Carlton Smith

About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he was Acting Director from January to June 2019.

Internal Tracking Data Is Determinative for Designated Private Delivery Services under § 7502(f)

There was a recent Tax Court order (not a designated one) that caught my eye because of the contrast of the ruling with the Seventh Circuit’s ruling a few years ago in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017).  I blogged on the Seventh Circuit’s Tilden opinion here.  That opinion criticized the use of United States Postal Service (USPS) certified mail internal tracking information as a “postmark” for purposes of determining whether a Tax Court petition was timely filed.  In the recent order in Moncada v. Commissioner, T.C. Docket No. 13303-19 (Nov. 7, 2019), by contrast, the internal tracking information of a Designated Private Delivery Service (DPDS) – here, UPS Next Day Air – was held determinative of the date of the filing of the petition.

Initially, I questioned how these two rulings could be reconciled.   But, I think they are both right.  The different results are the fault of Congress in the adoption of § 7502(f), which allows to IRS to designate private delivery services for purposes of taking advantage of the § 7502(a) timely-mailing-is-timely-filing rule that applies to envelopes sent by USPS mail.

read more...

Tilden Background

There are regulations under § 7502(a) that elaborate on the timely mailing rules when the USPS is used.  The regulations cover four common situations where the Tax Court receives the petition after the last date to file:  (1) where there is only a USPS postmark on the envelope, (2) where there is only a private postmark on the envelope, (3) where there is no postmark (or no legible postmark) on the envelope, and (4) where there is both a USPS and private postmark on the envelope.  See Reg. § 301.7502-1(c)(1)(iii).  In general, if there is a legible USPS postmark, it governs as the date of mailing, and if there isn’t, the envelope better get to the Tax Court within the period that mail ordinarily sent from that address would take to get to the court if the envelope had been mailed on the last date to file.  There are exceptions to this last rule that I won’t get into here, not being relevant.  Further, not relevant to either Moncada or Tilden are the special rules where mail does not arrive at the Tax Court, but had been sent certified or registered mail, and where the taxpayer has a USPS mailing receipt with a legible date stamp.

In Tilden, the envelope containing the deficiency petition bore a private postage label from stamps.com, dated the 90th day.  Apparently, the envelope was placed in the mail by an employee of counsel for the taxpayer, and that employee also affixed to the envelope a Form 3800 certified mail receipt (the white form), on which the employee also handwrote the date that was the 90th day.  The Form 3800 did not bear a stamp from a USPS employee.  Nor did the USPS ever affix a postmark to the envelope.

The envelope arrived at the Tax Court from the USPS.  The USPS had handled the envelope as certified mail.  That meant that the USPS internally tracked the envelope under its “Tracking” service.  Plugging the 20-digit number from the Form 3800 into the USPS website yielded Tracking data showing that the envelope was first recorded in the USPS system on the 92nd day.  The envelope arrived at the Tax Court on the 98th day. 

The IRS later conceded that the taxpayer’s counsel’s employee had brought the envelope to a USPS office on the 90th day.  Eventually, both the taxpayer and IRS argued that the petition should be treated as timely filed under the private postmark rules, since the petition arrived within 8 days of the 90th day, and the IRS agreed that 8 days was within the normal time it takes an envelope to go from Utah to the Tax Court.

The Tax Court, however, viewed the date from the Tracking data to be the equivalent of a USPS postmark and so held that the petition must be treated as having been mailed, late, on the 92nd day.

The Seventh Circuit rejected the Tax Court’s equation of USPS Tracking data and a postmark, writing:

Part [301.7502-1(c)(1)(iii)](B)(3) of the regulation specifies what happens if an envelope has both a private postmark and a postmark from the U.S. Postal Service. Tilden’s envelope had only one postmark. The regulation does not ask whether a date that is not a “postmark” is as good as a postmark. It asks whether there are competing postmarks.

To say “A is as good as B” is not remotely to show that A is B. “Vanilla ice cream is as good as chocolate” does not mean that a customer who orders chocolate must accept vanilla, just because the customer likes both. They are still different. Subsection (B)(3) does not make anything turn on a date as reliable as an official postmark. It makes the outcome turn on the date of an official postmark. If the Postal Service were to treat tracking data as a form of postmark, that might inform our reading of the regulation, but we could not find any evidence that the Postal Service equates the two.

For what it may be worth, we also doubt the Tax Court’s belief that the date an envelope enters the Postal Service’s tracking system is a sure indicator of the date the envelope was placed in the mail. The Postal Service does not say that it enters an item into its tracking system as soon as that item is received—and the IRS concedes in this litigation that the Postal Service did not do so for Tilden’s petition, in particular. Recall that the Commissioner has acknowledged that the envelope was received by the Postal Service on April 21. It took two days for the Postal Service to enter the 20-digit tracking number into its system, a step taken at a facility in zip code 84199, approximately ten miles away from the Arbor Lane post office (zip 84117) where the envelope was handed in.

846 F.3d at 887 (emphasis in original).

So, the Seventh Circuit held that the petition had been timely filed.

Moncada Facts

On April 15, 2019, the IRS mailed a notice of deficiency to the Moncadas.  Ninety days from that date was Sunday, July 14, so under § 7503, the due date for a Tax Court petition became the 91st day, Monday, July 15.

On the 88th day, Friday, July 12, the Moncadas went on line and created a shipping label for UPS Next Day Air, a DPDS.  From here, I quote from the taxpayers’ letter in response to the IRS motion to dismiss the petition:

The petition was prepared, signed and placed in the UPS pick-up box on the afternoon of Friday, July 12, 2019 for pick up at the posted pick-up time of 6:00PM. This action would have resulted in a timely delivery to the tax court on Monday, July 15, 2019.

