Participation of a Person Described in Section 6103(n) in a Summons Interview Under Section 7602(a)(2) of the Internal Revenue Code, 45409-45414 [2016-16606]
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Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Rules and Regulations
That airspace extending upward from 700
feet above the surface within a 7.5-mile
radius of De Quincy Industrial Airpark.
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ASW LA E5 Homer, LA [Removed]
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ASW LA E5 Minden, LA [Amended]
Minden Airport, LA
(Lat. 32°38′46″ N., long. 93°17′53″ W.)
That airspace extending upward from 700
feet above the surface within a 6.5-mile
radius of Minden Airport.
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ASW LA E5 Slidell, LA [Amended]
Slidell Airport, LA
(Lat. 30°20′47″ N., long. 89°49′15″ W.)
That airspace extending upward from 700
feet above the surface within a 6.5-mile
radius of Slidell Airport, and within 4.0
miles each side of the 360° bearing from the
airport extending from the 6.5-mile radius to
9.2 miles north of the airport, and within 4.0
miles each side of the 180° bearing from the
airport extending from the 6.5-mile radius to
9.0 miles south of the airport.
Issued in Fort Worth, Texas, on June 27,
2016.
Walter Tweedy,
Acting Manager, Operations Support Group,
ATO Central Service Center.
[FR Doc. 2016–16383 Filed 7–13–16; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
Silver Spring, MD 20993–0002, 240–
402–7911.
SUPPLEMENTARY INFORMATION: In the
Federal Register of February 12, 2016
(81 FR 7445), FDA published a final rule
entitled ‘‘Removal of Review and
Reclassification Procedures for
Biological Products Licensed Prior to
July 1, 1972’’ (February 2016 final rule).
In the February 2016 final rule, FDA, in
part, removed § 601.25 (21 CFR 601.25),
which prescribed procedures for FDA’s
review of biological products licensed
before July 1, 1972.
Under § 14.1(a)(2) (21 CFR 14.1(a)(2)),
specific provisions are provided for a
matter that is subject to a hearing before
an advisory committee. Under
§ 20.100(c) (21 CFR 20.100(c)), in
addition to the provisions of 21 CFR
part 20, rules on the availability of
specific categories of FDA records are
established by regulations under
Chapter I of Title 21 of the Code of
Federal Regulations. Sections
14.1(a)(2)(v) and 20.100(c)(22) include a
reference to § 601.25. In the February
2016 final rule, FDA inadvertently did
not remove these sections
(§§ 14.1(a)(2)(v) and 20.100(c)(22)) that
referenced § 601.25. Accordingly, FDA
is removing and reserving
§§ 14.1(a)(2)(v) and 20.100(c)(22).
Publication of this document
constitutes final action under the
Administrative Procedure Act (5 U.S.C.
553). FDA has determined that notice
and public comment is unnecessary
because the amendments to the
regulations are nonsubstantive.
21 CFR Parts 14 and 20
List of Subjects
[Docket No. FDA–2015–N–2103]
21 CFR Part 14
Removal of Review and
Reclassification Procedures for
Biological Products Licensed Prior to
July 1, 1972; Technical Amendment
AGENCY:
Food and Drug Administration,
HHS.
Final rule; technical
amendment.
ACTION:
The Food and Drug
Administration (FDA or Agency) is
amending the Agency’s regulations by
removing certain regulations that
include obsolete references. FDA is
taking this action to improve the
accuracy of the regulations.
DATES: This rule is effective July 14,
2016.
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SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Jessica T. Walker, Center for Biologics
Evaluation and Research, Food and
Drug Administration, 10903 New
Hampshire Ave., Bldg. 71, Rm. 7301,
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Administrative practice and
procedure, Advisory committees, Color
additives, Drugs, Radiation protection.
21 CFR Part 20
Confidential business information,
Courts, Freedom of information,
Government employees.
Therefore, under the Federal Food,
Drug, and Cosmetic Act, the Public
Health Service Act, and under authority
delegated to the Commissioner of Food
and Drugs, 21 CFR parts 14 and 20 are
amended as follows:
PART 14—PUBLIC HEARING BEFORE
A PUBLIC ADVISORY COMMITTEE
1. The authority citation for part 14
continues to read as follows:
■
Authority: 5 U.S.C. App. 2; 15 U.S.C.
1451–1461, 21 U.S.C. 41–50, 141–149, 321–
394, 467f, 679, 821, 1034; 28 U.S.C. 2112; 42
U.S.C. 201, 262, 263b, 264; Pub. L. 107–109;
Pub. L. 108–155; Pub. L. 113–54.
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§ 14.1
45409
[Amended]
2. In § 14.1, remove and reserve
paragraph (a)(2)(v).
■
PART 20—PUBLIC INFORMATION
3. The authority citation for part 20
continues to read as follows:
■
Authority: 5 U.S.C. 552; 18 U.S.C. 1905; 19
U.S.C. 2531–2582; 21 U.S.C. 321–393, 1401–
1403; 42 U.S.C. 241, 242, 242a, 2421, 242n,
243, 262, 263, 263b–263n, 264, 265, 300u–
300u–5, 300aa–1.
§ 20.100
[Amended]
4. In § 20.100, remove and reserve
paragraph (c)(22).
■
Dated: July 8, 2016.
Leslie Kux,
Associate Commissioner for Policy.
[FR Doc. 2016–16637 Filed 7–13–16; 8:45 am]
BILLING CODE 4164–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[TD 9778]
RIN 1545–BM24
Participation of a Person Described in
Section 6103(n) in a Summons
Interview Under Section 7602(a)(2) of
the Internal Revenue Code
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
This document contains final
regulations modifying regulations under
section 7602(a) of the Internal Revenue
Code relating to administrative
summonses. Specifically, these final
regulations clarify that persons with
whom the IRS or the Office of Chief
Counsel (Chief Counsel) contracts for
services described in section 6103(n)
and its implementing regulations may
be included as persons designated to
receive summoned books, papers,
records, or other data 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. These regulations
may affect taxpayers, a taxpayer’s
officers or employees, and any third
party who is served with a summons, as
well as any other person entitled to
notice of a summons.
DATES: Effective Date: These regulations
are effective on July 14, 2016.
SUMMARY:
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Applicability Date: For date of
applicability, see § 301.7602–1(d).
Explanation and Summary of
Comments
FOR FURTHER INFORMATION CONTACT:
1. Potential for IRS Loss of Control Over
Interview
One comment raises concerns about
how the regulations would operate in
practice. This comment states that
turning the questioning of a witness
over to a third-party contractor may
cause the IRS officer or employee in
charge of the interview to lose control
of the interview. The comment further
states that having multiple persons ‘‘on
the record’’—an IRS officer or employee,
a contractor, a witness, and a
representative of the witness—may lead
to a cluttered, incomprehensible
transcript of the interview. To address
these concerns, the comment suggests
that instead of having the contractor
question the witness directly, the IRS
officer or employee should announce to
the court reporter that he or she needs
a moment to confer with the contractor,
and after consultation ask to go back on
the record to resume questioning.
