United States Court of Appeals
For the First Circuit
No. 05-2517
KENNETH B. BOYD AND MARIE L. BOYD,
Petitioners, Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent, Appellee.
ON APPEAL FROM THE ORDER OF
THE UNITED STATES TAX COURT
Before
Boudin, Chief Judge,
Coffin, Senior Circuit Judge,
and Selya, Circuit Judge.
Peter L. Banis for appellants.
Teresa E. McLaughlin, Attorney, Tax Division, with whom Eileen
J. O'Connor, Assistant Attorney General, and Annette M. Wietecha,
Attorney, Tax Division, were on brief for appellee.
June 13, 2006
COFFIN, Senior Circuit Judge. This case invites us to
consider whether 1998 revisions to the United States Tax Code
eliminated the historical distinction between a “levy” and an
“offset” and require the same procedural protections for both. The
government traditionally has been thought to possess a common law
right, as a creditor, to “offset,” or “set off,” funds owed to a
taxpayer and thus held by the government – without prior notice –
“to reduce the taxpayer’s outstanding tax liability,” United
States ex rel. P.J. Keating Co. v. Warren Corp., 805 F.2d 449, 451-
52 & n.3 (1st Cir. 1986); see also Hankin v. United States, 891
F.2d 480, 483 (3rd Cir. 1989). A “levy,” by contrast, involves a
formal notice-and-hearing process governed by statute in which the
government typically seeks to seize property not already within its
control to satisfy a taxpayer’s liability. See Belloff v. Comm’r,
996 F.2d 607, 615 (2d Cir. 1993); Hankin, 891 F.2d at 483.
Appellants, a husband and wife, assert that the Internal
Revenue Service (“IRS”) improperly failed to utilize the statutory
levy process when it sought to offset their joint income tax refund
against a prior business-related tax debt owed by the husband.
They brought their case to the Tax Court, which dismissed it for
lack of subject matter jurisdiction. We affirm.
I. Background
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As part of a reorganization of his business under Chapter 11
of the Bankruptcy Code, confirmed in 2001, appellant Kenneth B.
Boyd entered into an agreement with the United States to pay off
delinquent employment taxes in a series of installments over five
years. Two years later, the IRS notified Boyd and his wife, Marie,
that their personal income tax overpayment of $6,549 for the year
2002 had been applied to that outstanding business tax liability.
The Boyds filed a protest, and the IRS agreed to refund Marie the
portion of the overpayment attributable to her income – $51.
Boyd then filed an administrative request for a refund of the
remaining portion of the overpayment, arguing, inter alia, that the
IRS improperly failed to provide prior notice and opportunity for
a hearing before seizing his overpayment. The IRS Office of
Appeals rejected his request, stating that a “[r]efund offset[]” is
not considered a collection action subject to the procedural
protections Boyd claimed the agency had violated.
The Boyds next took their complaint to the Tax Court, arguing
that a provision added to the Tax Code in 1998 manifested
Congress’s intent that offsets be effected by means of a formal
“levy” and that, therefore, they were wrongly denied the notice and
opportunity for a hearing specified for levies in 26 U.S.C. § 6330.
They invoked jurisdiction under section 6330(d), which gives the
Tax Court authority to review a “determination” made by the IRS
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Office of Appeals following a hearing on a taxpayer’s challenge to
an impending levy.
The Tax Court declined to address the merits of the Boyds’
claim – i.e., whether offsets are subject to levy procedures – on
the ground that it lacked jurisdiction. See Boyd v. Comm’r, 124
T.C. 296, 302-03 (2005). The court ruled that, under § 6330, its
jurisdiction was limited to instances in which taxpayers obtain the
written “notice of determination” that is issued by the Appeals
Office following a hearing. See 26 U.S.C. § 6330(d); Greene-
Thapedi v. Comm’r, 126 T.C. 1 (2006); Lunsford v. Comm’r, 117 T.C.
