DOJ Argues that 28 U.S.C. § 2401(a) Doesn’t Bar Altera’s APA Challenge to a Tax Regulation Made More Than 6 Years After Adoption

We welcome frequent guest blogger Carl Smith with breaking news about the Altera appeal pending in the 9th Circuit. Today’s news is not dispositive but does provide interesting insight on the Government’s view of a new issue raised by the 9th Circuit as the new panel reviewed the case. Keith

PT readers are no doubt aware of Altera v. Commissioner, 145 T.C. 91 (2015). In the case, the Tax Court invalidated a regulation under § 482 concerning the inclusion of stock option compensation in related-party cost-sharing arrangements. The two Tax Court dockets involved in the case were under the Tax Court’s deficiency jurisdiction in 2012. In those cases, Altera sought to invalidate a 2003 regulation both under the Chevron standard (i.e., not reasonable) and under the Administrative Procedure Act (APA). The Tax Court invalidated the regulation under both theories. The Tax Court found APA violations including the IRS’ (1) failure to respond to significant comments submitted by taxpayers and (2) in light of the administrative record showing otherwise, the IRS’ failure to support its belief that unrelated parties entering into cost sharing arrangement would allocate stock-based compensation costs.

As we blogged here, on July 24, 2018, the Ninth Circuit issued an opinion upholding the regulation. But that opinion was later withdrawn because one of the judges in the majority had died before the opinion was issued. After a new judge was assigned to rehear the case, the parties were invited to (and did) submit supplemental briefs. (Four supplemental amicus briefs were also submitted.) On the day all of these supplemental briefs were submitted, September 28, 2018, the Ninth Circuit panel issued an order inviting further briefing from the parties by October 9 on an issue that had never before been argued in the case. The case is set for reargument before the new Ninth Circuit panel on October 16.

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The recent order stated concerning this additional briefing issue:

The parties should be prepared to discuss at oral argument the question as to whether the six-year statute of limitations applicable to procedural challenges under the Administrative Procedure Act, 28 U.S.C. § 2401(a), applies to this case and, if it does, what the implications are for this appeal. Perez-Guzman v. Lynch, 835 F.3d 1066, 1077-79 (9th Cir. 2016), cert. denied, 138 S. Ct. 737 (2018).

In Perez-Guzman, the Ninth Circuit had held that procedural challenges to regulatory authority (unlike Chevron substantive challenges) must be raised in a court suit within the 6-year catch-all federal statute of limitations at 28 U.S.C. § 2401(a). Since the Altera deficiency cases had been brought more than six years after the pertinent regulation was adopted, the Ninth Circuit was, in effect, wondering whether all APA arguments in the case were time barred.

On October 9, however, the DOJ, rather than file a supplemental brief, filed a 5-page letter disclaiming any reliance on the statute of limitations under 28 U.S.C. § 2401(a). The letter states, in part:

It is the Commissioner’s position that any pre-enforcement challenge to the regulations at issue here – including a purely procedural challenge under the APA, cf. Perez-Guzman, 835 F.3d at 1077-79 – would have been barred by the Anti-Injunction Act. See 26 U.S.C. (“I.R.C.” or “Code”) § 7421(a) (stating that, “[e]xcept as provided in” various Code sections (the most significant of which, I.R.C. § 6213(a), allows the pre-payment filing of a Tax Court petition in response to a statutory notice of deficiency), “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person”) . . . . Thus, Altera properly asserted its challenge to the regulations in two Tax Court actions contesting notices of deficiency that reflected the enforcement of the regulations against it. See Redhouse v. Commissioner, 728 F.2d 1249, 1253 (9th Cir. 1984).

If Altera’s procedural APA challenge to the regulations were nonetheless subject to the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) (which would have started running on the date of issuance of the final regulation, see Perez-Guzman, 835 F.3d at 1077), then Altera would have had to pay the tax and file a refund claim within the six-year window – thereby forfeiting the opportunity to contest the enforcement of the regulations against it in the pre-payment forum of the Tax Court – in order to comply with that time limit. Because the Commissioner has never expressed the view that the six-year statute of limitations applies to a procedural APA challenge to a tax regulation in the context of a Tax Court deficiency proceeding, and because the IRS issued the notices of deficiency in this case outside the six-year APA window, it would have been unfair to argue below that Altera’s procedural APA claims are time-barred. And, given this Court’s holding that the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) is not jurisdictional, Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 770 (9th Cir. 1997), the Commissioner waived any defense under that provision by not raising it in the Tax Court.

In sum, it is the Commissioner’s position that the six-year statute of limitations that is generally applicable to procedural challenges to regulations under the APA, see 28 U.S.C. § 2401(a), does not apply to this case.

Observation

Some people wonder why I litigate so much over whether or not filing deadlines are jurisdictional. The Altera case demonstrates again why this can often be a critical issue, since only nonjurisdictional filing deadlines are subject to waiver, forfeiture, estoppel, and equitable tolling.

 

The Tax Court Should Modify its Form 2 Petition to Add a Checkbox for Passport Actions

We welcome back frequent guest blogger Carlton Smith. Today Carl highlights a possible cause of confusion for taxpayers, IRS and the Court, involving the Tax Court’s new passport-related jurisdiction. Christine

Section 7345(d) requires the IRS to notify taxpayers when it has sent a certification to the Secretary of State with respect to a “seriously delinquent tax debt” for which the IRS is asking that a passport be denied, revoked, or limited.  Section 7345(e)(1) states, in part:  “After the Commissioner notifies an individual under subsection (d), the taxpayer may bring a civil action against the United States in a district court of the United States, or against the Commissioner in the Tax Court, to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification.” 

The Tax Court is now seeing its first passport actions under section 7345(e)(1), and I can report that the Tax Court has decided to place a “P” at the end of the docket number when a taxpayer files a passport action.  What the Tax Court has so far failed to do is modify the simplified petition form appearing on its website (Form 2) to contain a box to check for a passport action.  I think that is why the Tax Court recently had to enter the following order in Brancatelli v. Commissioner, Docket No. 13836-18P.  My guess is that the taxpayer used Form 2, could not figure out which box(es) to check, and so checked boxes relating to notices of deficiency and notices of determination for Collection Due Process actions.  The Chief Judge’s September 10 order in the case reads, in full:

The petition in this case was filed on July 13, 2018. Among other things, in his petition petitioner seeks review of (1) a purported notice of deficiency dated June 18, 2018, allegedly issued for his taxable years 2005, and 2007 through 2014, and (2) a purported notice of determination concerning collection action dated June 18, 2018,  allegedly issued with respect to his taxable years 2005, and 2007 through 2014. 

