SCOTUS Reports

Tag: Wrongful Levy

  • Greenoak Holdings Ltd. v. Comm’r, 143 T.C. 170 (2014): Taxpayer Standing in Collection Due Process Appeals

    Greenoak Holdings Ltd. v. Comm’r, 143 T. C. 170 (U. S. Tax Court 2014)

    In Greenoak Holdings Ltd. v. Comm’r, the U. S. Tax Court ruled it lacked jurisdiction over a petition filed by third parties claiming ownership of assets potentially subject to levy for unpaid estate taxes. The court clarified that only the taxpayer, the estate in this case, has standing to appeal a collection due process (CDP) notice of determination. This decision underscores the limits of third-party rights in tax collection disputes and the procedural protections afforded to taxpayers under the Internal Revenue Code.

    Parties

    Greenoak Holdings Limited, Southbrook Properties Limited, and Westlyn Properties Limited (collectively, “Petitioners”) were the appellants in this case. They were represented by Michael Ben-Jacob. The respondent was the Commissioner of Internal Revenue, represented by Frederick C. Mutter. The estate of James B. Irwin was the taxpayer involved, with Howard L. Crown as the initial personal representative, later succeeded by Jill McCrory.

    Facts

    James B. Irwin died on September 21, 2009, and Howard L. Crown was appointed as the personal representative of the estate. The estate filed a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, in December 2010, reporting both probate and nonprobate assets. Among the nonprobate assets listed was the Karamia Settlement, an offshore trust owned by the decedent, which in turn owned the Petitioners. The estate failed to timely pay the reported estate tax, leading the Commissioner to issue a Final Notice of Intent to Levy and Notice of Your Right to a Hearing on November 28, 2012, to Crown. The estate requested a collection due process (CDP) hearing, which was held on April 18, 2013. On May 1, 2013, the Commissioner issued a notice of determination sustaining the levy on the estate’s nonprobate assets. The estate did not appeal this determination, but the Petitioners filed a petition with the U. S. Tax Court on May 30, 2013, asserting their ownership interest in the assets potentially subject to levy.

    Procedural History

    The U. S. Tax Court issued an order to show cause on June 19, 2013, directing the parties to explain why the estate should not be substituted as the petitioner. On July 11, 2013, the Commissioner moved to dismiss for lack of jurisdiction, arguing that the Petitioners were not proper parties to appeal the notice of determination. Crown, on behalf of the estate, agreed with the Commissioner’s position. On January 16, 2014, Crown resigned as personal representative, and Jill McCrory was appointed as his successor. McCrory filed supplemental responses on May 6, 2014, arguing that the Petitioners had standing to appeal and that the estate should be substituted as a party. The Tax Court ultimately dismissed the case for lack of jurisdiction on September 16, 2014.

    Issue(s)

    Whether a third party, who claims an ownership interest in property that might be subject to levy, has standing to appeal a notice of determination issued to the taxpayer under I. R. C. § 6330(d)?

    Rule(s) of Law

    The controlling legal principle is found in I. R. C. § 6330, which provides taxpayers with procedural protections before the Internal Revenue Service (IRS) can levy on their property to collect unpaid taxes. Specifically, I. R. C. § 6330(d) states that “[t]he person may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter). ” The regulations under § 6330 further clarify that the “person” entitled to notice and appeal rights is the taxpayer liable for the unpaid tax, not third parties who may claim an interest in the property subject to levy.

    Holding

    The U. S. Tax Court held that it lacked jurisdiction over the Petitioners’ appeal because they were not the taxpayers liable for the unpaid estate tax, nor were they authorized representatives of the taxpayer. The court ruled that only the estate, as the taxpayer, had standing to appeal the notice of determination under I. R. C. § 6330(d).

    Reasoning

    The court’s reasoning focused on the statutory language and legislative history of I. R. C. § 6330, which consistently refers to “the person” as the taxpayer liable for the unpaid tax. The court noted that the purpose of § 6330 was to provide taxpayers with due process protections before the IRS could levy on their property. The court rejected the Petitioners’ argument that they were “persons” entitled to appeal rights under § 6330(d) because they claimed an ownership interest in property potentially subject to levy. The court emphasized that the regulations under § 6330 explicitly state that only the taxpayer is entitled to notice and appeal rights, and third parties must pursue other remedies, such as a wrongful levy action under I. R. C. § 7426. The court also considered the legislative history, which further supported the conclusion that § 6330 was intended to benefit taxpayers, not third parties. The court dismissed the successor personal representative’s attempt to reverse the estate’s original position and substitute the estate as a party, noting that the estate had not filed a timely petition.

