25.5.7  Special Procedures for John Doe Summonses

Manual Transmittal

November 22, 2011

Purpose

(1) This transmits a revision to IRM 25.5.7 Summons Handbook, Special Procedures for John Doe Summonses

Material Changes

(1) IRM 25.5.7.2 moved information regarding service of a John Doe summons after approval of Federal court to IRM 25.5.7.3, Procedures.

(2) IRM 25.5.7.3 adds a statement explaining the procedure for referral to DOJ after approval by Area or Associate Area Counsel.

(3) IRM 25.5.7.4.1 updates reference to Delegation Order 25-1 regarding who can issue a John Doe summons

(4) IRM 25.5.7.4.2, No Fishing Expeditions with John Doe Summonses, deleted and information moved to IRM 25.5.7.4.2(2).

(5) IRM 25.5.7.4.3(2) paragraph moved to 25.5.7.4.3 and titled paragraph Dual Purpose Summons.

(6) IRM 25.5.7.4.4 is added to explain no third party notice is required with a John Doe summons.

(7) IRM 25.5.7.4.5 is added to explain when statute of limitations is suspended with a John Doe summons.

(8) IRM 25.5.7.5.1(1) d) Example 4 was replaced with a current example of an ascertainable group or class of persons.

(9) IRM 25.5.7.5.2(6) d) Example 4 was replaced to correlate with prior Example 4 in IRM 25.5.7.5.1(1) d).

(10) Editorial and grammatical changes are made throughout the section.

Effect on Other Documents

This IRM supersedes IRM 25.5.7 dated September 1, 2006.

Audience

All operating Divisions and Functions.

Effective Date

(11-22-2011)

Signed by Scott D. Reisher, Director, Collection Policy

25.5.7.1  (09-01-2006)
Overview

  1. This section contains the following topics:

    • Definition

    • Procedures

    • General Information

25.5.7.2  (11-22-2011)
Definition

  1. A John Doe summons is any summons where the name of the taxpayer under investigation is unknown and therefore not specifically identified.

25.5.7.3  (11-22-2011)
Procedures

  1. A John Doe summons can only be served after approval by a Federal court. Therefore, the Service must never serve a "friendly" John Doe summons even though a prospective summoned party may request one as a condition to providing information to the Service. Serving a John Doe summons without court approval violates the statute and will jeopardize the investigation.

  2. Submit a request for pre-issuance approval of a John Doe summons to Area or Associate Area Counsel, as appropriate. In the rare event a John Doe summons would involve Collection, the request for a John Doe summons should be routed through Advisory before sending to Associate Area Counsel for final review and approval. The summons request should state the pertinent facts and circumstances that justify seeking court approval to serve the summons and include information to satisfy each of the statutory requirements contained in IRC 7609(f)(1) through (3). Discuss the wording to be used in the summons with Area or Associate Area Counsel.

  3. If approved, Area or Associate Area Counsel will prepare a letter on behalf of Chief Counsel, to DOJ containing the law and facts justifying court approval. This letter and proposed summons will be submitted by Associate Area Counsel to Associate Chief Counsel (Procedure & Administration) for its review and approval per IRM 34.6.3.3.2(1)c, Referrals through the Office of the Associate Chief Counsel (Procedure & Administration).

  4. If Associate Area Counsel decides not to refer the matter to the Assistant Chief Counsel (Procedure & Administration) for referral to the Department of Justice to seek approval for service, the matter should be discussed with the Field and Advisory Territory Managers.

  5. If an agreement cannot be reached, Counsel will prepare and forward a memorandum to the Area Director setting forth the unresolved issues.

  6. If the Area Director does not agree with Counsel’s conclusions, the matter will be referred to the Director, Field Operations (CI or LB&I), or the Director, Exam or Collection, or Director, Compliance (W&I), who will explore with the Assistant Chief Counsel (Procedure & Administration) ways of reaching an agreement on future actions concerning the John Doe summons.

