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Supreme Court Clarifies Standing for Challenging IRS Summons

On June 19, 2014, the Supreme Court of the United States issued its decision in United States v. Clarke, 134 S.Ct. 2361 (2014) which affects not only an individual’s ability to challenge a summons enforcement but all taxpayers. Clarke involved a taxpayer’s right to conduct an examination of Internal Revenue Service’s (IRS) officials regarding their reasons for issuing a summons. It arose out of a taxpayer’s refusal to comply with IRS summonses issued for information and records relevant to its purported tax obligations. The IRS brought an enforcement action in District Court, where it “need only demonstrate good faith in issuing the summons,” generally shown by an affidavit from the issuing agent. United States v. Stuart, 489 U.S. 353, 359 (1989). The taxpayer challenged the IRS’s affidavit on grounds of “improper purpose,” seeking to question the IRS about its motives in issuing the summonses. The District Court denied the taxpayer’s request. The Court of Appeals for Eleventh Circuit reversed, holding the denial was an abuse of discretion. It relied on Eleventh Circuit precedent holding that a taxpayer may question IRS officials about their motives for issuing a summons based on a mere “allegation of improper purpose, even if lacking any factual support.”

Rejecting the Eleventh Circuit’s use of such a categorical rule, the Supreme Court vacated the opinion, pointing out, notably, that every other Court of Appeals had rejected the Eleventh Circuit’s view that a bare allegation of improper purpose was sufficient to permit a taxpayer to question an IRS agent regarding his or her motives in issuing the summons. The Supreme Court directed the Eleventh Circuit to, on remand, determine whether the evidence the taxpayer proffered in support of its charge “plausibly supported an inference of improper motive.” The opinion is hardly surprising in that it comports with the balance the Supreme Court has struck in prior cases addressing this issue, illustrated by the following rule: “As part of the adversarial process concerning a summons’s validity, the taxpayer is entitled to examine an IRS agent when he can point to specific facts or circumstances plausibly raising an inference of bad faith. Naked allegations of improper purpose are not enough: The taxpayer must offer some credible evidence supporting his charge.”

The above article was published in the State Bar of California’s “California Tax Lawyer” Volume 23, Number 2, Summer 2014 Magazine. Click here to download a PDF.


About Maggie Shroedter

Maggie E. Schroedter is an Associate Attorney in Higgs Fletcher & Mack’s Business Litigation and Bankruptcy, Insolvency & Reorganization practice groups, specializing in commercial litigation, with special emphasis on business disputes and insolvency matters, including Chapter 11. An experienced business litigation attorney, Ms. Schroedter represents both plaintiffs and defendants in all aspects of commercial litigation involving disputes over contracts, fraud, fiduciary duty, foreclosure, real estate, and other business matters, while successfully navigating insolvency issues such as bankruptcy and reorganization. Ms. Schroedter’s clients include corporations and small to medium size businesses, individuals and families.
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