By Michael T. Breen, EA Plaistow, NH
IRS Summons is a tool utilized by the IRS when a taxpayer will not produce the desired records or other information voluntarily. Under the law the IRS has the authority to issue a summons to any person to produce for examination books, papers, records or other data, and to require such person to give testimony, under oath, as may be relevant or material to the determination or collection of any tax. An IRS summons is commonly issued by Revenue Officers when a taxpayer fails to deliver completed tax returns or a collection information statement that was promised to them by a specific date. A common mistake taxpayers make is as their deadline to produce either a collection information statement or complete tax returns closes in, they realize they need more time to complete the documents and fail to contact the Revenue Officer and request additional time. In many cases the Revenue Officer will grant additional time to furnish the information as long is it is reasonable under the circumstances. By not communicating with the Revenue Officer, he or she has no idea where you stand on furnishing the information as a result a summons is served.
Under the law, an IRS summons must be served in hand or by leaving it at the taxpayer’s last and usual place of abode. The time and place for appearance and examination must be reasonable. The date for appearance shall not be on a Saturday, Sunday, or legal holiday and be less than 10 full days from the service. Legally, it is sufficient to require the summoned person to appear on the 10th day. However, the IRS usually waits until the 11th day to avoid any questions regarding the 10 day waiting period. The IRS summons must describe with reasonable certainty the documents including the timeframes sought. The IRS may not levy a taxpayer’s property on the day the taxpayer is required to appear in response to a summons.
It is important to know, that a summons cannot require the taxpayer to do anything other than appear on a given date to give testimony or produce existing books, papers and records or both. A summons cannot require a taxpayer to prepare or create documents, including tax returns, that do not currently exist. However, a taxpayer may be required by a summons to appear and give testimony that would allow a Revenue Officer to obtain answers to all the questions or blanks on a Collection Information Statement for that taxpayer or produce records to complete a tax return for that taxpayer. Therefore, if you show up at the IRS on the date of the summons with the summoned documents and not a completed document such as a tax return or a collection information statement you can expect your day to go as follows:
Non Filed Tax Returns For instance you have a small business and didn’t file tax returns for 2012, 2013 and 2014. The IRS will have one of their employees from the IRS Examination Division usually a Revenue Agent meet with you to prepare the tax returns. The Revenue Agent will have in their possession transcripts of all the income reported to the IRS from 1099s issued from your customers. The Revenue Agent will examine the documents you provided such as bank statements, general ledgers in conjunction with the income documents they already have, your testimony and prepare your tax returns. Showing up to this meeting unprepared with a box of disorganized paperwork is going to make a long day for both you and the Revenue Agent. Generally, the IRS will expect the Revenue Agent to complete the tax returns that day. Therefore, if your paperwork is a mess, the Revenue Agent may have no other choice but to utilize estimates in completing your tax returns. These estimates may result in the Revenue Agent computing a higher tax liability. Therefore, although you are not required to prepare any tax returns in response to a summons it may be in your best interest to do so. Your computed tax liability will be more realistic and you will avoid a long day sitting with a Revenue Agent preparing your tax returns. Keep in mind that you have at least 10 days to prepare the tax returns before you have to show up for the summons. If on the day of the summons, you show up with your completed tax returns, you are in and out of there in 10 minutes.
Collection Information Statement The Revenue Officer may have you raise your right hand and swear that the testimony you are about to give is true and complete. The Revenue Officer will begin to prepare the Collection Information Statement by reviewing the summoned documents that verify your income and necessary living expenses. The Revenue Officer will ask you to answer questions from the Collection Information Statement as well as information about your income and necessary living expenses. The reason the Revenue Officer is preparing the Collection Information Statement in the first place is to make a collection decision. Generally, there are only a handful of possibilities and are as follows:
1.You can full pay the liability and will demand payment,
2. You have insufficient assets and income to pay anything presently and will be placed in a category called currently not collectible,
3. You have the ability to pay the liability in full by making monthly payments which is referred to as an installment agreement
4. You have no ability of ever being in a position to pay the liability in full. The Revenue Officer will discuss the provisions of an Offer in Compromise which is an opportunity to settle the liability for an amount that is less than actually owed.
As mentioned earlier a summons cannot require a taxpayer to prepare any document, such as a Collection Information Statement. However, it may be in your best interest to have it prepared in advance of meeting with the Revenue Officer, especially when a collection decision is going to be made based on this document. The Revenue Officer will be expected to have this Collection Information Statement completed on the day of the meeting. If your records are in disarray, it could mean the difference in you being set up on an installment agreement when in fact you should really be submitting an offer in compromise. You have 10 days to put together a Collection Information Statement from the date of summons. When a Collection Information Statement is filled out completely with all the supporting documentation, it will make your meeting with the Revenue Officer very efficient. You won’t be spending hours with the Revenue Officer preparing the Collection Information Statement. Instead, you will be reviewing the completed document and discussing the plan for resolution of you tax matter.
Enforcement of Summons When a summons is issued to a specific taxpayer, that taxpayer must appear with the available documents and be prepared to give testimony. The taxpayer’s representative cannot go in place of the taxpayer to this meeting. However, the taxpayer’s representative may attend this meeting with the taxpayer. If a taxpayer does not show up on the date of a summons, the law provides enforcement action that may be initiated by applying for an attachment for an arrest against a person who has failed to obey a summons to a district judge or magistrate judge. When the person is brought before the district judge or magistrate judge, the judge will issue whatever order is deemed proper to enforce compliance with the summons and to punish such person for default or disobedience.