Can IRS Cure Defective Summons With Second Summons?

The administrative summons is one of the IRS’s primary tools for obtaining information from taxpayers and third parties. There are very few requirements that the IRS has to satisfy in issuing summones. In Maxcrest Limited v. United States, Case No. 15-mc-80270-JST, the U.S. District Court for the Northern District of California addressed whether the IRS can fix a defective summons by issuing a second summons.

The facts and procedural history are as follows:

  • The Russian Federation made an “exchange of information request” to the United States regarding the tax liabilities of NefteGasIndustriya-Invest (“NGI”) pursuant to the U.S.-Russia Tax Treaty.
  • Russia was seeking information about Platten Overseas (“Platten”), which was previously owed by Maxcredst.
  • The IRS issued two third-party summonses directed to Google Inc. (“Google”) regarding the email account information of Platten.
  • Maxcrest filed a petition to quash the IRS summones.
  • The IRS withdrew the first summons after Maxcrest filed a petition requesting that this Court quash the first summons due to procedural violations.
  • Maxcrest then sought discovery to pursue its claim that the Government acted in bad faith in issuing the first summons.
  • The IRS then issued a second similar summons on Platten which was issued without the procedural defects of the first summons.
  • The court dismissed Maxcrest’s petition to quash based on the second summons.
  • Maxcrest appealed, arguing that an improper purpose for the first summons tainted the second summons.

The issue before the court was whether a taxpayer may rely on allegations of bad faith related to an earlier withdrawn summons to establish that the IRS acted in bad faith with respect to a second, reissued summons.

Defects with the IRS’s First Summons

Maxcrest pointed out the following acts of bad faith by the government with respect to the first summons:

  1. When giving Platten notice of the first summons, the IRS did not include the statutorily required form notifying Platten of its right to challenge the summons;
  2. the IRS took thirty-five days to respond to Google’s request to send a copy of the first summons to Maxcrest, during which time the twenty-day period to challenge the summons had expired; and
  3. the IRS used U.S. Mail service to send notice to Platten in the British Virgin Islands.

Maxcrest argued that the IRS should not be able to “simply reissue an identical summons once litigation has begun and wash away all negative inferences that can be drawn from its prior deficient notice.”

Investigation as to Improper Purpose

In a separate but somewhat recent case, the U.S. Supreme Court concluded that a taxpayer has a right to conduct an examination of IRS officials regarding their reasons for issuing an administrative summons when the taxpayer points to specific facts or circumstances plausibly raising an inference of bad faith. This issue has been in dispute more frequent given the procedures the IRS has adopted to enforce information document requests (IDRs), which may cause more summonses to be issued.

So the issue in Maxcrest is whether the IRS can do an end run around this prior Supreme Court case by simply re-issuing summonses once litigation has started. This would be easy enough for the IRS to do. The summons itself is nothing more than a piece of paper and issuing it only takes the IRS a few minutes. This would render most procedural challenges to IRS summonses moot.

The court appears to have recognized this. It agreed that this presents an issue of first impression that warrants further consideration. The case will be sent to the Ninth Circuit Court of Appeals for a decision.


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