Seventh Circuit Wonders if a Refund Claim is a Jurisdictional Requirement for a Refund Suit

Guest poster Carl Smith brings us up to date on the latest in developments relating to courts reconsidering whether certain time limits in the Internal Revenue Code are jurisdictional. Les

Recently, a panel of the Seventh Circuit hearing the appeal of Tilden v. Commissioner, T.C. Memo. 2015-188, sua sponte, at oral argument raised the question whether a failure to file a deficiency petition in the Tax Court within the 90-day period set out in section 6213(a) is still a jurisdictional defect in light of non-tax Supreme Court case law since 2004 that has generally limited jurisdictional requirements to those involving personal and subject matter jurisdiction, not “claims processing rules”, such as filing timing requirements. My post on the October 6 Tilden oral argument can be found here. In an unpublished opinion issued by another panel of the Seventh Circuit on November 1, in Gillespie v United States, 2016 U.S. App. LEXIS 19604, affg. 2016 U.S. Dist. LEXIS 12891 (E.D. Wisc. 2016), the panel speculated (but did not decide) that the requirement in section 7422(a) to file an administrative refund claim before bringing a refund lawsuit may also no longer be a jurisdictional requirement under that same Supreme Court case law.

This post is to explain the facts of Gillespie and the panel’s non-jurisdictional thinking. It is also to report how the Gillespie opinion scared the DOJ enough into filing, on November 10, a motion for leave to file a supplemental brief in Tilden laying out in detail, for the first time, the government’s reasons for believing that the deficiency filing period is still jurisdictional. The Tilden panel immediately granted this unexpected motion, to which the  proposed brief was attached, and directed the taxpayer to file his own supplemental brief on the jurisdictional question by November 28.

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Gillespie Facts

The Gillespies initially filed a joint income tax return for 2009 reporting $82,499 of wages from a private employer on which they calculated the tax as $5,145, all of which had apparently been withheld. I am not sure why, but by April 2013, the taxpayers had been forced to pay a total of $13,653 in tax, penalties, and interest towards the 2009 year. At that point, the taxpayers filed an amended return for 2009 showing their wages, income, and tax all as $0. They took the position, apparently, that only employees of the U.S. government had reportable wages, not employees of private employers. So, they sought a refund of the entire $13,653.

The IRS refused to process the amended return, so the Gillespies filed suit in district court for the refund. There, the DOJ moved under FRCP 12(b)(1) to dismiss the case for lack of jurisdiction, arguing that no valid refund claim had been filed, and that Congress only waived sovereign immunity under section 7422(a) for refund lawsuits after a taxpayer first files a refund claim.

Gillespie District Court Ruling

The district court held that section 7422(a)’s requirement for a refund claim to have been filed before a refund suit is maintained is not a jurisdictional requirement. It wrote (at footnote 2):

While Congress can create statutory limitations on jurisdiction, such as prerequisites to suit, “when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.” Arbaugh v. Y & H corp., 546 U.S. 500, 516 (2006). The statute at issue here, which waives sovereign immunity in taxpayer suits but requires taxpayers to first file a claim with the IRS, contains no language suggesting that this requirement is jurisdictional. 26 U.S.C. § 7422(a).

Arbaugh is one of the line of recent Supreme Court opinions that has cut back on the use of the word “jurisdictional”. The district court in Gillespie said that a defense of a lack of a waiver of sovereign immunity is a defense on the merits. The court then converted the motion to dismiss into one under FRCP 12(b)(6) to dismiss the case for failure to state a claim on which relief could be granted. The court then cited Seventh Circuit case law (relying indirectly on one of the factors in Beard v. Commissioner, 82 T.C. 766, 779 (1984)) requiring that any refund claim or tax return must evince an honest and genuine endeavor to satisfy the law. Since the legal position taken by the taxpayers on the amended return reflected a long-rejected tax protestor argument, the court held that the amended return did not evince an honest and genuine endeavor to satisfy the law, and, thus, the taxpayers had failed to file a refund claim before bringing suit. The court granted the motion to dismiss.

