7 August 2001

See contents of full IRS Handbook of Criminal Investigation: http://cryptome.org/irs-ci/irs-ci.htm

## Handbook 109.1 Summons Handboook Chapter 6 Summonses on Third-Party Witnesses
### Contents [109.1] 6.1 Overview [109.1] 6.2 General [109.1] 6.3 Definitions [109.1] 6.3.1 Summons Subject to IRC 7609 Third-Party Notice and Waiting Period Requirements [109.1] 6.3.2 Third-party Recordkeeper [109.1] 6.3.2.1 Service on a Third-Party Recordkeeper [109.1] 6.3.3 Records [109.1] 6.3.4 John Doe Summons [109.1] 6.3.5 Numbered Bank Account [109.1] 6.3.6 Proceeding to Quash [109.1] 6.3.7 Intervention [109.1] 6.3.8 Noticee [109.1] 6.3.9 Date of Service of Notice [109.1] 6.4 Statutory Requirements for Third-Party Summonses [109.1] 6.5 Exceptions to Notice Requirements [109.1] 6.6 Procedures for Notice, Petition to Quash the Summons, and Compliance or Enforcement [109.1] 6.6.1 Period in Which Service Is Required To Give Notice [109.1] 6.6.2 Right to File Petition to Quash Summons [109.1] 6.6.3 Compliance or Enforcement of Summons [109.1] 6.6.3.1 Collection [109.1] 6.6.4 Notice and Instructions to Noticee, Third-Party Summons [109.1] 6.6.5 Waiver of Right to Notice and To Petition to Quash the Summons [109.1] 6.6.6 Duty and Rights of a Summoned Third-Party [109.1] 6.6.7 Coordination of Summons Issuance and Enforcement Actions [109.1] 6.6.7.1 Examination and EP/EO:FS [109.1] 6.7 Banks [109.1] 6.7.1 Foreign Branches of Domestic Banks [109.1] 6.7.2 Domestic Branches of Foreign Banks [109.1] 6.8 Summonses for Foreign Records of Corporate Slush Funds [109.1] 6.9 Records of Foreign Companies [109.1] 6.10 Software Trade Secret Protection Under IRC 7612 [109.1] 6.10.1 Conditions For Summoning a Source Code [109.1] 6.10.2 Safeguards to Ensure Protection of Trade Secrets and Other Confidential Information [109.1] 6.10.3 Definitions [109.1] 6.10.4 Effective Date [109.1] 6.10.5 Miscellaneous Exhibit [109.1] 6-1 Pattern Letter 1728 (P)
### [109.1] 6.1 (04-30-1999) Overview
This chapter contains the following sections: General Definitions Statutory Requirements for Third-Party Summons Exceptions to Notice Requirements Procedures for Notice, Petition to Quash the Summons, and Compliance or Enforcement Banks Summonses for Foreign Records of Corporate Slush Funds Records of Foreign Companies Software Trade Secret Protection under IRC 7612
### [109.1] 6.2 (04-30-1999) General
Prior to the changes enacted in the Restructuring and Reform Act of 1998 (RRA), IRC 7609 required the Service to follow certain notification and waiting period procedures for summonses served on third-party recordkeepers (i.e., banks, attorneys, accountants and specified others) which did not apply to summonses served on other third-party witnesses. Specifically, the Service was required to notify the taxpayer and any other person identified in the description of the records that the summons had been served. Thereafter, the Service was required to wait at least 24 days before it could receive the summoned documents or initiate enforcement procedures. Significantly, the Service was not required to follow these procedures for any other summoned third-party, i.e., it was not necessary to notify other persons of service, nor was it necessary to delay receipt of the summoned documents. (Although the Service could not require a summoned third-party (not a third-party recordkeeper) to produce documents sooner than 10 days from the date of service, the Service could receive them if they were voluntarily provided.) The RRA significantly enlarged the group of third-party summonses for which the Service is required to notify other persons of service and to wait 24 days before receiving documents or initiating enforcement procedures. Specifically, the Service must now follow the notice and waiting period requirements described below for all third-party summonses (except for five particular types described in IRC 7609(c)(2)(B)-(F) and discussed at subsection 6.5 of this handbook): The Service must give notice to the taxpayer and any other person identified summons. The date for compliance of the summoned party is no sooner than 24 days after the date notice is given to the taxpayer and any other person entitled to notice. The summoned party cannot comply at an earlier time. The records cannot be accepted until the 24th day after the date of notice and only if no person entitled to notice brought a timely proceeding to quash. A third-party need only produce a summoned document if it is in his or her possession, custody, or care and if the summons complies with all legal requirements. The witness may claim his or her individual right against self-incrimination. Persons summoned who conceal records and falsely state that they have been stolen may be prosecuted under 18 USC 1001 (false statements) and 18 USC 1503 (obstructing justice). If the summons was served on a third-party witness, the taxpayer and any other person entitled to notice can bring a proceeding to quash the summons (subject to the exceptions discussed in this chapter). In that proceeding, the taxpayer (or other noticee) can attack the validity of the summons or assert privileges against disclosure. The 10 day waiting period provided by IRC 7605(a) still applies to those narrow categories of third-party summonses (described in subsection 6.5) that are excepted from the notice requirements and 24 day waiting period required by IRC 7609(a)(1). The 10 day waiting period is for the benefit of the person to whom the summons is directed. The taxpayer has no standing to object to a waiver of this provision.
