number release date id office uilc cca-111225-08 ----- from ------------------ sent wednesday date pm to ---------------------- cc ---------------------------- subject summons follow up hi ---------- - as to corporate summons look at question iv page of the faq pertaining to summons document i am attaching this document can be found on the ---- website and i have found it very helpful in the past attachment frequently asked questions faqs pertaining to summonses table of contents i ii iii iv v vi summons authority and information that may be summoned - p types of summonses why it matters - p legal obstacles to issuing a summons - p summons drafting requirements tips - p serving a summons - p john doe summonses - p vii third-party_summons issues - p viii third-party recordkeepers - p ix x xi consensual examination of records - p conducting summons interview - p proceedings to quash summons enforcement ased suspensions - p xii fees and costs for witnesses - p xiii privileges and other restrictions on irs information gathering - p i summons authority and information that may be summoned what is the statutory authority for an irs summons sec_7602 authorizes the irs to issue a summons to any person having information that may be relevant to its investigation that authority permits the irs to require a person to appear at a designated location and to produce books_and_records or give testimony under oath that will enable the irs to determine the accuracy of a return determine liability for any internal revenue tax to collect those taxes or inquire into any offense relating to the administration or enforcement of the internal_revenue_code what information may be summoned the service’s summons authority is very broad it authorizes the examination of any records or the taking of testimony under oath from witnesses that may be relevant or material are there differences between what the irs may require and what the irs may request through a summons when documents or records were not in existence when the summons was served yes with few exceptions an irs summons may only require the production of existing records for example a summons generally may not require a witness to produce an unfiled tax_return that has not yet been prepared irm on the other hand a witness may be required at a summons interview to produce a handwriting exemplar and a taxpayer that receives a summons under sec_6038a must produce an english translation of the responsive foreign language documents to the irs within days sec_1_6038a-3 in its instructions to a summons the irs should request a witness to produce a privilege log for records the witness fails to produce based upon the assertion of a privilege similarly in its instructions to a summons or in a separate letter the irs may request that summoned material be produced in a specific electronic format if it is simple for the taxpayer to convert the records to that format may the service attach a list of questions to the summons for the witness to answer the service cannot require the summoned person to create a document that responds to a list of questions but the service may compel live testimony from a summoned witness when the irs is seeking testimony from a witness in a complex case it is a best practice for the irs to describe with reasonable particularity in an attachment to the summons the matters on which testimony is requested may the service receive summoned documents in electronic format yes but sec_7610 and the regulations do not provide reimbursement for electronically produced documents can the service require records in a preferred format for example electronically the service can only request not demand that records be produced in a certain format a summons demands the production of records maintained in an existing format ii types of summonses why it matter sec_1 when the irs is examining an entity taxpayer eg a corporation and issues a summons for testimony or records from an employee do the procedures differ if the summoned party is a current or former employee yes a summons on a current employee of an entity taxpayer is treated as a first-party summons sec_7609 as a result the witness must answer the summons in days and no notice of the summons is required to be given to any third parties identified within the summons however the taxpayer’s counsel may attend the summons interview as the representative of the taxpayer’s employee a summons upon a former employee of the entity taxpayer that is an ongoing business is treated as a third-party_summons the witness must be given at least full days to answer and notice of the summons is required to be given to the taxpayer and to any other third party identified within the summons the entity taxpayer’s counsel is not presumed however to have any right to attend the summons interview of the former employee a summons upon a former employee who is the designated custodian of the records of an entity taxpayer that is no longer in business is treated as a first-party summons similarly if the entity taxpayer under audit is a tefra partnership then a summons upon the tax_matters_partner tmp for the tefra partnership years under examination would be treated by the irs as a first-party summons this is so even if the tmp for the partnership years under examination was no longer a managing partner or even a partner of the partnership at the time the summons was issued what type of summons may the irs use to obtain an investor list s from a promoter who may be a material_advisor with_respect_to_a_reportable_transaction under sec_6111 and or the irs has three choices for obtaining such an investor list s from a promoter first the irs may serve the promoter with a first-party summons in connection with a promoter penalty investigation of the promoter this could also function as a dual_purpose_summons since one purpose of the summons is to assist the promoter penalty investigation of the promoter and the other purpose is to investigate the investors for their own potential federal tax_liabilities second if the irs has a reasonable basis for believing that the investors in certain transactions may have failed to comply with the internal revenue laws and if the other requirements of sec_7609 are met then the irs through doj may seek approval from a u s district_court to serve a john_doe_summons upon the promoter for the appropriate investor list s third the service may simultaneously or in seriatim both serve the first-party dual_purpose_summons upon the promoter and also seek court approval to serve a john_doe_summons upon the promoter the john_doe_summons option requires a higher showing by the irs that the investor’s transactions may not have complied with the tax laws and it requires a more extensive review by irs executives in addition to judicial review but the john_doe_summons has the potential advantage when dealing with an uncooperative promoter of suspending the assessment statutes of limitation for the unknown investors whose identities are sought this will begin six months after the john_doe_summons is served if the summons has not been complied with in full if the irs is interested in obtaining documents and information from the promoter other than just the identities of the promoter’s unknown investors then the irs will ordinarily seek the additional information from the promoter either through a first-party dual_purpose_summons upon the promoter in connection with a promoter penalty investigation or through a third-party_summons upon the promoter in connection with an irs investigation of a particular known investor for unknown investor assessment statutes of limitations still open on date the effective date of sec_6501 the assessment statute may be suspended only if the unknown investor’s transaction is a listed_transaction or substantially_similar_to_a_listed_transaction however unknown investor assessment statutes may be suspended by a john_doe_summons after six months whether or not the investor’s transaction was a listed one iii legal obstacles to issuing a summon sec_1 if the irs is interested in obtaining from the promoter of a questionable tax strategy the names and other data of its participants but the service is unable to describe circumstances under which the promoter had registration return filing or investor list maintenance responsibilities with respect to that strategy under sec_6111 or sec_6112 may the irs seek that information from the promoter using a dual_purpose_summons issued with regard to an sec_6707 and sec_6708 promoter penalty investigation no if there is no conceivable good_faith basis for the promoter investigation then there is no second purpose to support a dual_purpose_summons here there is only a single purpose - the investigation of the promoter’s unknown investors when the service’s only legitimate investigatory interest is in the unknown investors then a john_doe_summons must be used if the irs has referred a tax_shelter promoter to the tax_division to conduct a criminal tax grand jury investigation is the irs barred by sec_7602 from issuing or enforcing a i third-party_summons upon that promoter in connection with an irs examination of one of the promoter’s investors seeking records and or testimony from the promoter or ii a john_doe_summons upon the promoter to obtain a list of the promoter’s unknown investors no sec_7602 provides for a separate analysis and comparison of each taxable_period and type of tax see examples in sec_301 c ii since the known investor’s potential income_tax_liability for which the third-party_summons would be issued is not the same potential tax_liability being investigated by the grand jury sec_7602 is not an obstacle to that summons similarly the tax_liabilities of the unknown investors for which the john_doe_summons would be issued are not the same potential tax_liabilities for which the promoter is being investigated by the grand jury as a policy matter however the civil side investigator is required to coordinate with