Last week, the US Supreme Court heard oral arguments in Poslelli, et al v. Internal Revenue Service, a dispute about if and when the IRS must give notice when accessing the bank records of third parties while probing the assets of delinquent taxpayers, the Washington Times reported.
Last Wednesday’s oral arguments dealt with questions on whether those who are not the subject of an IRS probe must be given notice if their financial records are reviewed as part of an investigation involving another person.
The case was brought by two law firms, Abraham & Rose PLC and Jerry R. Abraham PC, who represented delinquent taxpayer Remo Polselli and his wife Hanna Karcho Polseli.
An IRS agent sought the two law firms’ bank records without giving the firms notice. When the bank notified the law firms, the firms moved to halt the summons arguing that the IRS was violating their privacy as well as the privacy of their other clients.
The IRS issued a summons for the bank records to find out how Polselli had the funds to pay the two firms as the agency was attempting to obtain about $2 million in delinquent taxes from him.
Ordinarily, the IRS is required to notify a third party if it seeks bank records to give the third party a chance to protest the summons. However, the Internal Revenue Code does include some exceptions. For instance, if a judgment is rendered against a taxpayer, the IRS does not have to provide notice to a third party when seeking bank records to collect on the judgment.
Ephraim McDowell, assistant to the U.S. Solicitor General argued that the IRS needs the flexibility to investigate all of the bank accounts a delinquent taxpayer might be using to ensure that it can collect the back taxes owed.
He said in this particular case, the nexus between Polselli and the law firms was so close that the IRS did not need to give notice before accessing the firms’ bank accounts.
Attorney Shay Dvoretzky, who is representing the plaintiffs in the case, told the justices that because the IRS can decide what is helpful to the agency, it can stretch that as far as it likes when probing taxpayers, which creates the potential for abuse.
A decision in the case is not expected until June.