District Court Holds Tax Court Exempt From FOIA as a “Court of the United States”

We welcome back frequent guest blogger Carl Smith.  Today Carl writes about a recent case looking at whether FOIA applies to the Tax Court.  Les

In June 2015, I did a post warning readers that the litigious Mr. Ronald Byers was about to bring a FOIA suit against the Tax Court. Previously, Mr. Byers had gotten a ruling from the D.C. Circuit in a Collection Due Process (CDP) levy case allowing all CDP cases not involving challenges to underlying tax liability to be appealed from the Tax Court to the D.C. Circuit. See Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014) (venue ruling legislatively overruled going forward in December 2015). Mr. Byers is currently in the midst of a CDP lien case in the Tax Court. In 2015, he made a FOIA request to the Tax Court for various unpublished documents. The Tax Court refused the request, saying that it was exempt from FOIA because it was one of the “courts of the United States”, within the meaning of 5 U.S.C. § 551(1)(B).

Mr. Byers had a hard time intellectually reconciling (1) the holding in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), that the Tax Court, for constitutional purposes, is located in the Executive Branch with (2) the idea that the Tax Court is one of the “courts of the United States” for purposes of the FOIA exemption. So, he brought suit against the Tax Court in the district court for the District of Columbia, arguing that the Tax Court is an Executive agency or other entity covered by FOIA and is not described in the exemption to FOIA for “courts of the United States”. In an opinion from the district court issued on September 30, the court agrees with the Tax Court that FOIA doesn’t apply to the Tax Court. Byers v. United States Tax Court.

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5 U.S.C. sec. 552(a) requires that “[e]ach agency shall make available to the public information . . . .”   An “agency,” for purposes of FOIA, “as defined in section 551(1) of this title includes any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency.”  5 U.S.C. sec. 552(f)(1).  5 U.S.C. sec. 551(1), in relevant part, states that “‘agency’ means each authority of the Government of the United States, whether or not it is within or subject to review by another agency, but does not include– . . . (B)  the courts of the United States”.  IRC sec. 7441 establishes the Tax Court as a “court of record” under Article I.

Byers argued that the Tax Court – per Kuretski – was either an agency or “other establishment in the executive branch of the Government”. Essentially, the district court agreed with Byers on this point, but it noted that the D.C. Circuit in Kuretski speculated that the Tax Court might be one thing for constitutional purposes, yet another thing for statutory purposes, and left open that question.  This district court opinion decided the question left open in Kuretski.

However, the district court held that the Tax Court was exempt from FOIA, holding that it is one of the “courts of the United States”. Byers argued that the phrase “courts of the United States” was a term of art in several places of the United States Code that limited the phrase to Article III courts.

The opinion correctly notes that two courts in other Circuits have previously decided that the Tax Court is exempt from FOIA as one of the “courts of the United States”.   Megibow v. Clerk of the United States Tax Court, 432 F.3d 387 (2d Cir. 2005), aff’g 94 AFTR 2d 5804 (S.D.N.Y. 2004 (holding that the Tax Court is not an “agency” for purposes of FOIA); Ostheimer v. Chumbley, 498 F.Supp. 890,892 (D. Mont. 1980) (same), aff’d, 746 F.2d 1487 (9th Cir. 1984). Thus, the D.C. district court Byers opinion does not break new ground in its holding. No court has held otherwise. At least one of those courts relied, in part, for its holding that the Tax Court was a “court”, on the functional analysis that the Supreme Court did of the Tax Court for constitutional purposes in Freytag v. Commissioner, 501 U.S. 868 (1991). In Freytag, the Supreme Court held that the Tax Court, despite not being an Article III court, held a portion of the judicial power of the United States. The district court in Byers supported its holding, as well, in part by the Freytag functional analysis of the Tax Court.

However, unlike the prior court opinions on this FOIA issue, the D.C. district court in Byers had to deal with the December 2015 amendment to IRC § 7441 that added the following sentence to respond to the Kuretski opinion:  “The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.”  Of course, the D.C. Circuit in Kuretski held that the Tax Court was part of the Executive Branch for constitutional purposes.  The Byers district court agreed with the Tax Court’s argument that this added sentence did nothing to change existing law or overrule Kuretski.  Interesting for the Tax Court to make that argument, since it must have been the Tax Court that asked Congress to amend § 7441.  Why make a pointless amendment?  I think the answer may be for public perception – i.e., individuals reading the Code should learn of the Tax Court’s independence from the Executive Branch (i.e., independence from the IRS) not by having to read and parse Freytag and Kuretski (which only lawyers would do).

The Byers district court also rejected applying to FOIA the definition of “the courts of the United States” in 28 U.S.C. § 451 – one that limits that phrase only to Article III courts. The district court noted that the § 451 definition is explicitly limited in effect to Title 28, so does not apply to Title 5, where FOIA is located.

The Byers district court still had to deal with two provisions of the IRC that also seem to use the phrase “courts of the United States” to refer only to Article III courts:

In footnote 6, the district court wrote:

Section 7457 provides for witness fees and mileage in the Tax Court that are the same as those provided for “witnesses in courts of the United States.” 26 U.S.C. § 7457(a). Mr. Byers argues that this statute shows that the Tax Court is not one of the “courts of the United States.” See Compl. Ex. C at 27. But the Court is persuaded by the Tax Court’s argument that this provision was enacted when the precursor to the Tax Court was still an “independent agency,” thus requiring the comparison to existing courts. See Def.’s Mem. At 16–17; see also Internal Revenue Code of 1954, Pub. L. No. 83-591, § 7457, 68A Stat. 730, 886 (1954); supra Part II.B (explaining that the Tax Court was not “established” as an Article I court until 1969).

Of course, the response to the district court’s statement is that Congress continued the language in § 7457 after it adopted the 1969 amendments, thus suggesting that, after 1969, Congress still did not feel that the Tax Court was one of the “courts of the United States” for Title 5 FOIA exemption purposes.

On page 17, the Byers court noted “possible contradictions in the recent legislation”, since in December, Congress newly adopted § 7470, which provides:

Notwithstanding any other provision of law, the Tax Court may exercise, for purposes of management, administration, and expenditure of funds of the Court, the authorities provided for such purposes by any provision of law (including any limitation with respect to such provision of law) applicable to a court of the United States (as that term is defined in section 451 of title 28, United States Code), except to the extent that such provision of law is inconsistent with a provision of this subchapter.

The court thinks the amendment of § 7441 essentially trumps the implication of § 7470 that the Tax Court is an agency of the United States that did not already have the powers of management give in § 7470 because the Tax Court isn’t a court of the United States.

Mr. Byers tells me that he plans to appeal the district court’s ruling to the D.C. Circuit, perhaps after filing a motion for reconsideration.

 

 

Two Appeals Court Innocent Spouse Test Cases on Equitable Tolling

We welcome back frequent guest blogger Carl Smith.  Today Carl writes about some cases he and I are pursuing in the circuit courts.  It may be some time before this issue is resolved and we continue to look for cases with the right facts that will best allow us to pursue this argument.  Keith

Earlier this year, I reported here that Keith and I had become pro bono counsel of record in a Tax Court case, Matuszak v. Commissioner, Docket No. 471-15, where the Tax Court had, in a December 29, 2015, unpublished order dismissed an untimely-filed innocent spouse petition under § 6015(e) for lack of jurisdiction.  Keith and I believe that, under recent non-tax Supreme Court opinions, the time periods in which to file both innocent spouse and Collection Due Process (CDP) petitions in the Tax Court are not jurisdictional and are subject to equitable tolling.  Despite the Tax Court’s recent resounding, unanimous rejection of our arguments as regards the CDP time period to file in Guralnik v. Commissioner, 145 T.C. No. 15 (June 2, 2016), we are not convinced by the Tax Court’s opinion.  Respectfully, we think the Tax Court got this part of its Guralnik opinion wrong – and not merely for the reasons stated by Bryan Camp in his post of June 6, 2016.

This post is to update readers on what Keith and I are doing to continue to press our arguments.  Our arguments are questions of first impression in all of the Circuit Courts.  In a nutshell, on August 30, 2016, we filed an appeal in the Matuszak case to the Second Circuit.  And on that same day, we filed an appeal in another case on all fours with Matuszak, Rubel v. Commissioner, Docket No. 9183-16 (order of dismissal dated July 11, 2016), to the Third Circuit.