However, UPS inexplicably did not pick up any packages form the pick-up location on Friday, July 12 or on Monday, July 15.  On Tuesday, July 16 we started to track the package and discovered there was no tracking information in the UPS system. We contacted UPS and asked why there was no tracking information. They had no answer. When the driver showed up on the 16th we discovered that the package was still in the box. UPS admitted that their driver did not stop at the box on Friday the 12th or on Monday the 15th. They shipped the package on July 16, and it arrived on July 17 . . . .

While the Tax Court did not find these letter statements to be facts, the taxpayers also submitted receipts to the Tax Court, dated July 12, generated in preparing the UPS label for shipment.

The IRS attached to its motion to dismiss UPS electronic database tracking information showing that the envelope was shipped (picked up) by UPS on July 16 (the 92nd day).  The envelope arrived at the Tax Court, and the petition was filed, on July 17 (the 93rd day).

Because of the different law that applies to shipment by DPDSs from the law that applies to shipment by the USPS, for purposes of the motion to dismiss, it turns out that whether the letter’s alleged facts were true is irrelevant.

Moncada Holding

Section 7502(f) was adopted in 1996.  It provides for the treatment of envelopes sent to the IRS or the Tax Court by IRS-designated private delivery services.  The IRS has designated UPS Next Day Air to be a DPDS.  Notice 2016-30, 2016-1 C.B. 676

There are several requirements for a service to be designated, among which is that the private service “records electronically to its data base . . . , or marks on the cover in which any item referred to in this section is to be delivered, the date on which such item was given to such trade or business for delivery”.  § 7502(f)(2)(C).  Section 7502(f)(1) provides:

Any reference in this section to the United States mail shall be treated as including a reference to any designated delivery service, and any reference in this section to a postmark by the United States Postal Service shall be treated as including a reference to any date recorded or marked as described in paragraph (2)(C) by any designated delivery service.

Thus, in the absence of a mark on the cover of the envelope (there was none here), tracking data supplies the deemed USPS “postmark”.  This is so clear from the statute that the regulations contain no rules about conflicts between private “postmarks” and DPDS “postmarks”.

Given the statute, the Tax Court had little choice but to rule that the UPS tracking data supplied a deemed USPS postmark of July 16 (the 92nd day), so the petition was not timely sent by UPS.  As noted above, the USPS postmark date always governs under the regulations if there is one.  In its order of dismissal in Moncada, the Tax Court was sympathetic to the taxpayers, but wrote:  “The creation of a label and mere placement in a UPS pick-up box is a risk analogous to that identified in the regulations when a sender affixes USPS postage and drops the items in a mailbox, at the mercy of the USPS to pick up and apply a postmark.”

Thus, even though the Seventh Circuit’s criticism in Tilden of using tracking data may still make sense, Congress has chosen for DPDSs to use tracking data instead of anything like the alternative proof of mailing by USPS in the absence of a true USPS postmark.

The moral of the story is that the still safest way to be certain that a petition will be timely filed in the Tax Court is to bring the envelope containing the petition to a USPS office, send it certified or registered mail, and get a legible postmark date on the mailing receipt from the USPS employee.  In that case, even if the document never gets to the Tax Court, the receipt will be proof of mailing.  § 7502(c) (deeming the date of registration or certification to be “the postmark date”); Reg. § 301.7502-1(c)(2) (deeming the date on the receipt that was placed there by a USPS employee to be the date of registration or certification).  Use of private postmarks is riskier.  And there is no way to make a private postmark that will have any legal effect when one uses a DPDS.  You simply can’t control when a DPDS will pick up an envelope from a drop box and enter the envelope into its electronic database.

Should the Tax Court Allow Remands in Light of the Taxpayer First Act Innocent Spouse Provisions?

The Taxpayer First Act amended section 6015 to add a new subsection (e)(7) that provides for a Tax Court de novo standard of review of a section 6015 determination of the IRS based on (1) “the administrative record established at the time of the determination” and (2) “any additional newly discovered or previously unavailable evidence”.  Thus, the statute appears to contemplate that there be an administrative record in a section 6015 case and that the IRS had made a determination in such case before the Tax Court “review[s]” that determination.  But, the administrative record in section 6015 cases is often incomplete or nonexistent (e.g., in cases where the IRS hadn’t yet ruled after a 6015 request or because 6015 was first raised in response to a notice of deficiency). 

In the past, the Tax Court has never remanded in section 6015(e) stand-alone cases or in deficiency cases seeking innocent spouse relief, but then those cases were not to be tried primarily based on the administrative record.  In Friday v. Commissioner, 124 T.C. 220 (2005), citing the de novo nature of its proceedings under section 6015, the Tax Court denied an IRS motion to remand a stand-alone section 6015(e) case to Cincinnati Centralized Innocent Spouse Office (CCISO). The IRS had argued that CCISO had previously erroneously failed to consider section 6015(f) equitable relief on the merits.  

In light of the Taxpayer First Act amendment no longer making Tax Court innocent spouse proceedings fully de novo, the Tax Court should overrule Friday, and it should also allow remands in deficiency cases, though limited to the section 6015 issue.  Any taxpayer currently facing a limit on getting additional pertinent evidence not in the administrative record before the Tax Court beyond what is indisputably newly discovered or previously unavailable evidence should move to remand his or her case to CCISO and ask the Tax Court to overrule Friday, so that the pertinent evidence can be proffered to the IRS in the remand and become part of the administrative record before the case is returned to the Tax Court (if it returns at all).

read more...

Let me first say that I have read the legislative history of section 1203 of the Taxpayer First Act (the section that added subsection (e)(7)), and it provides no useful guidance or even hints about what Congress had in mind about remands.  The Committee Report just parrots the new statute in explaining the workings of the new subsection.  See H. Rep. 116-39, Part I, at 38-40.