    Disposition

    The U. S. Tax Court dismissed the case for lack of jurisdiction, as the Petitioners were not proper parties to appeal the notice of determination issued to the estate.

    Significance/Impact

    The Greenoak Holdings Ltd. v. Comm’r decision clarifies the limits of third-party standing in collection due process appeals under I. R. C. § 6330. It establishes that only the taxpayer liable for the unpaid tax has the right to appeal a notice of determination, and third parties claiming an interest in property subject to levy must pursue other remedies, such as a wrongful levy action under I. R. C. § 7426. This ruling has important implications for tax practitioners and taxpayers, as it underscores the importance of timely filing by the taxpayer to preserve appeal rights in collection disputes. The decision also highlights the procedural protections afforded to taxpayers under the Internal Revenue Code and the limited role of third parties in such proceedings.

  • Greenoak Holdings Ltd. v. Commissioner, 143 T.C. 8 (2014): Jurisdiction in Collection Due Process Appeals under I.R.C. § 6330

    Greenoak Holdings Ltd. v. Commissioner, 143 T. C. 8 (2014)

    In Greenoak Holdings Ltd. v. Commissioner, the U. S. Tax Court ruled it lacked jurisdiction over a petition filed by entities asserting ownership interests in property potentially subject to levy, clarifying that only the taxpayer liable for the unpaid tax has standing to appeal under I. R. C. § 6330. The decision reinforces the statutory framework designed to protect taxpayers, not third parties, during IRS collection actions, and underscores the exclusive remedy of wrongful levy actions for third parties under I. R. C. § 7426.

    Parties

    Greenoak Holdings Limited, Southbrook Properties Limited, and Westlyn Properties Limited, collectively referred to as Petitioners, appealed to the U. S. Tax Court against the Commissioner of Internal Revenue, the Respondent. The petitioners were represented by Michael Ben-Jacob, and the respondent by Frederick C. Mutter.

    Facts

    James B. Irwin died on September 21, 2009, and his estate failed to timely pay reported estate taxes. Howard L. Crown, the estate’s personal representative, requested a Collection Due Process (CDP) hearing after receiving a notice of intent to levy from the IRS. The IRS Appeals officer sustained the levy on the estate’s nonprobate assets, which included the Karamia Settlement, an offshore trust that owned the petitioners. The petitioners, asserting ownership interests in the trust’s assets, filed a petition with the Tax Court, despite the estate not filing a petition.

    Procedural History

    The IRS issued a notice of determination to the estate’s personal representative on May 1, 2013, sustaining the proposed levy on nonprobate assets. The petitioners filed a petition with the Tax Court on May 30, 2013, without a petition from the estate. The respondent moved to dismiss for lack of jurisdiction, arguing that the petitioners were not the proper parties to appeal the notice of determination issued to the estate. The Tax Court issued an order to show cause why the estate should not be substituted as petitioner, and after further submissions, the court considered the jurisdictional issue.

    Issue(s)

    Whether entities claiming ownership interests in property potentially subject to levy by the IRS have the right to appeal a notice of determination issued to the taxpayer under I. R. C. § 6330?

    Rule(s) of Law

    I. R. C. § 6330 provides taxpayers with procedural protections before the IRS can levy property to collect unpaid taxes. The section mandates prelevy notice to the taxpayer and allows for a CDP hearing to challenge the levy. I. R. C. § 6330(d) grants jurisdiction to the Tax Court to review a notice of determination issued to the taxpayer. I. R. C. § 7426(a)(1) provides the exclusive remedy for third parties claiming wrongful levy by the IRS.

    Holding

    The Tax Court held that it lacked jurisdiction over the petition filed by the petitioners because they were not the taxpayers liable for the unpaid estate tax, and thus not entitled to appeal the notice of determination issued to the estate under I. R. C. § 6330(d).

    Reasoning

    The court’s reasoning hinged on the interpretation of the term “person” in I. R. C. § 6330, which it determined unambiguously refers to the taxpayer liable for the unpaid tax. The court analyzed the statutory language, legislative history, and regulations to conclude that only the taxpayer, not third parties with alleged ownership interests in property subject to levy, is entitled to prelevy notice, a CDP hearing, and judicial review. The court rejected the petitioners’ argument that they were “persons” under the statute, emphasizing that the IRS is authorized to levy only on the property of the taxpayer. The court also noted that third parties have the right to bring a wrongful levy action under I. R. C. § 7426(a)(1), but such actions fall under the jurisdiction of district courts, not the Tax Court. The court considered the legislative intent to provide due process protections to taxpayers, not to extend such rights to third parties. Additionally, the court addressed the change in the estate’s representation, finding that the new personal representative’s attempt to substitute the estate as petitioner was untimely and could not confer jurisdiction.

