In a recent case of first impression, the U.S. Tax Court has held that it does not have to rely solely upon the administrative record in determining whether the IRS erroneously certified a taxpayer as having a seriously delinquent tax debt to the Secretary of State for purposes of revoking or denial of a taxpayer’s passport under section 7345 of the Internal Revenue Code (“Section 7345”).
Section 7345
Section 7345 requires the IRS to transmit a certification of seriously delinquent tax debt to the Secretary of State. A “seriously delinquent tax debt” is a legally enforceable federal tax liability that is greater than $50,000 as adjusted for inflation for calendar years beginning after 2016, although the term does not include certain liabilities for which an offer in compromise or installment agreement is in place or for which collection is suspended due to a collection due process hearing request or innocent spouse relief request.[1] Once the Secretary of State receives a certification of seriously delinquent tax debt from the IRS with respect to a certain taxpayer, the Secretary of State is prohibited from issuing or renewing a passport for that taxpayer and may revoke any passport issued to that taxpayer.[2]
The catch, though, is that a tax liability must be legally enforceable in order to be a seriously delinquent tax debt. One circumstance in which a tax liability is no longer legally enforceable is if the statute of limitations for the IRS to collect that liability has expired.
The IRS generally has 10 years after the assessment of a tax liability to collect that liability.[3] If a proceeding in court for the collection of the tax liability is begun within this ten-year period, then the period in which the IRS can collect the tax is extended until the liability is satisfied or becomes legally unenforceable.
A taxpayer may bring an action in the Tax Court against the IRS to determine whether a certification was erroneous or whether the IRS has failed to reverse the certification.[4] If the Tax Court finds that a certification is erroneous, the court may order the IRS to notify the Secretary of State of that determination.[5]
Garcia v. Commissioner
In Garcia v. Commissioner, the Tax Court addressed a taxpayer’s argument that the IRS had certified the taxpayer as having a seriously delinquent tax debt when such debt was outside of the 10-year collection statute of limitations and thus legally unenforceable.
The IRS assessed the tax liabilities in question against the taxpayer between March 26, 2007 and August 23, 2010.[6] On January 30, 2014, the United States brought suit against the taxpayer in district court to reduce the tax liability to judgment.[7] Neither the taxpayer nor anyone on his behalf appeared in the suit.[8] On August 11, 2014, the district court issued a default judgment for the United States.[9] As a result of this judgment, the IRS asserted that the statute of limitations for the IRS to collect on the judgment would not expire until August 11, 2034.[10]
On October 17, 2022, the IRS certified that the taxpayer had a seriously delinquent tax debt to the Secretary of State.[11] The taxpayer brought suit against the IRS in the Tax Court challenging this certification on December 14, 2022.[12] The IRS filed a motion for summary judgment.[13]
The taxpayer argued that the statute of limitations for the tax liabilities had expired before the certification of seriously delinquent tax debt had been issued because the taxpayer was never served in the 2014 suit.[14] The Tax Court observed that if the taxpayer was not properly served in that suit, then the district court’s default judgment would be void, which would mean that the statute of limitations for virtually all of the tax liability that the IRS had assessed against the taxpayer had expired before the certification of seriously delinquent tax debt.[15]
However, there was a question of the Tax Court’s proper scope of review with respect to certifications under section 7345.[16] The Administrative Procedure Act (“APA”) typically provides that “in cases where Congress has simply provided for review, without setting forth the standards to be used or the procedures to be followed, . . . consideration is to be confined to the administrative record and . . . no de novo proceeding may be held.”[17] However, “the APA’s general provisions do not supersede specific statutory provisions.”[18]
The Tax Court noted that if its review of the IRS’s certification was limited to the administrative record, then it would only look to the IRS’s record of the default judgment’s entry and not any evidence suggesting that the judgment was void.[19] Conversely, if the Tax Court were able to review the certification de novo, then the court would be allowed to consider evidence regarding whether the taxpayer was properly served.[20]
The crux of the Tax Court’s judgment came down to the use of the word “determine” in section 7345. The Tax Court had previously interpreted the word “determine” in statutes granting the court jurisdiction over deficiency redetermination and innocent spouse relief requests as requiring de novo review.[21] For that reason, the Tax Court found that it was required to engage in de novo review in cases involving certifications under section 7345.[22] However, the Tax Court observed that this decision with regard to the scope of review would be unlikely to affect most passport cases, as in most instances there is no need to look beyond the administrative record.[23]
Because there was a genuine issue of material fact regarding whether the taxpayer was served in the 2014 suit, the Tax Court denied the IRS’s motion for summary judgment.
[1] I.R.C. § 7345(b), (f).
[2] 22 U.S.C. § 2714a(a)(1)(A), (2)(A).
[3] I.R.C. § 6502(a) (flush language).
[4] Id. § 7345(e)(1)
[5] Id. § 7345(e)(2).
[6] Garcia v. Comm’r, no. 27496-22P, at 9 (164 T.C. No. 8).
[7] Id., at 5.
[8] Id., at 5.
[9] Id., at 5.
[10] Garcia, at 11 (citing 28 U.S.C. § 3201(a), (c)(1)). The Tax Court assumed that this was correct without deciding the issue. Id.
[11] Id., at 4.
[12] Id., at 5
[13] Id., at 6.
[14] Id., at 12.
[15] Garcia, at 13.
[16] Id., at 14-19.
[17] Id., at 15 (quoting United States v. Carlo Bianchi & Co., 373 U.S. 709, 715 (1963)).
[18] Id., at 16.
[19] Id., at 15.
[20] Garcia, at 15
[21] Id. at 16-17.
[22] Id., at 18.
[23] Id., at 19.
