Travel Restrictions of a Non-COVID Different Kind

As we, hopefully, get nearer to a time when we can travel again, the IRS has announced resumption of referral of cases to the State Department to revoke the passports of seriously delinquent taxpayers.  The announcement comes on a page with many items of information regarding IRS operations during COVID, and you must scroll down to the Enforcement and Compliance Operations section to find the passport announcement.


The opening paragraph of the announcement states:

The IRS is resuming programming for notifying the State Department of taxpayers certified as owing seriously delinquent tax debt following the temporary suspension of certain collection activities with the March 25, 2020, People First Initiative announcement in response to COVID-19. Beginning the week of March 14, affected taxpayers will receive notices and are encouraged to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy. 

So, during the past year when you could not travel anyway, the IRS suspended its referral to the State Department of taxpayers with seriously delinquent debt but now that travel might soon be possible again, individuals with this problem have a non-COVID reason for staying home.

Taxpayers impacted by the resumption of referral to the State Department can look for a notice in the mail alerting them to the referral or maybe not based on a recent Tax Court decision regarding notice and the passport revocation statute.

The ability of the IRS to refer a taxpayer for passport revocation derives from IRC Section 7345.  This provisions contains a paragraph governing notice to the individual of the revocation referral:

(d) Contemporaneous notice to individual

The Commissioner shall contemporaneously notify an individual of any certification under subsection (a), or any reversal of certification under subsection (c), with respect to such individual. Such notice shall include a description in simple and nontechnical terms of the right to bring a civil action under subsection (e).

This paragraph does not address the form of the IRS notice, or the manner in which the IRS must deliver the notice, or whether the IRS must address the notice to the taxpayer’s last known address.  In a recent case brought to my attention by Carl Smith, a district court addressed the consequences of sending the notice of passport revocation to an address where the taxpayer had never lived and found that sending the notice to the wrong place had no consequences to the IRS.  (Remember that challenging the revocation of a passport revocation, though limited in scope, may occur in district court or Tax Court.)

Carl also pointed me to the case of Jackson v. Modly, 949 F.3d 763 (D.C. Cir. 2020) which alerted me that under recent precedent in the D.C. Circuit, the taxpayer has an argument for equitable tolling of the 6-year statute of limitations (28 USC 2401(a)) if his 7345 action had been untimely. Since we last wrote about 2401(a)’s application to 7345 (here and here) in 2018, not only the D.C. Circuit but the Second, Sixth and Tenth Circuits have found the 2401(a) statute of limitations to be non-jurisdictional, thus opening up the possibility of equitable tolling for litigants.   

If you are interested in the D.C. Circuit’s reasoning, read this lengthy quote, if the detailed reasoning does not matter to you skip the quote but remember the take away that the Supreme Court precedent is beating a drum to make time periods for filing in court something other than jurisdictional:  

The parties do not dispute that Jackson’s APA claim is time-barred by the six-year statute of limitations in 28 U.S.C. § 2401(a) for all civil actions commenced against the United States. Instead, [***25]  they dispute whether § 2401(a)‘s statute of limitations is a jurisdictional bar—thereby divesting the court of jurisdiction as well as its ability to consider an equitable tolling argument—or whether it is non-jurisdictional. 

The long-held rule in our circuit has been “that section 2401(a) creates ‘a jurisdictional condition attached to the government’s waiver of sovereign immunity.'” P & V Enters. v. U.S. Army Corps of Eng’rs, 516 F.3d 1021, 1026, 380 U.S. App. D.C. 96 (D.C. Cir. 2008) (quoting Spannaus v. U.S. Dep’t of Justice, 824 F.2d 52, 55, 262 U.S. App. D.C. 325 (D.C. Cir. 1987)). Recently, however, especially after the Supreme Court’s decision in Kwai Fun Wong, which held the two-year statute of limitations in § 2401(b) to be nonjurisdictional, 575 U.S. at 407, the soundness of our precedent has been called into doubt. See, e.g., Jafarzadeh v. Nielsen, 321 F. Supp. 3d 19, 37 n.7 (D.D.C. 2018) (“Given the Supreme Court’s clear strictures on this issue, which have undermined the foundations of Spannaus and similar cases, the D.C. Circuit ought to reconsider its § 2401(a) precedents.”). Since Kwai Fun Wong, the Sixth and Tenth Circuits have held that, based on the Supreme Court’s opinion in that case, § 2401(a) is not jurisdictional. Chance v. Zinke, 898 F.3d 1025, 1033 (10th Cir. 2018); Herr v. U.S. Forest Serv., 803 F.3d 809, 817-18 (6th Cir. 2015). Although we have previously “questioned the continuing viability” of our rule without addressing the issue directly, see Mendoza v. Perez, 754 F.3d 1002, 1018 n.11, 410 U.S. App. D.C. 210 (D.C. Cir. 2014) (citing P & V Enters., 516 F.3d at 1027 & n.2; Felter v. Kempthorne, 473 F.3d 1255, 1260, 374 U.S. App. D.C. 272 (D.C. Cir. 2007); Harris v. F.A.A., 353 F.3d 1006, 1013 n.7, 359 U.S. App. D.C. 281 (D.C. Cir. 2004)), we now do so. Accordingly, we hold today that HN5 the Supreme Court’s decision in Kwai Fun Wong overrules our precedent treating [***26]  § 2401(a)‘s statute of limitations as jurisdictional.  

