7 August 2001

See contents of full IRS Handbook of Criminal Investigation: http://cryptome.org/irs-ci/irs-ci.htm

## Handbook 109.1 Summons Handbook Chapter 4 Examination of Books and Witnesses
### Contents [109.1] 4.1 Overview [109.1] 4.2 Purpose of Examination of Books and Witnesses [109.1] 4.2.1 Collection [109.1] 4.2.2 Criminal Investigation [109.1] 4.2.3 Examination [109.1] 4.3 Withdrawal of Consent to the Use of Records [109.1] 4.4 Limitations on Authority of Summons [109.1] 4.4.1 Materiality and Relevancy of Summons [109.1] 4.4.2 Examinations Barred by Statute of Limitations [109.1] 4.4.3 Statutory Restrictions on Unnecessary Examinations [109.1] 4.4.4 Statutory Limitations on Issuing a Summons After a DOJ Referral [109.1] 4.4.5 Statutory Limitations of IRC 7609 on Summoning Information from a Third-Party [109.1] 4.4.6 Statutory limitations on Acquiring Credit Reports From a Consumer Reporting Agency-Summons Required [109.1] 4.4.7 Limitations on Summoning Tax Accrual Workpapers [109.1] 4.4.8 Other Limitations on Issuing Summonses [109.1] 4.5 Notice of Contact With Third Parties
### [109.1] 4.1 (04-30-1999) Overview
This chapter contains the following sections: Purpose of Examination of Books and Witnesses Withdrawal of Consent to the Use of Records Limitations on Authority of Summons Notice of Contact with Third Parties
### [109.1] 4.2 (04-30-1999) Purpose of Examination of Books and Witnesses
A summons may only be issued to examine books, papers, records or other data of taxpayers and third parties and to obtain testimony under oath that may be relevant or material in: ascertaining the correctness of any return; making a return where none has been made; determining a tax liability; collecting such liability; inquiring into any offense connected with the administration or enforcement of the Internal Revenue laws (26 USC 7602). Any person having knowledge relating generally to a tax investigation may be required to testify and produce records that may be relevant to the investigation. Information may be obtained by a summons to identify records a witness possesses by interviewing the witness under oath. A subsequent summons may then be issued to compel the production of records. The summons requiring production of records should not be oppressive or unreasonable, for a summons may be held to be so onerous as to constitute an unreasonable search. IRC 7609 does not restrict the authority of the Service to examine any books or witnesses without issuing a summons, nor does it require the Service to give notice in the case of an examination without a summons. IRC 7609(j) expressly provides that nothing in section 7609 shall be interpreted as limiting the Service's ability to obtain information, other than by summons, through formal or informal procedures authorized by IRC 7601 and 7602. Credentials or circular letters citing IRC 7602 authority may be used to obtain records from financial institutions except when: the financial institution is located in the Tenth Circuit, the information sought concerns taxpayers residing in the Tenth Circuit (regardless of where the financial institution is located), or the Service's office is located in the Tenth Circuit (regardless of where the financial institution is located or where the taxpayer resided). Refer to 1.4.1 (1-6). In these circumstances, the Service must issue a third party summons and follow Section 7609 procedures. NOTE: Remember, circular letters may not disclose that the taxpayer is under criminal investigation. Apart from payments made for public records, no payments for expenses incurred in providing information are authorized without issuing a summons. A summons can only require a witness to appear on a given date to give testimony and to bring existing books, papers, and records. A summons cannot require a witness to prepare or create documents, including tax returns, that are not currently in existence.
### [109.1] 4.2.1 (04-30-1999) Collection
By issuing an administrative summons, the Service 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. Prepare summaries or lists from books, papers, records, and testimony obtained at the time of examination.
### [109.1] 4.2.2 (04-30-1999) Criminal Investigation
A summons may not be used in aid of a grand jury investigation but may be used in an administrative investigation independent of the grand jury.
### [109.1] 4.2.3 (04-30-1999) Examination
Consult District Counsel for alternatives if the service of the summons is not feasible.