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We don’t want to litigate the cases in this post, but suffice it to say that the Guralnik opinion, we feel, erred in not directly discussing in detail the Supreme Court’s opinion in Sebelius v. Auburn Regional Medical Center, 133 S. Ct. 817 (2013).  There, the Supreme Court found a filing period in an administrative body not jurisdictional, despite the time period’s being contained within the very statutory sentence that gave the body jurisdiction to hear certain Medicare reimbursement disputes.  We think the statutory sentence at issue in Auburn is comparable to the sentences in §§ 6015(e)(1)(A) and 6330(d)(1) that both give the Tax Court jurisdiction and include time limits in which to file petitions.  As the Ninth Circuit said of 15 U.S.C. § 1692k (which authorizes a suit for monetary damages under the Fair Debt Collection Practices Act):

[W]e attach no particular significance to the fact that this statute of limitations appears in the same sentence in which the jurisdiction provision appears. Nothing in the structure of that sentence tells us that the time limitation was also a jurisdictional limitation. In fact, a more natural reading is that parties may bring their action in any “court of competent jurisdiction” and may do so “within one year.” 15 U.S.C. § 1692k(d). It is fair to say that parties are faced with a “when” issue and a “what court” issue for every action, but the former does not usually control or affect the latter.

Magnum v. Action Collection Services, Inc., 575 F.3d 935, 940 (9th Cir. 2009).

We think the Tax Court in Guralnik also erred in justifying its ruling that the CDP petition filing period was jurisdictional on the long-standing treatment of the deficiency petition time periods to file as jurisdictional.  We don’t take issue with the long-standing, but not Supreme Court, rulings of the Tax Court and appellate courts that the § 6123(a) time periods are jurisdictional.  But, we also don’t think every grant of Tax Court jurisdiction necessarily inherits the same jurisdictional status of the § 6213(a) time periods.  So far, the Supreme Court has not allowed an exemption to its new rules that time periods to file are almost never jurisdictional on the basis of stare decisis to lower court opinions.  The exceptions in two cases to the current rules were made on stare decisis grounds only to over 100 years of Supreme Court opinions previously holding the particular time period at issue jurisdictional.  See John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008); Bowles v. Russell, 551 U.S. 205 (2007).

Matuszak

The procedural facts of Matuszak are fairly simple.  And, though we don’t discuss the merits of each case, suffice it to say that Keith and I are very optimistic about each case if the Tax Court ever gets to the merits.

Ms. Matuszak filed joint returns with her husband for 2007.  When there later was a deficiency for that year, all of which was attributable to her husband, Ms. Matuszak filed a Form 8857 seeking section 6015 relief.

On October 7, 2014, the IRS sent Ms. Matuszak a notice of determination.  Notices of determination for CDP and innocent spouse purposes, unlike notices of deficiency, do not set out on the notice the last date to file a Tax Court petition.  (The requirement for the IRS to set out a last date to file was adopted by Congress in 1998, but only applies to notices of deficiency, where taxpayers are entitled to rely on any erroneous date set forth on the notice.)  On the day that the Appeals Officer (AO) mailed out the notice, the AO called Ms. Matuszak to warn her that the notice had just been mailed.  Concerned not to miss the 90-day Tax Court filing deadline, Ms. Matuszak asked the AO what would be the last date to file a Tax Court petition and was told:   January 7, 2015.  In fact, the 90 day period lasted only until January 5, 2015.  When Ms. Matuszak received the notice of determination, she called the AO, who repeated the erroneous date as the last date to file.  Ms. Matuszak took and kept contemporaneous notes of both phone calls.  In reliance on what the AO told her, Ms. Matuszak, acting pro se, sent her petition to the Tax Court on January 6, 2015, which she thought was a day early.  In fact, it was a day late.

On December 29, 2015, Judge Marvel dismissed the case for lack of jurisdiction on the grounds that the petition was filed late and this was a jurisdictional defect that could not be excused by any possible misleading information given by the AO.  In early January, Keith and I entered our appearances in the case and filed a timely motion to vacate, arguing, for the first time, that, under recent non-tax Supreme Court case law, the filing period under section 6015(e)(1)(A) is not jurisdictional and is subject to equitable tolling – the same arguments we had made in an earlier amicus brief we had filed in Guralnik relating to the CDP petition filing period.  One area where equitable tolling commonly applies is where the defendant misled the plaintiff as to the correct filing date.  Irwin v. Dept. of Veterans Affairs, 498 U.S. 89, 96 (1990).

On July 29, 2016, now Chief Judge Marvel issued an unpublished order denying the motion to vacate, citing the Tax Court’s reasoning in Guralnik on these issues.  On August 30, 2016, Keith and I mailed a notice of appeal to the Tax Court, commencing an appeal in Matuszak to the Second Circuit.  The Second Circuit docket number is 16-3034.

Rubel

Ms. Rubel’s case is virtually the same as Ms. Matuszak’s, except that Ms. Rubel is even better situated to argue for equitable tolling, since she has erroneous filing date advice in writing from the IRS.

Ms. Rubel filed joint returns with her then-husband for 2005-2008.  The IRS is still seeking to collect for these years mostly liabilities attributable to her now-ex-husband.  Ms. Rubel filed a Form 8857 seeking relief from her ex-husband’s share of the liabilities as set forth in a 2009 divorce decree.

In early January of this year, the IRS sent four separate notices of determination (three on January 4 and one January 13) denying Ms. Rubel any relief under section 6015.  After receiving these letters, Ms. Rubel continued to send material to the IRS to try to persuade the IRS to change its mind.  On March 3, 2016, the IRS mailed Ms. Rubel a letter stating that it would not reconsider its decision as to any of the four taxable years.  The letter included the following sentences:  “Please be advised that this correspondence doesn’t extend the time to file a petition with the U.S. Tax Court.  Your time to petition the U.S. Tax Court began to run when we issued our final determination on Jan. 04, 2016 and will end on Apr. 19, 2016.”  In reliance on this erroneous date, Ms. Rubel, acting pro se, sent a petition to the Tax Court on April 19, 2016.  The petition was sent at least a week late, since 90 days from the dates of the notices of determination was either April 4, 2016 or April 12, 2016.

In the Tax Court, Ms. Rubel hired counsel to respond to an IRS motion to dismiss for lack of jurisdiction.  He argued both that the March 3 letter was a new notice of determination, giving a new 90-day period to file and that the IRS was estopped from complaining about the late filing by the wrong date that the IRS had stated in the March 3 letter.

On July 11, 2016, Chief Judge Marvel issued an unpublished order dismissing the case.  The judge held that the time period in which to file was jurisdictional and not subject to equitable estoppel, even if the IRS letter showing the April 19 filing date was misleading.  The judge also noted that in Barnes v. Commissioner, 130 T.C. 248 (2008), it had held that a letter denying reconsideration of an innocent spouse determination was not a new notice of determination that started a new 90-day period running.  The court rejected Ms. Rubel’s counsel’s attempts to distinguish Barnes.

Keith and I entered pro bono appearances in Ms. Rubel’s case (replacing her prior lawyer), and on August 30, 2016, we mailed a notice of appeal to the Tax Court, commencing an appeal in Rubel to the Third Circuit.  In the notice, we did not make the argument rejected in Barnes, but we did argue that, under current non-tax Supreme Court case law, the 90-day filing period was not jurisdictional and was subject to equitable tolling and equitable estoppel.  The Third Circuit docket number is 16-3526.

Observations

Because the Third Circuit has less of a backlog, our hunch is that the Third Circuit will be the first to decide the issues we are raising.

But, anticipating Chief Judge Marvel’s July 29 ruling in Matuszak, earlier this year, Keith and I, acting as counsel to Ms. Matuszak, filed a motion for leave to file an amicus brief in a Ninth Circuit case named Duggan v. Commissioner, Docket No. 15-73819.  I wrote a post on the Duggan case.  In Duggan, a pro se taxpayer argued that he was misled by the language of a CDP notice of determination into mailing his Tax Court petition a day late.  In our Duggan proposed amicus brief (a copy of which we attached to the motion), we raised the same arguments that we had raised in our Guralnik amicus brief – that the 30-day period in which to file a CDP petition is not jurisdictional and is subject to equitable tolling under current non-tax Supreme Court case law.

The parties in Duggan have filed their briefs, with the taxpayer’s reply brief having been filed in late June.  Earlier in June, the government brought to the Ninth Circuit’s attention the Tax Court’s opinion in Guralnik.  Mr. Duggan’s reply brief, we think, adequately responds to the Tax Court’s holding in Guralnik.  Although our motion to file an amicus brief in Duggan is unopposed, the panel hearing the case has not yet ruled on the motion.  And, the government has asked that it be allowed to respond to our brief if the motion is granted.  Because the Ninth Circuit is such a slow, backlogged court, it would not surprise me if it was the last of the three circuit courts to rule on these issues.

