Fourth Circuit Joins Second and Third in Holding Innocent Spouse Suit Filing Deadline Jurisdictional

We welcome frequent guest blogger Carl Smith back to the blog. Today he writes about our most recent loss in our effort to knock down jurisdictional walls in situations where taxpayers have a strong equitable reason for missing a court deadline. Keith

In a case litigated by the Harvard Federal Tax Clinic, the Fourth Circuit in Nauflett v. Commissioner, affirmed, in a published opinion, two unpublished orders of the Tax Court (found here and here) holding that the 90-day period in section 6015(e) in which to file a Tax Court innocent spouse petition is jurisdictional and not subject to equitable tolling. The Fourth Circuit thus joins the two other Circuits to have addressed these questions – in other cases litigated by the clinic – Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017) (on which we blogged here) and Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017) (on which we blogged here).

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In all three cases, the IRS misled a pro se taxpayer into filing a late Tax Court petition.

The Nauflett opinion basically just follows what was said by those prior Circuits, finding in the words of the statute a clear statement that excepts this filing deadline from the current Supreme Court general rule that filing deadlines are no longer jurisdictional. Section 6015(e) provides that an “individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section if the petition is filed” within 90 days of the issuance of a notice of determination (or after the taxpayer’s request for relief hasn’t been ruled on for 6 months). The Fourth Circuit noted the word “jurisdiction” in the sentence creating the filing deadline and felt that the word “if” in the sentence conditioned the Tax Court’s jurisdiction on timely filing. The court did not think the fact that the word “jurisdiction” was in a parenthetical mattered, and it did not credit (or even discuss) the taxpayer’s argument that the word “jurisdiction” was arguably addressed only to the words immediately following the parenthetical (“to determine the appropriate relief available to the individual under this section”), which made the sentence ambiguous – i.e., not “clear”, as required for a Supreme Court exception to apply. As we have noted previously, jurisdictional filing deadlines can never be subject to equitable tolling or estoppel.

Observations

All three opinions omit discussion the clinic’s assertion that Congress, in drafting section 6015(e) in 1998, would likely have been shocked to hear that its language precluded equitable tolling, since section 6015 was an equitable provision enacted as section 3201 of the IRS Restructuring and Reform Act of 1998 and was explicitly paired with section 3202, which amended section 6511 to add subsection (h), providing for equitable tolling of the tax refund claim filing deadline in cases of financial disability. The latter provision was to overrule United States v. Brockamp, 519 U.S. 347 (1997), which held that the refund claim filing deadline could not be equitably tolled. Section 6015(e) was drafted in 1998 with none of the features that led the Brockamp court to reject judicial equitable tolling of the refund claim filing period.

I hope this third loss on the section 6015(e) issue can at least be of use in lobbying Congress for Nina Olson’s proposed legislative fix to make the filing deadlines for all tax suits not jurisdictional and subject to equitable tolling. For her proposal, see the link in our blog here.

Keith and I have no further cases to litigate on this section 6015(e) filing deadline. We cry “uncle” on section 6015(e)’s filing deadline.

However, only as amici, we are still litigating the jurisdictional nature of several other judicial tax filing deadlines:

  1. Section 6213(a) (the Tax Court deficiency suit filing deadline, in the Ninth Circuit related cases of Organic Cannabis Foundation v. Commissioner, Docket No. 17-72874, and Northern California Small Business Assistants v. Commissioner, Docket No. 17-72877 – both reviewing unpublished orders of the Tax Court dismissing allegedly-late petitions for lack of jurisdiction);
  2. Section 6532(a) (the district court refund suit filing deadline, in the Second Circuit case of Pfizer Inc. v. United States, Docket No. 17-2307 – reviewing unpublished orders of the district court for the Southern District of New York that dismissed an allegedly-late complaint for lack of jurisdiction); and
  3. Section 7623(b)(4) (the Tax Court whistleblower award deadline in the D.C. Circuit case of Myers v. Commissioner, Docket No. 18-1003 – reviewing the ruling in Myers v. Commissioner, 148 T.C. No. 20 (June 5, 2017), dismissing a late petition for lack of jurisdiction (on which we blogged here).

All of those cases present statutes that are easier for us to win under than section 6015(e) (the hardest). We are expecting a ruling in Pfizer any moment, since it was argued on February 13. But, it is possible in each of these cases that the court will affirm or reverse on some other ground, so that the jurisdictional issue is not reached.

Finally, I wish to thank Harvard Law student Allison Bray for her excellent oral argument in the Nauflett case. Nauflett’s was the third court of appeals oral argument done by a Harvard Law student in the last 14 months. Hear Allison’s oral argument here. Prior to Allison, two other tax clinic students argued similar cases.  Hear Amy Feinberg’s oral argument to the 4th Circuit regarding jurisdiction in the CDP context here. Hear Jeff Zink’s argument to the 2nd Circuit in Matuszak regarding section 6015 jurisdiction here.

Fourth Circuit Declines to Rule on Whether CDP Filing Period is Jurisdictional, but Holds Against Taxpayer, Since It Says Facts Do Not Justify Equitable Tolling

We welcome back frequent guest blogger Carl Smith who discusses the most recent circuit court opinion regarding the jurisdictional nature of the time frames for filing a petition in Tax Court. The Fourth Circuit takes a different tack but reaches the same result as prior cases. Keith 

A few days ago, I did a post on the Ninth Circuit opinion in Duggan v. Commissioner, 2018 U.S. App. LEXIS 886 (9th Cir. 1/12/18). In Duggan, a pro se taxpayer mailed a Collection Due Process (CDP) petition to the Tax Court one day late, relying on language in the notice of determination that stated that the 30-day period to file a petition did not start until the day after the notice of determination. He read this to mean that he had 31 days to file after the date of the notice of determination. Keith and I filed an amicus brief in Duggan arguing that (1) the filing deadline in section 6330(d)(1) is not jurisdictional, (2) the deadline is subject to equitable tolling, and (3) in light of the fact that 7 other pro se taxpayers over the last 2 ½ years read the notice the same way, the IRS misled the taxpayer into filing a day late – justifying equitable tolling on these facts to make the filing timely. In Duggan, the Ninth Circuit did not have to reach the second or third arguments, since it held that the language of section 6330(d)(1) made its filing deadline jurisdictional under a “clear statement” exception to the Supreme Court’s usual rule (since 2004) that filing deadlines are no longer jurisdictional. Thus, the Ninth Circuit affirmed the Tax Court’s dismissal of the case for lack of jurisdiction – a dismissal that had originally been done in an unpublished order.

