25.5.4. Examination of Books and Witnesses

(1) This section contains guidance regarding the examination of books and records received via summons, the withdrawal of consent to use such records, limitations on summons authority and notice of third party contacts.

(1) Delegation Order 25-1, provides the levels of authority delegated to various IRS employees to approve and perform activities concerning summonses. See IRM 1.2.2.15.1, Delegation Order 25-1, Summonses, Oaths, Certifications and Related Functions.

(2) The provisions of law applicable to IRS summons issuance and enforcement are contained in the following sections of the Internal Revenue Code (IRC):IRC Sections

(1) The Director Headquarters Collection is the executive responsible for providing policy and guidance for IRS employees and ensuring consistent application of policy, procedures, and tax law to effect tax administration while protecting taxpayer rights. See IRM 1.1.16.3.3, Headquarters Collection, for additional information.

(2) The Director Collection Policy reports to the Director Headquarters Collection, and is responsible for the delivery of policy and guidance that impacts the summons program. See IRM 1.1.16.3.3.1, Collection Policy, for additional information.

(3) The Program Manager Enforcement reports to the Director, Collection Policy and is responsible for providing policy and procedural guidance on specialized processes to IRS employees. See IRM 1.1.16.3.3.1.2, Enforcement, for additional guidance.

(4) Paragraph (9) of Delegation Order 25-1, lists the IRS employees delegated to issue and serve summonses except John Doe summonses. SeeIRM 1.2.2.15.1, Delegation Order 25-1, Summonses, Oaths, Certifications, and Related Functions.

(1) In general, the IRS should issue summonses only when the information is not already in the IRS’s possession, and the taxpayer (or other witness) will not produce the desired records or other information voluntarily. A summons is specific to each case. There are no program reports that track summonses. Group Manager approval is required for third party summonses, providing case by case oversight. SeeIRM 1.2.2 Servicewide Delegations of Authority.

(2) Program Analysts in Collection Policy Enforcement will periodically review summonses issued by revenue officers to ensure taxpayer rights were protected during the summons process and to determine that all standards for preparation, issuance and service of the summonses were met.

(3) Periodic program reviews are conducted by Field Exam Special Processes to assess the effectiveness of the summons program for Examination, determine if procedures are being followed, validate policies and procedures, and to identify and share best/proven practices.

(1) The IRS employee who issued the summons keeps a copy of the original summons, Page 1 of the summons labeled Original. The original summons is needed when referring a summons for enforcement. All summonses and related documents (such as, records received or interview notes) should be maintained in the administrative case file.

(2) Certain summonses require managerial approval. See IRM 1.2.2.15.1, Delegation Order 25-1, Summonses, Oaths, Certifications, and Related Functions, for summons authorities. When summons approval is required, it is necessary for the IRS employee who issued the summons to maintain the proper approval records associated with each summons. All approved summonses, approval memoranda and counsel review documents, where applicable, should be maintained with the summons in the administrative case file.

(3) Counsel (and in some areas, CEASO) review requests to enforce summonses.

(1) Definitions pertaining to summonses served on third party witnesses can be found in IRM 25.5.6.3, Definitions. The table below lists commonly used acronyms and their definitions.

(1) IRM 25.5, Summons, provides guidelines for all IRS functions in one multifunctional handbook. The sections are:

• IRM 25.5.1, Introduction.

• IRM 25.5.2, Preparation.

• IRM 25.5.3, Procedures.

• IRM 25.5.4, Examination of Books and Witnesses.

• IRM 25.5.5, Summons for Taxpayer Records and Testimony.

• IRM 25.5.6, Summonses on Third Party Witnesses.

• IRM 25.5.7, Special Procedures for John Doe Summonses.

• IRM 25.5.8, Use of Summons Special Applications.

• IRM 25.5.9, Fees and Costs for Summoned Witnesses.

• IRM 25.5.10, Enforcement of Summons.

