United States v. Clarke
134 S. Ct. 2361
SCOTUS2014Background
- IRS issued summonses to Dynamo Holdings L.P. for information relevant to its tax obligations; summonses issued Sept–Oct 2010 after Dynamo refused third extension of the assessment period
- Dynamo and related respondents did not comply with the summonses and Dynamo filed tax court challenge to the ensuing adjustments; IRS then filed district-court enforcement proceeding
- District Court denied respondents' request to examine IRS agents, ruling allegations of improper purpose were conjectural; enforcement proceeded
- Eleventh Circuit reversed, holding that bare allegations entitle examination under a categorical rule
- Supreme Court granted certiorari to resolve split on whether examination is permitted and vacated and remanded for proper application of the standard
- Court held that a taxpayer may examine IRS officials only when specific facts plausibly raise an inference of bad faith, applying a fact-based standard on remand
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether taxpayer may examine IRS officials for motives in a summons enforcement | Clarke: bare allegations suffice to warrant questioning | IRS: examination allowed only if district court finds specific facts plausibly show bad faith | Yes; inquiry allowed only with plausible inference of bad faith (not mere allegations) |
| What standard governs examining agents in this context | Eleventh Circuit used categorical rule requiring examination upon any improper-motive allegation | Proper standard requires credible evidence showing plausibility of improper motive | Plausible-inference standard governs; circumstantial evidence allowed |
| Role of district court discretion vs correct legal standard | District court’s discretion should permit examination if facts support improper motive | District court must apply correct legal standard and cannot rely on merits of motive arguments alone | Remand to apply correct standard with deference to district court's factual determinations |
Key Cases Cited
- United States v. Stuart, 489 U.S. 353 (1989) (summons enforcement is adversarial but limited to good faith)
- Powell v. United States, 379 U.S. 48 (1964) (factors for good-faith enforcement (Powell factors))
- Reisman v. Caplin, 375 U.S. 440 (1964) (scope of examination and related procedures)
- Donaldson v. United States, 400 U.S. 517 (1971) (advances adversarial, but not fishing expeditions)
- Bisceglia v. United States, 420 U.S. 141 (1975) (summons enforcement is adversarial and limited; inquiry where appropriate)
- Garden State Nat. Bank v. United States, 607 F.2d 61 (3d Cir. 1979) (requires factual support for improper motive)
- Kis v. United States, 658 F.2d 526 (7th Cir. 1981) (fact-based approach to motive in summons)
- Sugarloaf Funding, LLC v. United States Dept. of Treasury, 584 F.3d 340 (1st Cir. 2009) (requires threshold showing of improper purpose)