Discovery of taxpayer information: IRS use
of its summons power
Michael Prindible, Senior Counsel SB/SE
IRS Office of Chief Counsel, Dallas, Texas
August 14, 2013 3rd Annual CPE Event for Alumni and
Friends at University of Texas Arlington, College of Business,
Department of Accounting
Any views expressed herein are Mr. Prindible's
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Learning Objectives for IRS use of its summons power
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Identify statutory and administrative framework for an
IRS summons
Explain the elements of a valid Summons, Form 2039
(Rev. 10-2010)
Discuss how to judicially quash and enforce an IRS
summons
Explain taxpayer and third-party defenses to an IRS
summons
Identify special situations for IRS summonses
Any views expressed herein are Mr. Prindible's
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Statutory & administrative framework
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I.R.C. § 7601(a) directs the Secretary of the Treasury
Department to cause officers and employees of the Treasury
Department to canvas “each internal revenue district” -
to inquire after and determine
federal tax liabilities.
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Statutory and administrative framework
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I.R.C. § 7602(a) and (b) authorizes the Secretary of the
Treasury Department to examine any books, papers, records,
or other data, issue a summons, and to take testimony which
may be relevant or material to:
 “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 …
 collecting any [internal revenue tax] liability … [or]
 inquiring into any offense connected with the administration
or enforcement of the internal revenue laws.”
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Internal Revenue Manual (IRM) – Part 25.5 Summons Handbook
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25.5.1: Introduction
25.5.2: Preparation
25.5.3: Procedures
25.5.4: Examination of
Books and Witnesses
25.5.5: Summons for
Taxpayer Records and
Testimony
25.5.6: Summonses on
Third-Party Witnesses
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25.5.7: Special
Procedures for John Doe
Summons
25.5.8: Use of Summons
Special Applications
25.5.9: Fees & Costs for
Summoned Witnesses
25.5.10: Enforcement of
Summons
25.5.11: Title 31 Bank
Secrecy Act
Investigations
Any views expressed herein are Mr. Prindible's
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IRS administrative summons authority
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Authority to issue summonses is delegated to
Agents of the IRS Examination, Collection,
and Criminal Investigation Divisions
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Authority carefully described and restricted by
Delegation Order 25-1 (formerly DO-4, Rev. 23)
IRM ¶ 1.2.52.2.
IRS employees are expressly instructed to review
the delegation order before taking any action
relating to a summons. IRM ¶ 25.5.1.3.
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IRS administrative summons authority
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The IRS administrative policy and practice is
to obtain information and documents by means
other than a summons whenever possible.
“Attempt to obtain information voluntarily
from taxpayers and witnesses prior to issuing a
summons. Consent may be obtained
voluntarily by acquainting the taxpayer or
witness with the provisions of the Internal
Revenue Code.” IRM ¶ 25.5.1.4(1)
Any views expressed herein are Mr. Prindible's
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IRS administrative summons authority
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IRS employees are expressly directed to take into account the
following factors in considering the issuance of a summons:
 The tax liability involved;
 The time and expense of obtaining the records;
 The probability of having to resort to court action;
 The potential adverse effect on voluntary compliance by
other parties if the enforcement efforts are not successful;
and
 Whether a criminal case is pending .
IRM ¶ 25.5.1.4(2)
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IRS administrative summons authority
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IRS employees are expressly instructed to consider serving a
summons in the following situations:
 No records are made available to permit an adequate
examination within a reasonable period of time;
 Submitted records are known or suspected to be incomplete,
and additional records are presumed to be in the possession of
the taxpayer or a third party;
 It appears serious efforts to provide documentation for
substantiation will not be made because records and
explanations will be offered at another level or after notice of
deficiency has been issued; and
 The existence and location of records are in doubt.
IRM ¶ 25.5.1.4(3)
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IRS keeps original
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Technical elements of a valid summons:
1.
Identifies the taxpayer
2.
Identifies the summoned person
3.
