Polselli v. IRS Is About Due Process Rights

Should simply knowing or working for a delinquent taxpayer mean the IRS can secretly summon your bank records or your lawyer’s case files about you? Do you have a right to object in court that the IRS got it wrong? That is the question at issue in Polselli v. Internal Revenue Service. NTUF’s Taxpayer Defense Center filed an amicus curiae (“friend of the court”) brief in support of Ms. Hanna Polselli and the law firms caught up in the overzealous, secret enforcement process. 

Remo Polselli owes the IRS $2 million. All agree on that point. But when he used the bank account of one of his LLCs to make a partial payment, the IRS assumed that he might be shielding his assets. The IRS agent investigating his case therefore issued a series of administrative summonses to banks of people associated with Remo–including his wife’s bank account and his lawyers’ bank accounts. Although the IRS agent refused to notify either Hanna Polselli (Remo’s wife) or the law firms of the summonses, the banks did so. 

Upon hearing from the banks, Ms. Polselli and the law firms rushed to court to quash the summonses, but the district court dismissed the case, saying they had no right to notice from the IRS. After winding through the appellate process, today the United States Supreme Court heard oral arguments in this case. The main question: must the IRS give notice to third parties that their finances are being investigated and allow the chance for the third parties to object in court?

The Polselli oral arguments were fairly short and the justices asked few questions. Justice Gorsuch got the IRS to agree that “‘in aid of’ can’t be a shot in the dark.” And therefore “the debate is really about how close the casual connection needs to be.” The government argued that the IRS’s own internal processes are enough to prevent abuse. The justices seemed skeptical.

Overzealous enforcement is a perennial problem for the IRS. NTUF and others have documented overreach from IRS agents that has led to ruined lives. Congress has reacted to some of these stories by providing protections to taxpayers and bystanders alike that give early warning and a chance to contest illegal searches from wayward agents. There is a narrow exception to keep delinquents from being “tipped off” that the IRS may seize their accounts to satisfy back taxes, fees, and penalties. Yet if the decision below stands, the exception will swallow the rule. Add to this risk that the Inflation Reduction Act’s influx of tens of billions of dollars for enforcement and we may soon get more agents who try to cast broad nets over anyone who “might” help a delinquent taxpayer.

We need to protect the due process rights of innocent third parties. As Justice Sotomayor said today, “Why can’t the third party say ‘they got it wrong’?” The government doesn’t have a good answer. If Ms. Polselli wins, all that means is she gets her day in court to object to the summons. Even at a motion to quash, the government would still have a chance to prove why it needs the documents and the connection between her and the delinquent taxpayer. At a minimum, citizens should have a chance to have a judge hear their objections before the IRS delves into their financial lives for the sake of someone else’s tax debt.