Seventh Circuit May Hold 90-day Period to File Deficiency Petition Not Jurisdictional

We welcome back frequent guest blogger, Carl Smith, who discusses a surprising development in the issue of whether a time period to file a Tax Court petition in a deficiency case is jurisdictional. Jurisdictional in this context is a code word for set in stone. Depending on the outcome of this case, jurisdiction in Tax Court cases could get very interesting. Keith

As you may recall from a recent post of mine, Keith and I are in the midst of litigation in the Circuit courts about whether the time periods in which to file Tax Court petitions in Collection Due Process (CDP) (§ 6330(d)(1)) and stand-alone innocent spouse (§ 6015(e)(1)(A)) cases are jurisdictional or subject to equitable tolling under recent non-tax Supreme Court case law that has made time periods to file almost never jurisdictional.  Even though the Supreme Court has been issuing many opinions on its new jurisdictional thinking since 2004, our arguments are, shockingly, ones of first impression in the Circuit courts. In June, the Tax Court, en banc, rejected our arguments in a CDP case named Guralnik v. Commissioner, 146 T.C. No. 15 (June 2, 2016), basically saying that the Supreme Court case law we cited is distinguishable because it does not involve tax law or the Tax Court and because the Tax Court would prefer to stick, by analogy and stare decisis, to its old case law holding the § 6213(a) period to file jurisdictional. See Byran Camp’s post on Guralnik here.

I have done a couple of posts on the case of Tilden v. Commissioner, T.C. Memo. 2015-188, see my posts here and here. It is a deficiency case that was taken up on appeal. On October 6, 2016, the parties did oral argument before the Seventh Circuit in the case, and it appears that at least two judges on the panel, Judge Easterbrook and Chief Judge Wood, (and maybe all three) are inclined to hold that the current non-tax Supreme Court case law on jurisdiction makes the § 6213(a) time period to file a deficiency case non-jurisdictional. If they do this in the deficiency area, it will certainly constitute a revolution in the tax controversy world and a slap at the unanimous Tax Court holding in Guralnik. Yikes!


By way of background on the Tilden case, I quote from one of my earlier posts:

Tilden is a case where a deficiency petition arrived at the Tax Court after the 90th day.  It arrived by certified mail (United States Postal Service (USPS)), but bore no real postmark, just a shipping label from and a certified mail receipt, both dated the 90th day, and the latter only dated in the handwriting of an employee of the taxpayer’s attorney.  Applying regulations under section 7502 and prior Tax Court case law, Judge Armen held that since internal USPS tracking data showed that the USPS first got possession of the envelope after the 90th day, section 7502 did not apply, the petition was untimely, and the Tax Court therefore lacked jurisdiction.

In the appeal, both the taxpayer and the DOJ are arguing that Judge Armen was wrong and that the Seventh Circuit shouldn’t rely on the provision of the § 7502 regulations that he relied on. Both sides now agree that this case should be treated as if the envelope bore a non-USPS postmark, where the regulations would treat the filing as timely if the petition arrived at the Tax Court within a normal period that would apply to regular mail sent by USPS on the last date to file. The parties agree here that the petition arrived 8 days after the last date to file. Given the extra screening done to Tax Court mail since the 2001 anthrax scare, the DOJ and IRS now concedes that 8 days is within the outer edge of the normal period for USPS mail to reach the Tax Court from Utah.

The parties filed briefs in the Seventh Circuit arguing about which was the correct regulation under § 7502, but not discussing, one way or the other, recent non-tax Supreme Court case law on whether time periods to file are jurisdictional. Indeed, the parties at oral argument admitted ignorance of the non-tax Supreme Court case law that appellate judges are applying almost every week to overturn prior holdings.

The parties just assumed that the time period to file a deficiency petition was jurisdictional, as most Circuit courts and the Tax Court had held long ago. But, no one has ever asked the Tax Court or a Court of Appeals to reconsider whether the § 6213(a) period is really still jurisdictional under the Supreme Court’s new case law severely limiting the use of the word “jurisdictional”. Under that new case law, time limits to file in courts are not jurisdictional, unless either (1) Congress has made a “clear statement” in the statute that it wants the time period to be jurisdictional, or (2) the Supreme Court has for over 100 years in its own opinions held the time period jurisdictional (even though the time period wouldn’t be considered jurisdictional under the new Supreme Court rules).

At the oral argument in Tilden on October 6 (which can be heard on the Seventh Circuit’s website and linked above), at least two and maybe all of the judges on the panel spent a large part of each side’s time asking: “Why isn’t the § 6213(a) filing period not jurisdictional under current non-tax Supreme Court case law?”  It is clear that at least two of the judges think that the time period is obviously not still jurisdictional under that case law.  No judge on the panel suggested it was.

The judges were rather shocked that neither party’s lawyer was prepared to discuss the jurisdictional issue under current Supreme Court case law, but Robert Metzler of the DOJ noted to the court that this same issue was being raised in two other cases, Duggan v. Commissioner (a Ninth Circuit CDP case, where Keith and I are amicus) and Matuszak v. Commissioner (a Second Circuit innocent spouse case under § 6015(e), where Keith and I are taxpayer’s counsel and which Meltzer erroneously said was going on in the Third Circuit). Metzler was confused. Keith and I are litigating, as counsel for the taxpayer, a § 6015(e) case named Rubel v. Commissioner in the Third Circuit. Metzler forgot to mention Rubel.  Metzler also failed to mention that none of our cases involve the deficiency time period in § 6213(a), so the issue is not exactly the same, but only similar.

Metzler is counsel for the DOJ in the Duggan case, and only on October 4 (i.e.,2 days before the Seventh Circuit oral argument in Tilden), the Ninth Circuit had accepted Keith and my amicus brief in the Duggan CDP case. At the same time, the Ninth Circuit ordered Metzler to file a response to our amicus brief no later than October 25. (Metzler is not the DOJ counsel in either Matuszak or Rubel.)  Metzler told the Seventh Circuit that he was just beginning to familiarize himself with the issues we raised, but that he was not prepared to make any argument on the jurisdictional point to the Seventh Circuit. He offered, instead, to provide supplemental briefing, but the judges were not interested in more briefing on Supreme Court case law on jurisdiction that they said they already knew quite well.