### [109.1] 6.3 (04-30-1999) Definitions
The following definitions pertain to summonses served on third-party witnesses.
### [109.1] 6.3.1 (04-30-1999) Summons Subject to IRC 7609 Third-Party Notice and Waiting Period Requirements
Summons Subject to IRC 7609 third-party requirements: is an administrative summons issued under IRC 7602 or under 6420(e)(2), 6421(g)(2), 6427(j)(2), and 7612, that requires testimony on or relating to the taxpayer or other noticee, or the production of any portion of records made or kept on or relating to any person who is identified in the summons (other than the summoned third-party), or the production of any computer software source code with respect to the taxpayer or other noticee (defined in IRC 7612(d)(2)).
### [109.1] 6.3.2 (04-30-1999) Third-party Recordkeeper
Third-party recordkeeper The term means: any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under Federal or State law, any bank (as defined in IRC 581), or any credit union (within the meaning of section 501(c)(14)(A)); consumer reporting agency (as defined under section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(F))); any person extending credit through the use of credit cards or similar devices; any broker (as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4))); any accountant; any attorney; any barter exchange (as defined in IRC 6045(c)(3)); regulated investment company (as defined in IRC 851) and any agent of such regulated investment company when acting as an agent thereof, any enrolled agent, and any owner or developer of a computer software source code (as defined in IRS 7612(d)(2)), but only if the summons requires the production of the source code or the program and data described in IRC 7612(b)(1)(A)(ii) to which the source code relates. NOTE: Prior to the changes enacted in the RRA of 1998, the definition of a third-party recordkeeper signified a unique class of summonses for which the Service followed special notice and waiting period requirements. As stated throughout this chapter, the RRA of 1998 requires the Service to follow these procedures with all third-party summonses, except for those enumerated in IRC 7609(c)(2). Now, the third-party recordkeeper definition signifies a unique class of summonses that may be served by certified or registered mail. It also identifies the only group of third-party summonses for which a Special Agent must observe the notice and waiting period requirements.
### [109.1] 6.3.2.1 (04-30-1999) Service on a Third-Party Recordkeeper
As stated above, third-party recordkeepers can now receive service of the summons by registered or certified mail pursuant to IRC 7603(b), as well as by delivery in hand and the other traditional methods of service permitted by IRC 7603(a) and discussed in Chapter 3 of this Handbook. NOTE: When serving a third-party recordkeeper by certified or registered mail and when using Form 2039, as revised on 4-97, make the following pen and ink change to the certificate of service, in the section identified by the words: How Summons Was Served: I sent an attested copy of the summons by certified or registered mail to the last known address of the person to whom it was directed, that person being a third-party recordkeeper within the meaning of I.R.C. Section 7603(b). The address is ____________________. If it is unclear as to whether a summoned party falls within the definition of third-party recordkeeper , seek the advice of District Counsel.
### [109.1] 6.3.3 (04-30-1999) Records
Records This term includes books, papers, or other data. The concept of records has been broadly construed to include an executable copy of a commercial tax software program used to prepare returns. However, a summons for a computer software source code cannot be issued unless certain conditions set forth in IRC 7612 are satisfied. Examples of third-party records are: employer records; corporate records; hospital records, excluding nature of illness; telegraph records; partnership records; and records of an unincorporated labor union concerning transactions of its officers. The dissolution of a corporation will not relieve its officers of the duty of producing its existing records within their control.
### [109.1] 6.3.4 (04-30-1999) John Doe Summons
John Doe Summons This is any summons that does not identify the person with respect to whose liability the summons is issued.
