Supreme Court Shows Split Views on Tax Court Due Process (1)

The US Supreme Court appeared ready Tuesday to better define the bounds of the US Tax Court’s authority, although the justices diverged on on what they said those limits should be.

The justices during oral arguments prodded IRS counsel over whether taxpayer Jennifer Zuch was afforded due process when the agency applied her tax refund to pay off a debt from a prior year that she was contesting, thus mooting her challenge and causing it to be dismissed in Tax Court.

But they also questioned whether the case, which Zuch’s counsel conceded was very rare, could stand on her interpretation of the right to a hearing to contest a tax levy under Internal Revenue Code Section 6330.

“This whole thing is crazy to me,” Justice Neil Gorsuch said, expressing early doubt as to the propriety of the IRS move. A levy must hinge to some degree on a determination of tax being present, which should allow jurisdiction to the Tax Court, he said.

Erica Ross of the Department of Justice, arguing for the IRS, said the agency’s unilateral application of the refund was proper and helps constrain the Tax Court’s authority. Congress built Section 6330 with a specific goal in mind: giving Tax Court jurisdiction in the case of a tax levy, but ending the case when the levy no longer exists, she said.

“It’s very important that the Tax Court is of limited jurisdiction,” Ross said. “It has some specific authority; it doesn’t have general authority or refund authority or overpayment authority.”

Arguing for Zuch, Shay Dvoretzky of Skadden Arps Slate Meagher & Flom LLP accused the IRS of “gamesmanship.”

But Justice Ketanji Brown Jackson pushed back on that idea.

The IRC indicates the IRS can make a determination on a tax matter and that the tax owed should be a consideration of that determination, not the determination itself, she said. Congress intended for taxpayers to have a venue to be heard, but crafted Section 6330 to delineate where jurisdiction starts and ends.

That’s especially the case when it comers to tax levies, which are by nature more severe than other tax disputes because they involve the taking of property, Jackson said.

“Why is it gamesmanship for the IRS to get rid of the terribly coercive and punitive penalty?” she asked Dvoretzky. “A levy is a really big deal, and when one is dropped I’m not sure why that’s a bad thing.”

‘Sandbag’ Concern

Justice Samuel Alito suggested that a direct reading of Section 6330 might do no more than decide if there is a levy present or not.

On the other hand, Justice Sonia Sotomayor said the levy was contingent on a determination of tax, and that could leave room for more of a dispute than the IRS is allowing.

“It does bother me whether the IRS can sandbag somebody,” Sotomayor said.

Zuch and her ex-husband made $50,000 in prepayments to the IRS, which they intended to apply to Zuch’s $27,000 debt. But the IRS diverted it to the ex’s separate balance. The IRS proposed a levy to satisfy Zuch’s remaining liability, which she challenged in the Tax Court.

The Tax Court deemed her case moot after the agency applied Zuch’s refund to the levy. The US Court of Appeals for the Third Circuit revived her case, setting up a circuit split with the Fourth and D.C. circuits.

Zuch has cast the case as a matter of due process, and tax experts have said it’s a chance to define the Tax Court’s powers as well as taxpayers’ ability to challenge IRS tax decisions.

Dvoretzky said during oral arguments that he could find few other cases analogous to Zuch’s situation, and a ruling in her favor is likely to only directly impact a small number a year.

But he said he worried about the IRS using a simplistic reading of the tax code to make disputing tax payments harder.

The IRS could pursue a levy for years and then “pull the rug out from under the taxpayer” by dropping the levy and forcing them to contest their tax dispute in a more expensive and less user-friendly district court, he said.

Agostino & Associates PC also represents Zuch.

The case is Commissioner v. Zuch, U.S., No. 24-416, oral arguments held 4/22/25.