Keith and I represented a formerly-pro se taxpayer in the Fourth Circuit who had a case on all fours with Duggan, Cunningham v. Commissioner. In another unpublished Tax Court order, she also had her CDP petition dismissed for lack of jurisdiction as untimely. Like the Ninth Circuit, the Fourth Circuit had no precedent on whether the CDP filing deadline is jurisdictional or subject to equitable tolling. Only days after the Ninth Circuit’s published opinion in Duggan, the Fourth Circuit, on January 18, 2018, issued an unpublished opinion in Cunningham affirming the Tax Court. But, the Fourth Circuit avoided the tricky issues of whether the filing deadline is jurisdictional or whether it might be subject to equitable tolling in an appropriate case. Instead, the Fourth Circuit held that Ms. Cunningham has misread a clear notice of determination and that her mere error was not a fact sufficient to sustain a holding of equitable tolling, even assuming (without deciding) that the filing deadline might be nonjurisdictional and might be subject to equitable tolling in an appropriate case.

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The opinions in Duggan and Cunningham do not mention the significant number of pro se taxpayers who have recently read the notice of determination filing period language differently, although the Cunningham opinion acknowledges that “other taxpayers” (number unspecified) have read the language like Ms. Cunningham.

The key passage in the Cunningham opinion states:

We have said that equitable tolling is appropriate “in those rare instances where—due to circumstances external to the party’s own conduct—it would be unconscionable to enforce the limitation period against the party and gross injustice would result.” Whiteside v. United States, 775 F.3d 180, 184 (4th Cir. 2014) (en banc) (internal quotation marks omitted).

We find these considerations to be wholly absent here. There is no suggestion of extraordinary circumstances that prevented Cunningham from timely filing her appeal, nor of circumstances external to her own conduct. Cunningham simply points to the language in the IRS’s letter, which she claims is misleading and tricked her and other taxpayers into filing late. But we see nothing misleading about it.

The letter informed Cunningham that she had “a 30-day period beginning the day after the date of this letter” to file an appeal. J.A. 5. We think the only reasonable reading of that language requires counting the day after the date of the letter (here, May 17) as “day one,” the following day (May 18) as “day two,” and so on up to “day thirty”—June 15. Cunningham claims she understood the language in the IRS letter to essentially count May 17 as “day zero,” and onward from there, resulting in a cutoff date one day later than the true deadline. Such a method of counting is certainly contrary to the practice set forth in Rule 25(a) of the Tax Court Rules of Practice and Procedure. See United States v. Sosa, 364 F.3d 507, 512 (4th Cir. 2004) (“[I]gnorance of the law is not a basis for equitable tolling.”). We think it is also contrary to the plain language of the IRS letter and to principles of common sense.2

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2Cunningham also points out (correctly) that the language in the letter is not identical to the language in the statute. But it need not be, and Cunningham fails to explain why the difference in wording matters. In our view, the language of the letter and the language of the statute are two commonsense ways of expressing the same message.

 

After the Duggan opinion was issued, the DOJ filed a FRAP 28(j) letter in the Fourth Circuit to alert the latter court to the ruling of the former. But, pointedly, the Fourth Circuit in Cunningham does not mention Duggan, even for contrast.

Since there is no Circuit split between Duggan and Cunningham (just different reasoning for affirming the Tax Court’s dismissals), it is almost certain that the Supreme Court would never grant cert. to review either of these opinions. Thus, no cert. petitions will be filed.

Keith and I want to thank Harvard Law student Amy Feinberg, who did the oral argument in Cunningham before the Fourth Circuit on December 5, 2017.

Keith and I also represent in the Fourth Circuit another formerly-pro se taxpayer who filed her Tax Court petition late. In the case of Nauflett v. Commissioner, Fourth Circuit Docket No. 17-1986, however, the notice of determination was issued under the innocent spouse provisions, and the language governing her filing deadline is contained in section 6015(e)(1)(A). In Ms. Nauflett’s case, there is a better argument for equitable tolling because (1) notes of a TAS employee clearly show that, prior to the last date to file (a date also not shown on the innocent spouse notice of determination), that TAS employee told Ms. Nauflett the wrong last date to file, on which she relied, and (2) Ms. Nauflett alleges by affidavit that the IRS CCISO employee who actually issued the notice of determination also told Ms. Nauflett (over the telephone) the identical wrong last date to file. The Tax Court, in an unpublished order, dismissed Ms. Nauflett’s petition for lack of jurisdiction as untimely. We are arguing in the case that, under recent Supreme Court case law, the innocent spouse filing period is not jurisdictional and is subject to equitable tolling, and the facts in her case justify equitable tolling. It may be harder for the Fourth Circuit to avoid issuing a ruling in Nauflett on whether or not the filing period is jurisdictional or subject, theoretically, to equitable tolling in the right case. Nauflett is fully briefed. It is not yet clear whether or when oral argument will be scheduled in the case.

Nauflett will no doubt be another uphill battle for Keith and me, however, since last year, two Circuits, in two other cases where we represented the taxpayers, held that the filing deadline in section 6015(e)(1)(A) is jurisdictional under current Supreme Court case law. Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017).

Despite recent setbacks in court, I do not consider Keith and my litigation of the nature of tax suit filing deadlines under current Supreme Court case law to be a waste of time. Clearly, although we have not (yet) convinced any Circuit court to find the innocent spouse or CDP Tax Court petition filing deadline not to be jurisdictional, we have highlighted problems in those areas that have led Nina Olson to propose two legislative fixes.