### [109.1] 6.3.5 (04-30-1999) Numbered Bank Account
Numbered bank account An account with a bank or similar financial institution through which a person may authorize transactions solely through the use of a number, symbol, code name or similar arrangement not involving disclosure of the account owner's identity.
### [109.1] 6.3.6 (04-30-1999) Proceeding to Quash
Proceeding to quash A civil action commenced in the appropriate U.S. District Court for the purpose of preventing compliance by a summoned third-party witness.
### [109.1] 6.3.7 (04-30-1999) Intervention
Intervention The act of a person, who is not originally a party to a summons proceeding, becoming a party in order to protect his or her interests. Under IRC 7609(b)(1), any person who is entitled to notice of a third-party summons (i.e. a noticee) may intervene in any proceeding brought by the Government to enforce that summons. Also, under IRC 7609(b)(2)(C), the summoned third-party has the right to intervene in any proceeding brought by a noticee to quash the summons.
### [109.1] 6.3.8 (04-30-1999) Noticee
Noticee Any person (other than the summoned third-party) who is identified in a summons served on a third-party witness for the production of records or testimony relating to the person so identified. The taxpayer identified in the caption of the summons is always a noticee, even though his name may not appear in the description of summoned records. A noticee has the right to be given notice of the summons, has the right to intervene in a summons enforcement proceeding, and has the right to bring a proceeding to quash the summons. NOTE: Where a summons is served on a bank for account records and the agent or officer knows prior to service of the summons that an account is styled in the names of more than one person, then each person should be named in the body of the summons and should receive notice. For example, if the agent or officer knows that bank accounts are listed in the joint names of husband and wife, then both the husband and wife should be identified in the description of the records sought and both should be given separate notice, even if they reside at the same address. In the instance where records of a partnership are requested in the body of the summons, notice to one general partner is sufficient.
### [109.1] 6.3.9 (04-30-1999) Date of Service of Notice
Date of service of notice The date on which the notice is placed in the mail or delivered personally.
### [109.1] 6.4 (04-30-1999) Statutory Requirements for Third-Party Summonses
In general, IRC 7609 provides that: a taxpayer or other person identified in the summons must be notified if a summons has been served on a third-party, subject to the exceptions listed in 7609(c)(2). any person who has the right to notice must file a petition to quash the summons in the appropriate U.S. District Court if he or she wishes to prevent the summoned third-party witness from complying with the summons; notice is not required where the Service first obtains a court order based on allegations that reasonable cause exists to believe notice may lead to material interference with the investigation or examination; the filing of a petition to quash the summons by the taxpayer or his or her agent suspends the running of the statute of limitations for civil and criminal purposes during the period when a court proceeding and appeals related thereto are pending; a dispute between a summoned third-party and the IRS which is not resolved within 6 months after the service of a summons suspends all statutes of limitation until the issue is resolved; and a John Doe summons can only be served pursuant to a court order.
### [109.1] 6.5 (04-30-1999) Exceptions to Notice Requirements
There is no IRC 7609 notice requirement in the following instances: service of "John Doe" summons; the summoned witness is the taxpayer, officer or employee of the taxpayer; the person entitled to notice gives up this right by executing a waiver; the summons is served to determine whether records of the business transactions or affairs of an identified person have been made or kept; issued in aid of the collection of an assessment made or judgment rendered against the person regarding whose liability the summons is issued, or the liability at law or in equity of any transferee or fiduciary of the taxpayer; NOTE: Taxpayer notification is required for third-party summonses issued for Taxpayer Delinquency Investigations (TDIs) for records to establish the trust fund recovery penalty, or any other investigation where no liability has been assessed. Notification is not required for third-party summons issued for taxpayer delinquency accounts (TDAs) or any other investigation where an assessed liability exists. summonses issued by a criminal investigator to a third-party who is not a third-party recordkeeper. Summonses issued pursuant to a court order: Notice shall not be required if, upon petition by the Service, the district court determines reasonable cause exists to believe the giving of notice may lead to attempts to conceal, destroy, or alter records relevant to the examination, to prevent the communication of information from other persons through intimidation, bribery, or collusion, or to flee to avoid prosecution, testifying, or production of records. The petition must be filed, prior to the issuance of the summons, in the United States district court for the district within which the person summoned resides or is found. In the hearings required under (a) above, as well as those referred to in this Handbook regarding John Doe Summonses, the determination shall be made ex parte based solely upon the petition and supporting affidavits. An order denying the petition is deemed a final order which may be appealed. Forward requests for court orders, to District Counsel for processing. Include in the memorandum a request that the person(s) to be summoned refrain from notifying the taxpayer, or other person to whom the records or testimony pertain, of the service of the summons. Advise the summoned third-party that, pursuant to a court order, no notification will be given of the summons and, if appropriate, that notification could subject the person summoned to a contempt citation.
