25.5.6. Summonses on Third-Party Witnesses

(1) A third-party summons is a summons directed to a person other than the person with respect to whose liability or return the summons is issued, or any officer or employee of such person. See IRM 25.5.6.3.1, Summons Subject to IRC 7609 Third-Party Notice and Waiting Period Requirements, for help identifying third-party summonses.

(1) IRC 7602 provides the IRS with summons authority. See IRM 5.17.6.1.2.1, Statutory Authority.

(2) IRC 7609 provides the IRS with special procedures for third-party summonses.

(3) Delegation Order 25-1, provides the levels of authority delegated to various IRS employees to approve and perform activities concerning summonses. See IRM 1.2.2, Servicewide Delegation Orders.

(1) Paragraph (9) in Delegation Order 25-1, lists the employees delegated to issue a summons. See IRM 1.2.2, Servicewide Delegation Orders.

(2) The approval of the issuing officer's manager, or any supervisory official above that level, is required on a summons to a third party witness, except that such approval is not required for a third-party summons issued by a special agent. See paragraph (8) in Delegation Order 25-1. The approval is evidenced by the supervisor's signature on the summons, or by a statement on the summons, signed by the issuing officer, that he or she had prior authorization to issue the summons and stating the name and title of the authorizing official and date of authorization.

(1) In general, the IRS should issue summonses only when the taxpayer (or other witness) will not produce the desired records or other information voluntarily. A summons is specific to each case. There are no program reports that track summonses to third-party witnesses.

(1) The IRS employee who issued the summons keeps a copy of the original summons, Page 1 of the summons labelled "Original." The original summons is needed when referring a summons for enforcement. See IRM 25.5.10, Enforcement of Summons.

(1) Definitions pertaining to summonses served on third-party witnesses can be found in IRM 25.5.6.3, Definitions.

(2) The table below lists commonly used acronyms and their definitions.Acronyms

(1) IRM 25.5, Summons, provides guidelines for all IRS functions in one multifunctional handbook. The sections are:

• IRM 25.5.1, Introduction

• IRM 25.5.2, Preparation

• IRM 25.5.3, Procedures

• IRM 25.5.4, Examination of Books and Witnesses

• IRM 25.5.5, Summons for Taxpayer Records and Testimony

• IRM 25.5.6, Summonses on Third-Party Witnesses

• IRM 25.5.7, Special Procedures for John Doe Summonses

• IRM 25.5.8, Use of Summons Special Applications

• IRM 25.5.9, Fees and Costs for Summoned Witnesses

• IRM 25.5.10, Enforcement of Summons

(2) The basic legal concepts governing the use and enforcement of administrative summonses can be found in IRM 5.17.6, Legal Reference Guide for Revenue Officers, Summonses.

(3) The Taxpayer Bill of Rights (TBOR) lists rights that already exist in the tax code, putting them in simple language and grouping them into 10 broad categories. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights, and Policy Statement 1-236 in IRM 1.2.1, Servicewide Policy Statements.

(4) Additional summons guidance can be found on the Summons Knowledge Base, https://portal.ds.irsnet.gov/sites/vl053/pages/default.aspx.

(1) Summons – a summons subject to IRC 7609 third-party requirements is an administrative summons issued under IRC 7602(a)(2) , IRC 6420(e)(2) , IRC 6421(g)(2) , IRC 6427(j)(2) or, IRC 7612 , which is not described in any of the exceptions found in IRC 7609(c)(2) -(3) and that requires:

1. testimony on or relating to the taxpayer or other noticee, or

2. the production of any portion of records made or kept on or relating to any person who is identified in the summons (other than the summoned third party), or

3. the production of any computer software source code with respect to the taxpayer or other noticee (defined in IRC 7612(d)(2).)

(1) A third-party recordkeeper is defined in IRC 7603(b)(2) as:

1. Any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under federal or state law, any bank (as defined in IRC 581), or any credit union (within the meaning of IRC 501(c)(14)(A));

2. Any consumer reporting agency (as defined under section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f));

3. Any person extending credit through the use of credit cards or similar devices;

4. Any broker (as defined in section 3(a)(4) of the Securities Exchanges Act of 1934 (15 U.S.C. 78c(a)(4));

5. Any attorney;

6. Any accountant;

7. Any barter exchange (as defined in IRC 6045(c)(3);

8. Any regulated investment company (as defined in IRC 851) and any agent of such regulated investment company when acting as an agent thereof;

9. Any enrolled agent; and

10. Any owner or developer of a computer software source code (as defined in IRC 7612(d)(2)), but only if the summons requires the production of the source code or the program and data described in IRC 7612(b)(1)(A)(ii) to which the source code relates.

