Ninth Circuit Affirms Tax Court's Ruling That It Can't Refund a TIPRA Payment

(Parker Tax Publishing February 2023)

A panel of the Ninth Circuit affirmed the Tax Court's decision that it did not have jurisdiction to refund a deposit (i.e., a payment made under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)) a taxpayer included with an offer in compromise (OIC) to settle his tax liability, after the IRS returned the taxpayer's OIC and did not refund his TIPRA payment. The panel found that there is no specific statutory grant conferring jurisdiction on the Tax Court to refund a taxpayer's TIPRA payment. Brown v. Comm'r, 2023 PTC 22 (9th Cir. 2023).

Background

Michael Brown owes approximately $50,000,000 in unpaid federal taxes for various years between 2001 and 2011. In 2015, the IRS filed the first of two notices of federal tax lien (NFTLs) against Brown's property. In response to the NFTLs, Brown requested a collection due process (CDP) hearing and indicated that he intended to make an offer in compromise (OIC). At the time, there were multiple ongoing audits of Brown's businesses.

In November 2016, Brown submitted his OIC. An OIC allows a taxpayer to settle his outstanding tax liabilities for less than their total value if the IRS determines there are doubts as to collectability or that full payment would be inequitable or cause unusual economic hardship. In his OIC, Brown claimed that there were doubts as to collectability and offered to settle his $50,000,000 outstanding tax liability for a payment of $400,000.

Under Code Sec. 7122(C)(1)(A)(i), enacted by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), a taxpayer who makes an OIC is required to submit a payment of 20 percent of the value of the OIC (i.e., a TIPRA payment). As part of the OIC process, the taxpayer must acknowledge his understanding that the TIPRA payment will not be refunded if the OIC is not accepted. Brown included a TIPRA payment of $80,000 with his OIC and acknowledged the non-refundability of the payment on his signed OIC submission form.

After concluding that it was inappropriate to compromise his tax liability at that time because the ongoing audits of Brown's businesses made the overall amount of his tax liability uncertain, the IRS returned Brown's OIC. After the OIC was returned, Brown received a Notice of Determination which permitted him to appeal to the Tax Court to contest the liens and the return of his OIC. In accordance with the terms of the OIC, the IRS did not return Brown's $80,000 TIPRA payment.

Brown took his case to the Tax Court and lost. In Brown v. Comm'r, T.C. Memo. 2019-121, the Tax Court held that the liens were appropriate and the IRS did not abuse its discretion by declining to refund Brown's TIPRA payment. Brown then appealed to the Ninth Circuit. In Brown v. Comm'r, 2020 PTC 343 (9th Cir. 2020), the Ninth Circuit affirmed in part and vacated in part. The Ninth Circuit held that the IRS did not abuse its discretion by returning Brown's OIC but vacated the Tax Court's determination that the IRS had not abused its discretion in refusing to return Brown's TIPRA payment. The IRS argued that the Tax Court lacked jurisdiction to order a refund of the TIPRA payment, and the Ninth Circuit determined that that issue had not been fully briefed, so it remanded to the Tax Court to consider its refund jurisdiction in the first instance.

On remand, in Brown v. Comm'r, T.C. Memo. 2021-112, the Tax Court held that it did not have jurisdiction to refund Brown's TIPRA payment. The court emphasized that it is "a court of limited jurisdiction and has only such jurisdiction as is granted it by the Code." The court reasoned that although it had jurisdiction to hear the appeal under Code Sec. 6320(c) and Code Sec. 6330(d)(1), it had no jurisdiction under these or any other Code provisions to pay Brown the refund he was seeking. It therefore granted the IRS's motion to dismiss for lack of jurisdiction. Brown again appealed to the Ninth Circuit.

Analysis

A panel of the Ninth Circuit affirmed the Tax Court's decision after finding, as the Tax Court did, that there is no specific statutory grant conferring jurisdiction to refund TIPRA payments. The panel agreed with the Tax Court's finding that it has only the jurisdiction specifically granted by statute and lacks the authority to expand upon that statutory grant. The panel rejected Brown's assertion that such a grant could be found in Code Sec. 6320 and 6330. According to the panel, Code Sec. 6320 merely requires that taxpayers be given notice and an opportunity for a hearing when a tax lien is filed. And Code Sec. 6330 deals with procedures governing levies on property and administrative reviews of both liens and levies. Nothing in either section, the panel concluded, grants the Tax Court the power to refund TIPRA payments.

Observation: The panel contrasted Code Sec. 6320 and Code Sec. 6330 with Code Sec. 6512(b)(1), which specifically gives the Tax Court, in its deficiency jurisdiction, the power to determine an overpayment and refund such overpayment to the taxpayer.

The panel also observed that in Greene-Thapedi v. Comm'r, 126 T.C. 1 (2006), the Tax Court held that Code Sec. 6330 does not expressly give the Tax Court jurisdiction to determine an overpayment or to order a refund or credit of taxes paid. The panel noted that the Tax Court went on to state "we do not believe we should assume, without explicit statutory authority, jurisdiction either to determine an overpayment or to order a refund or credit of taxes paid in a section 6330 collection proceeding."

For a discussion of offers in compromise, see Parker Tax ¶263,165.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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