### [109.1] 6.6 (04-30-1999) Procedures for Notice, Petition to Quash the Summons, and Compliance or Enforcement
This section covers the following: Period in Which Service is Required to Give Notice Right to File Petition to Quash Summons Compliance or Enforcement of Summons
### [109.1] 6.6.1 (04-30-1999) Period in Which Service Is Required To Give Notice
When summoning a third-party for records or testimony relating to the taxpayer or other person identified in the summons, serve notice on the taxpayer within 3 days of service of the summons on the third-party, but not less than 23 full days before the day fixed in the summons as the day upon which the records are to be examined. No examination of the summoned records is allowed before the close of the 23rd day after notice is given to the taxpayer. Therefore, set the date for appearance: no sooner than the close of the 23rd day after service of notice to the taxpayer to ensure sufficient time for the noticee to receive notice and, if desired, file a petition to quash, and on a workday.
### [109.1] 6.6.2 (04-30-1999) Right to File Petition to Quash Summons
A noticee who wishes to prevent summons compliance by the third-party must begin a civil action in U.S. district court to quash the summons not later than the 20th day after the day notice of the summons is given. When the last day to file a petition to quash falls on a Saturday, Sunday, or legal holiday, the petition to quash may be timely filed on the next business day. A noticee who initiates a proceeding to quash the summons must mail (registered or certified) copies of the petition to the summoned third-party and a copy to the IRS employee who issued the summons within the 20-day period. In instances where a summons is served on a third-party for records or testimony relating to a person other than the taxpayer, notice will be given to such person. This person has the right to file a petition to quash the summons. No examination of the summoned records is allowed before the close of the 23rd day after notice is given, or if a proceeding to quash is begun until the court so orders, or the noticee, who has instituted the proceeding, consents. Pattern Letter 1728(P) may be used to document the noticee's consent. (Exhibit 109.1.6-1)
### [109.1] 6.6.3 (04-30-1999) Compliance or Enforcement of Summons
Service employees who receive a petition to quash will notify District Counsel by telephone on the same day. Within 6 workdays, the district will forward to District Counsel a memorandum report or Form 4443, Summons Referral, to include the following: the name, full address, and taxpayer identification number of the taxpayer under investigation; a summary of the facts in the case, including whether it involves, or is related to, the Special Enforcement Program; an explanation of the relevancy of the records; all information supporting the validity or nonvalidity of each assertion in the petition to quash; a recommendation for or against defense of the petition to quash the summons; and the original of the summons and a copy of the petition to quash the summons. NOTE: Timely observance of this procedure is extremely important since the matter must be reviewed by IRS Counsel, DOJ, and the U.S. Attorney. Tolling of the statute of limitations when the taxpayer intervenes or brings a proceeding to quash, or when a third-party fails to produce the summoned records for six months: if the taxpayer (or the taxpayer's agent, nominee, or other person acting under the taxpayer's direction or control) intervenes in a summons enforcement suit or brings a proceeding to quash, then all periods of limitation under IRC 6501 (for assessing and collecting the taxpayer's liability for the periods listed in the summons) and all periods of limitation under IRC 6531 (for criminally prosecuting the taxpayer for the periods listed in the summons) are tolled. The periods are tolled during the time the proceeding is pending or appealed; and if the taxpayer does not intervene in a summons enforcement suit or bring a proceeding to quash, and the summoned third-party fails to comply with the summons for six months after being served, then the period of limitations under IRC 6501 and 6531 (pertaining to the taxpayer's liability) shall be suspended beginning six months after the summons was served and ending when the dispute is resolved. Intervention by a person other than the taxpayer or his or her agent will not suspend the running of the statutes of limitation. The Service and the person summoned must be sent (by certified or registered mail) a copy of the noticee's petition to quash not later than the close of the 20-day period. If a petition to quash is not mailed timely, immediately begin compliance with the summons enforcement.
### [109.1] 6.6.3.1 (04-30-1999) Collection
Collection personnel who receive a petition to quash will notify Special Procedures function (SPf) by telephone on the day of receipt. SPf will notify District Counsel immediately. Within 6 workdays of receipt of a petition to quash, prepare a memorandum and forward it to SPf. SPf will send the memorandum to District Counsel. Include in the memorandum the items listed above.