Further, there is a much better case under current Supreme Court case law for finding district court filing deadlines under section 6532 nonjurisdictional and subject to equitable exceptions like tolling or estoppel. As an amicus in Volpicelli v. Commissioner, 777 F.3d 1042 (9th Cir. 2015), I helped persuade the Ninth Circuit to hold that the period in section 6532(c) in which to file a district court wrongful levy suit is nonjurisdictional and subject to equitable tolling. And, if the court reaches the issue, Keith and I hope, as amicus, to help persuade the Second Circuit to hold that the 2-year period in section 6532(a) in which to file a district court refund suit is nonjurisdictional and subject to estoppel. In both section 6532 instances, by contrast to sections 6015(e)(1)(A) and 6330(d)(1), the sentence containing the filing deadline does not also contain the word “jurisdiction”, and the jurisdictional grants to hear such suits are far away (in 28 U.S.C. section 1346) – key factors under current Supreme Court case law demonstrating that filing deadlines are not jurisdictional. As I noted in my post on Duggan, the jurisdictional and estoppel issues under section 6532(a) are among the issues presented in Pfizer v. United States, Second Circuit Docket No. 17-2307, where oral argument is scheduled for February 13.

 

Ninth Circuit Holds Period to File Tax Court Collection Due Process Petition Jurisdictional Under Current Supreme Court Case Law Usually Treating Filing Deadlines as Nonjurisdictional

This will be a very brief post. Today, subsequent to my post on the NTA Report calling for certain legislative fixes, the Ninth Circuit held, in a published opinion in Duggan v. Commissioner, that the 30-day period in section 6330(d) to file a Tax Court Collection Due Process petition is jurisdictional and not subject to equitable tolling under the Supreme Court’s post-2004 case law that generally excludes filing deadlines from jurisdictional status. The Ninth Circuit relied on an exception to the current Supreme Court rule that applies where Congress clearly states that the time period is jurisdictional, although the court admits that language Keith and I suggested in our amicus brief in the case might be clearer. The Ninth Circuit noted that the jurisdictional grant for the Tax Court suit was in the same sentence that set out the filing deadline. We have blogged before on Duggan here. In essence, the Ninth Circuit in Duggan adopts the position that the Tax Court adopted in Guralnik v. Commissioner, 146 T.C. 230 (2016) (where Keith and I filed an amicus brief making the same arguments that were rejected in Duggan).

Mr. Duggan was one of at least eight taxpayers over the last two years who have been misled into filing his or her Tax Court Collection Due Process petition one day late because of confusing language in the current notice of determination – a notice that does not show the last date to file.

The Duggan opinion is not the first court of appeals opinion to hold that Collection Due Process petition filing period jurisdictional. However, it is the first such court of appeals opinion that has considered the interaction of the Supreme Court’s current rules on the usual nonjurisdictional nature of most filing periods with the statutory language in section 6330(d)(1).

As I noted in my post on the NTA report from earlier today, Keith and I are imminently awaiting an opinion from the Fourth Circuit in Cunningham v. Commissioner, 4th Cir. Docket No. 17-1433 (oral argument held on Dec. 5, 2017; the Harvard Federal Tax Clinic is counsel for the taxpayer). Cunningham is on all fours with the facts and legal arguments presented in Duggan. She also argues that she was misled by the IRS through confusing language in the Collection Due Process notice of determination into mailing her Tax Court petitions to the court a day late. Like Duggan, she seeks equitable tolling to make her filing timely.

NTA Calls for Making Judicial Tax Case Filing Deadlines Subject to Forfeiture, Waiver, Estoppel, and Equitable Tolling

We welcome back frequent guest blogger Carl Smith who comments on a portion of the NTA’s recently released annual report relating to the issue of equitable tolling and adequate provision of information to taxpayers facing court filing deadlines.  The Ninth Circuit ruled this morning on this issue in the Duggan case linked below and found IRC 6330 jurisdictional.  More later. Keith

In her annual report to Congress dated December 31, 2017, National Taxpayer Advocate Nina Olson has made two legislative proposals that will, if enacted, address problems that Keith and I have faced in some cases that were are litigating or have recently litigated in the courts of appeals. These cases have been the subject of a number of posts on PT. Thus, even if we never win any of these cases (and we make no promises on that score), at least we may have provoked discussion of legislative fixes.

Among problems that have come up in these cases are ones that flow from the courts’ view that all filing deadlines in the Tax Court are jurisdictional and therefore not subject to the judicial doctrines of forfeiture, waiver, estoppel, and equitable tolling – doctrines that are often applicable to nonjurisdictional statutes of limitations in suits (1) between private parties and (2) outside the tax area, brought against the federal government in such areas of law as Social Security disability benefits, employment discrimination, tort claims, and veterans benefits. The NTA notes that, unlike with the Tax Court, the appellate courts have been divided over whether those doctrines apply to tax case filings in the district courts and the Court of Federal Claims. The NTA has recommended that the Code be amended to provide that all of these tax case judicial filing deadlines be made nonjurisdictional and subject to those doctrines. The portion of her report on this proposal can be found here.

Also, along similar lines, the NTA is recommending a legislative change to require the IRS to show the last date to file any Tax Court petition on all Collection Due Process and innocent spouse notices of determination – just as the IRS has been required (since 1998) to show the last date to file on all notices of deficiency. She would have Congress also amend the Code to state that taxpayers may rely on the last date to file shown in the notice, even if the IRS has given the wrong last date – the same rule (added in 1998) under section 6213(a) applicable to notices of deficiency that show the wrong last date. As part of this proposal, she would also ask Congress to allow persons out of the country an additional 60 days to file Tax Court Collection Due process and innocent spouse petitions. The portion of her report on this proposal can be found here.

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I had thought about extending this post to list all the various cases that Keith and I have litigated or are litigating in this area, but have decided that it makes more sense simply to report on the court rulings when they come down. I will, however, note that we are imminently awaiting rulings in the following three cases:

Duggan v. Commissioner, 9th Cir. Docket No. 15-73819   (submitted without oral argument on Dec. 7, 2017; the Harvard Federal Tax Clinic is amicus), and Cunningham v. Commissioner, 4th Cir. Docket No. 17-1433 (oral argument held on Dec. 5, 2017; the Harvard Federal Tax Clinic is counsel for the taxpayer). In both of these cases, the taxpayers argue that they were misled by the IRS through confusing language in the Collection Due Process notice of determination into mailing their Tax Court petitions to the court a day late. They seek equitable tolling to make their filings timely.

