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Ahmed v. Commissioner (T.C. Memo. 2021-142)

On December 28, 2021, the Tax Court issued a Memorandum Opinion in the case of Ahmed v. Commissioner (T.C. Memo. 2021-142). The primary issue presented in Ahmed was whether the taxpayer’s payment of all monies owed mooted his challenge to the IRS’s imposition of a lien and the trust fund recovery penalty (“TFRP”).

Held: Yup.

Background to Ahmed v. Commissioner

Ahmed v. Commissioner

In June 2020, the petitioner sent to the IRS a check for $625,000 along with a letter signed by petitioner’s counsel. This letter stated that the $625,000 remittance “constitutes a cash bond deposit” for petitioner’s TFRP liabilities.  More specifically, the letter stated

Under IRC § 6603 and under Rev. Proc. 2005-18, we designate this remittance as a deposit in the nature of a cash bond for the TFRP liabilities of Faisal Ahmed, for the tax periods stated…

This remittance is a deposit and not a payment of tax within the meaning of Rev. Proc. 2005-18 and should not be posted as a final payment to Taxpayer’s account until a decision in the United States Tax Court has been entered. This cash bond is eligible for interest under IRC § 6603(d).

To the extent the remittance is more than the amount owed, we designate the remaining funds to be applied to the Taxpayer’s 2017 income tax liability (Form 1040). This remittance is a deposit and not a payment of tax within the meaning of Rev. Proc. 2005-18 and should not be posted as a final payment to Taxpayer’s account until decision has been entered in the United States Tax Court.

If any excess remains after this remittance is posted as payment of assessed tax and/or interest for this taxable year in accordance with the subsequent designation, such excess should be immediately refunded to [the petitioner] with interest under IRC § 6603(d).

Two weeks after receiving the check, the IRS posted the petitioner’s $625,000 remittance as payment towards the petitioner’s outstanding TFRP liabilities for the periods stated in the letter, resulting in the full payment of petitioner’s TFRP liabilities for such periods.  Shortly thereafter, the IRS released the Federal tax lien with respect to the periods at issue.

The IRS moved to dismiss the Tax Court petition on the grounds of mootness.  In his objection to the IRS’s motion, the petitioner argues that (1) the liabilities at issue should not be deemed fully paid because his $625,000 remittance should have been treated as a deposit rather than payment of tax and (2) this purported deposit does not extinguish the petitioner’s challenges to the validity of the IRS’s assessment, respondent’s calculation of interest, or the appropriateness of the IRS’s releasing the lien as opposed to withdrawing the NFTL.

A Jurisdictional Issue

IRC § 6330(d)(1) provides that the Tax Court has jurisdiction to review an Appeals determination. However, the Tax Court is a court of limited jurisdiction under IRC § 7442, and it may exercise jurisdiction only to the extent expressly authorized by Congress.[1] In general, the Tax Court’s jurisdiction under IRC § 6330(d)(1) is limited to reviewing whether the IRS’s proposed collection activity is appropriate.[2]

Ordinarily, once the IRS concedes that there is no unpaid liability for a disputed year upon which a collection action could be based, a proceeding filed in this Court pursuant to IRC § 6330 is moot.[3] IRC § 6330 does not give the Tax Court jurisdiction to determine an overpayment or order a refund or credit of taxes paid.[4]

Moo Point

A fundamental issue with the petitioner’s argument that the check represented a deposit is that IRC §  6603(a), as enacted in 2004, provides that a taxpayer may make a cash deposit with respect to any tax imposed under subtitle A or subtitle B or chapter 41, 42, 43, or 44, which has not been assessed at the time of the deposit.” The IRS asserts that the petitioner’s $625,000 remittance failed to qualify as a deposit under IRC § 6603(a) because the petitioner’s TFRP liabilities had already been assessed at the time of the remittance.

