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In Zapara v. Comm, Court orders IRS to credit taxpayer with amount lost by its failure to timely sell seized stock

In Zapara v Comm (CA 9 7/18/2011) 108 AFTR 2d ¶ 2011-5084 , the IRS appealed Tax Court’s ruling to the Court of Appeals for the Ninth Circuit.  This appeal presented the question, inter alia, of whether the Tax Court had jurisdiction in a hearing conducted pursuant to 26 U.S.C. § 6330 to review the Internal Revenue Service’s failure to comply with its statutory mandate under 26 U.S.C. § 6335(f).  The Appeals Court conclude that it did and affirmed the judgment of the Tax Court.

The Zapara owed $450,000 to the IRS.  The IRS issued a Notice of Jeopardy Levy for a levy to be placed upon stock, as authorized under 26 U.S.C. § 6330(f).  Upon receiving this notice, the Zaparas requested and was granted a collection due process (CDP) hearing.  During the hearing the Zaparas requested that the IRS sell the stock and apply the proceeds to their outstanding tax liabilities.  Under 26 U.S.C. § 6335(f), “[t]he owner of any property seized by levy may request that the Secretary sell such property within 60 days after such request . . . .” Once that request has been made, “[t]he Secretary shall comply with such request unless the Secretary determines . . . that such compliance would not be in the best interests of the United States.” Id. § 6335(f). Without mentioning the Zaparas’ request to sell,
the Appeals Officer issued a Notice of Determination concluding that the Zaparas were precluded from challenging their underlying tax liabilities and that the jeopardy levy would not be withdrawn. The Zaparas appealed to the Tax Court.  the Tax Court found the IRS had violated § 6335(f) by failing to sell the Zaparas’ stock within sixty days. To remedy this violation, the Tax Court ordered the IRS to credit the Zaparas’ tax deficiency for the value of the stock sixty days after the sale request.  The IRS appealed.

The Appeals Court held that The Tax Court had jurisdiction under 26 U.S.C. § 6330 to review the IRS’s failure during a CDP hearing to comply with its mandate under 26 U.S.C. § 6335(f). When the IRS violated its statutory mandate, it assumed the risk of devaluation in the
levied property, and the Tax Court appropriately ordered it to credit the Zaparas’ outstanding tax liabilities. Because this relief was a specific remedy, 26 U.S.C. § 7433 does not preempt the award.

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