Tax Practictioners Report Increase in Summons Issuance; IRS Issues New Guidance on Informal Document Requests

Sep 19, 2013   
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Tax practitioners have reported an increase in the issuance of IRS summonses in recent months, despite statements from the IRS indicating that it prefers informal means of investigation. Because of the intrusive nature and wide-ranging scope of the IRS’s summons power, an increase in summons issuance could be a worrying sign for taxpayers.

IRS Summons Background

Summonses are issued pursuant to a broad grant of authority contained in Internal Revenue Code section 7602. Specifically, section 7602 permits the IRS, for the purpose of ascertaining the correctness of a return, determining liability, making a return where none has been filed, or collecting a liability, to summon

a person liable for the tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry.

Clearly, the summons power is expansive in its scope and penetrating in its reach. It is one of the IRS’s most effective and powerful enforcement tools. The Supreme Court has set limits on the broad scope of § 7602. Specifically, to enforce a summons the summons recipient has failed to comply with, the IRS must establish that (1) the examination must be conducted for a limited purpose; (2) the information sought may be relevant to that purpose; (3) the IRS does not already possess the information sought; and (4) the IRS has followed all necessary administrative steps, particularly regarding notice and service of the summons. United States v. Powell, 379 U.S. 48 (1964).

Becoming involved in protracted litigation regarding summons enforcement can also be dangerous to the IRS because the issuance of a general summons does not toll the statute of limitations on the taxpayer’s liability, and the limitations period for assessment may expire while issues regarding summons enforcement are still being fought.

However, despite these protections, an IRS summons is still an extremely potent investigatory tool and the receipt of a summons places a taxpayer in a hazardous situation. Providing false information, destroying documents, or failing to respond properly to a summons can lead to criminal liability. Further, each record provided to the IRS pursuant to a summons can be used to build a case against the taxpayer.

Recent Increase in Summons Issuance and Developments in Other Areas of IRS Investigatory Techniques

For these reasons, an increase in summons issuance is an important development for tax practitioners and taxpayers. It has been reported that the IRS has shifted its policy in South Florida so as to get IRS counsel involved in the audit of taxpayers sooner than has previously been the case. This demonstrates a far more aggressive approach to the audit process and, some believe, has been behind the increase in summons issuance. The increase has been particularly noticeable in higher-dollar cases.

The IRS officials have indicated that the issuance of a summons is a last resort, and that it prefers more informal sources of information gathering, such as simply speaking to the taxpayer about the desired information. Taxpayers should be wary, however, and not be misled by the informal nature of a conversation with an IRS representative. False statements made in the course of the conversation, even though not under oath, can create felony criminal liability under 18 U.S.C. § 1001.

Another preferred investigatory technique that does not rise to the level of a summons is an Informal Document Request (IDR). IDRs are often used by the IRS to acquire information and documents without resorting to the more drastic step of issuing a summons. In an effort to increase IDR efficiency, the IRS’s Large Business & International Division (generally covering corporate and pass-through taxpayers with assets in excess of $10 million) has announced new compliance procedures for the issuance of IDRs by Revenue Agents within the division, effective June 30 of this year. An IRS memorandum announcing the new guidelines can be found here.

The newly adopted procedures require IDRs to identify and state the issue that led the examiner to issue the IDR. Further, the IRS’s memorandum regarding the new procedures makes clear that the examiner must discuss the IDR with the taxpayer prior to issuance, and the examiner and taxpayer must discuss a reasonable time frame for responding to the IDR. Implicit in the new procedures appears to be an effort to prevent IRS Revenue Agents from seeking information without having a prior basis to assert the relevancy of the requested information. Further, the procedure by which to respond to an IDR is also altered by the new guidelines. Under the new guidelines, disputes regarding the IDR must be resolved, at least in part, prior to the issuance of the IDR, rather than afterwards.

The attorneys at Fuerst Ittleman David & Joseph, PL have extensive experience in the areas of IRS investigation and enforcement and civil and criminal tax litigation. They will continue to monitor the reported increase in IRS summons issuance. If you have any questions, an attorney can be reached by emailing us at or by calling 305.350.5690.