So, let’s begin by looking at the reasons for the Tax Court’s ruling in Friday prohibiting a remand in a section 6015(e) stand-alone case that was not one of the rare ones commenced 6 months after the Form 8857 was filed but before an IRS determination had been issued.  This was a case where the IRS did not consider relief under subsection (f) apparently because the IRS thought the request too late based upon the now-overruled regulation that provided that subsection (f) relief requests had to be made within 2 years of the commencement of “collection activity”.  In McGee v. Commissioner, 123 T.C. 314 (2004), the Tax Court held that an IRS failure to include in a refund offset notice any mention of the offset’s consequences regarding section 6015 relief debarred the IRS from relying on the offset as “collection activity”.  In Friday, the IRS told the court that the case was governed by McGee, presumably meaning CCISO had thought a refund offset taking place more than 2 years before the Form 8857 was filed constituted “collection activity”, but IRS attorneys in the Tax Court now realized the offset notice had not included the proper section 6015 language.  Thus, CCISO had never considered subsection (f) relief on the merits, but should have under McGee.

Here’s what the Tax Court wrote in Friday:

In support of his request, respondent relies on Natl. Nutritional Foods Association v. Weinberger, 512 F.2d 688, 701 (2d Cir. 1975), Camp v. Pitts, 411 U.S. 138, 143 (1973), and Asarco, Inc. v. EPA, 616 F.2d 1153, 1160 (9th Cir. 1980).  Those cases, however, are examples where courts, in reviewing administrative action, remanded for further factual determinations that were deemed necessary to complete an inadequate administrative record or to make an adequate one.

In certain specific cases where statutory provisions reserve jurisdiction to the Commissioner, a case can also be remanded to the Commissioner’s Appeals Office. Under sections 6320(c) and 6330(d)(1), this Court may consider certain collection actions taken or proposed by the Commissioner’s Appeals Office. Under paragraph (2) of section 6330(d), the Commissioner’s Appeals Office retains jurisdiction with respect to the determination made under section 6330. As part of the process, a case may be remanded to the Appeals Office for further consideration. See, e.g., Parker v. Commissioner, T.C. Memo. 2004-226.

The situation is different, however, in a section 6015 proceeding, which is sometimes referred to as a “stand alone” case. Although entitled “Petition for Review by Tax Court”, section 6015(e) gives jurisdiction to the Court “to determine the appropriate relief available to the individual under this section”. The right to petition is “In addition to any other remedy provided by law” and is conditioned upon meeting the time constraints prescribed in section 6015(e)(1)(A)(i) and (ii). Even if the Commissioner fails to do anything for 6 months following the filing of an election for relief (where there is nothing to “review”), the individual may bring an action in this Court. See sec. 6015(b), (e)(1)(A)(i)(II). A petition for a decision as to whether relief is appropriate under section 6015 is generally not a “review” of the Commissioner’s determination in a hearing but is instead an action begun in this Court. There is in section 6015 no analog to section 6330 granting the Court jurisdiction after a hearing at the Commissioner’s Appeals Office.

124 T.C. at 221-222 (footnotes omitted).

After the Taxpayer First Act, the statutory situation is clearly different from that on which the Tax Court relied in Friday.  Section 6015(e)(7) now discusses a “review” by the Tax Court of a “determination made under this section” and specifically mentions an “administrative record” that is part of the basis for the judicial record.  At least for section 6015 cases where there was a determination made and an administrative record created, the Tax Court proceeding is now much more like that of the Tax Court’s Collection Due Process (CDP) jurisdiction.  Although section 6015 does not discuss who in the IRS is to make the determination that is reviewed (unlike section 6330, which makes clear that the IRS Appeals Office both makes the determination and has retained jurisdiction), the Tax Court can fill in that blank by remanding to the case back to the IRS function (either CCISO or the Appeals Office) that made the final determination.

Relying on what the Tax Court has done in CDP cases, the Tax Court should remand such 6015 cases for pretty much any good reason proposed by either party.  See, e.g., Churchill v. Commissioner, T.C. Memo. 2011-182 at *12-*16 (discussing various previous reasons for remanding CDP cases to Appeals and adding a new one – where there were changed financial circumstances such that remand would be “helpful, necessary, or productive”) (Holmes, J.).  And, as in CDP, the IRS should be asked to create a “determination” or “supplemental determination” letter, and the Tax Court should only review the latest IRS determination letter.  Kelby v. Commissioner, 130 T.C. 79, 86 (2008) (“When a [CDP] case is remanded to Appeals and supplemental determinations are issued, the position of the Commissioner that we review is the position taken in the last supplemental determination.”).

In a previous post on the whistleblower award review case of Kasper v. Commissioner, 150 T.C. 8 (2018) (Holmes, J.), Les noted that the Tax Court held that there are numerous judge-created exceptions to the administrative record rule that the Tax Court will follow in whistleblower cases – making the Kasper opinion arguably very important for all Tax Court jurisdictions where the Tax Court review is based on the administrative record.  Those record-review exceptions are also being followed in CDP cases appealable to those the Circuits holding that the Tax Court proceeding is limited to the administrative record. See, e.g., Robinette v. Commissioner, 439 F. 3d 455, 459-462 (8th Cir. 2006) (allowing Tax Court “testimony from the appeals officer that further elucidated his rationale” to supplement the administrative record).  Les has more recently raised the question whether those judicial exceptions to the administrative record rule survive section 6015(e)(7), which, on its face, specifies only two items beyond the administrative record that are to be part of the Tax Court record on review – i.e., newly discovered or previously unavailable evidence.  Arguably, expressio unius est exclusio alterius (the expression of one thing implies the exclusion of another thing).  This is a serious question to which I have no answer, though I certainly hope that the judicial exceptions to the administrative record rule survived the statute’s enactment.  As Les put it in an e-mail to me recently, “Is the concern that the statutory language (previously unavailable or newly discovered) preempts the exceptions Judge Holmes discussed in Kasper? Or is there a desire for systemic pressure on a better administrative process?”