Metzler also warned that this panel might have to go en banc to overrule Seventh Circuit existing precedent, Petrulis v. Commissioner, 938 F.2d 78, 79 (7th Cir. 1991); Sanders v. Commissioner, 813 F.2d 859, 861 (7th Cir. 1987); and McPartlin v. Commissioner, 653 F.2d 1185, 1188 (7th Cir.1981); that described the filing period as jurisdictional. But, Judge Easterbrook seemed already to have looked at those opinions: The statement in Sanders that timely filing is a jurisdictional defect for a deficiency case was dicta, not the least necessary to the holding. Thus, Sanders is not current Seventh Circuit precedent. While the other two opinions clearly state that the filing period is jurisdictional, the Supreme Court would call those two opinions “drive-by jurisdictional rulings,” deserving of no precedential weight, since it would not have mattered in either case whether the time period was called an element of the claim to be proved, instead of a jurisdictional defect. See Arbaugh v. Y & H Corp., 546 U.S. 500, 511 (2006).

Although it is always dangerous to predict, at the end of the argument, it seemed that the judges were going to hold that the § 6213(a) time period is not jurisdictional and remand the case to the Tax Court.  The judges pointed out that since non-jurisdictional statutes of limitations are subject to waiver, and the IRS was not arguing that the petition was untimely, the Tax Court could just proceed to the merits after a remand if the Seventh Circuit held the time period not jurisdictional.

The day after the oral argument, a fairly desperate Meltzer submitted an FRAP 28(j) letter in which he argued that, just as the Supreme Court in John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008), refused to use its new thinking on jurisdiction to overturn its prior holdings for over 100 years that the 6-year time period in which to file a suit in the Court of Federal Claims under 28 U.S.C. § 2501 is jurisdictional, similar stare decisis grounds should caution the Seventh Circuit from overruling its precedent under § 6213(a). Unfortunately for the government, the Supreme Court has not said there is a stare decisis exception from its current rules on jurisdiction to consistent prior holdings of lower courts. So, I doubt this comment will go anywhere with the Seventh Circuit, though the Tax Court accepted this argument in Guralnik.

Oddly, Meltzer, in his letter, makes no attempt to show that the Congress made a “clear statement” in § 6213(a) that the time period to file is jurisdictional.

Finally, in his letter, Meltzer referred the Seventh Circuit to the Tax Court’s opinion in Guralnik, which, he said, “contains a well-reasoned discussion of whether the jurisdictional status of time limits for Tax Court petitions has been changed by recent Supreme Court cases.”


Even though a good argument could be made that the deficiency jurisdiction time period is not jurisdictional, Keith and I have been careful not to make that argument and to point out to the courts why we aren’t making that argument. While such a holding might benefit individuals who are seeking equitable tolling for a late-filed deficiency petition, we fear the argument’s consequences on people who had no good reason for late filing. Most people have no good reason for late filing.

It has long been held that a person who files a deficiency petition late can, after the case is dismissed for lack of jurisdiction, simply pay the tax and sue for refund in district court. Budlong v. Commissioner, 58 T.C. 850, 854 n.2 (1972); McCormick v. Commissioner, 55 T.C. 138, 142 n.5 (1970). That is because § 7459(d) provides, in relevant part:

If a petition for a redetermination of a deficiency has been filed by the taxpayer, a decision of the Tax Court dismissing the proceeding shall be considered as its decision that the deficiency is the amount determined by the Secretary. An order specifying such amount shall be entered in the records of the Tax Court . . . unless the dismissal is for lack of jurisdiction.

If the § 6213(a) filing period is not jurisdictional, then, if a person files a late Tax Court deficiency petition, § 7459(d) would turn the decision in the case into a decision on the merits upholding the deficiency.  I am not sure that the person could then pay and sue for a refund.  Wouldn’t the Tax Court merits decision be res judicata in the district court for the same tax year?

Further, the point of the Supreme Court making a stare decisis exception to its new rules because of a long history of its case law holding a time period jurisdictional is that Congress, having read that case law, might have legislated on the assumption that the time period was jurisdictional. Even though there is no Supreme Court case law interpreting § 6213(a) or its predecessors, it is clear that Congress has legislated on the assumption that § 6213(a) is jurisdictional. The Committee reports accompanying the 1998 legislation adding a sentence to the end of that subsection allowing taxpayers to rely on the last date to file shown in notices of deficiency state that Congress is making the change because the time period is jurisdictional. See H. Rept. 105-364 (Part 1) at 71, 1998-3 C.B. 373, 443; S. Rept. 105-174 at 90, 1998-3 C.B. 537, 626. Accord H.R. (Conf.) Rept. 105-599 at 289, 1998-3 C.B. 747, 1043-1044.

It would have been helpful if Meltzer had also told the Seventh Circuit about the potential § 7459(d) problem we foresee and the Committee report language noted in the prior paragraph.

Well, if the Seventh Circuit rules § 6213(a)’s time period is not jurisdictional, I suppose the problem we foresee could easily be fixed by a statutory amendment to § 7459(d).


Private Carriers, APA Impact on Notices and New Blog

Les and I each wrote short, essentially follow up posts which we are combing into one.  We anticipate we will be writing more on mailing deadlines and on the APA impact on notices.  Keith

Using Private Carriers to Meet a Filing Deadline

In Notice 2016-30, IRS published a new list of designated private delivery services  (“designated PDSs”) for purposes of the timely mailing treated as timely filing/paying rule of section 7502. The Notice provides rules for determining the postmark date for these services. The Notice updates Notice 2015-38, which had updated Notice 2004-83. This marks the second time IRS has updated the rules in under a year after an eleven or so year run for the original notice.

The main change is that the notice, effective April 11, 2016, adds to the acceptable list a number of DHL-provided services. IRS dropped DHL in last year’s following DHL’s cutback in services.

The Notice reminds people that not all services offered by the anointed carriers qualify as PDS’s. We have discussed numerous times issues taxpayers and practitioners have had meeting petition deadlines. Failing to track which services qualify can have major consequences. Keith has discussed the sad case of Guralnik v Commissioner when the taxpayer used FedEx First Overnight to mail his petition, a service not found within the 2004 notice but one IRS added in 2015. In addition, a summary opinion from a couple of years ago, Sanders v Commissioner, involved a pro se taxpayer who sent in his petition on day 89 using UPS Ground. UPS Ground was then and is still not one of the many UPS services that the IRS treats as a PDS.