On September 6, 2018, respondent filed a Motion To Dismiss on Grounds of Mootness stating that respondent, subsequent to the filing of the petition, has notified the Secretary of State that respondent has reversed respondent’s certification of petitioner as an individual owing serous delinquent tax debt for 2005, and 2007 through 2014. 

On September 7, 2018, respondent filed an Answer to the petition. In his 

Answer respondent acknowledges that a Notice CP508C, notice of your seriously delinquent tax debt was issued to the State Department, was issued with respect to 2005, and 2007 through 2014, but respondent denies that any notice of deficiency for 2005, and 2007 through 2014, and/or notice of determination under I.R.C. section 6320 or 6330 for 2005, and 2007 through 2014, was issued to petitioner. 

Upon due consideration, it is  

ORDERED that, on or before October 1, 2018, respondent shall file an appropriate jurisdictional motion as to so much of this case relating to the notice of deficiency for 2005, and 2007 through 2014, and the notice of determination under I.R.C. section 6320 or 6330 for 2005, and 2007 through 2014. The Court will hold in abeyance respondent’s September 6, 2018, motion to dismiss on grounds of mootness. 

In order to avoid further wasteful use of judicial and party resources dealing with jurisdictional issues, I would hope and expect that the Tax Court would adopt a new Form 2 as soon as possible that contains a box to check for passport actions.  Until the Tax Court does so, however, I would advise practitioners representing taxpayers in passport actions not to use Form 2, but to draft custom petitions. 

 On March 28, 2016, the Tax Court adopted interim rules (which were also issued as proposed rules) dealing with passport actions at Title XXXIV of its Rules of Practice and Procedure (Rules 350 to 354).  They can be found on the Tax Court’s website under “Press Releases” for that date.  Interim Rule 351(b) specifies the contents of a passport action petition and directs that such petition be captioned:  “Petition for Certification or Failure to Reverse Certification Action Under Code Section 7345(e)”.  Oddly, while the Tax Court also modified Form 2 at the same time that it proposed and adopted these passport action rules, the new Form 2 did not contain a box to check for passport actions.  Nor do the instructions to Form 2 mention passport actions.

How Do Section 6511(b)’s Payment Limitations Apply When a Late-Filed Original Return Perfects a Prior Informal Refund Claim?

We welcome back frequent guest blogger Carl Smith who writes today about a potential issue not reached by the court.  Whether the taxpayer will seek to raise the issue in a request for reconsideration or attempt to raise it on appeal remains to be seen.  Keith

I don’t usually do posts on opinions where an interesting issue is presented, but the court didn’t reach the issue, and I don’t know how the issue should come out.  But, when I mentioned the issue in this post to Les, and asked whether Saltzman & Book answered the issue, and Les told me that the book did not and that he thought the issue was “fascinating,” I decided:  Why not do a post?

The potential issue is presented in Voulgaris v. United States, 2018 U.S. Dist. LEXIS 150724 (E.D. Mich. Sep. 5, 2018), a refund suit that was dismissed for lack of jurisdiction because the administrative claim, although timely made under section 6511(a), was limited by section 6511(b) to zero because the taxpayer had not made any tax payments in the 3-year period looking back from the date the claim was made through the filing of a late original return.

The court does not discuss the informal claim doctrine, which was not raised by the taxpayer’s counsel or mentioned in the government’s motion to dismiss.  However, taken from the government’s summary of the facts, the court includes in its opinion facts demonstrating that the taxpayer had made an informal claim long before that claim was perfected by the filing of a late original return showing the overpayment.  The Supreme Court held in United States v. Kales, 314 U.S. 186 (1941), that where an informal claim is later perfected, the perfected claim is treated as made on the date of the informal claim for purposes of what is today section 6511(a).  But, Kales doesn’t answer the question of what is the limit under section 6511(b) of the amount of the claim when a claim is deemed timely filed under the informal claim doctrine.  Section 6511(b) says that if a claim is filed within three years after the filing of the original return (one of the alternative requirements of subsection (a)), then the claim is limited to the amount of any tax paid in the 3-year period prior to the filing of the claim (plus the period of any extension to file the original return).  Section 6511(b), though, also provides that if a taxpayer is relying on the 2-years-after-payment rule of subsection (a) to make a refund claim timely, then the section 6511(b) amount limit is to the taxes paid in the 2-year period prior to filing the claim.  In Kales, whether the lookback period was two years or three years from the filing of the claim, the amount was not limited because the amount of the tax in dispute had been paid on the very day the informal claim was filed.

If the taxpayer in Voulgaris had raised the informal claim doctrine, should the court have used the 2-year or 3-year lookback rules from the date of the informal claim for purposes of applying the tax payment amount rules of 6511(b)?  Is the late-filed return treated as filed on the date of the informal claim so that the 3-year lookback rule applies from the informal claim date?  If so, the refund amount sought was paid within that lookback period.  However, if the 2-year lookback rule applied, the refund claim would be limited to zero.

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Here are the facts of Voulgaris, which involves a refund claim for overpaid 2003 income taxes. The taxpayer, a foreigner, was a grad student during 2001 at the University of Michigan.  While studying, he set up a bank account in the U.S, in which he kept a fair amount of money.  In 2003, I am not sure if he was in the U.S. (probably not, from the court’s finding that he went back to Europe after 2001), but he bought and sold stocks through a (probably U.S-based) Scottrade account.  He did not file a timely U.S. 2003 income tax return.

The IRS later sent a notice of deficiency for 2003 income taxes to the taxpayer at some address (probably in the U.S.) in which the IRS computed his tax based on gross sales proceeds of $77,000 reported on Forms 1099-Bs.  The computation did not include any basis information.

Voulgaris never received the notice of deficiency, so, of course, he did not go to Tax Court and the deficiency was later assessed.

In 2009, the IRS issued a notice of intention to levy to Voulgaris, which he also did not receive.  So, of course, he did not request a Collection Due Process hearing.

The IRS then levied on Voulgaris’ U.S. bank account, and on Feb. 24, 2010, the IRS received $28,000 from the bank.  That amount apparently fully paid the liability.

On Feb. 10, 2013 (i.e., more than two years, but less than three years after the levy payment), the IRS received a letter from Voulgaris seeking a complete refund and including “Schedule D, Schedule D-1, and a Composite Substitute 1099 showing his Scottrade stock transactions,” but not an original Form 1040 for 2003.  The Schedule D showed that, when basis information was included, Voulgaris’ 2003 stock transactions actually had resulted in a net capital loss of about $5,000.  There is no mention in the opinion of Voulgaris having any other U.S.-source income in 2003.

