SCOTUS: Tax Court couldn’t hear taxpayer’s due process appeal

The U.S. Tax Court was deprived of jurisdiction to hear a taxpayer’s appeal from an adverse decision in a collection due process hearing conducted pursuant to 26 U.S.C. §6330 once the Internal Revenue Service abandoned its efforts to levy against her property due to a finding of past income tax overpayments, the U.S. Supreme Court has ruled in reversing a decision from the 3rd Circuit.

[Editor’s note: Under 26 U.S.C. §6330(a)(1), “[n]o levy may be made on any property or right to property of any person unless the Secretary [of the Treasury] has notified such person in writing of their right to a hearing under this section before such levy is made.”]

BULLET POINTS: “Once the IRS used [taxpayer Jennifer] Zuch’s overpayments to zero out the balance she allegedly owed, there was no longer any basis for a levy — thus, there was no relevant ‘determination’ for the Tax Court to review. At this point, Zuch’s appeal amounted to a request that the Tax Court issue an opinion on a disputed question of tax liability independent of any ongoing collection effort. Because the Tax Court lacked jurisdiction to do so, it was right to dismiss the case.

“Of course, none of this means that Zuch lacks recourse against the IRS. Like any taxpayer, she may file a post-deprivation suit for a refund, which she has in fact already done.”

— Justice Amy Coney Barrett, majority opinion

“Ms. Zuch still had a live claim pending before the Tax Court. She argued that the IRS erred by failing to credit her [then] husband’s payment [of $50,000] to her tax debt, so she owed the agency nothing for 2010. Had she prevailed on that claim, the IRS would have had no basis for keeping her overpayments in later years. Nothing prevented the Tax Court from saying as much. …

“The IRS seeks, and the Court endorses, a view of the law that gives that agency a roadmap for evading Tax Court review and never having to answer a taxpayer’s complaint that it has made a mistake. After today, §6330 proceedings are essentially risk-free for the IRS. It may pursue a levy and argue its case to the Tax Court. Then, if the Tax Court seems likely to side with the taxpayer, the IRS can drop the levy and avoid an unfavorable ruling on the taxpayer’s underlying tax liability. Doing so will often prove only a small setback for the IRS because the agency remains free to pursue other collection methods — including keeping, rather than refunding, a taxpayer’s later overpayments. And the taxpayer will often find herself without any way to challenge the IRS’s error or prevent the agency from keeping more of her money than it is lawfully due.”

— Justice Neil M. Gorsuch, dissenting