IRS Summons: Why the IRS Sends Summons & What to Do If You Receive
An IRS summons is an official order to provide information or testimony. The IRS issues summonses to people who are being investigated or who may have important information related to an investigation of another entity.
A summons is serious, and you should not ignore it. But you may want to consult with a tax attorney before responding.
Types of IRS Summonses
The most common IRS summons is Form 2039 (Summons). This form explains what the IRS wants. It may demand documents from you about yourself or a third party. Or, it may explain that the IRS has requested information about you from a third party. Form 2039 also outlines the relevant section of the Internal Revenue Code and your right to contest the summons.
IRS agents may alternatively decide to issue the following specialized summonses:
- Form 6637 (Summons Collection Information Statement) — to collect an assessed tax.
- Form 6638 (Summons Income Tax Return) — served on taxpayers who need to file an unfiled return.
- Form 6639 (Financial Records Summons) — may be served on third parties.
A direct summons is a summons sent directly to the person under investigation. For instance, if the IRS believes that you are hiding income, the agency may summon your bank account records. A third-party summons, in contrast, is sent to a third party to gather information about another person.
IRS Notices Before Sending Summons
In most cases, you will get several notices before you receive the IRS summons. The IRS typically starts with Form 4564 (Information Document Request). If you don't respond, the IRS will send a delinquency letter saying that you haven't responded.
A pre-summons notice follows this letter. Then, finally, the IRS sends the summons.
What to Do If You Receive a Summons
If you receive an IRS summons, you can hand over the information or appear as requested. For many people, that is the best option. Others resist handing over information because they're worried about incriminating themselves or hurting their relationship with a third party. But, this can trigger a criminal investigation.
You have the right to contest the summons. But unfortunately, the IRS wins over 95% of these arguments. To ensure you're making the right decision, you may want to consult with a tax attorney or tax professional who has experience with IRS summons.
What If You Don't Respond to an IRS Summons
If you ignore a summons, the IRS will show the courts that the requested information is relevant to a legitimate investigation. IRS agents must follow strict rules when sending out a summons. They tend to follow the rules closely, and by extension, the courts hold up most summonses.
If the district court says that the summons is enforceable, you can receive a citation for contempt if you continue to ignore it. That can lead to criminal persecution and jail time.
Your Rights When You Receive a Summons
When you receive a summons, you have the right to an explanation of the process. You can represent yourself or find a professional to represent you. If you are summoned for a meeting, you can record it, but you must request to do so in advance. Again, you also have the right to contest the summons.
What Makes an Enforceable Summons
When you contest a summons or request to have it quashed, the IRS must prove that the summons is enforceable. Based on the outcome of the United States vs. Max Powell, the summons must meet these criteria to be legally enforceable:
- Related to an investigation conducted for a legitimate purpose.
- Based on an inquiry relevant to the investigation's purpose.
- Used to request information that the IRS doesn't already have.
- Issued in line with all relevant sections of the Internal Revenue Code.
To establish that these four criteria are in place, the IRS usually uses a sworn affidavit from the agent who issued the summons. At this point, the burden of proof shifts to the taxpayer.
How to Contest an IRS Summons
You can use the following arguments to contest an IRS summons in court:
- The IRS already has the requested information.
- The statute of limitations has expired for the tax years related to the summoned information.
- The summons violates your constitutional rights.
- The summons was not issued properly.
A tax attorney can help you decide which argument is relevant to your summons. Or they can help you decide if another approach is more advantageous.
How Does the IRS Use Summoned Information?
The IRS summons information to get a better sense of your tax situation. The agency may summon information to back up details on your return during an audit. But the agency may also use summoned information for the following:
- To create a substitute for return (SFR).
- To locate assets for tax collection purposes.
- To investigate civil or criminal tax offenses
Can the IRS Summon Information About Me From Other Parties?
IRC Section 7602(a) gives the IRS the authority to confirm information about a filed return through third parties. This typically occurs when a taxpayer has refused to provide requested information during an audit. The IRS can reach out to the following people:
- A person who owes tax.
- An officer or employee of that person.
- A person who has possession of or takes care of the business books of that person.
- Any other person as deemed necessary.
In other words, the IRS can reach out to nearly anyone about your taxes. If the IRS believes that you haven't been paying payroll tax, for example, the agency may reach out to your employees to get information about your payroll practices. The IRS can also reach out to your bookkeeper, your accountant, or even just your Aunt Nancy who stores your bookkeeping records at her house. The category "any person deemed necessary" is obviously infinitely broad and subjective.
Notice for Third-Party Summons
Before serving a notice to a third party about you, the IRS must give you notice. You must be notified at least three days before the third party is served and at least 23 days before the deadline (compliance date) on their notice.
Your notification must include a copy of the summons and an explanation of your rights. If the IRS has requested a meeting with a third party to obtain information about you, you can request to have a representative at the meeting, but the third party must agree to the request.
How to Quash a Third-Party IRS Summons
If the IRS issues a third-party summons, you will receive a copy and you have 20 days to file a petition in U.S. District Court to quash the summons. Quash refers to a legal request to have a judge annul the summons. This is the same process as contesting the summons.
You must meet a relatively narrow set of criteria to get a summons quashed. You can show that you already provided the information or that the information doesn't exist. Alternatively, you can contest the summons by saying that it disrupts attorney-client privilege, tax-advisor privilege, or work-product privilege. Or, you can argue that the examiner didn't follow the correct procedures when issuing the summons.
If you request to quash a summons and the third party already sent in the documents, the IRS cannot look at the documents unless you give your consent or the courts grant permission.
IRS Summons and the Statute of Limitations
There is a statute of limitations on tax collection. Typically, the statute expires 10 years after the return was filed or the taxes were assessed. The statute of limitations pauses when you request to quash a summons. It stays paused while the rest is pending and until it is resolved.
What Is a John Doe Summons?
A John Doe summons is a blanket request for information about multiple taxpayers in a group. For example, the IRS used John Doe summonses to request information about taxpayers with offshore bank accounts at several foreign banks. In its recent focus on cryptocurrency compliance, the agency successfully used a John Doe summons to obtain information on thousands of Coinbase account holders.
What to Do If You Receive a Third-Party Summons
If you receive an informal request for information about a third party, you may want to respond quickly to resolve the issue or wait until you receive a summons before providing the information. The optimal choice depends on the situation.
In some cases, you may be able to respond to an information request without compromising yourself. However, if you're an accounting professional, you may want to wait until you receive a formal summons or authorization from the client to ensure that you don't violate client confidentiality rules. Additionally, financial institutions need to ensure that they don't violate the Right to Financial Privacy Act.
This is not legal advice. Consult with a tax attorney or tax professional to decide the best way to respond to an IRS summons for information.
Elements of an Enforceable Third-Party Summons
To be enforceable, a third-party summons must contain the following details:
- Name and address of the person whose tax returns are under examination.
- Tax periods under examination.
- Identity of the person being summoned — in the case of a corporate summons, this should be the corporate officer, director, managing agent, or another authorized person.
- Description of the summoned items — the IRS cannot require you to create documents that don't exist.
- Date, place, and time by which the information must be received — If summoning someone to appear, the IRS must give them at least 10 days.
Get Help With an IRS Summons
In most cases, if you receive a request for information from the IRS, you should probably respond. However, the best course of action can vary based on the type of information requested, your risk of criminal exposure, and your relationship with the taxpayer in the case of a third-party summons.
To get help responding to a summons or deciding what to do after you receive an IRS summons, you should reach out to a tax professional. At TaxCure, we have a directory of tax professionals in your area. To get help and guidance, search for a tax pro experienced with IRS summons today.