Michael Zapara, et al v. CIR

Filing

FILED OPINION (MARY M. SCHROEDER, SIDNEY R. THOMAS and LYNN S. ADELMAN) AFFIRMED. Judge: SRT Authoring, FILED AND ENTERED JUDGMENT. [7822622]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL A. ZAPARA; GINA A.
ZAPARA,
Petitioners-Appellees,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellant.




No. 08-74173
Tax Ct. No.
9480-02L
OPINION



Appeal from a Decision of the
Tax Court
Argued and Submitted
February 17, 2011—San Francisco, California
Filed July 18, 2011
Before: Mary M. Schroeder and Sidney R. Thomas,
Circuit Judges, and Lynn S. Adelman,
District Judge.*
Opinion by Judge Thomas

*The Honorable Lynn S. Adelman, District Judge for the U.S. District
Court for Eastern Wisconsin, Milwaukee, sitting by designation.

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COUNSEL
Nathan J. Hochman, Assistant Attorney General; Gilbert S.
Rothenberg, Acting Deputy Assistant Attorney General;

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Michael J. Haungs and Steven Parks, Attorneys, Tax Division, Department of Justice; Washington, D.C., for the appellant.
Paul J. Katz, Munger, Tolles & Ollson LLP; San Francisco,
California, for the appellees.

OPINION
THOMAS, Circuit Judge:
This appeal presents the question, inter alia, of whether the
Tax Court had jurisdiction in a hearing conducted pursuant to
26 U.S.C. § 6330 to review the Internal Revenue Service’s
failure to comply with its statutory mandate under 26 U.S.C.
§ 6335(f). We conclude that it did, and we affirm the judgment of the Tax Court.
I
Michael and Gina Zapara owe the IRS over $450,000 for
failing to report income derived from a fraudulent checkcashing scheme. To recover these funds, the IRS issued a levy
on accounts the Zaparas opened with a securities investment
company, into which the Zaparas had deposited approximately $450,000. Because the Zaparas did not use their names
to identify the accounts, the IRS believed the Zaparas were
attempting to conceal their ownership. The IRS therefore
issued a Notice of Jeopardy Levy, as authorized under 26
U.S.C. § 6330(f).
Under the traditional levy process described in § 6330, the
IRS may place a levy on taxpayer property, but it must give
the taxpayer thirty days notice before imposition of the levy.
26 U.S.C. § 6330(a). Upon receiving this notice, the taxpayer
has a right to request a collection due process (CDP) hearing

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with the IRS Office of Appeals. Id. § 6330(b).1 Under the
jeopardy levy provision, however, the IRS may impose a levy
before a hearing if it finds that “collection of tax is in jeopardy.” Id. § 6330(f). In such a case, the taxpayer must be given
the same CDP hearing “within a reasonable period of time
after the levy.” Id. During the CDP hearing, the Appeals Officer must “obtain verification from the Secretary that the
requirements of any applicable law or administrative procedure have been met.” Id. § 6330(c)(1). Additionally, the taxpayer may “raise at the hearing any relevant issue relating to
the unpaid tax or the proposed levy.” Id. § 6335(c)(2). Once
the hearing has been conducted and the Office of Appeals
issues a Notice of Determination, the taxpayer may appeal the
determination to the Tax Court. Id. § 6330(d)(1).
After receiving notice of the jeopardy levy on their stock
accounts, the Zaparas invoked their right to a CDP hearing.
During this hearing, they requested that the IRS sell the stock
and apply the proceeds to their outstanding tax liabilities.
Under 26 U.S.C. § 6335(f), “[t]he owner of any property
seized by levy may request that the Secretary sell such property within 60 days after such request . . . .” Once that request
has been made, “[t]he Secretary shall comply with such
request unless the Secretary determines . . . that such compliance would not be in the best interests of the United States.”
Id. § 6335(f). Without mentioning the Zaparas’ request to sell,
the Appeals Officer issued a Notice of Determination concluding that the Zaparas were precluded from challenging
their underlying tax liabilities and that the jeopardy levy
would not be withdrawn. The Zaparas appealed to the Tax
Court.
The Tax Court conducted a trial and issued an opinion
1

CDP hearings are typically informal and may simply consist of one or
more written or oral communications between an Appeals Officer and the
taxpayer or the taxpayer’s representative. 26 C.F.R. § 301.6330-1(d)(2)
Q&A D-6.

