CHAPTER 78 - DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE
Title 26 > CHAPTER 78
Sections (23)
§ 7601 Canvass of districts for taxable persons and objects
(a) General rule The Secretary shall, to the extent he deems it practicable, cause officers or employees of the Treasury Department to proceed, from time to time, through each internal revenue district and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects with respect to which any tax is imposed.
(b) Penalties For penalties applicable to forcible obstruction or hindrance of Treasury officers or employees in the performance of their duties, see section 7212.
§ 7602 Examination of books and witnesses
(a) Authority to summon, etc. For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary is authorized— To examine any books, papers, records, or other data which may be relevant or material to such inquiry; To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.
(b) Purpose may include inquiry into offense The purposes for which the Secretary may take any action described in paragraph (1), (2), or (3) of subsection (a) include the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws.
(c) Notice of contact of third parties An officer or employee of the Internal Revenue Service may not contact any person other than the taxpayer with respect to the determination or collection of the tax liability of such taxpayer unless such contact occurs during a period (not greater than 1 year) which is specified in a notice which— informs the taxpayer that contacts with persons other than the taxpayer are intended to be made during such period, and except as otherwise provided by the Secretary, is provided to the taxpayer not later than 45 days before the beginning of such period. Nothing in the preceding sentence shall prevent the issuance of notices to the same taxpayer with respect to the same tax liability with periods specified therein that, in the aggregate, exceed 1 year. A notice shall not be issued under this paragraph unless there is an intent at the time such notice is issued to contact persons other than the taxpayer during the period specified in such notice. The preceding sentence shall not prevent the issuance of a notice if the requirement of such sentence is met on the basis of the assumption that the information sought to be obtained by such contact will not be obtained by other means before such contact. The Secretary shall periodically provide to a taxpayer a record of persons contacted during such period by the Secretary with respect to the determination or collection of the tax liability of such taxpayer. Such record shall also be provided upon request of the taxpayer. This subsection shall not apply— to any contact which the taxpayer has authorized; if the Secretary determines for good cause shown that such notice would jeopardize collection of any tax or such notice may involve reprisal against any person; or with respect to any pending criminal investigation.
(d) No administrative summons when there is Justice Department referral No summons may be issued under this title, and the Secretary may not begin any action under section 7604 to enforce any summons, with respect to any person if a Justice Department referral is in effect with respect to such person. For purposes of this subsection— A Justice Department referral is in effect with respect to any person if— the Secretary has recommended to the Attorney General a grand jury investigation of, or the criminal prosecution of, such person for any offense connected with the administration or enforcement of the internal revenue laws, or any request is made under section 6103(h)(3)(B) for the disclosure of any return or return information (within the meaning of section 6103(b)) relating to such person. A Justice Department referral shall cease to be in effect with respect to a person when— the Attorney General notifies the Secretary, in writing, that— he will not prosecute such person for any offense connected with the administration or enforcement of the internal revenue laws, he will not authorize a grand jury investigation of such person with respect to such an offense, or he will discontinue such a grand jury investigation, a final disposition has been made of any criminal proceeding pertaining to the enforcement of the internal revenue laws which was instituted by the Attorney General against such person, or the Attorney General notifies the Secretary, in writing, that he will not prosecute such person for any offense connected with the administration or enforcement of the internal revenue laws relating to the request described in subparagraph (A)(ii). For purposes of this subsection, each taxable period (or, if there is no taxable period, each taxable event) and each tax imposed by a separate chapter of this title shall be treated separately.
(e) Limitation on examination on unreported income The Secretary shall not use financial status or economic reality examination techniques to determine the existence of unreported income of any taxpayer unless the Secretary has a reasonable indication that there is a likelihood of such unreported income.
(f) Limitation on access of persons other than Internal Revenue Service officers and employees The Secretary shall not, under the authority of section 6103(n), provide any books, papers, records, or other data obtained pursuant to this section to any person authorized under section 6103(n), except when such person requires such information for the sole purpose of providing expert evaluation and assistance to the Internal Revenue Service. No person other than an officer or employee of the Internal Revenue Service or the Office of Chief Counsel may, on behalf of the Secretary, question a witness under oath whose testimony was obtained pursuant to this section.
§ 7603 Service of summons
(a) In general A summons issued under section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 shall be served by the Secretary, by an attested copy delivered in hand to the person to whom it is directed, or left at his last and usual place of abode; and the certificate of service signed by the person serving the summons shall be evidence of the facts it states on the hearing of an application for the enforcement of the summons. When the summons requires the production of books, papers, records, or other data, it shall be sufficient if such books, papers, records, or other data are described with reasonable certainty.
(b) Service by mail to third-party recordkeepers A summons referred to in subsection (a) for the production of books, papers, records, or other data by a third-party recordkeeper may also be served by certified or registered mail to the last known address of such recordkeeper. For purposes of paragraph (1), the term “third-party recordkeeper” means— any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under Federal or State law, any bank (as defined in section 581), or any credit union (within the meaning of section 501(c)(14)(A)), any consumer reporting agency (as defined under section 603(f) of the Fair Credit Reporting Act ( 15 U.S.C. 1681a(f) )), any person extending credit through the use of credit cards or similar devices, any broker (as defined in section 3(a)(4) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78c(a)(4) )), any attorney, any accountant, any barter exchange (as defined in section 6045(c)(3)), any regulated investment company (as defined in section 851) and any agent of such regulated investment company when acting as an agent thereof, any enrolled agent, and any owner or developer of a computer software source code (as defined in section 7612(d)(2)). Subparagraph (J) shall apply only with respect to a summons requiring the production of the source code referred to in subparagraph (J) or the program and data described in section 7612(b)(1)(A)(ii) to which such source code relates.
§ 7604 Enforcement of summons
(a) Jurisdiction of district court If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, records, or other data, the United States district court for the district in which such person resides or is found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data.
(b) Enforcement Whenever any person summoned under section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 neglects or refuses to obey such summons, or to produce books, papers, records, or other data, or to give testimony, as required, the Secretary may apply to the judge of the district court or to a United States magistrate judge for the district within which the person so summoned resides or is found for an attachment against him as for a contempt. It shall be the duty of the judge or magistrate judge to hear the application, and, if satisfactory proof is made, to issue an attachment, directed to some proper officer, for the arrest of such person, and upon his being brought before him to proceed to a hearing of the case; and upon such hearing the judge or the United States magistrate judge shall have power to make such order as he shall deem proper, not inconsistent with the law for the punishment of contempts, to enforce obedience to the requirements of the summons and to punish such person for his default or disobedience.
(c) Cross references For authority of district courts generally to enforce the provisions of this title, see section 7402. For penalties applicable to violation of section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602, see section 7210.
