Who is entitled to notice when the IRS seeks to track down the assets of delinquent taxpayers? That's the question that has landed in front of the Supreme Court in Polselli v. Internal Revenue Service.
case are not in dispute. Remo Polselli underpaid his federal taxes for many years, resulting in an outstanding balance of more than $2 million. The IRS moved to collect, and eventually sought and was granted an order for Polselli to produce certain financial and business records.
of the Tax Code, which excludes from the notice requirement summonses issued “in aid of the collection” of tax assessments.Here’s why that happened. According to court documents, during his investigation, IRS Revenue Officer Michael Bryant was led to believe that Remo “often uses other entities to shield his assets from the Internal Revenue Service.
The IRS did not tell Hanna Polselli or the law firm about the summonses—but the banks did. Once Hanna and the law firms found out, a flurry of petitions to quash–meaning void–the summonses followed, claiming that the IRS had failed to provide the required notice.The district court did not quash the summonses. Instead, the court concluded that under the plain language of the statute, Polselli's wife and lawyers were not entitled to notice.
. It was intended to protect the public's privacy interests by allowing taxpayers the right to challenge IRS summons. In 1982, the law was amended to allow taxpayers the right to seek to quash the summons. Ephraim McDowell, assistant to the solicitor general in the Department of Justice, argued on behalf of the IRS. He argued that the statute was already a compromise and disputed the petitioners' claims that limitations are needed to impose a check on the IRS's summons authority. “[M]ultiple other checks exist,” he said, “including the prospect of a challenge by the recipient of the third-party summonses.
Justice Sotomayor noted that “[t]here's a whole lot about the IRS collection mechanism that has been criticized and continues to be criticized by the world, including me.” She later said that she could understand not giving the taxpayer notice because of concern that they might hide assets. But why, she wondered, would you impose secrecy on an innocent third party?
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