Scope of review in passport cases is de novo

The Tax Court held that its scope of review in a taxpayer’s challenge of a Sec. 7345 seriously delinquent tax debt certification is de novo, requiring its determination of whether the IRS’s certification is erroneous to be made on a new record at the court, including, if appropriate, evidence introduced at trial. The certification is made to the secretary of State for action with respect to denial, revocation, or limitation of the taxpayer’s passport.

Background

Alberto Garcia Jr. owed income taxes and trust fund employment taxes of over $100,000 that the IRS had assessed between 2007 and 2010. In January 2014, the IRS filed a suit in district court to reduce Garcia’s liabilities to judgment. In August 2014, the district court entered a default judgment against Garcia after he failed to appear in the suit (Garcia, No. 14–209 (S.D. Tex. 8/11/14)).

In October 2022, the IRS sent Garcia Notice CP508C, Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department, to his last known address at that time. In December 2022, Garcia timely filed a Tax Court petition challenging the IRS’s certification of the debt. In October 2023, the IRS filed a motion for summary judgment in the case.

After an initial hearing, Garcia and the IRS requested additional time to try to resolve the case. The court agreed to their request and denied the IRS’s initial motion to dismiss without prejudice to the Service’s renewing it. Garcia and the IRS were unable to reach a resolution, so the IRS filed a new motion to dismiss the case, and Garcia filed a response to it.

The parties’ arguments: For a federal tax liability to constitute a “seriously delinquent tax debt,” that liability must be “legally enforceable” as of the time of the IRS’s certification (Sec. 7345(b)(1)). A tax liability is not legally enforceable if the period of limitation for collecting it has expired (Sec. 6502(a)).

Ordinarily, a tax liability must be collected within 10 years of assessment (id). The IRS had assessed Garcia’s liabilities more than 10 years before it certified them in October 2022. Garcia, therefore, contended that the liabilities were no longer legally enforceable, making the IRS’s certification of them erroneous.

The IRS countered that an exception to the 10–year rule applied because Garcia’s tax liabilities were reduced to judgment in the 2014 district court suit. According to the IRS, under 28 U.S.C. Section 3201(c)(1), it had at least another 20 years from the date of the judgment to collect them (see Sec. 6502(a), flush language). Therefore, the IRS moved for summary judgment that the certification was not erroneous. In response to the IRS’s motion, Garcia argued that the judgment in the 2014 district court suit was void because he was never served in the suit.

Scope of review: To resolve the IRS’s motion, the Tax Court found that it was necessary to decide a question that it had not previously needed to answer in passport cases: What is the scope of the court’s review, or, in other words, on what evidence does the court determine whether the IRS’s certification that a seriously delinquent tax debt exists is correct?

The Tax Court’s decision

The Tax Court held that in a case involving a determination of whether the IRS’s certification of a seriously delinquent tax debt under Sec. 7345(a) is erroneous, the scope of review is de novo. Under this standard, the court’s determination of whether the IRS’s certification is erroneous is to be made not only on the administrative record but on a new record made at the court, which may include, as appropriate, evidence introduced at trial. The court based this holding on the text of Sec. 7345(e), read in view of the court’s precedents.

The Tax Court explained that under its precedent, the Administrative Procedure Act (APA) created norms for judicial review of agency action, and the general rule under the APA is that “review of an agency decision is limited to the administrative record” (Kasper, 150 T.C. 8, 14—15 (2018) (quoting Wilson, 705 F.3d 980, 991 (9th Cir. 2013)). However, the court noted that this is a default rule, and the APA’s general provisions do not supersede specific statutory provisions (id. at 15).

Sec. 7345 itself does not expressly set out the scope of review applicable to certifications under Sec. 7345(a). Thus, the Tax Court undertook a careful review of the text of Sec. 7345(e) and the court’s jurisdictional provisions in other types of cases for guidance on the proper scope of review in passport actions. In its opinion, it highlighted the reasoning behind its jurisdictional provisions for scope of review related to deficiency redeterminations, innocent–spouse relief, whistleblower actions, and Collection Due Process (CDP) cases.

Deficiency redeterminations: In proceedings to redetermine deficiencies brought under Sec. 6213, the Tax Court has jurisdiction to redetermine a deficiency proposed by the IRS and to determine overpayments. As the Tax Court observed, these determinations and redeterminations have always been made on a new record. The court stated, “In the deficiency context, instructions by Congress to ‘determine’ or ‘redetermine’ a deficiency created a ‘special statutory procedure’ related to the tax laws, in which the parties prepare a new record.”

Innocent–spouse relief: According to the Tax Court, when it initially decided whether it should review determinations of relief from joint–and–several liability on the administrative record, it paid particular attention to Congress’s use of the word “determine” in Sec. 6015. It found that the use of the word “determine” in Sec. 6015(e)(1)(A) suggested that Congress intended that it conduct trials de novo in making innocent–spouse relief determinations under Sec. 6015(f).

Whistleblower awards: In appeals of determinations by the IRS Whistleblower Office regarding whistleblower awards, the Tax Court reviews the determination on the administrative record. When deciding its scope of review in whistleblower award proceedings, the court has focused on Congress’s choice to use the word “appeal” rather than “determine” in Sec. 7623(b)(4), the provision that gives jurisdiction to the court (Kasper, at 17). Based on the use of the word “appeal” rather than the word “determine,” the court concluded the APA default rule should apply in these cases.

CDP cases: In CDP cases, the scope of review is not as clear–cut. The statute, Sec. 6330(d)(1), permits taxpayers to seek “review” of an administrative determination at the Tax Court. The court itself has previously held that it is not required to apply a limited scope of review and may accept evidence outside the administrative record in CDP cases. But the First, Eighth, and Ninth Circuits have concluded that, in CDP cases that are subject to an abuse–of–discretion standard, the court’s review is limited to the administrative record.

Determinations regarding Sec. 7345 seriously delinquent debt certifications

Sec. 7345(e)(1) authorizes the Tax Court “to determine whether the certification was erroneous or whether the [IRS] has failed to reverse the certification.” Under Sec. 7345(e)(2), if the court “determines that such certification was erroneous,” the court may issue certain orders to the Treasury secretary.

In view of the history with respect to the jurisdictional provisions it had discussed, the Tax Court reasoned that Congress’s choice of the word “determine” was dispositive of the question of the proper scope of review. It therefore considered “Congress’s choice to refer to [the Tax Court’s] task as ‘determin[ing] whether the certification was erroneous’ to mean that (where necessary) [the Tax Court] must make that determination based on a record developed in [the Tax Court], including (where appropriate) any evidence introduced at a trial, not simply the record available to the [IRS] during the administrative process.”

Reflections

As the Tax Court noted, in practical terms, its holding was narrow and unlikely to affect a great number of passport cases because in most passport cases, there is no need to look beyond the administrative record to resolve the issues in dispute.

The court also noted that the nature of the challenges that can be made in a passport action is limited and that, as it has repeatedly observed, it does not have jurisdiction to review the liabilities underlying the certification of a seriously delinquent tax debt. Its holding in Garcia’s case did not alter that conclusion, the court stated.

Garcia, 164 T.C. No. 8 (2025)

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