Meet John Doe Summonses

MEGAN L. BRACKNEY is a Partner at Kostelanetz & Fink, LLP in New York, New York.
MAY–JUNE 2017
Tax Controversy Corner
Meet John Doe Summonses
By Megan L. Brackney
“John Doe” summonses have been in the news again.1 On January 24, 2017, a federal district court unsealed an order authorizing the Department of Justice (DOJ) to serve a John Doe summons upon a third party to obtain
information about U.S. taxpayers who may hold o shore accounts established by Sovereign Management & Legal LTD, a Panamanian Entity.2 e John Doe summons sought records of U.S. taxpayers who had been issued debit cards that could be used to access funds in such a manner as to hide assets o shore. Previ- ously, another federal court authorized John Doe summonses on eight entities, including FedEx, DHL, UPS, Western Union and HSBC USA, for records that would assist the IRS in identifying U.S. taxpayers who used Sovereign’s services to establish or maintain foreign nancial accounts or other o shore assets.3
On November 30, 2016, another federal district court authorized DOJ to serve a John Doe summons on Coinbase, a virtual currency exchanger on the grounds that convertible virtual currency,4 such as Bitcoin, is di cult to trace and there is a reasonable basis for believing that some virtual currency users have failed to comply with federal tax law.5
In light of the government’s continued use of this powerful investigatory tool, this column discusses the John Doe summons: what it is, how the government gets authority for it, whether it can be challenged and what practitioners need to consider when a client may be the target of a John Doe summons.
What Is a John Doe Summons and When Is the Government Authorized to Issue It?
A John Doe summons is a summons “which does not identify the person with respect to whose liability the summons is issued.”6 e Internal Revenue Code (“the Code”) grants the IRS broad authority to conduct “inquiries, determinations, and assessments of all taxes.”7 is authority includes the IRS’s general summons powers under Code Sec. 7602. e limitations on the IRS’s general summons authority are described in Powell, in which the Supreme Court states that to obtain judicial enforcement of a summons, the IRS must make a prima facie showing that: (1) its investigation is being conducted for a legitimate purpose; (2) the inquiry may be relevant to that purpose; (3) the information is not already within the government’s possession; and (4) the IRS has complied with the administrative
© 2017 CCH INCORPORATED AND ITS AFFILIATES. ALL RIGHTS RESERVED. 39 CCH Draft