FOLLOW US

The U.S. Supreme Court will review a Third Circuit decision permitting a woman to continue challenging what she claims was an improper application of her tax payments to her ex-husband’s bill, even though the IRS ceased pursuing a proposed property seizure against her.

In an order list released Friday, the high court granted the IRS’ request to review the case, which centers on Jennifer Zuch’s ability to contest her $27,000 tax liability in the U.S. Tax Court. The IRS had used Zuch’s tax refunds to cover the debt and stopped seeking to levy her property but argued that this made the issue moot.

The IRS, in its October petition for review, claimed the Third Circuit's March decision diverged from rulings by the Fourth and D.C. Circuits by holding that a pre-levy proceeding under Internal Revenue Code Section 6330 is not necessarily moot if the IRS ceases levy efforts.

The IRS asserted that letting the decision stand would grant the Tax Court excessive authority and disrupt the intended function of levy proceedings under Section 6330. This section was designed to allow the Tax Court to review IRS levies specifically for unpaid taxes, the agency said, arguing there was no longer any unpaid tax debt in Zuch’s case.

“When the IRS declares that it no longer needs or intends to take the taxpayer’s property by levy, a pre-levy proceeding under Section 6330 becomes moot,” the IRS said.

Zuch, however, urged the justices last month to leave the ruling intact. In her brief, she argued the decision doesn’t conflict with any other rulings and pertains to a rare issue.

Zuch said she owed approximately $27,000 in taxes for 2010. She and her ex-husband had made $50,000 in prepayments to the IRS in 2010 and 2011, requesting the funds be applied to her balance. However, the IRS applied the $50,000 to her ex-husband’s separate tax debt and subsequently attempted to collect her $27,000 liability through a levy on her property.

Zuch challenged the proposed levy in Tax Court, but while the case was pending, she overpaid her taxes. The IRS retained the overpayment, applying it to what it deemed the unpaid $27,000 liability, Zuch said.

The IRS then asked the Tax Court to dismiss the proceeding, claiming it no longer needed to collect the debt and had halted the levy efforts.

“In the IRS’ view, even though Zuch still disputed her underlying liability, it had taken her money, so the case was over,” Zuch’s attorneys argued in their brief.

Initially, the Tax Court agreed with the IRS in 2022, ruling it lacked jurisdiction after the agency ceased pursuing the levy. However, the Third Circuit overturned this decision, stating the Tax Court could still address the dispute over Zuch’s liability. The appellate court further found that the IRS’ offsets, where it used refunds to cover the debt, were invalid.