Post Bankruptcy Collection Action

Posted on by katemley

11 U.S.C. 522(c)(2)(B)


The United States Tax Court in Mongogna v. Comm’r of Internal Revenue, Docket No. 18651-23L, filed August 18, 2025, sustained a levy decision from a Collection Due Process hearing after it determined that a Settlement Officer had not abused her discretion. This case presents a good explanation of the effect of a bankruptcy discharge on a pre-petition tax lien filing. Taxpayers are a married couple that owed income taxes for many years. They filed a chapter 7 bankruptcy after the filing of a Notice of Federal Tax lien affecting several tax periods.  They owed total taxes of $288,476 at the time of filing their bankruptcy. A discharge was ultimately issued. Post-bankruptcy, the IRS sent the taxpayers a notice of intent to levy with a right for an Appeal, which the taxpayers took advantage of. The taxpayers were advised that in order to proceed with the Appeals hearing, they would have to provide financials and disclose if they had any exempt or abandoned property from the bankruptcy. Their lawyer argued that it was not their duty to provide this information to the IRS. He further argued that because much of the debt was discharged, it was not necessary to provide financials as they wanted a streamlined payment agreement. That is available when a taxpayer owes less than $50,000. The Appeals officer disagreed and indicated that it was necessary to address the exempt and abandoned property so that the IRS insolvency unit could determine what was discharged and whether or not the pre-petition lien filing attached to the exempt and abandoned assets. The Court agreed with the Appeals Officer that failure to disclose this information prohibited a collection alternative, such as an installment agreement, from being established. It is worth repeating the rule relating to the effect of the lien in this matter. A chapter 7 bankruptcy may discharge a person from personal liability for the federal taxes owed in some cases, however, it does not extinguish a pre-bankruptcy petition federal tax lien. See 11 U.S.C. 522(c)(2)(B). Therefore, collections can be enforced against taxpayers exempt or abandoned property, post-bankruptcy.

Property Lien Attachment

Posted on by katemley

IRC 7425(b)(1)


The United States District Court for the Eastern District of Missouri held in Tavis Merriman v. United States of America, Case No. 4:25 CV 476 CDP, entered on August 14, 2025 that the United States Tax lien remains attached to real property post transfer even though the taxpayers for whom a tax lien was filed were no longer owners. The Plaintiff in this action for quiet title was seeking to prove that the tax lien did not attach to property he acquired at a Collector’s Deed tax sale. The taxpayers who owed the debt resided in St. Louis County where the IRS filed a notice of tax lien on August 8, 2019. After failing to pay their real property taxes for a number of years, the Collector sold their property for taxes owed to Plaintiff on October 23, 2023. Plaintiff filed a State quiet title action to clear title, but for the Federal Tax Lien. The Plaintiff then filed this action in Federal Court. The Court ruled that the same rule used by any lender or other party that executes a non-judicial sale of property on which the US has a tax lien, applies. More particularly, IRC section 7425(b)(1), (c)(1) states that a tax lien will remain attached to property if notice of the lien was recorded more than 30 days before the sale and the United States was not given notice of the sale “by registered or certified mail or by personal service, not less than 25 days prior to such sale.” The tax lien remained attached and the fact that the taxpayers no longer owned the property was irrelevant. 

