SCOTUS Reports

Tag: Jeopardy Levy

  • Prince v. Commissioner, 133 T.C. 270 (2009): Validity of Jeopardy Levy and Tax Lien Post-Bankruptcy

    Jimmy Asiegbu Prince v. Commissioner of Internal Revenue, 133 T. C. 270 (U. S. Tax Court 2009)

    In Prince v. Commissioner, the U. S. Tax Court upheld the IRS’s use of a jeopardy levy to collect unpaid taxes from funds seized by the Los Angeles Police Department before Prince’s bankruptcy. The court ruled that Prince could not challenge claims on behalf of third parties and that the levy was valid despite his bankruptcy discharge, as the funds were part of his pre-bankruptcy estate and subject to a pre-existing tax lien. This decision clarifies the IRS’s ability to enforce tax liens on pre-bankruptcy assets, even after personal liability is discharged.

    Parties

    Jimmy Asiegbu Prince, the petitioner, represented himself (pro se). The respondent, Commissioner of Internal Revenue, was represented by Vivian Bodey and Debra Bowe.

    Facts

    In February 2002, the IRS determined that Jimmy Asiegbu Prince had federal income tax deficiencies for the tax years 1997, 1998, and 1999. Prince challenged this determination in the U. S. Tax Court, which ruled against him in September 2003 (Prince v. Commissioner, T. C. Memo 2003-247). On March 6, 2003, while the tax case was pending, the Los Angeles Police Department (LAPD) seized $263,899. 93 from Prince, suspecting fraudulent credit card transactions. On January 28, 2004, the IRS assessed the deficiencies and additions to tax as per the court’s decision. On April 7, 2005, the IRS filed a notice of federal tax lien with the Los Angeles County Recorder for the tax years 1997, 1998, 1999, and 2002. On June 2, 2005, Prince filed for bankruptcy under Chapter 7 of the Bankruptcy Code, but did not include the seized funds in his bankruptcy schedules, despite $212,237. 89 of these funds remaining with the LAPD. Prince’s debts were discharged in bankruptcy on January 27, 2006. In December 2007, informed that the seized money would be returned to Prince, the IRS served a jeopardy levy on the Los Angeles County District Attorney’s Office to collect Prince’s unpaid tax liabilities.

    Procedural History

    The IRS issued a notice of determination in May 2008, upholding the jeopardy levy. Prince timely petitioned the U. S. Tax Court for review. The IRS moved for summary judgment on April 17, 2009, which was heard on June 25, 2009. The court granted the IRS’s motion for summary judgment on November 2, 2009, upholding the jeopardy levy and denying Prince’s petition.

    Issue(s)

    Whether the IRS’s jeopardy levy was proper under the circumstances where the levied funds were part of Prince’s pre-bankruptcy estate and subject to a pre-existing federal tax lien?

    Whether Prince could raise third-party claims in this lien or levy case?

    Rule(s) of Law

    The Internal Revenue Code allows the IRS to levy upon a taxpayer’s property if it finds that the collection of tax is in jeopardy (26 U. S. C. § 6331(a)). A discharge in bankruptcy under 11 U. S. C. § 727 relieves a debtor of personal liability but does not extinguish a valid federal tax lien filed before the bankruptcy petition (26 U. S. C. § 6323). The Tax Court reviews determinations regarding the underlying tax liability de novo if properly at issue, but reviews other administrative determinations for abuse of discretion (26 U. S. C. § 6330). The doctrine of standing requires a plaintiff to assert his own legal rights and interests (Anthony v. Commissioner, 66 T. C. 367 (1976)).

    Holding

    The Tax Court held that the IRS’s jeopardy levy was proper because the funds levied were part of Prince’s pre-bankruptcy estate and subject to a valid federal tax lien filed before his bankruptcy petition. The court further held that Prince could not raise third-party claims in this lien or levy case due to lack of standing.