But, this Kasper question of Les’ becomes moot if the Tax Court is willing to remand section 6015 cases to supplement the record not just to address concerns underlying the judicial exceptions to the administrative record rule, but also to add any other pertinent materials to the record that may aid the proper determination.

I would also note that earlier this year, the Tax Court held that it could remand a whistleblower award case to the IRS Whistleblower Office.  Whistleblower 769-16W v. Commissioner, 152 T.C. No. 10 (April 11, 2019).  That opinion compares and contrasts the Tax Court’s CDP and innocent spouse provisions (pre-Taxpayer First Act) and says the Tax Court does not consider it dispositive that section 7623(b)(4) contains no retained jurisdiction provision like section 6330(d)(2) for CDP.  The court points out that section 7623(b)(4) says nothing either way about remands.  The court held that remands were permitted because that is normal when review of agency action is on an abuse of discretion standard and under the administrative record rule.  Those were the standard and scope of review adopted in Kasper.  Section 6015 is somewhere between CDP and section 7623(b)(4), with a de novo standard of review, but a limit mostly to reviewing the administrative record.

I would hope that the Tax Court would liberally remand section 6015 cases to the IRS for the IRS to consider any material not previously included in the administrative record that might significantly alter the outcome of the case.  This would include both newly discovered or previously unavailable evidence, but not be limited to that.  Let me give you an example of material falling outside section 6015(e)(7) of the type I am worried about:  I have seen Tax Court cases that have been brought to me as a clinician after the taxpayer has filed a pro se Tax Court petition.  Pro se petitioners often do a bad job in creating the administrative record.  I have known cases where the taxpayer has been the subject of abuse and there are police records to prove it – in addition sometimes to orders of protection – yet the taxpayer never sent the police records or orders of protection to the CCISO examiner.  Such items are not previously unavailable or newly discovered, but they would likely have strongly affected the IRS’ determination had it seen such documents before issuing the notice of determination denying relief.  It is hard for me to imagine that Congress would have wanted this evidence of abuse to be excluded from the Tax Court record merely because the unrepresented taxpayer did not think to find and submit this evidence to the IRS earlier.  If the Tax Court were to be presented with such documentation, I would think the best course would be to remand the case to the IRS.  There is a good chance such evidence would moot the case, as the IRS would probably concede in most cases.

Next, the statute as written discusses Tax Court review of IRS determinations, but leaves unstated what the scope and standard of Tax Court review is to be where the IRS hasn’t made a determination under section 6015 yet.  This can happen when a taxpayer files a Form 8857 and brings suit after 6 months in the absence of an IRS determination or when the taxpayer responds to a deficiency notice by, for the first time, raising an innocent spouse request in the Tax Court petition.  Legislative history of section 6015(e)(7) does not address these “no determination” situations.  But, for the reasons that Congress thought it would be better for the Tax Court to review IRS determinations (and using the administrative record), I would urge the court to remand all such cases to CCISO for an initial determination.  That way, regardless of the procedure by which the case came to the Tax Court, the case would be decided on a similar standard of review and record of review to the cases Congress specifically addressed.  Current Tax Court case law holds that section 6015 review is done on a de novo record and standard, regardless of the procedure by which the case came to the court.  Porter v. Commissioner, 130 T.C. 115 (2008), and 132 T.C. 203 (2009).  In Porter I, the Tax Court expressed concern that the IRS’ proposal to limit the review of section 6015(f) determinations in cases under section 6015(e) to the administrative record would provide inconsistent procedures in similar cases, since review in deficiency cases or where a case was brought under section 6015(e) before the IRS ruled would be on a de novo record.  130 T.C. at 124-125.  Frankly, if the Tax Court doesn’t allow remands in these “no determination” cases, it appears that the Tax Court is currently bound by its precedent to allow a de novo trial record.

My final observation is one I have been repeating since the adoption of the Taxpayer First Act:  The best solution here is to amend section 6015(e)(7) to provide for a de novo record for Tax Court determinations under section 6015 – thus reestablishing Porter I as the controlling authority for all Tax Court section 6015 cases.  Such an amendment would make the need for remands of such cases moot.

D.C. Circuit Denies DOJ En Banc Rehearing Petition in Myers Whistleblower Case

Just a short update:  In Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), on which I blogged here, the majority of a 3-judge panel held that the 30-day deadline in section 7623(b)(4) to file a whistleblower award petition in the Tax Court is not jurisdictional and is subject to equitable tolling.  In a petition for en banc rehearing in Myers, on which I blogged here, the DOJ argued that not only was the panel wrong, but it had set up a clear conflict with the Ninth Circuit in Duggan v. Commissioner, 879 F.3d 1029 (9th Cir., 2018).  In Duggan, the Ninth Circuit held that the very-similarly-worded 30-day deadline in section 6330(d)(1) to file a Collection Due Process petition in the Tax Court is jurisdictional and not subject to equitable tolling.  On October 4, 2019, the D.C. Circuit issued an order denying the DOJ’s petition for en banc rehearing.  In the order, the court noted that none of the 11 D.C. Circuit judges (plus Senior Judge Ginsburg, who wrote the opinion) requested a vote on the petition for en banc rehearing.  Thus, that means that even dissenting Judge Henderson did not ask for a vote on the petition. 