 “In recent years,” the Supreme Court has “repeatedly held that procedural rules, including time bars, cabin a court’s power” to hear a case—i.e., subject matter jurisdiction—”only if Congress has ‘clearly state[d]’ as much.” Kwai Fun Wong, 575 U.S. at 409 (alteration in original) (quoting Sebelius v. Auburn Reg’l Med. Cent., 568 U.S. 145, 153, 133 S. Ct. 817, 184 L. Ed. 2d 627 (2013)). Applying this “clear statement rule,” the Court has “made plain that most time bars are nonjurisdictional.” Id. at 410. In Kwai Fun Wong, the Supreme Court explained that “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.” 575 U.S. at 410. Based on that rule, the Court held that the FTCA’s statute of limitations in § 2401(b) was “not a jurisdictional requirement.” Id. at 412

Applying the Court’s ruling in Kwai Fun Wong to § 2401(a), we reach the same conclusion. First, our precedent treating § 2401(a) as a jurisdictional bar was grounded in the belief that the provision is “attached to the government’s waiver of sovereign immunity, and as such must be strictly construed.” Spannaus, 824 F.2d at 55. In Kwai Fun Wong, the Court flatly rejected this reasoning. 575 U.S. at 420 (“[I]t makes [***27]  no difference that a time bar conditions a waiver of sovereign immunity, even if the Congress enacted the measure when different interpretive conventions applied . . . .”). Second, like § 2401(b), § 2401(a) “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts”; rather, it “‘reads like an ordinary, run-of-the-mill statute of limitations,’ spelling out a litigant’s filing obligations without restricting a court’s authority.” Id. at 411 (first quoting Arbaugh, 546 U.S. at 515; then quoting Holland v. Florida, 560 U.S. 631, 647, 130 S. Ct. 2549, 177 L. Ed. 2d 130 (2010)); see 28 U.S.C. § 2401(a) (“[E]very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.”). Also like § 2401(b), § 2401(a)‘s filing deadline appears in a section separate from the general jurisdictional grant of civil actions against the federal government, see 28 U.S.C. § 1346; Herr, 803 F.3d at 817, which the Supreme Court found to be an indication “that the time bar is not jurisdictional.” Kwai Fun Wong, 575 U.S. at 411

Third, we conclude that § 2401(a)‘s origins in the Tucker Act do not make it otherwise jurisdictional. We find the in-depth analyses and reasoning of the Sixth and Tenth Circuits on this point—differentiating between the separate provisions of the Big Tucker Act and the [***28]  Little Tucker Act—particularly cogent and persuasive. See Herr, 803 F.3d at 815-17; Chance, 898 F.3d at 1031-33. As those courts explained, although the Supreme Court has affirmed the jurisdictional nature of the Big Tucker Act’s statute of limitations, see 28 U.S.C. § 2501, its affirmance was grounded solely in the doctrine of stare decisis; further, the Congress altered the Little Tucker Act’s statute of limitations—the provision from which § 2401(a) is derived—by separating it from the jurisdictional grant and expanding its reach. See Chance, 898 F.3d at 1032-33; Herr, 803 F.3d at 816-17. As the Sixth Circuit explains, this alteration “demonstrates that § 2401(a) was designed  [*778]   [**211]  to serve as a standard, mine-run statute of limitations without jurisdictional qualities. That leaves us with a statute (§ 2401(a)) that does not clearly impose a jurisdictional limit.” Herr, 803 F.3d at 817

Accordingly, we hold that § 2401(a)‘s time bar is nonjurisdictional and subject to equitable tolling. Our decisions to the contrary, see, e.g., Spannaus, 824 F.2d at 55, are thus overruled.

Because Jackson v. Modly was decided by the D.C. Circuit and because the appeal of all passport cases goes to the D.C. Circuit, there are now two Tax Court filing deadlines that are not jurisdictional.  The Myers case holds that time frame for filing a whistleblower case in Tax Court pursuant to IRC 7623(b)(4) is not jurisdictional and the Jackson case provides the same result in passport cases through IRC 7345’s 6-year filing period of 28 USC 2401(a).

The recent case of McNeil v. United States (D.D.C. 2021) started out as FOIA litigation, because the taxpayer did not receive notice of the revocation.  Through the FOIA case, Mr. McNeil learned that the IRS had sent a passport revocation request to the State Department for his outstanding liability.  He argued unsuccessfully that the revocation should be undone because of the lack of notice.  Here’s what the district court said:

In his opposition, McNeil gives two reasons why he is entitled to the limited relief he still seeks. First, he argues that he was never notified that the IRS had certified to State that he had a seriously delinquent tax debt. Opp’n at 2. McNeil attached to his amended complaint copies of two different IRS Notices that should have informed him of the IRS’s certification of his debt. Am. Compl., Ex. A at 4-9, 12-17. He obtained these through the FOIA request he submitted to the IRS, but he claims he never received copies from the IRS when he should have because the IRS sent them to a Tucson, Arizona address where he has never lived. Am. Compl. at 11-12; Opp’n at 2. The Court takes this fact as true for purposes of this motion. See Iqbal, 556 U.S. at 678.

Even if McNeil is able to prove that he never received these Notices, though, it would not mean that the IRS’s certification was erroneous. As the Government observes, § 7345 does not say that a flawed or failed notice renders a certification erroneous. Reply at 3-4. Subsections (a) and (b) describe when the Secretary of the Treasury must transmit certification to the Secretary of State and identify which debts qualify as “seriously delinquent tax debt.” 26 U.S.C. § 7345(a)(b). Neither subsection says that proper notice is an element of or a prerequisite to a proper certification by the IRS of a seriously delinquent tax debt. In fact, subsection (d) says that notice to the taxpayer should be “contemporaneous [ ]” with certification to State, so it logically cannot be a prerequisite to that certification. 26 U.S.C. § 7345(d). Further, because subsection (e) includes no statute of limitations, there is no reason why improper notice under subsection (d) would prejudice a taxpayer who, like McNeil, does not learn about the certification of his debt in a sufficiently timely manner. See id. § 7345(e). The text of the statute suggests that the purpose of the notice requirement is to inform the debtor “in simple and nontechnical terms of the right to bring a civil action under subsection (e).” Id. Therefore, McNeil’s argument concerning the notice requirement fails because even if notice was not effected here, it would not mean that the IRS’s certification of his debt to the State Department was erroneous.

The scope of the fight over passport revocation in Tax Court or district court is severely limited by the statute.  We have discussed this in earlier posts on passport revocation here (collecting cites to prior posts.)  Of course, no need to worry about the limited scope of the review if you don’t even receive the notice letting you know of the referral to the State Department.

I know of no proposals to amend 7345 and do not believe that seriously delinquent taxpayers have a large lobbying organization representing them before Congress, but it might be a good idea to tighten up the notice provisions should Congress make any corrections to this statute.  With passports and whistleblowers (see this recent post re whistleblower jurisdiction), Congress has been lax in the way it describes the responsibility of the IRS regarding notification and the precise item that provides the ticket to Tax Court.

