Introduction

In the case of Seggerman, Petitioner-Appellant Henry Seggerman (Seggerman) disputed the Internal Revenue Service’s (“IRS”) filing of a Notice of Federal Tax Lien (NFTL) despite his compliance with an ongoing court-ordered payment plan. The United States Court of Appeals for the Second Circuit considered whether the IRS Independent Office of Appeals’ hearing determination and the United States Tax Court’s subsequent decision to sustain the NFTL filing were abuses of discretion.

Facts

Seggerman was assessed a tax liability of $4,218,140 related to a tax fraud conviction and was ordered by the U.S. District Court for the Southern District of New York to make monthly payments to the IRS following his release from prison. Despite making payments, the IRS filed an NFTL, prompting Seggerman to challenge it through a Collection Due Process (“CDP”) hearing. He claimed that the lien was filed prematurely due to clerical errors by the IRS in processing his payments and argued that the lien negatively impacted his financial standing by causing his Individual Retirement Account (“IRA”) to close and loss of income.

After the CDP hearing, the IRS Independent Office of Appeals issued a Notice of Determination sustaining the NFTL. Seggerman then sought review in the United States Tax Court, which upheld the IRS Independent Office of Appeals’ determination, finding no abuse of discretion. Seggerman subsequently appealed the United States Tax Court’s decision to the Second Circuit.

Analysis

The court first discussed whether the IRS had the authority to file an NFTL independently of an ongoing court-ordered payment plan. The IRS Independent Office of Appeals determined that the IRS had independent authority to file an NFTL against Seggerman despite his existing court-ordered payment plan, relying on Internal Revenue Code Section 6201(a)(4), which provides the IRS with the authority to collect restitution administratively as if it were a tax. The Court said that Seggerman did not identify a legal error in the IRS Independent Office of Appeals’ determination.

The court then determined whether the IRS had appropriately exercised its discretion in filing the NFTL against Seggerman despite his compliance with the court-ordered payment plan. The court noted that Seggerman provided no evidence of the NFTL causing his IRA account to close or loss of income. The court said that declining to credit unsupported claims is well within the IRS Independent Office of Appeals’ discretion, and thus, it did not abuse its discretion.

Seggerman further argued that the NFTL should be withdrawn pursuant to Internal Revenue Code Section 6323(j), which pertains to the conditions under which the IRS may withdraw an NFTL. However, the court emphasized that such withdrawal is discretionary if certain conditions are met, referring to the use of “may” in Internal Revenue Code Section 6323(j)(1).

Finally, Seggerman alleged that the Form 12277 he submitted is a binding Taxpayer Assistance Order that mandates withdrawal of the NFTL. However, the court explained that a Taxpayer Assistance Order is separate from other filings, including Seggerman’s Form 12277 filing. Since Seggerman provided no evidence that a Taxpayer Assistance Order was issued, the court rejected his argument.

Conclusion

The court affirmed the United States Tax Court’s decision, rejecting Seggerman’s arguments for withdrawing the NFTL. The courts held that the IRS acted within its statutory authority and that the taxpayer did not provide sufficient evidence to support the claims of financial harm due to the NFTL.

This article first appeared in the Estate Planning Journal.

Frank Baldino is an estates and trusts attorney who helps people throughout the greater Washington, DC area protect assets for their families and future generations through careful estate tax planning. For more information, contact Frank at (301) 657-0175 or fsbaldino@lerchearly.com.