The IRS responded to this letter by asking Voulgaris to file a complete Form 1040 for 2003.  After much back and forth, on Aug. 19, 2015, the IRS finally received from Voulgaris a Form 1040, which it processed.  The return sought a refund.  But, the IRS denied the refund, and the taxpayer brought a timely suit.

The court correctly observes that the claim is timely under 6511(a) because made on the original return.  Given that timely claim, the lookback period under 6511(b) was three years, not two, from the time the return was filed.  Since the tax was paid on Feb. 24, 2010 – more than three years before the return was filed – the court holds that the amount of the claim must be limited to zero.  But, is this right?

Wasn’t the Feb. 10, 2013 letter an informal claim that just later got perfected?  The court does not discuss the informal claim doctrine, since Voulgaris’ lawyer did not argue that he had made an informal claim prior to the filing of the Form 1040.  If the Feb. 10, 2013 letter in fact constituted an informal claim, that claim would come with a lookback period.  Is the lookback period two years (in which case, the claim would be limited to zero) or three years (in which case the claim could encompass the entire amount paid by levy on Feb. 24, 2010)?

I have never run across this fact pattern and haven’t done research on it.  I suspect that there is no case law on this informal claim issue because only in the last 20 years have all the courts come around to the idea that a late return showing an overpayment gets the 3-year lookback period under (b) because the claim shown on that return is timely under (a) (having been made within three years after the return was filed – indeed, on the same day).  See Baral v. United States, 528 U.S. 431, 433 (2000) (in the case of a return filed more than three years after the due date, the IRS “did not dispute that Baral had timely filed the request under the relevant filing deadline – “within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later.’ § 6511(a)”); Omohundro v. United States, 300 F.3d 1065 (9th Cir. 2002) (overruling Miller v. United States, 38 F.3d 473 (9th Cir. 1994), which had held that the 2-year lookback period applied when a late original return was filed showing an overpayment); Rev. Rul. 76-511, 1976-2 C.B. 428.

Les tells me that Saltzman & Book does not address the issue of how the section 6511(b) amount limits apply when an informal claim is filed before a late original return showing an overpayment is filed.  And he doesn’t know whether there is case law on this question, either.  Both of us are inclined to think that, on these facts, the return is deemed filed on the date of the informal claim, so, logically, the 3-year lookback period from the date of the informal claim should apply.  But, I would not bet my shirt on it.  If any reader of PT has encountered authority on this issue, I would urge you to help us all out by citing pertinent authority in the comments section to this post.

 

 

Ninth Circuit to Hear Oral Argument on November 9 in Two Cases Raising Constitutionality of President’s Removal Power Over Tax Court Judges

We welcome back frequent guest blogger Carl Smith. Carl writes today about an issue of power – the power to remove – who should have it which implicates where the Tax Court lands in the various branches of government. All of this seems like an academic exercise until it doesn’t and then the discussion of the issue will have importance. My former colleague at Villanova, Tuan Samahan, raised this issue early. He recently wrote a symposium piece on the topic for the law review at my alma mater. Keith

PT readers are familiar with the argument, raised in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), that the President’s removal power over Tax Court judges at section 7443(f) violates the separation of powers. In Kuretski, the D.C. Circuit rejected that argument, finding no constitutional problem because the Tax Court was located in the Executive Branch. Congress responded to Kuretski by amending section 7441 to add the following: “The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.”

In response to this, Florida attorney Joe DiRuzzo, in a number of his Tax Court cases appealable to various Circuits, made motions to recuse all Tax Court judges, contending that the judges suffered from the same separation of powers problem – particularly in light of the amendment to section 7441. In Battat v. Commissioner, 148 T.C. No. 2 (2017), the Tax Court denied that motion and refused to certify an interlocutory appeal of the ruling under the procedures at section 7482(a)(2). The Tax Court disagreed with the D.C. Circuit that it was located in the Executive Branch, refused to say in which Branch the Tax Court was located, and found no constitutional problem because the Tax Court only dealt with public rights controversies, unlike Article III courts. The Tax Court then entered unpublished interlocutory orders citing Battat in Joe’s other cases.

Despite the Tax Court’s refusal to certify immediate appeals, Joe appealed to a number of Circuit courts of appeal anyway (including the 11th Circuit in Battat). All attempts so far to do interlocutory appeals have failed, though in non-precedential unpublished opinions of the Circuit courts issued without oral argument. See, e.g., Teffeau v. Commissioner, 709 Fed. Appx. 170 (4th Cir. 2017); and the unpublished opinion in Elmes v. Commissioner, Eleventh Cir. Docket No. 17-11648-DD (June 20, 2017).

Another one of those interlocutory appeals is now before the Ninth Circuit in a case named Thompson v. Commissioner, Ninth Cir. Docket No. 17-71027. Unlike in the prior interlocutory appeals, however, Thompson will be getting oral argument in Seattle on November 9, with the court allocating the parties 15 minutes per side. Thompson has already generated a Tax Court opinion, T.C. 148 T.C. No. 3 (2017), which also denied an Eight Amendment Excessive Fines Clause argument against the section 6662A penalty, but the current interlocutory appeal is limited to the section 7443(f) issue.

The oral argument in Thompson will be immediately preceded by oral argument in another of Joe’s cases, Crim v. Commissioner, Ninth Cir. Docket No. 17-72701. In Crim, the taxpayer submitted an OIC, and, after it was not accepted, went to Appeals. Appeals confirmed the OIC denial. Despite the fact that the OIC was not part of a Collection Due Process (CDP) hearing, the taxpayer petitioned the Tax Court for review. In the case, Joe also moved for recusal of all Tax Court judges on the constitutional issue. Citing Battat, the Tax Court first denied the constitutional motion in an unpublished order. Then, the court issued a second unpublished order holding that, in the absence of a CDP proceeding, the Tax Court lacked jurisdiction to review Appeals’ denial of an OIC.   Crim’s appeal to the Ninth Circuit is thus not an interlocutory one, since there is nothing more to be done in the Tax Court case. It seems much more likely that the Ninth Circuit in Crim will reach the constitutional issue, though the DOJ argues that the court still need not do so. The court has allocated the parties 10 minutes per side for oral argument.

For those interested in the briefs, I attach here the Thompson appellant, appellee, and reply briefs and the Crim appellant, appellee, and reply briefs.

