Polselli v. U.S. Dep't of the Treasury-Internal Revenue Serv.

• Citation: 23 F.4th 616
• Decision Date: 07 January 2022
• Docket Number: No. 21-1010,21-1010
• Parties: Hanna Karcho POLSELLI; Abraham & Rose, P.L.C.; Jerry R. Abraham, P.C., Petitioners-Appellants, v. UNITED STATES DEPARTMENT OF THE TREASURY–INTERNAL REVENUE SERVICE, Respondent-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

23 F.4th 616

Hanna Karcho POLSELLI; Abraham & Rose, P.L.C.; Jerry R. Abraham, P.C., Petitioners-Appellants,

v.UNITED STATES DEPARTMENT OF THE TREASURY–INTERNAL REVENUE SERVICE, Respondent-Appellee.

No. 21-1010

United States Court of Appeals, Sixth Circuit.

Decided and Filed: January 7, 2022

ON BRIEF: Daniel W. Weininger, ABRAHAM & ROSE, P.L.C., Troy, Michigan, for Appellants. Michael J. Haungs, Geoffrey J. Klimas, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Before: MOORE, KETHLEDGE, and DONALD, Circuit Judges.

MOORE, J., delivered the opinion of the court in which DONALD, J., joined. KETHLEDGE, J. (pp. 630–33), delivered a separate dissenting opinion.

KAREN NELSON MOORE, Circuit Judge.

In pursuit of over $2 million of a taxpayer's unpaid liabilities, the IRS issued administrative summonses to the banks of the taxpayer's wife and lawyers, Petitioners in this case. The IRS did not notify Petitioners of the summonses, relying on relevant provisions of the Internal Revenue Code excluding summonses issued "in aid of the collection" of tax assessments from its notice provisions. We conclude that the summonses were issued in aid of the IRS's collection efforts and that Petitioners were not entitled to notice. Because the United States waives sovereign immunity only when a taxpayer entitled to notice challenges a summons, the district court lacked subject-matter jurisdiction over Petitioners’ proceedings to quash the summonses. Accordingly, we AFFIRM the judgment of the district court.

I. BACKGROUND

Remo Polselli underpaid his federal taxes for over a decade. R. 6-2 (Bryant Decl. ¶ 2) (Page ID #59). For the periods in which he failed to pay the government, the IRS has made formal assessments¹ against him. Id. The outstanding balance of those liabilities is over $2 million. Id.

While investigating the location of assets to satisfy those liabilities, IRS Revenue Officer Michael Bryant learned that Remo² used entities to shield assets from collection. Id. ¶ 7 (Page ID #60–61). For example, in 2018, Remo paid approximately $290,000 toward his outstanding tax liabilities from the account of "Dolce Hotel Management LLC," rather than from his own bank account. Id.

Bryant suspected that Remo was concealing the balance of his assets elsewhere to shield them from the IRS. Bryant's investigation has revealed that Remo "may have access to and use of" bank accounts held in the name of his wife, Hanna Karcho Polselli. Id. ¶ 5 (Page ID #60). Based on this information, Bryant served a summons on Wells Fargo Bank, N.A. seeking account and financial records of Hanna and Dolce Hotel Management LLC³ "concerning" Remo. Id. ¶ 5, 7 (Page ID #60); R. 6-3 (Wells Fargo Summons at 1) (Page ID #65).

Bryant also learned that Remo was a long-time client of the law firm Abraham & Rose, P.L.C. R. 6-2 (Bryant Decl. ¶ 8, 9) (Page ID #61). Surmising that the law firm's financial records might reveal (1) the source of Remo's funds, (2) bank accounts associated with Remo, (3) entities Remo owned or controlled, or (4) bank accounts associated with those entities, Bryant served the law firm with a summons. Id. ¶ 8, 16 (Page ID #61, 62). In response, Abraham & Rose sent a letter in which it asserted attorney-client privilege and represented that the firm did not retain any of the documents that the IRS requested. R. 6-6 (Letter from Abraham & Rose to IRS at 1) (Page ID #77). When Bryant contacted the firm's representative possessing the power of attorney, Sheldon Mandelbaum, Mandelbaum repeated that the firm did not possess any documents responsive to the IRS's request. R. 6-2 (Bryant Decl. ¶ 12) (Page ID #61).

Bryant then pursued another avenue to locate the financial records. He issued identical summonses against JP Morgan Chase Bank, N.A. and Bank of America, N.A., seeking any financial records of Abraham & Rose and a related entity, Jerry R. Abraham, P.C. (the Law Firms), "concerning" Remo.⁴ Id. ¶ 8; (Page ID #61); R. 6-4 (JP Morgan Chase Summons at 1) (Page ID #69); R. 6-5 (Bank of America Summons at 1) (Page ID #73).

Bryant did not notify Hanna or the Law Firms of the bank summonses. R. 3 (Suppl. Pet. to Quash ¶ 11) (Page ID #23). Wells Fargo alerted Hanna that the IRS had summoned her records, and she petitioned to quash the summons in district court. R. 8 (Opp'n to Mot. to Dismiss at 2) (Page ID #90); R. 1 (Pet. to Quash) (Page ID #1–18). After JP Morgan Chase and Bank of America notified the Law Firms of the summonses regarding their accounts, the Law Firms also petitioned to quash, and Hanna joined. R. 3 (Suppl. Pet. to Quash) (Page ID #21–34). The Petitioners alleged that the IRS failed properly to notify them of the summonses under Internal Revenue Code (I.R.C.) § 7609(a) ( 26 U.S.C. § 7609(a) ). Id. ¶ 9.