159, 161, 164 (2001).1 No such ruling had been issued, of course,
because the Boyds had not been offered the opportunity for a
hearing. The Tax Court further stated that it would lack
jurisdiction even if it treated the offset notice that the Boyds
did receive as a notice of determination because a Tax Court appeal
must be filed within 30 days of the notice, and the Boyds filed
their action beyond that date. See 124 T.C. at 303.
The Boyds then appealed to this court, renewing their
substantive argument that the 1998 revisions to the Tax Code
required the IRS to treat the disputed offset as subject to the
levy procedural requirements. They claim they are entitled to
1
In an unpublished opinion, this court has upheld the Tax
Court’s conclusion that “its jurisdiction under § 6330(d) depends
upon the issuance of a valid notice of determination by the IRS’s
Office of Appeals and the filing of a timely petition for review.”
See Rudd v. Comm’r, 91 Fed. Appx. 699 (1st Cir. 2004).
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either an order directing the Secretary of the Treasury to issue a
notice of determination, allowing them to meet the jurisdictional
requirements of the Tax Court and thus to challenge the offset in
that venue,2 or a remand to the Tax Court for further proceedings
notwithstanding their failure to meet the technical jurisdictional
requirements.
We first address the Tax Court’s jurisdictional ruling and
then explain why that decision is also correct as a matter of
substantive law.
II. Discussion
A. Jurisdiction
The Boyds complain that the Tax Court’s dismissal of their
case based on the lack of a “determination” by an IRS appeals
officer turns the statutory right to due process on its head in
cases where, as here, the taxpayers’ claim is that the IRS
improperly denied them the process that would have led to a
determination – and thus to subject matter jurisdiction in the Tax
Court. It cannot be, they assert, that the IRS may negate
Congress’s grant of jurisdiction by withholding the very process
2
In his brief, Kenneth Boyd acknowledges that, technically,
his appeal should be heard by the district court because of the
type of tax involved, but he seeks a remand to the Tax Court for
such a determination, which would give him thirty days to file his
appeal with “the correct court.” See 26 § 6330(d)(1) (providing
that an appeal from a notice of determination is to the Tax Court,
unless the Tax Court “does not have jurisdiction of the underlying
tax liability,” in which case the appeal is to a federal district
court).
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that is designed to give taxpayers fair opportunity to challenge
the agency’s decision-making. Consequently, they maintain that the
Tax Court must have jurisdiction to consider their claim.
While this argument has equitable appeal, the Boyds offer us
no authority for equitably expanding the Tax Court’s jurisdiction.
Indeed, the law seems to be to the contrary. See, e.g., Comm’r v.
McCoy, 484 U.S. 3, 7 (1987) (per curiam) (“The Tax Court is a court
of limited jurisdiction and lacks general equitable powers.”);
Bokum v. Comm’r, 992 F.2d 1136, 1140 (11th Cir. 1993) (“[T]he Tax
Court has no equitable power to expand its statutorily prescribed
jurisdiction.”); Offiler v. Comm’r, 114 T.C. 492, 498 (2000) (“This
Court’s jurisdiction under section 6330(d) is dependent on the
issuance of a valid notice of determination and a timely petition
for review.”); cf. Meadows v. Comm’r, 405 F.3d 949, 953 (11th Cir.
2005) (per curiam) (“[I]t is unclear whether or not the Tax Court
has . . . equitable power” to “expand its statutorily prescribed
jurisdiction.”).
