HR-6506-119
Received in the Senate and Read twice and referred to the Committee on Finance.
Sponsored by Nathaniel Moran (R-TX)
What it does
This bill would make three changes to how the IRS handles disputed tax collection cases. First, it would pause the clock on the deadline to file a tax refund claim while a Collection Due Process (CDP) hearing is ongoing, so taxpayers do not lose their right to a refund simply because the process takes time. Second, it would prohibit the IRS from using tax overpayments from other years to pay off a tax liability that is actively being disputed in a CDP proceeding, unless the taxpayer agrees or an exception applies. Third, it would expand the U.S. Tax Court's jurisdiction so it can hear disputes about the underlying amount of tax owed — not just the collection method — and retain that jurisdiction even if the IRS drops its collection action.
Who benefits
Taxpayers who are disputing IRS collection actions in CDP proceedings, particularly those who have overpaid taxes in other years and risk having those overpayments seized to satisfy a disputed liability. Tax attorneys and accountants whose clients navigate CDP proceedings. Taxpayers who previously lost Tax Court jurisdiction due to the Supreme Court's ruling in Commissioner v. Zuch and were forced into the more costly and burdensome federal district court process. Lower- and middle-income taxpayers who may lack resources to pursue refund claims in federal district court if the CDP process consumes the refund deadline.
Who is hurt
The IRS would lose a tool it currently uses to resolve disputed tax liabilities by applying overpayments, potentially slowing case resolution and increasing administrative workload. The U.S. Treasury may experience delayed collection of legitimately owed taxes during extended CDP proceedings. Taxpayers with frivolous or weak disputes could use the new protections to delay payment longer. Federal courts may see a shift in caseload as more disputes are resolved in Tax Court rather than federal district court, though this is a reallocation rather than a net increase.
Supporters argue
Supporters argue that the Supreme Court's ruling in Commissioner v. Zuch created an unfair procedural trap: the IRS could effectively strip taxpayers of Tax Court jurisdiction — and their refund rights — simply by applying an overpayment to a disputed liability, forcing them into the more expensive and complex federal district court system. They contend that suspending the refund limitations period and prohibiting involuntary offset during CDP proceedings restores the basic fairness that Congress intended when it created the CDP process in 1998, ensuring taxpayers can fully exercise their dispute rights without a ticking clock undermining their legal position.
Opponents argue
Opponents argue that prohibiting the IRS from applying overpayments to disputed liabilities during CDP proceedings could allow taxpayers — particularly those with weak cases — to hold onto money they legitimately owe for extended periods, reducing timely tax collection and shifting costs to compliant taxpayers. They contend that expanding Tax Court jurisdiction and suspending refund deadlines adds procedural complexity that may increase litigation, slow case resolution, and strain Tax Court resources, and that the existing federal district court pathway, while less convenient, already provides an adequate remedy for taxpayers whose CDP cases are resolved through offset.
Constitutional context
No significant constitutional tension is raised by this bill. Congress has broad authority under the Taxing and Spending Clause (Art. I, §8, cl. 1) to define the procedures and jurisdiction of federal courts it creates, including the Tax Court. The Due Process Clause of the Fifth Amendment is relevant background — the bill responds directly to a procedural gap that could deprive taxpayers of a meaningful opportunity to contest their liability — but the bill does not itself raise novel constitutional questions.
Checks and balances
Congress would expand Tax Court jurisdiction and restrict IRS administrative authority; the IRS retains enforcement power subject to the new procedural limits; federal courts retain oversight through judicial review of Tax Court decisions.
Historical precedent
The Restructuring and Reform Act of 1998 originally created the Collection Due Process framework to give taxpayers the right to a hearing before IRS collection actions, establishing the procedural system this bill modifies.