Academic journal article Journal of Accountancy

Nullifying IRS Access to Tax Preparation Software

Academic journal article Journal of Accountancy

Nullifying IRS Access to Tax Preparation Software

Article excerpt

A U.S. magistrate judge recommended that the U.S. District Court for the Northern District of Texas quash three summonses the IRS issued to obtain access to tax software programs on the grounds that their enforcement would constitute an abuse of the court's process (United States v. Caltex Petroleum, et al., no. 3-96-CV-2726-X, April 16, 1998).

Caltex has undergone a five-year audit of foreign tax credits claimed for 1987-1990. The IRS issued summonses for copies of the international and foreign modules of the Tax Management System (ITMS/FTMS), now owned by Computer Language Research Inc. (CLR), as well as the source code and related documentation used in computing foreign tax credits. Although Caltex and CLR claimed they had gone to some lengths to provide the IRS with other software and materials it could use to audit Caltex's data, the IRS insisted that they provide, in executable and readable formats, the software used in the original computations.

Magistrate Jeff Kaplan applied the legitimate purpose and relevancy tests set forth in United States v. Powell (379 U.S. 48, 1964) to determine whether to enforce or quash the summonses. Citing the Eighth Circuit's decision in United States v. Norwest (116 F3d 1227, 8th Cir. 1997), the magistrate concluded that the summonses had at least one legitimate purpose--helping the IRS determine Caltex's liability--and that the summonsed information was relevant to the audit because Caltex used the ITMS/FTMS program to calculate foreign tax credits. …

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