Tax Lien Reduced to Judgment

Posted on by katemley

IRC 6321

So, why does the government bother to reduce a federal tax lien to judgment in the federal court? The case of United States of America v. Wardle, case CV-23-20-BU-BMM handed down September 30, 2024 by the United States District Court for the District of Montana illustrates one major benefit. The USA filed suit to reduce the federal tax liens to judgment against the taxpayer, Christopher F. Wardle. Mr. Wardle owed in excess of $1 million in taxes. Mr. Wardle contended that the liens were unenforceable due to the passage of time. The taxpayer cited the general premise that the IRS has 10 years from the date a tax was assessed to collect the tax, interest and penalties. However, the Court ruled that a federal tax judgment is never subject to a time limit. Once the assessment has been reduced to judgment, the liability merges into the judgment and that liability cannot become unenforceable due to lapse of time. The Internal Revenue Manual actually describes this at Section 5.17.4.8.2.3 wherein it states that “[w]here the Internal Revenue Service has reduced assessments to judgment, it may bring a lien foreclosure action after the statutory period.” It was not part of the case, but the manual continues in this section as follows: “[w]hile obtaining a judgment extends the life of the lien for the purpose of bringing a lien foreclosure action, in order to maintain the priority of the lien in relation to other creditors, the Internal Revenue Service must refile the Notice of Federal Tax Lien as provided in IRC 6323(g).” 

Tax Lien Filing ­—Location

Posted on by katemley

IRC 6321


The United States Tax Court ruled in Robert A. Zienkowski v. Comm’r, T.C. Memo 2024-039 filed April 8, 2024 that a Notice of Federal Tax Lien was valid even though it was not filed in the taxpayer’s county of residence. The Taxpayer in this case had an unpaid balance of $57,873 on his 2016 Form 1040.  The IRS filed a Notice of Federal Tax Lien, correctly stating the taxpayer’s address in Bryn Mawr, Pennsylvania, in Montgomery County.  The taxpayer timely filed a request for Collection Due Process (CDP) hearing in response to the lien notice.  Among other resolutions, he sought a withdrawal of the tax lien.  During processing of the CDP request, the IRS noticed that the taxpayer actually resided in a part of Bryn Mawr that was in Delaware County, Pennsylvania. As such, the IRS filed another lien notice in Delaware county and captured the 2016 balance, along with a balance on 2017 and 2018.  The IRS ultimately held the CDP hearing and upheld the lien determination. The Taxpayer filed this action before the Tax Court.  The Court reviewed the applicable law at Section 6321 which generally states that if a taxpayer doesn’t pay his or her taxes upon demand, then a lien arises that is attached to all property automatically at the assessment of tax.  A Notice of Federal Tax Lien (NFTL) filed in the land records per the Regulations at section 301.6323(f)-1(d) must be on Form 668, Notice of Federal Tax Lien and must identify the taxpayer, the tax liability giving rise to the lien and the date the assessment arose. Citing caselaw, the Court explained that notwithstanding any other provision of the law regarding the form or content of a notice of lien, including State law, the lien is valid if it meets these requirements. In this situation, it clearly met those requirements and was valid even though it was originally filed in a county that was not where the taxpayer resides. 

Tax Liens

Posted on by katemley

IRC 6321

In the case of Julie Dinwiddie v. United States of America, Internal Revenue Service, the Ninth Circuit Court of Appeals illustrates the reach of the federal tax lien. This case is No. 21-35368 filed May 11, 2023. The action in this case was an allegation by Julie Dinwiddie that her personal bank account was wrongfully levied by the IRS.  In 2007 the IRS assessed Julie Dinwiddie’s husband, Jeffrey, with $3.7 million in tax liabilities.  And a tax lien attached in favor of the government to his property.  At that time, Jeffery was sole shareholder of Evergreen Nursery Incorporated (“ENI”). As the court explains, a tax lien broadly reaches every interest in property that a taxpayer might have.  As such, the lien attached to the stock and any monetary distribution associated with that stock.  At some point after the lien is filed, Jeffrey transferred his stock to Julie.  Julie then distributed funds from ENI’s bank account to her personal account as the new sole stockholder.  Because the lien attached to ENI and the money that flowed from it, the IRS properly levied her personal bank account. There are methods to transfer property to another free of the federal tax lien, but none of those situations existed in this matter. 