25.5.7.4  (09-01-2006)
General Information

  1. The following paragraphs provide basic background information about John Doe summonses.

25.5.7.4.1  (11-22-2011)
Restricted Authority To Issue John Doe Summonses

  1. John Doe summonses can only be issued by high ranking executives who are specifically authorized to do so in Delegation Order No. 25-1. Special agents, revenue agents and revenue officers are not authorized to issue these summonses. Consult IRM 1.2.52, Delegation of Authorities for Special Topics Activities, Delegation Order 25-1, Summonses, Oaths, Certifications, and Related Functions, whenever a John Doe summons is being considered.

25.5.7.4.2  (11-22-2011)
Necessary Purpose

  1. The purpose of a John Doe summons must be to investigate the tax liability of a specific unidentified taxpayer (or a group of such taxpayers), even if a secondary purpose is to gather information for research purposes.

  2. The Service should no longer be in the information-gathering or research stage of a project when it decides to seek court authorization to serve a John Doe summons. The project research should be sufficiently developed to enable the Service to identify a specific tax compliance problem. The Service should be prepared to investigate the tax liabilities of specific taxpayers based on the information received from the John Doe summons. A John Doe summons cannot be used to conduct a "fishing expedition."

25.5.7.4.3  (11-22-2011)
Dual Purpose Summons

  1. In some investigations, it may be possible for the Service to obtain the identities of taxpayers without issuing a John Doe summons. If the Service is conducting an investigation of a known taxpayer (such as a tax shelter promoter) who can identify an unknown taxpayer or class of taxpayers (such as the shelter investors) and the identities of the unknown taxpayers are relevant to the investigation of the known taxpayer, the Service can issue a standard, non-John Doe summons as part of the known taxpayer's investigation and can require the production of the unknown taxpayer's identities. This technique is only acceptable where discovering the identities of the unknown taxpayers is relevant to the investigation of the known taxpayer. This type of summons is referred to as a "dual purpose summons." A dual purpose summons should be considered before issuance of a John Doe summons.

25.5.7.4.4  (11-22-2011)
No Notice Required

  1. A John Doe Summons is exempt from third party notice requirements per IRC 7609(c)(3).

25.5.7.4.5  (11-22-2011)
Suspension of Period of Limitations

  1. Pursuant to IRC 7609(e)(2), if the summoned party's response to the John Doe summons is not resolved six months after the date the summons is served, the period of limitations under IRC 6501 and 6531 with respect to any person whose identity is sought, will be suspended in relation to the tax period or periods that are the subject of the summons, for the period:

    1. Beginning on the date which is six months after the service of the summons, and

    2. Ending with the final resolution of the summons response. See Treas. Reg. 301.7609-5(e)(3).

  2. In the case of a John Doe summons in which any period of limitations has been suspended, the summoned party shall provide notice of such suspension to any person described in the John Doe summons per IRC 7609(i)(4). The content of the notification can be found in Treas. Reg. 301.7609-3(d)(2).

25.5.7.5  (09-01-2006)
Statutory Requirements For a Valid John Doe Summons

  1. District Court Approval Required Before Serving a John Doe Summons. Before a John Doe summons can be served, it must be approved for service by a district court in an ex parte proceeding. (The Service can never serve a "friendly" John Doe summons without obtaining court approval. Doing so will violate IRC 7609 and jeopardize the examination.)

  2. Three Additional Requirements for Approval. A John Doe summons must meet the standard four-part test that applies to all other summonses. See IRM 25.5.4.4(1) Limitations on Authority to Summons. IRC 7609(f) adds three additional requirements that a John Doe summons must meet before it will qualify for district court approval. These three requirements are identified below and further analyzed in following subsections:

    1. The summons must relate to the investigation of a particular person or ascertainable group or class of persons.

    2. The Service must have 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 the tax laws.

    3. The information and identities sought to be obtained from summoned records must not be readily available from other sources.

25.5.7.5.1  (11-22-2011)
Ascertainable Group or Class of Persons

  1. The unidentified person, group or class of persons under investigation, and the activity or transaction under investigation must be described with particularity on the line of the summons that begins with "In the matter of." The phrase "group or class" refers to a group or class of persons who have engaged in specifically described transactions or activities that are common to all persons or entities in the group or class. Generally, the common activities or transactions of the group or class of persons will directly relate to compliance with the internal revenue laws.