Now, the Solicitor General will have to decide how upset the government is and whether to file a petition for certiorari with the Supreme Court.  Will the apparent indifference of all of the judges of the D.C. Circuit to reviewing the matter en banc suggest to the Solicitor General that maybe a majority of the Supreme Court will also think the Myers opinion is correct?

Prison Mailbox Rule Doesn’t Apply to Refund Claims

In what the court thinks is apparently a case of first impression, a district court has held that a refund claim that arrived at the IRS more than three years after it was due is not timely under the “prison mailbox rule”.  Whitaker v. United States, 2019 U.S. Dist. LEXIS 165345 (N.D. Fla. 9/26/19), adopting magistrate’s opinion at 2019 U.S. Dist. LEXIS 166975.  The court also holds (following precedent in the Fifth Circuit which a court in the Eleventh Circuit had to follow) that the common law mailbox rule cannot apply because it has been superseded by section 7502.  Circuits are split as to the latter holding. Further, the court holds that the taxpayer did not make out a factual case for equitable estoppel to apply to the IRS.

read more...

Facts

During 2012, the taxpayer, a single individual, performed some work for which he was eventually sent a Form W-2.  But he did not timely file a return for 2012 until sometime in 2016. 

The taxpayer says he filed an original Form 1040-EZ before he got a copy of the Form W-2.  The original return showed no tax liability for the year, but sought refund of (1) $446 that the taxpayer claimed had been withheld as income taxes from his wages and (2) an EITC of $475.  The taxpayer was incarcerated in 2016 and claims that he handed his original 2012 return to prison authorities for mailing on March 25, 2016 – within the 3-year lookback period of section 6511(b).  (Since it was an original return containing a claim, the return would have been timely under the 3-year look-forward rule of section 6511(a), so the issue is whether the 3-year lookback rule of section 6511(b) regarding the amount of taxes paid has been satisfied.)

The taxpayer says that in late April 2016, he first obtained a copy of the Form W-2 for 2012 and only then learned that no income tax withholding had been done on his wages.  He prepared an amended return, therefore, removing the portion of the prior claim for withheld income taxes.  The amended return still sought an EITC refund of $475.  The taxpayer handed this amended return to prison authorities for mailing on April 21, 2016.

The IRS says that it never received the original return, but on April 30, 2016, it received the amended return and filed it as of that date.  The IRS denied the claim as untimely.

The taxpayer brought suit on the $475 refund claim in the district court for the Northern District of Florida.  The DOJ moved for summary judgment that the amount of the claim was limited under section 6511(b) to $0.  The taxpayer cross-moved for summary judgment, arguing that the claim should be deemed filed on March 25, 2016.  The taxpayer supported his motion with an unsigned note purportedly from “Classification Counselor Mrs. Doll.” In that unsigned note, Mrs. Doll stated that “[o]n 3/25/16 Mailroom Staff Ms. Bailey sealed, timestamped and post-dated the 2012 tax return. This is logged in the legal/privileged mail log.”   The taxpayer also submitted a copy of his original return, his amended return, and affidavits of inmates who helped or observed him preparing his 2012 tax return.  The taxpayer did not, however, submit the envelope in which the original return was mailed or any proof of its mailing by registered or certified mail.

Holdings

The magistrate’s opinion that was later adopted by the district court judge begins by taking the position that a timely-filed refund claim is necessary to the district court’s jurisdiction, citing United States v. Dalm, 494 U.S. 596, 609 (1990).  As an aside, Keith and I have been arguing recently that Dalm is no longer good law on these points – that under more recent Supreme Court case law, both the filing of an administrative claim (required by section 7422(a)) and its timely filing (required by section 6511(a)) are merely mandatory claims processing rules not going to the court’s jurisdiction.  See Gillespie v. United States, 670 Fed. Appx. 393, 395 (7th Cir. 2016) (not deciding issue, but noting that current Supreme Court case law on the distinction between subject matter jurisdiction and mere claims processing rules “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional”, including Dalm.).

Without discussion, the magistrate’s opinion then mentions the further tax amount paid look-back requirements of section 6511(b) and overall treats compliance with that subsection as a nonjurisdictional matter.  As another aside, most courts today, without noting it, still treat compliance with section 6511(b) as a jurisdictional matter.  However, the Federal Circuit has held that the issue of how much tax was paid during the lookback period of section 6511(b) is not jurisdictional.  See Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), on which Stephen blogged here.  So, the magistrate in Whitaker unknowingly aligns himself with the Federal Circuit.  By moving for summary judgment, the parties also seem to align with the Federal Circuit, since, if compliance with section 6511(b) is jurisdictional, the DOJ should, instead, have moved to dismiss for lack of jurisdiction under FRCP 12(b)(1).  It is odd, though, that sometimes in the opinion, the magistrate seems to equate compliance with section 6511(b)’s payment rules as also jurisdictional, but yet grants the DOJ summary judgment that he refund is limited to $0 – a merits holding.

Third, in applying the lookback rules of section 6511(b), the court is supposed to look at how much tax was “paid” in the 3-year period before the claim was filed.  The statute limits the refund to those taxes paid within the lookback period.  But, Whitaker’s claim is now solely predicated on the EITC, which, of course, he never actually “paid”.  Over a decade ago, while the director of the tax clinic of the University of Connecticut, now-Tax-Court-Special-Trial-Judge Leyden argued to the Second Circuit that there is no time limitation under section 6511(b) on EITC claims because they were never “paid” by the taxpayer.  In Israel v. United States, 356 F.3d 221, 225 (2d Cir. 2004), the court held that the EITC should be treated as “deemed paid” by the taxpayer on the April 15 following the end of the tax year, just like withholding and estimated taxes under section 6513(b)(1) and (2) are treated as paid on that date.  The magistrate in Whitaker cites and applies Israel.  Thus, he deems the EITC “paid” on April 15, 2013, so the amount of the claim allowable is limited to $0 if the claim was filed after April 15, 2016.  Aside:  I wonder why no one has ever litigated the Israel issue in any other Circuit?  As I see it, the Israel opinion’s reasoning is something like “ipse dixit”.