(1) Records - This term includes books, papers, or other data. The concept of records has been broadly construed to include an executable copy of a commercial tax software program used to prepare returns or organize business records (such as Quickbooks). However, a summons for a computer software source code cannot be issued unless certain conditions set forth in IRC 7612 are satisfied.

(2) Examples of third-party records are:

1. Employer records;

2. Corporate records;

3. Hospital records, excluding nature of illness;

4. Partnership records; and

5. Records of an unincorporated labor union concerning transactions of its officers.

(1) John Doe summons - This is any summons that does not identify the taxpayer being investigated. For further information about John Doe summonses see IRM 25.5.7, Summons, Special Procedures for John Doe Summonses.

(1) Numbered bank account - An account with a bank or similar financial institution through which a person may authorize transactions solely through the use of a number, symbol, code name or similar arrangement not involving disclosure of the account owner’s identity. See 26 CFR 301.7609-2(b)(3).

(1) Proceeding to quash - A civil action begun in the appropriate U.S. district court to prevent compliance by a summoned third-party witness.

(1) Intervention - The act of a person, who is not originally a party to a summons proceeding, becoming a party in order to protect his or her interests. Under IRC 7609(b)(1), any person who is entitled to notice of a third-party summons (i.e. a noticee) may intervene in any proceeding with respect to the enforcement of that summons. Also, under IRC 7609(b)(2)(C), the summoned third party has the right to intervene in any proceeding brought by a noticee to quash the summons.

(1) Noticee - The persons entitled to notice of a third-party summons are the taxpayer identified in the heading of the summons and every person identified in the description of summoned records (other than the person summoned). The taxpayer identified in the caption of the summons is always a noticee, even though his name may not appear in the description of summoned records. A noticee has the right to be given notice of the summons, to intervene in a summons enforcement proceeding, and to bring a proceeding to quash the summons.

(1) Date of service of notice - The date on which the notice is placed in the mail or delivered personally.

(1) The notice procedures of IRC 7609(a) apply to third-party summonses issued to investigate persons who may be responsible for the trust fund recovery penalty (TFRP).

(2) When investigating the persons who may be responsible for the TFRP, the IRS often will summons a bank (or other third party) to obtain records of the corporation's accounts. In many cases, the IRS knows of several corporate officers or employees who may be responsible for the penalty. In such cases, the IRS should issue a separate summons for each potentially responsible person and should follow the notice and waiting period requirements of IRC 7609(a). Each such summons should only have one potentially responsible person's name typed in the heading. The bank need only provide one set of documents for multiple summonses with identical document requests. See Exhibit 25.5.6-1, Sample Language for a Letter for Limiting a Response for Records for Multiple Potentially-Responsible Persons.

(3) The potentially responsible person should be identified in the heading of the summons by name and by his or her capacity as an employee or officer of the corporation. For example, where two potentially responsible persons (an officer and an employee) have been identified, two summonses would be issued. A summons investigating the liability of John Smith, president of Corporation XYZ, Inc. would be captioned as "In the matter of John Smith, President of Corporation XYZ, Inc." A separate summons concerning the liability of an employee, John Smith, Jr., would be captioned "In the matter of John Smith, Jr., Employee of Corporation XYZ, Inc." (Since the corporate name is identified in the heading of the summons, the corporation is a noticee as well as the individual named in the heading and both the corporation and individual are required to receive notice per IRC 7609(a)(1).)

(4) In many situations, the IRS will know the identity of many potentially responsible persons but perhaps not all. For example, Corporation A has failed to pay its employment taxes for several past quarters and there are five potentially responsible persons. If the IRS knows the identity of four of the five potentially responsible persons, the IRS will serve four summonses on the bank even though one of the summonses seeks the production of all of the documents the IRS requires for all four investigations. As a matter of law, IRC 7609 does not require the IRS to serve all four summonses; however, the IRS will serve all four as a matter of practice. To do otherwise would undermine a taxpayer's opportunity to seek to quash a third-party summons that the IRS issued to investigate his or her liability. Eliminating the taxpayer's opportunity to petition to quash would be inconsistent with congressional intent (as expressed in RRA 98) to broaden the taxpayer's access to judicial review of third-party summonses. However, the IRS need not later serve on the bank a summons that names the fifth person unless additional records are required to determine that person's liability.