These concerns are unfounded. When
the IRS hires a contractor to assist the
IRS in reviewing books and records,
analyzing data, or receiving sworn
testimony from a summoned witness,
the IRS determines what information
will be requested via a summons and
who the summons will request to
testify. An IRS officer or employee is
present during the interview and
remains in charge of the interview. A
contractor asking questions does not
present any additional difficulties for
the IRS officer or employee in retaining
control of that interview. Rather, the IRS
officer or employee in charge of the
interview may be in a better position to
maintain control of the overall interview
if someone else is asking the questions.
The IRS officer or employee always has
the ability to ask the court reporter to go
off the record to confer with the
contractor, if necessary.
Further, since 2002, § 301.7602–
1(b)(1) has provided that a summoned
witness may be required to appear
before ‘‘one or more’’ IRS officers or
employees to give testimony, including
Chief Counsel attorneys. During this
time, the IRS experience with multiple
persons asking questions of summoned
persons has not resulted in cluttered
interview transcripts as compared to
those transcripts in which only one
person from the IRS asks a witness
questions. Instead, the IRS has generally
found that allowing multiple IRS
persons to question a summoned
witness results in more thorough and
complete coverage of the appropriate
interview topics. This is particularly
true when a person asking questions for
William V. Spatz at (202) 317–5461 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
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Background
These final regulations amend
Procedure and Administration
Regulations (26 CFR part 301) under
section 7602 of the Internal Revenue
Code. These final regulations clarify that
persons described in section 6103(n)
and Treas. Reg. § 301.6103(n)–1(a) with
whom the IRS or Chief Counsel
contracts for services—such as outside
economists, engineers, consultants, or
attorneys—may receive books, papers,
records, or other data summoned by the
IRS and, in the presence and under the
guidance of an 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. 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) crossreferencing 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 to the proposed
regulations. One comment recommends
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 recommends that the
proposed and temporary regulations be
withdrawn. After consideration of both
comments, the sole amendment to the
proposed regulations is 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. This revision clarifies that
the regulations do not permit
contractors to direct examinations (that
is, audits) of a taxpayer’s return.
Accordingly, the proposed regulations
are adopted as amended by this
Treasury decision, and the
corresponding temporary regulations are
removed.
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the IRS has the chance to focus
questions on particular subject areas
with which the questioner is most
familiar. Furthermore, the IRS has found
that significant value is also added
when multiple persons have the
opportunity to ask questions to address
gaps in prior questioning or clarify
answers by a witness.
Accordingly, for the reasons
discussed above, the proposed
regulations have not been amended as
suggested by this comment.
2. Statutory Authority for an Outside
Contractor To Question a Summoned
Witness
Both comments state section 7602
does not authorize a contractor to
question a witness during an IRS
summons interview. Specifically, the
comments state that the regulations
improperly delegate to the contractor
the Secretary’s authority under section
7602(a)(3) to take testimony under oath.
According to one of the comments,
because section 7701(a)(11)(B) defines
the term ‘‘Secretary’’ to include a
delegate, and section 7701(a)(12)(A)
defines a ‘‘delegate’’ of the Secretary, in
part, as a duly authorized ‘‘officer,
employee or agency of the Treasury
Department,’’ the regulations
improperly attempt to treat a ‘‘third
party agent’’ (a contractor under section
6103(n)) as an ‘‘agency of the Treasury
Department.’’ The other comment adds
that this type of treatment of a
contractor would be unprecedented
under various IRS Delegation Orders
and Internal Revenue Manual
provisions and that a statutory
authorization is required for ‘‘such
delegation.’’ Both comments state that
section 6306, regarding the IRS’s use of
private collection agencies to perform
certain tax collection functions, was an
example of such authorization by
statute.
Further, both comments question
whether under the regulations
inherently governmental functions will
continue to be performed by IRS officers
or employees, and state that reference to
this in the preamble to the temporary
regulations was included to allay
potential concerns about improper
delegation. The comment also asserts
that taking testimony by asking
questions, reviewing books or papers,
and analyzing other data, as allowed by
the regulations, is inherently
governmental. In support of this, the
comment states that when contractors
ask questions that taxpayers are
compelled to answer under oath, the
contractor is deciding what information
must be produced by the taxpayer. The
comment asserts that it is clear that
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questioning a witness under oath and
with compulsion, or directing counsel
for a witness to clarify an objection or
assertion of privilege, in an extrajudicial governmental investigation
such as an IRS audit is inherently
governmental. This comment states that
the fact that a contractor’s participation
in a summons interview will only be
done in the presence and under the
guidance of an IRS officer or employee
suggests that participation in a
summons interview is inherently
governmental.
These comments state further that the
reference to § 301.7602–2(c)(1)(i)(B) and
(c)(1)(ii) Example 2 in the preamble to
the temporary regulations means that
the regulations are delegating authority
under section 7602(a) to the contractor.
The IRS has broad information
gathering authority under section
7602(a). 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 where
none has been made, or determining the
liability of any person for any internal
revenue tax, the Secretary (and the IRS
as the Secretary’s delegate) is authorized
to examine books and records, issue
summonses seeking documents and
testimony, and take testimony from
witnesses under oath. When a
contractor assists the IRS in gathering
facts by reviewing books and records or
asking questions of a witness during a
summons interview, the contractor is
merely assisting in carrying out the
powers granted to the Secretary.
Nothing in section 7602(a) prohibits
participation by a contractor in a
summons interview, nor does it
prescribe procedures that the IRS must
follow during the summons interview.
Moreover, nothing in these
regulations delegates authority under
section 7602(a). The IRS’s authority to
engage contractors to assist with fact
gathering has always existed under
section 7602, and the comments
acknowledge this authority. For
instance, the comment addressing the
impact of multiple questioners on the
clarity of the transcribed record of the
summons interview suggests as an
alternative that the contractor provide
the IRS with the questions to ask. Given
that the commentators acknowledge that
the IRS is authorized to have a
contractor communicate the question off
the record to the IRS, it seems
implausible that having the contractor
actually ask the question on the record,
in the presence of and under the
supervision of the IRS, is substantively
different.
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Section 6306, dealing with qualified
tax collection contracts, does not
support the contention in the comments
that congressional action is required to
engage a contractor to perform services
for the IRS. Long before section 6306
was added to the Code in 2004, the IRS
collection function had contracted with
private persons (for example,
locksmiths, tow truck drivers, storage
facilities, property appraisers and
auctioneers) for tax administration
purposes to facilitate IRS seizures of
property by levy and IRS sales of such
property, pursuant to the statutory
powers conferred on the Secretary by
sections 6301, 6331, and 6335. In fiscal
years 1996 and 1997, without making
any modifications to the Code, Congress
earmarked $13 million for the IRS to test
the use of private debt collection
companies. In 2004, rather than say it
was authorizing the IRS to enter into
collection agreements with outside
contractors to assist the IRS in collecting
tax debts, Congress instead said in
section 6306(a) that ‘‘[n]othing in any
provision of law shall be construed to
prevent the Secretary from entering into
a qualified tax collection contract.’’
Therefore, section 6306 was a
congressional clarification of the IRS’s
existing authority to engage outside
contractors to assist with collection.
Accordingly, contrary to the comments’
assertions, no explicit congressional
authorization was needed to permit the
IRS to hire outside contractors to assist
in the collection of taxes, a role outside
contractors had been playing for years
prior to enactment of section 6306. As
a result, enactment of section 6306 does
not support the contention in the
comments that having a contractor ask
questions during a summons interview
is inconsistent with authority under
section 7602.