In his previous post on passport forum shopping Carl gave the advice that taxpayers seeking passport relief should find the circuit with the favorable jurisdictional view of 2401(a).  Now that the DC Circuit has adopted the favorable jurisdictional view of 2401(a), the safest advice is to go to Tax Court since you know what the outcome will be under application of the Golsen rule and you don’t have to guess what your circuit might do if it has not yet faced this issue.

Tax Court Jurisdiction When Taxpayer Late Files the Request for a Collection Due Process Hearing

In Ramey v Commissioner, 156 T.C. No. 1 (2021) the Tax Court determined in a precedential opinion that when the IRS issues a notice of decision rather than a notice of determination and the taxpayer has filed the collection due process (CDP) request late, the Court lacks jurisdiction to hear the case.  The taxpayer, a lawyer, represented himself and pegged his arguments to last known address rather than jurisdiction.  Nonetheless, the decision expands the Court’s narrow view of jurisdiction to another setting without addressing the Supreme Court precedent on jurisdiction and its impact on the timing of the filing of documents.

I think the Court gets it wrong without ever getting into a real discussion of the jurisdiction issue and am surprised after the prior litigation on this issue that it so casually determines that it lacks jurisdiction.  Having said that, the result may have been the same had it not addressed the issue from the perspective of jurisdiction for the reasons discussed below.


Mr. Ramey apparently has a law office in a location that carries the same address as several other businesses.  The IRS addressed the letter to that location which is the taxpayer’s last known address.  The post office timely delivered the letter, but it was received by someone working for another of the businesses at the location and did not make its way to Mr. Ramey until a short period before the 30-day window to request a CDP hearing.  The Court spends some time on the issue of the address and the delivery of the notice.  Mr. Ramey spends almost all of his energy on this issue, but I have no problem with the CDP notice.  The IRS sent it to his last known address.  You can read the opinion for the details on what went wrong causing him to receive it late.  Had he framed the facts as giving rise to a basis for equitable tolling, the issue would have some interest but simply framing it as a last known address issue gets him nowhere. 

He delayed mailing the request for a hearing until a few days after the 30-day period but seeks to receive a CDP hearing, arguing that, because of the snafu regarding the delivery of the mail and its delayed receipt by him, the otherwise late request for a CDP hearing should be considered as a timely request.

The Court frames the issue as follow:

In this collection due process (“CDP”) case, we are asked to consider what appears to be a question of first impression for our Court: whether a notice of intent to levy that is sent to a taxpayer’s actual (and last known) address by United States Postal Service (“USPS”) certified mail, return receipt requested, starts the running of the 30-day period for requesting a hearing under section 6330, even though the taxpayer does not personally receive the notice because the taxpayer’s address is shared by multiple businesses and the USPS letter carrier leaves the notice at that address with someone who neither works for the taxpayer nor is authorized to receive mail on the taxpayer’s behalf.

Framed in this way, I have no problem with the Court’s decision that the notice did start the 30-day period.  As the opinion progresses, it becomes clear, however, that the Court does much more than answer this question and takes on the issue of its jurisdiction.

Due to the late submission of the CDP request, Appeals gave Mr. Ramey an equivalent hearing rather than a CDP hearing.  It did not reach a resolution with him on whether an alternative to levy existed regarding his $247,033 liability.  This resulted in Appeals sending him a notice of decision from which he filed a Tax Court petition.

The Court acknowledged that it had previously accepted a notice of decision as appropriately invoking its jurisdiction but held that it only did so in situations in which Appeals inappropriately calculated whether the taxpayer submitted the CDP request on time.  It stated that if the IRS inappropriately calculated the timing of the submission and sent a notice of decision as a result, the taxpayer could successfully petition the Tax Court in that situation.  Regarding this issue, the Court states:

A decision letter issued after an equivalent hearing generally is not considered a determination under section 6330 and is therefore insufficient to invoke our jurisdiction. See, e.g., Moorhous v. Commissioner, 116 T.C. at 269-270; Kennedy v. Commissioner, 116 T.C. at 262-263. But we have recognized that a decision letter issued after a timely request for a hearing under section 6330 “is a ‘determination’ for purposes of section 6330(d)(1),” regardless of the label IRS Appeals places on the document. Craig v. Commissioner, 119 T.C. 252, 259 (2002); see also Andre v. Commissioner, 127 T.C. at 70. Put differently, if, in reviewing a CDP case, we determine that IRS Appeals erred in concluding that a taxpayer’s request for a section 6330 hearing was untimely, we have jurisdiction to correct the error and review IRS Appeals’ decision as a determination.

Interestingly, in starting its discussion of jurisdiction, which was preceded by a significant discussion of the IRS regulations that would seem to have little bearing on the issue of jurisdiction, the Court begins the discussion by citing to a whistleblower case in support of the statement that it is a court of limited jurisdiction.  It does not cite to the whistleblower case of Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019),  in which the D.C. Circuit, the circuit to which all whistleblower cases are appealed, overturned the Tax Court in interpreting a statute essentially identical to the CDP statute on the issue of jurisdiction.  Carl Smith discussed the Myers case here and here.

The IRS position on timely submission of the CDP request has evolved over the past few years and it now treats as timely CDP requests sent to the “wrong” IRS office within 30 days.  We have discussed that issue in a series of posts you can access here.  Linked in that post is an article I wrote in Tax Notes on the issue, which not only discusses the mailing of a request to the right place in the IRS, but the underlying issue of Tax Court jurisdiction based on the timing of the CDP request.  I borrow from that article in some of the following discussion.

The Tax Court first addressed the issue of the impact of the Supreme Court jurisprudence on jurisdiction as applied to IRC 6330 in the case of Guralnik v. Commissioner, 146 T.C. 230 (2016) (en banc), where the tax clinic at Harvard filed an amicus brief arguing that the issue of the timing of the filing of the petition was claims processing issue rather than a jurisdictional one.  The Tax Court rejected that argument 16-0 in its precedential opinion in that case.  Two circuit courts have interpreted IRC 6330 the same as the Tax Court regarding the timing of the filing of the petition after a determination letter – Duggan and Boechler.  Duggan was unrepresented.  The Eighth Circuit split on the Boechler case both in the opinion and the decision on rehearing en banc.  I believe a petition for cert will soon be filed in the Boechler case arguing that the case was wrongly decided and that there is a conflict between the circuits since the language of the whistleblower statute interpreted by the D.C. Circuit in Myers is identical.

