POLSELLI ET AL. v. INTERNAL REVENUE SERVICE
No. 21-1599
SUPREME COURT OF THE UNITED STATES
May 18, 2023
598 U. S. ____ (2023)
Argued March 29, 2023
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
POLSELLI ET AL. v. INTERNAL REVENUE SERVICE
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
No. 21-1599. Argued March 29, 2023—Decided May 18, 2023
In this case, the IRS entered official assessments against Remo Polselli for more than $2 million in unpaid taxes and penalties. Revenue Officer Michael Bryant issued summonses to three banks seeking financial records of several third parties, including petitioners, who then moved to quash the summonses. The District Court concluded that, under
Held: The Court rejects petitioners’ argument that the exception to the notice requirement in
(a) The statute sets forth three conditions to exempt the IRS from providing notice in circumstances like these. First, a summons must be “issued in aid of . . . collection,”
(b) Petitioners’ arguments in support of their proposed legal interest test do not convince the Court to abandon an ordinary reading of the notice exception. Petitioners first contend the phrase “in aid of the collection” refers only to inquiries that “directly advance” the IRS‘s collection efforts, which a summons will not accomplish unless it is targeted at an account containing assets that the IRS can collect to satisfy the taxpayer‘s liability. This argument ignores the typical meaning of “in aid of.” To “aid” means “[t]o help” or “assist.” A summons that may not itself reveal taxpayer
Petitioners next argue that if
(c) The Court does not dismiss any apprehension about the scope of the IRS‘s power to issue summonses and does not define the precise contours of the phrase “in aid of the collection.” The briefing by the parties and the question presented focus only on whether
23 F. 4th 616, affirmed.
ROBERTS, C. J., delivered the opinion for a unanimous Court. JACKSON, J., filed a concurring opinion, in which GORSUCH, J., joined.
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, pio@supremecourt.gov, of any typographical or other formal errors.
SUPREME COURT OF THE UNITED STATES
No. 21-1599
HANNA KARCHO POLSELLI, ET AL., PETITIONERS v. INTERNAL REVENUE SERVICE
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
[May 18, 2023]
CHIEF JUSTICE ROBERTS delivered the opinion of the Court.
For as long as Americans have had to pay taxes, at least some have tried to avoid them. And for as long as Americans have avoided taxes, the Internal Revenue Service and its predecessors have tried to collect them. As an old joke goes: “I believe we should all pay taxes with a smile. I tried but they wanted cash.”
Congress has given the IRS considerable power to go after unpaid taxes. One tool at the Service‘s disposal is the authority to summon people with information concerning a delinquent taxpayer. But to safeguard privacy, the IRS is generally required to provide notice to anyone named in a summons, who can then sue to quash it. Today‘s case concerns an exception to that general rule.
I
To pursue unpaid taxes and the people who owe them, “Congress has granted the Service broad latitude to issue summonses.” United States v. Clarke, 573 U. S. 248, 250 (2014). Among other things, the IRS
Given the breadth of this power, Congress has imposed certain safeguards. The IRS must generally give “notice of the summons” to “any person . . . identified in the summons.”
There are, however, exceptions to the notice requirement. As relevant, the IRS need not provide notice to a person “who is identified in the summons,”
“issued in aid of the collection of—
“(i) an assessment made or judgment rendered against the person with respect to whose liability the summons is issued; or
“(ii) the liability at law or in equity of any transferee or fiduciary of any person referred to in clause (i).”
§7609(c)(2)(D)
In other words, the IRS may issue summonses both to determine whether a taxpayer owes money and later to collect any outstanding liability. When the IRS conducts an investigation for the purpose of “determining the liability” of a taxpayer,
II
For multiple years between 2005 and 2017, Remo Polselli underpaid his federal taxes. App. to Pet. for Cert. 65a-66a. After investigating, the IRS determined that Mr. Polselli was liable for the unpaid amounts and other penalties, and entered official assessments against him totaling more than $2 million. Id., at 66a. Revenue Officer Michael Bryant then set out to collect the money, and he developed a few leads in his search for assets that Mr. Polselli may have been concealing. Bryant focused on bank accounts belonging to Mr. Polselli‘s wife, petitioner Hanna Karcho Polselli. Ibid. Bryant also knew that Mr. Polselli had paid nearly $300,000 toward part of his outstanding tax liability from an account owned by Dolce Hotel Management, LLC, and surmised that Mr. Polselli might have control over funds belonging to that company. Id., at 67a. To further his investigation, Bryant issued a summons under
Bryant then issued several additional summonses seeking records concerning Mr. Polselli. Bryant issued one summons to Wells Fargo, requesting the financial records of both Mrs. Polselli and Dolce Hotel Management. Id., at 70a-71a. He
The District Court dismissed the case for lack of subject-matter jurisdiction, reasoning that the IRS did not need to provide notice. Polselli v. United States, 2020 WL 12688176, *4 (ED Mich., Nov. 16, 2020). The District Court credited Bryant‘s assertions that “the purpose of his investigation [was] to locate assets to satisfy Mr. Polselli‘s existing assessed federal tax liability and that the IRS issued the summonses in question to aid in the collection of these assessed liabilities.” Ibid. Because the Code excluded petitioners from the required notice, there was no waiver of sovereign immunity, and the District Court therefore lacked jurisdiction to entertain the motions to quash. Id., at *5.