    Reasoning

    The court reasoned that Prince’s bankruptcy discharge relieved him of personal liability for his tax debts, but did not protect the seized funds from the IRS’s collection efforts since those funds were part of his pre-bankruptcy estate and subject to a pre-existing federal tax lien. The court relied on previous holdings that a valid tax lien survives bankruptcy and continues to attach to pre-bankruptcy property (Bussell v. Commissioner, 130 T. C. 222 (2008); Iannone v. Commissioner, 122 T. C. 287 (2004)). The court also applied the doctrine of standing, concluding that Prince did not have standing to seek the return of money or property that did not belong to him or to represent the rights of third parties in this proceeding. The court found no abuse of discretion in the IRS’s determination that a jeopardy levy was appropriate, given the risk of the funds being dissipated and the limitations on the IRS’s ability to collect post-bankruptcy. The court dismissed Prince’s other arguments, including claims of bias by the IRS Appeals officer and lack of timely notice of the jeopardy levy, as meritless or not properly raised before the Appeals Office.

    Disposition

    The Tax Court granted the IRS’s motion for summary judgment, upheld the jeopardy levy, and denied Prince’s petition.

    Significance/Impact

    Prince v. Commissioner clarifies that a federal tax lien remains enforceable against a debtor’s pre-bankruptcy assets, even after a personal discharge in bankruptcy. This decision underscores the importance of including all assets in bankruptcy schedules and reinforces the IRS’s authority to use jeopardy levies to protect its interests in collecting tax liabilities from pre-bankruptcy assets. The ruling also serves as a reminder of the limitations on a taxpayer’s ability to challenge IRS collection actions on behalf of third parties in Tax Court proceedings.

  • Bussell v. Commissioner, 128 T.C. 129 (2007): Collateral Estoppel and Dischargeability of Tax Liabilities in Bankruptcy

    Bussell v. Commissioner, 128 T. C. 129 (2007)

    In Bussell v. Commissioner, the U. S. Tax Court upheld the IRS’s use of jeopardy levies to collect unpaid taxes for the years 1983, 1984, 1986, and 1987. The court ruled that Letantia Bussell’s tax liabilities were not discharged in bankruptcy due to her conviction for tax evasion, applying the doctrine of collateral estoppel. This decision underscores the IRS’s ability to collect taxes post-bankruptcy when evasion is proven and clarifies the interplay between tax collection and bankruptcy law.

    Parties

    Letantia Bussell and the Estate of John Bussell (Petitioners) v. Commissioner of Internal Revenue (Respondent). Letantia Bussell was the plaintiff at the trial level and appellant on appeal, while the Commissioner was the defendant at the trial level and appellee on appeal.

    Facts

    Letantia Bussell and her late husband John Bussell filed joint tax returns for the years 1983, 1984, 1986, and 1987. After failing to pay the assessed taxes, the IRS sent multiple notices of balance due and intent to levy between 1992 and 1993, and filed federal tax liens in 1994. In 1995, the Bussells filed for bankruptcy under Chapter 7, which discharged most of their debts but not their tax liabilities due to Letantia’s subsequent conviction for tax evasion and other related crimes. In 2002, the IRS served jeopardy levies on various assets, including a pension plan and life insurance policies, to collect the outstanding tax liabilities. Letantia Bussell challenged these levies and the dischargeability of her tax liabilities in the Tax Court.

    Procedural History

    The IRS issued jeopardy levies in 2002, which the Bussells challenged through administrative and judicial proceedings. The U. S. District Court for the Central District of California granted summary judgment to the Commissioner, affirming the reasonableness of the jeopardy determination. The Bussells then appealed to the Tax Court, which reviewed the Commissioner’s determination under section 6330(d). The Tax Court sustained the Commissioner’s action, finding that the tax liabilities were not discharged in bankruptcy and that the jeopardy levies were appropriate.

    Issue(s)

    Whether the tax liabilities of Letantia Bussell for the years 1983, 1984, 1986, and 1987 were discharged in bankruptcy under 11 U. S. C. section 523(a)(1)(C)?

    Whether the IRS properly followed statutory requirements before issuing jeopardy levies against the Bussells’ assets?

    Rule(s) of Law

    Under 11 U. S. C. section 523(a)(1)(C), a tax debt is not discharged in bankruptcy if the debtor “willfully attempted in any manner to evade or defeat such tax. “

    According to section 6331(a) of the Internal Revenue Code, if a person liable to pay a tax neglects or refuses to pay within 10 days after notice and demand, the IRS may collect such tax by levy upon all property and rights to property belonging to such person.