the ci counterpart to determine whether any part of the proposed civil summons has the potential to harm the criminal tax investigation sometimes ci may want to restrict civil tax contacts with the promoter with respect to a particular investor or set of transactions other times ci may have no concern with a third-party_summons or john_doe_summons upon the promoter for records only including limited testimony on the extent of the promoter’s search for requested records and sometimes ci may have no concern at all with a third-party_summons or john_doe_summons for records and testimony from the promoter with respect to an investor or transaction under examination eg if the investor or the john does were not involved with one of the transactions that the grand jury is considering in the case of a summons upon a promoter who is an individual ci may also be concerned about how a fifth_amendment defense of the summoned party would eventually play out if the summoned information may be relevant to the open tax years under investigation is the irs precluded from asking for information regarding an already closed tax_year a tax_year in appeals a tax_year for which a notice_of_deficiency or final_partnership_administrative_adjustment fpaa has already been issued or a tax_year already docketed in tax_court or being handled by the tax_division no however before using a summons to ask for prior year information that may be relevant for the open tax years under examination when there is an already docketed_case for the prior year it would be prudent for the irs to consult with the government attorney for the docketed tax_year to determine whether that information is already in the government’s possession it would also be good idea to inquire whether the government attorney objects to the proposed summons request for information that involves the prior docketed year may the irs issue a friendly summons to a witness it depends upon what the irs employee means by referring to the summons as a friendly summons if the irs employee means a summons that fails to comply fully with the internal_revenue_code then the answer is no a dual_purpose_summons that does not in fact relate to the person identified as the taxpayer on the summons is not a summons that complies with the internal_revenue_code such a summons needs to be treated as a de_facto john_doe_summons for which a u s district court’s pre-approval to serve the summons is required this is the case even if the witness indicates in advance that it would be willing to provide the information about unknown persons of interest to the irs if the friendly witness is first provided with an irs summons this does not mean the irs could not provide the friendly witness with an informal request for the same information the friendly de_facto john_doe_summons that ignores the code’s criteria for approval of a john_doe_summons is what the code prohibits a third party summons that an irs agent agrees not to send to a noticee when it is otherwise required by sec_7609 would also not comply with the internal_revenue_code for instance when a revenue_agent is seeking information from a third-party business that bought or sold goods or services to a taxpayer who is suspected of being a drug trafficker the revenue_agent may not agree to provide the third-party witness with an irs summons and a certificate under sec_7609 but to omit providing the taxpayer with notice of the third-party_summons because the witness is fearful of the taxpayer however the revenue_agent could informally request the same information from the third-party witness and agree to make a reprisal determination based upon the stated concerns of the witness that notice of the third-party contact should not be provided by the irs to the taxpayer pursuant to sec_7602 if by a friendly summons the irs employee means a third-party_summons that the witness has stated in advance that it intends to honor without objection then the stated intention of the witness to cooperate is information the irs may properly consider in deciding whether to issue the summons however the irs also needs to bear in mind that the third-party witness at least in a civil tax exam case is not the final arbiter of whether the summons will be complied with or resisted the taxpayer and other statutory noticees may still timely petition to quash the summons even though the witness indicates it may not resist complying with the summons for its own part for instance a former employee of a corporate taxpayer may indicate a willingness to turn over to the irs in response to a summons detrimental information concerning advice the taxpayer’s tax advisers gave the taxpayer about how to structure a transaction under audit or how to respond to an irs request for information during an audit before deciding whether to issue the summons it would be prudent for the irs to weigh the likely outcome of a potential privilege dispute that the taxpayer may initiate to quash the summons similarly an irs employee may make a pre-summons contact with the friendly manager of a u s branch of a multinational bank and be assured that the bank would honor a summons request for foreign based loan records of an unnamed u s taxpayer which was one of several parties involved in a transaction financed through a loan provided by a foreign_branch of that bank this pre-summons assurance from the u s manager while a factor for the irs to consider does not mean the irs should abandon efforts it would otherwise pursue to consider whether the summons meets the balancing test for seeking foreign-based records from a third party is there any legal or irs policy requirement that the irs issue a presummons letter before serving a summons upon a taxpayer or other witness no as a general_rule there is no requirement for issuing a presummons letter in addition to the customary idrs and supplemental idrs before the irs issues a summons to a witness there is an exception that applies in international cases see irm what legal and irm policy limitations on issuing and enforcing a summons for the periods that will be the subject of the statutory notice or fpaa should the irs keep in mind when the assessment limitations_period is about to expire and the irs will issue the taxpayer a statutory_notice_of_deficiency or fpaa shortly thereafter first there are no legal or irs policy prohibitions on the irs seeking to enforce a summons the irs had issued before a statutory notice or fpaa was mailed to the taxpayer for the same taxpayer and tax years as the summons it makes no difference whether this was done either after the irs mails the statutory notice or fpaa or even after the taxpayer has filed a tax_court petition with respect to the statutory notice or fpaa obtaining summoned information after the statutory notice or fpaa was mailed does mean of course that the material obtained at that time was not available to be considered in framing the irs position in the statutory notice or fpaa but is relevant to the positions the irs has already taken or is needed to assert an increased deficiency in a pending tax_court case for this reason especially with cases opened up by the irs for exam with short assessment statues it is not uncommon for the irs to issue a series of summonses to the taxpayer or to third parties up until the mailing date of the statutory notice or fpaa this might occur even though the appearance date for the witness may be after the statutory notice or fpaa has been mailed and if necessary the summons could not be referred for enforcement to doj or ordered enforced by a court until some time after tax merits litigation concerning the tax years at issue may already be pending in the tax_court second as a legal matter the tax_court has indicated that the absolute deadline on the irs to issue a summons for the same taxpayer and tax years as a notice_of_deficiency or fpaa is the point when the taxpayer files a tax_court petition in response to the notice_of_deficiency or fpaa 96_tc_459 the tax_court views the issuance of a new summons after the taxpayer’s petition has been filed as an improper attempt by the irs to subvert the tax court’s discovery rules the irs has directed its exam function agents to refrain from issuing a summons for the same taxpayer and tax years as a statutory notice or fpaa after the irs issues mails its statutory notice or fpaa irm the ccdm recognizes there may be rare circumstances where after consultation with counsel a revenue_agent may still issue a new summons during the gap period between mailing of the notice_of_deficiency or fpaa and the date that the taxpayer files a timely tax_court petition ccdm for instance if the revenue_agent learns of a critical defect in the format or service of a previously served summons then counsel may suggest curing the defect by issuing a new corrected summons to the witness if that can be done before the taxpayer files a tax_court petition third the exam function’s issuance of the statutory notice or fpaa or the taxpayer’s commencement of a tax_court proceeding should not impair the ability of the criminal investigation function or the collection function to issue a legitimate summons for the same taxpayer and tax years similarly an exam function agent may summon such information in connection with another taxpayer or with respect to other open tax years of the same taxpayer under exam this might also come up if the irs issued an early statutory notice to a taxpayer eg a notice_of_deficiency arising from a service_center information item matching program and the taxpayer failed to file a timely tax_court petition in response if the irs later opens a field exam of the taxpayer for additional items eg a newly disclosed tax_shelter transaction and it decides to issue a summons before it sends the taxpayer a second statutory notice or a fpaa then the first non-petitioned notice_of_deficiency does not represent an obstacle to the irs issuing its intended summons during this time frame may the