What is a John Doe Summons (Why is it Used by IRS?)

What is a John Doe Summons (Why is it Used by IRS?)

What is a John Doe Summons 

The Internal Revenue Service will issue a Summons when it wants a person to produce certain documentation relevant to an IRS (or related) tax investigation. The IRS can ask for items such as books, papers, records, and other data in accordance with 26 USC 7602 et seq.. Generally, when the US government wants to issue a summons, it is directed to a specified person, so that the recipient is aware that they are the intended receiver of the summons. But, sometimes the US government does not have sufficient information to issue a typical summons. Instead, the IRS issues a John Doe summons to an institution, such as a Financial Institution or Foreign Financial Institution (FFI). The John Doe Summons has been very popular lately on matters involving cryptocurrency. Let’s look at five (5) important facts about the John Doe Summons while cross-referencing the Internal Revenue Manual’s relevant sections.

What is the Relevant Code Section?

Internal Revenue Code Section 7609 provides the IRS with authority to issue a John Doe summons. The John Doe summons requires additional procedural hurdles beyond an ordinary summons, such as obtaining approval from a District Court.

IRM 25.5.7.1.2 

      • “IRC 7609(c)(3) and IRC 7609(f) provide the IRS with John Doe summons authority.

      • The authority to issue John Doe summonses is limited to individuals who are specifically authorized by Delegation Order 25-1. See IRM 1.2.2, Servicewide Delegations of Authority.”

Who Has to Approve a John Doe Summons?

The Internal Revenue Code requires a District Court to approve the issuance of a John Doe Summons Without it, the Internal Revenue Service cannot generally issue a John Doe Summons,

      • “Paragraph (3) in Delegation Order 25-1, lists the individuals who are authorized to issue John Doe summonses. See IRM 1.2.2, Servicewide Delegations of Authority.

      • US District Court approval is required to serve a John Doe summons. See IRM 25.5.7.2, Procedures.

      • Requests for US District Court approval to serve John Doe summonses are submitted to Area or Associate Area Counsel. Counsel reviews these requests for legal sufficiency and appropriate requests are referred to the Department of Justice (DOJ). See IRM 25.5.7.2, Procedures. DOJ will file an ex parte proceeding in US District Court requesting permission for the IRS to serve the John Doe summons. See IRM 25.5.7.4, Statutory Requirements For a Valid John Doe Summons.”

What are the Procedures for Issuing a John Doe Summons

The procedures for obtaining a John Doe Summons differ from other types of summons.

As provided by the IRM:

IRM 25.5.7.2 – Procedures

      • “A John Doe summons can only be served after approval by a US District Court. Therefore, the IRS must never serve a “friendly” John Doe summons even though a prospective summoned party may request one as a condition to providing information to the IRS. See IRM 25.5.3.2(4), Service of Summons, for a definition of “friendly summons.” Serving a John Doe summons without court approval violates the statute and will jeopardize the investigation.

      • Submit a written request for pre-issuance approval of a John Doe summons to Area or Associate Area Counsel, as appropriate. The summons request should state the pertinent facts and circumstances that justify seeking court approval to serve the summons and include information to satisfy each of the statutory requirements contained in IRC 7609(f) . Work closely with Area or Associate Area Counsel on a John Doe summons request. It is important to obtain Counsel’s input and assistance to develop a successful John Doe summons. In the rare event a John Doe summons would involve Collection, the request for a John Doe summons should be routed through CEASO before sending to Associate Area Counsel for final review and approval.

      • Discuss the wording to be used in the John Doe summons with Area or Associate Area Counsel. Use Form 2039, Summons, and provide a draft copy to Counsel with the pre-issuance request. Area or Associate Area Counsel will work with the examiner to perfect the summons, the request and any other documentation needed to support issuance of the summons. Once perfected, Counsel will forward the John Doe summons request for approval.

      • Area or Associate Area Counsel will prepare a referral letter on behalf of Chief Counsel to DOJ containing the law and facts justifying court approval. This referral letter and proposed summons will be submitted by Associate Area Counsel to Associate Chief Counsel (Procedure & Administration) for its review and approval per CCDM 34.6.3.3.2(1)c, Referrals through the Office of the Associate Chief Counsel (Procedure & Administration).

      • If Associate Area Counsel decides not to forward the matter to Associate Chief Counsel (Procedure & Administration) for referral to the DOJ to seek approval for service, the matter should be discussed with the Field and CEASO Territory Managers.

      • If an agreement cannot be reached, Counsel will prepare and forward a memorandum to the Area Director setting forth the unresolved issues.

      • If the Area Director does not agree with Counsel’s conclusions, the matter will be referred to the Director, Field Operations (CI or LB&I), or the Director, Exam or Collection, or Director, Compliance, (W&I), who will explore with the Associate Chief Counsel, (Procedure & Administration), ways of reaching an agreement on future actions concerning the John Doe summons.

      • John Doe summonses are an important investigative tool. To be used effectively, extensive coordination is needed with local Counsel and the DOJ. Coordination at each level of the process ensures compliance with the Internal Revenue Code and ensures nothing will jeopardize the investigation.”

John Doe Summons Must Have a Necessary Purpose

The IRS must have a purpose in mind when issuing the John Doe Summons. In other words, there must be a potential tax liability from an individual or group of individuals.

IRM 25.5.7.3.2 – Necessary Purpose

      • “The purpose of a John Doe summons must be to investigate the tax liability of a specific unidentified taxpayer, (or a group of such taxpayers), even if a secondary purpose is to gather information for research purposes.

      • The IRS should no longer be in the information-gathering or research stage of a project when it decides to seek court authorization to serve a John Doe summons. The project research should be sufficiently developed to enable the IRS to identify a specific tax compliance problem. The IRS should be prepared to investigate the tax liabilities of specific taxpayers based on the information received from the John Doe summons. A John Doe summons cannot be used to conduct a “fishing expedition.” See IRM 25.5.7.4 , Statutory Requirements For a Valid John Doe Summons.”

No Notice Requirement for Enforcement

The IRS does not have to provide notice that a John Doe Summons is in the pipeline. In fact, the IRS also cannot issue friendly John Doe Summons, since it can impact the case by not following the proper formalized procedures.

As provided by the IRM:

25.5.7.3.4 (02-18-2016) – No Notice Required

      • A John Doe Summons is exempt from third party notice requirements per IRC 7609(c)(3). Advance notice by the IRS to the unknown taxpayers constituting the John Doe class is not possible.

25.5.7.3.6 (06-04-2020) Enforcement of a John Doe Summons

      • The enforcement of a John Doe summons is essentially the same as other IRS summonses as discussed in IRM 25.5.10, Enforcement of Summons. However, a John Doe summons has already been referred to DOJ and approved by a US District Court prior to issuance. Therefore, in the event that a John Doe summons requires enforcement, contact Area or Associate Area Counsel for guidance.

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