    1. Example 1: A summons is issued to a bank to obtain the names of bondholders who purchased bonds issued by a county's housing authority for a specific construction project. The summons should read: "In the matter of the record and beneficial owners of County Housing Authority Revenue Bonds, Series 1985 (Blackacre Housing Project)"

    2. Example 2: A summons is issued to Dealer X to obtain the names of persons who sold metal to the dealer for the period January 1, 1992 through December 31, 1992. The summons should read: "In the matter of persons who sold metal to Dealer X during the period from January 1, 1992 through December 31, 1992."

    3. Example 3: A summons is issued to ABC University to obtain the names of persons who made in-kind contributions to the University during the period January 1, 1994 through the present. The summons should read: "In the matter of all persons who made in-kind contributions to ABC University for the period January 1, 1994 through the present."

      Note:

      The statute and the legislative history indicate that the Service is entitled to information pertaining to the unidentified persons in the group through the present even though the current taxable year is not yet completed.

    4. Example 4: A summons is issued to Bank XY of Pine County to obtain the names of those taxpayers who transferred funds to the Bank of ABC Islands during the period January 1, 2009 through December 31, 2010. The Bank XY of Pine County is a US clearing bank that handles outbound transfers. The summons should read "In the matter of the Tax Liabilities of John Does, United States taxpayers who, at any time during the period of January 1, 2009 through December 31, 2010, transferred funds to the Bank of ABC Islands through Bank XY of Pine County."

    5. Example 5: A summons is issued to the XYZ Barter Exchange to obtain the names and transaction records of all members of the exchange for the period of January 1, 1992 through December 31, 1993. The summons should read: "In the matter of all members of the XYZ Barter Exchange during the period of January 1, 1992 through December 31, 1993."

25.5.7.5.2  (11-22-2011)
Reasonable Basis

  1. The Service must establish a reasonable basis for suspecting noncompliance with the tax laws by the unidentified person or the entire group or class of unidentified persons that are the subject of the investigation. The Service need not establish probable cause for suspecting noncompliance or meet any other evidentiary standard greater than a reasonable basis for suspecting noncompliance. The Service can establish per IRC 7609(f)(2) that it has reasonable basis for believing that an individual or a group or class may have or will fail to comply with the tax laws by showing:

    1. The unidentified person or group has engaged in or is engaging in a transaction or transactions that the Service has determined to be noncompliant with the tax laws, or

    2. The unidentified person or group has engaged in or is engaging in an activity or course of actions that is of such a nature that there is a likelihood of underreporting or other type of noncompliance with the tax laws.

  2. Common Financial Transaction or Activity Related to Tax Law Compliance. A John Doe summons will usually not be appropriate unless the unidentified group or class of persons has engaged in a common financial transaction or an activity directly related to compliance with the tax laws. For example, a group that participates in financial activities not susceptible to detection, or designed to avoid detection, or to defeat the payment of taxes may be a candidate for a John Doe summons. On the other hand, members of a group whose only common characteristics relate to non-tax factors, such as political or ideological beliefs, or memberships in trade or professional organizations, should not normally be the subject of a John Doe investigation.

  3. Statistical Data Needed as Evidence. To determine whether there is a high degree of noncompliance, the Service should attempt to investigate or canvass as many of the groups members that it can identify before considering a John Doe summons. The information gathered from these investigations or compliance checks will support the Government's position that a reasonable basis exists to believe that the group or class of persons may have failed to comply with the tax laws. Information or statistical data from investigations of group members from other parts of the country may be used to support a John Doe summons issued to investigate members in a particular area.

