Page 3 - Meet John Doe Summonses

parte nature of the procedure means that the summoned party cannot intervene in the proceeding or move to quash a John Doe summons.20 e remedy for a party who has been served with a John Doe summons is to raise any challenges after the government has brought an ac- tion against that party for enforcement of the John Doe Summons. However, in that enforcement proceeding, the summoned party cannot challenge the summons on the ground that the government failed to comply with the requirements of Code Sec. 7609(f ). As explained by the Second Circuit:
By requiring the application be made to the court ex parte, we believe Congress intended that the question whether a John Doe summons could be served should not become embroiled in an adversary proceeding. Nothing in the legislative history or on the face of the statute suggests that Congress intended to permit a summonsed party to challenge the showings which are the requisite for service of a summons.21
Rather, the summoned party is limited to challenging the summons based on the government’s failure to comply with the Powell requirements or bad faith or abuse of process.22 For the same reasons, a target of a John Doe summons also is not entitled to move to quash or intervene in an enforcement proceeding but is unlikely to do so anyway because it would identify himself or herself as a potential target. Recently, however, in connection with the John Doe summons issued to Coinbase discussed in the introduction, a Coinbase customer chose to identify himself in order to challenge the John Doe summons. As of the date of pub- lication, the motion is pending before court.23
What Do You Do If Your Client’s Information Is the Subject of
a John Doe Summons?
As an initial matter, many practitioners are not aware of the impact on the statute of limitations that ows from the issuance of a John Doe Summons. e statute of limitations on both civil assessment of tax and criminal prosecution for tax o enses for the person’s whose tax li- ability is at issue is suspended if the summoned party does not timely comply with the John Doe summons. Code Sec. 7609(e)(2) provides as follows:
In the absence of the resolution of the summoned party’s response to the summons, the running of any period of limitations under section 6501 or under
section 6531 with respect to any person with respect to whose liability the summons is issued (other than a person taking action as provided in subsection (b)) shall be suspended for the period—
(A) beginning on the date which is 6 months after the service of such summons, and
(B) ending with the final resolution of such response.24
e Treasury Regulations contain an example illustrat- ing this rule:
A John Doe summons is issued on April 1, 2004, to the promoter of a tax shelter and seeks the names of all participants in the shelter in order to investigate the participants’ income tax liabilities for 2001 and 2002. e district court approves service of the sum- mons on April 30, 2004, and the summons is served on the promoter on May 3, 2004. e promoter does not provide the names of the participants. e periods of limitations for the participants’ income tax liabilities and criminal prosecution for 2001 and 2002 are suspended under section 7609(e)(2) beginning on November 3, 2004, the date which is six months after the date the John Doe summons was served until the date on which the promoter’s response to the sum- mons is nally resolved.25
e party served with a John Doe summons is supposed to provide notice of the suspension of statute of limitations to any person who is covered by the John Doe summons.26 However, failure by a summoned party to give this notice does not prevent the suspension of the statutes of limita- tions,27 and there does not appear to be any remedy for a violation of this regulation. us, taxpayers should not rely on the summoned party to notify them but should proactively discover whether, and when, the summoned party complied with the John Doe summons.
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These methods for correcting past noncompliance and avoiding penalties and/or prosecution have various pros and cons, and whether they are the right choice for any client depends on the client’s particular facts.