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High Court Considering Case on Whether IRS Can Secretly Obtain Bank Records of Taxpayer's Relatives

S.J. Steinhardt
Published Date:
Apr 25, 2023

iStock-922171778 SCOTUS United States US Supreme Court

The U.S. Supreme Court recently heard arguments in the case of Polselli v. IRS, and the ruling will determine the limits of taxpayer privacy, Kiplinger Consumer News Service reported.

The question before the high court is whether the IRS can secretly obtain a relative’s bank records. The dispute began when the plaintiff, owing more than $2 million in taxes to the IRS, paid some of his tax liability through a limited liability company that he owned, prompting the IRS to look more closely at his financial records. The IRS issued a number of administrative summonses to Polselli to determine whether he was shielding assets. The agency then issued summonses to his wife’s bank and to two other banks where his law firm had accounts, but it did not notify his wife or the law firm that it was trying to obtain the banking information.

Section 7602 of the Internal Revenue Code (IRC) allows the IRS to issue a summons seeking information “[f]or the purpose of ascertaining the correctness of any return,” including books, papers, records, or other data, and can require testimony under oath.

The plaintiff, his wife and his law firm argued that that the IRS should have to notify them if it is going to send a summons for their information to their banks, and that it should not be able to require such records of a taxpayer’s relatives or associates who do not owe the IRS without notice.

The IRS claimed that it has the statutory authority to seek those records without notice to aid in the collection of the plaintiff’s delinquent taxes. While previous federal cases have not resolved whether notice is required when IRS summonses are for information from people’s accounts who do not owe the IRS taxes, legal precedent exists for the IRS’s summoning records without notice when a taxpayer who owes has a recognizable interest in the requested information.

The high court will determine whether there is an exception to the general rule that notice is not required for summonses issued to to third-party record keepers to aid in the collection of tax debt. Such an exception might arise when the summonses involve records of individuals who do not have an IRS tax liability, such as spouses.

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