  4. Statistical Data Not Needed as Evidence. While canvassing or performing compliance checks on the identified members of a group is generally useful in any John Doe summons case, there may be situations where, in the exercise of sound judgement, such steps can be deemed unnecessary. For example, where the Service is investigating the promotion of a particular financial transaction and the promoters have taken a position in the prospectus or other document that is contrary to the Service's announced position, it is not necessary to canvass the identified members to learn whether they did in fact follow the promoters' tax advice. The reasonable basis standard is met by the promoters' documents. Also, for example, if a person or persons deposit a large amount of high denomination currency in decrepit condition within a period of a few weeks, the Service need not try to obtain more factual background on the unidentified person or persons. The inherently suspicious nature of the deposits meets the reasonable basis standard and makes a John Doe summons directed to the bank where the deposits took place appropriate.

  5. Statistical Evidence Needed Where a Common Financial Transaction is Absent. If the Service has not discovered a common financial transaction suggesting noncompliance with tax laws in a group or class of persons, a John Doe summons may still be appropriate if investigations of known taxpayers in the group produce a significant statistical sample showing a very compelling degree of noncompliance. (A statistical sample that shows 50 per cent or more of noncompliance indicates a high degree of noncompliance. (While this is not intended as a bright-line test, to the extent the percentage is less than 50 per cent, it will become more difficult to argue that a reasonable basis exists, and Area Counsel should consider whether a John Doe summons is appropriate.) A John Doe summons should not be considered where a common financial transaction suggesting noncompliance does not exist unless the Service has first gathered statistical data from identified group members establishing a factual basis for issuing the summons.

  6. Examples. The following examples illustrate what evidence satisfies the reasonable basis requirement of IRC 7609(f)(2) and when statistical data must be used:

    1. Example 1 (Continuation of scenario in Example 1 in IRM 25.5.7.5.1(1) a), Ascertainable Group or Class of Persons): The Service seeks the district court's authorization to serve a John Doe summons on a bank to obtain the names of those persons who purchased bonds issued by a county's housing authority for a certain construction project. Specifically, the summons seeks the names of the record and beneficial owners of the bondholders of the County Housing Authority Revenue Bonds, Series 1985 (Blackhorse Housing Project).

      The Service can satisfy the reasonable basis standard with the following fact pattern. The Service has learned that the county did not use the bond proceeds to build the advertised housing project. Instead, the proceeds were used to acquire higher yielding investments that generated taxable interest income to the bondholders. The prospectus or other public documents show that the bonds were advertised as tax-exempt municipal bonds. Thus, the unidentified bondholders have engaged in a transaction based on a promoter's position that the Service has rejected. This is enough to establish a reasonable basis for believing that an ascertainable group, the purchasers of County Housing Authority Revenue Bonds, Series 1985, Blackhorse Housing Project, engaged in a transaction that is not in compliance with the tax laws (the non-reporting of taxable interest income). While statistical data gathered from identified group members may be helpful, it is not necessary to establish a reasonable basis in this case because the Service has rejected the promoter's position.

    2. Example 2 Continuation of scenario in Example 2 in IRM 25.5.7.5.1(1) b), Ascertainable Group or Class of Persons): The Service seeks the district court's authorization to serve a John Doe summons on Dealer X, a metal buyer, to obtain the names of persons who sold metal to him during the period January 1, 1992 through December 31, 1992. The Service can satisfy the reasonable basis standard with the following fact pattern. Metal dealers are not required to issue Forms 1099 to the persons from whom they purchase metal (the metal suppliers). As a result, the Service cannot readily detect metal suppliers that underreport income from these sales. Investigations of 40 metal suppliers who sold metal to Dealer X in prior taxable years showed that 30 had underreported their income. Also, the Service has gathered statistical evidence from investigations of other dealers, which shows a high degree of underreporting by the metal suppliers.

      A John Doe summons is appropriate because the common activity of the group members (sales of metal to Dealer X) is not reportable to the IRS on an information return and therefore not susceptible to detection, indicating a likelihood of noncompliance with the tax laws. In addition, investigations of known taxpayers in the group show a very high degree of underreporting. It is necessary for the Service to gather statistical data from identified group members to meet the reasonable basis test because the common financial transaction, while not susceptible to detection, is not contrary to any of the Service's announced positions.

