Limitation on Offset When the Government Seeks to Collect Restitution

The case of United States v. Taylor, No. 2:06-cr-00658 (E.D. PA 2021) brings out a limitation on the right to offset when the Government is collecting on a court-ordered restitution amount.  Here, the Government, specifically the Department of Justice, gets its hand slapped for levying on the social security of a convicted criminal.  The levy here is the 15% on social security that regularly arises with respect to outstanding federal tax obligations.  There is no indication in the opinion that the IRS made a restitution based assessment in this case or any kind of assessment.  This appears to be a case involving the payment of the court ordered restitution payment and not a derivative liability stemming from the restitution order.  The court does not mention the IRS other than in relation to the crime committed by the petitioner.


Ms. Taylor and others were convicted of conspiracy to defraud the IRS.  The federal district court that sentenced her and then ordered her to pay a restitution judgment of $3.3 million.  The court, however, failed to take into account her financial resources and the Third Circuit vacated the restitution order and remanded the case so that the district court could make an appropriate determination of her ability to pay as well as her culpability.

On remand, the court determined her ability to pay was $100 per year and noted that the government could come back to the court for an increase if her circumstances changed.  This happened in 2012.  Between 2012 and 2019 when Ms. Taylor became eligible for aged-based social security benefits, the government did not return to the court to seek an increase, although it did make a preliminary determination that she could pay $25 a month.

The restitution payments were listed with the Bureau of Fiscal Services as available for offset pursuant to the Treasury Offset Program (TOP) because they were delinquent federal debts.  When the social security payments began, TOP began offsetting 15% of her social security (about $235 a month) and applied the funds taken from her monthly social security check to her outstanding restitution obligation.  She continued to comply with the court order to pay $100 a year.

When Ms. Taylor initially brought the action complaining of the TOP offset, she did so pro se.  The district court appointed Peter Hardy, one of the top white collar criminal defense attorneys in Philadelphia who also taught as an adjunct professor at Villanova when I was there and has guest posted for us in the past (for example, see this terrific post on the crime fraud exception to the attorney client privilege).  Undoubtedly, Ms. Taylor benefited from his appointment.

The court provides some background on the TOP program which we have discussed previously here and here

Ms. Taylor argued that she was in compliance with the restitution order, making the TOP offset inappropriate.  She also argued that her restitution debt was not delinquent, meaning it was not one the government should refer to TOP.  The Government argued that the referral to TOP was appropriate because she had a large outstanding debt.  The court finds that the debt is not delinquent:

“[U]nlike a civil judgment, the restitution order is the product of a ‘specific and detailed [statutory] scheme addressing the issuance . . . of restitution orders arising out of criminal prosecutions.’” Id. at 1204 (quoting United States v. Wyss, 744 F.3d 1214, 1217 (10th Cir. 2014)). Section 3572(d) states that “[a] person sentenced to pay a fine or other monetary penalty, including restitution, shall make such payment immediately, unless, in the interest of justice, the court provides for payment on a date certain or in installments.” 18 U.S.C. § 3572(d)(1). This subsection provides that the full payment of restitution is not due immediately if a court establishes a payment plan for restitution. See Martinez, 812 F.3d at 1205. Thus, “a defendant subject to an installment-based restitution order need only make payments at the intervals and in the amounts specified by the order.” Id. Section 3572 also explicitly defines when a payment of restitution is delinquent or in default. See 18 U.S.C. § 3572(h)-(i). A “payment of restitution is delinquent if a payment is more than 30 days late.” Id. § 3572(h). A “payment of restitution is in default if a payment is delinquent for more than 90 days. Notwithstanding any installment schedule, when a fine or payment of restitution is in default, the entire amount of the fine or restitution is due within 30 days after notification of the default.” Id. § 3572(i). These provisions “would be unnecessary, even meaningless, if the total restitution amount were already owed in full under an installment-based restitution order.” Martinez, 812 F.3d at 1205. It is evident from the structure and language of § 3572 that under an installment-based restitution order, the restitution debt only becomes delinquent when a defendant’s installment payment is more than 30 days late.

The court tells the government that if it wants more from Ms. Taylor it needs to come back to the court and request more.  It cannot simply offset at a time when she has continued to comply with the court’s order.  The court orders the government to stop the offset and to return to her all the money taken through TOP.  Perhaps the government will come looking for her and seek to raise the amount she must pay from $100 a year to a larger number.  Because she became unemployed as a result of the pandemic, this might prove difficult.

It’s unclear if the conspiracy to defraud the IRS could turn into a tax assessment.  If the IRS made a tax assessment of the liability or some part of the liability, it could collect on the tax liability independent of the restitution order and through a tax assessment could potentially levy on her social security.  Ms. Taylor, as part of her defense to the taking of the social security funds, argued that the taking of these funds put her into a difficult financial situation.  If the IRS made a tax assessment, it could not levy, even through TOP, if doing so would create financial hardship as defined by IRC 6343(a)(1)(D).  Convicted tax criminals generally make difficult taxpayers from whom to collect.  Ms. Taylor appears to fit into that category.

Jurisdiction to Hear Naked Owners’ Wrongful Levy Suit Hinges on State Property Law

We welcome back guest blogger Matthew Hutchens of the University of Illinois Gies College of Business. With co-author Erin Stearns, Hutch recently updated the lien and levy chapters of Effectively Representing Your Client Before the IRS. In today’s post, he examines a recent Fifth Circuit opinion in which niche questions of Louisiana law will determine whether plaintiffs can sue to recover their levied inheritance. Christine

I.R.C. § 7426(a)(1) provides that if the IRS levies upon property claimed by a third party who has “an interest” in such property to collect the taxes of someone else, that third party can bring a suit in federal district court to recover the property. In Goodrich et al. v. United States, No. 20-30422 (5th Cir. 2021), the United States Court of Appeals for the Fifth Circuit tackled the question of what qualifies as “an interest” that would allow a third party to bring a wrongful levy suit to recover property levied to satisfy the debt of another taxpayer.


Ultimately, the court adopted the definition used by several other Circuits, including the Seventh, Ninth, and Eleventh, that “an interest” in the context of a wrongful levy suit requires the third party to hold “a fee simple or equivalent interest, a possessory interest, or a security interest in the property levied upon.”

The court also explained that whether an interest exists is a jurisdictional question, because without an interest in the levied property, I.R.C. § 7426(a)(1)’s waiver of sovereign immunity does not apply—depriving the court of subject matter jurisdiction to hear the claim.

The case also reminds us that while the determination of what ownership interest qualifies a third party to bring a wrongful levy suit is a question of federal law, whether an ownership interest actually exists (i.e., what does the third party own) is determined by state property laws. And, thanks to Louisiana’s French history and civil law influences, the Goodrich case involves some state law property issues and terminology that will look quite foreign to most federal tax practitioners.

Facts of the Case

The taxpayer, Mr. Goodrich, passed away with significant federal tax debts. At the time of his death, Mr. Goodrich had a lifetime usufruct over various properties he had previously inherited from his deceased spouse. A usufruct is the right to enjoy the use of property during the term of the usufruct (similar to the common law life estate, but the duration can be shorter than a lifetime). Mr. Goodrich’s three children were the naked owners of the property subject to his usufruct. A naked owner owns the property, but they do not have the full rights to use the property. At the end of the usufruct, all the rights to the property revert to the naked owner, similar to a remainder interest at common law.

