Friday, May 27, 2011

John Doe Summonses & Statutes Of Limitations (5/27/11)

This week, a district court denied an IRS request for an order authorizing issuance of a John Doe Summons.  Readers will recall that Section 7609(f) permits the IRS to issue John Doe Summonses seeking tax related information and documents about unknown taxpayers. These taxpayers are unknown, so the IRS cannot give notice to the taxpayers who can then contest the summons. So, Congress required that a federal district judge approve the issuance of the summons.

The IRS sought the court order authorizing it to serve a John Doe summons to the California Board of Equalization for certain a certain discrete record set that would help the IRS identify persons making gift transfers to non-spouse related parties which, the IRS imagined, might have compliance issues with the gift tax. I won't get into the details of the focus of the IRS's interest, since the principal focus would be civil compliance initiatives. The judge refused to authorize the summons, finding that the IRS had not shown that the information and documents were not otherwise reasonably available. Further, although dismissing the motion for authorization without prejudice on the basis stated, the Court cautioned that, if the IRS were to repackage the motion, the court had some serious concerns about whether the IRS could otherwise qualify.  The opinion is here.
The point for present purposes is that the John Doe Summons, which is a prominent feature in the criminal tax arena and particularly in the offshore bank initiatives, does have procedural protections that courts will enforce. Of course, the information and documents sought from offshore banks is not otherwise reasonably available so I have not seen banks denying requests for John Doe Summonses for offshore bank documents and information.

I also remind readers that the John Doe Summons suspends the civil and criminal statutes of limitations for any taxpayer within the scope of the summons for a period from 6 months after the date the John Doe summons is issued through the date of compliance. See Section 7609(e)(2). Regulations Section 301.7609-5 has this example:
A John Doe summons is issued on April 1, 2004, to the promoter of a tax shelter and seeks the names of all participants in the shelter in order to investigate the participants' income tax liabilities for 2001 and 2002. The district court approves service of the summons on April 30, 2004, and the summons is served on the promoter on May 3, 2004. The promoter does not provide the names of the participants. The periods of limitations for the participants' income tax liabilities and criminal prosecution for 2001 and 2002 are suspended under section 7609(e)(2) beginning on November 3, 2004, the date which is six months after the date the John Doe summons was served until the date on which the promoter's response to the summons is finally resolved.
I don't know how many John Doe Summonses have been obtained in the offshore initiative, but there are public indications of such summonses for HSBC India, the Stanford related companies, and UBS.  My quick search indicated that the UBS summons was approved on 7/1/08 and was presumably resolved by the agreement reached August 19, 2009.  Although it was resolved by producing document pursuant to a treaty request procedure, presumably the statute of limitations on all taxpayers within the scope of the summons was suspended.   So, it looks like the IRS got a statute extension of perhaps slightly over 6 months for the taxpayers within the scope of the John Doe Summons.  I believe the imagined number of U.S. taxpayers within the scope of the original summons was 52,000 or some such number.

1 comment:

  1. Based on the Judge's comment, someone did a really poor job of drafting the summons. There must be some red faces in the IRS/DoJ tax.

    I'm not sure about California, but in many states you can get all this information by going to the county clerk or courthouse. It seems the IRS is overusing the John Doe summons -- this does not seem to be required here. Besides, its not necessary to visit 58 counties. The IRS could focus on the larger/richer counties: San Francisco, San Diego, Santa Clara.

    The judge also seemed skeptical as to whether states agencies could be served summons at all, but surely there must be some case law on that for normal (not John Doe) summons ? I can well see cases where the IRS might want information on municipal bonds issued by state agencies and local governments (that's a real sinkhole).


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