United States: Court Of Appeals Rules 23-Day Notice Requirement For Third Party Summonses Is Mandatory In Tenth Circuit

In Jewell v. U.S., Taxpayer Sam Jewell was the subject of an IRS investigation which resulted in third party summonses being issued to banks located in both the Eastern and Western Districts of Oklahoma. Mr. Jewell challenged both summonses because the IRS failed to provide him with notice of the summonses at least 23 days before the records were to be examined, in violation of Section 7609(a)(1) notice requirements. The Eastern District of Oklahoma granted Jewell's request to quash the summonses while the Western District of Oklahoma granted the Government's motion to dismiss Jewell's petition to quash. Both parties appealed to the Tenth Circuit, where the cases were combined.

Section 7609(a)(1) contains the administrative steps the IRS must follow when issuing third party summonses and states that "notice of the summons shall be given to any person so identified within 3 days of the day on which such service is made, but no later than the 23rd day before the day fixed in the summons as the day upon which such records are to be examined." The Tenth Circuit ruled that the use of "shall" in the statute results in a mandatory requirement and that the 23-day notice requirement is an administrative step for purposes of applying the Powell factors to make a prima facie case for enforcement of an administrative summons.

This case is significant because four other circuits (First, Second, Sixth and Eleventh) have declined to hold that the 23-day requirement is mandatory. The First Circuit simply denied that the 23-day notice requirement is one of the administrative steps required in the Code. The remaining circuits granted equitable relief to the government on the basis that the taxpayer had not been prejudiced. The Eighth and Ninth Circuits have held that, considering the totality of the circumstances, courts may overlook technical missteps by the IRS if under the totality of the circumstances, the IRS is acting in good faith, which was the underlying goal of the Supreme Court in Powell.

As a result, taxpayers in the Tenth Circuit can successfully challenge third party summonses where the IRS fails to comply with the 23-day notice requirement. Furthermore, this case may tee up the issue for Supreme Court review.

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