Protecting the Family Jewells: The Case for Strict Enforcement of Taxpayer 23-Day Notice for IRS Administrative Summonses

Author:Jeremy E. Carroll
Position:J.D. Candidate, The University of Iowa College of Law, 2017
Pages:1299-1333
SUMMARY

Congress has granted the Internal Revenue Service ("IRS") a broad administrative summons power that it can use with almost unlimited discretion to produce records and testimony to investigate taxpayers for incorrect tax returns. While these investigations are intended to be civil in nature, evidence uncovered during the investigation can lead to criminal prosecution. However, section 7609 of the... (see full summary)

 
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Protecting the Family Jewells: The Case for
Strict Enforcement of Taxpayer 23-Day
Notice for IRS Administrative Summonses
Jeremy E. Carroll*
ABSTRACT: Congress has granted the Internal Revenue Service (“IRS”) a
broad administrative summons power that it can use with almost unlimited
discretion to produce records and testimony to investigate taxpayers for
incorrect tax returns. While these investigations are intended to be civil in
nature, evidence uncovered during the investigation can lead to criminal
prosecution. However, section 7609 of the Internal Revenue Code (“IRC”)
provides taxpayers some protection by requiring the IRS to give taxpayers 23-
days’ notice before they can enforce a summons on third-party records
pertaining to the taxpayer. This gives the taxpayer under investigation an
opportunity to quash the summons if the taxpayer can convince a judge that
the IRS is using their administrative summons for an improper purpose (for
example, attempting to uncover criminal tax fraud but claiming that the
investigation is civil in nature, or simply using the administrative summons
as a form of harassment). Yet when the IRS has failed to give a taxpayer the
full 23-day notice, circuit courts have found various methods of excusing the
lack of notice, thereby depriving the taxpayer of the protection set forth by
Congress. This changed in 2014 with the Tenth Circuit’s decision in Jewell
v. United States. In Jewell, the Tenth Circuit created a circuit split by
finding that if the IRS gives a taxpayer less than 23-days’ notice and the
taxpayer files a motion to quash the summons, the motion must be granted.
This Note argues that the Tenth Circuit is the only court to have thus far come
to the correct legal interpretation of IRC § 7609. It explores the legal
justification of the Tenth Circuit’s holding as well as substantial public policy
reasons for requiring strict enforcement of the 23-day notice requirement.
I. INTRODUCTION ........................................................................... 1300
*
J.D. Candidate, The University of Iowa College of Law, 2017. I would like to thank Eric
Hartmann, Jon Woodruff, and the editorial staff and student writers of the Iowa Law Review for
their help in publishing this Note.
1300 IOWA LAW REVIEW [Vol. 102:1299
II. CREATION OF THE 23-DAY NOTICE REQUIREMENT AND THE
JUDICIAL HANDLING OF IRS NONCOMPLIANCE .......................... 1302
A. CREATION OF THE 23-DAY NOTICE REQUIREMENT .................. 1303
B. DECISIONS LEADING TO THE CIRCUIT SPLIT ............................ 1305
1. The Powell Factors...................................................... 1305
2. The Circuit Courts’ Application of Powell ............... 1306
C. THE TENTH CIRCUITS RULING IN
JEWELL V. UNITED STATES ................................................... 1309
III. THE POWER OF THE ADMINISTRATIVE SUMMONS AND THE
POTENTIAL FOR ABUSE ............................................................... 1310
A. PRIVACY RIGHTS ................................................................... 1312
B. CRIMINAL INVESTIGATIONS .................................................... 1313
1. Donaldson and LaSalle ................................................ 1314
2. Concerns after Donaldson and LaSalle ...................... 1316
IV. BRINGING JEWELL FURTHER ........................................................ 1318
A. EXPANDING ON THE TENTH CIRCUITS REASONING IN JEWELL . 1318
1. The 23-Day Notice Is Mandatory ............................. 1319
2. The 23-Day Notice is an Administrative Step .......... 1322
B. PUBLIC POLICY ...................................................................... 1325
1. Institutional Trust ..................................................... 1326
2. Practicality .................................................................. 1329
