Opinion
21077-21P
07-21-2022
KATHERINE MCDONALD, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER OF DISMISSAL
Ronald L. Buch Judge
Pending before the Court is the Commissioner's motion to dismiss on ground of mootness, which Mr. Robertson and Ms. McDonald oppose. In consolidated cases, Jay Robertson (Docket No. 15190-21P) and Katherine McDonald (Docket No. 21077-21P) challenge the Commissioner's having certified them as having a seriously delinquent tax debt under section 7345. Confessing error, the Commissioner reversed the certifications. Section 7345(e) authorizes this Court "to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification." Because the Commissioner has reversed his certifications, there is nothing left for the Court to decide. This case will be dismissed as moot.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times. Monetary amounts are rounded to the nearest dollar.
Background
In November 2019, Mr. Robertson and Ms. McDonald entered an installment agreement to pay their joint federal income tax liabilities for 2007 and 2010. See § 6159 (authorizing installment agreements). They agreed to pay monthly installments of $4,000. Since entering that agreement, Mr. Robertson and Ms. McDonald have made timely payments.
After entering into the installment agreement with Mr. Robertson and Ms. McDonald, the Commissioner determined they had underpaid their estimated taxes for 2019. Mr. Robertson and Ms. McDonald timely filed their 2019 return (on extension) and remitted full payment with that return. But their final return showed a balance due, and the Commissioner assessed an addition to tax for failing to make sufficient estimated tax payments, an addition to tax for late payment, and interest. This resulted in an outstanding liability of $1,064. The Commissioner issued a notice and demand for payment on December 14, 2020, and Mr. Robertson and Ms. McDonald promptly paid the balance. They also continued making timely installment payments.
On April 5, 2021, the Commissioner issued Mr. Robertson a Notice CP523, Notice of Intent to Levy - Intent to Terminate Your Installment Agreement, for 2007 and another for 2010. The notices informed Mr. Robertson that the Commissioner intended to terminate the installment agreement unless he paid the "past due amount" of $12,000 "to prevent default" within 30 days. The notices also informed him of his right to appeal any termination or proposed termination of the installment agreement to the IRS Independent Office of Appeals. The notices instructed to request an appeal by calling a phone number (provided) or sending a Form 9423, Collection Appeal Request, to an address (provided).
Mr. Robertson and Ms. McDonald continued making monthly payments while simultaneously requesting an appeal. Their counsel called the provided phone number multiple times but never reach an IRS employee due to "large call volumes." Their counsel mailed Form 9423 by certified mail to the provided address on April 21, 2021, but it was undeliverable. After that, their counsel mailed and faxed a request for assistance, which included a completed Form 9423, to the Taxpayer Advocate Service (TAS) on April 29, 2021. Their counsel mailed a third Form 9423 to an IRS office in Memphis, Tennessee, via FedEx First Overnight on May 4, 2021, and it was delivered the next day. Without responding to any of those collection appeal requests, the Commissioner terminated the installment agreement on June 14, 2021. Throughout this time, Mr. Robertson and Ms. McDonald continued making monthly payments of $4,000.
"[TAS] is an independent organization within the IRS that helps taxpayers and protects taxpayers' rights." TAS can offer help to taxpayers who have "tried but been unable to resolve [their] issue with the IRS, or [who] believe an IRS system, process, or procedure isn't working as it should."
Although they continued making monthly payments, the Commissioner terminated the installment agreement and certified Mr. Robertson and Ms. McDonald as persons owing seriously delinquent tax debts. On July 12, 2021, the Commissioner issued Notice CP508C, Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department, to Mr. Robertson. On August 16, 2021, the Commissioner issued a similar notice to Ms. McDonald. The notices relate to their joint income tax liabilities for 2007 and 2010, which at the time of the later notice, amounted to $209,031.
While residing in Texas, Mr. Roberston and Ms. McDonald filed separate petitions in response to those notices. In their petitions and subsequent pleadings, they argue that the Commissioner's certifications were erroneous because: (1) they were not persons owing seriously delinquent tax debt under section 7345; (2) certification under section 7345 violated their constitutional right to procedural due process under the Fifth Amendment; and (3) the collection mechanism under section 7345 and the Fixing America's Surface Transportation Act (FAST Act), Pub. L. No. 114-94, § 32101, 129 Stat. 1312, 1729 (2015) violated their constitutional right to substantive due process under the Fifth Amendment.
