[Federal Register Volume 89, Number 57 (Friday, March 22, 2024)]
[Proposed Rules]
[Pages 20371-20377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05968]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-117542-22]
RIN 1545-BQ96


Advance Notice of Third-Party Contacts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
notice that the IRS must provide to a taxpayer in advance of IRS 
contact with a third party with respect to the determination or 
collection of the taxpayer's tax liability, to reflect amendments made 
to the applicable tax law by the Taxpayer First Act of 2019. The 
regulations would affect taxpayers to whom the IRS must provide advance 
notice of IRS contact with such third parties.

DATES: Electronic or written comments and requests for a public hearing 
must be received by May 21, 2024.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and IRS 
REG-117542-22) by following the online instructions for submitting 
comments. Requests for a public hearing must be submitted as prescribed 
in the ``Comments and Requests for Public Hearing'' section. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish any comments submitted electronically or on paper 
to the public docket. Send paper submissions to: CC:PA:01:PR (REG-
117542-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben 
Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Brittany Harrison of the Office of the Associate Chief Counsel 
(Procedure and Administration), (202) 317-6833 (not toll-free number); 
concerning the submission of comments and requests for a public 
hearing, Vivian Hayes, (202) 317-6901 (not toll-free number) or by 
sending an email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed regulations that would amend the 
Procedure and Administration Regulations (26 CFR part 301) relating to 
the advance notice of IRS contact with third parties that must be 
provided to taxpayers under section 7602(c) of the Internal Revenue 
Code (Code).
    Generally, the Federal tax system relies upon taxpayers' self-
assessment and reporting of their tax liabilities. The expansive 
information-gathering authority that Congress has granted to the 
Secretary of the Treasury or her delegate (Secretary) 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., 465 U.S. 805, 816 (1984). Section 
7602(a) provides that, for the purpose of ascertaining the correctness 
of any return, making a return in cases in which none has been made, 
determining the liability of any person for any internal revenue tax, 
or collecting any such liability, the Secretary is authorized to 
examine books and records, issue summonses seeking documents and 
testimony, and take testimony from witnesses under oath as may be 
relevant or material. Section 7602(b) further provides that the 
purposes for which the Secretary may examine books and records, issue 
summonses, and take testimony under oath include the purpose of 
inquiring into any offense connected with the administration or 
enforcement of the internal revenue laws.
    Section 7602(c) was added to the Code by section 3417 of the 
Internal Revenue Service Restructuring and Reform Act of 1998, Public 
Law 105-206, 112 Stat. 685 (RRA 98). Section 7602(c)(1), as added by 
RRA 98, required that the IRS provide the taxpayer ``reasonable notice 
in advance'' before it contacted a third party with respect to the 
determination or collection of the tax liability of such taxpayer. 
Final regulations interpreting and implementing section 7602(c) as 
enacted by RRA 98 were promulgated in 2002. TD 9028 (67 FR 77419). 
Section 301.7602-2(d)(1) of the Procedure and Administration 
Regulations provides that the pre-contact notice may be given

[[Page 20372]]

either orally or in writing. If notice is written, it may be given in 
any manner that the IRS employee who gives such notice reasonably 
believes will be received by the taxpayer prior to the contact with the 
third party. Written notice is considered reasonable if it is mailed to 
the taxpayer's last known address, given in person, left at the 
taxpayer's dwelling or usual place of business, or actually received by 
the taxpayer. Section 301.7602-2(d)(2) provides that taxpayers need not 
be given pre-contact notice for contacts with third parties of which 
advance notice otherwise has been provided to the taxpayer pursuant to 
another statute, regulation, or administrative procedure.
    Section 1206 of the Taxpayer First Act of 2019 (TFA), Public Law 
116-25 (133 Stat. 981), which was enacted into law on July 1, 2019, 
amended section 7602(c)(1) to provide that IRS officers or employees 
may not contact a third party with respect to the determination or 
collection of the tax liability of a taxpayer unless the IRS first 
provides the taxpayer with advance notice meeting certain requirements. 
The notice must specify the period, not to exceed one year, during 
which the IRS intends to make the contact. The IRS must provide the 
notice to the taxpayer no later than 45 days before the beginning of 
such period, except as otherwise provided by the Secretary. The IRS may 
issue multiple notices to the same taxpayer with respect to the same 
tax liability that, taken together, cover an aggregate period greater 
than one year. The IRS may not issue a notice under section 7602(c) 
unless the IRS intends, at the time the notice is issued, to contact 
third parties during the period specified in that notice. The IRS may 
meet this intent requirement based on the assumption that the 
information sought to be obtained by the contact will not be obtained 
by other means before such contact. The TFA amendments apply to notices 
provided, and contacts made, after August 15, 2019.

