Supreme Court Reaffirms Taxpayer’s Right to Challenge IRS Summonses

by Bryan Levy
On June 19, 2014, the United States Supreme Court issued its decision in United States v. Clarke, No. 13-301, reaffirming the right of a recipient of an IRS summons to challenge the summons by examining IRS officials in an adversarial proceeding. For residents of Alabama, Florida, and Georgia, however, Clarke is a pyrrhic victory for taxpayer rights, as the Supreme Court’s decision imposes a greater evidentiary burden on the recipient than the prior controlling precedent from the United States Court of Appeals for the Eleventh Circuit. The impact likely will be significant in light of a recent IRS directive, effective January 2014, which mandates that IRS examining officers issue a summons if a taxpayer fails to respond to an information document request (IDR) during the information gathering phase of an examination.

The IRS has the power to issue summonses to require a person to provide sworn testimony or produce documentation relevant to a tax inquiry 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 collecting any such liability. See 26 U.S.C. § 7602. If the recipient fails to comply with the summons, the IRS may bring an enforcement action in district court where the recipient resides, during which the IRS need only demonstrate good faith in issuing the summons. See 26 U.S.C. § 7602(b). The IRS can satisfy its burden by proffering an affidavit from the investigating agent stating that “the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the IRS’s possession, and that the administrative steps required by the Internal Revenue Code have been followed.”

A person receiving the summons may move to quash the summons in the enforcement proceeding on “any appropriate ground,” including that the summons was issued for an “improper purpose.” Prior to Clarke, controlling Eleventh Circuit precedent permitted a recipient of a summons residing in Alabama, Florida or Georgia to question IRS officials concerning the Service’s reasons for issuing the summons based solely on “an allegation of improper purpose.” Clarke rejected the notion that “naked allegations of improper purpose” were sufficient to entitle the recipient to examine an IRS official regarding the motives for issuing the summons. Instead, the Court held that the recipient must “point to specific facts or circumstances plausibly raising an inference of bad faith” or “improper motive” before the recipient is entitled to examine an IRS official. Thus, after Clarke, a recipient of a summons must now “offer some credible evidence supporting his charge,” although “circumstantial evidence can suffice to meet that burden.”

The Supreme Court’s decision in Clarke is particularly noteworthy because it follows a recent IRS directive that likely will increase the volume of litigation involving summonses. The directive implemented mandatory procedures for issuing and enforcing IDRs during IRS examinations. Under the new procedures, taxpayers who fail to respond to an IDR ultimately will be issued a summons.

Accordingly, taxpayers in Alabama, Florida, and Georgia must be mindful of the higher evidentiary showing required by Clarke, particularly in light of the mandatory IDR enforcement procedures, and work closely with counsel when subject to an IRS examination.
The information presented and contained within this article is provided as general information only, and does not, and is not intended to constitute legal, employment or tax advice. Any opinions expressed within this article are solely the opinion of the individual author(s).