I know that some practitioners think Keith and I are on a wild goose chase here – especially after our unanimous loss in Guralnik.  We have warned our clients that this is probably an uphill battle in the appeals courts.  But, there is little downside to the clients here, as neither Ms. Matuszak nor Ms. Rubel wants to or can afford to fully pay the liabilities and sue for refund in district court.  Keith and I don’t think the appeals courts will be as concerned as the Tax Court was about the Tax Court’s prior precedents holding the time period in which to file deficiency petitions to be jurisdictional.  Appellate judges have a lot of experience already in applying the new non-tax Supreme Court case law on jurisdiction and equitable tolling to various filing deadlines.  And note that, last year, the Ninth Circuit was persuaded in Volpicelli v. United States, 777 F.3d 1042, to hold that the 9-month period in section 6532(c) in which to file a wrongful levy suit is not jurisdictional and is subject to equitable tolling, applying the recent non-tax Supreme Court case law.  For my post on Volpicelli, see here.  It is time for someone to bring these issues regarding the CDP and innocent spouse filing deadlines up to appeals courts.  The issues Keith and I are raising are far from frivolous.  If we lose, these cases may prompt Congress to amend the statutes to require the IRS to place last dates to file in CDP and innocent spouse notices of determination and allow taxpayers to rely on any erroneous dates set forth.

Finally, it is unclear that Guarlnik will ever be appealed.  If there were an appeal, it would go to the Second Circuit.  The Tax Court has set the Guralnik case for trial on the merits on a calendar commencing November 28.  Stay tuned.

IRS Accepts Guralnik Holding in Another Case Where the Clerk’s Office Was Closed

We welcome back frequent guest blogger Carl Smith.  Carl writes today about another case involving timely filing with the Tax Court.  He explains why the Tax Court will likely find the case timely based on its new precedent and points out the apparent IRS acceptance of the new precedent.  Carl states that he would not argue for equitable tolling in a case like this because it is a deficiency case and because the Court gave prior notice of the closing.  I agree with Carl on the issue that it is a deficiency case.  While acknowledging that statements by a Court are not a usual basis for equitable tolling, the statement issued by the Tax Court concerning its closing could lead pro se petitioners and perhaps practitioners to believe that special days the Tax Court closes that are not government holidays but which it says will be treated as such for purposes of computing time under Rule 25 give a petitioner extra time to file their Tax Court petitions.  Keith

One of the big questions after the IRS on June 2 lost the Tax Court’s opinion in Guralnik v. Commissioner, 145 T.C. No. 15, unanimously en banc was whether the IRS would pursue the arguments it made in that case in other Tax Court cases and eventually try to seek appellate court review of the Tax Court’s holding.  After all, the IRS’ cumulative motion papers in Guralnik exceeded 100 pages and pointed out that several previous unpublished orders of the court involving dates on which the Tax Court Clerk’s Office was closed had come out the other way.  In its Guralnik filings, the IRS was pretty steamed about a potential loss.

In Guralnik, as Bryan Camp blogged here, the Tax Court held that when its Clerk’s Office was closed (there, because of a snowstorm), the last date to file was moved to the next business day when the office was open.  The Tax Court imported this rule from the FRCP because both the Internal Revenue Code and Tax Court Rule 25 did not address non-holiday Clerk’s Office closing days.

An August 18 filing in the Tax Court in Parkinson v. Commissioner, Docket No. 296-15 indicates that the IRS has decided to throw in the towel and simply live with the Tax Court’s Guralnik holding.

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The facts of Parkinson are as follows:  The IRS mailed Mr. Parkinson a notice of deficiency on October 3, 2014 for his 2005, 2007, and 2008 income taxes.  Ninety days from that date would have been Thursday, January 1, 2015, which, of course, was a holiday, New Year’s Day.  Thus, section 7503 would have made the last day to file Friday, January 2, 2015 (the next business day after a Saturday, Sunday, or legal holiday in the District of Columbia).

Rather than simply put his Tax Court petition in the U.S. mails (which would have completely avoided any problem), on December 31, 2014, Mr. Parkinson, acting pro se, sent his petition to the Tax Court by FedEx First Overnight service.  That service – the same one used by Mr. Guralnik – was not, at the time, a designated service under section 7502(f) that got the benefit of the timely-mailing-is-timely-filing rules of section 7502(a) applicable to use of the U.S. mails.  (But, since May 6, 2015, FedEx First Overnight is now a designated service.)

FedEx would have delivered the petition to the Tax Court on January 2, but for the fact that the Clerk’s Office was closed.  As often happens at Thanksgiving, Christmas, and New Year, the Tax Court closes to make 4-day weekends.  Indeed, on December 10, the Tax Court had issued notice to the public that the Clerk’s Office would be closed on January 2, 2015.  The notice read as follows:

The United States Tax Court will be closed on Friday, December 26, 2014, and Friday, January 2, 2015.

For purposes of computation of time under Rule 25, Tax Court Rules of Practice and Procedure, December 26, 2014, and January 2, 2015, shall each be treated in the same manner as a legal holiday. See Rule 25 (a) (2) ånd (b), Tax Court Rules of Practice and Procedure.

Actually, the second paragraph of this notice was wrong, since Tax Court Rule 25 doesn’t contain a provision indicating that any date that the Clerk’s Office is closed is treated as a legal holiday for purposes of section 7503.  That is one of the issues that was litigated in Guralnik, where the court held that a date that the Clerk’s Office was closed for a snowstorm was not a legal holiday for purposes of section 7503.

FedEx delivered Mr. Parkinson’s petition to the Tax Court on Monday, January 5, 2015.

The IRS initially raised no question about the timelines of the petition’s filing.  But, on July 7, 2015, the Tax Court itself raised the issue.  In an order issued that date, the Court noted the possible late filing and ordered the parties to show cause why the petition should not be dismissed for lack of jurisdiction on the grounds of untimeliness.  Although I have not seen it, I believe that the IRS, in its response filed July 28, 2015, argued what it was then arguing in Guralnik – that a day that the Clerk’s Office closed was not to be treated as a holiday for purposes of section 7503 unless it was one of the stated holidays listed in Tax Court Rule 25(b).

On May 28, 2015, Chief Judge Thornton issued an order assigning the Guralnik case to Special Trial Judge Armen to decide the motion to dismiss in that case.  Recognizing that Parkinson presented possibly the same issue, the Chief Judge apparently just stuck the Parkinson case in a drawer to await the ruling in Guralnik – a ruling eventually written by Judge Lauber.

The Guralnik opinion was issued on June 2, 2016.  It held that a day that the Tax Court Clerk’s Office was closed that was not a legal holiday in the District of Columbia should still not be treated as the last day to file.  Rather, importing a rule from the FRCP, the Tax Court held that if the last day to file had otherwise fallen on such a day, the last day to file would be moved to the next business day when the Clerk’s Office was open.

On August 1, 2016, now Chief Judge Marvel issued an order in Parkinson directing each party to “set forth and discuss fully that party’s position as to the possible application, if any, to this case of Guralnik v. Commissioner.”

On August 18, 2016, the IRS filed a response stating, in part:  “The petition in this case was timely filed. . . .  It is respondent’s position that this case should not be dismissed for lack of jurisdiction.”  This is the first indication that the IRS is not going to fight the Guralnik holding in the Tax Court or any appellate court.

The Tax Court has not yet issued its ruling in Parkinson, but the court is likely to rule that it has jurisdiction, based on its holding in Guralnik, which would have pushed the last date to file all the way to Monday, January 5, 2016, since the Clerk’s Office was closed on Friday, January 2, 2015.

Observations 

Parkinson is a deficiency case.  Guralnik was a Collection Due Process (CDP) case.  But the reasoning of the Tax Court in Guralnik did not depend upon which jurisdiction underlay the case.

Nor did the Guralnik holding turn on whether the Clerk’s Office closure was something that was unexpected (e.g., from a snowstorm) or long-anticipated (e.g., a closing to make a 4-day weekend, announced 3 weeks in advance).  In some ways, practitioners may see Parkinson as an extension of Guralnik, since many might have expected that an unanticipated snow day should get more compassion than a long-foreseeable Clerk’s Office closing day.

The instinct of greater compassion for a snow day is one based on equity.  Keith and I had made an argument in Guralnik (as amicus) that the 30-day period in section 6330(d)(1) in which to file a CDP petition is not jurisdictional and is subject to equitable tolling in an appropriate case, such as the unexpected snow day situation involved there.  My personal view is that equitable tolling would have no application in Parkinson, since the Clerk’s Office closing in Parkinson should have been taken into account by any petitioner.  It was not an unexpected circumstance beyond the petitioner’s control (one of the common grounds for equitable tolling).  Further, Keith and I don’t believe that the 90-day period to file a deficiency petition is subject to equitable tolling.  We make a distinction between the two jurisdictions.  There is a clearer statement that the section 6213(a) time period is jurisdictional.  For one thing, the legislative history of an amendment to section 6213(a) in 1998 called the time period therein “jurisdictional”.  In contrast, Congress in December 2015 called the CDP and section 6015(e)(1)(A) time periods to file “periods of limitations”.  Equitable tolling typically applies to periods of limitations, but cannot apply to a filing limit that is jurisdictional.