The Tax Court observes that “[n]either party has addressed what would seem to be a more fundamental impediment to treating the remittance as a deposit under IRC § 6603(a), namely that TFRP liabilities are imposed under IRC § 6672, which is in chapter 68 in subtitle F of the Code, rather than in any of the subtitles or chapters listed in IRC § 6603(a).” Given that (1) the petitioner has fully paid the liabilities underlying the NFTL, (2) the IRS has released the lien, and (3) there is no outstanding tax liability on which further collection action could be based, there remains no justiciable case or controversy, and this collection proceeding is moot.[5]

A Glimmer of Hope?

In Greene-Thapedi,[6] (discussed in these Briefly Taxing posts) in holding that the Tax Court lacked jurisdiction to review a taxpayer’s refund claim in an IRC § 6330 collection proceeding, we observed that we could not rule out the possibility that, in such a proceeding, consideration should be given to “whether the taxpayer has paid more than was owed, where such a determination is necessary for a correct and complete determination of whether the proposed collection action should proceed.” The petitioner argued that the instant case presents the “exception” contemplated in Greene-Thapedi.

The Tax Court has previously considered and rejected a similar misreading of Greene-Thapedi, observing that even the hypothetical situation contemplated in that case “presupposed an unpaid liability with respect to which the IRS could levy. Where, as here, the IRS concedes there is no unpaid liability for a tax year to collect by levy or other collection action, there is simply no justiciable case or controversy, and the case in respect of that year is moot.”[7]

The petitioner also erred in relying on Vigon v. Commissioner,[8] to support his contention that this case is not moot. In that collection proceeding the taxpayer challenged his underlying liability for penalties assessed under IRC § 6702. The IRS subsequently abated the penalties and released the lien.[9] The Tax Court held that the case was not moot because the IRS reserved the possibility of collecting those same penalties in the future.[10]

Ahmed v. CommissionerThis case is distinguishable from Vigon in at least two respects.

First, the petitioner has not challenged his underlying liabilities in this proceeding.

Second, the petitioner’s tax liabilities have been satisfied and not merely abated.

Consequently, unlike in Vigon, in this case there is no basis for any future collection action with regard to the petitioner’s tax liabilities for the periods in question.

Conclusion

In sum, no unpaid liability remains on the petitioner’s tax accounts for the periods with respect to which the NFTL was filed. The IRS has released the lien and there is no outstanding tax liability on which further collection action could be based. The petitioner has received all the relief that IRC § 6330 authorizes the Tax Court to provide.

If the petitioner seeks a refund or overpayment credit or other relief, then any legal remedy would lie in a U.S. District Court or the U.S. Court of Federal Claims rather than in the Tax Court. Accordingly, the Tax Court granted the IRS’s motion and dismissed the case on grounds of mootness.

(T.C. Memo. 2021-142) Ahmed v. Commissioner


Footnotes:

[1] Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

[2] Greene-Thapedi v. Commissioner, 126 T.C. 1, 7 (2006).

[3] Id.; MacDonald v. Commissioner, T.C. Memo. 2009-240, *7 (observing that “a case filed pursuant to IRC § 6330 is moot if the Federal income tax liability that the Commissioner is attempting to collect has been paid in full so that no collection action is appropriate”).  Unfortunately, the opinion in MacDonald and its companion case T.C. Memo. 2009-63, does not specify whether the petition was either old, or the proprietor of a farm.

[4] Willson v. Commissioner, 805 F.3d 316 (D.C. Cir. 2015); Greene-Thapedi, 126 T.C. at 7-8.

[5] See Greene-Thapedi, 126 T.C. at 7-8; MacDonald, T.C. Memo. 2009-240 at *7 (and cases cited thereat) (observing that “a case filed pursuant to IRC § 6330 is moot if the Federal income tax liability that the [IRS] is attempting to collect has been paid in full so that no collection action is appropriate”).

[6] 126 T.C. at 11 n.19.

[7] MacDonald, T.C. Memo. 2009-240 at *10.

[8] 149 T.C. 97 (2017).

[9] Id. at 100-01.

[10] Id. at 108, 111.

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