The comments are also incorrect that
the regulations include an improper
delegation to perform certain
examination functions. One comment
assumes that the role of questioner must
be accompanied by the power to compel
the witness to answer under oath. That
is not accurate. While the contractor
will ask questions during a summons
interview, an IRS officer or employee
will determine whether the questions
must be answered by pursuing judicial
enforcement. Only if an IRS officer or
employee pursues the matter by seeking
judicial enforcement can a witness be
compelled to answer the question asked
by the contractor. Similarly, a contractor
can ask counsel for a witness to clarify
an objection or assertion of privilege,
but only an IRS officer or employee can
pursue resolution of the claim of
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45411
privilege by seeking judicial
enforcement. Accordingly, the comment
incorrectly equates the act of compelling
a witness to answer a question asked
with the mere act of asking the question.
Further, the Federal Activities Inventory
Reform Act of 1998, Public Law 105–
270 (31 U.S.C. 501 Note (FAIR Act)),
defines ‘‘inherently governmental
function’’ as ‘‘a function that is so
intimately related to the public interest
as to require performance by Federal
Government employees.’’ FAIR Act
section 5(2)(A). Inherently governmental
functions include activities that require
‘‘the exercise of discretion in applying
Federal Government authority,’’
including ‘‘the interpretation and
execution of the laws of the United
States so as . . . to bind the United
States to take or not to take some
action.’’ Id. at section 5(2)(B)(i).
However, Congress further specified in
FAIR Act section 5(2)(C)(i) that an
inherently governmental function does
not normally include ‘‘gathering
information for or providing advice,
opinions, recommendations, or ideas to
Federal Government officials.’’
In 2009, Congress further directed the
Office of Management and Budget
(OMB) to refine the definition of
‘‘inherently governmental function’’
applicable to all agencies and provide
guidance to improve internal agency
management of functions that are
inherently governmental. Public Law
110–417, section 321. Toward these
ends, and after notice and comment,
OMB’s Office of Federal Procurement
Policy (OFPP) issued its Policy Letter
11–01 on September 12, 2011. 76 FR
56227. The Policy Letter clarified the
‘‘discretion’’ that a contractor may
appropriately exercise as the
circumstances ‘‘where the contractor
does not have the authority to decide on
the overall course of action, but is
tasked to develop options or implement
a course of action, and the agency
official has the ability to override the
contractor’s action.’’ Id., at section 5–
1(a)(1)(ii)(B), 76 FR at 56237. The Policy
Letter further explains that ‘‘contractors
routinely, and properly, exercise
discretion in performing functions for
the Federal Government when,
providing advice, opinions, or
recommended actions, emphasizing
certain conclusions, and . . . deciding
what techniques and procedures to
employ, whether and whom to consult,
[and] what research alternatives to
explore given the scope of the contract.’’
Id., 76 FR at 56237–38. The Policy
Letter recognizes that in addition to
functions that are inherently
governmental, there are also many
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functions closely associated with
inherently governmental functions. The
Policy Letter cautions that when a
contractor function is closely associated
with an inherently governmental one,
the agency should ‘‘limit or guide the
contractor’s exercise of discretion,’’ by
‘‘establishing in advance a process for
subjecting the contractor’s discretionary
decisions and conduct to meaningful
oversight and, whenever necessary, final
approval by an agency official.’’ Id., at
section 5–2(a)(4)(ii) and Appendix C,
section (1)(ii), 76 FR at 56238–39 and
56241–42.
Accordingly, the preamble to the
temporary regulations described the
inherently governmental functions
associated with section 7602(a) as
including the ultimate decisions to issue
a summons, whom to summon, what
information must be produced or who
will be required to provide testimony, as
well as issuing the summons. The final
decision to issue an IRS summons may
‘‘bind the United States to take or not
take some action,’’ within the meaning
of the FAIR Act section 5(2)(B)(i). For
example, serving an IRS summons
pursuant to sections 7609(f) and (g)
requires prior court approval, and IRS
summonses issued for an examination
purpose to third parties generally
expose the United States to a court
action the taxpayer may commence to
quash a summons under section
7609(b)(2) or obligate the IRS to pay
certain search and reproduction costs
incurred by the summoned witness
under section 7610. The final decision
to include or not include certain
document or testimony requests in an
IRS summons also limits going forward
what information or documents the IRS
may ask a court to require a witness to
produce in any future summons
enforcement proceeding regarding that
summons. The final decision to seek
judicial enforcement of an IRS summons
pursuant to sections 7402(b) and 7604 is
also an inherently governmental
function. These inherently
governmental actions associated with
issuing or seeking to enforce an IRS
summons will continue to be performed
by IRS officers and employees under
these regulations.
As discussed above, pursuant to these
regulations, contractors may assist IRS
officers and employees when the IRS
has summoned a witness, by receiving
and reviewing 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, ask questions in the
interview of the summoned witness.
The contractor’s assistance to the IRS
officer or employee presiding over a
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summons interview is closely associated
with the inherently governmental
summons functions performed by an
IRS employee, within the meaning of
OFPP Policy Letter 11–01, without
crossing the line into the performance of
inherently governmental functions. A
contractor participating fully in a
summons interview will not, for
example, be permitted to bind or
otherwise disadvantage the IRS by
making any unauthorized, premature
statements that the summoned party has
produced all of the summoned
information or has fully answered all of
the questions asked by the IRS in the
interview. Similarly, the contractor has
no authority to commit the IRS to
pursue judicial enforcement of a
summons for any documents or answers
to questions that a witness failed to
provide.
The contractor’s ‘‘discretion’’ in
pursuing any potentially relevant line of
questioning in a summons interview is
permissible under Policy Letter 11–01
standards because the contractor will
not have the authority to decide on the
overall course of action adopted by the
IRS with respect to the summons
interview. The IRS officer or employee
presiding over IRS receipt of documents
and evidence from the summoned
witness will also be present for any
questioning pursued by the contractor
and will have the ability to override the
contractor’s actions, if necessary and
appropriate. Rather than proving that a
contractor would be performing an
inherently governmental function under
these regulations, the additional
safeguards the comment points to—that
a contractor’s participation in a
summons interview will only be done in
the presence and under the guidance of
an IRS officer or employee—show the
IRS heeded the instructions of Policy
Letter 11–01 to establish a process for
subjecting the contractor’s discretionary
decisions and conduct under these
regulations to meaningful IRS oversight.
The comments incorrectly interpret
the purpose of the reference in the
preamble of the temporary regulations
to § 301.7602–2(c)(1)(i)(B) and (c)(1)(ii)
Example 2. The purpose of referencing
that regulation, which implements the
provisions of section 7602(c) (requiring
notice of third party contacts) in the
case of a section 6103(n) contractor, was
instead intended to highlight the fact
that the IRS had been allowing
contractors, under the guidance of an
IRS officer or employee, to hold
discussions and ask questions of
witnesses for many years and that the
proposed regulations were in the nature
of a clarification. The purpose was not
to demonstrate that the IRS is delegating
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authority to contractors as the
comments incorrectly state.