The magistrate in Whitaker then notes that section 7502(a) provides a timely-mailing-is-timely-filing rule for, among other things, refund claims.  But, that rule doesn’t benefit Whitaker, since it only extends the filing date when there is a postmark on the envelope that shows the envelope was mailed on or before the last date to file.  There is no envelope in the record, let alone one bearing such a postmark.  The court also notes the special rule under section 7502(c) that could deem evidence of the date of mailing by registered or certified mail as the date of the postmark under subsection (a), but there is also no evidence in the record as to registered or certified mailing of an envelope.

Next, the magistrate considers the possibility that the common law mailbox rule (allowing for parol and other extrinsic evidence of mailing) has not been eliminated by section 7502 or the regulations thereunder.  The court notes the existing split among the Circuits about whether the common law mailbox rule survived the enactment of section 7502 and the recent ruling of the Ninth Circuit in Baldwin v. United States, 921 F.3d 836 (9th Cir. 2019), that regulations under section 7502 have abrogated all case law holding that the common law mailbox rule still survives the enactment of section 7502.  We blogged on Baldwin and that case law split here.  As an aside (boy, am I abusing the privilege of asides), the Baldwins filed a petition for certiorari on September 23, 2019 at Supreme Court Docket No. 19-402, a copy of which can be found here.  In the petition, they argue that the Court should revisit the correctness of its opinion in National Cable & Telecomms. Assn. v. Band X Internet Services, 545 U.S. 967 (2005), where it held that regulations may overrule preexisting case law where the case law was not predicated on the court holding the statute’s language unambiguous.  In the alternative, the petition argues for Brand X to be limited so as not to permit regulations that overrule common law case law like the mailbox rule.

The district court in Whitaker is located in the Eleventh Circuit, which has not taken a precedential position regarding the continued existence of the common law mailbox rule since the passage of section 7502 or the enactment of the regulations thereunder.  However, the magistrate notes that the Fifth Circuit in Drake v. Commissioner, 554 F.2d 736, 738-39 (5th Cir. 1977), held the common law mailbox rule to no longer exist after section 7502.  Since that opinion was issued before the Eleventh Circuit was carved out of the Fifth Circuit in 1981, Drake is thus binding precedent on district courts in the Eleventh Circuit under Bonner v. City of Prichard, 661 F.2d 1206, 1209-10 (11th Cir. 1981), and the common law mailbox rule proof offered by Whitaker can be of no use to him.

Next, and most novel, the magistrate considers whether the “prison mailbox rule” applies to assist Whitaker.  The court apparently finds no case law on whether the prison mailbox rule can apply to tax refund claims.  In the following passage, the magistrate declines to extend the prison mailbox rule to tax refund claims:

The Supreme Court created the prison mailbox rule when it held that — for purposes of Rule 4(a)(1) of the Federal Rules of Appellate Procedure — a notice of appeal that a pro se prisoner sought to file in a federal court of appeals should be considered filed on the date the prisoner delivered it “to the prison authorities for forwarding to the court clerk.” Houston v. Lack, 487 U.S. 266, 275, 108 S. Ct. 2379, 2385 (1988); Daker v. Comm’r, Ga. Dep’t of Corrs., 820 F.3d 1278, 1286 (11th Cir. 2016). In reaching its decision, the Court reasoned that the word “filed” was ambiguous insofar as neither Rule 4(a)(1) nor the applicable statute set “forth criteria for determining the moment at which . . . ‘filing’ has occurred.” Houston at 272-76, 108 S. Ct. 2383-85; Bonilla v. United States Dep’t of Justice, 535 F. App’x 891, 893 (11th Cir. 2013). Additionally, in creating the prison mailbox rule, the Supreme Court never stated that the rule applies to every document a prisoner seeks to mail. Rather, the rule announced by the Supreme Court applied only to notices of appeal submitted to federal courts of appeals, and was subsequently codified consistent with that limitation. See Fed. R. App. P. 4(c).


Other courts expanded the rule announced in Houston v. Lack to apply the prison mailbox rule to other court filings. See Edwards v. United States, 266 F.3d 756, 758 (7th Cir. 2001) (per curiam) (noting that courts expanded the prison mailbox rule to include many other types of court filings). This expansion was codified to apply to appellate documents and habeas petitions filed with federal courts. See Fed. R. App. P. 25(a)(2)(A)(iii); Fed. R. Bankr. P. 8002(c); Rules Governing Section 2254 Proceedings For the United States District Courts, Rule 3(d); Rules Governing Section 2255 Proceedings For the United States District Courts, Rule 3(d).
Consistent with its historical roots, in the Eleventh Circuit, the prison mailbox rule is limited to filings made to courts. See Williams v. McNeil, 557 F.3d 1287, 1290 n.2 (11th Cir. 2009) (“Under the ‘prison mailbox rule,’ a pro se prisoner’s court filing is deemed filed on the date it is delivered to prison authorities for mailing.”) (emphasis added); Garvey v. Vaughn, 993 F.2d 776, 783 (11th Cir. 1993) (holding that the prison mailbox rule announced in Houston applies to pro se prisoners seeking to file in federal courts complaints under 42 U.S.C. § 1983 and the Federal Tort Claims Act) (emphasis added). Plaintiff has not cited any authority demonstrating that the prison mailbox rule applies to tax returns submitted to prison officials for mailing to the IRS.


