throbber
(Slip Opinion)
`
`
`
` OCTOBER TERM, 2013
`
`
`Syllabus
`
`1
`
` NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
`
`
`
` being done in connection with this case, at the time the opinion is issued.
`
`
`
` The syllabus constitutes no part of the opinion of the Court but has been
`
` prepared by the Reporter of Decisions for the convenience of the reader.
`
` See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
`
`
`SUPREME COURT OF THE UNITED STATES
`
`
`
` Syllabus
`
`
`
`
`
`
`
` UNITED STATES v. CLARKE ET AL.
`
`
`CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
`
`THE ELEVENTH CIRCUIT
` No. 13–301. Argued April 23, 2014—Decided June 19, 2014
`
`
` The Internal Revenue Service (IRS) issued summonses to respondents
`for information and records relevant to the tax obligations of Dynamo
`
` Holdings L. P. See 26 U. S. C. §7602(a). When respondents failed to
`comply, the IRS brought an enforcement action in District Court.
`
`Respondents challenged the IRS’s motives in issuing the summonses,
`seeking to question the responsible agents. The District Court denied
`
` the request and ordered the summonses enforced, characterizing re-
` spondents’ arguments as conjecture and incorrect as a matter of law.
`
`
`
` The Eleventh Circuit reversed, holding that the District Court’s re-
`fusal to allow respondents to examine the agents constituted an
`abuse of discretion, and that Circuit precedent entitled them to con-
`duct such questioning regardless of whether they had presented any
`factual support for their claims.
`Held: A taxpayer has a right to conduct an examination of IRS officials
`regarding their reasons for issuing a summons when he points to spe-
`cific facts or circumstances plausibly raising an inference of bad faith.
`Pp. 5–9.
`
`(a) A person receiving a summons is entitled to contest it in an ad-
` versarial enforcement proceeding. Donaldson v. United States, 400
`
`U. S. 517, 524. But these proceedings are “summary in nature,”
`United States v. Stuart, 489 U. S. 353, 369, and the only relevant
`question is whether the summons was issued in good faith, United
`
` States v. Powell, 379 U. S. 48, 56. The balance struck in this Court’s
` prior cases supports a requirement that a summons objector offer not
`
`just naked allegations, but some credible evidence to support his
`claim of improper motive. Circumstantial evidence can suffice to
`meet that burden, and a fleshed out case is not demanded: The tax-
`payer need only present a plausible basis for his charge. Pp. 5–7.
`
`
`
`
`
`
`
`
`
`
`
`

`
`2
`
`
`UNITED STATES v. CLARKE
`
`Syllabus
`
`(b) Here, however, the Eleventh Circuit applied a categorical rule
`
`demanding the examination of IRS agents without assessing the
`plausibility of the respondents’ submissions. On remand, the Court
`
`of Appeals must consider those submissions in light of the standard
`
`set forth here, giving appropriate deference to the District Court’s
`ruling on whether respondents have shown enough to entitle them to
`examine the agents. However, that ruling is entitled to deference on-
`ly if it was based on the correct legal standard. See Fox v. Vice, 563
`U. S. ___, ___. And the District Court’s latitude does not extend to le-
`gal issues about what counts as an illicit motive. Cf. Koon v. United
`
`States, 518 U. S. 81, 100. Pp. 7–9.
`517 Fed. Appx. 689, vacated and remanded.
`
` KAGAN, J., delivered the opinion for a unanimous Court.
`
`
`
`
`
`
`