Explanation of Provisions

I. Overview

    These proposed regulations would update the regulations in Sec.  
301.7602-2(a) and (d) pertaining to the advance notice that must be 
provided to taxpayers prior to IRS contact with third parties to 
conform to the new statutory language of section 7602(c). These 
proposed regulations also would provide, pursuant to the Secretary's 
authority in section 7602(c)(1)(B), exceptions to the 45-day advance 
notice requirement if delaying contact with third parties for 45 days 
after providing notice to the taxpayer would impair tax administration. 
In these situations, the 45-day advance notice period is proposed to be 
reduced or eliminated to ensure sufficient time for the IRS to properly 
conduct certain time-sensitive examination or collection activities.

II. Notice of Third-Party Contacts

    The proposed regulations would amend Sec.  301.7602-2(a) and (d) 
pertaining to third-party contacts to implement the amendments made to 
section 7602(c)(1) by section 1206 of the TFA. Like existing Sec.  
301.7602-2(a), proposed Sec.  301.7602-2(a)(1) would provide that, 
subject to the exceptions in existing Sec.  301.7602-2(f), IRS officers 
or employees may not contact third parties with respect to the 
determination or collection of the tax liability of a taxpayer unless 
the requirements of section 7602(c) and proposed Sec.  301.7602-2(d) 
have been satisfied. The exceptions in existing Sec.  301.7602-2(f) 
implement the statutory exceptions set forth in section 7602(c)(3) 
prior to, and unaffected by, the TFA.
    In cases not covered by the exceptions in section 7602(c)(3) and 
existing Sec.  301.7602-2(f), proposed Sec.  301.7602-2(d)(1) would 
implement the requirements of section 7602(c)(1) as amended by the TFA 
that IRS officers or employees may not contact third parties with 
respect to the determination or collection of the tax liability of a 
taxpayer unless the IRS provides advance notice to the taxpayer (third-
party contact notice). The third-party contact notice must specify a 
period, not to exceed one year, during which the contact is intended to 
occur and inform the taxpayer that third-party contacts are intended to 
be made during such period. Proposed Sec.  301.7602-2(d)(1) further 
provides that the third-party contact notice must be in writing. The 
requirement that the third-party contact notice be in writing is 
intended to ensure compliance with the advance notice requirement and 
to eliminate any potential confusion as to the date on which notice was 
provided to the taxpayer or the contents of the third-party contact 
notice. Subject to certain enumerated exceptions described in part III 
of this Explanation of Provisions, proposed Sec.  301.7602-2(d)(1)(iii) 
would implement the requirement of section 7602(c)(1)(B) that the 
third-party contact notice generally must be provided to the taxpayer 
no later than 45 days before the beginning of the period in which the 
contact is intended to be made (45-day advance notice period). Proposed 
Sec.  301.7602-2(d)(2) would further provide the methods by which the 
IRS will provide a third-party contact notice to the taxpayer, which 
are similar to the methods set forth in existing Sec.  301.7602-
2(d)(1)(i) through (iv).
    As provided in the second sentence of section 7602(c)(1), proposed 
Sec.  301.7602-2(d)(3) provides that the IRS is not prevented from 
issuing successive notices to the same taxpayer with respect to the 
same tax liability for periods (each not greater than one year) that, 
in the aggregate, exceed one year.
    As provided in the third and fourth sentences of section 
7602(c)(1), proposed Sec.  301.7602-2(d)(4) would provide that no 
third-party contact notice will be issued under proposed Sec.  
301.7602-2(d) unless there is an intent at the time such notice is 
issued to contact persons other than the taxpayer during the period 
specified in such notice, which intent may be met by the IRS on the 
basis of the assumption that the information sought to be obtained by 
the third-party contact will not be obtained by other means before such 
contact.

III. Exceptions to the 45-Day Advance Notice Requirement

    Proposed Sec.  301.7602-2(d)(5) provides several exceptions to the 
45-day advance notice requirement, in particular with respect to the 
IRS's fuel compliance program, nonjudicial redemption investigations, 
and in limited time-sensitive circumstances involving assessment or 
collection of tax.

A. Fuel Compliance Program

    Section 4081 of the Code imposes an excise tax on certain motor and 
aviation fuels. Section 4082 of the Code exempts diesel fuel and 
kerosene from such tax if used for certain nontaxable purposes 
specified in section 4082(b), including fuel sold for use or used in a 
train, school bus, or intracity transportation; for farm use; or for an 
off-highway business use, as defined in section 6421(e)(2) of the Code, 
except mobile machinery, as defined in section 6421(e)(2)(C). Tax-
exempt fuel is required to be indelibly dyed in a minimum concentration 
specified in Sec.  48.4082-1(b)(1) of the Manufacturers and Retailers 
Excise Tax Regulations (26 CFR part 48) or otherwise pre-approved by 
the IRS. Section 4083(d) of the Code provides that in administering 
sections 4081 through 4084 of the Code the Secretary may enter any 
place at which taxable fuel is produced or is stored (or may be stored) 
for purposes of examining the equipment used to determine the amount or 
composition of such fuel and the equipment used to store such fuel, 
taking and removing samples of such fuel, and inspecting any

