The Enforcement of IRS Summonses and Section 7609

By Tusa, Madeline | St. John's Law Review, April 1, 2017 | Go to article overview

The Enforcement of IRS Summonses and Section 7609


Tusa, Madeline, St. John's Law Review


INTRODUCTION

When Thomas More wrote of his version of Utopia, he envisioned a world in which "all laws are promulgated for this end, that every man may know his duty; and therefore the plainest and most obvious sense of the words is that which ought be put upon them."1 Of course, More's world did not have the Internal Revenue Service ("IRS") or the Internal Revenue Code (the "Code"). The taxpayer interest in avoiding burdensome intrusion and the IRS interest in obtaining necessary information has made a plain interpretation of the tax code infeasible. This struggle, however, is nothing new.2 History has revealed that the dominance of each interest has shifted based on societal need: In times of trouble, the need for revenue takes over; in calmer times, taxpayer interests are given more weight.3 Which interest has prominence at any given time "affects legislative, regulatory, and judicial actions; it implicates not just substantive rules of tax liability and tax rates but also styles of statutory interpretation and the rules and devices of tax procedure."4 The United States Supreme Court's decision in United States v. Powell is an example of an attempt to balance these interests. 5

The IRS, part of the United States Department of the Treasury, is interested in ensuring that citizens meet their tax obligations.6 In fact, the IRS is among "the world's most efficient tax administrators."7 The IRS is so efficient partly because of its broad statutory authority.8 Part of that power includes the ability to use summonses to determine taxpayer liability.9 The summonses, however, are not self-enforcing.10 Thus, if a party ignores or refuses to comply with a summons, the IRS must bring a proceeding to have it enforced.11 At such a proceeding, a taxpayer may contest the summons on several grounds, but to do so successfully requires satisfying an extremely high burden.12

One of the ways a taxpayer may contest a summons enforcement is to claim that the IRS did not follow proper "administrative steps" when it issued late notice of a summons, violating Section 7609(a) of the Code.13 Section 7609(a) requires notice to taxpayers when summonses are served on third parties for purposes of an IRS investigation of the taxpayer.14 However, taxpayers have largely been unsuccessful in using Section 7609 violations to quash summonses.15 Whether or not this notice requirement is a mandatory step that, if not followed, would be grounds for quashing a summons has split the circuits. The United States Court of Appeals for the Second, Eleventh, and Sixth Circuits have ruled that failure to comply with the notice requirement is not grounds for quashing a summons as long as the "totality of the circumstances" indicates a good faith effort on behalf of the IRS and a lack of taxpayer prejudice.16 In contrast, the United States Court of Appeals for the Tenth Circuit ruled that the language of the statute makes notice of a third-party summons a mandatory requirement, and therefore failure to strictly comply with the statute will be grounds to quash a summons.17

The circuit courts adopting the totality of the circumstances approach based their conclusions on a balancing of competing interests.18 On one hand, forcing the IRS to reissue summonses because of improper notice would use up valuable IRS resources only to end up in the same place.19 Further, in a system relying on individuals self-reporting, the IRS's ability to obtain information is a "crucial backstop."20 The Powell decision works to reinforce that backstop by "reduc [ing] informational asymmetry between the parties, so that administrative and judicial determinations on the merits can be made on something approaching a level playing field."21

On the other hand, the Code takes taxpayer interests into consideration. First, constraining the IRS's ability to get information "would "enable 'dishonest persons to escape taxation, thus shifting heavier burdens to honest taxpayers. …

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