What is a John Doe Summons?

While the name is pretty vanilla, a “John Doe” summons is an important tool when the Internal Revenue Service (IRS) is looking for taxpayers who may be involved in tax evasion.

We talked recently about a John Doe Summons served on a digital service platform that peddles advice from a variety of experts. The IRS suspects that some of the experts selling guidance on the site may not be reporting income earned to the IRS. Without knowing exactly who to pursue, what is the IRS to do?  The answer is the John Doe summons.

A John Doe summons has specific requirements for its approval and use. A John Doe must be authorized for service in a U.S. District Court ex parte proceeding—one in which other parties involved do not need to be notified or present. Even if the vendor or bank that is the subject of a John Doe summons is willing to provide information without court involvement—the summons must be presented and approved by the court. Along with approval from a federal court, the IRS must present and obtain approval on three additional grounds, which are:

1) Information not readily available

The information sought by the IRS cannot be readily available from another source. In other words, the John Doe summons must be just about the sole resource for the IRS to obtain the information for which it is looking. While some information may be publicly available, other information is not. The IRS must show that obtaining the information in any way other than the John Doe summons would impact an investigation or is simply not practical.

2) Identifiable person, group, or class

The IRS must describe and apply to a group or specific class of persons, or individuals who may be engaged in a common behavior. That behavior may relate to a type of tax crime, fraud, or non-compliance that the IRS is interested in investigating.

3) Reasonable basis

To meet the requirement that there is a reasonable basis to believe that the identified group or class has or is engaged in non-compliance, the IRS can show that the group is engaging in non-compliant financial transactions, or underreporting, among other grounds. The IRS may investigate and gather statistical evidence that some class members are non-compliant for use to prove there is a reasonable basis to authorize the summons.

The strength of a John Doe summons lies in the ability of the IRS to uncover underreporting of income or other IRS audit red flags without your knowledge or participation in that process. From banks and businesses to foundations and foreign bank accounts, what the IRS does not know yet—can eventually hurt you if a John Doe summons is in play.