Pfizer v. United States, 2d Cir. Docket No. 17-2307 (oral argument to be held on Feb. 13, 2018; the Harvard Federal Tax Clinic is amicus). There, the IRS issued a notice of disallowance of a claim for overpayment interest under section 6611and told the taxpayer it had 6 years to bring suit on the claim in the district court (under 28 U.S.C. section 2401(a)) or the Court of Federal Claims (under 28 U.S.C. section 2501). That is the position that the IRS has long taken as to the statutes of limitations applicable to overpayment interest suits. See Rev. Rul. 56-506, 1956-2 C.B. 959. When the taxpayer brought suit in the SDNY about 3 years later, the DOJ moved to dismiss the suit for lack of jurisdiction as untimely, arguing that the applicable statute of limitations is the 2-year one of I.R.C. section 6532(a). The taxpayer argues that the applicable statute of limitations is the 6-year one, but if the 2-year statute applies, then that 2-year period is nonjurisdictional and subject to estoppel. The taxpayer points to Miller v. United States, 500 F.2d 1007 (2d Cir. 1974), which held that the 2-year period of section 6532(a) is subject to estoppel. Miller is in conflict with Federal Circuit case law holding that the 2-year period is jurisdictional and not subject to estoppel. See, e.g., RHI Holdings, Inc. v. United States, 142 F.3d 1459 (Fed. Cir. 1998).

 

The Idea of Equitable Tolling in Collection Due Process Request is Gaining Traction

Today we welcome guest blogger Samantha Galvin from the University of Denver. Professor Galvin is one of the four writers of our feature on designated orders published by the Tax Court. During the week she was “on” for the designated orders, the Court issued an which deserved its own post, and she took on that task. In the cases discussed below, the Tax Court reverses course and mitigates a somewhat harsh result that can occur when a taxpayer sends the CDP request to the wrong place within the IRS. The IRS has taken the position that if the taxpayer sends the CDP request to the wrong office, the taxpayer loses their right to a CDP hearing if the request does not find its way to the proper office within the 30 day time period allowed for making such a request. This rule has tripped up a number of pro se and represented taxpayers and becomes even harder to meet when the IRS gives wrong information. One issue raised by the cases Professor Galvin writes about today is whether these decisions represent a crack in the door regarding equitable tolling. Keith 

In the last couple of months, two designated orders have come out that suggest an unstated, equitable tolling exception may exist when it comes to collection due process (CDP) hearings requested pursuant to sections 6330 and 6320(a). The two most recent designated orders are Tarig Gabr v. C.I.R., Docket No: 24991-15 L (order here) and Taylor v. C.I.R., Docket No: 3043-17 L (order here). This issue has previously been covered in PT posts by Carl Smith most recently here and here.

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Typically, a taxpayer, or his or her representative, must request a collection due process hearing to the appropriate IRS office within 30 days from receiving either a “Final Notice of Intent to Levy” (LT 11) or a “Notice of Intent to File a Lien and Your Right to Request a Hearing” (Letter 3172).

The designated orders involve taxpayers who sent CDP requests within the 30-day period, but to the wrong IRS offices. The requests were not received by the correct offices until after the 30-day deadline. As a result, the IRS denied the taxpayers a right to a CDP hearing and instead granted them an equivalent hearing. If a request is not timely as to the 30-day deadline, but sent within one year a taxpayer is entitled to an equivalent hearing. An equivalent hearing provides a forum with IRS Appeals similar to a CDP hearing, however, it does not provide the same protection from collection or allow for judicial review.

The IRS and Tax Court’s position has generally been that the 30-day deadline is jurisdictional, which means it cannot be subject to equitable tolling. If it is instead a claim-processing rule, then there is an argument to be made that equitable tolling may apply in some cases.

The door to make this argument was opened by the Supreme Court in the context of veterans’ affairs related claims. In Irwin v. Department of Veteran’s Affairs, 498 U.S. 89 (1990), the Supreme Court held that a rebuttable presumption of equitable tolling should apply to suits against the United States, unless Congress clearly intends otherwise.

As to the question of whether the 30-day deadline is jurisdictional, in Henderson v. Shineski, 131 S. Ct. 1197 (2011), the Supreme Court urged courts to discontinue using the word “jurisdiction” for claim-processing rules, stating that the conditions that accompany the jurisdiction label should be reserved for rules that govern a court’s adjudicatory capacity such as subject-matter or personal jurisdiction. The Supreme Court acknowledged that it must look to Congress’ intent for a clear indication that a deadline is intended to carry harsh jurisdictional consequences before deciding whether equitable tolling should apply.

There have not been any Tax Court cases that decide whether equitable tolling should apply to collection due process requests, but in the recent designated orders the Tax Court rejects respondent’s argument that the Court lacks jurisdiction when a collection due process hearing request is filed within 30 days but sent to the wrong IRS office. According to respondent, this contradicts sections 7502 and 7503 which are used to determine timeliness only if a request is properly transmitted pursuant to Treas. Reg. sections 1.301.6320-1(c)(2) Q&A C-6 and Q&A C-4. In other words, respondent argues timeliness is only met when a request is sent within 30 days to the office where the request is required to be filed.

In Gabr, the taxpayer’s representative allegedly received erroneous instructions from an IRS employee and faxed the CDP request to the wrong office. In determining whether to grant or deny respondent’s motion to dismiss for lack of jurisdiction, the Tax Court acknowledged guidance from the Internal Revenue Manual section 5.9.8.4.2(8) that provides that if a taxpayer receives erroneous instructions from an IRS employee resulting in the request being sent to the wrong office then the postmark date for when the request was sent to the wrong office is used to determine timeliness.

In Taylor, however, there were no erroneous instructions given, rather the representative sent the request to a local office, instead of the office listed on the notice. Respondent relies on cases dealing with tax return filing and the assessment statute, bankruptcy, and foreclosure and lien withdrawal to argue that the CDP request cannot be equitably tolled. Respondent also relies on Gafford v. Commissioner, T.C. Memo 16-40, citing Andre v. Commissioner, 127 T.C. 68 (2006), where the Court held that requiring taxpayers to follow claim-processing rules creates procedural consistency in effectively and efficiently processing such requests. But Andre is distinguishable from Gabr and Taylor, because Andre dealt with a request that was sent to an incorrect address prematurely, prior to the issuance of an LT 11 or Letter 3172.

