U.S. Tax Review: IRS Wins Summons Cases, Deductibility Of Patent Defense Fees, Cleaning Up Regs, And Inflated COGS

• Published date: 06 September 2023
• Subject Matter: Intellectual Property, Litigation, Mediation & Arbitration, Tax, Patent, Trials & Appeals & Compensation, Income Tax, Tax Authorities
• Law Firm: Fenwick
• Author: Larissa Neuman, Julia Ushakova-Stein and Michael Knobler

Summons Cases

The IRS won two summons cases, one in the U.S. Court of Appeals for the Ninth Circuit and the other in the U.S. District Court for the Northern District of California, but the summons approved by the district court was narrower than the IRS wanted.

In Agrama, ¹ the Ninth Circuit affirmed a district court denial of a request for an evidentiary hearing and enforced an IRS summons against Frank Agrama for certain records, including records related to his prosecution for tax crimes in Italy.

Agrama argued that the summons was issued in bad faith and that, at a minimum, the district court erred by ordering enforcement of the summons without an evidentiary hearing.

In an unpublished opinion, the Ninth Circuit held that the district court did not clearly err by enforcing the summons, nor did it abuse its discretion by denying Agrama an evidentiary hearing. To enforce an IRS summons, the government must make a prima facie showing that the summons was issued in good faith by showing that:

• the summons is for a legitimate purpose;
• the information sought may be relevant to that purpose;
• the information sought is not already within the IRS's possession; and
• the administrative steps required by the IRC have been followed (the Powell factors).²

If the government meets its burden, the taxpayer challenging the summons then has the heavy burden of proving either a lack of institutional good faith or an abuse of process.³ A taxpayer challenging a summons is entitled to an evidentiary hearing only when there are specific facts or circumstances plausibly raising an inference of bad faith.

The court stated that Agrama offered no evidence to prove ' or even to...