I’ll have a lot more to say about the argument that Keith and I made in Guralnik in a later post.  Suffice it to say that, respectfully, like Bryan Camp, Keith and I are not persuaded by the portion of the Tax Court’s opinion there holding that under current Supreme Court case law, the 30-day period in which to file a CDP petition is jurisdictional and not subject to equitable tolling.  We have some appellate test cases in the works both as to the CDP filing period and the section 6015 filing period.  Those will be discussed in a post coming out shortly.

Venue on Appeals from Tax Court Attorney Sanctions

Frequent guest blogger Carl Smith writes about appellate venue in a yet unsettled corner of tax litigation.  Congress cleaned up some ambiguities last year but did not address the issue of appellate venue where the Tax Court sanctions the taxpayer’s counsel for frivolous actions in the Tax Court.  Keith

Hopefully, readers of PT will never have to consider this issue, but what is the proper venue on appeal from sanctions imposed by the Tax Court on attorneys under IRC sec. 6673(a)(2)?  The answer is not clear.  But recent appeals of the rulings in Best v. Commissioner, T.C. Memo. 2014-72 and T.C. Memo. 2016-32, and May v. Commissioner, T.C. Memo. 2014-194 and T.C. Memo. 2016-43, will try to dodge the issue, since both the taxpayers and the same counsel in each case (all of whom were sanctioned) have protectively appealed to the Ninth Circuit (Docket Nos. 16-71777(Best) and 16-71795(May)) and the D.C. Circuit (Docket Nos. 16-1188(Best) and [not yet assigned](May)).

Compounding the venue confusion is that both the Best and May cases are Collection Due Process (CDP) cases filed in the Tax Court prior to December 2015, when section 7482(b)(1) was amended to prospectively overrule the holding of Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), for petitions filed thereafter.  In Byers, the D.C. Circuit held that, absent stipulation otherwise, only the D.C. Circuit was the proper venue on appeal from Tax Court CDP cases that did not include challenges to the underlying liability.  For Les’ post on Byers when it came out, see here.  For Les’ post on the overruling of Byers by the PATH Act, see here.  To quote Les from the latter post:

“The upshot of the PATH legislation with respect to CDP appeals is to push CDP and innocent spouse appeals into the same general rule as deficiency cases, that is the venue on appeal is tied to an individual’s residence (or principal place of business for other taxpayers) of the petitioner at the time of petition filing unless the parties stipulate otherwise.”

But, that legislation, sadly, did not resolve the issue of the proper venue on appeal from Tax Court attorney sanctions under section 6673(a)(2).

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The taxpayers in Best and May all lived in the Ninth Circuit when they filed their Tax Court petitions in 2010 and 2012, respectively.  In neither case were the taxpayers contesting the amount of underlying liability.  In both cases, the taxpayers were represented by a Phoenix attorney named Donald MacPherson.  In the Tax Court, MacPherson’s arguments were only [21]  that (1) the Appeals Settlement Officer abused her discretion in relying only on computer transcripts to verify that the taxpayers’ unpaid tax had been properly assessed and (2) collection could not proceed because the IRS had failed to furnish the taxpayers with Form 23C or RACS 006 (including the name and signature of the assessment officer and the date of the assessment), rather than the Form 4340 transcripts that the IRS had furnished the taxpayers.

The judges in the Best and May cases (Halpern and Lauber, respectively) rejected these arguments as so frivolous at this point that the judges considered the cases to have been filed by the taxpayers primarily for delay.  Section 6673(a)(1) allows the court to sanction taxpayers who bring or maintain suits primarily for delay or who maintain frivolous or groundless positions in their cases.  In their initial opinions in the cases, the judges both held that collection could proceed and the taxpayers were subject to penalties under section 6673(a)(1) of $5,000 and $500, respectively.

In follow-up opinions in both cases issued earlier this year, the judges decided to impose penalties on MacPherson under section 6673(a)(2) of $19,837.50 and $7,188, respectively.  That section provides that “[w]henever it appears to the Tax Court that any attorney . . . has multiplied the proceedings in any case unreasonably and vexatiously,” the court may require that the attorney “pay personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” The judges computed the excess costs using a well-settled “lodestar” amount for the work of IRS attorneys and law clerks.

In the second Best opinion, the court applied a rule of the Ninth Circuit and most appeals courts that bad faith is needed to impose sanctions, even though not all courts of appeal require this. In part, the Tax Court did this to make the split irrelevant by holding that the IRS passed the higher test (bad faith), writing:

Moreover, appellate venue regarding section 6673(a)(2) is uncertain.  Venue for appeal of Tax Court decisions is governed by section 7482(b). The venue for appeal is likely either the Court of Appeals for the Ninth Circuit (because of the legal residence of petitioners), see sec. 7482(b)(1)(A), or the Court of Appeals for the District of Columbia Circuit, see sec. 7482(b)(1) (flush language). . . .  Because we are unsure of appellate venue, and because we find that Mr. MacPherson’s conduct would constitute bad faith under the Court of Appeals for the Ninth Circuit’s test for bad faith, we will for purposes of this case (and without deciding the standard in this Court), adopt that standard.

T.C. Memo. 2016-32, slip op. at *11- *12.

In the second May opinion, the Court stated that it was following the reasoning of the second Best opinion and cited opinions on sanction standards both from the Ninth Circuit and D.C. Circuit, as follows:

We find that Mr. MacPherson knowingly or recklessly advanced arguments that he knew were frivolous and lacking in any legal basis. Because his actions thus manifested subjective bad faith, they are deserving of sanction under section 6673(a)(2). See Moore v. Keegan Mgmt. Co. (In re Keegan Mgmt. Co., Sec. Litig.), 78 F.3d 431, 436 (9th Cir. 1996); Reliance Ins. Co. v. Sweeney Corp., 792 F.2d 1137, 1138 (D.C. Cir. 1986); Takaba v. Commissioner, 119 T.C. 285, 296-297 (2002).

T.C. Memo. 2016-43, slip op. at *15 (footnote omitted).

In early June, notices of appeal were filed in both cases in the Ninth and D.C. Circuits. All four of the notices attach the rulings of the Tax Court in the opinions that sanctioned MacPherson, but not the earlier opinions concerning the taxpayers. All notices of appeal nominally are in the names of the taxpayers, but are signed only by MacPherson. While the notices of appeal are a bit confusing (and may not be jurisdictionally-sufficient for all of the parties desiring to appeal), it appears that the appeals are intended to be both on behalf of the taxpayers and MacPherson, even though MacPherson has not put his name in the captions of the appeals as an appellant.

In the notices of appeal to the D.C. Circuit, MacPherson explains (without citing Byers) that venue on appeal of CDP cases such as Best and May is unclear, and so the filings in the D.C. Circuit are essentially protective. He states that the appellants prefer that the appeals be heard by the Ninth Circuit and that he has asked counsel for the government to stipulate to the Ninth Circuit as the proper venue.

I expect that the government will agree to the requested stipulation – both for the taxpayers and MacPherson’s penalty appeals.

First, in Notice CC-2015-006 (issued before Byers was legislatively repealed), and on which I blogged here, Chief Counsel expressed its disagreement with the D.C. Circuit’s venue holding in Byers that, absent a stipulation otherwise, CDP cases not involving underlying liability issues are appealable only to the D.C. Circuit, writing:

When evaluating appellate venue after a taxpayer files a notice of appeal, if the taxpayer appeals a non-liability case to the D.C. Circuit, and the case is not enumerated in section 7482(b), Chief Counsel attorneys should not recommend objecting to venue since Byers is controlling in the D.C. Circuit. If a taxpayer appeals a non-liability case to the proper regional circuit, Chief Counsel attorneys should likewise not object to venue as the taxpayer’s choice of venue is consistent with our position.

(Emphasis added.)  It is thus the IRS preference to litigate CDP cases in the regional Circuits of the taxpayers’ residence.

Second, I don’t expect the IRS to object to venue of MacPherson’s penalty appeals in the Ninth Circuit, either, since judicial economy (and government briefing expenses) would be served by hearing the taxpayers’ and their lawyer’s appeals together.

But, I do want to discuss the open question as to the proper venue for an attorney who is appealing penalties imposed by the Tax Court under section 6673(a)(2).