(5) When serving multiple identical summonses on a bank (or other third party) to investigate the persons potentially liable for the TFRP, inform the summoned person that the IRS need only receive one copy of the summoned information. See Exhibit 25.5.6-1 for sample language for a cover letter to accompany summonses in this situation.

(1) IRC 7609(c)(2)(D)(i) and (ii) provide exceptions from the notice requirement of IRC 7609(a) for two different categories of collection summonses. The first category is codified in IRC 7609(c)(2)(D)(i), which provides an exception for summonses issued to aid in collecting an assessment made or a judgment rendered "against the person with respect to whose liability the summons is issued." That phrase refers to the taxpayer identified in the heading of the summons as the person being investigated. If the IRS does not have an assessed liability or judgment against that taxpayer, then it cannot use the collection exception for any third-party summons it issues in that investigation. As a result of this rule, the IRS must give notice under IRC 7609(a) when serving a summons on a third party to investigate the liability of those persons who are potentially responsible for the trust fund recovery penalty because those taxpayers' liabilities have not yet been assessed. The IRS cannot rely on the assessment against the corporation to satisfy the collection exception for these summonses, nor may it caption such summonses as issued "In the matter of the Corporation-Taxpayer." These summonses must be captioned as in the matter of the individuals being investigated as potentially responsible persons. See IRM 25.5.6.4.1, Procedures for Summonses Issued to Investigate Liabilities for the Trust Fund Recovery Penalty.

(2) The second category of collection summonses is described in IRC 7609(c)(2)(D)(ii), which provides an exception from the notice requirement for summonses issued to aid in collecting the liability at law or in equity of any transferee or fiduciary of a taxpayer against whom the IRS has made an assessment or obtained a judgment. The scope of this exception is limited to summonses issued to collect a transferee (or fiduciary) liability that has been assessed pursuant to IRC 6901 or otherwise finally determined by a judgment. It does not apply to summonses issued to determine whether a person is liable as a transferee pursuant to IRC 6901.

(1) At times, the IRS may be pursuing a civil examination or a criminal investigation of a taxpayer's unassessed liabilities while it is also pursuing (or has finished pursuing) collection actions against the same taxpayer for assessed liabilities. In these circumstances, the IRS's collection functions may have obtained information by a collection summons that was excepted by IRC 7609(c)(2)(D) from the notice requirement of IRC 7609(a). In general, the IRS may share the information gathered pursuant to an excepted collection summons with examiners and criminal investigators, even though the examiners and criminal investigators would have had to give notice of the summons had they issued it. However, as explained in the scenarios discussed below, the IRS must not engage in any subterfuge by having collection personnel summon information that is only needed for the examination or criminal investigation. The collection employee must act in good faith and must have a legitimate collection purpose for summoning the information.

(2) In the first scenario, a special agent is conducting a criminal investigation and is working with a cooperating revenue officer. Under these circumstances, the special agent should issue any third-party summons and give notice as required byIRC 7609(a) (unless the special agent's summons is not served on a third-party recordkeeper and is thus excepted from the notice requirement by IRC 7609(c)(2)(E)). To do otherwise would constitute an attempt to disguise the criminal nature of the investigation by having the collection employee issue the summons. See United States v. Tweel, 550 F.2d 297 (5th Cir. 1977) (revenue agent failed to apprise taxpayer of the obvious criminal nature of the investigation and court suppressed all evidence obtained by IRS’s silent misrepresentation). Moreover, such a summons would be unlikely to meet the requirements of a collection summons under IRC 7609(c)(2)(D).

