IRS Summons Form 2039: Federal Criminal Defense in IRS Criminal Investigations

The Internal Revenue Service (“IRS”) issued a news release on May 2, 2024 announcing its new “Strategic Operating Plan.”  This is of critical importance to those practicing criminal defense in Texas and across the country — and their potential clientele, of course.

• Read, S. Internal Revenue Service. (2024, May 2) IRS releases Strategic Operating Plan update outlining future priorities; transformation momentum accelerating following long list of successes for taxpayers (IR-2024-130)(press release).

The New IRS Strategic Operating Plan

Specifically, this new IRS Strategic Operating Plan goes into detail regarding “… a number of areas where changes will accelerate into fiscal year 2025.”  The IRS is clear that its “…[k]ey areas of focus through 2025 include (emphasis omitted):

• Disrupting tax scams and schemes by coordinating with partners to identify scams and victims and improving victim assistance…; and
• Ensuring fairness in enforcement through hiring and increased training in critical staffing areas such as those dedicated to high-income earners and large and complex partnerships.

Stated Audit Focus on Wealthiest Taxpayers, Large Corporations, Partnerships

This new IRS Strategic Operating Plan also explains there will be “[m]ore audit focus on wealthiest taxpayers, large corporations, partnerships.” And it reveals where the IRS focus will lie: it will be upon “…the wealthiest taxpayers, large corporations and large, complex partnerships by sizable percentages for tax year 2026.”

These are identified as:

• large corporations with assets over $250 million with an expected “nearly triple audit rates” to 22.6% in tax year 2026, up from 8.8% in tax year 2019;
• large, complex partnerships with assets over $10 million, with an “increase audit rates by nearly ten-fold” on going from 0.1% in 2019 to 1% in tax year 2026;
• wealthy individual taxpayers with total positive income over $10 million, with an increase in audit rates by more than 50%, going from an 11% coverage rate in 2019 to 16.5% in tax year 2026; and
• of note, their efforts are focused upon those small businesses and taxpayers making over $400,000; the agency confirming that “the agency will not increase audit rates for small businesses and taxpayers making under $400,000, and those rates remain at historically low levels.”

Dallas, Houston, and Austin Rank Three of the Wealthiest Cities in the World in 2024

This is of particular importance to residents of Dallas, Houston, and Austin, because these three cities are recognized as being three of the “wealthiest cities in the world,” according to the May 2024 Henley & Partners World’s Wealthiest Cities Report.   To make this ranking, the researchers calculated residents within the particular city’s limits who have “…liquid investable wealth of $1 Million or more.”

Which means that IRS activity in the State of Texas will undoubtedly increase to focus upon those living or doing business in the Dallas metropolis as well as in Houston and Austin and elsewhere in the Lone Star State.

What is the Internal Revenue Service?

Pursuant to the Sixteenth Amendment of the United States Constitution, Congress passed federal legislation creating the IRS as an agency within the Department of Treasury.  The IRS has been given the legal authority to make sure that all taxpayers comply with federal tax laws, as well as being empowered to determine and collect federal taxes from both individuals and legal entities like partnerships and corporations.  See, 26 USC §1 et seq (Internal Revenue Code).

IRS Criminal Investigators

Within the IRS is its Criminal Investigation Division, where IRS agents are employed to undertake investigations into alleged criminal violations of the Internal Revenue Code, as well as the Bank Secrecy Act, and assorted federal money laundering statutes.

• For more on money laundering allegations, read our series of articles discussing aspects of money laundering charges under state and federal law.

IRS criminal investigators begin their detecting into possible prosecutions for tax crimes when alerted by various sources.  They can originate from information provided by IRS auditors or revenue agents; collection agents or revenue officers; as well as IRS analysts looking for fraud.  Members of the public have also been known to be the impetus for new IRS criminal investigations.  There are also joint investigations between various federal agencies (think the FBI) as well as state and local law enforcement involving the IRS in criminal matters.