The properties at issue where Mr. Goodrich held a lifetime usufruct with the children as naked owners were: 1) mineral rights, proceeds of which were deposited in the estate bank accounts after Mr. Goodrich’s death; 2) furniture that was sold as part of an estate sale (including a master bathroom towel rack that somehow fetched $1,200); and 3) shares of stock that Mr. Goodrich had sold years earlier.

Sometime after Mr. Goodrich passed away, the IRS issued a levy to Mr. Goodrich’s estate bank accounts. At this point, an attorney for the estate argued to the IRS revenue officer via a phone conservation and a letter that the children owned all of the cash in the accounts, with Mr. Goodrich’s ownership rights having ceased at death and all rights reverting to the children as naked owners. However, the IRS did not release the levy and collected approximately $250,000 from the accounts, prompting the children to file the wrongful levy suit. 

With regard to the mineral rights income and furniture sold after Mr. Goodrich’s death, the district court agreed with the children that upon Mr. Goodrich’s death (and the termination of the usufruct), they became the full owners of the usufruct property. Thus, the proceeds of from the mineral rights and the proceeds from the sale of the furniture both occurring after Mr. Goodrich’s death belonged to the children—entitling the children to a return of those levied proceeds.  

However, the mineral rights and the furniture existed at the time of Mr. Goodrich’s death. More complicated were the shares of stock that Mr. Goodrich had held as usufruct that were sold prior to Mr. Goodrich’s death. The appeal to the Fifth Circuit focused on those stock shares.

As previously mentioned, Mr. Goodrich had inherited these shares as a usufruct from his deceased spouse. And, by the terms of his spouse’s will, Mr. Goodrich was allowed to sell or otherwise dispose of the shares during his lifetime. However, the will also stated that in the event of a disposition, the usufruct would not terminate but would attach to the proceeds of the disposition, including their reinvestment.

Further, under Louisiana law dealing with usufructs where the property is consumed or disposed of, when the usufruct ended Mr. Goodrich was bound “either to pay to the naked owner the value that the things had at the commencement of the usufruct or to deliver to him things of the same quantity and quality.” So, at Mr. Goodrich’s death, the children were entitled to something to compensate them for being deprived of the stock shares. But, what was the exact ownership interest that they had? And, would it rise to the level of “an interest” for purposes of bringing a 7426(a)(1) action?

Legal Dispute & Open State Law Questions

The children argued unsuccessfully at the district court that they were entitled to an amount of cash equal to the sales proceeds from when Mr. Goodrich sold the shares of stock (i.e., the children argued that they owned the cash in the estate bank accounts up to the share sales price). The district court instead determined that the children were unsecured creditors of the estate in an amount equal to the stock sales proceeds, making the levy on the bank accounts proper (since the IRS enjoys statutory priority over unsecured creditors when a tax lien arises as a matter of law). And, because the estate had insufficient funds to pay the entire tax debt, the children, as unsecured creditors, would receive nothing from the shares Mr. Goodrich previously sold (one might say they lost their shirt as naked owners).  

The children appealed, and the Fifth Circuit found that determining the relationship of the children as naked owners vis a vis the estate at the termination of the usufructuary to be unresolved by existing Louisiana law. The court also found it appropriate to certify to the Louisiana Supreme Court the question of what the children as naked owners owned upon the termination of the usufruct where the property was previously disposed. So, the Fifth Circuit certified the following questions to the Louisiana Supreme Court:

  1. Does a usufructuary’s testamentary usufruct of consumables render naked owners unsecured creditors of the usufructuary’s succession?
  2. If not, what is the naked owner’s relationship to those consumables?

The Louisiana Supreme Court’s resolution of these property law questions remains pending as of this writing. Ultimately, the resolution of these questions may not be very broadly applicable (only two states, Louisiana and Georgia, recognize usufructs). But, the case is an important reminder of what the Supreme Court said 36 years ago in United States v. National Bank of Commerce472 U.S. 713, 722 (1985) about federal tax levies: “[T]he federal statute ‘creates no property rights but merely attaches consequences, federally defined, to rights created under state law.”

Jurisdiction of Wrongful Levy Claims

The case of i3Assembly, LLC v. United States, No. 3:18-cv-00599 (N.D.N.Y 2020) presents a sad outcome for a company taking over a government contract from a delinquent taxpayers and raises issues of jurisdiction discussed here on many occasions.  Because of a snafu, the IRS took money that should have been paid to i3Assembly and used it to satisfy the outstanding tax liability of the company that had the government contract before i3Assembly took it over. 

Although the company raises issues of equitable tolling in litigating the case, it is not clear that either the company or the Department of Justice Tax Division attorney have been closely following the many threads of discussion on jurisdiction present in this blog.  That’s unfortunate for the company, which may have had some arguments that it did not yet present, and disappointing from the government’s perspective if it neglected to cite to on point case law in other circuits adverse to the position it took in this case.


 In 2015 i3Assembly acquired certain assets from VMR Electronics and it assumed certain liabilities; however, it expressly did not assume VMR’s outstanding liability to the IRS.  i3Assembly had a different EIN, used its own labor to fulfill the contracts and then sent invoices for the work it performed.  Instead of paying i3Assembly, the government sent the money to the IRS in response to a levy.  This levy was a Federal Payment Levy Program levy served on July 18, 2016.  The IRS sent a post-levy CDP notice to VMR, which probably was surprised and delighted to find out its obligation was being paid by i3Assembly.

After the first levy, a second levy occurred on July 22, 2016 and a third on November 16, 2016.  All of the notices were going to VMR.  i3Assembly was probably trying to figure out what was happening and attributed some of the delay in payment to dealing with the Defense Department and the government in general but it was trying to find out what was happening to its invoices.  The VP of i3Assembly had several telephone conversations with IRS officials regarding the wrongful levy of its funds starting in October 2016 and going through July 18, 2017, but i3Assembly never received a notice of levy.

On October 31, 2017, i3Assembly submitted an administrative wrongful levy claim to the IRS.  The IRS disallowed the wrongful levy claim for the first and second seizure stating that the claims were not filed within nine months of the levy.  It subsequently disallowed the claim for the third levy stating that i3Assembly failed to establish that the payment did not belong to VMR or that i3Assembly had an interest in the payment superior to the IRS.

On May 21, 2018 i3Assembly filed suit.  The IRS moved to dismiss and alternatively moved for summary judgment.  The court discussed the Federal Payment Levy (FPL) and the fact that it acts as a continuous levy.  The IRS argued that i3Assembly had to raise its concerns with nine months of the time the IRS put out the FPL, even though it had no idea the FPL existed or that it would take money intended for i3Assembly. 

i3Assembly admitted that it did not file its claim for wrongful levy within nine months of the first and second levies under the FPL but argued that equitable tolling should suspend the time frame for filing the wrongful levy claim.  It argues that its claim was timely for the third levy based on the date the funds were actually seized and i3Assembly put on notice of the seizure.  According to i3Assembly that occurred on July 22, 2017.  The IRS argued that the date of the notice is irrelevant because it had no duty to notify i3Assembly, and the time limit starts to run on the date the person possessing the property received the notice of levy back in July 2016.

i3Assembly pointed out the IRS argument creates an absurd result, because the period for filing a claim could pass before any property was seized or the party whose property was taken would have any idea of the taking.  The IRS responded that the statute and case law do not require notice to the person claiming their property was wrongfully taken and that the Second Circuit in Williams v. United States, 947 F.2d 37, 39 (2d Cir. 1991) had already determined that notice to the third party was unnecessary when calculating the time period.  The levy at issue in Williams, however, was not a continuous levy like the FPL.  When the FPL was served, there was no property to which it attached.  So, i3Assembly would not under any circumstances have received notice at that time.