(2) The basic legal concepts governing the use and enforcement of administrative summonses can be found in IRM 5.17.6, Legal Reference Guide for Revenue Officers, Summonses.

(3) The Taxpayer Bill of Rights (TBOR) lists rights that already exist in the tax code, putting them in simple language and grouping them into 10 broad categories. Employees are responsible for being familiar with and acting in accordance with taxpayer rights, See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights and IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

(4) Additional summons guidance can be found on the Summons Knowledge Base.

(1) By issuing an administrative summons, the IRS cannot force a taxpayer to create a document, including a Collection Information Statement or a delinquent tax return. However, if a summoned taxpayer is willing to do so, collection personnel are authorized to:

• Prepare or assist the taxpayer in preparing such statements or returns based on the records produced, and

• Prepare summaries or lists from books, papers, records, and testimony obtained at the time of examination.

(1) A summons may not be used in aid of a grand jury investigation but may be used in an administrative investigation.

(1) Consult Associate Area Counsel for alternatives if serving a summons is not feasible.

(1) As required by IRC 7602(a)(2), all summoned information must be of a type that "may be relevant or material" to the IRS's investigation.

(2) The "may be relevant" standard of IRC 7602 means any information that "might shed light" on the correctness of the taxpayer's return (or any other proper issue in a legitimate investigation, such as the location of collectible assets). The word "might" in this standard means that the IRS has a realistic expectation, rather than an idle hope, that something useful may be discovered.

(3) It is important to note that when seeking records of a third party, the standard of relevancy is slightly higher. The IRS must show a transactional connection between the third-party's records and the taxpayer's activities that are being investigated.

(4) A summons cannot be issued for an improper or ulterior purpose. For example, a summons cannot be issued to harass the taxpayer, to pressure the taxpayer into settling collateral disputes, or for any other purpose adversely reflecting on the good faith of the investigation.

(5) Special John Doe procedures must be used when the sole purpose of a summons is to investigate the tax liabilities of unknown and unidentified persons. See IRM 25.5.7, Special Procedures for John Doe Summonses.

(6) The Supreme Court has ruled that the IRS is not required to serve a John Doe summons when, during an investigation of a known taxpayer’s liability, it serves one summons to obtain information that may be relevant to the known taxpayer’s liability and to obtain the names of other taxpayers that the IRS wishes to investigate. This is known as a dual-purpose summons. However, the IRS must show that the identities of the unknown taxpayers may be relevant to the investigation of the known taxpayer.

(7) Books and records sought by the summons must be of a type that may be relevant to the tax investigation and must be described with reasonable detail in the summons, including the periods relating to the investigation. Clearly explain the relevance of records requested for periods outside of the investigation time frame. This explanation should appear in the agent's declaration.

(1) The statute does not require the IRS to show probable cause to suspect fraud. Where a summons has been served covering a closed year, the government need only show that the summons meets the requirements for validity described above in IRM 25.5.4.5 , Limitations on Authority to Summon. However, if the taxpayer’s books of account have already been inspected, and the IRS has determined that a second inspection is necessary, the IRS must give notice under IRC 7605(b) as discussed below in IRM 25.5.4.5.3, Statutory Restrictions on Unnecessary Examinations.

(2) A taxpayer seeking to prevent enforcement of a summons because it covers closed years has the burden of showing it would be an abuse of court process. The taxpayer does not satisfy that burden by merely showing the statute of limitations has expired or the records have already been examined.

(1) IRC 7605(b) provides that no taxpayer shall be subjected to unnecessary examinations or investigations of their tax liability and that only one inspection shall be made of a taxpayer’s books of account for each taxable year except upon notice from the Commissioner or upon the taxpayer’s request.

(2) Review IRM 1.2.2.5.7, Delegation Order 4-7, Notice of Additional Inspection of Books of Account, to determine who can sign the notice to the taxpayer stating an additional inspection is necessary.

(3) The taxpayer may refuse access to their records until they have been given notice in writing.