Therefore, for the reasons above,
Treasury and the IRS disagree with the
comments’ assertion that the regulations
improperly delegate authority under
section 7602. The statute permits
section 6103(n) contractors to receive
books, papers, records, or other data
summoned by the IRS and, in the
presence and under the guidance of an
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.
3. Confidential Taxpayer Information
Provided to a Contractor
One of the comments suggests that the
proposed regulations raise issues
relating to confidentiality of taxpayer
information. First, the comment states
that the regulations place confidential
taxpayer information unnecessarily at
risk of unauthorized disclosure under
section 6103. According to the
comment, this is because placing
taxpayer information in the hands of
outside contractors under section
6103(n) increases the risk of misuse and
unlawful disclosure because outside
contractors are not subject to the same
rules of conduct as IRS employees and
may have loyalties to other clients
besides the IRS and the public fisc.
Next, the comment questions whether
the disclosure of confidential
information to outside counsel is
permitted under section 6103(n). The
comment explains that in 1990 the
phrase ‘‘other services’’ was added to
section 6103(n) to cover outside experts,
in part, because these experts are
objective and the IRS is not. The
comment continues that outside
counsel, as an advocate, is not objective
and, therefore, is not covered by the
phrase ‘‘other services’’ in section
6103(n).
Finally, the comment states that the
IRS has failed to demonstrate that
government employees cannot
effectively and more appropriately
perform the function contemplated by
the temporary regulations.
These comments do not address the
clarification made by the proposed and
temporary regulations (that is, that
section 6103(n) contractors may be
present at summons interviews, ask
questions at a summons interview, and
review summoned books, papers,
records, or other data). Further, the
comments do not explain why the
proposed regulations place confidential
taxpayer information at risk of
unauthorized disclosure at all. Rather,
these comments address disclosure to
experts under section 6103(n), which is
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not the subject of these regulations.
Therefore, the comments do not address
issues under the regulations.
Regardless of the relevance of the
comments to these regulations, the IRS
takes protection of the confidentiality of
taxpayer information seriously and will
not disclose taxpayer information unless
authorized under the law. ‘‘Return
information’’ and ‘‘taxpayer return
information’’ are in general broadly
defined in sections 6103(b)(2) and (b)(3),
as including information concerning a
taxpayer’s identity, the nature, source or
amount of his income, payments,
receipts, deductions, exemptions,
credits, assets, liabilities, net worth, tax
liabilities, tax withheld, owed, or paid,
whether the taxpayer is being or will be
examined or investigated, to the extent
such information is filed with or
furnished to the IRS by or on behalf of
the taxpayer to whom such information
relates.
Section 6103(n) authorizes the IRS to
disclose confidential taxpayer
information to persons who provide
services to the IRS, including outside
experts. The legislative history of
section 6103(n) indicates that Congress
added the words ‘‘other services’’ in
1990 to ensure that persons who
provide services to the IRS, such as
expert witnesses, and to whom the IRS
discloses returns and return information
pursuant to section 6103, would clearly
be subject to the same confidentiality
standards and penalties for
unauthorized disclosure as are IRS
employees.
In sections 7431, 7213, and 7213A,
Congress created parallel civil and
criminal deterrents for outside
contractors (to those applicable to IRS
employees) to punish any misuse of
taxpayer return information through
unlawful inspection or unlawful
disclosure of such information.
Specifically, section 7431(a)(2)
authorizes taxpayers to file the same
type of civil action for damages against
an IRS contractor for knowingly, or by
reason of negligence, making any
unauthorized inspection or
unauthorized disclosure of taxpayer
return information, as may be filed
against the United States for the same
type of conduct committed by any
officer or employee of the United States.
Similarly, in sections 7213(a)(1) and
7213A(a)(1)(B) (by references to persons
described in section 6103(n)), Congress
made it a crime punishable by up to five
years or up to one year of imprisonment,
plus a fine, for an IRS contractor to
willfully make an unauthorized
disclosure or an unauthorized
inspection of taxpayer return
information, respectively. If an IRS
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officer or employee is convicted under
sections 7213 or 7213A, such person
will also be dismissed or discharged
from Federal employment. Before any
conviction, if the IRS determines that a
contractor has violated its taxpayer
return information disclosure
obligations under its contract, the IRS
may also suspend or terminate the
contract, pursuant to § 301.6103(n)–
1(e)(4)(iii). Moreover, § 301.6103(n)–
1(e)(4) provides further safeguards
against unlawful disclosures or
inspections of taxpayer return
information by contractors.
Finally, it is unclear what connection
the comment is making between
protecting confidentiality of taxpayer
information and objectivity of the
section 6103(n) contractor. First, there is
no obligation under section 6103(n) or
the regulations thereunder for a
contractor under section 6103(n) to be
objective. Second, whether a contractor
is objective has no relation to whether
the contractor has an obligation to
protect confidential taxpayer
information from disclosure or the
contractor’s ability to do so.
For these reasons, the Treasury and
the IRS disagree that the regulations
place confidential taxpayer information
unnecessarily at risk of unauthorized
disclosure.
4. Potential Litigation Costs To Enforce
the Regulation
One comment states that including a
provision to allow an IRS contractor in
a summons interview to question a
witness under oath in the final
regulations would result in timeconsuming and costly litigation for the
IRS, taxpayers, third party witnesses,
and the courts, and that these costs
would outweigh the potential benefits to
the IRS from a contractor directly
questioning a summoned witness under
oath. The comment does not indicate
how it came to this conclusion, nor does
it provide any support for its concern.
The IRS makes the decision of
whether to issue a summons or to
pursue summons enforcement actions
on a case-by-case basis, analyzing each
situation in the light of its particular
facts and weighing the desired
information against the tax liability
involved, the time and expense of
obtaining the records, and the adverse
effect on voluntary compliance by
others if the enforcement actions are not
successful. A contractor’s participation
in a summons interview does not factor
into the IRS’s decision to request the
Department of Justice to institute
enforcement action or lead the taxpayer
ultimately to file a deficiency action in
the United States Tax Court or a refund
PO 00000
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45413
claim in a United States District Court
or the Court of Federal Claims. As a
practical matter, the IRS will likely hire
contractors to assist in the factual
development of an examination only in
significant cases. These are cases in
which litigation over summons
enforcement is already likely to occur if
the IRS examination team faces
resistance from taxpayers to providing
requested information. Accordingly,
there should not be considerably more
litigation as a result of these final
regulations. Moreover, when there is
summons enforcement litigation, it will
be because the IRS has determined that
such litigation is in the best interest of
tax administration.
5. Procedural Concerns With the
Issuance of the Temporary Regulations
One of the comments states that the
temporary regulations were not issued
in accordance with the Administrative
Procedure Act (APA). The temporary
regulations were promulgated in full
compliance with the APA. In addition,
this document finalizes proposed
regulations contained in a notice of
proposed rulemaking that crossreferenced the temporary regulations.
The proposed regulations were also
promulgated in full compliance with the
APA. Because these final regulations
adopt the proposed regulations, it is not
necessary to address concerns regarding
procedural issues relating to
promulgation of the temporary
regulations.
