FTPB Update 04 - District Court Litigation Types (10/22/19)

I am doing the Updates differently, principally because I have learned how to do footnote links in the blog entry itself.  Accordingly, I have determined that printing the Updates as blog entries rather than separate pdfs will make it more useful to most readers.  I have created a page (to the right), titled FTPB Cumulative Update List with Links, here, that collects all updates in the context of the Table of Contents.

Caveat:  (i) Students using the Student Edition should ignore the footnotes here (just as I do not provide footnotes in the Student Edition; and (ii) the footnote number begin with 1 here rather than the footnote numbers in the text being revised.

Section Affected	Edition page numbers
Ch. 12.  Litigation    II.  Choices of Courts       B.  District Courts  2. Types of Tax Litigation In District Courts Replace the entire section (I highlight in red the revised wording)	Practitioner Ed. pp. 621-622 Student Ed. pp. 429-430

                        2.         Types of Tax Litigation In District Courts.

            District courts are courts of limited jurisdiction, meaning they can only hear cases authorized by the United States Constitution or federal statutes.  District courts have original jurisdiction for any case arising under federal statutes, the Constitution, or treaties,¹ and are specifically conferred jurisdiction for tax refund suits against the United States.  28 U.S.C. § 1346(a)(1) and § 7422(a).  Historical note: Prior to 1966, refund suits could also be brought against the Collector based on illegal exactions without invoking § 1346(a)(1) which was subject to some limitations in earlier periods;² hence a number of leading tax cases from the pre-1966 period are refund suits brought against the Collector. E.g., Lewis v. Reynolds, 284 U.S. 281 (1932).³

            I also note prominently the collection suit.⁴  The Government may bring a collection suit in the district court to reduce an assessment to judgment and to obtain judicial remedies with respect to the tax liability.  If the taxpayer has not by that time judicially contested the underlying tax liability, he or she can do so in that collection suit. ⁵ Sometimes a collection suit is combined with a refund suit.  The classic case is the so-called divisible tax case–best exemplified by the fairly common trust fund recovery penalty under § 6672.  As I  note elsewhere (pp.  ff.), this penalty is usually litigated by a refund suit.  The putative responsible person will pay a small amount to meet the jurisdictional prerequisite that there be a payment which could be refunded.  In the resulting refund suit, the Government will typically file a counterclaim for the balance of the amount that has been assessed.  That counterclaim is a collection suit that could have otherwise been brought independently by the Government to obtain a judgment for the unpaid tax.  The Government will pursue the matter as a counterclaim in order to get the putative responsible person's liability for all quarters concluded in one litigation.

            In addition, the district courts have a potpourri of other jurisdiction, examples of which include jurisdiction to quash an IRS formal document request (“FDR”),⁶ to order more disclosure of a written determination,⁷ to consider petitions for readjustment of partnership adjustments,⁸ jurisdiction to approve a levy on a principal residence,⁹ general jurisdiction to enter orders and judgments necessary or appropriate for the internal revenue laws,¹⁰ jurisdiction over summons enforcement proceedings,¹¹ actions to enforce a lien and declare a sale,¹² certain injunctions against persons abusing the tax system,¹³ wrongful levy suits where a third party claims his or her property was levied upon to pay another taxpayer’s taxes,¹⁴ declaratory judgments for § 501(c)(3) organizations,¹⁵ review of jeopardy assessments and levies,¹⁶ and so on and on.¹⁷  I discuss some of these in other sections of this book.

            For purposes of this course in this section, please focus your attention on the refund suit jurisdiction and its collection suit counterpart.

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¹              28 U.S.C. § 1331.

²              § 7422(f), enacted in 1966, abolished refund suits against the Collector and required them against the United States.  Pub. L. No. 89-713, § 3(a), 80 Stat. 1107, 1108 (1966).   During much of the period prior to 1966, refund suits in the district courts could be pursued under the predecessor of § 1346(a)(1) subject to the jurisdictional limitation amount(initially $1,000, subsequently raised to $10,000), but that jurisdictional amount on refund jurisdiction in § 1346(a)(1) was eliminated in 1954.  But, while the amount limitation applied, it could be avoided by suing the Collector.  Flora v. United States, 362 U.S. 145, 151-152 (1960); see Leandra Lederman, Equity and the Article I Court: Is the Tax Court's Exercise of Equitable Powers Constitutional?, 5 Fla. Tax Rev. 357, 402-403 (2001); and William T. Plumb, Jr., Tax Refund Suits Against Collectors of Internal Revenue, 60 Harv. L. Rev. 685, 686-687 (1947) (providing an excellent analysis of the history and quirks of the refund suit against the collector).  Now (after 1966), refund suits can be brought under §§ 7422 and 1346(a)(1) only against the United States and with no limit as to amount.

³              “Petitioners [Trustees] sued the respondent Collector to recover $7,297.16 alleged to have been wrongfully exacted as income tax upon the estate of Cooper.”  Id., p. 282 (cleaned up).  One aside, the opinion is just barely over 2 pages long; those were the good old days!

⁴              For a summary of the process, including authority, jurisdiction, etc., for such suits, see IRM 5.17.4  Suits by the United States.

⁵              E.g., United States v. O'Connor, 291 F.2d 520, 527-528 (2d Cir. 1961).

⁶              § 982(c)(2)(B).

⁷              § 6110(f)(4)(A) (concurrent jurisdiction with the Tax Court).

⁸              § 6226(a) (concurrent jurisdiction with Tax Court).

⁹              § 6334(e)(1)(B).

¹⁰            § 7502.

¹¹            § 7402(b).

¹²            § 7403.

¹³            §§ 7407 & 7408.

¹⁴            § 7426.

¹⁵            § 7428.

¹⁶            § 7429.

¹⁷            For collection due process (“CDP”) determinations issued prior to 10/17/06, the district court had certain residual jurisdiction.  § 6330(d)(1), prior to amendment by the Pension Protection Act of 2006, Pub. L. No. 109-280, § 855(a), 120 Stat. 780, enacted on August 17, 2006.  That Act amended § 6330(d)(1) to give the Tax Court exclusive jurisdiction for judicial review of all CDP determinations issued after 10/17/06.