The Sixth Circuit affirmed in a divided opinion, reasoning that no notice was required because “the summonses at issue fall squarely within the exception listed in
Judge Kethledge dissented. He acknowledged that an ordinary reading of the statute exempted the summonses from notice but thought the statutory context compelled a narrower construction. As an initial matter, Judge Kethledge expressed concern that the panel‘s reading of the notice exception risked “a significant intrusion upon the privacy of . . . account holders.” 23 F. 4th, at 631. He argued that an ordinary reading of the first exception to notice would render the second exception—codified in
III
The question presented is whether the exception to the notice requirement in
A
The statute sets forth three conditions to exempt the IRS from providing notice in circumstances like these. First, a summons must be “issued in aid of . . . collection.”
Had Congress wanted to include a legal interest requirement, it certainly knew how to do so. The very next provision—also enacted as part of the Tax Reform Act of 1976—requires the IRS to “establish the rates and conditions” for reimbursing costs “incurred in searching for, reproducing, or transporting” information sought by a summons.
B
Petitioners advance two primary arguments in support of their proposed legal interest test, neither of which convinces us to abandon an ordinary reading of the notice exception.
First, petitioners adopt a narrow definition of “in aid of the collection.” In their view, the phrase refers only to inquiries that “directly advance” the IRS‘s collection efforts. Brief for Petitioners 21. A summons will not directly advance those efforts, they contend, unless it is targeted at an account containing assets that the IRS can collect to satisfy the taxpayer‘s liability. And, petitioners say, the only way that a summons issued to a third party will produce collectible assets is if the delinquent taxpayer has a legal interest in the targeted account.
This argument does not give a fair reading to the phrase “in aid of the collection.”
Consider this case. The IRS‘s investigation “suggest[ed] that Mr. Polselli often uses other entities to shield assets from the Internal Revenue Service.” App. to Pet. for Cert. 68a. Bryant suspected, for instance, that Mr. Polselli was using Dolce Hotel Management as an alter ego, and also that he might have access to and use of Mrs. Polselli‘s bank accounts. Based on those leads, Bryant initially requested that Abraham & Rose produce “cancelled checks, wire transfer/credit documents, and all other instruments used by Mr. Polselli to pay the firm.” Id., at 67a. Whether Mr. Polselli maintains a “legal interest” in those records—a con-founding question, see Viewtech, 653 F. 3d, at 1106—is neither here nor there. The IRS could not, of course, use records of canceled checks and the like to satisfy Mr. Polselli‘s tax deficiency. But if those records showed that money from Dolce Hotel Management was used to pay Mr. Polselli‘s account at Abraham & Rose, or to pay others through Abraham & Rose, that could aid in collecting funds from Dolce Hotel Management to help pay Mr. Polselli‘s debt to the IRS. Or the Service could use those records to try to identify other alter egos—besides Dolce Hotel Management—where Mr. Polselli might have hidden assets.
By the same token, the summonses Bryant issued to the three banks sought records to “identify . . . entities whose funds Mr. Polselli has control over without formal ownership” and “bank accounts associated with such entities.” App. to Pet. for Cert. 68a. As with the request Bryant issued to Abraham & Rose, even if the three bank summonses did not reveal bank accounts in which Mr. Polselli has a legal interest, they could lead to assets parked elsewhere that the IRS could collect to satisfy his $2 million liability.
IRS investigations are much like any other: A detective might order forensic testing or speak to witnesses to help identify a culprit, even if those activities are unlikely—in and of themselves—to solve the crime. Similarly, documents in the accounts belonging to Mrs. Polselli or Dolce Hotel Management may be a step in a paper trail leading to assets owned by Mr. Polselli. Everyday tasks illustrate the same point: A recipe might help a chef shop for needed groceries, even though more steps are required before dinner will be ready. By conflating activities that help advance a goal with activities sure to accomplish it, petitioners ignore the typical meaning of “in aid of.”
Petitioners next argue that the exception provided in clause (i) must be read narrowly so as to avoid making entirely superfluous the exception found in clause (ii). Clause (i) excuses notice when the IRS issues a summons “in aid of the collection of . . . an assessment made or judgment rendered against” the delinquent taxpayer.
But this argument overlooks two differences between clause (i) and clause (ii). First, clause (i) is applicable upon an assessment, while clause (ii) is applicable upon a finding of liability. Under the Code, a taxpayer‘s “liability” for unpaid taxes arises before the IRS makes an official “assessment” of what the delinquent taxpayer owes. See
Second, petitioners’ argument overlooks that clause (i) and clause (ii) are addressed to different entities. Clause (i) concerns assessments or judgments against a taxpayer—“the person with respect to whose liability the summons is issued.”
