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



Summary Opinions for November

1973_GMC_MotorhomeHere is a summary of some of the other tax procedure items we didn’t otherwise cover in November.  This is heavy on tax procedure intersecting with doctors (including one using his RV to assist his practice).  Also, important updates on the AICPA case, US v. Rozbruch, and the DOJ focusing on employment withholding issues.


I’ve got a bunch of Jack Townsend love to start SumOp.  He covered a bunch of great tax procedure items last month.  No reason for me to do an inferior write up, when I can just link him.  First is his coverage of the Dr. Bradner conviction for wire fraud and tax evasion found on Jack’s Federal Tax Crime’s blog.  Why is this case interesting?  Because it seems like this Doc turned his divorce into some serious tax crimes, hiding millions offshore.  He then tried to bring the money back to the US, but someone in the offshore jurisdiction had flipped on him, and Homeland Security seized the funds ($4.6MM – I should have become a plastic surgeon!).  His ex is probably ecstatic that the Feds were able to track down some marital assets.   I am sure that will help keep her in the standard of living she has become accustom to.

  • I know I’ve said this before, but you should really follow Jack Townsend’s blogs.  From his Federal Tax Procedure Blog, a write up of the Second Circuit affirming the district court in United States v. Rozbruch.  Frank Agostino previously wrote up the district court case for us with his associates Brian Burton and Lawrence Sannicandro.  That post, entitled, Procedural Challenges to Penalties: Section 6751(b)(1)’s Signed Supervisory Approval Requirement can be found here.  Those gents are pretty knowledgeable about this topic, as they are the lawyers for the taxpayer. As Jack explains, the Second Circuit introduces a new phrase, “functional satisfaction” (sort of like substantial compliance) as a way to find for the IRS in a case considering the application of Section 6751(b) to the trust fund recovery penalty.
  • The Tax Court in Trumbly v. Comm’r  has held that sanctions could not be imposed against the Service under Section 6673(a)(2) where the settlement officer incorrectly declared the administrative record consisted of 88 exhibits that were supposed to be attached to the declaration but were not actually attached.  The Chief Counsel lawyer failed to realize the issue, and forwarded other documents, claiming it was the record.  The Court held that the Chief Counsel lawyer failed to review the documents closely, and did not intentionally forward incorrect documents.  The Court did not believe the actions raised to the level of bad faith (majority position), recklessness or another lesser degree of culpability (minority position).  Not a bad result from failing to review your file!
  • This isn’t that procedure related, but I found the case interesting, and I’ve renamed the Tax Court case Cartwright v. Comm’r as “Breaking Bones”.  Dr. Cartwright, a surgeon, used a mobile home as his “mobile office” parked in the hospital parking lot.  He didn’t treat people in his mobile home (which is good, because that could seem somewhat creepy), but he did paperwork and research while in the RV.  Cartwright attempted to deduct expenses related to the RV, including depreciation.  The Court found that the deductions were allowable, but only up to the percentages calculated by the Service for business use verse personal use.  I’m definitely buying an Airstream and taking Procedurally Taxing on the road (after we find a way to monetize this).
  • The IRS thinks you should pick your tax return preparer carefully (because it and Congress have created a monstrosity of Code and Regs, and it is pretty easy for preparers to steal from you).
  • Les wrote about AICPA defending CPA turf in September.  In the post, he discussed the actions the AICPA has been taking, including the oral argument in its case challenging the voluntary education and testing regime.  As Les stated:

The issue on appeal revolves whether the AICPA has standing to challenge the plan in court rather than the merits of the suit. The panel and AICPA’s focus was on so-called competitive standing, which essentially gives a hook for litigants to challenge an action in court if the litigant can show an imminent or actual increase in competition as a result of the regulation.

On October 30th, the Court of Appeals for the District of Columbia reversed the lower court, and held that the AICPA had standing to challenge the IRS’s Annual Filing Season Program, where the IRS created a voluntary program to somewhat regulate unenrolled return preparers.  The Court found the AICPA had “competitive standing”, which Les highlighted in his post as the argument the Court seemed to latch on to.   For more info on this topic, those of you with Tax Notes subscriptions can look to the November 2nd article, “AICPA Has Standing to Challenge IRS Return Preparer Program”.  Les was quoted in the post, discussing the underlying reasons for the challenge.

  • Service issued CCA 201545017 which deals with a fairly technical timely (e)mailing is timely (e)filing issue with an amended return for a corporation that was rejected from electronic filing and the corporation subsequently paper filed.  The corporation was required to efile the amended return pursuant to Treas. Reg. 301.6011-5(d)(4). Notice 2010-13 outlines the procedure for what should occur if a return is rejected for efiling to ensure timely mailing/timely filing, and requires contacting the Service, obtaining assistance, and then eventually obtaining a waiver from efiling.  There is a ten day window for this to occur.  The corporation may have skipped some of the required steps and just paper filed.  The Service found this was timely filing, and skipping the steps in the notice was not fatal.  The Service did note, however, that efiling for the year in question was no longer available, so the intermediate steps were futile.  A paper return would have been required.  It isn’t clear if the Service would have come to the same conclusion if efiling was possible.
  • Sticking with CCAs, in November the IRS also released CCA 201545016 dealing with when the IRS could reassess abated assessment on a valid return where the taxpayer later pled guilty to filing false claims.   The CCA is long, and has a fairly in depth tax pattern discussed, covering whether various returns were valid (some were not because the jurat was crossed out), and whether income was excessive when potentially overstated, and therefore abatable.  For the valid returns, where income was overstated, the Service could abate under Section 6404, but the CCA warned that the Service could not reassess unless the limitations period was still open, so abatement should be carefully considered.