Gillespie Seventh Circuit Ruling

On appeal, the Seventh Circuit agreed with the district court that no refund claim had been filed before suit had been brought because the purported amended return did not evince an honest and genuine endeavor to satisfy the law. While affirming the district court’s dismissal of the suit for failure to comply with section 7422(a)’s requirement, the court of appeals dodged the issue of whether the dismissal was properly on the merits or should have been for lack of jurisdiction. The Seventh Circuit wrote:

The Gillespies do not respond to the government’s renewed argument that § 7422(a) is jurisdictional, though we note that the Supreme Court’s most recent discussion of § 7422(a) does not describe it in this manner, see United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5, 11-12 (2008). And other recent decisions by the Court construe similar prerequisites as claims-processing rules rather than jurisdictional requirements, see, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632-33 (2015) (concluding that administrative exhaustion requirement of Federal Tort Claims Act is not jurisdictional); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (concluding that Copyright Act’s registration requirement is not jurisdictional); Arbaugh v. Y & H Corp., 546 U.S. 500, 504 (2006) (concluding that statutory minimum of 50 workers for employer to be subject to Title VII of the Civil Rights Act of 1964 is not jurisdictional). These developments may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional. See, e.g., United States v. Dalm, 494 U.S. 596, 601-02 (1990); Greene-Thapedi v. United States, 549 F.3d 530, 532-33 (7th Cir. 2008); Nick’s Cigarette City, Inc. v. United States, 531 F.3d 516, 520-21 (7th Cir. 2008).

Supplemental DOJ Brief in Tilden

 As I noted in my prior post on Tilden, the DOJ there had not briefed the issue of whether the time period in which to file a deficiency petition in the Tax Court was jurisdictional under recent non-tax Supreme Court case law on the meaning of “jurisdictional”. Counsel had incorrectly assumed that all they had to show was that the filing of the deficiency petition was or was not timely under the timely-mailing-is-timely-filing regulations under section 7502.

But, the panel of the Seventh Circuit in Tilden (which consisted of different judges from the panel in Gillespie), sua sponte, at oral argument, raised the jurisdictional question and was surprised that counsel in the case were not prepared to discuss it. In my prior post, I mentioned that the day after oral argument, the DOJ filed a short letter setting out its position that the deficiency petition filing period is still jurisdictional under the recent Supreme Court case law. I linked to that letter in my post on Tilden. But, this initial letter triggered off three more short letters back and forth between the parties on the issue – all filed after my post.

According to the DOJ, the opinion in Gillespie on November 1 triggered its concern that a fuller explanation of the government’s position as to why the deficiency filing period was jurisdictional was in order. So, without warning (and apparently without even contacting the taxpayer’s attorney), on November 10, the DOJ moved in Tilden to file a 24-page supplemental brief on the issue, a copy of which the DOJ attached to its motion. Without asking the taxpayer’s attorney whether there was an objection to the motion, the Seventh Circuit immediately granted the motion and directed the taxpayer to file a responding supplemental brief by November 28.

In my post on Tilden, I mentioned a couple of things that suggest that the deficiency filing period (unlike the filing periods under sections 6015(e)(1)(A) and 6330(d)(1)) might still be jurisdictional, despite the recent non-tax Supreme Court case law. In particular, I mentioned (1) a possible res judicata problem (if the court would hold otherwise) with the application of section 7459(d) and (2) that Congress in 1998 had, in Committee reports, called the deficiency time period “jurisdictional”. It may be that the DOJ lawyers read my Tilden post, since their brief makes these two points — though the DOJ lawyers also present a few other arguments that I did not articulate.

Interestingly enough, in its supplemental brief, the DOJ does not argue that the first sentence of section 6213(a) that contains the filing period contains a “clear statement” that Congress wants the time period to be jurisdictional. Rather, the DOJ points to other sentences in section 6213(a) and other Tax Court provisions that suggest that the time period must be jurisdictional. I won’t belabor this post with the details of and possible responses to what the DOJ argues, but suffice it to say that I can construct some responses that I suspect Mr. Tilden will present. I don’t consider this a slam dunk issue for either side.