§ 7605 Time and place of examination
(a) Time and place The time and place of examination pursuant to the provisions of section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602 shall be such time and place as may be fixed by the Secretary and as are reasonable under the circumstances. In the case of a summons under authority of paragraph (2) of section 7602, or under the corresponding authority of section 6420(e)(2), 6421(g)(2), or 6427(j)(2), the date fixed for appearance before the Secretary shall not be less than 10 days from the date of the summons.
(b) Restrictions on examination of taxpayer No taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer’s books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary, after investigation, notifies the taxpayer in writing that an additional inspection is necessary.
(c) Cross reference For provisions restricting church tax inquiries and examinations, see section 7611.
§ 7606 Entry of premises for examination of taxable objects
(a) Entry during day The Secretary may enter, in the daytime, any building or place where any articles or objects subject to tax are made, produced, or kept, so far as it may be necessary for the purpose of examining said articles or objects.
(b) Entry at night When such premises are open at night, the Secretary may enter them while so open, in the performance of his official duties.
(c) Penalties For penalty for refusal to permit entry or examination, see section 7342.
[§ 7607 Repealed. Pub. L. 98–473, title II, § 320(b), Oct. 12, 1984, 98 Stat. 2056, and Pub. L. 98–573, title II, § 213(b)(1), Oct. 30, 1984, 98 Stat. 2988]
§ 7608 Authority of internal revenue enforcement officers
(a) Enforcement of subtitle E and other laws pertaining to liquor, tobacco, and firearms Any investigator, agent, or other internal revenue officer by whatever term designated, whom the Secretary charges with the duty of enforcing any of the criminal, seizure, or forfeiture provisions of subtitle E or of any other law of the United States pertaining to the commodities subject to tax under such subtitle for the enforcement of which the Secretary is responsible, may— carry firearms; execute and serve search warrants and arrest warrants, and serve subpoenas and summonses issued under authority of the United States; in respect to the performance of such duty, make arrests without warrant for any offense against the United States committed in his presence, or for any felony cognizable under the laws of the United States if he has reasonable grounds to believe that the person to be arrested has committed, or is committing, such felony; and in respect to the performance of such duty, make seizures of property subject to forfeiture to the United States.
(b) Enforcement of laws relating to internal revenue other than subtitle E Any criminal investigator of the Intelligence Division of the Internal Revenue Service whom the Secretary charges with the duty of enforcing any of the criminal provisions of the internal revenue laws, any other criminal provisions of law relating to internal revenue for the enforcement of which the Secretary is responsible, or any other law for which the Secretary has delegated investigatory authority to the Internal Revenue Service, is, in the performance of his duties, authorized to perform the functions described in paragraph (2). The functions authorized under this subsection to be performed by an officer referred to in paragraph (1) are— to execute and serve search warrants and arrest warrants, and serve subpoenas and summonses issued under authority of the United States; to make arrests without warrant for any offense against the United States relating to the internal revenue laws committed in his presence, or for any felony cognizable under such laws if he has reasonable grounds to believe that the person to be arrested has committed or is committing any such felony; and to make seizures of property subject to forfeiture under the internal revenue laws.
(c) Rules relating to undercover operations With respect to any undercover investigative operation of the Internal Revenue Service (hereinafter in this subsection referred to as the “Service”) which is necessary for the detection and prosecution of offenses under the internal revenue laws, any other criminal provisions of law relating to internal revenue, or any other law for which the Secretary has delegated investigatory authority to the Internal Revenue Service— sums authorized to be appropriated for the Service may be used— to purchase property, buildings, and other facilities, and to lease space, within the United States, the District of Columbia, and the territories and possessions of the United States without regard to— sections 1341 and 3324 of title 31, United States Code, sections 6301(a) and (b)(1)–(3) and 6306 of title 41, United States Code, chapter 45 of title 41, United States Code, section 8141 of title 40 , United States Code, and section 3901 of title 41 , United States Code, and to establish or to acquire proprietary corporations or business entities as part of the undercover operation, and to operate such corporations or business entities on a commercial basis, without regard to sections 9102 and 9103 of title 31, United States Code; sums authorized to be appropriated for the Service and the proceeds from the undercover operations may be deposited in banks or other financial institutions without regard to the provisions of section 648 of title 18 , United States Code, and section 3302 of title 31 , United States Code, and the proceeds from the undercover operation may be used to offset necessary and reasonable expenses incurred in such operation without regard to the provisions of section 3302 of title 31 , United States Code. This paragraph shall apply only upon the written certification of the Commissioner of Internal Revenue (or, if designated by the Commissioner, the Deputy Commissioner or an Assistant Commissioner of Internal Revenue) that any action authorized by subparagraph (A), (B), or (C) is necessary for the conduct of such undercover operation. If a corporation or business entity established or acquired as part of an undercover operation under subparagraph (B) of paragraph (1) with a net value over $50,000 is to be liquidated, sold, or otherwise disposed of, the Service, as much in advance as the Commissioner or his delegate determines is practicable, shall report the circumstances to the Secretary. The proceeds of the liquidation, sale, or other disposition, after obligations are met, shall be deposited in the Treasury of the United States as miscellaneous receipts. As soon as the proceeds from an undercover investigative operation with respect to which an action is authorized and carried out under subparagraphs (B) and (C) of paragraph (1) are no longer necessary for the conduct of such operation, such proceeds or the balance of such proceeds remaining at the time shall be deposited into the Treasury of the United States as miscellaneous receipts. The Service shall conduct a detailed financial audit of each undercover investigative operation which is closed in each fiscal year; and submit the results of the audit in writing to the Secretary; and not later than 180 days after such undercover operation is closed, submit a report to the Congress concerning such audit. The Service shall also submit a report annually to the Congress specifying as to its undercover investigative operations— the number, by programs, of undercover investigative operations pending as of the end of the 1-year period for which such report is submitted; the number, by programs, of undercover investigative operations commenced in the 1-year period for which such report is submitted; the number, by programs, of undercover investigative operations closed in the 1-year period for which such report is submitted, and the following information with respect to each undercover investigative operation pending as of the end of the 1-year period for which such report is submitted or closed during such 1-year period— the date the operation began and the date of the certification referred to in the last sentence of paragraph (1), the total expenditures under the operation and the amount and use of the proceeds from the operation, a detailed description of the operation including the potential violation being investigated and whether the operation is being conducted under grand jury auspices, and the results of the operation including the results of criminal proceedings. For purposes of paragraph (4)— The term “closed” means the date on which the later of the following occurs; all criminal proceedings (other than appeals) are concluded, or covert activities are concluded, whichever occurs later. The term “employees” has the meaning given such term by section 2105 of title 5 , United States Code. The term “undercover investigative operation” means any undercover investigative operation of the Service; except that, for purposes of subparagraphs (A) and (C) of paragraph (4), such term only includes an operation which is exempt from section 3302 or 9102 of title 31, United States Code.
