Ward Franklin Dean v. United States (2021, 11th Circuit)

The case addressing whether the IRS can levy Social Security benefits to collect unpaid federal taxes is Ward Franklin Dean v. United States (2021, 11th Circuit).

Summary of the Case and Legal Issues

Background:
Ward Dean, a taxpayer, owed substantial federal income tax and penalties for several years. The IRS assessed these liabilities, notified Dean, and warned that enforced collection would occur if he did not pay. Dean made some payments but did not satisfy the debt. In 2013, the IRS served a notice of levy on the Social Security Administration (SSA), seizing Dean’s entire Social Security benefit. The notice stated the levy would remain in effect for future benefit and retirement income until released by the IRS.

Dean’s Claims:
Dean argued that after the ten-year statutory collection period expired (per 26 U.S.C. § 6502(a)), and after the IRS released its tax liens, the IRS could no longer lawfully collect his Social Security benefits. He claimed the IRS’s continued collection after the expiration of the collection period was unlawful and sought damages under 26 U.S.C. § 7433.

Legal Analysis and Court’s Reasoning:

• IRS Authority to Levy Social Security Benefits:
  The Internal Revenue Code (IRC) allows the IRS to collect unpaid taxes by levy on “all property and rights to property” of the taxpayer, except property specifically exempted (26 U.S.C. § 6331(a)). Social Security benefits are not exempt from levy under 26 U.S.C. § 6334(a), except for a limited minimum exemption.
• Continuing Levy and Statute of Limitations:
  The IRS generally must collect tax by levy or court proceeding within ten years after assessment (26 U.S.C. § 6502(a)(1)). Treasury regulations require that a levy made outside the statutory collection period must be released, and a continuing levy on salary or wages must be released at the end of the ten-year period (26 C.F.R. § 301.6343-1(b)(1)(i)).
  However, a key exception exists: if the IRS levies on a “fixed and determinable right to payment” (such as Social Security benefits) before the collection period expires, the levy remains effective even after the period expires, and the IRS is not required to release it unless the liability is satisfied (26 C.F.R. § 301.6343-1(b)(1)(ii)).
• Court’s Holding:
  The Eleventh Circuit held that the IRS’s 2013 levy on Dean’s Social Security benefits was a one-time levy that seized his entire right to future payments. Because the levy was made before the expiration of the collection period, the IRS was not required to relinquish the right to collect those benefits after the period expired. The continued collection of monthly Social Security payments by the IRS after the expiration of the collection period was lawful under the regulations.
• Result:
  The court affirmed the dismissal of Dean’s complaint, finding that the IRS did not act unlawfully in continuing to collect his Social Security benefits under the pre-expiration levy. The court also rejected Dean’s claims for damages and for a refund, as he had not paid the full assessed tax, which is a jurisdictional prerequisite for a refund suit.

Key Legal Takeaways

1. IRS can levy Social Security benefits to collect unpaid federal taxes.
2. If the IRS levies on a taxpayer’s fixed right to future payments (like Social Security) before the ten-year collection period expires, the levy remains effective after the period expires until the liability is satisfied.
3. The continued collection of Social Security benefits under such a levy is lawful, even after the expiration of the collection statute of limitations.
4. A taxpayer cannot recover damages under § 7433 for such continued collection, nor can they seek a refund unless the full amount assessed has been paid.

This case confirms the IRS’s authority to use a continuing levy on Social Security benefits for tax collection, provided the levy was initiated within the statutory collection period.