HR6495-119

What This Bill Does

The Taxpayer Notification and Privacy Act narrows how the IRS may contact third parties for taxpayer information without first giving the taxpayer a meaningful chance to respond. It amends Internal Revenue Code section 7602(c). In cases where information sought from another person relates to determining tax liability, has not already been requested from the taxpayer, and could reasonably be provided by the taxpayer, the IRS notice must identify each specific item of information the IRS intends to seek from third parties.

The IRS must give the taxpayer a reasonable opportunity and at least 45 days to respond before contacting those third parties. If the taxpayer asks for more time and shows reasonable cause, the response period can be longer. The bill reorganizes section 7602(c)(3) exceptions and preserves exceptions for tax collection and for situations where the Secretary determines the information is necessary notwithstanding whether the taxpayer could independently provide it or whether the IRS had previously requested it. The changes apply to notices provided 12 months after enactment.

Who Benefits and How

Individual taxpayers under IRS examination benefit because they get more specific notice before the IRS seeks information from third parties. Small business owners under IRS examination benefit when they can provide records themselves before customers, vendors, banks, or other third parties are contacted. Tax professionals benefit because the notice must identify the specific information sought, making client response and document collection more focused. Third-party record holders benefit indirectly if taxpayers provide the information first and IRS contact is avoided. Privacy advocates benefit from a statutory rule limiting broad third-party contact notices.

Who Bears the Burden and How

IRS examination divisions must prepare more specific third-party contact notices and wait at least 45 days when the rule applies. IRS enforcement staff must decide whether information relates to tax-liability determination, has already been requested, could reasonably be supplied by the taxpayer, or falls within an exception. Treasury and IRS guidance staff may need to update forms, instructions, and procedures before the 12-month effective date. Taxpayers who receive notices must respond within the statutory window or request more time with reasonable cause. IRS collection staff retain exceptions but must distinguish collection cases from liability-determination cases.

Key Provisions

• Requires certain IRS third-party contact notices to identify each specific item of information sought.
• Requires the specificity rule when information relates to determining tax liability, was not previously requested, and could reasonably be provided by the taxpayer.
• Requires at least 45 days for taxpayer response before third-party contact.
• Provides more time when a taxpayer requests it and shows reasonable cause.
• Provides exceptions for tax collection and Secretary-determined necessity.
• Provides a 12-month effective date for covered notices after enactment.