Supreme Court Reverses IRS Loss Giving The IRS A “New Tool to Avoid Accountability”

Tax levies are the way that the Internal Revenue Service gets your immediate attention. What they are saying is … We have tried to communicate with you but you have ignored us.

Tax Levies Are Different Than Tax Liens

Levies are used to seize your wages (commonly referred as garnishment) and whatever other assets you have: Checking accounts, savings accounts, autos, stocks, bonds or anything else that you own. If you have more in the bank than you owe, the IRS will only take that amount to satisfy your liability, leaving the rest for you.

A levy is different from an IRS lien. A lien is a claim used as security for the tax debt, while an IRS levy actually takes the property to satisfy the tax debt. Not only can the IRS seize and sell assets that you hold, the IRS can also levy property that is yours but held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

Procedure IRS Must Follow Before Starting Levy Action

Before the IRS can issue an initial round of levies, the IRS must issue a “Final Notice of Intent to Levy and Notice of Your Right To a Hearing” (i.e., “Final Notice”) to the taxpayer, allowing up to 30 days from the date of the Final Notice to pay in full or to find another solution.

If the IRS levies your state tax refund, you would receive a “Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing.” Ignoring these notices will only make matters worse.

Once the 30 days have passed, the IRS does not have to give any further notice before seizing your assets, including your checking accounts, savings accounts, and your wages.

A timely filing within 30 days of the date on the Final Notice for a Collection Due Process (“CDP”) hearing can stop the IRS’ ability to start levies and have your case handled by the Office Of Appeals.  Instead of an official in Collections handling your case, an independent official in the Office Of Appeals will adjudicate your case.

Some of the issues on appeal may include:

• You paid all you owed before the IRS sent the levy notice,
• The IRS assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
• The IRS made a procedural error in an assessment,
• The time to collect the tax (called the statute of limitations) expired before IRS sent the levy notice,
• You did not have an opportunity to dispute the assessed liability,
• You wish to discuss the collection options, or
• You wish to make a spousal defense.

At the conclusion of the hearing, the Office of Appeals will issue a determination. If the taxpayer does not agree with the determination, the taxpayer has up to 30 days after the determination letter date to bring a lawsuit in U.S. Tax Court to contest the determination.

What Happens If You Fail To File An Appeal?

If you decide to do nothing or fail to timely file a request for a CDP Hearing, the levy will commence immediately and will end when:

• The levy is released,
• You pay your tax debt, or
• The time expires for legally collecting the tax.

If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This period allows the taxpayer time to solve any problems from the levy. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. If the IRS made a mistake by levying your bank account and you incurred bank charges because of the erroneous levy, you may be entitled to a reimbursement from the IRS by filing a claim with the IRS within one year after your bank charged you the fee.

How Collection Appeals Are Handled By The U.S. Tax Court.

Contrary to public perception, IRS Appeals Officers at the Office of Appeals generally have more discretion than do the judges of the U.S. Tax Court to resolve IRS collection actions.  That is because when the Tax Court reviews a discretionary determination of the IRS Office Of Appeals, it will only change that action when it is convinced the IRS Appeals Officer’s decision was made with an “abuse of discretion.”

In a collection appeal, Appeals Officers will collect any new information from the taxpayer and refer the work-up back to the originating collection function.  For example, if a taxpayer in a collections hearing wants the IRS to release or withdraw a levy on the basis that the IRS accept an Offer In Compromise (“OIC”), Appeals will not decide whether the IRS should accept the OIC.  Instead, the Appeals Officer sends the OIC to the IRS unit that processes all OIC’s and that Unit will make the decision.  Only if the taxpayer then disagrees with that decision does the Appeals Officer review it.

In such an example the taxpayer still benefits from a more expediated review of the OIC than if the OIC was directly filed with the IRS OIC Unit.  Also, the taxpayer now has someone accountable at the IRS who can oversee the consideration and processing of an OIC which is especially valuable considering that it is common for the IRS OIC Unit to make errors that are not in favor of the taxpayer.

Of course, Appeals will still consider hazards of litigation in resolving issues which for a CDP Appeal allows a taxpayer to subsequently appeal to the U.S. Tax Court and that is where we turn to a recent decision by the U.S. Supreme Court.

Impact Of A Recent U.S. Supreme Court Ruling.

The U.S. Supreme Court ruled on June 12, 2025 in the case of Commissioner of Internal Revenue v. Zuch, No. 24-416, that the U.S. Tax Court did not have jurisdiction to review a New Jersey woman’s collection dispute with the IRS after the IRS stopped going after her unpaid taxes.

In 2010 and 2011, while still married, Jennifer Zuch and Patrick Gennardo made two estimated tax payments totaling $50,000 for their 2010 taxes, without specifying how to allocate the payments between them. In September 2012, after filing separate tax returns, Gennardo reported owing $385,393 while Zuch reported an overpayment. The IRS applied the entire $50,000 in estimated payments to Gennardo’s liability. When Zuch later filed an amended return reporting additional income and claiming her share of the $50,000, the IRS assessed the additional tax but did not credit her for any portion of the estimated payments, even after Gennardo filed his own amended return indicating the payments should be allocated to Zuch.

In August 2013, the IRS notified Zuch of its intent to levy her property to collect approximately $36,000 in unpaid 2010 taxes. During the ensuing CDP hearing, Zuch challenged her underlying tax liability, arguing she was entitled to credit for the estimated payments. Meanwhile, over several years while Zuch was disputing her 2010 liability, the IRS repeatedly took her tax refunds from other years and applied them to what it calculated as her 2010 liability, eventually reducing the balance to zero by April 2019.

The case went through the U.S. Tax Court, which initially denied summary judgment and remanded to the IRS Office of Appeals. When the balance was reduced to zero through the IRS’s seizure of Zuch’s later tax refunds, the Tax Court dismissed the case as moot. The U.S. Court of Appeals for the Third Circuit reversed, holding that the IRS cannot eliminate Tax Court jurisdiction over a disputed tax liability simply by seizing a taxpayer’s refunds to cover the contested debt.  The Supreme Court reversed stating that given that the outstanding liability is zero and there is no levy for the IRS to maintain, the taxpayer cannot get any relief from the Court including contesting the manner that the IRS reduced the liability to zero.

It is notable that Justice Gorsuch who was the sole dissenting justice, argued that the court’s ruling endorses a view of the law that gives the IRS a “roadmap for evading Tax Court review and never having to answer a taxpayer’s complaint that the IRS has made a mistake.”

What Should You Do?

The decision by the U.S. Supreme Court makes it more difficult for taxpayers to seek relief in U.S. Tax Court from IRS Collection actions.  Therefore, it is essential that if you owe the IRS and are facing potential collection action, that you engage tax counsel early on so that you have the best chance to get the most favorable result in the Office Of Appeals.   You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.