Offer in Compromise

Posted on by katemley

IRC Section 7122(f) Deemed Acceptance review

The United States Tax Court in Michael D. Brown v. Comm’r of Internal Revenue, at 158 T.C. No. 9, filed on June 23, 2022 ruled that the time during which the IRS Appeals Office reviews the return of an Offer in Compromise is not included as part of the 24-month “deemed acceptance” period of IRC 7122(f).  The rule at issue states that “[a]ny offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of the offer.”  See IRC section 7122(f).  In this case, taxpayer filed for a Collection Due Process (CDP) hearing after the filing of a tax lien.  Right away, the taxpayer filed for an Offer through IRS Appeals.  The collection specialist that reviewed his file returned the Offer because other investigations of the taxpayer were pending. He owed about $50 million in taxes.  During the actual CDP hearing, the taxpayer urged the Settlement Officer to override this decision.  The Settlement Officer would not do it and proceeded to close the CDP case.  It was approximately 28 months from the time the CDP hearing was filed until the IRS issued a notice of determination.  Taxpayer argued that the IRS exceeded the rule for deemed acceptance and the Offer should be accepted.  The Court analyzed the statute and regulations associated with it.  In part, the taxpayer tried to argue that even though the Offer unit “returned,” the Offer, it was only Appeals that can make the determination to return the Offer. As such, it should be deemed accepted.  The Court didn’t buy it. Rather, they point out that the relevant procedures explaining the deemed accepted provision specifically state that the “period during which the IRS Office of Appeals considers a rejected offer-in-compromise is not included as part of the 24-month period.” The Court explained that this would be true even outside of the CDP setting. In other words, if an Offer is rejected and a taxpayer Appeals that rejection, nothing about the Appeal extends the 24-month period in the rule. 

Fraudulent Transfer,Alter Ego and Nominee

Posted on by katemley

The United States District Court for the Western District of Washington ruled against the government in  United States of America v. Thomas Weathers, et al., Case No.: 3:18-cv-5189-BHS decided February 8, 2022 because the government failed to prove its alter ego and nominee claims by a preponderance of the evidence and failed to prove its fraudulent transfer claim by clear and satisfactory evidence. This case was commenced by the Government to reduce tax assessments to judgment and foreclose federal tax liens.  The Government alleged that three entities owned or controlled by the Weathers were their nominees or alter egos and that certain properties owned by the Weathers were transferred fraudulently for their purpose of avoiding the tax lien.  The Government simply got carried away on this claim. In part, the reason for that was because there were 8 other properties that the Government was successful in foreclosing through Summary Judgment Motion. In this case, however, the Court ruled that the taxpayers never had an ownership interest in the entity that owned the relevant property, they were never officers, never received personal benefit and the only funds flowing from the entity were for services that were legitimate.  There was no shifting of ownership from the Weathers to the entity/owner and no evidence of actual intent to hinder or delay.  This case details the factors of alter ego/nominee claims and fraudulent transfers carefully, then applies the facts of this case to those factors, clearly showing the Government fell far short of its burden to establish the claims.

Offer in Compromise

Posted on by katemley

IRC 6320 Hearing

The United States Court of Appeals for the Seventh Circuit in Craig L. Galloway v. Comm’r of Internal Revenue, No. 21-2269 decided February 9, 2022 that because the issue at hand was outside of the authority of the Tax Court to decide, then the issue also fell outside of the authority of this Court to review.  

The Taxpayer in this case had an unpaid income tax liability of $64,315.43.  Taxpayer submitted an Offer in Compromise which was rejected by the IRS because they believed the taxpayer could pay the liability based on the reasonable collection potential.  Rather than appeal this decision, taxpayer filed another Offer in Compromise. It was rejected for the same reason.  He appealed, but the decision of the Offer unit was sustained.  After the appeal, the IRS issued a Notice of Federal Tax Lien Filing with rights to a Collection Due Process hearing under IRC 6320. Taxpayer requested a hearing and during that hearing the Officer advised that he could submit a new Offer directly to the Offer Unit, but that if it was the same Offer, it would be rejected.  No Offer was filed and the Tax Lien was sustained.  Taxpayer then appealed the decision to sustain the filing of the Notice of Federal Tax Lien to the Tax Court.  The IRS won in Tax Court by correctly arguing the taxpayer was prohibited from raising a challenge to the Offer in that setting – which he was trying to do.  Taxpayer then appealed to this Court.  This Court indicated that their review would be based on whether there was an abuse of discretion by the settlement officer in sustaining the federal tax lien – not a review of the underlying rejection of the Offer. This was because the taxpayer had participated meaningfully in his appeal of the Offer rejection.  Because the Tax Court was limited in reviewing the underlying debt, so too is this Court of Appeals.