Recall that section 7482(b)(1)’s flush language provides a general rule that appeals from the Tax Court go to the D.C. Circuit, unless one of a series of lettered subparagraphs applies.  Subparagraph (A) directs appeals by individuals from rulings involving petitions seeking redetermination of tax liability to the Circuit of the individual’s residence.  Just as in Byers, where the D.C. Circuit held CDP petitions not to fall within subparagraph (A), in Dornbusch v. Commissioner, 860 F.2d 611 (5th Cir. 1988), the Fifth Circuit held that an appeal from a Tax Court criminal contempt order against a third-party witness could not be heard by the Circuit of the petitioner’s residence but had to be heard by the D.C. Circuit under the flush language of section 7482(b)(1).  In that case, the Fifth Circuit transferred the criminal contempt appeal to the D.C. Circuit.

More recently and to the point, the Tax Court has speculated that appeals of its section 6673(a)(2) penalties on attorneys also probably don’t fall within subparagraph (A) of section 7482(b)(1) or any other subparagraph, so, absent stipulation otherwise,  should go only to the D.C. Circuit. Takaba v. Commissioner, 119 T.C. 285, 297 (2002); Edwards v. Commissioner, T.C. Memo. 2003-149, aff’d, 119 Fed. Appx. 293 (D.C. Cir. 2005) (D.C. Cir. opinion lacks any discussion of venue); Davis v. Commissioner, T.C. Memo. 2007-201, taxpayer’s appeal only aff’d, 301 Fed. Appx. 389 (6th Cir. 2008) (attorney’s appeal dismissed because notice of appeal did not make clear that attorney was appealing).

The issue of venue for appeals of section 6673(a)(2) penalties once came up in a D.C. Circuit opinion.  The taxpayer had appealed his case, Powell v. Commissioner, T.C. Memo. 2009-174, to the Sixth Circuit, where the appeal was pending when the taxpayer’s attorney appealed his section 6673(a)(2) sanctions in the case to the D.C. Circuit.  The DOJ apparently moved to transfer the attorney’s appeal to the Sixth Circuit, but the D.C. Circuit directed briefing on the entire case (including the transfer issue), and when the D.C. Circuit issued its opinion in Barringer v. U.S. Tax Court, 408 Fed. Appx. 381 (D.C Cir. 2010)[free copy unavailable], it affirmed the Tax Court without transferring the case, writing:  “Because the appeal has been fully briefed and argued, the judicial economy rationale of the Tax Court’s suggestion this appeal be transferred to the Sixth Circuit where the taxpayer’s appeal is pending, no longer exists.” Thus, the Barringer opinion also does not decide the normally-correct venue on appeal for a section 6673(a)(2) penalty case.

In hunting around for other venue rulings on section 6673(a)(2) penalties, I found one opinion from a regional Circuit, Johnson v. Commissioner, 289 F.3d 452 (7th Cir. 2002). In the Tax Court case related thereto, the taxpayer, Johnson, lived in Indiana (within the Seventh Circuit). Johnson v. Commissioner, 116 T.C. 111, 112 (2001). After ruling against the taxpayer, the Tax Court also sanctioned her attorney, Joe Izen, under section 6673(a)(2). Izen was from Texas. Apparently, only Izen appealed the case to the Seventh Circuit to contest his penalties. The Seventh Circuit held that the penalties were warranted, but did not discuss the venue on appeal – leading me to assume the DOJ did not raise the issue of possible improper venue.

In sum, there are no appellate court opinions – precedential or otherwise – on the correct venue on appeal from attorney penalties imposed by the Tax Court under section 6673(a)(2), just Tax Court speculation that proper appellate venue, absent stipulation otherwise, probably is only the D.C. Circuit.

May readers never have to be involved in a case where this issue has to be resolved.

 

Storm at SEC Over Appointments Clause Violations Concerning its ALJs and Possible Implications as to Circular 230 ALJs, Part III

We welcome back frequent guest blogger Carl Smith who brings us up to date on a non tax case with potential tax implications that he has written about previously.  Keith

This is an update post – the bottom line of which is that there are, as yet, still no court of appeals rulings addressing the Appointments Clause problems alleged with respect to SEC ALJs.

Early last September, I did two posts here and here about rulings of two district courts that tax lawyers who represent practitioners in hearings before Circular 230 ALJs should keep an eye on.  The posts concerned Duka v. SEC, 2015 U.S. Dist. LEXIS 100999 (S.D.N.Y. Aug. 3, 2015), and Hill v. SEC, 114 F. Supp. 3d 1297 (N.D. Ga. Jun. 8, 2015).

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Prior to Dodd-Frank, the SEC had to pursue enforcement actions through district courts.  In Duka and Hill, the SEC had used its new powers under Dodd-Frank to pursue enforcement actions, at its option, in its own administrative tribunal.  In its new tribunal, the SEC assigned ALJs to try enforcement actions in the first instance.  If a person lost before the ALJ, appeal could be made, first, to the entire SEC, then to a court of appeals.  Before the ALJs held their trials, both Duka and Hill brought suits in district courts to enjoin the SEC proceedings, arguing, among other things, that the SEC ALJs needed to be, but were not, properly appointed under the Constitution’s Appointments Clause.  In my posts, I noted that similar, and perhaps other, problems may affect Treasury ALJs who hold trials concerning Circular 230 sanctions.

Duka and Hill were two of more than a half dozen district court suits brought to stop pending SEC ALJ proceedings.  What I did not note in my prior posts was that most district courts dismissed such suits for lack of jurisdiction – on the theory that the constitutional arguments could be raised before the ALJs and the SEC and so could eventually get reviewed by courts of appeals later.  Duka and Hill were unusual in that, in those cases, (1) the district court judges ruled that they had jurisdiction to address the constitutional issue now, and (2) both judges issued injunctions precluding further ALJ proceedings because they held that the Appointments Clause had been violated.  Both courts held that, even though SEC ALJs don’t render the final decision after trial (because of potential SEC review), they exercise significant authority on behalf of the United States, making them have to be appointed under the Appointments Clause the same way that Tax Court Special Trial Judges were held to have to be properly appointed in Freytag v. Commissioner, 501 U.S. 868 (1990).  But, the SEC had never appointed the ALJs.  Apparently, the ALJs were just hired as employees by some staffer at the SEC.  Thus, the Appointments Clause – at least requiring appointment by the entire SEC (as the “Head[] of [a] Department[]”) – was violated.

So, what has happened since my last posts?

Well, even before my posts on Duka and Hill, people losing the jurisdictional question in other district court suits brought appeals in several Circuits.

In Bebo v. SEC, 799 F.3d 765 (7th Cir. Aug. 24, 2015), and Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. Sept. 29, 2015), the Seventh and D.C. Circuits affirmed dismissals for lack of jurisdiction – telling the appellants to go finish their administrative proceedings, and, if they lost both before the ALJs and the SEC, they could make their Appointments Clause arguments later, when they took an appeal from the SEC.

There were several conflicting district court cases in district courts in the Second Circuit.  The first that reached that appeals court, though, was not Duka, so the oral argument in Duka was postponed.  Instead, oral argument was had in another case – one where the district court had dismissed for lack of jurisdiction, so did not reach the Appointments Clause violation issue.  On June 1, 2016, a divided 3-judge panel of the Second Circuit in Tilton v. SEC, 2016 U.S. App. LEXIS 9970, affirmed the district court’s dismissal.  The Second Circuit ruled that the Appointments Clause issue was not one wholly collateral to the underlying administrative proceeding, and the injury of being forced to try a case before a tribunal that might be improperly constituted was only monetary, which the court did not feel was the kind of irreparable injury that might require addressing the constitutional issue at this early stage.

Presumably now, another panel of the Second Circuit will shortly dismiss the Duka case, also for lack of jurisdiction.  On the other hand, perhaps an internal fight will brew at the Second Circuit, resulting in an en banc hearing on the jurisdictional question.

The Eleventh Circuit heard oral argument in Hill on February 24, 2016.  The docket sheet on www.PACER.com for the appeal, Docket No. 15-12831, shows that over 10 people have ordered from the Eleventh Circuit copies of the oral argument on CD.  (Unlike some other Circuits, the Eleventh Circuit does not post the audio of its oral arguments on its website.)  A report on the oral argument indicates that the Eleventh Circuit was focused more on the jurisdictional question than the Appointments Clause violation.  See http://www.gtlaw-financialservicesobserver.com/2016/03/eleventh-circuit-raises-important-questions-about-challenging-the-constitutionality-of-sec-administrative-proceedings/

Who knows where this is going?  Perhaps to SCOTUS, eventually?

We’ll keep you updated periodically.

