March 02, 1999
IRS Moves to Clarify Third-Party Notices
to Reflect New Taxpayer Rights
WASHINGTON - In a move to emphasize taxpayer rights, the
Internal Revenue Service will revise a letter for taxpayers to more
clearly spell out the circumstances surrounding third-party contacts
about tax liability.
IRS Commissioner Charles O. Rossotti said Tuesday the letter
will be rewritten because the current version fails to clearly
explain the details about when the agency may contact third parties
in connection with taxpayers facing collection or examination
"We made a mistake, and we're going to fix it," Rossotti said.
In last year's IRS Restructuring and Reform Act, Congress
required the agency to provide taxpayers reasonable notice before
contacting outside parties about the person's tax situation. The
contacts are generally used as a last resort to resolve unanswered
questions about the assets, address or tax liability of a taxpayer
in connection with IRS collection or examination activities or other
tax liability determinations.
A letter notifying taxpayers about potential third-party
contacts in their cases started going out after Jan. 18. Tax
practitioners alerted the IRS to the letter's questionable wording.
The letter said the IRS "may need to contact third parties.
Third party contacts may include, but are not limited to, neighbors,
employers, employees and banks."
Rossotti pointed out the letter could unnecessarily alarm
taxpayers about the IRS potentially contacting outside parties on
sensitive tax issues. He said the letter also doesn't give taxpayers
the information they need to understand their legal rights and IRS
He promised the IRS will work hand-in-hand with tax
practitioners to create a new, clearer version that more accurately
portrays the IRS's emphasis on working directly with taxpayers
before contacting third parties. The agency will seek comment on the
new letter from tax practitioners, small businesses and any other
"This third-party notice does not represent the first-rate
service we must give taxpayers," Rossotti said. "I promise that when
we rewrite the notice - and we will - we will get it right."
Rossotti said the letter was unacceptable because it failed to
include several key points involving taxpayer rights and mistakenly
raised taxpayer concerns about privacy issues.
"The new version will use clear, direct language to spell out
the rights of the taxpayer in a way people can understand," Rossotti
The old letter (Number 3164) did not mention the normal IRS
procedure, which is to first contact the individual taxpayer and
work cooperatively to gather the needed information. If that move
fails, the IRS then has the legal option of contacting third
The new letter will still notify taxpayers about this
third-party contact possibility, but it will go a step further. It
will inform the taxpayer about the IRS's responsibility under the
1998 law to periodically notify individuals of which outside parties
the agency has contacted. It will also highlight that the taxpayer
has the right to request a list of people the IRS has contacted.
Rossotti stressed that the vast majority of people who received
the old letter will not see the IRS talking to outside parties about
tax questions. The IRS is not contacting any more third parties than
it did before the 1998 law added the taxpayer rights provisions.
"We don't want people to think this letter means we're
increasing our contacts with third parties," Rossotti said. "Our
intent is to alert taxpayers about their rights, and take every
possible step to answer tax questions in a professional,
confidential manner - without involving third parties."
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