Hadsell v. United States of America, the Department of Treasury

Background

Christopher Hadsell claimed that he reported a $9,547 overpayment on his 2016 income-tax return and elected to have it applied to his 2017 tax liability. According to his allegations, the Internal Revenue Service (IRS) instead treated the amount as a refund subject to offset and did not notify him of that treatment until July 9, 2018. Hadsell also alleged that he paid $2,448 in healthcare tax for 2017 and asked the IRS to apply that payment to his 2018 tax liabilities, but that the IRS later used part of the amount for a 2017 debt and refunded the rest.

Hadsell asserted that the IRS’s failure to honor these credit elections violated 26 U.S.C. § 7433. That statute allows a taxpayer to seek damages when an IRS employee recklessly, intentionally, or negligently disregards the Internal Revenue Code in connection with collecting federal taxes, subject to statutory limits and administrative-exhaustion requirements. Hadsell sought $13,253.13, plus interest, fees, and costs. The opinion states that the court had previously granted the United States’s motion to dismiss Hadsell’s Federal Tort Claims Act claim for lack of subject-matter jurisdiction; the remaining claim was under § 7433.

Motion and legal framework

Hadsell moved for summary judgment. Summary judgment is a decision entered when there is no genuine dispute about a fact important to the outcome and the moving party is entitled to judgment under the law. Hadsell argued that the United States had no basis under 26 U.S.C. § 6402(c) to offset his credit-election funds and that the offsets were untimely.

Section 6402 addresses how tax overpayments may be credited or refunded and permits reductions for certain debts, including past-due child support. The United States maintained that the offsets were mandatory under § 6402(c). Hadsell argued that there was no evidence that California had properly notified the United States of certified past-due support. The court stated that any challenge to the validity of a support offset had to be brought against the relevant agency, rather than the IRS, and that 26 U.S.C. § 6402(g) generally bars federal courts from reviewing a reduction authorized under § 6402(c). The court also noted that Hadsell had not presented evidence showing that California failed to send a properly certified notice and acknowledged that he had not conducted discovery on that issue.

Court’s reasoning

The parties agreed that the IRS could allow or reject a taxpayer’s request to credit an overpayment against the following year’s tax liability and that an allowed credit election is binding. They disagreed about when the IRS had to make that decision. Hadsell argued that 26 U.S.C. §§ 6513(b)(2) and 6513(d), read with 26 U.S.C. § 6611(e)(1), required the IRS to accept or reject the election by the deadline for filing the succeeding year’s return. The United States argued that those provisions did not create that deadline and that the applicable statutes and regulations allowed the IRS time to assess the overpayment and apply required offsets.

The court was not persuaded that these provisions made a taxpayer’s credit election irrevocable and binding by the succeeding year’s filing deadline. It emphasized that § 6513(d) applies when an overpayment is claimed as a credit in accordance with § 6402(b), which authorizes the Secretary of the Treasury to issue regulations governing such credits. The regulations allow the IRS, within the applicable limitations period, to apply an overpayment to tax and non-tax debts—including past-due support—in a specified priority order before treating any remaining balance according to the taxpayer’s election. The court therefore concluded that Hadsell had not shown that he was entitled to judgment as a matter of law.

Disposition

The court denied Christopher Hadsell’s motion for summary judgment. Judge Virginia K. Demarchi signed the order. The opinion does not state a final disposition of Hadsell’s remaining § 7433 claim beyond denying this motion.