The Tax Court in Brief – January 23rd – January 27th, 2023
Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.
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Tax Litigation: The Week of January 23rd, 2022, through January 27th, 2023
- Lim v. Comm’r, T.C. Memo. 2023-11| January 23, 2023 | Lauber, J. | Dkt. No. 14015-20
- Freman v. Comm’r, T.C. Memo. 2023-10| January 23, 2023 |Jones, J. | Dkt. No. 8895-20
- Shilgevorkyan v. Comm’r, T.C. Memo. 2023-12| January 23, 2023 | Ashford, J. | Dkt. No. 9247-15
- Belton v. Comm’r, T.C. Memo. 2023-13| January 24, 2023 |Toro, J. | Dkt. No. 22438-19P
- Mulu v. Comm’r, T.C. Summary Opinion 2023-2| January 25, 2023 | Leyden, J. | Dkt. No. 12975-21S
- Aragoni v. Comm’r, T.C. Summary Opinion 2023-3| January 25, 2023 | Panuthos, J. | Dkt. No. 20914-21S
- Johnson v. Comm’r, 160 T.C. No. 2| January 25, 2023 |Nega, J. | Dkt. No. (Consolidated) 19973-18, 19975-18, 19978-18, 20001-18
Adams v. Comm’r, 160 T.C. No. 1| January 24, 2023 | Toro, J. | Dkt. No. 1527-21P
Summary: Petitioner, Blake M. Adams, seeks review pursuant to section 7345(e) of the IRS’s certification to the Secretary of State that Adams has a “seriously delinquent tax debt” related to tax years 2007, 2009, 2010, 2011, 2012, 2013, 2014, and 2015 (relevant years).
Adams failed to file federal income tax returns for the relevant years. The IRS prepared a substitute for return for each year. The IRS assessed the tax shown in the substitutes for returns together with penalties and interest. In total, the IRS assessed more than $1.2 million in federal income tax, including interest and penalties. Adams did not pay the assessed amounts. The IRS filed a notice of federal tax lien (NFTL) for each of the relevant years. The IRS notified Adams of the filing of the NFTLs and of his rights, including the right to request a collection due process hearing. Adams did not request a collection due process hearing, and the time to do so lapsed. Thereafter, the IRS certified to the Secretary of State that Adams had a “seriously delinquent tax debt” ($1,206,083.95). Nearly nine months later, Adams petitioned the Tax Court to review the IRS’s certification pursuant to section 7345(e)(1). The IRS moved for summary judgment, arguing that Adams had a seriously delinquent tax debt as of the time of the certification and that the certification was correct and should be sustained. Adams responded with his own Motion for Summary Judgment, contending, among other things, that the underlying liabilities were not properly assessed and that section 7345 was unconstitutional.
Key Issue: Whether the IRS was entitled to a summary judgment that Adams’ outstanding liabilities qualified as “seriously delinquent tax debt” as of the time of the IRS’s certification?
Primary Holdings: Yes. Adams’s certification was not erroneous and should be sustained, as a matter of law. There is no dispute that the IRS assessed the amounts it thought Adams owed for the relevant tax years. Adams did not contend otherwise, and he failed to timely challenge those assessments. The tax debt (1) had been assessed; (2) it exceeded $51,000; (3) it remained unpaid and legally enforceable; and (4) was the subject of a filed lien notice or a completed levy.
Key Points of Law:
Serious Delinquent Tax Debt. Section 7345(a) of the Code provides that, if the IRS certifies that a taxpayer has a “seriously delinquent tax debt,” that certification shall be transmitted “to the Secretary of State for action with respect to denial, revocation, or limitation of [the taxpayer’s] passport.” The IRS is required to contemporaneously notify the taxpayer upon making that certification. 26 U.S.C. § 7345(d). A “seriously delinquent tax debt” is generally a federal tax liability that (1) has been assessed; (2) exceeds $50,000 (adjusted for inflation); (3) is unpaid and legally enforceable; and (4) is the subject of a filed lien notice or a completed levy. 26 U.S.C. § 7345(b)(1), (f); Garcia v. Commissioner, 157 T.C. 1, 7 (2021). If a certification “is found to be erroneous or if the debt with respect to such certification is fully satisfied,” the IRS must reverse its certification and notify the Secretary of State and the taxpayer. 26 U.S.C. § 7345(c)(1), (d).
Tax Court Adjudication. Section 7345(e)(1) permits a taxpayer whom the IRS has certified as having a seriously delinquent tax debt to petition the Tax Court to determine “whether the certification was erroneous or whether the [IRS] has failed to reverse the certification.” The Code restricts the relief that the court may grant. If the court determines that a certification is erroneous, the court can grant only one remedy: an order that the IRS “notify the Secretary of State that such certification is erroneous.” 26 U.S.C. § 7345(e)(2).
Requirements. A taxpayer’s federal tax liability is a seriously delinquent tax debt if it: (1) has been assessed; (2) exceeds $51,000; (3) is unpaid and legally enforceable; and (4) is the subject of a filed lien notice or a completed levy. See 26 U.S.C. § 7345(b)(1), (f); Rev. Proc. 2017-58, § 3.53. An assessed liability must exist before a seriously delinquent tax debt may be found. See I.R.C. § 7345(b)(1)(A). Section 6201(a)(1) directs the Secretary of the Treasury to “assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists . . . are made.” An assessment is made when the IRS makes an entry in its books that the taxpayer owes tax. I.R.C. § 6203; Hibbs v. Winn, 542 U.S. 88, 100 (2004); Baltic v. Commissioner, 129 T.C. 178, 183 (2007).
Jurisdiction. The Tax Court does not have jurisdiction to redetermine the tax liabilities underlying the certification of a seriously delinquent tax debt. See Ruesch v. Commissioner, 25 F.4th 67, 71-72 (2d Cir. 2022), aff’g in part, vacating and remanding in part 154 T.C. 289 (2020).
Constitutionality of Section 7345. Section 7345 is constitutional. It authorizes the IRS to certify the existence of a seriously delinquent tax debt based on the presence of certain tax-related facts. A provision other than section 7345 gives a different government actor (the Secretary of State) power to act with respect to a passport after receiving a certification made by the IRS. Only the Secretary of State, not the IRS, may revoke or deny a passport, and the Secretary of State’s authority does not derive from section 7345. See Rowen v. Commissioner, 156 T.C. 101, 113 (2021).
Insights: A “seriously delinquent tax debt” could result in a scenario where the State Department is prohibited from issuing or renewing a passport to the taxpayer. Depending on the taxpayer, the consequence affecting the taxpayer’s passport could be extremely personal and not just financial. The requirements for the IRS to establish a right to issue a certification notice pursuant to section 7345(a) are straightforward and well-defined by the Tax Court such that, when the taxpayer fits into those 4-factor requirements, a certification may be leveraged against the taxpayer and without much room for the taxpayer to escape.