### [109.1] 6.6.4 (04-30-1999) Notice and Instructions to Noticee, Third-Party Summons
Form 2039 includes a notice concerning the noticee's right to contest the administrative summons (Form 2039-D). Serve on the noticee together with a copy of the summons (Form 2039-C), by certified or registered mail to the last known address of the noticee. Use registered mail when the notice is mailed to persons in foreign countries. The law also permits service of notice by delivering both documents in hand to the noticee, or leaving them at the noticee's residence, or in the absence of a last known address, leaving them with the person summoned. If the Service has been advised under IRC 6903 of the existence of a fiduciary relationship, mail notice of the service of the summons to the last known address of the fiduciary of the person entitled to notice, even if such a person or fiduciary is now deceased, under a legal disability, or no longer in existence. The filing of a power of attorney or tax information authorization does not qualify as the creation of a fiduciary relationship under this provision. Complete certification of serving the summons and of giving notice on the reverse side of the original summons. NOTE: If serving a third-party (who is not a third-party recordkeeper) with a summons, Form 2039, having a revision date of (4-97), the employee serving the summons must make the following pen and ink changes to the certificate of service: Cross out the phrase"... applies only to summonses served on third-party recordkeepers and not to summonses served on other third-parties or..." . Replace that phrase with "...does not apply to summonses served on..." . The clause will then read: "This certificate does not apply to summonses served on any officer or employee of the person to whose liability the summons relates nor to summonses in aid of collection,..." . A noticee who institutes a proceeding to quash the summons must mail (registered or certified) copies of the petition to the summoned third-party and to the Service employee. If a summons enforcement action is instituted against the third-party, the noticee has the right to intervene in the action. DOJ will serve the third-party with process and will notify the noticee of the action via certified or registered mail. A copy of the back of the original summons, which certifies the service of the summons and notice, will be given to the third-party upon request for proof of notice. If the third-party requests it, furnish a copy of the back of the original summons which certifies that the period for beginning a proceeding to quash the summons has expired and that no such proceeding was instituted within such period, or that the noticee consents to the examination.
### [109.1] 6.6.5 (04-30-1999) Waiver of Right to Notice and To Petition to Quash the Summons
A person who is entitled to notice, and to file a petition to quash when a summons is issued may waive such rights via a general waiver form. Letter 1728(P) is suggested for waiver purposes. All third-parties involved in the waiver should be given a copy of the letter for their records. Prepare the waiver in triplicate. Retain the original; give one copy to the summoned party and one copy to the noticee. If all persons entitled to notice waive their rights, the time and place of examination must not be less than 10 days from the date of service. The witness may voluntarily comply at an earlier time. Payments for mileage, witness fees, and expenses may be made to the third-party if a summons is issued.
### [109.1] 6.6.6 (04-30-1999) Duty and Rights of a Summoned Third-Party
The third-party: has the right to intervene in the proceeding to quash the summons, is bound by any decision in the proceeding, even if he or she does not intervene. The law provides the third-party will, upon receipt of the summons: proceed to assemble the summoned records (or such portion as the Service employee indicates), and be prepared to produce the records on the day on which the records are to be examined whether or not a noticee files a petition to quash a summons. A third-party is not liable to any customer or other person for such disclosure if the disclosure of records was made in good-faith reliance that: the period for beginning to quash a summons has expired, and that no such proceeding began within such period, or that the taxpayer consented to the examination, or that a district court ordered the production of the records without providing notice to persons otherwise entitled to it.
### [109.1] 6.6.7 (04-30-1999) Coordination of Summons Issuance and Enforcement Actions
Attempt to coordinate the service of summonses pertaining to the same person at or near the same time, if possible. Likewise, make requests to the court for the exemption from the requirement of notice relative to the same person at the same time.
### [109.1] 6.6.7.1 (04-30-1999) Examination and EP/EO:FS
Use the following codes: Statute of Limitations alpha Code LL to update AIMS to identify these cases on the monthly AIMS tables 4.0 or 4.1. AIMS Data base should be updated by an examiner, to reflect the correct statute date. When closing the case, use Form 3198 (Special Handling Notice) and Form 895 (Notice of Statute Expiration) to indicate that the new statute date has been determined under IRC 7609 as a result of third-party summons.