The court states that:

On this record, the Court cannot determine what, if any, notice was provided to Plaintiff regarding the continuing levy under FPLP before the statute of limitations [on filing the wrongful levy claim] had run.  Absent any evidence regarding what information was provided to Plaintiff, and further briefing from the Defendant regarding due process, the Court at this time denies the motion to dismiss Count One with prejudice to renewal.

The court then discussed equitable tolling.  It found that i3Assembly had not alleged facts that would support equitable tolling for the first and second levies. With respect to the third levy, the court seems to find it possible that i3Assembly did have facts in the record that could support equitable tolling, but then it shifted to the need for i3Assembly to show that the statute at issue is one to which equitable tolling could apply.  In other words, the court needs to know if the time period for filing a wrongful levy claim is a jurisdictional time period.  In looking at this issue, it cites to cases from the 1990s and ignores all of the law on this issue that has occurred in the past 15 years.

I have not looked at the briefs but even if i3Assembly attorneys did not find the relevant case law, I would have expected the DOJ attorney to cite to the more recent case law.  In particular the 9th Circuit has ruled in Volpicelli v. United States, 777 F.3d 1042 (9th Cir. Jan. 30, 2015) that the time period in the wrongful levy statute is not a jurisdictional time frame.  I would have expected this decision to receive some mention as I would have expected the more recent and relevant law on jurisdiction to receive some mention.  Perhaps, i3Assembly’s attorneys will find the newer case law and find the Volpicelli opinion and file an appeal.  Carl has written a post on the last Second Circuit case, Mottahedeh v. United States, to seek equitable tolling in the context of wrongful levy. In that case, the court declined to grant equitable tolling but did so without citing to the recent Supreme Court case law as well.

Sixth Circuit Remands Wrongful Levy SOL Dispute: Did IRS’s 2012 Levy Attach to 2016 Payments?

Today we welcome first-time guest blogger Matthew Hutchens. Hutch has several years’ experience as a low-income tax clinic attorney with Indiana Legal Services. He is now a lecturer of accountancy at the University of Illinois Gies College of Business. With co-author Erin Stearns, Hutch is currently updating the lien and levy chapters of Effectively Representing Your Client Before the IRS.  Today he discusses a recent Sixth Circuit opinion analyzing the timeframe for filing a wrongful levy action, in a dispute over whether a past levy attached to recent payments owed to the taxpayer by their alleged alter ego. Guest blogger Lavar Taylor has explained the procedural barriers that alleged nominees and alter egos face in contesting IRS levies. In this case the Sixth Circuit declined to increase those barriers. Christine

Plaintiffs often face difficulties in meeting the statute of limitation deadlines in civil suits against the United States for improper tax collection action. But recently, the Sixth Circuit, in Gold Forever Music, Inc. v. United States, landed a third party a victory on the statute of limitations for an IRC Section 7426(a)(1) claim, which is the Code provision that allows innocent third parties to seek a return of property wrongfully levied to satisfy the tax debts of another taxpayer. Here, the third party, Gold Forever Music (Gold Forever), persuaded the court to vacate a district court’s dismissal based on the limitations period having expired prior to filing of the lawsuit. 


Wrongful Levy Suits Background

In fiscal year 2017, the IRS served almost 600,000 levy requests according to the IRS Data Book. While this number has decreased substantially in recent years (there were over 1.4 million such levy requests in FY2015), the levy power does provide many opportunities for the IRS to seize property not owned by the liable taxpayer, but instead by an innocent third party.

In the event the innocent third party is aware of the potential issuance of a notice of levy, that party can attempt to convince a Revenue Officer that such property does not belong to the taxpayer. However, until the issuance of a notice of levy, the innocent third party likely has no advance knowledge of the IRS’s plans. 

Then, at the point the notice of levy is issued, it is likely fruitless for the innocent third party to attempt to convince the recipient of the levy to not turn over property to the government because Section 6332(d)(1) imposes personal liability on individuals who fail to remit property pursuant to a levy. As an additional incentive, Section 6332(e) provides the party surrendering the property with immunity against liability from any other party.

When a levy is issued, it attaches to a taxpayer’s entire interest in property unless the property is exempt. For payments that will arise after the issuance of the levy, the levy attaches to all amounts that are fixed and determinable at the time of levy. Examples of future payment streams that are potentially fixed and determinable include retirement benefits, pensions, interest payments, and—as in Gold Forever—royalty payments.

Once the levy is issued—regardless of whether property is actually surrendered—the third party has the option to file an administrative claim for wrongful levy with the IRS. Such a written request is required if damages beyond just a return of the levied property are sought. If the claim is unsuccessful or no claim is filed, the third party can bring a civil suit against the United States. For innocent third parties who have property levied by the IRS to satisfy another taxpayer’s liability, a suit against the United States under Section 7426(a) is the only judicial remedy available.

Prior to the 2017 tax act (a.k.a. TCJA), the limitations period (found in Section 6532(c)) for a return of wrongfully levied property action was a mere nine months from the date of the levy, which is the period applicable in Gold Forever. The TCJA extended this period to two years for new levies and for levies where the nine month period had not expired as of the date of the TCJA’s enactment. In cases where the third party makes a timely administrative claim for a return of levied property, the limitations period is extended until the earlier of twelve months from the date of filing the claim or six months from the IRS’s notice of disallowance.

Facts of the Case

Gold Forever is a music publisher owned by Edward Holland, Jr. Holland is famous for being a member of the Holland-Dozier-Holland songwriting and production team responsible for several hits from Motown’s top artists. Mr. Holland also owed the government over $19 million in unpaid taxes.

Gold Forever licensed its music catalog to Broadcast Music, Inc. (BMI) and Universal Music Publishing (Universal) and in exchange, received royalty payments. Due to this arrangement, the IRS issued notices of levy to BMI and Universal in August 2012 under the theory that Gold Forever was either the alter ego or nominee of Edward Holland. Soon after the notices of levy were issued, BMI and Universal began remitting payments to the IRS and this apparently continued for several years without any action by Gold Forever (although there was some dispute about the extent to which payments were made during this period).

In the present litigation, Gold Forever has denied ever being an alter ego or nominee of Mr. Holland and claimed that the majority of levied royalty payments were meant for other artists and not Mr. Holland. In addition, at oral argument before the Sixth Circuit, the attorney for Gold Forever speculated that the inaction on the levy from Gold Forever was due to a belief that the amounts due to it under the contracts with BMI and Universal were not worth litigating over.  

