The 3rd Circuit Court of Appeals ruled on an interesting question last month in a tax case. Never fear, all you non-tax lawyers, as this case deals with issues of civil procedure and not archaic tax concepts.
The question: Can a claim for wrongful tax levy be summarily dismissed as time-barred if the whole Notice of Levy is at issue? In other words, if the I.R.S. contents that it never issued a Notice of Levy to the taxpayer prior to taking money from her account, is it even appropriate for the court to dismiss the merits of the case on a statute of limitations ground? After all, when was "notice" received?
In this case, Joanne Scheafnocker claimed that the I.R.S. levied funds from her joint account with her ex-husband, an account that contained a certificate of deposit that was to remain untouched, pending the couple's child support case.
According to the 3rd Circuit opinion, in 2002, the I.R.S. assessed trust fund recovery penalties against Joanne's ex-husband (Translation: Penalties imposed on the employer for the failure to turn over the employees withheld taxes to the I.R.S.).
Joanne only learned of the tax levy when she tried to make a deposit into the account fourteen months after the levy, only to learn that the account was closed. In Joanne's favor, the I.R.S. admitted that it had never sent her a notice of levy.
She attempted, in 2005, to have her case handled by a Taxpayer Advocate. She was denied assistance for lack of timeliness on her case. She then took her case to Tax Court on her own, only to be denied at Tax Court as well.
She subsequently brought her case before the Federal District Court in California, where she alleged a violation of her due process rights under the Fifth and Fourteenth Amendments.
According to the 3rd Circuit opinion, she also stated that "[p]laintiff, as co-owner, was never notified either by IRS or bank, denying any opportunity to make timely objection."
The case was eventually transferred to the District Court in Pennsylvania, where the Court ruled that equitable tolling was not permitted in a wrongful levy claim. As such, the court ruled that the Statute of Limitations could not be tolled for the reason that the injury was not discovered until later.
The truth of the matter was that having never received the notice of levy, she had suffered harm and as a result, the merits of her case could not be heard. By the time the case made it to appeal, the 3rd Circuit Court of Appeals found that she had suffered harm sufficient to plead a constitutional claim.
While the issue of the tax levy has yet to be addressed as the case has currently been remanded, the case does show the harsh reality of tax collection and how far the I.R.S. will go to collect unpaid taxes and penalties.