3. The Result of Strict Enforcement ............................ 1331
V. CONCLUSION .............................................................................. 1333
I. INTRODUCTION
The relationship between the Internal Revenue Service (“IRS”) and the
American public is perhaps one of the strangest relationships between an
administrative agency and the public it serves. While the agency is essential
for ensuring that the government has the resources needed to provide critical
services to the nation (i.e., provide for a national defense) the common public
sentiment towards the IRS is somewhere between begrudging acceptance and
downright contempt. But why? Certainly part of this dislike lies in the IRS
being the public face that takes away part of citizens’ paychecks. However,
when looked at deeper, many fear that the IRS is an abusive, power hungry,
even tyrannical organization.1
Whether such abuses are real or imagined, it is undeniable that the IRS
has been granted certain wide sweeping powers to effectuate its job of
collecting accurate taxes and replenishing the nation’s coffers. One of the
1. See infra note 161 (detailing articles aiming to paint the IRS as “evil”).
2017] PROTECTING THE FAMILY JEWELLS 1301
powers granted to the IRS is the administrative summons. Simply put, the
administrative summons grants the IRS the ability to issue summons to
taxpayers or third parties in order to investigate taxpayer returns or tax fraud,
often without the need to show probable cause.2 In order to protect taxpayers
from potential abuse of this power, Congress enacted section 7609 of the
Internal Revenue Code (“I.R.C.”), which requires the IRS to notify a taxpayer
after the IRS has issued an administrative summons to a third party about
taxpayer records. This notice must be given at least 23 days before the IRS
schedules the records examination.3 This allows the taxpayer to file a motion
to quash and seek judicial review if the summons is being issued for an
inappropriate reason.
However, circuit courts have been highly reluctant to actually require the
IRS to comply fully with the 23-day notice requirement.4 When the IRS has
given taxpayers less than 23-days’ notice, the courts have used a variety of legal
justifications to enforce the summons and forgive the IRS’S error.5 Until
2014, no circuit court was willing to hold the IRS accountable with strict
compliance of the 23-day notice. As a result, the IRS has been given wide
latitude to circumvent one of the very few procedural safeguards put in place
by Congress to protect the American public from potential abuse of an already
sweeping power.6
This changed in 2014, when the Tenth Circuit held that the IRS had to
strictly comply with the 23-day notice, and that failure to comply would allow
the taxpayer under investigation to successfully quash the summons.7 The
Jewell decision represented a substantial departure from 23-day notice
jurisprudence, and created a circuit split, opening the door for the Supreme
Court to potentially rule on the issue.
This Note argues that the Tenth Circuit’s strict enforcement of the 23-
day notice requirement in Jewell is a better legal standard—for public policy
reasons not explored in the Jewell decision—than decisions of other circuits,
which fail to force the IRS to strictly comply with the 23-day notice
requirement. Part II explores the history of the creation of the 23-day notice,
the circuit court decisions leading up to Jewell, and explores the Tenth
2. See infra Part III.
3. See 26 U.S.C. § 7609(a)(1) (2012). Hereinafter, title 26 of the United States Code is
referred to as the Internal Revenue Code (“I.R.C.”).
4. See infra Part II.B.
5. See infra Part II.B.
6. To be fair, more often than not it does appear that failure to comply with the strict
requirements set forth in I.R.C. § 7609 are the result of mistakes. A good example of this is Azis
v. IRS. In Azis, the IRS agent failed to send the entire notice to the taxpayer and was then out of
town for training for nearly a week, resulting in the full notice being sent four days later than
required. Azis v. IRS, 522 F. App’x. 770, 776–77 (11th Cir. 2013). As this Note will argue,
however, that the failure to comply with the 23-day notice is often due to mistakes and not malice
does not change the harm to plaintiffs or the potential for abuse.
7. Jewell v. United States, 749 F.3d 1295, 1301 (10th Cir. 2014).

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