Another Tax Provision Found to Not Create a Jurisdictional Time Period for Filing

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In Clark v. United States, No. 9:21-cv-82056 (S.D. Fla. 2022) a tax attorney, Celia Clark, brought an action for unlawful disclosure under IRC 7431.  The IRS moved to dismiss the case for lack of jurisdiction arguing that she waited too long to bring the suit.  The court denied the motion finding that the time period for filing suit under section 7431 is not a jurisdictional time period.


The opinion indicates that during the years 2008 to 2016 Ms. Clark’s tax practice involved assisting small businesses establish microcaptive insurance companies.  It states that the IRS started investigating her in 2012 to determine if she was promoting abusive tax shelters.  Following its investigation, it assessed penalties against her for over $11 million.  She brought a complaint against the IRS alleging the investigation was abusive both because of its length and its failure to take “a firm position on the proper tax treatment of captive insurance companies.”

Relative to the issue here, she also alleged that during the investigation the IRS inappropriately provided information about her to her clients and to others in violation of the disclosure provisions.  During the course of the investigation she had complained to the IRS and to the Treasury Inspector for Tax Administration (TIGTA) alleging disclosure violations.

She filed her complaint in November, 2021 and the IRS filed a motion to dismiss for lack of jurisdiction the disclosure portion of the complaint in February, 2022 alleging that the two-year statute of limitations set out in 7431(d) barred the complaint.  Attached to its motion, the IRS provided the court with five letters sent in 2014 from Mr. Clark’s attorneys at Caplin & Drysdale to the IRS and TIGTA.  The letters complained about communications by IRS agents.  The IRS argued that the letters show the discovery of any disclosure violations occurred in 2014 seven years before she brought suit.

As it does in every case, the IRS argued that the time to bring the disclosure suit is a jurisdictional time frame.  The IRS remains uninterested in Supreme Court opinions regarding jurisdiction.  Ms. Clark cited an opinion from the district court in DC, Bancroft Global Dev. v. United States, 330 F. Supp. 3d 82 (D.D.C. 2018) which analyzed 7431(d) and determined it did not create a jurisdictional time period.  The court states that “The Government did not respond or further address this point in Reply.”  The court in Clark analyzed the Bancroft decision and agreed with it. 

In Bancroft, the district court noted the change in Supreme Court case law since Kontrick v. Ryan, 540 U.S. 443 (2004), and that the Supreme Court now holds that a filing deadline is not jurisdictional unless Congress makes a “clear statement” that it wants the filing deadline to be jurisdictional.  Bancroft applied that case law and found no clear statement from Congress that the deadline in IRC 7431(d) should be jurisdictional, noting, among other things, that the jurisdictional grant for these suits in district court is in IRC 7431(a) and is separate from the filing deadline in IRC 7431(d).  The Bancroft court quoted from Gonzalez v. Thaler, 565 U.S. 134, 146-148 (2012) (comparing the wording of close subparagraphs of a habeous corpus statute), that “[m]ere proximity will not turn a rule that speaks in nonjurisdictional terms into a jurisdictional hurdle”. 

The Bancroft court noted that by 2018, only two Circuits had directly addressed this issue under IRC 7431(d).  In Gandy v. United States, 234 F.3d 281, 283 (5th Cir. 2000) (i.e., decided before Kontrick), the Fifth Circuit held that the filing deadline is jurisdictional.  In Aloe Vera of America, Inc. v. United States (9th Cir. 2009), the Ninth Circuit — much influenced by language in a recent Supreme Court opinion in John R. Sand & Gravel, Inc. v. United States, 552 U.S. 130 (2008) (finding the filing deadline at 28 U.S.C. 2501 jurisdictional) — held the IRC 7431(d) filing deadline jurisdictional.  The Bancroft court noted that more recent Supreme Court opinions make clear that John R. Sand’s holding was based really on an exception to the new jurisdictional rules in the case of a long line of prior Supreme Court cases holding the filing deadline jurisdictional.  But, the Bancroft court stated that, since the Supreme Court has never addressed IRC 7431(d), the John R. Sand case exception does not apply.  The Bancroft court cited several post-2009 Supreme Court opinions making clear how the new jurisdictional rules apply.  Oddly, though, the Bancroft court did not cite a very analogous opinion from its supervising Circuit, the D.C. Circuit, in Keohane v. United States, 669 F.3d 325, 330 (D.C. Cir. 2012), holding the filing deadline in IRC 7433(d) (a provision almost identically-phrased to IRC 7431(d)) not jurisdictional under current Supreme Court case law.

Based on that decision, it refused to dismiss the case based on the Federal Rule of Civil Procedure (FRCP) 12(b)(1) motion submitted by the IRS.

That did not end the inquiry because the court then shifted to an analysis of whether it should dismiss the case under FRCP 12(b)(6).  This rule requires a complaint to provide “a short and plain statement of the claim showing that the pleader is entitled to relief.”  To avoid dismissal under this rule the complaint must state a claim for relief plausible on its face meaning that the complaint will allow the court to draw an inference that the defendant committed an act that could give rise to relief.

The court decided that it could not base a dismissal of the case on the attached letters at this stage of the proceeding.  While Ms. Clark did not challenge the authenticity of the letters the court found that a significant dispute remains regarding the centrality of the letter to her disclosure complaint.  In other words, it’s possible that the IRS made wrongful disclosures after these letters and within the statutory time period for bring suit.  The court’s decision does not mean Ms. Clark will win the case or even that the IRS committed a disclosure violation at any time.  It simply allows the case to proceed so that she can show a disclosure violation occurred and that it did so in the appropriate time frame relative to the bringing of the suit.

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