Commissioner of Internal Revenue v. Zuch

LII note: The U.S Supreme Court has now decided Commissioner of Internal Revenue v. Zuch

Issues

Does a proceeding under 26 U.S.C. § 6330 for a pre-deprivation hearing on an IRS proposed tax levy become moot if disputes about the underlying levy no longer exist?

Oral argument:
April 22, 2025
Court below:
United States Court of Appeals for the Third Circuit

This case asks the Supreme Court to determine whether a proceeding about an IRS proposed levy to collect unpaid taxes becomes moot when there is no longer a dispute regarding the proposed levy. Commissioner of Internal Revenue contends that the Tax Court lacked jurisdiction because there was no longer a live dispute and the petitioner lacked any cognizable interest in the case. Zuch argues that the Tax Court retained jurisdiction because the parties continued to have an interest in the case since the Tax Court could determine petitioner’s right to a refund. The outcome of this case affects the scope of Tax Court proceedings under 26 U.S.C. § 6330 and impacts taxpayers.

Questions as Framed for the Court by the Parties

Whether a proceeding under 26 U.S.C. § 6330 for a pre-deprivation determination about a levy proposed by the Internal Revenue Service to collect unpaid taxes becomes moot when there is no longer a live dispute over the proposed levy that gave rise to the proceeding.

Facts

In 1993, Jennifer Zuch married Patrick Gennardo. In 2010 and 2011, Zuch and Gennardo made two prepayments toward the couple’s 2010 estimated tax liability , but did not specify how the IRS should allocate their prepayments to their actual respective 2010 tax liability. In 2012, Zuch and Gennardo, still married, filed separate, late 2010 tax returns. Upon receiving their returns, the IRS allocated all of the prepayments to Gennardo’s tax liability.

Later, in 2012, Zuch amended her 2010 tax return to report an additional $71,000 in income, which increased her tax liability by $27,682. On her amended 2010 return, Zuch asked the IRS to use the prepayments to offset her liability. The IRS processed Zuch’s amended return but refused to credit her with the prepayments. Finally, in 2013, Gennardo also amended his 2010 tax return to stipulate that the prepayments credited to him should instead be credited to Zuch.

Despite Gennardo’s 2013 amendment, the IRS did not credit Zuch’s 2010 tax liability with the prepayments and continued to apply them to Gennardo’s return. On August 31, 2013, the IRS sent Zuch a “ Final Notice of Intent to Levy and Notice of your Right to a Hearing .” The notice stated that the IRS planned to levy Zuch’s property to cover the unpaid balance on her 2010 return, and that she had thirty days to request a collection due process proceeding (“CDP”). A CDP is “an administrative proceeding before an appeals officer with the [IRS Office of Appeals] in which a taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy.”

Zuch requested and received a CDP hearing. During the hearing, the IRS officer informed Zuch that he did not believe the IRS could retroactively credit Zuch for the prepayments once they had been applied to Gennardo’s return. After the hearing, the IRS notified Zuch that they could not apply the prepayments to her return and notified her that she had thirty days to appeal their decision in Tax Court . Section 6330 gives Tax Courts the authority, on appeal, to consider issues related to “the unpaid tax or the proposed levy” and “challenges to the existence or amount of the underlying tax liability.”

Throughout the appeals process, the IRS routinely applied the tax refund Zuch was owed each year to her 2010 tax liability. By April 2019, the IRS had successfully set off Zuch’s 2010 tax liability using her annual refunds. Because Zuch no longer had an outstanding balance on which the IRS could execute a levy, they moved to dismiss the proceedings as moot . The Tax Court dismissed the case, holding that there was no live controversy because there was “no unpaid liability…upon which a levy could be based.”

The Third Circuit overturned the Tax Court’s dismissal. It held that the case was not moot because Section 6330 allowed Zuch to continue to challenge her underlying tax liability. The Commissioner of the Internal Revenue petitioned the United States Supreme Court for certiorari , which the Court granted on January 10, 2024.

Analysis

WHEN IS A PRE-LEVY PROCEEDING MOOT?

The Commissioner of the Internal Revenue (henceforth “Commissioner”) argues that the text and history of Section 6330 indicate that a pre-levy proceeding is rendered moot when the underlying levy dispute no longer exists. Specifically, the Commissioner asserts that the Tax Court has limited jurisdiction , and that if the dispute bringing the case under the jurisdiction of the Tax Court is resolved, then the Tax Court lacks jurisdiction over other ongoing controversies between the parties that do not directly fall within the Tax Court’s jurisdiction.

