Court Invalidates Longstanding Process to Challenge IRS Levy

If the IRS fails to mail or mails a notice to a taxpayer and uses the wrong address, should the taxpayer be faulted for missing the deadline set out in the IRS notice? The Seventh Circuit Court of Appeals says “yes” in Adolphson v. Commissioner, No. 15-2242.

The facts and procedural history are as follows:

  • The IRS “issued” a Notice of Intent to Levy to the taxpayer, but it could not prove that it mailed the notice and it eventually conceded that the notice was sent to the wrong address.
  • The taxpayer missed the 30 day period to respond to the IRS notice to request a CDP hearing.
  • The IRS levied on the taxpayer’s assets.
  • The taxpayer filed suit in U.S. Tax Court, asking the court to invalidate the levy because the taxpayer was prevented from requesting a CDP hearing due to the IRS’s failure to mail a Final Notice of
  • Intent to Levy to the proper address.
  • The IRS moved to dismiss the tax court petition–arguing that the U.S. Tax Court lacked jurisdiction over the matter because the taxpayer did not request a CDP hearing timely.
  • The tax court granted the IRS’s motion to dismiss, reasoning that it lacked the authority to grant relief without a notice of determination.

So both the IRS and the taxpayer were arguing that the U.S. Tax Court did not have jurisdiction.

The process whereby a taxpayer files a petition with the U.S. Tax Court and then asks the court to dismiss their own petition is not new. It is also not something that is found in the Code. It is a process that has been developed in the case law. As noted by the Seventh Circuit, there are quite a we court cases where the U.S. Tax Court invalidated IRS’s levies after the taxpayer filed his petition and the court dismissed it.

In reviewing the prior cases, the Seventh Circuit noted that whether the IRS complied with its notice requirements is not a jurisdictional issue: “[a] decision invalidating administrative action for not following statutory procedures is a quintessential merits analysis, not a jurisdictional ruling. The Buffano line of cases therefore represents an improper extension of the tax court’s statutorily defined jurisdiction.” Because it is a challenge on the merits, not a jurisdictional challenge, the Tax Anti-Injunction Act bars the taxpayer from bringing suit before first paying the tax and suing for a refund. So the Seventh Circuit concluded that the levy must stand. This effectively puts an end to this process for taxpayers in the Seventh Circuit.

The court’s holding seems unfair. It seems like taxpayers should have a judicial remedy prior to seizure of their assets when the IRS fails to mail a Final Notice of Intent to Levy and, through no fault of their own, the taxpayers miss the 30-day window to request a CDP hearing. The U.S. Tax Court’s procedure afforded that remedy. It will be interesting to see if the IRS provides an equivalent administrative process to fill this void or if Congress does so.


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