Facebook to IRS: You Can’t Make Me!

If you were to ask someone a question, and they were to avoid answering it, how many times do you think you’d repeat yourself? Once more? Maybe twice more? I think we can all agree that by the third time it would become clear that that someone isn’t going to answer you. Yet, if you’re like the IRS, you’d ask much more. Seven times to be exact. This puerile scenario is exactly the situation that recently occurred between Facebook and the IRS. Facebook—the target of an examination into whether the corporation understated its federal income tax liability for 2010—made headlines by repeatedly ignoring IRS summons demanding internal corporate records.[1] In the face of seven IRS summonses, Facebook stubbornly refuses to turn over books, records, papers, and other data, according to the IRS. Facebook also refuses to appear at the IRS office in San Jose. Finally, it seems the IRS got the picture that Facebook isn’t going to comply, after only seven requests, and the IRS filed a petition with the U.S. District Court for the Northern District of California to compel Facebook to produce the requested documents and to appear.[2]

It’s worth taking a moment to explain just why Facebook seems to have gotten away with ignoring the IRS so far and why the IRS is petitioning a court for help. In fact, it’s a simple reason: IRS summonses are not court-ordered. This is because the summons is meant as a tool to assist the IRS in its investigative role. According to the Internal Revenue Manual—the IRS guidebook—“the Service should issue summonses only when the taxpayer (or other witness) will not produce the desired records or other information voluntarily.”[3] Yet, when these laws were being promulgated, lawmakers were concerned that the IRS could abuse the summons to coerce taxpayers and that the summons may give the IRS too much power, so no penalty was created for disobeying the IRS’s request. Instead, the only recourse given to the IRS if a person refuses to comply with a summons is to seek to enforce the summons in federal district court.[4] By contrast, a subpoena is a court-ordered appearance, and contempt is the punishment for ignoring a court order.

Once in court, it will be up to the judge to determine whether the IRS’s requests are reasonable or whether Facebook is justified in refusing to comply. Facebooks’ excuses are about to be put to the test.

–By Tony Nasser, Esq., Barnes Law

Tony Nasser is an attorney licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] http://www.bloomberg.com/news/articles/2016-07-27/facebook-fails-to-show-up-for-seventh-tax-summons-from-irs.

[2] Ibid.

[3] Internal Revenue Manual 5.17.6.1; 26 U.S.C. § 7602.

[4]  Internal Revenue Manual 5.17.6.23; 26 U.S.C. §§ 7402, 7604.