The Boyds’ assertion that jurisdiction must exist in the Tax
Court as part of the section 6330 scheme would be more persuasive
if the IRS’s conduct here were otherwise unreviewable. The Boyds
were not, however, without a remedy. As the government suggested
at oral argument, the Boyds could have sought a refund of their
overpayment in district court based on their contention that the
IRS seized the funds improperly when it failed to utilize the
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requisite levy procedures. See 28 U.S.C. § 1346(a) (“[D]istrict
courts shall have original jurisdiction, concurrent with the United
States Court of Federal Claims, of: (1) Any civil action against
the United States for the recovery of any internal-revenue tax
alleged to have been erroneously or illegally assessed or collected
. . . .”); 26 U.S.C. § 7422(d) (“The credit of an overpayment of
any tax in satisfaction of any tax liability shall, for the purpose
of any suit for refund of such tax liability so satisfied, be
deemed to be a payment in respect of such tax liability . . . .”).
If the Boyds had succeeded with such a claim and secured the right
to a refund, the IRS would then presumably have had the option to
again seek an offset – but only by following the statutory levy
procedures.
We recognize that such a multi-step process is imperfect and
inconvenient, and it would be troubling when imposed on taxpayers
with strong claims of entitlement to the pre-seizure procedural
protections Congress sought to provide through section 6330.
This, however, is not such a case. As we explain below,
examination of the merits of the Boyds’ argument leads to the same
jurisdictional outcome. While our previous discussion arguably is
sufficient to resolve the case, we think it advisable to address
alternatively the post-1998 status of offsets to dispel any
inference of “arbitrary administrative action” that might favor a
different outcome. Cf. Robinson v. United States, 920 F.2d 1157,
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1161 (3d Cir. 1990) (allowing suit to proceed in Tax Court, even
though IRS failed to send out prerequisite notice of deficiency, to
“preserve[] the options granted to the taxpayers and [to] grant[]
them the means, perhaps not otherwise available, to correct an
arbitrary administrative action”).
B. Offset vs. Levy
The parties appear to agree that, before the Tax Code
revisions of 1998, the IRS generally had the authority, under 26
U.S.C. § 6402,3 to offset a taxpayer’s outstanding tax liability
with any subsequent overpayment owed to the taxpayer, and that the
IRS was not expected to obtain a formal levy in order to do so.4
Section 6402 requires neither notice nor a hearing – nor any other
procedural prerequisite – for effecting an offset.
3
Section 6402(a) provides, in pertinent part:
In the case of any overpayment, the Secretary . . . may
credit the amount of such overpayment . . . against any
liability in respect of an internal revenue tax on the
part of the person who made the overpayment . . . .
4
The Boyds do maintain, however, that the validity of the
offset in this case, even pre-1998, would have been questionable
because of two distinguishing factors: first, the overpayment was
jointly owed to Kenneth and Marie but the earlier liability was
Kenneth’s alone; and second, Kenneth had arranged to pay his
earlier debt through an installment plan. Neither of these,
however, would have affected the offset of Kenneth’s portion of the
overpayment. Although the Commissioner usually is barred from
levying when an installment agreement is in effect, that
prohibition does not apply to offsets under section 6402. See 26
U.S.C. § 6331(k)(3)(A). The IRS acknowledged that Marie’s pro-rata
share of the overpayment should not have been seized and refunded
it during the administrative process.
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By contrast, as we have noted, the statutory provisions
governing levies require the Commissioner to give the taxpayer
thirty days’ advance notice of the intent to levy, see 26 U.S.C. §
6331(d), an opportunity for a hearing before an IRS appeals
officer, id. §§ 6330(a) & (b), and a decision – or “determination”
– following such a hearing that may be appealed within thirty days
to either the Tax Court or a district court, depending upon the
type of tax at issue, id. §§ 6330(c) & (d).
Although the notice requirement has been in place for some
time, section 6330's hearing and appeals procedures were added to
the Tax Code as part of the Internal Revenue Service Restructuring
and Reform Act of 1998, Pub. L. No. 105-206, § 3401, 112 Stat. 685.
Section 6331 also was revised at that time, and the Boyds cite one
particular change in that provision to support their contention
that the Act eliminated the procedural differences between offsets
and levies and requires that offsets by effectuated by means of the
levy procedures.
