What is an IRS Summons and How To Respond?

What is an IRS Summons and How To Respond?

 

If you have received an IRS summons in the mail, you’re likely experiencing stress and worry wondering how best to proceed. A summons from the IRS is typically received because the agency requires your assistance with an investigation or in providing additional records.

In addition, you might be asked to provide testimony for an investigation being conducted by the agency. An IRS summons can be issued to the subject of an investigation (first-party summons) or to a third party (IRS third party summons) who might have information the IRS needs to conclude an investigation.

The IRS is given authority to request information from documents that might help them determine the accuracy of a filed return through IRC Section 7602(a). The majority of taxpayers will provide this information when they are audited. The most common form of documentation requested through a summons is when the IRS summons bank records.

What Should I Do if I Receive an IRS Summons?

Receiving an IRS summons Form 2039 is not the end of the world. However, you should consult with an experienced Los Angeles tax attorney about the summons and your situation, especially if you are the subject of an IRS investigation. Never ignore an IRS summons to appear, as doing so can put you in a more difficult position.

When you speak with a tax attorney about the summons, you will be able to determine the following:

  • The information you are being requested to submit to the IRS
  • If you have any available arguments for refusing to provide those documents
  • If you will incriminate yourself if you provide the requested documents

Notices Before an IRS Summons

It is important to note that you should receive other communication from the IRS before being issued a summons. The most common notice you will receive prior to a summons is the Information Document Request (IDR). It is similar to the summons in that it requests additional information for the investigation, but it is not yet to the level of an official summons. This is an informal request. If you choose not to respond to the IDR request or you failed to provide all the information requested, the IRS can issue a summons. This is the most formal type of information requests. The IRS summons can be enforced by a federal district court and theIRS summons enforcement can lead to an order of contempt, which often includes time in jail.

Why Does the IRS Issue Summons?

The IRS has the authority to issue summons for any of the following reasons:

  • To determine if a return was correctly filed
  • To prepare a tax return when none was filed
  • To ascertain the liability of a person for internal revenue tax
  • To ascertain the equity of a transferee, liability at law, or fiduciary of a person related to internal revenue tax
  • To collect internal revenue tax
  • To investigate civil or criminal offenses related to the enforcement or administration of internal revenue laws

Different Types of IRS Summonses

The IRS issues four different types of summons:

  1. Designated summons
  2. Related summons
  3. Third party recordkeeper summons
  4. John Doe summons

Designated Summons

The designated summons is issued to a corporation or to anyone who holds the records of a corporation that are being examined. Prior to this summons being issued it must be reviewed by the IRS Office of Chief Counsel. Once approved, the summons must be issued at least 60 days before the expiration of the limitations set forth on the assessment.

Related Summons

The related summons is issued in relation to a previously issued designated summons and is required to be issued in the 30-day period that starts when the designated summons was issued by the IRS. It can only include information from the related corporate income tax return that was named on the designated summons.

Third Party Recordkeeper Summons

This type of summons is only issued to the following:

  • Bank
  • Accountant
  • Attorney
  • Regulated investment company
  • Other recordkeeper

Until the Taxpayer First Act (which was effective July 1, 2019), the primary case cited for third party summons was Ip v. U.S., 205 F. 3d 1168 (9th cir. 2000). If the IRS wants to summon a third party regarding obtaining information about you, the IRS must send notice to you first (at least 45 days) before contacting that third party. These notices are similar to a summons which means that there should be personal service of notice or certified mail to the last known address.

John Doe Summons

The John Doe summons is issued to a third party by the IRS without identifying the person whose liability is being investigated. This type of summons is only allowed to be issued when the IRS proves to the Justice Department that the following has occurred:

  1. The summons relates to the investigation of a particular person or ascertainable group or class of persons;
  2. There is a reasonable basis for believing that such person,group, or class of persons may fail or have failed to comply with tax laws;
  3. The information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.

Responding to an IRS Summons

Should your tax attorney advise you to respond to the IRS summons, it’s important to note that your response will differ from other clients who have received a summons. All cases are different and there are no common answers as to how best to respond to an IRS summons. In some cases, it might be in your best interest to simply provide the IRS with the information it has requested. In other cases, doing so might incriminate yourself. The information the IRS has requested might also be protected by attorney-client privilege. You won’t know the best course of action, which is why you should consult tax attorney services for IRS summons.

Can I Quash an IRS Summons?

Yes, there is a process in which you can file a motion to quash IRS summons. This is a legal process that can only be performed if the request from the IRS was formal. In order to quash the summons, you must file an appeal, which will be heard by a judge.

The summons must have been issued to a third party in order for the appeal process to occur. The recipient of the summons has 20 days from the date on the notice to petition to quash IRS summons. For the summons to be quashed by the court you will need to prove that the information was either already provided to the IRS, that you have cooperated with the IRS, or that the information being requested does not exist.

Enforcing an IRS Summons

In order for the petition to enforce IRS summons to occur, it must pass the Powell Test. The Powell Test stems from the Supreme Court case United States v. Max Powell. The summons must show the following under the Powell Test.

  • The investigation will be conducted pursuant to a legitimate purpose
  • The inquiry may be relevant to that purpose
  • The information sought is not already within the IRS’s possession
  • The administrative steps required by the Code have been followed

For the most part, the IRS satisfies the requirements of the Powell Test by having the agent assigned to the case sign a sworn affidavit. After the IRS has issued the summons, the burden of proof moves to the taxpayer to show that the IRS failed to meet at least one of the four requirements of the Powell Test.

In the Supreme Court case of U.S. v. Powell, the court ruled that the IRS cannot send a summons simply for any of the following reasons:

  • To put pressure on a taxpayer into settling a dispute
  • To harass a taxpayer
  • For any other reason or purpose that adversely reflects on the good faith of the
    agency’s investigation

The Rights of the Taxpayer

The taxpayer who received the IRS summons has a handful of rights when dealing with a summons, including the following:

  • The right to have the IRS summons procedure explained
  • The right to obtain legal representation
  • The right to record the IRS summons interview so long as the request has been made prior to the interview
  • The right to have a representative present if a third party is being interviewed by the IRS

The statute of limitations on assessing tax liabilities and criminally prosecuting the taxpayer is suspended once a summons is issued by the IRS. The suspension lasts for the period that the summons is pending, including any proceedings to quash the summons by the taxpayer.

How Does the IRS Issue Summons?

The IRS, under Section 7603, is required to hand deliver (personal service) a summons or leave it at the taxpayer’s “usual place of abode” to someone that is over the age of 18. In regards to a corporation, personal service is the only method. The IRS takes the view that if you are serving the summons on a corporate officer, you can serve the summons at that person’s last and usual place of abode. If the focus is on the corporation, and not on the corporate officer, then the only option is personal service. However, the IRS can deliver a summons for a third party by certified mail. The agency is permitted to serve a summons via email or fax if the taxpayer has waived personal service and authorized service through alternate methods.This can only be done in writing by the taxpayer.

Contact Abajian Law For Tax Representation Today

Have you received a summons from the IRS? Receiving a summons is stressful and worrisome. You have the right to legal representation, so be sure to seek counsel prior to responding to an IRS summons. Whether you are the focus of the agency’s investigation or are a third party, the experienced tax attorney at Abajian Law can represent you during this stressful process. Call our office at 818-396-5059 to schedule a consultation with a member of our team. We serve clients throughout Southern California, including Glendale, Los Angeles, and Irvine.