Remember to File a Refund Suit under the Shorter SOL when Congress Lets You Sue after Paying Only 15%

We welcome frequent guest blogger Carl Smith who writes about the time frame for filing a refund suit with respect to a divisible, assessable penalty. Here, the taxpayer’s attorney seems to have relied on the general rule allowing a taxpayer to bring a refund suit within two years after payment. Unfortunately for the taxpayer, that rules does not apply in this context. Keith

In a recent unpublished opinion of the Ninth Circuit in Taylor v. United States, an individual who was assessed multiple section 6694 return preparer penalties tried to take advantage of the statutory rule allowing him to bring a refund suit by paying only 15% of each penalty. However, it appears that he did not pay close attention to the provision of section 6694(c)(2) that requires an expedited suit for refund in that event. He brought a district court refund suit on February 25, 2016, a year and three months after he made the 15% payments and filed a refund claim. That suit would have been timely had the 2-year period after formal notification of claim disallowance applied under section 6532(a). But, section 6532(a) does not apply to such a 15% payment suit, and he missed the shorter statute of limitations applicable to a suit where 15% is paid. As a result, the Ninth Circuit affirmed the district court for the Eastern District of Washington’s dismissal of his refund suit for lack of jurisdiction as untimely. It seems to me that he can now pay the remaining 85% and file a new refund claim and sue concerning the 85%. But, I doubt that he can ever get back the 15% paid because the IRS disallowed that claim on January 29, 2016, so it is now more than 2 years since the claim for the 15% was disallowed. Any new suit for the 15% or the 85% would, I think, have to be brought under the section 6532(a) filing deadline after full payment.

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In Flora v. Unites States, 362 U.S. 145 (1960), the Supreme Court held that a suit for refund under 28 U.S.C. § 1346(a)(1) involving an income tax deficiency could only be brought if the taxpayer first paid 100% of the deficiency. Treating full payment as a jurisdictional prerequisite, said the Court, was not clearly required by the words of the statute or its 1921 legislative history. However, subsequent developments – including the 1924 creation of the Board of Tax Appeals to allow prepayment review of deficiencies – influenced the Supreme Court’s thinking.

It was not clear after Flora whether that full payment requirement would apply to assessable penalties, such as the section 6672 responsible person penalty, since there was no possibility of Tax Court prepayment review of the few assessable penalties then in existence. However, a footnote in Flora indicated that, in the case of divisible taxes, payment of one of one divisible portion would be enough jurisdictionally to found a refund suit. Relying on that footnote in Flora, less than three months after Flora, in Steele v. United States, 280 F.2d 89 (8th Cir. 1960), the Eighth Circuit held that the full payment rule of Flora applied to the divisible penalties under section 6672 such that suit was jurisdictionally proper if the taxpayer had fully paid only one penalty for one employee for each quarter involved in the suit.

Section 6672(c)(1) currently provides that if a taxpayer, within 30 days of notice and demand, makes such a divisible payment, files a refund claim, and puts up a bond for the rest of the assessment, then the IRS is barred from collecting by levy or bringing a suit for payment of the balance assessed so long as a taxpayer’s refund suit under (c)(2) is pending. (The IRS may, however, counterclaim for the balance in the suit brought under (c)(2).) Under (c)(2), a taxpayer who has done what is required under (c)(1) may bring a refund suit, but only within an abbreviated period – i.e., up to 30 days after the refund claim is denied.

There are a few other assessable penalties that have special jurisdictional payment and filing features similar to that of section 6672(c). Those penalties are under section 6694 (return preparer penalty), 6700 (penalty for promoting abusive tax shelters), and 6701 (penalty for aiding and abetting understatements of tax). The assessable section 6702 frivolous submission penalty once had similar features for a part-payment refund suit, but those were removed. In each of the three cases, section 6694(c)(1) or 6703(c)(1) (applicable to the section 6700 and 6701 penalties) provides that paying 15% and filing a refund claim within 30 days of notice and demand can be enough to bar the IRS from collecting by levy or bringing a suit for payment of the balance assessed so long as a refund suit under (c)(2) is pending. (Note the lack of a bond requirement for the balance, unlike under section 6672(c).) Under (c)(2), a litigant who has done what is required under (c)(1) may bring a refund suit, but only within an abbreviated period that is potentially shorter than the period for section 6672 penalties – i.e., under sections 6694(c)(2) and 6703(c)(2), within the earlier of (1) 30 days after the refund claim is denied or (2) six months and 30 days after the refund claim is filed. Note that the six months and 30 day alternative period is a much more limited period than the indefinite period to bring suit in section 6532(a) in the absence of a claim disallowance.

I speculate that what happened in the Taylor case is that, since he was familiar with the rule of section 6532(a) that effectively allows an indefinite period to bring suit in the absence of a notification of claim disallowance, he did not realize that, under section 6694(c)(2), he could not wait beyond six months and 30 days to bring suit after he filed his refund claim – even though his claim had not yet been disallowed. My speculation is because he actually did bring suit within 30 days after the claim was disallowed. But, that was too late. And nothing in either the district court or appellate court opinion gives a reason for his late filing that might suggest an equitable reason for late filing.

So, what did Taylor argue to get out of the box he put himself into?

First, in his district court written response to the DOJ’s motion to dismiss for lack of jurisdiction he argued that the filing deadline in section 6694(c)(2) is not jurisdictional, but is simply a statute of limitations that does not go to the power of the court. I am not sure why he made this argument, since he did not show facts for equitable tolling of a nonjurisdictional statute of limitations. Even if the filing deadline is not jurisdictional, it is still a mandatory claims processing rule with which he did not comply. He argued that (c)(2) is not jurisdictional, but only “sets limits on the time frame in which the IRS is prohibited from pursuing collection action of the penalties at issue.” The Ninth Circuit disagreed.

Here is the full text of section 6694(c)(1) and (2):

(c)  Extension of period of collection where preparer pays 15 percent of penalty.

(1) In general. If, within 30 days after the day on which notice and demand of any penalty under subsection (a) or (b) is made against any person who is a tax return preparer, such person pays an amount which is not less than 15 percent of the amount of such penalty and files a claim for refund of the amount so paid, no levy or proceeding in court for the collection of the remainder of such penalty shall be made, begun, or prosecuted until the final resolution of a proceeding begun as provided in paragraph (2). Notwithstanding the provisions of section 7421(a), the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. Nothing in this paragraph shall be construed to prohibit any counterclaim for the remainder of such penalty in a proceeding begun as provided in paragraph (2).