Special Analyses
It has been determined that this
Treasury Decision is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
assessment is not required. The IRS has
determined that sections 553(b) and (d)
of the Administrative Procedure Act (5
U.S.C. chapter 5) do not apply to these
regulations and because the regulations
do not impose a collection of
information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comments on its
impact on small business, and no
comments were received.
Drafting Information
The principal author of these final
regulations is William V. Spatz of the
Office of Associate Chief Counsel
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Federal Register / Vol. 81, No. 135 / Thursday, July 14, 2016 / Rules and Regulations
(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.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
BILLING CODE 4830–01–P
Paragraph 1. The authority citation
for part 301 continues to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7602–1T is
removed.
■ Par. 3. Section 301.7602–1 is
amended by adding paragraph (b)(3) and
revising paragraph (d) to read as
follows:
Examination of books and
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*
*
*
*
*
(b)(3) Participation of a person
described in section 6103(n). For
purposes of this paragraph (b), a person
authorized to receive returns or return
information under section 6103(n) and
§ 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;
questioning the person providing
testimony under oath; and asking a
summoned person’s representative to
clarify an objection or assertion of
privilege.
*
*
*
*
*
(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
summons interviews conducted on or
after July 14, 2016. For rules under
paragraphs (b)(1) and (2) that are
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DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
[Removed]
■
§ 301.7602–1
witnesses.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: May 27, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2016–16606 Filed 7–12–16; 4:15 pm]
PART 301—PROCEDURE AND
ADMINISTRATION
§ 301.7602–1T
applicable to summonses issued on or
after September 10, 2002 or under
paragraph (b)(3) that are applicable to
summons interviews conducted on or
after June 18, 2014, see 26 CFR
301.7602–1T (revised as of April 1,
2016).
33 CFR Part 165
[Docket Number USCG–2016–0267]
RIN 1625–AA00
Safety Zone; Tall Ships Challenge
Great Lakes 2016, Fairport Harbor, OH,
Bay City, MI, Chicago, IL, Green Bay,
WI, Duluth, MN, Erie, PA
Coast Guard, DHS.
Temporary final rule.
AGENCY:
ACTION:
The Coast Guard is creating
temporary safety zones around each tall
ship visiting the Great Lakes during the
Tall Ships Challenge 2016 race series.
These safety zones will provide for the
regulation of vessel traffic in the vicinity
of each tall ship in the navigable waters
of the United States. The Coast Guard is
taking this action to safeguard
participants and spectators from the
hazards associated with the limited
maneuverability of these tall ships and
to ensure public safety during tall ships
events.
DATES: This rule is effective without
actual notice from July 14, 2016 through
12:01 a.m. on September 12, 2016. For
the purposes of enforcement, actual
notice will be used from 12:01 a.m. July
6, 2016 through July 14, 2016.
ADDRESSES: To view documents
mentioned in this preamble as being
available in the docket, go to https://
www.regulations.gov, type USCG–2016–
0267 in the ‘‘SEARCH’’ box and click
‘‘SEARCH.’’ Click on Open Docket
Folder on the line associated with this
rule.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this rule, call or
email Mark Bobal, Ninth District
Inspections and Investigations Branch,
SUMMARY:
PO 00000
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Passenger Vessel Safety Specialist, U.S.
Coast Guard; telephone 216–902–6052,
email Mark.D.Bobal@uscg.mil.
SUPPLEMENTARY INFORMATION:
I. Table of Abbreviations
CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
§ Section
U.S.C. United States Code
II. Background Information and
Regulatory History
During the Tall Ships Challenge Great
Lakes 2016, tall ships will be
participating in parades and then
mooring in the harbors of Fairport
Harbor, OH, Bay City, MI, Chicago, IL,
Green Bay, WI, Duluth, MN, Erie, PA.
This is a tri-annual event that teaches
character building and leadership
through sail training. The Tall Ships
event seeks to educate the public about
both the historical aspects of sailing
ships as well as their current use as
training vessels for students. Tall ships
are large, traditionally-rigged sailing
vessels. The event will consist of
festivals at each port of call, sail training
cruises, tall ship parades, and races
between the ports. More information
regarding the Tall Ships Challenge 2016
and the participating vessels can be
found at https://www.sailtraining.org/
tallships/2016greatlakes/
TSC2016index.php
The Coast Guard published a notice of
proposed rulemaking (NPRM) titled
Safety Zone; Tall Ships Challenge Great
Lakes 2016, Fairport Harbor, OH, Bay
City, MI, Chicago, IL, Green Bay, WI,
Duluth, MN, Erie, PA (USCG–2016–
0267, 81 FR 26767, May 4, 2016). There
we stated why we issued the NPRM,
and invited comments on our proposed
regulatory action related. During the
comment period that ended June 3,
2016, we received one comment.
III. Legal Authority and Need for Rule
The Coast Guard is issuing this rule
under authority in 33 U.S.C. 1231. The
Ninth District Commander has
determined that potential hazards
associated with tall ships operating in
crowded harbors in close proximity to
spectator craft necessitate a safety zone.
The purpose of this rule is to ensure the
safety of all vessels during the Tall Ship
events.
IV. Discussion of Comments, Changes,
and the Rule
As noted above, we received one
comments on our NPRM published May
4, 2016. The comment was directed at
a rule pertaining to a fireworks show
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]]>Agencies
[Federal Register Volume 81, Number 135 (Thursday, July 14, 2016)]
[Rules and Regulations]
[Pages 45409-45414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16606]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[TD 9778]
RIN 1545-BM24
Participation of a Person Described in Section 6103(n) in a
Summons Interview Under Section 7602(a)(2) of the Internal Revenue Code
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations modifying regulations
under section 7602(a) of the Internal Revenue Code relating to
administrative summonses. Specifically, these final regulations clarify
that persons with whom the IRS or the Office of Chief Counsel (Chief
Counsel) contracts for services described in section 6103(n) and its
implementing regulations may be included as persons designated to
receive summoned books, papers, records, or other data 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. These regulations may affect taxpayers, a
taxpayer's officers or employees, and any third party who is served
with a summons, as well as any other person entitled to notice of a
summons.
DATES: Effective Date: These regulations are effective on July 14,
2016.
[[Page 45410]]
Applicability Date: For date of applicability, see Sec. 301.7602-
1(d).
FOR FURTHER INFORMATION CONTACT: William V. Spatz at (202) 317-5461
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
These final regulations amend Procedure and Administration
Regulations (26 CFR part 301) under section 7602 of the Internal
Revenue Code. These final regulations clarify that persons described in
section 6103(n) and Treas. Reg. Sec. 301.6103(n)-1(a) with whom the
IRS or Chief Counsel contracts for services--such as outside
economists, engineers, consultants, or attorneys--may receive books,
papers, records, or other data summoned by the IRS and, in the presence
and under the guidance of an 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. 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 to the proposed regulations. One comment
recommends 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 recommends that the proposed and temporary
regulations be withdrawn. After consideration of both comments, the
sole amendment to the proposed regulations is 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. This revision clarifies that the regulations do not
permit contractors to direct examinations (that is, audits) of a
taxpayer's return. Accordingly, the proposed regulations are adopted as
amended by this Treasury decision, and the corresponding temporary
regulations are removed.
