness 
of any return, making a return where none has been made, or determining 
the liability of any person for any internal revenue tax, the IRS is 
authorized to examine books and records, issue summonses seeking 
documents and testimony, and take testimony from witnesses under oath. 
These provisions have been part of the revenue laws since 1864.
    Use of outside specialists is appropriate to assist the IRS in 
determining the correctness of the taxpayer's self-assessed tax 
liability. The assistance of persons from outside the IRS, such as 
economists, engineers, appraisers, industry specialists, and actuaries, 
promotes fair and efficient administration and enforcement of the laws 
administered by the IRS by providing specialized knowledge, skills, or 
abilities that the IRS officers or employees assigned to the 
examination may not possess. Section 6103(n) and Treas. Reg. Sec.  
301.6103(n)-1(a) authorize the IRS to disclose returns and return 
information to these contractors. The regulations under Sec.  301.7602-
1(b)(3) were issued to clarify that persons described in section 
6103(n) and Treas. Reg. Sec.  301.6103(n)-1(a) may receive and review 
books, papers, records, or other data summoned by the IRS and, in the 
presence and under the guidance of an

[[Page 13207]]

IRS officer or employee, participate fully in the interview of a person 
who the IRS has summoned as a witness to provide testimony under oath. 
See 81 FR 45410.

Executive Order 13789, Notice 2017-38, and the Reports to the President

    Executive Order 13789, issued on April 21, 2017 (E.O. 13789, 82 FR 
19317), instructs the Secretary of the Treasury (the Secretary) to 
review all significant tax regulations issued on or after January 1, 
2016, and to take appropriate action to alleviate the burdens of 
regulations that (i) impose an undue financial burden on U.S. 
taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) 
exceed the statutory authority of the IRS.
    E.O. 13789 further instructs the Secretary to submit to the 
President within 60 days a report (First Report) that identifies 
regulations that meet these criteria. Notice 2017-38 (2017-30 I.R.B. 
147 (July 24, 2017)) included the Summons Interview Regulations in a 
list of eight regulations identified by the Secretary in the First 
Report as meeting at least one of the first two criteria specified in 
E.O. 13789. E.O. 13789 further instructs the Secretary to submit to the 
President a second report (Second Report) that recommends specific 
actions to mitigate the burden imposed by regulations identified in the 
First Report.
    In response to Notice 2017-38, the Treasury Department and the IRS 
received seven comments from professional and business associations 
addressing the Summons Interview Regulations. All but one of these 
comments recommended removal of the regulations based primarily on the 
commentators' perception that the regulations create longer and less 
efficient examinations by improperly delegating authority to outside 
law firms to conduct examinations. The one commenter that did not 
recommend removal of the regulations in their entirety requested 
removal of the provisions permitting a contractor to directly question 
a witness during a summons interview.
    As explained in the preamble to the final Summons Interview 
Regulations, the regulations do not delegate authority to conduct 
examinations or summons interviews. Rather, the regulations permit 
contractors authorized under section 6103(n) to review books and 
records and be present and ask questions during summons interviews, all 
under the supervision of IRS officers and employees. See 81 FR 45410-
45412.
    Comments in response to Notice 2017-38 also raised concerns that 
the regulations permit the IRS to hire law firms to receive and review 
summoned information and fully participate in a summons interview on 
behalf of the government.
    On October 16, 2017, the Secretary published the Second Report in 
the Federal Register (82 FR 48013) stating that the Treasury Department 
and the IRS are considering proposing a prospectively effective 
amendment to the Summons Interview Regulations to narrow their scope to 
prohibit non-government attorneys from questioning witnesses on behalf 
of the IRS, reviewing summoned records, or playing a behind-the-scenes 
role in an examination, such as consulting on IRS legal strategy, with 
a limited exception.
    The Code provides IRS officers and employees with significant and 
broad powers under its summons authority to question witnesses under 
oath and to require the production of books and records. The Summons 
Interview Regulations require the IRS to retain authority over 
important decisions when section 6103(n) contractors question 
witnesses, but there is a perceived risk that the IRS may not be able 
to maintain full control over the actions of a non-government attorney 
hired by the IRS when such an attorney, with the limited exception 
described below, questions witnesses. The actions of the non-
governmental attorney while questioning witnesses could foreclose IRS 
officials from independently exercising their judgment. Managing an 
examination or summons interview is therefore best exercised solely by 
government employees, including government attorneys, whose only duty 
is to serve the public interest. These concerns outweigh the 
countervailing need for the IRS to use non-government attorneys, except 
in the limited circumstances set forth in proposed paragraph 
(b)(3)(ii). Treasury and the IRS remain confident that the core 
functions of questioning witnesses and conducting examinations are well 
within the expertise and ability of government attorneys and 
examination agents.