(2)  Preparer must bring suit in district court to determine his liability for penalty. If, within 30 days after the day on which his claim for refund of any partial payment of any penalty under subsection (a) or (b) is denied (or, if earlier, within 30 days after the expiration of 6 months after the day on which he filed the claim for refund), the tax return preparer fails to begin a proceeding in the appropriate United States district court for the determination of his liability for such penalty, paragraph (1) shall cease to apply with respect to such penalty, effective on the day following the close of the applicable 30-day period referred to in this paragraph.

Apparently, the question whether the filing deadline under section 6694(c)(2) is jurisdictional has not been previously addressed in the Ninth Circuit. However, the Ninth Circuit in Taylor noted the virtually verbatim similarity of the language of section 6694(c) and that of section 6703(c). In Thomas v. United States, 755 F.2d 728 (9th Cir. 1985), the Ninth Circuit had held that the 30-day deadline in section 6703(c)(1) after a notice and demand to pay the 15% is a jurisdictional requirement of a refund suit in a case involving a section 6702 penalty that was at the time (but is no longer) subject to section 6703(c). In Korobkin v. United States, 988 F.2d 975 (9th Cir. 1993), the Ninth Circuit had held that the six months plus 30-day deadline in section 6703(c)(2) to file suit is a jurisdictional requirement of a refund suit involving a section 6700 penalty. Taylor followed these cases by analogy in holding that compliance with the filing deadline under section 6694(c)(2) is jurisdictional. So, the district court properly dismissed this untimely suit for lack of jurisdiction.

The second thing Taylor argued was that instead of having paid 15% of each penalty (as he originally directed the IRS to apply the payments) he should be deemed to have paid 100% of 15% of the penalties, so the district court had jurisdiction under section 1346(a)(1), and suit was timely under section 6532(a) with respect to the penalties that he had fully paid. This was an interesting argument, but it was first raised at oral argument on the DOJ’s motion to dismiss before the district court. The district court held that this argument was raised too late to be considered. The Ninth Circuit agreed that this argument was not timely raised.

Observations

Les and I recently blogged on Larson v. United States, 888 F.3d 578 (2d Cir. 2018), here and here. Larson involved a section 6707 penalty for failing to file a form with the IRS providing information concerning listed transactions as to which the rules of section 6703(c) do not apply. In Larson, the Second Circuit held that Flora requires full payment of such an assessable penalty as a jurisdictional prerequisite of a refund suit, even though there is no alternative Tax Court prepayment contest permitted for such penalty. Part of why Larson ruled the way it did was because the Second Circuit there noted that Congress, in sections 6694(c) and 6703(c), had created 15% exceptions to the full payment rule of Flora, but had not done so for other assessable penalties. Taylor also holds the 15% payment requirement to be jurisdictional, citing Flora.

The Ninth Circuit in Taylor failed to acknowledge that its ruling that the filing deadline in section 6703(c)(2) is jurisdictional is in conflict with that of at least one other Circuit court: In Dalton v. United States, 800 F.2d 1316 (4th Cir. 1986), the Fourth Circuit had held that the 30-day-after-claim-disallowance deadline in section 6703(c)(2) to file suit is a not a jurisdictional requirement of a refund suit involving a section 6702 penalty. Indeed, in Dalton, the court equitably tolled the filing deadline (tolling only being possible if the filing deadline is not jurisdictional). Taylor’s attorney cited Dalton in his opening Ninth Circuit brief.

I have repeatedly noted in PT that, under recent Supreme Court case law since Kontrick v. Ryan, 540 U.S. 443 (2004), filing deadlines are no longer considered jurisdictional, unless Congress has made a rare “clear statement” in the statute that it wants what is usually a nonjurisdictional claim processing rule (a filing deadline) to be treated as jurisdictional. Of course, the Circuit court opinions in Thomas, Korobkin, and Dalton were decided before Kontrick and its progeny, so do not analyze section 6703(c) under the proper current case law. I am disappointed, however, that the Ninth Circuit in Taylor (here in 2018) did not think to reconsider its holdings in Thomas and Korobkin in light of the more recent Supreme Court authority. Appellate judges know that authority quite well and should employ it, even where (as in Taylor’s case) both parties failed to cite it in their briefs. See Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015) (not merely relying on prior precedent, but analyzing the wrongful levy suit filing deadline at section 6532(c) under recent Supreme Court case law and holding the deadline not jurisdictional and subject to equitable tolling).

As PT readers know, Keith and I have recently argued (with little success so far) that Tax Court filing deadlines for stand-alone innocent spouse actions (at section 6015(e)(1)(A)) and Collection Due Process actions (at section 6330(d)(1)) should no longer be considered jurisdictional under recent Supreme Court case law. We have lost those cases mostly because those provisions use the words “the Tax Court shall have jurisdiction” in the same sentences that provide the filing deadlines. It appears that one could make a stronger case that the filing deadlines in sections 6694(c)(2) and 6703(c)(2) are not jurisdictional: First, the sentences in those provisions do not contain the word “jurisdiction”. Indeed, they do not speak at all to the district court’s jurisdiction or powers. Taylor is right that these provisions really only give deadlines to file and “set[] limits on the time frame in which the IRS is prohibited from pursuing collection action of the penalties.” That does not comport with the Supreme Court’s current view that “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional . . . .” United States v. Wong, 135 S. Ct. 1625, 1632 (2015). Second, the Supreme Court “has often explained that Congress’s separation of a filing deadline from a jurisdictional grant indicates that the time bar is not jurisdictional.” Id. at 1633 (citations omitted). Here, the real jurisdictional basis for a 15% payment refund suit is still located at 28 U.S.C. § 1346(a)(1), far away from these Internal Revenue Code sections. So, I respectfully disagree with the Ninth Circuit’s holding in Taylor that these filing deadlines are jurisdictional. [Sigh]

Does the Mailbox Rule Survive a 2011 Reg. Under Section 7502?

We welcome back frequest guest blogger Carl Smith who discusses important forthcoming arguments regarding the mailbox rule.  This seemingly simple procedural provision gives rise to its fair share of litigation because it can make or break a case.  The cases that Carl flags are worth watching for those in need of the mailbox rule to preserve the timeliness of a submission.  Keith

 Before section 7502 was added to the Internal Revenue Code in 1954, courts determined the timeliness of various filings required under the Internal Revenue Code under a common law mailbox rule under which, if there was credible extrinsic evidence of timely mailing via the U.S. mails, then a document was presumed to have been delivered (despite denials of receipt), and if the mailing was made before the filing date, the mailing effected a timely filing. Of course, the use of certified or registered mail was excellent proof of timely mailing under the mailbox rule, but testimony about timely use of regular mail could be believed by the court, as well.