However, by 2016 and 2017, when BMI and Universal made additional royalty payments totaling almost $1 million to the IRS pursuant to the levy, Gold Forever decided to bring the Section 7426(a)(1) challenge in the Eastern District of Michigan seeking a return of those 2016 and 2017 payments.

District Court Proceedings

In district court, Gold Forever alleged that the 2016 and 2017 royalty payments were not amounts that were fixed and determinable as of August 2012 levies. Thus, the 2012 notices of levy could not have attached to these payments. Therefore, the IRS’s seizure of the 2016 and 2017 royalty payments could not have been pursuant to the 2012 notices of levy. Instead, the seizure of these payments should be viewed as a new, constructive levy, starting the limitations period for a wrongful levy claim anew and making Gold Forever’s action timely (although this argument was framed in the somewhat confusing context of what is “the meaning of the word levy”). Gold Forever also noted the due process issues that would arise if the government were able to seize after-acquired property with no post-deprivation opportunity to dispute the taking.

In response, the government’s argument was very straightforward. The notices of levy occurred in August 2012. Thus, because an administrative claim was not filed during the months after the notice of levy, the limitations expired nine months later in mid-2013. The code and regulations are quite clear that a notice of levy starts the limitations period. Section 6532(c) calculates the limitations period from “the date of the levy” and Treas. Reg. Section 301.6331-1(c) provides that the date of the levy is the date on which a mailed notice of levy is delivered. Section 7426(a)(1) itself notes that a wrongful levy action may be brought “whether such property has been surrendered.”

The government also contended that whether the 2012 levy notices actually attached to the 2016 or 2017 royalties was irrelevant. According to the government, because the royalty payments were surrendered pursuant to the 2012 notices of levy, those notices of levy started the limitations period.

The district court appears to have missed the underlying substance of Gold Forever’s argument that the 2012 notices of levy did not attach to the 2016 and 2017 payments and the later seizure of those funds should be viewed as a separate levy distinct from the 2012 notices of levy. Instead, the district court summarized Gold Forever’s position as one that revolved around word meanings, stating “Plaintiff argues that ‘the date of the levy’ may also refer to the date of a seizure, namely the funds paid in 2016 and 2017.” Based on this understanding, the court easily found for the government and determined that a notice of levy, not the actual seizure, starts the limitations period. The court did not discuss whether the 2012 levies attached to the 2016 and 2017 payments and whether the remittance of those funds—if not reached by the 2012 levies—could constitute a new constructive levy.    

Sixth Circuit

At the appellate level, it appears the government began to appreciate that whether the 2012 levy attached to the 2016 and 2017 payments could actually matter. At oral argument, counsel for the government acknowledged that there was insufficient information in the record below to determine whether the 2016 and 2017 royalty payments were fixed and determinable at the time of the 2012 levies.

Nonetheless, the government contended that Gold Forever could have filed a wrongful levy suit within nine months of the 2012 notices of levy to determine “whether the levy attached to its royalty rights.” Gold Forever, quite rightly in my opinion, pointed out the problems of the government’s argument that taxpayers should litigate the scope of a notice of levy to avoid the possibility of the IRS wrongfully using that levy to seize property in the future to which the government was not entitled.  

Alternatively, the government argued that if the levy did not reach the 2016 and 2017 payments to the government, then those amounts remitted to the IRS “were voluntary payments that cannot be recovered in a wrongful levy suit.” Instead of a wrongful levy suit, the government suggested Gold Forever’s only judicial remedy would be a third party civil action for release of an erroneous lien under Section 7426(a)(4), which would require a deposit by the taxpayer, contains much tighter deadlines, and – conveniently for the government in this case—would preclude the recovery of payments already made.

Again, this second argument from the government is quite troubling. Section 7426(h) authorizes additional damages in cases where an IRS employee negligently, recklessly, or intentionally takes a collection action in violation of the IRC. It would be an odd result if an IRS employee could knowingly demand after-acquired property be turned over pursuant to a notice of levy and then deprive the third party from being able to bring a suit for the return of the property because such payment was actually “voluntary.” It is further problematic in that the IRS would likely be using the carrot and stick provisions of immunity and personal liability under Section 6332 to convince parties to turn over property pursuant to a notice of levy and then later flip-flopping to argue it was not a levy at all.

In ruling for Gold Forever, the Sixth Circuit held that there was insufficient evidence in the record to determine whether the 2016 and 2017 royalties were fixed and determinable, and that whether they were would determine the outcome of the statute of limitations issue. The court explained:

Determining whether the 2012 levies attached to royalties acquired after the notices of levy is necessary to finding when the limitations period began to run for a wrongful levy action on those royalties. The government insists, without explanation, that determining the scope of the 2012 levies affects only the relief that could be awarded in the wrongful levy action and that considering the scope of the levies conflates “the statute of limitations with the merits of the claim.” The government’s concern is misplaced. Whether the levy attached to property is not part of the merits of a wrongful levy action—i.e., that the levy was made on property or a right to property in which the non-taxpayer has an interest. See Nat’l Bank of Commerce, 472 U.S. at 739 (quoting United States v. Rodgers, 461 U.S. 677, 695 (1983)). A levy attaching to property or the right to property is necessarily antecedent for the statute of limitations to begin running on a wrongful levy action concerning that property.

As for the government’s alternative argument that there could have been no levy if the 2012 notices did not attach to the 2016 and 2017 royalties, the court declined review since it was raised on appeal for the first time.

Final Thoughts

On remand, it will be interesting to see whether Gold Forever can convince the Court that the 2016 and 2017 royalty payments were not fixed and determinable at the time of the 2012 notices of levy. Nevertheless, it seems this is an issue a third party should have the opportunity to litigate. Otherwise, the possibility of improper IRS collection action pursuant to previously issued notices of levies would go potentially unchecked.

This case stands as good reminder for anyone who has a stream of payments currently being levied (and who might believe the applicable limitations period has passed) to take a closer look to confirm whether property levied today was a fixed and determinable amount at the date of the notice of levy. 

Additionally, when the IRS issues a notice of levy, parties should carefully evaluate what property is fixed and determinable at the time of the levy. And Gold Forever’s current litigation should cause third parties to at least consider proactive litigation under Section 7426(a)(1), even when the monetary amounts at stake appear small, if there is a possibility of increased payments at a future date. After all, if Gold Forever had prevailed in a suit in 2012 or 2013 under the theory that it was not an alter ego or nominee of Mr. Holland, the company would have avoided the after-acquired property issue of the 2016 and 2017 payments altogether.

Finally, if you happen to find yourself streaming Motown classics on your favorite streaming service, you can feel a little extra patriotic knowing that—at least for the time being—some of those royalties payments are going to help put a dent in those ever-increasing annual federal deficits.

Summary Opinions — For the last time.

This could be our last Summary Opinions.  Moving forward, similar posts and content will be found in the grab bags.  This SumOp covers items from March that weren’t otherwise written about.  There are a few bankruptcy holdings of note, an interesting mitigation case, an interesting carryback Flora issue, and a handful of other important items.