(3) In the second scenario, the collection employee issues a third-party summons to collect an assessed liability. After gathering the summoned information, the collection employee finds indications of criminal activity and refers the case to Criminal Investigation. The collection employee can share the summoned information with Criminal Investigation (and Criminal Investigation does not need to repeat the summons process and give notice). If the summoned information may be exculpatory then that information must be shared with Criminal Investigation. After the case is referred to Criminal Investigation, the collection employee must coordinate any further summons activity with Criminal Investigation and should follow all policies and procedures for parallel investigations. See Policy Statement 4–26 at IRM 1.2.1, Servicewide Policy Statements. A third-party collection summons must not be solely used to pursue a criminal investigation. To do so would constitute a subterfuge and would jeopardize the criminal investigation. See United States v. Tweel, 550 F.2d 297 (5th Cir. 1977). Using a collection summons solely to further a criminal investigation would also circumvent the IRC 7609(a) notice requirement if the summons was directed to a third-party recordkeeper. The collection employee's purpose for issuing the summons must be to collect the tax, not solely to develop a criminal case.

(4) The third scenario occurs when an IRS examiner is determining a taxpayer's liabilities (e.g., by examining the taxpayer's returns) and an IRS collection employee is working to collect assessed liabilities owed by the same taxpayer for periods other than those being examined. For example, the collection employee issues a third-party summons to collect taxes assessed for the years A and B, while the examiner is investigating the taxpayer's liabilities for years C and D. So long as the collection employee summons information that "may be relevant," within the meaning of IRC 7602(a), to collecting the assessed taxes for years A and B, then the collection employee can share the summoned information with the examiner. This is appropriate because the collection employee is only summoning information that would otherwise be summoned if there were no ongoing, separate examination. However, if the examiner needs additional information, then he or she must obtain that information independently by issuing a separate third-party summons, if necessary, and by giving notice as required by IRC 7609(a).

(5) The fourth scenario is similar to the third, except both the collection employee and the examiner are pursuing separate and independent investigations of the same taxpayer for the same year. This may occur where the IRS has assessed a trust fund recovery penalty for periods A, B, and C, and is also examining the taxpayer's income tax liabilities for those same years. The analysis and conclusions are the same as for the third scenario. So long as the collection employee only summons information appropriate to his or her case, then he or she should be able to share that information with the examiner. The collection employee must avoid summoning information solely to assist with the examination; all of the summoned information must be of a nature that may be relevant to the collection activity.

(1) When summoning a third party for records or testimony, serve notice on the taxpayer and all other noticees within three days of serving the summons.

(2) No examination of the summoned records is allowed before the close of the 23rd full day after notice is given. Therefore, set the date for appearance:

1. No sooner than the 24th day after giving notice to ensure sufficient time for the noticee to receive notice and, if desired, file a petition to quash, and

2. On a workday.

(1) A noticee who wishes to prevent summons compliance by the third party must begin a civil action in U.S. district court to quash the summons not later than the 20th day after the day notice of the summons is given. When the last day to file a petition to quash falls on a Saturday, Sunday, or legal holiday, the petition to quash may be timely filed on the next business day.

(2) A noticee who brings a proceeding to quash the summons must mail (by registered or certified mail) copies of the petition to the summoned third party and to the IRS employee who issued the summons within the 20 day period.

(3) In instances where a summons is served on a third party for records or testimony and the description of summoned records identifies another person (other than the taxpayer or summoned witness), notice will be given to such person. This person has the right to file a petition to quash the summons. A person not entitled to notice does not have the right to file a petition to quash the summons.

(4) No examination of the summoned records is allowed before the 24th day after notice is given, or if a proceeding to quash is begun until the court so orders, or until every person that is entitled to notice consents. Form 14465, Waiver of Rights to Notice or Right to Petition to Quash, may be used to document the noticee’s consent.

(1) IRS employees who receive a petition to quash will notify Associate Area Counsel by telephone on the same day. Within six workdays, the employee will forward to Associate Area Counsel a memorandum report or Form 4443, Summons Referral, to include the following:

1. The name, full address, and taxpayer identification number of the taxpayer under examination or investigation;

2. A brief summary of the facts in the case, including whether it involves, or is related to, the Special Enforcement Program or a promoter of or participant in an abusive tax scheme (ATAT - Abusive Tax Avoidance Transactions) case;

3. An explanation of the relevance of the summoned information to the periods under investigation;

4. All information supporting the validity or non-validity of each assertion in the petition to quash;

5. A recommendation for or against defense of the petition to quash the summons; and

6. The original summons and a copy of the petition to quash the summons.

(2) Tolling of the periods of limitation on assessment and criminal prosecution occurs when the taxpayer intervenes or brings a proceeding to quash, or when a third party fails to produce the summoned records within six months of being served.

