Every year the IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many of these letters and notices are for informational purposes only and do not need a taxpayer response. Many more of these letters and notices are benign and can be dealt with simply, without having to call or visit an IRS office. Some letters and notices portend adverse action by the IRS in the event of an inadequate response by the taxpayer. It is unwise for a taxpayer to ignore any of the foregoing letters and notices, but ignoring them will not necessarily cause permanent impairment of the taxpayer’s legal rights.
However, a handful of the letters and notices cannot be ignored without serious adverse legal consequences for the taxpayer, and this article identifies those letters and notices and describes those adverse legal consequences. These are the IRS letters and notices a taxpayer must not ignore. We will discuss in three parts:
- Statutory Notice of Deficiency (Ninety Day Letter)
- Final Partnership Administrative Adjustment (FPAA) under TEFRA
- The IRS Summons (including an IRS caused Grand Jury Subpoena)
- The Final Notice Before Levy
- Statutory Notice of Denial of a Claim for Refund
- Notice of Computational Adjustment under TEFRA
This article follows an earlier article by Edward M. Robbins, Jr. published here on July 7, 2013 and addresses the next two Notices referenced above (referenced as #3 and #4 above). Mr. Robbins will soon post additional articles regarding the remaining Notices referenced above.
3. The IRS Summons (including an IRS caused Grand Jury Subpoena)
The summons power is one of the investigative tools provided by Congress to enable the IRS to make accurate determinations of tax liability. The summons comes on a preprinted Form 2039 with the word “Summons” in large font at the top. Among other things, the summons identifies the person or entity under investigation, the tax periods, and directs the party summoned to show up at a particular time and place and give testimony and produce to the IRS the data demanded by the summons. The IRS summons is used in civil and criminal tax investigations. The IRS summons power is very broad and a taxpayer served with an IRS summons who wants to ignore it has a significant problem. It is a crime to neglect to appear in response to a summons. More importantly, since few people are prosecuted for ignoring an IRS summons, failure to comply with an IRS summons to the satisfaction of the IRS will likely embroil the summoned party in expensive enforcement litigation in United States District Court, something always to be avoided.
To obtain enforcement of a summons in a District Court summons enforcement proceeding, the Government need only make a “minimal” initial showing to the Court that the summons is issued for a proper purpose, that the material sought is relevant to that purpose, that the information sought is not already within the IRS’s possession, and that the administrative steps required by the Internal Revenue Code have been followed. In this regard, the Government’s burden is a slight one because a summons enforcement action is a summary proceeding which is brought “only at the investigative stage of an action against the taxpayer, and ‘the statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted.’” The party resisting the summons has few defenses, apart from privilege. The District Court enforces the summons by ordering the summoned party to comply with the summons. If the summoned party fails to comply, the summoned party will be held in contempt of court and the District Judge will apply pressure to the summoned party to follow the Court’s enforcement order. Usually this means the District Judge throws the recalcitrant party in jail until he complies with the enforcement order.
A summoned party cannot safely comply with an IRS summons without first determining whether the party has any important privileges in the summoned data that need to be protected. The Fifth Amendment privilege may be implicated, if the party has any hazard of criminal prosecution. Various other privileges may be in play, including the attorney-client privilege, the tax practitioner privilege and the work product privilege, to name a few. If the taxpayer inadvertently surrenders privileged data or testimony in response to a summons, the privilege is waived.
A grand jury subpoena in a criminal tax investigation is similar to an IRS summons, only worse. At least with an IRS summons, the summoned party has some idea what the investigation is about and might argue about the relevance of the summoned data or that the government already has the summoned data. With a grand jury subpoena, almost everything about the investigation is a secret, making it somewhat difficult to argue against the grand jury subpoena. Unlike a summons, it is no defense to a grand jury subpoena that the information sought by the grand jury is not relevant to its investigation. A party resisting the grand jury subpoena has few defenses, apart from privilege.
As with the summons, failure comply with an IRS generated grand jury subpoena will likely embroil the subpoenaed party in expensive litigation in United States District Court, as the government sues for enforcement.
A favorite defense of a subpoenaed or summoned party is “I don’t have the records.” That is only half of a defense. The full defense is “I don’t have the records, and I have no way to get them.” Courts have been known to test this full defense by putting the party in jail for a while just to see if he can imagine some way to come up with the records. A party needs professional help before risking litigation on a summons or subpoena.
If there is ever a time in a tax matter to hire a qualified tax lawyer, receipt of a summons or grand jury subpoena marks that time. Fumbling the response to a summons or grand jury subpoena might ultimately land you in jail.
4. The Final Notice Before Levy
After a tax assessment, typically, businesses can expect only two IRS notices demanding payment, while individuals typically receive four. In either case, however, the final demand notice is called “Final Notice—Notice of Intent to Levy,” often referred to by practitioners as the “final notice before seizure.” The taxpayer will receive the Final Notice by certified mail. Like the 90-day letter, the Final Notice is also the taxpayer’s ticket to Tax Court. A taxpayer can recognize a Final Notice by reading the first page. This Final Notice advises a taxpayer of his right to request a section 6330 Collection Due Process (CDP) hearing before an IRS Appeals Officer. The CDP procedure may be used not only to suspend collection activity of the IRS, but to challenge an underlying tax liability in certain circumstances, to raise spousal defenses, and/or to propose collection alternatives such as an offer in compromise or an installment agreement. If the taxpayer is unable to resolve the matter with the IRS Appeals Officer, he will have the opportunity to file an appeal in the U.S. Tax Court. The CDP proceeding and its appeal can take years.
The taxpayer has 30 days from the date of the Final Notice to request a CDP hearing. There is no other mechanism for getting a CDP hearing. If the taxpayer fails to request a CDP hearing, the IRS is free to take forced collection actions against the taxpayer, such as forcibly seizing the taxpayer’s property to satisfy the tax debt. In a nutshell, if the taxpayer misses the Final Notice, the taxpayer will find himself totally at the mercy of the IRS collection apparatus.
There is a general agreement among practitioners that it is malpractice to fail to request a CDP hearing, thereby allowing the mechanisms for forced collection to descend on the taxpayer. When the taxpayer gets his hands on the Final Notice, the next move is imperative-get it to his tax professional without delay. Do this, even if the taxpayer thinks the tax professional is receiving copies of everything from the IRS. If the taxpayer doesn’t have a tax professional, get one.
For more information regarding this topic please contact Edward M. Robbins, Jr. –EdR@taxlitigator.com Mr. Robbins is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C. He is the former Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at www.taxlitigator.com .
 26 U.S.C. § 7210.
 The IRS has no power of its own to enforce the summons but must apply to the district court in order to compel production of requested materials. See §§ 7402(b) and 7604(a).
 United States v. Powell, 379 U.S. 48, 57-58 (1964).
 Alphin v. United States, 809 F.2d 236, 237 (4th Cir. 1987).
 See Blair v. United States, 250 U.S. 273, 282 (1919); United States v. Weinberg, 439 F.2d 743, 749 (9th Cir. 1971).
 26 U.S.C. §§ 6320(c), 6330(c)(2)(A), (B).
 26 U.S.C. § 6330(e)(1).
 Treas. Reg. § 301.6330-1(b)(1).