Temporary Regs Setting 'Reasonable' Bounds for Time and Location of Audit

 [4830-01]

 ACTION: Temporary regulations

 SUMMARY: This document contains temporary regulations that set forth the policy of the Internal Revenue Service concerning the time and place for conducting examinations. The Service is issuing these regulations pursuant to section 6228(b) of Subtitle J, Title VI of the Technical and Miscellaneous Revenue Act of 1988, the Omnibus Taxpayer Bill of Rights. The regulations set forth general criteria to be utilized by Internal Revenue Service officers and employees in setting a time and place of examination that are reasonable under the circumstances. It is the goal of these regulations to balance the convenience of the taxpayer with the requirements of sound and efficient tax administration. These temporary regulations also cross- reference a notice of proposed rulemaking in this issue of the Federal Register.

 EFFECTIVE DATE: The regulations as to time and place of examination are effective as of June 4, 1990.

 FOR FURTHER INFORMATION CONTACT: Nancy O. Ryan, 202-535-9678 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

BACKGROUND

 This document contains temporary regulations amending the Procedure and Administration Regulations (26 CFR Part 301) under section 7605 of the Internal Revenue Code. Section 7605(a) of the Internal Revenue Code states that the time and place of examination pursuant to the provisions of section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 shall be such time and place as may be fixed by the Secretary and as are reasonable under the circumstances. The existing regulations provide, in general terms, that the time and place for examination shall be fixed by an officer or employee of the Internal Revenue Service and shall be reasonable under the circumstances.

 Section 6228(b) of Subtitle J, Title VI of the Technical and Miscellaneous Revenue Act of 1988, the Omnibus Taxpayer Bill of Rights, directs that additional regulations be promulgated governing the setting of the time and place for examinations. In keeping with both the spirit of that legislation and the policy of the Service, it is the goal of these regulations that the Service officer or employee setting the time and place for examination will in all cases balance the convenience of the taxpayer with the requirements of sound and efficient tax administration.

NEED FOR TEMPORARY REGULATIONS

 The provisions contained in this Treasury decision are needed to promulgate temporary regulations immediately in response to enactment of section 6228(b) of the Technical and Miscellaneous Revenue Act of 1988. It is therefore found impracticable and contrary to the public interest to issue this Treasury decision with prior notice and public procedure under section 553(b) of Title 5 of the United States Code.

EXPLANATION OF PROVISIONS

 The current regulations under section 7605 of the Internal Revenue Code permit an officer or employee of the Internal Revenue Service to determine the time and place of examination on a case-by- case basis. The existing regulations do not, however, provide guidance as to what is reasonable under the circumstances. The amended regulations set forth standards to be considered by Service officers and employees in determining a reasonable time and place for examination. The amended regulations provide that, based on these standards, Service officers and employees shall endeavor at all times to schedule a time and place that are reasonable under the circumstances. The regulations require the Service officer or employee to exercise sound judgment in applying these standards to the circumstances at hand, balancing the interests of convenience of the taxpayer with the requirements of sound and efficient tax administration.

 In view of constraints necessarily placed on the Service, the proposed regulations provide that it will be considered reasonable for the Service to require that an examination be scheduled on a normally scheduled workday of the Service, during the Service's normal duty hours. Similarly, to permit the administration of the tax code in an orderly manner, the regulations provide that the Service may schedule examinations throughout the year, without making special accommodations to seasonal fluctuations in the taxpayer's or the taxpayer's representative's business. The regulations contemplate the Service will work with taxpayers or their representatives to attempt to minimize any adverse effects from scheduling the date and time of an examination.

 Generally, the Service will determine whether an examination will be an office examination (i.e., an examination conducted at a Service office) or a field examination (i.e., an examination conducted at the taxpayer's residence or place of business, or some other location other than a Service office) based upon the complexity of the return and which form of examination will be more conducive to effective and efficient tax administration. The Service will grant a request to hold an office examination at a location other than a Service office in a case of clear need, such as when the taxpayer's advanced age or infirm physical condition make it unreasonably difficult to travel to a Service office.

 With regard to place of examination, the temporary regulations generally provide that the initial determination of where an examination will take place, including the district to which an examination will be assigned, will be made by the Service based upon the address shown on the return for the period selected for examination. Written requests by taxpayers or their representatives to transfer the place for examination will be considered and resolved on a case-by-case basis.

