IRS Adds New Third-Party Letters

In the past, the IRS has been accused of using third-party letters to pressure taxpayers into disclosing certain information or into settling disputes. Afraid that friends, family or business associates would be contacted by the IRS, taxpayers often caved in.

The IRS Restructuring and Reform Act of 1998 requires that the service notify taxpayers before contacting outside sources. However, up until now, the IRS used the same form letter, whether a serious problem existed or not, to obtain information. The vague language of this letter upset many taxpayers.

Responding to pressure from tax professionals, the service announced that, starting immediately, the government will use 13 different letters and two notices, each tailored to obtain only specified information.

According to IRS Commissioner Charles O. Rossotti, this is “a common-sense approach that gets clearly worded information out to taxpayers without alarming them. In the vast majority of cases, the IRS has determined there is no need for a letter at all because we will not be contacting third parties.”

The IRS estimates that the number of such letters it sends will decrease this year from 25 million to 8 million. Also, taxpayers may request a list of third-party contacts from the service (Informational Release 2000-8).