The Power of the Grand Jury Subpoena: When the Government Can Access Your Tax Records

As a taxpayer, you probably assume that your tax returns and records are private. After all, we rely on the IRS to keep that information confidential, right? Well, not always. In certain circumstances, the government can gain access to your tax records using something called a federal grand jury subpoena.

When can the government use a grand jury subpoena to obtain tax records?

Normally, federal law prohibits the IRS from sharing individual tax returns and return information. But Section 6103 of the Internal Revenue Code includes several exceptions that allow federal grand jury subpoenas to override this confidentiality, including investigations into:

• Tax crimes – Offenses like tax evasion or filing false returns.
• Financial crimes – Money laundering, financial fraud, and other financial offenses if tax returns or return information (like W-2s) are relevant to the investigation.
• Non-tax criminal violations – Any federal felony offense as long as the information in the tax returns is probative of a matter in issue related to the investigation.

So if you’re the target of an investigation into tax fraud, the grand jury can subpoena your returns directly from the IRS. And if you’re being investigated for, say, wire fraud or bribery, the grand jury can also obtain your returns if they contain information relevant to the alleged crime.

What tax records can be obtained?

The subpoena can order production of actual tax returns as well as “return information” which includes any data prepared or collected by the IRS regarding a person’s tax liability. In addition to the returns themselves, return information that can be subpoenaed includes:

• Taxpayer identity information – Name, address, Social Security Number or EIN.
• Nature, source or amount of income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, and tax payments.
• IRS audit workpapers and records of investigation or enforcement activities.
• Any other data received, prepared or collected by the IRS regarding determining liability or potential liability.

So pretty much any tax record the IRS has on you can potentially be obtained if it might shed light on the matter being investigated.

What are the limits on using grand jury subpoenas for tax records?

The government can’t just subpoena tax returns on a whim. Courts have set forth some important limitations to prevent abuse:

• Relevance – The government must show the tax information is at least potentially relevant to the investigation. They can’t go on broad “fishing expeditions.”
• Particularity – The subpoena must specifically describe the information sought and why it is relevant.
• Secrecy – Grand jury proceedings are conducted in secret, limiting public disclosure of the subpoenaed tax records.

In addition, DOJ policy generally requires prosecutors to obtain high-level approval before seeking tax records and provide notice to the taxpayer so they can file motions opposing the subpoena. Courts will review and rule on any such motions.

So while federal grand jury subpoenas grant significant power to investigators, important safeguards exist to balance taxpayer privacy and due process rights.

What should you do if you receive a subpoena for tax records?

If you receive a grand jury subpoena for your tax returns or IRS records, don’t ignore it. You must comply or challenge the subpoena in court. A skilled criminal tax defense attorney can help you:

• File a motion to quash the subpoena if the request is overbroad, irrelevant or improper.
• Limit the scope of records that must be produced if the subpoena is too expansive.
• Request in camera review where the judge privately examines the records to remove unnecessary information before prosecutors see them.
• Seek protective orders to prohibit public disclosure and limit use of the tax information to certain parties under court-ordered restrictions.
• Assert privileges that may protect some of the subpoenaed documents from disclosure.
• Ensure proper procedures are followed and your rights protected throughout the process.

Although the grand jury’s subpoena power is broad, working with an experienced white collar defense lawyer can help limit the damage and protect your rights and interests. Don’t go it alone.

The bottom line

While federal law restricts the IRS from sharing tax returns and return information, exceptions exist that allow grand jury subpoenas to obtain those records for use in criminal investigations. If you find your tax records have been subpoenaed, be sure to consult with a criminal tax defense attorney right away to protect your rights. An experienced lawyer can help limit the scope of disclosure and prevent the government from going on broad “fishing expeditions” into your confidential tax information.