SECTION 1. BACKGROUND

Section 1001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–206, 112 Stat. 685 (RRA), required the Commissioner of Internal Revenue to develop and implement a plan to reorganize the Internal Revenue Service. In addition, the RRA specifically directed the Commissioner to “ensure an independent appeals function within the Internal Revenue Service, including the prohibition - - - of ex parte communications between appeals officers and other Internal Revenue Service employees to the extent that such communications appear to compromise the independence of the appeals officers.” RRA section 1001(a)(4). In accordance with that directive, the Department of the Treasury and the IRS issued guidance in Rev. Proc. 2000–43, 2000–2 C.B. 404. Since the issuance of Rev. Proc. 2000–43 in October 2000, the IRS has made changes to some of its business practices and adopted new ones that did not exist at the time that the revenue procedure was issued. Accordingly, the Department

III. TIMELINE FOR PUBLISHED GUIDANCE

Treasury and the IRS anticipate issuing proposed regulations incorporating the guidance provided in Notice 2010–60 as amended and supplemented by Notice 2011–34 and this notice and providing further guidance on implementing Chapter 4 by December 31, 2011. After consideration of comments, Treasury and the IRS anticipate publishing final regulations in the summer of 2012. In conjunction with these regulations, Treasury and the IRS also anticipate issuing draft versions followed by final versions of the associated FFI Agreement and reporting forms for use by withholding agents and participating FFIs in the summer of 2012.

IV. MISCELLANEOUS

A. Qualified Intermediary and Other Withholding Agreements Expiring in 2012

All qualified intermediary agreements, withholding foreign partnership agreements, and withholding foreign trust agreements of entities qualifying as FFIs that expire on December 31, 2012, will be automatically extended until December 31, 2013. Any FFI that enters into an FFI Agreement on or before December 31, 2013, will be considered to have renewed its qualified intermediary agreement, withholding foreign partnership agreement, or withholding foreign trust agreement, as the case may be.

B. Clarification of the Scope of Grandfathered Obligations

Section 501(d)(2) of the Act provides that Chapter 4 shall not require any amount to be deducted or withheld from any payment under any obligation outstanding on March 18, 2012, or from the gross proceeds of any disposition of such an obligation. Section I of Notice 2010–60 defined the term “obligation” for this purpose to mean any legal agreement that produces or could produce withholdable payments, but not including any instrument treated as equity for U.S. tax purposes, or any legal agreement that lacks a definitive expiration or term. Questions have been raised regarding whether legal agreements that give rise to passthru payments

other than withholdable payments are excluded from the definition of “obligation” for this purpose. Treasury and the IRS intend to issue regulations clarifying that, for purposes of section 501(d)(2) of the Act, the term “obligation” means any legal agreement that produces or could produce passthru payments (including withholdable payments), but not including any instrument treated as equity for U.S. tax purposes, or any legal agreement that lacks a definitive expiration or term.

DRAFTING INFORMATION

The principal author of this notice is John Sweeney of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Mr. Sweeney at (202) 622–3840 (not a toll-free call).

Ex Parte Communications Between Appeals and Other Internal Revenue Service Employees

Notice 2011–62

This notice provides a proposed revenue procedure that will update Rev. Proc. 2000–43, 2000–2 C.B. 404, which provides guidance regarding ex parte communications between Appeals and other Internal Revenue Service functions. The proposed revenue procedure sets forth the background concerning the ex parte communication rules, the reasons for updating Rev. Proc. 2000–43, a summary of the proposed changes to Rev. Proc. 2000–43 and the proposed text of the updated revenue procedure. Before issuing an updated revenue procedure addressing the ex parte communication rules, the Department of the Treasury and the IRS invite comments from the public regarding the proposed revenue procedure. Until an updated revenue procedure is issued with respect to the ex parte communication rules, Rev. Proc. 2000–43 will remain in effect. Comments should be submitted by August 18, 2011 to:

August 8, 2011 126 2011–32 I.R.B.

individuals. This exception does not apply to the administrative file, which may be maintained electronically in whole or in part. For a discussion of the rules applicable to the administrative file, see section 2.03(4), below. (ii) Communications Solely Between or Among Appeals Employees . These are not considered ex parte communications because they do not involve employees from IRS functions outside of Appeals.

