The IRS scored a win at the U.S. Supreme Court that could impact your privacy. The court recently released its ruling in Polselli v. IRS, involving whether the agency can access bank records of a taxpayer’s relatives or associates — without notice — to help with tax collection efforts. The Supreme Court’s answer is yes. Under an existing statute, the IRS can secretly probe your bank records and potentially your relatives’ bank records without notice.
“The question presented is whether the exception to the notice requirement applies only where a delinquent taxpayer has a legal interest in accounts or records summoned by the IRS under Section 7602(a). A straightforward reading of the statutory text supplies a ready answer: The notice exception does not contain such a limitation,” Chief Justice John Roberts wrote in the unanimous opinion.
What does this mean for taxpayers in non-legal terms? The IRS can probe financial records to aid in the collection of a taxpayer’s debt without notifying the taxpayer or third parties like the taxpayer’s relatives or associates. This can also happen when the IRS wants to see financial records belonging to someone other than the taxpayer who does not owe the IRS unpaid taxes.
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Supreme Court Affirms IRS Summons Power
As Kiplinger previously reported, the dispute in the Polselli case began when a taxpayer (Remo Polselli) owed more than $2 million in taxes to the IRS. The agency issued summonses to J.P. Morgan Chase, Wells Fargo, and Bank of America (Polselli’s wife’s bank and two other banks where Polselli’s law firm had accounts). But the IRS didn’t notify Polselli’s wife or the law firm that it was trying to obtain the banking information.
- The IRS can issue a summons to any person when the agency needs information that could “aid in the collection” of federal tax owed.That information can include books, papers, records, or other data. In some cases, it can also involve testimony under oath.
- However, the statute's plain language does not require the IRS to give notice when the agency’s efforts involve collection from a tax assessment or judgment against a taxpayer.
- That can be confusing because, in some circ*mstances, the IRS is required to give notice of a summons.
Note on IRS Investigation vs. IRS Collection: When the IRS issues a summons to determine whether a person owes taxes, the agency generally must notify the parties named in the summons(es). Those parties can then try to quash the summons, i.e., file a motion to have it voided or set aside.
But this case dealt with whether the IRS must give notice of summonses to third parties when the agency is trying to collect a tax debt. (Determining tax debt, and collecting tax debt, are considered separate IRS activities.)
Attorneys for Polselli’s wife and the firm essentially argued that an exception to this general rule should apply — i.e., that they should have been given notice of the summonses to their banks mainly since they didn’t owe the IRS money. In other words, even if the IRS normally doesn’t have to notify a taxpayer before it probes bank records, an exception should apply when the records belong to relatives and associates, rather than to the taxpayer who owes the IRS money and has no legal interest in their records.
A lower court agreed with the IRS as did Courts of Appeal for the 7th and 10th federal circuits. But the 9th Circuit Court of Appeals found that an exception should apply essentially because Polselli didn’t have a legal interest in his wife’s and attorney’s bank records. However, following the plain language of the statute, the Supreme Court ultimately resolved the split among the circuit courts and ruled in favor of the IRS.
Bottom Line: What to Do If You Owe the IRS
Although the Polselli case involves important questions about privacy and notice, it also raises practical questions about how to pay if you owe the IRS taxes or what to do if you can’t pay the IRS. Given that the agency has significant resources at its disposal (including the power to issue bank summonses) to collect a tax debt that you owe, it’s usually a good idea to pay the IRS taxes you owe on time or as soon as you can.
But what if you can’t pay the IRS? The IRS offers options including agreements to pay your taxes within a certain amount of time. Payment plans and installment agreements can be as short as 11 days or as long or longer than 120 days.
How to Pay the IRS if You Owe Taxes
If you are a business that owes $25,000 or less in taxes from the current and previous calendar year, you can usually pay what you owe in 24 monthly payments. Many of these payment options can be set up online on the IRS website.
Topics
Supreme Court Of The United StatesInternal Revenue Service
FAQs
The Supreme Court's answer is yes. Under an existing statute, the IRS can secretly probe your bank records and potentially your relatives' bank records without notice.
