Page 1 - The Enforcement and Impact of John Doe Summonses

TAX PRACTICE

tax notes ®

The Enforcement and Impact of John Doe Summonses

by Megan L. Brackney

The John Doe Summons Procedures
Megan L. Brackney is a partner at
Kostelanetz & Fink LLP, where she focuses A John Doe summons is one “which does not
on civil and criminal tax controversies. identify the person with respect to whose liability
3
In this article, Brackney discusses the John the summons is issued.” Although the IRS
Doe summons procedures and the decision generally has broad authority to conduct
partially enforcing a John Doe summons in “inquiries, determinations, and assessments of all
4
Coinbase. She also identifies some practical taxes,” that authority is limited regarding John © 2018 Tax Analysts. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
considerations for taxpayers whose Doe summonses. The government must file a
information may be turned over to the IRS in petition in the court of the federal district in which
accordance with the summons. the summoned party resides or can be found.
5
This procedure is ex parte and based “solely on
The IRS had a recent success in enforcing a the petition and supporting affidavits” of the
John Doe summons against Coinbase, a virtual government. The court will issue the John Doe
6
currency exchange. It’s likely that the IRS will summons only if the IRS establishes that:
continue to use the summons to collect 1. the summons relates to the investigation of
information from other virtual currency a particular person or ascertainable group
exchanges because the IRS believes there is a or class of persons;
substantial gap between the number of people 2. there is a reasonable basis for believing
transacting in virtual currency and the number of that such person or group or class of
people reporting those transactions. 1
persons may fail or may have failed to
On November 30, 2017, the U.S. District Court comply with any provision of any internal
for the Northern District of California granted the revenue law; and
IRS’s petition to serve a John Doe summons on 3. the information sought to be obtained
2
Coinbase. The summons potentially covers 8.9 from the examination of the records or
million transactions and 14,355 Coinbase account testimony (and the identity of the person
holders. Enforcing this summons means not only or persons with respect to whose liability
that the IRS will obtain information on these the summons is issued) is not readily
taxpayers, but also that the statute of limitations available from other sources. 7
for assessment of tax and criminal charges may be The rationale for requiring a court to approve
extended for them. the issuance of a John Doe summons is to provide
8
“some restraint” on the IRS. The party receiving

3
Section 7609(f) (flush language).
4
United States v. Clarke, 816 F.3d 1310, 1313 (11th Cir. 2016) (quoting
section 6201(a)).
1 5
United States v. Coinbase Inc., No. 3:17-cv-01431 (N.D. Cal. July 18, Section 7609(h)(1).
2017); see also Treasury Inspector General for Tax Administration, “As the 6 Section 7609(h)(2); Tiffany Fine Arts Inc. v. United States, 469 U.S. 310,
Use of Virtual Currencies in Taxable Transactions Becomes More 317 (1985).
Common, Additional Actions Are Needed to Ensure Taxpayer 7
Compliance,” 2016-30-083 (Sept. 21, 2016). Section 7609(f).
2 8
United States v. Coinbase Inc., No. 3:17-cv-01431 (N.D. Cal. Nov. 28, Matter of Does v. United States, 688 F.2d 144, 148 (2d Cir. 1982)
2017). (quoting H.R. Rep. No. 94-68, at 311).

TAX NOTES, MARCH 26, 2018 1803

For more Tax Notes content, please visit www.taxnotes.com.