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Ruesch v. Commissioner (154 T.C. No. 13)

On June 25, 2020, the Tax Court issued its opinion in Ruesch v. Commissioner, 154 T.C. No. 13. The two issues in Ruesch were (1) whether the Tax Court possessed jurisdiction under IRC § 7345(b) to consider the petitioner’s challenge to her underlying tax debts; and (2) whether the Tax Court possessed jurisdiction to review the petitioner’s challenge to the IRS’s certification of the petitioner’s liabilities as “seriously delinquent pursuant to IRC § 7345(e).

Framework of IRC § 7435 (Denial, Revocation, or Limitation of Passport for Seriously Delinquent Tax Debt)

IRC § 7345 (Revocation or Denial of Passport in Case of Certain Tax Delinquencies), enacted in 2015, provides that, if the IRS certifies that an individual has a seriously delinquent tax debt, the IRS may coordinate with the State Department to deny, revoke, or limit the delinquent taxpayer’s passport. IRC § 7345(a). A taxpayer aggrieved by such action may petition the Tax Court to determine whether the certification was erroneous or whether the IRS has failed to reverse the certification. IRC § 7345(e)(1). If the Tax Court determines that such certification was erroneous, then the Tax Court may order the IRS to notify the State Department that such certification was erroneous. IRC § 7345(e)(2).

The petitioner was assessed $160,000 (greater than the $50,000 threshold) in penalties arising pursuant to IRC § 6038 for failing to file information reports regarding foreign corporations owned by the petitioner. A seriously delinquent tax debt is a Federal tax liability that has been assessed, exceeds $50,000, is unpaid and legally enforceable, and with respect to which a lien notice has been filed or levy made. IRC § 7345(b)(1), (f).

Critically, however, a seriously delinquent tax debt excludes a debt with respect to which collection is suspended because a collection due process (CDP) hearing under IRC § 6330 is requested or pending.” IRC § 7345(b)(2)(B)(i). If a certification is found to be erroneous or if the debt with respect to such certification ceases to be a seriously delinquent tax debt by reason of IRC § 7345(b)(2), the IRS must reverse its certification and notify the State Department and the taxpayer. IRC § 7345(c)(1), (d). In the case of a certification found to be erroneous, such notification shall be made as soon as practicable after such finding. IRC § 7345(c)(2)(D).

Jurisdiction of Tax Court to Determine Issues Arising Under IRC § 7435

IRC § 7345(e)(1) permits a taxpayer who has been certified as having a seriously delinquent tax debt to petition the Tax Court to determine whether the certification was erroneous or whether the IRS has failed to reverse the certification. If the Tax Court finds that a certification was erroneous, it may order the IRS to notify the State Department that such certification was erroneous. IRC § 7345(e)(2).

The statute specifies no other form of relief that the Tax Court may grant, and, because the Tax Court is a court of limited jurisdiction, it may not enlarge upon specifically enumerated statutory authority. See IRC § 7442; Wright v. Commissioner, 571 F.3d 215, 219 (2d Cir. 2009); Estate of Young v. Commissioner, 81 T.C. 879, 881 (1983); Kasper v. Commissioner, 137 T.C. 37, 40 (2011). The issue faced by the Tax Court was whether it possessed jurisdiction to address the petitioner’s underlying liability for the IRC § 6038 penalties.

IRC § 7345(e) (judicial review of certification) provides that a taxpayer who has received a notification under IRC § 7345(d) may bring a civil action against the United States in a Federal district court or against the IRS in the Tax Court. IRC § 7345(e)(1). Although the petitioner’s Tax Court petition was filed outside of the 90-day period in which a petition in a deficiency case must be filed pursuant to IRC § 6213(a), IRC § 7345(e)(1) provides no time limit for commencing a passport revocation action.

Nevertheless, IRC § 7345(e)(1) narrowly circumscribes the Tax Court’s jurisdiction in passport cases, limiting the Tax Court to only determine whether the IRS’s certification of a taxpayer as a person having a seriously delinquent tax debt (or its failure to reverse a certification) was erroneous. IRC § 7345(e)(1). Even then, the only relief the Tax Court may provide is to order the IRS to notify the State Department that such certification was erroneous. IRC § 7345(e)(2).

Bright Line Rule – The Tax Court may not Redetermine a Taxpayer’s Underlying Liability under IRC § 7345(e)

The Tax Court is thus authorized to consider (for example) (1) whether the taxpayer’s assessed Federal tax liability exceeds $50,000 (as adjusted for inflation), (2) whether the IRS has commenced collection action with respect to that liability, (3) whether collection of the tax debt is suspended because a CDP hearing is pending, or (4) whether the taxpayer is paying the tax debt in a timely manner under a collection alternative. See IRC § 7345(b).

The Tax Court could also consider whether the tax debt has been fully satisfied or has become legally unenforceable pursuant to IRC § 7345(c)(2)(A), such as where the collection period of limitations had expired. See IRC § 6502(a).

Notwithstanding the foregoing, nothing in the text of IRC § 7345 authorizes the Tax Court to redetermine the petitioner’s underlying liability for the penalties the IRS has assessed.

(154 T.C. No. 13) Reusch v. Commissioner

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