`
`
`
`
`
` Cite as: 573 U. S. ____ (2014)
`
`Opinion of the Court
`
`1
`
`
` NOTICE: This opinion is subject to formal revision before publication in the
`
`
`
` preliminary print of the United States Reports. Readers are requested to
`
` notify the Reporter of Decisions, Supreme Court of the United States, Wash-
`
` ington, D. C. 20543, of any typographical or other formal errors, in order
`
`
` that corrections may be made before the preliminary print goes to press.
`
`
`
`
`SUPREME COURT OF THE UNITED STATES
`
`_________________
`
` No. 13–301
`_________________
`UNITED STATES, PETITIONER v. MICHAEL
`
`
` CLARKE ET AL.
`
`ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
`
`
`APPEALS FOR THE ELEVENTH CIRCUIT
`
`[June 19, 2014]
`
`JUSTICE KAGAN delivered the opinion of the Court.
`
`The Internal Revenue Service (IRS or Service) has broad
`statutory authority to summon a taxpayer to produce
`documents or give testimony relevant to determining tax
`liability. If the taxpayer fails to comply, the IRS may
`petition a federal district court to enforce the summons.
`In an enforcement proceeding, the IRS must show that it
`issued the summons in good faith.
`
`
`This case requires us to consider when a taxpayer, as
`part of such a proceeding, has a right to question IRS
`officials about their reasons for issuing a summons. We
`hold, contrary to the Court of Appeals below, that a bare
`allegation of improper purpose does not entitle a taxpayer
`
`to examine IRS officials. Rather, the taxpayer has a right
`to conduct that examination when he points to specific
`facts or circumstances plausibly raising an inference of
`bad faith.
`
`
`
`
`
`
`
`I
`
`Congress has “authorized and required” the IRS “to
`make the inquiries, determinations, and assessments of
`
`all taxes” the Internal Revenue Code imposes. 26 U. S. C.
`
`
`
`

`
`2
`
`
`UNITED STATES v. CLARKE
`
`Opinion of the Court
`§6201(a). And in support of that authority, Congress has
`
`granted the Service broad latitude to issue summonses
`“[f]or the purpose of ascertaining the correctness of any
`return, making a return where none has been made, de-
`termining the liability of any person for any internal
`revenue
`tax . . . , or collecting any such
`liability.”
`§7602(a). Such a summons directs a taxpayer (or associ-
`ated person1) to appear before an IRS official and to pro-
`vide sworn testimony or produce “books, papers, records,
`or other data . . . relevant or material to [a tax] inquiry.”
`
`§7602(a)(1).
`If a taxpayer does not comply with a summons, the IRS
`
`may bring an enforcement action in district court. See
`§§7402(b), 7604(a). In that proceeding, we have held, the
`IRS “need only demonstrate good faith in issuing the
`summons.” United States v. Stuart, 489 U. S. 353, 359
`(1989). More specifically, that means establishing what
`have become known as the Powell factors: “that the inves-
`tigation will be conducted pursuant to a legitimate pur-
`pose, that the inquiry may be relevant to the purpose, that
`the information sought is not already within the [IRS’s]
`possession, and that the administrative steps required by
`the [Internal Revenue] Code have been followed.” United
`
`
`
`States v. Powell, 379 U. S. 48, 57–58 (1964). To make that
`showing, the IRS usually files an affidavit from the re-
`sponsible investigating agent. See Stuart, 489 U. S., at
`360. The taxpayer, however, has an opportunity to chal-
`lenge that affidavit, and to urge the court to quash the
`
`summons “on any appropriate ground”—including, as
`
`relevant here, improper purpose. See Reisman v. Caplin,
`
`375 U. S. 440, 449 (1964).
`
`——————
`
`1The IRS has authority to summon not only “the person liable for
`
`
`tax,” but also “any officer or employee of such person,” any person
`having custody of relevant “books of account,” and “any other person
`
`
`the [IRS] may deem proper.” 26 U. S. C. §7602(a)(2). For convenience,
`this opinion refers only to the “taxpayer.”
`
`
`
`
`
`
`
`
`
`

