Opinion ID: 202262
Heading Depth: 2
Heading Rank: 2

Heading: Offset v. Levy

Text: 13 The parties appear to agree that, before the Tax Code revisions of 1998, the IRS generally had the authority, under 26 U.S.C. § 6402, 3 to offset a taxpayer's out-standing tax liability with any subsequent overpayment owed to the taxpayer, and that the IRS was not expected to obtain a formal levy in order to do so. 4 Section 6402 requires neither notice nor a hearing—nor any other procedural prerequisite—for effecting an offset. 14 By contrast, as we have noted, the statutory provisions governing levies require the Commissioner to give the taxpayer thirty days' advance notice of the intent to levy, see 26 U.S.C. § 6331(d), an opportunity for a hearing before an IRS appeals officer, id. §§ 6330(a) & (b), and a decision—or determination—following such a hearing that may be appealed within thirty days to either the Tax Court or a district court, depending upon the type of tax at issue, id. §§ 6330(c) & (d). 15 Although the notice requirement has been in place for some time, section 6330's hearing and appeals procedures were added to the Tax Code as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. No. 105-206, § 3401, 112 Stat. 685. Section 6331 also was revised at that time, and the Boyds cite one particular change in that provision to support their contention that the Act eliminated the procedural differences between offsets and levies and requires that offsets by effectuated by means of the levy procedures. 16 The provision on which they rely, § 6331(i)(3)(B)(i), provides an exception to the prohibition against imposing a levy when proceedings are pending for the refund of divisible taxes, which include employment taxes; it states that the prohibition does not apply to any levy to carry out an offset under section 6402. 5 The Boyds argue that this phrase signals that a levy is now a procedural prerequisite for an offset. 17 The Boyds have read far too much into the language of § 6331(i)(3)(B)(i). The language does not state that an offset must be effected by means of a levy, and nowhere in the statutory amendments did Congress indicate an intention to erase the long-standing distinction between the informal offset and the more regulated levy by requiring that offsets now all be accomplished by means of the levy procedures. We think it unimaginable that Congress would have made such a significant change offhandedly in the provision governing levy procedures without explicitly recognizing that change in § 6402—the provision that directly addresses the IRS's authority to credit overpayments against prior tax liabilities. Moreover, § 6331(i)(3)(B)(i) is an exception to a prohibition against imposing levies in particular circumstances, distinguishing a levy to carry out an offset as warranting less protection than the standard levy. Given the absence of language in § 6402 and the limiting role it plays in section 6331, subsection (i)(3)(B)(i) simply cannot bear the weight the Boyds assign to it. 18 Indeed, in context, Congress's attention to the status of a levy to effect an offset is fully consistent with an intent to reinforce the differences between the two types of collection actions. The government's attorney at oral argument confirmed what our case law also reveals— that offsets are at times effected by means of the more protective levy procedures even though the law does not require such precautions. 19 In P.J. Keating Co., 805 F.2d at 452, we accepted as a truism that the IRS often proceeds against [property in the hands of a government agency] by serving a formal notice of levy upon the other agency, and ruled that the action of the IRS in serving a notice of levy upon another federal agency does not magically transform a traditional set off by the federal government into a levy. See also United Sand and Gravel Contractors, Inc. v. United States, 624 F.2d 733, 736 (5th Cir.1980) ([I]t has been an established practice of the I.R.S., recognized by the courts, to proceed against property in the hands of other federal agencies by a formal levy rather than by set off.). 6 With that background in mind, § 6331(i)(3)(B)(i) is most reasonably understood as Congress's attempt to ensure that traditional offset actions remain distinct—even when accomplished by means of a levy—and are not generally subject to the new procedural protections for levies. The Tax Court adhered to that distinction in Bullock v. Comm'r, 85 T.C.M. (CCH) 737 (2003), 2003 WL 43374 (U.S.Tax Ct.), holding that the Commissioner's authority under section 6402 to credit an overpayment to offset the taxpayer's liability for another taxable year is not a levy action subject to section 6330. 20 In sum, we are unpersuaded that the procedural differences between levy and offset have been eliminated, and the Tax Court's jurisdictional ruling thus had no adverse impact on the Boyds' substantive rights. 21 Affirmed.