Take Cover: IRS Agents Go on the Attack | AccountingWEB

Take Cover: IRS Agents Go on the Attack

By Ken Berry

The IRS has a lot of weapons in its arsenal and it's not afraid to use them. Lately, it's been bringing out one of its big guns: an "administrative summons" that compels taxpayers to hand over the books and other sensitive documents where they may have been hiding their dirty secrets.
 
But some taxpayers have been mounting a defense. According to a new report from the Taxpayer Advocate Service (TAS) - an independent organization that assists taxpayers and "operates behind enemy lines" within the IRS itself - the number of legal disputes arising from administrative summonses reached 132 in 2011, up 300 percent from forty-four in 2005, just six years earlier. This made the challenges to a summons the most litigated issue the IRS encountered last year.
 
Briefly stated, an IRS administrative summons identifies the party whose tax liability is being investigated, and it requires that party to provide testimony or produce documents, records, or other data relevant to the investigation. The IRS doesn't even have to answer to a higher authority when it wants to issue a summons. It simply fills out the form and delivers it to the appropriate party.
 

Talking Points for Clients

  • An administrative summons compels taxpayers to hand over sensitive documents and data to the IRS. 
  • The IRS can issue the summons without needing to obtain approval from any other authority.
  • Increasingly, the IRS is using the summons early in its investigation, especially when huge sums of money are at stake.
  • Failure to comply with a summons may result in criminal or civil sanctions.
  • Taxpayers can contest a summons in court, but the odds aren't in their favor.
 
Typically, the IRS will try to ferret out information by first issuing an information document request. If a taxpayer refuses to comply or dawdles, the agency may rely on an administrative summons. And, if the taxpayer continues to stonewall the request, the IRS can petition the Justice Department for a court order enforcing the summons. Uncooperative taxpayers may be assessed sanctions for criminal or civil contempt.
 
Increasingly, IRS agents have shown a willingness to fire off a summons in the early stages of an investigation, especially when huge sums of money are at stake. Like practically every other entity, the federal government is starved for revenue to fill its coffers, so the more it can bring in, the faster the better.  Furthermore, the IRS now has the ability to demand more types of documents relating to potentially abusive tax practices.
 
The IRS hasn't released any figures on the number of summonses it has issued nor has it revealed the number of times its agents have threatened to issue summonses without actually doing so. Our nation's tax collection agency is essentially keeping its attack plan under wraps. But IRS officials have said publicly that they will be giving agents refresher courses on using a summons if taxpayers don't meet deadlines for document requests.
 
Taxpayers can counterattack by asserting attorney-client privilege or by otherwise challenging the summons in court. But the odds certainly aren't in their favor. The IRS only needs to show that it has issued a legitimate request and that it's following proper procedures. The TAS repots that the IRS triumphed in more than 90 percent of the summons litigation cases last year.
 
Related articles:
 
Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked

Editor's Choice

WHAT KIND OF FIRM ARE YOU?
As part of our continued effort to provide valuable resources and insight to our subscribers, we're conducting this brief survey to learn more about your personal experiences in the accounting profession. We will be giving away five $50 Amazon gift cards, and a $250 Amazon gift card to one lucky participant.
This is strictly for internal use and data will not be sold
or shared with any third parties.