    The doctrine of collateral estoppel applies when an issue of fact or law is “actually and necessarily determined by a court of competent jurisdiction,” and that determination is conclusive in subsequent suits involving a party to the prior litigation. Montana v. United States, 440 U. S. 147, 153 (1979).

    Holding

    The Tax Court held that Letantia Bussell’s tax liabilities for the years 1983, 1984, 1986, and 1987 were not discharged in bankruptcy due to her conviction for tax evasion under section 7201, which collaterally estopped her from contesting the dischargeability of those liabilities. The court also held that the IRS properly followed statutory requirements before issuing the jeopardy levies.

    Reasoning

    The court applied the doctrine of collateral estoppel, finding that Letantia Bussell’s criminal conviction for tax evasion under section 7201 was a final judgment that met the conditions for collateral estoppel. The elements of section 7201 overlapped with those required to establish non-dischargeability under 11 U. S. C. section 523(a)(1)(C), and her conviction precluded her from relitigating the issue of whether she willfully attempted to evade or defeat the tax liabilities in question.

    The court also addressed the IRS’s compliance with statutory requirements for issuing jeopardy levies. It noted that the IRS had sent multiple notices of balance due and intent to levy, and filed federal tax liens well in advance of the jeopardy levies. The court rejected the Bussells’ argument that the IRS needed to provide additional notice and demand for immediate payment before serving the jeopardy levies, as the IRS had already met the statutory notice requirements.

    The court considered policy considerations, emphasizing the need to prevent debtors from using bankruptcy to evade tax obligations and the importance of efficient tax collection by the IRS. It also addressed statutory interpretation, noting that the language of section 523(a)(1)(C) did not limit its application to prepetition activities but extended to attempts to evade taxes during the bankruptcy proceeding.

    The court treated the dissenting opinions and counter-arguments by considering them irrelevant, moot, or without merit. It did not find any need to address the value of the assets levied upon, as the IRS was entitled to levy on all assets to satisfy the tax liabilities.

    Disposition

    The Tax Court entered a decision for the respondent, sustaining the IRS’s determination to proceed with collection by jeopardy levy.

    Significance/Impact

    The Bussell decision clarifies the application of collateral estoppel in tax dischargeability cases, reinforcing that a criminal conviction for tax evasion can preclude relitigation of the issue in bankruptcy. It also affirms the IRS’s authority to use jeopardy levies to collect taxes that are not discharged in bankruptcy, ensuring that the IRS can efficiently collect taxes while protecting the rights of taxpayers. This case has been cited in subsequent tax and bankruptcy cases, influencing the interpretation of the interplay between tax collection and bankruptcy discharge.

  • Zapara v. Comm’r, 124 T.C. 223 (2005): Jeopardy Levy and Seized Property Sale Under IRC Section 6335(f)

    Zapara v. Commissioner, 124 T. C. 223 (U. S. Tax Ct. 2005)

    In Zapara v. Commissioner, the U. S. Tax Court ruled that the IRS must comply with a taxpayer’s request to sell seized stock within 60 days or provide a reason for not doing so, as per IRC Section 6335(f). The case involved Michael and Gina Zapara, who were unable to challenge their tax liabilities from 1993-1995 due to prior agreements but sought to have seized stock sold to offset their tax debts. The court’s decision underscores the IRS’s obligations regarding seized property and the rights of taxpayers in jeopardy levy situations.

    Parties

    Michael A. Zapara and Gina A. Zapara were the petitioners, representing themselves pro se. The respondent was the Commissioner of Internal Revenue, represented by Lorraine Y. Wu.

    Facts

    Michael and Gina Zapara pleaded guilty to tax-related offenses for the years 1993-1995. They signed a Form 4549-CG, waiving their right to contest their tax liabilities and consenting to immediate assessment and collection. A subsequent court found that Michael’s plea agreement contained erroneous calculations, leading to a sentence reduction due to ineffective assistance of counsel. The IRS made a jeopardy levy on the Zaparas’ stock accounts to collect taxes for 1993-1995 and unpaid taxes for 1997 and 1998. The Zaparas requested a hearing to challenge their underlying tax liabilities and requested the IRS to sell the seized stock, alleging coercion in signing the Form 4549-CG and that its figures were overstated.

