Opinion ID: 4523211
Heading Depth: 2
Heading Rank: 1

Heading: The IRS’s Summons Power

Text: Congress authorizes and requires the IRS “to make the inquiries, determinations, and assessments of all taxes . . . imposed by” the Internal Revenue Code (title 26 of the U.S. Code). 26 U.S.C. § 6201(a). As part of this authority, Congress empowered the IRS with “broad latitude to issue summonses ‘[f]or the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax . . . , or collecting any such liability.’” United States v. Clarke, 573 U.S. 248, 250 (2014) (alteration in original) (quoting 26 U.S.C. § 7602(a)). The IRS has authority to issue summonses to the subject taxpayer and to third parties who may have relevant information. See 26 U.S.C. § 7602(a)(2); High Desert Relief, Inc. v. United States, 917 F.3d 1170, 1181 (10th Cir. 2019). But the IRS has limits on its ability to issue and enforce third-party summonses. For example, the IRS must provide the taxpayer with notice of such a summons, and the taxpayer may intervene in any enforcement proceeding. See 26 U.S.C. § 7609(a)–(b). The taxpayer also has the right to petition a district court to quash the third-party summons. Id. § 7609(b). The federal “district court for the district within which the person to be summoned resides or is found shall have jurisdiction to hear and determine [such] proceeding . . . [and a]n order denying the petition shall be deemed a final order which may be appealed.” Id. § 7609(h)(1). In that same proceeding, the IRS may counterclaim to enforce the summons, and the district court’s decision will bind the third party “whether or not the person 9 intervenes in such proceeding[.]” Id. § 7609(b)(2)(A), (C). Such proceedings “should be summary in nature and discovery should be limited.” High Desert, 917 F.3d at 1181 (quoting United States v. Stuart, 489 U.S. 353, 369 (1989)) (internal quotation marks omitted). Courts operate under a familiar framework during such proceedings. See id. at 1181–82 (quoting Sugarloaf Funding, LLC v. U.S. Dep’t of the Treasury, 584 F.3d 340, 345 (1st Cir. 2009)). “As a threshold matter, the IRS must first show that it has not made a referral of the taxpayer’s case to the Department of Justice (‘DOJ’) for criminal prosecution.” Id. at 1182 (citing Anaya v. United States, 815 F.2d 1373, 1377 (10th Cir. 1987)); see also United States v. LaSalle Nat’l Bank, 437 U.S. 298, 311–13 (1978). Then “the IRS ‘need only demonstrate good faith in issuing the summons[,]’ . . . [which] means establishing what have become known as the Powell factors[.]” Clarke, 573 U.S. at 250 (quoting Stuart, 489 U.S. at 359). Powell requires that the IRS establish: (1) “that the investigation will be conducted pursuant to a legitimate purpose,” (2) “that the inquiry may be relevant to the purpose,” (3) “that the information sought is not already within the [IRS’s] possession,” and (4) “that the administrative steps required by the [Internal Revenue] Code have been followed.” 379 U.S. at 57–58. The IRS’s burden on these factors is slight “because the statute must be read broadly to ensure that the enforcement powers of the IRS are not unduly restricted.” United States v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1443 (10th Cir. 1985) (citing United States v. Kis, 658 F.2d 526, 536 (7th Cir. 1981)). The IRS generally 10 meets this burden with an affidavit of the agent who issued the summons. See id. (quoting United States v. Garden State Nat’l Bank, 607 F.2d 61, 68 (3d Cir. 1979); and citing Kis, 658 F.2d at 537). The burden then shifts to the taxpayer to factually refute the Powell showing or factually support an affirmative defense—conclusory allegations are insufficient. See id. at 1444 (quoting Garden State, 607 F.2d at 71). This is a heavy burden. Id. (citing Garden State, 607 F.2d at 68). If the taxpayer cannot meet this burden, “the district court should dispose of the proceeding on the papers before it and without an evidentiary hearing”—a hearing may be granted only if the burden is met. Id. at 1444 & n.2 (quoting Garden State, 607 F.2d at 71) (internal quotation marks omitted). Further, limited discovery is available “only in extraordinary situations” for “those defenses where . . . the taxpayer must rely on information peculiarly within the knowledge or files of the Service.” Id. at 1445 (citations and internal quotation marks omitted). “Because ‘the burden of showing an abuse of the Court’s process is on the taxpayer, it is . . . clear that the taxpayer must make a substantial preliminary showing before even limited discovery need be ordered.’” Id. (quoting United States v. Morgan Guar. Tr. Co., 572 F.2d 36, 42–43 n.9 (2d Cir. 1978)).