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Federal Tax

Supreme Court to Take on IRS Record Summons Notice Dispute

Tim Shaw  

· 5 minute read

Tim Shaw  

· 5 minute read

The U.S. Supreme Court agreed to settle whether statute requires the IRS to notify third parties when summoning bank records to collect another person’s unpaid taxes, an issue over which circuit courts are split.

At issue is the extent of the exception in Code Sec. 7609(c)(2)(D)(i) and when the IRS must give notice to third-party recordkeepers. Specifically, the Court will decide if the exception applies only if the delinquent taxpayer has a legal interest in summoned records, or if no notice is necessary so long as the IRS believes that the summoned records will assist in collecting outstanding liabilities.

On December 9, the Court granted the cert petition of Hanna Polselli and two law firms, Abraham & Rose, PLC and Jerry R. Abraham, PC. Hanna is the wife of Remo Polselli, who owed the IRS $2 million having underpaid his taxes for over 10 years. Remo enlisted the services of the two firms, and an IRS investigator had reason to believe he was using his wife’s accounts to shield his activities.

Hanna and the firms in June 2022 challenged the Sixth Circuit’s decision to uphold the U.S. District Court for the Eastern District of Michigan’s dismissal of the petitioner’s suit to quash the IRS summons on their bank records. Generally, the IRS as a government agency has sovereign immunity from suit unless there exists a specific statutory waiver. Both the district and circuit courts found that, under the plain language of Code Sec. 7609(c)(2)(D)(i), the IRS was not required to issue notices to the petitioners because the summonses were “in aid of collection” of Remo’s liability.

“Because the United States waives sovereign immunity only when a taxpayer entitled to notice challenges a summons, the district court lacked subject-matter jurisdiction over Petitioners’ proceedings to quash the summonses,” read the Sixth Circuit’s January 7, 2022, opinion, authored by Judge Karen Moore.

The petitioners’ in their June 24, 2022, filing pointed to a Ninth Circuit decision differing from the views of the Sixth and Seventh circuits, prompting the Supreme Court to resolve a 1-2 split. The Ninth Circuit found that “when the IRS issues a summons to a third-party-recordkeeper, it must give notice to the person identified in the summons unless the delinquent taxpayer owns or has a similar legal interest in the summoned records,” according to the cert petition.

In its October reply brief the IRS reiterated that seizing records directly correlated with its efforts to perform its duty as the government’s tax collector. The agency further contended that obtaining information on Hanna’s business dealings would point them in the right direction.

“Because those dealings suggest that Mr. Polselli might have access to, and might use, accounts titled in Mrs. Polselli’s name, the government determined that obtaining Mrs. Polselli’s financial records might aid the government in locating assets that Mrs. Polselli held as Mr. Polselli’s nominee or alter ego,” read the brief.

The case is Polselli v. IRS (2022 WL 17544996).

For more information about statutory exceptions to the special procedures for third-party summonses, see Checkpoint’s Federal Tax Coordinator ¶T-1255.


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