(March 24)  The Supreme Court hears a case on March 29 that will test whether there is any real limit to the frighteningly invasive power of the IRS .

In Polselli v. IRS, the high court will resolve a matter of statutory interpretation on which circuit courts have disagreed.

The case involves disputes about two complicated, badly written subclauses in the same section of a law governing IRS authority. Although the language is confusing, the question itself is plain. If the IRS is investigating Person A, may the agency rifle through the accounts of others who keep records pertaining to, or doing business with, Person A, without telling those others and without giving them a chance to convince a court to quash the search?

In a more rational legal regime, the Constitution’s Fourth Amendment would be directly at issue. The amendment bars law enforcement agencies from warrantless searches of “houses, papers, and effects,” but the Supreme Court has treated the IRS as something other than law enforcement, ruling in 1964 that the agency “need not meet any standard of probable cause to obtain enforcement of [IRS] summons.” Never mind that, for ordinary taxpayers, the IRS is just as fearsome as the local sheriff.

A pair of further Supreme Court cases seemed to expand the IRS’s summons power too far, so Congress worried the agency could go on what the court called “’fishing expeditions’ into the private affairs of bank depositors.” In direct response to those decisions, Congress adopted 26 U.S.C. § 7609, requiring the IRS at least to give notice to people whose records it is trying to obtain. …

The entire reason Congress created section 7609 was to protect third parties (rather than direct targets) from IRS invasion without notice….

Not only do such third-party searches without notice violate the IRS’s own published “Taxpayer Bill of Rights” (right No. 8), but they also pose massive problems for businesses, as laid out in numerous examples in an amicus brief from the U.S. Chamber of Commerce, filed against the IRS. To name just one example, an expansive reading of IRS powers could put attorney-client privilege at serious risk if the IRS demands access to an attorney’s files as well…. [The rest of this column is here.]



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