`
`3
`
`
`
`
`
`
`
`
`
` Cite as: 573 U. S. ____ (2014)
`
`Opinion of the Court
`The summons dispute in this case arose from an IRS
`
`examination of the tax returns of Dynamo Holdings Lim-
`ited Partnership (Dynamo) for the 2005–2007 tax years.
`
`The IRS harbored suspicions about large interest expenses
`
`that those returns had reported. As its investigation
`proceeded, the Service persuaded Dynamo to agree to two
`year-long extensions of the usual 3-year limitations period
`for assessing tax liability; in 2010, with that period again
`drawing to a close, Dynamo refused to grant the IRS a
`third extension. Shortly thereafter, in September and
`October 2010, the IRS issued summonses to the respond-
`ents here, four individuals associated with Dynamo whom
`the Service believed had information and records relevant
`to Dynamo’s tax obligations. None of the respondents
`complied with those summonses. In December 2010 (still
`
`within the augmented limitations period), the IRS issued a
`Final Partnership Administrative Adjustment proposing
`changes to Dynamo’s returns that would result in greater
`tax liability. Dynamo responded in February 2011 by
`
`filing suit in the United States Tax Court to challenge the
`adjustments. That litigation remains pending. A few
`months later, in April 2011, the IRS instituted proceed-
`ings in District Court to compel the respondents to comply
`with the summonses they had gotten.
`
`
`Those enforcement proceedings developed into a dispute
`about the IRS’s reasons for issuing the summonses. The
`IRS submitted an investigating agent’s affidavit attesting
`to the Powell factors; among other things, that declaration
`
`maintained that the testimony and records sought were
`necessary to “properly investigate the correctness of [Dy-
`namo’s] federal tax reporting” and that the summonses
`were “not issued to harass or for any other improper pur-
`pose.” App. 26, 34. In reply, the respondents pointed to
`circumstantial evidence that, in their view, suggested
`“ulterior motive[s]” of two different kinds. App. to Pet. for
`Cert. 72a. First, the respondents asserted that the IRS
`
`
`
`
`
`

