Supreme Court Limits Tax Court’s Jurisdiction Over Tax Disputes

Should the IRS have the power to strip the Tax Court of jurisdiction over a taxpayer’s case just by withdrawing its levy? The Supreme Court of the United States’s decision in Commissioner of Internal Revenue v Zuch looked at whether the Tax Court has jurisdiction after a levy is withdrawn. The decision gives the IRS substantial control over taxpayers’ fate in challenging its determinations.

IRS Accounting Error Leads to 10-Year Tax Court Lawsuit

Jennifer Zuch and her then-husband Patrick Gennardo filed their 2010 tax returns late, in 2012. Gennardo’s tax liability was substantial, and he submitted an offer in compromise, which “implicated” the $50,000 in estimated taxes the couple had previously paid. But then Zuch amended her 2010 tax returns, disclosing an additional $28,000 of taxes due. She said she was entitled to claim part of the $50,000 payment, and Gennardo agreed. But the IRS applied the full balance to Gennardo’s account.

The IRS imposed a levy against Zuch to collect her unpaid taxes. Zuch requested and received a collection due process hearing from the IRS Office of Appeals. The IRS appeals officer rejected her argument that the $50,000 had been misapplied or that its tax liability determination was overstated. Zuch then filed a complaint with the Tax Court, asking it to review the IRS’s determination sustaining the levy.

Can IRS Collections During Litigation Strip Tax Court’s Jurisdiction?

Zuch’s tax litigation took years. In the meantime, she continued to file and pay taxes. In 2013-2016 and 2019, her withholdings significantly exceeded her tax liabilities for that year, which the IRS seized to collect the tax debts. As the Tax Court prepared to issue its ruling, the IRS said the tax debt had been paid. It withdrew the levy and sought to dismiss Zuch’s complaint as moot. Zuch argued that it was not moot because if the IRS had erred in its treatment of the $50,000, she would be entitled to a refund of the overpaid taxes.

The Tax Court agreed with the IRS, saying that its jurisdiction was tied to the levy. Zuch appealed and the Third Circuit agreed with Zuch that her challenge to the underlying tax liability meant the case was not moot. This created a split between the courts, since the Fourth Circuit and D.C. Circuit had previously held otherwise. The IRS took the case to the Supreme Court of the United States to resolve the split.

SCOTUS Limits Tax Court’s Jurisdiction to Levy Determinations

On June 12, 2025, Justice Amy Coney Barrett delivered the majority decision in Commissioner v Zuch, an 8-to-1 decision in favor of the IRS. As a general rule, when challenging a tax liability, a taxpayer must pay first, sue second. In other words, the taxpayer is entitled to a refund, not relief from paying an outstanding balance. A tax levy is one of the tools the IRS can use to collect those unpaid taxes. However, when it created the statute authorizing the Tax Court to review levy determinations, Congress included an exception to the general rule.

That statute allows taxpayers who receive a Notice of Tax Levy to file a request for a collections due process hearing. At that hearing, the taxpayer can challenge the levy and “any relevant issue related to the unpaid tax or the proposed levy” including the “existence or amount of the underlying tax liability” not previously litigated. If the Office of Appeals makes a determination upholding the levy, the taxpayer can file a petition with the Tax Court to review “such determination.”

The question before the Supreme Court boiled down to the definition of the “determination.” Was it an “up-or-down decision” of whether the levy was appropriate, or did it include the underlying considerations the Office of Appeals made in reaching its decision? The statute outlines three “considerations” that the appeals officer must use to reach a determination:

1. That the IRS complied with “any applicable law”
2. Issues raised by the taxpayer
3. Levy is “no more intrusive than necessary” to collect the unpaid taxes

The majority reasoned:

Only the “output” of a determination grants jurisdiction, not the “input” considerations. While the Tax Court had jurisdiction to consider the IRS’s tax deficiencies while the collections efforts were still pending, as soon as they were satisfied and the levy was withdrawn, the Court said Ms. Zuch’s lawsuit was moot. She could no longer avoid the pay first, sue second requirement. She would have to start over and challenge the overpayment to obtain a refund.

Justice Gorsuch’s Dissent Shows IRS’s Control Over Tax Lawsuits Under New SCOTUS Decision

Justice Neil Gorsuch was the sole dissenting voice. He wrote a separate opinion asserting that “nothing prevented the Tax Court” from saying Zuch had overpaid her taxes or that the IRS had wrongfully retained those payments. He said that since the taxpayer can raise the issues of “unpaid tax” and the “underlying tax liability” as a consideration at the collections due process hearing, the Tax Court necessarily had the jurisdiction to review those considerations, and to determine “whether the IRS was wrong to say Ms. Zuch owed money for 2010.”

In support of his position, Justice Gorsuch noted that Section 6330 applied to the Office of Appeals’ “determination”, not to the levy itself. The word levy did not appear in the statute. He would have applied a broader definition of “determination” which included its basis, as well as its outcome. In doing so, the Tax Court would have the statutory authority to prevent the IRS from taking any action related to the unpaid tax, not just the “proposed levy.”

Most notably, Gorsuch said:

He argued that the majority’s decision puts all the risk of tax litigation on the taxpayer. Ms. Zuch was left with no resolution to her tax dispute after a decade of litigation, and an instruction to start over. But her ability to do so is limited. Justice Gorsuch called the majority’s decision was “a trap for the unwary.” This is because statutory deadlines say that a taxpayer needs to challenge a tax determination “within 3 years from the time the return was filed or 2 years from the time the tax was paid” whichever is later. But when a taxpayer follows the collections due process procedure, that period may have passed before the Tax Court determines it does not have jurisdiction based on the satisfaction and withdrawal of the levy. Gorsuch said:

Because the IRS still has access to other collections methods, it can evade accountability and deny taxpayers their day in court.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 35 years experience. If the IRS is trying to collect unpaid taxes and penalties from you or your clients, contact Joe Viola to schedule a free consultation.