Beware Running of Pending Statute of Limitations When Seeking Taxpayer Advocate Service Assistance – IRS Gives Notice of Nonacquiescence with Court of Appeals’ Decision that Found Seeking Help from Taxpayer Advocate Service Tolls Time To File Claim to Challenge Wrongful Levy By SANDRA R. BROWN
The Internal Revenue Service (“IRS”) has recently provided notice that it will, in large part, not follow the adverse decision issued by the Fifth Circuit Court of Appeals in Rothkamm v. United States[i] which found that seeking help from the Taxpayer Advocate Service (“TAS”) tolled the time limits under IRC § 6343(b) for the filing of an administrative claim to challenge a wrongful levy.[ii]
Rothkamm v. United States
Kathryn Rothkamm and her husband filed separate tax returns. Mr. Rothkamm incurred a tax liability. The IRS levied on funds in Mrs. Rothkamm’s bank account to help pay for Mr. Rothkamm’s tax debts despite Mrs. Rothkamm’s assertion that the funds were her separate property and thus, not subject to her husband’s tax debts. The bank honored the levy and turned over the funds to the IRS.
Mrs. Rothmann sought assistance from the TAS by filing a taxpayer assistance order (“TAO”) application. Five months later the TAS case was closed and nine months thereafter, i.e., fourteen months after the date of the levy, Mrs. Rothmann filed her administrative claim directly with the IRS asserting that the levy was wrongful and the funds should be returned to her. The IRS denied her claim asserting that it was untimely under IRC § 6343(b) as the applicable statute of limitations for the filing of an administrative claim to challenge a wrongful levy is not tolled for the time in which her request was pending with TAS.
Mrs. Rothmann filed suit in District Court to challenge the IRS’s denial of her wrongful levy claim. After the District Court dismissed her suit, finding that the statute of limitations had not been tolled by her pending TAO, Mrs. Rothmann filed an appeal with the Circuit Court. Thereafter, the Fifth Circuit overturned the decision of the lower court and found that Mrs. Rothmann’s TAO did toll the applicable statute of limitations and thus, her claim was timely. The Fifth Circuit’s decision in Rothkamm is now final.
IRS’s Nonacquiescense in Rothkamm
On March 27, 2020, the IRS published its notice regarding its nonacquiescence in the court’s decision in Rothkamm. [iii] Specifically, the IRS has stated that, for cases that would be filed in courts not within the Fifth Circuit, it will not follow the holding that filing a TAO with TAS automatically tolls the statute of limitations under IRC § 6343(b) to extend the time period for the filing of a wrongful levy lawsuit.
Reiterating its’ legal position on tolling, as advanced in the Rothkamm litigation, the IRS will continue to assert that “a plain reading of section 7811(d) shows that the time periods tolled [for pending TAOs] relate to actions available to the IRS, not actions available to taxpayers.”[iv] In simple terms, the IRS’s legal position, for matters outside of the jurisdiction of the Fifth Circuit, is that it is solely within the discretion of the IRS to determine whether or not a TAO applicant’s claim is tolled.
So, before summarizing “how” the IRS is legally able to “nonacquiesce” with an adverse decision, it is worth noting “what” the IRS’s Acquiescence Policy is and “why” it exists.
IRS’s Acquiescence Policy
What is the IRS’s Acquiescence Policy?
If the IRS wants taxpayers to know that it will follow an adverse decision in future cases involving similar facts and issues, it will announce its “acquiescence” in the decision. Conversely, if it wants taxpayers to know that it will not follow the decision in such future cases, it will announce its “nonacquiescence.” In cases involving multiple issues, the IRS may acquiesce in some issues but not others.[v] In decisions supported by extensive reasoning, it may acquiesce in the result but not the rationale. This policy is known as the IRS acquiescence policy.
The IRS does not announce its acquiescence or nonacquiescence in every decision it loses. Furthermore, it may retroactively revoke an acquiescence or nonacquiescence.
When it does announce its acquiescence or nonacquiescense, the IRS publishes its notice as “Actions on Decision” first in the Internal Revenue Bulletin (“IRB”), then in the Cumulative Bulletin (“CB”). The footnotes to the relevant announcement in the IRB and CB indicate the nature and extent of IRS acquiescences and nonacquiescences.
Why does the IRS have a Acquiescence Policy?
These acquiescences and nonacquiescences have important implications for taxpayers. If a taxpayer bases his or her position on a decision in which the IRS has nonacquiesced, he or she can expect an IRS challenge in the event of an audit. In such circumstances, the taxpayer’s only recourse may be litigation. On the other hand, if the taxpayer bases his or her position on a decision in which the IRS has acquiesced, he or she can expect little or no challenge. In either case, it is important to be aware that the IRS examining agent will be bound by the IRS position in the Actions on Decision published in the IRB and CB
How is the IRS able to legally nonacquiesce in an adverse decision?
A quick summary of a legal concept known as “judicial precedence” explains why the IRS is not always bound by an adverse decision when it faces future litigation on similar facts and issues.
Judicial precedence means lower courts have to follow decisions of higher courts in deciding cases where the facts are sufficiently similar. Absent an “Act of Congress” to change in the law, rulings of the U.S. Supreme Court are binding on all courts; whereas, rulings by a particular Court of Appeals, albeit given a level of deference by the other appellate courts, are only legally binding on the specific lower courts within that appellate court’s jurisdiction.[vi]
That means, for a litigant like the IRS, which can find itself litigating the same issues with multiple taxpayers who are located in different parts of the country, the IRS is not necessarily bound by an adverse decision – as long as the IRS’s loss was in a different appellate court’s jurisdiction than the appellate court in which it is litigating.
To be clear, judicial precedence is not limited to the IRS. For example, if the Fifth Circuit had ruled against Mrs. Rothkmann, another taxpayer could proceed to litigate similar facts and issues against the IRS in any court within the jurisdiction of the other twelve federal courts of appeals.[vii]
Sandra R. Brown is a Principal at Hochman Salkin Toscher & Perez P.C. Prior to joining the firm, Ms. Brown served as the Acting United States Attorney, the First Assistant United States Attorney and the Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) Ms. Brown specializes in representing individuals and organizations who are involved in criminal tax investigations, including related grand jury matters, court litigation and appeals, as well as representing and advising taxpayers involved in complex and sophisticated civil tax controversies, including representing and advising taxpayers in sensitive-issue audits and administrative appeals, as well as civil litigation in federal, state and tax court.
[i] Rothkamm v. USA, 802 F.3d 699 (5th Cir. 2015); https://taxpayeradvocate.irs.gov/Media/Default/Documents/NTAblog/Rothkamm%20-%20Fifth%20Circuit%20Opinion%20(9-21-2015).pdf
[ii] In 2012, when the IRS issued it’s the levy in this case, the applicable period for filing an administrative claim to challenge an IRS levy was only nine-months under IRC § 6532(c). That period was extended to two years with respect to levies issued after December 22, 2017, or for which the nine-month statute had not already expired. See, Public Law 115-97.
[iv] Rothkamm at page 20.
[v] An example of the IRS agreeing in part is present in the Rothkamm case, where: (1) the IRS raised a second legal argument, i.e., that Mrs. Rothkamm lacked standing as a “taxpayer” to obtain tolling under a TAO; (2) lost both that argument and the tolling argument; and (3) decided to provide notice that it will acquiesce in one issue, i.e., the “taxpayer”, but not the tolling issue.
[vi] Jurisdiction of the U.S. Circuit Courts can be determined by region of the country or specific subject matter of the litigation.