  • Near and dear to our heart, the IRS has issued regulations and additional guidance regarding litigation cost awards under Section 7430, including information regarding awards to pro bono representatives. The Journal of Accountancy has a summary found here.
  • The Bankruptcy Court for the Southern District of Florida in In Re Robles has dismissed a taxpayer/debtor’s request to have the Court determine his post-petition tax obligations, as authorized under 11 USC 505, finding it lacked jurisdiction because the IRS had already conceded the claim was untimely, and, even if not the case, the estate was insolvent, and no payment would pass to the IRS. Just a delay tactic?  Maybe not.  There is significant procedural history to this case, and this 505 motion was left undecided for considerable time as there was some question about whether post-petition years would generate losses that could be carried back against tax debts, which would generate more money for creditors.  This became moot, so the Court stated it lacked jurisdiction; however, the taxpayer still wanted the determination to show tax losses, which he could then carryforward to future years (“establishing those losses will further his ‘fresh start’”).  The Court held that since the tax losses did not impact the estate it no longer a “matter arising under title 11, or [was] a matter arising in or related to a case under title 11”, which are required under the statutes.
  • The Tax Court in Best v. Comm’r has imposed $20,000 in excess litigation costs on an attorney representing clients in a CDP case. The Court, highlighting the difference in various courts regarding the level of conduct needed, held the attorney was “unreasonable and vexations” and multiplied the proceedings.  Because the appeal in this case could have gone to the Ninth Circuit or the DC Circuit, it looked to the more stringent “bad faith” requirements of the Ninth Circuit.  The predominate issue with the attorney Donald MacPherson’s conduct appears to have been the raising of stated frivolous positions repeatedly, which the Court found to be in bad faith.
  • And, Donald MacPherson calls himself the “Courtroom Commando”, and he is apparently willing to go to battle with the IRS, even when his position may not be great…and the Service and courts have told him his position was frivolous. Great tenacity, but also expensive.  In May v. Commissioner, the Tax Court sanctioned him another seven grand.
  • The Northern District of Ohio granted the government’s motion for summary judgement in WRK Rarities, LLC v. United States, where a successor entity to the taxpayer attempted to argue a wrongful levy under Section 7426 for the predecessor’s tax obligation. The Court found the successor was completely the alter ego of the predecessor, and therefore levy was appropriate, and dismissal on summary judgement was proper.
  • I’m not sure there is too much of importance in Costello v. Comm’r, but it is a mitigation case. Those don’t come up all that frequently.  The mitigation provisions are found in Sections 1311 to 1314 and allow relief from the statute of limitations on assessment (for the Service) and on refunds (for taxpayers) in certain specific situations defined in the Code.  This is a confusing area, made more confusing by case law that isn’t exactly uniformly applied.  The new chapter 5 of SaltzBook will have some heavily revised content in this area, and I should have a longer post soon touching on mitigation and demutualization in the near future.  In Costello, the IRS sought to assess tax in a closed year where refunds had been issued to a trustee and a beneficiary on the same income, resulting in no income tax being paid.  Section 1312(5) allows mitigation in this situation dealing with a trust and beneficiary.  There were two interesting aspects of this case, including whether the parties were sufficiently still related parties where the trust was subsequently wound down, and whether amending a return in response to an IRS audit was the taxpayer taking a position.
  • The First Circuit has joined all other Circuits in holding “that the taxpayer must comply with an IRS summons for documents he or she is required to keep under the [Bank Secrecy Act], where the IRS is investigating civilly the failure to pay taxes and the matter has not been referred for criminal prosecution,” and not allowing the taxpayer for invoking the Fifth Amendment. See US v. Chen. I can’t recall how many Circuit Courts have reviewed this matter, but it is at least five or six now.
  • The District Court for the District of Minnesota in McBrady v. United States has determined it lacks jurisdiction to review a refund claim for taxpayers who failed to timely file a refund request, and also had an interesting Flora holding regarding a credit carryback. The IRS never received the refund claim for 2009, which the taxpayer’s accountant and employee both testified was timely sent, but there was not USPS postmark or other proof of timely mailing, so Section 7502 requirements were not met.  Following an audit, income was shifted from 2009 to other years, including 2008.  This resulted in an outstanding liability that was not paid at the time the suit was filed, but the ’09 refund also generated credits that the taxpayer elected to apply to 2008.  The taxpayers also sought a refund for 2008, arguing the full payment of the ’09 tax that created the ’08 credit should be viewed as “full payment”, which they compared to the extended deadline for refunds when credits are carried back.  The Court did not find this persuasive, and stated full payment of the assessed amount of the ’08 tax was needed for the Court to have jurisdiction over the refund suite under Flora.  Sorry, couldn’t find a free link.
  • The IRS lost a motion for summary judgement regarding prior opportunity to dispute employment taxes related to a worker reclassification that occurred in prior proceeding. The case is called Hampton Software Development, LLC v. Commissioner, which is an interesting name for the entity because the LLC operated an apartment complex.  The IRS argued that during a preassessment conference determining the worker classification the taxpayer had the opportunity to dispute the liability, and was not now entitled to CDP review of the same.  The Court stated the conference was not the opportunity, as the worker classification determination notice is what would have triggered the right under Section 6330(c)(2)(B), and such notice was not received by the taxpayer (there was a material question about whether the taxpayer was dodging the notice, but that was a fact question to be resolved later).  The Hochman, Salkin blog has a good write up of this case, which can be found here.
  • The IRS has issued additional regulations under Section 6103 allowing disclosure of return information to the Census Bureau. This was requested so the Census could attempt to create more cost-efficient methods of conducting the census.  I don’t trust the “Census”.  Too much information, and it sounds really ominous.  That is definitely the group in Big Brother that will start rounding up undesirables, and now they have my mortgage info.
  • The Service has issued Chief Counsel Notice 2016-007, which provides internal guidance on how the results of TEFRA unified partnership audit and litigation procedures should be applied in CDP Tax Court cases. The notice provides a fair amount of guidance, and worth a review if you work in this area.
  • More bankruptcy. The US Bankruptcy Court for the Eastern District of Virginia has held that exemption rights under section 522 of the BR Code supersede the IRS offset rights under section 533 of the BR Code and Section 6402.  In In Re Copley, the Court directed the IRS to issue a refund to the estate after the IRS offset the refund with prepetition tax liabilities.  The setoff was not found to violate the automatic stay, but the court found the IRS could not continue to hold funds that the taxpayer has already indicated it was applying an exemption to in the proceeding.   There is a split among courts regarding the preservation of this setoff right for the IRS.  Keith wrote about the offset program generally and the TIGTA’s recent critical report of the same last week, which can be found here.



Ninth Circuit Denies En Banc Rehearing In Volpicelli v. U.S.

On January 30, in Volpicelli v. United States, 777 F.3d 1042, the Ninth Circuit reaffirmed its previous precedents from 20 years ago that held that the 9-month period at section 6532(c) in which to file a wrongful levy suit was not jurisdictional and was subject to equitable tolling.  See our post of that date summarizing the holding.  On March 16, the DOJ requested en banc rehearing — alleging a Circuit split and an unmanageable parade of future wrongful levy cases alleging equitable tolling.  See our post of March 18 for an analysis of how the DOJ may have exaggerated both the Circuit split and the administrative problems.  On April 8, the Ninth Circuit denied the request for an en banc rehearing.  The ball is now in the Solicitor General’s court to ask for cert. or not.  We will keep you posted.