### [109.1] 6.7 (04-30-1999) Banks
Banks are one of the major groups on which continuous demands for information are made. A depositor at a bank has no proprietary interest in the bank's books and records. The bank cannot refuse production of its records because some of the entries relate to transactions of persons other than the designated taxpayer. On the other hand, a bank will not be required to produce all its records so that the Service can determine whether any of them contain information relating to a return under investigation. The Right to Financial Privacy Act (RFPA) provides account owners with the right to be given notice when banks release account information to government authorities. However, section 3413(c) of that Act allows the Service to obtain a taxpayer's financial records without providing notice as long as the records are obtained pursuant a procedure authorized by the IRC. The Service interprets IRC 7602 as providing the procedure for its employees to request and receive taxpayer account information without issuing a summons. Consequently, the Service routinely requests and accepts a financial institution's voluntary production of a taxpayer's records of account, except in situations governed by the Tenth Circuit's precedents. (Refer in this Handbook to 1.4.1(3) for a list of these situations). The Tenth Circuit does not interpret IRC 7602 as providing the procedure required by section 3413(c) of the RFPA. Instead, the circuit court interpreted IRC 7609 as such a procedure. Therefore, that circuit court has ruled that a bank's voluntary disclosure of a customer's financial records to the Service, without prior notice to the customer, violates the RFPA. Accordingly, in situations governed by the Tenth Circuit's precedents, the Service may only obtain account records from a bank by serving a summons and providing notice consistent with IRC 7609. NOTE: In RRA 1998, Congress enacted IRC 7609(j), which provides that nothing in IRC 7609 shall be construed to limit the Service's ability to obtain information, other than by summons, through formal or informal procedures authorized by IRC 7601 and 7602. This section indicates that the Service's ability to informally seek the voluntary exchange of records, i.e., without a summons, constitutes a procedure authorized by the Code. Nevertheless, the Service will follow the Tenth Circuit's ruling in situations described in 1.4.1(3).
### [109.1] 6.7.1 (04-30-1999) Foreign Branches of Domestic Banks
A summons on a domestic bank to produce records of one of its foreign branches may be enforceable even if compliance would constitute a violation of the laws of the foreign country. The basis for compelling production of records is that a bank, like any other corporation, is presumed to be in possession and control of its own books and records. "Courts have reasoned that any officer or agent of the corporation, who has power to cause the branch records to be sent from a branch to the home office for any corporate purpose, has sufficient control to cause them to be sent when summoned pursuant to IRC 7602." In determining whether to enforce a summons where the laws of the country in which the information is located bar such production, the courts balance the interests of the foreign country in blocking production of the records against the importance of the records to the United States. The courts have used the following 5-part test to determine whether a foreign blocking law should be recognized: the importance to the Government's investigation or litigation of the documents or other information requested; the degree of specificity of the request; whether the information originated in the United States; the availability of alternative means of securing the information; the extent to which noncompliance with the request would undermine important interests of the United States, or of the state where the information is located. Special concerns exist with respect to a summons for information located in a country with which the United States has a treaty or tax information exchange agreement. In these cases, a treaty request through the Assistant Commissioner (International) must be made prior to service of a summons; and enforcement proceedings will generally not be made until the treaty or tax information exchange agreement partner has advised that it cannot obtain the information or further delay in enforcement of the summons will prejudice the IRS' case. These cases must be coordinated through the Assistant Commissioner (International) or the Associate Chief Counsel (International), Branch 1.
### [109.1] 6.7.2 (04-30-1999) Domestic Branches of Foreign Banks
The United States courts have jurisdiction over a domestic branch of a foreign corporation and over its records located in this country. A domestic branch that sends its records to a foreign bank for storage may have relinquished control over such records. The question of whether a summons for such records served on the domestic branch of the foreign bank could be enforced depends on whether the foreign bank or a corporation resides in or can be found in this country for the service of a summons and judicial process and on whether the domestic branch has sufficient control over the records to be able to produce them in response to a summons. A summons for records located in a country with which the United States has a tax treaty or tax information exchange agreement must be coordinated with the Assistant Commissioner (International) or the Associate Chief Counsel (International), Branch 1, as explained in section 6.7.1.
### [109.1] 6.8 (04-30-1999) Summonses for Foreign Records of Corporate Slush Funds
The Examination Division has established the following procedures when summoning records located outside the country, which relate to corporate slush funds: The Chief, Examination forwards a copy of the proposed summons for records relating to corporate slush funds and improper payments to District Counsel. District Counsel coordinates the review of this summons with Associate Chief Counsel (International). Associate Chief Counsel coordinates the matter with the appropriate National Office function. Include with the proposed summons a statement describing: The circumstances and efforts made to secure the records and data from the taxpayer or other witness. The reasons provided by the taxpayer or other witness for lack of cooperation. The Chief, Examination, may obtain advice from District Counsel by telephone in emergency situations. See IRC 162(c) and 952(a)(4)-(5).
