A recent Supreme Court ruling favoring the Internal Revenue Service gives the agency a lot more power than it had previously. The latest ruling now gives the IRS the power to access private information on the taxpayer, without the taxpayer knowing. This latest announcement has raised a number of privacy concerns being voiced by experts in the industry.
Overview
The ruling was made unanimously in the highest court in the nation during the month of May. The case known as Polselli v. Internal Revenue Service ruled in favor of the IRS. This ruling ultimately gives the agency the power to request financial documents or records, from anyone that is associated with the taxpayer in question. The IRS can request these documents from the family or friend of a delinquent taxpayer, without directly telling the taxpayer in question.
Concerns
Many experts that work in the tax and accounting industries have not been afraid to voice their opinions on the result of the Supreme Court hearing. Many experts are saying that this ruling gives the agency far too much power over the citizens. Furthermore, people were also upset with this ruling because they feel that there aren’t enough limits on how the IRS can use this power, and how they will use the information once it is accessed.
Dry Cleaner Theory
Supreme Court Justice Ketanji Brown used an interesting example of a dry cleaner to illustrate how this law can be beneficial. She went on to paint the picture of a delinquent taxpayer that frequents the same dry cleaner all of the time. If the IRS believes that accessing records from that dry cleaner will help in the retrieval of their money from the delinquent taxpayer, then the agency has the right to access records from that dry cleaner. These scenarios are particularly concerning for business owners, as they are essentially powerless to stop the agency from prying into the company records without even notifying the business owner.
NTUF Statement
Tyler Martinez is the senior attorney at the National Taxpayers Union Foundation and is openly outspoken against the supreme court ruling. He says, “It is really important to give a chance for somebody to go to court and say, ‘Wait, I am that dry cleaner, which is just an innocent third party who’s just doing regular business. While the summons is supposed to be about Taxpayer A, if the IRS finds something fishy in a third-party’s records, then the worry is that the IRS will use that information to launch yet another investigation into another taxpayer,”
Wrap Up
The concerns of people in the industry, as well as the concern of business owners, are valid. Clarity is definitely lacking when it comes to how widely the IRS can use this information once they obtain it. With the continuance of IRS funding under the Inflation Reduction Act, and the Supreme Court Ruling on its side, it will be interesting to see how the agency will use this power as time goes on.