1. If the taxpayer (or the taxpayer’s agent, nominee, or other person acting under the taxpayer’s direction or control) intervenes in a summons enforcement suit or brings a proceeding to quash, then all periods of limitation under IRC 6501 (for assessing the taxpayer’s liability for the periods listed in the summons) and all periods of limitation under IRC 6531 (for criminally prosecuting the taxpayer for the periods listed in the summons) are tolled. The periods are tolled during the time the proceeding is pending or appealed; and

2. If the taxpayer does not intervene in a summons enforcement suit or bring a proceeding to quash, and the summoned third party fails to comply with the summons for six months after being served, then the period of limitation under IRC 6501 and IRC 6531 (pertaining to the taxpayer’s liability) shall be suspended beginning six months after the summons was served and ending when the dispute is resolved. See IRM 25.5.6.6.3.2 below.

(3) Intervention by a person other than the taxpayer or his or her agent will not suspend the running of the statutes of limitation.

(4) The IRS and the person summoned must be sent (by certified or registered mail) a copy of the noticee’s petition to quash not later than the close of the 20 day period. If a petition to quash is not mailed to the IRS timely, the summoned person should be asked to produce the summoned information. If he or she does not, the employee should immediately forward the summons for enforcement.

(1) Form 2039, Summons, and Form 6639, Financial Records Summons, include a notice concerning the noticee’s right to contest the administrative summons (Part D). Serve Part D on the noticee with a copy of the summons (Part C), by certified or registered mail to the noticee's last known address. Include Form 2039 Part E for a designated or related summons. Use registered mail when the notice is mailed to persons in foreign countries. The law also permits service of notice by hand delivering the documents to the noticee, or by leaving them at the noticee’s last and usual place of abode. In the absence of a last known address of the noticee, both documents can be left with the person summoned. In addition, send a copy of the notice by regular mail to the taxpayer’s authorized representative, as a courtesy.

(2) If the IRS has been advised under IRC 6903 of the existence of a fiduciary relationship, mail notice of the summons to the last known address of the fiduciary of the person entitled to notice, even if such person or fiduciary is now deceased, is under a legal disability, or no longer exists. The filing of a power of attorney form or tax information authorization does not create a fiduciary relationship under this provision.

(3) Complete certification of service of the summons and of giving notice on the reverse side of the original summons, Service of Summons, Notice and Recordkeeper Certificates. If there is more than one noticee, copy the form to document how notice was given to each noticee. Field Collection employees will use ICS to document the service of the summons and how notice was given. See IRM5.17.6.4.1, Proper Service - IRC § 7603.

(4) A noticee who files a petition to quash the summons must mail (by registered or certified mail) copies of the petition to the summoned third party and to the IRS employee whose name and address are shown on the face of the summons. If a summons enforcement action is instituted against the third party, the noticee has the right to intervene in the action. DOJ will serve the third party with process and will notify the noticee of the action via certified or registered mail.

(5) The second page of the original summons certifies how service of the summons was made and that notice was given, or that notice was not required (e.g. for a collection summons). This page may also be used to certify that the period for beginning a proceeding to quash the summons has expired and that no such proceeding was instituted within such period, or that all of the noticees consent to the examination. Upon request of the summoned third party, the IRS employee will give a copy of this page to the summoned third party, as provided in IRC 7609(i)(2).

(1) Persons who are entitled to notice and to file a petition to quash when a summons is issued may waive such rights via a general waiver form. Form 14465, Waiver of Rights to Notice or Right to Petition to Quash, is suggested for waiver purposes. For a noticee other than the taxpayer, Signature of Taxpayer should be modified to say Signature of Noticee. All third parties involved in the waiver should be given a copy of the waiver for their records. Prepare the waiver in triplicate; retain the original, give one copy to the summoned party and one copy to the noticee.

(2) If all persons entitled to notice waive their rights, the time and place of examination must not be less than 10 days from the date of service. The witness may voluntarily comply at an earlier time.

(3) Payments for mileage, witness fees, and expenses may be made to persons who are summoned. See IRM 25.5.9, Summons, Fees and Costs for Summoned Witnesses.