The Commissioner initially disagreed that the certifications were erroneous, but has changed his position. On March 10, 2022, the Commissioner filed a motion for summary judgment in Mr. Roberston's case, to which Mr. Robertson objected and filed a cross-motion for summary judgment. The Court ordered a response to the cross-motion. In responding, the Commissioner filed a motion to dismiss as moot. In that motion, the Commissioner concedes that the certifications were erroneous, explaining:
Because [the IRS] did not send proper notice of the termination of the installment agreement to petitioner Katherine McDonald, and evidence exists that petitioners timely requested an appeal of the termination, petitioners did not meet the requirements for certification as individuals with seriously delinquent tax debt. See I.R.C. § 7345(b)(2)(A) (excluding from the definition of seriously delinquent tax debt, debt that is being timely paid under an installment agreement), I.R.M. 5.19.8.4.16.5 (providing the process to appeal the pending termination of an installment agreement).
The Commissioner reversed the certifications on May 16, 2022. The Commissioner filed motions to dismiss on ground of mootness in both Mr. Robertson's and Ms. McDonald's cases. Mr. Robertson and Ms. McDonald objected.
Discussion
I. Section 7345 and the FAST Act
The FAST Act created a process that begins with the Commissioner certifying a person as having a seriously delinquent tax debt and may end with that person having his or her passport revoked. Generally, section 7345 provides a multi-step certification process that starts with the Commissioner. That process begins only after the Commissioner determines that "an individual has a seriously delinquent tax debt." See § 7345(a). Section 7345(b)(1) defines a "seriously delinquent tax debt" as one that has been assessed, is greater than $50,000, and with respect to which either a lien notice has been filed (with respect to which administrative rights have been exhausted or have lapsed) or a levy has been made. However, section 7345(b)(2) excludes certain liabilities from that definition, including "a debt that is being paid in a timely manner pursuant to an agreement to which the individual is party under section 6159." If the Commissioner certifies to the Secretary of the Treasury that an individual has a seriously delinquent tax debt, the Secretary of the Treasury must transmit that certification to the Secretary of State "for action with respect to denial, revocation, or limitation of a passport pursuant to section 32101 of the FAST Act." § 7345(a). After making a certification, the Commissioner must reverse that certification if: (1) it is found to be erroneous, or (2) if the debt upon which it is based is fully satisfied or ceases to be a seriously delinquent tax debt by reason of section 7345(b)(2). § 7345(c)(1). The Commissioner must notify the Secretary of Treasury of the reversal, who in turn must notify the Secretary of State. Id.
This statutory amount is adjusted for inflation. Per the notices issue to Mr. Robertson and Ms. McDonald, the inflation-adjusted amount was $54,000 at the time the notices were issued. § 7345(f).
The circumstances that require reversal under section 7345(b)(2) include if the debt is being timely paid pursuant to an installment agreement.
Section 7345(e) narrowly provides for judicial review of a certification. After the Commissioner notifies an individual of a certification, that individual may bring an action in Tax Court "to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification." § 7345(e)(1). The Tax Court can determine whether the certification was erroneous, and if so, may order the Secretary of the Treasury "to notify the Secretary of State that such certification was erroneous." § 7345(e)(1)-(2).
Mr. Robertson and Ms. McDonald filed petitions pursuant to section 7345(e). They argue that their tax debt was not seriously delinquent because they were timely paying their liability pursuant to an installment agreement. See § 6159. The Commissioner concedes that because Mr. Robertson and Ms. McDonald had appealed the proposed termination of their installment agreement, they did not meet the requirements for certification. The Commissioner reversed the certifications as required by section 7345(c).
II. Mootness
The Commissioner argues that these cases are moot because Mr. Robertson and Ms. McDonald have obtained all relief that is available to them under section 7345(e). In opposition to the motion to dismiss, Mr. Robertson and Ms. McDonald argue that the Commissioner's concession of error "may moot Petitioners' claims that the determinations were erroneous under section 7345(b)(2)(A)," but reversal of the certification does not "moot Petitioners' remaining assignments of error regarding the constitutionality of section 7345 and the FAST Act." They further argue that, even if their constitutional claims were moot, exceptions to the mootness doctrine apply.