Finally, once again, the DOJ, in its supplemental Tilden brief (as the Tax Court did in its opinion in Guralnik v. Commissioner, 146 T.C. No. 15 (June 2, 2016)), put great weight on the long history of the Tax Court and Courts of Appeals holding that the deficiency filing period is jurisdictional. In one of Mr. Tilden’s short post-argument letters, he had written:

One of the issues in Guralnik was whether the 30-day period in 26 U.S.C. § 6330(d)(1) to file a Collection Due Process Tax Court petition is jurisdictional. The Tax Court’s primary reasoning for not abandoning its prior holdings indicating that §6213 is jurisdictional is the long history of the Tax Court’s own interpretation of the §6213(a) time period as jurisdictional, which the Tax Court thought it was entitled to follow under the stare decisis exception to the current jurisdictional rules set out in John R. Sand. But, that exception only applies for a long history of Supreme Court opinions, not opinions of lower courts. See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 173-174 (Ginsburg, J., concurring, joined by Stevens and Breyer, JJ.) (“[I]n Bowles and John R. Sand & Gravel Co. . . . we relied on longstanding decisions of this Court typing the relevant prescriptions ‘jurisdictional.’ Amicus cites well over 200 opinions that characterize § 411(a) as jurisdictional, but not one is from this Court. . . .”; emphasis in original; citations omitted). Thus, the Tax Court’s reliance on stare decisis in Guralnik was misplaced.

In its Tilden supplemental brief, the DOJ responds:

But even if Justice Ginsburg’s concurring opinion supports the broad proposition taxpayer advances (and it is not clear that it does), the fact remains that a concurring opinion expressing the views of three justices does not represent a holding of the Court.

In the situation presented here, we think that the reasoning of the Court in John R. Sand & Gravel Co. supports our contention that I.R.C. § 6213(a)’s time limit is jurisdictional. As the Court explained in John R. Sand & Gravel Co., “re-examin[ing] … well-settled precedent” holding that a limitations period is jurisdictional would “threaten to substitute disruption, confusion, and uncertainty for necessary legal stability.” 552 U.S. at 139. Here, more than 35 years ago, the Fifth Circuit aptly described the state of the decisional law, observing that “[i]t cannot now be seriously questioned that the timely filing of the petition for redetermination is jurisdictional.” Johnson v. Commissioner, 611 F.2d 1015, 1018 (5th Cir. 1980). And, the absence of Supreme Court precedent confirming the decisional law of the courts of appeal only reflects the fact that the Supreme Court has had no reason to address the matter. As noted above, since the enactment of I.R.C. § 6213(a) in 1954, the twelve circuit courts that have jurisdiction to review decisions of the Tax Court have held that the statute’s time limit is jurisdictional. In these circumstances, there is no meaningful difference between the disruption that would occur from overturning this long-standing appellate court precedent and the disruption that would occur from overturning a Supreme Court precedent. Accordingly, under the Court’s reasoning in John R. Sand & Gravel Co., the long-standing and unanimous treatment of I.R.C. § 6213(a)’s time limit by the courts of appeals as jurisdictional should be sustained.

Furthermore, the Court in John R. Sand & Gravel also took into account the fact that “‘Congress remains free to alter what [the Court] ha[s] done.’” 552 U.S. at 139 (citation omitted). Here, Congress has had ample opportunity to amend I.R.C. § 6213(a) if it disagreed with the unanimous decisions of the judiciary. That it has not done so speaks volumes as to the correctness of those decisions.

All I can say is that I am grabbing a bowl of popcorn and, from the peanut gallery, I will be watching how the deficiency petition filing period jurisdictional fight comes out. Fascinating.

Editor’s Update: Carl’s comment to this post references Duggan v. Commissioner, which involves an appeal of a Tax Court dismissal of a CDP petition for lack of jurisdiction for being mailed to the Tax Court one day late. Here is the DOJ brief that Carl references in his comment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Observations

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

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

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

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

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

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

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

 

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.