[[Page 20373]]

books and records and any shipping papers pertaining to fuel. Section 
4083(d) further provides that the Secretary may also detain, for these 
purposes, any container that contains or may contain any taxable fuel. 
Refusal to admit entry or other refusal to permit an action authorized 
by section 4083(d) may result in certain penalties under sections 6717 
and 7342 of the Code.
    Section 6715(a) of the Code provides that a penalty in the amount 
prescribed in section 6715(b) will be imposed, in addition to any tax, 
if (1) any dyed fuel is sold or held for sale by any person for any use 
which such person knows or has reason to know is not a nontaxable use 
of such fuel, (2) any dyed fuel is held for use or used by any person 
for a use other than a nontaxable use and such person knew, or had 
reason to know, that such fuel was so dyed, (3) any person willfully 
alters, chemically or otherwise, or attempts to so alter, the strength 
or composition of any dye or marking done pursuant to section 4082 in 
any dyed fuel, or (4) any person who has knowledge that a dyed fuel 
which has been altered (as described in section 6715(a)(3)) sells or 
holds for sale such fuel for any use which the person knows or has 
reason to know is not a nontaxable use of such fuel. Section 6715(d) 
provides that if a penalty is imposed under section 6715 on any 
business entity, each officer, employee, or agent of such entity who 
willfully participated in any act giving rise to such penalty is 
jointly and severally liable with such entity for such penalty.
    Section 6715A of the Code provides that a person who tampers with a 
mechanical dye injection system used to indelibly dye fuel for purposes 
of section 4082, or any operator of a mechanical dye injection system 
used to indelibly dye fuel for purposes of section 4082 who fails to 
maintain the security standards for such system as established by the 
Secretary, must pay a penalty in the amount prescribed in section 
6715A(b) in addition to any tax. As with section 6715, if a penalty is 
imposed under section 6715A on any business entity, each officer, 
employee, or agent of such entity who willfully participated in any act 
giving rise to such penalty is jointly and severally liable with such 
entity for such penalty.
    Section 6720A(a) of the Code provides that any person who knowingly 
transfers for resale, sells for resale, or holds out for resale any 
liquid for use in a diesel-powered highway vehicle or a diesel-powered 
train that does not meet applicable Environmental Protection Agency 
regulations must pay, in addition to any tax, a penalty of $10,000 for 
each such transfer, sale, or holding out for resale. In addition, 
section 6720A(b) provides that any person who knowingly holds out for 
sale (other than for resale) any liquid described in section 6720A(a) 
must pay a penalty of $10,000 for each such holding out for sale, in 
addition to any tax on such liquid.
    Under the IRS's Fuel Compliance Program, fuel compliance officers 
and agents (FCO/As) conduct field inspections authorized under section 
4083(d). If they discover an improper use of dyed fuel or an improper 
dye concentration, they determine how the fuel came to be in the 
vehicles inspected. The individuals and entities inspected by FCO/As 
may be classified as either taxpayers or third parties, depending on 
the facts of a given inspection. FCO/As typically cannot know how to 
classify the parties involved until the inspection is conducted.
    One type of inspection conducted by FCO/As occurs after fuel is 
removed via a terminal rack into a transporting truck or railcar. A 
terminal is a taxable fuel storage and distribution facility that is 
supplied by pipeline or vessel and from which taxable fuel may be 
removed at a rack. A rack is a mechanism capable of delivering taxable 
fuel, usually through pipes, into a means of transport other than a 
pipeline or vessel. See Sec.  48.4081-1(b). The owner of the terminal 
rack could be liable for a penalty if the dye concentration is 
incorrect. Because the transport truck drivers are typically not 
employed by the owner of the terminal, they may be considered third 
parties relative to the owner of the terminal. FCO/As require immediate 
access to the fuel in the loaded transport trucks to determine the 
correct dye concentration prior to the fuel being delivered into the 
fuel distribution system. FCO/As also conduct inspections of various 
vehicles other than those leaving the terminal racks; for example, they 
may inspect a truck at a weigh station to determine if the truck 
contains dyed fuel. In such situations FCO/As require the ability to 
quickly investigate the origin of dyed fuel if impermissible dyed fuel 
is discovered. For example, if the driver of the vehicle is a company 
employee and the driver tells the FCO/A that the company owner 
instructed the driver to use dyed fuel, then the FCO/A ordinarily would 
want to conduct an investigation at the company's yard as soon as 
possible to determine culpability.
    Requiring that the IRS provide 45 days advance notice of third-
party contacts in the context of these fuel compliance examinations 
would significantly impair the enforcement work performed by FCO/As. 
Because these inspections are conducted in real time and are not based 
on a tax return, it is imperative that FCO/As have the ability to 
obtain information, develop facts, and determine potential liability in 
real time, given the risk that any delay would result in an inability 
to properly conduct the examination as information dissipates. For 
example, dyed diesel fuel may be removed or replaced from an oil 
drilling rig before the FCO/A is able to complete an investigation. 
Proposed Sec.  301.7602-2(d)(5)(i) therefore would provide that the IRS 
may provide same-day third-party contact notices to the taxpayer with 
respect to contacts intended to be made by the IRS, which would be made 
after the provision of the third-party contact notice on that day, in 
connection with investigations involving potential liability for 
penalties under section 6715, 6715A, or 6720A or in connection with the 
IRS's exercise of authority under section 4083(d). The IRS would 
therefore be able to make third-party contacts in these types of 
investigations immediately after providing the taxpayer with a third-
party contact notice.