§ 7609 Special procedures for third-party summonses
(a) Notice If any summons to which this section applies requires the giving of testimony on or relating to, the production of any portion of records made or kept on or relating to, or the production of any computer software source code (as defined in 7612(d)(2)) with respect to, any person (other than the person summoned) who is identified in the summons, then notice of the summons shall be given to any person so identified within 3 days of the day on which such service is made, but no later than the 23rd day before the day fixed in the summons as the day upon which such records are to be examined. Such notice shall be accompanied by a copy of the summons which has been served and shall contain an explanation of the right under subsection (b)(2) to bring a proceeding to quash the summons. Such notice shall be sufficient if, on or before such third day, such notice is served in the manner provided in section 7603 (relating to service of summons) upon the person entitled to notice, or is mailed by certified or registered mail to the last known address of such person, or, in the absence of a last known address, is left with the person summoned. If such notice is mailed, it shall be sufficient if mailed to the last known address of the person entitled to notice or, in the case of notice to the Secretary under section 6903 of the existence of a fiduciary relationship, to the last known address of the fiduciary of such person, even if such person or fiduciary is then deceased, under a legal disability, or no longer in existence. Any summons to which this subsection applies (and any summons in aid of collection described in subsection (c)(2)(D)) shall identify the taxpayer to whom the summons relates or the other person to whom the records pertain and shall provide such other information as will enable the person summoned to locate the records required under the summons.
(b) Right to intervene; right to proceeding to quash Notwithstanding any other law or rule of law, any person who is entitled to notice of a summons under subsection (a) shall have the right to intervene in any proceeding with respect to the enforcement of such summons under section 7604. Notwithstanding any other law or rule of law, any person who is entitled to notice of a summons under subsection (a) shall have the right to begin a proceeding to quash such summons not later than the 20th day after the day such notice is given in the manner provided in subsection (a)(2). In any such proceeding, the Secretary may seek to compel compliance with the summons. If any person begins a proceeding under subparagraph (A) with respect to any summons, not later than the close of the 20-day period referred to in subparagraph (A) such person shall mail by registered or certified mail a copy of the petition to the person summoned and to such office as the Secretary may direct in the notice referred to in subsection (a)(1). Notwithstanding any other law or rule of law, the person summoned shall have the right to intervene in any proceeding under subparagraph (A). Such person shall be bound by the decision in such proceeding (whether or not the person intervenes in such proceeding).
(c) Summons to which section applies Except as provided in paragraph (2), this section shall apply to any summons issued under paragraph (2) of section 7602(a) or under section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7612. This section shall not apply to any summons— served on the person with respect to whose liability the summons is issued, or any officer or employee of such person; issued to determine whether or not records of the business transactions or affairs of an identified person have been made or kept; issued solely to determine the identity of any person having a numbered account (or similar arrangement) with a bank or other institution described in section 7603(b)(2)(A); issued in aid of the collection of— an assessment made or judgment rendered against the person with respect to whose liability the summons is issued; or the liability at law or in equity of any transferee or fiduciary of any person referred to in clause (i); or issued by a criminal investigator of the Internal Revenue Service in connection with the investigation of an offense connected with the administration or enforcement of the internal revenue laws; and served on any person who is not a third-party recordkeeper (as defined in section 7603(b)). Subsection (a) shall not apply to any summons described in subsection (f) or (g). For purposes of this section, the term “records” includes books, papers, and other data.
(d) Restriction on examination of records No examination of any records required to be produced under a summons as to which notice is required under subsection (a) may be made— before the close of the 23rd day after the day notice with respect to the summons is given in the manner provided in subsection (a)(2), or where a proceeding under subsection (b)(2)(A) was begun within the 20-day period referred to in such subsection and the requirements of subsection (b)(2)(B) have been met, except in accordance with an order of the court having jurisdiction of such proceeding or with the consent of the person beginning the proceeding to quash.
(e) Suspension of statute of limitations If any person takes any action as provided in subsection (b) and such person is the person with respect to whose liability the summons is issued (or is the agent, nominee, or other person acting under the direction or control of such person), then the running of any period of limitations under section 6501 (relating to the assessment and collection of tax) or under section 6531 (relating to criminal prosecutions) with respect to such person shall be suspended for the period during which a proceeding, and appeals therein, with respect to the enforcement of such summons is pending. In the absence of the resolution of the summoned party’s response to the summons, the running of any period of limitations under section 6501 or under section 6531 with respect to any person with respect to whose liability the summons is issued (other than a person taking action as provided in subsection (b)) shall be suspended for the period— beginning on the date which is 6 months after the service of such summons, and ending with the final resolution of such response.
(f) Additional requirement in the case of a John Doe summons Any summons described in subsection (c)(1) which does not identify the person with respect to whose liability the summons is issued may be served only after a court proceeding in which the Secretary establishes that— the summons relates to the investigation of a particular person or ascertainable group or class of persons, there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law, and the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources. The Secretary shall not issue any summons described in the preceding sentence unless the information sought to be obtained is narrowly tailored to information that pertains to the failure (or potential failure) of the person or group or class of persons referred to in paragraph (2) to comply with one or more provisions of the internal revenue law which have been identified for purposes of such paragraph.
(g) Special exception for certain summonses A summons is described in this subsection if, upon petition by the Secretary, the court determines, on the basis of the facts and circumstances alleged, that there is reasonable cause to believe the giving of notice may lead to attempts to conceal, destroy, or alter records relevant to the examination, to prevent the communication of information from other persons through intimidation, bribery, or collusion, or to flee to avoid prosecution, testifying, or production of records.
(h) Jurisdiction of district court; etc. The United States district court for the district within which the person to be summoned resides or is found shall have jurisdiction to hear and determine any proceeding brought under subsection (b)(2), (f), or (g). An order denying the petition shall be deemed a final order which may be appealed. The determinations required to be made under subsections (f) and (g) shall be made ex parte and shall be made solely on the petition and supporting affidavits.
(i) Duty of summoned party On receipt of a summons to which this section applies for the production of records, the summoned party shall proceed to assemble the records requested, or such portion thereof as the Secretary may prescribe, and shall be prepared to produce the records pursuant to the summons on the day on which the records are to be examined. The Secretary may issue a certificate to the summoned party that the period prescribed for beginning a proceeding to quash a summons has expired and that no such proceeding began within such period, or that the taxpayer consents to the examination. Any summoned party, or agent or employee thereof, making a disclosure of records or testimony pursuant to this section in good faith reliance on the certificate of the Secretary or an order of a court requiring production of records or the giving of such testimony shall not be liable to any customer or other person for such disclosure. In the case of a summons described in subsection (f) with respect to which any period of limitations has been suspended under subsection (e)(2), the summoned party shall provide notice of such suspension to any person described in subsection (f).
