The rule
IRC 7602(c)(1) says an IRS employee may not contact anyone other than the taxpayer about the determination or collection of the taxpayer's liability unless the contact occurs within a period of no more than one year specified in a notice that tells the taxpayer contacts are intended and that is given at least 45 days before the period begins. Section 1206 of the Taxpayer First Act amended the provision, and IRM 25.27.1.3.1 applies the current rules to notices given after August 15, 2019. One sentence is aimed at blanket notices: “A notice shall not be issued under this paragraph unless there is an intent at the time such notice is issued to contact persons other than the taxpayer during the period specified in such notice.”
IRC 7602(c)(2) adds a record requirement: the IRS must periodically give the taxpayer a record of persons contacted and provide it on request.
The IRS states a preference for going to the taxpayer first. IRM 25.27.1.3 says “It is the IRS's practice to obtain information relating to a liability or collectibility determination directly from the taxpayer whenever possible,” but notes this is a practice, not a legal requirement.
What counts as a third-party contact
Under Treas. Reg. 301.7602-2, as summarized in IRM 25.27.1.2, a third-party contact is a communication initiated by an IRS employee, with someone other than the taxpayer, about the determination or collection of the taxpayer's liability, that discloses both the taxpayer's identity and the employee's IRS association.
| Generally a third-party contact | Generally not a third-party contact |
|---|---|
| A summons or levy served on a bank, employer, customer or credit card processor | Database searches that involve no person on the other end |
| Questioning a business's employees outside the scope of their normal employment | Contacts with current employees or officers acting within the scope of employment (presumed during business hours on business premises) |
| A follow-up request for more information after a third party called in | Unsolicited information the third party volunteered |
| Contacts with a government office about the taxpayer's business with that office (contracts, employment) | Other contacts with any local, state, federal or foreign government office |
| Contacts with neighbors, banks, employers or employees (the examples Pub 556 gives) | Contacts with the taxpayer's authorized representative |
The employee rule matters most for business clients: “An employee or officer shall be presumed to be acting within the scope of their employment during business hours on business premises.” Talking to the client's bookkeeper during a field visit is generally not a third-party contact; talking to a former bookkeeper at home is.
The advance notice
The notice is Letter 3164, which comes in over twenty versions for different functions (IRM 25.27.1.3.1). It must state the intended contact period (not over one year) and the tax periods at issue. It is hand delivered or mailed to the last known address, each spouse gets a separate letter for a joint liability, and the representative gets a copy. The waiting period is strict: “Employees may not contact a third party until the 46th day following the date of the notice.” Pub 1 no longer counts as notice: “Effective August 15, 2019, Publication 1 no longer satisfies the advance notice requirement of IRC Section 7602(c)(1).”
When the window is running out and contacts will continue, examiners are told to issue a refresher Letter 3164 no later than 46 days before the current period expires, to avoid another waiting period. The IRM's example: for a window expiring October 1, 2024, the refresher should go out by August 15, 2024.
A practical point for phone calls: if an examiner calls the taxpayer and someone else answers, merely identifying as an IRS employee is not a third-party contact; asking that person for information is, unless the notice and waiting period are satisfied. The IRM puts it this way: “merely identifying himself or herself as an IRS employee does not constitute TPC.”
In LB&I, IRM 4.46.3.4.1 tells teams to consider third-party contacts early in planning because of the 45-day lead time.
Exceptions
IRC 7602(c)(3) lists three statutory exceptions, and the regulation adds more (IRM 25.27.1.3.2):
- Authorized contacts. Contacts the taxpayer has authorized need no notice and are not recorded.
- Jeopardy. Where the employee has good cause to believe notice or a record would jeopardize collection.
- Reprisal. Where the third party believes the taxpayer may harm someone in any way; the determination is made contact by contact.
- Pending criminal investigation.
- Government entities (other than about the taxpayer's business with that office), confidential informants, and non-administrative contacts in pending court proceedings, such as serving a Tax Court subpoena (Treas. Reg. 301.7602-2(f)).
