Summons Interview Rules Should Be Withdrawn, Coalition Says

June 25, 2018

Internal Revenue Service
Courier's Desk
CC:PA:LPD:PR (REG-132434-17)
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Sir or Madam:

On behalf of the Coalition for Effective & Efficient Tax Administration (“CEETA”), we respectfully submit this comment letter providing our perspective and recommendations with respect to proposed regulations (REG-132434-17) under I.R.C. § 7602(a) relating to participation by persons described in I.R.C. § 6103(n) and Treas. Reg. § 301.6103(n)-1 in receiving and reviewing summoned books, papers, records, or other data and interviewing a summoned witness under oath. The proposed regulations were published in the Federal Register on March 28, 2018.

CEETA is a coalition of companies and trade associations that seeks to effect constructive administrative and legislative changes to ineffective and inefficient Internal Revenue Service (the “IRS” or the “Service”) practices and procedures.¹

I. Background

The proposed regulations amend final regulations that became effective July 14, 2016.² See T.D. 9778.The current regulations provide that persons described in I.R.C. § 6103(n) and Treas. Reg. § 301.6103(n)-1(a) with whom the IRS or IRS 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. Additionally, the current regulations provide that such contractors may, in the presence of an IRS officer or employee, fully participate in the interview of a person the IRS has summoned as a witness to provide testimony under oath. See Treas. Reg. § 301.7602-1(b)(3).

The proposed regulations exclude non-governmental attorneys from participating in the summons activities delineated in Treas. Reg. § 301.7602-1(b)(3). However, the proposed regulations do allow a non-governmental attorney to participate in such summons activities if the attorney is hired by the Service as a “specialist in foreign, state, or local law, including tax law, or in non-tax substantive law that is relevant to an issue in the examination. . . .” See Prop. Treas. Reg. § 301.7602-1(b)(3)(ii). The proposed regulations also strike the statement “asking a summoned person's representative to clarify an objection or assertion of privilege” from the regulatory description of “fully participating” in a summons interview. See Prop. Treas. Reg. § 301.7602-1(b)(3)(i).

II. Proposed Regulations Continue to Delegate “Inherently Governmental Functions” To Private Contractors

As provided in past commentary, CEETA recommends the withdrawal of Treas. Reg. § 301.7602-1(b)(3) in its entirety. The proposed regulations do not solve the continuing issue that the regulations delegate, outside statutory allowance, inherently governmental functions to private contractors. In fact, the preamble to the proposed regulations highlights that the regulations, in both current and proposed form, risk delegating inherently governmental functions to private contractors.

The proposed regulations' general exclusion of non-governmental attorneys from summons activities is a gesture to not only public commentary on the use of private lawyers in IRS examinations, but also Congressional³ and judicial commentary.⁴ This exclusion recognizes, as stated in the preamble, the risk that the IRS many not be able to maintain full control of a non-governmental attorney while questioning a witness. The preamble also recognizes that the actions of a non-governmental attorney in questioning a witness could prevent Service employees from independently exercising their judgment. The preamble then concludes that “[t]hese concerns outweigh the countervailing need for the IRS to use non-governmental attorneys, except in limited circumstances.”

The Service's recognition of the risks of non-governmental attorney participation in summons activities begs the question: why does the Service not acknowledge this risk with all private contractors, not just non-governmental attorneys? CEETA fully agrees with the risks stated in the preamble, but asserts that these risks exist with all private contractors. The preamble articulates no reason to distinguish non-governmental attorneys from other private contractors the Service might hire.

Additionally, allowing the use of non-governmental attorneys who “specialize” in non-federal tax issues raises the concern of delegating inherently governmental functions during summons activities. When a specialized non-governmental attorney directly questions a taxpayer under oath, presumably that attorney will have no assistance from the IRS, as control will remain with the person that has knowledge of the “specialized” issue. With no IRS assistance, the specialized non-governmental attorney may ask whatever questions he or she sees fit. This situation reflects the most intrusive of governmental actions, because it carries immediate perjury implications as the non-governmental attorney takes testimony under oath.

These stated risks directly support the continued position of CEETA that the current, and proposed, regulations of Treas. Reg. § 301.7602-1(b)(3) delegate, outside of statutory allowance, inherently governmental functions to all private contractors. The Service cannot cure the regulations' delegation of inherently governmental functions by limiting the participation of non-governmental attorneys in summons activities. Therefore, the regulations of Treas. Reg. § 301.7602-1(b)(3) should be withdrawn in their entirety.

