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Supreme Court Issues Opinion in Summons Case of US v. Clarke

Posted on June 19, 2014

We have previously blogged on the case of US v Clarke, involving the 11th Circuit’s outlier approach to mandating adversarial hearings in a summons proceeding involving allegations of improper purpose. The Supreme Court issued a unanimous opinion today, reversing and remanding.

The opinion’s reversal of the 11th Circuit is not surprising, given the circuit’s outlier status and the broad discretion generally given to district courts in these cases. The Court did, however, articulate a clearer standard that district courts will have to apply, reflective of the discretion and need for more than assertions or conjecture:

As part of the adversarial process concerning a summons’s validity, the taxpayer is entitled to examine an IRS agent when he can point to specific facts or circumstances plausibly raising an inference of bad faith. Naked allegations of improper purpose are not enough: The taxpayer must offer some credible evidence supporting his charge. But circumstantial evidence can suffice to meet that burden; after all, direct evidence of another person’s bad faith, at this threshold stage, will rarely if ever be available. And although bare assertion or conjecture is not enough, neither is a fleshed out case demanded: The taxpayer need only make a showing of facts that give rise to a plausible inference of improper motive. That standard will ensure inquiry where the facts and circumstances make inquiry appropriate, without turning every summons dispute into a fishing expedition for official wrongdoing. And the rule is little different from the one that both the respondents and the Government have recommended to us.

Consistent with the standard, the Court noted that an appellate court ”must as well give appropriate deference to the District Court’s ruling. An appellate court, as the Eleventh Circuit noted, reviews for abuse of discretion a trial court’s decision to order—or not—the questioning of IRS agents.”

The Court did point to two “caveats”:

First, the District Court’s decision is entitled to deference only if based on the correct legal standard. …

And second, the District Court’s latitude does not extend to legal issues about what counts as an illicit motive. As indicated earlier, one such issue is embedded in the respondents’ claim that the Government moved to enforce these summonses to gain an unfair advantage in Tax Court litigation.

That latter point is interesting; the district court determination as to whether actions constitute an impermissible purpose, the Court thus notes, is not entitled to deference. Clarke goes back to the 11th Circuit. We will follow up on this with some more analysis.

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