An IRS Summons Is a Powerful Tool That Can Even Reach Law Firms' Escrow Accounts
In Florida, the Court of Appeals for the Eleventh Circuit held that IRS summonses to a bank, with respect to a law firm's escrow and trust bank account records, were proper.
August 30, 2018 at 09:45 AM
5 minute read
If you believe the IRS can't summons a bank for information relating to deposits held in a law firm's trust account and or escrow account—think again. In Florida, the Court of Appeals for the Eleventh Circuit held that IRS summonses to a bank, with respect to a law firm's escrow and trust bank account records, were proper, notwithstanding the law firm's arguments that the summonses violated the law firm's clients' rights under the Fourth Amendment and under the Internal Revenue Code. The IRS summonses sought records “pertaining to any and all accounts over which [each plaintiff] has signature authority,” including bank statements, loan proceeds, deposit slips, records of purchase, sources for all deposited items, and copies of all checks drawn. This included the law firm's trust and escrow accounts that contain information about the law firm's clients and their finances. In this case, the bank had to comply with the summonses and turn in all the records to the IRS.
|Authority to Issue a Summons
I.R.C. Section 7602 authorizes the IRS to issue a summons to any person having information that “may be relevant” to its investigation. That authority permits the IRS to require a person to appear at a designated location and to produce books and records or give testimony under oath. IRS issues a summons when it is prepared to seek judicial enforcement if the summoned party fails to fully comply with earlier requests for information. The IRS states that a summons should only be issued when:
- The information required is vital to the investigation;
- The taxpayer or third-party “summonee” is unreasonably refusing to cooperate; or
- The information cannot be easily obtained from other sources.
What Information May be Summoned by the IRS?
The IRS' summons authority is broad. It authorizes the examination of any records or the taking of testimony under oath from witnesses that “may be relevant or material.”
|What Is the Purpose for Issuing a Summons?
- To ascertain the correctness of any return;
- To prepare a return where none has been made;
- To determine the liability of a person for internal revenue tax;
- To determine the liability at law or in equity of a transferee or fiduciary of a person in respect of any internal revenue tax;
- To collect any internal revenue tax liability; or
- To inquire into any offense (civil or criminal) connected with the administration or enforcement of the internal revenue laws.
Who Can the IRS Summon?
- The person liable for the tax or required to perform the act (prepare a return);
- Any officer or employee of such person who has information that may be relevant to the investigation;
- Any person having possession, custody, or care of books, papers, records, or other data that may be relevant to the investigation; or
- Any other person the secretary deems proper.
IRS Has Summons Enforcement Criteria to Meet
- The investigation will be conducted pursuant to a legitimate purpose;
- The inquiry may be relevant to the purpose;
- The information sought is not already within the Service's possession; and
- All administrative steps required by the code have been followed.
Don't Be a Victim of Your Own Making
The summons is a tool that gets the attention of taxpayers as well as third parties such as financial service institutions and personal service providers (attorneys, accountants, etc.). If the IRS serves a summons on a third party, any person entitled to a notice of the summons may challenge its legality by filing a motion to quash or by intervening in any proceeding regarding the summons. According to the taxpayer advocate, those served by a summons ought to remember that:
- The burden on the taxpayer to establish the illegality of a summons is heavy.
- When challenging a summons' validity, the taxpayer generally must provide “some credible evidence” supporting an allegation of bad faith or improper purpose.
- The taxpayer is entitled to a hearing to examine an IRS agent about his or her purpose for issuing a summons only when the taxpayer can point to specific facts or circumstances that plausibly raise an inference of bad faith.
Moreover, taxpayers also ought to remember that IRC Section 7604(b) states that: “If a person summoned under IRC Section 7602 neglects or refuses to obey the summons; to produce books, papers, records, or other data; or to give testimony as required by the summons, the IRS may seek enforcement of the summons in a U.S. district court.”
Stanley Foodman is president and CEO of Foodman CPAs & Advisors in Miami.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllMotions for Summary Judgment and Discovery: The 2021 Rule Changes Continue to Emerge
5 minute readAs a New Year Dawns, the Value of Florida’s Revised Mediation Laws Comes Into Greater Focus
4 minute readData Breaches, Increased Regulatory Risk and Florida’s New Digital Bill of Rights
7 minute readTrending Stories
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250