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Supreme Court nixes IRS attempt to limit refund suits to "taxpayers."(Williams case)(Brief Article)

Lori Williams and her then husband Jerrold Rabin owned a home jointly. Rabin, part owner of a business, failed to pay employment taxes. In 1987 and 1988, the Internal Revenue Service assessed the unpaid employment taxes against Rabin, resulting in an automatic lien on all of his property, including the home, under Internal Revenue Code section 6321. The employment taxes were Rabin's separate liability, for which Williams was not liable.

The couple began preparing for a divorce in 1988 and divided the marital property. Rabin deeded his interest in the home to Williams. In exchange for his interest, she assumed $650,000 of his debts. At that time the IRS had not yet filed notice of its lien and Williams was unaware of it. (The IRS filed its notice on November 10, 1988.) More liens (filed in June 1989) arose as the IRS added to its employment tax assessments.

In mid-1989, Williams found a buyer for the house. To give the buyer clear title, she paid Rabin's outstanding tax liability of $41,000 out of the sale proceeds. She paid the tax under protest; at the time she believed she had no alternative but to pay the outstanding liabilities.

Williams filed a refund claim for the $41,000 she paid. After the government denied her claim, she filed a refund suit in federal district court, claiming the lien was invalid because she had taken the property without knowledge or notice of the lien. Under section 6323(a), a tax lien is not valid against a purchaser of property unless the IRS has previously filed a valid lien notice.

The district court dismissed the suit on grounds that a suit under the federal statute authorizing refund suits--28 U.S.C. section 1346(a)(1)--could be brought only by the assessed taxpayer, not a third party. Section 1346(a)(1) gives the federal courts jurisdiction over "any civil action against the United States for the recovery of alleged to have been erroneously or illegally assessed or collected...."

The Ninth Circuit Court of Appeals reversed the district court, ruling in Williams's favor that anyone from whom a tax had been wrongfully collected could sue under the federal jurisdictional statute.

The federal courts of appeal had given conflicting opinions on this issue, so the US. Supreme Court granted certiorari.

Result: For Lori Williams. The statute clearly allows anyone from whom taxes are erroneously or illegally assessed to bring a refund suit. The government's attempt to narrow the statute's language is invalid. Therefore, Williams is entitled to try to recover the $4 1, 000.

* Williams, Sup. Ct., 1995.


* In an effort to encourage filing, the Department of Labor is offering to reduce monetary penalties for delinquent form 5500s, as of April 27, 1995. Form 5500 is used for pension plans subject to ERISA. The DOL program applies to plan years beginning on or after January 1, 1988.

* Government officials at a May IRS hearing said there will be no changes to proposed regulations under Internal Revenue Code section 469(c)(7) passive activity loss rules to permit real estate professionals to combine non-rental real estate activities with rental real estate activities when testing for material participation in rental operations.

* Compensation paid by the German government for property confiscated before and during World War II is tax exempt. Internal Revenue Notice 95-31 is the result of a mutual agreement between U.S. and German authorities after a number of claimants raised the issue.
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Article Details
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Author:Wagenbrenner, Anne
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Jul 1, 1995
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