Tilden v. Comm’r: Postal Service Tracking Data Determines Timeliness of Tax Court Petition

Today we welcome back our frequent contributor, Carlton Smith, who is writing on the September Tax Court case, Tilden v. Commissioner.  Tilden was an IRS victory where a label did not constitute a valid postmark for timely mailing, which the Service subsequently tried to reverse.  Carl explains what the heck is going on below. Steve 

I considered doing a post on Tilden v. Commissioner, T.C. Memo. 2015-188, when it came out on September 22, 2015.  I didn’t.  But, now that the IRS has challenged its own victory in Tilden and asked for a reversal, I couldn’t resist.  After all, how often does the IRS succeed in getting a Tax Court case dismissed for being untimely brought, then not object to a taxpayer’s motion for reconsideration that asks the Tax Court to find the petition timely?  Indeed, the IRS has taken three different positions in this case as to the applicable law.  However, in an order dated December 3, 2015, Special Trial Judge Armen refused to reconsider his ruling, despite the IRS’ most recent change of heart.

So, what was all the hubbub about?  Well, 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.


Section 7502(a) provides a rule that allows a Tax Court petition to be timely when it is received by the court after the date by which it must be filed and bears a timely “United States postmark”.  Section 7502(b) provides:  “This section shall apply in the case of postmarks not made by the United States Postal Service only if and to the extent provided by regulations prescribed by the Secretary.”  As PT has noted in its recent post on the Guralnik case (found here and here) , section 7502(f) provides rules for certain private delivery services to get the benefit of the subsection (a) rule.  Tilden did not involve a private delivery service, though.  The issue in Tilden was whether subsection (b) or the common law mailbox rule applied, and what the regulations under subsection (b) provided.


Before discussing Tilden, we need to detour here to another opinion decide by Judge Armen, Boultbee v. Commissioner, T.C. Memo. 2011-11 – especially since Judge Armen relied on it as the centerpiece of his Tilden rulings.

In Boultbee, the IRS sent a notice of deficiency to a taxpayer in Canada, who, thus, being out of the country, had 150 days under section 6213(a) to file a Tax Court petition.  A petition arrived at the Tax Court after the 150th day in the USPS mail.  The envelope bearing it had been sent through the Canadian Post by its registered mail and bore a clearly visible Canadian post postmark within the 150-day period. The envelope bore no USPS postmark, but internal USPS tracking information (from the USPS’ “Track and Confirm” service) showed that the envelope had entered the USPS system in Los Angeles several days before the 150th day and arrived at the Tax Court 7 days later.

The IRS moved to dismiss the petition as untimely.  The IRS argued that foreign postmarks do not get the benefit of section 7502.  The IRS distinguished a provision of the regulations that allowed extrinsic evidence of mailing where a USPS postmark was illegible or missing, arguing that no USPS postmark was required for foreign mail transmitted to the USPS, so no USPS postmark was “missing”.

Judge Armen wrote that in, these circumstances, “we regard the U.S. Postal Service Track and Confirm data as tantamount to, and/or the functional equivalent of, a U.S. Postal Service postmark. See sec. 7502(f) (regarding the treatment of private delivery services and the use of corporate records electronically written to a database)”.  Slip op. at *13.  Therefore, relying on that USPS data, he held that the petition was filed timely.

Boutlbee was never appealed by the IRS, perhaps because the case was later dismissed for lack of prosecution.


Tilden similarly involved an envelope that bore no USPS postmark.  Since this case involved a Wisconsin taxpayer, the 90-day period in section 6213(a) was applicable.  The envelope containing the petition bore a private postage label from dated the 90th day.  Apparently, the envelope was placed in the mail by an employee of counsel for the taxpayer, and that employee also affixed to the envelope a Form 3800 certified mail receipt (the white form) on which the employee also handwrote the date that was the 90th day.  The Form 3800 did not bear a stamp from a USPS employee.  Nor did the USPS ever affix a postmark to the envelope.

The envelope arrived at the Tax Court from the USPS.  The USPS had handled the envelope as certified mail.  That meant that the USPS internally tracked the envelope under its “Tracking” service (formerly known as “Track and Confirm”).  Plugging the 20-digit number from the Form 3800 into the USPS website yielded Tracking data showing that the envelope was first recorded in the USPS system on the 92nd day.  The envelope arrived at the Tax Court on the 98th day.

In Tilden, the IRS moved to dismiss the case based on the ground that the USPS Tracking data showed the petition was mailed on the 92nd day.

In his objection, the taxpayer disagreed, arguing that this was a situation covered by Reg. 301.7502-1(c)(1)(iii)(B)(1).  That regulation states:

(B) Postmark made by other than U.S. Postal Service.–(1) In general.–If the postmark on the envelope is made other than by the U.S. Postal Service–

(i) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and

(ii) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or mailing the payment.

The taxpayer argued that the mailing label, combined with the Form 3800, was a  “postmark” not made by the USPS that legibly showed a date that was the 90th day and that the 8-day period between the 90th day and receipt by the Tax Court was when mail of such class would “ordinarily be received”.  Thus, under the regulation, the petition was timely filed.

In responding to the objection, the IRS changed position and now argued that the taxpayer had the wrong portion of the regulation, and that the relevant portion of the regulation was actually Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:

(2) Document or payment received late.–If a document or payment described in paragraph (c)(1)(iii)(B)(1) is received after the time when a document or payment so mailed and so postmarked by the U.S. Postal Service would ordinarily be received, the document or payment is treated as having been received at the time when a document or payment so mailed and so postmarked would ordinarily be received if the person who is required to file the document or make the payment establishes–

(i) That it was actually deposited in the U.S. mail before the last collection of mail from the place of deposit that was postmarked (except for the metered mail) by the U.S. Postal Service on or before the last date, or the last day of the period, prescribed for filing the document or making the payment;

(ii) That the delay in receiving the document or payment was due to a delay in the transmission of the U.S. mail; and

(iii) The cause of the delay.

The IRS argued that the petition had arrived beyond the time it would “ordinarily be received”, triggering the taxpayer’s obligation to prove the three conditions of the relevant portion of the regulation – none of which had been proved.