In Sanders, the petition arrived at Tax Court after the 90-day period elapsed. IRS moved to dismiss, and the Tax Court held that the petition was untimely “because UPS Ground has not been designated by the Commissioner as a private delivery service.”

Addressing the consequences the Tax Court added:

In so holding we acknowledge that the result may appear harsh, notwithstanding the fact that petitioner had nearly 90 days to file his petition but waited until the last moment to do so However, the Court cannot rely on general equitable principles to expand the statutorily prescribed time for filing a petition.

The Tax Court concluded that Sanders was not without recourse; he could pay the tax and file a refund claim and suit. Given that he deficiency was for two years and totaled over $40,000, with the Flora rule requiring full payment, that option may not have given Sanders much comfort.

Follow up on Statutory Notice and the Administrative Procedure Act Post

One commenter on the post suggested additional links.  After the post was written, QuinetiQ filed its reply to the Government’s brief.  So, this brief post will provide a quick update of documents available for those interested in this case.

In the post I provided a link to the Tax Court opinion; however, the commenter pointed out that the most pertinent document from the Tax Court case was an order, linked here, setting out the Court’s views on the motion to dismiss based on lack of jurisdiction due to the (allegedly) improper notice of deficiency.  The order provides details about the Tax Court’s reasoning in denying the motion that I did not include in the original post.

In the 4th Circuit, QuinetiQ filed the opening brief as the appellant.  For some reason we could not access that brief and did not include it as a link in the post.  It is linked here.  Now that QuinetiQ has filed a reply brief, it is also available and is linked here.  The briefs filed by QuinetiQ make clear that it thinks the notice of deficiency in this case really provided no meaningful notice.  Not having seen that notice I can only imagine from other notices I have seen that the possibility certainly exists that the notice itself was bad.  Then the question is so what?  Must the taxpayer move forward on the substance of the matter gleaning what it can from the notice, from what it knew of the audit and from the information that comes out during the Tax Court case or can it get a court to strike the notice of deficiency as inadequate under provision s of the Administrative Procedure Act.  Do those provisions apply to an informal agency action such as a notice and, if they do, in applying them to this notice, should it be stricken?  Is this just another example of tax exceptionalism that needs to fall or is the notice of deficiency something totally covered by the IRC, outside of the APA, and subject to very relaxed standards for what provides adequate notice.


New Tax Blog

A group of tax professors, some of whom publish great material on tax procedure, have just started a new blog for those who might be interested.  Check it out at



Statutory Notice Language and the Administrative Procedure Act

Yesterday, Les posted about the Tax Court decision in Ax v. Commissioner holding that the APA did not prevent the IRS from amending its answer to add additional bases for supporting its deficiency determination.  Last year, we failed to write about the case of QinetiQ U.S. Holdings v. Commissioner, T.C. Memo 2015-123 which seeks to significantly change statutory notices issued by the IRS.  Guest blogger Sean Akins, one of petitioner’s counsel at the Tax Court level, made brief mention of the case in his post on sealing the records in the Tax Court but did not address the major procedural issue in the case.  Although the case may significantly change the way the IRS must issue statute notices of deficiency, it only has importance if the petitioner wins the novel argument.  Because the government won in the Tax Court, the case remains obscure.  Due to its potential significance, it bears watching, with other APA cases seeking to change Tax Court practice, as it moves forward.  Petitioner appealed the case to the 4th Circuit where the parties have recently filed their briefs.


Petitioner timely filed a petition in Tax Court and then moved to dismiss the case for lack of jurisdiction arguing that the notice of deficiency was invalid.  The invalidity of the notice, according to petitioner, resulted from the failure of the notice to provide an adequate description of the issues causing the IRS to send the notice.  While other cases (see here, here and here) over the years have attacked the validity of the notice of deficiency on the grounds of insufficiency and the Tax Court has upheld some notices that must have caused it to hold its nose, no petitioner prior to QinetiQ argued that the notice of deficiency lacked validity because it failed to follow the Administrative Procedure Act (APA).

We have published several posts (see here, here and here) on the APA and its impact on tax regulations.    We have not, however, written about the impact of the APA on more day to day notices issued by the IRS and how, if at all, the APA impacts what the IRS must put in those notices.  That is the issue QuinetiQ takes on.  The IRS argument is essentially that the APA does not apply to things such as a notice of deficiency and the Tax Court agreed.  The taxpayer will make its arguments again before the 4th Circuit.  While the taxpayer may have a low chance of success, big changes in the notice process will occur if it does succeed.

The IRS position is that the IRC does not required detailed reasoning in a notice of deficiency and that the specific language of the IRC regarding the notice of deficiency trumps the provisions of the APA.  The IRS points to IRC 7522 which requires only that the notice briefly inform the taxpayer concerning the proposed deficiency for a specific year and amount.  Section 7522(a) also contains a statement that an inadequate description does not invalidate the notice.  This creates a tough hurdle for the taxpayer to overcome in attacking the validity of a notice of deficiency.

With respect to the “reasoned explanation” requirement petitioner argues that the APA imposes on notices of deficiency, the IRS argues that this misinterprets the APA requirement.  Such an explanation must support agency action in the context of formal rulemaking but not in the context of a notice of deficiency which acts more like an informal rulemaking determination.  The Supreme Court has held that the notice of deficiency does not require a detailed explanation although not necessarily in response to an argument such as petitioners make in this case.

Whether the 4th Circuit reverses the Tax Court or simply lets stand a decision that continues with the same rules for the notice of deficiency to which we have become accustomed, the case bears watching if you have interest in what a notice of deficiency should say.  When I started working on tax cases in the 1970s every case on which the IRS sought to issue a notice of deficiency went through the review staff of the examination division.  The revenue agents had a strong dislike for the review staff because it regularly caught their mistakes and required them to redo their work.  The review staff carefully crafted notices of deficiency.  The effort that the IRS put into the notices at that time seems amazing today as I look back on the procedure then and now.  Revenue agent reports were transformed from sometimes loose language about a proposed change to much more descriptive language that had a better chance of standing up to a challenge.  We have come a long way from the days when a review staff crafted the notice of deficiency and from what may have been expected when the statutory provisions and early case law were written.

