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District Court Rejects Claim That Government Must Choose Either Administrative or Judicial Collection Path To Collect An Assessed Tax

Posted on Feb. 8, 2023

Collection suits that the government brings are not rare, but it is much more common for IRS to collect on assessed taxes using its considerable arsenal of administrative powers. Offsets and levies comprise the bulk of enforced collection, and the IRS can also serve to protect its interest by filing a notice of federal tax lien.

Last month I took note of the case of US v Varner, a district court case out of the Northern District of Ohio. In that case, the government sought to collect a few million dollars of income taxes from an old (2003) assessment; there was also a considerable liability due to delinquent employment taxes. The taxpayer was a previously successful car dealer who had fallen on hard times.

In addition to bringing a legal action to reduce the assessment to judgment, the IRS had, prior to bringing the suit, levied on amounts owed to the taxpayer on promissory notes that two entities paid Mr. Varner each month. The existence of this levy indicates that Mr. Varner had previously received his right to a Collection Due Process hearing and the opportunity it provides to go to Tax Court.

Varner argued that the tax law creates a “two-track system for the United States to collect a tax assessment. In his view, either the IRS may attach a levy or the United States may proceed in federal court, but it may not do both at once.” In essence, his argument was that the levy precluded the judicial collection action.

To challenge the government’s suit, Varner filed an emergency motion asking the court to return the matter to the IRS Collection division, which would allow Defendant to administratively appeal the attachment of the levies, (he alternatively asked the court to order the government to comply with the prejudgment remedy procedures of the Federal Debt Collection Procedures Act).

In denying the motion, the court first brushed aside the government’s half-hearted attempt to argue that the Anti-Injunction Act barred the motion. The AIA, which bars suits to restrain the assessment or collection, does not typically act to bar a motion that a defendant brings in connection with a collection suit filed by the IRS.

That conclusion led the court to focus on Varner’s main argument:

Defendant relies on a provision in the Internal Revenue Code providing that the United Sates may collect a tax assessment “by levy or by a proceeding in court.” In relevant part, that statute reads: “Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court[.]” I.R.C. §6502(a). Defendant reads “or” in this statute as exclusive, meaning that the United States may collect its tax assessment either by levy or in court, but not both.

After discussing how the word “or” can be ambiguous, the court discussed how defendant was relying on an SOL provision, not a provision addressing or curtailing how the government may collect.

And more substantively, the court addressed how administrative levy and judicial collection are not mutually exclusive:

Second, the Internal Revenue Code elsewhere provides the circumstances in which a levy may and may not attach. I.R.C. §6331(a). The IRS may place a levy where a “person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand.” Id. That provision continues, “No levy may be made” (subject to exceptions) where the taxpayer has pending a court proceeding “for the recovery” of taxes already paid. Id.§6331(i)(1). Active litigation to collect a tax, however, does not foreclose the IRS‘s ability to levy on property. Nor is the converse true. The United States may bring a civil action “[i]n any case where there has been a refusal or neglect to pay any tax, . . . whether or not levy has been made.” I.R.C. §7403(a). These provisions confirm that federal law enables the United States to attach a levy and to proceed in court to collect a tax assessment. These options are not mutually exclusive. Accordingly, Section 6502(a) uses “or” inclusively to allow the United States to employ both collection methods at the same time.


Varner wanted to get the matter back to Collection, and take advantage of the Collection Appeals Program where he felt he would have more luck with arguments based on his financial hardship. He also invoked the Taxpayer Bill of Rights and its right to appeal matters in an independent forum.

As the court noted, the right to pursue administrative appeals to collection actions is separate from the government’s power to use its judicial collection tools. The paths are distinct, and as the opinion notes, once the government attempts to foreclose on a lien or reduce an assessment to judgment a court is not going to compel the government to dispense with its right use the courts to facilitate a possible payment of an unpaid assessed liability.

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