Explanation and Summary of Comments
1. Potential for IRS Loss of Control Over Interview
One comment raises concerns about how the regulations would operate
in practice. This comment states that turning the questioning of a
witness over to a third-party contractor may cause the IRS officer or
employee in charge of the interview to lose control of the interview.
The comment further states that having multiple persons ``on the
record''--an IRS officer or employee, a contractor, a witness, and a
representative of the witness--may lead to a cluttered,
incomprehensible transcript of the interview. To address these
concerns, the comment suggests that instead of having the contractor
question the witness directly, the IRS officer or employee should
announce to the court reporter that he or she needs a moment to confer
with the contractor, and after consultation ask to go back on the
record to resume questioning.
These concerns are unfounded. When the IRS hires a contractor to
assist the IRS in reviewing books and records, analyzing data, or
receiving sworn testimony from a summoned witness, the IRS determines
what information will be requested via a summons and who the summons
will request to testify. An IRS officer or employee is present during
the interview and remains in charge of the interview. A contractor
asking questions does not present any additional difficulties for the
IRS officer or employee in retaining control of that interview. Rather,
the IRS officer or employee in charge of the interview may be in a
better position to maintain control of the overall interview if someone
else is asking the questions. The IRS officer or employee always has
the ability to ask the court reporter to go off the record to confer
with the contractor, if necessary.
Further, since 2002, Sec. 301.7602-1(b)(1) has provided that a
summoned witness may be required to appear before ``one or more'' IRS
officers or employees to give testimony, including Chief Counsel
attorneys. During this time, the IRS experience with multiple persons
asking questions of summoned persons has not resulted in cluttered
interview transcripts as compared to those transcripts in which only
one person from the IRS asks a witness questions. Instead, the IRS has
generally found that allowing multiple IRS persons to question a
summoned witness results in more thorough and complete coverage of the
appropriate interview topics. This is particularly true when a person
asking questions for the IRS has the chance to focus questions on
particular subject areas with which the questioner is most familiar.
Furthermore, the IRS has found that significant value is also added
when multiple persons have the opportunity to ask questions to address
gaps in prior questioning or clarify answers by a witness.
Accordingly, for the reasons discussed above, the proposed
regulations have not been amended as suggested by this comment.
2. Statutory Authority for an Outside Contractor To Question a Summoned
Witness
Both comments state section 7602 does not authorize a contractor to
question a witness during an IRS summons interview. Specifically, the
comments state that the regulations improperly delegate to the
contractor the Secretary's authority under section 7602(a)(3) to take
testimony under oath. According to one of the comments, because section
7701(a)(11)(B) defines the term ``Secretary'' to include a delegate,
and section 7701(a)(12)(A) defines a ``delegate'' of the Secretary, in
part, as a duly authorized ``officer, employee or agency of the
Treasury Department,'' the regulations improperly attempt to treat a
``third party agent'' (a contractor under section 6103(n)) as an
``agency of the Treasury Department.'' The other comment adds that this
type of treatment of a contractor would be unprecedented under various
IRS Delegation Orders and Internal Revenue Manual provisions and that a
statutory authorization is required for ``such delegation.'' Both
comments state that section 6306, regarding the IRS's use of private
collection agencies to perform certain tax collection functions, was an
example of such authorization by statute.
Further, both comments question whether under the regulations
inherently governmental functions will continue to be performed by IRS
officers or employees, and state that reference to this in the preamble
to the temporary regulations was included to allay potential concerns
about improper delegation. The comment also asserts that taking
testimony by asking questions, reviewing books or papers, and analyzing
other data, as allowed by the regulations, is inherently governmental.
In support of this, the comment states that when contractors ask
questions that taxpayers are compelled to answer under oath, the
contractor is deciding what information must be produced by the
taxpayer. The comment asserts that it is clear that
[[Page 45411]]
questioning a witness under oath and with compulsion, or directing
counsel for a witness to clarify an objection or assertion of
privilege, in an extra-judicial governmental investigation such as an
IRS audit is inherently governmental. This comment states that the fact
that a contractor's participation in a summons interview will only be
done in the presence and under the guidance of an IRS officer or
employee suggests that participation in a summons interview is
inherently governmental.
These comments state further that the reference to Sec. 301.7602-
2(c)(1)(i)(B) and (c)(1)(ii) Example 2 in the preamble to the temporary
regulations means that the regulations are delegating authority under
section 7602(a) to the contractor.
The IRS has broad information gathering authority under section
7602(a). 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 where none has been
made, or determining the liability of any person for any internal
revenue tax, the Secretary (and the IRS as the Secretary's delegate) is
authorized to examine books and records, issue summonses seeking
documents and testimony, and take testimony from witnesses under oath.
When a contractor assists the IRS in gathering facts by reviewing books
and records or asking questions of a witness during a summons
interview, the contractor is merely assisting in carrying out the
powers granted to the Secretary. Nothing in section 7602(a) prohibits
participation by a contractor in a summons interview, nor does it
prescribe procedures that the IRS must follow during the summons
interview.
Moreover, nothing in these regulations delegates authority under
section 7602(a). The IRS's authority to engage contractors to assist
with fact gathering has always existed under section 7602, and the
comments acknowledge this authority. For instance, the comment
addressing the impact of multiple questioners on the clarity of the
transcribed record of the summons interview suggests as an alternative
that the contractor provide the IRS with the questions to ask. Given
that the commentators acknowledge that the IRS is authorized to have a
contractor communicate the question off the record to the IRS, it seems
implausible that having the contractor actually ask the question on the
record, in the presence of and under the supervision of the IRS, is
substantively different.
Section 6306, dealing with qualified tax collection contracts, does
not support the contention in the comments that congressional action is
required to engage a contractor to perform services for the IRS. Long
before section 6306 was added to the Code in 2004, the IRS collection
function had contracted with private persons (for example, locksmiths,
tow truck drivers, storage facilities, property appraisers and
auctioneers) for tax administration purposes to facilitate IRS seizures
of property by levy and IRS sales of such property, pursuant to the
statutory powers conferred on the Secretary by sections 6301, 6331, and
6335. In fiscal years 1996 and 1997, without making any modifications
to the Code, Congress earmarked $13 million for the IRS to test the use
of private debt collection companies. In 2004, rather than say it was
authorizing the IRS to enter into collection agreements with outside
contractors to assist the IRS in collecting tax debts, Congress instead
said in section 6306(a) that ``[n]othing in any provision of law shall
be construed to prevent the Secretary from entering into a qualified
tax collection contract.'' Therefore, section 6306 was a congressional
clarification of the IRS's existing authority to engage outside
contractors to assist with collection. Accordingly, contrary to the
comments' assertions, no explicit congressional authorization was
needed to permit the IRS to hire outside contractors to assist in the
collection of taxes, a role outside contractors had been playing for
years prior to enactment of section 6306. As a result, enactment of
section 6306 does not support the contention in the comments that
having a contractor ask questions during a summons interview is
inconsistent with authority under section 7602.
The comments are also incorrect that the regulations include an
improper delegation to perform certain examination functions. One
comment assumes that the role of questioner must be accompanied by the
power to compel the witness to answer under oath. That is not accurate.
