- 5.17.6 Summonses
- 18.104.22.168 General
- 22.214.171.124 Legal Authority
- 126.96.36.199 Relevance and Materiality
- 188.8.131.52 Summons Authority of Collection Personnel
- 184.108.40.206 Proper Description of Documents
- 220.127.116.11 Third-Party Summonses Subject to IRC 7609
- 18.104.22.168.1 Third-Party Recordkeepers
- 22.214.171.124.2 Notice and Waiting Period Requirements
- 126.96.36.199.3 Petition to Quash the Summons
- 188.8.131.52.4 Duty of Third Party on Receipt of the Summons
- 184.108.40.206 The Collection Summons Exception of IRC 7609(c)(2)(D)
- 220.127.116.11 Third-Party Contact Requirements of IRC 7602(c)
- 18.104.22.168 Unnecessary Examinations and Barred Years
- 22.214.171.124 Fair Credit Reporting Act
- 126.96.36.199 Constitutional Defenses
- 188.8.131.52 Notification to Witness of Constitutional Rights
- 184.108.40.206 Privileges Based on Confidential Relationships
- 220.127.116.11 Attorney-Client Privilege
- 18.104.22.168 Attorney Work-Product Doctrine
- 22.214.171.124 Federally Authorized Tax Practitioner-Taxpayer Privilege
- 126.96.36.199 Physician-Patient Privilege
- 188.8.131.52 Non-IRC Limitations on IRS Summons Authority
- 184.108.40.206 Rights Claimed by Summoned Persons
- 220.127.116.11 Witness Fees
- 18.104.22.168 Injunctive Relief
- 22.214.171.124 Criminal Proceedings
- 126.96.36.199 Civil Enforcement
- 188.8.131.52 Summonses Issued to Debtors in Bankruptcy
- 184.108.40.206 Indian Tribal Government
Part 5. Collecting Process
Chapter 17. Legal Reference Guide for Revenue Officers
Section 6. Summonses
September 26, 2014
(1) This transmits revised IRM 5.17.6, Legal Reference Guide for Revenue Officers, Summonses.
This section provides basic legal concepts governing the use and enforcement of administrative summonses.
(1) IRM 220.127.116.11(3) clarifies when a taxpayer may be required to appear by a summons.
(2) IRM 18.104.22.168 updated IRM references.
(3) IRM 22.214.171.124 updated reference to Delegation Order 25-1 for activities concerning summonses.
(4) IRM 126.96.36.199(4) added clarifying language on summons notice exemption.
(5) IRM 188.8.131.52.1 moved clarification of service of a corporate summons from IRM 184.108.40.206.1(6) to IRM 220.127.116.11.1(1).
(6) IRM 18.104.22.168.1(7) updated to reflect proper completion and service of a summons to a corporate officer.
(7) IRM 22.214.171.124.1(10) adds statement of when a summons should be re-served if the Service will be seeking summons enforcement.
(8) IRM 126.96.36.199.2(2) explains no levy can be made on property of summoned person on date that person is to appear in response to a collection summons unless collection of the tax is in jeopardy.
(9) IRM 188.8.131.52.2(2) clarified no levy can be made on property of summoned person on date that person is to appear in response to a collection summons unless collection of the tax is in jeopardy.
(10) IRM 184.108.40.206.2(3) statement added regarding action needed to formally extend date of summons appearance.
(11) IRM 220.127.116.11(1)(a) Adds definition to the term "identified" to clarify when notice is required.
(12) IRM 18.104.22.168(2) explains numbered bank accounts exception is very limited in its present scope.
(13) IRM 22.214.171.124.1 clarifies delivery of a third-party recordkeeper summons.
(14) IRM 126.96.36.199.3(7) clarified the need to secure summoned records until 23-day period following the date of giving notice has expired.
(15) IRM 188.8.131.52.4(3) statement added that authorized Service officers may complete the summons certification on page two of the summons form.
(16) IRM 184.108.40.206(3) expanded the example for Trust Fund Recovery Penalty summonses.
(17) IRM 220.127.116.11 added statement that a summons generated through the Integrated Collection System (ICS) will automatically generate a third-party notice indicator.
(18) IRM 18.104.22.168(4) and (5) deleted. Information from these two paragraphs incorporated and updated into the renumbered paragraphs (4) and (5).
(19) New IRM 22.214.171.124(4) renumbered from 126.96.36.199(6). The reference for authority to obtain a full credit report was updated to 31 USC 3711(h)(2).
(20) New IRM 188.8.131.52(5) renumbered from 184.108.40.206(7) and information incorporated that the Service can receive a full credit report on tax delinquency investigations by obtaining the consumer's written permission or issuing a summons.
(21) IRM 220.127.116.11(6) renumbered from 18.104.22.168(8).
(22) IRM 22.214.171.124(4) new paragraph added discussing need to obtain a search warrant when the Service requests content of email communications stored by an internet service provider (ISP).
(23) IRM 126.96.36.199(5) renumbered from 188.8.131.52(4).
(24) IRM 184.108.40.206.2 updated IRM reference regarding audio recording procedures.
(25) IRM 220.127.116.11 section added to reference unique relationship between Indian tribal governments and the United States government.
(26) Editorial changes were made throughout this section to add clarity and update/correct citations.
Rocco A. Steco
Acting Director, Collection Policy
The purpose of this section is to acquaint revenue officers with the basic legal concepts governing the use and enforcement of administrative summonses. For more detailed guidance, refer to the Summons Handbook at IRM 25.5.
In general, the Service should issue summonses only when the taxpayer (or other witness) will not produce the desired records or other information voluntarily. When a taxpayer or third person is willing to testify and produce documents voluntarily, a summons may not be required. In such cases, revenue officers may only need to produce their credentials. Refer to IRM 18.104.22.168.2(3), Notice and Waiting Period Requirements, regarding the requirement to serve a summons on a bank in the Tenth Circuit. Before issuing any summons, the Service should consider:
The possibility that judicial enforcement will be required, and
The adverse effect on future voluntary compliance if enforcement is abandoned.
The summons should not require the witness to do anything other than appear on a given date to give testimony or produce existing books, papers and records or both. A summons cannot require a witness to prepare or create documents, including tax returns, that do not currently exist. However, a taxpayer may be required by a summons to appear and give testimony that would allow a revenue officer to obtain answers to all the questions or blanks on a Collection Information Statement for that taxpayer or produce records to complete a tax return for that taxpayer.
IRC 7602 provides the Service with summons authority. See IRM 22.214.171.124.1, Statutory Authority, below. Additionally, case law provides standards that the Service must meet to have its summons enforced. See IRM 126.96.36.199.2, Case Law.
IRC 7601 authorizes the Service to inquire about any person who may be liable to pay any internal revenue tax without a summons.
IRC 7602 authorizes the Service to summon a witness to testify and to produce books, papers, records, or other data that may be relevant or material to an investigation. United States v. Powell, 379 U.S. 48 (1964).
IRC 7602 and the corresponding regulations, Treas. Reg. 301.7602-1, also identify the purposes for which the Service may issue summonses. The purposes are:
To ascertain the correctness of any return;
To prepare a return where none has been made;
To determine the liability of a person for internal revenue tax;
To determine the liability at law or in equity of a transferee or fiduciary of a person in respect of any internal revenue tax;
To collect any internal revenue tax liability; or
To inquire into any offense (civil or criminal) connected with the administration or enforcement of the internal revenue laws.
The following persons may be summoned under the authority of IRC 7602(a)(2):
The person liable for the tax or required to perform the act (prepare a return);
Any officer or employee of such person who has information that may be relevant to the investigation;
Any person having possession, custody, or care of books, papers, records, or other data that may be relevant to the investigation; and
Any other person the Secretary deems proper.
IRC 7602(d)(1) prohibits a summons from being issued or enforced with respect to any person if a Justice Department referral is in effect with respect to such person. A "referral" is in effect, as defined by IRC 7602(d)(2), when either:
The Service has recommended to the Justice Department a grand jury investigation of, or the criminal prosecution of, such person for any offense connected with the administration or enforcement of internal revenue laws; or
The Justice Department requests, pursuant to IRC 6103(h)(3)(B), the disclosure of return or return information relating to such person, as when the Justice Department requests the Service’s criminal investigators to join an ongoing federal grand jury investigation of the person for non-tax crimes, such as narcotic trafficking or racketeering, to investigate potential tax charges.
The limitation of IRC 7602(d)(1) applies only when the Service has referred to the Justice Department the taxpayer whose liabilities are at issue. The Service is not barred from summoning a third-party witness when the Service has referred the third-party witness to the Justice Department. Khan v. United States, 548 F.3d 549 (7th Cir. 2008); Treas. Reg. 301.7602-1(c)(1).
Other IRC sections concerning the proper use and enforcement of a summons are:
Section 7603 — Service of Summons
Section 7604 — Enforcement of Summons
Section 7605 — Time and Place of Examination
Section 7609 — Special Procedures for Third-Party Summonses
Section 7610 — Fees and Costs for Witnesses
Section 7611 — Restrictions on Church Tax Inquiries and Examinations
Section 7612 — Special Procedures For Summonses For Computer Software
Section 7402 — Jurisdiction of District Courts
Section 7210 — Failure to Obey Summons
In United States v. Powell, 379 U.S. 48, 57-58 (1964), the Supreme Court set forth the standards that the Service must meet to have its summons enforced. The Service must show that:
The investigation will be conducted pursuant to a legitimate purpose;
The inquiry may be relevant to the purpose;
The information sought is not already within the Service's possession; and
All administrative steps required by the Code have been followed.
Powell also held that a summons cannot be issued for an "improper purpose." This includes using a summons:
To harass the taxpayer;
To pressure the taxpayer into settling a collateral dispute; or
For any other purpose adversely reflecting on the "good faith" of the investigation.
IRC 7602 authorizes the Service to issue a summons to any person to produce for examination books, papers, records or other data, and to require such person to give such testimony, under oath, as may be relevant or material to the determination or collection of any internal revenue tax.
The question of what "may be relevant or material" depends on the facts and circumstances of each case. In general, courts reject the use of a summons as a "fishing expedition" and have held that there must be a "realistic expectation" rather than an "idle hope" that something may be discovered to satisfy the relevance and materiality requirements of IRC 7602, particularly where third-party documents are sought. United States v. Arthur Young & Co., 465 U.S. 805, 814, n.11 (1984), citing United States v. Harrington, 388 F.2d 520, 524 (2d Cir. 1968).
Courts recognize that not all documents summoned will prove relevant or material, emphasizing the test is whether the summoned documents "might throw light upon subjects under legitimate inquiry." Arthur Young, 465 U.S. at 813–814.
When documents or information are sought from the taxpayer, all records of financial transactions, all books and records showing the receipt or expenditure of money by the taxpayer, all financial transactions of the taxpayer with other persons and the names of such other persons to verify such transactions satisfy the relevance test of IRC 7602.
Where documents or information are requested from third persons, all records or information of the taxpayer’s financial transactions with such third persons or other persons satisfy the relevance test of IRC 7602.
Delegation Order 25-1 (as revised) provides detailed instructions concerning the levels of authority delegated to various Service officials to approve and perform activities concerning summonses. See IRM 188.8.131.52, Delegation Order 25-1 (formerly DO-4, Rev. 23), Revenue officers should refer directly to the most current revision of Delegation Order 25-1 whenever an issue arises about their authority to take any of these actions:
Authorize, issue and serve summonses;
Set the time and place for examination;
Administer oaths to witnesses;
Take testimony under oath;
Take and certify papers; and
Receive and examine summoned materials.
IRC 7603 provides that books and records sought must be described with reasonable certainty or particularity, including the periods for which the records are sought. In general, the meaning of the phrase "reasonable certainty" is a factual matter that will depend on all the circumstances involved.
A demand for documents required to be produced for examination cannot be so general and vague that it would be unreasonable to expect the summoned party to comply. The rule established by the courts is that the Service employee or officer issuing the summons need not describe in minute detail every document and paper to be produced, but must describe them with "such reasonable certainty" that the person summoned will have sufficient information to enable him to produce such documents. Adamowicz v. United States, 531 F.3d 151, 157-8 (2d Cir. 2008); United States v. Medlin, 986 F.2d 463, 467 (11th Cir. 1993).
In United States v. Calhoun County Hospital, Inc., 35 AFTR2d 75-1097 (N.D. Miss. 1974), the typed-in body of the summons did not specify for what years the records were sought. The court rejected the taxpayer's argument that the summons was facially invalid by looking at the "four corners" of the summons, thereby incorporating into the body of the summons the years listed in the caption. Accord United States v. Duke, 379 F. Supp. 545 (N.D. Ill. 1974).
If it is not known what records are in the summoned party's possession, a summons can be served identifying only the taxpayer, the tax period under investigation, and the type of tax involved.
Upon appearance, the witness can be asked whether or not certain records exist.
Then a second summons can be issued describing the particular records with reasonable certainty.
Such a "preliminary" summons is specifically exempt from the notice provisions of IRC 7609, but the notice exemption applies only to inquiries about whether or not records of the taxpayer's business transactions or affairs have been made or kept. IRC 7609(c)(2)(B) .
IRC § 7603 provides that service of the summons will be made by delivery in hand of an attested copy to the person to whom it is directed or by leaving it at his last and usual place of abode. Third-party recordkeepers may also be served by certified or registered mail. Corporations do not have a "last and usual place of abode" within the meaning of IRC 7603(a); therefore a summons may not be served by fixing it to the door of the corporate building or by leaving the summons with the secretary of any individual (named or unnamed) on whom the summons is to be served or with another employee.
The Summons Handbook at IRM 184.108.40.206, Service of Summons, outlines the procedures for serving summonses. This section identifies three options for serving a summons upon an individual who is not a third-party recordkeeper:
Hand the summons to the person to whom it is directed;
At the individual's last and usual place of abode, leave the summons with a person of suitable age and discretion with instructions that the summons be given to the summoned individual; or
By affixing the summons to the front door of the individual's last and usual place of abode by a means that will not mar the finish.
In United States v. Bichara, 826 F.2d 1037 (11th Cir. 1987), the Eleventh Circuit held that section 7603 allows service by merely leaving the summons at the last and usual place of abode. The Circuit decision reversed the district court, which had denied enforcement on the grounds that merely leaving the summons was insufficient, and that due process required the summons be left with some person of suitable age and discretion. See also United States v. Gilleran, 992 F.2d 232 (9th Cir. 1993) (the appellate court reversed the district court that had required the Service to mail the summons in addition to leaving the summons at the last and usual place of abode). Leaving the summons with a person of appropriate age and discretion may be a good practice in certain circumstances, but it is not required by law, and a summons is validly served by being affixed to the door.
A summons should be issued only to one summoned party, i.e., only one party's name should appear on the "To" line of a summons. For a summons to a corporation or to an officer of a corporation, see IRM 220.127.116.11.1(6)-(7), below.
A summons can be personally served on a person at his business address, but if the person being summoned is not present, the summons may not be left at that address. See United States v. Myslajek, 568 F.2d 55 (8th Cir. 1977), cert. denied, 438 U.S. 905 (1978) (summons left with taxpayer's adult son at taxpayer's place of business held defective for purposes of service, although the summons was ordered enforced because the defect in service was not timely raised). The Code authorizes leaving the summons only at the last and usual abode of the person. The fact that an improperly served summons is actually received by the summoned party will not cure the defective service.
A summons served on a corporation without identifying a specific person may be served on any officer or employee of the corporation authorized to receive process by either state law or the corporate by-laws. For example, the summons may describe the witness as "X Corporation." The summons should be served only on a person authorized to receive process; it cannot be simply left at the corporate offices. For example, a summons cannot be left with the corporate officer’s secretary. The summons should also not be left at a last and usual place of abode of the person (or persons) authorized to receive process. Therefore, the summons must be served in person to an authorized person, unless the witness is summoned in the capacity of a third-party recordkeeper described in IRC 7603(b).
When the summons seeks records or testimony from a specific corporate officer (John Smith, President), the summons should be issued to that officer by name and with his official designation. For example the "In the matter of" line should read "Corporation X" and the "To" line should read "John Smith, President" with John Smith's last known address on the "At" line. Because this summons is issued to an individual, John Smith, the summons may be served either personally upon John Smith or left at his "last and usual place of abode." That John Smith is being summoned to provide testimony/records in his capacity as President of Corporation X does not affect treatment as an individual for purposes of service of the summons.
The Certificate of Service is found on the second page of the original Form 2039. Once executed, the certificate is evidence of the facts it states at the hearing for enforcement. IRC 7603(a).
In accordance with IRC 7603(a), the copy of the summons given to the summoned person must contain a signed certification or affirmation that it is a true and correct copy of the original. On the current pre-printed summons forms, the attestation clause reads as follows: "I hereby certify that I have examined and compared this copy of the summons with the original and that it is a true and correct copy of the original."
Improperly served summonses cannot be cured. But as noted above, the taxpayer may waive defective service of a summons by failing to object to the defective service in a timely fashion. United States v. Myslajek, 568 F.2d 55 (8th Cir., 1977) (although summonses were served on taxpayer's adult son at accountant's business office, taxpayer waived strict compliance with requirement that summons be served on the person to whom it is directed or left at his last and usual place of abode where accountant received actual notice of the summonses on date they were served but did not object to defective service until almost three months later); United States v. Payne, 648 F.2d 361 (5th Cir. 1981) (taxpayer waived strict compliance with statute governing service of IRS summons where taxpayer appeared at time and place set forth in summons but failed to object to improper service at such time). If the Service improperly served a summons, but acted in "good faith" in doing so and there also was no prejudice to the taxpayer (for example, the taxpayer filed a timely petition to quash the summons), then some courts may find that the Service's error in serving the summons was "harmless." United States v. Richey, 632 F.3d559, 564-5 (9th Cir. 2011). However, "harmless error" findings may not be reliably forecast, so the Service should ordinarily re-serve a new summons properly in place of an improperly served summons if the Service will be seeking summons enforcement.
In the case of all first-party summonses (those served on the taxpayer or upon any officer or employee of an entity taxpayer or of a taxpayer with a sole proprietorship) subject to IRC 7605, the following notice and waiting periods requirements apply:
The time and place for appearance and examination must be reasonable. IRC 7605(a).
Date for appearance shall not:
• be on a Saturday, Sunday, or legal holiday; and
• be less than 10 full days from service with the date of service excluded from the 10-day waiting period. It is legally sufficient to require the summoned person to appear on the 10th day. However, it may be preferable to set the date of appearance on a later date, such as the 11th day, to avoid any question regarding timeliness.
Unless collection of the tax is in jeopardy, no levy can be made on the property of a summoned person on the date the person is required to appear in response to a summons issued for the purpose of collecting an underpayment of tax. IRC 6331(g).
Any agreement with a summoned party that alters the party's circumstances of appearance may result in a waiver of the Service's summons rights. In United States v. Malnik, 489 F.2d 682 (5th Cir. 1974), the summoned taxpayer entered into an agreement with the Service not to appear based in part on his claim of constitutional privileges. Even though the privileges were infirm, the court held that the Service waived its right to have the taxpayer appear. If a valid reason exists (such as illness) that a witness cannot appear on the date fixed in the summons, the date may be continued by mutual agreement. Review IRM 18.104.22.168, Time and Place of Examination Set by Summons, for actions needed to formally extend the date of appearance.
IRC 7609 contains notice and waiting period requirements which apply to all third-party summonses, except for certain limited categories discussed herein. See IRM 22.214.171.124.2, Notice and Waiting Period Requirements, for a discussion of these notice and waiting periods
A third-party summons is a summons directed to a person other than the person with respect to whose liability or return the summons is issued, or any officer or employee of such person. A third-party summons is a summons not excepted from notice by IRC 7609(c)(2)(A).
When a third-party summons is issued, section 7609(a) requires notice be given to the taxpayer identified in the heading of the summons and any other person (whether an individual or an entity) identified in the description of summoned records. The term "identified" means identified by proper name (including an acronym derived from the proper name).
The notice and waiting period requirements of IRC 7609(a) apply to third-party summonses that seek the production of any type of records or giving of testimony regarding the person(s) identified in the summons.
Any noticee may intervene in any proceeding brought by the Government to enforce the summons. The summoned third-party has the right to intervene in any proceeding brought by a noticee to quash the summons. IRC 7609(b).
The notice procedures apply to almost all third-party summonses issued for examination purposes. Therefore, the Service must accurately distinguish between third-party summonses and summonses served on the taxpayer under investigation. The Service must also determine if the summons is excepted from notice under IRC 7609(c). IRM 126.96.36.199(2) discusses the exceptions to notice requirements.
In most situations, the distinction between third-party summonses and summonses served on the taxpayer under investigation is obvious. However, it is less obvious in at least two scenarios.
i) The first scenario involves a married couple who filed joint returns and who are jointly and severally liable for payment.
• If a summons is served in aid of the collection of an assessment, two separate summonses, one issued to the husband and one issued to the wife should be served. "In the matter of" should list both the husband and wife. This summons is excepted from notice under IRC 7609(c)(2)(D).
• If a summons is issued in connection with an examination of a return, this is not a collection summons and notice requirements apply. If only one spouse is summoned, the other spouse is entitled to notice under IRC 7609(a) as a person identified in the summons. Even when both spouses are summoned (by issuing and serving separate summonses), each spouse is entitled to notice of the other spouse's summons. This procedure preserves each spouse's opportunity to move to quash the summons served on his or her spouse.
• If a summons is issued for a period where a married couple has failed to file a return, the spouses should be treated as having separate liabilities regardless of their past filing status. These summonses should be issued for each person and should be captioned "In the matter of Taxpayer-Husband" and "In the matter of Taxpayer-Wife" respectively. No notice is required, except where one spouse is summoned "in the matter of" the other spouse.
ii) The second scenario involves officers or employees of taxpayer businesses, e.g., corporations and sole proprietorships. When these persons are summoned in their capacity as officers or employees, the summons is a first-party summons that is excepted by IRC 7609(c)(2)(A) from the notice requirements of IRC 7609(a).
When a third party indicates that she will voluntarily provide information but requests the service of a summons as evidence of her legal duty to testify or produce records, revenue officers should follow the notice and waiting period requirements of IRC § 7609 when issuing the summons unless the summons is a collection summons and therefore excepted from these requirements by IRC 7609(c)(2). Revenue officers should not accept the voluntary production of records before the waiting period expires.
The notice and waiting period requirements of IRC 7609 apply to all summonses except:
A summons served on a person with respect to whose liability the summons is issued, or any officer, or employee of that person (i.e., first-party summonses). IRC 7609(c)(2)(A).
A summons served to determine whether or not records of the business transactions or affairs of an identified person have been made or kept. IRC 7609(c)(2)(B).
A summons served to determine the identity of holders of numbered bank accounts. (That is, accounts which are identified by a number or code rather than by name.) IRC 7609(c)(2)(C). In general "numbered bank accounts" should no longer exist with legitimate U.S. financial institutions, so this exception is very limited in its present scope. Charles v. United States, 112 AFTR2d 6652 (W.D. Mich. 2013).
A summons served in aid of the collection of an assessment made or judgment rendered against the person with respect to whose liability the summons is issued, or the liability at law or in equity of any transferee or fiduciary of that person. IRC 7609(c)(2)(D).
A summons issued by a criminal investigator of the Service to a third party who is not a third-party recordkeeper. IRC 7609(c)(2)(E) .
A "John Doe" summons (one that does not identify the person with respect to whose liability the summons is issued). IRC 7609(c)(3), see also IRC 7609(f).
A summons issued under the provisions of IRC 7609(g) where a court determines there is reasonable cause to believe that giving notice may lead to attempts to conceal, destroy, or alter records relevant to the examination, to prevent the communication of information from other persons through intimidation, bribery, or collusion, or to flee to avoid prosecution, testifying, or production of records. IRC 7609(c)(3).
A summons to a third-party recordkeeper may be served by certified or registered mail to the last known address of such recordkeeper. IRC 7603(b). The summons may also be served in the traditional means of hand delivery per IRC 7603(a).
Third-party recordkeepers are defined in IRC 7603(b)(2) as:
Any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institutions chartered and supervised as a savings and loan or similar association under federal or state law, and any bank or credit union;
Any consumer reporting agency;
Any persons extending credit by credit cards or similar devices. See Treas. Reg. 301.7603-2(a)(3). In United States v. New York Telephone, 682 F.2d 313 (2d Cir. 1982), the court held where a telephone company extends credit cards and, additionally, extends credit by other means to both its credit card holders and non-credit card holders, the telephone company is a third-party recordkeeper with respect to all records relating to those credit transactions. These similar means were third-party billings (billing a call to your own phone) and arranging billing relating to those transactions;
Any barter exchange (as defined in IRC 6045(c)(3));
Any regulated investment company;
Any enrolled agent; and
Pursuant to IRC 7603(b)(2)(J), any owner or developer of a computer software source code (as defined in section 7612(d)(2)), but only when the summons seeks the production of the source code or the program and data to which the source code relates.
The first nine categories of third-party recordkeepers (a through i above) are only considered to be third-party recordkeepers when they are summoned to produce records that they made or kept (or give testimony about such records) of another person's business transactions or affairs. Owners or developers of computer software source codes are third-party recordkeepers even though they may not make or keep records of another person’s business transactions or affairs.
In the case of all third-party summonses subject to IRC 7609(a), the following notice and waiting period requirements apply:
Time - notice, along with a copy of the summons and an explanation of the noticee's right to bring a proceeding to quash, has to be given within three days of the date on which the summons was served, but no later than the 23rd day before the appearance date fixed in the summons as the date of production. IRC 7609(a)(1).
Service of Notice - same manner as provided in IRC 7603 (relating to service of summons) or by certified or registered mail to the last known address of the noticee, or in the absence of a last known address, is left with the person summoned. IRC 7609(a)(2).
Noticee Defined - Any person (other than the summoned third party) who is identified in a summons served on a third-party witness for the production of records or testimony relating to the person so identified. The taxpayer identified in the caption of the summons is always a noticee, even though his or her name may not appear in the description of summoned records. A noticee under IRC 7609(a) has the right to be given notice of the summons, to intervene in a summons enforcement proceeding, and to bring a proceeding to quash the summons.
In the case of bank records concerning a corporation solely owned by the taxpayer named in the summons, the corporation is a separate noticee from the taxpayer.
A summons may involve the records of multiple noticees. Where there are multiple noticees who reside at the same address, separate notices are required to be sent to each individual at that address. In situations involving a husband and wife, each spouse is sent a separate notice.
If the Service fails to give notice and receives the summoned information, it is possible for a court to suppress the summoned evidence. United States v. Kersting, 891 F.2d 1407 (9th Cir. 1989). See also United States v. Powell, 379 U.S. 48, 52-53 (requiring that in order to judicially enforce a summons, the Service must demonstrate that it followed all administrative steps regarding said summons imposed under the Internal Revenue Code).
IRC 7609(j) – This section provides that nothing in IRC 7609 shall be construed to limit the Service’s ability to obtain information, other than by summons, through formal or informal procedures authorized by IRC 7601 and 7602. This section indicates that the Service’s ability to seek informally the voluntary production of records, i.e., without a summons, constitutes a procedure authorized by the Code.
The Service is permitted to seek financial records from financial institutions informally except in the Tenth Circuit because of its interpretation of a portion of the Right to Financial Privacy Act (RFPA), 12 USC 3413(c). However, the RFPA only applies to a financial institution’s records for customers who are individuals or are partnerships of five or fewer individuals, so financial records of customers who are corporations, partnerships with non-individual partners, or partnerships with six or more partners are not covered by the RFPA, 12 USC 3401(4) & (5), and may be sought informally within the Tenth Circuit.
In general, the RFPA requires that covered account owners be given notice of (and an opportunity to challenge) a government agency’s intent to obtain records of their finances from a financial institution. However, the RFPA also provides a long-standing exception to these requirements as they apply to the Service. Section 3413(c) states: "Nothing in [the RFPA] prohibits the disclosure of financial records in accordance with procedures authorized by the [IRC]." See 12 USC 3413(c). A more recent exception to RFPA requirements also now exists for the IRS and other Government agencies which have disbursed payments (such as tax refunds) and then need to investigate or recover (through collection efforts) an improper Federal payment (such as an erroneous refund). See 12 USC 3413(k)(2).
In Neece v. Internal Revenue Service, 922 F.2d 573 (10th Cir. 1990), the Tenth Circuit ruled that a bank’s voluntary disclosure of a customer’s financial records to the Service, without prior notice to the customer, violated the RFPA. The court reasoned that IRC 7609, not IRC 7602, contained the procedures for obtaining records concerning a taxpayer from a financial institution.
In all circuits other than the Tenth, the Service takes the position that an informal request for records is a procedure authorized under IRC § 7601. Within the Tenth Circuit, Neece should not constrain the Service from informally requesting financial records of customers who are not at all covered by the RFPA (e.g., corporations and some partnerships) or of any customers who received improper Federal payments from the Government (such as an erroneous tax refund).
Given the Tenth Circuit’s holding in Neece, revenue officers should follow IRC 7609 procedures when seeking covered financial information from financial institutions governed by the Tenth Circuit’s precedents. (The Tenth Circuit encompasses Kansas, Oklahoma, Wyoming, Utah, Colorado, and New Mexico). Covered information from financial institutions should not be sought by informal means, such as by producing credentials, letters of circularization, or by any other nonsummons method if any of the following conditions exist:
The financial institution branch from which the information is sought is located in the Tenth Circuit;
The information concerns taxpayers residing in the Tenth Circuit, regardless of the location of the financial institution, or
The requesting IRS office is located in the Tenth Circuit, regardless of the location of the financial institution or the residence of the taxpayer.
Revenue officers should not attempt to obtain financial information voluntarily from financial institutions if the above conditions exist. To do otherwise could result in damages awarded against the Service and the expenditure of valuable resources in defending such damage suits. Revenue officers should seek Area Counsel’s advice if there is any doubt regarding whether Neece applies.
A noticee who wishes to prevent compliance with the summons by the party summoned must begin a civil action in the appropriate U.S. district court to quash the summons no later than twenty days after the day notice of the summons is given. IRC 7609(b)(2).
The noticee must mail (by registered or certified mail) a copy of the petition to quash the summons to the summoned person and a copy to the IRS officer who issued the summons. This must be done within the twenty-day period, and is a jurisdictional prerequisite to the court hearing the complaint. Yocum v. United States, 586 F.Supp. 317 (N.D. Ind. 1984); Franklin v. United States, 581 F.Supp. 38 (E.D. Mich. 1984).
The summoned party has the right to intervene in this proceeding and is bound by the decision in the quash proceeding whether he intervenes or not.
If the noticee files a petition to quash the summons, then the Service cannot examine the records until the court issues an appropriate order. The Service may only examine the records prior to the issuance of a court order if the person bringing the petition consents to the examination.
The date set for appearance cannot be sooner than the 23rd day after notice is given (as a rule of thumb, the 26th day is used). IRC 7609(d).
IRC 7609(d)(1) prohibits premature examination of the records at issue, not physical acceptance. In Conner v. United States, 434 F.3d 676 (4th Cir. 2006), the taxpayer appealed the district court's finding with respect to Powell's fourth prong, asserting that by accepting the records from a third party prior to expiration of the twenty-three days in which he, the affected taxpayer, could seek to quash the third-party summonses, the revenue agent did not follow IRC 7609(d)(1) nor the IRM. The Fourth Circuit held the taxpayer’s argument was without merit. Although the IRM directed the revenue agent not to physically accept records in response to a third-party summons prior to expiration of the twenty-three day period in which the affected taxpayer could seek to quash the summons, such violation, while relevant to the bad faith inquiry presented in this case, did not constitute proof by itself of the IRS's bad faith in issuing the challenged summonses.
If the Service receives records from a third party before the expiration of the twenty-third day after notice is given:
Immediately seal the records in an appropriate container;
Mark the container with the date and time sealed; and
Secure the records until (a) the 23-day period following the date of giving notice has expired and no noticee filed a petition to quash, or (b) any court proceeding (including appeals periods) brought to quash toe summons has concluded.
A petition to quash brought by the taxpayer suspends the period of limitations for assessment under IRC 6501. IRC 7609(e)(1) only tolls the statute of limitations for a taxpayer who petitions to quash the summons. If only one of the potentially responsible persons (regarding whose liabilities the Service issued separate summonses) files a petition to quash the summons, only that petitioner’s assessment statute is suspended. The statute is suspended for the period in which the proceeding and any appeals are pending.
If a summoned party’s response to a third-party exam summons (such as to determine TFRP liability) has not been resolved, the period of limitations for assessment under IRC 6501, with respect to the taxpayer whose liability the summons is issued, is suspended beginning on the date which is 6 months after the service of the third-party summons. IRC 7609(e)(2). The suspension ends upon final resolution of the summoned party’s response. Final resolution occurs when (a) the summons or any order enforcing all or part of the summons is fully complied with and (b) all appeals or requests for further review are disposed of or the period in which appeal can be taken or further review can be requested has expired. Treas. Reg. 301.7609-5(e)(3).
The third party is required to assemble the records and prepare to produce them on the date specified in the summons, whether or not a petition to quash has been or will be filed. IRC 7609(i)(1).
The third party or his agent or employee who makes a disclosure pursuant to a court order or upon reliance of an IRS certificate, where no proceeding to quash the summons has been commenced, or the noticee has consented to the examination, will not be liable to any customer or other person for such disclosure. IRC 7609(i)(3).
Certificate - On the second page of the original summons is an unexecuted certification stating that the period for beginning a proceeding to quash a summons has expired and no such proceeding was begun within such period, or that the noticee consented to the examination. If the noticee consents to the examination or the period to quash has expired, the authorized Service officer may complete the certification on the second page of the summons. Upon request of the summoned third party, the issuing officer should furnish a photocopy of the certificate to the third party. IRC 7609(i)(2).
The procedural rules applicable to third-party recordkeeper summonses issued under IRC § 7609(a) do not apply to collection summonses that pertain to an assessed liability, transferee liability, or a liability reduced to judgment. IRC 7609(c)(2)(D); Ginsburg v. United States, 90 AFTR 2d 2002-6555 (D. Conn. 2002).
Third-party summonses issued as part of tax delinquency investigations for trust fund recovery penalties (i.e., pre-assessment investigations) or any other investigation where no liability has been assessed are not considered collection summonses under IRC 7609(c)(2). Accordingly, the Service must follow the notice and waiting period requirements of IRC 7609(a) for these summonses. A collection summons that pertains to an assessed liability cannot be combined with a summons to obtain information related to a Trust Fund Recovery Penalty investigation without giving notice under IRC 7609(a).
The Service must issue a summons for each person potentially liable for a Trust Fund Recovery Penalty. The Service should not issue a summons that lists the names of all potentially responsible persons for the Trust Fund Recovery Penalty in the heading of one summons and provide redacted notice copies to the noticees.
Two potentially responsible persons, an officer and an employee, have been identified for potential Trust Fund Recovery Penalty assessments. Two summonses would be issued. A summons concerning the liability of John Smith, President of Corporation X, Inc., would be issued for records and time periods that may be relevant to the liability of "John Smith, President of Corporation X." If the summons is directed to a third party, noticee copies (Parts C and D of the summons form) would be addressed and sent to John Smith at his last known address and noticee copies (Parts C and D) would be addressed and sent to Corporation X at the corporation's last known address. A separate summons concerning the liability of employee, Mary Smith, would be issued for records and time periods at issue that may be relevant to the liability of "Mary Smith, Employee of Corporation X, Inc." Again, if the summons is directed to a third party, noticee copies (Parts C and D of the summons form) would be addressed and sent to Mary Smith at her last known address and noticee copies (Parts C and D) would be addressed and sent to Corporation X at the corporation's last known address. (A Letter for Limiting a Response for Records for Multiple Potentially Responsible Persons as shown in Exhibit 25.5.6-2, Sample Language for a Letter for Limiting a Response for Records for Multiple Potentially-Responsible Persons, can be used to notify the bank or other summoned party that the information need only be produced once.)
Notification is not required for third-party summonses issued for taxpayer delinquency accounts (TDAs) or any other investigation where an assessed liability exists for each of the periods at issue and the summons is issued in aid of collection of those assessments.
Notice is required for third-party summonses for taxpayer delinquency investigations (TDI) where no liability has been assessed.
IRC 7602(c), Notice of Contact of Third Parties, requires that before Service employees initiate contact with third parties for the determination or collection of a taxpayer’s tax liability, the taxpayer must be given reasonable notice in advance that third parties may be contacted. IRC 7602(c) also requires the Service to make a record of persons contacted and provide that record to the taxpayer upon the taxpayer’s request.
Absent jeopardy circumstances, a revenue officer may not contact any third party without first providing reasonable notice to the taxpayer that contact with persons other than the taxpayer may be made. See IRM 188.8.131.52.2, Exceptions to IRC 7602(c) Notification Requirements. A third-party contact notice letter is one way to advise a taxpayer that contacts may be made by the Service with other persons.
In most cases, advance third-party contact notice is now accomplished by sending Pub. 1 to the taxpayer. See IRM 184.108.40.206.1, TPC Notification Procedures. However, for TFRP or transferee investigations initiated by a revenue officer, the potentially responsible person or transferee may not have been provided with an earlier advance notice that third-party contacts may be made by the Service. In this situation, send the appropriate third-party contact notice letter to the potentially responsible officer or transferee before making any third-party contacts. See IRM 220.127.116.11.2, Third-Party Interviews and Third-Party Contact Considerations, and 25.27.1, Third Party Contact Program
Refer to IRM 25.27.1, Third-Party Contact Program, for detailed guidance on third-party contacts.
Service of a summons is contact with a third party. Under Treas. Reg. 301.7602-2(e)(4), Example 4, service of a copy of the summons to the taxpayer satisfies the post-contact recording and reporting requirements of IRC 7602(c) for this contact. The taxpayer should have been provided, however, with the advance general notice prior to the issuance of the summons. Before serving the summons, the Service should verify that the advance general notice has been provided to the taxpayer. Additionally, after making the contact when notice of the summons was not provided to the taxpayer (e.g. for a collection purpose summons), the Service must record the contact on Form 12175, Third Party Contact Report Form, and forward the form to the IRC 7602(c) Third-Party Contact Coordinator. Summonses generated through the Integrated Collection System (ICS) case will automatically record the third-party contact and completion of a Form 12175 will not be required.
IRC 7605(b) prohibits unnecessary examinations or investigations of a taxpayer and limits the Service to one inspection of a taxpayer’s books of account for each taxable year unless the taxpayer requests otherwise or unless the Secretary or his delegate after investigation, determines that further inspection is necessary and notifies the taxpayer in writing of this determination.
An examination of the taxpayer’s books for the purpose of collecting the tax after an examination to determine the liability is considered to be an original examination not subject to the restrictions of IRC 7605(b).
Banks and other financial institutions have sometimes argued that producing records of a taxpayer’s financial transactions pursuant to a summons would violate the Fair Credit Reporting Act (FCRA), 15 USC 1681 et seq. (1970). To protect consumers’ interests, the FCRA restricts the circumstances under which a "consumer reporting agency" may furnish a "consumer report" to third parties, including the Service.
A "consumer reporting agency" is defined as ". . . any person which for monetary fees or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports." 15 USC 1681a. A bank may be considered a "consumer reporting agency" if it meets the above definition.
The FCRA specifically excludes from its definition of a "consumer report" any report containing information solely as to transactions or experiences between the consumer and the person making the report. 15 USC 1681a. Thus, information relating only to the bank and its customer (which is generally what the Service seeks) is not covered by the Act, and the bank can produce this summoned information without violating the FCRA. United States v. Lake County National Bank, 35 AFTR2d 75-1428 (N.D. Ohio 1975); United States v. Bremicker, 365 F. Supp. 701 (D. Minn. 1973).
Where the Service has an assessment lien against the taxpayer, has reduced a taxpayer's liability to judgement, or has entered into an offer in compromise or settlement agreement with the taxpayer, the Service can obtain a full credit report pursuant to 31 USC 3711(h)(2) without issuing a summons.
Some cases handled by revenue officers begin as tax delinquency investigations, i.e., the investigation begins before there is an assessed tax liability, usually because the taxpayer failed to file a tax return. In these cases, the Service must issue a summons to obtain a credit report; the Service cannot lawfully request a credit report informally. See 31 USC 3711(h) and the FCRA 15 USC 1681b. The Service can receive a full credit report by obtaining the consumer's written permission or by issuing a summons. A summons satisfies the permissible circumstance requirement of 15 USC 1681b(a)(1), which provides that a consumer reporting agency may furnish a full credit report "in response to the order of a court having jurisdiction to issue such an order ...." The Service takes the position that a third-party recordkeeper summons satisfies the court order requirement in 15 USC 1681b(a)(1) because IRC 7603(b)(2)(B) specifically contemplates the IRS issuing a third-party summons to a consumer reporting agency under the FCRA.IRC 7609(i) protects a third party that responds to a summons if the person entitled to notice of the summons does not file a timely motion to quash with the district court. Title 15 1681b(a)(1) does not require the Service to be a creditor of the taxpayer before acquiring a full credit report by summons.
Any questions concerning the scope of the Fair Credit Reporting Act or its application to specific situations should be referred to Area Counsel. See also IRM 18.104.22.168, Consumer Credit Reports, for additional information on obtaining credit reports.
The First Amendment to the Constitution guarantees the right of free expression; this includes the right to assemble freely; freedom of the press; freedom of religion; and freedom of speech.
The Fourth Amendment protects against unreasonable searches and seizures. Unlike the Fifth Amendment, discussed below, corporations and other organizations are entitled to the protection afforded by the Fourth Amendment.
The Fifth Amendment affords a person a privilege against self-incrimination. It applies to both documentary requests and requests for oral testimony. There are different analyses for each type of request.
Area Counsel should be contacted in any case in which the taxpayer raises a constitutional defense to summons enforcement, or for any questions concerning the application of a constitutional argument to a specific situation.
The type of information sought by a revenue officer through the issuance of a summons generally does not tend to develop criminal potential of a case. Therefore, it is not mandatory that the person summoned be informed of his constitutional privilege against self-incrimination. In any case in which the revenue officer believes the criminal potential is so manifest that a warning may be appropriate, Area Counsel should be contacted.
Certain confidential relationships between a taxpayer and a witness or another person may give rise to a claim of a privilege from testifying or providing information pursuant to a summons. In the context of IRS summonses, the determination of whether a particular matter is privileged is governed by federal law. Questions concerning the validity of a privilege or its applicability to a particular situation should be referred to Area Counsel.
A person cannot successfully refuse to testify or provide information solely on the basis that she stands in a confidential relationship with another person. The burden is on the witness first to establish the facts on which the asserted privilege is based and then to demonstrate how, and the extent to which, the requested information is covered by the privilege. United States v. Kovel, 296 F.2d 918 (2d Cir. 1961).
A person may forfeit a privilege either by expressly waiving it or failing to assert it. Fed.R.Civ.P. 12(b); see Hunt v Blackburn, 128 U.S. 464 (1888); Cotton v. United States, 306 F.2d 633, 637 (2d Cir. 1962), citing United States v. United Shoe Mach. Corp., 89 F.Supp. 357, 358-59 (D. Mass. 1950).
In general, communications from a taxpayer to an attorney made in confidence for the purpose of obtaining legal advice are privileged, and the attorney cannot be compelled to disclose that information to the Service. 8 Wigmore, Evidence 2291 (McNaughton rev. 1961); United States v. United Shoe Mach. Corp., 89 F.Supp. 357, 358-59 (D. Mass.1950). Also, if the taxpayer creates records to facilitate the exchange of privileged communications with the attorney, those records are privileged. United States v. Davis, 636 F.2d 1028, 1041 (5th Cir. 1981); United States v. Bartlett, 449 F.2d 700, 703 (8th Cir. 1971). However, if a taxpayer turns over pre-existing records to an attorney, the Service can obtain those records by summons, unless the records were otherwise privileged from production while in the taxpayer’s possession. Id.
As the foregoing information suggests, the attorney-client privilege is not all-inclusive and does not protect everything an attorney may do for a client. The privilege is confined to communications made in confidence by the client for the purpose of obtaining legal advice from an attorney. United States v. Rockwell International, 897 F.2d 1255 (3d Cir. 1990). The client in a corporate setting may be any officer or employee of the corporation. Upjohn v. United States, 449 U.S. 383 (1981). Also, underlying factual information can be obtained from the employees whether or not this same information has been communicated to the corporation’s attorney. Books and records of a taxpayer are not privileged merely because they are in the hands of his attorney. If the records were compellable from the taxpayer, the taxpayer cannot cloak them with the privilege by transferring them to an attorney. Fisher v. United States, 425 U.S. 391 (1976).
Ministerial or clerical services are not within the attorney-client privilege. Records of financial transactions involving monies paid by or on behalf of a client to an attorney are not covered by the privilege. When an attorney acts as the client’s business advisor, or agent for the receipt or disbursement of money or property to or from third parties, the attorney is not acting in a legal capacity and records of such transactions are not privileged. United States v. Davis, 636 F.2d 1028 (5th Cir.), cert. denied, 454 U.S. 862 (1981). The identity of a client or the fact that a given individual has become a client are matters which are not usually within the privilege in the absence of special circumstances. United States v. BDO Seidman, 337 F.3d 802 (7th Cir. 2003); United States v. Sidley Austin Brown & Wood LLP, 2004-2 USTC 50,289 (N.D. Ill. 2004).
The preparation of a tax return is primarily an accounting service. When an attorney prepares his or her client’s tax returns, the workpapers produced by the attorney while preparing the returns and the tax records on which they are based are not shielded by the attorney-client privilege. United States v. Under Seal, 748 F.2d 871, 877 (4th Cir. 1984); United States v. Lawless, 709 F.2d 485, 487 (7th Cir. 1983) ("When information is transmitted to an attorney with the intent that the information will be transmitted to a third party (in this case on a tax return), such information is not confidential." ); United States v. Frederick, 182 F.3d 496 (7th Cir. 1999); United States v. Pipkins, 528 F.2d 559, 563 (5th Cir. 1976) ("Courts have refused to apply the privilege to information that the client intends his attorney to impart to others." ). The same is true of the communications between the client and the attorney about the return being prepared. Id.
The work-product doctrine protects documents prepared by an attorney acting for his client in anticipation of or for use in litigation. Hickman v. Taylor, 329 U.S. 495 (1947); United States v. Textron, Inc.,, 577 F.3d 21 (1st Cir. 2009); United States v. Davis, 636 F.2d 1028 (5th Cir. 1981); Hodges, Grant & Kaufmann v. United States, 768 F.2d 719 (5th Cir. 1985); Fed.R.Civ.P. 26(b)(3) (protecting against disclosure of the mental impressions, conclusions, opinions or legal theories of an attorney or other representative of a party concerning the litigation).
This doctrine applies to IRS summonses. Upjohn Co. v. United States, 449 U.S. 383 (1981); Borstein v. United States, 977 F.2d 112 (4th Cir 1992).
The obligation imposed by a tax summons remains subject to traditional privileges and limitations, United States v. Euge, 444 U.S. 707 (1980), and nothing in the language or legislative history of the IRS summons provisions suggests an intent on the part of Congress to preclude application of the doctrine to tangible things constituting attorney work product, absent a showing by the IRS of substantial need and inability to obtain the equivalent without undue hardship.
In United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998), the Second Circuit held that the work product protection should be granted if the document could fairly be said to have been prepared "because of" the prospect of litigation. In order to determine whether a document was prepared because of anticipated litigation, a court should look to the purpose or function for which a document was prepared, rather than to the content of the document. United States v. Textron, Inc., 577 F.3d 21 (1st Cir. 2009); United States v. Roxworthy, 457 F.3d 590 (6th Cir. 2006).
Prior to the IRS Restructuring and Reform Act of 1998 ("RRA 1998" ), the accountant-client privilege was only provided by law in some states; it was not recognized in Federal law. Couch v. United States, 409 U.S. 322 (1973); United States v. Arthur Young, 465 U.S. 805 (1984). With the enactment of IRC 7525 by RRA 1998, the attorney-client privilege was extended to include communications between a taxpayer and a tax practitioner, including accountants, to the extent that such communications would be considered privileged communications if they were between a taxpayer and an attorney.
IRC 7525 extends the application of the attorney-client privilege to communications between a taxpayer and any "federally authorized tax practitioner" with respect to "tax advice" to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney. The law merely extends the application of the attorney-client privilege to other individuals, it does not modify the attorney-client privilege of confidentiality. Thus, as with the attorney-client privilege, information disclosed to an authorized practitioner acting beyond the capacity of providing confidential federal tax law advice will not be privileged. United States v. KPMG, LLP, 316 F.Supp.2d 30 (D.D.C. 2004).
The American Jobs Creation Act of 2004 amended IRC 7525(b) by providing that the tax practitioner privilege does not apply to written communications in connection with the promotion of the direct or indirect participation of any person in any tax shelter. Prior to this amendment, the exception to the privilege was limited to written communications of this type regarding corporate tax shelters. The Government has the burden to prove preliminary facts in support of the IRC 7525(b) exception to the privilege. United States v. BDO Seidman, LLP, 492 F.3d 806 (7th Cir. 2007). "Promotion" of a taxpayer’s participation in a tax shelter means simply "furtherance" or "encouragement" , and is not limited to the marketing of a pre-packaged, one-size-fits-all tax shelter product. Valero Energy Corp. v. United States, 569 F.3d 626 (7th Cir. 2009). However, there is no necessary "written communication" when a participant in an oral conversation merely prepares personal notes of the conversation. Countryside Limited Partnership v. Commissioner, 132 T.C. 347 (2009).
The privilege may be waived by any disclosure of the privileged information to a third party not sharing a common legal interest with the client or not necessary to the tax practitioner-client consultation.
"Federally authorized tax practitioner" means any individual who is authorized under federal law to practice before the IRS. See Circular 230. The term includes attorneys, certified public accountants, enrolled agents and enrolled actuaries. The term "tax advice" means advice given by an individual with respect to matters within the scope of that individual’s authority to practice before the Service. IRC 7525(a)(3).
The privilege may only be asserted in:
(1) any noncriminal tax matter before IRS (IRC 7525(a)(2)(A)), and
(2) any noncriminal tax proceeding in federal court brought by or against the United States. (IRC 7525(a)(2)(B)).
The privilege may not be asserted to prevent the disclosure of information to any regulatory body other than the IRS, such as the Securities and Exchange Commission (SEC), including in an administrative or a court proceeding.
In general, there is no federally recognized privilege as to communications between a taxpayer and a physician. United States v. Moore, 970 F.2d 48, 50 (5th Cir. 1992).
The Health Insurance Portability and Accountability Act, (Pub. L. 104-191, enacted August 21, 1996), now provides privacy rights for individuals whose health care records are maintained by "covered entities." When seeking documents from health care providers, consult with Area Counsel.
In Jaffee v. Redmond, 518 U.S. 1 (1996), the Supreme Court ruled that communications between a psychotherapist and a patient are protected from compelled disclosure under Rule 501 of the Federal Rules of Evidence. This privilege includes communications made by patients to psychiatrists, psychologists, and licensed social workers.
The authority of the Service to issue and enforce summonses is governed by IRC 7602 et seq., which gives the Service broad powers to summon any information that may be relevant to the investigation of a person's tax liability. The Service’s summons powers should not be limited except by clearly expressed Congressional intent or clearly recognized privileges and immunities. In United States v. Arthur Young & Co., 465 U.S. 805, 816 (1984), citing, United States v. Bisceglia, 420 U.S. 141 (1975), the Supreme Court stated that except for traditional privileges and limitations, "other restrictions upon the [Service’s] summons power should be avoided absent unambiguous directions from Congress."
Although courts have been reluctant to circumscribe the Service’s summons power as granted to it by Congress, privacy rights have developed in the form of a patchwork of industry and sector-specific statutes that can be found in statutes other than the Code. When Congress has intended to exclude the Service from general restrictions placed on government investigatory powers contained in statutes other than the Code, it has done so explicitly. For example, Congress provided an exception for the Service from the strictures contained in the Right to Financial Privacy Act, 12 USC 3401 et seq., so long as the Service followed Code procedures. See 12 USC 3413; Neece v. United States, 922 F.2d 573 (10th Cir. 1990).
Certain federal privacy statutes were designed to protect the right to privacy from private and government sector infringement by imposing limitations on the Service’s summons authority. These limitations must be complied with before a party may disclose information to the Service pursuant to a summons. Examples of these statutes include the following:
The Health Insurance Portability and Accountability Act, (Pub. L. 104-191, enacted August 21, 1996);
The Family Educational Rights and Privacy Act, 20 USC 1232g (FERPA);
The Employee Polygraph Protection Act, 29 USC 2001–2009 (EPPA);
The Cable Communications Policy Act, 47 USC 551 et seq. (CCPA);
The Video Privacy Protection Act, 18 USC 2710 (VPPA);
The Communications Assistance for Law Enforcement Act, Pub. L. 103-414, Oct. 25, 1994 (CALEA);
The Stored Communications Act (SCA), 18 USC 2701-2712, enacted as Title II of the Electronic Communications Privacy Act of 1986 (ECPA), 18 USC 2510 et seq.; and
Part D of the Social Security Act, 42 USC 651-669.
With respect to the SCA, the Service has adopted a policy that it will obtain a search warrant (not use a summons) in all cases when it seeks from an internet service provider (ISP) the content of email communications stored by the ISP. Accordingly, the Service will not seek the content of email communications from an ISP in any civil administrative proceeding. See Policy Statement 4-120 (May 3, 2013).
When these statutes or others emerge in your cases, contact Area Counsel for advice as to their impact.
A witness appearing in response to an administrative summons will frequently claim other rights. Two frequently encountered are the rights to be represented by counsel and to make an audio recording of the summoned interview.
A witness appearing in response to a summons is clearly entitled to be represented by counsel of his or her choice. 5 USC 555(b).
Whether the witness may be entitled to any counsel of her choice has been the subject of some controversy. If a taxpayer’s counsel appears to represent persons with conflicting interests, such as representing both the taxpayer and a summoned third-party witness, consult the Summons Handbook at IRM 22.214.171.124, Dual Representation, and Area Counsel.
Taxpayers or their representatives may ask to make audio-tape recordings of the proceedings as long as 10 calendar days advance notice of intent to record is provided to the Service. If the taxpayer asks to record the interview, the Service employee must also record the meeting.
Cameras or videotape equipment are not permitted. At no time should employees try to physically confiscate this equipment. Revenue officers should follow the requirements of IRC 7521 and the procedures set forth in IRM 126.96.36.199.4,Audio Recording Procedures, concerning audio-taped interviews.
IRC 7610(a)(1) provides that persons who are summoned are entitled to receive witness fees and travel expenses. Such persons may be taxpayers or third parties, and they may obtain payment upon request. It should be noted that the conditions under which a summoned person may obtain payment for witness fees and travel expenses are separate and distinct from those under which payment for other costs associated with summons compliance may be authorized.
IRC 7610(a)(2) provides that the Service will pay certain third parties for the direct costs incurred in locating, reproducing or transporting records in compliance with a summons.
The costs for which such third parties may claim payment are in addition to, and not a substitute for, witness fees and travel expenses.
Refer to Treas. Reg. 301.7610-1(c)(2) for specific payment rates for search, reproduction, and transportation costs.
In general, neither the witness, nor a third party, including the taxpayer, is entitled to declaratory or injunctive relief through a suit brought to quash a summons. Such persons have an adequate remedy at law by a challenge to the summons before the examining agent and before the district court at the summons enforcement proceeding. Reisman v. Caplin, 375 U.S. 440 (1964).
IRC 7210 makes it a crime for a person to refuse or fail to testify or appear when summoned. That section provides for a fine of not more than a thousand dollars or imprisonment for not more than one year, or both, together with costs of prosecution, upon conviction.
The possibility of criminal prosecution under this section is, of course, a powerful tool at the disposal of the Service to compel compliance with the administrative summons. However, a conviction under IRC § 7210 does not accomplish the primary purpose of the summons, namely, obtaining the needed information, because any proceedings to enforce the summons would be held in abeyance pending the outcome of the criminal proceedings.
Criminal proceedings may be effective when, for example, the person summoned falsely claims the documents have been destroyed.
The judicial device for enforcing the administrative summons is provided by IRC 7402(b) and 7604. These sections provide a means of requiring the person summoned to comply.
IRC 7604(a) and 7402(b) provide that jurisdiction to compel summons compliance is in the United States District Court for the district in which the summoned person resides or is found. The effect of a proceeding under IRC 7604 is to obtain the assistance of the court in forcing the summoned person to give the desired information to the Service by having the court issue an order to that effect. Disobedience of such an order would be a civil contempt punishable by the court.
Disobeying a court’s summons enforcement order can be addressed by both civil and criminal contempt proceedings.
Civil contempt is designed to coerce compliance.
Criminal contempt is designed to punish disobedience.
The automatic stay provisions of 11 USC 362(a)(6) prohibit "any act to collect, assess or recover a claim against the debtor that arose before the commencement of the case under this title."
The Office of Chief Counsel has determined that service of a collection summons is an "act to collect" and should not be issued while the automatic stay is in effect. IRM 188.8.131.52(2), Automatic Stay - 11 USC 362.
Summonses issued as part of Delinquent Return Investigation (DEL RET), or any other investigation where the liability at issue has not been assessed or determined through a court judgment, are not considered collection summonses. Accordingly, these summonses would not violate the automatic stay provision of 11 USC 362(a).
The automatic stay provisions of 11 USC 362(a) do not bar the issuance of exam purpose summonses.
Indian Tribal Governments shall be treated as states for certain purposes per IRC 7871. Therefore, a unique relationship exists between Indian tribal governments and the United States government. This relationship requires a heightened level of sensitivity with respect to compliance efforts.
Do not serve a summons on a tribal government or a third party for information concerning a tribal government without coordinating with the Service's Indian Tribal Government (ITG) office in TE/GE. This coordination includes any summons issued by the Service, including those summonses issued to investigate the Trust Fund Recovery Penalty (TFRP) of a tribal entity. A summons initiated by Criminal Investigation is excepted from this requirement. See IRM 184.108.40.206.7.2, Indian Tribal Government, for additional information.