Paul L. Caron

Thursday, June 26, 2014

Morse: Supreme Court Clarifies Standard for Evidentiary Hearing in Enforcement of IRS Summons

Following up on Saturday's op-ed by Steve Johnson on Thursday's Supreme Court decision in United States v. Clarke, No. 13.301 (U.S. June 19, 2014):  SCOTUSBlog:  Court Clarifies Standard for Evidentiary Hearing in Enforcement of IRS Summons, by Susan C. Morse (Texas):

The Supreme Court on June 19 unanimously vacated and remanded an Eleventh Circuit per curiam decision in United States v. Clarke.  The Eleventh Circuit had reversed a district court refusal to grant a summons recipient an evidentiary hearing to challenge an IRS summons.  The Supreme Court emphasized the abuse of discretion standard applicable to the review of the district court’s decision and clarified the standard that the district court itself should apply.  It explained that “the taxpayer is entitled to examine an IRS agent when he can point to specific facts or circumstances plausibly raising an inference of bad faith.”  The decision leaves open an underlying legal question in the case:  whether improper purpose can follow from the issuance of a summons in retaliation for refusal to extend a statute of limitations and/or in anticipation of a not-yet-filed Tax Court suit.

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HTA: As a matter of law, the key date in summons enforcement is the date the summons was issued, not the date the DOJ filed the petition to enforce it. What bothers you about enforcement after the FPAA has been issued--the Service gets access to information it should have had before it issued the FPAA? Isn't the goal here to get the right result? Or is it a game of hide the ball?

Posted by: Publius Novus | Jun 26, 2014 1:47:15 PM

I have heard within tax practitioner circles of the legend of the IRS missing the assessment deadline when the statute is not extended. In practice, not one of my clients that refused to extend the statute have been lucky to get this result. I have, however, had success working with the IRS to resolve issues sooner rather than later after filing a petition in reply to the SNOD. I would appreciate any stories regarding success in quashing a summons or running out the statute during an audit?

Posted by: Daniel | Jun 26, 2014 7:40:21 AM

Pubius, what I found more disturbing about the case was enforcing the summons after the Service had issued its FPAA and after the taxpayer had filed a petition with the tax court.

Posted by: HTA | Jun 26, 2014 7:35:17 AM

This is an unremarkable decision; SCOTUS likely granted cert only because the 11th Circuit's summons jurisprudence on “improper purpose” was completely out-of-line with the other circuits and the legislative purpose of the statutory modifications made to summons procedures in the early 1980s. NB: although nearly all the commentators are writing about “retaliation” by the IRS against the taxpayer who refused to extend the statute of limitations, that word does not appear in the SCOTUS opinion. In my view, “retaliation” is a rather silly issue that is used mostly by non-tax lawyers and clueless journalists. If the taxpayer refuses to extend the statute of limitations during an examination, the Service is almost always going to issue one or more summonses. That is not retaliation; it is information gathering necessitated by the assymetrical distribution of information about and concerning the taxpayer’s circumstances. Most knowledgeable commentators acknowledge that the taxpayer–not the Service–possesses a vastly greater portion of the factual information necessary to resolve a tax controversy. The Service must gather the required information from the taxpayer and, if necessary, from third parties.

Posted by: Publius Novus | Jun 26, 2014 7:19:25 AM