While the contractor will ask questions during a summons interview, an
IRS officer or employee will determine whether the questions must be
answered by pursuing judicial enforcement. Only if an IRS officer or
employee pursues the matter by seeking judicial enforcement can a
witness be compelled to answer the question asked by the contractor.
Similarly, a contractor can ask counsel for a witness to clarify an
objection or assertion of privilege, but only an IRS officer or
employee can pursue resolution of the claim of privilege by seeking
judicial enforcement. Accordingly, the comment incorrectly equates the
act of compelling a witness to answer a question asked with the mere
act of asking the question. Further, the Federal Activities Inventory
Reform Act of 1998, Public Law 105-270 (31 U.S.C. 501 Note (FAIR Act)),
defines ``inherently governmental function'' as ``a function that is so
intimately related to the public interest as to require performance by
Federal Government employees.'' FAIR Act section 5(2)(A). Inherently
governmental functions include activities that require ``the exercise
of discretion in applying Federal Government authority,'' including
``the interpretation and execution of the laws of the United States so
as . . . to bind the United States to take or not to take some
action.'' Id. at section 5(2)(B)(i). However, Congress further
specified in FAIR Act section 5(2)(C)(i) that an inherently
governmental function does not normally include ``gathering information
for or providing advice, opinions, recommendations, or ideas to Federal
Government officials.''
In 2009, Congress further directed the Office of Management and
Budget (OMB) to refine the definition of ``inherently governmental
function'' applicable to all agencies and provide guidance to improve
internal agency management of functions that are inherently
governmental. Public Law 110-417, section 321. Toward these ends, and
after notice and comment, OMB's Office of Federal Procurement Policy
(OFPP) issued its Policy Letter 11-01 on September 12, 2011. 76 FR
56227. The Policy Letter clarified the ``discretion'' that a contractor
may appropriately exercise as the circumstances ``where the contractor
does not have the authority to decide on the overall course of action,
but is tasked to develop options or implement a course of action, and
the agency official has the ability to override the contractor's
action.'' Id., at section 5-1(a)(1)(ii)(B), 76 FR at 56237. The Policy
Letter further explains that ``contractors routinely, and properly,
exercise discretion in performing functions for the Federal Government
when, providing advice, opinions, or recommended actions, emphasizing
certain conclusions, and . . . deciding what techniques and procedures
to employ, whether and whom to consult, [and] what research
alternatives to explore given the scope of the contract.'' Id., 76 FR
at 56237-38. The Policy Letter recognizes that in addition to functions
that are inherently governmental, there are also many
[[Page 45412]]
functions closely associated with inherently governmental functions.
The Policy Letter cautions that when a contractor function is closely
associated with an inherently governmental one, the agency should
``limit or guide the contractor's exercise of discretion,'' by
``establishing in advance a process for subjecting the contractor's
discretionary decisions and conduct to meaningful oversight and,
whenever necessary, final approval by an agency official.'' Id., at
section 5-2(a)(4)(ii) and Appendix C, section (1)(ii), 76 FR at 56238-
39 and 56241-42.
Accordingly, the preamble to the temporary regulations described
the inherently governmental functions associated with section 7602(a)
as including the ultimate decisions to issue a summons, whom to summon,
what information must be produced or who will be required to provide
testimony, as well as issuing the summons. The final decision to issue
an IRS summons may ``bind the United States to take or not take some
action,'' within the meaning of the FAIR Act section 5(2)(B)(i). For
example, serving an IRS summons pursuant to sections 7609(f) and (g)
requires prior court approval, and IRS summonses issued for an
examination purpose to third parties generally expose the United States
to a court action the taxpayer may commence to quash a summons under
section 7609(b)(2) or obligate the IRS to pay certain search and
reproduction costs incurred by the summoned witness under section 7610.
The final decision to include or not include certain document or
testimony requests in an IRS summons also limits going forward what
information or documents the IRS may ask a court to require a witness
to produce in any future summons enforcement proceeding regarding that
summons. The final decision to seek judicial enforcement of an IRS
summons pursuant to sections 7402(b) and 7604 is also an inherently
governmental function. These inherently governmental actions associated
with issuing or seeking to enforce an IRS summons will continue to be
performed by IRS officers and employees under these regulations.
As discussed above, pursuant to these regulations, contractors may
assist IRS officers and employees when the IRS has summoned a witness,
by receiving and reviewing 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, ask questions in the
interview of the summoned witness. The contractor's assistance to the
IRS officer or employee presiding over a summons interview is closely
associated with the inherently governmental summons functions performed
by an IRS employee, within the meaning of OFPP Policy Letter 11-01,
without crossing the line into the performance of inherently
governmental functions. A contractor participating fully in a summons
interview will not, for example, be permitted to bind or otherwise
disadvantage the IRS by making any unauthorized, premature statements
that the summoned party has produced all of the summoned information or
has fully answered all of the questions asked by the IRS in the
interview. Similarly, the contractor has no authority to commit the IRS
to pursue judicial enforcement of a summons for any documents or
answers to questions that a witness failed to provide.
The contractor's ``discretion'' in pursuing any potentially
relevant line of questioning in a summons interview is permissible
under Policy Letter 11-01 standards because the contractor will not
have the authority to decide on the overall course of action adopted by
the IRS with respect to the summons interview. The IRS officer or
employee presiding over IRS receipt of documents and evidence from the
summoned witness will also be present for any questioning pursued by
the contractor and will have the ability to override the contractor's
actions, if necessary and appropriate. Rather than proving that a
contractor would be performing an inherently governmental function
under these regulations, the additional safeguards the comment points
to--that a contractor's participation in a summons interview will only
be done in the presence and under the guidance of an IRS officer or
employee--show the IRS heeded the instructions of Policy Letter 11-01
to establish a process for subjecting the contractor's discretionary
decisions and conduct under these regulations to meaningful IRS
oversight.
The comments incorrectly interpret the purpose of the reference in
the preamble of the temporary regulations to Sec. 301.7602-
2(c)(1)(i)(B) and (c)(1)(ii) Example 2. The purpose of referencing that
regulation, which implements the provisions of section 7602(c)
(requiring notice of third party contacts) in the case of a section
6103(n) contractor, was instead intended to highlight the fact that the
IRS had been allowing contractors, under the guidance of an IRS officer
or employee, to hold discussions and ask questions of witnesses for
many years and that the proposed regulations were in the nature of a
clarification. The purpose was not to demonstrate that the IRS is
delegating authority to contractors as the comments incorrectly state.
Therefore, for the reasons above, Treasury and the IRS disagree
with the comments' assertion that the regulations improperly delegate
authority under section 7602. The statute permits section 6103(n)
contractors to receive books, papers, records, or other data summoned
by the IRS and, in the presence and under the guidance of an 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.
3. Confidential Taxpayer Information Provided to a Contractor
One of the comments suggests that the proposed regulations raise
issues relating to confidentiality of taxpayer information. First, the
comment states that the regulations place confidential taxpayer
information unnecessarily at risk of unauthorized disclosure under
section 6103. According to the comment, this is because placing
taxpayer information in the hands of outside contractors under section
6103(n) increases the risk of misuse and unlawful disclosure because
outside contractors are not subject to the same rules of conduct as IRS
employees and may have loyalties to other clients besides the IRS and
the public fisc.