Judge Armen held that both parties had the wrong portions of the regulation.  He believed the relevant portions of the regulation were found at:

(1) Reg. 301.7502-1(c)(1)(iii)(B)(2), which provides:

(3) U.S. and non-U.S. postmarks.–If the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded, and whether the envelope was mailed in accordance with this paragraph (c)(1)(iii)(B) will be determined solely by applying the rule of paragraph (c)(1)(iii)(A) of this section; and

(2) Reg. 301.7502-1(c)(1)(iii)(A), which provides:

If the postmark does not bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment, the document or payment is considered not to be timely filed or paid, regardless of when the document or payment is deposited in the mail.

Judge Armen admitted that no postmark from the USPS actually appeared on the envelope, but he cited his opinion in Boultbee for the proposition that USPS Tracking data was the equivalent of a USPS postmark.  “After all,” he wrote, “both USPS Tracking data and the more traditional postmark are products of the USPS, and nothing would suggest that the former is not as reliable and accurate as the latter when it comes to determining the time of mailing.”  Tilden, slip op. at *11.  Since the Tracking data first showed the envelope with the USPS as of the 92nd day, the non-USPS “postmark” was disregarded, and it did not matter when the envelope was deposited in the mail.  The petition was untimely.

The judge dismissed the taxpayer’s argument that the USPS data does not accurately reflect either where or when the envelope first entered the USPS mailstream.  The court noted that similar arguments had been rejected when it was clear that the USPS postmark had been affixed at a postal facility other than the one where the envelope was placed into the mailstream or because the USPS was dilatory in postmarking the envelope.  The judge observed:

As section 301.7502-1(c)(1)(iii)(A), Proced. & Admin. Regs., makes clear, “the sender who relies upon the applicability of section 7502 assumes the risk that the postmark will bear a date on or before the last date, or the last day of the period, prescribed for filing the document”. The regulation goes on to advise that such risk may be avoided by using registered mail or by using certified mail and having the sender’s receipt postmarked by the postal employee to whom the document is presented . . . .  Such risk may also be avoided through the judicious use of a designated delivery service. See sec. 7502(f)(2)(C). [id. at *12-*13 (some citations omitted)]

 Motion for Reconsideration

In its motion for reconsideration, the taxpayer, among other things, argued for applying the common law mailbox rule.  The taxpayer reported that the IRS told him that the IRS objected to the granting of the motion for reconsideration.

But, when the IRS actually filed a response to the motion, the IRS changed position again and now did not object to the granting of the motion.  A copy of the IRS response can be found here.  The IRS noted that section 7502 has been held to supersede the common law mailbox rule in most Circuits (with one exception not relevant to this case).  And, in any case, the common law mailbox rule couldn’t apply here where there was actual delivery – and delivery was on a date after the due date.  You still needed section 7502 to make the late envelope timely.

But, the IRS now took the position that the envelope had been received at the limit of, but still within, the time in which the envelope would be expected to “ordinarily be received” if mailed on the 90th day from Utah, where the taxpayer’s attorney’s office was.  In part, the IRS concession was based on the delay to be expected because (as many people forget), since the 2001 anthrax in the mail scare, all mail to the Tax Court gets irradiated.  Thus, the IRS conceded that the taxpayer’s petition was timely under the portion of the regulation on which the taxpayer relied, Reg. 301.7502-1(c)(1)(iii)(B)(1).  The IRS, without mentioning Boultbee, simply told the court that the court had relied on the wrong provisions of the regulation, since there was no actual USPS postmark in this case, just tracking data.

Somewhat incensed that neither party responded to Boultbee — the lynchpin of his prior ruling in Tilden —  Judge Armen denied the motion for reconsideration, telling the parties the truism that the court’s jurisdiction may not be conferred by mere concession by the parties.

To date, neither the taxpayer nor the IRS has appealed the December 3 denial of the motion for reconsideration in Tilden.


Tilden presents a common situation and now may throw up more obstacles in those situations to the Tax Court taking jurisdiction of such cases.  Many attorneys’ offices have mailroom people who use private postage meters, and such mailroom people, when sending an envelope certified mail, themselves date the Form 3800, rather than getting a date stamp on the envelope and the Form 3800 by a USPS employee.  I know that at Cardozo School of Law, where I worked running the Tax Clinic, that was also the procedure for certified mail in its mailroom.

I don’t know what is acceptable proof of timely mailing in other areas of the law, but I always told my students that a Tax Court petition had best be sent certified mail, and the students should themselves go down to the post office and see that both the envelope and the Form 3800 get timely, legible date stamps made on them by a USPS employee.  I banned my students from simply dropping the envelope with the completed Form 3800 in the Cardozo mailroom.  Either take this step or use the private delivery service companies, after double-checking the current list of approved private delivery companies and the approved services of those companies.

In comments on PT, Jason T has often complained that any Tax Court practitioner who does less – like the attorney did in the Tilden case – has probably committed malpractice if the mailing is later held to fail the section 7502 rules.  I agree.  Take Tilden as a cautionary tale.

Quirky Mail Service Issue Surfaces Again: The IRS Plays “Gotcha” Rather Than Looking for Solution

I recently wrote about two separate mail issues.  In the Guralnik case, the use of the wrong private delivery service, a better faster one than the IRS had approved, caused a Tax Court petition to arrive without the benefit of the timely mailing rule of section 7502.  In the Mendoza v. Cicernos case, the failure to mail the notice of non-judicial sale to the correct IRS office caused the federal tax lien to remain on the property after foreclosure by the senior lienholder.

On June 12, 2015, the IRS released a Chief Counsel Advisory opinion, CCA-06120638-15 that combines the painful aspects of both prior opinions.  The opinion addresses a situation in which a senior lienholder provided notice to the IRS pursuant to IRC 7425(c).  The issue in the advisory opinion concerns the validity of the notice provided by the senior lienholder.  The advisory opinion concludes that the notice was no good and, therefore, the federal tax lien remains on the property.


As discussed in the Mendoza post, section 7425 requires that the IRS receive notice of a non-judicial sale in the proper office more than 25 days prior to the sale.  In the Mendoza case a problem arose because even though the notice was sent to the IRS more than 25 days prior to the sale, the notice went to the wrong office of the IRS.  The applicable regulation requires that the notice go to the office listed in Publication 4235 and instead Weld County in that case sent the notice to the local IRS office.  The IRS had actual notice but the correct part of the IRS did not receive notice as required by the applicable regulation.