(iii) Communications with IRS Func- tions Other than Originating Functions . Special rules apply to communications between Appeals employees and employees of certain IRS functions other than originating functions, as defined in section 2.01(2), below. Employees in other IRS functions include those in Counsel, Criminal Investigation, Competent Authority, and Taxpayer Advocate Service, and the Commissioner and other IRS officials with overall supervisory responsibilities. For a discussion of communications with those functions, see 2.06, 2.07(2), 2.07(3), 2.07(4) and 2.07(5), respectively. (iv) Communications with Other Gov- ernmental Entities. These are not considered ex parte communications because RRA section 1001(a)(4) only applies to communications between Appeals and other IRS employees and the persons with whom Appeals is communicating at other governmental entities do not fall into that category. See section 2.08, below, for examples.

(v) Communications in Which the Tax- payer/Representative Is Given an Oppor- tunity to Participate . These are not considered ex parte communications because the taxpayer/representative is offered a chance to be involved in the communication. Even if the taxpayer/representative chooses not to participate in the communication, the ex parte communication rules do not apply.

(2) Originating Function . An “originating function” is an organization within the IRS that makes determinations that are subject to the Appeals process. For purposes of this revenue procedure, the term includes the Examination, Collection and Service Center (Campus) functions, or their successor organizations. For a discussion of communications with Criminal Investigation or Counsel, see sections 2.07(2) and 2.06, respectively. For a discussion of communications with other IRS

of the Treasury and the IRS are revising Rev. Proc. 2000–43 to address these changed circumstances, as well as to clarify and modify the rules in light of the IRS’ experience working with that revenue procedure. Also, the revenue procedure has been redesigned from a question and answer format to a narrative format to improve usability. In connection with that change, the material has been rearranged and organized under appropriate headings to make it easier to find.

The procedures set forth in this revenue procedure are designed to accommodate the overall interests of tax administration, while preserving operational features that are vital to Appeals’ case resolution processes within the structure of the IRS and ensuring open lines of communication between Appeals and the taxpayer/representative. Consistent with section 1001(a)(4), this revenue procedure does not adopt the formal ex parte procedures that would apply in a judicial proceeding. It is designed to ensure the independence of the Appeals organization, while preserving the role of Appeals as a flexible administrative settlement authority, operating within the IRS’ overall framework of tax administration responsibilities.

.01 Highlights . As previously provided in Rev. Proc. 2000–43:

(1) Appeals will retain procedures for: (a) Returning cases that are not ready for Appeals consideration.

(b) Raising certain new issues. (c) Seeking review and comments from the originating function with respect to new information or evidence furnished by the taxpayer/representative.

(2) Appeals will continue to be able to obtain legal advice from the Office of Chief Counsel, subject to the limitations set forth in section 2.06(1), below.

(3) The Commissioner and other IRS officials responsible for overall IRS operations (including Appeals), as referenced in section 2.07(5), below, may continue to communicate ex parte with Appeals in order to fulfill their responsibilities.

.02 Significant Changes (1) Guiding principles have been added to aid in understanding the overall approach to applying the ex parte communication rules.

(2) Definitions for certain terms have been added or clarified.

(3) Transmittals and the permissible content of the administrative file have been clarified.

(4) The application of the ex parte communication rules to collection due process cases, including those CDP cases that are remanded by the Tax Court, has been addressed.

(5) The discussion of Appeals’ involvement in multifunctional meetings has been expanded.

(6) The application of the ex parte communication rules in the context of alternative dispute resolution proceedings has been addressed.

(7) The remedies available to taxpayers in the event of a breach of the ex parte communication rules have been clarified.

(8) A statement that the ex parte communication rules do not create substantive rights affecting a taxpayer’s liability or the IRS’ ability to determine, assess or collect that tax liability has been added.