### [109.1] 4.3 (04-30-1999) Withdrawal of Consent to the Use of Records
An owner of records who produces summoned records to the Service may at any time request their return. Such a request constitutes a withdrawal or revocation of consent to the use of records. The request may be formal or informal, written or oral, regardless of phrasing. NOTE: If a court order is issued for the enforcement of the summons, the owner of the records cannot withdraw consent to the use of the records. Promptly photocopy records after their receipt and return them to the owner of record in the following circumstances: if there are grounds for the belief that consent will be withdrawn; or when an owner of records provides the sole set (whether originals or copies) of records. The Service is entitled to retain copies that are made before a summoned owner of records withdraws consent to the use of records. Honor a withdrawal of consent even if the owner of the records retained copies of the records provided to the Service in response to a summons. When consent is withdrawn, use of the records, including photocopying, should cease. If consent is withdrawn and the records are no longer needed, return the records to the summoned owner of records. If consent is withdrawn and the records are still needed: Immediately seal them in an appropriate container. Mark the container with the date and time sealed. Secure the records according to regional or district guidelines. This should occur on the date that consent to use of the records is withdrawn. Within 2 workdays of the withdrawal of consent, advise the summoned owner of records in writing: that the records have been sealed and secured; the records will not be used effective from the date and time the request was received; the Service will seek to enforce the summons; the records will not be returned pending the enforcement of the summons. Retain copies of the letter to the summoned owner of records for the case file and for the summons referral. Within 3 workdays from the date of receipt of the withdrawal of consent, refer the summons to the appropriate function. The 3 workdays include the date of receipt of the consent. If notified that the summons will not be enforced, immediately arrange to return the records to their owner.
### [109.1] 4.4 (04-30-1999) Limitations on Authority of Summons
To be valid and enforceable, a summons must: seek information that may be relevant to an investigation, be issued pursuant to a proper purpose, seek information the Service does not already possess, and the Service must have followed all of the administrative steps required by the Internal Revenue Code. These requirements apply to all summonses, whether served on a taxpayer or a third-party witness. The Service should never serve a summons that makes arbitrary, irrelevant, unreasonable, or oppressive demands. Other limitations on information that can be summoned are discussed in the following subsections.
### [109.1] 4.4.1 (04-30-1999) Materiality and Relevancy of Summons
The standard for relevancy is any information that might shed light on the taxpayer's correct tax liability. 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. 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. The Supreme Court has ruled that the Service is not required to serve a John Doe summons when, during an investigation of a known taxpayer's liability, it serves one summons for the purpose of obtaining information that may be relevant to the known taxpayer's liability and for the dual purpose of obtaining the names of other taxpayers that the Service wishes to investigate. However, the Service must show that the identities of the unknown taxpayers may be relevant to the investigation of the known taxpayer. For example, the Service is investigating a tax shelter promoter's potential liability under IRC 6700. As part of this investigation, the Service issues a summons requiring the promoter to produce records identifying those persons to whom he sold partnership interests. The summons is enforceable because the summoned records are relevant to the investigation and calculation of the promoter's liability. This is true even though the summons serves the dual purpose of identifying unknown taxpayers that the Service wishes to investigate. Counsel should be consulted for advice before the issuance of a dual purpose summons. Books and records sought by the summons must be relevant and material to the tax investigation and described with reasonable detail in the summons, including the periods relating to the investigation. Clearly explain the relevancy of records requested for periods outside of the investigation time frame.
### [109.1] 4.4.2 (04-30-1999) Examinations Barred by Statute of Limitations
The statute does not require the Service 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 subsection 4.4(1). However, if the taxpayer's books of account have already been inspected, and the Service has determined that a second inspection is necessary, the Service must give notice under IRC 7605(b) as discussed below in subsection 4.4.3. A taxpayer seeking to prevent enforcement of a summons on the ground that 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 run out or the records have already been examined.
### [109.1] 4.4.3 (04-30-1999) Statutory Restrictions on Unnecessary Examinations
IRC 7605(b) provides that no taxpayer shall be subjected to unnecessary examination or investigations of his or her 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. Pursuant to Delegation Order 57, a notice to the taxpayer stating an additional inspection is necessary can be signed by; Assistant Commissioner (International); Director, Office of Compliance; Chiefs, Examination and Employee Plans and Exempt Organizations Divisions, and District Directors in districts without an Examination or Compliance Chief. The taxpayer may refuse access to his or her records until he or she has been given notice in writing. The limitations imposed by IRC 7605(b) apply only to the taxpayer under investigation and not to a third party. The facts in each investigation will determine whether enforcement of a summons to examine records will be prohibited as unnecessary. While the Service can summon persons having information or documents which may be relevant to the investigation, the Service 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). An examination continues until the district closes the investigation. Therefore, a subsequent examination is not considered a second examination when performed pursuant to a continuing investigation.
