Dean v US involves a motion to dismiss a taxpayer’s suit alleging that the IRS recklessly disregarded the law by continuing to levy on a taxpayer’s Social Security payments beyond the ten year SOL on collections. The magistrate concluded that the IRS’s actions were not improper and recommended that the case be dismissed. The district court approved the recommendation and Dean timely appealed to the 11th Circuit, which affirmed the district court. The case nicely illustrates how the ten-year collection period does not prevent collection beyond the ten-year period when there is a timely levy relating to a fixed and determinable income stream.
read more...Dean owed over two million dollars for tax years 1997-2005. IRS assessed the liabilities in 2007; IRS recorded a notice of federal tax lien shortly thereafter. In 2013, IRS served a levy on Dean and the SSA for the unpaid tax. Following the levy, SSA began paying over all of the benefits slated for Dean to the IRS. I here note as a tangent that this differs from the federal payment levy program under 6331(h), which authorizes an automatic 15% levy on certain federal benefits, including social security. IRS is not precluded from issuing continuous manual levies, as it did here, where it could take all of the benefits, subject to exemptions that the taxpayer establishes as per 6334(a)(9).
In 2017, with the CSED expiring, IRS filed a certificate of release of federal tax lien stating that Dean had “satisfied the taxes,” that the lien was “released,” and authorized the proper IRS officer to “note the books to show the release of this lien.” IRS also abated the assessments.
Dean at this point believed that the levy on his social security benefits should have stopped. When it did not, he filed a complaint in federal court alleging that the levy was an unauthorized collection action and he sought over $64,000 in damages.
Unfortunately for Mr. Dean, as the magistrate noted, the argument does not “hold water” (allowing me gleefully to link to the great Joe Pesci and Marisa Tomei scene in My Cousin Vinny).
The regs under Section 6331 describe the relationship between a levy and fixed and determinable payments: “[A] levy extends only to property possessed and obligations which exist at the time of the levy.” 26 C.F.R. § 301.6331–1(a). “Obligations exist when the liability of the obligor is fixed and determinable although the right to receive payment thereof may be deferred until a later date.” Id.
An obligation is fixed and determinable “[a]s long as the events which gave rise to the obligation have occurred and the amount of the obligation is capable of being determined in the future …. It is not necessary that the amount of the obligation be beyond dispute.” United States v. Antonio. 71A AFTR 2d 93-4578], *6 n. 2 (D. Haw. Sept. 24, 1991). Numerous cases establish that Social Security benefits are a fixed and determinable obligation of the SSA and are subject to one-time levies.
As the lower court opinion discusses, the 2013 levy created a custodial relationship between IRS and the SSA and as such the benefits came into constructive possession of the IRS. The regs under Section 6343 also provide that “a levy on a fixed and determinable right to payment which right includes payments to be made after the period of limitations expires does not become unenforceable upon the expiration of the period of limitations and will not be released under this condition unless the liability is satisfied .” 26 C.F.R. § 301.6343-1(b)(1)(ii).
The Eleventh Circuit also helpfully explains the relationship between the levy and the benefits, directly refuting the claim that the collection occurred after the expiration of the SOL:
Instead, the IRS seized his entire Social Security benefit—that is, his “fixed and determinable right to payment” of his Social Security benefit in monthly installments—immediately upon issuing the notice of levy in June 2013. 26 C.F.R. § 301.6343-1(b)(1)(ii); see Phelps, 421 U.S. at 337. Having seized his entire benefit before the expiration of the collection limitations period, the IRS was not required to relinquish it after the period expired. See 26 C.F.R. § 301.6343-1(b)(1)(ii).
The lower court opinion also nicely discusses the lack of legal significance of the IRS’s abatement of the assessment and issuance of the release of federal tax lien. Both events did not change that Dean owed an underlying tax. As to the abatement, taxpayers are liable for the tax regardless of whether there has been an assessment. While the release of the federal tax lien affects the IRS’s security interest, it did not release the levy and had no bearing on the underlying tax debt.
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Great post, Les. I will definitely file this one for when I teach Practice and Procedure!
Excellent article! As a now retired Local Taxpayer Advocate, I used to see this issue arise several times per year. The release of the NFTL leads many taxpayers (and more than a few practitioners) to believe IRS had given up when the CSED expired. After verifying the issuance of the original levy was correct (notices, appeal rights, absence of a pending I/A or OIC) we were often left with positing an argument that the levy was now creating a hardship. Another good argument for working toward a final resolution (if at all possible) rather than having a long term levy parked and awaiting the expiration of the statute
I am no Levy Expert (as this post is about to confirm), but I see a difference between making the 15% continuous levy before the CSED (and keeping it in force after the CSED), and making separate, monthly 100% levies, some of which were before the CSED and some of which were after the CSED. If I had a right to something before the CSED, but the IRS didn’t levy on it before the CSED, then they can’t levy on it after the CSED (right?). Obviously I’m wrong, but I feel like the separate levies before the CSED are distinct from the separate levies after.
Great post, Les. I’ve run into the “fixed and determinable right to payment” recently. It’s not exceptionally easy to explain to a client the difference between a continuing levy and a one-time levy of a future stream of income that is fixed and determinable. If I recall correctly, the IRS used the same form for the latter as for a continuing levy, at least in our case.
SSA is fairly straight-forward. We have a case where the IRS applied the same logic, despite multiple cases to the contrary, to oil and gas royalties. I wish the deadline for a wrongful levy claim hadn’t already expired.