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Ninth Circuit: Taxpayer, related third party lacked standing to quash IRS summons because they were not entitled to notice of the summons

August 10, 2011 | No. 2011-380


The U.S. Court of Appeals for the Ninth Circuit held that neither the taxpayer nor a related third party had standing to quash an IRS summons:

  • Because the IRS summons was issued to aid in the collection of a previously assessed tax deficiency, and
  • Because both the taxpayer and the related third party (an S corporation) were not entitled to notice of the IRS summons for the S corporation’s bank account information (under exceptions to the general rule that the IRS must give notice to third parties of an IRS summons)

Viewtech, Inc. v. United States, No. 09-56808 (9th Cir. August 10, 2011)

Text of the nine-page decision is available on the Ninth Circuit's Web site: Viewtech

Summary

The general rule is that the IRS must give notice to a third party of an IRS summons for that third party’s account information. This notice allows the third party to bring a proceeding to quash the summons. However, under exceptions (section 7609(c)(2)) to the general rule, notice is not required if the third party is the assessed taxpayer or is a fiduciary or transferee of the taxpayer.

In this proceeding, the IRS had assessed the taxpayer for $3 million in federal income taxes for 2007. The IRS issued a summons to a bank for the account information of the S corporation. The taxpayer had extensive involvement with the S corporation (e.g., the taxpayer owned 100% of the shares in 2007, and the S corporation paid over $1 million of the taxpayer’s individual income taxes for 2007 and 2008).

The taxpayer and the S corporation filed a motion to quash the summons, asserting that section 7609 required the IRS to notify them of the summons. The government moved to dismiss the motion to quash, asserting that section 7609 did not give them standing to challenge the summons. The federal district court agreed and dismissed the motion to quash.

On appeal, the Ninth Circuit examined the relationship of the taxpayer and the S corporation to find that both were covered by exceptions to the general rule for providing notice of IRS summons. As the Ninth Circuit concluded, neither the taxpayer nor the S corporation had standing to maintain a motion to quash because the summons was issued to help collect an assessed tax deficiency and because both the taxpayer and the S corporation were subject to the exceptions to the notice of IRS summons rules.

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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