Today, the vast majority of notices get issued using the 30 day letter attached to the formal notice letter.  Little, if any, review of the notice occurs and most notices concern small cases handled by the correspondence unit.  Even in larger cases the amount of review is quite small given the amount of money at stake.  Because the change over to the notices of deficiency without review and careful language has now existed for over two decades, we are accustomed to notices that do not provide a great deal of notice in many cases.  Whether or not Quinetiq wins the case for APA level descriptions in notices of deficiency, it might be appropriate to think about how we arrived at the current state of “notice” in these notices and whether a better level of notice should exist.  We have posted now on several occasions about correspondence from the IRS that does not adequately advise the taxpayer of what is happening or what will happen.  Poorly written notices of deficiency raise many of the same issues and place on taxpayers the burden of proof in Tax Court cases concerning matters that sometimes contain inadequate or incorrect descriptions.  Of course, if we want the IRS to spend the time to provide better notice, we must also make the commitment to provide adequate staffing.


Tax Court Order Finds Jurisdiction Even When Taxpayer Files a Petition Before the IRS Issues Notice of Deficiency

We have discussed with some frequency on the blog the sad tale of taxpayers and practitioners filing petitions beyond the 30 or 90-day period. We have also discussed the Tax Court’s willingness to accept petitions not perfectly formed or signed when the taxpayer has made a good faith effort to reach out to the Court. What about when a taxpayer jumps the gun and files the petition during the exam before the IRS issues a stat notice? If the notice of deficiency is the “ticket” to Tax Court, what happens to petitioners who file before the IRS issues the ticket? Cases get filed in Tax Court with some frequency from IRS correspondence that does not provide the proper basis for Tax Court jurisdiction. Figuring out whether the Court has jurisdiction based on these filings can be very challenging and was one of the reasons Chief Counsel sought in its request for rule changes last fall that the Court require parties to attach the correspondence to the petition giving the Court jurisdiction.


I came across an order the other day Weiss v Commissioner that raised this issue. The Weisses filed a petition to Tax Court in January of 2016, but the IRS did not issue its notice of deficiency until February. IRS filed a motion to dismiss the petition for lack of jurisdiction in March; the taxpayer, a couple of weeks later, filed a response to the IRS’s motion. Luckily, the taxpayer’s response to the IRS motion was within the 90 days of the statutory notice. That filing within that 90-day period was enough to confer jurisdiction:

Because the notice of deficiency for petitioners’ tax years 2012 and 2013 was issued after the petition in this case was filed, the Court does not have jurisdiction over petitioners’ 2012 and 2013 tax years under the petition was filed. I.R.C. sec. 6213(a). However, inasmuch as petitioners’ Opposition to Motion To Dismiss for Lack of Jurisdiction was received within 90 days of February 12, 2016, the date the notice of deficiency for tax years 2012 and 2013 was sent to petitioners, a copy of the Opposition shall be filed as a petition at Docket No. 7399-16 to commence a separate case regarding petitioners’ 2012 and 2013 tax years.

To perfect the filing, the Tax Court ordered the Weisses to file an amended petition (with no separate filing fee). I suspect the problem of early filing may be fairly common, as there are multiple variations on pre-stat notice correspondence and many types of stat notices. Many are dense. Add to the mix that the high numbers of pro se taxpayers, and you have a recipe for confusion.  While the Tax Court is quite permissive on what it will treat as a petition, the Weisses were lucky that they responded to the IRS motion to dismiss quickly, and that the IRS filed its motion to dismiss close in time to when the IRS issued its notice of deficiency. The case demonstrates that the Tax Court seeks to open its doors to petitioners when possible and also that luck sometimes plays a part in whether someone gets into the Court to argue for relief. We are still waiting to see if the unlucky Mr. Guralnik will have the door opened for him. For discussions of the Guralnik case readers can look here and here.

When is the Statutory Notice of Deficiency Issued by an Authorized Delegate of the Treasury Secretary

Earlier this month, the 8th Circuit, in the case of Leroy Muncy v. Commissioner, vacated the memorandum and order entered in the case by the Tax Court and remanded the case to the Tax Court with instructions to get proof to support the opinion that it issued.  What is somewhat remarkable about the remand is that it appears Mr. Muncy made tax protestor type arguments yet convinced the 8th Circuit to issue the remand.  The reason for the remand was basically lack of proof which I suspect resulted from the presumption that the type of proof now being required by the 8th Circuit was unnecessary.  This type of situation is much more likely to occur in a tax protestor type case where the taxpayer is challenging a basic premise that the IRS and the Tax Court see as a given.  Because cases of this type do not arise with frequency, the reminder that having a simple case remanded for lack of proof will impact the way the IRS and the Tax Court approach the next case in which a tax protestor challenges something basic in the tax process.


The taxpayer received a notice of deficiency signed by Judith Miller, IRS Technical Services Manager, on Treasury Department letterhead.  I suspect that to the IRS and to the Tax Court the notice looked very ordinary.  To Mr. Muncy it did not, and he challenged whether Ms. Miller was duly authorized to sign the notice.  The Tax Court made relatively quick work of his argument.  It no doubt did so because it was comfortable that Ms. Miller was an authorized Treasury official.  Chief Counsel’s office apparently offered little proof of who Ms. Miller was or more precisely how the delegation order from the Secretary of Treasury worked its way down through the Commissioner to the IRS Technical Services Manager.  The lack of proof presented to the Tax Court documenting the chain of authority from the Secretary of Treasury, who is authorized under the statute to send out notices of deficiency, to Judith Miller left the 8th Circuit unsatisfied that the Tax Court had a basis to rule against Mr. Muncy.  In the per curiam opinion the Court ended with “Accordingly, we vacate the December 2014 memorandum and order, and remand this case to the tax court with instructions to determine whether Miller had authority to issue the NOD that is the subject of this case, and for further proceedings consistent with that determination. Cf. Schweiss v. Chrysler Motors Corp., 922 F.2d 473 (8th Cir. 1990) (noting benefit of having trial court address disputed factual issues in first instance).”

I expect the case to go back to the Tax Court where the Chief Counsel attorney will place into the record of the Tax Court the delegations of authority linking the Secretary to IRS Technical Services Managers.  The nswer appears clear.  The IRM, in Delegation Order 4-8, provides precisely who has the authority to issue and rescind notices of deficiency. Delegation Order 4-8 lists many Service employees, including a number of positions in Technical Services.