Authorizing contacts
A taxpayer can authorize specific contacts, best documented on Form 12180, Third Party Contact Authorization Form (IRM 25.27.1.3.5). Each authorized contact must be listed; blanket authorizations are not accepted. Both spouses sign for a joint matter, and a representative signing for the taxpayer needs Form 2848 line 5a authority to authorize disclosure to third parties. The taxpayer can revoke authorization at any time, and the IRS will not keep or provide a record of authorized contacts.
Refusing to authorize does not stop the IRS: “The taxpayer may not prevent an IRS employee from contacting a third party by refusing to provide authorization.” Authorization is useful when a contact is going to happen anyway and speed matters, for example confirming a payment with a single vendor; it is not a veto.
The record and the contact list
Each reportable contact is recorded on Form 12175, a separate form for each third party for each day of contact (IRM 25.27.1.4). Contacts by mail are held until the reprisal window passes. A third-party summons issued under IRC 7609 with a copy to the taxpayer satisfies the recording and reporting requirements, so summonses do not appear on the list separately.
To get the list, the taxpayer asks orally or in writing (IRM 25.27.1.5). The request must include the taxpayer's name, address, TIN and the periods, and must be for one taxpayer only: “Joint requests, regardless of filing status, are not valid.” It covers contacts made before the request (no standing requests for future contacts), and a new request cannot be made within 90 days of the last. The TPC coordinator sends the list on Letter 3173; incomplete requests come back on Letter 6415. Contacts withheld because of reprisal or another statutory basis are not listed. The list can also be obtained as part of the examination file; see getting the examiner's file.
What the IRS does with what it learns
Information gathered from third parties becomes the taxpayer's return information and goes into the examination file. IRM 4.2.5.6 says taxpayers generally have a right to their own return information, including the administrative file and workpapers, unless release would seriously impair tax administration, and lists the specific limits for third-party material: summoned documents and third-party contact information can be withheld if release would jeopardize collection, involve reprisal against any person, or jeopardize a pending criminal investigation. Outside those limits, ask the examiner for copies of what third parties provided, so the client can respond to it before the report. An adjustment built on a customer's or vendor's statement is only as good as that statement, and the taxpayer is entitled to answer it. Where a third party's records conflict with the client's, address the conflict in writing; the examiner's lead sheet is supposed to include facts favorable to both sides.
Using the rule in practice
A Letter 3164 is a signal: the examiner intends to go outside for information within the stated window. That is the moment to offer the records the examiner would otherwise get from customers, banks or former employees, especially where contacts could harm the client's business relationships. The 45-day waiting period gives time to produce them.
The rule also has enforcement teeth. IRM 25.5.10.3 notes that the requirement that the IRS follow all administrative steps in the Code, part of the summons enforcement standard in United States v. Powell, has been applied to third-party contact notice, citing J.B. v. United States, 916 F.3d 1161 (9th Cir. 2019), where enforcement was refused for failure to follow the notice rules. Ask, and check the contact list, before a third-party summons is enforced. See IRS summonses in an examination.
Questions practitioners ask
Does Pub 1 count as the third-party contact notice?
Not since August 15, 2019. A Letter 3164 that states the intended contact period and tax periods is required.
Can the examiner talk to my client's employees without notice?
Current employees and officers acting within the scope of their employment, presumed during business hours on business premises, are not third parties. Former employees, or employees questioned outside their normal duties, are.
Can my client stop third-party contacts by refusing to authorize them?
No. Authorization only removes the notice and recording requirements for the contacts listed; the IRS can still contact third parties after giving notice.
How do I get the list of people the IRS contacted?
Ask orally or in writing with the taxpayer's name, address, TIN and periods. One taxpayer per request, no more often than every 90 days. The list comes on Letter 3173.
Is a summons to a bank a third-party contact?
Yes, but if the taxpayer receives a copy of the summons under IRC 7609, that satisfies the recording and reporting requirements.