No Notice to Taxpayer Required When Summons Issued to Aid in Tax Collection

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Who can bring a petition to quash a summons that the IRS has issued when it is trying to get information that would allow it to collect on an assessed tax? This is the issue in Marra v US a recent case out of the district court in Washington. In Marra, the IRS issued a summons to the taxpayer’s Chapter 7 bankruptcy trustee as part of the IRS’s efforts to find ways to collect on Marra’s $ 4 plus million assessment. The revenue officer had reason to believe the trustee had compiled information that would help the IRS track down sources to satisfy the tax debt (note the bankruptcy court had recently revoked Marra’s discharge).

Marra did not want the trustee to turn over any information, claiming the sought after documents were privileged. He filed a petition to quash the summons, and the government filed a motion to dismiss the petition to quash the summons due to its belief that the court did not have subject matter jurisdiction.

I will briefly describe the issue and outcome.

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First some background. As a starting point, I note that I cover the complex summons notice rules in some detail in Chapter 13 of Saltzman and Book. Here is the nutshell version.

If the IRS issues a summons to a bank or other entity for a third party’s records, the IRS must determine whether either the taxpayer or the third party is entitled to notice of the summons.  That is important because the statutory scheme sets out that only a person required to receive notice when the IRS serves a summons can bring a proceeding to quash a summons.

There are the exceptions to the general rule that the IRS must give notice to third parties. Under Section 7609(c) he general rule is inapplicable when an IRS summons is “issued in aid of the collection of — (i) an assessment made or judgment rendered against the person with respect to whose liability the summons is issued or (ii) the liability … of any transferee or fiduciary of any person referred to in clause (i).”

The in “aid of the collection language” is broad, and read literally it would swallow the general notice rule. Courts have limited its application. A key case in this development is Viewtech v US, a Ninth Circuit opinion from 2011. There the court that applied the “issued in aid of the collection” exception and held that “a third party should receive notice that the IRS has summonsed the third party’s records unless the third party was the assessed taxpayer, a fiduciary or transferee of the taxpayer, or the assessed taxpayer had some legal interest or title in the object of the summons.”

In other words, if the other person was the assessed taxpayer or had a close legal interest to the taxpayer, then the IRS does not have to notify that other person when it is trying to get information that would help it collect against that taxpayer’s liability. That rule makes sense, at least to me, as a taxpayer who has an assessed liability has had sufficient notice of the IRS’s interest in collecting the outstanding tax, and presumably would have had ample opportunity to work something out with a revenue officer. 

Back to Marra. In light of the Viewtech standard, and that the IRS was seeking records that pertained to Marra himself, the district court concluded he was not required to receive notice and thus had no right to bring a petition to quash. 

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Kenneth H. Ryesky says

    Back in the day, when fax machines were coming into common use (we still needed special permission to use the one fax machine at the IRS facility where I was stationed), during the examination stage the bank where taxpayer I was examining had his account faxed me a copy of the reverse of a check after I faxed a simple request. The money trail reflected on the reverse of the check had implications for the audit.

    I don’t know what the situation is today, but back then, most of the banks my group dealt with were happy to comply with informal fax requests because the courts would usually sustain the formal subpoenas anyway, and the faxed requests were considered adequate CYA documentation from the banks’ perspective.

  2. V. F. Liptak, CFP (retired) says

    This makes NO sense to anybody who has litigated in state courts where statutes are supposed to be strictly enforced to protect the “real party at interest” the owner of money supposedly held in trust by a fiduciary. It shows how tax rules are divorced from any semblance of due process because of enablers like tax lawyers who preach exception to every rule of law and laugh all the way to the bank at the broken lives left in their wake.

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