Over the years, some Circuits have faced the issue of whether the enactment of the statutory timely-mailing-is-timely-filing provision of section 7502 preempted or supplemented the mailbox rule. Compare Anderson v. United States, 966 F.2d 487 (9thCir. 1992)(mailbox rule still valid); Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir. 1990)(same); withMiller v. United States, 784 F.2d 728 (6th Cir. 1986)(mailbox rule preempted by section 7502); Deutsch v. Commissioner, 599 F.2d 44 (2d Cir. 1979)(same). See alsoSorrentino v. Internal Revenue Service, 383 F.3d 1187 (10th Cir. 2004)(carving out a middle position).

In 2011, a Treasury Regulation under section 7502 was amended to specifically provide, in effect, that the common law mailbox rule no longer operated under the Code.  Since then, a few district courts have faced the question of the validity of this regulation.  Two courts have held the regulation valid under the deference rules of Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).  McBrady v. United States, 167 F. Supp. 3d 1012, 1017 (D. Minn. 2016);Jacob v. United States, No. 15-10895, 2016 WL 6441280 at *2 (E.D. Mich. Nov. 1, 2016).  Another district court, in an unpublished opinion in a tax refund suit, followed Andersonand applied the mailbox rule, without discussing the regulation.  Baldwin v. United States, No. 2:15-CV-06004 (C.D. Cal. 2016).

While no court of appeal has yet ruled on the validity of the regulation, on August 31, 2018, the Ninth Circuit will hear oral argument both on the government’s appeal of Baldwinand the taxpayers’ allegedly late appeal from an unrelated Tax Court Collection Due Process (CDP) case.  Both cases squarely present the issue of whether the Ninth Circuit should hold that its Andersonopinion has been superseded by a Treasury regulation abolishing the mailbox rule – a regulation that must be considered valid under Chevrondeference.

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Baldwin

Baldwin is a tax refund suit.  There, the taxpayers reported a loss on their 2007 income tax return, filed on or before the extended due date of October 15, 2008.  They wished to file an amended return for 2005, carrying back the 2007 loss to generate a refund in 2005.  Under section 6511(d), this had to be done by filing the amended return within three years of the due date of the return generating the loss – i.e., by October 15, 2011.  The taxpayers, while living in Connecticut, had properly filed their original 2005 return with the Andover Service Center, but by 2011, original returns of Connecticut residents needed to be filed at the Kansas City Service Center.  In 2011,Reg. § 301.6402-2(a)(2)provided that “a claim for credit or refund must be filed with the service center serving the internal revenue district in which the tax was paid.” That would be Andover.  But, instructions to the 2010 Form 1040X (the one used by the taxpayers) told Connecticut taxpayers to file those forms with Kansas City, where original Forms 1040 for 2010 were now being filed.  (In 2015, the regulation was amended to provide that amended returns should be filed where the forms direct, not where the tax was paid.)

The taxpayers introduced testimony by one of their employees that the employee mailed the 2005 amended return by regular mail on June 21, 2011 from a Hartford Post Office to the Andover Service Center.  But, the IRS claimed it never received the Form 1040X prior to October 15, 2011, and that the filing was in the wrong Service Center.

The district court credited the testimony of mailing, citing the Anderson Ninth Circuit opinion that allowed for the common law mailbox rule to apply.  The Baldwincourt’s opinion does not mention the August 23, 2011 amendment to the regulation under section 7502 (quoted below) that purports to preempt use of the mailbox rule.  The court went on to find that, given the conflict between the regulation under section 6402 and the form instructions, a taxpayer was then “simply required . . . [to] mail his amended return in such a way that it would, as a matter of course, be delivered to the proper service center to handle the claim within the statutory period.”  Finding that this was done here, the court held the refund claim timely filed.  The Court also observed:  “The fact that the IRS routinely forwards incorrectly addressed refund claims as a matter of course also suggests that the IRS does not consider an address problem to be fatal to a refund claim.”

Then, the Baldwin court, over the government’s objections, found that a net operating loss had been incurred in 2007 and could be carried back to 2005, resulting in a refund due the taxpayers of $167,663.  To add insult to injury, the court also held that the government’s litigating position in the case, after a certain point, was not substantially justified, so the court imposed litigation costs payable to the taxpayers under section 7430 of $25,515.

The government appealed, arguing not only that there was no valid net operating loss in 2007 to be carried back (and so the litigation costs, as well, should not have been imposed), but that the district court lacked jurisdiction because the refund claim was not filed within the time set forth in section 6511(d).

Waltner

The Waltners are a couple who have been to the Tax Court may times, and even have been sanctioned under section 6673for making frivolous arguments (even their attorney has sometimes been sanctioned thereunder).  Their Tax Court case at Docket No. 8726-11L involved an appeal by them of multiple CDP notices of determination involving multiple years of income tax and frivolous return penalties under section 6702.  In an unpublished orderon April 21, 2015, Judge Foley granted the IRS’ motion for summary judgment with respect to some of the notices of determination, but not as to all notices.  The parties later reached a settlement on the other notices, which was embodied in a stipulated decision entered by the court on January 21, 2016.  Under section 7483, this started a 90-day window in which the Waltners had to file any notice of appeal.

An August 9, 2016 unpublished order of then-Chief Judge Marvel describes what happened next:

On August 4, 2016, petitioners electronically filed a Statement Letter to the Clerk of the U.S. Tax Court (With Ex.).  Among other things, in that Statement petitioners assert that: (1) on April 15, 2016, petitioners sent by regular U.S. mail to the Tax Court a notice of appeal in this case to the U.S. Court of Appeals for the Ninth Circuit; and (2) that notice of appeal (a) either may have been lost by the U.S. Postal Service, or (b) may have been lost after delivery to the Tax Court.  Attached to the Declaration of Sarah V. Waltner as Exhibit A, is a copy of Petitioners’ Notice of Appeal to the Court of Appeals for the Ninth Circuit.  Because this case is closed, petitioners’ Statement Letter to the Clerk of the U.S. Tax Court (With Ex.) may not be filed.

On August 15, 2016, the Waltners then admittedly filed a proper notice of appeal with the Tax Court.   But, the Ninth Circuit questioned whether the appeal was timely and sought briefing on this issue.  The DOJ argued that the appellate court lacked jurisdiction because the notice of appeal was untimely.