irs issue a summons with respect to a taxpayer if it does not have an open case the absence of an open irs case at the time the investigating function eg exam ci or collection issued the summons may lead a court to question whether the irs has a legitimate purpose in issuing the summons of course the irs agent who issued the summons would be permitted an opportunity to offer any valid reason why the case opening procedures were not followed john doe summonses are an exception because the taxpayers whose identities are sought are unknown to the irs iv summons drafting requirements tip sec_1 when the irs is examining a partnership entity for potential promoter penalties and the partnership has undergone several changes in membership partner as well as the partnership’s name should a first-party irs summons to the taxpayer list each of the different names for the partnership on the in the matter of and on the to lines of one summons or should the irs issue separate summonses one to each of the differently named partnership entities the irs should issue separate first-party summonses in this situation - one to each of the differently named partnership entities this would counter any defense by the promoter taxpayer that a different partnership than the one summoned existed during the time period that a particular transaction being asked about occurred it would also counter any argument that the records of the subject transaction are being held by the custodian of records for a previous or later named partnership these arguments are not entirely specious because different individual partners may be derivatively liable for paying the partnership’s promoter penalty it all depends on the time period in which the activity giving rise to the partnership promoter penalty occurred and who was a partner at that time sec_6103 prohibits the identification of each of the differently named taxpayer partnerships as the entity being examined on the same first party summons however the irs could make each of the first-party summonses answerable at the same date and time thus the summons interviews can be done concurrently if the individual responding to each of the three summonses is the same person or successively if different individuals respond for each of the various partnerships how is a summons captioned with respect to a consolidated_group under examination for income taxes where the taxpayer is a consolidated_group under examination for income taxes the summons in the matter of line should be captioned as shown on the group’s form_1120 return prior or subsequent names may also be recognized such as abc inc and subsidiaries no change in the group or xyz inc and subsidiaries formerly known as abc inc and subsidiaries the summons may be directed to any corporate officer of the parent_corporation of the consolidated_group if the summons seeks testimony from a specific corporate officer then the summons must be directed to and personally served on that individual the summons should be captioned on the to line to the individual in her official capacity at the company eg jane smith president xyz inc what are the differences and implications between captioning a summons for records and testimony to person a as president of xyz corporation versus a summons addressed to xyz corporation a summons addressed to person a as president of xyz corporation requires the president of xyz corporation to search or supervise a search for and produce any responsive and non-privileged records that are in the corporation’s or in the officer’s personal possession the irs can also expect the president to testify regarding matters personally known to such officer or discovered in the course of the records search the officer conducted or supervised this summons could not require the corporation to produce another officer_or_employee who is more prepared to testify regarding the matters the irs questions on the other hand if the summons is addressed to xyz corporation for records and testimony and the matters upon which testimony is desired are reasonably detailed within the summons then the irs may personally serve the summons upon any officer or managing agent of the corporation the corporation’s management must supervise a search for and produce any requested and non- privileged records in the possession of the corporation and its officers and employees the irs may expect to be able to take testimony from one or more persons designated by the corporation to testify as to matters known or reasonably available to the corporation but the irs is not able to require on the basis of this summons that the president be one of those persons designated by the corporation to give such testimony the differences between the two differently addressed summonses are analogous to the differences between a deposition taken under f_r c p a and a deposition taken under f_r c p b how should a summons to married taxpayers filing jointly and reflecting flow though tax treatment from an s_corporation be captioned the summons should be captioned in the matter of h and w the service should direct the summons to the spouse who possesses the summoned information the service treats this as a third-party_summons as to the other spouse so notice is given under sec_7609 even when both spouses are summoned by issuing and serving separate summonses each spouse is given notice of the other spouse’s summons this procedure preserves each spouse’s opportunity to move to quash the summons served on his or her spouse however the service should not treat a summons served on one taxpayer spouse as a third party summons that will suspend the other spouse’s assessment statute under sec_7609 should a summoned witness be provided with a list of every document the irs has already obtained and be advised not to produce any document appearing on the attached list no the not-already-in-irs-possession element of powell for summons enforcement does not require this degree of disclosure if summons enforcement becomes necessary the already possessed documents may be described in a more general way in the agent’s declaration there are several potential drawbacks to providing such details in the summons first the list is likely to be incomplete either through inadvertence or a desire not to disclose potential rebuttal evidence that incompleteness may later lead to allegations of intentional irs misrepresentation second every separate copy of a document should be treated as a separate document especially when there may be handwritten notes appearing on one copy of the document that do not appear on another copy the version with handwritten notes may never be obtained by the irs if it instructs the witness that it already has the document and the witness need not produce any of its copies third if the attached list of already possessed documents contains the names or identifying initials of a number of third parties and the summons is a third party summons then the irs must provide notice of the summons to every one of the third parties identified on the other hand there are some circumstances where the irs may prudently want to reduce the potential volume of the same summoned documents first if the witness has previously produced a set of unredacted bates numbered documents in response to an informal request for information or prior summons then the irs may state that the present summons is not requesting those specific documents again another example might occur where the irs is already in possession of one complete and unredacted binder of closing documents for a transaction that was provided to each participant in the closing and the irs is now interested in obtaining a specific pre-closing or post-closing transaction document the new witness may possess there the irs may reference the closing binder for the transaction in sufficient detail and indicate that the summons does not require production of another copy of the documents in that specific binder if a significant volume of records produced by a third party are relevant to several taxpayers the service in addressing sec_6103 concerns see chief_counsel notices and may identify the previously produced records and inform the third party that it is not necessary to reproduce these records if it confirms that they are one and the same in the context of a third-party_summons should the irs request documents or information from the witness by reference to the taxpayer’s fiscal_year eg for corporation x’s fiscal_year sec_2001 and sec_2002 no a third party witness can not be expected to know the beginning and ending dates of the taxpayer’s fiscal years for income_tax return filing purposes the summons should be drafted to refer to specific date ranges or to calendar years that include the fiscal_year periods the irs wants to know about should an irs summons be addressed to more than one witness eg to partner a and partnership abc in which partner a is a partner no an irs summons should be directed to only one witness at a time in the example the irs may either summon the partner or the partnership but not both with the same summons which service employees may issue and serve summonses the authority to issue and serve a summons is detailed in delegation_order no may a tax_fraud investigation assistant tfia issue a ci summons and still fit within the exception for ci summonses from the notice requirement of sec_7609 no while the tfia may prepare and serve the summons only the special_agent is authorized to sign it as the issuing officer to make the summons a criminal investigator summons that qualifies for the sec_7609 exception to the notice requirement issuing a summons and serving a summons are two distinct tasks see delegation_order no irm the delegation to serve a summons by a tfia is contained in paragraph sec_11 and sec_12 should the badge number of the irs employee before whom a summoned witness is directed to appear be included on the summons form yes it is a best practice to supply the badge number