III. The Taxpayer First Act and Amendment to Section 7602

The Taxpayer First Act (H.R. 5444), a bipartisan bill which was unanimously passed by the U.S. House of Representatives on April 18, 2018, includes a statutory amendment to section 7602. The amendment, at Section 308 of the Act, would prohibit any person other than an employee of the Service or the IRS Office of Chief Counsel from questioning, under oath, a person pursuant to a summons. Additionally, the Act would amend section 7602 to limit the disclosure of taxpayer information obtained from a summons (i.e., books, papers, records or other data), under section 6103(n), to outside contractors except in circumstances where the contractors are providing “expert evaluation.”

CEETA believes Section 308 of the Act reflects the correct path forward in addressing concerns of private contractors' participation in summons activities.

The section 7602 amendment in Section 308 of the Taxpayer First Act reads as follows:

(f) LIMITATION ON ACCESS OF PERSONS OTHER THAN INTERNAL REVENUE SERVICE OFFICERS AND EMPLOYEES. — The Secretary shall not, under the authority of section 6103(n), provide any books, papers, records, or other data obtained pursuant to this section 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 Internal Revenue Service. No person other than an officer of employee of the Internal Revenue Service or the Office of Chief Counsel may, on behalf of the Secretary, question a witness under oath whose testimony was obtained pursuant to this section.

Section 308 of the Act correctly recognizes the inherently government function of conducting summons activities. The Act establishes a general rule that private contractors may not obtain summoned information, nor question a witness pursuant to a summons. The Act then provides an exception to allowing the disclosure of summoned information when a contractor requires the information for the sole purpose of providing expert evaluation.

The rule of Section 308 views private contractor participation from the opposite side as the current and proposed regulations at Treas. Reg. § 301.7206-1(b)(3). Section 308 creates a general rule that prohibits contractor participation in summons activities, and then provides an exception to that rule. The Act starts with a presumption that summons activities are inherently governmental functions, and then recognizes an exception to that presumption. In contrast, the proposed regulations start with the presumption that summons activities are not inherently governmental functions, by creating a near blanket allowance for private contractors to participate in summons activities. Then, in a nod to the expressed risk of delegating inherently governmental functions to contractors, the proposed regulations create an exception to generally exclude non-governmental attorneys from summons activities.

CEETA agrees with the Act's approach to prohibiting private contractors in summons activities. By creating a general rule disallowing contractors' involvement in summons activities, the Act defaults to a general protection against the delegation of inherently governmental functions. The proposed regulations' general rule does not create such a general protection; rather, the protection against the delegation of inherently governmental functions is created in an exception to the regulations' general rule of allowing contractor involvement in summons activities. The government must ensure that inherently governmental functions are not delegated to private contractors. The proposed and current regulations do not provide this assurance in the same manner as Section 308 of the Act.

CEETA would make one recommendation to the language of Section 308, to strengthen the prohibition against non-governmental attorneys participating in summons activities:

(f) LIMITATION ON ACCESS OF PERSONS OTHER THAN INTERNAL REVENUE SERVICE OFFICERS AND EMPLOYEES. — The Secretary shall not, under the authority of section 6103(n), provide any books, papers, records, or other data obtained pursuant to this section to any person authorized under section 6103(n), except when such person requires such information for the sole purpose of providing expert evaluation non-legal opinions and assistance to the Internal Revenue Service. No person other than an officer of employee of the Internal Revenue Service or the Office of Chief Counsel may, on behalf of the Secretary, question a witness under oath whose testimony was obtained pursuant to this section.

Lastly, CEETA implores the Service to consider the fact that the House of Representatives has unanimously passed the Taxpayer First Act. If enacted, Section 308 of the Act would, for the most part, invalidate the current and proposed regulations of Treas. Reg. § 301.7602-1(b)(3).

The Service should not ignore the clear statutory intention of the House to significantly limit the participation of private contractors in summons activities.

IV. Conclusion

Thank you in advance for your consideration of the above comments. CEETA is happy to participate in any further discussions concerning the proposed regulations under Treas. Reg. § 301.7602-1(b)(3). Should you have additional questions, please contact one of the following:

Pam Olson
Principal, PricewaterhouseCoopers LLP
600 13^th Street, NW
Suite 1000
Washington, DC 20005
Telephone: (202) 414-1401

Kevin Brown
Principal, PricewaterhouseCoopers LLP
600 13^th Street, NW
Suite 1000
Washington, DC 20005
Telephone: (202) 346-5051