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IRS Subpoena Challenge Picked Up by Justices

WASHINGTON (CN) - Hoping to enforce summons for its investigation of a company's tax liabilities, the United States won approval Friday to argue before the Supreme Court.

The Internal Revenue Service's investigation of Dynamo Holdings led it to issue five administrative summonses, which a federal judge in Miami allowed the agency to enforce.

On appeal, Dynamo, Beekman Vista CFO Michael Clarke and a Robert Julien, a subpoenaed trustee, complained that they were denied discovery and an evidentiary hearing. The trio said the subpoenas may have had at least four improper purposes.

They claimed, for example, that the IRS issued the subpoenas solely in retribution for Dynamo's refusal to extend a statute of limitations deadline.

Noting that such retaliatory purpose would render the subpoenas improper, the 11th Circuit vacated enforcement of the subpoenas this past April.

"Under our precedents, appellants were entitled to a hearing to explore their allegation of an improper purpose," the court said in an unpublished ruling. "As we have explained, in situations such as this, requiring the taxpayer to provide factual support for an allegation of an improper purpose, without giving the taxpayer a meaningful opportunity to obtain such facts, saddles the taxpayer with an unreasonable circular burden, creating an impermissible 'Catch 22.'"

The court directed the trio to question IRS officials about the reasoning behind the subpoenas on remand.

On Friday, the U.S. Supreme Court noted that it would review the case.

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