B. Nonjudicial Sale Redemption Investigations

    Creditors may foreclose on property through judicial or nonjudicial 
processes, as provided by State law. Pursuant to section 7425(b) of the 
Code, a nonjudicial foreclosure sale will discharge a junior Federal 
tax lien from real or personal property if a notice of Federal tax lien 
has been filed more than 30 days before the sale and the foreclosing 
creditor gives the IRS notice of the sale at least 25 days in advance. 
Under section 7425(d) of the Code, however, the IRS has 120 days from 
the date of the nonjudicial foreclosure sale (or longer if provided by 
State law) to redeem real property from the purchaser. Redemption is 
accomplished by paying the purchaser the amount paid at the sale, 
interest, and certain expenses. The purpose of the redemption is for 
the IRS to sell the real property for a higher amount, a result which 
would benefit the taxpayer as well, as any additional sale proceeds 
would satisfy more of the taxpayer's liability or potentially lead to a 
surplus over the amount of the liability.
    Prior to redeeming the property, the IRS must undertake an 
investigation in order to determine the potential benefits and 
viability of a potential redemption. The IRS's Civil Enforcement 
Advisory and Support Office (CEASO) has primary responsibility for 
receiving and

[[Page 20374]]

screening nonjudicial sale notices for redemption potential. Generally, 
if the property value significantly exceeds the nonjudicial sale price, 
the CEASO refers the case to a revenue officer for a more thorough 
investigation and, if appropriate, redemption action. Such an 
investigation may involve the CEASO or the assigned revenue officer 
discussing the property and foreclosure with third parties. For 
example, it may be necessary for the IRS to determine the value of the 
property by researching records or consulting valuation specialists; to 
gather information about the nonjudicial sale by researching the 
balances of encumbrances against the property and inquiring about 
issues that could affect the amount realized through a redemption sale, 
for example, renter's claims; to notify the nonjudicial sale purchaser 
of the possible redemption; to secure a guaranteed bidder for the post-
redemption sale by contacting prospective bidders or advertising for 
bids; to obtain management approval for the redemption; to secure 
funding for the redemption from the revolving fund for redemption of 
real property under section 7810 of the Code; to deliver the redemption 
check to the sale purchaser; and to complete the redemption by filing 
the necessary documentation with the recording office within 120 days 
from the date of sale. Some of these contacts may be considered third 
party contacts subject to the 45-day advance notice requirement.
    The 45-day advance notice requirement of section 7602(c) would 
jeopardize the IRS's ability to redeem property. The redemption 
investigation cannot begin in earnest until after the foreclosure sale, 
at which point the sale price is known, and which commences the 120-day 
redemption period. The earliest date that the IRS could give the 
taxpayer advance notice of third-party contacts is on the date the 
CEASO receives notice of the sale. The 45-day advance notice period 
would thus necessarily start after the beginning of the 120-day 
redemption period, and the IRS may not be able to notify the sale 
purchaser of the possible redemption until the 46th day of the 
redemption period. As a consequence, the IRS would have fewer than 74 
days to fully determine the redemption potential, negotiate with the 
purchaser on potentially releasing the IRS's redemption rights, canvas 
for bidders, secure funding, and complete the redemption process. This 
is highly unlikely to be feasible. Therefore, proposed Sec.  301.7602-
2(d)(5)(ii) would reduce the 45-day advance notice period to 10 days of 
advance notice in these situations.

