United States: IRS proposes regulations further limiting attorney outside contractor participation in summons interviews

In brief

The Internal Revenue Service (IRS) has issued final regulations limiting the IRS’s ability to hire private attorneys as contractors. The final regulations, published on 7 September 2021 (“2021 Final Regulations”), finalize proposed regulations published on 7 August 2020 (“2020 Proposed Regulations”).

The 2020 Proposed Regulations had replaced proposed regulations issued in 2018, which were issued before Congress’s passage of the Taxpayer First Act of 2019 (Pub. L. No. 116-25), effective 1 July 2019 (“Taxpayer First Act”). The Taxpayer First Act added a subsection to section 7602 barring non-government attorneys from questioning witnesses under oath in summons interviews. The 2021 Final Regulations forbid the IRS from sharing taxpayer books and records with attorney outside contractors, except under limited conditions. The 2021 Final Regulations also forbid outside contractors from asking a summoned person’s representative to clarify an objection or an assertion of privilege.


On 14 July 2016, the IRS published final regulations (T.D. 9778) under Code Section 7602 (“2016 Final Regulations”). The 2016 Final Regulations permitted, among others, non-government attorneys who serve as contractors to participate fully in the interview of a person who the IRS has summoned as a witness to provide testimony under oath. The 2016 Final Regulations allowed these non-government persons to ask a summoned witness substantive questions, and to ask a summoned person’s representative to clarify an objection or assertion of privilege.

However, T.D. 9778 was one of the “Hateful Eight” regulations targeted by Executive Order 13789 for review by the Treasury Secretary for imposing an undue burden on taxpayers, adding complexity to the tax laws, or exceeding the IRS’s statutory authority. This review resulted in a report, released in October 2017, that the Treasury Department and the IRS were considering proposing an amendment to narrow the scope of T.D. 9778.

Proposed regulations were published on 28 March 2018 ( “2018 Proposed Regulations”). These proposed regulations split the 2016 Final Regulations into two subsections. The first, contained in Prop. Reg. § 301.7602-1(b)(3)(i), kept the general rules about contractor participation in summons interviews. Notably, however, the ability of asking a summoned person’s representative to clarify an objection or assertion of privilege was left out.

Prop. Reg. § 301.7602-1(b)(3)(ii) provided that non-governmental attorneys were not eligible to be hired by the IRS to participate in an examination, unless the non-governmental attorney fit into one of three exceptions: (1) a specialist in foreign, state, or local law, including tax law; (2) a specialist in non-tax substantive law that is relevant to an issue in the examination, such as patent law, property law, or environmental law; or (3) a person who happens to be an attorney, but is hired by the IRS for knowledge, skills, or abilities other than providing legal services as an attorney. Thus, by the time of the 2018 Proposed Regulations, the IRS had proposed to limit the ability of the IRS to hire non-government attorneys to participate in summons interviews, on a proposed basis.

Before the IRS issued final regulations implementing the 2018 Proposed Regulations, Congress passed the Taxpayer First Act. In the Taxpayer First Act, Congress added a new subsection (f) to section 7602, which bars non-government persons who are hired by the IRS from questioning a witness under oath whose testimony was obtained pursuant to a summons under section 7602. The House Ways and Means Committee Report explained that pursuant to section 7602(f), the IRS could not, under the authority of section 6103(n), “provide to a tax administration contractor any books, papers, records or other data obtained by summons, except when such person requires such information for the sole purpose of providing expert evaluation and assistance to the IRS (including, for example, access to such information by translators)….” H.R. Rep. No. 116-39, at 50 (2019).

2021 final regulations

The passage of the Taxpayer First Act and section 7602(f) eliminated the need for regulations barring participation by non-government attorneys as contractors in summons interviews under section 7602. Therefore, in the 2020 Proposed Regulations, the IRS withdrew the 2018 Proposed Regulations. However, the IRS took the opportunity to further limit participation by non-government attorneys as contractors. Those changes were finalized in the 2021 Final Regulations.

Pursuant to Treas. Reg. § 301.7702(b)(3), the IRS may only provide books, papers, records, or other data obtained under section 7602 to an outside contractor (under section 6103(n)) for the contractor to provide “expert evaluation and assistance” to the IRS within three limited categories:

  • First, expert evaluation and assistance can include persons with specialized knowledge in certain substantive areas. These areas include, but are not limited to, economists, engineers, industry experts, or other subject matter area experts. They can also include attorneys, but only those who specialize in an area relevant to an issue in the examination like patent law, property law, environmental law, or foreign, state, or local law, including foreign, state, or local tax law.
  • Second, expert evaluation and assistance can include persons providing ancillary services. This can include court reporters, translators, litigation support services, and other similar services.
  • Third, expert evaluation and assistance can include whistleblower-related contractors described in Treas. Reg. § 301.6103(n)-2.

Treas. Reg. § 301.7602-1(b)(3)(i)(C) expressly forbids the IRS from hiring an attorney as an outside contractor to assist in an examination under section 7602 unless the attorney is hired by the IRS as a specialist in foreign, state, or local law, or in non-tax substantive law relevant to an issue in the summons interview, or unless the attorney is hired for knowledge, skills, or abilities other than providing legal services as an attorney. Furthermore, Treas. Reg. § 301.7602-1(b)(3)(ii)(A) provides that no person other than an officer or employee of the IRS or Office of Chief Counsel may question a witness under oath whose testimony was obtained pursuant to section 7602. Other persons authorized by section 6103(n), and who are covered by section 7602, may attend summons interviews, but may not question the summoned witness or ask a summoned person’s representative to clarify an objection or assertion of privilege. However, court reporters and translators may ask questions, as appropriate, during an interview.


The 2021 Final Regulations have officially put to an end the IRS’s ability to retain outside counsel to conduct and assist in conducting examinations.

Under the express language of Treas. Reg. § 301.7602-1(b)(3)(ii)(A), the IRS will be unable to use outside contractors to ask questions in a summons interview under oath. However, as made clear in the preamble to the proposed regulations, these restrictions only apply to a witness interviewed “under oath,” and “[c]ontractors may continue to ask questions informally (not under oath) of a taxpayer, a taxpayer’s employee, or third parties in appropriate circumstances.” While the IRS can attempt to use so-called “informal” interviews as a workaround to allow its outside contractors to participate, the taxpayer always has the option of insisting that consensual interviews be conducted pursuant to summons, “friendly” or otherwise. While summons interviews are typically taken under oath and with a court reporter, the same typically also holds true for “informal” interviews, particularly in transfer pricing audits. Moreover, transcribed interviews are often advantageous, as they avoid later disputes about what the witness actually said, and provide the opportunity for a well-prepared witness to help make the affirmative factual record necessary for resolution discussions with Exam and settlement negotiations with IRS Appeals.

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