Eleventh Circuit Set to Consider Whether IRS Impermissibly Used Summons Power to Obtain “Discovery” in the Tax Court

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July 1, 2015

As we previously reported, the Supreme Court’s decision in the Clarke summons enforcement case was not a complete victory for the government.  The Court set forth a standard that appeared to leave a little more room than before for summoned parties to obtain an evidentiary hearing in resisting summons enforcement actions.  The Court left open the possibility that the lower courts on remand could require a hearing in Clarke itself at which IRS officials would have to testify.

The Eleventh Circuit elected not to address this question in the first instance after the Supreme Court remand.  Instead, it sent the case straight back to the district court with instructions to reconsider its original enforcement order in light of the Eleventh Circuit and Supreme Court opinions.  But the district court saw no reason to change its tune on remand.  First, it refused the private respondents’ request to introduce additional evidence in opposition to the summons enforcement request.  The district court then issued a six-page opinion rejecting point-by-point—in some instances for lack of evidence—the arguments made by the respondents for why the summons might be thought to be improperly motivated.  The respondents have now appealed that latest decision back up to the Eleventh Circuit.

As noted in our previous report, an important aspect of the Supreme Court’s decision was how it dealt with the respondents’ objection that the government sought summons enforcement in order to obtain “discovery” in a Tax Court case that was filed soon after issuance of the summons.  The government had argued that this objection carried no weight because the validity of a summons must be judged as of the time of its issuance, and therefore a later action to seek enforcement to aid litigation in the Tax Court could not be invoked as a ground for challenging the summons.  The district court had endorsed this argument, but the Supreme Court declined to do so.  Instead, the Supreme Court remarked that it was expressing “no view on the issue” and left this question open for the court of appeals to decide on remand.  The Court emphasized that, in deciding this issue, the court of appeals would not be confined by the deference ordinarily owed to the district court’s decision on whether or not to order the questioning of IRS agents in a summons enforcement action.  Rather, the Supreme Court ruled that this argument implicated a “legal issue about what counts as an illicit motive” on which the court of appeals would have “no cause to defer to the district court.”

That legal issue is now teed up for the court of appeals.  The district court’s new opinion on remand essentially repeated the brief analysis of this point from its first opinion, stating that “events occurring after the date of issuance but prior to enforcement should not affect enforceability.”  The court of appeals will review that ruling de novo.  Having reversed the district court and ordered an evidentiary hearing when it last considered the case, it would not be surprising to see the court of appeals reach the same outcome as before and hold that the government’s conduct in the Tax Court proceedings provides enough justification for the court to hold an evidentiary hearing to explore the IRS’s motivation for issuing the summons.

The Eleventh Circuit has not yet issued a briefing schedule.

Clarke – District Court decision on remand