What is an Information Document Request (IDR)?
IDR stands for Information Document Request. An IDR is issued on IRS Form 4564. It is a form that the IRS uses during a tax audit to request information from the taxpayer. In many tax audits the IRS will issue an IDR at the beginning of the audit and then issue additional Information Document Requests as the case progresses.
IDRs are authorized by Internal Revenue Code Section 7601 which empowers IRS employees to "inquire after and concerning all persons who may be liable for any internal revenue tax." Internal Revenue Code Section 7602 also authorizes the IRS to examine any books, materials, data or papers which MAY be relevant material. Not even ARE relevant, just MAY be relevant.
Although it might not seem like it, there are options in how to respond to an IDR. If you do not respond to an IDR or the IRS doesn't like the answers you give, then it is quite possible that the IRS Revenue Agent assigned to your case will issue a summons. The IRS is authorized to issue summonses pursuant to Internal Revenue Code Section 7602. That section grants very broad authority for the IRS to:
- Summons any person liable for a tax or anyone having possession or control over papers to appear before the IRS to produce any such papers or other data; and
- To take any relevant or material testimony under oath.
One court has said that the IRS can investigate and issue a summons merely on a suspicion that the law is being violated or even if it wants assurance that it is not!
Despite this very broad language, the courts have placed various limits on the subpoena power. Some of those limits are set forth in the U.S. Supreme Court case of United States v. Powell. Under the so-called Powell requirements, the IRS must show four things:
- The inquiry is being conducted for a legitimate purpose
- The inquiry is relevant to the purpose
- The information being requested is not already within the possession of the IRS; and
- The administrative steps that the Internal Revenue Code requires have been taken.
In Powell, the Supreme Court stated that an improper purpose would include where a summons was issued to harass the taxpayer, to put pressure on the taxpayer to settle a "collateral dispute," or for any other purpose which was not in good faith.
A summoned party who fails to comply with a summons may be subject to criminal prosecution, however, it is more likely that the IRS will simply begin a civil proceeding federal district court to enforce the summons pursuant to Internal Revenue Code Section 7604.
Strangely, the IRS summons are not self-enforcing. The Supreme Court has held that an IRS agent cannot compel the witnesses to appear, nor impose the sanctions for failing to appear. It is only once the District Court, after a hearing, has issued an order compelling the taxpayer to appear and she fails to do so, that the district court can impose sanctions on the taxpayer including fines, or even jail time, for contempt.
Another bar to the enforcement of a summons is set forth in Internal Revenue Code Section 7602(d) which prevents the use of a summons where the IRS has already referred a criminal tax case to the Department of Justice. The term "referral to the Department of Justice" is defined in some detail in the Internal Revenue Code and is limited to situations where:
- The IRS has recommended that the Department of Justice start a grand jury investigation;
- The IRS has recommended a criminal prosecution; or
- The Department of Justice has made a request to the IRS for tax returns or tax return information of any person pursuant to Internal Revenue Code Section 6103(h)(3)(B).
Taxpayers and other summonsed parties have various rights that can be asserted in connection with a summons. These include:
- The right to be represented by counsel
- The right to invoke the 5th amendment purpose against self-incrimination
- The right to assert various other privileges including spousal and marital privileges, the doctor-patient privilege or the federally authorized tax practitioner privilege; and
- The right to make an audio recording of the summons hearing
Tax litigation lawyers spend a lot of time thinking about how best to respond to IDRs in a way which is most appropriate and does not reveal any information that is covered by attorney-client privilege or other privileges. In addition, they may seek to negotiate the boundaries of the IDR so that they do not invoke an undue burden on the taxpayer. In order to do so, however, a complete understanding of the consequences of the failure to respond are necessary to properly advise a client.