Certain Non-Government Persons Not Authorized To Participate in Examinations of Books and Witnesses as a Section 6103(n) Contractor, 49923-49924 [2021-19225]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 86, Number 170 (Tuesday, September 7, 2021)]
[Rules and Regulations]
[Pages 49923-49924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19225]



[[Page 49923]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9952]
RIN 1545-B012


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

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION:  Final regulations.

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SUMMARY: This document contains final regulations modifying regulations 
relating to IRS administrative proceedings to reflect limitations that 
are required by the enactment of the Taxpayer First Act of 2019. These 
final regulations implement new rules regarding the persons who may be 
provided books, papers, records, or other data obtained pursuant to 
section 7602 of the Internal Revenue Code (Code) for the sole purpose 
of providing expert evaluation and assistance to the IRS, and adopt 
further limitations on the types of non-governmental attorneys to whom, 
under the authority of section 6103(n) of the Code, any books, papers, 
records, or other data obtained pursuant to section 7602 may be 
provided. These final regulations also prohibit any IRS contractors 
from asking substantive questions of a summoned witness under oath or 
asking a summoned person's representative to clarify an objection or 
assertion of privilege. The regulations affect persons who are examined 
by the IRS and any persons who are questioned by the IRS under oath 
pursuant to section 7602.

DATES: 
    Effective date: These regulations are effective on September 7, 
2021.
    Applicability date: For date of applicability, see Sec.  301.7602-
1(d), which provides that the regulations promulgated by this Treasury 
decision are applicable to examinations begun or administrative 
summonses served by the IRS on or after August 6, 2020.

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(a) of the Code 
relating to participation by persons described in section 6103(n) of 
the Code and 26 CFR 301.6103(n)-1(a) of the Procedure and 
Administration Regulations in receiving and reviewing summoned books, 
papers, records, or other data and in interviewing a summoned witness 
under oath. These final regulations narrow the scope of the final 
regulations (TD 9778) published in the Federal Register (81 FR 45409) 
on July 14, 2016 (Summons Interview Regulations) by providing that 
certain non-government attorneys whom the IRS could previously have 
hired are no longer authorized to participate in an examination and by 
interpreting the requirements of section 7602(f), which was added to 
the Code by the Taxpayer First Act of 2019. A notice of proposed 
rulemaking (REG-132434-17) proposing these changes was published in the 
Federal Register (85 FR 47931) on August 7, 2020 (proposed 
regulations).

Summary of Comments

    No public hearing was requested or held regarding the proposed 
regulations. Two responsive comments were received, both of which 
concerned only one portion of the proposed regulations--proposed Sec.  
301.7602-1(b)(3)(C), titled ``Hiring of certain non-government 
attorneys.''
    The first commenter recommended modifying the proposed rules to 
allow any outside contractors working for the IRS to examine, 
interview, and determine whether a taxpayer was a ``tax cheat.'' The 
Department of the Treasury (Treasury Department) and the IRS decline to 
adopt this comment. While the IRS may hire a contractor to assist the 
IRS in these processes, examining a taxpayer and determining whether 
that taxpayer is in compliance with Federal tax laws are core IRS 
functions that the IRS has never allowed a contractor to perform. In 
addition, section 7602(f) now prohibits the IRS from allowing an IRS 
contractor to ask substantive questions of a witness whose testimony is 
being taken under oath pursuant to section 7602.
    The second commenter noted that the non-exclusive nature of the 
proposed regulations left open the possibility that the IRS could hire 
as a contractor in an IRS examination a certified public accountant 
(CPA), enrolled agent, or another non-attorney to provide the IRS with 
assistance in the application of Federal tax laws. This commenter 
asserted that the proposed regulations should be revised so as to 
prohibit the IRS from hiring as a contractor in an examination any 
person, whether or not an attorney, for that person's expertise with 
the Federal tax laws. The Treasury Department and the IRS decline to 
adopt this comment. The limitation on hiring attorneys as contactors in 
examinations for their expertise in applying the Federal tax laws is a 
measure that goes beyond what is required by section 7602(f). This 
hiring limitation was introduced as a matter of sound tax 
administration to address concerns expressed by a range of professional 
and business associations over the IRS's prior use of attorneys as 
contractors. While the previous commenters addressing the Summons 
Interview Regulations and Notice 2017-38, 2017-30 I.R.B. 147, noted the 
potential hazards that could arise from the IRS hiring attorney 
contractors for their expertise with Federal tax laws, the hiring of a 
CPA or other accountant by the IRS as a contractor has not been 
established as a widely held concern. Accordingly, the Treasury 
Department and the IRS have determined (1) that hiring outside CPAs and 
accountants as contractors in an examination does not pose the same 
potential risk to tax administration that prior commenters had 
identified for the IRS hiring of outside attorneys, who are trained at 
developing facts and taking testimony, and (2) that the IRS is 
justified in contracting for the resources and expertise of CPAs and 
accountants from outside of the IRS in certain large or complex cases.

Explanation of the Final Regulations

    The preamble to proposed regulations explained the various 
provisions of the proposed regulations in detail. Because these final 
regulations adopt the proposed regulations without any modifications, 
any persons interested in understanding the provisions of these final 
regulations should consult the preamble discussion of these provisions 
in the proposed regulations.

