When Is A Second Inspection Not A Second Inspection?

In United States v. Titan International, Inc., the Illinois district court enforced an Internal Revenue Service (IRS) administrative summons and rejected the taxpayer's claim that the summons, issued in connection with the examination of the taxpayer's 2010 income tax return but seeking the taxpayer's 2009 books and records, violated the "second inspection rule" in Internal Revenue Code Section 7605(b). The court concluded that a re-examination of the 2009 books and records would be prohibited if the IRS was seeking to make additional assessments for 2009. The court, however, accepted the IRS's assertion that the taxpayer's 2009 books and records were necessary to verify a deduction claimed on the taxpayer's 2010 income tax return, and the IRS did not intend to make any additional tax assessments with respect to tax year 2009.

In order to ensure the proper determination of a tax liability, Congress "has endowed the IRS with expansive information-gathering authority." United States v. Arthur Young & Co., 465 U.S. 805, 816 (1984). Code Section 7602 is the "centerpiece of that congressional design." Id. at 816. Under Section 7602, the IRS is authorized to "examine any books, papers, records, or other data which may be relevant or material to" a tax investigation, and to summon any person to produce such documents. Section 7602(a)(1), (2).

That authority, however, is subject to judicial review. When a summoned party refuses to comply, the IRS must petition a federal district court to enforce the summons. Code Sections 7402(b), 7604(a). Fifty years ago, in United States v. Powell, 379 U.S. 48 (11964), the Supreme Court of the United States sketched out the analytical framework governing summons enforcement. To establish a prima facie case, the government must demonstrate the following:

Its investigation is "conducted pursuant to a legitimate purpose." The information sought "may be relevant to that purpose." The IRS does not already possess the "information sought" to be summoned. All statutorily imposed administrative steps have been followed. Id. at 57-58. Generally, the government can satisfy this initial burden by filing an affidavit executed by the investigating agent simply stating that the four criteria have been met. See, e.g., United States v. Kis, 658 F.2d 526, 536 (7th Cir. 1981); United States v. Davis, 636 F.2d 1028, 1034 (5th Cir. 1981).

Once the government satisfies these minimal requirements, the burden shifts to the summoned...