(j) Use of summons not required Nothing in this section shall be construed to limit the Secretary’s ability to obtain information, other than by summons, through formal or informal procedures authorized by sections 7601 and 7602.
§ 7610 Fees and costs for witnesses
(a) In general The Secretary shall by regulations establish the rates and conditions under which payment may be made of— fees and mileage to persons who are summoned to appear before the Secretary, and reimbursement for such costs that are reasonably necessary which have been directly incurred in searching for, reproducing, or transporting books, papers, records, or other data required to be produced by summons.
(b) Exceptions No payment may be made under paragraph (2) of subsection (a) if— the person with respect to whose liability the summons is issued has a proprietary interest in the books, papers, records or other data required to be produced, or the person summoned is the person with respect to whose liability the summons is issued or an officer, employee, agent, accountant, or attorney of such person who, at the time the summons is served, is acting as such.
(c) Summons to which section applies This section applies with respect to any summons authorized under section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602.
§ 7611 Restrictions on church tax inquiries and examinations
(a) Restrictions on inquiries The Secretary may begin a church tax inquiry only if— the reasonable belief requirements of paragraph (2), and the notice requirements of paragraph (3), have been met. The requirements of this paragraph are met with respect to any church tax inquiry if an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing) that the church— may not be exempt, by reason of its status as a church, from tax under section 501(a), or may be carrying on an unrelated trade or business (within the meaning of section 513) or otherwise engaged in activities subject to taxation under this title. The requirements of this paragraph are met with respect to any church tax inquiry if, before beginning such inquiry, the Secretary provides written notice to the church of the beginning of such inquiry. The notice required by this paragraph shall include— an explanation of— the concerns which gave rise to such inquiry, and the general subject matter of such inquiry, and a general explanation of the applicable— administrative and constitutional provisions with respect to such inquiry (including the right to a conference with the Secretary before any examination of church records), and provisions of this title which authorize such inquiry or which may be otherwise involved in such inquiry.
(b) Restrictions on examinations The Secretary may begin a church tax examination only if the requirements of paragraph (2) have been met and such examination may be made only— in the case of church records, to the extent necessary to determine the liability for, and the amount of, any tax imposed by this title, and in the case of religious activities, to the extent necessary to determine whether an organization claiming to be a church is a church for any period. The requirements of this paragraph are met with respect to any church tax examination if— at least 15 days before the beginning of such examination, the Secretary provides the notice described in paragraph (3) to both the church and the appropriate regional counsel of the Internal Revenue Service, and the church has a reasonable time to participate in a conference described in paragraph (3)(A)(iii), but only if the church requests such a conference before the beginning of the examination. The notice described in this paragraph is a written notice which includes— a copy of the church tax inquiry notice provided to the church under subsection (a), a description of the church records and activities which the Secretary seeks to examine, an offer to have a conference between the church and the Secretary in order to discuss, and attempt to resolve, concerns relating to such examination, and a copy of all documents which were collected or prepared by the Internal Revenue Service for use in such examination and the disclosure of which is required by the Freedom of Information Act ( 5 U.S.C. 552 ). The examination notice described in subparagraph (A) shall not be provided to the church before the 15th day after the date on which the church tax inquiry notice was provided to the church under subsection (a). Any regional counsel of the Internal Revenue Service who receives an examination notice under paragraph (1) may, within 15 days after such notice is provided, submit to the regional commissioner for the region an advisory objection to the examination. Within the course of a church tax examination which (at the time the examination begins) meets the requirements of paragraphs (1) and (2), the Secretary may examine any church records or religious activities which were not specified in the examination notice to the extent such examination meets the requirement of subparagraph (A) or (B) of paragraph (1) (whichever applies).
(c) Limitation on period of inquiries and examinations The Secretary shall complete any church tax status inquiry or examination (and make a final determination with respect thereto) not later than the date which is 2 years after the examination notice date. In the case of a church tax inquiry with respect to which there is no examination notice under subsection (b), the Secretary shall complete such inquiry (and make a final determination with respect thereto) not later than the date which is 90 days after the inquiry notice date. The running of the 2-year period described in paragraph (1)(A) and the 90-day period in paragraph (1)(B) shall be suspended— for any period during which— a judicial proceeding brought by the church against the Secretary with respect to the church tax inquiry or examination is pending or being appealed, a judicial proceeding brought by the Secretary against the church (or any official thereof) to compel compliance with any reasonable request of the Secretary in a church tax examination for examination of church records or religious activities is pending or being appealed, or the Secretary is unable to take actions with respect to the church tax inquiry or examination by reason of an order issued in any judicial proceeding brought under section 7609, for any period in excess of 20 days (but not in excess of 6 months) in which the church or its agents fail to comply with any reasonable request of the Secretary for church records or other information, or for any period mutually agreed upon by the Secretary and the church.
(d) Limitations on revocation of tax-exempt status, etc. The Secretary may— determine that an organization is not a church which— is exempt from taxation by reason of section 501(a), or is described in section 170(c), or send a notice of deficiency of any tax involved in a church tax examination, or in the case of any tax with respect to which subchapter B of chapter 63 (relating to deficiency procedures) does not apply, assess any underpayment of such tax involved in a church tax examination, only if the appropriate regional counsel of the Internal Revenue Service determines in writing that there has been substantial compliance with the requirements of this section and approves in writing of such revocation, notice of deficiency, or assessment. In the case of any church tax examination with respect to the revocation of tax-exempt status under section 501(a), any tax imposed by chapter 1 (other than section 511) may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, only for the 3 most recent taxable years ending before the examination notice date. If an organization is not a church exempt from tax under section 501(a) for any of the 3 taxable years described in clause (i), clause (i) shall be applied by substituting “6 most recent taxable years” for “3 most recent taxable years”. In the case of any church tax examination with respect to the tax imposed by section 511 (relating to unrelated business income), such tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, only with respect to the 6 most recent taxable years ending before the examination notice date. Subparagraphs (A) and (B) shall not be construed to increase the period otherwise applicable under subchapter A of chapter 66 (relating to limitations on assessment and collection).