Explanation of Provisions

    Proposed Sec.  301.7602-1(b)(3)(i) retains the rule from the 
Summons Interview Regulations authorizing section 6103(n) contractors 
to receive and review summoned information and fully participate in the 
summons interview, including questioning witnesses. However, proposed 
Sec.  301.7602-1(b)(3)(ii) is added to prohibit contractors who are 
attorneys, with the limited exception described below, from 
participating in the administrative process contemplated by section 
7602(a). Under this prohibition, a non-government attorney, with the 
limited exception described below, may not review summoned books, 
papers, records or other data or question summoned witnesses on behalf 
of the IRS unless the attorney is hired by the IRS for a permitted 
purpose.
    As a limited exception to that prohibition, proposed Sec.  
301.7602-1(b)(3)(ii) permits the IRS to hire a non-government attorney 
if the attorney is being hired for specialized substantive subject 
matter expertise in an area other than federal tax law. Specifically, 
proposed Sec.  301.7602-1(b)(3)(ii) permits the IRS to hire an attorney 
who has specialized knowledge of foreign, state, or local law, 
including tax law, or who is a specialist in non-tax substantive law 
such as patent law, property law, or environmental law. It would not 
permit IRS to hire an attorney for non-substantive specialized 
knowledge, such as civil litigation skills. Proposed Sec.  301.7602-
1(b)(3)(ii) also permits the IRS to hire a contractor who may happen to 
be an attorney, but who is hired for knowledge, skills, or abilities 
other than providing legal services as an attorney. Further, proposed 
Sec.  301.7602-1(b)(3)(ii) permits the IRS to hire an entity that 
employs or is owned by attorneys so long as the expertise they are 
providing is not prohibited by proposed Sec.  301.7602-1(b)(3)(ii).
    These changes are proposed to be effective for examinations begun 
and summonses served by the IRS on or after the date that these 
proposed regulations are published in the Federal Register.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and affirmed by 
Executive Order 13563. Therefore, a regulatory assessment is not 
required. Because the proposed regulations would not impose a 
collection of information on small entities, the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) does not apply. Therefore, a regulatory 
flexibility analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, the IRS will submit the proposed regulations 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comments about the regulations' impact on small businesses.

Comments and Request for a Public Hearing

    Before these proposed regulations are adopted as final, the IRS 
will consider any written (signed original and 8

[[Page 13208]]

copies) or electronic comments timely submitted. The IRS requests 
comments on all aspects of these proposed regulations. All comments 
will be available for public inspection and copying. The IRS will 
schedule a public meeting if one is requested, in writing, by a person 
who submits written comments. If the IRS does schedule a public 
hearing, the IRS will publish notice of the date, time, and place for 
the public hearing in the Federal Register.

Drafting Information

    The principal author of these regulations is William V. Spatz of 
the Office of Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 301

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

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be 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 301.7602-1 is amended by revising paragraphs(b)(3) and 
(d) to read as follows:


Sec.  301.7602-1  Examination of books and witnesses.

* * * * *
    (b) * * *
    (3) Participation of a person described in section 6103(n). (i) In 
general. Except as provided in paragraph (b)(3)(ii) of this section, 
for purposes of this paragraph (b), a person authorized to receive 
returns or return information under section 6103(n) and Sec.  
301.6103(n)-1(a) of the regulations may receive and review books, 
papers, records, or other data produced in compliance with a summons, 
and, in the presence and under the guidance of an IRS officer or 
employee, participate fully in the interview of a witness summoned by 
the IRS to provide testimony under oath. Fully participating in an 
interview includes, but is not limited to, receipt, review, and use of 
summoned books, papers, records, or other data; being present during 
summons interviews; and questioning the person providing testimony 
under oath.
    (ii) Exception for certain non-governmental attorneys. An attorney 
who is not an officer or employee of the United States may not be hired 
by the IRS to perform the activities described in paragraph (b)(3)(i) 
of this section unless the attorney is hired by the IRS as a specialist 
in foreign, state, or local law, including tax law, or in non-tax 
substantive law that is relevant to an issue in the examination, such 
as patent law, property law, or environmental law, or is hired for 
knowledge, skills, or abilities other than providing legal services as 
an attorney.
* * * * *
    (d) Applicability date. This section is applicable after September 
3, 1982, except for paragraphs (b)(1) and (2) of this section which are 
applicable on and after April 1, 2005 and paragraph (b)(3) of this 
section which applies to examinations begun or administrative summonses 
served by the IRS on or after March 27, 2018. For rules under 
paragraphs (b)(1) and (2) of this section that are applicable to 
summonses issued on or after September 10, 2002 or under paragraph 
(b)(3) of this section that are applicable to summons interviews 
conducted on or after June 18, 2014 and before July 14, 2016, see 26 
CFR 301.7602-1T (revised as of April 1, 2016). For rules under 
paragraph (b)(3) of this section that are applicable to administrative 
summonses served by the IRS before March 27, 2018, see 26 CFR 301.7602-
1 (revised as of April 1, 2017).

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2018-06242 Filed 3-27-18; 8:45 am]
 BILLING CODE 4830-01-P