(4) The limitations imposed by IRC 7605(b) apply only to the taxpayer under investigation and not to a third party.

(5) The facts of each investigation will determine whether enforcement of a summons to examine records will be prohibited as unnecessary. While the IRS can summon persons having information or documents that may be relevant to the investigation, the IRS should never issue a summons to pursue a "fishing expedition" for information unrelated to the taxpayer’s liability. Such a summons will not meet the requirements of United States v. Powell, 379 U.S. 48 (1964).

(6) Once an examination is open, the examination continues until the Area closes the investigation. Therefore, a subsequent review of the taxpayer's books and records is not considered a second examination when performed pursuant to a continuing investigation.

(1) No summons may be issued nor summons litigation commenced if a DOJ referral is in effect with respect to the taxpayer pursuant to IRC 7602(d). A DOJ referral is in effect if:

• The IRS recommends to the Attorney General that a grand jury investigation of, or a criminal prosecution of, such person be commenced for any offense connected with the Internal Revenue laws, or

• The Attorney General (or Deputy Attorney General or Assistant Attorney General) makes a written request to the IRS for any return or return information relating to a taxpayer which sets forth the need for disclosure for tax administration purposes.

(2) A DOJ referral ceases to exist when the Attorney General notifies the IRS, in writing, that:

• The taxpayer will not be prosecuted for any offense connected with the administration or enforcement of the Internal Revenue laws.

• A grand jury investigation will not be authorized with respect to such offense.

• Any such grand jury investigation will be discontinued.

• A final disposition has been reached in a criminal proceeding, instituted by the Department of Justice against the taxpayer, relating to the enforcement of the Internal Revenue laws (this notification does not have to be in writing).

• The Department of Justice will not prosecute such person for any offense connected with the administration or enforcement of the Internal Revenue laws relating to any written request for any return or return information. This notice could be from the Attorney General, Deputy Attorney General or Assistant Attorney General.

(3) A DOJ referral remains in effect until it is terminated in accordance with the preceding section. Summonses may not be issued to obtain information in response to a DOJ request for supplemental investigation. Consult Associate Area Counsel before serving a summons where CI and Associate Area Counsel are considering whether the case should be resubmitted to DOJ under protest procedures.

(4) Treat each taxable period (or, in the instance of excise taxes, each taxable event) separately. The IRS may issue a summons for one taxable year even if a DOJ referral is in effect for another taxable year. Consult Associate Area Counsel before issuing a summons if any tax year or event has a current DOJ referral in effect.

(5) If CI decides to refer a recommendation of criminal prosecution or grand jury investigation to DOJ, seek the advice of Associate Area Counsel about issuing or seeking enforcement of any additional summonses.

(1) The IRS must meet the procedural requirements of IRC 7609 when summoning a third party to produce a taxpayer’s records or to give testimony. All parties not exempt from notice under IRC 7609(c)(2) must be given no less than 23 full days after the date notice is given to file a petition to quash the summons. Therefore, set the appearance date no earlier than the 24th day after giving notice. These requirements are discussed in detail in IRM 25.5.6, Summonses on Third-Party Witnesses.

(1) The Fair Credit Reporting Act (FCRA) restricts the means by which the IRS can obtain a taxpayer’s credit report from a consumer reporting agency. The IRS must not try to obtain a credit report by informal means. Where the IRS has an assessment lien against the taxpayer, has reduced a taxpayer's liability to judgment, or has entered into an offer in compromise or settlement agreement with the taxpayer (i.e. the credit report is used to collect an assessed tax), the IRS can obtain a full credit report pursuant to 31 USC 3711(h)(2) without issuing a summons.

(2) The IRS must serve an IRC 7609 third-party summons on the consumer reporting agency when the purpose of the summons is not to assist in collecting an assessed tax. The consumer reporting agency must produce the summoned materials unless a noticee files a timely petition to quash. It is not necessary for the IRS to obtain a district court order enforcing the summons before the consumer reporting agency is allowed to produce the summoned documents. The consumer reporting agency may rely on the IRS’s certificate stating that the consumer has not filed a timely petition to quash. This certificate is found on the reverse of the summons form and is titled "Service of Summons, Notice and Recordkeeper Certificates."

