EC Term of Years Trust v. United States
EC Term of Years Trust sued the Internal Revenue Service under 26 U.S.C. § 7426, the "wrongful levy" statute, seeking to recover $3.3 million that the IRS had levied from the Trust for backtaxes allegedly owed by two members of the Trust. EC Trust contends that the total amount collected by the IRS exceeded the taxes owed. The trust filed its wrongful levy claim one year after the taxes were collected.
The district court dismissed the Trust's claim, finding that it was filed more than nine months after the statutory deadline. The Trust then filed a refund complaint under 28 U.S.C. § 1346, the tax refund statute. The district court dismissed the refund claim on the grounds that the Trust’s first wrongful levy claim was its “sole and exclusive remedy.”
The Fifth Circuit Court of Appeals affirmed, stating that if the Trust was wrongly charged or if property was wrongly confiscated, relief is only available under the wrongful levy statute and only within the nine-month statute of limitations. There is a conflict among the courts of appeals on how to resolve the tension between the wrongful tax levy statute and the tax refund statute. The Ninth Circuit permits challenges to IRS levies through either a wrongful-levy action or a refund action, whereas the Fifth and Tenth Circuits limit such claims to the wrongful-levy statute.
Question Presented:
In September 1999, the Internal Revenue Service levied on a bank account owned by Petitioner containing $3,389,426.37. The purpose of the levy was to pay federal income taxes, penalties and interest assessed against Elmer W. Cullers, Jr. and Dorothy Cullers. On September 7, 2000, Petitioner filed a complaint against Respondent under 26 U.S.C. § 7426 for a wrongful levy. On December 28, 2000, the district court dismissed the complaint for wrongful levy for lack of subject matter jurisdiction because it had been filed more than nine months after the levy and was time barred under 26 U.S.C. § 7426. Petitioner then filed a claim under 28 U.S.C. § 1346 to recover the funds seized through the levy. When the claim proved unsuccessful, Petitioner filed suit against Respondent to recover the sum of $3,389,426.37 under 28 U.S.C. § 1346. On November 22, 2004, the district court dismissed Petitioner’s Complaint on the ground that a claim under 26 U.S.C. § 7426 is the sole and exclusive remedy for a wrongful levy. Since Petitioner’s complaint for a wrongful levy under 26 U.S.C. § 7426 had been dismissed earlier due to being time barred, its complaint for a refund under 28 U.S.C. § 1346(a) was also dismissed. The Fifth Circuit affirmed the dismissal of Petitioner’s complaint under 28 U.S.C. § 1346 and held that 26 U.S.C. § 7426 is the sole and exclusive remedy for a wrongful levy.
The following question is presented:
May a person who is not the assessed taxpayer utilize 28 U.S.C. § 1346 to seek a refund when its funds were seized through a wrongful levy and it had an opportunity to utilize the wrongful levy procedure under 26 U.S.C. § 7426?
