Jennifer and Patrick Zuch were married from 1993 to 2014 and filed joint tax returns until 2009. For 2010, Jennifer and Patrick filed separate tax returns. The couple submitted $50,000 of estimated tax payments for 2010 but made no designation whether the payments should be allocated to Jennifer’s tax liability or to Patrick’s tax liability.

After processing Patrick’s return, the IRS sent a notice that it applied $50,000 of estimated tax payments all to Patrick’s return. Jennifer then filed an amended return claiming a refund where her return showed total tax of $27,682, less $50,000 of estimated tax payments. Patrick also filed an amended return agreeing that the $50,000 of estimated tax payments should be allocated all to Jennifer.

Despite the couple’s agreement on the allocation of the estimated tax payments, the IRS did not adjust the allocation of the $50,000 from Patrick to Jennifer. Instead, the IRS issued Jennifer a Final Notice of Intent to Levy and Notice of Your Right to a Hearing as to her $27,682 tax liability for 2010.

If a taxpayer does not pay the amount the IRS says is due, the IRS can levy. But, before it does so, it must provide the taxpayer notice and an opportunity for a hearing to contest the levy. The taxpayer has 30 days to request a hearing. The hearing is known as a Collection Due Process (CDP) hearing.

Jennifer requested a CDP hearing. After the hearing, the IRS Appeals Officer determined that her tax liability was correct. Jennifer filed a petition to the Tax Court disputing the IRS Appeals Officer’s determination and to challenge her underlying tax liability. While the case was pending in Tax Court, the IRS credited Jennifer’s 2018 overpayment to 2010 which reduced Jennifer’s balance due to $0. The Tax Court then granted an IRS motion to dismiss because there was no longer an unpaid tax liability and therefore the case was moot. Jennifer filed an appeal.

The Court, in Zuch v. Commissioner, 97 F. 4th 81 (3d Cir. 2024), remanded the case back to the Tax Court to adjudicate whether Jennifer is entitled to receive credit for the estimated tax payments. The Court ruled that a live dispute as to an underlying tax liability does not become moot based upon payment of the unpaid tax. The Court reasoned that the IRS may not unilaterally oust the Tax Court from jurisdiction and take away a taxpayer’s protection from a CDP hearing.

The IRS disagreed with the decision of the Appeals Court and on January 10, 2025, the U.S. Supreme Court agreed to review the case.

The Zuch case reveals the excessive bureaucracy that taxpayers may confront in dealing with the IRS.