Identifies the IRS employee designated to take testimony and
receive summoned information and documents
4.
Sets an appropriate place and time for appearance
5.
Insure that authorized IRS employees issue and approve the
summons
6.
Satisfies the attestation requirement
7.
Gives proper notice of third-party summonses
8.
Proper service of the summons
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Service of summons
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Part A given to person summoned
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IRS administrative summons authority
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Service of summons:
 A summons must be served by hand to the person to whom
it is directed or left at the person’s last known address.
I.R.C. § 7603(a); Treas. Reg. § 301.7603-1(a); IRM
¶25.5.3.2(1).
 A summons issued to a third-party record-keeper, defined in
I.R.C. § 7603(b)(2), may also be served by certified or
registered mail. See I.R.C. §7603(b)(1); Treas. Reg.
§301.7603-1(a)(2); IRM ¶ 25.5.3.2(1).
 IRS must give timely notice to the taxpayer of a third
party summons (Form 2039 part D). IRM ¶25.5.6.6.4(1).
Any views expressed herein are Mr. Prindible's
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Petition to quash a summons
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If a notice of a third-party summons is required to be given to
any person identified in the summons, the person receiving
such notice is entitled to bring a proceeding to quash the
summons.
A taxpayer has the right to file a petition to quash the
summons within 20 days after the date the notice of summons
is given.
An action to enforce a summons must be brought by the
United States in federal district court. I.R.C. §§ 7402(b) and
7604(a).
 In most instances where a taxpayer files a petition to quash
a summons, the United States will counterclaim for
enforcement of the summons. See I.R.C. § 7609(b)(2)(A).
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Jurisdiction: petition to quash or enforce a summons must be filed in judicial district
where the summoned person “resides or is found.”
Any views expressed herein are Mr. Prindible's
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Petition to quash a summons
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When a third-party-summons action is pending, the
IRS is restricted from examining the records subject
to the summons (I.R.C. § 7609(d)), all statutes of
limitations with respect to assessment, collection, or
criminal prosecution of the taxpayer are suspended
(I.R.C. § 7609(e)), and the summonsed third-party is
required to assemble the records in question. I.R.C.
§7609(i)(1).
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A taxpayer has the right to intervene in a
summons enforcement proceeding commenced by
the United States. See I.R.C. § 7609(b).
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Summons-enforcement action
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A summons-enforcement action is commenced by the
United States through filing a petition in federal district
court seeking issuance of an order to show cause to the
summonsed person.
 A petition is accompanied by an affidavit of the issuing
IRS agent that must state the prima-facie facts
sufficient to show compliance with all statutory and
judicial requirements for enforcement.
 IRM Exhibit 25.5.10-3 affidavit example
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Summons enforcement action
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United States v. Powell, 379 U.S. 48, 57-58 (1964).
 Enforcement – the four Powell requirements:
 To be enforceable, a summons must:
 1. Be issued for a legitimate purpose;
 2. Seek information that may be relevant to the
investigation;
 3. Seek information that is not already in the Service’s
possession; and
 4. All administrative steps required by the Code must
be followed.
 See also IRM ¶ 25.5.4.4(1).
Any views expressed herein are Mr. Prindible's
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4th Amendment protection against unreasonable searches
and seizures and U.S. v. Powell, 379 U.S. 48 (1964)
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The Service need not meet any standard of probable cause or the like to
obtain enforcement of its summons, either before or after limitation on
ordinary tax liabilities has expired. It need only satisfy the 4 Powell
requirements: proper purpose; may be relevant; information not already in
its possession of IRS; and the rules have been followed.
Result: Tremendous authority for IRS to engage in a fishing expedition in
the taxpayer’s records
The Service’s authority is not dependent on the existence of a case or
controversy to require the production of evidence. The Service can
investigate merely on suspicion that the law is being violated, or even just
because it wants assurance that it is not.
Again: Tremendous authority to fish.
