The U.S. Tax Court recently addressed a matter of first impression concerning the scope of its review in cases challenging a certification by the Commissioner of Internal Revenue that a taxpayer owes a "seriously delinquent tax debt" under Internal Revenue Code (I.R.C.) § 7345(a). This certification triggers the Commissioner’s transmittal to the Secretary of State for potential denial, revocation, or limitation of a taxpayer’s passport. The case, Alberto Garcia, Jr. v. Commissioner of Internal Revenue, 164 T.C. No. 8, reviewed by the full court, clarifies that such reviews in the Tax Court can be de novo, based on a new record developed in court, rather than being limited to the administrative record. This ruling has significant implications for how these cases will be litigated.

Background Facts

The petitioner, Alberto Garcia, Jr., failed to pay federal tax liabilities totaling more than $100,000 that the Commissioner assessed between 2007 and 2010. These liabilities related to Mr. Garcia’s income tax and taxes he owed as an employer.

The Commissioner took steps to collect these debts. Notices of Federal Tax Lien were filed between March 21, 2008, and February 11, 2011, with notices sent to Mr. Garcia’s last known address. Mr. Garcia requested and participated in only one Collection Due Process (CDP) hearing in response to a Notice of Lien; the time for requesting hearings on the others had expired before October 2022. Notices of Intent to Levy and Right to a CDP Hearing were also sent between March 17, 2008, and October 25, 2010, but Mr. Garcia did not request any levy CDP hearings.

On January 30, 2014, the Commissioner initiated a suit in the U.S. District Court for the Southern District of Texas to reduce Mr. Garcia’s liabilities to judgment. Mr. Garcia did not appear in this district court suit, and the court entered a default judgment against him on August 11, 2014.

On October 17, 2022, the Commissioner certified to the Secretary of State that Mr. Garcia had a "seriously delinquent tax debt" within the meaning of I.R.C. § 7345(b). The certification was based on $129,959.05 of unpaid liabilities relating to tax years 2005, 2006, 2007, and 2008. The Commissioner sent Mr. Garcia a Notice of Certification (Notice CP508C) at the same time.

Taxpayer’s Challenge and Request for Relief

In 2022, Mr. Garcia filed a Petition with the Tax Court under I.R.C. § 7345(e)(1) to challenge the Commissioner’s certification. Mr. Garcia’s primary contention, particularly as advanced by his counsel during the summary judgment proceedings, was that the tax debt was no longer legally enforceable because he was never served in the 2014 district court action. He alleged that the default judgment entered in that suit was void due to the lack of service. This argument suggested that, without a valid judgment extending the collection period, the standard ten-year period under I.R.C. § 6502(a) had expired for most of the liabilities before the October 2022 certification, rendering them not "legally enforceable".

Mr. Garcia’s filing of a petition with the Tax Court sought a determination that the Commissioner’s certification was erroneous. If the Tax Court determines the certification was erroneous, it may order the Secretary of the Treasury to notify the Secretary of State of the error.

Commissioner’s Position and Motion for Summary Judgment

The Commissioner filed a Motion for Summary Judgment, maintaining that the certification was proper. The Commissioner argued that Mr. Garcia’s liabilities were "legally enforceable" within the meaning of I.R.C. § 7345(b) because the 2014 default judgment extended the limitations periods for collection after assessment until at least 2034. The Commissioner relied on I.R.C. § 6502(a) (flush language), which states that a judgment extends the collection period, and 28 U.S.C. § 3201(c)(1), which provides for a 20-year lien resulting from a judgment in such collection actions.

The Commissioner presented a return of service, signed by a revenue officer, suggesting that Mr. Garcia was personally served at an IRS office in Houston.

Legal Analysis by the Tax Court

The Tax Court first outlined the purpose of summary judgment – to expedite litigation when there is no genuine dispute as to any material fact. The court noted that the standard summary judgment approach, where factual materials are construed in the light most favorable to the adverse party, applies in cases subject to a de novo scope of review. The court contrasted this with cases where review is limited to the administrative record, such as those reviewed for abuse of discretion.