C. Statutory Period for Assessment Expiring in One Year or Less

    Section 6501(a) of the Code provides that the IRS generally has 
three years after an original return is filed or three years from the 
due date of the original return, whichever is later, within which to 
assess tax with respect to a particular tax year (statutory assessment 
period). Taxpayers and the IRS may extend the statutory assessment 
period by agreement under section 6501(c)(4). If the IRS needs to 
contact third parties in situations in which certain circumstances are 
present and one year or less remains on the statutory assessment 
period, tax administration would be impaired if the IRS were required 
to provide 45 days advance notice to the taxpayer before contacting the 
third parties.
1. Certain Examination Cases
    Proposed Sec.  301.7602-2(d)(5)(iii) would reduce the 45-day 
advance notice requirement to 10 days of advance notice in certain 
examinations in which the statutory assessment period will expire one 
year or less from the date the IRS intends to contact third parties and 
delaying such contacts for 45 days will impair the government's ability 
to expeditiously determine and assess tax. This proposed reduction 
would allow the IRS to move forward and promptly conduct examination 
activities in cases in which the time to do so is limited and a delay 
will impair the government's ability to expeditiously determine and 
assess tax.
    The 45-day advance notice period would be reduced to 10 days of 
advance notice if both the IRS has requested that the taxpayer provide, 
and the taxpayer has not provided within the time requested, a Form 
872, Consent to Extend the Time to Assess Tax, to extend the statutory 
assessment period for a period necessary to complete the examination 
and other administrative actions, and the IRS case involves an issue or 
issues with respect to which the burden of proof would rest with the 
IRS in a court proceeding. The amount of evidence necessary to support 
the IRS's position will generally be greater in cases in which the IRS 
would have the burden of proof if a case were to proceed to trial (for 
example, in cases involving unreported income). The IRS therefore needs 
additional time within which to attempt to gather this evidence through 
the use of, among other things, contacts with third parties. Requiring 
the IRS to wait 45 days prior to making contact with third parties 
after notifying the taxpayer that such contacts are intended to be made 
would hinder the IRS's ability to complete its investigation prior to 
the end of the statutory assessment period and would negatively impact 
its ability to meet its burden. Proposed Sec.  301.7602-2(d)(5)(iii) 
would therefore reduce the 45-day advance notice period to 10 days of 
advance notice in these situations.
2. Trust Fund Recovery Penalty Cases
    Proposed Sec.  301.7602-2(d)(5)(iv) would reduce the 45-day advance 
notice period to 10 days of advance notice in cases in which the IRS's 
contact with third parties is made as part of an investigation into 
potential liability for the trust fund recovery penalty (TFRP) under 
section 6672 of the Code that includes one or more tax periods with one 
year or less remaining on the assessment statute of limitations as of 
the date the IRS intends to contact third parties. A revenue officer 
investigating potential TFRP liability must determine whether a person 
is both responsible and willful, and multiple persons may be liable for 
the same TFRP liability, making such investigations highly fact-
intensive and challenging. As a result, an investigating revenue 
officer who is faced with a statutory assessment period that is ending 
will need to obtain information and documentation from third parties 
expeditiously in order to identify all responsible persons liable for 
the TFRP before the statutory assessment period ends. Waiting 45 days 
to contact third parties may prevent the revenue officer from 
identifying all responsible persons and from completing the TFRP 
investigation before the statutory assessment period ends. For example, 
if a potentially responsible person does not provide requested 
information and documentation by the deadline set by the revenue 
officer, provides only part of the information and documentation by the 
deadline, or asks for one or more extensions of time to respond, a 
revenue officer faced with a statutory assessment period that is ending 
will need to obtain information and documentation from third parties. 
Waiting 45 days before contacting third parties could result in 
assessments against some but not all responsible persons, assessments 
made against persons who were not responsible, or assessments against 
responsible persons who were not willful for some of the tax periods 
for which the trust fund taxes were not turned over to the IRS.

[[Page 20375]]