The goal of these investigators is to build criminal cases with sufficient evidence that supports prosecution of these matters as criminal felonies by the local federal prosecutors at the Office of the Attorney General of the United States (known as “AUSAs” or Assistant United States Attorneys).

• For details, read the latest 2023 Annual Report of the IRS Criminal Investigation Division (68-page PDF).

Gathering Information: the IRS Summons

These IRS criminal investigations need witness statements and documentary evidence the same as any other federal prosecutions.  For more, read How Arrests Happen: From Investigation to Arraignment, Being Charged for a Federal Crime.

One of the ways this information can be obtained is by an administrative summons being issued by an authorized IRS examiner or agent.  This summons directs the person to appear before the IRS in order to provide testimony or to produce documents or other data and information.

The IRS has the power to summon any person with information helpful to a tax investigation to obtain documentary evidence or to get witness testimony.  United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964).

What if someone fails to comply with the IRS Summons?  The IRS has the power to go to the local federal district court judge and get a federal court order mandating compliance with the summons.  If the judge agrees to enter such an order, it can then be used as a basis for holding the person in contempt of court if they fail to comply with the terms of the court-ordered summons.

The IRS Summons Form 2039

Before an IRS criminal case gets referred to the Department of Justice (US Attorney) for prosecution as a criminal case, a suspect or witness may receive a Form 2039 from an IRS agent assigned to the criminal investigation division of the IRS.  In those cases, the taxpayer needs a criminal lawyer to respond to the 2039 and communicate with the IRS.

The DOJ has provided a sample form 2039 IRS Summons on its website.  Note the particular division within the agency is shown on the second line from the top.  In the sample form, the division is referenced as “Large Business & International Division.”

If that line on the Summons states the request comes from the IRS Division “Criminal Investigation,” then it is wise to enlist the help of an experienced federal criminal defense lawyer to help you respond to the summons’ requests.

• To learn more on the distinctions of an attorney practicing federal criminal defense, read Why You May Need a Federal Criminal Defense Lawyer in Texas.

If the summons is seeking information regarding a filed court case, then the summons will also identify things like the case number, case name, and federal court in which the matter has been filed.  A formal case need not be filed before a summons is issued.

Who Can Get an IRS Summons Form 2039 from the Criminal Investigation Division?

Importantly, the IRS Summons may be issued to the target of the IRS criminal investigation (an individual taxpayer or business entity) or to those with discoverable information that may lead to evidence of alleged criminal acts, such as:

• accountants;
• banks and other financial institutions (g., PayPal);
• clients;
• spouses;
• vendors;
• employers;
• trustees;
• lenders;
• escrow agents;
• insurance carriers;
• telecommunications companies;
• credit card companies or processors; and
• internet service providers.

For instance, the IRS provides online exhibit examples for these 2039 Summons forms.  IRS Exhibit 25.5.2-4 provides “Sample Wording for Drafting Form 2039, Summons, for Services on an Employer,” which includes an attachment demanding:

This summons pertains to employment relationships and contracts between your company and the following persons and/or entities: _________________________________________________________.

You are required to produce the following records pertaining to the above listed individuals and entities:

1) Any and all employment contracts, including contract modifications and assignments.

2) Employment applications and contract proposals.

3) Copies of contracts (in addition to employment contracts) negotiated on behalf of any of the above-mentioned companies or individuals, including modifications and assignments.

4) Copies of correspondence.

5) Copies of any and all forms of payments (front and back).

Criminal Defense and the IRS Summons Form 2039 Criminal Investigation Division

In these matters, the federal government will have the burden of proof to support any summons issued by the IRS, in whole or in part.  Challenging enforcement of the summons will be one of the considerations of the federal criminal defense attorney of any Form 2039 Summons issued (1) to a taxpayer targeted by the investigation as well as (2) any person or entity from whom potential evidence is sought.

