Nov. 28, 2016 – The U.S. Court of Appeals for the Seventh Circuit has rejected a line of published tax court decisions that invalidated Internal Revenue Service (IRS) levies when the IRS failed to prove that the taxpayer received proper notice of intent to levy.
In 2014, the IRS levied funds to collect almost $250,000 in unpaid taxes and penalties assessed to Kerry Adolphson for tax years 2002 and 2006 to 2010. Adolphson filed a pro se petition with the U.S. Tax Court to stop collection efforts and obtain refunds.
He said levies were invalid because the IRS never sent him a final “Notice of Intent to Levy,” depriving him of a right to challenge in a “collection due process hearing.” The IRS moved to dismiss, arguing the tax court lacked subject matter jurisdiction.
Under federal law, the IRS can only levy someone’s property if the IRS notifies that person in writing. The “Final Notice of Intent to Levy” may be left at taxpayer’s home, business, or mailed via certified mail to a last known address. Once received, the taxpayer has 30 days to request a collection due process (CDP) hearing.
After the hearing, an IRS Office of Appeals will issue a “notice of determination.” At that point, the taxpayer could petition the U.S. Tax Court for review of that decision.
Since Adolphson never received a determination, the IRS argued the tax court lacked jurisdiction to hear the case. But Adolphson blamed the IRS for failing to send the “Final Notice of Intent to Levy,” and cited a line of tax court cases that invalidated levies, despite the jurisdictional issue, when the IRS failed to send the notice of levy.
The U.S. Tax Court dismissed the petition. In Adolphson v. Commissioner of Internal Revenue, No. 15-2242 (Nov. 18, 2016), a three judge-panel for the Seventh Circuit Court of Appeals ruled that precedent was on Adolphson’s side, but concluded those decisions “are unsound and reflect an improper extension of the tax court’s jurisdiction.”
The panel recognized that in other cases, including a 2007 decision in Buffano v. Commissioner, the tax court invalidated levies where the taxpayer could not request a CDP hearing because the taxpayer did not receive a Final Notice of Intent to Levy.
In Adolphson, the IRS offered unauthenticated proof that notices were sent but did not produce evidence of where they were sent. However, the tax court ruled that Adolphson did not meet a burden to show the IRS did not mail the notices to a proper address.
The three-judge panel focused on Buffano and noted that seven published decisions have relied on it to invalidate levies in similar situations. It also noted that Buffano patches an apparent problem but conflicts with the system Congress set up.
“Absent a notice of determination, the tax court simply has no lawful authority to hear a taxpayer’s claim under [26 U.S.C.] § 6330(d),” wrote Judge Ann Claire Williams, noting that Adolphson can still file a refund suit in federal district court.
“Troubling though this ‘remedy’ may be, given the expense and potential delays inherent in such a suit, there is no lawful basis for expanding the tax court’s jurisdiction to resolve the perceived problem,” Judge Williams.
That is, the courts don’t have equitable power to fix a statutory system that allows the IRS to seize property before tax court review, even if the taxpayer never received the required Notice of Intent to Levy and thus did not request or receive a CDP hearing.
“This is the system devised by Congress, however, and at least one circuit decision has rejected an argument that the tax court must have jurisdiction to address this apparent problem,” the three-judge panel noted.