Federal courts are limited in the types of cases that they can hear. Under the doctrine of mootness, these courts are generally prohibited from issuing advisory opinions on litigation matters where there is no legally recognizable dispute amongst the parties. The doctrine applies to all Article III courts, and it applies throughout the course of the litigation.
Although the U.S. Tax Court is not an Article III court, it applies the doctrine of mootness. In Greene-Thapedi, the court held that the doctrine applied in a taxpayer’s Collection Due Process (CDP) case where the IRS had applied overpayments from other tax years to satisfy the existing tax debt. According to the decision in Greene-Thapedi, there was no longer a triable dispute between the parties because the IRS had satisfied the tax debts and therefore had no intention to proceed with collection action (i.e., a levy) against the taxpayer.
Greene-Thapedi was decided in 2006. Since that time, the Tax Court has consistently referred to this decision for grounds to dismiss a CDP case, particularly where the tax liability has been satisfied later in the proceeding. More recently, on March 22, 2024, the Court of Appeals for the Third Circuit issued its decision in Zuch v. Comm’r, No. 22-2244 (3d Cir.), concluding that a taxpayer’s CDP case is not rendered moot if the taxpayer properly challenges the existence or amount of the tax liability, even if the tax debts at issue are eliminated later in the litigation by IRS offsets.
What Is A CDP Case?
Enacted in 1998, the CDP provisions are primarily located in section 6320 and section 6330 of the Code. Under those provisions, the IRS must issue a CDP notice to a taxpayer prior to moving forward with a levy against the taxpayer’s property. The CDP notice is important in that it affords the taxpayer an opportunity to challenge the proposed levy action through an administrative hearing with the IRS Independent Office of Appeals (IRS Appeals). If a CDP hearing is requested with IRS Appeals, the taxpayer may raise under section 6330(c)(2)(A) “any relevant issue relating to the unpaid tax or the proposed levy.” Moreover, under section 6330(c)(2)(B), the taxpayer may also challenge “the existence or amount of the underlying tax liability,” provided the taxpayer did not receive a Notice of Deficiency and did not otherwise have an opportunity to dispute the tax debt.
If IRS Appeals chooses to sustain the levy action after the hearing, the taxpayer may challenge this determination in the Tax Court.
Greene-Thapedi v. Commissioner.
In Greene-Thapedi, the IRS issued the taxpayer a CDP notice, and the taxpayer requested a CDP hearing. During the CDP hearing, the taxpayer challenged the existence or amount of the tax liability. IRS Appeals sustained the proposed levy action, and the taxpayer timely filed a petition with the Tax Court.
After the petition was filed, the IRS applied an overpayment to the taxpayer’s outstanding tax debts. As a result, the taxpayer no longer owed any taxes for the year at issue in the CDP hearing. On this basis, the Tax Court dismissed the taxpayer’s CDP case as moot. Much of the decision in Greene-Thapedi rested on the Tax Court’s observation that it did not have jurisdiction under the CDP statutes to issue an overpayment or refund to the taxpayer. Because the taxpayer in Greene-Thapedi had amended her petition to request a refund through the CDP statutes, the Tax Court denied granting the request and found the remaining controversy between the IRS and the taxpayer moot.
The Facts In Zuch.
The facts in Zuch are similar to those in Greene-Thapedi, at least with respect to the IRS’ application of overpayments to the tax liability at issue during the CDP proceedings.
Jennifer Zuch (Jennifer) was married to Patrick Gennardo (Patrick) from 1993 through 2014. They submitted $50,000 in estimated tax payments for their 2010 tax year. When these payments were made, however, neither specified how the payments should be applied.
Both Jennifer and Patrick filed married filing separate tax returns for their 2010 tax year. After the returns were filed, the IRS applied all of the $50,000 of estimated tax payments solely to Patrick’s 2010 tax year.
Jennifer did not originally claim the $50,000 of estimated tax payments on her 2010 return. Later, she submitted an amended return claiming them. In addition, Patrick filed an amended 2010 return, including a statement to the IRS that the $50,000 of estimated tax payments should be applied solely to Jennifer and not to him. Nevertheless, the agency continued to credit only Patrick with the estimated tax payments, resulting in Jennifer having a significant balance owed for 2010.
In 2013, the IRS mailed Jennifer a CDP notice, indicating that the agency intended to levy against her property unless she full paid the balance owed for 2010. Jennifer timely requested a CDP hearing and contested the amount of the tax liability. Specifically, she contended that she did not owe the IRS for 2010 because she should have received credit for the $50,000 of estimated tax payments.
IRS Appeals refused to credit her with the estimated tax payments and issued her a Notice of Determination, sustaining the proposed levy action. Thereafter, Jennifer filed a petition with the Tax Court. Prior to trial, however, the agency applied Jennifer’s overpayments from various tax years to fully satisfy the 2010 tax debt. On this basis, the IRS successfully moved to dismiss her case as moot. Accordingly, Jennifer appealed the Tax Court’s decision to the Third Circuit.
The Third Circuit’s Decision.
The Third Circuit disagreed that Jennifer’s case was moot. As an initial matter, the Third Circuit found that there was a critical distinction between the term “tax liability” as used in section 6330(c)(2)(B) and “unpaid tax” as used in section 6330(c)(2)(A). The court held that the two terms could not be synonymous because such an interpretation would render section 6330(c)(2)(B) superfluous. In analyzing the undefined statutory term of “tax liability” in West’s Tax Dictionary, the court concluded that the term meant the “total amount of tax owed to the IRS, after allowance of any proper credits.”
Given this definition, the court determined that Jennifer’s challenge was a lawful challenge to the existence or amount of the tax liability under section 6330(c)(2)(B). Thus, because Jennifer had properly challenged the amount of the tax liability prior to receiving a Notice of Deficiency or otherwise having an opportunity to contest the tax liability, the court held that the Tax Court had the authority to review her dispute under section 6330(c)(2)(B). Moreover, the Third Circuit reasoned that nothing in section 6330(c)(2)(B) suggested that a dispute becomes moot if the taxpayer challenges the existence or amount of the underlying liability (as Jennifer did) and the amount is later paid with the IRS no longer intending to proceed with levy action. Interestingly, the court also held that even if section 6330(c)(2)(A) alternatively applied, Jennifer’s case would still not be moot because, among other reasons, there was a legitimate dispute regarding the unpaid tax.
Conclusion.
Taxpayers in the Third Circuit should take note of the recent decision in Zuch. Moreover, taxpayers in other circuits should stay tuned—it is likely the Tax Court will revisit its decision in Greene-Thapedi in the light of the adverse Third Circuit decision.
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