The litigation regarding the Tax Court’s jurisdiction when the taxpayer files a late petition differs from the litigation regarding the Tax Court’s jurisdiction when a CDP request arrives late at the IRS.  A different part of the statute controls.  Even if the Tax Court correctly decided Guralnik, and Duggan and Boechler, those decisions would not control the issue of jurisdiction regarding the timing of the submission of a CDP request to the IRS. 

The Conference Committee report on IRC 6330 provides some guidance but does not get mentioned by the parties or the Court.  It reads:

If a return receipt is not returned, the Secretary may proceed to levy on the taxpayer’s property or rights to property 30 days after the Notice of Intent to Levy was mailed.  The Secretary must provide a hearing equivalent to the pre-levy hearing if later requested by the taxpayer.  However, the Secretary is not required to suspend the levy process pending the completion of a hearing that is not requested within 30 days of the mailing of the Notice.  If the taxpayer did not receive the required notice and requests a hearing after collection activity has begun, then collection shall be suspended and a hearing provided to the taxpayer.

H.R. Rep. (Conf.) 105-599 at 265-266 (Emphasis added).

For purposes of looking at the timeliness of making the CDP request, the applicable statute is IRC 6330(b)(1).  It provides that “If the person requests a hearing in writing under subsection (a)(3)(B) and states the grounds for the requested hearing, such hearing shall be held by the Internal Revenue Service Office of Appeals.”   This statue says nothing about the jurisdictional nature of the provision and neither does 6330 (a)(3)(b) which provides “the right of the person to request a hearing during the 30-day period under paragraph (2).”  IRC 6330(a)(2)(C) in applicable part provides “not less than 30 days before the day of the first levy with respect to the amount of the unpaid tax for the taxable period.”

So, reading the section that creates the hearing and the two subsections that mention the 30-day time period, there is no suggestion that Congress intended the period to be jurisdictional.  If the statute does not make the 30-day period for filing the CDP request jurisdictional, then the taxpayer should have the opportunity to have that period tolled by actions showing that the taxpayer had reasonable cause for missing the time period.  The IRS does not acknowledge this in its regulations and neither does the Court in its opinion.

The Tax Court denies jurisdiction here based on an administrative practice of the IRS.  The IRS administrative practice is at odds with the administrative practice of other agencies on similar issues. The Social Security Administration (SSA) and the Veterans Benefits Administration (VBA), agencies that touch millions of customers, provide useful instruction regarding the filing of similar appeal requests.

SSA allows claimants to appeal decisions administratively regarding their Social Security payments by mailing a form to any Social Security office, regardless of which office issued the notice being appealed. SSA Program Operations Manual System (“POMS,” the SSA equivalent to the IRS’s IRM) provides that the deadline for mailing this form may be extended in situations where the claimant can show good cause for late filing.The examples listed in the manual include illness, misleading information provided by an SSA employee, and failure to receive notice, to name a few. In this way, we can see similarities with the “equitable tolling” doctrine discussed in Manella v. Commissioner.

The VBA approach is customer friendly in a different way. That agency maintains one national intake center for all correspondence related to compensation claims. The VA’s manual for the regional offices provides that, “A claimant may request, cancel or reschedule a hearing in writing, by e-mail, by fax, by telephone, or in person.”  Neither the SSA nor the VBA take the hard-line view that the IRS takes with respect to these administrative submissions.  Both SSA and VBA go out of their way to assist the persons working with their agencies in getting the requests to the right places.  Their procedures not only recognize the non-jurisdictional nature of the request but adopt an approach that would closely fit with the approach the Commissioner of the IRS must take pursuant to the Taxpayer Bill of Rights.

Several veteran’s cases have allowed for equitable tolling at the administrative stage.  Bailey v. Principi, 351 F.3d 1381, 1382 (Fed. Cir. 2003) (“We hold that the filing with the regional office of a document that expresses the veteran’s intention to appeal to the Veterans Court equitably tolls the running of the 120–day notice of appeal period, and we therefore reverse and remand.”); Santana-Venegas v. Principi, 314 F.3d 1293, 1298 (Fed. Cir. 2002) (“We hold as a matter of law that a veteran who misfiles his or her notice of appeal at the same VARO from which the claim originated within the 120–day judicial appeal period of 38 U.S.C. § 7266, thereby actively pursues his or her judicial remedies, despite the defective filing, so as to toll the statute of limitations.”); Jaquay v. Principi, 304 F.3d 1276, 1288 (Fed. Cir. 2002), overruled by Henderson v. Shinseki, 589 F.3d 1201 (Fed. Cir. 2009) (“The filing of the misdirected paper itself satisfies the diligence requirement as a matter of law.” (citing Goldlawr, Inc. v. Heiman, 369 U.S. 463, 467 (1962)).  Additionally, one circuit case allowed the late filing where the misfiling was between a court and an arbitration proceeding. Doherty v. Teamsters Pension Trust Fund of Philadelphia & Vicinity, 16 F.3d 1386, 1393 (3d Cir. 1994), as amended on reh’g (Mar. 17, 1994) (finding that equitable tolling could be allowed for when the plaintiff mistakenly filed in federal court rather than the appropriate arbitration forum). 

Why must the IRS and the Tax Court take such a hard line here?  It is not driven by the statute.  It is not driven by good customer service or Taxpayer Rights.  It is not that the IRS has so many more CDP request than the Social Security or Veteran’s Administration has claims.  It seems to be because of the perpetuation of a wrong view about jurisdiction, as well as about how to treat people in the various circumstances that life throws at them.  Other agencies and courts have come to an understanding of this.  Why must the IRS and the Tax Court persist in trying to keep people out of court, and why doesn’t the Tax Court acknowledge the Supreme Court jurisprudence in deciding this case, even if it then sets out to distinguish it?