D. Statutory Period for Collection Expiring in One Year or Less

    Section 6502 of the Code provides that the length of the period for 
collection after assessment of a tax liability generally is 10 years 
(statutory collection period). The end of the statutory collection 
period ends the government's right to pursue collection of an unpaid 
tax liability. If the IRS needs to contact third parties in situations 
in which certain circumstances are present and one year or less remains 
on the statutory collection period, tax administration would be 
impaired if the IRS were required to provide 45 days advance notice to 
the taxpayer before contacting the third parties.
    Proposed Sec.  301.7602-2(d)(5)(v) would reduce the 45-day advance 
notice requirement to 10 days of advance notice in two situations in 
which there is one year or less remaining before the statutory 
collection period ends as of the date the IRS intends to make contact 
with third parties. The first situation is if providing 45 days advance 
notice would prevent the IRS from having sufficient time to prepare a 
suit referral and deliver it to the Department of Justice (DOJ). The 
second situation is if reducing the 45-day advance notice period to 10 
days of advance notice is necessary to allow sufficient time for 
collection activities.
1. Preparation and Delivery of Suit Referral to DOJ
    Proposed Sec.  301.7602-2(d)(5)(v)(A) would reduce the 45-day 
advance notice period to 10 days of advance notice in cases in which 
one year or less remains before the statutory collection period ends as 
of the date the IRS intends to contact third parties and the IRS plans 
to prepare a suit referral requesting that DOJ file suit to reduce 
assessments to judgment or to foreclose Federal tax liens before the 
statutory collection period ends. In these types of cases, collection 
cannot be accomplished by administrative methods within the normal 
statutory period. The United States' success in litigation, however, is 
highly dependent upon the full and complete development of factual and 
legal issues before the suit is filed. The IRS therefore needs as much 
time as possible to develop its case prior to making the referral, and 
requiring a revenue officer to wait 45 days to contact third parties 
after notifying the taxpayer that such contact is intended to be made 
would impair the IRS's ability to timely make the referral. A suit 
recommendation to foreclose Federal tax liens against specific property 
titled in the name of someone other than the taxpayer, for example, may 
require a revenue officer to develop evidence, including by issuing 
third-party summonses, to prove the taxpayer's property was 
fraudulently transferred or that a person holds the property as the 
taxpayer's nominee. The IRS's Office of Chief Counsel must then review 
and approve the suit recommendation before a referral is made to DOJ. 
Finally, DOJ reviews the recommendation, drafts the pleadings, and 
files suit. Depending on the complexity of facts, this process can take 
a significant amount of time. Therefore, in these situations, proposed 
Sec.  301.7602-2(d)(5)(v)(A) would provide that the IRS may contact the 
third parties 10 days after providing the third-party contact notice to 
the taxpayer.
2. Insufficient Time for Collection Activities
    Proposed Sec.  301.7602-2(d)(5)(v)(B) would reduce the 45-day 
advance notice period to 10 days of advance notice in cases in which 
there is one year or less remaining before the statutory collection 
period ends as of the date the revenue officer intends to contact third 
parties and the revenue officer is unable to contact the taxpayer or 
the taxpayer refuses to pay, if the revenue officer concludes that the 
period should be reduced in order to maximize the amount of unpaid tax 
that can be collected by levy within the time remaining before the 
statutory collection period expires. This reduction in advance notice 
will allow the IRS sufficient time for investigative work, including to 
serve collection summonses, to find assets on which to levy, and to 
execute levies. Proposed Sec.  301.7602-2(d)(5)(vi) would provide that 
a revenue officer is considered unable to contact the taxpayer if the 
taxpayer fails to respond to the revenue officer's reasonable attempts 
to contact the taxpayer directly within the time requested by the 
revenue officer.
    Proposed Sec.  301.7602-2(d)(5)(vii) would provide that the 
category of taxpayers who are considered to have refused to pay 
includes: (1) taxpayers who have the ability to pay their currently due 
and owing taxes including required tax deposits and estimated tax 
payments and to pay their delinquent taxes through an alternative 
collection method but will not do so; (2) taxpayers who cannot pay 
currently due taxes or pay their delinquent taxes, but who have assets 
in excess of amounts exempt from levy that will yield net proceeds and 
are unwilling or unable to borrow against or liquidate these assets; 
(3) taxpayers who are accruing employment tax liabilities without 
making required tax deposits; (4) taxpayers who use frivolous tax 
arguments and continue to resist the requirements to file and pay; (5) 
taxpayers who will not cooperate with the IRS (for example, taxpayers 
that evade contact or will not provide financial information); (6) 
taxpayers who will not comply with the results of the IRS's financial 
analysis or will not enter into an installment agreement or offer in 
compromise; (7) taxpayers who are wage earners who have not paid their 
tax liability and will not adjust their withholdings to prevent future 
delinquencies; (8) taxpayers who are self-employed, have not paid their 
tax liability, and will not make estimated tax payments to prevent 
future delinquencies; and (9) taxpayers who do not meet their 
commitments (without a valid reason) as required by an installment 
agreement, offer in compromise, or extension of time to pay. Proposed 
Sec.  301.7602-2(d)(5)(vii) does not provide an exhaustive list of 
taxpayers who are considered to have refused to pay, and taxpayers who 
engage in conduct not specifically listed in the text of proposed Sec.  
301.7602-2(d)(5)(vii) may be considered to have refused to pay.
    In these situations, the IRS faces significant delays in carrying 
out its collection activities and often must contact third parties. 
Requiring the IRS to wait 45 days prior to making contact with third 
parties after notifying the taxpayer that such contacts are intended to 
be made would hinder the IRS's ability to complete its collection 
activities in time. Therefore, in these situations, proposed Sec.  
301.7602-2(d)(5)(v)(B) and (d)(5)(vii) would provide the IRS the 
ability to contact third parties 10 days after providing the third-
party contact notice to the taxpayer.
Proposed Applicability Date
    The proposed regulations are proposed to apply to any contacts made 
on or after the date 30 days after the date of publication of final 
regulations in the Federal Register.
Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

[[Page 20376]]

