In a recent landmark decision, the U.S. Supreme Court ruled in favor of the Internal Revenue Service (IRS), confirming the IRS has the ability to request financial records from banks and other financial institutions without notifying the actual taxpayers involved. This decision came as a result of the case Polselli v. IRS, which involved a taxpayer owing $2 million in unpaid taxes and residing in Michigan.
In the case, the IRS sought to collect the outstanding tax debt by issuing a Summons, an official order to produce information, to the taxpayer’s law firm and bank. Notably, the IRS did not inform the taxpayer about the Summons, and it was only through the cooperation of the law firm and bank that the taxpayer became aware of the situation. The taxpayer attempted to challenge the Summons, citing a lack of due process, but the lower court held that the IRS was not obligated to notify the taxpayer in this particular scenario.
Under normal circumstances, the IRS is required to notify taxpayers when issuing a Summons, providing the taxpayer with the opportunity to challenge or quash it. However, the Supreme Court’s ruling establishes that when the IRS is pursuing collection of taxes rather than determining tax liability, notice is not mandatory. This ruling confirms the IRS has significant authority to investigate and collect taxes without notifying the affected taxpayer.
During the Supreme Court proceedings, the taxpayer argued that the IRS should only issue a Summons without notice when it is certain that the Summons will yield assets that can be collected. Additionally, the taxpayer proposed that notice should be required when the IRS is simply seeking information that may lead to the discovery of the taxpayer’s assets. However, the Court disagreed with these arguments and asserted that as long as a Summons is reasonably calculated to assist in the collection of taxes, the IRS is not obligated to notify the taxpayer.
Justice Gorsuch, in a concurring opinion, highlighted the importance of balancing the interests of both the IRS and the taxpayer. He acknowledged that while the IRS has a legitimate interest in determining tax liabilities and collecting unpaid taxes, taxpayers also have a right to privacy and protection from unnecessary government intrusion. The notice requirement typically serves as a mechanism to strike this balance, allowing the IRS to issue summonses for investigation while affording taxpayers the opportunity to challenge them in court. However, Justice Gorsuch emphasized that the IRS does not possess an unrestricted ability to issue Summonses without notice.
This ruling undoubtedly expands the power of the IRS in collecting taxes and investigating individuals’ financial affairs. If you have any questions or concerns regarding tax or legal matters, please contact your Dawda Mann attorney.
AUTHORED BY JEFFREY D. MOSS, ESQ and ADAM SALOMON, SUMMER ASSOCIATE.