ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – REVERSING A SERIOUSLY DELINQUENT TAX DEBT CERTIFICATION WHEN THE OUTSTANDING TAX BALANCE SHRINKS
By Robert S. Schriebman
Prince Amun-Ra Hotep Ankh Meduty (formerly known as Steven Bell) resides in Georgia. He failed to file his income tax returns for the years 2003-2007, 2009 and 2012. The IRS prepared substitute returns under IRC § 6020(b) and assessed Mr. Meduty over $106,000 including frivolous tax return penalties and interest. Mr. Meduty gave the IRS his personal promissory note that he stated had a value of $10 million and argued before the US Tax Court that the note should have discharged all of his tax debts. (Prince Amun-Ra Hotep Ankh Meduty v. Commissioner, 160 T.C.–, No. 13, May 2023)
The IRS considered Mr. Meduty to be a “seriously delinquent tax debtor” pursuant to IRC § 7345. Generally, a “seriously delinquent tax debt” is a federal tax liability exceeding $50,000 (adjusted for inflation) and is unpaid and legally enforceable.
What Does Certification Mean?
If the IRS certifies a taxpayer as a seriously delinquent tax debtor, the certification is transmitted to the Secretary of State for action with respect to the denial, revocation or limitation of the taxpayer’s passport. The IRS is responsible for notifying the taxpayer of this certification. Under the law a taxpayer has the right to take the IRS to the US Tax Court in order to challenge the propriety of the certification. Mr. Meduty brought his case before the Tax Court. In the words of Judge Urda, Mr. Meduty advanced silly and frivolous arguments all without merit. His primary argument was that he fully satisfied his tax debt through the posting of “bonded promissory note” for $10,000,000. The Tax Court rejected this argument. For purposes of brevity, I will leave the rest of Mr. Meduty’s arguments without discussion.
Got to Read the Small Print
While the Tax Court addressed each of Mr. Meduty’s silly arguments, I did note one important factor in the footnotes that prompted me to write this article. After the IRS certified Mr. Meduty as a seriously delinquent tax debtor, the collection period of limitations expired for the years 2003, 2004, 2005, 2006 and 2007. And the frivolous return penalty liabilities expired for the 2008 year. The IRS wrote off the tax liabilities for all these years! There remained only the tax years 2009 and 2012. This means that the remaining liability owed the IRS by Mr. Meduty fell below the threshold of $50,000. Does this mean that the IRS is required to notify the Secretary of State to reverse the certification? – NO!
Once a valid certification is made, the law provides that a debt “ceases to be a seriously delinquent tax debt” only if the debt “has been FULLY satisfied or has become legally unenforceable.” Since the years 2009 and 2012 remained outstanding and legally enforceable, this requirement had not been met. (See Belton, T.C. Memo 2023-13)
How do you prevent the IRS from issuing a seriously delinquent tax debt certification to the Secretary of State? Merely asking the IRS not to do so will get you nowhere. I recommend two ways that have been proven effective:
- Get your tax debt below $50,000 before the IRS issues the certification.
- File a timely Collection Due Process (CDP) petition and be prepared to work with the IRS Settlement Officer to solve your tax problem.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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