The recent decision by the US Supreme Court to hear arguments in Commissioner v. Zuch brings to light ongoing debates about the Internal Revenue Service’s (IRS) approach to tax collection and taxpayer services. Although the case initially appears to involve a niche segment of taxpayers, it has broader implications for how the IRS administers its duties.
At its essence, the case presents a challenge to the IRS’s procedural tactics in tax collection. Taxpayers, like Jennifer Zuch, argue that the IRS can sometimes overstep its boundaries, such as by mooting a taxpayer’s right to dispute by seizing money owed. The crux of Zuch’s argument is that the IRS is restricting her ability to petition the Tax Court, even though she contested the agency’s actions.
The US Court of Appeals for the Third Circuit sided with Zuch, noting the IRS’s actions were not in line with its procedural mandates and differed from views in other circuits, as seen in cases such as Willson v. Commissioner and McLane v. Commissioner.
This strategy aligns with other IRS policies that have spurred criticism, such as the agency’s temporary halt on processing employee retention credit claims, due to an increase in fraudulent submissions. This moratorium sparked lawsuits from taxpayers and companies demanding fair processing of legitimate claims. The IRS insists on its discretion in handling refund claims as a safeguard against fraud, but this halt has impeded the efficient processing of claims, contrary to congressional intent.
The IRS’s recent regulations to implement the Taxpayer First Act of 2019 further illuminate issues with its procedural emphasis. While the Act obligates the IRS Independent Office of Appeals to equitably resolve tax disputes, the new regulations list numerous exceptions that might shield the agency’s current practices.
A Supreme Court ruling favoring Zuch might signal a need for the IRS to pivot its tactics—less on procedural rigidities and more on ensuring taxpayer service and equitable tax collection. Such a shift might encourage the IRS to reassess where its resources are best allocated, possibly under the influence of administrative changes, including a hiring freeze affecting the IRS. The case extends beyond Zuch, foreshadowing potential wide-reaching changes in how US tax laws might be administered and interpreted.