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U.S. justices show little support for taxpayer’s IRS summons fight

April 23, 2014

By Patrick Temple-West

WASHINGTON (Reuters) – A legal challenge to the U.S. Internal Revenue Service’s power to pry information from uncooperative taxpayers did not appear to gain much traction among the justices of the Supreme Court on Wednesday.

During oral arguments in a tax case with implications for individuals and multinational companies, conservative- and liberal-leaning justices alike seemed skeptical of a Florida investor’s demand for an evidentiary hearing as part of his effort to fight court-approved IRS summonses.

At issue are the legal standards taxpayers must meet to get a court hearing if they believe the IRS has issued a summons for an improper purpose.

The IRS is squaring off against Michael Clarke, a West Palm Beach, Florida, investor who argues the U.S. tax agency in 2010 improperly issued summonses as retribution against him and his business partners for resisting an audit.

Clarke should have an opportunity to ask an IRS agent in district court why the summonses were issued and how they pertained to a tax bill also issued to Clarke, his lawyer Edward Marod told the justices.

Justice Anthony Kennedy said such interrogations could lead to harassment of IRS agents.

“I’m now concerned … I now think there’s much more to the government’s position than I had thought with reference to harassment,” said Kennedy, a Republican appointee.

Justice Sonia Sotomayor said the summonses might have a legal motive if the documents the IRS obtains show evidence that a tax bill issued to Clarke needs to be changed.

“So if I don’t think it’s an abuse of discretion or that you showed me much with respect to that issue, what’s left for you?” Sotomayor, a Democratic appointee, asked Marod, with the Gunster Yoakley & Stewart PA law firm.

Clarke is fighting a $17 million tax bill that was issued before a Florida district court authorized the IRS’ summonses.

Under the law, the IRS can issue a summons for information when a taxpayer refuses to provide it voluntarily. If the taxpayer ignores the summons, the IRS can then ask the U.S. Justice Department to seek a district court order from a judge.

Judges routinely rubber-stamp requests for court orders to enforce summonses without first holding evidentiary hearings.

Last year, the 11th Circuit Court of Appeals in Atlanta reversed a district court’s ruling, saying Clarke should get a hearing. The three-judge appellate panel said that without such a hearing, taxpayers face an “impermissible Catch-22″ in proving a summons was improperly issued.

The IRS is worried a win for Clarke would bog down tax enforcement with unnecessary litigation across the country.

The nine-member court is expected to issue a decision in the case by the end of the court’s term in late June.

The case is No. 13-301 United States v. Clarke.

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