by: Steve Hayes 06-16-2023 Source: FAIRtax
Supreme Court exposes more IRS abusive powers
diegograndi
SUPREME COURT EXPOSES MORE IRS ABUSIVE POWERS
If you’re going to have a federal income tax, there are three things that inevitably come along with it.
First, there are going to be people who try to cheat the system in order to pay less than they actually owe. Consequently, an income tax requires a large, powerful federal agency with broad investigative and enforcement powers in order to identify the cheaters and compel them to comply with the law.
Second, those powers must be precisely defined and delegated to the enforcement agency by Congress.
And third, there will inevitably be cases where the courts are going to have to decide if the agency is properly exercising those powers, or if certain enforcement practices are outside the law.
The Supreme Court’s unanimous decision in Polselli v. Internal Revenue Service confirmed that the IRS has a broad power to obtain information from third parties to aid in the collection of a tax debt without giving notice to the third parties even if there is no evidence that the third party accounts have any legal connection to the party who owes the IRS.
This article on the natlawreview.com site explains the effects of this ruling:
- The Court was tasked with determining whether the IRS, pursuant to powers granted in Internal Revenue Code (IRC) section 7609(c)(2)(D)(i), is entitled to issue third-party summonses, without notice, for bank records concerning accounts in which the taxpayer being investigated does not have a legal interest.
- In Polselli, the IRS entered an official assessment against Remo Polselli for more than $2 million in unpaid taxes and penalties. The IRS then issued summonses on three banks, seeking the financial records of several third parties including Polselli’s wife and two law firms that represented Polselli. These third parties were given notice by the banks who received the summonses, and one of the third parties moved to quash the summons. In the litigation that ensued, the third parties argued that the no-notice exception in section 7609(c)(2)(D)(i) applied only if the taxpayer being targeted had some legal interest in the accounts or the records sought by the summons.
- The Supreme Court’s decision is based on its finding that section 7609(c)(2)(D)(i) sets forth only three specific conditions to exempt the IRS from providing notice. The Court found it notable that the statute does not mention a “legal interest” or require that a taxpayer maintain an interest in an account for the exception to apply.