following the employee’s title and name eg you are hereby summoned and required to appear before revenue_agent first last name badge xx-xxxxx or his her designee an officer of the irs although inclusion of the irs employee badge number on the summons is a best practice it is not a requirement of the internal_revenue_code or powell rather rra ’98 section a an off-code provision directs that any manually generated correspondence received by a taxpayer from the irs or any irs employee’s personal or telephone contact with a taxpayer include disclosure of the irs employee’s unique identifying number should a summons request that a witness produce a privilege log for any documents withheld from production on privilege grounds even though the witness has not yet asserted a privilege if the witness is an attorney an accountant or a person who likely worked in concert with attorneys and or accountants eg a promoter of a technical tax_shelter then it’s reasonable for the irs to anticipate that the witness may assert the attorney-client_privilege the sec_7525 privilege in a civil tax case and or the work product doctrine in response to some part of a comprehensive irs summons as a best practice the irs should request a privilege log from such a witness within the instructions for the rider or attachment to the summons similarly if the taxpayer was an investor in a technical tax_shelter for the years under examination and likely received a tax opinion or tax_advice with respect to such shelter or if the summons specifically requests copies of any_tax opinions or tax_advice with respect to a transaction then it’s reasonable for the irs to anticipate that the witness may assert a privilege to a summons concerning the transaction again it would be a best practice for the instructions to include a request for production of a privilege log for any documents withheld on grounds of privilege when a summons directs a u s based third-party witness to produce documents or information concerning the involvement of its foreign parent foreign subsidiaries or other foreign affiliates what limiting language should be inserted to clarify that the witness is not being asked to produce foreign-based documents limiting instructions may be added to the summons such as in responding to this summons you are required to make a diligent search of the records and documents that are in your possession custody or control within the united_states or that are accessible by you from the united_states otherwise if the summons clearly asks the witness to produce records of a specific foreign_affiliate eg any records of your united kingdom canadian or cayman islands branch or affiliate then the pre-approval procedures applying the balancing test for a summons for foreign based records need to be followed this requires referral of the summons to branch of collection bankruptcy and summonses which will coordinate with branch of international and often consult with the department of justice if attaching a portion of a taxpayer’s return eg showing the amount of the tax_refund sought by the taxpayer to a third-party_summons may facilitate more truthful answers from a reluctant third-party witness may the irs attach that portion of the return to a summons as a necessary disclosure for investigative purposes under sec_6103 no investigative purpose disclosures permitted under sec_6103 may include a taxpayer’s return_information under such conditions as treasury regulations may prescribe but do not include disclosures of any parts of the taxpayer’s actual tax_return should a summons on its face imply or instruct that a witness may respond to the summons by mailing responsive records to a specific irs address while some cooperative third parties eg an entirely neutral bank may not have a problem with responding to a summons drafted in this way the power described in sec_7602 is for the irs to summon any person to appear before the irs at a time and place named in the summons and to produce such books papers records or other data and to give such testimony under oath as may be relevant or material to such inquiry the irs has not issued any regulations under sec_7602 or sec_7605 which address the issue of requesting a witness to respond to a summons by mail in situations where the irs would be satisfied with the witness simply mailing the responsive documents to a specified irs office it is a best practice to inform the witness of this option in a side letter that may accompany service of the summons rather than within the body of the summons itself this is especially true where the summoned party is not expected to be cooperative or where there is no margin for error about the present summons being enforceable eg the irs plans to rely on the validity of a third-party or john_doe_summons to suspend an assessment statute_of_limitations after the passage of six months without compliance or the irs will soon be issuing a notice_of_deficiency to the taxpayer and may not be able to reissue the summons if it is defective when a witness lives is in a city far from the issuing irs employee and there is a closer irs office of the same operating division should the summons direct the witness to attend the nearest office the place for appearance of a witness should generally be in the nearest city with an irs office of the same irs operating division eg sbse or lmsb as the office issuing the summons the issuing irs operating division eg lmsb could also make arrangements for the summoned witness to appear at a closer-to-the-witness office of a different irs operating division eg sbse it is generally not reasonable for the irs to require an unwilling witness in chicago to travel to new york city to appear in response to a summons the issuing office agent s may participate in the summons interview of the witness by speakerphone the irs could also offer the summoned witness the option in a side letter to the summons of complying by mailing documents to the issuing irs office a how should the name of the taxpayer be styled in the summons the following summons questions relate to the examination of a tefra partnership b to whom should notice of a third-party_summons be given c may the irs designate who the records custodian is for the tefra partnership and d should a summons to a current individual officer of a corporate tax_matters_partner tmp be considered a first-party or a third-party_summons a for the in the matter of line of the summons the taxpayer should be identified as the partnership rather than as the tmp or as the partnership with a named tmp b actual notice of the third-party_summons to the tefra partnership should be personally delivered or sent by certified mail to the last_known_address of the tmp c the tmp may designate a custodian for the records of the partnership but the irs can not d this would be considered a first-party summons a how should a summons be styled and to whom should it be directed in order to obtain information regarding a group of associated individuals who used several separately incorporated or separately formed limited_liability companies under state law to promote abusive tax_avoidance transactions atat b should the summons be directed to x group the promoter’s most commonly used doing-business-as trade_name a it is possible that the irs could establish nominee alter ego status for a number of related entities that were used by a group of associated individuals to promote atat schemes the better practice however would be to summon each known promoter entity in the related group separately and to summon the individual principals of the related group b no using the x group name for the taxpayers or the summoned parties is not appropriate because it is not a name that is recognized as existing under state law or in any returns filed with the irs v serving a summon sec_1 how is a summons served on an individual if the individual to be summoned is not a third party recordkeeper with respect to the taxpayer within the meaning of sec_7603 then an attested copy of the summons may be delivered in hand to the person to whom it is directed or may be left at his last and usual place of abode a summons to the individual may be properly served by leaving it at the individual’s front door the courts have rejected any further suggestion that an irs summons left at an individual’s last and usual place of abode must also be left with a resident of suitable age and discretion as described in federal rule_of civil procedure e how is a summons served on a business_entity such as a corporation llc trust or partnership generally service of a summons upon a business_entity can only be made personally in hand on an officer member or partner authorized to accept service on behalf of the business_entity the summons cannot be taped to the door as is the case with an individual because a business_entity does not have a last and usual place of abode what if the individual taxpayer’s last and usual place of abode is unknown sec_7603 offers only two options for service of a summons upon an individual taxpayer service in hand or at the last usual place of abode even if an individual taxpayer is an accountant or an attorney the taxpayer would not be a third party recordkeeper with respect to his her own records what if the last and usual place of abode is blocked by a gate as yet there is no specific guidance in case law that the irs can rely upon on this question until there is it’s best for an irs employee to take a conservative position to ensure the summons will be valid and enforceable the irs should try to personally serve the witness at work or at some other location the witness regularly attends we do not recommend leaving the summons at the gate - there is simply too great a likelihood that the summons will not reach the intended recipient and thus be held unenforceable how should a summons be served on an individual who is incarcerated similar to service of process under the federal rules of civil procedure the