In federal courts, Article III of the United States Constitution requires that there be a "case or controversy" before courts can exercise jurisdiction over a dispute. The case or controversy requirement applies in Tax Court. Battat v. Commissioner, 148 T.C. 32, 46 (2017). One rule that derives from the case or controversy requirement, the mootness doctrine, provides that a Federal court has no authority to give opinions on moot questions. Friends of the Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528 U.S. 167, 168, 180 (2000); Church of Scientology of Cal. v. United States, 506 U.S. 9, 12 (1992). A case is moot, and must be dismissed, if '"the issues presented are no longer 'live' or the parties lack a legally cognizable interest in the outcome."' Cnty. of Los Angeles v. Davis, 440 U.S. 625, 631 (1979) (quoting Powell v. McCormack, 395 U.S. 486, 496 (1969)). A case becomes moot when a party has already obtained all the relief it has sought. Ruesch v. Commissioner, 154 T.C. 289, 299 (2020), aff'd in part, vacated in part, remanded by 129 A.F.T.R.2d 2022-509 (2d Cir. 2022). Given the limited relief available under section 7345(e), we have held that a section 7345 case becomes moot when the IRS reverses a certification and notifies the Secretary of State. Id.
Mr. Robertson and Ms. McDonald have already obtained all relief available to them under section 7345, so their cases are moot. The rationale for the Commissioner's reversal is immaterial. The Commissioner reversed the certifications based on one of three assignments of error raised in the petitions; there is no other or greater relief the Court can provide. Thus, their cases are moot, and we must dismiss them unless an exception to the mootness doctrine applies.
First, Mr. Robertson and Ms. McDonald rely on the voluntary cessation exception to mootness. That exception is meant to safeguard against situations in which the offending party may voluntarily cease the challenged conduct, have the case declared moot, and then pick up where he left off (subjecting the aggrieved party to the same harm), while avoiding judicial review. Ruesch, 154 T.C. at 300; Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013). Notwithstanding voluntary cessation, a case is still moot if (1) there is no reasonable expectation that the alleged violation will recur, and (2) interim relief or events have completely eradicated the effects of the alleged violation. Ruesch, 154 T.C. at 300 (citing Cnty. of Los Angeles, 440 U.S. at 631.
The voluntary cessation exception is inapplicable. First, there is no reasonable expectation that the alleged violation will recur (i.e., that the Commissioner will recertify Mr. Robertson and Ms. McDonald based on the same error). The Commissioner conceded the certifications were erroneous, and if this case is dismissed as moot, the reversals cannot be revoked or reversed. If the installment agreement is ultimately terminated after a proper Appeals hearing, resulting in new certifications of seriously delinquent tax debts, the new certifications would not avoid judicial review. Any new certification would constitute a new matter and would provide Mr. Robertson and Ms. McDonald an opportunity to challenge it. Second, interim events (reversal of the certifications and notification to the Secretary of State) have eliminated the effects of the certifications, which the Commissioner concedes were erroneous. See Ruesch, 154 T.C. at 300. Accordingly, the voluntary cessation exception is inapplicable.
"Petitioners' certifications were reversed using a manual block of the tax modules covered under the installment agreement from inclusion in the determination of whether they owe seriously delinquent tax debt. This block prevents petitioner's recertification based upon these tax modules until it is manually removed. Petitioners will not be recertified based on these tax modules unless the status of their installment agreement has been properly determined, and if warranted, properly terminated."
Next, Mr. Robertson and Ms. McDonald rely on the exception to the mootness doctrine that applies in cases that are capable of repetition yet evading review. This exception applies only in exceptional situations in which both (1) the challenged action is too short in duration to be fully litigated prior to cessation or expiration; and (2) there is a reasonable expectation that the aggrieved party will be subject to the same action again. Spencer v. Kemna, 523 U.S. 1, 17 (1998). An example where litigation is capable of repetition yet evading review is pregnancy-related litigation because a pregnancy will come to term before the litigation can be completed. Roe v. Wade, 410 U.S. 113, 125 (1973), overruled on other grounds by Dobbs v. Jackson Women's Health Org., 142 S.Ct. 2228 (2022).
This exception is inapplicable here. First, the challenged action is not so short in duration that it cannot be fully litigated; a certification continues indefinitely until reversed. Second, even if the Commissioner were to recertify Mr. Robertson and Ms. McDonald as having seriously delinquent tax debts, any such certification would be a new matter with different facts (i.e., not the "same action").
Conclusion
Our jurisdiction under section 7345(e) springs from the July 12, 2021, and August 16, 2021, certifications from which Mr. Robertson and Ms. McDonald sought relief. Those certifications were reversed. Because Mr. Robertson and Ms. McDonald have obtained the only relief available to them, their cases are moot. And no exception to the mootness doctrine applies. Accordingly, it is
ORDERED that the Commissioner's motion to dismiss on ground of mootness, filed June 10, 2022, is granted, and this case is dismissed as moot.