This is Part 2 of my post-Boechler litigation update. Part 1, involving deficiency litigation, ran on August 1, 2022, and can be found here.
Today’s post addresses what is happening in the many CDP cases (including Boechler) that are before the courts where the IRS had argued to the Tax Court that the cases should be dismissed for lack of jurisdiction on account of late filing. As I noted in my Part 1 introduction, the courts have not yet issued any rulings in CDP cases about whether equitable tolling applies on the facts of any case, and I expect we won’t see the first such ruling until 2023.
Boechler
The taxpayer in Boechler did not put into the record any information as to why it filed late and so deserved equitable tolling. In its opinion dated April 21, 2022, the Supreme Court remanded the case to the Eighth Circuit to address whether equitable tolling applied on the facts. There is a May 23, 2022, entry on the Tax Court docket sheet for Boechler (Docket No. 18578-17L) stating, “U.S.C.A. 8th Circuit mandate is recalled, and case is reopened”. But there have been no further filings in the case in the Tax Court since that date.
Since the IRS moved to dismiss Boechler before the IRS filed an answer, the next step in the case will be for the IRS to file an answer in which, if it wants, it will plead late filing as a statute of limitations defense. Tax Court Rule 39 provides that statute of limitations defenses and equitable arguments are “special matters” that the parties must plead. If the IRS in its answer raises a statute of limitations defense, the taxpayer will have to respond by filing a reply in which the taxpayer pleads equitable tolling and sets out some facts in support.
It is far from clear that Boechler will ever generate a ruling on whether the facts therein justify equitable tolling. Recall that parties at any time can settle non-jurisdictional issues, such as late filing or the merits. My hunch is that the Boechler case settles on remand after the IRS attorney for the first time looks at the taxpayer’s proof that it filed W-2s with the Social Security Administration. Boechler merely involves a penalty for alleged non-filing with that agency.
Castillo
On May 11, 2022, Les did a post on a district court opinion in Castillo. In that case, the IRS mailed out a CDP notice of determination to the taxpayer and a copy to the taxpayer’s former POA, but not to her current POA. USPS records reflect that the notice was never delivered to the taxpayer (it’s still listed as “in transit”), and if the prior POA received his copy of the notice, he never alerted the taxpayer or the current POA.
The current POA is Elizabeth Maresca, the director of the tax clinic at Fordham. She was puzzled why she hadn’t seen the notice of determination that she had been expecting, so she ordered a transcript of account and discovered thereon an entry for the issuance of such a notice many months before. Within 30 days after seeing the transcript (but still not having yet seen a copy of the notice), Elizabeth filed a Tax Court petition and sought equitable tolling of the filing deadline. She also brought suit against the government in district court for the IRS’ wrongful disclosure of tax information to the prior POA. Les’ post concerns that wrongful disclosure suit.
The IRS in the Castillo Tax Court case (Docket No. 18336-19L) initially filed an answer. After the court brought to the IRS’ attention the probable late filing of the petition, the IRS then filed a motion to dismiss for lack of jurisdiction. The Tax Court then dismissed the case for lack of jurisdiction, and Ms. Castillo appealed to the Second Circuit (Docket No. 20-1635). In the Second Circuit, the parties briefed the issue of whether the CDP petition filing deadline is jurisdictional or subject to equitable tolling, but then asked the Second Circuit to hold the case in abeyance pending the Supreme Court’s ruling in Boechler.
Five days after the Supreme Court issued its Boechler ruling, Ms. Castillo moved the Second Circuit to rule by summary reversal, that her Tax Court petition was timely under equitable tolling and to remand the case to the Tax Court for it to consider the merits of her CDP arguments. On April 29, 2022, the DOJ responded to the motion and agreed that Boechler applied and that the case should be remanded to the Tax Court, but the DOJ argued that the Tax Court, in the first instance, should decide whether the facts justified equitable tolling.
On August 2, 2022, a 3-judge motions panel of the Second Circuit (with one judge mysteriously recusing himself) issued an order vacating the Tax Court’s dismissal order, denying summary reversal, and remanding the case to the Tax Court “for further proceedings in light of the Supreme Court’s decision in Boechler”.