 

Interest Abatement Based on “Unfair” Assessment

Frequent guest blogger Carl Smith writes about an interest abatement case recently argued before the 7th Circuit. The fact that it arises in a Collection Due Process case, that the taxpayer fully paid the liability yet continued with the interest abatement argument, that the Tax Court has found it has no jurisdiction to order a refund in a Collection Due Process case and that the taxpayer passed away before the 7th Circuit argument create an interesting backdrop for a potentially broad reaching interest abatement determination. Keith

This is an update to a case on which Stephen posted when the Tax Court rendered its opinion last July. Oral argument was heard in the Seventh Circuit in an appeal in the case on May 27, 2016.

King is an employment tax Collection Due Process (CDP) case based on a notice of federal tax lien (NFTL).  The only issue left in the case on appeal is interest abatement under IRC § 6404(a).  That’s not a typo for § 6404(e).  § 6404(e) allows abatement of interest with respect to taxes that are deficiencies (income, estate, and gift), not employment taxes, where there have been unreasonable IRS errors or delays.  By contrast, § 6404(a) provides: “The Secretary is authorized to abate the unpaid portion of the assessment of any tax or any liability in respect thereof, which–(1) is excessive in amount, or (2) is assessed after the expiration of the period of limitation properly applicable thereto, or (3) is erroneously or illegally assessed.” While § 6404(a) abatement clearly authorizes abating tax, the IRS agrees that “any liability in respect” of the tax includes interest.

In H & H Trim & Upholstery Co. v. Commissioner, T.C. Memo. 2003-9, the Tax Court held that interest on a tax liability could be abated under § 6404(a) when the amount seemed “unfair”, since anything that was unfair was “excessive in amount”.  In King, the Tax Court granted interest abatement under section § 6404(a) for a period of less than two months — involving, by my estimate, just over $200 of interest abated.  The government was so hopping mad about losing King (and the existence of H & H Trim), that it appealed King to the Seventh Circuit, arguing that § 6404(a) abatement could never apply to interest that was correctly calculated.  The government clearly doesn’t care about the $200 in this case, but wants to get a ruling from some appellate court that taxpayers can’t use § 6404(a) as an end run around the limitations in § 6404(e).  No other appeals court has ever considered interest abatement under § 6404(a).

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The taxpayer was an elderly solo practitioner lawyer who had one or more employees over a number of quarters that the IRS audited.  After the audit was completed and certain proposed adjustment amounts were reduced, the taxpayer agreed to the assessment of employment tax audit changes by signing a Form 2504 showing about $50K in tax and penalties for all the quarters combined.  Shortly before sending in the signed Form 2504, he sent two letters to the Revenue Agent saying he would like to pay in installment over 60 months, but not specifying the amount he proposed to pay each month.  The IRS assessed the employment taxes and penalties and led him to believe that he was going to be put on an installment agreement, but he never was.  After being referred to the Taxpayer Advocate Service (TAS) about a months after the date of assessment, TAS told him that the reason he was not put on an installment agreement was both because he had not stated the amount of monthly payment he wanted to make and he had to submit financial information.  When he did eventually submit financial information, the IRS concluded that he had enough assets to pay in full, if he would just sell off some illiquid assets.  So, the IRS did not give him an installment agreement.

The IRS filed an NFTL, and the taxpayer requested a CDP hearing in which he sought an installment agreement and sought abatement of the interest and penalties.  When the IRS denied him any relief in the notice of determination, he appealed to the Tax Court.  Early on during the case, though, he managed to get a reverse mortgage, and he paid off the tax, penalty, and interest assessments in full.  But, he did not concede that the CDP case was moot.  He still sought penalty abatement under § 6404(f) and interest abatement under §§ 6404(a) or (e).

In King v. Commissioner, T.C. Memo. 2015-36, the Tax Court first noted that it had no overpayment jurisdiction in CDP, citing Greene-Thapedi v. Commissioner, 126 T.C. 1, 12 (2006).  So, the CDP portion of the case in which the taxpayer had, in his petition, complained about not getting an installment agreement was now moot.

Next, the court noted that under its jurisdiction at § 6404(h), it can only resolve disputes about interest, not penalties.  Thus, it had no power to review the IRS’ failure to abate penalties under § 6404(f).

Third, the court noted that interest abatement under § 6404(e) couldn’t apply in King’s case because that subsection does not apply to employment taxes, only such taxes that can give rise to a “deficiency” — i.e., income, estate, gift, and certain excise taxes.

However, the court considered the notice of determination in the case as one denying interest abatement under § 6404(a) — over which the court had jurisdiction — even though at this point, the taxpayer, if successful, would be getting a refund.

King sought interest abatement for three different periods, citing H & H Trim for the proposition that interest should be abated if it was “unfair” under the circumstances.  The IRS argued that H & H Trim was incorrect and that interest abatement under § 6404(a) should only be done if there was some procedural defect in its assessment, the assessment was late under the statute of limitations, or the numerical calculation of the interest was excessive.

The Tax Court stuck by its H & H Trim ruling and gave interest abatement for one of the three periods.  In the period in which King was successful, the Tax Court held that it was “unfair” for interest to accrue from the date of assessment of the liabilities to the date the TAS employee explained to the taxpayer that the taxpayer needed to supply financial information.  The court thought that the IRS employee who originally told the taxpayer that he was going to get an installment agreement should have communicated the problems with the original proposal on or before the date of the assessment.

Even though the amount of interest abated here was only about $200 by my estimate, the DOJ filed an appeal with the Seventh Circuit, wanting to nip in the bud other taxpayers arguing for interest abatement under § 6404(a) simply because the amount assessed was “unfair”.  No Circuit court has ever ruled on this issue.  H & H Trim had not been appealed.  Nor had the IRS appealed another Tax Court opinion that followed H & H Trim, Law Offices of Michael B.L. Hepps v. Commissioner, T.C. Memo. 2005-138.

In the Seventh Circuit, before any briefing was done, the taxpayer died.  His wife, who was not a party to the case, was invited to take over in the case for him, but she did not respond to a letter from the Seventh Circuit.  So, only the DOJ filed a brief.  On May 27, 2016, a one-sided oral argument was held before a three-judge panel that included Judge Posner.  The audio of the oral argument is freely available on the Seventh Circuit’s website, Docket No. 15-2439.

Judge Posner was the only judge who asked questions. His main concern was to give meaning to the words “excessive in amount” in § 6404(a)(1) that was independent of “is erroneously or illegally assessed” in § 6404(a)(3). The DOJ attorney argued that “erroneously or illegally assessed” might mean that internal steps to authorize assessment had not been completed – i.e., procedural defects other than the statute of limitations – while “excessive in amount” might mean, in the case of interest, that the wrong rate or time period had been used in the calculation, leading to an excessive amount of interest having been assessed. Thus, there was no need to interpret “excessive in amount” as “unfair”.

Judge Posner also got into a colloquy with the DOJ attorney about the interplay between §§ 6404(a) and (e).  Although this was not a case where § 6404(e) interest abatement could have applied (since subsection (e) doesn’t apply to employment taxes), the attorney warned that if subsection (a) (which could apply to any tax) applied to “unfair” assessments of interest, then a person who, say, was seeking interest abatement under subsection (e) for interest on income taxes could use (a) abatement as an end run around the limitations of (e) that (1) prevent abatement where a taxpayer contributed to the delay and (2) limit interest abatement to cases of unreasonable errors or delays in IRS employees performing ministerial or managerial acts.

It sounded like the DOJ attorney cleared up all of Judge Posner’s questions, but I am not positive that the IRS will win this case.

 

Adams v. Comm’r: How Not to File an Appeal from the Tax Court

Carl Smith discusses the challenges that pro se taxpayers faced in trying to timely file an appeal of a Tax Court case. Les

On May 20, 2016, through an unpublished order in Adams v Commissioner, the Fourth Circuit dismissed for lack of jurisdiction an untimely appeal from a Tax Court deficiency case. Adams presents a veritable law school exam question of how not to file a timely appeal. The pro se taxpayers in the case tried multiple ways to file a timely appeal, but to no avail. This case provides a convenient review of what you can and cannot do to file a timely appeal from the Tax Court. But, in this post, I also raise the question whether the Fourth Circuit was correct in dismissing the untimely appeal from the Tax Court for lack of jurisdiction; I think the dismissal should have been on the merits, though there was little practical difference in this case either way.

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Adams Facts

Substantively, the Adams case was not likely to prevail on the merits, anyway. The Adamses had omitted from their 2010 income tax return part of the qualified plan distributions that the husband took after he was discharged from his Defense Department job and could not find replacement work. So, the IRS sent the Adamses a notice of deficiency seeking income tax on the underreported distributions, as well as a § 72(t) 10% penalty for early withdrawal and a 20% accuracy-related penalty on the deficiency. In response, the Adamses timely filed a pro se Tax Court petition.