Next, the comment questions whether the disclosure of confidential
information to outside counsel is permitted under section 6103(n). The
comment explains that in 1990 the phrase ``other services'' was added
to section 6103(n) to cover outside experts, in part, because these
experts are objective and the IRS is not. The comment continues that
outside counsel, as an advocate, is not objective and, therefore, is
not covered by the phrase ``other services'' in section 6103(n).
Finally, the comment states that the IRS has failed to demonstrate
that government employees cannot effectively and more appropriately
perform the function contemplated by the temporary regulations.
These comments do not address the clarification made by the
proposed and temporary regulations (that is, that section 6103(n)
contractors may be present at summons interviews, ask questions at a
summons interview, and review summoned books, papers, records, or other
data). Further, the comments do not explain why the proposed
regulations place confidential taxpayer information at risk of
unauthorized disclosure at all. Rather, these comments address
disclosure to experts under section 6103(n), which is
[[Page 45413]]
not the subject of these regulations. Therefore, the comments do not
address issues under the regulations.
Regardless of the relevance of the comments to these regulations,
the IRS takes protection of the confidentiality of taxpayer information
seriously and will not disclose taxpayer information unless authorized
under the law. ``Return information'' and ``taxpayer return
information'' are in general broadly defined in sections 6103(b)(2) and
(b)(3), as including information concerning a taxpayer's identity, the
nature, source or amount of his income, payments, receipts, deductions,
exemptions, credits, assets, liabilities, net worth, tax liabilities,
tax withheld, owed, or paid, whether the taxpayer is being or will be
examined or investigated, to the extent such information is filed with
or furnished to the IRS by or on behalf of the taxpayer to whom such
information relates.
Section 6103(n) authorizes the IRS to disclose confidential
taxpayer information to persons who provide services to the IRS,
including outside experts. The legislative history of section 6103(n)
indicates that Congress added the words ``other services'' in 1990 to
ensure that persons who provide services to the IRS, such as expert
witnesses, and to whom the IRS discloses returns and return information
pursuant to section 6103, would clearly be subject to the same
confidentiality standards and penalties for unauthorized disclosure as
are IRS employees.
In sections 7431, 7213, and 7213A, Congress created parallel civil
and criminal deterrents for outside contractors (to those applicable to
IRS employees) to punish any misuse of taxpayer return information
through unlawful inspection or unlawful disclosure of such information.
Specifically, section 7431(a)(2) authorizes taxpayers to file the same
type of civil action for damages against an IRS contractor for
knowingly, or by reason of negligence, making any unauthorized
inspection or unauthorized disclosure of taxpayer return information,
as may be filed against the United States for the same type of conduct
committed by any officer or employee of the United States. Similarly,
in sections 7213(a)(1) and 7213A(a)(1)(B) (by references to persons
described in section 6103(n)), Congress made it a crime punishable by
up to five years or up to one year of imprisonment, plus a fine, for an
IRS contractor to willfully make an unauthorized disclosure or an
unauthorized inspection of taxpayer return information, respectively.
If an IRS officer or employee is convicted under sections 7213 or
7213A, such person will also be dismissed or discharged from Federal
employment. Before any conviction, if the IRS determines that a
contractor has violated its taxpayer return information disclosure
obligations under its contract, the IRS may also suspend or terminate
the contract, pursuant to Sec. 301.6103(n)-1(e)(4)(iii). Moreover,
Sec. 301.6103(n)-1(e)(4) provides further safeguards against unlawful
disclosures or inspections of taxpayer return information by
contractors.
Finally, it is unclear what connection the comment is making
between protecting confidentiality of taxpayer information and
objectivity of the section 6103(n) contractor. First, there is no
obligation under section 6103(n) or the regulations thereunder for a
contractor under section 6103(n) to be objective. Second, whether a
contractor is objective has no relation to whether the contractor has
an obligation to protect confidential taxpayer information from
disclosure or the contractor's ability to do so.
For these reasons, the Treasury and the IRS disagree that the
regulations place confidential taxpayer information unnecessarily at
risk of unauthorized disclosure.
4. Potential Litigation Costs To Enforce the Regulation
One comment states that including a provision to allow an IRS
contractor in a summons interview to question a witness under oath in
the final regulations would result in time-consuming and costly
litigation for the IRS, taxpayers, third party witnesses, and the
courts, and that these costs would outweigh the potential benefits to
the IRS from a contractor directly questioning a summoned witness under
oath. The comment does not indicate how it came to this conclusion, nor
does it provide any support for its concern.
The IRS makes the decision of whether to issue a summons or to
pursue summons enforcement actions on a case-by-case basis, analyzing
each situation in the light of its particular facts and weighing the
desired information against the tax liability involved, the time and
expense of obtaining the records, and the adverse effect on voluntary
compliance by others if the enforcement actions are not successful. A
contractor's participation in a summons interview does not factor into
the IRS's decision to request the Department of Justice to institute
enforcement action or lead the taxpayer ultimately to file a deficiency
action in the United States Tax Court or a refund claim in a United
States District Court or the Court of Federal Claims. As a practical
matter, the IRS will likely hire contractors to assist in the factual
development of an examination only in significant cases. These are
cases in which litigation over summons enforcement is already likely to
occur if the IRS examination team faces resistance from taxpayers to
providing requested information. Accordingly, there should not be
considerably more litigation as a result of these final regulations.
Moreover, when there is summons enforcement litigation, it will be
because the IRS has determined that such litigation is in the best
interest of tax administration.
5. Procedural Concerns With the Issuance of the Temporary Regulations
One of the comments states that the temporary regulations were not
issued in accordance with the Administrative Procedure Act (APA). The
temporary regulations were promulgated in full compliance with the APA.
In addition, this document finalizes proposed regulations contained in
a notice of proposed rulemaking that cross-referenced the temporary
regulations. The proposed regulations were also promulgated in full
compliance with the APA. Because these final regulations adopt the
proposed regulations, it is not necessary to address concerns regarding
procedural issues relating to promulgation of the temporary
regulations.
Special Analyses
It has been determined that this Treasury Decision is not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. The IRS has determined that sections 553(b)
and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not
apply to these regulations and because the regulations do not impose a
collection of information on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, the notice of proposed rulemaking preceding
these regulations was submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comments on its impact on small
business, and no comments were received.
Drafting Information
The principal author of these final regulations is William V. Spatz
of the Office of Associate Chief Counsel
[[Page 45414]]
(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.
Adoption of Amendments to the Regulations
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 * * *
Sec. 301.7602-1T [Removed]
0
Par. 2. Section 301.7602-1T is removed.
0
Par. 3. Section 301.7602-1 is amended by adding paragraph (b)(3) and
revising paragraph (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). 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;
questioning the person providing testimony under oath; and asking a
summoned person's representative to clarify an objection or assertion
of privilege.
* * * * *
(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 summons interviews conducted on or after July
14, 2016. For rules under paragraphs (b)(1) and (2) that are applicable
to summonses issued on or after September 10, 2002 or under paragraph
(b)(3) that are applicable to summons interviews conducted on or after
June 18, 2014, see 26 CFR 301.7602-1T (revised as of April 1, 2016).
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: May 27, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2016-16606 Filed 7-12-16; 4:15 pm]
BILLING CODE 4830-01-P