Whatever may “throw light” on the correctness of the return can be
summoned. Within this broad boundary, the Service usually won’t run afoul
of the 4th Amendment by pursuing an “unreasonable search.”
Any views expressed herein are Mr. Prindible's
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Summons-enforcement action
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The government’s burden is a “slight” one.
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The burden is almost always met by the affidavit of
the examining agent attesting to each of the four
Powell elements.
The test - the government must demonstrate a
sufficient nexus between the taxpayer and the
records of a third person’s affairs to make the
investigation reasonable.
Any views expressed herein are Mr. Prindible's
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Summons-enforcement action
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Once the government establishes prima facie
case, the burden shifts to the party contesting
the summons.
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The taxpayer’s burden to overcome the IRS’s
prima facie showing is heavy, and requires the
allegation of specific facts and the introduction of
affirmative evidence.
Any views expressed herein are Mr. Prindible's
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Summons-enforcement action
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Summons-enforcement actions are
conducted as summary proceedings under
Fed. R. Civ. P. 81(a)(5).
Courts rarely allow an evidentiary hearing
or discovery – usually decided “on the
papers” – based on the pleadings, affidavits,
and a non-evidentiary hearing
Compliance with summons is enforced by
contempt.
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Summons enforcement action
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Sanctions:
 A taxpayer who fails to comply with an
enforcement order may be held in
contempt.
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Defenses to an IRS summons
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Failure to satisfy 4 Powell requirements
Relevancy standard – whether the summoned information
“might . . . throw . . . light upon the correctness of the
return”? See United States v. Arthur Young & Co., 465 U.S. 805, 813-814 (1984).
“Possession, custody, or control” issues
5th Amendment privilege against self-incrimination – this
“natural individuals” (not corporations) defense applies to
both documentary requests and oral testimony.
Other privileges – attorney-client privilege; section 7525 tax practitionerclient privilege (protects legal advice, not accounting advice, in
noncriminal matters; but does not protect communications regarding tax
shelters); and attorney-work-product doctrine.
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Defenses to an IRS summons
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Powell requirements:
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Legitimate investigatory purpose
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Dual Purpose: IRS employees are instructed to consult
with IRS Office of Chief Counsel before issuing a dual
purpose summons – e.g., to obtain information relating to
a specific, identified taxpayer as well as an unidentified
taxpayer(s). See IRM ¶ 25.5.4.4.1(3)(B).
Relevancy
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Overbroad/burdensome
The examining agent must describe why documents are
relevant. IRM ¶ 25.5.10.4.5.
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Defenses to an IRS summons
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Powell requirements:
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Information not possessed by IRS
Statutory requirements
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Courts will “evaluate the seriousness of the violation
under all circumstances …”
Failure to comply with IRM not sufficient
IRS’s failure to comply with third-party contact rule is
sufficient basis for denial of enforcement of summons.
Any views expressed herein are Mr. Prindible's
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Defenses to an IRS summons
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“Possession, custody, or control” issues
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Lack of possession or control is a valid defense.
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Taxpayer must rebut presumption of control with “clear
proof.”
“Control” includes the legal right of the producing party
to obtain documents from another source on demand.
A court order enforcing a summons is a finding that
the summonsed party has the requisite control over
the summonsed document.
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Defenses to an IRS summons
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Privilege against self-incrimination
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Limited in application to a summons on for the production
of documents
The mere act of production is testimonial in some
instances, but
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“Foregone conclusion” exception to the privilege – where the
government independently knows of the existence and authenticity of the documents, production
is not testimonial - e.g., known and unknown multiple foreign bank accounts & information
known by return preparer
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“Required records” exception to the privilege – e.g., records
required to be maintained under the 1970 Bank Secrecy Act
Other Privileges
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Attorney-client communications are protected – but see Federal Rule of Evidence 502(a) about
subject-matter waivers of attorney-client privilege and attorney-work-product privilege
Attorney-work-product doctrine – documents prepared in anticipation of litigation and litigation was
objectively reasonable
Tax-accrual workpapers – very limited privilege, but IRS policy of restraint for requesting them
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Defenses to an IRS summons
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Foregone Conclusion: U.S. v. Sideman &
Bancroft, LLP, 704 F.3d 1197 (9th Cir. 2013)
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For the “foregone conclusion exception to apply,
the government must establish its independent
knowledge of three elements:
 (1) The documents’ existence;
 (2) The documents’ authenticity; and
 (3) [The taxpayer’s] possession or control of the
documents.”