Furthermore, the Supreme Court’s holding in Fex v. Michigan strongly suggests that the prison mailbox rule does not apply generally to all documents a prisoner seeks to mail to government entities. 507 U.S. 43, 47, 113 S. Ct. 1085, 1089 (1993). In that case, the prisoner sought to apply the prison mailbox rule to a request for disposition under the Interstate Agreement on Detainers that he had provided to prison officials to mail. Fex, 507 U.S. at 46, 113 S. Ct. at 1088. In determining the date the document was “caused to be delivered,” the Supreme Court did not apply the prison mailbox rule and instead held that the document was “caused to be delivered” on the date the prosecutor’s office and court received the request, and not on the date the inmate gave the request to prison officials for mailing. Fex, 507 U.S. at 47, 113 S. Ct. at 1089.


Other courts have noted that “the prison mailbox rule does not apply when there is a ‘specific statutory or regulatory regime’ governing the filing at issue.” Crook v. Comm’r of Internal Revenue Serv., 173 F. App’x 653, 656 (10th Cir. 2006) (quoting Longenette v. Krusing, 322 F.3d 758, 763 (3d Cir. 2003)); Smith v. Conner, 250 F.3d 277, 277, 279 (5th Cir. 2001); Nigro v. Sullivan, 40 F.3d 990, 994-95 (9th Cir. 1994). More specifically, when the particular statute defines the term “filing” or “filed” — as § 7502 essentially does — courts have seen no reason to usurp a statutory or regulatory definition by resorting to the prison mailbox rule. See Crook, 173 F. App’x at 656 (interpreting the word “filed” defined in Section 7502(a)(1) of the Internal Revenue Code); Smith, 250 F.3d at 279 (holding that the court “shall resort to Houston if the rule does not clearly define filing” and in all other cases the court “will enforce the regulations as written”); Nigro, 40 F.3d at 994 (noting that the prison-mailbox rule did not apply because the administrative regulations defined the word “filed” as “when the receipt is issued.”).  [Emphasis in original.]

Finally, Whitaker had argued that the government should be estopped from arguing for the section 6511(b) limitation in this case. It is well-settled that jurisdictional conditions are not subject to estoppel (just like they are not subject to waiver, forfeiture or equitable tolling).  Dolan v. United States, 560 U.S. 605, 610 (2010).  Since the magistrate appears not to treat section 6511(b) compliance as jurisdictional, this presents him with the question of whether estoppel could apply to the assertion that section 6511(b)’s conditions were not met. The magistrate states:

Plaintiff asserts that Defendant should be estopped from invoking § 6511’s three-year deadline because the IRS sent him a disallowance letter — dated and sent to Plaintiff on May 5, 2017 — in which the IRS incorrectly stated that May 15, 2016, was Plaintiff’s (already expired) deadline to file his claim for 2012 taxes. (Doc. 56-13 at 2). Plaintiff intimates that he relied on this letter (Doc. 56-13), even though the IRS issued this letter on May 5, 2017, more than a year after the deadline to file his return had expired (April 15, 2016), and long after the date Plaintiff claims that he sent his initial 2012 tax return to the IRS (March 25, 2016).


“The question of whether equitable estoppel is ever available against the federal government is unresolved,” but it is clear that the party asserting estoppel against the government has a heavy burden. Ferry v. Hayden, 954 F.2d 658, 661 (11th Cir. 1992) (citing Heckler v. Cmty. Health Servs., 467 U.S. 51, 61, 104 S. Ct. 2218, 2224 (1984)).  [footnote and some citations omitted; emphasis in original]

The magistrate does not decide whether estoppel could ever apply to section 6511, but details exhaustively why the facts alleged by Whitaker could not give rise to estoppel in any event.

Observations

I wonder if Whitaker will appeal his loss to the Eleventh Circuit?  The case only involves $475 plus interest from March or April of 2016 to date. 

Whitaker proceeded pro se in the district court and got the district court $350 filing fee put on an installment agreement so he could proceed in forma pauperis.  He is obligated to pay 20% of his income out of his “inmate account” towards the full $350 fee, over time.  He has so far paid $139.66 towards the fee.  Could he get the $505 appellate filing fee waived? 

Does anyone admitted to the Eleventh Circuit want to represent him?  (He appears to be quite the prison litigator, having filed numerous papers in the district court citing case law.)  In his motion for summary judgment, he argued for the application of the common law mailbox rule and estoppel.  In order for him to prevail in the Eleventh Circuit on the mailbox rule, he would need an en banc panel that decided to no longer follow the Fifth Circuit’s controlling Drake opinion holding that the common law mailbox rule has been supplanted by section 7502.  That is pretty unlikely.  And the Supreme Court in Baldwin is not being asked to resolve that Circuit split about the common law mailbox rule – merely to hold that the regulation under section 7502 doesn’t overrule any Circuit Court that has already held that the common law mailbox rule still applies after section 7502.  So, a taxpayer victory in Baldwin won’t be enough help Whitaker.

Whitaker’s case might have been a good litigating vehicle for the Israel issue of whether the section 6511(b) limits apply at all to EITC claims.  If section 6511(b) doesn’t apply, then all the issues decided by the magistrate on whether Whitaker mailed too late go by the wayside as irrelevant.  But, I have read Whitaker’s motion for summary judgment, and he doesn’t argue that section 6511(b) doesn’t limit EITC claims. It appears he has waived that Israel issue.  Too bad.

DOJ Seeks En Banc Rehearing of D.C. Cir. Myers Whistleblower Opinion

On July 2, 2019, the D.C. Circuit held that the 30-day filing deadline for bringing a Tax Court whistleblower award review suit at section 7623(b)(4) is not jurisdictional and is subject to equitable tolling. Myers v. Commissioner, 928 F.3d 1025. I blogged on the opinion here. Upset at its first loss in one of the cases in which Keith and I and the Harvard clinic have been making this argument as to various Tax Court filing deadlines (including in our amicus brief in Myers), the DOJ, on September 12, 2019, petitioned the D.C. Circuit to rehear the case en banc as to both the jurisdiction and equitable tolling rulings.

read more...

