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Earlier this year, the Senate Finance Committee took a significant step toward modernizing and improving tax processes by introducing a discussion draft of the Taxpayer Assistance and Service or “TAS” Act. This groundbreaking draft, released by Committee Chairman Senator Mike Crapo and Ranking Member Senator Ron Wyden, aims to address various inefficiencies and imbalances in the current tax system.
Over the course of several blogs, I’ve been highlighting some key provisions that, if ultimately enacted, would strengthen taxpayer rights and improve IRS operations. One of those recommendations would provide the U.S. Tax Court with the authority to order refunds and credits in Collection Due Process (CDP) cases.
In June, the U.S. Supreme Court in Commissioner v. Zuch ruled that the Tax Court lost jurisdiction to determine the underlying liability in a CDP case after the IRS abandoned the levy at issue. The TAS Act provision that would provide the Tax Court with the authority to order refunds and credits in CDP cases could have helped in this situation. For taxpayers in the same situation as Ms. Zuch, the TAS Act provision would allow a continuing Tax Court case and the ability to seek a refund in the same forum rather than requiring the taxpayer to pursue a separate refund claim.
To understand the significance of the TAS Act provision, it’s essential to first understand the existing issue. In most Tax Court cases, the court has the authority to determine that a taxpayer overpaid tax and can order the IRS to provide a refund or credit. However, when reviewing a determination of liability in a CDP case, the Tax Court does not have the authority to order a refund or credit – even where the taxpayer did not have a prior opportunity to challenge the liability.
Ms. Zuch filed a petition in the Tax Court, which has jurisdiction over CDP cases, seeking a review of a levy imposed by the IRS. The parties agreed that the Tax Court “shall have jurisdiction” to “review” a “determination” made by an appeals officer in a CDP hearing. The Supreme Court, in agreement with the IRS, ruled that a “determination” is simply a decision as to whether a levy may go forward; if there is no longer a proposed levy, there is no adverse determination for the Tax Court to review.
While the case was pending, Ms. Zuch filed tax returns, from which the IRS owed her a refund. Rather than paying these refunds to Ms. Zuch (and apparently unbeknownst to her), the IRS applied the amounts of these refunds to offset the balance they asserted she owed in the CDP case until the balance was reduced to zero.
The IRS successfully argued that once the balance on the CDP matter was reduced to zero by the subsequent refund offsets, the Tax Court no longer had jurisdiction because the IRS stopped pursuing the levy. The Supreme Court agreed with the IRS, holding that once the IRS stops pursuing a levy in a CDP case, the Tax Court could no longer review the dispute. Instead, Ms. Zuch would have to file a refund claim, then a potential lawsuit in a U.S. district court or the Court of Federal Claims because the Tax Court does not have jurisdiction in refund suits. This decision has unfortunate implications for taxpayers.
Even worse, like Ms. Zuch, the taxpayer may end up with no ability to dispute the tax liability at all. This is because Internal Revenue Code (IRC) § 6511(a) gives taxpayers two years to submit an administrative claim for a refund, starting from when the IRS applied the refunds to the tax debt. Ms. Zuch’s CDP case was still working its way through the Tax Court more than two years after the IRS applied these refunds to offset the levy. In his dissent, Justice Gorsuch pointed out that this gives the IRS a “roadmap for evading Tax Court review.”
This decision means that even if the IRS wrongfully imposed a levy in the CDP case, it was allowed to use other tax transactions (in this case, refunds from her tax return filings) to offset the levy until the taxpayer no longer had an opportunity to dispute it. This violates the rights to pay no more than the correct amount of tax and to challenge the IRS’s position and be heard.
TAS Act § 309, which mirrors my recommendation in the National Taxpayer Advocate 2025 Purple Book, would create a fairer, more accurate tax system by amending IRC § 6330 to permit the Tax Court to order refunds and credits in CDP cases.
Where the underlying liability is at issue, this would grant the Tax Court jurisdiction to determine overpayments for the tax periods at issue and to order refunds or credits in a CDP case, subject to the timing, credit, and refund amount limitations of IRC §§ 6511(a) and 6512(b)(3). Unlike in Zuch, if the IRS abandoned the levy, the Tax Court could retain jurisdiction to determine a timely filed refund or credit.
Allowing taxpayers to resolve their CDP and related issues in one forum would decrease the financial and time burdens on taxpayers, reduce judicial inefficiencies, and provide additional IRS accountability.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget. NTA Blog posts are generally not updated after publication. Posts are accurate as of the original publication date.