Fifth Circuit: “Taxpayer” Means a Person Who Pays Tax

By James A. Beavers, J.D., LL.M., CPA, CGMA

The Fifth Circuit, reversing a district court, held that, based on the plain language of Sec. 7811, the nine-month statute of limitation on filing a suit for wrongful levy was tolled while the taxpayer had an application for a Taxpayer Assistance Order pending with the Taxpayer Advocate Service.


Kathryn Rothkamm (Rothkamm) was married to Chester Rothkamm. Chester owed the IRS back taxes. Rothkamm had over $70,000 on account at IberiaBank. The IRS, apparently feeling it would be generous of Rothkamm to make good on Chester's tax debts, issued a levy to IberiaBank for the funds in Rothkamm's account. On April 18, 2012, Iberia gave the full amount in the account to the IRS.

Less than two weeks later, on April 30, 2012, Rothkamm attempted to challenge the IRS's levy by filing an application for a Taxpayer Assistance Order (TAO) with the Taxpayer Advocate Service (TAS). On Oct. 11, 2012, having determined that it "was unable to provide any assistance to [Rothkamm]," the TAS "closed" her case.

Undaunted, on May 15, 2013, Rothkamm filed with the IRS an administrative claim for wrongful levy pursuant to Sec. 6343(b). The IRS denied Rothkamm's claim on July 1, 2013. Consequently, on Sept. 6, 2013, Rothkamm sued the IRS for wrongful levy in a federal district court, pursuant to Sec. 7426. The IRS moved to dismiss the case, claiming that the court did not have jurisdiction because the applicable nine-month statute of limitation for filing the suit under Sec. 6532 had passed when she filed her suit.

Rothkamm argued the statute of limitation had not run at that time because Sec. 7811(d) had tolled it during the time her application for a TAO had been pending. The IRS countered that Sec. 7811(d) did not toll the statute because it only applied to taxpayers and Rothkamm was not a taxpayer under any definition because she was not subject to a tax, and even if she were a taxpayer, she was not entitled to tolling because the suspensions of statute-of-limitation periods described in the statute are for IRS actions, not taxpayer actions.

The district court agreed with the IRS and dismissed Rothkamm's case with prejudice. Rothkamm appealed the decision to the Fifth Circuit.

The Fifth Circuit's Decision

The Fifth Circuit reversed the district court and held that Sec. 7811(d) tolled the statute of limitation during the pendency of Rothkamm's TAO application. The court concluded that the district court erred in determining the definition of "taxpayer" under Sec. 7811 by failing to consider the Code's generally applicable definition of the term in Sec. 7701 and further erred in its interpretation of Sec. 7811(d)'s tolling provision by failing to follow the plain language of the provision and the associated regulations.

The Fifth Circuit found that the Supreme Court had determined in Williams, 514 U.S. 527 (1995), that the default definition of taxpayer that is generally applicable to the entire Internal Revenue Code is the definition in Sec. 7701(a)(14), which states that "[t]he term 'taxpayer' means any person subject to any internal revenue tax." The Court interpreted this to include not only a person against whom a tax is assessed, but also a person who pays the tax. Because Congress has not modified Sec. 7701(a)(14) since Williams, the Fifth Circuit reasoned that the Supreme Court's interpretation of the statute in the case was still controlling.

The Fifth Circuit further found the statute governing TAOs, Sec. 7811, did not specifically express a more limited definition of taxpayer and the statute was not "manifestly incompatible" with Sec. 7701(a)(14)'s broad definition. Thus, the Sec. 7701(a)(14) definition should be used to determine if Rothkamm was a taxpayer for purposes of Sec. 7811, and, applying that definition, she was a taxpayer because she had paid Chester's tax liability through the levy.

Regarding whether Sec. 7811(d) only allowed tolling for IRS actions, the Fifth Circuit concluded that the district court had misinterpreted the plain language of Secs. 7811(d) and 7811(b) when read together. Sec. 7811(d) suspends "[t]he running of any period of limitation with respect to any action described in [Sec. 7811(b)]." According to the court, the language of Sec. 7811(b) indicated that an action included a suit for wrongful levy. Therefore, the statute of limitation for bringing a suit for wrongful levy was tolled during the pendency of an application for a TAO.

The court reasoned that this was the correct interpretation because it allowed a taxpayer to pursue a TAO without fear that doing so would prejudice his or her administrative or judicial rights if he or she did not get a TAO, and that tolling the statute for both the taxpayer and the IRS meant that neither side was worse off if a taxpayer applied for a TAO. The court cited several cases and ­secondary authorities that it found supported this interpretation of the coverage of Sec. 7811(d).


While on first reading the majority's decision in this case seems unimpeachable, one only need look at the dissent's opinion to see that quite possibly the plain language of the statute is not as clear as the majority would have one believe. The dissent argues persuasively that the majority ignored the normal rules of statutory construction and relied on a superficial and uncritical reading of Sec. 7811 in coming to the conclusion that a suit for wrongful levy was an action for purposes of Sec. 7811(d). The dissent claims that the majority basically was looking for an excuse to find in Rothkamm's favor, and while the majority, in creating a new tolling rule, was driven by the desire to achieve fairness, it did "the opposite by disrupting a carefully structured regime for the resolution of disputes between the IRS and property owners."

Rothkamm, No. 14-31164 (5th Cir. 9/21/15)   

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