DOJ Argument

 Here are the links to the Baldwin Ninth Circuit appellant’s brief, appellees’ brief, and the reply brief.  Also, here are the links to the Waltner Ninth Circuit appellants’ brief, appellee’s brief, and the reply brief in the Ninth Circuit.  Although the two cases are not consolidated with each other, they have been scheduled to be argued one after the other before the Ninth Circuit in Pasadena on August 31, 2018.  And the DOJ briefs are clearly coordinated in their argument.

The DOJ arguments are predicated on the Treasury’s section 7502 regulation, Chevron, and Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005).

As amended by 76 Fed. Reg. 52561-01 (Aug. 23, 2011), Reg. § 301.7502-1(e)(2)(i)provides, in relevant part:

Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated [private delivery service] . . . are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed.  No other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered.

The DOJ argues that section 7502, when enacted (and still today) is ambiguous as to whether it preempts the common law mailbox rule.  The DOJ contends that there is thus a gap to fill, which, under Chevron, can be filled by a reasonable regulation. The Circuit split over whether the mailbox rule has been preempted is evidence of two reasonable interpretations of section 7502.  The regulation is valid because it chooses one of those two reasonable interpretations.

In Brand X, the Supreme Court held that Chevron deference must even apply to a regulation that takes a position that has been rejected by a court, so long as the court opinion did not state that it found the statute unambiguous.  If the statute was unambiguous, then there can be no gap under ChevronStep One to fill.  PT readers may remember the extensive discussion of Brand X in the section 6501(e) Treasury Regulation case of United States v. Home Concrete & Supply, LLC, 566 U.S. 478 (2012).

The DOJ argues that Anderson did not describe its interpretation of section 7502 to still allow the mailbox rule as one required by an unambiguous statute.  Accordingly, under Brand X, the 2011 amendment to the section 7502 regulation is entitled to Chevron deference, in spite of Anderson.

We’ll see in Baldwin and Waltner if the government can effectively overrule Anderson by its regulation.

Observations

I will not needlessly extend this post by explaining my beef with the DOJ’s other arguments that compliance with the filing deadlines for refund claims under section 6511 and for notices of appeal under section 7483 are “jurisdictional” conditions of the courts.  I don’t think that either deadline is jurisdictional under current Supreme Court case law that makes filing deadlines now only rarely jurisdictional.  And, sadly, none of the taxpayers in these two cases made an argument that the filing deadlines are not jurisdictional – probably because it makes no difference in the outcome of their cases whether the filing deadlines are jurisdictional or not.  The taxpayers are not arguing for equitable tolling, just the mailbox rule (which is not an equitable doctrine that would be precluded by a jurisdictional deadline).  I only regret that I did not learn of either of these two cases earlier, when I could have filed amicus briefs raising the issue of whether the two filings deadlines are really jurisdictional.  At least the courts, then, might have noted that it is a debatable question whether these two filing deadlines are jurisdictional.

Supreme Court Holds that SEC ALJs are “Officers” Who Need Constitutional Appointment

Frequent guest blogger Carlton Smith brings us an important development in Appointments Clause litigation that could have implications for employees of the IRS Office of Appeals. Christine

In Lucia v. Securities and Exchange Commission (June 21, 2018), in a 6-3 ruling, the Supreme Court held that Securities and Exchange Commission (SEC) Administrative Law Judges (ALJs) are “Officers of the United States” under the Constitution’s Appointments Clause (Art. II, Sec. 2, cl. 2), so need to be properly appointed by the SEC, not merely hired by SEC staff. In an opinion authored by Justice Kagan that was joined by all five Conservative Justices on the Court, the Court said that its holding was simply one required as a result of the holding in Freytag v. Commissioner, 561 U.S. 868 (1991), that Tax Court Special Trial Judges (STJs) are constitutional officers who need to be appointed pursuant to the Appointments Clause.

Since September 2015, I have been doing posts on the litigation leading up to the Lucia ruling (in chronological order, here, here, here, here, here, here, and here). In those posts, I have pointed out that the litigation leading to Lucia might have a significant impact on the ALJs that the Treasury uses to conduct Circular 230 violation hearings. Although I am not sure, I suspect that only Treasury staff, and not the Secretary of the Treasury (or any other Secretary) has hired those ALJs and that none has been appointed. I also noted that a ruling holding that SEC ALJs need to be appointed may cause the revisiting of the Tax Court’s holding in Tucker v. Commissioner, 135 T.C. 114 (2010), affd. on different reasoning, 676 F.3d 1129 (D.C. Cir. 2012), that Appeals Settlement Officers and their Team Managers conducting Collection Due Process (CDP) hearings need not be appointed.

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In Freytag, the Court held that STJs are “Officers of the United States” who need to be appointed and that the Tax Court Chief Judge was one of “the Courts of Law” to which Congress could delegate this power, since the STJs were “inferior Officers” under the Clause. In making its ruling in Freytag, the Court noted numerous powers of STJs that were similar to those of district court judges (who everyone conceded were officers under the Clause).

However, the Court created confusion in Freytag by also noting that Tax Court judges could enter final decisions in certain Tax Court cases, without review by a regular Tax Court judge. See section 7443A(c). This led to a split by lower courts as to whether SEC ALJs had to be appointed, since the SEC ALJs lacked power to make final decisions. An SEC ALJ’s ruling becomes final only if the SEC declines to hear an appeal from the ruling. In the Lucia case, the D.C. Circuit had followed its ruling in Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000), concluding that Freytag held that STJs needed to be appointed only because they entered final decisions in some cases. In Lucia, the Supreme Court (in footnote 4) called the finality mention in Freytag an “alternative holding”, with the primary holding being that STJs needed to be appointed based on their other powers. The Lucia footnote states that Freytag’s “primary analysis explicitly rejects JUSTICE SOTOMAYOR’s theory that final decision making authority is a sine qua non of officer status.” Thus, the Lucia Court rejected Landry’s interpretation of Freytag.

This point is important, since in its opinion in Tucker, the Tax Court held that Appeals Settlement Officers and their Team Managers conducting CDP hearings need not be appointed because they do not (in the Tax Court’s view) have the power to enter final decisions, as required by Landry’s interpretation of the holding of Freytag. The D.C. Circuit in Tucker, however, disagreed with the Tax Court and stated that the IRS personnel had effective final ruling authority in CDP. Instead, the D.C. Circuit in Tucker held that the Appeals personnel need not be appointed because the collection matters they ruled on were not important enough to need a constitutional officer and the tax liability determinations that they made were so restricted by Counsel’s supervisory authority that little discretion was exercised by Appeals personnel in CDP.