Second, the Commissioner claims that the entire purpose of Section 6330 is tied to whether the IRS will be allowed to execute a levy. The only outcome of a case before the Tax Court, the Commissioner asserts, is a determination about the legitimacy of the levy. The Commissioner argues that any argument the taxpayer makes regarding their tax liability is merely a “consideration” in the ultimate question of whether the levy may proceed. Although the Tax Court has supplemental jurisdiction to consider other issues before it, the Commissioner contends that such jurisdiction is limited to actions concerning the levy. Therefore, the Commissioner asserts, when the IRS no longer needs to execute a levy, the entire pre-levy proceeding becomes moot.

In fact, the Commissioner claims that the history of the Internal Revenue Code (“IRC”) shows that a pre-levy proceeding is moot when the levy is no longer being pursued. The Commissioner maintains that the IRC operates under a “pay now, dispute later” scheme. The Commissioner argues that Section 6330 was established to address procedural due process concerns that could arise from seizing a person’s property without providing them a hearing. The Commissioner contends that the historical rationale for creating Section 6330 indicates that the Tax Court should dismiss pre-levy proceedings when there is no dispute over the levy, as the procedural due process concerns would no longer apply.

The Commissioner claims that the Tax Court lacks jurisdiction over standalone claims concerning a taxpayer's underlying tax liability. The Commissioner argues that for a tax liability to exist, the taxpayer must still owe a debt to the IRS. Moreover, the Commissioner contends that an underlying tax liability must underlie something. The Commissioner asserts that under Section 6330, when there is no longer a proposed levy, there cannot be a tax liability that underlies anything. The Commissioner maintains Section 6330 “does not identify a challenge to the taxpayer’s underlying tax liability as a freestanding issue.”

The Commissioner also contends that the Tax Court did not have jurisdiction once the levy was dismissed based on the theory that “jurisdiction depends upon the state of things at the time of the action brought.” The Commissioner asserts that courts lose jurisdiction when some change, such as the elimination of the original jurisdiction-granting allegations, fundamentally changes the nature of the lawsuit. The Commissioner draws a parallel between Zuch’s case and the Supreme Court’s recent decision in Royal Canin U.S.A., Inc. v. Wullschleger . In that case, according to the Commissioner, the Supreme Court determined that when a plaintiff who originally brought both federal and state claims dismisses the federal claims, a federal court lacks jurisdiction over the remaining state law claims. Similarly, the Commissioner argues, the fundamental basis of the pre-levy proceeding was changed when the IRS no longer sought a levy.

On the other hand, Zuch contends that Section 6330 permits the Tax Court to review any determination from the CDP hearing. Zuch maintains that Section 6330 provides the Tax Court with jurisdiction over all “determinations” from the CDP hearings, which extends beyond merely assessing whether the levy may proceed. Among these determinations, Zuch suggests, is the opportunity to contest the underlying tax liability.

Zuch also counters that the text of Section 6330 is not predicated on the existence of a levy dispute. Zuch maintains that while a levy is necessary to initiate a CDP hearing, Section 6330’s jurisdiction-granting provisions do not focus on the existence of a levy. For instance, Zuch posits, a taxpayer could challenge the existence of their tax liability rather than whether they received notice of the levy. Zuch argues that the text of Section 6330 supports this interpretation by distinguishing between “relevant issues relating to the unpaid tax” and those concerning “the proposed levy” when discussing what the Tax Court can review.

Zuch claims that the history of the IRC suggests the Tax Court still had jurisdiction to review Zuch’s unpaid taxes, even though the IRS stopped seeking a levy. Zuch asserts that Section 6330 was designed to protect taxpayers from abusive IRS collection practices and to prevent the IRS from acting as “judge, jury, and executioner.” Zuch argues that this history indicates the IRS should not be able to circumvent Section 6330 by “finding another way to take the taxpayer’s money and then claiming it no longer seeks a levy.”

