Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
A Second Bite? The Availability of Section 1346(a)(1) as an Alternative Remedy to
Section 7426(a)(1) in EC Term of Years Trust v. United States
If the Service levies upon your property to satisfy the tax liabilities of another, what possible remedies do you have? You may certainly bring a wrongful levy action under section 7426(a)(1). Unfortunately, however, the statute of limitations for bringing such an action is generally only nine months. If you miss this deadline, is there another remedy available? Can you get a second bite at the apple?
In EC Term of Years Trust v. United States, the Court answered this question in the negative. The Court held that a possible alternative remedy, that of a refund action under section 1346(a)(1), was not available to a party who could have brought a wrongful levy action under section 7426(a)(1). The Court had granted certiorari in order to resolve a conflict among the circuits, and its decision affirmed that of the Fifth Circuit.This Note argues that a section 1346(a)(1) refund action should be available to a third party even though a section 7426(a)(1) wrongful levy action may have been available. In light of the Supreme Court’s decision, this Note argues that Congress should amend sections 1346 and 7426 to permit a third party to maintain a refund action even though a wrongful levy action was also available. In their relatively short opinions, the Fifth Circuit and Supreme Court did not give proper weight to certain counterarguments which this Note presents. In brief, the Supreme Court’s holding in Williams v. United States allows third parties to bring refund suits under section 1346(a)(1), and section 7426 did not impliedly repeal third party actions under section 1346(a)(1). Part I of this Note examines the statutory framework of sections 1346 and 7426 and summarizes the facts of EC Term of Years Trust. Part II summarizes the reasoning of the Fifth Circuit and the Supreme Court. Part III examines the argument that section 7426(a)(1) limits the availability of relief under section 1346(a)(1). Part IV concludes that section 1346(a)(1) should be an additional remedy for third parties and sections 1346(a)(1) and 7426(a)(1) should therefore be amended.