In Buckley v. Valeo, 424 U.S. 1 (1976) (per curiam) (involving the Federal Election Commission), the Supreme Court had held that an “Officer” under the Appointments Clause is one who exercises “significant authority” on behalf of the United States. The Lucia Court acknowledged that the “significant authority” standard provides little concrete guidance for how to decide other cases, and the Court did not want to provide more general guidance in Lucia as to what “significant authority” encompassed.

Instead, the Court in Lucia held that the SEC ALJs were so like Tax Court STJs that the holding of Freytag inevitably extended to make SEC ALJs Officers under the Clause. The Court in Lucia noted four powers of the SEC ALJs that were similar to those of Tax Court STJs: (1) taking testimony, (2) conducting trials, (3) ruling on the admissibility of evidence, and (4) having the power to enforce compliance with discovery orders. The Court held that these four powers alone were enough to make the ALJs constitutional officers, without deciding whether each of those four powers was necessary to a determination of officer status. The Court acknowledged that there were some differences between the two types of adjudicators (e.g., the STJs can enforce their discovery orders by contempt, whereas the ALJs can enforce those orders only by lesser means – such as barring the person from the hearing), but did not find these differences of constitutional significance.

This led to the question of remedy: The SEC has since appointed the various ALJs (including the one who decided Lucia’s case) and has purported to ratify all prior rulings entered by ALJs before they were appointed. But, the Court held that a person who brings a successful Appointments Clause challenge is entitled to a remedy, which, it in the past, the Court had held was a trial before an appointed officer. The Lucia Court wanted to make the remedy here one that encourages the brining of successful Appointments Clause challenges. Accordingly, the Court expanded on its prior case law and ordered a new hearing by either a now-appointed ALJ or the SEC itself, but not by the ALJ who originally decided Lucia’s case. The Court thought that the ALJ who decided Lucia’s case, whose underlying rulings had never yet been even criticized in a judicial opinion, would be too likely to simply reissue his opinion unchanged.

Justices Thomas and Gorsuch had joined the majority opinion, but Justice Thomas wrote a concurrence, joined in by Justice Gorsuch, in which he rejected Buckley’s significant authority test. He would have a less restrictive test: Anyone who held a continuing position in the government should be an officer, since that would have been the understanding of the drafters of the Constitution in 1787 as to what they meant by “Officer”.

Justice Breyer wrote a partially dissenting opinion in which he refused to decide the constitutional Appointment Clause issue. He thought that the language of the Administrative Procedure Act that authorized the SEC to appoint ALJs was simply enough to decide the case and that the SEC had not complied with its statutory mandate to appoint, rather than have the staff hire, the ALJs. Justice Breyer felt he could not decide the Appointments Clause issue without also deciding whether, in the event appointment was required, there would be another constitutional issue created concerning the limited for cause removal powers of those ALJs that the SEC possessed. The SG, when he changed the government’s Lucia position to argue that the SEC ALJs need to be appointed, had asked the Court to also decide whether a removal power issue was created if the ALJs needed appointment. The Court explicitly declined to write on removal power issues that might have been created by its ruling. The Court desired that lower courts consider any removal power issue before the Supreme Court is asked to consider it.

It is not clear to me that the Appointments Clause powers need to mesh constitutionally with removal power issues. However, in Kuretski v. Commissioner, 755 F.3d 529 (D.C. Cir. 2014), as counsel for the taxpayers, I had argued that another holding of Freytag – that the Tax Court exercised a portion of the Judicial Power of the United States – means that a for cause removal power applicable to regular Tax Court judges at section 7443(f) violates the separation of powers doctrine and so should be eliminated. There is clearly a reason for harmonizing the appointment and removal power questions, but it is not a foregone conclusion that anyone who exercises a portion of the Judicial Power of the United States, and so who needs to be appointed, cannot be removed by the President under a for cause removal power.

Justice Breyer also disagreed with the majority’s holding that the remedy should be a rehearing by an appointed ALJ or the SEC, but not by the ALJ who ruled after the original hearing. He thought that the remedy chosen by the Court was excessive. A rehearing before any appointed officer, he thought, would be enough of a remedy.

Justice Sotomayor wrote a dissent in which she was joined by Justice Ginsburg. Those two Justices also joined that part of Justice Breyer’s dissent that descried the remedy as excessive. But, Justice Sotomayor, in her dissent, also argued that the ability to render a final decision was a sine qua non of constitutional officer status under her reading of Freytag (which matched that of the D.C. Circuit both in Landry and Lucia). She wrote:

In Freytag, the Court suggested that the Tax Court’s special trial judges (STJs) acted as constitutional officers even in cases where they could not enter final, binding decisions. In such cases, the Court noted, the STJs pre­sided over adversarial proceedings in which they exercised “significant discretion” with respect to “important func­tion,” such as ruling on the admissibility of evidence and hearing and examining witnesses. 501 U. S., at 881–882. That part of the opinion, however, was unnecessary to the result. The Court went on to conclude that even if the STJs’ duties in such cases were “not as significant as [the Court] found them to be,” its conclusion “would be un­changed.” Id., at 882. The Court noted that STJs could enter final decisions in certain types of cases, and that the Government had conceded that the STJs acted as officers with respect to those proceedings. Ibid. Because STJs could not be “officers for purposes of some of their duties . . . , but mere employees with respect to other[s],the Court held they were officers in all respects. Ibid. Freytag is, therefore, consistent with a rule that a prerequisite to officer status is the authority, in at least some instances, to issue final decisions that bind the Government or third parties.

As noted above, though, the Lucia majority rejected this interpretation of Freytag.

As to the direct impact of Lucia on pending Tax Court cases, in my last post on Lucia on January 19, 2018, I noted that Florida attorney Joe DiRuzzo is again raising the Tucker issue (i.e., whether CDP Appeals personnel need to be appointed) in multiple Tax Court cases that would be appealable to other Circuits. Rulings on this issue have in essence been postponed (though not officially) pending the ruling of the Supreme Court in Lucia. Those rulings are now ready for the Tax Court to make.

I don’t know if there are any Circular 230 adjudications going on, so I can’t tell whether or how the Lucia opinion will affect current Circular 230 matters. I am not sure that future Circular 230 sanctions litigants will want to raise issues concerning the ALJs and Appointments Clause. And, of course, it is too soon for the Treasury to have decided whether to change its procedures and appoint its ALJs.

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

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

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

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

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

Observations

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

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

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

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

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

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

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