Additionally, Zuch asserts that Section 6330 requires the Tax Court to consider any issues related to the taxpayer's unpaid tax or tax liability when deciding whether to enforce the levy. This mandate, Zuch argues, implies that the Tax Court can address questions regarding the taxpayer's unpaid tax or tax liability. Therefore, Zuch claims, the Tax Court retains jurisdiction over a pre-levy proceeding even if the levy is no longer sought, as it must be allowed to rule on whether Zuch was entitled to the prepayment credits on her 2010 tax returns because it is a disputed question of law necessary to the resolution of the case. Zuch maintains that Section 6330 clearly states that the Tax Court “shall” have jurisdiction to review the determinations of the CDP hearing, which necessarily encompasses all the live issues within the case.

Zuch contends that the basis for the Tax Court’s jurisdiction was the determinations made during the CDP hearing, rather than the levy itself. Thus, when the levy was dismissed, Zuch argues, the fundamental basis of the lawsuit–namely, Zuch’s challenge to the IRS’s failure to apply the prepayments to her 2010 return–remained unchanged. Even if the levy was necessary to appeal to the Tax Court, Zuch claims that the Tax Court had jurisdiction because jurisdiction depends on the state of things at the time the action was brought. Zuch asserts that the present case is distinguishable from Royal Canin, as there the plaintiff withdrew the federal law claims, whereas here, Zuch’s assertion that the CDP hearing was erroneous remains unchanged.

Discussion

SCOPE OF PRE-DEPRIVATION PROCEEDINGS

The Commissioner argues that permitting proceedings to continue after the IRS abandons a proposed levy would undermine § 6330’s narrow scope. The Commissioner asserts that this would transform § 6330 proceedings into a general forum for adjudicating tax liability, contrary to their intended purpose as a limited pre-deprivation review. The Commissioner emphasizes that § 6330 should not serve as an “additional avenue” for judicial relief absent live disputes. With 28,349 § 6330 cases closed in 2023, the Commissioner warns that further expanding their scope risks undermining post-payment adjudication of tax disputes.

Zuch counters that allowing § 6330 proceedings after the IRS abandons a levy will not convert them into a general forum. Zuch explains that § 6330 enumerates specific issues taxpayers may address during collection due process hearings, ensuring the proceedings remain narrowly focused. Zuch maintains that § 6330 proceedings are only available to taxpayers unable to bring an earlier challenge as to their liability. Zuch contends that the Tax Court’s jurisdiction here is limited to reviewing the IRS Independent Office of Appeals’ determination, which adequately constrains § 6330’s scope. The Chamber of Commerce warns that expanded IRS power also risks improper application of overpayments.

EFFECT ON TAXPAYERS

The Commissioner claims that limiting Tax Court jurisdiction would not disproportionately impact taxpayers’ ability to secure judicial relief. The Commissioner argues that the IRS withdrawing a levy provides taxpayers with the relief they sought under § 6330, preserving judicial remedies in these situations. This relief represents the full extent of what the Tax Court can grant under § 6330. Furthermore, the Commissioner asserts that determining mootness for a § 6330 proceeding does not prevent taxpayers from obtaining judicial review. The Commissioner argues that post-deprivation refund suits exist as a suitable remedy for taxpayer challenges. Further, the Commissioner explains that refund suits remain available regardless of whether a levy was ever proposed, ensuring sufficient access to judicial remedies.

In support of Zuch, the Chamber of Commerce argues that limiting Tax Court review would eliminate judicial relief for certain § 6330 claims. The Chamber of Commerce contends that the IRS denying review in the Tax Court would allow it to selectively push taxpayers into a different court or completely withhold judicial review. The Chamber of Commerce also argues that limiting Tax Court jurisdiction increases litigation costs and expenses for American taxpayers. The Chamber of Commerce explains that restricting Tax Court jurisdiction violates the principal of horizontal equity by denying equal treatment to similarly situated taxpayers. The Center for Taxpayers Rights (“CTR”) adds that limiting jurisdiction disproportionally harms low-income litigants. CTR argues that low-income taxpayers with § 6330(c)(2)(B) claims are more likely to have their cases dismissed as moot, denying them access to legal remedies. The National Taxpayers Union Foundation (“NTUF”) contends that restricting Tax Court jurisdiction allows the IRS to bypass procedural safeguards established by Congress. NTUF argues that this approach will consequently strain Article III courts by requiring them to handle refund claims that could otherwise be resolved by the Tax Court.

Conclusion

Written by: Garrett Taylor and Alexandra Fertig

Edited by: Anna Temchenko

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