Polselli v. Internal Revenue Service

INTERPRETING THE STATUTE’S TEXT AND ITS STRUCTURE

Hanna Karcho Polselli (“Polselli”) argues that the I.R.C. § 7609(c)(2)(D)(i) exception to the notice requirement contains a direct connection and legal interest requirement because the exception applies only when the summons are issued “in aid of the collection” of a tax liability. Brief for Petitioner, Polselli et al. at 19. Polselli contends that the phrase “in aid of” establishes the direct connection requirement because the activity that is providing aid must be directly related to the object that receives aid. Id. Polselli additionally contends that “collection” refers to the means used to obtain payment and does not include related activities such as determining tax liability. Id. Polselli emphasizes that the Court has interpreted the phrase “in aid of” similarly in the past and argues that the Court should continue to do so here. Id. at 21. Polselli further adds that a direct connection only exists when the delinquent taxpayer has a legal interest in the records summonsed, and as such the exception contains an additional legal interest requirement. Id. at 24.

Polselli also argues that the principles of statutory interpretation favor such a reading because interpreting § 7609(c)(2)(D)(i) narrowly gives § 7609(c)(2)(D)(ii) meaning. Id. at 25. Polselli argues that without a legal interest limitation, every summons covered by clause (ii) would fall under clause (i), rendering clause (ii) superfluous, contrary to the interpretive principle against construing clauses to be useless. Id. at 26. Furthermore, Polselli argues that the majority of clause (i) would be rendered superfluous as well if § 7609(c)(2)(D) is interpreted broadly because the clause would not need to be specifically connected to the delinquent taxpayer. Id. at 26–27. Polselli also contends that even if “in aid of” is interpreted broadly without a direct connection requirement, the principles of statutory interpretation require a reading that avoids giving the statute infinite breadth and must construe such a broad phrase by looking at the statute’s structure and purpose. Id. at 30.

The Internal Revenue Service (“IRS”), counters that Polselli’s plain meaning interpretation of “in aid of the collection” is unpersuasive because the word “aid,” meaning to support, help, or assist, is a broadening phrase and does not have the narrowing effect that Polselli contends it does. Brief for Respondent, Internal Revenue Service at 19. Rather, the IRS argues that there are three components in the text of § 7609(c)(2)(D)(i): (1) summonses issued in aid of the collection of tax liabilities, (2) an assessment made or a judgment rendered, and (3) the person to whose liability the summons is issued. Id. at 16–17. The IRS contends that these three components are satisfied in this case: the summons were issued to help the IRS obtain payment for Mr. Polselli’s tax liability, the IRS had made an assessment of over $2 million in tax liability for Mr. Polselli, and Mr. Polselli is the person with respect to whose liability the summons were issued. Id. at 17–18. The IRS further argues that there is no legal interest requirement because the text of the statute does not refer to any legal interests or accounts, and that even if there is such a requirement, it is not connected to the legal interest limitation in the text. Id. at 21.

The IRS also argues that a narrow interpretation of § 7609(c)(2)(D)(i) is unnecessary to give meaning to § 7609(c)(2)(D)(ii) because clause (ii) creates a distinct exception from clause (i). Id. at 27. The IRS contends that there are two scenarios covered by clause (ii) that are not covered by clause (i): (1) when the government is trying to collect liability from a transferee or fiduciary instead of the taxpayer and (2) when a pre-assessment summons is issued in aid of the collection of liability of a transferee or fiduciary. Id. at 26–29. As such, the IRS asserts that even without a narrow interpretation of clause (i), clause (ii) is not superfluous and does add meaning to the statute. Id. at 25. The IRS additionally asserts that, contrary to the Polselli’s argument, a broad interpretation of § 7609(c)(2)(D)(i) does not render subsections § 7609(a) and § 7609(b) superfluous. Id. at 36. Rather, the IRS contends, § 7609(c)(2)(D) simply describes the instances where §7609(a) and § 7609(b) do not apply as Congress specified. Id.