(e) Information not collected in substantial compliance with procedures to stay summons proceeding If there has not been substantial compliance with— the notice requirements of subsection (a) or (b), the conference requirement described in subsection (b)(3)(A)(iii), or the approval requirement of subsection (d)(1) (if applicable), with respect to any church tax inquiry or examination, any proceeding to compel compliance with any summons with respect to such inquiry or examination shall be stayed until the court finds that all practicable steps to correct the noncompliance have been taken. The period applicable under paragraph (1) or subsection (c) shall not be suspended during the period of any stay under the preceding sentence. No suit may be maintained, and no defense may be raised in any proceeding (other than as provided in paragraph (1)), by reason of any noncompliance by the Secretary with the requirements of this section.
(f) Limitations on additional inquiries and examinations If any church tax inquiry or examination with respect to any church is completed and does not result in— a revocation, notice of deficiency, or assessment described in subsection (d)(1), or a request by the Secretary for any significant change in the operational practices of the church (including the adequacy of accounting practices), no other church tax inquiry or examination may begin with respect to such church during the applicable 5-year period unless such inquiry or examination is approved in writing by the Secretary or does not involve the same or similar issues involved in the preceding inquiry or examination. For purposes of the preceding sentence, an inquiry or examination shall be treated as completed not later than the expiration of the applicable period under paragraph (1) of subsection (c). For purposes of paragraph (1), the term “applicable 5-year period” means the 5-year period beginning on the date the notice taken into account for purposes of subsection (c)(1) was provided. For purposes of the preceding sentence, the rules of subsection (c)(2) shall apply.
(g) Treatment of final report of revenue agent Any final report of an agent of the Internal Revenue Service shall be treated as a determination of the Secretary under paragraph (1) of section 7428(a), and any church receiving such a report shall be treated for purposes of sections 7428 and 7430 as having exhausted the administrative remedies available to it.
(h) Definitions For purposes of this section— The term “church” includes— any organization claiming to be a church, and any convention or association of churches. The term “church tax inquiry” means any inquiry to a church (other than an examination) to serve as a basis for determining whether a church— is exempt from tax under section 501(a) by reason of its status as a church, or is carrying on an unrelated trade or business (within the meaning of section 513) or otherwise engaged in activities which may be subject to taxation under this title. The term “church tax examination” means any examination for purposes of making a determination described in paragraph (2) of— church records at the request of the Internal Revenue Service, or the religious activities of any church. The term “church records” means all corporate and financial records regularly kept by a church, including corporate minute books and lists of members and contributors. Such term shall not include records acquired— pursuant to a summons to which section 7609 applies, or from any governmental agency. The term “inquiry notice date” means the date the notice with respect to a church tax inquiry is provided under subsection (a). The term “examination notice date” means the date the notice with respect to a church tax examination is provided under subsection (b) to the church. The term “appropriate high-level Treasury official” means the Secretary of the Treasury or any delegate of the Secretary whose rank is no lower than that of a principal Internal Revenue officer for an internal revenue region.
(i) Section not to apply to criminal investigations, etc. This section shall not apply to— any criminal investigation, any inquiry or examination relating to the tax liability of any person other than a church, any assessment under section 6851 (relating to termination assessments of income tax), section 6852 (relating to termination assessments in case of flagrant political expenditures of section 501(c)(3) organizations), or section 6861 (relating to jeopardy assessments of income taxes, etc.), any willful attempt to defeat or evade any tax imposed by this title, or any knowing failure to file a return of tax imposed by this title.
§ 7612 Special procedures for summonses for computer software
(a) General rule For purposes of this title— except as provided in subsection (b), no summons may be issued under this title, and the Secretary may not begin any action under section 7604 to enforce any summons to produce or analyze any tax-related computer software source code; and any software and related materials which are provided to the Secretary under this title shall be subject to the safeguards under subsection (c).
(b) Circumstances under which computer software source code may be provided Subsection (a)(1) shall not apply to any portion, item, or component of tax-related computer software source code if— the Secretary is unable to otherwise reasonably ascertain the correctness of any item on a return from— the taxpayer’s books, papers, records, or other data; or the computer software executable code (and any modifications thereof) to which such source code relates and any associated data which, when executed, produces the output to ascertain the correctness of the item; the Secretary identifies with reasonable specificity the portion, item, or component of such source code needed to verify the correctness of such item on the return; and the Secretary determines that the need for the portion, item, or component of such source code with respect to such item outweighs the risks of unauthorized disclosure of trade secrets. Subsection (a)(1) shall not apply to— any inquiry into any offense connected with the administration or enforcement of the internal revenue laws; any tax-related computer software source code acquired or developed by the taxpayer or a related person primarily for internal use by the taxpayer or such person rather than for commercial distribution; any communications between the owner of the tax-related computer software source code and the taxpayer or related persons; or any tax-related computer software source code which is required to be provided or made available pursuant to any other provision of this title. For purposes of paragraph (1), the Secretary shall be treated as meeting the requirements of subparagraphs (A) and (B) of such paragraph if— the Secretary determines that it is not feasible to determine the correctness of an item without access to the computer software executable code and associated data described in paragraph (1)(A)(ii); the Secretary makes a formal request to the taxpayer for such code and data and to the owner of the computer software source code for such executable code; and such code and data is not provided within 180 days of such request. In any proceeding brought under section 7604 to enforce a summons issued under the authority of this subsection, the court shall, at the request of any party, hold a hearing to determine whether the applicable requirements of this subsection have been met.
(c) Safeguards to ensure protection of trade secrets and other confidential information In any court proceeding to enforce a summons for any portion of software, the court may receive evidence and issue any order necessary to prevent the disclosure of trade secrets or other confidential information with respect to such software, including requiring that any information be placed under seal to be opened only as directed by the court. Notwithstanding any other provision of this section, and in addition to any protections ordered pursuant to paragraph (1), in the case of software that comes into the possession or control of the Secretary in the course of any examination with respect to any taxpayer— the software may be used only in connection with the examination of such taxpayer’s return, any appeal by the taxpayer to the Internal Revenue Service Independent Office of Appeals, any judicial proceeding (and any appeals therefrom), and any inquiry into any offense connected with the administration or enforcement of the internal revenue laws; the Secretary shall provide, in advance, to the taxpayer and the owner of the software a written list of the names of all individuals who will analyze or otherwise have access to the software; the software shall be maintained in a secure area or place, and, in the case of computer software source code, shall not be removed from the owner’s place of business unless the owner permits, or a court orders, such removal; the software may not be copied except as necessary to perform such analysis, and the Secretary shall number all copies made and certify in writing that no other copies have been (or will be) made; at the end of the period during which the software may be used under subparagraph (A)— the software and all copies thereof shall be returned to the person from whom they were obtained and any copies thereof made under subparagraph (D) on the hard drive of a machine or other mass storage device shall be permanently deleted; and the Secretary shall obtain from any person who analyzes or otherwise had access to such software a written certification under penalty of perjury that all copies and related materials have been returned and that no copies were made of them; the software may not be decompiled or disassembled; the Secretary shall provide to the taxpayer and the owner of any interest in such software, as the case may be, a written agreement, between the Secretary and any person who is not an officer or employee of the United States and who will analyze or otherwise have access to such software, which provides that such person agrees not to— disclose such software to any person other than persons to whom such information could be disclosed for tax administration purposes under section 6103; or participate for 2 years in the development of software which is intended for a similar purpose as the software examined; and the software shall be treated as return information for purposes of section 6103. For purposes of subparagraph (C), the owner shall make available any necessary equipment or materials for analysis of computer software source code required to be conducted on the owner’s premises. The owner of any interest in the software shall be considered a party to any agreement described in subparagraph (G).
