Tax Court Jurisdiction Case Risks Making IRS Battles Costlier

On the surface, the case of Commissioner v. Zuch accepted by US Supreme Court involves important questions about the due process rights of taxpayers. But Zuch could also have a rippling impact on US Tax Court jurisdiction and on those who practice before the Tax Court.

A pro-taxpayer ruling would uphold the Tax Court’s jurisdiction over underlying liability disputes. It would uphold the current view that the Tax Court has jurisdiction over cases to review of due process hearing determinations involving IRS collection activities. Taxpayers will maintain their right to prepayment challenges of the IRS’s collection efforts.

Such a ruling also would confirm the ability of taxpayers who are facing collection activities to simultaneously deposit amounts against asserted tax liabilities, stopping the accrual of deficiency interest while maintaining the right to a prepayment deficiency proceeding before the Tax Court. This preserves options for taxpayers and tax practitioners to limit downside risk without forfeiting the Tax Court venue.

If the Supreme Court rules in favor of the IRS, it could create an escape hatch that deprives taxpayers of their day in court without making a payment. It would bless the IRS action of seizing refunds (or other assets) to pay for a liability while that liability is in dispute.

In the particular context of Zuch, the underlying liability remained in dispute at the time the IRS seized the refund to satisfy the liability. Fundamentally, that puts Zuch into the same procedural posture as any other deficiency proceeding in which the Tax Court has been granted jurisdiction.

A ruling against the taxpayer would send a message to the government—as well as taxpayers and practitioners across the country—that the IRS can deprive the Tax Court over jurisdiction over any pending litigation simply by satisfying the liability through seized refunds (or other levy actions).

Section 6213(a) of the tax code precludes the IRS from attempting to assess or collect on deficiencies where a taxpayer received a statutory notice of deficiency under Section 6212 and filed a petition with the Tax Court under Section 6213(a).

However, Section 6330(e)(1) has a similar collection activity prohibition for cases pending under Section 6330(d)—such as the one plaintiff Jennifer Zuch filed—but that didn’t preclude the IRS from seizing amounts to satisfy her liability.

It also didn’t preclude the Tax Court from finding that it lacked jurisdiction over the now-satisfied liability. For the Supreme Court to find in favor of the IRS in Zuch, it would have to tacitly bless what appears to be a contradiction of the no-collection prohibitions.

If the Supreme Court narrows the Tax Court’s jurisdiction, it would affect numerous tax practitioners and taxpayers facing federal tax disputes. Without the prepayment venue of the Tax Court, taxpayers would be forced to pay the full amount of taxes and/or penalties asserted against them before they could sue for a refund.

There is a split over whether the taxpayer also must pay interest as part of the full payment rule under Flora v. United States. Compare Magnone v. United States, requiring payment of interest in addition to taxes and penalties, with Shore v. United States, finding Flora only requires payment of taxes and penalties. But even before filing a lawsuit, taxpayers first must file an administrative claim for a refund and wait six months (or for a denial of their claim) before suing.

The Tax Court permits certified public accountants, enrolled agents, and other non-attorneys to represent taxpayers. However, the federal district courts that have jurisdiction over lawsuits for refund of taxes don’t provide that opportunity to non-attorneys. Neither does the Court of Federal Claims, which also hears federal tax refund suits.

Also, nuanced differences between the US Tax Court rules and the Federal Rules of Civil Procedure (coupled with particular rules of US district courts) could pose potential pitfalls for Tax Court litigators inexperienced in those district courts. Because the discovery rules are much broader in federal tax refund cases, the district courts and claims court are typically much more expensive forums in which to litigate tax disputes than Tax Court.

It will be important for both taxpayers and tax practitioners to follow the results of Zuch. But it remains no less important for taxpayers to consult with qualified advisers and practitioners with multifaceted experience in collection activities, Tax Court litigation, and tax refund litigation.

The case is Commissioner v. Zuch, U.S., No. 24-416, cert granted 1/10/25.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jasen Hanson is a shareholder in Chamberlain Hrdlicka’s tax controversy and litigation group in Atlanta. He represents clients before the IRS and DOJ Tax Division.

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