## Facts

- Norwest Corporation filed consolidated federal income tax returns for itself and hundreds of subsidiaries.
- Norwest used “Tax Director,” tax-preparation software developed and licensed by Arthur Andersen, to compute tax results from Norwest’s financial data.
- Tax Director embodied Andersen’s coded algorithms and logic; it did not itself contain Norwest’s taxpayer-specific data entries.
- During an audit of Norwest’s returns, the IRS issued an administrative summons under I.R.C. § 7602 seeking production of the Tax Director software, including source code.
- Norwest and Andersen refused to produce the software, asserting trade-secret protections and arguing the software was not relevant to verifying Norwest’s tax liability.
- Norwest and Andersen offered alternatives, including extensive program outputs, documentation, and demonstrations of how Norwest used the software, while withholding the code.

## Issues

1. Whether tax-preparation software (including source code) is “books, papers, records, or other data” subject to an IRS summons under I.R.C. § 7602.
2. Whether the IRS satisfied the United States v. Powell standard that the summoned material “may be relevant” to a legitimate tax investigation when the software contains algorithms but not taxpayer-specific entries.
3. Whether the summons was issued for an improper purpose (e.g., to obtain trade secrets or to harass), amounting to an abuse of process.
4. Whether asserted trade-secret status or the availability of less intrusive alternatives requires denial, narrowing, or conditioning of summons enforcement.

## Decision

- The Eighth Circuit affirmed the district court’s order enforcing the IRS summons.
- The court held that Tax Director constituted “other data” within the broad scope of I.R.C. § 7602.
- The court held the IRS made the required prima facie showing under Powell, including that the software may be relevant to determining the correctness of Norwest’s returns.
- The court rejected claims that the summons was issued for an improper purpose or that enforcement would be an abuse of the court’s process.
- The court held that trade-secret concerns and proposed alternatives did not defeat enforcement, though confidentiality protections could be used to limit disclosure risks.

## Legal Principles

- Under United States v. Powell, an IRS summons is enforceable upon a prima facie showing of: (1) a legitimate purpose, (2) relevance (“may be relevant”), (3) nonpossession by the IRS, and (4) compliance with required administrative steps; the opposing party bears the burden to show lack of a valid purpose or abuse of process.
- “May be relevant” in summons enforcement is a minimal standard; the IRS need only show the material might shed light on the correctness of the return, not that it would be admissible evidence or indispensable.
- I.R.C. § 7602’s authorization to summon “books, papers, records, or other data” is construed broadly and can include intangible materials such as software used to generate return positions.
- Courts generally will not require the IRS to justify the reasonableness of its chosen audit methods or to accept taxpayer-selected substitutes where the summoned material may aid the investigation.
- Trade-secret or confidentiality interests do not categorically bar enforcement of an otherwise valid summons; protective orders or similar measures may address disclosure concerns.

## Conclusion

The court enforced an IRS summons compelling production of tax-preparation software and source code, holding that such software qualifies as summonable “other data” under § 7602, satisfies Powell’s low relevance threshold, and is not shielded from enforcement by trade-secret claims or by a taxpayer’s offer of alternative disclosures.


United States v. Norwest Corp., 116 F.3d 1227 (8th Cir. 1997)