The senior lienholder in the advisory case sent notice of the sale more than 25 days prior to the sale and sent it to the address listed in Publication 4235; however, the senior lienholder used a private delivery service to deliver the notice.  The private delivery service used by the senior lienholder was on the list of approved private delivery services in the applicable Revenue Procedure issued pursuant to section 7502.  What’s the problem if you mail the notice within the right time frame to the right address using an approved private deliver service?  The problem is that when sending a notice of sale pursuant to section 7425(c) the notice must be given, pursuant to regulations prescribed by the IRS, ‘in writing, by registered or certified mail or by personal service.”  The regulations under section 7425 do not authorize the use of a private delivery service and the statute says the notice must be mailed by “registered or certified mail.”

The private delivery services described in section 7502 take the place of “regular” mail.  Nowhere in the regulations has the IRS provided for the private delivery services to take the place of “registered or certified mail.”  The opinion provides that “even if section 7502 could be construed to expand the definition of ‘registered and certified mail’ for purposes of section 7425, no private delivery services are currently treated under section 7502 as equivalent to registered or certified mail.  So, yet another taxpayer is lulled into the private delivery service mistake.

But another argument exists that the advisory opinion also shoots down.  Section 7425 permits personal service of the notice of sale.  What if the delivery of the notice to the IRS by the private delivery service is viewed as personal service rather than a substitute for “registered or certified mail?”  After all, in many instances, the employee of the private delivery service actually walks up the office and hands off the envelope.  Neither the code, the regulations, the IRM provisions nor the relevant publications define what is meant by “personal service.”  In the absence of guidance from any of these sources, the author of the advisory opinion takes the position that the personal service can only occur when the delivery occurs by the submitter of the notice and not by a third party.

The position that the “submitter of the notice” must be the person to effect personal delivery raises interesting questions itself.  Does it need to be the city or county manager if the notice comes to the IRS from a local property tax sale or the head of the property tax office?  Could it be any county employee who could effectively deliver the notice even someone remote from the city or county tax office such as a sheriff?  Does the person delivering the notice need to be a full time employee?  What if the city or county or corporation uses a temp agency employee to deliver the notice or uses leased employees?  This rule not only seems unnecessary to the spirit of the notice but seems difficult if not impossible to administer.

The goal of 7425 is to make sure that the IRS receives the notice in time to take action to protect its lien interest.  The seemingly picky rule requiring delivery to a specific office of the IRS that caused Weld County to trip up in the Mendoza case makes sense because the IRS is a huge organization and notice to one part of it will not necessarily get the information on a time sensitive matter like this to the right place.  Moving from the concern in Mendoza to the concern here, it is necessary to look for some reason that the letter needs to come by certified or registered mail.  Did Congress have in mind that the receipt of a letter in one of those deliver forms would make the IRS sit up and take notice of the contents of the letter faster than it would with regular mail?  At the time Congress passed that law, private delivery services were uncommon.  It is possible that Congress thought registered or certified mail delivery to the IRS would enhance the notice and that is a justification for not allowing the private delivery service to take the place of certified or regular mail but Congress does not appear to have thought of this when passing the statute.

To make itself appear more reasonable, the IRS should justify why it does not want a private delivery service to serve the same purpose as certified mail.  If no reasonable justification exists, the IRS should update the language in the regulation to permit private delivery to work for types of mailing other than just regular mail.  Even if the IRS does not permit private delivery to work in place of registered or certified mail because of a business reason, it should reexamine the statement in the advisory concerning delivery by the submitter of the notice.  Here again, it needs to provide reasoning rather than to just fall back to the most favorable position for the IRS.  The goal is the right answer not tripping up someone with an unnecessary rule.  The IRS only comes out looking bad without a business justification for playing “gotcha.”

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 the week of 05/01/15

Happy Memorial Day weekend!  We won’t be posting on Monday, but will probably be back in full force on Tuesday.  I know we have a handful of guest posts coming up on really interesting topics and I’m certain Keith and Les have some insightful things to add following ABA.

In the week of May the 1st, we welcomed first time guest poster, Marilyn Ames, who wrote on NorCal Tea Party Patriots v. IRS and disclosure of return information.

Here are the other procedure items from that week:

  • A recent Tax Court decision brought back the analysis used by the Supreme Court almost 20 years ago on a similar but slightly distinct fact pattern.  The situation can be tough to follow at first because it plays out at the intersection of Sections 6511 and 6512.  It also involves reliance on the earlier Supreme Court decision which caused a change to Section 6512 after it was decided.  In Butts v. Comm’r, the Tax Court denied taxpayers’ request for refund as being untimely.  The taxpayers failed to file in ’07 and ’08.  In 2011 (and 2012), SNODs were issued for 2007 and 2008, and later that year the taxpayer filed for review in the Tax Court.  In 2013, taxpayers filed joint returns, claiming overpayment due to employer withholdings.  The Court stated SCOTUS reviewed an almost identical case in Lundy v. Comm’r.   The issue in both cases was if the refund amount was allowed under Section 6512(b)(3), which allows refunds of any amount paid:

(A) after the mailing of the notice of deficiency;

(B) within the period which would be applicable under section 6511(b)(2), (c), or (d), if on the date of the mailing of the notice of deficiency a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment; or

(C) within the period which would be applicable under section 6511(b)(2), (c), or (d), in respect of any claim for refund filed within the applicable period specified in section 6511 and before the date of the mailing of the notice of deficiency.

Based on the facts in Butts and Lundy, (A) and (C) do not apply.  In Lundy, SCOTUS stated it considered:

the look-back period for obtaining a refund of overpaid taxes in the…Tax Court under 26 USC 6512(b)(3)(B), and decide[d] whether the Tax Court can awarded a refund of taxes paid more than two years prior to the date on which the [IRS] mailed the taxpayer a notice of deficiency, when, on the date the notice of deficiency was mailed, the taxpayer had not yet filed a return.  We hold that in these circumstances the 2-year look-back period in 6513(b)(3)(B) applies, and the Tax Court lacks jurisdiction to award a refund.

