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Social Security Levies and the Statute of Limitations

Posted on Dec. 14, 2022

Les wrote a post on the Dean case last year in which the 11th Circuit made clear that an IRS levy on social security payments made prior to the expiration of the statute of limitations continued to capture those payments after the statute expired. Shortly thereafter Les wrote a post on a Chief Counsel Advisory opinion explaining the distinction between continuous wage levies and levies on fixed assets. The district court opinion in the case of Maehr v. Internal Revenue Serv. / United States, No. 22-CV-00830-PAB-NRN, 2022 WL 16834551 (D. Colo. Nov. 8, 2022) provides another opinion on the IRS ability to obtain social security payments for the life of the taxpayer unlimited by the collection statute of limitations in situations in which it levies on the social security payment prior to the expiration of the statute of limitations. The Maehr case does not break new ground but does serve as a reminder of the power of the levy. It also raises a couple of interesting points worth discussing.

Mr. Maehr is no stranger to the courts or to our blog.  I wrote about the 10th Circuit decision in his passport revocation.  Les wrote about 10th Circuit’s Maehr v Koskinen involved an IRS levy on a bank account that had received the taxpayer’s VA disability deposits.  Mr. Maehr appears to be a tax protestor with a litigation bent but with some legitimate concerns mixed in with non-legitimate ones.  See footnote 2 of the district court opinion for a list of all of his litigation against the IRS.  While his cases help us interpret tax procedure, it is unfortunate that this veteran suffers in his continuing fights with the IRS for himself, the IRS and the courts.  Today’s post concerns his latest loss.

The years at issue in this case are 2003-2006. By the time of this litigation, the IRS had written off the liabilities he owed for these years because the statute of limitations on collection had expired. He argues that because of its expiration the IRS must release levies it filed prior to the expiration.

Citing to the Dean case linked above, the 10th Circuit acknowledges that the IRS must ordinarily stop collection when the statute of limitation on collection expires; however, it notes:

a levy made within the collections period on a fixed and determinable right to payment, which right includes payments to be made after the period of limitations expires, does not become unenforceable upon the termination of the period of limitations and will not be released unless the liability is satisfied. 26 C.F.R. § 301.6343-1(b)(ii). Thus, Mr. Maehr’s claims for prospective relief with respect to the levies also fail.

Describing the Dean case, the 10th Circuit states:

Having seized his entire benefit before the expiration of the collection limitations period, the IRS was not required to relinquish it after the period expired. See 26 C.F.R. § 301.6343-1(b)(1)(ii). Thus, the district court did not err in disregarding Dean’s mistaken legal conclusions regarding the continuing viability of the 2013 levy, or in concluding that the remaining allegations in his complaint failed to state a claim for unlawful collection action by IRS employees.

It then says simply that the same logic applies to Mr. Maehr’s case. In rejecting his arguments based on the validity of the levy, it also points out that his action is barred by the Declaratory Judgment Act and the Anti-Injunction act.

While the IRS can manually levy the full amount of a social security benefit (subject to allowances for reasonable living expenses), situations in which the IRS levies on a taxpayer’s full social security liability outside the automated Federal Levy Program rather than just 15% are not common. A tax protestor like Mr. Maehr is far more likely to face this problem than a taxpayer working with the IRS to resolve the liability. The case demonstrates the power the IRS has but does not necessarily reflect a normative form of tax collection.

There are two additional points raised in the opinion that deserve mention. The first involves the revocation of his passport. In the current case the IRS makes clear that it notified the State Department that the revocation of his passport should end. The IRS takes the position that the expiration of the statute of limitations on collection for the liabilities giving rise to the passport revocation results in a reversal of the revocation letter it sent to the State Department. Mr. Maehr complains that he has not received a return of his passport. The court advises him to take this up with the State Department as the IRS has done what it needs to do. While it makes perfect sense that the IRS would pull back a passport revocation upon the expiration of the statute of limitations giving rise to the request for revocation, I had not previously seen this brought out in a case.

The second, and more concerning point, concerns hardship. The court states:

Mr. Maehr also appears to ask for the following additional relief: a declaration that he has provided ample evidence of his current impoverished financial condition under 26 U.S.C. § 6342(a)(1)(D)3 and that the debt is uncollectable. He asserts that the assessment was made many years ago, and the IRS, despite the ongoing garnishment, will never satisfy the debt in Mr. Maehr’s lifetime, continuing to impoverish him for the rest of his life.

Mr. Maehr should have cited to IRC 6343 which the court notes in its footnote, but aside from noting that he cited to the wrong statutory provision, the court does nothing further with this allegation. The information in the case does not provide a basis for determining if the social security levy, in fact, places Mr. Maehr into hardship status. It’s easy to imagine that it would, but he is a veteran and its also possible that he has veteran’s benefits and other resources that would keep his income above hardship status.

I know this will be hard for him, but Mr. Maehr should work with the IRS to demonstrate the hardship the levy on his social security benefits is creating. If he can show that the levy places him in hardship status, the IRS should release the levy. Once it releases the levy after the statute of limitations has expired, I don’t believe it can reissue the levy. Hardship in this situation may serve as the magic bullet to end a post-statute of limitations levy. This is an important issue not only for Mr. Maehr but for anyone finding themselves with this type of levy. The National Taxpayer Advocate has written (starting on page 527) about this type of levy in her annual reports for those seeking more information.

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