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DISCLOSURE RULES DON'T PROHIBIT RECEIPT OF SUMMONS BY NAMED THIRD PARTIES.

MAY 11, 2000

ILM 200045001

DATED MAY 11, 2000
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Citations: ILM 200045001

UILC: 6103.08-00; 6103.11-00

 

Release Date: 11/9/2000

 

 

                                             Date: May 11, 2000

 

 

                            GL-609897-99

 

 

      MEMORANDUM FOR ASSISTANT DISTRICT COUNSEL, FT. LAUDERDALE

 

                           CC:SER:SFL:FTL

 

 

                                FROM:

 

                            David L. Fish

 

         Chief, Branch 4 (Disclosure Litigation) CC:EL:D:Br4

 

 

                              SUBJECT:

 

                     Notice Copies of Summonses

 

 

[1] As we understand it, you are interested in our determining whether or not it is a violation of I.R.C. section 6103 to provide notice copies of summonses, as required by I.R.C. section 7609(a), to any person to whom the records or testimony relates who is identified in the summons. For example, the Service may have an open civil or criminal investigation of a particular taxpayer. As is commonly the case, the taxpayer conceals assets and operates through nominees. The concealment plan could involve the taxpayer ("T"), the taxpayer's spouse ("S"), or other related entities, such as corporations owned by T or S ("ABC Corp."). You have requested we address the following scenario, with a summons styled substantially as follows:

     In the Matter of T

 

 

          * * *

 

 

     All records related to financial transactions with:

 

 

     T

 

     S

 

     ABC Corp.

 

 

     All records related to accounts held by the above persons.

 

 

[2] All notice parties or their powers of attorney receive copies of the summonses pursuant to I.R.C. section 7609. 1

[3] Section 6103(a) establishes the general rule that returns and return information are confidential, and cannot be disclosed except as authorized by Title 26. Section 6103(k)(6) provides that:

     an internal revenue officer or employee may, in connection with

 

     his official duties relating to any audit, collection activity,

 

     or civil or criminal tax investigation or any other offense

 

     under the internal revenue laws, disclose return information to

 

     the extent that such disclosure is necessary in obtaining

 

     information, which is not otherwise reasonably available, with

 

     respect to the correct determination for tax or liability for

 

     tax, or the amount to be collected or with respect to the

 

     enforcement of any other provision of [Title 26].

 

 

[4] Relevant portions of the regulations provide as follows:

     . . . an officer or employee of the Service or Office of the

 

     Chief Counsel therefor is authorized to disclose return

 

     information (as defined in section 6103(b)(2)) in order to

 

     obtain necessary information relating to the following --

 

 

                                * * *

 

 

          (3) To establish or verify the liability (or possible

 

     liability) of any person, or the liability) [sic] of any person,

 

     or the liability (or possible liability) at law or in equity of

 

     any transferee or fiduciary of any person, for any tax, penalty,

 

     interest, fine, forfeiture, or other imposition or offense under

 

     the internal revenue laws or the amount thereof to be collected;

 

 

          (4) To establish or verify misconduct (or possible

 

     misconduct) or other activity proscribed by the internal revenue

 

     laws;

 

 

                                * * *

 

 

          (6) To establish or verify the financial status or

 

     condition and location of the taxpayer against whom collection

 

     activity is or may be directed, to locate assets in which the

 

     taxpayer has an interest, to ascertain the amount of any

 

     liability described in subparagraph (3) of this paragraph to be

 

     collected, or otherwise to apply the provisions of the Code

 

     relating to establishment of liens against such assets, or levy

 

     on, or seizure, or sale of, the assets to satisfy any such

 

     liability; or

 

 

                                * * *

 

 

     where necessary in order to accomplish any activity described in

 

     subparagraph (6) of this paragraph. . . .

 

 

Treas. Reg. section 301.6103(k)(6)-1(b).

[5] Under the scenario described, the Service has reason to suspect that the taxpayer is diverting funds to nominees. In an attempt to trace income, the summons may include the name of the target and the names of non-target third parties who may have accounts that are likely being used by the taxpayer to divert his income. Accordingly, under these facts, all the information disclosed is necessary to obtain information from the financial institution. Barrett v. U.S., 795 F.2d 446 (5th Cir. 1986) (indicating that inquiry was not whether the information sought was necessary, but whether the disclosures were necessary to obtain the information sought and whether the information sought was otherwise reasonably available). 2

[6] As to disclosing the fact that the taxpayer is being investigated to the taxpayer's spouse and ABC Corp., because the IRS is required to give a copy of the summons to the noticees and the summons form must identify the taxpayer being investigated, it is clear that section 6103(k)(6) and/or sections 7602 and 7609 authorize the disclosure of the fact that T is being investigated to these third parties.

[7] If you have any questions, please contact me at (202) 622- 4570.

 

FOOTNOTES

 

 

1 Section 7609 of the Internal Revenue Code (IRC) provides any person to whom the records or testimony sought in the summons relates and who is identified in the summons shall receive notice and a copy of the summons.

2 This memorandum addresses whether the information disclosed in the summons is authorized under I.R.C. section 6103, not whether a summons may be issued for information relating to third parties. With regard to this latter issue, which is under the jurisdiction of the Assistant Chief Counsel (General Litigation), courts have held that when seeking records of third parties the Service needs to establish a nexus between the taxpayer's investigation and the records of the third party being sought. See United States v. Harrington, 388 F.2d 520 (2d Cir. 1968). Under these facts, that test is met.

 

END OF FOOTNOTES
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