One difference in Butts and Lundy is that in Lundy the taxpayer made its request within three years of the filing date, whereas in Butts the request was made more than three years after the filing date.  Based on a prior version of the statute, Lundy was precluded from obtaining a refund because it was outside of two years and there was not a reference to the three year statute applicable. Section 6512(b)(3) was modified in 1997 by Congress, and now the minimum statute of limitations would be the three years from the filing date.

In Butts, under Section 6512(b)(3)(B), the Court stated it must look to the mailing date of the SNOD as a hypothetical claim date and determine if a timely claim could have been made then based on Section 6511.  This requires a review of the two year statute from the date of taxes paid, and three years from the due date of the return.  The withholdings for 2007 were treated as having been paid on April 15, 2008, while the initial SNOD was issued in June of 2011.  Since both statutes had passed, no claim for refund could be allowed.  There was a similar issue with the 2008 return.

  • Peter Hardy and Carolyn Kendall, attorneys from Post & Schell, and prior guest bloggers here at PT, have posted on Jack Townsend’s Federal Tax Crimes blog (two-timers!) on the Microsoft appeal in In re Warrant to Search a Certain E-mail Account.  The guest post can be found here, and Jack’s summary of related materials on the Stored Communications Act can be found here.  Although the post deals with a drug case, the impact could be far reaching regarding subpoena power over electronic communications in the cloud (including datacenters outside of the US).  Peter and Carolyn tie in the Service’s review of foreign accounts nicely.
  • It’s like speed dating, but it might cost more and you only get lucky if you don’t get picked.  The NY Times has an op-ed on the IRS speed audit, with agency cut backs causing reduced response time for taxpayers, which if not promptly responded to could result in important collection due process rights being forfeited.  The op-ed indicates that the IRS may be sending out follow up letters the same day as the initial letter, which the author argues is in violation of the updated taxpayer bill of rights issued last year.  When you are on the op-ed, check out the comments the NY Times has picked as important.  Carl Smith was highlighted for indicating a few other ways the tax system is failing taxpayers.  This practice may save time for the Examination Division of the IRS but pushes more cases into the collection stream which also impacts the IRS resources.
  • On April 20th, the Tax Court issued a decision in Yuska v. Comm’r, holding the automatic stay invalidated a Notice of Determination Concerning Collection Actions regarding a tax lien that was issued after the bankruptcy petition.  Importantly, the Court declined to follow the IRS’s suggestion that the Court distinguish this case from Smith v. Comm’r, which had similar facts but pertained to a levy.  The timing of events were very important in following Smith, and the Service also argued that the Court should instead follow Prevo v. Comm’r, which was a lien case where the collection action occurred before the BR petition.  In Smith, the Serviced began collection actions, and then the taxpayer filed a bankruptcy petition, followed by the Service issuing a notice of determination concerning the levy, and then the taxpayer petitioning the Tax Court for review of the levy action.  The Court held the continuance of the collection action violated the stay under 11 USC 362(a)(1).  In Prevo, the sustaining of the lien occurred before the BR petition.  As to differentiating between a lien and levy case, the Court found the administrative review of a lien was clearly part of the administrative collection process and subject to the ruling in Smith, even if future administrative review was possible. Although the Court declined to differentiate between the two in this case, Keith noted that if the stay stopped the CDP case there can be important differences.  In a lien case, the NFTL remains valid (if not enforceable) until after the stay is lifted.  In a levy case, the stay prevents the IRS from moving forward with the levy completely.  Keith didn’t read the case, and still came up with something much more insightful and helpful to add.
  • This is becoming a little like an advertisement for Jack Townsend’s Criminal Tax Crimes Blog.  Jack posted on the recent 7th Circuit case, US v. Michaud, which reviewed whether or not the IRS had authority to issue a summons in a criminal matter prior to a DOJ referral.  The statute in question is Section 7602(b) & (d), which was modified after US v. LaSalle Nat’l Bank to make it clear the IRS did have this authority.  The 7th Circuit had some additional thoughts on when the IRS couldn’t issue the summons.  Check out the post for a discussion of that point, and Jack’s always helpful thoughts on the matter.
  • Context is always important.  For instance, being suspended can be very good (we took our daughters rock climbing this weekend, and being suspended by the rope was really helpful), but it can also be pretty bad in the school, professional or corporate context.  Such was the case in Leodis C. Matthews, APC, a CA Corp. v. Comm’r, where the Tax Court held that it lacked jurisdiction  over a deficiency petition brought be a corporation (law firm) that California had suspended its corporate privileges for due to failure to pay state taxes.  Interesting point of law.  Can someone bring the petition on behalf of the corporation so it does not lose its ability to contest the tax?  Timing is also interesting.   Corp is suspended May 1, 2013, and 90 day letter is issued June 30, 2014.  Taxpayer petitions court Oct. 1, 2014 (presumably timely), and had its corporation reinstated November 26, 2014.  You would guess he was trying to deal with his state tax issue during the 90 day period.  I also wonder if there is a way to get limited rights reinstated, so that the corporation could have petitioned the Tax Court.
  • We all hear the scare tactics on the radio about how if you owe more than $10,000, the IRS is going to come and take your assets, steal your children, put you in jail, shoot your dog, etc.  We are lucky enough to know this is BS, and an effort to garner business.  Sometimes, however, the IRS can show up at your premises (probably armed), and take your stuff.  You have to owe a bit more than $10k, and the Service has to jump through a lot of hoops.  In re: The Tax Indebtedness of Voulgarelis is one such writ of entry case.  In Voulgarelis, the taxpayer apparently owed around $300k, possibly more, and ignored six notices of intent to levy.  The Service sought an order authorizing it to enter the premises and levy the tangible property, which was granted in accordance with GM Leasing Corp. v. United States, 429 US 338 (1977).
  • The Service has updated its list of private delivery services that count for the timely mailing is timely filing rules under Section 7502.  The update can be found in Notice 2015-38.  As we’ve discussed before, failure to file these rules can result in harsh results.  These results can be seemingly arbitrary when a taxpayer selects a quicker FedEx/UPS delivery method that isn’t approved, and cannot rely on the rule.
  • In information notice 2015-74, the IRS has reminded businesses of the temporary pilot penalty relief program for small businesses that have failed to properly comply with administrative and reporting requirements for retirement plans.  That program ends June 2nd.