The court then focused on the definition of a "seriously delinquent tax debt" under I.R.C. § 7345(b). Key requirements include that the debt must be assessed, greater than a threshold amount ($55,000 for 2022), and, crucially, legally enforceable. The court emphasized that a tax liability is not legally enforceable if the period of limitations for collecting it has expired, referencing I.R.C. § 6502(a).

The Collection Limitations Period (I.R.C. § 6502(a))

Ordinarily, the IRS must collect a tax liability within ten years after assessment.
However, if the United States brings a court action to collect a liability and obtains a judgment, the limitations period is extended until the judgment is satisfied or becomes unenforceable.
The Commissioner contended that the 2014 default judgment extended the period until August 11, 2034.

The Dispute: Service and Void Judgment

Mr. Garcia asserted he was never served in the 2014 district court suit.
The court noted that a judgment entered without personal jurisdiction over the defendant is void. Lack of effective service means the court lacks personal jurisdiction.
If the 2014 default judgment against Mr. Garcia was void due to lack of service, it would not have extended the collection period. In that scenario, the standard ten-year periods would have expired between 2017 and 2020, making the liabilities (except for $44) not "legally enforceable" at the time of the October 2022 certification.
The court confirmed that Mr. Garcia’s challenge to the judgment’s validity based on lack of service was a proper collateral attack, distinguishing it from the facts in Garcin v. Commissioner, where the petitioner was served.

Scope of Review Under I.R.C. § 7345(e)

This case presented an issue of first impression for the Tax Court: the proper scope of review in section 7345(e) cases. Previous passport cases did not require the court to resolve this because the evidence considered did not affect the outcome.
The court analyzed the text of I.R.C. § 7345(e)(1), which authorizes the court "to determine whether the certification was erroneous".
Drawing parallels to other areas of its jurisdiction, the court noted that:
- In deficiency redeterminations under I.R.C. § 6213, the court reviews on a new record created by the parties, using the word "redetermination".
- Historically, in innocent spouse relief cases, the court reviewed on a new record, associating this with Congress’s use of the word "determine".
- In whistleblower award appeals under I.R.C. § 7623(b)(4), the court reviews the administrative record, noting Congress’s use of the word "appeal".
- In CDP cases, appellate courts have held that review is limited to the administrative record when applying an abuse of discretion standard.
The court concluded that Congress’s choice of the word "determine" in section 7345(e) is dispositive, signifying that review should occur on a new record made at the Tax Court, potentially including evidence introduced at trial where appropriate.
This means the court is not limited to the administrative record available to the Commissioner at the time of certification. This allows the court to consider evidence regarding whether Mr. Garcia was served in the district court suit.
The court acknowledged that this will likely be rare, as most passport cases can be resolved by reviewing IRS records without disputed facts outside that record. The scope of review does not alter the court’s lack of jurisdiction to review the merits of the underlying liabilities.

Application to the Facts and Conclusion on Summary Judgment

Applying the de novo scope of review, the court considered Mr. Garcia’s allegation that he was never served in the district court suit. The Commissioner provided a return of service, but Mr. Garcia disputed receiving notice and alleged the return of service lacked evidence it was signed.

The court’s role at the summary judgment stage is not to weigh this competing evidence. Mr. Garcia’s assertion, supported by his statements, raises a genuine issue of material fact as to whether he was served in 2014.

Because service of process is essential to the validity of the default judgment, and a void judgment would mean the collection periods were not extended, the disputed fact of service is material to whether Mr. Garcia’s liabilities were "legally enforceable" under I.R.C. § 7345(b) at the time of certification.

Conclusion

The Tax Court determined that because a material issue of fact exists regarding whether Mr. Garcia was served in the district court action, which impacts whether the underlying tax debt is legally enforceable, the Commissioner is not entitled to summary judgment. The Commissioner’s Motion for Summary Judgment was accordingly denied . This case establishes that the Tax Court’s review of section 7345 certifications can be de novo, allowing the introduction of evidence outside the administrative record when necessary to resolve disputed material facts, such as the validity of a judgment relied upon to extend the collection period.

Prepared with assistance from NotebookLM.