(1) The third party:

1. Has the right to intervene in the proceeding to quash the summons, and

2. Is bound by any decision in the proceeding, even if he or she does not intervene.

(2) The law provides that the third party will, upon receipt of the summons:

1. Proceed to assemble the summoned records (or such portion as the IRS employee indicates), and

2. Be prepared to produce the records on the day on which the records are to be examined whether or not a noticee files a petition to quash the summons.

(3) A third party is not liable to any customer or other person for such disclosure if the disclosure of records was made in good faith reliance on the IRS’ certification that:

1. The period for beginning a proceeding to quash a summons has expired and no such proceeding began within such period, or

2. The taxpayer and every other person entitled to notice consented to the examination.

(1) Attempt to coordinate the service of summonses pertaining to the same person at or near the same time, if possible. Likewise, make requests to the court for the exemption from the requirement of notice relative to the same person at the same time, provided that the witnesses to be summoned may all be found in the applicable judicial district.

(1) A summons served on a domestic bank to produce records of one of its foreign branches may be enforceable even if compliance would constitute a violation of the laws of the foreign country. The basis for compelling production of records is that a bank, like any other corporation, is presumed to be in possession and control of its own books and records. Courts have reasoned that any officer or agent of the corporation who has power to cause the branch records to be sent from a branch to the home office for any corporate purpose has sufficient control to cause them to be sent when summoned pursuant to IRC 7602.

(2) In determining whether to enforce a summons where the laws of the country in which the information is located bar such production, the courts balance the interests of the foreign country in blocking production of the records against the importance of the records to the United States. The courts have used the following 5-part test to determine whether a foreign blocking law should be recognized:

1. The importance to the government’s investigation or litigation of the documents or other information requested;

2. The degree of specificity of the request;

3. Whether the information originated in the United States;

4. The availability of alternative means of securing the information;

5. The extent to which noncompliance with the request would undermine important interests of the United States, or of the state where the information is located.

(3) Compliance employees cannot issue a summons directly to an individual or entity located outside the United States. See IRM 25.5.8.5, Records Outside the United States, for additional information.

(1) The United States courts have jurisdiction over a domestic branch of a foreign corporation and over its records located in this country.

(2) A domestic branch that sends its records to a foreign bank for storage may argue that it has relinquished control over such records. However, in determining whether to enforce a summons for such foreign-based records, a U.S. court would utilize the same balancing test described in IRM 25.5.6.7.1(2). Depending upon the age of U.S.-generated bank records, the Bank Secrecy Act and other U.S. laws and regulations may also be argued to prohibit the U.S. bank from storing its customer records offshore.

(1) IRC 7612:

1. Generally prohibits the IRS from issuing a summons or enforcing a summons to produce or analyze any tax related computer software source code (unless conditions below are satisfied);

2. Establishes a number of protections against the disclosure and improper use of trade secrets and confidential information that the IRS acquires in the course of any examination with respect to any taxpayer; and

3. Requires the IRS to demonstrate three things before issuing a summons for a computer software source code.

(2) Before issuing a summons for a computer software code, the IRS must demonstrate:

1. An inability to reasonably ascertain the correctness of an item on a return from the taxpayer’s books, papers, records or other data, or by using the executable code and associated data to which the source code relates;

2. Reasonably specific identification of the portion, item, or component of the source code it needs to verify the correctness of such item on the return; and

3. That the need for the portion, item, or component of such source code outweighs the risks of unauthorized disclosure of trade secrets.

(3) Exceptions:

The general prohibition does not apply to:

1. Criminal tax investigations;

2. Tax-related computer software source code acquired or developed by the taxpayer or a related person primarily for internal use;

3. Communications between the owner of the tax-related computer software source code and the taxpayer or related persons; and

4. Tax-related computer software source code which is required to be provided or made available under another Code provision.

(4) Cooperation Required: If the taxpayer fails to turn over the executable code and the associated data, and the owner fails to turn over the executable code within 180 days, the IRS does not have to demonstrate that it is unable to otherwise reasonably ascertain the correctness of any item on a return from the taxpayer’s books, papers, records, or other data, or from the executable code and any associated data, and the IRS does not have to identify the portion, item, or component of the source code needed to verify the correctness of such item on the return before a summons for the computer software source code may be issued.

