In a unanimous opinion delivered by Chief Justice John Roberts on May 18, 2023, the Supreme Court ruled that the Internal Revenue Service was not required to notify an individual and two law firms of summonses seeking their banking records.
In the matter of Polselli et al. v. Internal Revenue Service (No. 21-1599), the IRS assessed over $2 million in unpaid taxes and penalties against an individual taxpayer, Remo Polselli.
The IRS has the power to issue summonses in order to collect unpaid federal taxes. When the IRS does so, however, it is generally required, under 26 U.S. Code § 7609(a)(1), to notify any person identified in the summons. Anyone entitled to notice may, under 26 U.S. Code § 7609(b)(2)(A), make a motion to quash the summons. However, as per 26 U.S. Code § 7609(c)(2)(D)(i), when the IRS issues a summons “in aid of the collection of . . . an assessment made . . . against the person with respect to whose liability the summons is issued,” no notification is required.
In the case before the Court, an IRS Revenue Officer issued summonses to three banks, seeking financial records of Mr. Polselli’s wife and two law firms of which Mr. Polselli was a long-time client. The summonses sought records that would “identify . . . entities whose funds Mr. Polselli has control over without formal ownership” and “bank accounts associated with such entities.” The District Court held that, under 26 U.S. Code § 7609(c)(2)(D)(i), no notification was required and, therefore, there was no grounds for a motion to quash the summonses, even though they sought records of accounts in which Mr. Polselli had no legal interest. The Sixth Circuit affirmed, ruling that the summonses fell within the exception to the general notice requirement.
The Supreme Court affirmed, rejecting arguments that the exception to the notice requirement in 26 U.S. Code § 7609(c)(2)(D)(i) applies only if the taxpayer has a legal interest in accounts for which records are summonsed. This legal interest standard was previously adopted by the Ninth Circuit.
In affirming the Sixth Circuit’s decision, the Court adhered closely to the language of 26 U.S. Code § 7609(c)(2)(D)(i), writing: “The statute does not mention legal interest, much less require that a taxpayer maintain such an interest for the exception to apply.”
The Court also rejected arguments that “in aid of the collection” refers only to efforts that “directly advance” the IRS’s collection of unpaid taxes, which a summons can only do if it targets an account containing assets the IRS can collect. The Court held that this theory did not fit within the ordinary meaning of “in aid of” and endorsed “a summons that may not itself reveal taxpayer assets that can be collected [but that] may nonetheless help the IRS find such assets.”
The Court disagreed that its rulings expanded the IRS’s summons power beyond Section 7609 but refused to elaborate: “The Court does not dismiss any apprehension about the scope of the IRS’s power to issue summonses and does not define the precise contours of the phrase ‘in aid of the collection.’” The Court addressed only the question “whether §7609(c)(2)(D)(i) requires that a taxpayer maintain a legal interest in records summoned by the IRS. The answer is no.”
After Polselli, we can look forward to litigation as the IRS tests the limits of “in aid of the collection.”
View the Supreme Court’s full opinion here.