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affirming the Notice of Determination on the Zaparas’ inability to challenge the underlying tax liability. However, the Tax
Court found the IRS had violated § 6335(f) by failing to sell
the Zaparas’ stock within sixty days. To remedy this violation, the Tax Court ordered the IRS to credit the Zaparas’ tax
deficiency for the value of the stock sixty days after the sale
request. The Tax Court then remanded to the Appeals Office
to establish the value of the stock accounts on that date. The
IRS moved for reconsideration of the Tax Court’s decision,
arguing that the Zaparas did not make a sufficient request to
sell the stock. The Tax Court denied the motion, concluding
that the Zaparas appropriately requested a sale under
§ 6335(f). Based on the Appeals Office’s valuation of the
stock sixty days after August 23, 2001, the Tax Court ordered
the IRS to credit $47,501.06 against the Zaparas’ outstanding
tax liabilities. The IRS filed a timely appeal to this court. We
review the Tax Court’s order de novo, Kelley v. Comm’r, 45
F.3d 348, 350 (9th Cir. 1995), and we affirm.
II
[1] Because the Tax Court is an Article I “court of limited
jurisdiction and lacks general equitable powers,” Comm’r v.
McCoy, 484 U.S. 3, 7 (1987) (per curiam), its subject matter
jurisdiction is “defined and limited by Title 26 of the United
States Code,” Gorospe v. Comm’r, 451 F.3d 966, 968 (9th
Cir. 2006). As such, we must first determine whether Congress authorized the Tax Court to review the IRS’s failure
during a CDP hearing to comply with its statutory mandate
under 26 U.S.C. § 6335(f). The first step in this analysis is to
determine “whether the language at issue has a plain and
unambiguous meaning with regard to the particular dispute in
the case.” Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)
(internal quotation marks omitted).
[2] Section 6330 grants the Tax Court jurisdiction because,
barring certain exceptions not relevant here, see 26 U.S.C.
§ 6330(c)(4), it allows the taxpayers to raise “any relevant

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issue relating to the unpaid tax or proposed levy” in the CDP
hearing, id. § 6330(c)(2)(A) (emphasis added). The IRS
focuses on the word “proposed” to argue that taxpayers may
not raise issues related to levies that have already been completed. This ignores the unique situation of a jeopardy levy.
Under the IRS’s reasoning, taxpayers subject to a jeopardy
levy would never be able to raise any issue, because the levy
will never be merely proposed.
[3] A better construction of § 6330 is that the word “proposed” serves only to clarify that the hearing should be about
the specific levy at issue, as opposed to a past levy on other
property. To be sure, when a jeopardy levy is involved, the
levy has always already been imposed. Yet the intent of the
statute remains clear: that the hearing address the specific
levy in question. As such, the plain language of § 6330 authorizes a taxpayer to raise any relevant issue in a CDP hearing
as long as the issue concerns the imposed jeopardy levy.
[4] Congressional intent to give the Tax Court jurisdiction
to review IRS violations of the Code is also evidenced by the
fact that § 6330(c)(1) requires the Appeals Officer to “obtain
verification . . . that the requirements of any applicable law or
administrative procedure have been met,” regardless of
whether the taxpayer raises the issue. Compare id.
§ 6330(c)(1) (requiring investigation by Appeals Officer),
with id. § 6330(c)(2) (listing the issues the taxpayer may raise
at the hearing). Because the Appeals Officer’s determination
is required to take into account § 6330(c)(1)’s verification
requirement in addition to any issues raised under
§ 6330(c)(2), id. § 6330(c)(3), and because the Tax Court has
jurisdiction over “such determination,” id. § 6330(d), Congress seemingly intended the Tax Court to review any failure
to verify under § 6330(c)(1). See also 26 C.F.R. § 301.63301(f)(2) Q&A F-3 (explaining that when a taxpayer disagrees
with a Notice of Determination, the taxpayer may ask the Tax
Court to consider the issues that were properly raised in the
CDP hearing).