 The regulations provide generally that in the case of an office examination (which are performed only with respect to individual taxpayers), the Service will set the place of examination at the Service office within the assigned district that is closest to the taxpayer's residence. If the closest office does not have an examination group or the personnel needed to conduct the examination, however, the Service is generally permitted to schedule the examination at the closest Service office within the assigned district that has an examination group or the appropriate personnel.

 With regard to returns selected by the Service for field examinations, the examination generally will take place at the location where the original books, records, and source documents pertinent to the examination are maintained. This will usually be at the taxpayer's residence or principal place of business.

 The Service generally will not conduct an examination at the taxpayer's place of business if the business is so small that doing so will essentially require the taxpayer to close the business or would unduly disrupt business operations. The regulations provide for a procedure under which a taxpayer may advise the Service in writing that an examination at the taxpayer's place of business would essentially require closing the business. The Service, upon verification, will then make arrangements to conduct the examination at a Service office within the district in which the original books, records, and source documents are maintained. Notwithstanding that the examination is moved to a Service office, however, the Service will not be precluded from visiting the taxpayer's place of business during the Service's normal duty hours to establish facts which can only be established by a direct visit, such as inventory or asset verifications.

 The regulations provide that taxpayers may make written requests to the Service to change the place of examination, and set forth the general criteria to be used by the Service in responding to these requests. In considering requests to change the place of examination, the Service will normally take into account the following factors: the location of the taxpayer's current residence; the location of the taxpayer's current principal place of business; the location at which the taxpayer's books, records, and source documents are maintained; the location at which the Service can perform the examination most efficiently; the resources available at the Service office to which the taxpayer has requested a transfer; and other factors that indicate that conducting the examination at a particular location could pose undue inconvenience to the taxpayer.

 The regulations provide that the Service generally will not adjust the place of an examination based upon the location of the place of business of the taxpayer's representative. In addition, the Service may not accommodate a taxpayer's request for transfer when the expiration of the applicable statute of limitations on assessment or collection is less than thirteen months from the date of the taxpayer's written transfer request, unless the taxpayer has agreed to an extension of the limitations period. The Service also is not required to transfer an examination to an office or district that does not have adequate resources available to conduct the examination.

 The regulations indicate that, in all circumstances, the Service may take into account the physical safety of its personnel in setting the place of an examination. Therefore, the Service may not be required to conduct a particular examination at the taxpayer's residence or place of business. When it appears that the possibility of physical danger exists, the Service shall transfer the examination to a Service office and may take any other steps reasonably necessary to protect its officers and employees.

 The regulations also provide that nothing in the regulations shall be interpreted as preventing the Service from transferring an examination on its own initiative in order to further the effectiveness and efficiency of the examination, based upon the criteria set forth in the regulations.

 Examinations which fall under the jurisdiction of the Office of the Assistant Commissioner (International) sometimes involve unique circumstances because of the presence of a taxpayer or a Service officer or employee in a foreign country, because of special treaty provisions, or for other reasons. The regulations provide that the criteria set forth in the regulations generally will be used as guidelines for these examinations. Where, however, there is a conflict between the criteria in the regulations and the established policies and procedures of the Office of the Assistant Commissioner (International), those policies and procedures will govern.

 The legislative history of section 6228 of TAMRA indicates that the provisions relating to taxpayer interviews generally do not apply to criminal investigations. The amended regulations provide that, except for the statutory ten-day period that must be allowed whenever an administrative summons is used, the regulations do not apply to criminal investigations. The criteria set forth in the regulations therefore govern only the time and place of civil examinations under I.R.C. section 7602(a).

SPECIAL ANALYSES

 It has been determined that these rules are related to agency organization, management, or personnel and are not subject to Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. Additionally, section 553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) and the Regulatory Flexibility Act (5 U.S.C. Chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking for the regulations will be submitted to the Administrator of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Nancy 0. Ryan of General Litigation, Office of Chief Counsel, Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and the Treasury Department participated in their development.

LIST OF SUBJECTS

26 CFR Part 301

 Administrative practice and procedure, Bankruptcy, Courts, Crime, Disclosure of information, Employment taxes, Estate tax, Excise taxes, Filing requirements, Gift tax, Income taxes, Investigations, Law enforcement, Penalties, Pensions, Statistics, Taxes.