Volpicelli v. U.S: DOJ Asks 9th Cir. for En Banc Rehearing

We again welcome Carl Smith.  Today he writes about a case he has discussed before and one that bears a close watch for anyone with a statute of limitations issue.  Keith

In a previous post, I noted how on January 30 of this year a 3-judge panel of the 9th Circuit in Volpicelli v. U.S., 777 F.3d 1042, reaffirmed what the Circuit had held 20 years before in Capital Tracing, Inc. v. U.S., 63 F.3d 859, 861-62 (9th Cir. 1995), and Supermail Cargo v. U.S., 68 F.3d 1204, 1206-07 (9th Cir. 1995) — (1) that the 9-month period in section 6532(c) in which to bring a wrongful levy suit under section 7426 is not “jurisdictional” and (2), applying the presumption in favor of tolling non-jurisdictional statutes of limitations involving the government announced in Irwin v. Dept. of Veterans Affairs, 498 U.S. 89 (1990), the 9-month period at section 6532(c) was subject to equitable tolling.  Irwin had overturned long-standing Supreme Court precedent holding that time limits, as parts of waivers of sovereign immunity, must be construed to exclude equitable tolling.  Irwin held, instead, that the same rebuttable presumption in suits among private litigants that statutes of limitations could be subject to equitable tolling applied in analogous suits involving the United States.  In my post, I predicted that the government would not want to live with the Volpicelli panel’s ruling and would try to take the Volpicelli case to the Supreme Court.  Keith was quoted in an article in Tax Notes Today to the effect that “the allegations in Volpicelli, should they be proven or accepted as true, make it a potentially challenging case for the government. The government might prefer to find a case with more favorable facts to take to the Supreme Court.” 2015 TNT 22-9 (Feb. 3, 2015).  I agree with Keith.  But, the government did not listen to Keith.  Instead, it has embarked on a road likely leading to the Supreme Court.  On March 16, it filed a request for an en banc rehearing of Volpicelli by the 9th Circuit, a copy of which can be found here.  The grounds for rehearing are a nominal Circuit split on this issue and the alleged administrative nightmare for the government if it had to deal with so many suits that would be triggered by this ruling where plaintiffs would now argue for equitable tolling.


I have been an amicus in support of the plaintiff in the Volpicelli case, so I am tempted to refute, point-by-point, all the arguments made by the government in seeking rehearing.  I will resist that temptation, but only say that any arguments the government made in its rehearing request are not new, and though the panel did not address all of the arguments in its opinion, answers to all those arguments can be found in the plaintiff’s briefs (ably done pro bono by Brian Goldman and colleagues at Orrick).

There are two points that I want to address, though:  The administrative nightmare argument and the existence of a live Circuit split.  In fact, neither argument really holds water.

U.S. v. Brockamp, 519 U.S. 347 (1997), concerned whether the 3-year period in which to file an administrative refund claim under section 6511 was subject to equitable tolling.  There, the Court held that, even if one applied the Irwin presumption to this period (which was not for a court filing, but for a filing in an agency), several factors overcame the presumption.  One of those factors was a possible administrative nightmare.  The Court wrote:

The IRS processes more than 200 million tax returns each year.  It issues more than 90 million refunds.  See Dept. of Treasury, Internal Revenue Service, 1995 Data Book 8-9. To read an “equitable tolling” exception into §6511 could create serious administrative problems by forcing the IRS to respond to, and perhaps litigate, large numbers of late claims, accompanied by requests for “equitable tolling” which, upon close inspection, might turn out to lack sufficient equitable justification.  See H. R. Conf. Rep. No. 356, 69th Cong., 1st Sess., 41 (1926) (deleting provision excusing tax deficiencies in the estates of insane or deceased individuals because of difficulties involved in defining incompetence). The nature and potential magnitude of the administrative problem suggest that Congress decided to pay the price of occasional unfairness in individual cases (penalizing a taxpayer whose claim is unavoidably delayed) in order to maintain a more workable tax enforcement system.  At the least it tells us that Congress would likely have wanted to decide explicitly whether, or just where and when, to expand the statute’s limitations periods, rather than delegate to the courts a generalized power to do so wherever a court concludes that equity so requires. [Id. at 352-353]

In its Volpicelli rehearing request, the DOJ writes (at p. 2) that “[t]he case . . . has substantial administrative importance. The Internal Revenue Service (IRS) has informed us that, in 2013 and 2014, it served nearly 2 million levies per year, for an annual yield of about $2.5 billion in collected proceeds. The panel’s holding invites a parade of lawsuits against the Government by third parties alleging stale claims to property levied upon by the IRS to collect unpaid taxes owed by delinquent taxpayers, in direct contravention of the clear statutory intent to provide certainty.”

But the mention of this 2 million annual levies is misleading.  The real issue is how many additional wrongful levy suits would be filed if equitable tolling continued to be allowed in the 9th Circuit, as it has been over the last 20 years.  The statement of the question indicates the answer:  There will be no additional suits in the 9th Circuit raising equitable tolling, since equitable tolling has been permitted there all along this past 20 years.

Then, the next question should be:  If the 9th Circuit’s holding were spread countrywide, would there be more wrongful levy suits brought in other Circuits where equitable tolling was sought?  Well, the plaintiff’s lawyers in Volpicelli looked into how many wrongful levy suits were brought countrywide in the five calendar years preceding the filing of the plaintiff’s opening brief in 2014 (i.e., for the calendar years 2009-2013).  They found an average of 37 wrongful levy suits annually in the whole country.  Opening brief at 32 n. 5.  They also found that in the 20 years after the Capital Tracing and Supermail Cargo rulings allowing for tolling in the 9th Circuit, only 5 reported district court opinions in the 9th Circuit (one of them being Volpicelli) considered equitable tolling — or about one opinion every 4 years in the 9th Circuit’s district courts.  Id. at 35-36 (citing opinions).  If we were to assume that the 9th Circuit had only 10% of the country’s population (it has more, in fact), then this would suggest that one could expect 10 times as many such suits if the rest of the country allowed equitable tolling like the 9th Circuit — i.e., 50 suits in 20 years or 2.5 suits raising equitable tolling in the whole country, on average, in any year.  Does 2.5 more suits a year constitute a “parade of lawsuits . . . alleging stale claims”?  I think not.

Turning to the alleged Circuit split on whether section 6532(c) may be equitably tolled, the DOJ wrote:

Not only is the panel’s holding in substantial tension with United States v. Brockamp, . . ., but it is also in direct conflict with Becton Dickinson and Co. v. Wolckenhauer, 215 F.3d 340 (3d Cir. 2000), where the Third Circuit, relying on Brockamp, held that § 6532(c) is jurisdictional and cannot be equitably tolled.  The panel’s decision also conflicts with the decisions of a host of other circuits which have refused to consider wrongful levy claims brought more than 9 months after the levy was made.  See Miller v. Tony & Susan Alamo Found., 134 F.3d 910, 916 (8th Cir. 1998); Amwest Sur. Ins. Co. v. United States, 28 F.3d 690, 691 (7th Cir. 1994); Williams v. United States, 947 F.2d 37, 39-40 (2d Cir. 1991); Diekmann v. United States, 550 F.2d 622, 623 (10th Cir. 1977). Accord Compagnoni v. United States, 173 F.3d 1369, 1370 n. 3 (11th Cir. 1999).