Special Analyses

    These regulations are not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations. Therefore, a regulatory 
impact assessment is not required.
    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these regulations do not impose a significant 
economic impact on a substantial number of small entities. The final 
regulations mainly affect the IRS and do not impose requirements on 
small entities. Thus, no economic impact will result from these 
regulations on any small entity. Accordingly, the Secretary of the 
Treasury's delegate certifies that the rule

[[Page 49924]]

will not have a significant economic impact on a substantial number of 
small entities.
    Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding these final regulations was submitted to the Chief 
Counsel for the Office of Advocacy of the Small Business Administration 
for comments on its impact on small business. No comments were received 
from the Chief Counsel for the Office of Advocacy of the Small Business 
Administration.

Drafting Information

    The principal author of these final regulations is William V. Spatz 
of the Office of 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The general authority citation for part 301 continues 
to read in part as follows:

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

    Par. 2. Section 301.7602-1 is amended:

0
1. In paragraph (b)(2), by adding ``(Secretary)'' at the end of the 
first sentence.
0
2. By revising paragraphs (b)(3) and (d).
    The revisions read as follows:


Sec.  301.7602-1  Examination of books and witnesses.

* * * * *
    (b) * * *
    (3) Participation of a person described in section 6103(n)--(i) IRS 
contractor access to books and records obtained by the IRS 
administratively--(A) In general. The Secretary may not, under the 
authority of section 6103(n), provide any books, papers, records, or 
other data obtained pursuant to section 7602 to any person authorized 
under section 6103(n), except when such person requires such 
information for the sole purpose of providing expert evaluation and 
assistance to the IRS.
    (B) Persons providing expert evaluation and assistance. For the 
purposes of paragraph (b)(3)(i)(A) of this section, persons providing 
expert evaluation and assistance may include, but are not limited to, 
the following:
    (1) Persons with specialized expertise in certain substantive 
areas, including, but not limited to, economists, engineers, attorneys 
specializing in an area relevant to an issue in the examination (such 
as patent law, property law, environmental law, or foreign, state, or 
local law (including foreign, state, or local tax law)), industry 
experts, or other subject-matter experts;
    (2) Persons providing support as ancillary service contractors 
including, but not limited to, court reporters, translators or 
interpreters, photocopy services, providers of data processing programs 
or equipment, litigation support services, or other similar 
contractors; and
    (3) Whistleblower-related contractors described in Sec.  
301.6103(n)-2.
    (C) Hiring of certain non-government attorneys. The IRS may not 
hire an attorney as a contractor to assist in an examination under 
section 7602 unless the attorney is hired by the IRS as a specialist in 
foreign, state, or local law (including foreign, state, or local tax 
law), or in non-tax substantive law that is relevant to an issue in the 
examination, such as patent law, property law, or environmental law, or 
is hired for knowledge, skills, or abilities other than providing legal 
services as an attorney.
    (ii) IRS contractor participation in an IRS summons interview--(A) 
In general. No person other than an officer or employee of the IRS or 
its Office of Chief Counsel may, on behalf of the Secretary, question a 
witness under oath whose testimony was obtained pursuant to section 
7602. Persons authorized by section 6103(n) and with whom the Secretary 
may provide books, papers, records, or other data obtained pursuant to 
section 7602 may also attend a summons interview and provide assistance 
to the IRS or Office of Chief Counsel employees in attendance, but may 
not question the summoned witness under oath or ask a summoned person's 
representative to clarify an objection or assertion of privilege.
    (B) Court reporters, translators, and interpreters are not barred 
from asking questions. Court reporters who are hired as contractors by 
the IRS to make a record of an IRS summons interview are permitted to 
ask typical housekeeping questions of a summoned witness. Examples of 
such questions include, but are not limited to, asking whether the 
witness swears to tell the truth, asking the witness to spell a word or 
phrase, and asking whether the witness can speak up or speak rather 
than gesture an answer. Translators and interpreters who are hired as 
contractors by the IRS to assist in the interview of a summoned witness 
are permitted to translate any of the questions that are asked of the 
witness by an IRS or Office of Chief Counsel officer or employee and to 
ask questions which may be necessary to clarify the translation.
* * * * *
    (d) Applicability date. This section is applicable after September 
3, 1982, except for paragraphs (b)(1) and (2) of this section, which 
are applicable on and after April 1, 2005, and paragraph (b)(3) of this 
section, which applies to examinations begun or administrative 
summonses served by the IRS on or after August 6, 2020. For rules under 
paragraphs (b)(1) and (2) of this section that are applicable to 
summonses issued on or after September 10, 2002 or under paragraph 
(b)(3) of this section that are applicable to summons interviews 
conducted on or after June 18, 2014 and before July 14, 2016, see 26 
CFR 301.7602-1T (revised as of April 1, 2016). For rules under 
paragraph (b)(3) of this section that are applicable to administrative 
summonses served by the IRS before August 6, 2020, see 26 CFR 301.7602-
1 (revised as of April 1, 2020).

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.

    Approved: August 20, 2021.
Mark J. Mazur,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2021-19225 Filed 9-2-21; 4:15 pm]
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