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

1299

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 CIRCUIT’S 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 CIRCUIT’S 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).