    3. Example 3 (Continuation of scenario in Example 3 in IRM 25.5.7.5.1(1) c), Ascertainable Group or Class of Persons): The Service seeks the district court's authorization to serve a John Doe summons on ABC University to obtain the names of persons who made in-kind contributions to the University from January 1, 1994 through the present. The common financial transaction is the donation of in-kind gifts to ABC University. Investigations of known taxpayers who had made this type of gift to the University showed that 140 out of 160 taxpayers had overvalued their gifts.

      A John Doe summons would be appropriate. The group's common financial transaction is not contrary to any of the Service's announced positions, nor does it suggest that the group members were in any way noncompliant with the internal revenue laws. Therefore, the statistical data gathered from the identified members of the group showing a very high degree of noncompliance is necessary to meet the "reasonable basis" requirement .

    4. Example 4 (Continuation of scenario in Example 4 in IRM 25.5.7.5.1(1) d), Ascertainable Group or Class of Persons): The Service seeks the district court’s authorization to serve a John Doe summons on Bank XY of Pine County to obtain the names of those taxpayers that transferred funds to the Bank of ABC Islands for the period of January 1, 2009 through December 31, 2010. The Service learned from an offshore voluntary disclosure initiative that several U.S. taxpayers with foreign financial accounts at Bank of ABC Islands failed to report interest and other income earned on their accounts with this bank on their original returns. From interviewing these known customers of Bank of ABC Islands, the Service learned that bank employees told these customers the bank would not be reporting any income from or the existence of their foreign accounts to the Service.

      Controlling a foreign financial account is not contrary to the Service's announced positions, but a John Doe Summons is appropriate because tax avoidance is frequently the purpose for the use of offshore accounts in a tax haven country. Also, the Service is aware of tax compliance problems with known U.S. customers of Bank of ABC Islands. This bank's employees apparently encouraged non-compliance. The information and identities sought from summoned records are not readily attainable from other sources but are attainable from Bank XY of Pine County.

    5. Example 5 (Continuation of scenario in Example 5 in IRM 25.5.7.5.1(1) e), Ascertainable Group or Class of Persons): The Service seeks district court authorization to serve a John Doe summons on the XYZ Barter Exchange to obtain the names and transaction records of all members of the exchange for the period of January 1, 1992 through December 31, 1993. Members of XYZ Barter Exchange engage in income producing activities that are not susceptible to detection and a likelihood of noncompliance with the tax laws exists. In addition, the Service has conducted investigations of other barter exchanges, and these investigations reveal that approximately 75 per cent of those examined underreported their income.
      A John Doe summons would be appropriate.

    6. Example 6 The Service wishes to use a John Doe summons to obtain the names and social security numbers of all members of a trade association which it believes includes non-filing members. There is no financial transaction or activity related to compliance with the tax laws that is common to members of the group. However, the Service has statistical data from investigations of known taxpayers in the group which shows that six percent of the group has failed to file income tax returns, which percentage is about the same as the national non-filing rate.

      The Service is not entitled to use a John Doe summons to obtain names and social security numbers of the group members. Since there is no financial activity or transaction related to compliance with the tax laws that is common to members of the group, except membership in the group, there is no reasonable basis to believe that the group as a whole has failed to file income tax returns. The statistical data of six percent is not compelling and does not indicate that the group or class of persons failed to comply with the tax laws.

25.5.7.5.3  (09-01-2006)
Information Is Not Readily Available

  1. The information to be obtained, including the identities of the John Does, is not readily available from other sources when the information cannot be obtained from the Service's own records or public sources such as telephone directories, professional directories, or reporting services, and the information cannot be obtained voluntarily from entities such as state agencies and industry or professional organizations. The fact that it may be more difficult administratively for the Service to conduct the investigation by relying on its own records or on public sources may not satisfy the statutory requirement. The Service must show that retrieving the data from other sources will be impractical. This may be shown by specifying the additional staff hours or procedures which will be necessary, and the significant impact on the Service's normal operations if the information cannot be obtained by the summons.

  2. Where some, but not all, of the information is readily available from public sources, the Service must establish that the public sources are not complete or not comprehensive, and that the summoned data is necessary to ensure a thorough investigation of all taxpayers in the group under investigation.


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