A federal appeals court has affirmed a Tax Court ruling in favor of a couple who had asked the Internal Revenue Service to sell their shares of stock to pay the money they owed for failing to report income from a check-cashing scheme.

The IRS had failed to sell the stock within 60 days, and the Tax Court ordered the IRS to credit the amount the stock was worth at that time against their account. The IRS appealed, and in a decision handed down Monday in a San Francisco appeals court, the judges backed the couple, according to an opinion written by Judge Sidney R. Thomas.

The case involved Michael and Gina Zapara, who owed the IRS over $450,000 for failing to report income they had received from a fraudulent check-cashing scheme. To recover the funds, the IRS issued a levy on the accounts they had opened with an investment company, in which they had deposited about the same amount of money. The Zaparas didn’t use their names on the accounts, and the IRS issued a Notice of Jeopardy Levy because it contended they were trying to conceal their ownership of the accounts.

After they received the notice, the Zaparas asked for a Collection Due Process hearing with the IRS Office of Appeals. During the hearing, they asked the IRS to sell the stock and apply the proceeds to their outstanding tax liabilities, although they apparently also challenged those liabilities.

Without mentioning the Zaparas' request to sell the stock, the IRS Appeals Officer issued a new notice concluding that the Zaparas were precluded from challenging their underlying tax liabilities and that the jeopardy levy would not be withdrawn. The Zaparas next appealed their case to the Tax Court.
The Tax Court held a trial and agreed with the IRS’s determination that they were unable to challenge the underlying tax liability. However, the Tax Court found that the IRS had violated Section 6335(f) of the Tax Code by failing to sell the stock within 60 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,” wrote Judge Thomas. “The Tax Court then remanded to the Appeals Office to establish the value of the stock accounts on that date.”

The IRS next asked for a reconsideration of the Tax Court’s decision, arguing that the Zaparas did not make a sufficient request to sell the stock. However, the Tax Court denied that motion and concluded that they had made an appropriate request under the law. Based on the Appeals Office’s valuation of what the stock would have been worth 60 days after the August 2001 request, the Tax Court ordered the IRS to credit $47,501.06 against the couple’s outstanding tax liabilities. The IRS appealed the ruling, but the appeals court affirmed the Tax Court decision this week.

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