The United States then moved to dismiss the petitions for lack of subject-matter jurisdiction. R. 6 (Mot. to Dismiss at 1) (Page ID #39). The Government explained that the relevant provisions of the Internal Revenue Code, § 7609(b)(2) and (h), waived its sovereign immunity from suit only for parties entitled to notice of the summonses under the code. R. 6 (Mot. to Dismiss at 8) (Page ID #46). Because the IRS was seeking the bank records "in aid of the collection" of Remo's assessed liability, the Government argued, Petitioners were not entitled to notice under § 7609(c)(2)(D)(i). Id. at 10 (Page ID #48). To afford the Law Firms an opportunity to ensure that the summoned records related only to Remo or entities affiliated with him, the Government also offered to allow the banks to produce the summoned records to the Law Firms prior to producing the records to the IRS. Id. at 16 n.5 (Page ID #54).

Petitioners opposed the motion, arguing that the Government's construction of § 7609 was "hyperliteral." R. 8 (Opp'n to Mot. to Dismiss at 5) (Page ID #93). They urged the court to apply a Ninth Circuit rule that narrowly construes § 7609 to exempt a summons from the notice requirements only if (1) "the third party is the assessed taxpayer," (2) "the third party is a fiduciary or transferee of the taxpayer," or (3) "the assessed taxpayer has ‘some legal interest or title in the object of the summons.’ " Id . at 7 (Page ID #95) (quoting Viewtech, Inc. v. United States , 653 F. 3d 1102, 1105 (9th Cir. 2011) ). Petitioners also declined the Government's offer to allow the Law Firms to review the summoned records prior to production to the IRS. Id. at 16 (Page ID #104). The Government replied, attaching a supplemental declaration to show that Petitioners were not entitled to notice even under the Ninth Circuit's test. R. 9-3 (Bryant Suppl. Decl.) (Page ID #125–26). Hanna submitted a supplemental declaration, seeking to rebut that evidence. R.10 (Hanna Polselli Suppl. Decl.) (Page ID #146–49).

The district court agreed with the Government that the court lacked subject-matter jurisdiction. R. 11 (Dist. Ct. Order at 12) (Page ID #202). It found that "under the plain language of § 7609(c)(2)(D)(i), Petitioners are not entitled to notice under the circumstances, and as a consequence have no right to bring a petition to quash." Id. Petitioners appealed.

II. ANALYSIS

A. Standard of Review

In challenging a district court's subject-matter jurisdiction over a proceeding, a party may present a "facial attack or a factual attack." Gaetano v. United States , 994 F.3d 501, 505 (6th Cir. 2021) (quoting Carrier Corp. v. Outokumpu Oyj , 673 F.3d 430, 440 (6th Cir. 2012) ). In a facial attack, a "movant accepts the alleged jurisdictional facts as true and ‘questions merely the sufficiency of the pleading’ to invoke federal jurisdiction." Id. (quoting Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co. , 491 F.3d 320, 330 (6th Cir. 2007) ). In a factual attack, a movant presents evidence outside of the pleadings to contest jurisdictional facts alleged in the petitions. Id.

Before the district court, the Government mounted a facial challenge to the petitions under its interpretation of Internal Revenue Code § 7609(c)(2)(D)(i), which excludes from notice requirements a summons issued "in aid of the collection" of "an assessment ... against the person with respect to whose liability the summons is issued." R. 6 (Mot. to Dismiss at 7–14) (Page ID #45–52). Without disputing the facts in the petition, the Government argued that Petitioners were not entitled to notice and thus that the district court lacked jurisdiction over the proceedings to quash under § 7609(b)(2).⁵ In concluding that Petitioners were not entitled to notice under § 7609(c)(2)(D)(i), the district court interpreted the text of the statute and did not weigh evidence. "When the district court relies on a facial analysis, we review its findings de novo." Carrier Corp., 673 F.3d at 440. We also review de novo questions of statutory interpretation. Byers v. United States Internal Revenue Serv. , 963 F.3d 548, 552 (6th Cir. 2020).

B. Sovereign Immunity

The Government argues that sovereign immunity barred the district court from asserting jurisdiction over Petitioners’ suits to quash the summonses. As a government agency, the IRS is immune from suit absent an explicit statutory waiver. Clay v. United States , 199 F. 3d 876, 879 (6th Cir. 1999). We must construe strictly a waiver of sovereign immunity in favor of the United States. Gaetano , 994 F.3d at 506. "Any ambiguities in the statutory language are to be construed in favor of immunity, ... so that the Government's consent to be sued is never enlarged beyond what a fair reading of the text requires." F.A.A. v. Cooper , 566 U.S. 284, 290, 132 S.Ct. 1441, 182 L.Ed.2d 497 (2012). We are particularly careful to construe § 7609(c)(2)(D)(i) in favor of immunity because "restrictions upon the IRS summons power should be avoided ‘absent unambiguous directions from Congress.’ " United States v. Arthur Young & Co. , 465 U.S. 805, 816, 104 S.Ct. 1495, 79 L.Ed.2d 826 (1984) (quoting United States v. Bisceglia , 420 U.S. 141, 150, 95 S.Ct. 915, 43 L.Ed.2d 88 (1975), ...