Is this a waste of time?  Most likely.  Was the Eighth Circuit wrong?  Probably not.  This is why going to trial is time consuming and tedious.  Things must be proven that almost everyone has confidence exist.  The IRS does not need to prove the sky is blue or other matters on which the Tax Court can take judicial notice, but it must prove something like a delegation order chain of authority even when doing so is something that the Tax Court knows is a waste of time.  I have not looked at the record to see exactly what was entered.  Maybe Chief Counsel’s office already provided the necessary information and it simply did not make it into the opinion.  I view the 8th Circuit’s opinion as one saying to the Tax Court you cannot ignore the need for proof of the delegation of authority, or a citation to it, even on a routine matter such as the the chain of authority to issue this notice.  You must have something in the record or the opinion to support your conclusion even if you are confident that the litigant is simply raising this argument to frustrate the IRS and the Court.

The case serves as a good reminder to the parties of the proof they need to present to aid the Court in what seems like a slam dunk decision.  I suspect that the case will move swiftly through the Tax Court during the remand stage and eventually get back to the 8th Circuit because Mr. Muncy will not be satisfied with the Tax Court decision in round two.







Time Stands Still for Snow – Expanding Section 7503 on the Last Day to Timely Complete a Task

We have all prayed for snow days since entering kindergarten. Now, we have another reason to continue those prayers. The Tax Court is posed to turn a snow day from day creating terrible results for those trying to get in its doors to another legal holiday extending the time upon which to act. Let’s hope it succeeds.

Special Trial Judge Armen has issued an extraordinary order in Guralnik v. Commissioner pursuant to Tax Court Rules 182(e) and 183. Depending on what happens to this order in the Tax Court and, on appeal if the Government goes that route, a new basis for getting a petition into the Court on time may have just come into being. The facts in the case cry out for relief. Judge Armen found two possible routes to relief. Perhaps a third exists. The private carrier list update in May 2015 also gets attention in the order and deserves your attention as you read about this case.


The Order

Perhaps the first matter to address is the order itself. Petitioner filed a petition seeking relief in a collection due process case (CDP) following the issuance of a determination letter. The letter was issued on January 16, 2015. The determination letter itself is not at issue. It seems to have been properly mailed and addressed. The last date to file a Tax Court petition in a CDP case runs 30 days after the mailing of a determination letter. In this case it would ordinarily have run on February 15, 2015. That date was a Sunday. The following date was a federal holiday, President’s Day, and the following day was a snow day in Washington, D.C., when all Federal and District offices, including the Tax Court were closed. So, the first day the Tax Court was open after February 15 was Wednesday February 18 and the petition arrived in the Tax Court early that morning.

Unfortunately, petitioner mailed the petition to the Tax Court on Friday, February 13 (an appropriate day for what he has gone through in this case) using FedEx “First Overnight” service – the most expedited and expensive service that FedEx offers. You might be thinking FedEx is an approved private carrier and you would be right; however, not every FedEx delivery service is approved. The “First Overnight” service did not exist in 2004 when the IRS had last published its list of approved private delivery services and so was not on the list. In May 2015, when the IRS next updated the list, this service did make it on the list as it logically should since it is better than all of the other FedEx services already on the list. Now you are starting to get a sense of why you should not send important documents on Friday the 13th. You are also getting a sense of why the Court might want to find a way to help Mr. Guralnik in this situation since he seems to have tried to do the right thing only to have not one but two odd things prevent him from reaching his goal.

The IRS filed a motion to dismiss the petition as untimely. Judge Armen’s order, an order ordinarily issued following such a motion, resolves the motion but in an extraordinary way. This past May 28, the Chief Judge assigned this case to Special Trial Judge Armen “for disposition”. Under 7443A(b)(4) and (c), Special Trial Judges are authorized to enter the decision of the Tax Court in CDP cases. It would appear that Judge Armen could rule on this motion without any further review.  However, he issued a “recommended” ruling that is attached to his order.  The recommended ruling is in the format of a T.C. Opinion (complete with proposed headnote).  The accompanying order says that this is governed by Rules 182 and 183, and that the parties can submit comments on the recommended ruling — the procedure the Tax Court adopted in response to Ballard v. Commissioner. The order itself gives you some sense of the importance of the decision in this case. If the proposed order stands, it may well get issued as a fully reviewed opinion of the Court because of the new ground that it stakes out in the last date to perform an act area. Since the Court started putting up designated orders on its website in 2011, this may be the first order that attached a recommended opinion.

Oddly, this issue of a snow day has apparently not come up before in deficiency cases.  Based on (1) the legislative history of 7503, (2) the Federal Rule of Civil Procedure rule governing this circumstance, and (3) a belief that Congress would want this result, Judge Armen recommends finding that the Court has jurisdiction over the case. Therefore, his proposed order restores the case to the general docket for eventual trial.

The Statute

The timely mailing rule of IRC 7502 provides that if a document is mailed timely it may be treated as timely filed. Section 7503 provides that “When the last day prescribed under authority of the internal revenue laws for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday.” The term legal holiday refers to legal holidays in the District of Columbia. Thus, a petition received by the Tax Court “after the expiration of the statutory filing period … is nevertheless deemed to be timely filed if the date of the U.S. Postal Service postmark stamped on the envelope in which the petition was mailed is within the time prescribed for filing.” Reg 301.7502-1.

If the petition comes to the court through a “designated delivery service”, it may also meet the timely mailing requirement as if it was mailed through the USPS. See 26 U.S.C. § 7502(f)(1). The IRS says what meets the requirements of a designated delivery service and here, for the reasons discussed above, petitioner did not meet that requirement. No dispute exists, however, concerning the date petitioner gave the petition to FedEx and the fact that the petition was delivered to the Court on the first day it was open after petitioner gave the petition to FedEx. Agreeing with the IRS that the delivery service did not meet the statutory requirements, Judge Armen nevertheless found that “we hold that the petition was timely filed and that the Court has jurisdiction to hear petitioner’s case… because section 7503 served to extend the filing deadline to Wednesday, February 18, 2015, thereby making the receipt of the petition on that date timely.” To reach this conclusion, he found that the “official closing of both District and Federal government offices, specifically including the Tax Court, on Tuesday, February 17, 2015, because of a winter snowstorm as a legal holiday in the District of Columbia for purposes of section 7503.”

