The article continues reviewing Supreme Court cases impacting tax law, building on the first article in this series.
Polselli v. IRS, 598 U.S. 432 (2023).
On May 18, 2023, the Supreme Court decided Polselli v. IRS, a case concerning the IRS’s summons power. When pursuing individuals who owe unpaid federal taxes, the IRS can issue a summons but must generally provide notice to anyone identified in the summons. Individuals entitled to notice of the summons can then attempt to quash the summons. However, if the IRS issues a summons to assist in collecting as an assessment against the person with respect to whose liability to summons relates, no notice is required. The IRS assessed Remo Polselli for more than $2M in unpaid taxes and penalties, and, in his collection efforts, the IRS Revenue Officer issued summonses to three banks seeking third-party records, including those of the petitioners, such as Hanna Polselli, Remo’s wife. The petitioners moved to quash the summonses, but the Sixth Circuit affirmed that, because no notice was required, the petitioners could not quash the summonses.
The petitioners argued the notice exception only applied where the delinquent taxpayer had a legal interest in the records summoned. The Court reviewed the statute’s conditions to exempt the IRS from providing notice, noting the statute sets forth three conditions: (1) the summons must be “issued in aid of … collection;” (2) the summons must aid collection of “an assessment made or judgment rendered;” and (3) the summons must aid the collection of assessments “against the person with respect to whose liability the summons is issued.” Under the language of the statute, no legal interest was required, and because the summonses assisted the Revenue Officer in collecting the assessment against Remo, no notice was required, and the petitioners could not quash the summonses.
This case has important implications for the IRS’s summonses power and confirms that no legal interest in the records summoned is necessary for the notice exception to apply. Taxpayers seeking to quash a summons should carefully review the notice exception to determine whether they are able to move to quash the summons.
Tyler v. Hennepin County, 598 U.S. 631 (2023).
On May 25, 2023, the Supreme Court decided Tyler v. Hennepin County, which dealt with the Takings Clause of the Fifth Amendment. Geraldine Tyler had accumulated nearly $15,000 in unpaid real estate taxes, including penalties and interest. Hennepin County, Minnesota, seized the condominium Tyler owned and sold it for $40,000, retaining the $25,000 in excess of the debt Tyler owed for itself.
In determining whether Tyler plausibly alleged the County’s retention of the excess amount violated the Takings Clause, the Court held that the financial harm Tyler suffered was a sufficient injury to give her standing to sue. The Court further determined that the history and precedent of the Takings Clause supported finding the County could not use Tyler’s tax debt of $15,000 to confiscate more property than was due—in this case, the excess $25,000 the County retained.
This decision exemplifies that, under the Takings Clause, no more property than is due may be taken, and the financial harm of being deprived of an amount that could have reduced a tax liability is an injury that will provide a taxpayer with standing to sue.
As tax laws continue to change and develop through case law, taxpayers should pay careful attention to Supreme Court decisions that might impact their tax strategies. Additional articles in this series will review more decisions impacting taxes. Greenspoon Marder attorneys are available to assist with tax matters. Contact Nick Richards at [email protected] or Matthew Schiller at [email protected] for more details.