In Taylor, the Tax Court was not convinced by any of respondents’ arguments since it denied respondent’s motion to dismiss for lack of jurisdiction and stated that respondent did not demonstrate sufficient prejudice to enforce strict compliance with the Treasury Regulations on the matter.

Does this mean these cases will result in decisions that can be relied upon to argue that the 30-day deadline can be equitably tolled for CDP requests in certain circumstances? So far, no. In Gabr, respondent conceded the case so the final decision issued by the Court did not speak on the issue. We will have to wait and see what happens in Taylor, but at the very least these designated orders suggest the Court is open to entertaining the argument.

WARNING: In Guralnik v. Commissioner, 146 T.C. 230, 235-238 (2016), the Tax Court held, en banc, that the different 30-day period in section 6330(d)(1) to file a Tax Court petition after a CDP notice of determination is issued is jurisdictional and not subject to equitable tolling under current Supreme Court case law. But the sentence containing the 30-day period in section 6330(d)(1) explicitly contains the word “jurisdiction”, while the 30-day periods in subsections (a)(3)(B) of section 6320 and 6330 do not. Keith and Carl Smith are in the midst of litigating whether the Tax Court’s position in Guralnik is correct in both Cunningham v. Commissioner, Fourth Circuit Docket No. 17-1433, and Duggan v. Commissioner, Ninth Circuit Docket No. 15-73819 (both cases where taxpayers mailed off their petitions a day late, but argue that they were misled by the language of the notice of determination that appeared to give them 31 days to file courting from the day of the notice of determination). Oral argument happened in Cunningham on December 5, and you can hear the argument here. (Harvard Federal Tax Clinic student Amy Feinberg argued the case for Ms. Cunningham.) Whichever way the Cunningham case comes out, it is clear that the judges there were giving Keith’s and Carl’s argument a serious hearing and not dismissing it lightly. The Duggan case was submitted without oral argument on December 7.

 

Collection Due Process Determination Letter Continues to Mislead Taxpayers into Filing Their Tax Court Petition Too Late

The Harvard Tax Clinic is litigating the issue of the Tax Court’s jurisdiction to hear cases filed late. The Tax Court has soundly rejected our arguments that it has jurisdiction to hear Collection Due Process (CDP), discussed here, and Innocent Spouse (IS) cases, discussed here, filed after the respective 30 and 90 day periods following the issuance of the determination letters to the taxpayers. Not only has the Tax Court rejected our arguments, but the 2nd and 3rd Circuits have agreed with the Tax Court with respect to the IS statute. We expect to argue about the CDP statute in the 4th and 9th Circuits later this fall.

In the CDP cases, the issue concerns situations in which the taxpayers filed one day late relying on the language of the determination letter explaining to them the time within which they needed to file a Tax Court petition. In each case, the taxpayer filed on the 31st day and in each case, in responding to the motion to dismiss filed by the IRS, the taxpayer explained why they felt their petition was timely. In the Cunningham case cited below, Chief Judge Marvel described Ms. Cunningham’s interpretation of the notice as novel, and so it may seem to lawyers trained to read the type of language used in the determination letter, but after eight cases in a little over two years, the novelty has worn off and it has become clear that the language is misleading people on a regular basis. (One of the eight cases involves a pro se petitioner who is a lawyer. So, it is not only lay people who have found the language confusing.)

We blogged about this problem in a post on March 24, 2016, at a time when only three pro se taxpayers had been misled since mid-2015. See here http://procedurallytaxing.com/cdp-notice-of-determination-sentence-causing-late-pro-se-petitions/. In effect, this is an update post because five more pro se taxpayers have been misled since our last post. We have never gone back to look for orders before mid-2015 in which similar dismissals may have happened, so the figure of eight pro se taxpayers misled may actually severely understate the problem that has existed since, probably, 2006 or 2007, when the notice of determination was redrafted to include the confusing language for the first time.

Whether or not the Tax Court has jurisdiction to hear a case filed late because of the misleading notice, the notice itself needs to be changed now in order to avoid the continuation of a bad situation.

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I wrote about the third letter in the collection notice stream that the IRS has been sending for the past 18-24 months that misstates the law. The good news with respect to that letter is that I am told that the IRS agreed to change the letter to remove the language that misstates the law and that tells the taxpayer that the IRS can levy upon their property when it cannot levy upon their property. Based on the information provided to me, the new, improved third letter in the notice stream will go out starting in January of 2018. Until then, taxpayers will continue to receive the incorrect letter; however, I am encouraged that the IRS is changing the letter in response to concerns about its accuracy. I know that changing letters is a slow process at the IRS because of the procedures it has for approving letters and getting them into mass mailings, though I wish it were not so slow when a letter is actually wrong. Because I have not seen the new, improved third letter in the notice stream, I cannot say how improved it is.

Based on the ability of the IRS to listen and adapt regarding the wrong letter it was using in the notice stream, I am hoping that it will also change the letter that it uses in sending a taxpayer a notice of determination. Carl Smith has been tracking Tax Court orders over the past few years. He has found eight cases in which the language of the notice of determination letter has misled the taxpayer into filing Tax Court petition on the wrong day:

Order dated June 26, 2015, in Duggan v. Commissioner, Tax Court Docket No. 4100-15L, on appeal, Ninth Circuit Docket No. 15-73819;

Order dated December 7, 2016, in Cunningham v. Commissioner, Tax Court Docket No. 14090-16L, on appeal, Fourth Circuit Docket No. 17-1433;

Order dated March 4, 2016, in Pottgen v. Commissioner, Tax Court Docket No. 1410-15L;

Order dated January 14, 2016, in Swanson v. Commissioner, Tax Court Docket No. 14406-15S (The Swanson case order does not discuss any argument that the language of the notice of determination misled the taxpayer.  But, Carl Smith went down to the Tax Court and looked at Swanson’s opposition to the motion, wherein Swanson attached the notice of determination and quadruple-underlined the words “day after” in the sentence that is misleading all these pro se people, including Swanson.  It is because of the language of that sentence that he argued his filing was timely — an argument rejected in the order);

Order dated April 20, 2017, in Wallaesa v. Commissioner, Tax Court Docket No. 1179-17L;

Order dated May 31, 2017, in Saporito v. Commissioner, Tax Court Docket No. 8471-17L;

Order dated May 31, 2017, in Integrated Event Management, Inc. v. Commissioner, Tax Court Docket No. 27674-16SL;

Order dated September 26, 2017, in Protter v. Commissioner, Tax Court Docket No. 22975-15SL.

