Main Street Practitioner Blog

The U.S. Supreme Court ruled unanimously that taxpayers have a right to challenge an Internal Revenue Service summons enforcement proceedings when they can show the tax agency might have issued the summons in bad faith.

United States v. Clarke arose from the case of Michael Clarke of West Palm Beach, Florida, who accused the IRS of issuing a summons as retribution against him and his business partners for resisting an audit. In its ruling, the Supreme Court said Clarke can seek an evidentiary hearing regarding the motives of IRS officials. The IRS argued taxpayers already have opportunities to challenge a summons and that an evidentiary hearing would be an unnecessary “fishing expedition.”

The Court vacated and remanded the case, so although this was a small win in limiting the ability to be unfairly targeted by the IRS, Mr. Clarke’s challenges are not over.

The nine justices sent the case back to the 11th U.S. Circuit Court of Appeals and said that court had wrongly decided that IRS agents could be examined at an evidentiary hearing based on a taxpayer’s mere “conclusory allegations.”

In a nine-page opinion, written by Justice Elena Kagan, the Supreme Court said: “A taxpayer has a right to conduct an examination of IRS officials regarding their reasons for issuing a summons when he points to specific facts or circumstances plausibly raising an inference of bad faith.”

The opinion further explained what is perceived as proper evidence, ”The balance struck in this Court’s prior cases supports a requirement that a summons objector offer not just naked allegations, but some credible evidence to support his claim of improper motive. Circumstantial evidence can suffice to meet that burden, and a fleshed out case is not demanded: The taxpayer need only present a plausible basis for his charge.”

But the opinion also said that the appeals court “applied a categorical rule, demanding the examination of IRS agents even when a taxpayer made only conclusory allegations. That was error.”

The Supreme Court’s decision is seen as a taxpayer victory by many, since they have the right to challenge an IRS summons. However, it is viewed as an IRS win as well since the court agreed with IRS arguments that a lower-court ruling made it too easy for taxpayers to obtain court hearings to examine IRS motivations for examining a taxpayer. 

The Supreme Court’s ruling didn't fully resolve this dispute. The justices sent the case back and directed the lower court to apply the new legal standard to determine whether the challengers were entitled to a court hearing to explore their allegations against the IRS.

Read the Supreme Court ruling here.


Julene Joy
Communications Manager
National Society of Accountants
jjoy@nsacct.org