Treasury Decision 8297

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, Title 26, Part 301 of the Code of Federal Regulations is amended as follows.

Paragraph 1. The authority citation for Part 301 is amended by adding the following citation:

Authority: 26 U.S.C. 7805. * * * Section 301.7605-1T also issued under section 6228(b) of the Technical and Miscellaneous Revenue Act of 1988.

Par. 2. In section 301.7605-1, the heading and text for paragraph (a) are removed and paragraph (a) is reserved.

Par. 3. Section 301.7605-1T is added immediately following section 301.7605-1 to read as follows:

SECTION 301.7605-1T TIME AND PLACE OF EXAMINATION (TEMPORARY).

(a)(1) IN GENERAL. The time and place of examination pursuant to the provisions of sections 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 of the Internal Revenue Code shall be such time and place as are fixed by an officer or employee of the Internal Revenue Service, and officers and employees shall endeavor at all times to schedule a time and place that are reasonable under the circumstances. This regulation sets forth general criteria for the Service to apply in determining whether a particular time and place for an examination are reasonable under the circumstances. Officers and employees should exercise sound judgment in applying these criteria to the circumstances at hand and should balance convenience of the taxpayer with the requirements of sound and efficient tax administration.

(2) INTERNATIONAL EXAMINATIONS. The criteria in these regulations generally will be used as guidelines for setting the time and place for examinations which fall under the jurisdiction of the Office of the Assistant Commissioner (International). However, if there is a conflict between these regulations and the established policies and procedures of the Office of the Assistant Commissioner (International), the policies and procedures of the Office of the Assistant Commissioner (International) will govern.

(3) CRIMINAL INVESTIGATIONS. Except for the provisions of paragraph (b)(2) of this section, these regulations do not apply to criminal investigations.

(b) TIME OF EXAMINATION -- (1) DATE AND TIME OF EXAMINATION. It will be considered reasonable for the Service to schedule the day (or days) for an examination during a normally scheduled workday (or workdays) of the Service, during the Service's normal business hours. It will be considered reasonable for the Service to schedule examinations throughout the year, without reference to seasonal fluctuations in the businesses of particular taxpayers or their representatives. However, the Service will work with taxpayers or their representatives to try to minimize any adverse effects in scheduling the date and time of an examination.

(2) DATE OF APPEARANCE WHEN SUMMONS IS USED. In the case of a summons issued under authority of section 7602(a)(2) of the Internal Revenue Code, or under the corresponding authority of sections 6420(e)(2), 6421(g)(2), or 6427(j)(2), the date fixed for appearance before an officer or employee of the Service shall not be less than 10 days from the date of the summons.

(c) TYPE OF EXAMINATION -- (1) IN GENERAL. The Service will determine whether an examination will be an office examination (i.e., an examination conducted at a Service office) or a field examination (i.e., an examination conducted at the taxpayer's residence or place of business, or some other location that is not a Service office), based upon the complexity of the return and which form of examination will be more conducive to effective and efficient tax administration.

(2) OFFICE EXAMINATION HELD IN LOCATION OTHER THAN SERVICE OFFICE IN CASE OF CLEAR NEED. The Service will grant a request to hold an office examination at a location other than a Service office in a case of clear need, such as when it would be unreasonably difficult for the taxpayer to travel to a Service office because of the taxpayer's advanced age or infirm physical condition.

(d) PLACE OF EXAMINATION -- (1) IN GENERAL. The Service will make an initial determination of the place for an examination, including the district to which an examination will be assigned, based upon the address shown on the return for the period selected for examination. Requests by taxpayers to transfer the place of examination will be resolved on a case-by-case basis, using the criteria set forth in paragraph (e) of this section.

(2) OFFICE EXAMINATIONS. -- (i) IN GENERAL. An office examination will generally take place at the Service office, within the Internal Revenue Service district encompassing the taxpayer's residence, which is closest to the taxpayer's residence. It is generally not reasonable for the Service to require a taxpayer to attend an examination at an office within an assigned district other than the office closest to the taxpayer's residence.

(ii) EXCEPTION. When the office within the assigned district closest to the taxpayer's residence does not have an examination group or the appropriate personnel to conduct the examination, it generally is reasonable for the Service to require the taxpayer to attend an examination at the office within the assigned district closest to the taxpayer's residence that has an examination group or the appropriate personnel.