    Procedural History

    The Zaparas requested an Appeals Office hearing under IRC Section 6330(f) to challenge the underlying tax liabilities and requested the sale of the seized stock under IRC Section 6335(f). The IRS neither sold the stock nor determined that its sale would not be in the best interest of the United States. The Appeals Office issued a determination that the Zaparas were precluded from challenging their underlying tax liabilities and that the jeopardy levy would not be withdrawn. The Zaparas then petitioned the U. S. Tax Court for review.

    Issue(s)

    Whether the Zaparas, having signed a Form 4549-CG, were precluded from challenging their underlying tax liabilities for the years 1993-1995? Whether the IRS complied with the notice and demand requirements under IRC Sections 6331(a) and (d)? Whether the Zaparas were entitled to a credit for the value of the seized stock accounts as of the date by which the stock should have been sold under IRC Section 6335(f)?

    Rule(s) of Law

    Under IRC Section 6330(c)(2)(B), a taxpayer who signs a Form 4549-CG waiving the right to challenge proposed assessments is precluded from contesting those tax liabilities unless signed under duress. IRC Section 6331(a) authorizes the IRS to collect assessed taxes by levy after notice and demand. IRC Section 6335(f) requires the IRS to sell seized property within 60 days of a taxpayer’s request or determine that it is not in the best interest of the United States to do so. “The owner of any property seized by levy may request the Secretary to sell such property within 60 days after the request (or within such longer period as the owner may specify). “

    Holding

    The court held that the Zaparas were precluded from challenging their underlying tax liabilities for 1993-1995 as they did not establish signing the Form 4549-CG under duress. The IRS complied with the notice and demand requirements under IRC Sections 6331(a) and (d). The Zaparas were entitled to a credit for the value of the seized stock as of 60 days after their request to sell on August 23, 2001, due to the IRS’s failure to sell the stock or make a determination under IRC Section 6335(f).

    Reasoning

    The court found that the Zaparas did not provide sufficient evidence to support their claim of duress in signing the Form 4549-CG. The court rejected their argument that the Form 4549-CG contained the same erroneous calculations as the plea agreement, as testified by the Revenue Agent. The court verified that the IRS complied with notice and demand requirements, as the Appeals Officer confirmed notices were sent to the Zaparas’ last known address. Regarding the seized stock, the court found that the IRS did not comply with IRC Section 6335(f) by failing to sell the stock or make a determination within 60 days of the Zaparas’ request. The court reasoned that the IRS’s request for fair market value information was not supported by IRC Section 6335(f) or its regulations. The court also clarified that IRC Sections 6330(e)(1) and 7429 did not preclude the sale of the stock. The court’s analysis focused on the statutory interpretation of IRC Section 6335(f), emphasizing the IRS’s obligation to act on a taxpayer’s request to sell seized property.

    Disposition

    The case was remanded to the Appeals Office to determine the value of the seized stock accounts as of 60 days after August 23, 2001, and to ascertain whether the Zaparas’ tax liabilities for 1993-1998 remained unpaid after crediting their accounts accordingly.

    Significance/Impact

    Zapara v. Commissioner establishes that the IRS must adhere to the requirements of IRC Section 6335(f) regarding the sale of seized property, reinforcing taxpayer rights in jeopardy levy situations. The decision has implications for how the IRS handles seized property and the necessity of timely action or determination when a taxpayer requests a sale. Subsequent courts have cited Zapara to emphasize the IRS’s obligations under IRC Section 6335(f), impacting the practice of tax collection and enforcement.

  • Green v. Comm’r, 121 T.C. 301 (2003): Timeliness of Judicial Review for Jeopardy Assessments and Levies

    Green v. Commissioner of Internal Revenue, 121 T. C. 301 (U. S. Tax Ct. 2003)

    In Green v. Commissioner, the U. S. Tax Court ruled that George G. Green’s motion for judicial review of a jeopardy assessment and levy was untimely, as it was filed beyond the 90-day statutory period. This decision underscores the strict adherence required to the procedural timelines under IRC section 7429(b)(1) for challenging IRS jeopardy actions, emphasizing that such deadlines are jurisdictional and non-negotiable, even if administrative delays occur.