We could provide good advice to these individuals that waiting until the last day to file your Tax Court petition is not a good idea. It is a good practice to send the petition at least a week before the last day to file in order to provide some cushion, though we understand that this may not always be possible, given the short deadline in CDP (30-days) and the fact that taxpayers do not receive the notice of determination until several days after the IRS mails it. Despite this nice advice that could have saved these petitioners, we all know that filing on the last day is normal for many pro se petitioners as well as many lawyers. There should not be a question about what is the last day. The notice should make that clear.

The notice of determination creating this confusion states:  “If you want to dispute this determination in court, you must file a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.”  (Emphasis added).  That is not the statutory language.  The statute provides:  “The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).”  § 6330(d)(1) (emphasis added).  Prior to a 2006 amendment of § 6330(d)(1) (an amendment which centralized all CDP review only in the Tax Court), the notice of determination more closely tracked the statutory language, stating: “If you want to dispute this determination in court, you must file a petition with the United States Tax Court for a redetermination within 30 days from the date of this letter.”  See Jones v. Commissioner, T.C. Memo. 2003-29 at *3 (language from notice issued in 2001; emphasis added).

The IRS apparently chose to write a sentence in the current version of the notice that conflates the words of the statute with elements of Tax Court Rule 25(a)(1) (discussing how to count days) and Reg. § 301.6330-1(f)(1) (“The taxpayer may appeal such determinations made by Appeals within the 30-day period commencing the day after the date of the Notice of Determination to the Tax Court.”).  However, the IRS failed to alert taxpayers as to the rules it was summarizing or where taxpayers could find examples of how the 30-day rule operated (including omitting any discussion of weekend days).  It has become clear that this language is misleading to many pro se taxpayers.  Indeed, it is because pro se taxpayers have difficulty understanding how to count days that, in 1998, Congress specifically required the IRS to place a last date to file on notices of deficiency and amended § 6213(a) to provide that taxpayers can rely on any incorrect dates shown. § 3463, Pub. L. 105-206.  (Unfortunately, Congress forgot to write the same sentences requiring showing the last date to file on the new notices of determination issued under §§ 6330(d)(1) and 6015(e)(1) that were adopted in the same statute.)

The National Taxpayer Advocate has written about problems with the innocent spouse notice before:

Problem

Even though the IRS’s relief determination under IRC § 6015 is subject to judicial review, the IRS is not required to provide and does not provide taxpayers with the last date to petition the U.S. Tax Court in the final determination letters it issues to them in connection with requests for innocent spouse relief. In contrast, IRS deficiency determinations are similarly subject to judicial review, but Congress has directed the IRS to assist taxpayers by providing them with the last date to petition the Tax Court in notices of deficiency. Providing such assistance is important because it may be difficult for some taxpayers to determine the deadline for filing a petition in Tax Court without professional assistance, assistance which many taxpayers who need relief may be unable to afford. Sixty-five percent of the taxpayers who request innocent spouse relief make less than $30,000 per year. Thus, it may be even more helpful for the IRS to include the last date to petition the Tax Court in innocent spouse determination letters than to include it in notices of deficiency.

Perhaps one reason the IRS does not include the last date to petition the Tax Court in its notice of determination letters is that if the IRS enters a date beyond the requisite period and the taxpayer relies on it, then the taxpayer could miss the filing deadline. In contrast, if the IRS enters a date beyond the requisite period for filing a Tax Court petition in a notice of deficiency, then a taxpayer will not be harmed as long as he or she files the petition on or before the date contained in the notice of deficiency because IRC § 6213 (a) provides that a taxpayer may petition the Tax Court any time on or before the date specified in the notice.

[Example and footnotes omitted]

Recommendation

Require the IRS to include the last date to petition the Tax Court in any final determination letter the IRS issues in connection with an election or request for innocent spouse relief in a manner similar to that provided by IRC § 6213 (a). Provide that a taxpayer may petition the Tax Court within 90 days of the date of the determination or by the date specified in the letter, whichever is later.

I understand that the NTA will have something about the CDP notice problem in her next annual report.

The filing deadline language in the notice of determination for CDP cases is also inconsistent with the filing deadline language for other similar IRS-issued notices that constitute “tickets” to the Tax Court.  Notices of deficiency issued under § 6212 have long stated: “If you want to contest this deficiency in court before making any payment, you have 90 days from the above date of this letter (150 days if addressed to you outside of the United States) to file a petition with the United States Tax Court for a redetermination of the deficiency.”  See Erickson v. Commissioner, T.C. Memo 1991-97 at *21 (language from 1988 notice; emphasis added); Rochelle v. Commissioner, 116 T.C. 356, 357 (2001) (same, except for addition of the word “mailing” before “date” in language from 1999 notice).  Notices of determination for Tax Court review of innocent spouse relief claims under § 6015(e)(1) state: “You can contest our determination by filing a petition with the United States Tax Court. You have 90 days from the date of this letter to file your petition.”  See Barnes v. Commissioner, 130 T.C. 248, 250 (2008) (language from 2001 notice; emphasis added).

The IRS should change the language in the notice of determination now. Undoubtedly, this will not stop late petitions. It should, however, greatly decrease the number of late petitions caused by confusing language. The language of the CDP notice now provides the date by which the taxpayer must make their CDP request. It is hard to object to that type of clarity.

 

 

Designated Orders: 7/24 – 7/28/2017

Professor Patrick Thomas of Notre Dame discusses last week’s designated orders. Les

Last week’s orders follow up on some previously covered developments in the Tax Court, including the Vigon opinion on the finality of a CDP case and the ongoing fight over the jurisdictional nature of section 6015(e)(1)(A). We also cover a very odd postal error and highlight remaining uncertainties in the Tax Court’s whistleblower jurisprudence. Other orders this week included a Judge Jacobs order and Judge Wherry’s order in a tax shelter case. The latter case showcases the continuing fallout from the Graev and Chai opinions.

