When the IRS contacts your client directly: IRC 7521(c), the bypass procedures and the exceptions

The default rules

Three statutes and regulations set the baseline. IRC 7521(c) says a representative with a written power of attorney “may be authorized by such taxpayer to represent the taxpayer in any interview,” and that an IRS employee “may not require a taxpayer to accompany the representative in the absence of an administrative summons issued to the taxpayer.” IRC 7521(b)(2) requires an employee to suspend an interview if the taxpayer clearly states a wish to consult a representative (except in an interview initiated by summons). And in collection, IRC 6304(a)(2) bars communicating with a taxpayer about collection if the IRS knows the taxpayer is represented and can readily find the representative, “unless such person fails to respond within a reasonable period of time to a communication from the Secretary or unless such person consents to direct communication with the taxpayer.”

IRS procedures repeat these points. Exam guidance says “Examiners must not violate or give the perception of violating the taxpayer's right to representation” (IRM 4.11.55.3.1). Collection guidance reminds employees that IRC 6304 “precludes the IRS from communicating with a represented taxpayer in connection with the collection of any unpaid tax unless the taxpayer or taxpayer's authorized representative has given prior consent” (IRM 5.1.23.6). These protections do not apply to criminal investigations; IRC 7521(d) excludes them.

The taxpayer's presence can still be requested. IRM 4.11.55.3.1 says the request must go through the representative and the taxpayer's presence will not be mandated if the person interviewed has first-hand knowledge of the business and records, gives factual and reliable answers, follows up timely and holds a proper Form 2848. If the representative lacks that knowledge, the examiner may request an interview with someone who has it and consider management involvement or a summons. The IRM adds that the examiner must not conduct the audit through someone who “will merely serve as a courier.” See taxpayer interviews and rights.

Notices still go to the taxpayer

Representation does not stop IRS mail to the client. 26 CFR 601.506(a) says any notice “must be given to the taxpayer and, unless restricted by the taxpayer, to the representative,” with copies going to no more than two designated representatives. And “Failure to give notice or other written communication to the recognized representative of a taxpayer will not affect the validity of any notice or other written communication delivered to a taxpayer.” A notice of deficiency mailed only to your client is valid, so ask clients to send you everything they receive.

IRM 5.1.23.4.2.3 adds that copies are no longer routinely sent to a representative unless the notices box on the authorization is checked, though employees may provide copies, and collection employees must make sure the authorization covers every period on a levy or other correspondence before copying the representative; otherwise the taxpayer receives Letter 5427 explaining that the representative did not get a copy.

When the taxpayer initiates contact

A client who calls the IRS directly is not a bypass. IRM 5.1.23.6 allows the IRS to work directly with a represented taxpayer if all three conditions are met: “The taxpayer initiates the contact to resolve the issue on the account,” the taxpayer expresses a specific desire to resolve it without the representative after being told of the current representation, and that desire is documented in the case file. In that situation the two-part bypass process does not apply. IRS attorneys are held to a stricter rule: the IRM notes that the ABA Model Rules prohibit an IRS attorney from discussing a matter with a represented person without the representative's permission.

Grounds for a bypass

The regulation sets the standard. 26 CFR 601.506(b): “Where a recognized representative has unreasonably delayed or hindered an examination, collection or investigation by failing to furnish, after repeated request, nonprivileged information necessary to the examination, collection or investigation,” the employee may ask the immediate supervisor for permission to contact the taxpayer directly. IRC 7521(c) gives the statutory version: with supervisor consent, an employee “may notify the taxpayer directly that such officer or employee believes such representative is responsible for unreasonable delay or hindrance.”

The IRM lists the conduct. In collection, repeatedly failing to provide records or information, failing to return calls or answer letters, cancelling appointments at the last minute, and requesting extensions beyond established deadlines (IRM 5.1.23.6). In exams, failing to submit requested records, failing to keep appointments, and failing to return calls and correspondence (IRM 4.11.55.4.1). The IRM limits the tool: “Do not by-pass an authorized representative simply because you wish to interview the taxpayer,” and employees are encouraged to use other enforcement tools, such as third-party contacts or summonses, before bypassing.