(d) Definitions For purposes of this section— The term “software” includes computer software source code and computer software executable code. The term “computer software source code” means— the code written by a programmer using a programming language which is comprehensible to appropriately trained persons and is not capable of directly being used to give instructions to a computer; related programmers’ notes, design documents, memoranda, and similar documentation; and related customer communications. The term “computer software executable code” means— any object code, machine code, or other code readable by a computer when loaded into its memory and used directly by such computer to execute instructions; and any related user manuals. The term “owner” shall, with respect to any software, include the developer of the software. A person shall be treated as related to another person if such persons are related persons under section 267 or 707(b). The term “tax-related computer software source code” means the computer source code for any computer software program intended for accounting, tax return preparation or compliance, or tax planning.
§ 7613 Cross references
(a) Inspection of books, papers, records, or other data For inspection of books, papers, records, or other data in the case of— Wagering, see section 4423. Alcohol, tobacco, and firearms taxes, see subtitle E.
(b) Search warrants For provisions relating to— Searches and seizures, see Rule 41 of the Federal Rules of Criminal Procedure. Issuance of search warrants with respect to subtitle E, see section 5557. Search warrants with respect to property used in violation of the internal revenue laws, see section 7302.
§ 7621 Internal revenue districts
(a) Establishment and alteration The President shall establish convenient internal revenue districts for the purpose of administering the internal revenue laws. The President may from time to time alter such districts.
(b) Boundaries For the purpose mentioned in subsection (a), the President may subdivide any State, or the District of Columbia, or may unite into one district two or more States.
§ 7622 Authority to administer oaths and certify
(a) Internal revenue personnel Every officer or employee of the Treasury Department designated by the Secretary for that purpose is authorized to administer such oaths or affirmations and to certify to such papers as may be necessary under the internal revenue laws or regulations made thereunder.
(b) Others Any oath or affirmation required or authorized under any internal revenue law or under any regulations made thereunder may be administered by any person authorized to administer oaths for general purposes by the law of the United States, or of any State or possession of the United States, or of the District of Columbia, wherein such oath or affirmation is administered. This subsection shall not be construed as an exclusive enumeration of the persons who may administer such oaths or affirmations.
§ 7623 Expenses of detection of underpayments and fraud, etc.
(a) In general The Secretary, under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for— detecting underpayments of tax, or detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same, in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.
(b) Awards to whistleblowers If the Secretary proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary’s attention by an individual, such individual shall, subject to paragraph (2), receive as an award at least 15 percent but not more than 30 percent of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action (determined without regard to whether such proceeds are available to the Secretary). The determination of the amount of such award by the Whistleblower Office shall depend upon the extent to which the individual substantially contributed to such action. In the event the action described in paragraph (1) is one which the Whistleblower Office determines to be based principally on disclosures of specific allegations (other than information provided by the individual described in paragraph (1)) resulting from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation, or from the news media, the Whistleblower Office may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds collected as a result of the action (including any related actions) or from any settlement in response to such action (determined without regard to whether such proceeds are available to the Secretary), taking into account the significance of the individual’s information and the role of such individual and any legal representative of such individual in contributing to such action. Subparagraph (A) shall not apply if the information resulting in the initiation of the action described in paragraph (1) was originally provided by the individual described in paragraph (1). If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award. Any determination regarding an award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter). This subsection shall apply with respect to any action— against any taxpayer, but in the case of any individual, only if such individual’s gross income exceeds 2,000,000. No contract with the Internal Revenue Service is necessary for any individual to receive an award under this subsection. Any individual described in paragraph (1) or (2) may be represented by counsel. No award may be made under this subsection based on information submitted to the Secretary unless such information is submitted under penalty of perjury.
(c) Proceeds For purposes of this section, the term “proceeds” includes— penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, and any proceeds arising from laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate, including— criminal fines and civil forfeitures, and violations of reporting requirements.
(d) Civil action to protect against retaliation cases No employer, or any officer, employee, contractor, subcontractor, or agent of such employer, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment (including through an act in the ordinary course of such employee’s duties) in reprisal for any lawful act done by the employee— to provide information, cause information to be provided, or otherwise assist in an investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud, when the information or assistance is provided to the Internal Revenue Service, the Secretary of the Treasury, the Treasury Inspector General for Tax Administration, the Comptroller General of the United States, the Department of Justice, the United States Congress, a person with supervisory authority over the employee, or any other person working for the employer who has the authority to investigate, discover, or terminate misconduct, or to testify, participate in, or otherwise assist in any administrative or judicial action taken by the Internal Revenue Service relating to an alleged underpayment of tax or any violation of the internal revenue laws or any provision of Federal law relating to tax fraud. A person who alleges discharge or other reprisal by any person in violation of paragraph (1) may seek relief under paragraph (3) by— filing a complaint with the Secretary of Labor, or if the Secretary of Labor has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy. An action under subparagraph (A)(i) shall be governed under the rules and procedures set forth in section 42121(b) of title 49 , United States Code. Notification made under section 42121(b)(1) of title 49 , United States Code, shall be made to the person named in the complaint and to the employer. An action brought under subparagraph (A)(ii) shall be governed by the legal burdens of proof set forth in section 42121(b) of title 49 , United States Code, except that in applying such section— “behavior described in paragraph (1)” shall be substituted for “behavior described in paragraphs (1) through (4) of subsection (a)” each place it appears in paragraph (2)(B) thereof, and “a violation of paragraph (1)” shall be substituted for “a violation of subsection (a)” each place it appears. A complaint under subparagraph (A)(i) shall be filed not later than 180 days after the date on which the violation occurs. A party to an action brought under subparagraph (A)(ii) shall be entitled to trial by jury. An employee prevailing in any action under paragraph (2)(A) shall be entitled to all relief necessary to make the employee whole. Relief for any action under subparagraph (A) shall include— reinstatement with the same seniority status that the employee would have had, but for the reprisal, the sum of 200 percent of the amount of back pay and 100 percent of all lost benefits, with interest, and compensation for any special damages sustained as a result of the reprisal, including litigation costs, expert witness fees, and reasonable attorney fees. Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any Federal or State law, or under any collective bargaining agreement. The rights and remedies provided for in this subsection may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this subsection.
