Supreme Court Accepts Appeal About IRS Seizing Bank Records to Collect a Debt From Another Taxpayer

The Supreme Court has agreed to hear a case about the IRS seizing bank account holder records to collect a debt from a different taxpayer.

The ruling comes as some federal lawmakers in the new Congress that will be seated next month prepare to grapple with President Joe Biden’s attempt to beef up enforcement efforts by the IRS. The Biden-backed Inflation Reduction Act, which the president signed into law in August, allocated almost $80 billion to the IRS over the coming 10 years for increased enforcement. An estimated 87,000 new IRS agents will be hired. Democrats say the IRS has long been underfunded, but Republicans, who take over the House of Representatives in coming weeks, say the extra money will be used to harass taxpayers, and they have promised to rescind the funding.

The court issued an unsigned order Dec. 9 in the case, Polselli v. IRS, court file 21-1599. The justices did not explain why they granted the taxpayer’s petition. No justices indicated they disagreed with the decision.

Hanna Karcho Polselli and two law firms sued after the tax-collection agency obtained their records without notification in an attempt to collect upwards of $2 million in tax debts owed by Remo Polselli, Polselli’s husband. The law firms of Abraham and Rose PLC and Jerry R. Abraham PC had acted on behalf of the husband.

Polselli and the law firms argued in court papers (pdf) that the U.S. Court of Appeals for the 6th Circuit departed from a 2000 ruling by the U.S. Court of Appeals for the 9th Circuit, creating a circuit split they say the Supreme Court should step in and resolve.

The 6th Circuit held that the disputed summonses were lawful because they were covered by an exception in the tax code pertaining to third-party record keepers. The 6th Circuit rejected the 9th Circuit’s holding that the exception applies only when the targeted taxpayer has a recognized legal interest in the records.

The legal question here “implicates fundamental, constitutionally recognized privacy rights, and this case is an excellent vehicle for resolving” the circuit split, a brief stated.

The Center for Taxpayer Rights filed (pdf) a friend-of-the-court brief supporting Polselli, arguing that the 6th Circuit’s interpretation created opportunities for “abuse.”

“The Sixth Circuit’s interpretation of one exception leaves a gaping hole in [tax code] protections,” the brief stated.

“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,” leaving “an innocent person whose records are sought … [without] any meaningful opportunity to prevent disclosure of her private information,” the group said.

The IRS asked the high court to turn away the appeal, arguing that the circuit split “seems to be more apparent than real.” Polselli and the law firms would not have been entitled to notice under the 9th Circuit’s case law, the agency said.

The Epoch Times reached out for comment to Polselli’s attorney, Shay Dvoretzky of Skadden, Arps, Slate, Meagher and Flom LLP and to the U.S. Department of Justice but had not received a reply as of press time.