    Disposition

    The Tax Court dismissed the petition for lack of jurisdiction under I. R. C. § 6330(d).

    Significance/Impact

    The decision in Greenoak Holdings Ltd. v. Commissioner clarifies the scope of the Tax Court’s jurisdiction in CDP appeals, reinforcing that only the taxpayer liable for the tax has standing to appeal a notice of determination. This ruling underscores the distinction between the rights of taxpayers and those of third parties in IRS collection actions, directing third parties to pursue wrongful levy actions under I. R. C. § 7426. The decision impacts legal practice by limiting the avenues through which third parties can challenge IRS levies, emphasizing the need for taxpayers to actively engage in the CDP process to protect their rights.

  • Krugman v. Commissioner, 112 T.C. 230 (1999): Limits on Tax Court Jurisdiction to Abate Interest

    Krugman v. Commissioner, 112 T. C. 230 (1999)

    The Tax Court’s jurisdiction to review interest abatement requests under IRC § 6404 is limited to ministerial acts by the IRS after written notification to the taxpayer.

    Summary

    Eldon Harvey Krugman filed his 1985 tax return late in 1992 and entered into an installment agreement with the IRS in 1993. The IRS sent erroneous notices stating that Krugman’s payments included interest, which they did not. After Krugman paid off the stated balance, the IRS demanded additional interest, leading Krugman to petition the Tax Court for abatement. The court held it lacked jurisdiction over Krugman’s claims regarding penalties, wrongful levy, and refund offset, and ruled that the IRS did not abuse its discretion in denying interest abatement from 1986 to 1993, as § 6404 only applies post-notification.

    Facts

    Krugman filed his 1985 tax return on October 27, 1992, after reading about an IRS program for nonfilers. He reported owing $3,199 in tax. In April 1993, the IRS notified Krugman of a tax deficiency and penalty, but omitted interest. Krugman signed an installment agreement in July 1993 and made monthly payments as instructed by the IRS. From August 1993 to March 1995, the IRS sent 19 notices erroneously stating payments included interest and that the balance was being reduced to zero. On August 9, 1995, the IRS demanded $6,019. 10 in interest, which Krugman contested, leading to a levy on his bank account in 1997.

    Procedural History

    Krugman filed a claim for abatement of interest in April 1996, which the IRS partially disallowed in April 1997. Krugman then petitioned the Tax Court in 1997, challenging the IRS’s refusal to abate interest, as well as alleging wrongful levy, improper penalties, and a right to offset. The IRS moved to dismiss for lack of jurisdiction over these additional claims.

    Issue(s)

    1. Whether the Tax Court has jurisdiction to decide Krugman’s claims regarding wrongful levy, refund offset, and liabilities for additions to tax or penalties under IRC § 6404(g)?
    2. Whether the IRS’s denial of Krugman’s request to abate interest that accrued before April 12, 1993, was an abuse of discretion?

    Holding

    1. No, because IRC § 6404(g) does not grant the Tax Court jurisdiction over claims of wrongful levy, refund offset, or liabilities for additions to tax or penalties.
    2. No, because the IRS did not abuse its discretion in denying interest abatement for the period from April 15, 1986, to April 11, 1993, as IRC § 6404(e) only applies after written notification to the taxpayer.

    Court’s Reasoning

    The court applied IRC § 6404(g), which limits its jurisdiction to reviewing IRS decisions on interest abatement under § 6404(e). The court found that § 6404(g) does not extend to wrongful levy, refund offsets, or penalties, as these are not covered by the statute. For the interest abatement issue, the court cited the statutory language and legislative history of § 6404(e), which requires written notification before abatement can be considered. Since the IRS’s first written notice to Krugman was in April 1993, the court held that interest before that date could not be abated under § 6404(e). The court noted the IRS’s concession regarding abatement of interest from April 12, 1993, to August 9, 1995, due to erroneous notices.

    Practical Implications

    This decision clarifies the Tax Court’s limited jurisdiction under IRC § 6404(g), impacting how taxpayers approach disputes over IRS levies, penalties, and interest. Practitioners must ensure they seek abatement of interest only after the IRS has provided written notification of a deficiency or payment. The ruling underscores the importance of accurate IRS notices and the potential consequences of errors in those communications. Future cases involving similar issues will need to adhere to this interpretation of § 6404, and taxpayers may need to pursue other remedies for claims outside the scope of this statute, such as wrongful levy or refund offsets.