IRS memo tackles disclosures of partner information to partnerships

The disclosure of a partner’s personal information to their partnership is not governed by §6103’s taxpayer confidentiality provisions if the information was received from non-IRS sources as part of a partnership proceeding, according to a recently released Office of Chief Counsel (OCC) memorandum. However, the disclosure of a partner’s personal information from IRS sources to the partnership would need to comply with §6103’s provisions, protecting most tax return information from disclosure to other parties.

Issue arose in collection due process case

The memorandum was issued in response to questions that came up in a collection due process partnership case where the partnership was no longer a collectible entity, and an appeals referral investigation (ARI) was opened in the IRS Collections division. Because the entity was a partnership, Collections determined that the partners needed to be investigated, and a collection determination made with regard to each partner

After an investigation, Collections found the agency could collect at least some of the amount owed from each partner and that the ARI should not be closed as to the partnership until each partners’ collection potential had been exhausted. As a result of the investigation of the partners, the partnership ARI contained personal information on each partner and their collectability.

Under §8.23.3.4.1.4(8) of the Internal Revenue Manual (IRM), ARI results should be shared with the taxpayer. The OCC found that the taxpayer in the matter was the partnership. Section 6103(e)(1)(C) provides that in cases involving a partnership return, the return may be disclosed to any person who was a member of the partnership during the period covered by the return.

IRS can ‘sanitize’ ARI file to comply with §6103

Applying §6103 and the IRM, the OCC determined that the partnership should receive the ARI results. It also found the partnership was authorized to receive the partnership return and the partner return information included in the ARI results. However, before disclosing return information included in a partner’s return, the IRS must determine whether disclosing the personal information would be permitted under §6103.

Further, the OCC found that restricting or sanitizing the ARI to comply with §6103 would not constitute a failure to provide the ARI results to the taxpayer partnership. It noted that there were provisions in the IRM that contain detailed guidance on information that can be released to partners seeking access to a partnership return. It also pointed out that the IRM states information in transcript form or administrative files, which may be included in other third-party information extracted from or attached to Form 1065, must be evaluated in accordance with §6103(e)(10).

Publicly released OCC memorandums can’t be relied upon by taxpayers as precedent. However, the memorandums can provide insights into the positions the IRS will take in similar situations.