On June 19, 2014, in United States vs. Clarke, the Supreme Court ruled unanimously that a taxpayer subject to an IRS summons has the right to conduct an examination of IRS officials regarding their reasons for issuing a summons, but only if the taxpayer can point to specific facts or circumstances plausibly raising an inference of bad faith. Bare allegations of improper purpose, without any evidence, are not sufficient to enable the taxpayer to argue for the summons to be quashed on the basis of bad faith.
The case stems from an IRS audit of a Florida limited partnership in which the Service issued summonses to four individuals thought to have documents relevant to the investigation. The respondents asked for an opportunity to question the agents but the District Court denied the request on the grounds that the respondents had made no meaningful allegations of misconduct. The Eleventh Circuit reversed the District Court on the basis that even a simple allegation of improper purpose entitled a taxpayer to question the agents issuing the summonses.
Although the Supreme Court vacated the taxpayer-friendly Eleventh Circuit decision, holding that the taxpayer must offer some credible evidence supporting his charge, and sent the case back to the Eleventh Circuit for reconsideration, the case is seen as a victory for taxpayers because it does put the Supreme Court on record as stating that circumstantial evidence can suffice to meet the burden of showing bad faith and thereby challenging an IRS summons.