Maybe Mr. Ramey is not the best petitioner to make this argument, because of his small opportunity to react and file his CDP request and, because he did not set up the jurisdictional argument at the Tax Court level he is not the best person to make this argument on appeal, but this issue will not end with the opinion in this case.

Recent Collection Due Process Decisions

Recently, we were in the process of updating “IRS Practice and Procedure,” which caused me to read some Collection Due Process decisions I failed to catch as they came off the wire.  While the four opinions discussed here do not represent major shifts in the way the Tax Court approaches CDP, they are worth mention for addressing discrete corners of the law.  This issues I discuss here are only a portion of the issues addressed in these cases.  It’s clear that CDP litigation continues at a high level within the Tax Court.


Galloway v Commissioner, TC Memo 2021-24

This case holds that a taxpayer cannot use the CDP process to rehash a prior rejected offer in compromise (OIC).  Mr. Galloway actually submitted two OICs that the IRS rejected.  As an aside, from the description of the OICs in the Court’s opinion, the rejections seemed appropriate strictly from an asset perspective, since he did not want to include the value of a car he owned but allowed his daughter to use.  He is not the first person I have encountered who seems to feel that providing their property for the use by their children should preclude the IRS from using it as a source of collection.  This view will fail every time.

After rejection of his second OIC, he appealed the decision.  Appeals sustained rejection, which led not too long thereafter to his opportunity for a CDP hearing, which he used to complain about the decision to reject his offer.  The Appeals office hearing the CDP case declined to review the rejection of the OIC, finding that section 6330(c)(4) precluded Mr. Galloway from raising this argument.  The Tax Court agreed with the determination of Appeals, finding that the statute did not allow him to raise the merits of the administrative determination rejecting the offer during the CDP case.  The court cited to the trio of circuit court decisions decided a few years ago holding that the inability of the taxpayer to appeal administrative determination to court did not change the outcome based on the language of the statute.  See our prior discussions on those cases here.

The Court did not speculate on what Mr. Galloway might have done instead of arguing that the prior determination of Appeals was wrong.  I think he could have resubmitted an OIC during the CDP process that either took into account the changes in his circumstances since the prior OIC submission or that offered more than the previously rejected amount, based on his better understanding of the offer criteria.  Had he submitted an offer that was not identical to the one  previously rejected, I think Appeals would have considered it as part of the CDP process.  The rejection of the prior offer did not foreclose his further use of the offer process but did foreclose further argument about the rejected offer.

Friendship Creative Printers v. Commissioner, TC Memo 2021-19  

This case holds that the taxpayer could raise the merits of delinquency penalties by the backhanded method of challenging the application of payments.  Taxpayer failed to pay employment taxes over an extended period of time and failed to file the necessary returns but at some point made payments on the earliest periods.  In the CDP hearing taxpayer argued satisfaction of the earliest periods and eventually provided an analysis showing payments equal to the tax paid.

The Court treated this as a challenge to the merits of the delinquency penalties imposed.  Unfortunately, taxpayer did not designate its payments, which meant that the payments it made were not applied in the manner it expected and it argued in the CDP hearing.  Taxpayer also looked at the transcripts without appreciating the impact of accruals not reflected in the assessed portion of the transcript but accruing nonetheless.

Reynolds v. Commissioner, TC Memo 2021-10

This case holds that the IRS can collect on restitution based assessments even when the taxpayer has an agreement with the Department of Justice to make payments on the restitution award.  Taxpayer engaged in significant criminal tax activity for which he was successfully prosecuted.  The prosecution resulted in a significant restitution order. Like the majority of taxpayers who go through the criminal tax process and spend time in jail, taxpayer’s assets and ability to earn income significantly diminished as a result.  He agreed to pay DOJ $100 a month or 10% of his income.  At the time of the CDP case he was not working and did not appear to have many prospects for future employment.

He argued that the IRS did not have the right to file a notice of federal tax lien or to levy upon him because DOJ was collecting on the liability.  Citing Carpenter v. Commissioner, 152 T.C. 202 (2019), the Tax Court said that the IRS did have the right to pursue collection from him.  Obviously that right, at least with respect to levy, is tempered by the requirement in IRC 6343 not to levy when it would place someone in financial hardship, but no blanket prohibition existed to stop the IRS from collecting and therefore to stop it from making a CDP determination in support of lien or levy.

Although losing the case on the issue of the IRS basic authority to collect, the taxpayer did manage to remove penalties and interest through the CDP process.  The case is a good one to read for anyone dealing with a restitution based assessment to show the interplay between DOJ and IRS in the collection of this type of assessment, as well as to show the limitations of restitution based assessments compared to “regular” assessments.

BM Construction v. Commissioner, TC Memo 2021-13

This case involves, inter alia, a business owned by a single individual and the mailing of the CDP notice to the business owner rather than the business.  The Tax Court finds that sending the CDP notice to the individual rather than the business does not create a problem here, since the sole owner of the business would receive the notice were it addressed to the business rather than to him personally.

Right to Jury Trial Does Not Extend to Certain Federal Tax Collection Suits

Dombrowski v US, a recent case out of a federal district court in Michigan, highlights how the right to a jury trial differs in certain collection suits as compared to refund suits.

Dombrowski lives with Ronald Matheson, who owes money to the IRS. In 2013, Dombrowski purchased the house she and Matheson live in with funds transferred to her from Matheson. IRS filed a tax lien that reached the house Dombrowski purchased, claiming that Matheson had an ownership interest in the house. Dombrowski claimed that the funds she used to purchase the house stemmed from a prior debt that Matheson owed to her and her brother. To resolve the issue, she filed an action to quiet title to the property, and the government counterclaimed seeking to enforce the tax lien. Dombrowski’s complaint included a jury demand; the government moved to strike that demand.


The right to a jury trial is found in the Seventh Amendment to the constitution and is incorporated in Fed Rule of Civil Procedure 38, which provides that a party may demand the right to a jury if it is required under the constitution or otherwise statutorily created.