Summary Opinions for 10/31/14

The first week of November had two great guest posts.  The first post, which can be read here, was by attorney Michelle Feit, who discussed the extended statute of limitations found under Section 6501(c)(8).  The second, found here, was by Robert Everett Johnson, an attorney with the Institute for Justice, who discussed two recent cases where the IRS was found to have improperly seized assets using the Anti-Structuring Laws. I would suggest our readers review the comments to that post, found here, which were very strong. I would also commend to our readers the comments to Keith’s post on the suspension of the statute of limitations due to continuous absence from the US.  Lots of good information.

To the other procedure:

  • The Fifth Circuit, in Hoeffner v. Comm’r, reviewed a collection case, and found no reasonable cause for failure to file and pay, although the taxpayer did have obstacles in obtaining information to file.  Mr. Hoeffner was a prominent attorney in Houston.  In 2007, he was indicted on fraud, conspiracy, and money laundering, where he allegedly bribed adjusters at The Hartford Financial Services group with luxury cars, trips, night life and cash.  It seemed as though this counselor was headed to be a jailhouse lawyer, but the case resulted in a mistrial. He later paid costs related other criminal charges, which were then dropped.   Mr. Hoeffner then sued the Hartford and its general counsel (who was then the US Deputy Treasury Secretary) for negligently causing the bribery charges to be brought against him, and for a related cover-up for what he claimed was the extortion of him for the “bribes” to have cases settled.  Much of this summary is taken from a Bloomberg article found here.  In 2012, that case was settled.  Here is an article, including an interview with Mr. Hoeffner, from after the settlement.  So, Mr. Hoeffner lost his law license for a few years, and a couple million bucks, but somewhat cleared his name.

The tax case revolves around whether or not Mr. Hoeffner had reasonable cause for failing to timely file his 2008 tax return and timely paying his tax liability.  Mr. Hoeffner argued that a pre-trial order in his criminal case barred him from contacting his accountant, who had his tax records.  The Court held that neither unavailability of records, nor involvement in litigation, was reasonable cause, and he could not rely on his criminal defense lawyer’s advice to not file the incomplete or incorrect return.   The accountant did testify, and said it would have been impossible for another preparer to figure out the returns without his papers, but the Court still imposed the penalties.  Peter Reilly has additional coverage over at Forbes.

  • The Feds have removed and withdrawn regulations relating to the qualified payment card agent program.  The Service indicated that the program is now obsolete because of the reporting obligations found under Section 6050W.
  • As mentioned in the intro, we were fortunate to have Mr. Johnson from the Institute for Justice posting this week on the government seizing assets using the Anti-Structuring Laws.  Jack Townsend shared his initial thoughts on the NYT article last week, which can be found here.  Like all of Jack’s content, this is well worth your time.
  • Taxpayer who prevailed on about ¼ of Section 7431 wrongful disclosure case that was settled in part and dismissed in part was not entitled to attorney’s fees under Section 7430, as it did not “substantially prevail” in the amount or the most significant issue.  In The National Organization for Marriage (NOM) v. US, NOM and the Service disagreed on the amounts in question, and the Court held for the government.  I can say with certainty NOM will not be on my giving Tuesday list, but I am not sure how I feel about this holding.  I think it is correct, but have concern about how the holding could be expanded…but perhaps unfounded concern.  My concerns pertain to the Court’s determination of the amount in question, and as to what the “most significant issue” was in the case.

As to the most significant issue, the Court highlighted that the IRS conceded the wrongful disclosure claim in the answer to the complaint.  The complaint apparently had a bunch of other trumped up First Amendment/government conspiracy claims by NOM that the disclosure was related to.  These were dismissed, leaving only the amount of the damages to be determined.  The Court found that the other B.S. claims were the real reason for the suit, which was evidenced by the suit moving forward even though the government admitted to the disclosure.  The Court also noted that the government was substantially justified, which also precluded the award, which I did not take issue with.  The parties settled for $50k on the improper disclosure.  I suspect NOM did protract litigation on potentially bogus claims, but the underlying, primary claim was wrongful disclosure, which the IRS did.

I also was slightly uncomfortable with the “amount in question” conclusion.  NOM’s position was that the amount in question was either $60, 500 or $58,586, which were the specified damages in the complaint.  The government said that amount should have been $117,586, plus the pled (or pleaded) unspecified punitive damages.  The Service’s $117k number was based on the fact that NOM amended its claims, withdrawing a portion of around $50k, and then adding back in a similar amount for a different claim.  The Service added both together.   The Court accepted the $117k base number, and then went through a rational and lengthy discussion about including punitive damages.  The Court eventually concluded it needed to calculate a number and add it to the other damages, which it did, ending with a substantially higher number.  Had the Court accepted the government’s stated number, the recovery would have been a little under 50%.  Whereas with the punitive damages it is around 25% recovered.  Only recovering 45% is not sufficient, but in a different circumstance, the punitive damages number could have been the difference.

This is something to think about when throwing in “plus punitive damages”, and when including ancillary arguments in your complaint beyond your primary issue.