§ 7624 Reimbursement to State and local law enforcement agencies
(a) Authorization of reimbursement Whenever a State or local law enforcement agency provides information to the Internal Revenue Service that substantially contributes to the recovery of Federal taxes imposed with respect to illegal drug-related activities (or money laundering in connection with such activities), such agency may be reimbursed by the Internal Revenue Service for costs incurred in the investigation (including but not limited to reasonable expenses, per diem, salary, and overtime) not to exceed 10 percent of the sum recovered.
(b) Records; 10 percent limitation The Internal Revenue Service shall maintain records of the receipt of information from a contributing agency and shall notify the agency when monies have been recovered as the result of such information. Following such notification, the agency shall submit a statement detailing the investigative costs it incurred. Where more than 1 State or local agency has given information that substantially contributes to the recovery of Federal taxes, the Internal Revenue Service shall equitably allocate investigative costs among such agencies not to exceed an aggregate amount of 10 percent of the taxes recovered.
(c) No reimbursement where duplicative No State or local agency may receive reimbursement under this section if reimbursement has been received by such agency under a Federal or State forfeiture program or under State revenue laws.
[§ 7641 Repealed. Pub. L. 94–455, title XIX, § 1906(a)(54), Oct. 4, 1976, 90 Stat. 1832]
§ 7651 Administration and collection of taxes in possessions
Except as otherwise provided in this subchapter, and except as otherwise provided in section 28(a) of the Revised Organic Act of the Virgin Islands and section 30 of the Organic Act of Guam (relating to the covering of the proceeds of certain taxes into the treasuries of the Virgin Islands and Guam, respectively)— All provisions of the laws of the United States applicable to the assessment and collection of any tax imposed by this title or of any other liability arising under this title (including penalties) shall, in respect of such tax or liability, extend to and be applicable in any possession of the United States in the same manner and to the same extent as if such possession were a State, and as if the term “United States” when used in a geographical sense included such possession. In the case of any tax which is imposed by this title in any possession of the United States— Such tax shall be collected under the direction of the Secretary, and shall be paid into the Treasury of the United States as internal revenue collections; and All provisions of the laws of the United States applicable to the administration, collection, and enforcement of such tax (including penalties) shall, in respect of such tax, extend to and be applicable in such possession of the United States in the same manner and to the same extent as if such possession were a State, and as if the term “United States” when used in a geographical sense included such possession. This section shall apply notwithstanding any other provision of law relating to any possession of the United States. For purposes of this section, the reference in section 28(a) of the Revised Organic Act of the Virgin Islands to “any tax specified in section 3811 of the Internal Revenue Code” shall be deemed to refer to any tax imposed by chapter 2 or by chapter 21. For purposes of this title, section 28(a) of the Revised Organic Act of the Virgin Islands shall be effective as if such section 28(a) had been enacted before the enactment of this title and such section 28(a) shall have no effect on the amount of income tax liability required to be paid by any person to the United States. ( Aug. 16, 1954, ch. 736 , 68A Stat. 906 ; Pub. L. 91–513, title III, § 1102(j) , Oct. 27, 1970 , 84 Stat. 1293 ; Pub. L. 94–455, title XIX, § 1906(b)(13)(A) , Oct. 4, 1976 , 90 Stat. 1834 ; Pub. L. 98–369, div. A, title I, § 130(c) , title VIII, § 801(d)(9), July 18, 1984 , 98 Stat. 661 , 997; Pub. L. 99–514, title XII, § 1275(b) , Oct. 22, 1986 , 100 Stat. 2598 ; Pub. L. 110–172, § 11(a)(34)(B) , Dec. 29, 2007 , 121 Stat. 2487 .)
§ 7652 Shipments to the United States
(a) Puerto Rico Except as provided in section 5314, articles of merchandise of Puerto Rican manufacture coming into the United States and withdrawn for consumption or sale shall be subject to a tax equal to the internal revenue tax imposed in the United States upon the like articles of merchandise of domestic manufacture. The Secretary shall by regulations prescribe the mode and time for payment and collection of the tax described in paragraph (1), including any discretionary method described in section 6302(b) and (c). Such regulations shall authorize the payment of such tax before shipment from Puerto Rico, and the provisions of section 7651(2)(B) shall be applicable to the payment and collection of such tax in Puerto Rico. All taxes collected under the internal revenue laws of the United States on articles produced in Puerto Rico and transported to the United States (less the estimated amount necessary for payment of refunds and drawbacks), or consumed in the island, shall be covered into the treasury of Puerto Rico.
(b) Virgin Islands Except as provided in section 5314, there shall be imposed in the United States, upon articles coming into the United States from the Virgin Islands, a tax equal to the internal revenue tax imposed in the United States upon like articles of domestic manufacture. Such articles shipped from such islands to the United States shall be exempt from the payment of any tax imposed by the internal revenue laws of such islands. The Secretary shall determine the amount of all taxes imposed by, and collected under the internal revenue laws of the United States on articles produced in the Virgin Islands and transported to the United States. The amount so determined less 1 percent and less the estimated amount of refunds or credits shall be subject to disposition as follows: The payment of an estimated amount shall be made to the government of the Virgin Islands before the commencement of each fiscal year as set forth in section 4(c)(2) of the Act entitled “An Act to authorize appropriations for certain insular areas of the United States, and for other purposes”, approved August 18, 1978 ( 48 U.S.C. 1645 ), as in effect on the date of the enactment of the Trade and Development Act of 2000. The payment so made shall constitute a separate fund in the treasury of the Virgin Islands and may be expended as the legislature may determine. Any amounts remaining shall be deposited in the Treasury of the United States as miscellaneous receipts. If at the end of any fiscal year the total of the Federal contribution made under subparagraph (A) with respect to the four calendar quarters immediately preceding the beginning of that fiscal year has not been obligated or expended for an approved purpose, the balance shall continue available for expenditure during any succeeding fiscal year, but only for emergency relief purposes and essential public projects. The aggregate amount of moneys available for expenditure for emergency relief purposes and essential public projects only shall not exceed the sum of 5,000,000 shall thereupon be transferred and paid over to the Treasury of the United States as miscellaneous receipts.
