March 01, 1999
IRS Cuts Number of Third-Party
Notices to Taxpayers
WASHINGTON - The Internal Revenue Service announced a major
policy change Tuesday that will sharply reduce the need for sending
out third-party contact letters to taxpayers.
Responding to concerns from tax practitioners and others, IRS
Commissioner Charles O. Rossotti said a new, more selective process
will be used to send out third-party notices. The change is being
made to reflect the agency's long-standing policy of contacting
outside parties about a person's tax case only as a last resort.
For the vast majority of IRS field examinations, the switch
means the third-party notice will go out only if the agency has been
unable to collect the needed information from the taxpayer.
Previously, the notification that the IRS might contact outside
parties for information has been sent at an earlier step during the
initial contact with a taxpayer.
"This is a common sense change," Rossotti said. "Many of these
letters have gone out too early and needlessly alarmed taxpayers in
cases where the IRS had no need to contact outside parties."
The change, which is effective March 29, means the IRS will stop
sending third-party letters on a blanket basis to taxpayers facing
examination questions. The new standard will be using the letters on
an "as needed" basis when the agency is unable to obtain the
information from the taxpayers.
The third-party contacts are sometimes made to resolve
unanswered questions about the assets, address or tax liability of a
"There's no reason to send out these letters when we can work
directly with the taxpayer in most cases," Rossotti said.
On issues involving tax collection, the letters will continue
being sent out on a general basis because of legal requirements.
However, the IRS is in the process of rewriting this letter
(Number 3164) after tax practitioners raised concerns about its
wording. Rossotti said the letter needed to be revised because it
could unnecessarily alarm taxpayers about the IRS contacting outside
parties on sensitive tax matters.
The IRS is working hand-in-hand with tax practitioners to come
up with a new version of the letter that clearly spells out the
agency's procedure of working cooperatively with individual
taxpayers before contacting outside parties. The revised letter also
will highlight new taxpayer rights provisions, which includes the
IRS's responsibility to notify individuals of which outside parties
the agency has contacted.
The IRS plans to finish the new, clearer version of the letter
soon. In the meantime, the current version of the letter will remain
in use because of legal requirements to send a notice to some
"In the end, what we'll have is a clearer, better written
notice," Rossotti said. "And with our new policy on sending out
fewer letters, this means fewer taxpayers will have to needlessly
worry about an outside party becoming involved in their tax issues."
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