### [109.1] 6.9 (04-30-1999) Records of Foreign Companies
Whether a foreign corporation must produce its records for inspection by the Service and other federal agencies depends, in general, on whether it is found to be doing business in this country or has an agent doing business here. A foreign corporation has been required to comply with a grand jury subpoena (the summons power of the IRS is comparable to the subpoena power of a federal grand jury or summons) in instances where: The foreign corporation had a bank account and salaried employees in the U.S. and shipped newsprint into this country. The foreign corporation was found to be doing business through wholly owned subsidiaries, in this country. The corporate president, who was served with a subpoena, conducted all of the business of a Mexican mining corporation, except the actual operation of its mines, from his home in Arizona. The corporate records were in Mexico, but the court pointed out that if the Mexican law forbade their removal to this country, the SEC could inspect them at the Mexican office or have authenticated copies made and submitted.
### [109.1] 6.10 (04-30-1999) Software Trade Secret Protection Under IRC 7612
To determine the accuracy of a return, the Service may need to examine a computer software source code. Source code is the computer programming language that tells the computer how to manipulate the data. Source code comes in numerous languages including C, C+, C++, COBAL, and Fortran. The computer software industry has resisted the Service's efforts to obtain the relevant source code because sensitive trade secrets bound up in the source code may be lost if the information turned over pursuant to a summons is not treated with heightened sensitivity. Congress determined that the intellectual property rights of the developers and owners of computer software programs should be respected. Congress is concerned that the examination of computer programs and source code by the Service could lead to the diminution of intellectual property rights through the inadvertent disclosure of trade secrets and the special protection against inadvertent disclosure should be established. As a result of these concerns, Congress enacted IRC 7612, which addresses summonses issued to obtain computer software source codes.
### [109.1] 6.10.1 (04-30-1999) Conditions For Summoning a Source Code
IRC 7612: generally prohibits the Service from issuing a summons or enforcing a summons to produce or analyze any tax related computer software source code (unless conditions below are satisfied), establishes a number of protections against the disclosure and improper use of trade secrets and confidential information that the Service acquires in the course of any examination with respect to any taxpayer, and requires the Service to demonstrate three things before issuing summons for a computer software source code. Service must be unable to reasonably ascertain the correctness of an item on a return from the taxpayer's books, papers, records or other data, OR by using the executable code and associated data to which the source code relates. Service must identify with reasonable specificity the portion, item, or component of the source code it needs to verify the correctness of such item on the return, and Service must determine that the need for the portion, item, or component of such source code outweighs the risks of unauthorized disclosure of trade secrets. This determination must be made by a management official not lower that the group/case manager. The group/case manager should contact District Counsel regarding how this determination should be made. Exceptions: The general prohibition does not apply to: criminal tax investigations, tax-related computer software source code acquired or developed by the taxpayer or a related person primarily for internal use, communications between the owner of the tax-related computer software source code and the taxpayer or related persons, and tax-related computer software source code which is required to be provided or made available under another Code provision. Cooperation Required: If the taxpayer fails to turn over the executable code and the associated data, and the owner fails to turn over the executable code within 180 days, the Service does not have to demonstrate that it is unable to otherwise reasonably ascertain the correctness of any item on a return from the taxpayer's books, papers, records, or other data, or from the executable code and any associated data, and the Service does not have to identify the portion, item, or component of the source code needed to verify the correctness of such item on the return before a summons for the computer software source code may be issued. NOTE: Actions required by the Service to trigger the 180-day period under section 7612(b)(3) are as follows. A group manager or higher level management official must make a determination that it is not feasible to determine the correctness of an item without access to the executable code and associated data. A group manager or higher level management official must also make a determination that the need for the computer software source code or any portion thereof outweighs the risk of unauthorized disclosure of trade secrets. See 6.10.1(3) above. An initial Information Document Request (IDR) must be issued to the taxpayer for the executable code and associated data. The IDR shall recommend that the taxpayer advise the software owner of the request for the executable code. Since the Service must wait 180 days after making a formal request before issuing a summons for the source code, the Service may require a limited time response period for the initial IDR. If the taxpayer fails to turn over the executable code and associated data in response to the IDR, correspondence requesting the executable code and associated data will be issued to the taxpayer, and correspondence requesting the executable code will be issued to the software owner advising the taxpayer and the software owner that the requests are being made pursuant to IRC 7612(b)(3)(B). The 180-day period starts with the issuance of the formal requests. Summonses for the executable code and associated data may be issued with the formal requests but must be coordinated with district counsel.
