IRS Summonses and the Powell Factors: A Recent Case Demonstrates the Burdens of a Motion to Quash

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

IRS Summonses and the Powell Factors: A Recent Case Demonstrates the Burdens of a Motion to Quash

The United States Court of Appeals for the Tenth Circuit recently issued a decision that touches on the government’s burden of proof to enforce an IRS summons. In Standing Akimbo, LLC v. United States, No. 19-1049 (10th Cir. April 7, 2020), the court considered, on appeal, Standing Akimbo’s claim that the lower court improperly applied the factors of United States v. Powell, 379 US 48 (1964) when determining whether to grant a petition to quash the IRS summonses issued to taxpayers. Siding with the government, the Tenth Circuit determined that the Powell factors were not misapplied and that the government had satisfied its burden of proof, emphasizing the government’s relatively “low” burden of proof and the “very high” burden a taxpayer must meet. The court granted the government’s motion to dismiss the petition to quash and allowed enforcement of the summonses.

The case arose from a civil investigation into the business of Standing Akimbo, LLC, a medical marijuana dispensary. After an IRS audit investigating whether Standing Akimbo improperly claimed business deductions under IRC section 280E, the IRS sent Information Document Requests (IDR) requesting certain information. After the IRS determined the information provided “was so minimal and incomplete” as to be unable to verify the accuracy of the returns, the IRS issued third-party summonses to the Enforcement Division. The taxpayers were provided with copies of the summonses, notice of their right to petition to quash the summonses, and an appended declaration.

The taxpayers filed a petition to quash the summonses on the grounds that the summonses did not satisfy the Powell factors. The Powell factors provide that for a summons to be enforced, a showing must be made that “the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purposes, that the information sought is not already within the Commissioner’s possession, and that the administrative steps required by the Code have been followed.” The government countered that the revenue agent’s declaration that was appended to the summonses satisfied the requirements of Powell. The district court ruled in favor of the government, and Standing Akimbo appealed.

On appeal, the Tenth Circuit examined each Powell factor, determining the requirements for enforcement under Powell were met and that the taxpayers had failed to rebut it. Particularly, the court repeatedly noted the “slight burden” of satisfying the requirements of Powell in its analysis. In its discussion of the final factor, the court stated “Agent Pringle’s declaration again meets this slight burden.” In contrast, the court noted the taxpayer’s failure to “carry their ‘heavy burden’” (internal citations omitted).

Having found that the Powell factors were satisfied and that the taxpayers failed to rebut the government’s summons enforcement, the court affirmed the judgment of the district court ordering dismissal of Standing Akimbo’s petition to quash the summonses and enforcement of the summonses.

This decision emphasizes that a taxpayer aiming to challenge an IRS summons faces an uphill battle. While the IRS has, in the words of the court, a “slight” burden of proof to meet for enforcing a summons, a taxpayer bears a very heavy burden. Taxpayers wishing to challenge an IRS summons should seek the advice and counsel of an experienced tax attorney regarding their options and grounds for challenging IRS enforcement actions.

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