Challenging the 2039 IRS Summons as a Whole

First, there will be a legal analysis of the “Powell factors,” as delineated by SCOTUS in U.S. v. Powell, supra, which will be used by the federal judge in the decision to grant any Petition To Quash the IRS summons filed by the defense.

This threshold, established by SCOTUS in 1964, must still be met by the IRS today regarding any summons and mandates that the IRS must show to judicial satisfaction that:

1. The investigation is being conducted for a legitimate purpose;
2. The information or testimony being sought must be relevant to that legitimate purpose;
3. The IRS must not already have the information; and
4. All required administrative steps must have been taken in conformity with the Internal Revenue Code.

U.S. v. Powell, 379 U.S. at 57-58.

The defense must be ready to assert an aggressive response here.  It is to be expected that the Powell factors will be established by the IRS through an affidavit filed of record by its agent or investigator.

Challenging Portions of the 2039 IRS Summons

Regarding the substance of the IRS Summons itself, there are additional defenses that may apply in the particular situation.  This will vary by the type of summonee (different arguments may apply to various individuals and entities) as well as the information that is being sought.

Evaluation of each item on the summons should be between the defense attorney and the client, for both relevancy to the IRS request as well as other legal considerations.  Considerations must be given to any possible exposure to additional legal liability (civil or criminal) for the release of certain documents or testimony with summons compliance.

Defense challenges to the IRS Summons outside of an overall request to quash the summons include:

• asserting privileges, such as the attorney-client privilege; the tax practitioner privilege; or the work product privilege;
• asserting the privilege against self-incrimination as a bar to providing documents or testimony if the summons involves an individual. SCOTUS has held that business entities may not invoke this privilege in these circumstances, see Braswell v. United States, 487 U.S. 99, 108 S. Ct. 2284, 101 L. Ed. 2d 98 (1988);
• improper service, see e.g., 26 USC §7603(a) or United States v. Clarke, 573 U.S. 248, 134 S.Ct. 2361, 2365, 189 L.Ed.2d 330 (2014);
• some information can be time-barred by the statute of limitations time frame (there are some suspensions that apply to the limitations deadlines); and
• when a summons is issued by a criminal referral that has already been made to the DOJ, the taxpayer may not be required to respond to the Form 2039 IRS Summons.

Federal Criminal Defense Attorney and IRS Summons Form 2039 in Texas

The most commonplace form of IRS Summons involves its Form 2039.  This formal request may be preceded by notices from the agency, like the Information Document Request found in Form 4564.

The stakes get higher, of course, when the Form 2039 comes from the IRS Criminal Investigation Division. This is not hidden: it is stated on the top of the first page of the summons itself.  It heralds entry into the federal criminal justice system for the recipient.

The advocacy of an experience federal criminal defense attorney at the earliest juncture in these matters cannot be underestimated.  This is true both for taxpayers as well as third parties who are being asked to provide information to investigators for their use in building a criminal case.

Given the May 2024 announcement of the IRS’ new “Strategic Operating Plan,” and the fact that three of the wealthiest cities in the world are located in the State of Texas, it is my belief that the IRS Criminal Investigators will become much more active in the Lone Star State, and particularly in Dallas; Houston; and Austin.

From my perspective as an experienced federal criminal defense attorney, I think there will be many more IRS criminal investigations and that AUSA prosecutions will involve federal felony charges that exceed tax crimes to include other serious allegations, such as wire fraud; mail fraud; money laundering; and more.

For more information, read:

• Cryptocurrency And Money Laundering: Digital Money Felony Arrests;
• HealthCare Fraud Prosecutorial Trends in 2024: Predictions Based Upon Latest OIG DOJ Enforcement Report;
• What You Need to Know If You are Facing Money Laundering and Drug Trafficking Charges;
• When Businesses are Charged with Crimes: Organizational Offenders.

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For more information, check out our web resources, read Michael Lowe’s Case Results, and read his in-depth articles, “Pre-Arrest Criminal Investigations” and “WHITE COLLAR CRIME: INDICTMENTS OF TEXAS PROFESSIONALS.”