service should serve the summons at the incarcerated individual’s last and usual place of abode his family home and also send a courtesy copy by registered or certified mail to the incarcerated individual if the receiver of a corporate taxpayer or of a third party is an attorney may an irs summons for records of the corporation be served on the receiver by certified mail treating the receiver attorney as a third-party_recordkeeper under sec_7603 no for the attorney to be served with a summons by certified or registered mail under the special third-party_recordkeeper provisions of the code the attorney would need to be the party from whom the records and or testimony are sought as opposed to the records testimony being sought from the corporation the attorney represents also the attorney’s relationship to the records and or testimony sought would need to be that of an attorney as opposed to the role of a receiver for the corporation who happens to be an attorney can a summons be served by facsimile or other electronic means no sec_7603 does not authorize service by electronic means and summonses served in this fashion are not prima facie valid however if the summoned party expressly waives the personal service requirement of sec_7603 in writing and affirmatively authorizes the irs to serve summonses by fax or other means the summons will not be unenforceable for lack of proper service what is the best practice for constructing a waiver of personal service that would permit service of a summons by fax or other electronic means as a best practice the waiver of proper service should be entitled waiver and authorization should be drafted on entity’s letterhead and should contain an express waiver by the entity of the service requirements of sec_7603 the authorization by the entity to accept the service of irs summonses by fax should identify a particular fax number with any special instructions such as an attention line the authorization should be signed in the name of the entity by an authorized individual when a taxpayer moves to quash or intervenes in a third party summons enforcement case will the taxpayer be allowed to complain of defects in the way the irs served the summons upon the summoned third party no improper service of the summons is a claim that only the summoned party can complain otherwise the witness would not be free to agree to accept service of a summons in a manner different from those described in the code when the irs is having difficulty locating a current address for an entity third-party witness eg a corporation or llc that it is trying to serve with a summons may the irs properly serve the summons upon a person or entity that was a registered agent for the witness to be summoned during the time period when it engaged in the transactions that the irs is scrutinizing serving the registered agent of the entity witness in these circumstances carries a significant risk for non-enforcement of the summons an irs summons upon an entity should ordinarily be personally served upon one of the entity’s current officers or managing agents registered agents like the officers of an entity do not serve in perpetuity and can not necessarily be expected to know details regarding a former client’s dissolution or relocation moreover serving an irs summons upon an entity’s registered agent is an untested procedure for the irs at this point if a summons is directed to a particular named corporate officer and the irs intends for that person to appear in response to the summons may the irs validly serve the summons upon a different corporate officer of the same corporation in a different city or office from the named corporate officer no unless the corporate officer named in the summons formally agrees in advance to waive the requirements for proper service of the summons the irs should arrange to serve the summons personally upon the named corporate officer in the city where the corporate officer works or may be found should the irs serve a summons upon a third-party promoter who has a professional status eg attorney accountant or banker listed among the categories of third-party recordkeepers in sec_7603 personally or by certified mail there may be some advantages in not treating the promoter as a third party recordkeeper and effecting service personally the irs has interpreted the third-party_recordkeeper categories as meaning the third-party witness was acting in the identified professional capacity toward the taxpayer with respect to the information sought by the summons in the likely event of litigation with a third-party promoter over an issue of privilege the irs might take the position that the summoned third-party promoter was not actually retained in a professional tax_advice rendering capacity by the taxpayer with respect to the information sought by the summons but was instead involved in selling a product eg to an investor taxpayer or in a joint business venture eg with respect to a co-promoter taxpayer sec_7610 sec_301 and relevant irm provisions do not distinguish between the fees and costs the irs may be required to pay a third-party witness which is merely a third party and one which is a third-party_recordkeeper except where the irs may be summoning the witness in a capacity described in sec_7610 eg where an accountant is being summoned in his her capacity as the taxpayer’s power_of_attorney vi john doe summonse sec_1 what is a john_doe_summons a john_doe_summons does not identify the person with respect to whose liability the summons is issued what is the reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law requirement of sec_7609 while the service does not have to establish facts that show probable cause the courts require the service to establish facts that amount to more than conclusory declarations of fact the service should establish the reason for believing a specific group of taxpayers is not properly reporting income the service may submit information that would explain why the john does should be inherently suspected of noncompliance because they are for example customers of a barter_exchange or bond holders who were erroneously told by the issuer that interest on their bonds was tax exempt the service may also offer affidavits indicating that it had examined tax returns of similar taxpayers and found a high incidence of improper reporting practices may the service issue a dual-purpose summons rather than a john_doe_summons to learn the identity of the owner of a bank account into which the known taxpayer who is being investigated by ci has sent several large wire transfers of funds believed to be the proceeds of fraudulently obtained refunds yes a dual-purpose summons is used when the service is investigating the liability of a known taxpayer identified in the heading of the summons and attempting to learn the identities or other information concerning other taxpayers that the service wishes to investigate under tiffany fine arts the service may use a dual_purpose_summons so long as all the information sought from the summoned party is of a nature that may be relevant to the service’s investigation of the taxpayer under investigation and the four requirements of powell are met here the identity of the recipient of the taxpayer’s payments may be relevant to the irs investigation of the taxpayer vii third-party_summons issue sec_1 is a third-party_summons a third-party contact yes irm indicates that serving a third-party_summons is a third-party contact under sec_7602 for a summons served for exam or collection purposes pre-contact notice to the taxpayer that third party contacts may be made by the irs must precede irs service of a summons on a third party providing a copy of the third party summons to the taxpayer for exam summonses will satisfy the irs post-contact recording and reporting requirement for the third party contact irm who gets a third-party_summons notice sec_7609 requires the service to provide timely notice to any person identified in the heading of the summons and to every person identified in any other part of the summons this includes any person identified in any attachments to the summons eg instructions definitions a list of requested records a list of subjects or items on which testimony is sought a list of documents currently in possession of the irs sec_7609 contains a set of exceptions to the notice requirement when the irs serves a third party examination summons upon a bank and identities then known signatories of the summoned account but shortly thereafter learns of another signatory on the account does the service need to give the previously unknown signatory notice of the summons no only the persons identified in the heading body or an attachment to the summons needs to be given notice of a third party summons sec_7609 what should the irs do if a third party provides records in compliance with an invalid third party summons for which notice was mistakenly not given generally the agent should immediately seal the records and reissue the third party summons with proper notice and exhaustion of the noticees’ rights to petition to quash the summons see irm - however the agent may be prohibited by law from pursuing that course of action where the tax years for which the summons was issued have now been petitioned to the tax_court in response to a notice_of_deficiency if a foreign_entity or individual with no u s tax_return filing history is referred to in a routine third-party examination summons how does the irs provide the required notice to the foreign noticee the irs agent should make a diligent search of the taxpayer’s case file to determine if the foreign noticee’s most recent address is found in an agreement or correspondence between the foreign noticee and the taxpayer the irs agent might also conduct internet research to find the noticee’s last_known_address for purposes of providing notice under sec_7609 if the foreign noticee’s last_known_address is found the required notice should be