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The Korn Law Firm, P.L. / Tel (239) 354-4300

It is not an uncommon occurrence for taxpayers, even those well-experienced with federal tax audits, to become discomposed upon receipt of an Internal Revenue Service summons.  Understandably, a summons by the IRS tends to cause taxpayers to fear the worst – usually, a criminal tax investigation.

In reality, summonses are used by the IRS for a variety of reasons, and they are not always employed as part of a criminal tax investigation.

Types of Summonses

The Internal Revenue Code provides statutory authority for the IRS to issue summonses in order to ascertain the correctness of any tax return, make a substitute return where none has been filed, or determine the liability of any person for any internal revenue tax.  Section 7602 of the Internal Revenue Code specifically authorizes the IRS to issue three types of summonses: (1) a summons for books, records and other documentary data; (2) a summons for the testimony of the person concerned; and (3) a summons for the testimony of third parties.[1] A summons to a third party recordkeeper can be served by certified or registered mail. Service of a summons on any other third party, or on the taxpayer himself, must be done by hand or by leaving the summons at the taxpayer’s home or business (depending on the nature of the tax issue).

Enforcement of Summons

There are two significant popular misconceptions about IRS summonses.  In the first place, the IRS is not required to have probable cause in order to issue a summons.

Second, IRS summonses are not actually self-enforcing.  In other words, for the IRS to enforce a summons, it must first seek an order from a Federal District Court of competent jurisdiction.

To secure judicial enforcement of a summons, the U.S. Supreme Court requires the IRS to establish that (1) the investigation will be conducted pursuant to a legitimate purpose; (2) the inquiry may be relevant to that purpose; (3) the information sought is not already in the IRS’ possession; and (4) the administrative steps required under the Internal Revenue Code have been followed.

Before issuing an enforcement order, a District Court will then generally order the taxpayer to appear and show cause as to why compliance should not be ordered.  Failure to comply with an order to show cause will usually result in a contempt order.  If the District Court does order the summons enforced, the taxpayer will have the right to appeal such decision to the appropriate Circuit Court of Appeals.

Complying with a Summons

Although an attorney can and should accompany the summoned person, the attorney is not permitted to appear instead of the person.  If the taxpayer desires to claim a privilege (such as attorney-client privilege, or the privilege against self-incrimination), he or she must still appear but can claim the privilege in response to each question or request for production of documents.

Fortunately, no summons can be issued by the IRS with respect to any person if there is any “Justice Department referral” in effect with respect to such person.  A “Justice Department referral” means any recommendation by the IRS to the Attorney General of a grand jury investigation of, or the criminal prosecution of, such person for any offense connected with the administration or enforcement of federal tax law.  It also includes most situations involving a request by the Justice Department to the IRS for the disclosure of any tax return or return information relating to such person.

Additionally, while the IRS can request that a summoned taxpayer bring records, the IRS does not have the authority to require a taxpayer to create documents or prepare returns not in existence on the date that the summons was issued.

Contesting the Issuance or Enforcement of a Summons

A summons can be contested on substantive grounds, technical or procedural grounds, or on Constitutional or other privilege grounds.  Substantive defenses typically include arguments over whether a particular matter is part of a legitimate investigation, or whether the persons or documents summoned are relevant to an IRS investigation.

Technical or procedural defenses usually are not worth litigating because the IRS can simply issue another summons (that has been corrected for its technical or procedural errors) by the time that the defense is argued in an enforcement proceeding in Federal District Court.

A taxpayer who has received a summons may also be able to assert privileges under the Fourth and Fifth Amendments to prevent the summons from being enforced.  These rights and privileges are asserted where the information sought is incriminating and protected from disclosure under the Fifth Amendment to the Constitution, or where the summons itself is so broad that it constitutes an unreasonable search under the Fourth Amendment to the Constitution.

In most cases, however, if a taxpayer does have grounds to contest the issuance or enforcement of a summons, a compromise can be reached with the IRS.  Such compromises are beneficial to the extent that they eliminate the need for costly litigation or hearings in Federal District Court.

Going Forward

It should be noted that a number of other defenses and challenges to IRS summons not set forth above are possible. It is extremely important to consult with a tax attorney immediately upon receipt of an IRS summons in order to protect one’s rights, privileges and defenses to the summons.  Failure to respond to a summons can waive otherwise valid defenses to the issuance and enforcement of the summons.

[1] For purposes of simplicity in this article, “taxpayer” is used to refer to the person who has received a summons, though such person may or may not be the actual taxpayer in question.