    Parties

    George G. Green, the petitioner, sought judicial review against the Commissioner of Internal Revenue, the respondent, regarding jeopardy assessments and levies for tax years 1995 through 1999.

    Facts

    On May 2, 2003, the IRS issued jeopardy assessments against George G. Green for tax deficiencies totaling $12,268,808 across the taxable years 1995 through 1999. Concurrently, a notice of jeopardy levy was issued. Green requested administrative review of these actions on May 20, 2003. An administrative hearing occurred on July 16, 2003, and the IRS Appeals officer sustained the jeopardy assessment and levy. The officer notified Green’s attorney on July 17, 2003, that judicial review should be sought before September 4, 2003. A final closing letter, sustaining the IRS’s actions, was sent to an incorrect address on August 25, 2003, and Green did not receive it until after the September 3, 2003 deadline. Green filed a motion for judicial review on November 19, 2003, which was denied by the Tax Court as untimely.

    Procedural History

    Green filed a petition with the U. S. Tax Court on January 2, 2002, contesting deficiencies for tax years 1995 through 1998. On May 2, 2003, the IRS made jeopardy assessments and issued a notice of jeopardy levy for tax years 1995 through 1999. Green requested administrative review on May 20, 2003, under IRC section 7429(a)(2). After an administrative hearing on July 16, 2003, the IRS sustained the jeopardy actions. Green moved for judicial review on November 19, 2003, which the Tax Court denied due to the motion being filed beyond the 90-day period required by IRC section 7429(b)(1).

    Issue(s)

    Whether Green’s motion for judicial review of the jeopardy assessment and jeopardy levy was timely filed under IRC section 7429(b)(1)?

    Rule(s) of Law

    IRC section 7429(b)(1) mandates that a taxpayer must commence a civil action for judicial review within 90 days after the earlier of the day the IRS notifies the taxpayer of its determination under section 7429(a)(3) or the 16th day after the taxpayer’s request for review under section 7429(a)(2). This requirement is jurisdictional and cannot be waived.

    Holding

    The Tax Court held that Green’s motion for judicial review was untimely under IRC section 7429(b)(1). The court determined that the 90-day period began on June 5, 2003, the 16th day after Green’s request for administrative review, and expired on September 3, 2003. Green’s motion, filed on November 19, 2003, was therefore outside the statutory period, and the court lacked jurisdiction to review the jeopardy assessment and levy.

    Reasoning

    The Tax Court’s reasoning focused on the strict interpretation of IRC section 7429(b)(1), emphasizing that the statute’s use of the term ‘earlier’ mandated that the 90-day period commenced from the earlier of the two specified events. The court noted that the legislative intent behind section 7429 was to provide expedited review, which would be defeated if the period were measured from the later administrative determination. The court also considered prior judicial interpretations, particularly from the Eleventh Circuit in Fernandez v. United States, which similarly held that the statutory deadlines under section 7429(b)(1) were mandatory and jurisdictional. Despite the IRS’s administrative delays and the misaddressed final closing letter, the court found no basis to waive the statutory requirement or extend the filing deadline, citing the jurisdictional nature of the requirement and the need for strict adherence to promote expediency in jeopardy assessment reviews.

    Disposition

    The Tax Court denied Green’s motion for judicial review of the jeopardy assessment and jeopardy levy, as it was filed beyond the 90-day period specified in IRC section 7429(b)(1).

    Significance/Impact

    The decision in Green v. Commissioner reinforces the stringent procedural requirements for challenging IRS jeopardy assessments and levies under IRC section 7429. It underscores that the 90-day filing period is jurisdictional and non-waivable, even in the face of administrative delays or miscommunications. This case serves as a reminder to taxpayers of the importance of timely action in seeking judicial review of IRS actions and highlights the court’s commitment to the expedited review process intended by Congress. Subsequent cases have continued to cite Green for its interpretation of the timeliness requirements under section 7429, affirming its impact on the procedural landscape of tax litigation involving jeopardy assessments and levies.