(5) Actions required by the IRS to trigger the 180 day period under IRC 7612(b)(3) are:

1. A group manager or higher level management official must make a determination that it is not feasible to determine the correctness of an item without access to the executable code and associated data.

2. A group manager or higher level management official must also make a determination that the need for the computer software source code or any portion thereof outweighs the risk of unauthorized disclosure of trade secrets.

3. An initial Information Document Request (IDR) must be issued to the taxpayer for the executable code and associated data. The IDR shall recommend that the taxpayer advise the software owner of the request for the executable code. Since the IRS must show the executable code and associated data have not been provided within 180 days before taking additional action, the IRS may require a limited time response period for the initial IDR.

4. If the taxpayer fails to turn over the executable code and associated data in response to the IDR, correspondence requesting the executable code and associated data will be issued to the taxpayer, and correspondence requesting the executable code will be issued to the software owner advising the taxpayer and the software owner that the requests are being made pursuant to IRC 7612(b)(3)(B).

(1) Under IRC 7612(c), in any proceeding to enforce a summons for any portion of software (which includes both source code and the executable code), a court may issue a protective order to prevent the disclosure of such software. In addition, any software that the IRS obtains during the course of any examination is subject to the safeguards listed below. However, prior to receiving any software, whether by court order or voluntarily from the taxpayer or the software owner, Associate Area Counsel must be consulted in order to establish the procedures that must be followed to comply with the statutory (and judicial, where applicable) requirements for safeguarding the software. The safeguards include:

1. Complying with any protective order entered by a court;

2. Only using the software in connection with the examination of the taxpayer’s return with regard to which it was received, and related Appeals and judicial proceedings;

3. Providing, in advance, to the taxpayer and owner of the software a written list of all individuals who will analyze or otherwise have access to the software;

4. Maintaining the software in a secure area or place, and in the case of computer software source code, not removing it from the owner’s place of business without the owner’s consent, unless the removal is pursuant to a court order;

5. Copying the software only when necessary in connection with the analysis and numbering any copies made, and certifying in writing no other copies have been (or will be) made;

6. Returning to the owner the software and all copies at the conclusion of the proceedings, permanently deleting any working copies;

7. Not decompiling or disassembling the software; and

8. Treating the software as return information for purposes of IRC 6103.

(2) Responsibilities:

1. In an examination controlled by the Large Corporate Compliance Program, the Case Manager has the ultimate responsibility for adherence to the required safeguards and completion of all necessary documentation. He or she will insure that all team members are aware of and follow all of the required provisions of this section. In a general program case, the revenue agent conducting the examination is responsible for the safeguards and documentation. IRS employees must coordinate all source code and software summonses through Associate Area Counsel, who will coordinate with the Chief Counsel Procedure & Administration Division, Branches 6 and 7.

(1) The following definitions apply for purposes of IRC 7612:

1. Software includes computer software source code and computer software executable code.

2. Computer software source code means:
   • The code written by a programmer using a programming language which is comprehensible to appropriately trained persons and is not capable of directly being used to give instructions to a computer;
   • Related programmers' notes, design documents, memoranda, and similar documentation; and
   • Related customer communications.

3. Computer software executable code means:
   • Any object code, machine code, or other code readable by a computer when loaded into its memory and used directly by such computer to execute instructions; and
   • Any related user manuals.

4. Owner shall, with respect to any software, include the developer of the software.

5. Related person shall be treated as related to another person if such persons are related persons under IRC 267 or IRC 707(b).

6. Tax-related computer software source code means the computer source code for any computer software program intended for accounting, tax return preparation or compliance, or tax planning.

(1) The summons rules are effective for summonses issued, and software acquired, after 7/22/98.

(2) The software protection rules apply to

1. Software acquired by IRS after 7/22/98.

2. Previously acquired software beginning 90 days after 7/22/98. (However, outside experts do not have to sign a two-year non-competition agreement.)

(1) On some occasions, the IRS has found it helpful to employ outside experts to assist in the analysis of a particular source code. The outside expert used must agree in writing:

1. Not to disclose the software to any person other than persons entitled to disclosure under IRC 6103; and

2. Not to participate for two years in the development of similar software.

(2) The IRS must provide the taxpayer and the owner of any interest in the software with a written agreement between the IRS and any person who is not an officer or employee of the United States and who will analyze or have access to such software which contains the above agreement.