Supreme Court Grants Cert in Polselli on Issue of a Collections Summons to Third Party Requires Notice to Taxpayer (12/10/22)

The Supreme Court granted the petition for writ of certiorari in Polselli v. IRS (Sup. Ct. Case No. No. 21-1599).  The opinion of the Sixth Circuit in the case is at Polselli v. Dept. of Treasury, 23 F.4th 616 (6^th Cir. 2022), GS here.  The Order granting cert is dated December 9, 2022, here.  The documents are not consistent as to the case name, but I infer that the case name is Polselli v. IRS as stated on the docket here.  See discussion in the Note at the end of this blog.

The question presented in the petition is (with introduction) (Pet p. i):

            The Internal Revenue Code generally requires the IRS, when it serves a summons on a third-party recordkeeper for records pertaining to a person “identified in the summons,” to give that identified person notice of the summons. I.R.C. § 7609(a)(1). If the IRS issues a summons directing a bank to produce an accountholder’s records, for example, it must generally notify that accountholder of the summons. Section 7609 then provides that “any person who is entitled to notice of a summons under subsection (a) shall have the right to begin a proceeding to quash” that summons in district court. Id. § 7609(b)(2); see id. § 7609(h)(1). In other words, only a person entitled to notice of a summons can seek judicial review of that summons.

            There are a few exceptions to the notice requirement. As relevant here, the IRS need not provide notice of “any 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).” Id. § 7609(c)(2)(D).

            The question presented is whether the § 7609(c)(2)(D)(i) exception applies only when the delinquent taxpayer owns or has a legal interest in the summonsed records (as the Ninth Circuit holds), or whether the exception applies to a summons for anyone’s records whenever the IRS thinks that person’s records might somehow help it collect a delinquent taxpayer’s liability (as the Sixth Circuit, joining the Seventh Circuit, held below).

JAT Notes:

6th Circuit Holds Summonses in Aid of Collection Do Not Require Notice to Taxpayers Or Others (1/13/12)

Note: The Supereme Court granted a petition for writ of certiorari in Polselli.  See Supreme Court Grants Cert in Polselli on Issue of a Collections Summons to Third Party Requires Notice to Taxpayer (12/10/22), here.

In Polselli v. United States Dep't of the Treasury-IRS. 23 F.4th 616 (6th Cir. 1/7/22), CA6 here and GS here, the Court held that the IRS summonses to the banks of the taxpayers' wife and lawyers were issued in aid of collection of the taxpayers' taxes and therefore were exempted from the requirement to notify the taxpayer or third parties of the summonses. The general rule is that the taxpayer must be notified of third party summonses. § 7609(a). The exception for summonses in aid of collection of assessed taxes.  § 7609(c)(2)(D)(i).

The Court rejected the 9^th Circuit's holding in Ip v. United States, 205 F.3d 1168 (9th Cir. 2000). As discussed by the 6th Circuit, the Ip rule is: "Under the Ip rule, the IRS may issue a summons to a third-party recordkeeper without notice only if (1) the third-party is the assessed taxpayer, (2) the third party is a fiduciary or transferee of the taxpayer, or (3) the assessed taxpayer has 'some legal interest or title in the object of the summons.'" I discuss Ip at p. 410 n. 1795 of the Federal Tax Procedure book (available free on SSRN here). I have revised that footnote with the revisions indicated in red for the 2022 Practitioner Edition:

     Second,  summonses used in aid of collection of an assessed liability against the taxpayer or a transferee require no notice to the party whose liability is being investigated  (again,  usually the taxpayer). n1795  This would often be a  summons to a  person having assets that might be levied to collect the assessed liability.    Thus,  for example,  the requirement for notice  of third-party record keeper summonses does not apply to such summonses. n1796
   n1795 § 7609(c)(2)(D).  Congress enacted this exception to notice from concern "that giving notice of a third-party summons to the taxpayer would allow him to withdraw the funds in his accounts before the summons could be enforced." Barmes v. United States, 199 F.3d 386, 389 (7th Cir. 1999). One court has noted that, although the plain language of the statute exempts the IRS from having to give notice for a summons issue in aid of collection, a more subtle reading of the legislative history permits the statute to be interpreted to require notice in some cases. See Ip v. United States, 205 F.3d 1168 (9th Cir. 2000) (deriving "the rule that a third party should receive notice that the IRS has summoned the third party's records unless the third party was the assessed taxpayer, a fiduciary or transferee of the taxpayer, or the assessed taxpayer had 'some legal interest or title in the object of the summons.'"); Viewtech, Inc. v. United States, 653 F.3d 1102, 1104-5 (9th Cir. 2011) (citing and quoting Ip), acknowledging that the plain language of the statute is inconsistent with the Ip holding but applying it anyway)). Other courts have rejected Ip. See e.g., Polselli v. United States Dep't of the Treasury-IRS. ___F.4th ___. 2022 U.S. App. LEXIS 527  (6th Cir. 1/7/22) (describing the Ip rule as: "the IRS may issue a summons to a third-party recordkeeper without notice only if (1) the third party is the assessed taxpayer, (2) the third party is a fiduciary or transferee of the taxpayer, or (3) the assessed taxpayer has "some legal interest or title in the object of the summons;" and declining to follow Ip based on the literal meaning of the statute and rejecting Ip's foray into legislative history; also citing Haber v. United States, 823 F.3d 746, 751, 753 (2d Cir. 2016) that preliminary court review may be available to test whether the summons was issued in aid of collection); and Ginsburg v. United States, 2002 U.S. Dist. LEXIS 19046 (D. Conn. 2001) (declining to follow Ip because other cases are more persuasive and noting that the Government's position is that Ip is wrongly decided because the statute is "clear and unambiguous.").
   n1796 The exception excepts such summons from  §  7609.    So the general requirement within  §  7609  that requires notice to such third party recordkeepers is not applicable.    By contrast,  as noted below in the text,  which excepts summonses in criminal investigations  §  7609,  by special provision,  the requirement for notice for third party recordkeeper summons is made applicable for such summonses in criminal investigations.