The provision on which they rely, § 6331(i)(3)(B)(i), provides
an exception to the prohibition against imposing a levy when
proceedings are pending for the refund of “divisible” taxes, which
include employment taxes; it states that the prohibition does not
apply to “any levy to carry out an offset under section 6402.”5
5
Section 6331(k)(3)(A) contains a similar prohibition and
exception that applies when an installment plan is in effect.
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The Boyds argue that this phrase signals that a levy is now a
procedural prerequisite for an offset.
The Boyds have read far too much into the language of §
6331(i)(3)(B)(i). The language does not state that an offset must
be effected by means of a levy, and nowhere in the statutory
amendments did Congress indicate an intention to erase the long-
standing distinction between the informal offset and the more
regulated levy by requiring that offsets now all be accomplished by
means of the levy procedures. We think it unimaginable that
Congress would have made such a significant change offhandedly in
the provision governing levy procedures without explicitly
recognizing that change in § 6402 – the provision that directly
addresses the IRS’s authority to credit overpayments against prior
tax liabilities. Moreover, § 6331(i)(3)(B)(i) is an exception to
a prohibition against imposing levies in particular circumstances,
distinguishing a “levy to carry out an offset” as warranting less
protection than the standard levy. Given the absence of language
in § 6402 and the limiting role it plays in section 6331,
subsection (i)(3)(B)(i) simply cannot bear the weight the Boyds
assign to it.
Indeed, in context, Congress’s attention to the status of a
“levy to effect an offset” is fully consistent with an intent to
reinforce the differences between the two types of collection
actions. The government’s attorney at oral argument confirmed what
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our case law also reveals – that offsets are at times effected by
means of the more protective levy procedures even though the law
does not require such precautions.
In P.J. Keating Co., 805 F.2d at 452, we accepted as a
“truism” that “the IRS often proceeds against [property in the
hands of a government agency] by serving a formal notice of levy
upon the other agency,” and ruled that “the action of the IRS in
serving a notice of levy upon another federal agency does not
magically transform a traditional set off by the federal government
into a levy.” See also United Sand and Gravel Contractors, Inc. v.
United States, 624 F.2d 733, 736 (5th Cir. 1980) (“[I]t has been an
established practice of the I.R.S., recognized by the courts, to
proceed against property in the hands of other federal agencies by
a formal levy rather than by set off.”).6 With that background in
mind, § 6331(i)(3)(B)(i) is most reasonably understood as
Congress’s attempt to ensure that traditional offset actions remain
6
In United Sand and Gravel, the Fifth Circuit concluded that,
in a case where the IRS served a formal notice of levy on funds
owed to a taxpayer by the United States Corps of Army Engineers,
the statutory levy scheme was applicable; the court noted that
section 6331(a) “contains no implied exclusion for property in the
hands of a federal agency.” See 624 F.2d at 737. We disagreed
with this conclusion in P.J. Keating, stating that “a government
agency’s transfer to the IRS of funds owed to a delinquent taxpayer
should properly be characterized as a set off by the federal
government even if the transfer occurs pursuant to a formal notice
of levy.” See 805 F.2d at 452-53. Thus, we ruled, “no cause of
action for wrongful levy exists when the United States simply sets
off an amount owed to a taxpayer against that taxpayer’s accrued
liability.” Id. at 453.
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distinct – even when accomplished by means of a levy – and are not
generally subject to the new procedural protections for levies.
The Tax Court adhered to that distinction in Bullock v. Comm’r, 85
T.C.M. (CCH) 737 (2003), 2003 WL 43374 (U.S. Tax Ct.), holding that
the Commissioner’s authority under section 6402 to credit an
overpayment to offset the taxpayer’s liability for another taxable
year is not a levy action subject to section 6330.
In sum, we are unpersuaded that the procedural differences
between levy and offset have been eliminated, and the Tax Court’s
jurisdictional ruling thus had no adverse impact on the Boyds’
substantive rights.
Affirmed.
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