`
`4
`
`
`UNITED STATES v. CLARKE
`
`Opinion of the Court
`issued the summonses to “punish[] [Dynamo] for refusing
`to agree to a further extension of the applicable statute of
`limitations.” App. 52. More particularly, they stated in
`sworn declarations that immediately after Dynamo de-
`clined to grant a third extension of time, the IRS, “despite
`having not asked for additional information for some time,
`. . . suddenly issued” the summonses. Id., at 95. Second,
`the respondents averred that the IRS decided to enforce
`the summonses, subsequent to Dynamo’s filing suit in Tax
`Court, to “evad[e] the Tax Court[’s] limitations on discov-
`
`ery” and thus gain an unfair advantage in that litigation.
`Id., at 53.
`In support of that charge, the respondents
`submitted an affidavit from the attorney of another Dy-
`namo associate, who had chosen to comply with a sum-
`mons issued at the same time. The attorney reported that
`only the IRS attorneys handling the Tax Court case, and
`not the original investigating agents, were present at the
`interview of his client. In light of those submissions, the
`respondents asked for an opportunity to question the
`agents about their motives.
`
`
`The District Court denied that request and ordered the
`respondents to comply with the summonses. According to
`the court, the respondents “ha[d] made no meaningful
`allegations of improper purpose” warranting examination
`of IRS agents. App. to Pet. for Cert. 18a. The court char-
`acterized the respondents’ statute-of-limitations theory as
`“mere conjecture.” Id., at 14a. And it ruled that the re-
`spondents’ evasion-of-discovery-limits claim was “incorrect
`as a matter of law” because “[t]he validity of a summons is
`tested as of the date of issuance,” not enforcement—and
`the Tax Court proceedings had not yet begun when the
`IRS issued the summonses. Id., at 15a.
`
`
`The Court of Appeals for the Eleventh Circuit reversed,
`holding that the District Court’s refusal to allow the re-
`spondents to examine IRS agents constituted an abuse of
`discretion. In support of that ruling, the Court of Appeals
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`
`5
`
`
`
`
`
`
`
` Cite as: 573 U. S. ____ (2014)
`
`Opinion of the Court
`cited binding Circuit precedent holding that a simple
`“allegation of improper purpose,” even if lacking any “fac-
`tual support,” entitles a taxpayer to “question IRS officials
`
`concerning the Service’s reasons for issuing the summons.”
`
`517 Fed. Appx. 689, 691 (2013) (quoting United States v.
`
`Southeast First Nat. Bank of Miami Springs, 655 F. 2d
`661, 667 (CA5 1981)); see Nero Trading, LLC v. United
`
`
`States Dept. of Treasury, 570 F. 3d 1244, 1249 (CA11 2009)
`(reaffirming Southeast).
`Every other Court of Appeals has rejected the Eleventh
`
`Circuit’s view that a bare allegation of improper motive
`entitles a person objecting to an IRS summons to examine
`the responsible officials.2 We granted certiorari to resolve
`that conflict, 571 U. S. __ (2014), and we now vacate the
`Eleventh Circuit’s opinion.
`
`
`
`II
`
`A person receiving an IRS summons is, as we have often
`
`held, entitled to contest it in an enforcement proceeding.
`See United States v. Bisceglia, 420 U. S. 141, 146 (1975);
`Powell, 379 U. S., at 57–58; Reisman, 375 U. S., at 449.
`The power “vested in tax collectors may be abused, as all
`power” may be abused. Bisceglia, 420 U. S., at 146. In
`
`
`recognition of that possibility, Congress made enforcement
`of an IRS summons contingent on a court’s approval. See
`26 U. S. C. §7604(b). And we have time and again stated
`that the requisite judicial proceeding is not ex parte but
`
`——————
` 2See, e.g., Sugarloaf Funding, LLC v. United States Dept. of Treas-
`
`ury, 584 F. 3d 340, 350–351 (CA1 2009) (requiring “a sufficient thresh-
`old showing that there was an improper purpose”); Fortney v. United
`States, 59 F. 3d 117, 121 (CA9 1995) (requiring “some minimal amount
`of evidence” beyond “mere memoranda of law or allegations” (internal
`quotations and alterations omitted)); United States v. Kis, 658 F. 2d
`
`
`526, 540 (CA7 1981) (requiring “develop[ment] [of] facts from which a
`court might infer a possibility of some wrongful conduct”); United
`States v. Garden State Nat. Bank, 607 F. 2d 61, 71 (CA3 1979) (requir-
`
`
`ing “factual[] support[] by the taxpayer’s affidavits”).
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`
`UNITED STATES v. CLARKE
`
`Opinion of the Court
` adversarial. See Donaldson v. United States, 400 U. S.
`
`517, 527 (1971); Powell, 379 U. S., at 58; Reisman, 375
`U. S., at 446. The summoned party must receive notice,
`and may present argument and evidence on all matters
`bearing on a summons’s validity. See Powell, 379 U. S.,
`
`at 58.
`Yet we have also emphasized that summons enforce-
`
`ment proceedings are to be “summary in nature.” Stuart,
`489 U. S., at 369. The purpose of a summons is “not to
`
`accuse,” much less to adjudicate, but only “to inquire.”
`
`Bisceglia, 420 U. S., at 146. And such an investigatory
`tool, we have recognized, is a crucial backstop in a tax
`system based on self-reporting. See ibid. (restricting
`
`summons authority would enable “dishonest persons [to]
`escap[e] taxation[,] thus shifting heavier burdens to hon-
`est taxpayers”). Accordingly, we long ago held that courts
`may ask only whether the IRS issued a summons in good
`faith, and must eschew any broader role of “oversee[ing]
`
`the [IRS’s] determinations to investigate.” Powell, 379
`U. S., at 56. So too, we stated that absent contrary evi-
`
`dence, the IRS can satisfy that standard by submitting a
`simple affidavit from the investigating agent. See Stuart,
`489 U. S., at 359–360. Thus, we have rejected rules that
`would “thwart and defeat the [Service’s] appropriate
`investigatory powers.” Donaldson, 400 U. S., at 533.
`
`The balance we have struck in prior cases comports with
`the following rule, applicable here: As part of the adver-
`sarial process concerning a summons’s validity, the tax-
`payer 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 circumstan-
`tial 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
`
`
`
`6
`
`
`
`
`