### [109.1] 6.10.2 (04-30-1999) Safeguards to Ensure Protection of Trade Secrets and Other Confidential Information
Under IRC 7612(c), in any proceeding to enforce a summons for any portion of software (which includes both source code and the executable code), a court may issue a protective order to prevent the disclosure of such software. In addition, any software that the Service obtains during the course of any examination is subject to the safeguards listed below. However, prior to receiving any software, whether by court order or voluntarily from the taxpayer or the software owner, district counsel must be consulted in order to establish the procedures that must be followed to comply with the statutory (and judicial, where applicable) requirements for safeguarding the software. The safeguards include: complying with any protective order entered by a court. only using the software in connection with the examination of the taxpayer's return with regard to which it was received, and related Appeals and judicial proceedings. providing, in advance, to the taxpayer and owner of the software a written list of all individuals who will analyze or otherwise have access to the software. maintaining the software in a secure area or place, and in case of computer software source code, not removing from the owner's place of business without the owner's consent, unless the removal is pursuant to a court order. copying only when necessary in connection with the analysis and numbering any copies of the software. returning to the owner the software and all copies at the conclusion of the proceedings, and deleting any working copies. not decompiling or disassembling the software. treating the software as return information for purposes of IRC section 6103. Responsibilities: In an examination controlled by the Coordinated Examination Program, the Case Manager has the ultimate responsibility for adherence to the required safeguards and completion of all necessary documentation. He or she will insure that all team members are aware of and follow all of the required provisions of this section. In a general program case, the revenue agent conducting the examination is responsible for the safeguards and documentation. Examiners must coordinate all source code and software summonses through District Counsel. District Counsel will coordinate with General Litigation and Associate Chief Counsel (International).
### [109.1] 6.10.3 (04-30-1999) Definitions
The following definitions apply for purposes of IRC 7612: Software includes computer software source code and computer software executable code. Computer software source code means the code written by a programmer using a programming language which is comprehensible to appropriately trained persons and is not capable of directly being used to give instructions to a computer, related programmers-notes, design documents, memoranda, and similar documentation, and related customer communications. Computer software executable code means any object code, machine code, or other code readable by a computer when loaded into its memory and used directly by such computer to execute instructions, and any related user manuals. Owner shall, with respect to any software, include the developer of the software. Related person shall be treated as related to another person if such persons are related persons under IRC section 267 or 707(b). Tax-related computer software source code means the computer source code for any computer software program intended for accounting, tax return preparation or compliance, or tax planning.
### [109.1] 6.10.4 (04-30-1999) Effective Date
The new summons rules are effective for summonses issued, and software acquired, after 7/22/98. The software protection rules apply to Software acquired by IRS after 7/22/98. Previously acquired software beginning 90 days after 7/22/98. (However, outside experts do not have to sign a 2-year non-competition agreement.) NOTE: The new rules do not require the IRS to reissue any software summons.
### [109.1] 6.10.5 (04-30-1999) Miscellaneous
On some occasions, the IRS has found it helpful to employ outside experts to assist in the analysis of a particular source code. The outside expert used must agree in writing: Not to disclose the software to any person other than persons entitled to disclosure under section 6103, and Not to participate for 2 years in the development of similar software. The Service must provide the taxpayer and the owner of any interest in the software with a written agreement between the Service and any person who is not an officer or employee of the United States and who will analyze or have access to such software which contains the above agreement.
Exhibit [109.1] 6-1 (04/30/99) Pattern Letter 1728 (P) WAIVER of Rights to Notice or Right to Petition to Quash To:Date:Address:Under section 7602 of the Internal Revenue Code, the Internal Revenue Service has the authority to examine books and records and take testimony. If a summons is issued to a person who keeps or makes records relating to me or to a computer software source code (as defined in IRC 7612(d)(2)), I understand that I am entitled to be notified and have the right to petition to quash the summons under section 7609 of the Code. Being fully aware of the authority of the Internal Revenue Service and my rights under the law, upon issuance of a summons, I waive my rights and request that you furnish the Service the following records of my business transactions or affairs.AddressNameSignatureDate
### Internal Revenue Manual | ### Hndbk. 109.1 Chap. 6 Summonses on Third-Party Witnesses | ### (04-30-1999)

###### 05/02/2001 14:28:33 EST