In the case of Meduty v. Commissioner, 160 TC No. 13,[1] the Tax Court considered whether it had jurisdiction to review a taxpayer’s claim that the IRS failed to give him proper notice when it certified a seriously delinquent tax debt to the U.S. Secretary of State. Once such a certification is made, it gives the State Department the leeway to potentially limit, revoke, or even deny the taxpayer’s passport privileges.

Certification of Seriously Delinquent Tax Debt

IRC §7345, introduced back in 2015, came as a solution to facilitate the collection of debts from individuals with substantial tax arrears. The specifics of IRC §7345 read as follows:

(a) In general. If the Secretary receives certification by the Commissioner of Internal Revenue that an individual has a seriously delinquent tax debt, the Secretary shall transmit such 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.

IRC §7345(b) goes into more detail to define what constitutes a ‘seriously delinquent tax debt.’ To start with, here is the general definition:

(b) Seriously delinquent tax debt.

(1) In general. For purposes of this section, the term “seriously delinquent tax debt” means an unpaid, legally enforceable Federal tax liability of an individual—

(A) which has been assessed,

(B) which is greater than $50,000, and

(C) with respect to which—

(i) a notice of lien has been filed pursuant to section 6323 and the administrative rights under section 6320 with respect to such filing have been exhausted or have lapsed, or

(ii) a levy is made pursuant to section 6331.

However, the legislation does not stop there. IRC §7345(b)(2) goes on to detail some important exceptions to this definition:

(2) Exceptions. Such term shall not include --

(A) a debt that is being paid in a timely manner pursuant to an agreement to which the individual is party under section 6159 or 7122, and

(B) a debt with respect to which collection is suspended with respect to the individual --

(i) because a due process hearing under section 6330 is requested or pending, or

(ii) because an election under subsection (b) or (c) of section 6015 is made or relief under subsection (f) of such section is requested.

The Court was looking at the obligations of the IRS under IRC §7435(d). The requirements, as stated in this section, are as follows:

(d) Contemporaneous notice to individual. The Commissioner shall contemporaneously notify an individual of any certification under subsection (a), or any reversal of certification under subsection (c), with respect to such individual. Such notice shall include a description in simple and nontechnical terms of the right to bring a civil action under subsection (e).

The judicial review provision at IRC §7435(e) reads:

(e) Judicial review of certification.

(1) In general. After the Commissioner notifies an individual under subsection (d), the taxpayer may bring a civil action against the United States in a district court of the United States, or against the Commissioner in the Tax Court, to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification. For purposes of the preceding sentence, the court first acquiring jurisdiction over such an action shall have sole jurisdiction.

(2) Determination. If the court determines that such certification was erroneous, then the court may order the Secretary to notify the Secretary of State that such certification was erroneous.

The Facts of the Case

Now, let’s delve into the case itself. The opinion offers this concise summary of the case’s facts:

Mr. Meduty (formerly known as Steven Bell) failed to file timely tax returns for the 2003-07, 2009, and 2012 tax years. For each of these years except 2007, the IRS prepared a substitute for return under section 6020(b) and later assessed the tax shown on the substitute for return with penalties and interest. Mr. Meduty filed a belated tax return for 2007, and the IRS assessed the amount shown on that return. The IRS also assessed frivolous tax return penalties against Mr. Meduty with respect to his 2005-08 tax years.

In an effort to collect these liabilities, the IRS levied against Mr. Meduty’s right to receive his state income tax refunds through an automated levy process known as the State Income Tax Levy Program. These levies took place on a rolling basis from 2012 through 2018 as liabilities for various periods were assessed.

On July 3, 2018, the IRS sent via certified mail to Mr. Meduty’s last known address a notice of intent to levy with respect to his outstanding liabilities. Although the IRS received a signed return receipt three days later, Mr. Meduty did not request a collection due process (CDP) hearing or otherwise contest the levy (and the time for doing so has long since expired). The IRS recorded an “initial levy” transaction code with respect to each of the periods and liabilities at issue on August 31, 2018.