How did Judge Armen work his way past many decades of the Tax Court not recognizing snow days as legal holidays for purposes of the timeliness of petitions in the Tax Court? He did it by looking back at the long history and purpose of the statute which came into existence as a result of the position that if the last day for performing an act fell on a Sunday and the taxpayer had not performed the act by that date the taxpayer had missed the deadline. See Section 274(a) of the Revenue Act of 1926, ch.27, 44 Stat at 55. See also Satovsky v. Commissioner, 1 B.T.A. 22 (1924). The Sunday rule was changed about a decade later to include legal holidays in the District of Columbia. See Section 272(a), Rev Act of 1934, ch.277, 48 Stat at 741. See also S. Rept No. 558 (1034), 1939-1 C.B. (Part 2) 586. See also S.Cal. Loan Ass’n v. Commissioner, 4 B.T.A. at 237-238. The rule was changed again after another decade to include Saturdays. See Pub. L. No. 79-291, sec. 203, 59 Stat. at 673 (1945). The change in 1945 to add Saturdays to the list of days not counted as the last day to perform an act resulted because the Tax Court closed its docket room on Saturdays after September 8, 1945 to comply with the Federal Employees Pact Act of 1945. See Pub. L. No. 79-106, 59 Stat. at 303. See also Pleasant Valley Wine Co. v. Commissioner 14 T.C. 519 (1950).

In reviewing the changes to the law regarding the days that would no longer count as the last day to perform an act, Judge Armen determined that the reasons for the changes resulted from the fact that the Tax Court was closed for business on those days. He then reasoned that the same basis for not allowing the last day to fall on a day when the Tax Court was not opened because it was not a federal work day also applied when the office was closed due to weather. In some ways it is even more logical to extend the rule to weather related closings because taxpayers cannot predict them. Before the changes to the law concerning the counting of weekend days or federal holidays, taxpayers at least knew that if the last day to perform an act fell on a day the Court would not be open it was incumbent upon them to perform the act on the last day the Court was open before the deadline passed. It is not possible to predict, at least not with certainty, when a weather related closing will occur. Allowing a weather related closing, or any externally created closing, to serve as a day not counted as the last date for filing, gives taxpayers a result that places them in a position to know when to act and does not punish them for a failure caused by an external source.

The Rule

Having worked through the legal basis for interpreting section 7503 to allow a weather closing to push forward the last date to perform an act, Judge Armen circled back to the Tax Court rules. There is no Tax Court rule dealing with this situation, though there is an FRCP that would extend the filing date in these circumstances.  Rule 6(a)(3)(A) of the FRCP addresses the issue of computing and extending time when the clerk’s office is inaccessible. Judge Armen cites In re Swine Flu Immunization Prod. Liab. Litig., where the court held that the last day to file an administrative claim under the Federal Tort Claims Act excluded both Sunday and the following Monday which was a snow day when government offices were closed. The decision looked to the FRCP.

Similarly, Rule 26(a)(3)(A) of the Federal Rules of Appellate Procedure extend the filing time when the clerk’s office is inaccessible. Tax Court Rule 25 is silent regarding inaccessibility of the Tax Court; however, that silence implicates Tax Court Rule 1(b) which provides “Where in any instance there is not applicable rule of procedure, the Court or the Judge before whom the matter is pending may prescribe the procedure, giving particular weight to the Federal Rule of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”

Equitable Tolling

If the IRS appeals this decision, petitioner may have another avenue for arguing that the time period should be held open for the filing of this petition – equitable tolling. We have written on equitable tolling many times and will probably write on it many more times. I credit Carl Smith with keeping this issue in our thinking and for many of the thoughts expressed here. Mr. Guralnik’s facts certainly present the type of situation in which one would want to raise equitable tolling. Denying him the opportunity to have his petition heard under these circumstances would not seem equitable. The IRS in its response in this case to the Court’s order to address the impact of the official closing of the Court due to snow acknowledged that dismissal of petitioner’s case “may seem harsh.” With a concession like that how could equitable tolling not apply?

This discussion needs to start by acknowledging that the Tax Court held that section 6330(d)(1)’s 30-day filing deadline is jurisdictional and not subject to extension in Boyd v. Commissioner, 124 T.C. 296, 303 (2005), aff’d 451 F.3d 8 (1st Cir. 2006).  The Tax Court made that ruling based on the since-rejected view of “jurisdictional” as any mandatory deadline.  Since the recent narrowing of the use of the word “jurisdictional” by the Supreme Court, the Tax Court has not revisited that Boyd holding.  Yet, Judge Armen has called the 30-day period jurisdictional in the recommended ruling. Even including the 1st Cir. in Boyd, no Circuit has ruled on the 6330(d)(1) period’s jurisdictional status one way or the other.  See Carlton M. Smith, “Equitably Tolling Innocent Spouse and Collection Due Process Periods”, Tax Notes Today, 2010 TNT 41-8 (Mar. 3, 2010) and several prior posts for a detailed discussion of equitable tolling issues as they might apply to this situation.

Within the last year, the Tax Court in Lippolis v. Commissioner has cited Supreme Court case law for the proposition that proximity of a dollar-amount requirement in whistleblower cases to the jurisdictional grant does not make that other requirement jurisdictional. Raising the equitable tolling argument here may provide another path to success even though it would require overturning the Tax Court’s decision in Boyd.    Since section 7503 does not literally mention snow days or other non-holidays when the federal government in D.C. is closed down, it is possible that the IRS will appeal this decision and seek to limit the scope of section 7503. Opening up another pathway for possible success could not hurt Mr. Guralnik’s chances to ultimately have his CDP argument heard on the merits.

Under recent case law, “filing deadlines ordinarily are not jurisdictional.”  Sebelius v. Auburn Regional Med. Center, 133 S. Ct. 817, 825 (2013). The Supreme Court in Auburn wrote:  “”We inquire whether Congress has ‘clearly state[d]’ that the rule is jurisdictional; absent such a clear statement, we have cautioned, ‘courts should treat the restriction as nonjurisdictional in character.’” Id. at 824. In a number of recent cases, the Supreme Court has found filing deadlines not to be jurisdictional. See Henderson v. Shinseki, 131 S. Ct. 1197 (2011) (time to file in Art. I Veterans Appeals Ct.); Auburn (time to file in a Medicare reimbursement contest forum); United States v. Wong, 135 S. Ct. 1625 (4-22-15) (FTCA times to file administrative claims and court suits under 28 usc 2401(b)).


