Supreme Court: Tax Court lacks jurisdiction after removal of levy

The Supreme Court on Thursday held that the Tax Court lacked jurisdiction over a taxpayer’s collection due process (CDP) appeal of a proposed tax levy once the underlying tax liability was satisfied, making the appeal moot (Zuch, No. 24-416 (U.S. 6/12/2025)).

In so holding, the Court reversed the Third Circuit (Zuch, No. 22-2244 (3d Cir. 3/22/24)), thereby resolving a split on the issue between that circuit and the Fourth and D.C. circuits (McLane, 24 F.4th 316 (4th Cir. 2022); Willson, 805 F.3d 316 (D.C. Cir. 2015)).

In 2012, Jennifer Zuch and her then-husband Patrick Gennardo filed their 2010 income tax returns using the married filing separately status. To satisfy the balance due on Gennardo’s return, the IRS applied $50,000 in estimated tax payments the couple had previously submitted.

A few weeks later, Zuch filed an amended return for 2010 reporting an additional source of income, which caused a tax liability of nearly $28,000. Zuch claimed that the $50,000 in estimated tax payments should have been applied to her account. However, because the IRS had already applied the money to Gennardo’s account, it denied Zuch’s request and informed her that it intended to file a levy on her property to satisfy her tax debt.

Zuch requested and obtained a CDP hearing, after which the IRS Office of Appeals sustained the levy. Zuch then appealed the levy determination to the Tax Court pursuant to Sec. 6330. In the years the case was pending, the IRS applied Zuch’s overpayments on her returns to her 2010 liability, eventually paying it off entirely. The Service then moved to dismiss the Tax Court case as moot, arguing that the Tax Court lacked jurisdiction over the case because the IRS no longer had a basis to levy on Zuch’s property. The Tax Court granted the IRS’s motion (Zuch, No. 25125-14L (T.C. 4/6/22) (order of dismissal)).

Zuch appealed the Tax Court’s decision to the Third Circuit, which reversed, holding that the Tax Court had jurisdiction to review the application of Zuch’s subsequent overpayments to her 2010 tax liability. The IRS appealed to the Supreme Court, which agreed to hear the case.

In holding that the Tax Court lacked jurisdiction under Sec. 6330 to resolve disputes between a taxpayer and the IRS when the Service is no longer pursuing a levy, the Supreme Court focused on the text of Sec. 6330(d)(1), which grants the Tax Court jurisdiction to review an IRS Appeals officer’s “determination” in a CDP hearing.

The scope of that determination, the Court held, “refers to the binary decision whether a levy may proceed.” In making that determination, the Appeals officer is required by Sec. 6330(c)(3) to verify that the IRS has complied with “any applicable law,” consider any issues raised by the taxpayer, and consider whether the levy “balances the need for the efficient collection of taxes” against concerns that it “be no more intrusive than necessary.” Relevant issues raised by the taxpayer may include a challenge to the existence or amount of the underlying tax liability.

When the IRS Appeals officer issued a determination that the proposed levy against Zuch could go forward, the Tax Court had jurisdiction, when it could have determined issues including to which spouse’s account the $50,000 should have been credited. But once Zuch’s balance owed was zero, “there was no longer any basis for a levy — thus, there was no relevant ‘determination’ for the Tax Court to review,” the Court stated.

Therefore, the Court found, the Tax Court had properly dismissed Zuch’s case. The Court noted that the “default” rule for challenging a tax liability is to first pay the disputed tax and then seek recovery under Sec. 7421(a) — which, it noted, Zuch is still free to do. But, the Court added, “it would be strange if a taxpayer could use a §6330 appeal to resolve tax disputes that no longer have any connection to an ongoing levy.”

In a dissenting opinion, Justice Neil Gorsuch said the majority’s holding “leaves Ms. Zuch with no meaningful way to pursue her argument that the IRS erred or to recoup the overpayments she believes the IRS has wrongly retained.” He emphasized that an Appeals officer’s determination includes in its basis a taxpayer’s challenges to the existence or amount of the underlying tax liability. And as for any remaining remedy, he pointed out, taxpayers may unexpectedly find themselves barred from filing a recovery suit by the statute of limitation. Meanwhile, the IRS can continue to seek collection.

“The short of it all is this,” Gorsuch wrote. “The IRS seeks, and the Court endorses, a view of the law that gives that agency a roadmap for evading Tax Court review and never having to answer a taxpayer’s complaint that it has made a mistake.”

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.