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Deposits in a CDP Liability Challenge? – Dkt. # 14945-16L, ASG Services, LLC v. C.I.R. (Order Here)

The first order this week follows on the heels of the Vigon division opinion, about which Keith recently wrote. In a challenge to the underlying liability in a CDP case, ASG paid the liabilities at issue in full in August 2016, and the Service quickly followed with a motion to dismiss for mootness, given that no further collection activity would take place. Judge Gustafson (Vigon’s author) orders ASG to answer three hypotheses, which attempt to distinguish ASG from Vigon.

Judge Gustafson contrasts ASG’s situation with the taxpayer in Vigon, given that the Service has not indicated an inclination to assess the liabilities again in ASG. Indeed, this may be because the IRS cannot assess ASG’s liabilities a second time due to the assessment statute of limitations under section 6501. As a corollary, Judge Gustafson posits that ASG is asking for a refund of the tax, without any contest as to a collection matter. Thus, as in Greene-Thapedi, the court may lack jurisdiction to entertain the refund suit. Finally, the Court notes that even if the refund claim could proceed, ASG would need to show that it had filed a claim for a refund with the Service. Judge Gustafson requests a response from ASG (and the Service) on these suggestions.

Separately, ASG noted in its response to the motion to dismiss that “Petitioner paid the amounts to stop the running of interest.” Judge Gustafson therefore ordered ASG to document whether these remittances were “deposits”, rather than “payments,” along with the effect on mootness. Under section 6603, deposits are remittances to the Service that stop underpayment interest from running. However, deposits are ordinarily always remitted prior to assessment, during an examination. The Service must return the deposit to the taxpayer upon request, and, if at the end of the examination the resulting assessment is less than the deposit, the Service must refund the remainder.

It’s unclear whether a remittance made during a CDP proceeding challenging the underlying liability could be treated as a deposit, though Judge Gustafson seems to be opening the door to this possibility.

The Continuing Saga of Section 6015(e)(1)(A) – Dkt. # 21661-14S, Vu v. C.I.R. (Order Here)

Vu is one of four innocent spouse Tax Court cases in which Keith and Carl Smith have argued that the period under section 6015(e)(1)(A) to petition the Tax Court from the Service’s denial of an innocent spouse request is not jurisdictional. Les wrote previously about this case when Judge Ashford issued an opinion dismissing the case for lack of jurisdiction. Vu is unique among the four cases; in the three other Tax Court dockets (Rubel, Matuszak, and Nauflett), petitioners argue that the time period is not jurisdictional and is subject to equitable tolling in circumstances where the Service misled the taxpayers into filing late. In contrast, Ms. Vu filed too early, but by the time she realized this, it was too late to refile. As a result, Judge Ashford dismissed the case for lack of jurisdiction, because of an untimely petition.

Shortly after the opinion, Keith and Carl entered an appearance in Vu and filed motions to reconsider, vacate, and remove the small tax case designation, arguing that the Service forfeited the right to belatedly raise a nonjurisdictional statute of limitations defense.

Last week, Judge Ashford denied those motions. Substantively, Judge Ashford relied on the opinions of the Second and Third Circuits in Matuszak v. Commissioner and Rubel v. Commissioner, which hold that the time limitation in section 6015(e)(1)(A) is jurisdictional. (The Tax Court also recently ruled against the petitioner in Nauflett, but Keith and Carl plan to appeal this to the Fourth Circuit). Given that, therefore, Judge Ashford believed there to be no “substantial error of fact or law” or “unusual circumstances or substantial error” that would justify granting a motion to reconsider or motion to vacate, she denies those two motions.

To compound matters, Vu also filed her petition requesting a small case designation; decisions in small tax cases are not appealable. While Vu moved to remove the small case designation, Judge Ashford denied that motion as well. The standard for granting a motion to remove a small case designation is whether “the orderly conduct of the work of the Court or the administration of the tax laws would be better served by a regular trial of the case.” In particular, the court may grant such a motion where a regular decision will provide precedent to dispose of a substantial number of other cases. But because Judge Ashford views there to already be substantial precedent against Vu’s position, she denies this motion as well.

Keith and Carl plan to appeal Vu to the Tenth Circuit anyway, arguing that the ban on appeal of small tax cases does not apply where the Tax Court mistakenly ruled that it did not have jurisdiction to hear a case. This argument will be one of first impression.

A second argument will be that the denial of a motion to remove a small case designation is appealable. In Cole v. Commissioner, 958 F.2d 288 (9th Cir. 1992) the Ninth Circuit dismissed an appeal from an S case for lack of jurisdiction, noting that neither party had actually moved to remove the small case designation. In Risley v. Commissioner, 472 Fed. Appx. 557 (9th Cir. 2012), where there is no mention of the issue of a motion to remove the small tax case designation, the court raised, but did not have to decide, whether it could hear an appeal from an S case if there was a due process claim. A due process violation allegation might be another occasion for appealing an S case, but there will be no due process violation alleged in the appeal of Vu.

Keith and Carl also note that they will not be filing a cert petition in either Matuszak or Rubel. They will only do so if they can generate, through Nauflett or Vu, a circuit split on whether the time period under section 6015(e)(1)(A) is jurisdictional.

Postal Error? – Dkt. # 9469-16L Marineau v. C.I.R. (Order Here)

In Marineau, Judge Leyden tackles the Service’s motion for summary judgment in a CDP case. The facts start as is typical: the Service filed a motion for summary judgment, and the Petitioner responded that the Service hadn’t sent the Notice of Deficiency to their last known address in Florida. Dutifully, the Service responded with a copy of the Notice of Deficiency showing the taxpayer’s Florida address and a Form 3877 indicating the NOD was sent by certified mail to that address. Both the NOD and the Form 3877 have the same US Postal Service tracking number.

But then things take a turn. The Service also submitted a copy of the tracking record for that tracking number from the post office. It shows that the NOD was sent from Ogden, Utah, but that it was attempted to be delivered in Michigan, rather than Florida. The NOD was unclaimed and eventually returned to the Service.

Judge Leyden appears to be as perplexed as I am by this situation. So, she ordered the Service to explain what happened. I’ll be looking forward to finding out as well.