On August 17, 2015, the Tax Court issued its opinion at T.C. Memo. 2015-162, holding that it could not exempt the taxpayers from taxation on the distributions under some undefined equitable exception that the taxpayers sought on the ground that the husband’s discharge was discriminatory. At trial, the Adamses were afforded an opportunity, at least, to substantiate any medical expenses that might have reduced the 10% penalty, but the taxpayers did not do so, contending that the receipts were too voluminous to produce and too expensive to photocopy. So, the court sustained the § 72(t) penalty in full. The court also found a substantial understatement of tax as to which there was no reasonable cause and good faith, so it sustained the accuracy-related penalty in full.

On August 26, 2015, the Tax Court entered its decision consistent with the opinion.

On September 2, 2015, the taxpayers tried to electronically file in the Tax Court a notice of appeal, but since there is no tab on the court’s electronic filing system for a notice of appeal, they filed the notice of appeal under the “memorandum” tab.

On September 4, 2015, the Tax Court issued an order striking the attempted filing and pointing out to the taxpayers that a notice of appeal is one of the documents that must be filed with the Tax Court on paper, not electronically. The court’s order also noted that, under Tax Court Rules 161 and 162, respectively, unless otherwise permitted by the court, a motion for reconsideration of an opinion had to be filed within 30 days of the service of the opinion, and a motion to vacate a decision had to be filed within 30 days of the entry of the decision.

On September 16, 2015, the taxpayers filed a timely motion for reconsideration of the opinion under Rule 161 – again arguing for an equitable exception to taxation of the distributions. In an order dated September 29, 2015, but served on September 30, 2015, the Tax Court denied the motion.

On October 12, 2015, the taxpayers filed a motion for a new trial that was stamped denied on October 16, 2015.

On November 23, 2015, the taxpayers again tried to file a notice of appeal electronically in the Tax Court under the memorandum tab. On November 24, 2015, the Tax Court issued an order striking the attempted filing and again pointing out to the taxpayers that a notice of appeal is one of the documents that must be filed with the Tax Court on paper.

On November 24, 2015, December 11, 2015, and December 19, 2015, the taxpayers again electronically filed various papers under the memorandum tab. On January 5, 2016, the Tax Court issued an order striking the attempted filings and again pointing out to the taxpayers that a notice of appeal is one of the documents that must be filed with the Tax Court on paper.

According to a DOJ filing on November 30, 2015, the taxpayer attempted to file a paper notice of appeal with the Fourth Circuit, but no case was set up. An appeals court is the wrong court in which to file a notice of appeal from the Tax Court. The notice of appeal must be filed with the Tax Court.

On January 12, 2016, the taxpayer finally filed with the Tax Court a paper notice of appeal to the Fourth Circuit. As a result of this filing, the Fourth Circuit established a docket for the appeal, Docket No. 16-1043.

DOJ Arguments

In the Fourth Circuit, the DOJ argued that the appeal should be dismissed for lack of jurisdiction as untimely for several reasons:

First, the normal rule is that an appeal is timely filed if it is filed on paper with the Tax Court within 90 days of entry of the decision. § 7483, FRAP Rule 13(a)(1)(A); Tax Court Rule 190(a). Ninety days from the entry of decision was November 24, 2015, yet the notice of appeal was filed with the Tax Court on paper only on January 12, 2016. Therefore, absent something that extended the period, the filing was untimely.

Second, the timely filing of a motion to vacate under Tax Court Rule 162 could have extended the time to appeal. Under FRAP Rule 13(a)(1)(B), the 90-day time to appeal would commence anew on the date an order was entered by the Tax Court denying such motion. However, the taxpayers never filed such a motion to vacate the decision.

Third, there is a bit of disagreement among the Circuit courts as to whether the filing of a timely motion to reconsider an opinion under Tax Court Rule 161 can serve to extend the time period to appeal. FRAP Rule 13(a)(1)(B) does not expressly provide for tolling in that situation. The Ninth Circuit in Nordvik v. Commissioner, 67 F.3d 1489, 1493 (9th Cir. 1995), has held that a timely Tax Court Rule 161 motion tolls the appeal period. The Tenth Circuit reached the opposite conclusion in Mitchell v. Commissioner, 283 Fed. Appx. 641, 644 (10th Cir. 2008), observing that it “has never given tolling effect in a tax appeal to a motion for reconsideration, which is not mentioned in Rule 13.” In Spencer Med. Assocs. v. Commissioner, 155 F.3d 268, 269-271 (4th Cir. 1998), the Fourth Circuit declined to address the issue whether a timely Tax Court Rule 161 motion for reconsideration tolls the appeal period, since the motion for reconsideration there was untimely and thus would not have tolled the appeal period in any event.

The DOJ argued in Adams that the better view was that a motion for reconsideration does not extend the time to appeal from the Tax Court. However, even though the motion in this case was timely filed, it was denied on September 29, 2015. Ninety days after that date was December 28, 2015. Yet the appeal was only properly filed on January 12, 2016, so the notice of appeal would have been late, even if the motion for reconsideration’s denial restarted a 90-day appeal period.

Fourth, FRAP Rule 4(d) states: “If a notice of appeal in either a civil or a criminal case is mistakenly filed in the court of appeals, the clerk of that court must note on the notice the date when it was received and send it to the district clerk. The notice is then considered filed in the district court on the date so noted.” However, the mistaken filing in the Fourth Circuit by the taxpayers here on November 30, 2015, was not with respect to an appeal from a district court. So, FRAP Rule 4(d) did not apply, and there was no comparable rule for appeals from the Tax Court. In any case, even if one could file a notice of appeal from a Tax Court decision in a Court of Appeal under a rule similar to FRAP Rule 4(d), the November 30, 2015 filing was 6 days late – i.e., 6 days beyond the 90-day period starting from the date of the Tax Court decision herein (August 26, 2015).

Finally, the DOJ argued that the 90-day period in section 7483 in which to file an appeal from the Tax Court is jurisdictional. Therefore, it cannot be extended for equitable reasons – i.e., it cannot be equitably tolled, even if the taxpayers could prove the necessary facts for tolling. Timely filing an appeal in the wrong forum is often a ground for equitable tolling of nonjurisdictional filing periods. See Mannella v. Commissioner, 631 F.3d 115, 125 (3d Cir. 2011). The DOJ did not want the taxpayer to be able to argue that timely filing the notice of appeal in the Tax Court by the wrong method (electronically) could be excused under equitable tolling.

Fourth Circuit’s Ruling

The Fourth Circuit, in an unpublished opinion, did not discuss each of the arguments that the DOJ raised. Instead, it wrote merely:

A notice of appeal from a decision of the tax court must be filed within ninety days after the decision is entered. 26 U.S.C. section 7483 (2012); Spenser Med. Assocs. v. Comm’r, 155 F.3d 268, 269 (4th Cir. 1998). The timely filing of a notice of appeal is a jurisdictional requirement. Bowles v. Russell, 551 U.S. 205, 213-14 (2007).

The tax court’s order was entered on the docket on August 26, 2015. The notice of appeal was filed on January 12, 2016. Because taxpayers failed to file a timely notice of appeal, and because this jurisdictional appeal period is not subject to equitable tolling, see Bowles, 551 U.S. at 214, we dismiss the appeal.

Observations

On these facts, the court clearly made the right decision to dismiss the appeal, but I question whether the appeal should have been dismissed for lack of jurisdiction. I believe that it should have been dismissed on the merits. This wouldn’t make a material difference in this case, but it could have in a different case where, say, a taxpayer filed a timely notice of appeal in the Circuit court (the wrong place) and so wanted to argue for equitable tolling.

In my opinion, the 90-day time period in § 7483 to file an appeal from the Tax Court is not jurisdictional and is subject to equitable tolling under the right facts under the current Supreme Court case law on jurisdiction and equitable tolling that Keith and I have repeatedly cited in PT posts in recent years. See, e.g., my post on Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015)

As you know from prior posts here, here, and here, Keith and I are in the midst of litigating test cases in the Tax Court and the Ninth Circuit in which we argue that the time periods in which to file Tax Court petitions in Collection Due Process cases under § 6330(d)(1) and in stand-alone innocent spouse cases under § 6015(e)(1)(A) are not jurisdictional and are subject to equitable tolling under recent, non-tax Supreme Court case law. We are seeking to overturn existing Tax Court precedent, which has not considered the recent Supreme Court case law. Under that case law, such as Musacchio v. United States, 136 S. Ct. 709 (2016); United States v. Wong, 135 S. Ct. 1625 (2015); Sebelius v. Auburn Regional Med. Cntr., 133 S. Ct. 817 (2013); and Henderson v. Shinseki, 562 U.S. 428 (2011), time periods to file in court are no longer considered jurisdictional unless Congress has clearly stated a preference that the time period be jurisdictional. The Court has noted, under the current rule, “the rarity of jurisdictional time limits”; Wong, supra, at 1632; and stated, “This 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. The only exception to this rule is that, so as not to overturn the expectations of Congress, for stare decisis reasons, the Supreme Court will ignore its current case law if there exists a string of Supreme Court authority on the exact statutory time period going back 100 years or more holding the time period jurisdictional.