CONSTRUING CONGRESSIONAL INTENT AND STATUTORY PURPOSE

Polselli argues that § 7609(c)(2)(D)(i) requires the taxpayer to have a legal interest in the summonsed account because the purpose of § 7609 is to provide notice and an opportunity for a taxpayer to quash the summons, and as such, a narrow interpretation of § 7609(c)(2)(D)(i) is needed to retain the broad privacy protections it guarantees. Brief for Petitioner at 27. Polselli contends that Congress enacted § 7609 for the purpose of protecting privacy interests from the government’s abuse of broad summons powers that resulted from two court decisions, Donaldson v. United States and United States v. Bisceglia. Id. at 31. Polselli further notes that Congress purposefully used language to reflect the broad scope of the protections in § 7609(a) and (b) and the narrow and tailored exceptions of § 7609(c), and as such § 7609(c)(2)(D)(i) should be interpreted narrowly to reflect Congress’s intentions. Id. at 28. Additionally, Polselli argues that interpreting § 7609(c)(2)(D)(i) narrowly furthers the purpose of § 7609 because it preserves the protections guaranteed in § 7609(a) and (b). Id. at 29.

Furthermore, Polselli maintains that the government’s interpretation of the statute defeats the purpose of § 7609 because the provision would be completely inapplicable in any case where summonses are issued in aid of collecting a previously assessed tax liability, even though it was enacted to protect against such potential privacy violations. Id. at 28-29. Polselli emphasizes that a legal interest requirement is consistent with the statute’s purpose and history because the statute protects the privacy interests of innocent parties while still allowing the IRS to easily collect tax liabilities that have already been assessed from accounts that are connected to the delinquent taxpayer. Id. at 32. Polselli argues that interpreting the statute without such a requirement undermines the purpose of § 7609 and its broad privacy protections because the § 7609(c)(2)(D)(i) exception would render the protections useless. Id. at 33.

The IRS counters that the lack of an explicit textual limitation indicates Congress’s intent to interpret § 7609(c)(2)(D)(i) broadly and without a legal interest limitation, especially because Congress imposed a similar limitation in a different section of the Code. Brief for Respondent at 22–23. The IRS agrees that § 7609 was enacted in response to Donaldson but argues that Congress did not intend to impede the government’s ability to collect tax liabilities by issuing unnoticed summonses in aid of collection. Id. at 37. Rather, the IRS contends, Congress only sought to limit the government’s ability to issue unnoticed summonses in aid of a liability investigation. Id. The IRS emphasizes that Congress did not intend to simply provide broad protections for privacy, but rather balanced the need for privacy protections during tax investigations with the need to ensure effective tax collection. Id. at 36. The IRS argues that because Congress recognized that third-party summonses were instrumental in the government’s function as a tax collector and that limiting the use of summonses in tax collection would further create issues, Congress intended for the exception to be without limitations. Id. at 37. The IRS further posits that Congress recognized that providing notice would give delinquent taxpayers time to thwart the government’s attempts to collect on tax liabilities, and as such intended to preserve the government’s ability to do so by allowing unnoticed summonses issued in aid of collection of tax liabilities. Id. at 38.

The IRS additionally asserts that Polselli misunderstands the purpose of § 7609 as an unlimited notice guarantee and mischaracterizes Congress’s response to Donaldson. Id. at 39. In particular, the IRS points out that Donaldson was a case that dealt only with the issue of summonses used in aid of a liability investigation, not a collection of tax liability. Id. As such, the IRS asserts that Polselli is wrong in characterizing Congress’s intent as purely protecting privacy rights and argues that Congress sought to balance the need for privacy protections with the need for effective tax collection. Id. The IRS further asserts that the statutory history does not support a legal interest limitation because Congress specifically stated that the notice procedures of § 7609 would not apply in cases where summonses are issued solely for the purposes of tax collection. Id. The IRS argues that Congress was concerned about summonses only in cases where they are used to obtain information for purposes other than tax collection, and as such the legal interest limitation is irrelevant. Id.