These distinctions—between liability and assessment or judgment, and between taxpayers and their transferees or fiduciaries—are not just academic. They show that the second notice exception found in clause (ii) applies in situations where clause (i) may not. To dispense with notice, clause (i) requires that there be “an assessment made or judgment rendered against the person with respect to whose liability the summons is issued.”
Clause (ii) addresses an additional potential problem as well. Delinquent taxpayers sometimes declare bankruptcy or otherwise discharge debt. When they do so, the Government may not be able to collect
IV
Petitioners also emphasize the privacy concerns that led Congress to enact the notice requirement in the first place. They highlight that “Congress enacted §7609 in response to two decisions in which we gave a broad construction to the IRS‘s general summons power.” Tiffany Fine Arts, 469 U. S., at 314. In Donaldson v. United States, 400 U. S. 517 (1971), we considered whether the employee of a company to which the IRS had issued a summons could intervene to prevent his employer‘s compliance with the Service‘s request. Id., at 527. We concluded that the employee had no right to do so. Id., at 530. And in United States v. Bisceglia, 420 U. S. 141 (1975), we approved an IRS summons issued to a bank “for the purpose of identifying an unnamed individual who had deposited a large amount of money in severely deteriorated bills,” concluding that the IRS had not abused its authority. Tiffany Fine Arts, 469 U. S., at 315 (characterizing Bisceglia).
Donaldson and Bisceglia help explain why Congress enacted
We do not dismiss any apprehension about the scope of the IRS‘s authority to issue summonses. As we have said, “the authority vested in tax collectors may be abused, as all power is subject to abuse.” Bisceglia, 420 U. S., at 146. Tax investigations often involve the pursuit of sensitive records. In this case, for instance, the IRS sought information from law firms concerning client accounts. And even the Government concedes that the phrase “in aid of the collection” is not “limitless.” Tr. of Oral Arg. 33. The Government proposes a test turning on reasonableness: So long as a summons is “reasonably calculated to assisting in collection,” it can fairly be characterized as being issued “in aid of” that collection. Id., at 26; see also id., at 36 (“[T]he third party should have some financial ties or ha[ve] engaged in financial transactions with the delinquent taxpayer.“).
This is not, however, the case to try to define the precise bounds of the phrase “in aid of the collection.” The parties did not argue, and the panel below did not decide, the contours of that phrase. See Illinois v. Gates, 462 U. S. 213, 222-223 (1983). In addition, both the briefing by the parties and the question presented focus only on whether the exception provided in
The judgment of the Court of Appeals for the Sixth Circuit is affirmed.
It is so ordered.
The Court holds today that there is no “legal interest” limitation on the ability of the Internal Revenue Service to summon records without notice under
First, while the need for efficient tax administration is certainly important and Congress has given the agency lots of attendant authority, the default rule when the IRS seeks information from third-party recordkeepers under this statute is notice. The IRS can summon “any books, papers, records, or other data” that “may be relevant or material to” determining a taxpayer‘s liability or collecting unpaid tax.
To be sure, Congress has also recognized that there might be situations, particularly in the collection context, where providing notice could frustrate the IRS‘s ability to effectively administer the tax laws. For instance, upon receiving notice that the IRS has served a summons, interested persons might move or hide collectable assets, making the agency‘s collection efforts substantially harder.
That is where the exception at
In other words, the statute‘s balancing of interests indicates that Congress did not give the IRS a blank check, so to speak, to do with as it will in the collection arena. Thus, in my view, courts must not interpret
Second, and similarly, it is hard for me to believe that, in the context of a default-notice system, Congress would intentionally insert an exception that could so dramatically upend its objectives. Read too broadly,
Imagine, for example, a delinquent taxpayer who routinely visits his local mom-and-pop dry cleaning business. Imagine also that the IRS suspects this delinquent taxpayer sometimes uses credit cards with different names. Under a broad reading of
For their part, the dry cleaner‘s owners would probably look askance at having all of their financial records requisitioned and reviewed in this manner. But, without notice, they cannot object to the summons‘s scope or work with the IRS (and the court) to provide the records that most likely involve the delinquent taxpayer or his aliases. The owners would have to rely on the recipient of the summons (the bank) to articulate their privacy concerns and negotiate with the agency. Yet there is no guarantee under the statute that the bank will do that, and even if it does, how is the bank supposed to identify which credit cards may have been used by the delinquent taxpayer over a multiyear period?
This situation seems to me to be the kind of circumstance in which Congress would not have intended to prevent the dry cleaning business from attempting to protect its interests. And, in my view, reading
The bottom line is this: As I read the statute, the IRS is not necessarily exempt from notice obligations any time a tax-delinquency matter enters the collection phase. Rather, the exception in