The current Supreme Court jurisdictional rules show that the 90-day period under § 7483 to file an appeal from the Tax Court is not jurisdictional. Congress has not clearly stated in § 7483 that the period is jurisdictional. For example, there is no provision in § 7483 that speaks to the jurisdiction of the appeals courts. Indeed, the jurisdictional grant to Circuit courts to hear appeals is elsewhere, at § 7482(a)(1), and contains no references to a time period in which to file.

Then, what of the Fourth Circuit’s citation of Bowles v. Russell, 551 U.S. 205 (2007), in support of its Adams holding that the time in which to file an appeal from the Tax Court is jurisdictional? In Bowles, the question was whether the 30- and 60-day periods under 28 U.S.C. § 2107(a) and (b) in which to file appeals from the district courts in civil cases were jurisdictional. 28 U.S.C. § 2107(c) allows the district court to extend the time to file an appeal for up to 14 days in certain circumstances. In the case, a district court accidentally issued an order extending the time to file an appeal by 17 days, and the appellant relied on that order to his detriment. Only because the Court has for over 100 year had held the § 2107 appeal period jurisdictional did the Court stick with that holding. Since I can locate no Supreme Court opinion holding that the § 7483 period in which to file appeals from the Tax Court is jurisdictional, there is no stare decisis exception available to the current case law that generally makes filing deadlines nonjurisdictional.

The § 7483 time period is also likely subject to equitable tolling, since it is more akin to the simple 1-year period under 28 U.S.C. § 2244(d) to file for death penalty habeas review in district court that was held subject to equitable tolling in Holland v. Florida, 560 U.S. 631 (2010), than it is like the complex, multi-exception time periods under § 6511 to file tax refund claims that was held not subject to equitable tolling in United States v. Brockamp, 519 U.S. 347 (1997).

Precedential case law from various Circuits, including the Fourth Circuit, that has held the Tax Court appeals period to be jurisdictional generally predates and always lacks discussion of current Supreme Court case law on jurisdiction and equitable tolling. Such case law as Spencer Med. Assocs. v. Commissioner, 155 F.3d 268, 269 (4th Cir. 1998); Okon v. Commissioner, 26 F.3d 1025 (10th Cir. 1994), and Davies v. Commissioner, 715 F.2d 435 (9th Cir. 1983), is ripe for overruling.

 

Onyango v. Comm’r: D.C. Circuit Gives Little Guidance on What It Means to “Receive” a Notice of Deficiency for Purposes of a CDP Hearing

Guest blogger Carl Smith provides insight on unhelpful court of appeals opinion in a case of first impression at the Circuit Court level. Keith

Quite a few PT posts have mentioned the expected D.C. Circuit ruling in Onyango v. Commissioner.  Well, it finally arrived on March 22 and can be found here.  Stephen first mentioned the Tax Court’s opinion at 142 T.C. 425 (2014) in a SumOp post here, and Keith did a longer post on the Tax Court opinion hereOnayango has been mentioned in the following seven additional PT posts: here, here, here, here, here, here and here. One could reasonably conclude we had a thing going about Onyango.

Onyango is a Collection Due Process (CDP) case, where the taxpayer wanted to challenge his underlying tax liability – income tax deficiencies.  The notice of deficiency had been mailed to his last known address, but Mr. Onyango often was staying with friends during this period, so did not regularly pick up his mail at his last known address.  The USPS left two notifications to sign for a certified mail envelope (the one containing the notice) before it would deliver that notice to him, but the taxpayer only came across the notifications a few months later. By the time he went to the Post Office in response thereto, the certified envelope containing the notice of deficiency had been returned to the IRS unclaimed. So, he never actually, physically obtained possession of the notice. He argued that in a CDP hearing, section 6330(c)(2)(B) allows him to challenge his underlying tax liability, so long as he never physically received the notice of deficiency. The Tax Court, however, found that, under these circumstances, even though he did not deliberately evade receipt, he constructively received the notice, so he was barred from contesting his underlying liability.

We were hoping that the opinion of the D.C. Circuit in this case might explain what it thought Congress meant by using the words “receive a notice of deficiency” in section 6330(c)(2)(B). But, the appeals court simply issued a brief unpublished order of affirmance, not explaining why it thought the circumstances in this case involved receipt of the notice.

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My research indicates that, over the years, section 6330(c)(2)(B) has been cited in 96 different Court of Appeals opinions.  The vast majority of those opinions are non-precedential.  I have looked at all of the precedential opinions to confirm what is apparent from the Tax Court’s opinion and the DOJ’s brief in Onyango:  Even almost 18 years after CDP was enacted, there is still no Court of Appeals precedential opinion addressing a situation where a party litigated the issue of whether a taxpayer “did not receive a notice of deficiency” and so was entitled to contest the underlying liability in a CDP hearing.  In all precedential opinions where a notice of deficiency was issued, it was uncontested either that the notice of deficiency had or had not been received.  So, I had hoped that the D.C. Circuit in Onyango might give the first appellate guidance on the meaning of “receive” in section 6330(c)(2)(B).

The Tax Court’s precedent in this area is a mixed bag. The Tax Court has now held only that people who deliberately or carelessly avoided picking up their certified mail are also deemed to have received their notices of deficiency and so are unable to challenge the underlying liability in CDP. Compare Onayango and Sego v. Commissioner, 114 T.C. 604, 610-612 (2000) (taxpayer’s deliberate refusal to pick up certified mail deemed receipt), with Tatum v. Commissioner, T.C. Memo. 2003- 115 (taxpayers did not receive notice of deficiency, since postal service only attempted delivery once and taxpayers credibly testified that they were not avoiding delivery).  I have seen a few hearings where judges have been put into the position of deciding whether the taxpayer deliberately, carelessly, or by accident did not pick up the notice of deficiency. I don’t envy the judges having to decide this receipt issue – usually only based on the taxpayer’s testimony. The Tax Court can’t simply hold that mailing a notice of deficiency to the last known address always is constructive receipt or that would write the words “did not receive a notice of deficiency” out of the statute, since the notice of deficiency would have to have been sent to the last known address for the underlying assessment to be valid.

As to legislative history guidance, the Conference Committee report on CDP that created 6330(c)(2)(B) went beyond the word “receive” in the statute to “actually receive” in containing the following identical sentence twice (once under the notice of federal tax lien section of the report and once under the notice of intention to levy section of the report): “[T]he validity of the tax liability can be challenged only if the taxpayer did not actually receive the statutory notice of deficiency or has not otherwise had the opportunity to dispute the liability.” H.R. Rep. (Conf.) 105-599 at 265, 1998-3 C.B. at 1019 (Emphasis added). But, does “actual” receipt require physical receipt of the notice?

In the D.C. Circuit, Onyango also complained that the Tax Court refused to consider certain sealed medical evidence that he attempted to bring before the Tax Court in a motion for reconsideration. But, the Circuit court affirmed the Tax Court in a two-paragraph opinion, which simply reads:

“The court must give great deference to the Tax Court’s determination pertaining to the credibility of witnesses.” 106 Ltd. v. C.I.R., 684 F.3d 84, 92 (D.C. Cir. 2012) (quoting Pasternak v. Commissioner, 990 F.2d 893, 900 (6th Cir. 1993)). Appellant has not shown that the Tax Court clearly erred in discrediting portions of his trial testimony and finding that he “received” a notice of deficiency as that term is used in 26 U.S.C. § 6330(c)(2)(B). Because he received the notice of deficiency and did not file a timely challenge to that notice, appellant was barred from challenging his underlying tax liability. See 26 U.S.C. § 6330(c)(2)(B).

Nor was the Tax Court’s denial of appellant’s motion for reconsideration an abuse of discretion. See Ark Initiative v. Tidwell, 749 F.3d 1071, 1075 (D.C. Cir. 2014) (“This court’s review of the denial of reconsideration is typically limited to abuse of discretion . . . .”). Appellant has not demonstrated that his medical records could not have been obtained prior to trial, and his failure to exercise reasonable diligence in attempting to obtain them does not render them “newly discovered evidence.” See Bain v. MJJ Prods., 751 F.3d 642, 647-48 (D.C. Cir. 2014) (noting that evidence that could have been discovered prior to trial with “reasonable diligence” is not “newly discovered”).

It appears that we will have to wait for other cases to get precedential appellate court guidance on what it means to “receive” a notice of deficiency for purposes of section 6330(c)(2)(B) when a taxpayer carelessly does not pick up his certified mail.