This article is reproduced with permission from Spidell Publishing, Inc.
The IRS issued a levy to the Social Security Administration for 100% of a taxpayer’s monthly Social Security benefit and applied the payments toward the taxpayer’s nearly $20 million federal income tax liability.
The taxpayer filed a lawsuit against the U.S. government to preclude the IRS from taking more than 15% of his monthly Social Security benefits based on Internal Revenue Code (IRC) Section 6331(h), which states that a continuing levy on specific payments are subject to a 15% cap. In other words, only one-time Levies may seize greater than 15% of a taxpayer’s available assets.
The Anti-Injunction Act (AIA)
The IRS responded by seeking to dismiss the case based on the AIA, which generally prohibits any lawsuit against the U.S. government for the purpose of restraining the assessment or collection of tax, subject to limited exceptions detailed in the AIA. The taxpayer did not challenge the IRS’s assertion that he brought his lawsuit for the very purpose of restraining the assessment or collection of tax within the meaning of the AIA. The taxpayer also did not seek to invoke any of the exceptions set forth in the text of the AIA itself but instead relied on two judicially created exceptions. In a previous case, the U.S. Supreme Court held that the AIA does not prevent a lawsuit against the U.S. government “if it is clear that under no circumstances could the Government ultimately prevail.”
One-Time Versus Continuing Levy
Asserting that the U.S. government could not ultimately prevail, the taxpayer argued that Social Security payments were continuing payments and that IRC Section 6331(h) prevents the IRS from placing a levy of greater than 15%. In turn, the IRS argued that even though Social Security benefits are paid on a monthly basis, a levy upon Social Security payments is not a continuing levy because a one-time levy may seize a future stream of payments if the taxpayer’s right to the payments are fixed and determinable without any requirement for the provision of future services and that Social Security benefits meet this requirement.
Both the taxpayer and the IRS presented case law that supported their positions. Because of the simple fact that each side had at least some case law in their favor on the issue of whether levies on Social Security payments are one-time levies or continuous levies meant that the taxpayer could not establish that his success was certain. Failing that, his reliance on the Supreme Court’s first exception to the AIA was insufficient to prevail.
The taxpayer argued a second judicially created exception emanating from the U.S. Supreme Court to the AIA that applies where an aggrieved party does not have any other alternative remedy in the law. The court dispensed with the taxpayer’s argument because the taxpayer has the ability to file a lawsuit for damages under IRC Section 7433(a). That section allows taxpayers to bring a civil action against the U.S. Government if any officer or employee of the IRS recklessly, intentionally, or negligently disregards any provision of the IRC. In fact, the taxpayer even requested permission to amend his lawsuit in order to assert a claim under IRC Section 7433(a).
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