(3) FIELD EXAMINATIONS -- (i) IN GENERAL. A field examination will generally take place at the location where the taxpayer's original books, records, and source documents pertinent to the examination are maintained. This will usually be the taxpayer's residence or principal place of business.

(ii) EXCEPTION FOR CERTAIN SMALL BUSINESSES -- The Service generally will agree not to conduct an examination at a taxpayer's place of business if the business is so small that doing so would essentially require the taxpayer to close the business or would unduly disrupt business operations. If an examination is scheduled by the Service at the taxpayer's place of business and the taxpayer represents to the Service in writing that conducting the examination at the place of business would essentially require the business to close, the Service, upon verification, shall change the place of examination to a Service office within the Internal Revenue Service district where the taxpayer's books, records, and source documents are maintained.

(iii) SITE VISITATIONS. Regardless of where an examination takes place, the Service may visit the taxpayer's place of business or residence to establish facts that can only be established by direct visit, such as inventory or asset verification. The Service may visit for these purposes on a normal workday of the Service during the Service's normal business hours.

(e) REQUESTS BY TAXPAYERS TO CHANGE PLACE OF EXAMINATION. -- (1) IN GENERAL. The Service will consider, on a case-by-case basis, written requests by taxpayers or their representatives to change the place that the Service has set for an examination. In considering these requests, the Service will take into account the following factors:

(i) The location of the taxpayer's current residence;

(ii) The location of the taxpayer's current principal place of business;

(iii) The location at which the taxpayer's books, records, and source documents are maintained;

(iv) The location at which the Service can perform the examination most efficiently;

(v) The resources available at the Service office to which the taxpayer has requested a transfer; and

(vi) Other factors which indicate that conducting the examination at a particular location could pose undue inconvenience to the taxpayer.

(2) CIRCUMSTANCES IN WHICH THE SERVICE NORMALLY WILL PERMIT TRANSFERS. A request by a taxpayer to transfer the place of examination will generally be granted under the following circumstances:

(i) OFFICE EXAMINATION -- (A) If a taxpayer currently resides in a district other than the district initially selected for the examination, the Service normally will agree to transfer the examination to that Service office, in the district encompassing the taxpayer's current residence, which is closest to the taxpayer's residence.

(B) If a taxpayer's current residence is closer to a different Service office in the same district than the office initially selected for the examination, the Service normally will agree to transfer the examination to the Service office closest to the taxpayer's current residence.

(ii) FIELD EXAMINATIONS -- (A) If a taxpayer does not reside at the residence where an examination has been scheduled, the Service will transfer the examination to the taxpayer's current residence.

(B) If a taxpayer's books, records and source documents are maintained at a place other than the place at which the examination is scheduled to take place, the Service will agree to transfer the examination to the place where the taxpayer's books, records and source documents are maintained.

(3) TRANSFER FOR CONVENIENCE OF TAXPAYER'S REPRESENTATIVE. The location of the place of business of a taxpayer's representative will generally not be considered in determining the place for an examination.

(4) TRANSFER WITHIN THIRTEEN MONTHS OF EXPIRATION OF LIMITATIONS PERIOD. If any applicable period of limitations on assessment or collection provided in the Internal Revenue Code will expire within thirteen months from the date of a taxpayer's request to transfer the place of an examination, the Service may require, as a condition for an otherwise permissible transfer, that the taxpayer first agree in writing to extend the limitations period.

(5) TRANSFER TO OFFICE WITH INSUFFICIENT RESOURCES. The Service will not be required to transfer an examination to an office or district that does not have adequate resources to conduct the examination.

(f) SAFETY OF SERVICE OFFICERS AND EMPLOYEES. Notwithstanding any other provision of this regulation, officers and employees of the Service may decline to conduct an examination at a particular location if it appears that the possibility of physical danger may exist at that location. In these circumstances, the Service may transfer an examination to a Service office and take any other steps reasonably necessary to protect its officers and employees.

(g) TRANSFERS INITIATED BY SERVICE. Nothing in these regulations shall be interpreted as precluding the Service from initiating the transfer of an examination if the transfer would promote the effective and efficient conduct of the examination. Should a taxpayer request that such a transfer not be made, the Service will consider the request according to the principles and criteria set forth in paragraph (e) of this section.