`
`
`Cite as: 573 U. S. ____ (2014)
`
`Opinion of the Court
`although bare assertion or conjecture is not enough, nei-
`ther 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.3
`
`But that is not the standard the Eleventh Circuit ap-
`
`plied. Although the respondents gamely try to put an-
`other face on the opinion below, see Brief for Respondents
`24–25, and n. 17, we have no doubt that the Court of Appeals
`viewed even bare allegations of improper purpose as enti-
`tling a summons objector to question IRS agents. The
`
`court in fact had some evidence before it pertaining to the
`respondents’ charges: The respondents, for example, had
`submitted one declaration relating the timing of the sum-
`monses to Dynamo’s refusal to extend the limitations
`period, see App. 95, and another aiming to show that the
`IRS was using the summonses to obtain discovery it could
`not get in Tax Court, see id., at 97–100. But the Eleventh
`Circuit never assessed whether those (or any other) mate-
`rials plausibly supported an inference of improper motive;
`indeed, the court never mentioned the proffered evidence
`at all. Instead, and in line with Circuit precedent, the
`court applied a categorical rule, demanding the examina-
`tion of IRS agents even when a taxpayer made only con-
`clusory allegations. See supra, at 4. That was error. On
`remand, the Court of Appeals must consider the respond-
`——————
`3See Tr. of Oral Arg. 29 (respondents) (The taxpayer is entitled to
`
`question the agent “when he presents specific facts from which an
`improper purpose . . . may plausibly be inferred”); id., at 5 (United
`States) (“[A] summons opponent has to put in enough evidence to at
`
`
` least raise an inference” of improper motive, and “[c]ircumstantial
`evidence is enough”).
`
`
`
`7
`
`
`
`
`
`
`
`
`
`
`
`

`
`8
`
`
`UNITED STATES v. CLARKE
`
`Opinion of the Court
`ents’ submissions in light of the standard we have stated.
`
`That consideration must as well give appropriate defer-
`ence 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. See 517 Fed. Appx., at 691, n. 2; Tiffany Fine
`
`
`Arts, Inc. v. United States, 469 U. S. 310, 324, n. 7 (1985).
`That standard of review reflects the district court’s supe-
`rior familiarity with, and understanding of, the dispute; and
`it comports with the way appellate courts review related
`matters of case management, discovery, and trial prac-
`
`tice. See, e.g., Hoffmann-La Roche Inc. v. Sperling, 493
`U. S. 165, 172–173 (1989); Crawford-El v. Britton, 523
`U. S. 574, 599–601 (1998). Accordingly, the Court of
`Appeals must take into account on remand the District
`Court’s broad discretion to determine whether a tax-
`payer has shown enough to require the examination of IRS
`investigators.
`
`
`But two caveats to that instruction are in order here.
`First, the District Court’s decision is entitled to deference
`
`only if based on the correct legal standard. See Fox v.
`Vice, 563 U. S. ___, ___ (2011) (slip op., at 11) (“A trial
`
`court has wide discretion when, but only when, it calls the
`game by the right rules”). We leave to the Court of Ap-
`peals the task of deciding whether the District Court
`asked and answered the relevant question—once again,
`whether the respondents pointed to specific facts or cir-
`cumstances plausibly raising an inference of improper
`motive.
`
`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 re-
`spondents’ claim that the Government moved to enforce
`these summonses to gain an unfair advantage in Tax
`Court litigation. See supra, at 4. The Government re-
`
`sponds, and the District Court agreed, that any such
`
`
`
`
`
`
`
`
`
`
`
`

`
`
`
`It is so ordered.
`
`
`
`
`
`9
`
`
`
`
`
` Cite as: 573 U. S. ____ (2014)
`
`Opinion of the Court
`purpose is irrelevant because “the validity of a summons is
`judged at the time” the IRS originally issued the sum-
`mons, and here that preceded the Tax Court suit. Tr. of
`Oral Arg. 7; see Reply Brief 19–20; App. to Pet. for Cert.
`15a. Similarly, with respect to the respondents’ alterna-
`tive theory, the Government briefly suggested at argu-
`ment that issuing a summons because “a taxpayer de-
`
`clined to extend a statute of limitations would [not] be an
`
`improper purpose,” even assuming that happened here.
`Tr. of Oral Arg. 6. We state no view on those issues; they
`are not within the question presented for our review. We
`note only that they are pure questions of law, so if they
`arise again on remand, the Court of Appeals has no cause
`
`to defer to the District Court. Cf. Koon v. United States,
`
`518 U. S. 81, 100 (1996) (“A district court by definition
`
`abuses its discretion when it makes an error of law”).
`
`For these reasons, we vacate the judgment of the Court
`of Appeals and remand the case for further proceedings
`consistent with this opinion.

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