Tax Court Rejects Constitutional Challenge to IRS Certification of Delinquent Tax Debts

(Parker Tax Publishing April 2021)

The Tax Court held that Code Sec. 7345, which authorizes the IRS to certify that an individual has a seriously delinquent tax debt within the meaning of Code Sec. 7345(b), does not violate the right to international travel under the Due Process Clause of the Fifth Amendment because Code Sec. 7345 merely provides for the certification of tax-related facts and does not restrict in any manner the right to international travel. The court also held that, for the same reason, Code Sec. 7345 does not violate an individual's human rights under the Universal Declaration of Human Rights. Rowen v. Comm'r, 156 T.C. No. 8 (2021).

Background

Dr. Robert Rowen, a U.S. citizen, is a medical doctor licensed to practice in California. He frequently travels to developing countries to offer medical services free of charge to populations that would not otherwise have access to adequate medical care. He also has family members in Singapore and mainland China, where he travels for personal reasons.

For more than two decades, Dr. Rowen has repeatedly failed to file federal income tax returns. Dr. Rowen first failed to file a timely income tax return for tax year 1994. In April 1997, Dr. Rowen was indicted on, and pleaded guilty to, one count of corruptly endeavoring to impede an IRS investigation of his activities. As required by his plea agreement, Dr. Rowen filed delinquent returns for 1994 and 1996 and timely filed his 1997 income tax return. The IRS issued to Dr. Rowen a notice of deficiency for tax year 1994. Dr. Rowen did not petition the Tax Court for redetermination, and the 1994 deficiency was assessed in 2000. That year, Dr. Rowen submitted amended returns for tax years 1996 and 1997. The IRS processed Dr. Rowen's amended returns and assessed the amounts reported on those returns.

In 2001, in an effort to collect the assessed amounts, the IRS issued to Dr. Rowen a notice of intent to levy relating to tax years 1994, 1996, and 1997. The notice explained Dr. Rowen's right to seek a hearing before the IRS Office of Appeals (Appeals) (whose determination would have been reviewable by the Tax Court under Code Sec. 6330), but Dr. Rowen did not avail himself of that opportunity. Instead, Dr. Rowen filed for bankruptcy, seeking discharge of his federal income tax liabilities for tax years 1992 through 1997. In 2003, the bankruptcy court held that Dr. Rowen willfully failed to file his tax returns and failed to pay his income tax liabilities for tax years 1992 through 1997. The bankruptcy court refused to discharge the liabilities.

Despite his prior plea agreement, Dr. Rowen again stopped filing tax returns starting with 2003. It was only after the IRS generated a substitute for return for tax year 2007 in 2009 that Dr. Rowen submitted returns for tax years 2003 through 2007. But Dr. Rowen failed to pay the amounts due reflected in those returns, so the IRS filed notices of federal tax lien (NFTLs) and mailed notices of filing the NFTLs to Dr. Rowen. The IRS also issued notices of intent to levy against Dr. Rowen relating to his unpaid liabilities for tax years 2003 through 2007. In response, Dr. Rowen timely filed a request for a hearing with Appeals relating to the collection of his income tax liabilities for 2003 through 2007. In 2012, Appeals issued to Dr. Rowen a notice sustaining the NFTL filings and the proposed levies relating to tax years 2003 through 2007.

In 2018, the IRS certified Dr. Rowen as an individual owing a seriously delinquent tax debt under Code Sec. 7345. The certification was sent to the State Department for action with respect to the denial, revocation, or limitation of Dr. Rowen's passport, as provided in Code Sec. 7345(a), and the IRS sent a notice of the certification to Dr. Rowen as required by Code Sec. 7345(d). Although the State Department was empowered to revoke Dr. Rowen's passport after receiving the certification, the State Department, as of August 20, 2020, had not informed Dr. Rowen of any adverse action with respect to his existing passport.

Dr. Rowen filed a petition in the Tax Court under Code Sec. 7345(e)(1), which authorizes the Tax Court to determine whether a Code Sec. 7345 certification is erroneous. In a motion for summary judgment, he argued that Code Sec. 7345 is unconstitutional because it prohibits international travel in violation of the Fifth Amendment's Due Process Clause. He also argued that Code Sec. 7345 violated the Universal Declaration of Human Rights (UDHR). The IRS filed a cross motion for summary judgment, contending that Code Sec. 7345 is constitutional, the UDHR provides no actionable claim in federal courts, and no error was committed in certifying Dr. Rowen's tax liabilities as a seriously delinquent tax debt.

Analysis

The Tax Court granted summary judgment for the IRS. The court held that the plain text of Code Sec. 7345 imposes no prohibition on international travel. Rather, the statute merely provides a process by which the IRS may certify to the Secretary of the Treasury the existence of a seriously delinquent tax debt, which is in turn transmitted to the Secretary of State. The court found that Code Sec. 7345(a) leaves all passport-related decisions for action by the Secretary of State. The court noted that the IRS may well not know whether a particular taxpayer has a valid passport or intends to seek one when the it makes the certification. The court also rejected Dr. Rowen's contention that the IRS had revoked his passport, prohibiting him from the leaving the country, because the record showed that his passport remained in effect and no adverse action with respect to Dr. Rowen's passport had been taken against him. The court likewise rejected Dr. Rowen's argument that Code Sec. 7345 violates the UDHR, reasoning that regardless of whether the UDHR binds the United States as a matter of international law, the UDHR cannot provide grounds for relief since Code Sec. 7345 imposes no limit on the right to travel.

As to whether the IRS's Code Sec. 7345 certification was erroneous under Code Sec. 7345(e)(1), the court found that Dr. Rowen owed at least $474,847 for tax years 1994, 1996, 1997, and 2003 through 2007 and had been issued NFTLs or notices of intent to levy for those years. The court found that Dr. Rowen had an opportunity to seek review in the Tax Court for all years at issue and he in fact did not seek review for years 2003 through 2007. The court noted that it had sustained the IRS's determinations for those years and that for all other years, Dr. Rowen's right to review had lapsed. The court noted that Dr. Rowen had not entered into an installment agreement to pay his liabilities under Code Sec. 6159 or an offer in compromise under Code Sec. 7122 and did not request innocent spouse relief under Code Sec. 6015. In the court's view, these facts established that Dr. Rowen fell squarely within the definition and outside the exceptions set forth in Code Sec. 7345(b) for a taxpayer owing a seriously delinquent tax debt. Consequently, the court concluded that the IRS did not err in certifying Dr. Rowen's seriously delinquent tax debt.

Observation: In a concurring opinion, one judge said that the opinion of the court, read narrowly, did not foreclose a broader constitutional challenge in a case involving an adverse passport action and that, in such a case, the arguments about the impairment of the taxpayer's right to international travel would not be so easily avoided.

For a discussion of IRS collection procedures, see Parker Tax ¶260,501.

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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