irs summons power
TRANSCRIPT
IRS Summons Power
Michael DeBlis III Esq., LLM
Partner
DeBlis Law
Michael DeBlis III, Esq.
• Trial Lawyer
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• Author
• NCDC Graduate
• Marathon runner
IRS Summons Power
• General IRS Authority
– IRC § 7602(a): Empowers the IRS to:
• Examine books and records,
• Take Testimony under oath, and
• Issue summonses to taxpayers or any other person the IRS may deem proper
IRS Summons Power
• Rules for Issuing Summonses
– Summonses can be issued by:
• IRS examination personnel,
• IRS collection personnel, and
• IRS CI personnel
IRS Summons Power
• How does the IRS serve the summons on the taxpayer or other target?
– Hand delivery to witness,
– Leave a copy at the person’s “last and usual place of abode,” or
– If it is a so-called third-party recordkeepersummons, delivery by certified or registered mail
IRS Summons Power
• A summons might ask for any one of a number of things:
– Testimony,
– Documents
IRS Summons Power
• What kind of notice are taxpayers entitled to when the IRS issues a summons to a third party?
– Depends on (a) who issues the summons (i.e., CI or examinations) and (b) who is the person receiving the summons (i.e., third-party recordkeeper?)
– If the taxpayer is entitled to notice, then he has the right to intervene in the summons enforcement case or bring a proceeding to quash the summons.
IRS Summons Power
– Generally, the IRS must notify taxpayers being examined of the issuance of summonses to third parties (IRC § 7609)
– A taxpayer is NOT entitled to notice of a summons on a third party if:
• The summons is issued by a criminal investigator of the IRS in connection with the investigation of an offense that is related to the enforcement of the internal revenue laws, or
• A court determines 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.
IRS Summons Power
• Summons Enforcement Proceedings
– A summons is NOT self-enforcing. Instead, it must be enforced by an action in federal court.
– If the taxpayer refuses to comply with a summons, the government must go into court to enforce it.
– A summons enforcement action begins with the government filing a petition seeking an order to show cause, accompanied by an affidavit of the issuing IRS agent. That affidavit provides the prima facie case to demonstrate compliance with the requirements for enforcement.
IRS Summons Power
• Question: Is a summons self-enforcing?
– (a) Yes– (b) No
• What must the affidavit consist of? Under Powell, the government must make a prima facie showing that:
– The summons was issued for a legitimate purpose,– The material sought is relevant to that purpose,– The information sought is not already within the possession of the IRS,
and– The administrative steps required by the IRC have been followed.
IRS Summons Power
• Once the government makes out its prima facie case, the burden of going forward shifts to the taxpayer.
• The taxpayer has the right to challenge the summons on any appropriate ground, including:– The four factors set out in Powell have not been
satisfied,– The summons or subpoena is unreasonable as to
place or time,– Lack of proper service, – The summons was issued in bad faith (U.S. v. Clarke)
IRS Summons Power
• In an enforcement proceeding, the court’s role is not to second-guess the judgment of the IRS, but to determine whether the particular summons is a legitimate exercise of the IRS’s investigative authority
IRS Summons Power
• Third-Party Recordkeeper Summons
– Normally, taxpayers are not entitled to notice if a summons is served on a third party during a criminal investigation.
– Exception: Third-party recordkeeper exception.– Third party recordkeepers include:
• Banks,• Consumer reports or agencies,• Credit card companies,• Brokers,• Attorneys, and• Accountants
IRS Summons Power
• Question: Which of the following is not a third-party recordkeeper?– (a) Bank– (b) Broker– (c) Attorney– (d) Taxpayer’s employer
• If a summons is issued to a third-party recordkeeper, the taxpayer may:
– Bring a proceeding to quash the summons, or
– Intervene in a proceeding brought by the IRS to enforce the summons.
IRS Summons Power
• John Doe Summons
– Definition: A summons issued to a third party, like a bank, seeking information regarding taxpayers whose identities are unknown to the IRS.
– Purpose: To find out who the taxpayers are so that an investigation can be undertaken.
– There are times when the IRS knows, or strongly suspects, that tax “hanky-panky” is going on but doesn’t know who’s behind it.
IRS Summons Power
• The government must obtain judicial approval from a magistrate judge for a John Doe summons. Prior judicial approval is not a huge safeguard for the taxpayer because these proceedings are ex parte.
• Question: Why are the proceedings ex parte?– (a) The IRS doesn’t know who the taxpayers are so it
can’t invite them to court– (b) The IRS doesn’t want to have to deal with an
adversary
IRS Summons Power
• The government must convince a court that:
– The investigation relates to a particular person,
– There is reasonable cause to believe that the person identified may not have complied with the tax laws, and
– The information sought is not readily available from other sources.
– Overwhelmingly, the magistrate approves the government’s application.
IRS Summons Power
• Dual Purpose Summonses
– Can the IRS gather information on a known person --as well as an unknown person -- through a summons, and without obtaining judicial approval from a magistrate judge, as would otherwise be the case for a John Doe Summons?
– A summons may be issued for a dual purpose: that is, it may be used in order to obtain information relating to an identified taxpayer, as well as an unidentified taxpayer (Tiffany Fine Arts case)
IRS Summons Power
– Example of case where the government went too far (U.S. v. Gertner)
• Government’s argument: Mixed circumstances (“We don’t need ex parte approval.”)
• Held: Summons is not enforceable. The IRS’s use of the regular summons was not in good faith.
Grand Jury Subpoenas
• An alternative to the traditional administrative route of issuing a summons
• The grand jury subpoena is more powerful than the IRS summons
Grand Jury Subpoenas
• How does the grand jury subpoena compare with the IRS administrative summons?
– First, a grand jury subpoena is self-enforcing. Failure to comply with a grand jury subpoena constitutes contempt
– Second, the witness must appear before the grand jury alone and cannot have his attorney present
– Third, an IRS administrative summons to a third party requires notice to the taxpayer. The grand jury subpoena, by contrast, has no notice requirements
Search Warrants
• The IRS has increasingly used the search warrant as an investigative tool. Search warrants involve the Fourth Amendment.
• Traditional requirements for the issuance of a search warrant must be met:– Probable cause to believe that a crime has been
committed– Probable cause to believe that the taxpayer committed the
crime– Probable cause to believe that the premises to be
searched provides information pertaining to the crime
Search Warrants
• Question: What is not one of the requirements for obtaining a search warrant?– (a) Probable cause to believe that a crime has been committed– (b) Reasonable suspicion that books are records will be found in
the location to be searched
• Even if an IRS Special Agent believes that he can establish probable cause to seek a search warrant, he must still consult with an attorney from the IRS’s Chief Counsel Office, who must review and approve all Title 26 search warrants
• After obtaining approval, the Special Agent may ask an AUSA from DOJ-Tax to apply for the search warrant
Search Warrants
• In cases where the target is a doctor, lawyer, accountant, or public official, search warrants require the approval of the AUSA in charge of the tax division
• U.S. v. Lefkowitz
Sting Operations
• Used in cases where the government is going after organized crime.
Tel. 973.783.7000
www.DeBlisLaw.com