This is an important case changing a long held position on the last day for performing an act. The procedural aspect of the case is interesting as well. Watch closely to see what the Tax Court does and how the IRS reacts. I suspect this is not the last time we write about Mr. Guralnik.





Summary Opinions for May, part 1

May got away from me, and so has much of June.  I’ll post the Summary Opinions for May in two parts, and handle June in the same manner.  Below are some of the tax procedure items in May that we didn’t otherwise cover:

  • The Middle District of Louisiana, after the Fifth Circuit vacated and remanded the case, reversed its prior decision and, under Woods, held that the Section 6662(e) valuation misstatement penalty could be imposed when the underlying transaction had been determined to lack economic substance. Chemtech Royalty Associates, LP v. US.   This case was the result of some crazy tax planning by Dow Chemicals to goose its basis in a chemical plant.  Here is Jack Townsend’s prior coverage of the case.
  • Sticking with substantial valuation misstatement penalty, the Tax Court in Hughes v. Comm’r upheld the penalty against a KPMG partner who claimed a step up in basis in stock when he transferred the shares to his non-resident spouse.  This was based on some informal tax research, and conversations with some co-workers that were also informal.  The Court essentially felt Mr. Hughes should have known better, and tagged him with a big penalty (probably didn’t help he was transferring the shares to try and ensure his ex-wife couldn’t make a claim for the increase in value).
  • IRS has released Chief Counsel Advice regarding abatement of paid tax liabilities.  In taxpayer friendly advice, CCA 201520010 states the language of Section 6404(a) is “permissive” and does not require the liability to be outstanding.  That Section states the “IRS is authorized to abate the unpaid portions of the assessment of any tax or any liability in respect thereor…”  The reference to “unpaid”, according to the CCA, is not binding on the Service.
  • The Service has released CCA 201519029, which provides advice on when preparer penalties can apply in situations where the prepared didn’t sign the return or didn’t file the return, and when a refund claim was made after the statute had expired.  For the third situation, the Service stated that “understatement of liability” does not include claims barred by the statute.  The full conclusions in the CCA are:

Issue 1: Yes. If the return is not filed, a penalty under I.R.C. § 6694(b) may be assessed if the return preparer signed the return and the return preparer’s conduct was willful or reckless.

Issue 2: Yes. Under the language of I.R.C. § 6694(b)(1), the return preparer penalty may be assessed if the tax return preparer prepares any return or claim for refund with respect to which any part of an understatement of liability is due to willful or reckless conduct. There is no requirement that the Service allow the amounts claimed on an amended return before the I.R.C. § 6695(b) penalty may be assessed.

Issue 3. The penalties under I.R.C. §§ 6694(a), 6694(b) or 6701 should not be assessed merely because the return preparer made and filed a claim for refund after the period of limitations for refunds had expired, because an “understatement of liability” does not include claims that are barred by the period of limitations. In addition, there may be extenuating circumstances that weigh against asserting the penalty. The amended return, for example, may be perfecting an earlier timely informal claim for refund.

  • The Service has announced it will be refunding the registered tax return preparer test fees.  There will be a second refund procedure where you can request your time back…but it will be ignored.
  • Professor Andy Grewal in early May had an excellent blog post on Yale’s administrative law blog, Notice and Comment, which highlights more potential penalties on employers attempting to follow the ACA requirements.
  • Another CCA (CCA 201520005) , where the IRS has held that the deficiency procedures apply to the assessment of the penalty under Section 6676 to erroneous refund claims based on Section 25A(i) American Opportunity Credit, since the penalty can only apply to a refund claim based on the credit if that claimed credit is part of a deficiency.  Carlton Smith previously had a blog post touching on this issue, found here, where he persuasively criticized  this position.  You should check out the entire post, but I’ve recreated a portion below:

A third issue discussed by the PMTA is how the section 6676 penalty is to be assessed.  Frankly, I read the Code as providing that the assessment is done like a section 6672 responsible person trust fund penalty — straight to assessment, without the deficiency procedures applying.  That seems to be what section 6671 provides.  But, the PMTA takes the position that only for underlying issues on which the section 6676 penalty applies where there is no jurisdiction in the Tax Court under the deficiency procedures, such as for excessive refund claims regarding employment taxes or the section 6707A reportable transaction penalty, the section 6676 penalty is done by straight assessment, without prior notice to taxpayers.  However, for section 6676 penalties on what would constitute a “deficiency” — and excessive refundable credit claims are clearly part of a deficiency under section 6211(b)(4)‘s special rules — the PMTA concludes that the section 6676 penalty should be asserted in a notice of deficiency.  The PMTA reasons that Tax Court cases have in the past held that a penalty which is computed as a function of a deficiency (which I would point out includes extra late-filing and late-payment penalties on the tax deficiency) are also treated under the deficiency procedures.  This reasoning is all mixed up.  The Tax Court applies the deficiency procedures to penalties like the late-filing and late-payment penalties of section 6651(a) that are imposed on the tax deficiency only because of special language in section 6665(b) that directs the Tax Court to do so.  There is no similar language in section 6671 directing deficiency procedures to apply to any penalties imposed in the following sections.

  • And another CCA (201517005), this one dealing with the statute of limitations for refunds based on foreign taxes deducted.  Specifically, whether a refund claim more than ten years (yr 13) after the tax year in question (yr 2) was timely when it resulted from an NOL (yr 4) where the taxpayer elected to deduct foreign taxes paid instead of taking foreign tax credit.  The IRS concluded that no, Section 6511(d)(2) applied to the NOL and required the claim to be made three years after the NOL year.  Section 6511(d)(3), which allows for a ten year statute for refunds pertaining to foreign tax credits, was not applicable.
  • Apparently, some states are starting to scale back the amount of tax credits available for movie productions.  Two years ago, The Suspect was filed in my building, staring Mekhi Phifer and no one else you have ever heard of.  I think it was “catered” by a fast food joint, and they may have been using our coffee pots to make coffee.  I can’t imagine Pennsylvania dropped the big bucks to land that film.
  • Emancipation day is throwing off filings again next year.  I always assumed that had something to do with the date of the Emancipation Proclamation, but I was wrong. The Emancipation Proclamation went into effect January 1st, 1863.  On April 16th, 1862, President Lincoln signed the Compensated Emancipation Act, freeing the enslaved living in the District of Columbia.  The linked Rev. Ruling explains what those in Massachusetts who are celebrating Boston Marathon Day (Patriots Day-celebrating the shot heard round the world) should do also.
  • Initially when writing this, I was watching the US women’s national team take it to Colombia, and recalling what a jackass Sepp Blatter has been.  Hoping this article is in reference to the shoe dropping on him next.  Even if he didn’t evade taxes, he should have to pay someone money for suggesting he would boost viewership of the women’s game with hot pants.  Or for not knowing who Alex Morgan is…or for making the women play on turf.