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[5] Tax Court review is critical to the jeopardy levy process, which imposes the levy before providing the taxpayers
a forum in which to challenge the action. Indeed, the entire
purpose behind the creation of the CDP hearing was to provide taxpayers with greater due process to contest the IRS’s
levy and sale of their property. See S. Rep. No. 105-174, at
67 (1998) (“The Committee believes that taxpayers are entitled to protections in dealing with the IRS . . . . Accordingly,
the Committee believes that the IRS should afford taxpayers
adequate notice of collection activity and a meaningful hearing before the IRS deprives them of their property . . . .
[F]ollowing procedures designed to afford taxpayers due process in collections will increase fairness to taxpayers.”). As
such, the Tax Court had jurisdiction to review the IRS’s failure to comply with § 6335(f).
III
[6] Tax Courts have “the authority to apply the full range
of equitable principles generally granted to courts that possess
judicial powers.” Estate of Branson v. Comm’r, 264 F.3d 904,
908 (9th Cir. 2001); see also Dixon v. Comm’r, 316 F.3d
1041, 1047 & n.11 (9th Cir. 2003) (acknowledging Tax Court
discretion to fashion an appropriate remedy). The Tax Court
properly exercised this authority in ordering the IRS to credit
the value of the stock against the Zaparas’ outstanding tax liabilities.2 A similar remedy has been utilized by the Seventh Cir2

The Tax Court’s remedy does not violate the doctrine of sovereign
immunity. Because § 6330 waives sovereign immunity with respect to any
issue relevant to the unpaid tax or proposed levy, the waiver extends “to
achieve its remedial purpose” of providing due process for taxpayers
whose property is levied on by the IRS. In re Town & Country Home
Nursing Servs., Inc., 963 F.2d 1146, 1151 (9th Cir. 1992). Furthermore,
as discussed in greater detail below, because this is not a claim for monetary relief, the action is authorized under the Administrative Procedure
Act. See 5 U.S.C. § 702 (“A person suffering a legal wrong because of
agency action . . . is entitled to judicial review thereof. An action in a court
of the United States seeking relief other than money damages . . . shall not
be dismissed . . . on the ground that it is against the United States
. . . .”).

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cuit and provides support for the Tax Court’s action. In
United States v. Pittman, 449 F.2d 623, 625 (7th Cir. 1971),
the IRS imposed a levy on properties owned by Pittman to
satisfy Pittman’s outstanding tax liabilities. Instead of offsetting Pittman’s liabilities by selling the property, the IRS collected the rents from the tenants living on the properties. Id.
After the property value significantly deteriorated, the IRS
asserted that it was seizing “only the rentals and not the property itself—the fruit but not the tree.” Id. at 626. The Pittman
court disagreed with this approach, explaining that a levy was
a “seizure . . . tantamount to a transfer of ownership,” and
concluding that “if there was a valid levy, Pittman is entitled
to credit on his tax liability for the seized property.” Id.
The IRS attempts to distinguish Pittman by emphasizing
that, in Pittman’s case, the IRS “went well beyond the mere
service of a notice levy and actually seized control and
dominion” over the property. Id. at 627. However, the “control and dominion” language is not a necessary holding of the
decision. The Pittman court explained that even if the IRS had
not collected rents from the tenants, the IRS was responsible
for the decline in value because the Tax Code mandates sale
of the property after the levy. Id. In Pittman’s case, as in the
instant case, the IRS “did not follow through and sell the
property, as required by the Code. Instead, it held it and permitted it to deteriorate in value.” Id. at 628. In other words,
the Pittman court held that by failing to sell the property once
it was levied, as required by statute, the IRS assumed the risk
that the property would decline in value. Id.; see also United
States v. Barlows, Inc., 53 B.R. 986, 989 (E.D. Va. 1984),
aff’d, 767 F.2d 1098 (4th Cir. 1985) (“By its actions, which
were inconsistent with the statute, the IRS assumed any risk
with respect to Western’s failure to pay.”).
[7] Certainly, giving notice of an intent to levy under
§ 6330 does not immediately transfer ownership to the IRS or
constitute a payment of outstanding tax liabilities.3 However,
3

The IRS argues that § 6330 does not authorize the Tax Court to credit
a taxpayer’s liabilities for the value of property the IRS has not sold

