Supreme Court Case Poised to Refine Due Process in Tax Disputes

A case before the US Supreme Court this week over the reaches of the US Tax Court’s jurisdiction pits taxpayer due process rights against the practical needs of the federal government.

The high court will hear oral arguments Tuesday in the case of Jennifer Zuch, who says she was deprived of an opportunity to contest what she believed was an improper levy when the IRS applied a tax refund toward a prior debt and the Tax Court dismissed her challenge as moot.

The situation presents a double-edged sword, attorney say: the move reduces a swelling caseload that causes disputes to languish for years, but at the cost of potentially depriving taxpayers of an opportunity to be heard.

“It’s a fascinating issue and you can see both sides,” said Michael Goller, a shareholder of Reinhart Boerner Van Deuren SC. “I have concern about the Tax Court sort of slamming the door on petitioners, but also share the concern about these collections hearings inundating the court.”

Almost 95% of the 21,900 cases filed in Tax Court in fiscal year 2023 were people contesting IRS notices of tax deficiencies, according to its FY 2025 congressional budget justification. A single Tax Court judge can oversee 100 to 125 cases in a one-week session.

“If the IRS wins, that does make it more difficult to challenge a tax case, because the Tax Court’s going to be less available to some taxpayers,” Goller said. “But there’s also an argument to the opposite: If the IRS loses, the court is going to continue to be flooded with tens of thousands of cases a year.”

Friendlier Court

The Supreme Court’s decision will have broad implications for low-income taxpayers in particular, said Ted Afield, director of Georgia State University’s Philip C. Cook Low-Income Taxpayer Clinic.

The Tax Court is the main venue to contest tax issues, and it’s generally more friendly to people without legal experience, its judges are more knowledgeable about tax issues than those on federal district courts, and it’s cheaper to file there, he said.

A ruling that the IRS can’t unilaterally moot collection due process cases would keep more cases there, he said.

“Such a result would allow taxpayers to complete the resolution of the underlying liability in a forum that is designed to have tax subject matter expertise and in which the case is already being litigated,” Afield said. And it “would increase the likelihood of subsequent administrative action or refund litigation being resolved more quickly.”

Afield also hopes the justices establish that the Tax Court has refund jurisdiction. Currently, people can only petition the court to fight an IRS determination that they owe more tax. If they think they overpaid, they must sue for a refund in the costlier district court.

Circuit Split

Zuch and her ex-husband prepaid $50,000 to the IRS, intending that it apply to Zuch’s estimated $27,000 debt. The IRS instead applied it to the ex-husband’s individual balance, and then proposed a levy to satisfy Zuch’s debt. She petitioned the Tax Court under IRC Section 6330, which allows taxpayers to dispute an IRS levy before it’s made.

While the suit was pending, the IRS applied Zuch’s 2018 tax refund to the amount the agency said she owed. Without a levy in dispute, the Tax Court deemed her case moot and granted the IRS’s motion to dismiss.

The US Court of Appeals for the Third Circuit reversed, creating a split with the D.C. and Fourth circuits. Those courts concluded that a Section 6330 proceeding is moot when the IRS abandons its levy and determines the taxpayer has no outstanding liability.

The Supreme Court agreed in January to hear the case.

Goller said the IRS and the Tax Court both probably figured they’d be able to lessen their workload by finding a way to offload Zuch’s case. A Supreme Court loss for the agency will likely increase the Tax Court’s collections due process caseload, resulting in petitions that take years to resolve.

The question, Goller said, is which problem disenfranchises taxpayers more: long, languishing cases, or a system under which the IRS can unilaterally determine how it redirects your funds.

The Third Circuit got it right, said Beth Milito, vice president and executive director of the National Federation of Independent Business’ Small Business Legal Center, which co-wrote an amicus brief supporting Zuch.

“Congress ensured that taxpayers have a fair chance to challenge a levy or lien before the IRS collects,” Milito said in a statement. “This is not only to protect taxpayers’ rights and property, but to ensure that the IRS does not abuse its authority.”

Agostino & Associates PC and Skadden, Arps, Slate, Meagher & Flom LLP represent Zuch.

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