Opinion ID: 733249
Heading Depth: 2
Heading Rank: 2

Heading: Petition to Quash Summons Served on a Third-Party Recordkeeper.

Text: 16 Often, a third party in receipt of a summons may have little or no stake in protecting the privacy and privileges of the party under investigation. Congress recognized the taxpayer's need to protect privacy interests potentially invaded by the summons. See United States v. First Bank, 737 F.2d 269, 272 (2d Cir.1984). Thus, Congress established procedures that would protect these rights in some situations in which the third-party has minimal interest in resisting enforcement. Pursuant to 26 U.S.C. § 7609, whenever a summons is served upon a third-party recordkeeper, 2 the IRS must give notice of the summons to the person who is identified as the subject of the records sought (ordinarily the taxpayer who is the subject of an IRS audit or investigation). 26 U.S.C. § 7609(a)(1). Under § 7609(b)(1), such a person has a right to intervene; however, he need not await an enforcement proceeding that may never be initiated, because he has the right to initiate a proceeding in federal court to quash the summons. 26 U.S.C. § 7609(b), (h)(1). 17 Congress intended that a third-party recordkeeper would  'be a person engaged in making or keeping the records involving transactions of other persons.'  United States v. New York Tel. Co., 644 F.2d 953, 958 (2d Cir.1981) (quoting S. Rep. 94-938, 94th Cong.2d Sess. 369 (1976), U.S.Code Cong. Admin.News 1976, pp. 2897, 3265-3266) (taxpayer permitted to intervene in enforcement proceeding against third-party recordkeeper). Third-party records have been defined as those containing data about transactions between the taxpayer and parties other than the [third-party recordkeeper]. Rapp v. Commissioner, 774 F.2d 932, 934 (9th Cir.1985). 18 It is not always obvious who is and who is not a third-party recordkeeper. The fact that the summoned party could be considered a third-party recordkeeper in some circumstances does not make it a third-party recordkeeper under all circumstances. United States v. New York Tel. Co., 682 F.2d 313, 317 (2d Cir.1982). Factors that are considered include the capacity in which the party was summoned and the nature of the records sought. Id. Thus, credit transactions between a customer and vendor are within the purview of § 7609. First, as an extender of credit, the vendor falls within the statutory definition of a third-party recordkeeper under § 7609(a)(3)(c). Second, the vendor's credit records contain personal and business data, collateral to the customer-vendor transactions, that the vendor would have little interest in protecting. Id. 19 However, when the administrative summons seeks records that pertain to transactions between the summoned recordkeeper and the taxpayer under investigation (and that do not concern the type of credit transactions contemplated by § 7609), the taxpayer does not have the right to notice, the right to intervene or the right to initiate a suit to prevent disclosure. For instance, an employer is not considered a third-party recordkeeper in its relationship to an employee. See United States v. Bass, 784 F.2d 1282, 1285-86 (5th Cir.1986); Ponsford v. United States, 771 F.2d 1305, 1308 (9th Cir.1985). 20 As all parties here agree, petitioner's son is not a third-party recordkeeper. There is no indication that James Upton falls within the statutory definition of a third-party recordkeeper, nor is there any indication that James Upton would lack interest in protecting the information. The summons sought information about payments made by him to the petitioner, not records of transactions between the petitioner and third parties. Upton nevertheless contends that his son was summoned pursuant to § 7609 and that the summons should be quashed because his son was not a third-party recordkeeper. In essence, Upton argues that the statutory grant of jurisdiction to review a summons served on a third-party recordkeeper implicitly precludes a third-party summons on anyone who is not. However, the power of the IRS to issue an administrative summons is conferred in § 7602. Section 7609 does not add to the IRS's summoning powers, it merely affords a means to challenge a summons issued to a third-party recordkeeper.