served via registered mail neither personal service nor certified mail is an option for an overseas addressee if the irs is unable to locate any currently valid or last_known_address for the overseas noticee the irs also has the option under sec_7609 of leaving the notice copy with the summoned party itself for a third-party examination summons that does not name another particular third party within the body of the summons but requests a set of records that the irs reasonably expects to contain the name of and relate to a transaction involving this unnamed other third party is the irs required to treat this unnamed third party as a required noticee for this summons no for an ordinary third-party examination summons ie not a john_doe_summons the irs is only required to treat the taxpayer and other third parties actually identified in the body of the summons as required noticees under sec_7609 if the body of a third-party examination summons does not contain the full name of another particular third party but instead refers to a third party by initials such as ab that all parties to the transaction at issue understand to stand for alpha beta corporation should the irs treat alpha beta corporation as a required noticee for the summons yes using a third party’s initials or an acronym for the third party in the body of the summons is the same as identifying the third party in the summons by contrast referring to a third party in the summons generically by such labels as buyer or seller is not considered identifying that third party in the summons even though the irs the taxpayer and the summoned third party all know the actual identify of the buyer or seller if a third-party examination summons identifies multiple individual members of a consolidated income_tax group eg abc holding co abc leasing and abc finance in the body of the summons should the irs provide just one notice of the summons to the parent of the consolidated income_tax group or provide separate notices to each of the individual members the answer depends on whether the consolidated income_tax group is the taxpayer under examination for which the summons was issued or whether the individual members of the group identified in the examination summons are just other third parties that may have engaged in transactions with the taxpayer and the summoned third party if the consolidated income_tax group whose individual members may be specifically identified in the third-party_summons is the taxpayer under examination then the parent of the group is the sole agent for the group under sec_1_1502-77 in that case the irs need only give notice of the third-party_summons to the parent of the group if the group whose individual members are specifically identified in the third-party examination summons is not the taxpayer under examination then receiving notice of the third-party_summons is not necessarily a matter relating to the income_tax_liability of the group in that situation the parent of the group is not considered the agent of each member of the group for that purpose which means that separate individual notices should be provided to abc holding abc leasing and abc finance in the example if an individual or entity eg a promoter has been referred by the irs to doj for a criminal tax grand jury investigation and that referred individual or entity is identified in the body of an irs third-party_summons to another third party eg another promoter with respect to the irs investigation of another taxpayer eg an investor is there any legal or irs policy obstacle to the irs providing notice to that referred individual or entity of the third-party_summons in which it has been identified sec_7602 has no effect on irs responsibility to notify the referred individual or entity that it has been identified in a third-party_summons with respect to another taxpayer when the referred individual or entity is not the taxpayer being investigated if civil tax employees have identified a referred individual or entity in a third-party_summons that has already been served the irs could choose to withdraw the summons if the irs does not choose to withdraw the summons then timely notice of the summons to all persons so identified in the summons is required whether or not ci might otherwise object if the irs issues a summons to a particular officer_or_employee of a corporate taxpayer and then provides a courtesy copy of that summons to the corporate taxpayer’s power_of_attorney poa pursuant to the poa’s standing request to receive notice of all summonses in the investigation of the taxpayer is there any appreciable risk that providing the poa with that courtesy copy of the summons may cause a court to construe the summons as being a third-party_summons of which the poa received notice no it would be prudent for the irs employee providing the poa with the courtesy copy of the summons to characterize it as a courtesy copy of a summons in a cover letter but even mistakenly providing the taxpayer’s poa with notice of a first-party summons does not make the summons a third-party_summons mistakenly providing identified third parties in a first-party summons with notice of the first-party summons is more problematic because of the disclosure implications and the identified third parties may attempt to commence a proceeding to quash the summons which the government would then seek to dismiss on jurisdictional grounds if the tax_matters_partner tmp of a tefra partnership under audit is a limited_liability_company llc and the irs wants to summon the former managing member of that llc should the summons be treated as a first-party or as a third-party_summons for notice purposes assuming the llc still exists and has a new managing member it would be most prudent for the irs to treat this summons on the former member of the llc as a third-party_summons however because of the uncertainty of that position it would also be prudent for the irs not to count on the summons being treated as a third-party_summons for assessment statute suspension purposes under sec_7609 a if a tefra partnership in a chapter bankruptcy has an appointed chapter trustee and the irs must give notice of a third-party_summons to the tefra partnership should the notice be provided to a tax_matters_partner tmp of the partnership or to the partnership’s chapter bankruptcy trustee b what should the irs do where it concludes relatively soon after issuing the summons that it provided notice to the wrong representative of the tefra partnership a if the summons is issued with respect to an income_tax examination of the tefra partnership in bankruptcy then the real parties_in_interest are the partners of the tefra partnership notice of the third-party_summons should therefore be provided to the partnership tmp for the income_tax years at issue since the tmp continues to represent the partners in this income_tax examination for which the bankruptcy_estate will not owe a debt if notice of the irs third-party_summons must be provided to the partnership for any other reason eg the partnership in bankruptcy is being investigated by the irs for potential pre-bankruptcy promoter penalties or the partnership is just a third party that is identified within the summons to another third party then the estate of the partnership in bankruptcy appears to be at least one of the true parties_in_interest so notice should be provided to the partnership’s chapter bankruptcy trustee b if the irs discovers a defect in notice with sufficient time to reissue the summons then it would be a best practice for the irs to reissue the third-party_summons provide corrected notice of the reissued summons and seal any records obtained in the interim in response to the prior summons until it is clear that no petition to quash the new summons has been timely filed what are the common types of irs summonses for which no notice is required for persons identified within the summons the irs summonses that do not require the irs to give notice are referred to in sec_7609 and these commonly include a first-party summons - any summons directed to the taxpayer under investigation or an officer_or_employee of that taxpayer pursuant to sec_7609 any john_doe_summons pursuant to sec_7609 any summons issued in aid of collection of an assessed tax_liability or a liability reduced to judgment pursuant to sec_7609 this does not include however a summons to determine who is liable for the trust fund recovery penalty tfrp under sec_6672 any title_26 summons issued by the irs criminal_investigation_division to a third party which is not a third-party_recordkeeper pursuant to sec_7609 and sec_7603 less common types of irs summonses that are also excepted from the notice requirements of sec_7609 include a summons simply to determine whether or not the summoned party eg a bank made or kept any records regarding an identified person eg the taxpayer pursuant to sec_7609 a summons to determine the identity of a person who had a numbered account with a bank or a similar financial_institution pursuant to sec_7609 a summons to aid in the collection of an assessed tax_liability or judgment from a transferee or fiduciary of the taxpayer pursuant to sec_7609 a summons for which the government has received a court order allowing the suppression of notice on the grounds described in sec_7609 viii third-party_recordkeeper sec_1 other than those persons clearly listed in the statute what are some examples of third-party recordkeepers under sec_7603 a casino may be a third-party_recordkeeper if it extends credit to customers via a device similar to a credit card for the person to be considered a third-party_recordkeeper the extension of credit has to be linked to a physical device like a credit card conversely a person that extends credit without requiring the use of or reference to some physical object is not a third-party_recordkeeper under sec_7603 ix consensual examination of record sec_1 where the third-party witness consents to the service’s