Topic: Tax Audits
An administrative summons is a common tool for the IRS to gather information during a tax audit. Section 7602 of the Internal Revenue Code gives the IRS power to compel a person, or business, to appear and/or produce records to the IRS. If a summonsed person fails to appear, testify, or to produce the requested documents, the IRS can bring an action to enface the summons in the appropriate U.S. District Court pursuant to IRC § 7402(b). But when can a taxpayer contest an IRS summons, and possible quash it?
The mechanism for challenging a summons is found in Section 7609 of the Internal Revenue Code. Generally, an IRS summons can be quashed if it fails one of the four Powell standards. Under those standards, the IRS must demonstrate the summons is (1) issued for a legitimate purpose; (2) relevant; (3) requests information not possessed by the IRS; and (4) the IRS has complied with the necessary administrative steps. Despite these factors, district courts seem to Through a variety of court holdings, the first two Powell factors are very broad, allowing the IRS to "examine any books, papers, records, or other data which may be relevant or material." The third Powell factor is also very broad, and will not negate a summons even if the information is in IRS possession but difficult to retrieve.
Kevan McLaughlin is a San Diego based tax controversy attorney who defends taxpayers before the IRS, Department of Justice, and local tax agencies.
Kevan McLaughlin, a San Diego based tax controversy attorney, discusses issues related to contesting an IRS administrative summons.