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Imagine that the IRS is auditing somebody's tax return. The auditor thinks something is wrong with the return. However, he/she is not sure and does not have any hard facts on what is wrong. The auditor wants to read all the person's brokerage statements. However, he does not want to go to court to get a warrant to read them. Does the auditor need a warrant? Could the auditor just call up the brokerage firms and ask for the statements? Also as I understand it, the 1099s that the broker firm sends to the IRS has less information on it then the 1099s they send to the clients. Could the IRS get the client's version of the form without a warrant?

It seems to me, that under the US constitution the IRS would need a warrant.

I am in the United States

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  • There seems to be multiple questions in this post.
    – Galen
    Jul 19 at 21:23
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    The taxpayer has the burden of proof in an audit, see irs.gov/businesses/small-businesses-self-employed/…. So the auditor doesn't need to actually compel production of the statements; they can just say "I am not convinced that your return is correct; show me the documents that prove it is." If the taxpayer doesn't do so then they lose the audit and the IRS can bill them for whatever the IRS thinks their taxes ought to be. Jul 19 at 21:27
  • The taxpayer is supposed to include the 1099 with the 1040, so the IRS has the taxpayer's copy of the 1099 even before it decides to audit.
    – phoog
    Jul 19 at 22:38
  • @phoog: I don't think that's true. I've never seen anything to indicate that 1099s are to be filed by the taxpayer (except for 1099-R). I've never included mine and the IRS has never complained. Jul 19 at 23:52
  • @NateEldredge you're right. I don't know what I was thinking.
    – phoog
    Jul 20 at 0:06
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The IRS has subpoena power to access documents such as business records.

Since a subpoena can be contested in court before documents are provided pursuant to it in an adversarial proceeding, it is not constitutionally equivalent to a search warrant.

As long as the information is potentially relevant to tax liability, it isn't subject to being quashed in court, which is the same standard that applies in civil litigation.

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You have the onus backwards

The IRS has the power to assess your tax liability - you have to prove the assessment wrong.

The auditor thinks something is wrong …

Then the auditor has the power to, and commonly does, substitute their judgement of what is right instead. If that changes your tax liability (up or down), then it’s up to you to prove that you were right all along. You have the obligation to keep records for tax purposes, if you don’t, the IRS has the power to determine your liability without them.

Now, they could subpoena the records from you or your broker but why would they bother? They don’t need them.

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