SCOTUS Reports

Tag: Seized Property

  • 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the Zaparas were precluded from challenging their underlying tax liabilities and that the jeopardy levy would not be withdrawn.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.

  • Galusha v. Commissioner, 95 T.C. 218 (1990): Interpreting ‘Perishable’ Property in Jeopardy Assessments

    Gerald A. Galusha, Petitioner v. Commissioner of Internal Revenue, Respondent, 95 T. C. 218 (1990)

    The term ‘perishable’ in the context of a jeopardy assessment under IRC section 6336 refers to property that is subject to quick deterioration or spoilage, not long-term depreciation.

    Summary

    In Galusha v. Commissioner, the U. S. Tax Court addressed whether a seized boat, the ‘Anna’, could be sold under a jeopardy assessment. The IRS argued the boat was ‘perishable’ and would depreciate rapidly if not sold immediately. The court defined ‘perishable’ as subject to quick decay, not long-term deterioration, and found the boat not perishable, as it could last through the litigation process without significant value loss. The decision emphasizes the need for the IRS to justify immediate sales of seized property during tax disputes.

    Facts

    Gerald Galusha, previously involved in illegal activities, used proceeds from selling his residence to purchase a 47-foot wood-hulled boat, ‘Anna’, for $72,500. The IRS made a jeopardy assessment against Galusha, seized the boat, and planned to sell it, asserting it was ‘perishable’. Galusha filed a petition and sought a stay of the sale, arguing the boat was not perishable and could be maintained without great expense or value loss.

    Procedural History

    The IRS made a jeopardy assessment and seized Galusha’s boat, planning its sale. After receiving a notice of deficiency, Galusha petitioned the U. S. Tax Court and moved for a stay of the sale under IRC section 6863(b)(3). The Tax Court reviewed the case, focusing on the definition of ‘perishable’ under IRC section 6336.

    Issue(s)

    1. Whether the seized boat ‘Anna’ is ‘perishable’ within the meaning of IRC section 6336.
    2. Whether the boat may become ‘greatly reduced in price or value’ under IRC sections 6863(b)(3)(B)(ii) and 6336.
    3. Whether the boat ‘cannot be kept without great expense’ under IRC sections 6863(b)(3)(B)(iii) and 6336.

    Holding

    1. No, because the boat does not deteriorate quickly and can be maintained through the litigation process without significant value loss.
    2. No, because the IRS failed to show that a great loss in value is likely to occur in the foreseeable future.
    3. No, because the costs of maintaining the boat are not ‘great’ in relation to its value.

    Court’s Reasoning

    The court interpreted ‘perishable’ as property subject to quick decay, not long-term depreciation. They noted that most property depreciates over time, but the term ‘perishable’ must be construed narrowly to prevent the exception from swallowing the rule against selling seized property during tax litigation. The boat ‘Anna’, despite being wood-hulled, was not found to be perishable as it could be maintained without significant value loss during the legal proceedings. The IRS’s argument about the boat’s potential for rapid deterioration was based on its condition in dry dock, a situation the IRS could remedy by returning the boat to the water. The court also rejected the IRS’s claim that the boat’s value would greatly reduce without immediate sale, as no evidence supported this claim. Finally, the court found that the monthly maintenance costs did not constitute a ‘great expense’ relative to the boat’s value.

    Practical Implications

    This decision clarifies that ‘perishable’ in the context of jeopardy assessments should be interpreted narrowly, focusing on quick decay rather than long-term depreciation. Practitioners should be aware that the IRS must provide clear evidence of rapid deterioration to justify the immediate sale of seized property. This ruling may encourage taxpayers to challenge IRS actions more vigorously when property is seized under jeopardy assessments, particularly when the property’s value is not at immediate risk. The decision also highlights the importance of the IRS properly maintaining seized property to prevent unnecessary depreciation claims.

  • Williams v. Commissioner, 92 T.C. 920 (1989): Tax Court’s Authority to Review and Stay Sales of Seized Property

    Williams v. Commissioner, 92 T. C. 920 (1989)

    The Tax Court has jurisdiction to review and temporarily stay the sale of seized property under a jeopardy or termination assessment, with the burden on the Commissioner to justify the sale.

    Summary

    In Williams v. Commissioner, the Tax Court addressed its jurisdiction to review the IRS’s determination to sell seized property under a jeopardy assessment. Melvin and Mary Williams sought a stay of the sale of their jewelry and furs, arguing the assets were not perishable or diminishing in value. The court ruled it had authority to review such determinations and issue temporary stays, with the burden on the Commissioner to prove the sale was justified. The court stayed the jewelry sale for six months but allowed the fur sale to proceed, as the Williamses provided no evidence on the furs’ value.

    Facts

    In 1984, the Drug Enforcement Administration (DEA) seized jewelry and furs from Melvin and Mary Williams. In 1987, the IRS made a jeopardy assessment against the Williamses and seized the property from DEA. In early 1989, the IRS scheduled an auction of the items for March 1, 1989. On February 28, 1989, the Williamses filed a motion with the Tax Court to stay the sale, arguing the property was not perishable or diminishing in value. The IRS justified the sale based on appraisals showing a decline in value.

    Procedural History

    The IRS made a jeopardy assessment against the Williamses in 1987 and seized their jewelry and furs. The Williamses timely filed petitions with the Tax Court contesting the deficiency. On February 28, 1989, the day before the scheduled auction, the Williamses filed a motion to stay the sale under newly enacted IRC § 6863(b)(3)(C). The Tax Court issued a temporary stay and allowed the parties to submit briefs and appraisals. The court then ruled on the motion on May 9, 1989.

    Issue(s)

    1. Whether the Tax Court has jurisdiction to review the IRS’s determination to sell seized property under a jeopardy assessment?
    2. Whether the Tax Court can issue a temporary stay of the sale of seized property pending review?
    3. Whether the burden of proof in such a review should be on the taxpayer or the Commissioner?
    4. Whether the IRS’s determination to sell the Williamses’ jewelry and furs was justified?

    Holding

    1. Yes, because the Tax Court’s jurisdiction to review sales of seized property under jeopardy assessments is expressly granted by IRC § 6863(b)(3)(C).
    2. Yes, because the authority to review necessarily includes the power to issue a temporary stay to preserve the rights of the parties.
    3. The burden is on the Commissioner, because the unique circumstances of these proceedings warrant departure from the usual rule.
    4. Yes for the furs, because the Williamses provided no evidence on their value; No for the jewelry, because the Williamses’ appraisal showed no likely decline in value for six months.

    Court’s Reasoning

    The Tax Court reasoned that its jurisdiction to review sales of seized property under jeopardy assessments was clearly established by the recently enacted IRC § 6863(b)(3)(C). The court further held that this jurisdiction necessarily included the power to issue temporary stays to preserve the rights of the parties. The court placed the burden of proof on the Commissioner due to the unique circumstances of these proceedings, where the IRS controls the property and initiates the sale. For the jewelry, the court found the Williamses’ appraisal showing no likely decline in value for six months more persuasive than the IRS’s appraisals. However, the court allowed the fur sale to proceed, as the Williamses provided no evidence on the furs’ value.

    Practical Implications

    This decision establishes the Tax Court’s authority to review and temporarily stay sales of seized property under jeopardy assessments. Taxpayers now have a forum to contest such sales, and the IRS bears the burden of justifying them. Practitioners should be aware of this remedy when representing clients facing jeopardy assessments and property seizures. The decision also highlights the importance of providing current appraisals to support arguments about a seized asset’s value. Subsequent cases have applied this ruling, affirming the Tax Court’s jurisdiction and the Commissioner’s burden in these matters.