EC Term of Years Trust v. United States

PETITIONER: EC Term of Years Trust
RESPONDENT: United States
LOCATION: Carhart's Residence

DOCKET NO.: 05-1541
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 550 US 429 (2007)
GRANTED: Oct 27, 2006
ARGUED: Feb 26, 2007
DECIDED: Apr 30, 2007

ADVOCATES:
Deanne E. Maynard - Assistant to the Solicitor General, Department of Justice, argued the cause for the United States
Francis S. Ainsa Jr - argued the cause for the petitioner

Facts of the case

The Internal Revenue Service (IRS) contended that Elmer and Dorothy Cullers had established a trust for the purpose of evading taxes. The IRS filed tax liens against the trust, freezing the trustees' assets until the outstanding taxes were paid. The trustees disagreed with the IRS, but opened a bank account to settle the tax dispute. A month later, the IRS collected the outstanding taxes from the bank account. EC Term of Years Trust sued the IRS pursuant to 26 U.S.C. 7426, which entitles trustees to challenge wrongful IRS collections, and 28 U.S.C. 1346(a)(1), which entitles taxpayers to recover erroneously collected taxes. A district court decided that only 26 U.S.C. 7426 allowed third-party tax recoveries, so the court lacked jurisdiction under 28 U.S.C. 1346(a)(1), the general provision for tax recovery. The court dismissed the 26 U.S.C. 7426 claim because the nine-month filing time limit had expired. EC Trust claimed in a second suit that the Supreme Court's opinion in United States v. Williams meant that the possibility of a suit under 26 U.S.C. 7426 did not preclude suits under 28 U.S.C. 1346(a)(1). The District Court rejected the argument, and the U.S. Court of Appeals for the Fifth Circuit affirmed.

Question

Can a party challenge, under 28 U.S.C. 1346(a)(1), an Internal Revenue Service tax levy on its property intended to collect taxes owed by another party, even if the party could have sued under 26 U.S.C. 7426 but failed to file the suit before the time limit expired?

Media for EC Term of Years Trust v. United States

Audio Transcription for Oral Argument - February 26, 2007 in EC Term of Years Trust v. United States

Audio Transcription for Opinion Announcement - April 30, 2007 in EC Term of Years Trust v. United States

John G. Roberts, Jr.:

I have the announcement in two cases this morning the first is number 05-1541, EC Term of Years Trust versus United States.

Justice Souter has authored the opinion in this case, and he has asked me to announce it for him.

This case comes to us on a writ of certiorari to United States Court of Appeals for the Fifth Circuit.

The internal revenue service determined that Elmer and Dorothy Cullers claimed unwarranted income tax deductions in the 1980s but by the time the government tried to collect from the Cullers’ they have transferred some of their assets to petitioner EC Term of Years Trust.

The IRS levied on the Trust’s bank account and collected over $3 million.

Almost a year after that the Trust filed an action claiming that the IRS has wrongfully levied on it’s property to collect taxes owed by another.

Such wrongful levy actions are specifically authorized by statute, but they are subject to a nine month filing deadline because the Trust had missed that deadline the District Court dismissed it’s complain.

The Trust then re-filed its action as a claim for a tax refund which has a less demanding filing deadline, but the District Court dismissed it again reasoning that a wrongful levy claim was the Trust’s only recourse.

The Fifth Circuit affirmed and we granted certiorari to resolve a conflict with the Ninth Circuit.

In an opinion filed today with the Clerk of the Court, we affirm.

We have repeatedly held that when Congress creates a precisely drawn and detailed statute it preempts more general remedies.

Here Congress specifically tailored a remedy for third parties challenging a wrongful levy and provided a nine month statute of limitations.

That short period was no accident since the IRS must be promptly be told if it has seized property from the wrong party.

But this deadline could be easily awaited if as the Trust argues third parties could always reformulate their wrongful levy claim as one for a tax refund, resort to a tax refund claim is therefore preempted.

The trust also relies on United States against Williams, a case in which we held that a wrongful lien claim could be brought in the form of a tax refund action.

But we said in Williams that no remedy other than a tax refund was open to the plaintiff in that case.

Here on the other hand, the Trust challenges a levy not a lien and could have made a timely wrongful levy claim for the relief it now seeks.

Justice Souter’s opinion for the Court is unanimous.