Summonses - To Go Or Not To Go, That is the Question

By Shawn O'Connor

The Second Circuit came down with their opinion in the appeal Bob Schulz filed when the District Court denied his motion to vacate, or otherwise dispose of the Summons the IRS issued to him which sought information concerning his alleged promotion of an abusive tax shelter.  Since then we have had several calls about what appears to many as some sort of substantial victory which somehow changes the IRS’ summons power.  First, to the extent that the opinion might do that, it only does so within the confines of the Second Circuit. Secondly, and most importantly, is the fact that the Court did absolutely nothing to change the summons power of the IRS.  Rather all they did was explain to Schulz that he had no standing to pursue his lawsuit.  In fact, had the Second Circuit cleaned up its case law within the last 40 years Schulz could very well have been sanctioned for bringing what other circuits would have considered a frivolous appeal.  This is a classic example of throwing good money after a bad idea.  On the other hand, it is fortunate that members of Schulz’s organizations have such money to spend on such frivolous cases.

Nevertheless and apparently Schulz’s legal team felt compelled to spend its time, money, and energy to pursue a case merely so the Second Circuit could do that which anyone with any legal acumen could have foreseen.  That is overrule cases which were already implicitly overruled.  To this end the court said that   –  “We realize that our holding today stands in direct contradiction to our previous decisions in Application of Colton, 291 F.2d 487, 491 (2d Cir. 1961), and In re Turner, 309 F.2d 69, 71 (2d Cir. 1962). While reversal of our prior precedent is never a matter we regard lightly, we take no small solace in Judge Friendly’s discussion of Colton and Turner in United States v. Kulukundis, 329 F.2d 197 (2d Cir. 1964). There, Judge Friendly, who authored both Colton and Turner, points out that Reisman “seems to destroy the basis underlying decisions of this court which authorized applications to vacate [an IRS] summons (and appeals from their denial) in advance of any judicial proceeding by the Government for their enforcement.” Id. at 199. In light of this, we view ourselves today as completing a task begun forty years ago and hold that, absent an effort to seek enforcement through a federal court, IRS summonses apply no force to taxpayers, and no consequence whatever can befall a taxpayer who refuses, ignores, or otherwise does not comply with an IRS summons until that summons is backed by a federal court order.”

Thus, the Court, found that the remedy which may have been available to Schulz over 40 years ago, no longer was.  The Court found that Schulz had no standing to bring the lawsuit because the remedy was no longer available.  In short Schulz and his legal team did not understand that a case or controversy was necessary to sustain an action in an Article III Court.  The Second Circuit explained this quite succinctly stating that – “It is well-established that “Article III of the Constitution confines the jurisdiction of the federal courts to actual ‘Cases’ and ‘Controversies.’” Clinton v. City of New York, 524 U.S. 417, 429 (1998) (citations omitted). To demonstrate the standing necessary to invoke the jurisdiction of the federal courts Schulz must “allege personal injury fairly traceable to the defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief.” Allen v. Wright, 468 U.S. 737, 751 (1984). This injury may not be speculative or abstract, but must be distinct and definite. Id. In its present posture, Schulz’s motion does not satisfy this requirement. As the Supreme Court pointed out in United States v. Bisceglia, IRS summonses have no force or effect unless the Service seeks to enforce them through a §7604 proceeding. 420 U.S. 141, 146 (1975), partially superseded by 26 U.S.C. §7609, as stated in In re Does, 688 F.2d 144, 148 (2d Cir. 1982). The IRS has not initiated any enforcement procedure against Schulz and, therefore, what amount to requests do not threaten any injury to Schulz.”

Thus, it was found that since the IRS had not initiated proceedings against Schulz to compel him to comply with the summons, the issue was not properly before the court.  This is not a revelation to anyone with even the minimum amount of understanding of the power of IRS summonses.

On the other hand, the Court did recognize that should the IRS seek judicial enforcement of its Summons, Schulz would than have standing to come into court and contest such enforcement proceedings; and, that until such time the IRS can do nothing to force a person into a summons hearing.   Well, that isn’t new news.  It is first year summons law.  So, everybody that wants to go to court for failing to properly deal with an administrative IRS summons, raise your hand now!

The downside of this case is that people are now being erroneously, and perhaps unwittingly, advised that not attending a summons hearing is a good idea, as it forces the government to seek judicial enforcement of its administrative process.  This is one of the worst ideas ever perpetrated upon those who receive a summons.  It has been our experience that most people would rather undergo triple by-pass surgery then walk into a courtroom.  With that in mind, why would anyone put ones-self in the position of being summonsed into Court and have a judge order you to attend a summons and produce information and give testimony, when all one has to do is appear at the administrative summons hearing and dispose of it properly without any court interference whatsoever?


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News Flash

Uncertainties of the Income Tax
(Courts At War with Themselves)

by Larry Becraft, Attorney

For several years now, a variety of high public officials have openly declared that the federal income tax laws are incredibly complex and need to be either substantially revised or scrapped.   But after making such statements, these officials invariably fail to identify what  specific parts of  the tax laws suffer from this condition, choosing instead to conceal them. Are the objectionable parts of the federal tax code secretly and quietly discussed behind closed Congressional committee doors? If they are, why doesn't someone inform the American public of these deficiencies so that they may likewise participate in this debate? Is it possible that it is the major and not various minor features of the tax laws which are complex, even uncertain? Is it possible that these major features are so fundamentally flawed that they simply cannot be repaired? If so, what is the legal consequence of this complexity?

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