Let’s look a bit more closely at this alleged Circuit split:

First, none of the cases cited by the DOJ except Becton Dickinson even discuss Irwin or equitable tolling.  The opinions from outside the 3d Circuit only hold that a late-filed wrongful levy suit should be dismissed for lack of jurisdiction — citing the limited sovereign immunity construction of time limits that was rejected by the Supreme Court in Irwin.  So, all those opinions are incompatible with Irwin and are not currently good law.  (It is embarrassing that the courts deciding three of these cases after Irwin did not even note Irwin.)

Moreover, Becton Dickinson, which was decided after Irwin, and held that the section 6532(c) time period is jurisdictional, did so by using the expansive version of “jurisdictional” that the Supreme Court has more recently rejected.  In recent cases, the Supreme Court has admitted that both it and lower courts previously overused the word “jurisdictional”, and henceforth “jurisdictional” should be reserved for subject-matter and personal jurisdiction, but not claims processing rules — unless Congress makes very clear that it, unusually, wants a claims processing rule like a time period to be jurisdictional.  See, e.g., Henderson v. Shinseki, 131 S. Ct. 1197, 1202-03 (2011) (“Because the consequences that attach to the jurisdictional label may be so drastic, we have tried in recent cases to bring some discipline to the use of this term.  We have urged that a rule should not be referred to as jurisdictional unless it governs a court’s adjudicatory capacity, that is, its subject-matter or personal jurisdiction.  Other rules, even if important and mandatory, we have said, should not be given the jurisdictional brand.” Citations omitted).

The “jurisdictional” aspect of Becton Dickinson is clearly incompatible with current Supreme Court case law.

Further, Becton Dickinson also predicated its no-tolling ruling on the assumption that the Irwin presumption in favor of tolling statutes of limitation could not apply if a suit could only be brought against the government (as opposed to the situation in Irwin, where the employment discrimination suit was the kind of suit that could be brought against private parties or the government).  The 3d Circuit wrote:

[L]ike the time limitation at issue in Brockamp, but unlike the time limitation at issue in Irwin, the time limitation in section 6532(c) applies only to suits brought against the government and not suits brought against private defendants.  Indeed, section 7426(a)(1), which section 6532(c) modifies, authorizes only suits against the government. Thus, Irwin‘s “rebuttable presumption” does not apply; “makingthe rule of equitable tolling applicable to suits against the Government, in the same way that it is applicable to private suits” has no meaning in the context of a statute that creates only a cause of action against the government. [215 F.3d at 348-349]

This reasoning has also been rejected by the Supreme Court more recently.  In Scarborough v. Principi, 541 U.S. 401, 422 (2004), the Supreme Court suggested that Irwin does not “demand a precise private analogue” for its presumption to apply to suits against the government.  The Court wrote that “[l]itigation against the United States exists because Congress has enacted legislation creating rights against the Government, often in matters peculiar to the Government’s engagements with private persons . . . Because many statutes that create claims for relief against the United States or its agencies apply only to Government defendants, Irwin‘s reasoning would be diminished were it instructive only in situations with a readily identifiable private-litigation equivalent.”  Id. For this reason, the Supreme Court more recently found — applying the Irwin presumption — that a one-year period in which to file in federal court for habeas review in death penalty cases was subject to equitable tolling — even though such a suit could naturally only be brought against the government.  Holland v. Florida, 560 U.S. 631 (2010).

In short, the opinions from other Circuits that the DOJ cites to create a Circuit split in Volpicelli have been completely sapped of their vitality, such that even a 3-judge panel in each of those other Circuits would be able to ignore the cited opinions as incompatible with current Supreme Court case law.  How do these ghost opinions create a Circuit split?

Now, don’t get me wrong:  I regret that Logan Volpicelli is being delayed in getting his college money back, but I actually am happy that the government is continuing to pursue this case — probably to the Supreme Court.  Unless the Supreme Court overturns a decade of its recent case law, I am pretty sure that the Supreme Court will rule that section 6532(c) is subject to equitable tolling.  I would love such a holding — not because I think it will benefit many people bringing wrongful levy suits, but because such a ruling will call into question whether many other time periods in the Internal Revenue Code are subject to equitable tolling.

Indeed, I think this is the government’s real fear about Volpicelli.  It isn’t the fear of lots of late wrongful levy suits worrying the government, but of late other suits — such as refund lawsuits brought after the end of the 2-year period after claim disallowance found in section 6532(a) and maybe some late suits brought in the Tax Court.  The government doesn’t want equitable tolling to spread throughout the Tax Code, so it is making a stand here with Volpicelli.  We’ll now see if this is a Last Stand, like Custer’s.


Volpicelli v. US — is the 6532(c) 9-month period to bring wrongful levy suits “jurisdictional”?

Guest blogger: Carlton Smith

There are many court of appeals opinion from a decade or more ago holding the 6532(c) 9-month period in which to file a wrongful levy suit and the 6532(a) 2-year post-disallowance period in which to file a tax refund suit “jurisdictional”. However, in recent years, the Supreme Court, in non-tax cases, has severely narrowed the instances in which mere “claims processing rules” — such as time periods in which to file in courts — are jurisdictional. See Sebelius v. Auburn Regional Medical Center, 133 S. Ct. 817 (2013) (holding a 180-day period in which Medicare providers had to file an administrative review board action not jurisdictional, though also not subject to equitable tolling); Henderson v. Shinseki, 131 S. Ct. 1197 (2011) (holding a 120-day period in which veterans were required to file in an Article I veteran’s court to complain of benefits denials not jurisdictional). Also see my article in Tax Notes, “Cracks Appear in the Code’s ‘Jurisdictional’ Time Provisions”,2012 TNT 210-4 (10/30/12). Will this trend in non-tax cases extend to the tax refund and wrongful levy suit statutes of limitations?

A case pending in the Ninth Circuit, Volpicelli v. U.S., 2011 U.S. Dist. LEXIS 140827 (D. Nev.2011), on appeal as 9th Cir. Docket No. 12-15029, is set to decide the issue of whether the wrongful levy statute of limitations is jurisdictional and, if not, whether it may be equitably tolled. Since the Third Circuit and a few others have previously held that the 6532(c) period is not subject to tolling, and the Ninth Circuit has previously held that the period is both not jurisdictional and is subject to equitable tolling, a conflict may be shaping up that winds up in the Supreme Court.


If it gets there, the Supreme Court will no doubt grapple with how its recent non-tax “jurisdictional” precedents apply to IRC time limits and whether any other time limits in the Code may be equitably tolled. It was in 1997 that the Supreme Court — without discussing whether the administrative refund claim filing periods under 6511(a) or (b) were jurisdictional — ruled in U.S. v. Brockamp, 519 U.S. 347 — that the periods were not subject to equitable tolling. Since then, the DOJ and IRS have usually argued in court that Brockamp stands for the proposition that no IRC time periods are subject to tolling and all are jurisdictional. Recognizing the importance of the Volpicelli case, the Ninth Circuit a few weeks ago assigned a pro bono counsel to the previously-pro se Mr. Volpicelli in both redoing his briefing and conducting the oral argument. The counsel appointed is Brian Goldman of Orrick’s San Francisco office. Mr. Goldman’s specialty is appellate litigation, and during the October 2013 Term of the Supreme Court, he clerked for Justice Sotomayor, after having previously clerked for a judge on the Ninth Circuit. Below is a description of Volpicelli’s facts and a little of the relevant law.