Any views expressed herein are Mr. Prindible's
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Defenses to an IRS summons
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U.S. v. Sideman & Bancroft, LLP:
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The 9th Circuit panel affirmed the district court’s order enforcing
an Internal Revenue Service administrative summons in
connection with a criminal investigation of an individual
taxpayer.
The taxpayer’s documents had made their way from the
taxpayer’s residence to appellant, her counsel for the IRS
criminal investigation. The panel held that the “foregone
conclusion” exception to the Fifth Amendment applied to the
documents because, before the IRS issued the summons, it knew
with reasonable particularity of the existence and appellant’s
possession of the documents and could independently establish
their authenticity based on taxpayer’s tax preparer’s familiarity
with them.
Any views expressed herein are Mr. Prindible's
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Special Situations
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Withdrawal – IRS may withdraw summons with procedural defects
and then reissue summons later
Conditional summons enforcement – courts are divided
Restricted access to, and use of, computer software/tax-related
computer software source code – see I.R.C. § 7612 & IRM
¶25.5.6.10
Summonses and related pending U.S. Tax Court case & discovery Ash v. Commissioner, 96 T.C. 459, 468-473 (1991) – Tax Court
held that a summons served before the taxpayer files a Tax Court
petition posed no threat to the integrity of the Tax Court's discovery
rules.
Final appealable enforcement order and stay pending appeal –
absent a stay, summoned party risks being held in contempt
I.R.C. § 7609(f) John Doe summons authority
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John Doe summons
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“John Doe” summons are used where the
identity of the taxpayer or group or class of
taxpayers under investigation is not known.
Special statutory rules govern the issuance of
a John Doe summons - see I.R.C. § 7609(f)
and IRM ¶ 25.5.7 (John Doe summons
procedures)
Ex-parte court proceeding required to
determine if the John Doe summons is
appropriate
Any views expressed herein are Mr. Prindible's
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John Doe summons
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For example, the Internal Revenue Service has statutory authority to
issue a summons to a bank to ascertain the identity of a person whose
transactions with that bank strongly suggest liability for unpaid taxes.
“[The IRS must show] evidence that a transaction has occurred, and [it]
is of such a nature as to be reasonably suggestive of the possibility that
the correct tax liability with respect to that transaction may not have
been reported.” Senate Explanation of I.R.C. § 7609(f).
The IRS may issue a John Doe summons if the government establishes
to a district court:
 The summons relates to the investigation of a particular person or
ascertainable group or class of persons.
 There is a reasonable basis for believing such person or group or
class may fail or may have failed to comply with the internal revenue
laws.
 The name(s) of the unidentified taxpayer(s) is not readily available
from other sources.
Any views expressed herein are Mr. Prindible's
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Conclusion
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A summons request should be clear and as specific as possible, it
should not create an undue production burden, and it should
request records within the taxpayer’s possession, custody, or
control.
To avoid potential waiver arguments, a summoned party should
timely raise any objections or privileges to a summons (in writing
or on a formal record) at or before the time for compliance stated in
the summons and comply with summons requests to the extent
that there are no objections.
In a summons enforcement action, the court’s decision on whether
to enforce the summons can turn on the detail and quality of the
parties’ supporting affidavits.
Special provisions that apply to certain summonses – third-party
summonses, requests for computer software, and requests for
information relating to tax reserves.
Any views expressed herein are Mr. Prindible's
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