  • Davis v. Commissioner, 116 T.C. 362 (2001): Tax Court Jurisdiction over Jeopardy Levy Determinations

    Davis v. Commissioner, 116 T. C. 362 (2001)

    In a landmark decision, the U. S. Tax Court affirmed its jurisdiction to review the IRS’s use of jeopardy levies under section 6330(f) of the Internal Revenue Code. The ruling in Davis v. Commissioner clarifies that taxpayers can appeal the IRS’s determination to employ such levies, ensuring judicial oversight in urgent tax collection actions. This decision significantly impacts the procedural protections available to taxpayers facing aggressive IRS collection tactics, reinforcing the balance between government collection powers and individual rights.

    Parties

    Petitioner: Davis, residing in Naples, Florida. Respondent: Commissioner of Internal Revenue.

    Facts

    Petitioner Davis maintained various accounts in the Evergreen Funds. On November 29, 1999, the IRS issued a notice of levy to Evergreen Funds to collect petitioner’s unpaid income tax liabilities for tax years 1987-89. Concurrently, the IRS issued a notice of jeopardy levy and right of appeal to Davis. Following this, Davis timely filed a Form 12153 requesting a Collection Due Process Hearing. On May 1, 2000, an IRS Appeals officer conducted a hearing concerning the tax years in question. On May 22, 2000, the IRS sent Davis a Notice of Determination Concerning Collection Action(s) under sections 6320 and/or 6330, determining the jeopardy levy was appropriate.

    Procedural History

    Davis filed a petition in the U. S. Tax Court seeking review of the IRS’s determination that a jeopardy levy was appropriate. The Tax Court, in considering its jurisdiction under section 6330(d), questioned its authority sua sponte to review determinations under section 6330(f). The court analyzed whether its jurisdiction to review section 6330 determinations included the authority to review jeopardy levy determinations under section 6330(f). The Tax Court held that it did have such jurisdiction.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction under section 6330(d) to review the IRS’s determination under section 6330(f) that a jeopardy levy was appropriate?

    Rule(s) of Law

    Section 6330(d) of the Internal Revenue Code provides that a taxpayer may appeal a determination made under section 6330 to the Tax Court within 30 days. Section 6330(f) states that the section does not apply to jeopardy levies, but the taxpayer shall be given an opportunity for a hearing within a reasonable period after the levy. The legislative history of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), which created section 6330, indicates that Congress intended for taxpayers to have the right to judicial review of determinations made under this section, including those related to jeopardy levies.

    Holding

    The U. S. Tax Court held that it has jurisdiction under section 6330(d) to review the IRS’s determination under section 6330(f) that a jeopardy levy was appropriate.

    Reasoning

    The court’s reasoning was rooted in the interpretation of the statutory language and legislative intent. It noted that the phrase “this section” in section 6330(d)(1) applies to all subsections of section 6330, including subsection (f). The court cited prior cases, such as Butler v. Commissioner and Woodral v. Commissioner, to support this interpretation. Furthermore, the court examined the legislative history of the RRA 1998, which clearly indicated Congress’s intent to allow taxpayers to appeal IRS determinations under section 6330, including those related to jeopardy levies. The court concluded that interpreting section 6330(f) to restrict jurisdiction under section 6330(d) would be inconsistent with the overall purpose of section 6330, which is to provide procedural protections in tax collection disputes. The court also considered policy considerations, emphasizing the balance between the IRS’s need to collect taxes urgently and the taxpayer’s right to judicial review.

    Disposition

    The Tax Court affirmed its jurisdiction to review the IRS’s determination that the jeopardy levy was appropriate, and an appropriate order was issued reflecting this decision.

    Significance/Impact

    The Davis decision is significant as it clarifies the Tax Court’s jurisdiction over jeopardy levy determinations, enhancing taxpayer protections in IRS collection actions. This ruling ensures that taxpayers facing jeopardy levies have a clear path to judicial review, reinforcing the procedural safeguards intended by Congress in the RRA 1998. The decision has been influential in subsequent cases involving similar issues and underscores the importance of judicial oversight in balancing the government’s tax collection powers with individual rights.