ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHEN YOU OWE THE EDD – SAY GOODBYE TO YOUR IRS INCOME TAX REFUND
By Robert S. Schriebman
The EDD has an arrangement with the IRS to forfeit your federal income tax refund – it’s all in the Bible – the Bible case that is. If the IRS sends your federal income tax refund to the EDD you cannot challenge the IRS’ action in any federal court. Let’s look at the Bible case and perhaps gain some wisdom.
The Bible Case
Aleksandr Bible took the IRS to court in an effort to stop them from sending his income tax refund to the EDD. This is a very unique case. And the first one I have ever seen. Aleksandr Bible v. U.S.; 2019-2 U.S.T.C. 50,274 (Nov. 8 2019). The case was decided by the US Court of Appeals, Federal Circuit.
Aleksandr Bible owed the EDD $6,317.71. The EDD took him to the Superior Court to reduce the tax lien to a judgment. It seemed Mr. Bible owed the EDD for overpayment of unemployment insurance benefits (UI). After receiving the judgment, the EDD notified the Treasury Department to request that they “offset” Bible’s federal income tax refunds from 2015, 2016 and 2017. Mr. Bible filed a refund suit and tried to stop the IRS in federal court. He lost because the Internal Revenue Code states that there is no remedy to prevent the IRS from handing over a taxpayer’s income tax refund to the EDD.
As an aside, this case frankly surprised me. The EDD rarely pursues a delinquent taxpayer in civil court and especially for such a relatively small sum of $6300 that Mr. Bible owed. Most likely there were other reasons why the EDD bothered to go through expensive and time-consuming litigation to collect this sum. The favorite remedy used by the EDD is continuous bank account levies and an occasional wage garnishment. The EDD also files a Notice of State Tax Lien.
What Did The Federal Appeals Court Say?
The federal appeals court cited two subsections of IRC § 6402(f) and (g)
Section 6402(f) provides that upon receiving notice from any State, the IRS shall take the appropriate action to reduce a potential refund by the amount of the EDD’s overpayment UI claim, and so notify the taxpayer.
Congress also expressly prohibited any federal judicial review of the action taken by the IRS. Here is what IRC § 6402(f)(1) says:
“No court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c), (d), (e) or (f)… No action brought against the United States to recover the amount of any such reduction shall be considered to be a suit for refund of tax.”
IRC § 6402(g) states that in order for any federal court to hear a taxpayer’s case it must have subject matter jurisdiction. This type of jurisdiction must be conferred upon the federal courts by Congress. In Mr. Bible’s case, the court did not have the ability to entertain any type of refund suit or injunction to require the IRS to stop honoring the EDD’s request to offset his personal income tax refunds until his UI overpayment debt is paid in full to the EDD.
Mr. Bible filed his suit to stop the IRS in the U.S. Court of Federal Claims. This court is located only in Washington, D.C. and hears IRS refund actions. The Tucker Act limits the jurisdiction of the Claims Court to claims against the United States that are founded either upon provisions of the US Constitution or any Act of Congress. There are no provisions allowing the type of case that Mr. Bible brought.
If you owe the EDD, don’t be an ostrich. That is, don’t bury your head in the sand and pretend that the debt doesn’t exist. As part of the normal and standard EDD practice, you will receive a collection letter from an assigned Collector. Contact the Collector and make arrangements to pay what you owe. Be proactive! Every week I get several calls from people who received more UI benefits than they had a right to. They never contacted the EDD. They complain that they have a tax lien ruining their credit rating, or their bank account is being levied. We also receive copies of letters from the IRS informing the UI debtor that the EDD has contacted the IRS to arrange for the offset of future income tax refunds. It comes as a shock to these people when the tax refund expected has been turned over to the EDD. This will never happen without the IRS notifying you and suggesting that you make arrangements to pay your EDD debt so you will not lose your refund.
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 40 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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