II. Regulatory Flexibility Act

    The Secretary of the Treasury hereby certifies that these proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6). This certification is based on 
the fact that the regulation solely provides for the elimination or 
reduction of the time period between when the IRS informs a taxpayer 
that it intends to contact third parties and when the actual contact 
may take place in certain situations. Accordingly, a regulatory 
flexibility analysis under the Regulatory Flexibility Act is not 
required.
    Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This rule does not include any Federal mandate that may 
result in expenditures by State, local, or Tribal governments, or by 
the private sector in excess of that threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These proposed regulations do not 
have federalism implications and do not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.
Comments and Requests for Public Hearing
    Before these proposed regulations are adopted as final regulations, 
consideration will be given to comments that are submitted timely to 
the Treasury Department and the IRS as prescribed in this preamble 
under the ADDRESSES heading. The Treasury Department and the IRS 
request comments on all aspects of the proposed regulations. Any 
electronic and paper comments submitted will be available at https://www.regulations.gov or upon request.
    A public hearing will be scheduled if requested in writing by any 
person that timely submits electronic or written comments. Requests for 
a public hearing are encouraged to be made electronically. If a public 
hearing is scheduled, notice of the date, time, and place for the 
public hearing will be published in the Federal Register.
    Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides 
that public hearings will be conducted in person, although the IRS will 
continue to provide a telephonic option for individuals who wish to 
attend or testify at a hearing by telephone. Any telephonic hearing 
will be made accessible to people with disabilities.
Drafting Information
    The principal author of these temporary regulations is Brittany 
Harrison of the Office of the Associate Chief Counsel (Procedure and 
Administration). However, other personnel from the Treasury Department 
and the IRS participated in their development.

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, the Treasury Department and IRS propose to amend 26 
CFR part 301 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 301.7602-2 is amended by revising paragraphs (a), (d), 
and (g) to read as follows:


Sec.  301.7602-2  Third party contacts.

    (a) Advance notice of third-party contacts--(1) In general. Subject 
to the exceptions in paragraph (f) of this section, no officer or 
employee of the Internal Revenue Service (IRS) may contact any person 
other than the taxpayer with respect to the determination or collection 
of such taxpayer's tax liability unless the requirements of section 
7602(c) of the Internal Revenue Code (Code) and paragraph (d) of this 
section have been satisfied.
    (2) Record of contacts. A record of persons so contacted must be 
made and given to the taxpayer upon the taxpayer's request in 
accordance with paragraph (e) of this section.
* * * * *
    (d) Notice of third-party contacts--(1) In general. An officer or 
employee of the IRS may not make third-party contacts with respect to 
the determination or collection of the liability of a taxpayer unless 
such contact occurs during a period (not greater than one year) that is 
specified in a written notice (third-party contact notice) that--
    (i) The IRS provides to the taxpayer in accordance with paragraph 
(d)(2) of this section;
    (ii) Informs the taxpayer that third-party contacts are intended to 
be made during such period; and
    (iii) Except as set forth in paragraph (d)(5) of this section, is 
provided to the taxpayer no later than 45 days before the beginning of 
such period (45-day advance notice period).
    (2) Provision of third-party contact notice. A third-party contact 
notice must be--
    (i) Mailed to the taxpayer's last known address;
    (ii) Given in person to the taxpayer;
    (iii) Left at the taxpayer's dwelling or usual place of business; 
or
    (iv) Actually received by the taxpayer.
    (3) Successive notices. Nothing in paragraph (d)(1) of this section 
prevents the IRS from issuing successive notices to the same taxpayer 
with respect to the same tax liability for periods (each not greater 
than one year) that, in the aggregate, exceed one year.
    (4) Intent to contact. A third-party contact notice will not be 
issued under paragraph (d) of this section unless there is an intent at 
the time such notice is issued to contact persons other than the 
taxpayer during the period specified in such notice. Nothing in the 
preceding sentence will prevent the issuance of a third-party contact 
notice if the requirement of such sentence is met on the basis of the 
assumption that the information sought to be obtained by such contact 
will not be obtained by other means before such contact.
    (5) Exceptions to 45-day advance notice period. The 45-day advance 
notice period of section 7602(c)(1)(B) of the Code and paragraph (d)(1) 
of this section is reduced in the case of third-party contacts 
described in paragraphs (d)(5)(i) through (v) of this section.
    (i) Fuel compliance program. The 45-day advance notice period is 
reduced to