On October 1, 2018, the IRS certified Mr. Meduty as an individual owing a seriously delinquent tax debt arising from tax years 2003, 2004, 2005, 2006, 2007, 2008, 2009, and 2012. The IRS concurrently sent Mr. Meduty, at his last known address, a Notice CP508C, Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department. At that point, Mr. Meduty’s assessed liabilities totaled $106,346.[2]

Mr. Meduty filed his petition to challenge the IRS’s §7435 certification approximately three years later.

Notice Issue

In its decision, the Court concurred with the IRS, concluding that Mr. Meduty indeed had a seriously delinquent tax debt. Most of Mr. Meduty’s other arguments were swiftly dismissed as being “silly and frivolous.”[3] However, the Court did look at one particular concern—whether a taxpayer can seek justice over an alleged IRS failure to provide proper notice as required by IRC §7435(d) by looking to the Tax Court.

Here is a crucial point to keep in mind: the debate at this stage isn’t about whether the IRS did or did not provide appropriate notice. Instead, it is about whether the Tax Court even has the authority to evaluate such a claim.

After deliberation, the Court concluded that it didn't have the jurisdiction to weigh in on that specific question:

The jurisdiction Congress conferred in section 7345(e) does not extend to the review of the IRS’s compliance with section 7345(d). Section 7345(e)(1) provides that after certification, “the taxpayer may bring a civil action . . . against the Commissioner in the Tax Court, to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification.” “The text of section 7345(e) focuses exclusively on the Commissioner’s actions certifying seriously delinquent tax debts and authorizes our Court (and the district courts) to determine whether those actions are erroneous.” Adams, 160 T.C., slip op. at 16.[4]

The Tax Court’s decision aligns with a similar conclusion previously reached by the U.S. District Court for the District of Columbia:

As the U.S. District Court for the District of Columbia recently noted, “§7345 does not say that a flawed or failed notice renders a certification erroneous.” McNeil v. United States, No. CV 20-329 (JDB), 2021 WL 1061221, at *5 (D.D.C. Mar. 18, 2021), aff’d per curiam sub nom. McNeil v. U.S. Dep’t of State, No. 21-5161, 2022 WL 4349598 (D.C. Cir. Sept. 20, 2022). And the structure of section 7345 belies such a conclusion. Subsections (a) and (b) describe when the Secretary of the Treasury must transmit certification to the Secretary of State and identify which debts qualify as “seriously delinquent tax debt.” Neither suggests that notice is a prerequisite to a proper certification by the IRS of a “seriously delinquent tax debt.” See McNeil, 2021 WL 1061221, at *5. To the contrary, “subsection (d) says that notice to the taxpayer should be ‘contemporaneous[ ]’ with certification to State, so it logically cannot be a prerequisite to that certification.” Id.

Like the District Court for the District of Columbia, we struggle to see any prejudice adhering to a taxpayer who does not receive proper notice of the certification contemplated in subsection (d). Subsection (e) supplies no period of limitations, and a taxpayer such as Mr. Meduty who does not receive proper notice (accepting his factual allegations in their most favorable light) is nonetheless able to challenge a certification. See I.R.C. §7345(e); see also McNeil, 2021 WL 1061221, at *5.[5]

In a nutshell, the Court’s conclusion on this critical issue was summarized as follows:

In short, we do not believe that our jurisdiction to determine whether a certification is erroneous encompasses patrolling compliance with the requirement to provide notice to a taxpayer “in simple and nontechnical terms of the right to bring a civil action under subsection (e).” See I.R.C. §7345(d).[6]

[1] Meduty v. Commissioner, 160 TC No. 13, May 23, 2023, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/tax-court-upholds-irs-certification-in-passport-case/7grpm (retrieved May 24, 2023)

[2] Meduty v. Commissioner, 160 TC No. 13, May 23, 2023

[3] Meduty v. Commissioner, 160 TC No. 13, May 23, 2023

[4] Meduty v. Commissioner, 160 TC No. 13, May 23, 2023

[5] Meduty v. Commissioner, 160 TC No. 13, May 23, 2023

[6] Meduty v. Commissioner, 160 TC No. 13, May 23, 2023