The Tax Court has long held that non-receipt of a properly-addressed notice of deficiency during the 90-day period to file is no excuse for late filing a Tax Court petition, and all those courts of appeal to have faced the issue have agreed. See, e.g., Guthrie v. Sawyer, 970 F.2d 733, 737 (10th Cir. 1992); Follum v. Commissioner, 128 F.3d 118, 120 (2d Cir. 1997); United States v. Goldston, 324 F. App’x 835, 837 (11th Cir. 2009) (per curiam) (collecting cases). In Weber v. Commissioner, 122 T.C. 258 (2004), the Tax Court extended this holding to cover properly-addressed CDP notices of determination not received during the 30-day period to file.
In her initial Tax Court filings and in the Second Circuit briefing, Ms. Castillo argued that, based on legislative history and the structure of CDP, it was wrong of the Tax Court to extend the deficiency precedent to CDP. I think that for Ms. Castillo to win on remand, she will also have to get the Tax Court to overrule Weber. In the Second Circuit, The Center for Taxpayer Rights’ amicus brief was devoted entirely to expanding upon the anti-Weber argument. While the Second Circuit had once, in an unpublished opinion, followed Weber; Kaplan v. Commissioner, 552 Fed. Appx. 77 (2d Cir. 2014); it did so without discussing whether Congress might have wanted a different rule in CDP cases from the rule in deficiency cases. And Kaplan was litigated by a pro se taxpayer who never argued that Weber was wrongly decided. The Weber issue has not yet been addressed in any published opinion of any Circuit court.
The remand order says nothing about this anti-Weber argument. I presume that the anti-Weber argument can be considered by the Tax Court under the terms of the Second Circuit’s remand order, but I am not 100% certain, as the order makes no reference to the argument.
In Part 1 of this post, I discussed the Culp case, which is a notice of deficiency case where the taxpayers did not receive the notice during the 90-day period to file. In their brief to the Third Circuit, the Culps go farther and argue that the deficiency precedent should no longer survive Boechler, since there is precedent outside the tax area that non-receipt or late receipt of governmental “tickets” to court are circumstances beyond the plaintiff’s control that can justify equitable tolling. See, e.g., Checo v. Shinseki, 748 F.3d 1373 (Fed. Cir. 2014) (en banc) (120-day period to file in the Court of Appeals for Veterans Claims); Kramer v. Commissioner of Soc. Sec., 461 Fed. Appx. 167 (3d Cir. 2012) (60-day period in 42 U.S.C. § 405(g) to challenge denial of Social Security disability benefits in district court).
Amanasu Environment Corp.
In Amanasu Environment Corp. v Commissioner, Docket No. 5192-20L, on December 13, 2019, the IRS issued a CDP notice of determination to a taxpayer having an address in Vancouver, British Columbia. Presumably because this was international mail, records of the USPS and Canada Post show that the taxpayer did not receive the notice until January 18, 2020 – several days after the 30-day Tax Court petition filing deadline passed. On March 13, 2020, the taxpayer mailed a petition to the Tax Court, accompanied by a request for New York City as the place of trial. On March 17, 2020, the Tax Court received and filed the petition and request. On September 2, 2020, the IRS surprisingly filed an answer in the case. (The initial filing of answers in the CDP cases of Castillo and Amanasu and the deficiency case of Gruis — discussed in Part 1 of this post — shows, among other things, how often IRS lawyers miss late filing of petitions.) On November 19, 2020, the IRS woke up and moved to dismiss the case for lack of jurisdiction for late filing.
Frank Agostino represents the taxpayer, having picked up the case at a New York City calendar call. Frank responded to the motion to dismiss by arguing that the CDP filing deadline is not jurisdictional and is subject to equitable tolling and should be tolled in this case. The Tax Court held the motion in abeyance pending the ruling in Boechler. On May 18, 2022, Judge Carluzzo issued an order, reading in full:
For the reasons set forth in Boechler, P.C. v. Commissioner, No. 20-1472 (U.S. April 21, 2022), it is
ORDERED that respondent’s motion to dismiss for lack of jurisdiction, filed November 19, 2020 is denied.
It is further ORDERED that jurisdiction in this case is no longer retained by the undersigned.
It is further ORDERED that this case is restored to the general docket for trial or other disposition.
On June 22, 2022, the IRS submitted an unopposed motion for leave to file an amendment to its answer in which it raised the statute of limitations defense. On July 22, 2022, the Tax Court granted the motion. Frank will be filing a reply to the amendment to the answer, raising equitable tolling as the taxpayer’s defense to the IRS statute of limitations defense. Since no one has ever seen what such an amendment to answer pleading a statute of limitations defense on account of a petition’s late filing looks like, I attach a copy of the amendment to answer here, courtesy of Frank.
