Polselli v. IRS/Opinion of Justice Jackson
SUPREME COURT OF THE UNITED STATES
No. 21–1170
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]
Justice Jackson, with whom Justice Gorsuch joins, concurring.
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 26 U. S. C. §7609(c)(2)(D)(i). I agree. I write to emphasize two points I believe are critical to understanding that, despite our rejection of this particular limit, the summoning power of the IRS under that provision is circumscribed nonetheless.
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. §§7602(a)(1)–(2). And it can issue such summonses to “any … person the [IRS] may deem proper.” §7602(a)(2) (emphasis added). But, as a general matter, when the IRS issues a summons pursuant to this authority, the agency must provide notice to “any person … identified in the summons” and to whom “any portion of [the requested] records” relate. §7609(a)(1) (imposing notice requirement as the “general” rule).
Notice is not a mere formality. In the context of tax administration, it serves an important function. Providing notice ensures that, when the IRS comes calling, the implicated interests are balanced. On one hand, the notice requirement permits the IRS to summon recordkeepers for the information it needs, without imposing overly burdensome procedural hurdles or inviting excessive delay. See, e.g., §7609(a)(2) (allowing the IRS to serve notice by mail); §7609(b)(2) (setting time limitations on filing a motion to quash). On the other hand, notice—and the concomitant right to judicial review—empowers persons whose information is at stake to enlist assistance from the courts, as needed, to prevent the agency from overreaching. §7609(b); see also Tiffany Fine Arts, Inc. v. United States, 469 U. S. 310, 320–321 (1985).
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 §7609(c)(2)(D)(i) comes in. In such circumstances, §7609(c)(2)(D)(i) prevents notice from tipping the balance entirely in favor of the delinquent taxpayer, at the expense of the IRS. But, depending on whose information the summons seeks (for example, an innocent third party’s), or the nature of the requested records, it might not be reasonable to conclude that providing notice would frustrate the IRS’s tax-collection goal. And when that is the case, it might unjustifiably tip the scales in the other direction (i.e., entirely in the IRS’s favor) to allow the IRS to proceed without notice just because its delinquency resolution process has entered the collection phase.
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 §7609(c)(2)(D)(i) as if that agency has been gifted with boundless authority. Treating the IRS’s power to issue unnoticed summonses as effectively unlimited permits the exception to devour the rule, upsetting the statute’s calibration.
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, §7609(c)(2)(D)(i) would presumably permit the IRS to summon anyone’s records without notice, no matter how broad the summons is or how potentially intrusive that records request might be, so long as the agency thinks doing so would provide a clue to the location of a delinquent taxpayer’s assets.
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 §7609(c)(2)(D)(i), I suppose the IRS could issue a summons to the dry cleaner’s bank without notice to the dry cleaner, seeking years of the dry cleaner’s financial records. The agency might believe that having the entirety of that business’s financial information would aid its tax-collection efforts—even though the taxpayer has no known financial interest in that business, or any special relationship with the business’s owners—because knowing what methods of payment (or aliases) the taxpayer regularly uses could help the agency track down the taxpayer’s assets. And it might intend to sift through the requested haystack of the business’s bank records in order to find the needle of the taxpayer’s transaction information.
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 §7609 to require notice—and the potential for judicial oversight—in relation to such attenuated tax-collection activities is entirely consistent with the statutory scheme. Conversely, allowing the agency to sidestep oversight of its broad summons power by not providing notice in these kinds of situations undermines the important aims of the default-notice system.
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 §7609(c)(2)(D)(i) merely reflects Congress’s determination that, in some situations, requiring the agency to provide notice in connection with its tax-collection efforts would undermine the balance that the statute strikes with its default-notice requirement. Consequently, I believe that both courts and the IRS itself must be ever vigilant when determining when notice is not required. Doing so properly involves a careful fact-based inquiry that might well vary from case to case, depending on the scope and nature of the information the IRS seeks.