The quiet title action was brought pursuant to 28 USC 2401(a)(1). The government’s suit to enforce the lien was brought pursuant to 26 USC 7403(a). Neither provides for a statutory right to a jury trial. This is in contrast with 28 USC 2402 which specifically authorizes jury trials in tax refund suits brought in federal district courts.

The opinion concludes that in the absence of statutory language that explicitly gives an individual the right to a jury, the Seventh Amendment guarantees the right to a trial by jury only as it existed at common law.  The opinion then traces the historical roots of quiet title and lien enforcement actions. Both actions are equitable in nature:

“Like actions for quiet title, courts have consistently held that actions brought by the government to impose federal tax liens are closely related to historical suits in equity used in the enforcement of debt collection; similarly, discharging a lien is an equitable remedy.” 

The opinion goes on to explain that in any event the Seventh Amendment does not apply to actions against the sovereign, even those that have their roots in the common law.

I had not thought about this issue, and while I have some passing familiarity with the history of both causes of action, the opinion nicely explores the intersection of the Seventh Amendment, tax collection litigation and the separate statutory right to a jury trial that is embodied in refund litigation brought in federal district courts.  

This case now proceeds to the merits, with the judge having sole responsibility to determine whether and to what Dombrowski’s house is an asset that the government can reach to satisfy Matheson’s tax debt. The merits include a state law inquiry into whether money she used purchase the property was fraudulently transferred in violation of the Michigan Uniform Voidable Transfers Act. 

One other consideration here is Dombrowski’s decision to bring the quiet title action.  In a situation like this the IRS would file a nominee lien in order to reach the property.  In a prior post we described the nominee lien as the lis pendens of the tax world.  The nominee lien would encumber the property and should cause the IRS to bring the lien foreclosure case itself but would not necessarily trigger a quick filing of a suit on the property.  By bringing the quiet title, Dombrowski triggered the certain response of a lien foreclosure request.  If the IRS has filed a nominee lien, be sure you are ready for the counterclaim when you bring a suit against it.  If you have significant concerns about the transaction, you may want to sit tight and wait for the IRS to make the first move.  The lien does not present much of a problem if you are not planning to sell or encumber the property.  The nominee lien is specific to the property and does not extend to other property that the alleged nominee owns.

Update: To reflect the learned comment of Jack Townsend I have modified the post to make clear that the lack of a right to a jury trial depends on the type of collection suit. I have not chased down the issues Jack ably raises.

A Second Look at the American Rescue Plan Act

We welcome back guest blogger Omeed Firouzi, who works as a staff attorney at the Taxpayer Support Clinic at Philadelphia Legal Assistance, for a discussion of the latest developments in the IRS position and administration of the part of the act dealing with the exclusion of certain unemployment benefits.  The process of the change in the position at the IRS on how to calculate the unemployment compensation excluded by statute from income provides an interesting process to watch, similar to the process last spring that led to changes in how the Service approached the payment of the stimulus checks.  Keith

Since my last post on the American Rescue Plan Act, the IRS has provided two critical updates regarding the $10,200 unemployment compensation tax forgiveness provision of the law:

  1. A taxpayer’s modified adjusted gross income, for purposes of claiming the exclusion, should disregard the amount of unemployment compensation the taxpayer receives. Therefore, if your unemployment compensation in 2020 is what pushes you above the $150,000 adjusted gross income limit for claiming the exclusion, you can still be eligible for the exclusion. You do not count the unemployment compensation you got in 2020 as part of your income when factoring the exclusion. This IRS interpretation of the statute comes on the heels of a debate within the tax community as to how to read this section of the law. Last week, the IRS took the position in its unemployment compensation exclusion instructions that a taxpayer’s unemployment compensation does count towards the $150,000 income limitation for eligibility. Now, they’re saying otherwise.

Stipulations and Res Judicata in Quest for Bankruptcy Discharge

In Minor v. United States, Bankruptcy Case No. 2:13-bk-23787-BR (C.D. Cal. 2021), the district court addressed a debtor’s claim that a stipulation by the IRS barred the collection of taxes for the year covered by the stipulation.  Here, the district court affirmed the dismissal of the adversary proceeding based on the IRS request for a judgment on the pleadings.


Mr. Minor filed his chapter 7 bankruptcy petition on May 24, 2013.  Already you have a clue that this will not be an ordinary chapter 7 case, since almost eight years have elapsed after the filing of the bankruptcy petition.  He received a discharge on May 18, 2015, almost two years after filing the bankruptcy petition.  On March 9, 2018, the IRS filed an amended proof of claim for $24,857,210.48 for secured liabilities, $997,869.07 for priority liabilities and $61,398.90 as a general unsecured claim.

Mr. Minor also owed taxes to the state of California, which filed its own claim.  The bankruptcy estate did not have sufficient assets to satisfy the state and federal claims for taxes.  The IRS and the state entered into a stipulation splitting the available assets.  With respect to the IRS claim the stipulation provided:

The IRS Claim shall be allowed as a secured claim in the amount of the IRS Sotheby’s Share in the amount of $586,604.12 (the ‘IRS Secured Claim’), a priority claim in the amount of $997,869.07 (the ‘IRS Priority Claim’), a general unsecured claim in the amount of $19,706,386.41, and a subordinated claim for penalties in the amount of $4,625,648.18.

The court approved the stipulation.  Afterward, the IRS notified Mr. Minor that he still owed $462,432 for 2009.  He brought this action arguing that the stipulation together with his discharge prevented that IRS from coming after him at this point to collect the unpaid taxes.

The parties agreed that the taxes for 2009 had priority status since the return was due less than three years prior to the filing of the bankruptcy petition (I assume he filed a request for extension of time to file the 2009 return since the normal due date for 2009 is outside the three year period.)  The parties agreed that priority taxes are excepted from discharge under BC 523(a)(1)(A).

At issue is the impact of the stipulation on the ordinary application of the discharge rules.  The IRS argues that the stipulation did not impact discharge but merely divided the available property in the estate.  Mr. Minor cites bankruptcy cases from other districts arguing that a stipulation can trigger discharge.