Logan Volpicelli was a minor child in 2003, when the Reno police were investigating his father for theft. Logan’s father, Ferrill, has had many run-ins with the law (see on Ferrill’s many cases in the Ninth Circuit) and is currently incarcerated in Lovelock, Nevada. After getting a search warrant for Ferrill’s safe deposit box, the police found two checks totaling around $10,000 that were made out to Ferrill from Ferrill’s parents. The police turned these over to the IRS, since Ferrill owed the IRS over $150,000 in back taxes. Within the 9-month period in section 6532(c) to bring a wrongful levy suit, Ferrill brought suit on behalf of Logan, arguing that the funds for the checks were intended as gifts from Logan’s great-grandparents, so were not really Ferrill’s property. However, the district court told Ferrill that he could not, as a parent, represent his minor son. He had to hire a lawyer for Logan’s suit to proceed. Ferrill lacked money to hire a lawyer, so the suit was dismissed without prejudice.

In 2010, when Logan reached the age of majority (18), he promptly brought a new wrongful levy suit in the Nevada district court. In two Ninth Circuit opinions from 1995, Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, and Capital Tracing v. U.S., 63 F.3d 859, the court had held that the 6532(c) time period was not jurisdictional and could be equitably tolled under the rebuttable presumption in favor of tolling that the Supreme Court had announced in Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990). Citing these Ninth Circuit authorities, Logan asked the court to toll the 6532(c) time period. However, the district court dismissed this second suit for lack of jurisdiction as untimely. After noting the single exception in 6532(c) for tolling the 9-month period, the court wrote: “Because the limitations do not provide for an implicit reading of an equitable exception due to the age of majority, Plaintiff is barred by the statute of limitations pursuant to Brockamp.” In 1995, the Ninth Circuit, in Brockamp, had also held that the 6511 time periods for filing administrative refund claims could be equitably tolled under the Irwin presumption — a ruling the Supreme Court rejected two years later. Among the reasons why the Supreme Court rejected tolling for 6511 were the complexity of the numerous other exceptions in the statute, the possible administrative nightmare involved in reviewing late refund claims on tens of millions of tax returns, and the fact that (so the court said), “Tax law, after all, is not normally characterized by case-specific exceptions reflecting individualized equities.” In my article, I criticize this last comment of the Court and point out over a dozen instances in the tax collection process where equity determinations are made — e.g., equitable recoupment, suits in equity to foreclose on property, and, arguably, the Collection Due Process provisions.

In the Ninth Circuit, the government is arguing that both Supermail Cargo and Capital Tracing were wrong and were implicitly overruled by Brockamp. The government also cites a 2000 Third Circuit opinion — i.e., post-Brockamp — holding that the 6532(c) period may not be equitably tolled, Becton Dickinson & Co. v. Wolkenhauer, 215 F.3d 340, 352. But even Becton Dickinson was decided before the recent Supreme Court case law restricting the use of the word “jurisdictional”. For example, here is a quote from the Supreme Court’s 2011 opinion in Henderson v. Shinseki about how, even the Supreme Court acknowledges, it over-used the term “jurisdictional”:

Because the consequences that attach to the jurisdictional label may be so drastic, we have tried in recent cases to bring some discipline to the use of this term. We have urged that a rule should not be referred
to as jurisdictional unless it governs a court’s adjudicatory capacity, that is, its subject-matter or personal jurisdiction. Other rules, even if important and mandatory, we have said, should not be given the jurisdictional brand. Among the types of rules that should not be described as jurisdictional are what we have called “claim-processing rules.” These are rules that seek to promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times. Filing deadlines, such as the 120-day filing deadline at issue here, are quintessential claim-processing rules. Accordingly, if we were simply to apply the strict definition of jurisdiction that we have recommended in our recent cases, we would reverse the decision of the Federal Circuit, and this opinion could end at this point. Unfortunately, the question before us is not quite that simple because Congress is free to attach the conditions that go with the jurisdictional label to a rule that we would prefer to call a claim-processing rule. The question here, therefore, is whether Congress mandated that the 120-day deadline be “jurisdictional.” In Arbaugh [v. Y & H Corp., ], we applied a “readily administrable bright line” rule for deciding such questions. Under Arbaugh, we look to see if
there is any “clear” indication that Congress wanted the rule to be “jurisdictional”.

Last year, the Federal Circuit held that the 6511(b) lookback tax payment periods were not jurisdictional (though, citing Brockamp, held that no equitable tolling could apply to those periods). Boeri v. U.S., 724 F.3d 1367, 1369, cert. denied 2013 U.S. LEXIS 8950 (Dec. 9, 2013). And the year before, the D.C. Circuit, citing Henderson, held that the time period in which to bring a wrongful collection activity damages suit under 7433 was not jurisdictional. Keohane v. U.S., 669 F.3d 625, 630.

But, of course, if a time period is not jurisdictional, that does not mean that it is necessarily subject to equitable tolling. It just means that the inquiry can proceed to the equitable tolling issue and the Irwin presumption in favor of tolling. See the Auburn Regional Medical Center opinion from the Supreme Court last year, which held that a time period was not jurisdictional, but also was not subject to tolling. If 6532(c)’s wrongful levy time period is not jurisdictional, there are good reasons for holding it subject to tolling in the appropriate case. For example, the 9-month period is relatively short and has only one exception (if one files an administrative claim first) — not complicated with multiple exceptions like 6511. Since there are very few wrongful levy lawsuits, there would be no administrative nightmare if tolling were allowed of the period.

There is no pending challenge that I am aware of in the courts of appeal over whether the 6532(a) 2-years-from-disallowance period to bring a tax refund lawsuit under 28 USC 1346(a)(1) is jurisdictional or subject to equitable tolling. In the past, all Circuits to consider the question — usually in cases quite old — have held the 6532(a) period to be jurisdictional and not subject to tolling. See, e.g., RHI Holdings, Inc. v. U.S., 142 F.3d 1459 (Fed. Cir. 1998). Surprisingly, recent lower court opinions facing this issue seem not to discuss the recent changes in Supreme Court case law on what is jurisdictional. For example, last year, in Aljundi v. U.S., 112 AFTR 2d 2013-7297 (C.D. Cal.) (cited in Stephen Olsen’s post earlier this week), the district court did not cite any Supreme Court or Ninth Circuit authority, but merely cited the RHI opinion of the Federal Circuit for the court’s holding that the 6532(a) period was jurisdictional.

It is time for the courts in tax cases to consider at length the recent Supreme Court opinions both on what is jurisdictional and what is subject to equitable tolling. Perhaps the Volpicelli case in the Ninth Circuit will bring some clarity to this issue — particularly if it goes further on to the Supreme Court.