Remand and Standard of Review in a Whistleblower Action – Dkt. # 28731-15W Epstein v. C.I.R. (Order Here)

In this whistleblower action, the Service and the Petitioner apparently agreed that the Petitioner was entitled to an award (or perhaps, an increased award). The Service filed a motion to remand the case so that a new final determination letter could be issued. The Petitioner opposed this motion, as he believed that the Tax Court could decide the issue for itself, without need to remand.

Judge Lauber appears to be cautious towards remanding a case, for two reasons: first, it’s unclear whether the Court has the authority to remand a whistleblower case. While CDP cases are subject to remand, due to the abuse of discretion standard applicable in most cases, cases in which the Court may decide an issue de novo are, according to Judge Lauber, generally not subject to remand. (I’m not sure that’s entirely correct, as CDP cases challenging the underlying liability are indeed subject to remand.) Relatedly, the Court isn’t yet even sure what the standard of review for a whistleblower case is.

Judge Lauber manages to avoid these issues. Because the Court retains jurisdiction where the Service changes its mind about the original whistleblower claim post-petition (see Ringo v. Commissioner), Judge Lauber does not believe there’s any point in remanding the case for issuance of a new letter. The Service can simply issue the letter now, and the Court can enforce any resulting settlement through a judgment. Of course, it can’t hurt to not have to decide the tricky issues surrounding the Court’s standard of review and possibility of a remand

 

Second Circuit Agrees with Third That Time to File an Innocent Spouse Petition is Jurisdictional and Not Subject to Equitable Tolling

We welcome back frequent guest blogger Carl Smith who writes about a case he has assisted the Harvard Tax Clinic in litigating before the Second Circuit.  The court found the time for filing a Tax Court petition is jurisdictional meaning that our client’s reliance on the IRS statement regarding the last date to file her petition has landed her outside of the court without a judicial remedy for review of the innocent spouse determination unless she can come up with the money to fully pay the liability which she cannot.  Keith

This post updates a post on Rubel v. Commissioner, 856 F.3d 301 (3d Cir. May 9, 2017).  In Rubel, the IRS told the taxpayer the wrong date for the end of the 90-day period in section 6015(e)(1)(A) to file a Tax Court innocent spouse petition.  The taxpayer relied on that date – mailing the petition on the last date the IRS told her.  Then, the IRS moved to dismiss her case for lack of jurisdiction as untimely.  In response, the taxpayer argued that the IRS should be estopped from making an untimeliness argument, having caused the late filing.  But, the Tax Court and, later, the Third Circuit held that the filing period is jurisdictional.  Jurisdictional periods are never subject to equitable exceptions.

Keith and I litigated Rubel.  We also litigated a factually virtually-identical case in the Second Circuit named Matuszak v. Commissioner.  On July 5, the Second Circuit reached the identical conclusion as the Third Circuit.

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The reasoning of both opinions is almost the same:  Under recent Supreme Court case law, time periods to file are no longer jurisdictional.  But, there are two exceptions:

One is that if the Supreme Court has called a time period jurisdictional in multiple past opinions issued over decades, the time period is still jurisdictional under stare decisis.  This stare decisis exception can’t apply to the innocent spouse petition filing period because the Supreme Court has never called any time period to file in the Tax Court jurisdictional or not jurisdictional.

The other exception is the “rare” case where Congress makes a “clear statement” that it wants a time period to be jurisdictional, notwithstanding the ordinary rule.  Both Rubel and Matuszak rely on the language of section 6015(e)(1)(A) as providing such a clear statement through the words “and the Tax Court shall have jurisdiction . . . if” the petition is filed within 90 days of the notice of determination’s issuance.

Keith and I think this “clear statement” analysis is a bit too pat:  The words “and the Tax Court shall have jurisdiction” appear only in a parenthetical.  Further, the “if” clause does not immediately follow that parenthetical.  We think that, based on Supreme Court case law on this clear statement exception, one can fairly argue that the parenthetical only applies to the language immediately following it – i.e., “to determine the appropriate relief available to the individual under this section” – and which precedes the “if”.  In any case, if the language is not “clear”, then the time period should be held nonjurisdictional.

Both the Rubel and Matuszak opinion also pointed out the provision in section 6015(e)(1)(B)(ii) that gives the Tax Court jurisdiction to enjoin the IRS from collection of the disputed amount while the request for relief and all judicial appeals is pending.  There is a sentence in this provision that limits the Tax Court’s injunctive jurisdiction only to cases of the “timely” filing of a Tax Court petition under section 6015(e)(1)(A).  Keith and I don’t see the relevance of this injunctive provision to the clear statement exception, and we don’t see that “timely” means not considering any extensions provided under statutes (such as sections 7502 (tolling for timely mailing), 7508 (combat zone tolling), or 7508A (disaster zone tolling)) or judicial equitable exceptions.

And as to the context of the statute, remember both (1) that the statute explicitly invokes equity (in subsections (b) and (f)) and (2) that section 6015(e) was adopted joined in the same 1998 act to a legislative overruling of United States v. Brockamp, 519 U.S. 347 (1997).  In Brockamp, the Supreme Court held that, due to the high volume of administrative refund claims and the complexity of section 6511, the time periods therein were not subject to equitable tolling under the presumption in favor of equitable tolling against the government laid down in Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990).  Congress adopted section 6511(h) to provide what it called a legislative “equitable tolling” in cases of financial disability.  Does anyone think Congress’ desire to overrule the Supreme Court as to equitable tolling in section 6511 means that the same Congress did not want equitable tolling to apply in its new equitable innocent spouse provision?

In Rubel, the Third Circuit also cited Brockamp for the proposition that Congress in 1998 would have thought all time periods in the Internal Revenue Code jurisdictional.  Keith and I pointed out to both Circuits, however, that Brockamp doesn’t even contain the word “jurisdiction” or “jurisdictional”.  About the only significant difference between the opinions of the two Circuits is that the Second Circuit declines to include this questionable characterization of Brockamp.

No other Circuit has yet considered whether the time period in section 6015(e)(1)(A) is jurisdictional or not.  Keith and I are about to litigate the identical issue in the Fourth Circuit.  Clearly, the opinions in Rubel and Matuszak are not helping us.