The bankruptcy and district courts point out that the stipulation did not discuss discharge and that Mr. Minor was not a party to the stipulation.  Because bankruptcy courts, pursuant to BC 505, can determine the amount of tax, a stipulation of a tax creditor to an amount of tax can serve as a final judgment binding the tax authority to the amount of tax stipulated.  That type of stipulation would address the merits of the liability and not simply split available assets for distribution from the estate.  Mr. Minor’s argument draws from cases involving a contest of the tax liability itself and seeks to import the result of a stipulation in that situation to a division among tax creditors in the same class attempting to divide a limited pot of funds.  The order of the bankruptcy court regarding the stipulation in this case binds the IRS and California with respect to the division of the funds but not with respect to their underlying liabilities.

Mr. Minor was not in privity with the parties entering into the stipulation.  No identity of claims exists in his case that would support a determination that the IRS bound itself to a lower recovery with respect to taxes excepted from discharge simply because it accepted a certain amount of payment from the available funds.  In describing the outcome and the arguments the court observed:

It must be noted that the United States’ main argument in this action seems to be that Minor’s 2009 tax debt is nondischargeable. However, as explained in Breland, 474 B.R. at 770, whether Minor’s 2009 tax debt is nondischargeable under § 523(a)(1)(A) is irrelevant. Whether the Stipulation discusses dischargeability is irrelevant. The only pertinent issue here is whether the IRS is bound, by res judicata, to the amount designated as the IRS Priority Claim in the Stipulation Order.

The court correctly notes that even though the 2009 meets the criteria for an exception to discharge, the possibility still exists that the IRS could have stipulated to a lower amount of debt, which could bind it.  Even though that possibility exists, that’s not what the IRS did here.  The debtor tries to read too much into an agreement between two parties, and the court correctly determines that splitting the available assets does not imply a settlement on the correct amount of the debt or the dischargeability of the debt.

Anti- Injunction Act and Bankruptcy Merits Litigation

In In Re Aero-Fab Inc., No. 3:10-bk-30836 (Bankr. S.D. W.Va 2021) the bankruptcy court refused to reopen a bankruptcy case to allow the debtor to challenge the trust fund recovery penalty (TFRP.) 


The debtor filed a small business chapter 11 on October 8, 2010, and used the bankruptcy as a platform for selling the assets of the business rather than reorganization.  This was a legitimate use of the bankruptcy platform.  It sold the assets to a company owned by the son of the owner of Aero-Fab, Inc. and disclosed that relationship to the court.  At the time of the sale there were two liens filed against Aero-Fab.  One was to a bank and the other to the IRS.  The proceeds were distributed first to the bank, which appears to have had a superior lien since no one objected to that and second, with the remainder of the proceeds, to the IRS in an amount that did not satisfy the tax debt.  The purchasing company took the assets free and clear of liens.

On August 3, 2020, the purchasing company and Jeff Maynard, the son of the owner of Aero-Fab moved to reopen the bankruptcy case, alleging that the IRS sandbagged them by assessing a TFRP for unpaid post-petition taxes against Jeff Maynard. The court describes their argument:

The Reopen Movants assert that the trust fund tax assessment against Jeff Maynard is inappropriate and that the IRS should not be allowed to collect the trust fund tax. They rely on the following language in the final sale order: (1) that the Court will “retain jurisdiction of this transaction for the purposes of enforcing provisions of this order and the amended purchase agreement”; (2) that the “sale of property shall be free and clear of liens, claims, encumbrances, and interests with the liens to attach to the proceeds”; (3) that AFI took “title to and possession of the assets free and clear of any and all liens, claims, liabilities, interests, and encumbrances”; and (4) “all persons and entities are hereby prohibited and enjoined from taking action that would adversely affect [or] interfere with the ability of the Debtor to sell and transfer the assets.” This language forms the basis of the Reopen Movants’ claim that the IRS has “blatantly disregarded” the terms of the final sale order by assessing the trust fund tax against Jeff Maynard. The Reopen Movants assert that Jeff Maynard was indeed a purchaser (in addition to AFI), not a “responsible person,” and, thus, the IRS cannot assess this penalty against him. The majority of the Reopen Movants’ arguments address the legality of the trust fund tax assessed against Jeff Maynard and mostly address whether he has been improperly deemed a “responsible person.” They go so far as to file and discuss the transcript of the 2013 hearing approving the final sale order and point to sections they believe would absolve Jeff Maynard from the trust fund obligation.

Jeff Maynard argued that the Anti-Injunction Act (AIA) should not apply because he seeks not to enjoin the IRS from collecting but merely to enforce a prior order of the court.  The IRS argues that this is simply an attempt to have the bankruptcy court prevent the IRS from assessing and collection and that Mr. Maynard must instead bring a refund claim in district court or the Court of Federal Claims.

A party in interest may reopen a bankruptcy case pursuant to BC 350(b).  The Fourth Circuit has said that a party in interest is anyone “whose pecuniary interests are directly affected by the bankruptcy proceedings.”  Assuming that you meet the party in interest test, you bear the burden of proof to show that one of the three BC 350(b) bases for reopening exists: (1) to administer assets, (2) to accord relief to the debtor or (3) for other cause.  Here, the basis would be other cause since this request does not impact asset distribution or the debtor.  The Fourth Circuit requires compelling circumstances to reopen a case.  The first step is determining if reopening would be futile or a waste of resources and that’s where the AIA comes into play.

Les has written about the AIA several times, including posts on CIC Services a case now awaiting decision by the Supreme Court.  See some of his prior posts here, here and here.  The bankruptcy court notes the general rules regarding exceptions for the AIA:

The Supreme Court has articulated two exceptions to the AIA. The first exception, created in Enochs v. Williams Packaging & Navigation Co., allows injunctive actions against the IRS to proceed only if the plaintiff could prove two elements: (1) that under no circumstances would the Government ultimately prevail; and (2) that equity jurisdiction exists otherwise. Enochs v. Williams Packaging & Navigation Co., 370 U.S. 1 (1962). For the first element, “a court must determine, on the basis of the information available to the government at the time of the suit, whether, under the most liberal view of the law and the facts, the United States cannot establish its claim.” Judicial Watch, 317 F.3d at 407 (citing Enochs, 370 U.S. at 7) (internal quotation marks omitted).