### [109.1] 4.4.4 (04-30-1999) Statutory Limitations on Issuing a Summons After a DOJ Referral
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 Service 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 Service for any return or return information relating to a taxpayer which sets forth the need for disclosure for tax administration purposes. A DOJ referral ceases to exist when the Attorney General notifies the Service, 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 Attorney General, Deputy Attorney General, or Assistant Attorney General notifies the Service in writing that the Department 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. A referral ceases to be in effect when a final disposition has been made of any criminal proceeding pertaining to the enforcement of the Internal Revenue laws, etc. A DOJ referral remains in effect until it is terminated in accordance with the preceding sections. Summonses may not be issued to obtain information in response to a DOJ request for supplemental investigation. Consult District Counsel prior to the service of the summons where CI and District Counsel are considering whether the case should be resubmitted to DOJ under protest procedures. Treat each taxable period (or, in the instance of excise taxes, each taxable event) separately. The Service may issue a summons for 1 taxable year even if a DOJ referral is in effect for another taxable year. If District Counsel decides to refer a recommendation of criminal prosecution or grand jury investigation to DOJ, seek the advice of District Counsel about the issuance or enforcement litigation of any additional summons.
### [109.1] 4.4.5 (04-30-1999) Statutory Limitations of IRC 7609 on Summoning Information from a Third-Party
The Service must meet the procedural requirements of IRC 7609 when summoning a third-party to produce a taxpayer's records or to give testimony. Particularly, all parties entitled to notice must be given it, and the appearance date must allow all noticees sufficient time to file a petition to quash the summons. These requirements are discussed in detail in Chapter 6 of this handbook.
### [109.1] 4.4.6 (04-30-1999) Statutory limitations on Acquiring Credit Reports From a Consumer Reporting Agency-Summons Required
The Fair Credit Reporting Act restricts the means by which the Service can obtain a taxpayer's credit report from a consumer reporting agency. The Service must not try to obtain a credit report by informal means unless the sole purpose of securing a credit report is to collect an assessed tax. The Service must serve an IRC 7609 third-party summons on the consumer reporting agency. Thereafter, the consumer reporting agency must produce the summoned materials unless a noticee files a timely petition to quash. It is not necessary for the Service 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 Service's certificate stating that the consumer has not filed a timely petition to quash. However, 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 Service can obtain this information without issuing a summons. As indicated above, the Service can also obtain a credit report without a summons if the sole purpose of securing the report is to collect an assessed tax.
### [109.1] 4.4.7 (04-30-1999) Limitations on Summoning Tax Accrual Workpapers
Reserved
### [109.1] 4.4.8 (04-30-1999) Other Limitations on Issuing Summonses
After the Service has issued a Statutory Notice of Deficiency to a taxpayer, it must not issue a summons to continue its investigation of the taxable periods included in the deficiency notice. To do so can generate situations that conflict with and undermine the United States Tax Court's role in administering its procedural rules of discovery. However, even after a deficiency notice is issued, the Service may enforce a summons issued before the deficiency notice was mailed. During an investigation, the Service may need access to books and records outside the United States, such as a taxpayer's foreign bank account records. Foreign banks may refuse to release the records without the taxpayer's consent, which he or she can give by signing a consent directive authorizing the bank to produce the records. 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 his or her custody or control. Moreover, the Service can seek an order under IRC 7402(a) compelling a taxpayer to sign a consent directive authorizing the foreign institution to produce its records. Any summons drafted for this purpose must receive preissuance review by the appropriate district counsel office. NOTE: Do not use a consent directive to acquire records from a domestic financial institution.
### [109.1] 4.5 (04-30-1999) Notice of Contact With Third Parties
After January 18, 1999, the Service must inform the taxpayer of the possibility that third-parties may be contacted in connection with the determination or collection of a tax. All Service employees, except as noted below, who contact third-parties in connection with the determination or collection of a tax must keep a complete and accurate record of the third-party contact. The Service will periodically provide the taxpayer with a record of the persons contacted and will also provide this information whenever the taxpayer requests it. See I.R.C. 7602(c). Section 7602(c) does not apply if the contacts are made pursuant to a criminal investigation or if the Service determines that releasing the information would either jeopardize tax collection or subject the third-party to reprisals. In addition, this section does not apply to any contact authorized by the taxpayer. New policies, procedures, and notices are currently being developed. Serving a summons is treated as a third-party contact. Consequently, the Service must maintain a record of the contact and release it to the taxpayer periodically or upon request.
### Internal Revenue Manual | ### Hndbk. 109.1 Chap. 4 Examination of Books and Witnesses | ### (04-30-1999)

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