Can the IRS secretly obtain bank records? ›
“An IRS agent doesn't get to secretly comb through years of law-firm bank records—and all the attorney-client information they contain—just because he thinks doing so might be convenient.” Under federal law, the IRS does have broad power to subpoena personal financial information from third-party record keepers.
Can the IRS access your bank account without your knowledge? ›
So in short, the IRS doesn't need a warrant or even your consent to request financial information from a bank. The bank is legally required to comply with formal IRS requests.
Can IRS subpoena bank records? ›
If you refuse or don't provide them by the IRS deadline, the IRS can summons the records directly from your bank or financial institution. You can contest the summons (called “quashing” the summons) if you can show that the summons isn't for a legitimate purpose or that the information is irrelevant to the purpose.
What bank account can the IRS not touch? ›
Certain retirement accounts: While the IRS can levy some retirement accounts, such as IRAs and 401(k) plans, they generally cannot touch funds in retirement accounts that have specific legal protections, like certain pension plans and annuities. 7.
How far back can the IRS get bank records? ›
According to the IRS, you should keep your records for three years from the date you file your original return or two years from the date you paid the tax. Yet, the IRS may ask about returns filed in the last three to seven years, which is why it's always a good idea to keep your bank statements for longer.
Who can access your bank records? ›
RFPA's Provisions
- the customer authorizes access;
- there is an appropriate administrative subpoena or summons;
- there is a qualified search warrant;
- there is an appropriate judicial subpoena; or.
- there is an appropriate written request from an authorized government authority.
There are only a few types of assets that cannot be seized. The IRS cannot seize real property, and your car cannot be seized if used to get to and from work. You also cannot seize the money you need for basic living expenses. However, all of your other assets are fair game for seizure.
Can the IRS see Zelle payments? ›
Zelle® does not report any transactions made on the Zelle Network® to the IRS, even if the total is more than $600. The law requiring certain payment networks to provide forms 1099K for information reporting does not apply to the Zelle Network®.
What personal information does the IRS have access to? ›
We may collect personal information about you (such as name, email address, Social Security number or other unique identifier) only if you specifically and knowingly provide it to us. We will use your information to process requests for certain services or information.
A 2008 law, known as the Housing and Economic Recovery Act, mandated that debit and credit card payments be tracked by banks and reported to the IRS.
Are bank transfers reported to the IRS? ›
Under the Bank Secrecy Act (BSA) of 1970, financial institutions are required to report certain transactions to the IRS. This includes wire transfers over $10,000, which are subject to reporting under the Currency and Foreign Transactions Reporting Act (31 U.S.C.
What triggers an IRS audit? ›
Unreported income
The IRS receives copies of your W-2s and 1099s, and their systems automatically compare this data to the amounts you report on your tax return. A discrepancy, such as a 1099 that isn't reported on your return, could trigger further review.
How does the IRS find your bank account? ›
The IRS can also pull your Social Security number from your tax returns to find bank accounts in your name. Most banks require you to provide your Social Security number or taxpayer identification number in order to open a bank account.
What type of bank account cannot be garnished? ›
Some sources of income are considered protected in account garnishment, including: Social Security, and other government benefits or payments. Funds received for child support or alimony (spousal support) Workers' compensation payments.
Does the IRS have access to all bank accounts? ›
Bank accounts serve as a tool for personal and private finances. In the past, bank accounts were not typically investigated or monitored by the Internal Revenue Service (IRS) unless a taxpayer experienced an audit. However, following a proposal by the Biden Administration, IRS can now look into your bank account.
How does the IRS know what bank accounts you have? ›
If they are, how do they know where you bank and work? In most cases, your bank or employer tells them. Sometimes, the information the IRS has to levy was supplied by you. If you have a bank account that pays you interest, that interest is reported to the IRS on Form 1099 INT, along with the name of your bank.
What information do banks report to IRS? ›
Note that under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier's checks, treasurer's checks and/or bank checks, bank drafts, traveler's checks and money orders with a face value of more than $10,000 by filing currency transaction reports.
Does the IRS track bank checks? ›
The only time the IRS looks at bank accounts in detail is if you get audited.. at that point if there are a lot of deposits that don't come from some source that's already on record (e.g. you get a W2 or 1099 from them) you are likely to face questions on where that money came from and if it's been reported as income ...