(3) The Fair Credit Reporting Act allows a consumer reporting agency to provide government agencies with a consumer’s name, address, former addresses, places of employment, or former places of employment. The IRS can obtain this information without issuing a summons. As indicated above, the IRS can also obtain a credit report without a summons if the sole purpose of securing the report is to collect an assessed tax.

(1) See IRM 4.10.20 , Requesting Audit, Tax Accrual, or Tax Reconciliation Workpapers, for detailed procedures for requesting audit, tax accrual, or tax reconciliation workpapers.

(1) The Tax Court has established a framework for determining when it is appropriate to prevent summoned information from being entered into evidence if the IRS's use of a summons conflicts with the court's interest in administering its discovery rules.

(2) If a summons is issued after a Tax Court petition is filed and that summons pertains to the same taxpayers and same taxable years as those before the court, the court will exercise its supervisory power and exclude the information, unless the IRS can show the summons was issued for sufficient reason, independent of that litigation. If the post-petition summons pertains to different taxpayers or different taxable years as those before the court, the court will not normally exercise its supervisory power unless the taxpayer can show a lack of an independent and sufficient reason for the summons.

(3) In all but extraordinarily rare cases, the IRS must not issue a summons after a Statutory Notice of Deficiency (SND) is mailed to the taxpayer to continue the investigation of the same taxable periods and liabilities covered by the SND. After an SND is mailed, the IRS should no longer be in the process of gathering the data to support a determination because the SND represents the IRS's presumptively correct determination and indicates the examination has been concluded. If the IRS issues a summons after mailing the SND, this could be perceived as an effort to circumvent the Tax Court's discovery processes, which might lead the court to exclude the summoned evidence.

(4) It may be appropriate to issue a summons after an SND has been mailed but before a Tax Court petition has been filed in rare situations in which an independent and sufficient reason exists to justify this action.

(5) In any case where the IRS seeks to issue a summons after an SND is mailed, the IRS should obtain Associate Area Counsel's approval before issuing the summons. If Field Counsel approves the summons, the IRS should make a record for its administrative file of the circumstances that gave rise to the post SND summons and why Field Counsel concluded the circumstances justified the summons. This information may be necessary if the taxpayer seeks to exclude the summoned information from the Tax Court record.

(1) During an investigation, the IRS may need access to books and records outside the United States, such as a taxpayer's foreign bank account records. Foreign entities or individuals may refuse to release the records without the taxpayer's consent, which they can give by signing a consent directive. A consent directive, sometimes known as a disclosure directive, is a document signed by a taxpayer that authorizes and directs a specific foreign person (a bank, trustee, or other entity or individual) who possesses documents belonging to or controlled by the taxpayer, to disclose those documents to the IRS.

(2) In some cases, a consent directive can be obtained voluntarily from the taxpayer. When a consent directive is obtained voluntarily, some foreign countries will view this favorably and will allow compliance with the consent directive.

(3) A summons cannot be used to directly compel a taxpayer to sign a consent directive. However, if a summons for the foreign records is served on the taxpayer while in the United States, a federal district court can enforce the summons by directly ordering the taxpayer to produce the documents in their custody or control. Moreover, the IRS can seek an order under IRC 7402(b) compelling a taxpayer to sign a consent directive authorizing the foreign institution to produce its records. Some countries may not honor a consent directive that was compelled by court order.

(4) Consult with Area Counsel prior to considering a Consent Directive. Area Counsel will coordinate as necessary with the Office of Associate Chief Counsel (International). See CCDM 34.6.3.7, Chief Counsel Directives Manual - Issuance of Summons for Books and Records Abroad, for guidance. Any summons drafted for this purpose must receive pre-issuance review by the appropriate Associate Area Counsel office.