[[Page 20377]]

zero days, and the IRS may make a third-party contact at any time after 
the third-party contact notice has been given to the taxpayer, if--
    (A) The IRS officer or employee intends to make a third-party 
contact in connection with its investigation of potential liability for 
penalties under section 6715, 6715A, or 6720A of the Code; or
    (B) The IRS officer or employee intends to make a third-party 
contact in connection with its exercise of authority under section 
4083(d) of the Code.
    (ii) Nonjudicial sale redemption investigations. The 45-day advance 
notice period is reduced to 10 days if the IRS officer or employee 
intends to make a third-party contact in connection with an 
investigation into a potential nonjudicial sale redemption.
    (iii) Examination cases involving certain issues in which statutory 
period for assessment expiring within one year or less. The 45-day 
advance notice period is reduced to 10 days in cases under examination 
in which there is one year or less remaining before the expiration of 
the period for assessment under section 6501(a) of the Code determined 
with regard to extensions (statutory assessment period) for any period 
included in the examination as of the date the IRS intends to make a 
third-party contact if:
    (A) The case involves an issue with respect to which the IRS would 
have the burden of proof in any court proceeding; and
    (B) The IRS has requested that the taxpayer provide the IRS with an 
unrestricted, signed Form 872, Consent to Extend the Time to Assess 
Tax, to extend the statutory assessment period by a period necessary to 
complete the examination and other administrative actions, and the 
taxpayer has not provided the requested signed Form 872 within the time 
requested.
    (iv) Trust fund recovery penalty investigations in which statutory 
period for assessment expiring within one year or less. The 45-day 
advance notice period is reduced to 10 days in investigations into 
potential liability for penalties under section 6672 of the Code if 
there is one year or less remaining before the expiration of the 
statutory assessment period for any period included in the 
investigation as of the date the IRS intends to make a third-party 
contact.
    (v) Statutory period for collection expiring within one year or 
less. The 45-day advance notice period is reduced to 10 days if there 
is one year or less remaining in the time period (or, in cases 
involving multiple time periods, in any time period in the case) under 
section 6502 of the Code within which the IRS may collect an assessed 
tax by levy or by a proceeding in court (statutory collection period) 
as of the date the IRS intends to make a third-party contact and 
either--
    (A) The IRS intends to prepare and deliver to the Department of 
Justice (DOJ) a suit referral requesting that DOJ file suit to reduce 
assessments to judgment or to foreclose Federal tax liens before the 
expiration of the statutory collection period; or
    (B) The revenue officer is unable to contact the taxpayer (as 
defined in paragraph (d)(5)(vi) of this section), or the taxpayer 
refuses to pay (as defined in paragraph (d)(5)(vii) of this section), 
and the revenue officer concludes that the advance notice period should 
be reduced in order to maximize the amount of unpaid tax that can be 
collected by levy within the time remaining before the statutory 
collection period expires.
    (vi) Unable to contact the taxpayer. The revenue officer is unable 
to contact the taxpayer for purposes of paragraph (d)(5)(v)(B) of this 
section if the taxpayer fails to respond to the revenue officer's 
reasonable attempts to contact the taxpayer directly within the time 
requested by the revenue officer.
    (vii) Taxpayer refuses to pay. The category of taxpayers who are 
considered to have refused to pay for purposes of paragraph 
(d)(5)(v)(B) of this section includes taxpayers described in this 
paragraph (d)(5)(vii). This paragraph (d)(5)(vii) is not an exhaustive 
list of taxpayers considered to have refused to pay, and taxpayers who 
engage in conduct not specifically described in this paragraph 
(d)(5)(vii) may be considered to have refused to pay.
    (A) Taxpayers who have the ability to pay their currently due and 
owing taxes including required tax deposits and estimated tax payments 
and to pay their delinquent taxes through an alternative collection 
method but will not do so.
    (B) Taxpayers who cannot pay currently due taxes or pay their 
delinquent taxes, but who have assets in excess of amounts exempt from 
levy that will yield net proceeds and are unwilling or unable to borrow 
against or liquidate these assets.
    (C) Taxpayers who are accruing employment tax liabilities without 
making required tax deposits.
    (D) Taxpayers who use frivolous tax arguments and continue to 
resist the requirements to file returns and pay their tax liability.
    (E) Taxpayers who will not cooperate with the IRS (for example, 
taxpayers that evade contact or will not provide financial 
information).
    (F) Taxpayers who will not comply with the results of the IRS's 
financial analysis or will not enter into an installment agreement or 
offer in compromise.
    (G) Taxpayers who are wage earners who have not paid their tax 
liability and will not adjust their withholdings to prevent future 
delinquencies.
    (H) Taxpayers who are self-employed, have not paid their tax 
liability, and will not make estimated tax payments to prevent future 
delinquencies.
    (I) Taxpayers who do not meet their commitments (without a valid 
reason) as required by an installment agreement, offer in compromise, 
or extension of time to pay.
* * * * *
    (g) Applicability dates--(1) In general. Except as provided for in 
paragraph (g)(2) of this section, this section is applicable on 
December 18, 2002.
    (2) Exceptions. Paragraphs (a)(1) and (d) of this section apply to 
third-party contacts made on or after 30 days after [DATE OF 
PUBLICATION OF FINAL RULE].

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2024-05968 Filed 3-21-24; 8:45 am]
BILLING CODE 4830-01-P