request to examine its records can the service obtain those records without issuing a summons yes in some instances a financial_institution may have the account_holder sign a waiver waiving their right to financial privacy under the right to financial privacy_act if a summons is issued however third-party_notice under sec_7609 applies unless excepted by sec_7609 x conducting summons interview sec_1 may chief_counsel attorneys participate in and even take a leading role in questioning witnesses summoned by the irs yes see sec_301_7602-1 and finalized date where the irs has summoned a third-party witness and the taxpayer has not filed a petition to quash the summons within the required time frame is there any requirement that the irs notify the taxpayer if the witness and the irs agree to reschedule the original date of the irs interview of the summoned witness no the taxpayer has no right to be present during the irs interview of the summoned third-party witness so there is no requirement for the irs to inform the taxpayer in advance of or after the irs reschedules its summons interview with the witness this is true so long as the taxpayer has already been afforded its right to timely petition to quash the third-party_summons under sec_7609 and the taxpayer has not taken advantage of this statutory right to seek timely court review of the third-party_summons before the irs witness interview is permitted to take place is there any legal requirement or policy reason for the irs to inform a summoned witness that the information the witness provides in response to the summons may be used by the irs in another current or future irs exam no there is no legal requirement or policy reason for the irs to inform a witness that its answers may be used by the irs in another case nor does the irs have any obligation to inform a witness whether an irs summons has been issued for a dual purpose of investigating the taxpayer named in the summons and other known or unknown persons the irs position is that neither the summoned witness nor a court has any general authority to impose conditions upon irs use or distribution consistent with sec_6103 disclosure limitations of the information the irs has properly obtained through an enforceable irs summons 131_f3d_1325 9th cir congress has however enacted a specific exception to this general_rule by placing limitations on irs summonses for computer_software sec_7612 xi proceedings to quash summons enforcement ased suspension sec_1 what are the basic requirements for an enforceable summons pursuant to sec_7602 and 379_us_48 every valid summons must be issued for a legitimate purpose seek information that may be relevant to the investigation seek information that is not already in the service’s possession for example if irs forms w-2 or w-4 can be retrieved from the service_center they should not be summoned and all administrative steps required by the code have been followed if the irs learns from a valid john_doe_summons served upon a promoter asking for the identities of unknown investors who purchased a particular type of transaction from the promoter that some of the investors used a tefra partnership entity to make their investments in the transaction at issue and more than six months pass without full disclosure of all of the investor identities could the summoned party’s lack of timely full compliance with the john_doe_summons give the irs more time on the assessment statue of limitations to examine the transaction yes if the individual or corporate investor’s participation in the transaction was unknown to the irs when the john_doe_summons was served and if their three- year or six-year assessment statute was still open on the date that was six months after the john_doe_summons was served eg april of the following year for a john_doe_summons served on october then the investor’s assessment statute will begin to be suspended for any time remaining after the six-month period of non-compliance until the summoned party complies in full with the john_doe_summons it would be prudent for the irs to take a conservative approach before the issue is resolved by regulation or litigation to the length of an investor’s assessment statute suspension where a particular investor is identified before the names of all of the other requested investors have been revealed to the irs by the summoned party after six months however the irs position is that the investor’s assessment statute remains suspended until the date the irs has determined in a reasonably expeditious manner that the summoned party has fully complied with the john_doe_summons in all required respects where an individual or corporate partner’s assessment statute for a year s remains open for any reason including the john_doe_summons circumstances described above the irs position is that the period for commencing and concluding tefra partnership proceedings concerning that year s of the partner also remains open pursuant to the reasoning of 114_tc_533 and later cases that have adopted its reasoning a if a district_court denies a petition to quash the summons or grants the irs petition for enforcement and the taxpayer appeals the district court’s ruling but fails to obtain a stay of the order during the pending appeal is there any reason for the irs to delay going forward with rescheduling and conducting its interview of the third-party witness b what effect will the appeal have on the assessment statute a no if the taxpayer or other participating noticee fails to seek and obtain a stay pending appeal of the district_court order denying the petition to quash a third-party_summons the irs should go forward with rescheduling the appearance of the witness and holding the summons interview of the third-party witness if the petition to quash was dismissed by the district_court on the jurisdictional grounds that it was not timely filed or perfected then the irs may provide the third-party witness with the certificate described in sec_7609 if the petition to quash was dismissed on its merits and the government also sought and obtained an order for the summons to be enforced then the third-party witness may be advised that it should be protected from any liability for its testimony and production of documents on account of its good_faith reliance on the court order b the taxpayer’s appeal of the district_court order denying the petition to quash should continue to suspend the taxpayer’s applicable assessment statute under sec_7609 notwithstanding the taxpayer’s failure to obtain a stay pending appeal however this suspension of the taxpayer’s assessment statute could be of small comfort to the irs if the third-party_summons was a dual purpose one with respect to a suspected promoter where the summons also sought the names of unidentified investors of the taxpayer that the irs also wants to examine this is because the assessment statutes of these persons who are not the taxpayer would not be suspended under either sec_7609 or while the taxpayer’s appeal continued the taxpayer’s appeal of the district_court order would not be rendered moot by the compliance of the third-party witness with the summons in these circumstances if the district_court order is ultimately reversed on appeal the courts may devise an appropriate remedy for the summoned party’s earlier compliance with the summons can the service enforce a summons that seeks health records otherwise protected as private under the health insurance portability and accountability act of hipaa yes hipaa contains a law enforcement exception that would allow enforcement of the administrative_summons under sec_7602 see chief_counsel notice_2004_034 can the service enforce a summons that seeks educational records otherwise protected as private under the family educational rights privacy_act ferpa yes while ferpa generally protects the privacy of education records it also provides an exception for a lawfully issued subpoena the definition of a lawfully issued subpoena includes a summons issued by the service xii fees and costs for witnesse sec_1 may a summoned third party be reimbursed for expenses_incurred in getting together summoned records yes under sec_7610 xiii privileges and other restrictions on irs information gathering if an individual tax_shelter promoter is not yet under criminal tax investigation or a prior criminal tax investigation against the individual has been abandoned with no charges brought may the individual still be able to raise a good_faith fifth_amendment objection to producing summoned records or testimony yes the presence of a good_faith basis for an individual asserting the fifth_amendment does not depend on the existence of a current criminal tax investigation or indictment but on whether the individual could reasonably conclude that the person’s answers might incriminate the person double_jeopardy limitations a grant of immunity or the expiration of all potential criminal statutes of limitation are instead the types of events that may remove an individual’s prior good_faith fear of self-incrimination is it always a good use of irs doj resources to compel a summoned individual witness to separately answer a series of questions in response to a blanket fifth_amendment objection by the witness blanket assertions of a fifth_amendment fear of self-incrimination by a summoned witness who is an individual are invalid the government may obtain a court order requiring a summoned witness who is an individual to raise fifth_amendment objections in response to particular separate questions from the irs however if the irs faces a blanket assertion of the fifth_amendment by an individual summoned by the irs and the summoned individual does appear to have a reasonable basis under the circumstances for fearing that almost any useful information to the irs could incriminate the individual then the irs should evaluate whether it is a good use of irs doj resources to seek an order to require that such an individual assert a fear of self-incrimination in response to each of a series of related questions -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------


