The Second Circuit Court of Appeals has reversed a decision made by the Tax Court regarding the Internal Revenue Service’s (IRS) ability to impose liens and levies on six taxpayers, including Besicorp Group, Inc. The court found that the IRS failed to verify that the penalties imposed on these taxpayers had received the necessary supervisory approval before enforcing tax collection actions. This ruling, issued on June 29, 2026, is significant as it clarifies the requirements for the IRS in tax collection processes.
The taxpayers involved in this case are Besicorp Group, Day Stores, Humboldt Shelby Holding Corporation, the Markell Company, Vance Finance and Holding Corporation, and Seashore Broadcasting Corporation. These entities had previously been found liable for millions of dollars in unpaid taxes, penalties, and accrued interest. The IRS sought to collect these liabilities through federal tax liens and proposed levies on the taxpayers’ properties. The case was consolidated under docket number 23-296.
Initially, each taxpayer requested a Collection Due Process (CDP) hearing after the IRS issued Notices of Federal Tax Liens and Notices of Intent to Levy. During these hearings, the Appeals Officer sustained the IRS's actions, stating that he verified compliance with applicable laws and procedures. However, the taxpayers argued that the Appeals Officer did not meet the verification requirements set forth in Section 6330(c)(1) of the Internal Revenue Code, which mandates that the officer verify that all legal requirements have been met before the IRS can proceed with liens and levies.
The crux of the dispute centered around Section 6751(b)(1), which requires that penalties imposed by the IRS must receive written supervisory approval. The taxpayers contended that the Appeals Officer failed to verify that this supervisory approval was obtained, which they argued invalidated the IRS's authority to collect the penalties through liens and levies. The Commissioner of Internal Revenue countered that the supervisory approval requirement was not applicable because the underlying tax liabilities had already been adjudicated in previous proceedings.
The Second Circuit disagreed with the Commissioner’s position. The court ruled that the verification obligation imposed on the Appeals Officer encompasses the requirement for supervisory approval under Section 6751(b)(1). The court stated, “To proceed with liens and levies, the government was required to show that the Appeals Officer verified that the penalties imposed on the Taxpayers received the required written supervisory approval.” This ruling effectively reversed the Tax Court's earlier decision, which had upheld the IRS's authority to collect the assessed liabilities.
The impact of this ruling is substantial for taxpayers facing IRS collection actions. It reinforces the necessity for the IRS to adhere to procedural requirements when imposing penalties and attempting to collect tax liabilities. The decision underscores the importance of verification in the tax collection process, ensuring that taxpayers are protected from potential overreach by the IRS.
This ruling may set a precedent for future cases involving IRS collections, particularly those that involve disputes over the verification of penalties and the proper procedures that must be followed before the IRS can enforce liens and levies. Taxpayers can now be more confident in challenging the IRS's actions if proper procedures are not followed.
Looking ahead, it is unclear whether the IRS will seek to appeal this decision. The court has remanded the case for further proceedings consistent with its opinion, meaning that the IRS may need to reevaluate its approach to collecting the outstanding liabilities from the taxpayers involved. Additionally, there may be related cases pending that could further clarify the requirements for IRS collections in light of this ruling.