The examination bypass process

1. Documentation. The examiner documents each failure to provide records, keep appointments or return contacts, and notifies the group manager if a trend develops. The manager confirms all reasonable efforts to work with the representative have been made (IRM 4.11.55.4.1).
2. Copies to the taxpayer. Before bypass, the taxpayer receives copies of all written correspondence to the representative, including IDRs.
3. Warning letter. The group manager sends Letter 4020-A (to attorneys, CPAs, enrolled agents and enrolled actuaries) or Letter 4020-B (to unenrolled preparers), advising of Circular 230 responsibilities and possible bypass, with prior requests, outstanding items and a chronology attached. “The taxpayer will not be sent a copy of the warning letter.” A copy goes to the territory manager and the area return preparer coordinator is consulted.
4. Final bypass letter. If delay continues, Letter 4020-C, Final Bypass, is prepared for the territory manager's signature, setting out the facts. “The employee may not circumvent the representative until the territory manager approves the by-pass by signing and issuing the letter” (IRM 4.11.55.4.2).
5. Direct contact. The examiner may then contact the taxpayer directly. The representative continues to represent and receives copies of correspondence and notice of the time and place of appointments.

The collection bypass process

1. Group manager notice. The revenue officer notifies the group manager at the first instance of unreasonable delay, documents it, and from then on confirms appointments and document requests in writing (IRM 5.1.23.6.1).
2. Letter 4016-A, By-Pass Warning to Power of Attorney. Approved by the group manager and mailed to the representative only, allowing 15 to 30 calendar days to submit outstanding items. Copies go to the territory manager and the area return preparer coordinator.
3. Letter 4016-B, By-Pass Power of Attorney, Contact Taxpayer Directly. If the representative does not respond appropriately, the revenue officer prepares 4016-B, which the territory manager must approve. It “outlines the facts and circumstances underlying the decision to by-pass” and goes to the representative, with copies to the taxpayer and the area coordinator (IRM 5.1.23.6.2).
4. Direct contact. The revenue officer may contact the taxpayer after mailing 4016-B, typically scheduling an appointment with Letter 725-B, and must advise the representative in writing of all appointments and copy the representative on all correspondence (IRM 5.1.23.6.3).
5. Ten-day response. “The taxpayer's authorized representative has ten calendar days to respond and offer evidence of reasonable cause for the delays cited in Letter 4016-B.” The revenue officer then continues or reverses the bypass, and if reversed, notifies both the taxpayer and the representative and resumes normal contact (IRM 5.1.23.6.3.1 and 5.1.23.6.3.2).

For how collection cases are assigned and worked, see revenue officers.

What a bypass does and does not do

A bypass is not discipline. IRM 4.11.55.4 says “The by-pass procedures do not constitute a disbarment or a suspension of the practitioner. The taxpayer still has a statutory right to representation per IRC 7521(c).” The regulation agrees that permission to bypass “does not automatically disqualify an individual to act as the recognized representative,” and IRM 5.1.23.6.3 says the same in collection. You remain on the case, receive copies and may attend appointments with the client.

It can lead to a referral. The regulation says the information may be referred for possible disciplinary proceedings under Circular 230, and IRM 5.1.23.6 says a referral to OPR for unreasonable delay should not be submitted without first using the bypass procedure. The relevant duties are section 10.20 (promptly submitting records on a proper request) and section 10.23 (not unreasonably delaying a matter); see Circular 230 duties.

Summons instead of bypass

IRM 4.11.55.4.3 says a summons must be used instead of a bypass when “The taxpayer and the representative are both intentionally uncooperative,” or when the representative refuses to provide documents believed to be privileged or the request is of doubtful legality, because a summons lets a court decide privilege and relevance. A summons to the taxpayer is also the one case in which IRC 7521(c) allows the IRS to require the taxpayer's own appearance. See IRS summons in exams.

How to respond

Withdrawing from a case that cannot be worked is sometimes the better course; see revoking and withdrawing. Where delay comes from the client rather than the representative, telling the employee in writing what is outstanding and why protects you if the case file is later reviewed.

Questions practitioners ask