A federal district court rejected a married couple’s attempt to stop the IRS from levying the proceeds of the sale of their property (Bigley, (DC AZ 08/21/2019)). The taxpayers failed to show that the levy was invalid.
In 2017, the IRS sued the Bigleys to reduce their outstanding federal tax liabilities to judgment and to foreclose federal tax liens on their property. A federal district court determined that the Bigleys owed almost $262,000 in taxes, interest, and penalties for three tax years. The court also determined that the Bigleys transferred their property to nominees, so the IRS’s liens still attached to the property. (Bigley, (DC AZ 06/01/2017) 119 AFTR 2d 2017-1792.) The Bigleys appealed. While the Bigleys’ appeal was pending, the district court foreclosed the IRS’s liens, and ordered the IRS to sell the Bigleys’ property and then to deposit the sale proceeds in the court’s registry.
In May 2019, the Ninth Circuit Court of Appeals affirmed the district court’s decisions about the Bigleys’ tax liability and the validity of the IRS lien on their property. (Bigley, (CA 9 12/21/2018) 122 AFTR 2d 2018-7051.) The IRS then served a Notice of Levy on the clerk of the court seeking the sale proceeds in the court’s registry.
No Procedural Issues with Notice of Levy
The Bigleys raised procedural objections to the Notice of Levy. The district court determined that the IRS’s Notice of Levy was valid and, therefore, the Bigley’s could not prevent the IRS from levying the sale proceeds in the court’s registry.
First, the Bigleys argued that Mrs. Bigley was not a “taxpayer;” therefore, the IRS could not collect taxes from her by levy. The district court said that, while the Bigleys were not technically “taxpayers” because they had not paid their taxes for the years at issue, Mrs. Bigley’s failure to file a tax return did not mean that she was not a taxpayer for purposes of IRC § 6331, and the Certificates of Assessment submitted by the IRS showed that Mrs. Bigley owed taxes for the years at issue.
The district court found that, contrary to the Bigleys’ argument, the IRS had the authority under IRC § 6331 to collect their tax liability by levy. The portion of IRC § 6331(a) the Bigleys cited merely clarified procedures followed in special situations and did not limit the statute’s scope.
In addition, the IRS did not need to obtain a writ from a court of competent jurisdiction to levy the sale proceeds in the court’s registry because IRC § 6331 does not require that a Notice of Levy be accompanied by a writ of any kind. Thus, the Notice of Levy was not invalid because it was not accompanied by a writ.
Finally, the district court also found that the Notice of Levy was not required to be verified under IRC § 6065 as that provision does not apply to notices issued by the IRS.
Court Rejects IRS’ Arguments Under AIA
The IRS argued that the Anti-Injunction Act barred the Bigleys’ attempt to invalidate the levy. The district court rejected this argument, holding that it had jurisdiction to consider the Bigleys’ procedural challenges to the Notice of Levy even if the AIA barred the court’s consideration of some of the Bigleys’ arguments.
Read the full article and expert analysis in Checkpoint Federal Tax Update. To continue your research on levies and seizures, see FTC 2d/FIN ¶V-5101.