  • In US v. Briggs (couldn’t find a free link, sorry), the US District Court for the Eastern District of North Carolina denied a trustee’s motion to dismiss the government’s claim to foreclose a lien against the trust’s interest in an LLC.  The Court indicated state law stated the interest in the LLC was a property right, which then in turn allowed the government to lien the property under Section 7403, and levy the same.  I do not know N.C. law on this matter, but I wonder if it restricts collection against LLC interests to charging orders.  I also wonder how those laws interact with the government’s collection powers.
  • The Information Reporting Program Advisory Committee issued its annual report.  The report suggests an increased use of TIN matching to increase accuracy and compliance, a minimum threshold for 1099 corrections, and various other suggestions to increase compliance while making said compliance easier for taxpayers and information reporters.
  • Tax Court dismissed a petition for failure to timely file the same when the taxpayer attempted to use  The postmark was clearly on the last permitted filing day, and there was evidence that the 3rd party who mailed the petition did so at the post office on the last day for filing; however, the envelope also contained a postmark from the USPS the following day.  See Sanchez v. Comm’r, TC Memo 2014-223.  Another unfortunate result due to using the wrong mailing service.
  • SCOTUS granted certiorari in King v. Burwell, one of the ACA cases dealing with whether the tax credits are available for insurance purchased on a non-state exchange.  We have prior coverage here.

Timely Filing a Tax Court Petition from Prison

Today, we welcome back frequent guest blogger, Carl Smith.  The title does not do the post justice because of the many issues raised by the “untimely” petition filed from prison.  Carl discusses a range of issues raised by this case including the prison mailing rule, equitable tolling, appellate venue and the Golsen rule.  All of these issues come together in this case in which the taxpayer misses his opportunity to obtain a Collection Due Process (CDP) hearing in the Tax Court in part because of bad advice he received from the Appeals Division.  While this post does not offer any great answers to taxpayers receiving bad advice from the IRS on a critical issue such as the timely filing of a Tax Court petition, Carl’s discussion of equitable tolling shows the path to overcoming the inequity of bad advice.  Allowing equitable tolling in a situation such as this would not hurt the IRS in any material way and would make all taxpayers, not just those with the peculiar problems of prisoners, feel better about the system we have for resolution of tax disputes.  In this post, Carl cites to some of the articles he has written on this subject.  I have also written on this subject.  When Taxpayer Bill of Rights 4 gets passed, this issue should be front and center.  Keith

On April 11, Judge Gustafson, in a long unpublished order, “reluctantly” dismissed a CDP case because the petitioner filed his petition late.  See Harsh Sharma v. Commissioner, Tax Court Docket No. 5163-11L. To me, the ruling is subject to question on two grounds on which I have written or I have litigated in the past — i.e., (1) what is the correct venue on appeal in CDP cases and (2) can the 30-day period under section 6330(d)(1) in which to file a CDP petition be equitably tolled?  But, even if Mr. Sharma prevailed on appeal — such that the appeals court held that Judge Gustafson was wrong on both the grounds that I question — the taxpayer’s petition still would end up being dismissed.  So, I wouldn’t recommend he file an appeal.


The first thing about this case (a thing that is amazing) is that it took the IRS until November 2013 to move to dismiss for lack of jurisdiction — more than 2 1/2 years after the petition was filed and after the Tax Court had granted 4 IRS motions to continue scheduled trials (and this case deals with a jeopardy levy!).

The second thing about this case (a thing that is annoying) is that the IRS sent notices of determination sustaining both the jeopardy levy and upholding the filing of a notice of tax lien on January 11, 2011, thus statutorily requiring the taxpayer to file a petition in 30 days (i.e., February 10, 2011).  However, the taxpayer wrote to Appeals before February 1, 2011, asking for more time to file a petition.  In a February 1, 2011 letter, Appeals wrote back to the taxpayer and warned him that the filing period could not be extended, but incorrectly stated that the petition had to be filed in the Tax Court “within 30 days of this letter” (i.e., March 3, 2011).  This error really bothered Judge Gustafson, since the Tax Court received an imperfect petition on March 2, 2011.  It had been mailed from the Georgia prison in which the taxpayer was housed, and the envelope in which it came bore a prison stamp of February 24, 2011.  The taxpayer testified that he handed the imperfect petition to the prison authorities to mail on February 1, 2011 (apparently not waiting to hear back from Appeals about the extension), but the judge found this testimony uncorroborated and, sadly, irrelevant.  Why?

In 1988, the Supreme Court ruled that a prison inmate’s notice of appeal in a habeas corpus case was deemed filed at the time he delivered it to prison authorities for mailing to the court. Houston v. Lack, 487 U.S. 266, 270, 276 (1988).  The prison mailbox rule was subsequently extended and codified in Rules 4(c)(1) and 25(a)(2)(C) of the Federal Rules of Appellate Procedure.  In Crook v. Commissioner, 173 Fed. Appx. 653, 655 (10th Cir. 2006), the Tenth Circuit held that this prison mailbox rule, however, did not extend to filings in the Tax Court.  Rather, the section 7502 rule that timely mailing is timely filing applied, and, under it, the postmark on the envelope is treated as the date of filing.  Long before either opinion, in Rich v. Commissioner, 250 F.2d 170 (5th Cir. 1957), the Fifth Circuit had a deficiency case where there was evidence that a taxpayer delivered a Tax Court petition to prison officials for mailing a full 12 days before it was due to be mailed, but then the prison accidentally failed to mail it until contacted by the taxpayer’s lawyer sometime after the 90-day period lapsed.  In Rich, the Fifth Circuit, though angry with the government and finding the equities all on the taxpayers’ side, held that the petition was untimely and the case must be dismissed for lack of jurisdiction.  As noted by Judge Gustafson, this holding in Rich has never again been cited by the Fifth Circuit.  But, as Judge Gustafson also noted, under Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981), the Eleventh Circuit (which encompasses where Mr. Sharma was living) is required to follow the precedent of the Fifth Circuit from before the time the Eleventh Circuit was formed.  Judge Gustafson held that, since Mr. Sharma’s case was appealable to the Eleventh Circuit, under the Tax Court’s Golsen doctrine (Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. on other issues 445 F.2d 985 (10th Cir. 1971)), the Tax Court was obligated to follow Rich and dismiss the petition because it was deemed mailed on the prison-stamped date of February 24, 2011 — two weeks after it was due to be mailed.  (Parenthetically, at least the Fourth Circuit has criticized and declined to follow Rich in the case of an incarcerated Tax Court deficiency-jurisdiction petitioner and has held that delivery to the prison authorities for mailing is the timely filing date — either under section 7502 or principles of equitable tolling. Curry v. Commissioner, 571 F.2d 1306 (4th Cir. 1978)).