(c) Articles containing distilled spirits For purposes of subsections (a)(3) and (b)(3), any article containing distilled spirits shall in no event be treated as produced in Puerto Rico or the Virgin Islands unless at least 92 percent of the alcoholic content in such article is attributable to rum.
(d) Articles other than articles containing distilled spirits For purposes of subsections (a)(3) and (b)(3)— Any article, other than an article containing distilled spirits, shall in no event be treated as produced in Puerto Rico unless the sum of— the cost or value of the materials produced in Puerto Rico, plus the direct costs of processing operations performed in Puerto Rico, equals or exceeds 50 percent of the value of such article as of the time it is brought into the United States. No amount shall be transferred under subsection (a)(3) or (b)(3) in respect of taxes imposed on any article, other than an article containing distilled spirits, if the Secretary determines that a Federal excise tax subsidy was provided by Puerto Rico or the Virgin Islands (as the case may be) with respect to such article. For purposes of this paragraph, the term “Federal excise tax subsidy” means any subsidy— of a kind different from, or in an amount per value or volume of production greater than, the subsidy which Puerto Rico or the Virgin Islands offers generally to industries producing articles not subject to Federal excise taxes. For purposes of this subsection, the term “direct cost of processing operations” has the same meaning as when used in section 213 of the Caribbean Basin Economic Recovery Act.
(e) Shipments of rum to the United States All taxes collected under section 5001(a)(1) on rum imported into the United States (less the estimated amount necessary for payment of refunds and drawbacks) shall be covered into the treasuries of Puerto Rico and the Virgin Islands. The Secretary shall, from time to time, prescribe by regulation a formula for the division of such tax collections between Puerto Rico and the Virgin Islands and the timing and methods for transferring such tax collections. For purposes of this subsection, the term “rum” means any article classified under subheading 2208.40.00 of the Harmonized Tariff Schedule of the United States ( 19 U.S.C. 1202 ). Paragraph (1) shall not apply with respect to any rum subject to tax under subsection (a) or (b).
(f) Limitation on cover over of tax on distilled spirits For purposes of this section, with respect to taxes imposed under section 5001 or this section on distilled spirits, the amount covered into the treasuries of Puerto Rico and the Virgin Islands shall not exceed the lesser of the rate of— $13.25, or the tax imposed under subsection (a)(1) of section 5001, determined as if subsection (c)(1) of such section did not apply, on each proof gallon.
(g) Drawback for medicinal alcohol, etc. In the case of medicines, medicinal preparations, food products, flavors, flavoring extracts, or perfume containing distilled spirits, which are unfit for beverage purposes and which are brought into the United States from Puerto Rico or the Virgin Islands— subpart B of part II of subchapter A of chapter 51 shall be applied as if— the use and tax determination described in section 5111 had occurred in the United States by a United States person at the time the article is brought into the United States, and the rate of tax were the rate applicable under subsection (f) of this section, and no amount shall be covered into the treasuries of Puerto Rico or the Virgin Islands.
(h) Manner of cover over of tax must be derived from this title No amount shall be covered into the treasury of Puerto Rico or the Virgin Islands with respect to taxes for which cover over is provided under this section unless made in the manner specified in this section without regard to— any provision of law which is not contained in this title or in a revenue Act; and whether such provision of law is a subsequently enacted provision or directly or indirectly seeks to waive the application of this subsection.
(i) Determination of taxes collected For purposes of subsections (a)(3), (b)(3), and (e)(1), refunds under section 5001(c)(4) shall not be taken into account as a refund, and the amount of taxes imposed by and collected under section 5001(a)(1) shall be determined without regard to section 5001(c).
§ 7653 Shipments from the United States
(a) Tax imposed All articles of merchandise of United States manufacture coming into Puerto Rico shall be entered at the port of entry upon payment of a tax equal in rate and amount to the internal revenue tax imposed in Puerto Rico upon the like articles of Puerto Rican manufacture. There shall be imposed in the Virgin Islands upon articles imported from the United States a tax equal to the internal revenue tax imposed in such islands upon like articles there manufactured.
(b) Exemption from tax imposed in the United States Articles, goods, wares, or merchandise going into Puerto Rico, the Virgin Islands, Guam, and American Samoa from the United States shall be exempted from the payment of any tax imposed by the internal revenue laws of the United States.
(c) Drawback of tax paid in the United States All provisions of law for the allowance of drawback of internal revenue tax on articles exported from the United States are, so far as applicable, extended to like articles upon which an internal revenue tax has been paid when shipped from the United States to Puerto Rico, the Virgin Islands, Guam, or American Samoa.
(d) Cross reference For the disposition of the proceeds of all taxes collected under the internal revenue laws of the United States on articles produced in Guam and transported into the United States or its possessions, or consumed in Guam, see the Act of August 1, 1950 ( 48 U.S.C. 1421h ).
§ 7654 Coordination of United States and certain possession individual income taxes
(a) General rule The net collection of taxes imposed by chapter 1 for each taxable year with respect to an individual to whom section 931 or 932(c) applies shall be covered into the Treasury of the specified possession of which such individual is a bona fide resident.
(b) Definition and special rule For purposes of this section— In determining net collections for a taxable year, an appropriate adjustment shall be made for credits allowed against the tax liability and refunds made of income taxes for the taxable year. The term “specified possession” means Guam, American Samoa, the Northern Mariana Islands, and the Virgin Islands.
(c) Transfers The transfers of funds between the United States and any specified possession required by this section shall be made not less frequently than annually.
(d) Federal personnel In addition to the amount determined under subsection (a), the United States shall pay to each specified possession at such times and in such manner as determined by the Secretary— the amount of the taxes deducted and withheld by the United States under chapter 24 with respect to compensation paid to members of the Armed Forces who are stationed in such possession but who have no income tax liability to such possession with respect to such compensation by reason of the Servicemembers Civil Relief Act ( 50 U.S.C. 3901 et seq.), and the amount of the taxes deducted and withheld under chapter 24 with respect to amounts paid for services performed as an employee of the United States (or any agency thereof) in a specified possession with respect to an individual unless section 931 or 932(c) applies.
(e) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section and sections 931 and 932, including regulations prohibiting the rebate of taxes covered over which are allocable to United States source income and prescribing the information which the individuals to whom such sections may apply shall furnish to the Secretary.
§ 7655 Cross references
(a) Imposition of tax in possessions For provisions imposing tax in possessions, see— Chapter 2, relating to self-employment tax; Chapter 21, relating to the tax under the Federal Insurance Contributions Act.
(b) Other provisions For other provisions relating to possessions of the United States, see— Section 931, relating to income tax on residents of Guam, American Samoa, or the Northern Mariana Islands; Section 933, relating to income tax on residents of Puerto Rico.