15 Sep 23

Limits on Federal Subpoenas for Tax Records and IRS Information

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Last Updated on: 2nd October 2023, 05:52 pm

Limits on Federal Subpoenas for Tax Records and IRS Information

When it comes to obtaining tax records and IRS information through a federal subpoena, there are important limits and restrictions that apply. This article provides an overview of some of the key laws and legal precedents related to federal subpoenas for tax records and IRS information.

Tax Return Confidentiality

Federal law generally prohibits the IRS from disclosing tax returns or return information, except in certain circumstances. This confidentiality protection stems from 26 U.S.C. Section 6103, which makes tax returns and return information confidential. There are some exceptions that allow the IRS to disclose returns or return information for certain law enforcement purposes and other specified reasons, but the general rule is that tax return information is confidential.

So if someone wants to subpoena tax records or IRS information from the IRS directly, they generally need to show that an exception under Section 6103 applies. Otherwise, the IRS is legally prohibited from disclosing the requested tax information in response to a subpoena. Some of the key exceptions include disclosures for tax administration purposes, for use in judicial and administrative proceedings, for law enforcement purposes, and with the taxpayer’s consent.

Subpoenas to Tax Preparers

In some cases, rather than subpoenaing records directly from the IRS, parties may attempt to subpoena tax records or information from the taxpayer’s accountant, tax preparer, or other third parties who assisted with tax preparation. But there are limitations here as well.

Tax preparers have an ethical obligation to protect client confidentiality. Preparers are generally prohibited from disclosing tax return information without the client’s consent. There are some exceptions – for example, preparers may disclose information to comply with a court order or subpoena. But the preparer should make reasonable efforts to obtain the client’s consent before disclosing any tax information.

So while tax preparers can be required to produce documents in response to a subpoena, they should be careful not to disclose more than is legally required. Oftentimes it may be appropriate for the preparer to seek to quash or modify the subpoena, especially if it encompasses confidential client information.

Subpoenas to Taxpayers

If requesting tax records or information directly from the taxpayer, there are fewer restrictions. Taxpayers are generally required to comply with subpoenas to the extent the information requested is relevant and the subpoena is valid. However, taxpayers may still object to subpoenas that are overbroad, burdensome, vague, or request privileged information.

For example, in tax litigation, a party may attempt to subpoena all of an individual’s tax returns for the past 10 years – even though only one year is relevant to the issues in the case. In that scenario, the taxpayer could seek to quash or modify the subpoena to limit it to only the relevant information needed.

IRS Policies on Responding to Subpoenas

The IRS has published internal procedures and policies for handling subpoenas requesting IRS records or information. In general, IRS employees are required to comply with valid federal subpoenas. However, there are still limitations.

For one, the subpoena needs to specifically describe the information sought and include a written statement showing the information is relevant and needed for the proceeding. Broad, vague, or ambiguous subpoenas may be rejected. The IRS also generally cannot disclose information prohibited under Section 6103 without consent or an applicable exception.

IRS witnesses are allowed to testify regarding factual matters they participated in or observed in their official capacity. However, IRS employees cannot provide expert or opinion testimony. And when documents are produced, they should generally be accompanied by an affidavit from an IRS employee certifying they are true copies of official records.

Subpoenas for Grand Jury Information

Federal grand jury proceedings are subject to strict secrecy rules. However, government attorneys involved in a grand jury proceeding can obtain grand jury information, such as taxpayer returns and return information, if it is needed for the performance of their criminal law enforcement duties.

Such grand jury information may then be used in a subsequent criminal prosecution or other judicial or administrative proceeding. In that case, the grand jury information could potentially be obtained by third parties through a subpoena or other discovery request. However, courts still aim to protect the confidentiality of grand jury proceedings where appropriate.

Subpoenas for Electronic Information

If a subpoena requests electronically stored information from the IRS or a taxpayer, there are some additional considerations. The requesting party needs to specify the format they want the electronic information produced in. Otherwise, the responding party can produce the data in its ordinary format or a reasonably usable format.

However, the responding party generally does not have to produce electronic information in more than one format. This is intended to avoid unduly burdening the responding party. There may also need to be discussions between the parties regarding how to handle any privileged or confidential information contained in the electronic records.

Practical Tips for Handling Tax-Related Subpoenas

Based on the laws and precedents around subpoenas for tax records and IRS information, here are some practical tips:

  • Carefully review subpoenas for tax information to ensure they specifically describe the information sought and appear relevant to the issues at hand.
  • Consider whether grounds exist to quash or modify overbroad or unduly burdensome subpoenas.
  • Don’t disclose more tax information than is legally required in response to subpoenas.
  • Assert all applicable privileges and protections to avoid improper disclosure of confidential tax information.
  • Consult with an attorney if unsure how to respond to a subpoena seeking tax records or IRS information.

By understanding the applicable laws and making appropriate objections where warranted, disclosing parties can ensure tax information remains appropriately protected from improper disclosure.