Summary Opinions for April 10th through 24th

Another slightly stale SumOp, but again full with lots of very interesting tax procedure nuggets.  This post is very heavy on the Chief Counsel Advice, much of which deals with statutes of limitations.

I also wanted to point out that you can read Keith’s acceptance speech for the Janet R. Spragens Pro Bono Award staring on page 8 of the ABA Tax Section NewsQuarterly found here.  We previously covered Keith’s honor here.

As our readers know, we at PT are big fans of tax clinics and the wonderful work the clinics do throughout the country.  Les has an article forthcoming in the Tax Lawyer on the benefits derived by students, taxpayers, and the entire tax system, which can be found here. Keith has previously written on the history of low income taxpayer clinics, and his article can be found here.

I also have to congratulate Keith on his temporary relocation over the next year.  The University of Harvard has decided to expand its array of clinics, and will be starting a low income taxpayer clinic.  Keith will be a visiting professor at Harvard for academic year 2015-2016 to set up the clinic.

And, the other tax procedure items:

  • Last year, Les wrote about the Nacchio case involving the ex-Qwest CEO who was convicted of insider trading and directed to pay a substantial fine and forfeit the profits from the sale of his stock in the company.  Nacchio filed for a refund of tax he paid on those profits, claiming Section 1341 would allow him to treat it as if he never had the gain.  Janet Novak of Forbes on May 1st, had an update on the case found here.  The government has agreed to stipulate the facts of the case, allowing it to bypass a hearing that would have likely discussed in detail the NSA program Mr. Nacchio turned down on behalf of Qwest prior to his investigation.  Janet has a summary of the DOJ’s various arguments as to why it should win based on the law, and it is likely such an appeal is going to occur shortly.  Interestingly, on March 27th, the Service released CCA 201513003, which discusses the Service’s view as to the deductibility of the restitution as a business expense under Section 162.  The issue was whether payments in lieu of forfeiture from a deferred prosecution agreement were deductible.  The advice attached the response from the DOJ in Nacchio where it argued the same issue, although the response was not attached to the released document.  I had initially wondered if the CCA dealt with the Nacchio case, but it appears the Service has a couple cases on the issue.
  • The Northern District of California recently decided US v. McEligot, where the Court held that taxpayers did not have an absolute right to be present during a third party interview pursuant to a summons.  In McEligot, a taxpayer’s accountant refused to answer IRS questions without the taxpayer’s lawyer present. The Court found the accountant had no right to refuse because the Service would not allow the taxpayer or his representative to be involved in the interview.
  • In other CCA news, the Service has issued its position on the assessment period for the Section 6694 preparer penalty for filing a refund request based on an unreasonable position and how long the preparer would then have to request a refund of the penalty amount.  Section 6696(d) houses the statute, and there would be a three year assessment period following the alleged improper refund request.  The preparer would then have three years to seek a refund of the penalty once paid.
  • This is a depressing case.  In Gurule v. Comm’r, the Tax Court remanded a CDP case involving the sustaining of a proposed levy, and whether the Appeals Officer abused his discretion in rejecting an OIC submitted for doubt as to collectability and, in the alternative, rejected an installment agreement (the SNOD may not have been properly sent either).  The primary issue in the collection matters was whether or not the Officer properly considered the economic hardship faced by the family.  In the case, the wife and son had severe medical issues, resulting in high bills.  Wife had a neurological disease resulting in seizures and multiple brain surgeries, and son was in an accident resulting in brain injuries.  The husband had lost his job, and he was using his 401(k) to pay necessary living expenses.  The officer treated the 401(k) loan as a dissipated asset, in particular the loans taken after the taxpayers knew of the outstanding tax.  “Dissipated assets” can be included in in the reasonable collection potential, which is a policy decision to deter delinquent taxpayers from squandering assets when they have outstanding tax liabilities.  An asset, however, should not be considered dissipated if it was needed to provide for necessary living expenses (like medical bills required to keep someone alive).  The Court also directed Appeals to request petitioners to provide documents regarding the son’s death, and how that could impact their collection potential.  While the debate raged on between the Service and the taxpayer, the taxpayer took an additional loan against his 401(k) to pay for his son’s funeral, which the Service found inappropriate.  I really need to start trying to be more thankful for what I have.
  • Chief Counsel has issued legal advice regarding who is authorized to sign a power of attorney for a partnership or LLC.  The issue and conclusion are as follows:

a. Who is authorized to sign a POA appointing a representative for a partnership or limited liability company (LLC) being examined in a TEFRA partnership-level examination?

b. Who is authorized to sign a POA appointing a representative for a partnership or limited liability company for other purposes?

CONCLUSIONS:  A general partner or, in the case of an LLC, a member-manager, may sign a POA for purposes of a TEFRA partnership-level examination or for other tax purposes of the partnership. A POA can also be secured from a limited partner or LLC member for the purposes of securing partnership item information and disclosing partnership information to the POA. In the case of an LLC that has no member who is also a manager, the non-member managers may sign the POA for purposes of establishing that it would be appropriate and helpful to secure partnership item information including securing documents and discussing the information with the designated individual.

KPMG has some coverage and insight here.

  • More tolling content due to financial disability.  In very interesting Chief Counsel Advice, the Service has taken the position that Section 6511(h) does not extend the three year limitations period for net operating losses or capital loss carrybacks.  In the advice, the Service states that Section 6511(h) specifically is limited to the statutes under (a)(b) and (c).  The NOL and capital loss carrybacks are found under Section (d)(2), and therefore not extended by financial disability.