In making this ruling applying the Golsen rule, Judge Gustafson mysteriously did not cite or discuss the recent case of Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), in which the D.C. Circuit held that appeals of CDP cases from the Tax Court — where the case does not include a challenge to the underlying liability — are only properly appealable to the D.C. Circuit, not the Circuit of residence.  Although the D.C. Circuit has not had a case involving the prison mailbox rule and filings in the Tax Court, the D.C. Circuit has ruled (citing the Supreme Court’s opinion in Houston v. Lack) that an F.R.C.P. 59(e) motion to alter or amend a judgment — one filed in a district court by a prisoner in a 42 U.S.C. section 1983 case — is deemed filed in the district court at the time the motion is handed to prison authorities for mailing.  Anyanwutaku v. Moore, 151 F.3d 1053 (D.C. Cir. 1998). Thus, there is a good chance that, if Mr. Sharma appeals the dismissal to the D.C. Circuit, it would extend this prison mailbox rule to Tax Court petitions.  One difficulty in Mr. Sharma’s appeal may be what is in his amended petition.  Judge Gustafson’s order does not mention whether Mr. Sharma raised a challenge to the underlying liability therein; if he did so, the D.C. Circuit would transfer any appeal to it to the Eleventh Circuit.

Unfortunately, as I see it, even if Mr. Sharma could convince either the D.C. Circuit or the Eleventh Circuit to apply the prison mailbox rule, he would not win his case.  Judge Gustafson found no corroborating evidence from the prison that would support Mr. Shamra’s testimony that he gave the imperfect petition to the prison for mailing on February 1, 2011 (which would have been a timely mailing date).  Thus, Mr. Sharma will lose this issue either on a legal or factual basis.

Two pages of Judge Gustafson’s order are also addressed to the issue of the letter from Appeals that gave Mr. Sharma incorrect information about when he must file.  It was clear that Mr. Sharma’s imperfect petition was filed a day before the due date set out in that letter.  A frequent reason for applying the doctrine of equitable tolling is the defendant’s misleading the plaintiff as to the correct filing date.  This letter was clearly misleading.  Citing Tax Court case law involving deficiency, CDP, and whistleblower jurisdiction cases, however, Judge Gustafson held that the 30-day period in which to file a Tax Court petition under section 6330(d)(1) was jurisdictional.  A jurisdictional time period cannot be equitably tolled.  I was disappointed to see, however, that Judge Gustafson did not reconsider the CDP authority in light of recent case law from the Supreme Court that has severely limited the “jurisdictional” label generally to subject matter and personal jurisdiction — not “claims processing rules” like time periods in which to file.  (For an example of a recent opinion holding a filing period in an administrative agency not to be jurisdictional, see Sebelius v. Auburn Regional Medical Center, 133 S. Ct. 817 (2013).)  I have previously written articles in Tax Notes Today making the argument that under this recent Supreme Court case law, the periods in which to file a Tax Court petition under its innocent spouse (section 6015(e)(1)), CDP (section 6330(d)(1)), and whistleblower jurisdictions (section 7623(b)(4)) are not jurisdictional and are subject to equitable tolling.  See “Equitable Tolling Innocent Spouse and Collection Due Process Periods”, 2010 TNT 41-8 (March 3, 2010), and Friedland:  Did the Tax Court Blow Its Whistleblower Jurisdiction?”, 2011 TNT 100-10 (May 24, 2011) (Friedland, which I specifically criticized in this article, was one of the opinions that Judge Gustafson relied on in his order).  While Judge Gustafson ruled that the CDP-filing time period was jurisdictional — so could not be extended by the equities — he also wrote:

An error of this sort is most unfortunate. An agency charged with broad nation-wide responsibility and necessarily staffed by fallible humans can never avoid such errors entirely; but the discovery of such an error should incline the IRS to take action within its discretion to compensate for the error and to provide reasonable remedies for a taxpayer who has been disadvantaged by the agency error.

I am not sure what remedy the IRS could give Mr. Sharma for this error, since he has already been before Appeals, and the IRS cannot recompense him by offering him Tax Court review.  Now, I have an argument that subsequent Appeals CDP retained jurisdiction hearing notices under section 6330(d)(2) are appealable to the Tax Court, notwithstanding a contrary IRS regulation at section 301.6330-1(h)(2)(A-H2), but I am not sure that such an argument will win, even if the IRS were to give Mr. Sharma another hearing at Appeals.  Note, though, the recent opinion in SECC Corp. v. Commissioner, 142 T.C. No. 12 (Apr. 3, 2014), in which the Tax Court held that it need not give any deference to an IRS Revenue Procedure that appeared to limit the Tax Court’s jurisdiction to hear employee/independent contractor disputes under its jurisdiction at section 7436 (“We owe no deference to what an administrative agency says about our jurisdictional bounds.  See Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1038-1039 (D.C. Cir. 2002)”; slip op. at p. 16 n. 5).

Nevertheless, even if Mr. Sharma were to be able to convince an appeals court that the period at section 6330(d)(1) to file a Tax Court petition was not jurisdictional and could be equitably tolled, I don’t think Mr. Sharma could get equitable tolling.  It was Mr. Sharma’s testimony that he gave the imperfect petition to the prison on February 1. Thus, he could not have detrimentally relied on the Appeals letter giving him an incorrect later date that was only mailed to him on that same date.

In sum, it is sad that Mr. Sharma has lost his Tax Court case, and disappointing that Judge Gustasfon did not discuss (1) whether Byers affected his Golsen holding or (2) whether Tax Court case law on what is “jurisdictional” is still good after recent Supreme Court case law on the subject, but Mr. Sharma would apparently lose an appeal no matter which way Judge Gustafson ruled on these issues.  Now that I am retired, though, I urge other practitioners to make these arguments to the Tax Court for it to consider in appropriate future cases.