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when the IRS acts contrary to its statutory mandate, it
assumes the risk of depreciation in the value of levied property. Because § 6335 only mandates sale “as soon as practicable” after a seizure, 26 U.S.C. § 6335(a), the IRS generally
does not assume the risk of depreciation if it sells the property
as soon as practicable. Here, however, the Zaparas requested
a sale of their property under § 6335(f) and the IRS did not
comply. It is at that point, when the IRS violated its statutory
mandate, that the IRS became responsible for any decrease in
stock price. See Pittman, 449 F.2d at 628; Barlows, 53 B.R.
at 989. Violation of a statutory mandate is the crucial factor
that also distinguishes the other cases relied upon by the IRS.
See, e.g., Stead v. United States, 419 F.3d 944, 948 (9th Cir.
2005) (determining that the taxpayer had “pointed to no affirmative negligence on the part of the IRS that might shift the
risk of loss to the government”); Cash v. United States, 961
F.2d 562, 596 (5th Cir. 1992) (finding that the IRS’s failure
to collect the levied accounts receivable did not shift the risk
of loss because “[n]o statute or case law imposes such a
requirement”).
[8] Finally, the Tax Court correctly concluded that 26
U.S.C. § 7433, which provides “the exclusive remedy for
recovering damages” resulting from violations of the Code
did not preempt the specific remedy imposed in this case. The
resolution of this issue requires defining what is meant by
“damages” in the context of § 7433. We agree with the Tax
Court that damages refers to compensatory damages, which
because a tax must be paid in money, not by an in-kind transfer of property. This argument misses the point. The IRS is not being asked to accept
the stock as payment, but instead the monetary value of the stock on the
date it should have been sold. Such a form of payment—transferring personal property into cash in order to pay tax liabilities—is not only
allowed, the levy process specifically contemplates and authorizes such an
arrangement. Even though the stock no longer holds the monetary value
it once did, the IRS assumed this loss, and the reduction in value does not
change the payment into a transfer in-kind.

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substitute for a plaintiff’s loss, as opposed to specific remedies, which give the plaintiff exactly what he should have
received. See Bowen v. Massachusetts, 487 U.S. 879, 895
(1988) (“Damages are given to the plaintiff to substitute for
a suffered loss, whereas specific remedies are not substitute
remedies at all, but attempt to give the plaintiff the very thing
to which he was entitled.” (internal quotation marks and citations omitted)).
In this context, the IRS’s reliance on Great-West Life &
Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) is inapposite. Unlike Bowen, in which the Court analyzed the meaning
of the phrase “money damages”,4 the Great-West Court analyzed the meaning of the phrase “equitable relief.”5 This varying language was critical to the Great-West Court’s decision.
See Great-West, 534 U.S. at 212; see also Dep’t of Army v.
Blue Fox, Inc., 525 U.S. 255, 261 (1999) (“Bowen’s interpretation of § 702 . . . hinged on the distinction between specific
relief and substitute relief, not between equitable and nonequitable categories of remedies.”).
[9] Here, as in Bowen, the relief granted by the Tax Court
was a specific remedy because it does the very thing required
by § 6342: reducing the Zaparas’ outstanding tax liabilities by
the value of the levied stock accounts. See 26 U.S.C. § 6342.
4

The specific issue in Bowen was whether the reimbursement of Medicaid funds constituted “money damages” under § 702 of the APA. See 5
U.S.C. § 702 (“An action in a court of the United States seeking relief
other than money damages . . . shall not be dismissed nor relief therein be
denied on the ground that it is against the United States . . . .”).
5
The specific issue in Great-West was whether § 502(a)(3)(B) of
ERISA, which authorizes actions to obtain “appropriate equitable relief,”
allows a suit to recover payment of money due under a contract. See 29
U.S.C. § 1132(a)(3) (“A civil action may be brought . . . by a participant,
beneficiary, or fiduciary (A) to enjoin any act or practice which violates
any provision of this subchapter or the terms of the plan, or (B) to obtain
other appropriate equitable relief (i) to redress such violations or (ii) to
enforce any provisions of this subchapter or the terms of the plan.”).

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As such, the award does not constitute “damages” as used in
§ 7433.
IV
The Tax Court had jurisdiction under 26 U.S.C. § 6330 to
review the IRS’s failure during a CDP hearing to comply with
its mandate under 26 U.S.C. § 6335(f). When the IRS violated
its statutory mandate, it assumed the risk of devaluation in the
levied property, and the Tax Court appropriately ordered it to
credit the Zaparas’ outstanding tax liabilities. Because this
relief was a specific remedy, 26 U.S.C. § 7433 does not preempt the award.
AFFIRMED.