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Polselli Summons Case Heads To Supreme Court

Posted on Jan. 5, 2023

Last January in Circuit Split on Notice Rules For Summonses to Aid Collection I discussed how the Sixth Circuit case Polselli v United States resulted in a split in the circuits on a fundamental issue in IRS summons practice: does the IRS have to give notice when it issues a summons in the aid of collecting an assessed tax? The Sixth Circuit, in contrast with the Ninth Circuit in Ip v US, held that the taxpayer has no right to notice so long as the summons followed an assessment or judgment and it was issued in the aid of collecting the tax.

Notice is key, because under the statute the government’s waiver of sovereign immunity is tied to notice, and thus a court lacks jurisdiction to hear a challenge if a party is not entitled to notice.

After the defeat the taxpayer filed a cert petition; the government opposed the petition. The Center for Taxpayer Right, with counsel Latham & Watkins, filed an amicus brief in support of the petition (disclosure: I am on the Board of the Center; Keith is President and also on the Board; Nina is the Founder, Executive Director and Treasurer and also a Board Member).

Last month the Supreme Court granted cert over the government’s opposition.

In Polselli, the Sixth Circuit held that Section 7609(c)(2)(D)(i) “unequivocally provides that the IRS may summon the third-party recordkeeper of any person without notice to that person if (1) an assessment was made or a judgment was entered against a delinquent taxpayer and (2) the summons was issued “in aid of the collection” of that delinquency.”

The taxpayer’s cert petition identifies the question presented as “whether the § 7609(c)(2)(D)(i) exception applies only when the delinquent taxpayer owns or has a legal interest in the summonsed records (as the Ninth Circuit holds), or whether the exception applies to a summons for anyone’s records whenever the IRS thinks that person’s records might somehow help it collect a delinquent taxpayer’s liability (as the Sixth Circuit, joining the Seventh Circuit, held below).”

As the petition noted, the government’s summons reached two of the taxpayer’s law firms and his wife, raising privacy interests and possible privilege issues.

Under the government’s and Sixth Circuit’s view, the statute gives the IRS the absolute right to issue a collection summons without notice or right to challenge.

As the Center’s amicus brief highlights, the government and Sixth Circuit’s position effectively provides that the exception to notice in Section 7609 swallows the rule and subverts the balance between privacy and the government’s interest in tax collection:

The Sixth Circuit’s interpretation of one exception leaves a gaping hole in Section 7609’s protections and swallows the general rule of notice. The Sixth Circuit held that the IRS may issue a summons seeking the records of people who do not owe the IRS a penny, without notice, so long as the IRS issued the summons to aid in the collection of someone else’s tax liability. This interpretation places virtually no limits on the IRS’s ability to seek records without notice. And without notice, an innocent person whose records are sought lacks any meaningful opportunity to prevent disclosure of her private information. The Sixth Circuit’s interpretation nullifies the right to protect private information from IRS overreach.

Stay tuned, as this is the latest in a series of important procedural issues reaching the Court.

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