The second exception was created in South Carolina v. Regan, wherein the Supreme Court opined that the AIA “could not stand as a barrier to injunctive relief in situations where . . . Congress has not provided the plaintiff with an alternative legal way to challenge the validity of the tax.” Judicial Watch, 317 F.3d at 407-08 (quoting South Carolina v. Regan, 465 U.S. 367, 373 (1984)) (internal quotation marks omitted). The issue in the Regan case was the constitutionality of state-issued bonds. Judicial Watch, 317 F.3d at 407. The basis for the exception “is not whether a plaintiff has access to a legal remedy for the precise harm that it has allegedly suffered, but whether the plaintiff has any access at all to judicial review.” Id. at 408 (citing Regan, 465 U.S. at 381) (emphasis in the original). “For most aggrieved persons, Congress has provided an alternative avenue to relief: a refund suit under 26 U.S.C. § 7422.” McKenzie-El v. Internal Revenue Service, No. ELH-19-1956, 2020 WL 902546, at *8 (D. Md. Feb. 24, 2020); see also Regan, 465 U.S. at 374-82. For example, the Seventh Circuit noted that the Regan exception did not apply in the matter before it because, should the party contesting the assessed tax want to challenge the tax, it could merely pay the tax and sue for a refund. LaSalle Rolling Mills, Inc. v. United States (In re LaSalle Rolling Mills, Inc.), 832 F.2d 390, 393 (7th Cir. 1987).

These exceptions are narrow, so as to prevent a “flood of lawsuits brought against the IRS . . . creating precisely the kind of judicial interference with the assessment and collection of taxes that the Act was designed to prevent.” Judicial Watch, 317 F.3d at 408

The court decides that the motion to compel in this case is really a request to enjoin the IRS from collecting, and nothing indicates that Mr. Maynard has tried to sue the IRS for a refund under normal TFRP procedures.  Although he attempts to characterize this as an action to enforce a settlement, the AIA contains a clear directive regarding this situation, and neither of the exceptions discussed above apply.  Because of the AIA, the court finds that reopening the bankruptcy case would “be a textbook example of futility and the wasting of judicial resources.”

We will soon have a decision from the Supreme Court in CIC Services discussed here and here.  That case addresses a very different aspect of the AIA than the Aero-Fab case but, if it creates another exception to the AIA or limits the AIA, the decision may be worth looking at for Mr. Maynard as he decides whether to further appeal this case or simply bring a TFRP case in district court. On March 17, Mr. Maynard appealed to the district court for the Southern District of West Virginia.

Tax Court Forum Shopping Reminder

Several years ago I wrote a post focused on the choice petitioners have when filing a Tax Court petition and how that choice could impact the outcome of their case.  I wrote the post because the Tax Court had entered a precedential decision in the case of Rand v. Commissioner, 141 T.C. 12 (2014), determining that the IRS could not impose the IRC 6662 penalty for understatement on taxpayers who overclaimed the earned income tax credit since the overstatement of the credit was not an understatement of tax.  The IRS disagreed with the decision initially and indicated a desire to continue litigating the issue.  A similar situation had occurred earlier when the Tax Court issued a precedential opinion in Lantz v. Commissioner, 132 T.C. 131 (2009), striking down the innocent spouse regulations interpreting IRC 6015(f) to impose a two-year time limit after the initial collection action on requesting innocent spouse relief.


In these situations, my suggestion in the post was to elect the small tax case procedure, if it was available, and the Tax Court would follow its precedent, resulting in an automatic victory for the petitioner. To go this route, you must not only qualify for small tax case procedure but also be in a circuit that does not have adverse precedent on the issue, since the Tax Court inexplicably follows the Golsen rule in deciding small tax cases as discussed in an article by Carl Smith “Does the Tax Court’s Use of its Golsen Rule in Unappealable Small Tax Cases Hurt the Poor?” Carl pointed out in his article that the Golsen rule by which the Tax Court adopted the rule of following the precedent of the circuit to which a Tax Court case would be appealed does not logically follow when a case cannot be appealed to the circuit court. By their very nature, small tax cases are cases entirely within the jurisdiction of the Tax Court. The Tax Court reversed its prior precedent in adopting Golsen in order to keep petitioners who lost at the Tax Court from simply appealing and obtaining a reversal in circuits where the Tax Court and the circuit court disagreed. If a case cannot be appealed to the circuit court, no need exists for following circuit precedent, yet the Tax Court applies Golsen anyway.

Given the Tax Court’s application of the Golsen rule, choosing the small tax case route does not make sense if the taxpayer lives in a circuit where adverse precedent exists. If no circuit precedent exists in the circuit where the taxpayer resides at the time of filing the Tax Court petition, then the Tax Court follows its own precedent. If it has a precedential opinion on its books, you know the outcome of the case, which makes choosing the small tax case route the logical choice for qualifying taxpayers.

This brings me back to the discussion at the end of the post on Friday, March 19. The discussion focused on the Tax Court’s decision in Sutherland v. Comm’r, 155 T.C. No. 6 (2020) and the apparent disagreement of the IRS with the Tax Court’s decision regarding the administrative record in innocent spouse cases. The situation in Sutherland presents another example of the value of electing small tax case status once the Tax Court has issued a precedential opinion on an issue. A high percentage of innocent spouse cases will qualify for small tax case status. Going that route gives you certainty if you fit within the facts of Sutherland.

Even if you do not elect small case status at the outset of the case as about 50% of petitioners do, you can make the election later in the case with leave of court. Pursuant to Tax Court Rule 171 you must make the election prior to the start of trial. You can expect to face some opposition from the IRS if you are making the election in a situation which will result in automatic loss for the IRS, but the IRS does not have many good arguments for opposing your request.

I have heard some practitioners say they always elect regular case status. Doing so ignores the what can be a winning strategy in situations like Rand, Lantz and Sutherland. The IRS has the right to keep litigating in Tax Court after obtaining a losing opinion on an issue, because it can set the issue up for a fight in the circuit courts where it might overturn the precedential decision of the Tax Court, as it did in Lantz. Conversely, taxpayers have the right to choose a Tax Court “forum” that prevents the IRS from getting to circuit court. Pay attention to the situations when this strategy could create an easy victory for your client.