Installment Agreements and Tax Liens

Posted on by katemley

I.R.C. Section 6320

Federal Tax liens may remain in place where a taxpayer’s liability during her installment agreement period is above the amount the IRS requires in the Internal Revenue Manual (IRM), the U.S. Tax Court ruled in Jill Beth Savedoff v. Comm’r of Internal Revenue, filed August 31, 2020 at Docket No. 4346-18L. The taxpayer created liabilities from self-employment on two different tax periods. She established a payment agreement, but defaulted. The IRS filed a Notice of Federal Tax Lien (NFTL). The taxpayer filed a Collection Due Process (CDP) hearing request on the basis that her installment agreement was wrongfully terminated and the lien notice was not properly served. Apparently, the taxpayer moved and did not receive a notice of the filing of the lien. The Court ruled that the taxpayer did not provide the IRS with a clear and concise notification of a different address. As for the lien withdrawal, the Court reviewed the guidelines allowing for the withdrawal of a NFTL. The taxpayer essentially argues that the lien should have been withdrawn if a second installment agreement was established. Both the Tax Court and Treasury Regulations provide that nothing requires the IRS to withdraw the NFTL because of the establishment of an installment agreement. While there are provisions to withdraw the NFTL if the balance is less than $25,000 and the taxpayer establishes a direct debit installment agreement, the taxpayer in this situation simply owed more and when offered to establish a direct debit installment agreement, passed on that option. 

Tax Lien Attachment

Posted on by katemley

I.R.C. Section 6321

The Federal District Court for the Western District of Washington in USA v. Elmer Buckardt, Case No. 2:19-cv-00052-RAJ, entered an order on September 18, 2020 that a tax liability cannot be avoided with frivolous arguments and the IRS may foreclose property for tax liens when the entity owning the property is a taxpayer’s alter ego. Though a W-2 earner until retirement, the taxpayer created a religious society for the purpose of transferring property to his family. It was meant to be a trust, of sorts. The taxpayer and his wife transferred properties they purchased to the entity without consideration. They personally paid the mortgage on these properties. Around the same time, the taxpayer ceased filing tax returns because of the belief that the tax system was not valid. The taxpayer began reporting his tax liability as zero. After a variety of litigation in the Tax Court, the taxpayer ultimately ended up owing around $739,000.  The government then filed the instant action seeking to foreclose the tax liens and set aside the transfers to the religious society that the taxpayer executed years before. The Court ruled that it was clear Mr. Buckardt owed the taxes. The taxpayer offered no argument other than his belief that he was not required to pay federal income taxes, along with a variety of well-known arguments the Courts have deemed frivolous over the years. The Court ruled those arguments were without merit. The Court concluded that the religious society the taxpayer created and transferred property to was his alter ego. It based its decision on Washington law recognizing the nominee or alter-ego doctrine where one individual so dominates and controls a corporation that such corporation is the individual’s alter ego, and therefore, one in the same. The fact that the taxpayer had complete control over the entity, that he and his wife were the only ones making decisions for the entity, that the taxpayer and his wife live in a home owned by the entity, but do not pay rent, were all determining factors. They maintained the properties with personal funds. The taxpayer allowed his children to reside in the properties rent free. The Court deemed the lien to be a valid lien against the properties of the entity and authorized the Government to foreclose.