Most IRS contact comes by letter, and most of it is civil. A grand jury subpoena is a different animal. It comes from a federal grand jury working with a prosecutor, and it means a criminal investigation has moved past the administrative stage.
This guide explains how grand juries are used in tax cases and what the Justice Manual says about targets, subjects, and their rights. It is general information. If you have received a grand jury subpoena, you need a lawyer before you produce a document or answer a question.
How a tax case gets to a grand jury
IRS Criminal Investigation can investigate administratively, using its own tools, or through a grand jury. IRM 9.5.2.2 says the IRS may request a grand jury before, during, or after an administrative investigation, normally when it would be more efficient, or when the administrative process has gone as far as it can and the grand jury process would strengthen prosecution potential. A federal prosecutor can also ask CI to assist in a grand jury investigation.
Tax grand juries need approval. Under JM 6-4.120, the Justice Department's tax prosecutors must first approve and authorize a United States Attorney's Office's use of a grand jury to investigate criminal tax violations, with a narrow delegated exception for certain false refund claim cases. JM 6-4.121 says an IRS request to authorize a grand jury investigation counts as a referral to the Justice Department, which triggers IRC 7602(d): the IRS may no longer issue or enforce an administrative summons with respect to that person for the same tax and period.
A non-tax grand jury investigation can also expand into tax. Under JM 6-4.122, the United States Attorney's Office has limited delegated authority to expand a non-tax investigation into possible tax crimes, but specific tax charges still require Department authorization before an indictment.
Target, subject, or witness
The Justice Manual uses precise terms in JM 9-11.151:
- A target is "a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant."
- A subject is "a person whose conduct is within the scope of the grand jury's investigation."
- Everyone else called to provide evidence is a witness.
An officer or employee of a target organization is not automatically a target, and the same is true in reverse.
Status can change. A witness can become a subject, and a subject can become a target, as the evidence develops. Your lawyer will want to know which category the government places you in, and the Justice Manual describes the circumstances in which prosecutors tell people.
The advice of rights
Under JM 9-11.151, it is Department policy to advise a grand jury witness who is a target or subject of their rights, using an "Advice of Rights" form appended to the subpoena. The form says, in substance:
- The grand jury is investigating possible violations of federal criminal law involving a stated subject matter.
- You may refuse to answer any question if a truthful answer would tend to incriminate you.
- Anything you say may be used against you by the grand jury or in a later legal proceeding.
- If you have retained counsel, the grand jury will give you a reasonable opportunity to step outside the room to consult with counsel.
For targets, the advice adds a supplemental warning that the witness's conduct is being investigated for possible violation of federal criminal law. The warnings are also supposed to be given on the record before the grand jury.
Notice the fourth point. Your lawyer generally does not go into the grand jury room with you. You step out to consult. That makes preparation before the appearance critical.
The IRS's own non-custodial rights procedure does not apply here. IRM 9.5.2.5.2 says the attorney for the government provides the instructions for advising subjects of their rights in grand jury investigations. See your rights in an IRS criminal interview.
Subpoenas for documents
Grand jury subpoenas can require testimony, documents, or both. IRM 9.5.2.5.1.1.2 says a subpoena may require production of books, papers, documents, or objects, and that records "may be provided to the SA prior to the date set by the subpoena."
Document subpoenas raise their own questions, including privilege and the treatment of business records. The IRS manual notes in IRM 9.4.5 that the Fifth Amendment does not protect a corporation and its records, so a custodian of corporate records must produce them. Personal records and personal testimony are treated differently. These distinctions should be sorted out with counsel before anything is produced.
Subpoenaing targets
The Justice Manual adds protections for targets. JM 9-11.150 says that before a known target is subpoenaed to testify about their involvement in the crime, an effort should be made to secure a voluntary appearance, and if that fails, the subpoena should issue only after the United States Attorney or the responsible Assistant Attorney General approves it.
JM 9-11.154 addresses a common situation: if a target and the target's attorney state in a signed writing that the target will refuse to testify on Fifth Amendment grounds, the witness "ordinarily should be excused from testifying" unless the grand jury and the United States Attorney agree to insist on the appearance.
Asking to testify
Some subjects and targets want to tell their side. JM 9-11.152 says prosecutors have no legal obligation to allow it, but reasonable requests "ordinarily should be given favorable consideration," provided the witness explicitly waives the privilege against self-incrimination on the record and is represented by counsel or knowingly appears without counsel and consents to full examination under oath.
That waiver is the catch. Testifying means answering everything, under oath, with no lawyer in the room. It is a strategic decision with enormous consequences and almost never one to make without extensive preparation.
Target notification
JM 9-11.153 encourages prosecutors, in appropriate cases, to notify a target a reasonable time before seeking an indictment so the target has an opportunity to testify, but says notification is not appropriate in routine clear cases or where it might jeopardize the investigation or prosecution. JM 9-11.155 gives the United States Attorney discretion to tell a former target that target status has ended, and says such a notice does not prevent the investigation from being reopened.
Grand jury secrecy and the civil case
Grand jury material is secret. IRM 9.5.2.4 cites Federal Rule of Criminal Procedure 6(e), which prohibits disclosure except as specifically authorized. JM 6-4.126 says the rule prohibits the United States Attorney's Office from disclosing matters occurring before the grand jury to the IRS for use in civil audit or collection, unless a court authorizes it on a showing of particularized need in connection with a judicial proceeding. IRS personnel assisting in the criminal investigation can receive grand jury material only for that purpose, and their names must be listed with the court.
Accountants and other witnesses
Grand jury subpoenas often go to people around the subject: bookkeepers, accountants, bankers, business partners. The leading case on accountants and the attorney-client privilege, United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), began with a grand jury subpoena to an accountant employed by a law firm. See Kovel arrangements. When the grand jury's work is done, the case moves to Justice Department review.
What to do with a subpoena
Call a lawyer before you do anything else. Do not contact other witnesses about it. Do not destroy or alter anything it covers; obstruction risk is highest once a proceeding is pending. See obstruction under section 7212(a). Let counsel find out your status, handle production, and decide whether any testimony is in your interest.
Remember that IRC 7602(d) bars administrative summonses while a referral is in effect.
Frequently asked questions
What is the difference between a target and a subject?
Under JM 9-11.151, a target is a person the prosecutor or grand jury has substantial evidence linking to a crime and whom the prosecutor considers a putative defendant. A subject is a person whose conduct is within the scope of the investigation.
Can my lawyer come into the grand jury room?
The Justice Department's advice of rights says that if you have retained counsel, the grand jury will give you a reasonable opportunity to step outside the room to consult. Preparation before the appearance is essential.
Do I have to testify if I am a target?
You may refuse to answer questions whose truthful answers would tend to incriminate you. Under JM 9-11.154, if a target and counsel state in writing that the target will invoke the Fifth Amendment, the target ordinarily should be excused unless the grand jury and the United States Attorney insist.
Can the IRS use grand jury evidence in my civil audit?
Not without court authorization. JM 6-4.126 says Rule 6(e) prohibits disclosing grand jury matters to the IRS for civil audit or collection unless a court grants a request based on particularized need.
General information only, not legal advice. Reading this page does not create an attorney-client relationship. Laws and IRS procedures change; the sources cited were reviewed on the date shown above.