internal_revenue_service number release date index number ----------------------------------------------- ---------------------------- ---------------------------------- ------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-134455-10 date date legend x --------------------------------------------------- ------------------------------ sub sub llc year year date state a b c d dear --------------- ------------------------------------- ----------------------------- ------------------ --------- ------- ---------------------- ------------- ----- ---- ----------------- -------------- plr-134455-10 this letter responds to your letter on behalf of x dated date and subsequent correspondence requesting a ruling that x’s rental income from its rental activities is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code facts the information submitted states that x was formed in year in accordance with the laws of state x wholly owns two subsidiaries sub and sub and is a member of llc treated as a partnership for federal tax purposes sub sub and llc are collectively referred to as the companies x sub sub and llc own lease and manage real_estate the properties x sub sub and llc have a tenants none of which are under net leases x intends to elect to be treated as an s_corporation for federal_income_tax purposes effective date and to make qualified_subchapter_s_subsidiary elections for sub and sub effective date x employs b full-time employees who directly perform services relating to the properties x also contracts with independent contractors to provide various services x through its employees or through the independent contractors provides certain services with respect to the properties including property inspection common area maintenance and repair including carpeting and painting janitorial and cleaning services maintenance and repair of building structural_components including roofs and facades upkeep and repair of building systems heating air conditioning plumbing water and sewer electrical and lighting parking lot maintenance landscape maintenance snow removal trash collection pest control providing security personnel and the approval and supervision of capital improvements x sub sub and llc or independent contractors also perform leasing and administrative functions including purchasing and developing new properties negotiating and drafting individual leases showing properties to prospective tenants and hiring and supervising personnel assigned to perform the property management functions in year x collected approximately dollar_figurec in gross rents and incurred approximately dollar_figured in relevant operating_expenses law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides that an s_corporation_election shall be terminated whenever the corporation i has accumulated_earnings_and_profits at the close of each of consecutive taxable years and ii has gross_receipts for each of such taxable years more than percent of which are passive_investment_income the termination is effective on and after the first date of the first taxable_year beginning after plr-134455-10 the third consecutive taxable_year referred to in sec_1362 sec_1362 except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1375 imposes a tax on the income of an s_corporation if the s_corporation has accumulated_earnings_and_profits at the close of such taxable_year and gross_receipts more than percent of which are passive_investment_income sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 defines rent as amounts received for_the_use_of or right to use property whether real or personal of the corporation sec_1_1362-2 provides that the term rents does not include rents derived in the active trade_or_business of renting property rents are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts and representations submitted we conclude that the rental income that x derives from the properties is not passive_investment_income as described in sec_1362 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether x is a small_business_corporation eligible to make an s_corporation_election further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 plr-134455-10 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to the taxpayer’s representative sincerely david r haglund david r haglund chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


department of the treasury nternal revenue service washington d c ‘e tax_exempt_and_government_entities_division nov tep ‘rat u i l xxxxxxxxxxxxxxkxkk xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxaxxxx legend taxpayer a xxxxxxxxxxxxxxx ira x xxxxxxxxxxxxxxx bank c xxxxxxxxxxxxxxx amount d xxxxxxxxxxxxxx amount e xxxxxxxxxxxxxx amount f xxxxxxxxxxxxxx dear xxxxxxxxxxxxx this is in response to your request dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested on date taxpayer a received a distribution of amount e from ira x with the intent to rollover the funds into another ira taxpayer a asserts that his failure to accomplish a rollover of amount d amount e minus amount f required_minimum_distribution amount within the 60-day period prescribed by sec_408 of the code was due to an error committed by the branch manager of bank c branch manager ira x was invested in a certificate of deposit cd with bank c on date taxpayer a met with the branch manager and discussed his interest to invest ira x in a new ira cd so that he could receive a higher rate of interest the branch manager completed the distribution form and presented it to taxpayer a for signature taxpayer a signed the form not knowing that the distribution would be deposited into his personal savings account instead of an ira account as he intended on the following day on date at the advice of the branch manager amount f was withdrawn from taxpayer a’s savings account and was paid to taxpayer a as his required_minimum_distribution for tax_year during date taxpayer a learned for the first time that the funds in ira x were not rolled over into another ira when he went to his tax preparer for the preparation of his tax_return for the taxable_year documentation submitted by bank c acknowledged that an error occurred when the transaction was processed as a distribution to taxpayer a's personal savings account based on the foregoing facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property i is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or ii which may be paid into such plan may not exceed the portion of the the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error committed by the branch manager of bank c therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d from ira x taxpayer a is granted a period of days from the issuance of this letter_ruling to contribute amount d into a rollover ira provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such contribution the contribution of amount d will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you have any questions concerning this ruling please contact xxxxxxxxxx xxxx at xxxxxxxxxxx all correspondence should be addressed to se t ep ra t3 sincerely yours aura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose cc xxxxxxxxxxxxxxxkx -


internal_revenue_service number release date index number ---------------------------- ------------------------- ----------------------------------- ----------------------------------------------- legend x ---------------------------- ----------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 plr-148518-07 date date -------------- ---------------- ----------------------- state date date trust dear -------------- correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code this letter responds to the letter dated date and related -------------------------------------------------------------------------- facts according to the information submitted and representations therein x was incorporated under the laws of state on date x elected to be taxed as an s_corporation for federal tax purposes effective date on date x had two classes of stock issued and outstanding the preferred_stock was held by trust x represents that its tax advisors were unaware that x had two classes of stock issued and outstanding when x discovered that it had two classes of stock issued and outstanding x submitted this request for a ruling as corrective action x has converted all the preferred_stock to common_stock plr-148518-07 x represents that there was no intent to knowingly make an invalid s_corporation_election and that the events that resulted in the invalid election were not motivated by tax_avoidance or retroactive tax planning x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 provides that the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that meets the requirements specified in sec_1361 through d sec_1361 provides that s_corporations may not have more than one class of stock sec_1_1361-1 of the income_tax regulations provides that except as provided in sec_1 l relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 b or to obtain shareholder consents the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in ineffectiveness steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then plr-148518-07 notwithstanding the circumstances resulting in the ineffectiveness the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x's intended s_corporation_election was invalid because x had two classes of stock we further conclude that the ineffectiveness was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date and thereafter provided that x's subchapter_s_election is not otherwise terminated under sec_1362 except as specifically set forth above we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being mailed to your authorized representative s sincerely david r haglund senior technician reviewer office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes