IRS Administrative Summons to a Taxpayer: The Taxpayer's Duties and Rights

In most IRS examinations, the taxpayer and the IRS prefer an informal information-gathering process with the IRS issuing Information Document Requests (IDRs) and the taxpayer providing responses. However, there are circumstances where the issuance of an IRS administrative summons to the taxpayer for documents and/or testimony becomes necessary. When the IRS issues an administrative summons, it is very important that the taxpayer and the taxpayers’ representative understand the taxpayer’s duties and rights in responding.

Pursuant to IRC Section 7602(a)(2), the IRS is authorized to issue an administrative summons for a taxpayer to appear before an IRS representative to produce books, papers or other data or give testimony under oath. The IRS must comply with strict procedures when issuing a summons. Failure to comply with these procedures could invalidate the summons and render it unenforceable.

Pursuant to Section 7603, the summons must be personally served on the person to whom it is directed by hand delivery of an attested copy to the person or by leaving an attested copy at the person’s last and usual place of abode. Although a taxpayer’s representative may offer to accept service on behalf his or her client, the IRS generally prefers to serve the taxpayer personally to avoid a defense that the IRS did not comply with Section 7603.

The summons must contain the following information:

1.    The name and address of the person whose tax returns are under examination and the tax periods under examination.

2.    The identity of the person summoned.  In the case of a corporation the summons must be served on a corporate officer, director, managing agent or other person authorized to accept service of process.

3.    A description of the items summoned, with reasonable certainty.  The IRS cannot require a person to create a document, such as a summary chart, that does not exist.

4.    The date, place and time for compliance.  These must be “reasonable under the circumstances”.   A summoned party may not be ordered to appear sooner than 10 days from the date of service of the summons. Section 7605(a)

If the summons is properly prepared, executed and served, the recipient cannot ignore it. Instead, the recipient must appear before the IRS agent who issued the summons at the time and place specified. Although the summoned person must appear, he or she is not required to comply with the summons if there is a good faith basis for objection. Objections may include (1) procedural defects, such as failure to comply with the statutory requisites for service of a summons, (2) objections to the time and place for responding or (3) that the requests are irrelevant, overbroad, vague or burdensome. The person may also raise affirmative defenses such as abuse of process or the IRS already has the requested information. In addition, the person may refuse to comply with the summons by asserting privileges such as the 5th Amendment privilege against self-incrimination, the attorney-client privilege or the work-product privilege.

When a summoned person fails to respond or raises objections, the IRS agent can either take no further action or recommend that the Department of Justice bring an action to enforce the summons pursuant to Section 7604(b). The Department of Justice initiates an enforcement proceeding by filing a petition in the U.S. District Court where the person summoned resides or is to be found. Included with the petition is an affidavit of the issuing IRS agent establishing the following requirements set forth by the U.S. Supreme Court in U.S. v. Powell, 379 U.S. 48 (1964):

1.    The examination to which the summons relates is being conducted pursuant to a legitimate purpose.

2.    The summons seeks information that may be relevant to that purpose.

3.    The IRS is not already in possession of that information.

4.    The administrative steps required by the IRS have been followed.

If the government satisfied the Powell requirements, the U.S. District Court may issue an order requiring the summoned party to appear and show cause why compliance should not be required. The burden then shifts to the person resisting the summons to rebut the IRS allegations or present affirmative defenses such as procedural defects or privileges.  In U.S. v. Clarke, No. 13-301 (U.S. Supreme Court 6/119/14), the U.S. Supreme Court held that “a bare allegation of improper purpose” or bad faith on the part of the IRS in issuing a summons does not entitle a taxpayer to examine an IRS official regarding the reasons for issuing the summons. Rather, the taxpayer has a right to conduct an examination when he or she points to specific facts or circumstances plausibly raising an inference of bad faith.

If the summoned person does not meet its burden in rebutting the IRS allegations or present affirmative defenses, the court will order the person to comply with the summons by appearing and providing documents or testimony.  If the person fails to comply, he or she will be held in contempt and be subject to monetary penalties or imprisonment as determined by the court.

An IRS administrative summons is a very serious matter and failure to properly respond or object can have significant consequences.  If you have any questions about a summons or any other tax issue, please do not hesitate to contact Joel Crouch at (214) 749-2456.