The Supreme Court in an 8-1 decision held that the Tax Court lacks jurisdiction under Code Sec. 6330 to review appeals of collection determinations when the IRS abandons the underlying levy, reversing the lower circuit court. (Zuch v. Commissioner, No. 24-416)
Section 6330.
When a taxpayer disagrees with the IRS over their assessed liability, the usual recourse is to first pay the amount the IRS states is owed and then pursue a refund. But if the IRS places a levy on a taxpayer’s property, Code Sec. 6330 gives the taxpayer the chance to request what is known as a collection due process (CDP) hearing.
The IRS must notify the taxpayer of their ability to request a CDP hearing. During these hearings, the taxpayer presents their issues with the assessment with an IRS Independent Office of Appeals officer, who then takes all factors relating to the dispute under consideration and makes their determination.
If a taxpayer disagrees with the appeals officer’s determination, Code Sec. 6330(d)(1) provides a 30-day window to petition the Tax Court for review. Tax Court decisions may be contested in federal appellate courts.
Case facts and background.
Zuch involves a taxpayer, Jennifer Zuch, who filed untimely federal income tax returns for tax year 2010 in the fall of 2012. At the time, she was married to Patrick Gennardo, and they filed separately.
While Zuch did not appear to owe any tax based on the late 2010 return, Gennardo’s return showed a significant tax liability that resulted in him submitting an offer-in-compromise to the IRS. The same tax year, Zuch and Gennardo sent two checks to the IRS totaling $50,000 in estimated tax payments.
The IRS applied the $50,000 towards Gennardo’s balance of $385,000, but the couple had intended for the $50,000 to be credited to Zuch. However, the checks were in Gennardo’s name only despite having been drawn from their joint bank account, so the IRS did not allocate the amount as requested.
Weeks after submitting her 2010 return, Zuch filed an amended return reporting an additional $71,000 in retirement distribution income, which led to a tax liability of $28,000. Zuch emphasized that the $50,000 should offset this for a net refund of approximately $22,000. The $50,000 had already been allocated to Gennardo.
To collect on Zuch’s balance of $28,000, the IRS proceeded with stating its intent to levy her property. Zuch requested a CDP hearing and told the appeals officer about the misallocated $50,000. The officer, unpersuaded, sustained the levy and Zuch appealed to the Tax Court.
A ‘procedural twist.’
Zuch’s Tax Court case “spanned several years,” as detailed by Supreme Court Justice Amy Coney Barrett in the Court’s majority opinion issued June 12. As time passed, Zuch was entitled to tax refunds that were applied towards her liability until it was paid in full.
This was a “procedural twist,” the Court said, and raised the question of whether the Tax Court could review Zuch’s CDP determination appeal when the IRS no longer sought to levy her property and her tax balance was satisfied. The Tax Court reasoned that it no longer had jurisdiction since the matter pertained to collection actions under Section 6330.
It was irrelevant if the IRS should have allocated the $50,000 to Zuch in the first place, as the case was rendered moot, according to the Tax Court.
Zuch appealed this decision before the U.S. Circuit Court of Appeals for the 3rd Circuit, which took the complete opposite position. The Tax Court should not have found the case moot, and the IRS was in error for crediting the estimated tax payments to Gennardo’s account, the 3rd Circuit found. (133 AFTR 2d 2024-1091).
Although the circuit court remanded the case back to the Tax Court, the IRS appealed its decision to the Supreme Court, which heard oral arguments late April.
Majority opinion.
The Court ruled in favor of the IRS and reversed the 3rd Circuit ruling. Barrett explained in the majority opinion that the Court needed to resolve what is the “scope of a ‘determination'” under Section 6330(d)(1).
Zuch argued that should the Tax Court agree with her, she could receive her initially requested refund to resolve the matter. For the IRS, there is nothing for the Tax Court to review anymore and the case was correctly dismissed.
The majority pointed to Code Sec. 6330(c)(3) regarding the “basis” of a CDP hearing determination. An appeals officer considers three elements: whether the IRS complied with “any applicable law,” the taxpayer’s contention, and “whether the levy ‘balances the need for the efficient collection of taxes’ against concerns that a levy ‘be no more intrusive than necessary.'”
There is a difference between these elements “that inform” the determination and the “‘determination’ itself,” Barrett wrote. The elements are “inputs” and the “ultimate” determination is the “output.”
“Given §6330’s unwavering focus on levies and the default rule requiring postpayment suits, it would be strange if a taxpayer could use a §6330 appeal to resolve tax disputes that no longer have any connection to an ongoing levy,” the opinion read. Congress intended for the CDP hearings to only relate to levies, and Zuch “was able to depart from the ordinary course” of suing for a refund “because the IRS proposed a levy, which triggered her right” to a CDP hearing, the majority reasoned.
Lone dissent.
Justice Neil Gorsuch dissented, breaking from the other eight justices. He argued in his dissenting opinion that “the fact that the IRS announced its intention to drop its levy is immaterial.”
“Nothing in the statute before us suggests that the IRS can deprive the Tax Court of jurisdiction simply by withdrawing a levy,” said Gorsuch. If the Tax Court “were to conclude that Ms. Zuch is right — that her husband paid her bill and she owes nothing for 2010 — then it could enjoin the IRS from pursuing ‘any action’ to seek or retain money from her for that tax year or from making any contrary decision about the matter.”
Gorsuch noted that the IRS told Zuch she can simply “start over” despite “a decade of litigation.” Zuch can seek her refund in federal district court, the IRS stated, but Gorsuch said this is complicated by the “statutory deadline.” Code Sec. 6511(a) provides that a refund suit must be filed within three years from the time the return was filed or two years from the time the tax was paid.
“Yet a taxpayer who chooses to contest her tax liability in §6330 proceedings may not know that she needs to file such an administrative claim until the time for doing so has passed,” Gorsuch said.
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