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Polselli v. Internal Revenue Service

Location: Michigan
Court Type: U.S. Supreme Court
Status: Closed (Judgment)
Last Update: May 18, 2023

What's at Stake

This case concerns the scope of the IRS’s obligation under a federal law to provide notice to individuals that it is seeking their records from a third party, such as a bank, accountant, or lawyer.

On January 30, 2023, the ACLU filed an amicus brief, with the Center for Taxpayer Rights and two law school clinics, in support of petitioners in Polselli v. Internal Revenue Service.

The IRS has broad power to seek records to carry out its myriad investigatory, collections, and other duties. But those powers need checks to guard against abuse or inadvertent infringements on privacy. The statute at issue in this case, 26 U.S.C. § 7609, requires that certain parties be notified when the IRS seeks their record from third parties, in order to give those individuals an opportunity to challenge the validity of the request. It was enacted as a safeguard for privacy. The ACLU urges the Supreme Court to interpret it in a way that preserves its purpose by requiring notice except in specific situations, and to reject the IRS’s interpretation, which would render the notice requirement inapplicable in virtually all IRS investigations.

Congress enacted § 7609 to protect the right to privacy from government intrusion without unduly interfering with tax collection. The provision generally requires that when the IRS issues a summons seeking an individual’s records from some third party, such as a bank or accountant, it must provide notice of the summons to identified persons. For example, if the IRS seeks bank records in the course of an audit, it generally must also notify the account holder of the summons. The statute then gives the account holder a brief window to challenge the summons based on recognized privileges and defenses, such as lack of relevance or the attorney-client privilege.

The statute includes exceptions that deny notice in certain circumstances, and only persons entitled to notice have a right to challenge the summons. But those exceptions are narrow. Yet the IRS reads one of the exceptions to apply whenever it is pursuing collection of taxes, an exception that would apply in almost every instance, and would render the statute a dead letter. If that reading is accepted, innocent third parties will have no opportunity to assert fundamental privileges and protections in order to preserve their privacy, the whole purpose of the notice requirement.

This case strikes at the heart of privacy rights that Congress specifically created in response to IRS overreaches. The scope of this exception determines whether individuals or entities have a meaningful right to keep their private information out of the IRS’s hands.

On May 18, 2023, the Supreme Court affirmed that the IRS has authority to issue such a summons without prior notification to the account holder.

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