Tax Court Upholds IRS Levy Against Retired Air Force Officer
Sullivan v. Commissioner, T.C. Memo. 2025-92, No. 2589-24L., 2025 BL 304589, Court Opinion
On August 27, 2025, the U.S. Tax Court granted summary judgment in Sullivan v. Commissioner, T.C. Memo. 2025-92, upholding the IRS’s right to levy the 2016 tax liability of retired U.S. Air Force officer James D. Sullivan.
The court found no genuine dispute of material fact and ruled that Sullivan could not re-litigate issues already addressed in a prior Notice of Deficiency related to his unreported military retirement income.
Why It Matters
The decision reinforces that taxpayers who receive a Notice of Deficiency and fail to petition the Tax Court cannot later contest the underlying tax in a Collection Due Process (CDP) case. It also highlights the IRS’s authority to proceed with collection when taxpayers fail to propose viable payment alternatives.
Key Facts
Petitioner: James D. Sullivan, retired U.S. Air Force officer, residing in North Carolina.
Respondent: Commissioner of Internal Revenue.
Tax Year at Issue: 2016.
Unreported Income: $244,695 lump-sum military retirement payment from the Defense Finance and Accounting Service (DFAS) and $2,891 from State Street Retiree Services.
IRS Findings: Unreported income resulted in a deficiency of $71,042, a late payment penalty of $96, and an accuracy-related penalty of $14,208.
Penalties: The accuracy-related penalty was later abated because it had not been properly approved under §6751(b).
Collection Action: IRS issued a Notice of Intent to Levy after Sullivan failed to pay.
Petitioner’s Claims: Alleged the IRS acted in bad faith, claimed certain payments were non-taxable, and sought to reallocate his 2016 income across earlier years.
IRS Appeals: Settlement officer verified procedural compliance, denied frivolous claims, and found Sullivan had sufficient assets to pay in full.
Timeline
2017: Sullivan files 2016 return claiming refund but omits large portions of retirement income.
June 10, 2019: IRS issues Notice of Deficiency for $71,042.
2019: Sullivan does not petition Tax Court but disputes the deficiency by correspondence.
August 9, 2023: Submits amended returns for 2009–2016 to reallocate retirement income; later withdraws under threat of §6702 frivolous-filing penalties.
January 3, 2024: Appeals Office issues Notice of Determination sustaining levy.
February 13, 2024: Sullivan files Tax Court petition.
August 27, 2025: Tax Court grants IRS summary judgment.
Court Findings
No Genuine Dispute: Sullivan’s objection failed to show any material facts in dispute.
Preclusion of Liability Challenge: Having received and not petitioned the 2019 Notice of Deficiency, Sullivan was barred from re-litigating his 2016 tax liability under §6330(c)(2)(B).
Abuse of Discretion Review: Since the underlying liability was not at issue, the court reviewed for abuse of discretion and found none.
Procedural Verification: Settlement officer verified compliance with legal and administrative requirements, including correction of the unapproved accuracy-related penalty.
No Valid Collection Alternative: Sullivan claimed inability to pay but submitted financial information showing sufficient assets; he failed to propose any installment plan or alternative.
Frivolous Arguments: Court deemed Sullivan’s claims—such as asserting the DFAS income was non-taxable or that the deficiency notice was “null and void”—as meritless and not requiring further consideration.
Refund Claim: The record showed Sullivan acknowledged receiving a refund for 2016; no further credit was due.
Section 6673 Warning: The court declined to impose a penalty but cautioned that continued frivolous positions could trigger penalties up to $25,000 in future proceedings.
Judgment Details
Deficiency: $71,042 for 2016.
Penalty (failure to pay): $96.
Accuracy-related penalty: $14,208 (abated).
Total Liability: Assessed amount minus abated penalty; interest and statutory additions continuing to accrue.
Court’s Order: Levy sustained; IRS authorized to proceed with collection.
Penalty under §6673: Not imposed, but warning issued.
Outcome
The Tax Court entered judgment for the Commissioner, sustaining the proposed levy to collect Sullivan’s unpaid 2016 tax liability and closing the case.
The Takeaway
Taxpayers who receive a Notice of Deficiency must timely petition the Tax Court to preserve their right to dispute liability. Once the deficiency becomes final, challenges in later collection proceedings are barred, and the IRS can enforce payment unless a concrete alternative is proposed.
Citations
Sundstrand Corp. v. Commissioner, 98 T.C. 518 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994) – cited for summary judgment standards.
Naftel v. Commissioner, 85 T.C. 527 (1985) – cited on summary judgment principles.
Bond v. Commissioner, 100 T.C. 32 (1993) – referenced on evidence evaluation.
Sego v. Commissioner, 114 T.C. 604 (2000) – cited on limits to contesting underlying liability.
Goza v. Commissioner, 114 T.C. 176 (2000) – cited on preclusion in CDP hearings.
Giamelli v. Commissioner, 129 T.C. 107 (2007) – cited on scope of liability review.
Murphy v. Commissioner, 125 T.C. 301 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006) – cited for abuse of discretion standard.
Woodral v. Commissioner, 112 T.C. 19 (1999) – cited for abuse of discretion definition.
Leyshon v. Commissioner, T.C. Memo. 2015-104, aff’d, 649 F. App’x 299 (4th Cir. 2016) – cited on handling frivolous claims.
Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984) – cited for rejecting frivolous arguments.
Burnett v. Commissioner, T.C. Memo. 2018-204 – cited for frivolous position handling.
Huntress v. Commissioner, T.C. Memo. 2009-161 – cited for rejecting unsupported collection alternatives.
Prater v. Commissioner, T.C. Memo. 2007-241 – cited for similar principle.
Roman v. Commissioner, T.C. Memo. 2004-20 – cited on collection alternatives.
Wnuck v. Commissioner, 136 T.C. 498 (2011) – cited for §6673 penalty warning.
Each case supports procedural principles on summary judgment, CDP review, and frivolous filings that underpinned the court’s ruling.