Myers
The filing deadline under IRC 7623(b)(4) for a Tax Court whistleblower award petition was held not jurisdictional and subject to equitable tolling in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019). However, as in CDP, to date, the Tax Court has not issued a ruling on whether equitable tolling applies on the facts of Myers or any other such whistleblower award case.
It is my understanding that the Tax Court held off on making any ruling on equitable tolling in Myers, just in case the Supreme Court ruled for the IRS in Boechler. Had the Supreme Court ruled for the IRS in Boechler, effectively, that would likely have overruled the Myers opinion, since the two filing deadline statutes are worded so similarly.
In June 2020, the IRS filed an amended answer raising late filing as a statute of limitations defense, and the taxpayer filed a reply seeking equitable tolling. In November 2020, the IRS moved for summary judgment that the facts alleged in the reply do not give rise to equitable tolling. That motion is currently pending before Judge Ashford.
Other Cases
By an order dated September 30, 2021, the Supreme Court agreed to hear Boechler. Shortly thereafter, the Tax Court stopped dismissing late-filed CDP cases for lack of jurisdiction, pending the Supreme Court’s ruling in Boechler.
In May and June 2022, after the Supreme Court decided Boechler, the Tax Court issued orders in all of the cases where the motions had been held in abeyance. There were about 30 such orders, and they all look like the terse order Judge Carluzzo issued in Amanasu (which was one of the 30-or-so cases).
That there were only about 30 CDP cases with this issue over 7 months confirms that the IRS and DOJ have always vastly overstated to the courts the number of Tax Court cases that would be affected by Boechler annually. In oral argument at the Supreme Court, the lawyer arguing the case on behalf of the Solicitor General told Justice Thomas that the government estimated that 300 cases a year would be affected by the Boechler ruling. That figure was obviously wrong because it was an estimate of how many CDP cases are dismissed each year for lack of jurisdiction for any reason, not how many cases are dismissed for lack of jurisdiction for late filing. Typically, two-thirds of dismissals for lack of jurisdiction are only for failure to pay the filing fee or obtain a fee waiver.
Keith and I knew that far fewer than 100 CDP cases each year would be affected by Boechler and that the primary effect of the Boechler ruling would be to eliminate the Tax Court’s sua sponte issuing orders to show cause why a CDP case should not be dismissed for lack of jurisdiction for late filing. Probably a quarter of all dismissals of late-filed CDP and deficiency cases come after the Tax Court has pointed out to the IRS, in an order to show cause, the probable late filing of the petition – a fact which the IRS hadn’t noticed. After Boechler, such orders to show cause in CDP will be a thing of the past, and so a small but significant number of taxpayers who filed late will stay in the Tax Court, even without having to argue for, or even having facts plausibly justifying, equitable tolling.
In the roughly 30 CDP cases where the IRS moved to dismiss for lack of jurisdiction or the Tax Court issued an order to show cause, the IRS will now have to file answers or amendments to answers if it wants to argue for dismissal for late filing. Other than Amanasu, I haven’t looked an any of these cases’ docket sheets to see whether the IRS has yet done so. It is my expectation that the IRS will again complain of late filing in nearly all of these cases. And it is my further expectation, based on the usual lack of response by taxpayers to motions to dismiss for late filing, that only about 5% of taxpayers will respond with what could be termed an equitable tolling excuse for late filing. Five percent of 30 is 1.5 cases, and one of those cases is Amanasu. So, I expect extremely few of the other 30-or-so cases to become litigating vehicles for equitable tolling. (The number of deficiency equitable tolling cases, if Hallmark goes the taxpayer’s way, will be an order of magnitude higher, though still not back-breaking for the IRS or Tax Court.)
I think the Tax Court will issue a precedential opinion the first time that it considers whether the facts in any CDP or whistleblower award case qualify for equitable tolling. A published opinion is needed because it is unclear what law on equitable tolling would apply in the Tax Court. There appears to be a federal common law of equitable tolling generated outside the tax law that I suspect the Tax Court will adopt. Among other things, I hope the Tax Court looks to equitable tolling opinions coming out of the Article I Court of Appeals for Veterans Claims and its reviewing court, the Federal Circuit, that have been applied to late-filed petitions in the Veterans Court for decades.
My guess is that the initial ruling of how the Tax Court will apply the doctrine of equitable tolling will come in Amanasu or Myers, which are furthest along on the newly-required pleading of the issues. I also guess that the first equitable tolling ruling will come out in 2023.