I won’t repeat in detail from my prior post how the D.C. Circuit reasoned that the filing deadline is not jurisdictional under recent Supreme Court non-tax case law. But, basically, the court held that, while the Code section clearly gave the Tax Court jurisdiction to hear such cases, the Code section was not sufficiently clear, by using the words “such matter” in a parenthetical, that Congress also wanted the filing deadline to be jurisdictional. Absent such a “clear statement”, the Supreme Court’s current position is that filing deadlines are not jurisdictional. In the DOJ’s rehearing petition, the DOJ basically repeats what it argued before – that “such matter” necessarily implies the filing deadline as well as the subject matter of the case.

When the D.C. Circuit ruled (2 to 1) against the DOJ on this argument, the court stated that it recognized how its ruling was “in some tension with” both Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), and Guralnik v. Commissioner, 146 T.C. 230 (2016), each of which held that the section 6330(d)(1) Collection Due Process Tax Court filing deadline is jurisdictional and not subject to equitable tolling on language virtually identical to that in section 7623(b)(4).

My favorite passage from the rehearing petition is one with which I wholly agree:

The majority recognized that its holding “is in some tension” with that of the Ninth Circuit regarding “a similarly worded provision of the Internal Revenue Code, 26 U.S.C. § 6330(d)(1).” (Add.20.) But that is an understatement (to say the least). It is simply not possible to reconcile the decision in this case with Duggan.

The petition makes no new arguments, with the exception of (in the equitable tolling section) adding information (not previously given to the court) about how many whistleblower award claims are received each year — over 10,000. The DOJ argues that there would be huge administrative problems if equitable tolling were allowed because a lot of those claimants (including ones whose claims were long ago turned down) could now file late in the Tax Court. That, of course, is pure speculation. What the DOJ doesn’t mention is that, up to now, there have only been about 100 whistleblower award cases under 7623(b)(4) pending in the Tax Court at a time. This latter figure appeared in the appellant’s brief from a 2017 report of the whistleblower office.

In its rehearing petition, the DOJ also raised the specter that some awards may already have been given to one whistleblower, but if late Tax Court petitions are allowed, equitable tolling could lead to duplicate awards. I seriously doubt that is a real concern. Equitable tolling is a matter of equity. If a court saw that by a petitioner waiting so long, the IRS could now be in a situation to have to pay two awards, no doubt that is an equitable fact the court would consider in deciding whether tolling should be allowed.

The DOJ also makes an argument that it did not make before to the panel below — that there should be no equitable tolling because there is a cottage industry of lawyers that brings whistleblower award suits. In Sebelius v. Auburn Regional Medical Center, 568 U.S. 145 (2013), the Supreme Court held that there should be no equitable tolling because the Medicare concerns who were seeking reimbursement decision reviews before administrative boards were sophisticated companies who elected continuously to participate in the Medicare system and were well-represented by counsel. The Myers court pointed out that, by contrast, the Tax Court generally is a place where petitions are filed pro se by people who have never filed before — like Myers himself. So, it distinguished Auburn.

It troubles me that the DOJ did not give statistics to support its argument on how many whistleblowers (percentagewise) file pro se and represented Tax Court petitions. In any event, whistleblowers can’t be said to have elected to participate in the award system. Mr. Myers simply felt that his former employer had misclassified both him and other similar workers as independent contractors and suggested an audit.

Observations

I am told by people who do appellate work full time that the D.C. Circuit is stingy with grants of rehearings en banc. So, I am not expecting the petition to be granted. Then, the question will be whether the Solicitor General seeks cert.

This may be a similar situation to when, as an amicus, I helped persuade the Ninth Circuit in Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), that the filing deadline in section 6532(c) for a district court wrongful levy suit is not jurisdictional and is subject to equitable tolling under recent Supreme Court case law. The DOJ also filed a petition for a rehearing en banc with the Ninth Circuit – pointing to a clear conflict with opinions of other Circuits holding the filing deadline jurisdictional and not subject to equitable tolling (though those opinions predated the 2004 change in Supreme Court case law on jurisdiction). The Ninth Circuit did not grant the en banc rehearing. Then, the DOJ did not pursue the matter by filing a cert. petition.

But, I would be happy to see the jurisdiction and equitable tolling issues elevated to the Supreme Court. So, I am not hoping for a similar SG abandonment of the Myers case. In the rehearing petition, the DOJ argues that this is a matter of exceptional importance to the IRS. But, then, people seeking rehearing always say that.

Reminder: The Timely Mailing Rules of Section 7502 Do Not Apply in Refund Suits

In Patel v. IRS, 124 AFTR 2d ¶2019-5097 (D. N.J. 7/29/19), a pro se CPA seeking a $4,000 refund of his income taxes found out the hard way that the timely-mailing-is-timely-filing rules of section 7502(a) do not apply to filings in district court. Section 7502(d)(1). Accordingly, even though he mailed his complaint seeking a refund to the district court just days before the 2-year deadline for filing under section 6532(a) was set to expire, because the complaint arrived after the 2-year period ended, the court dismissed his case.

read more...

On October 8, 2015, Mr. Patel filed his original 2011 Form 1040 showing a $4,000 overpayment. One has only three years from the date a return is filed to seek a refund under section 6511(a) (leaving aside the 2 years from payment rule that can also apply in some cases). When an original return is filed late (as in this case), the refund claim shown thereon is treated as filed the same day as the tax return, so the claim is treated as timely under the 3-year rule of section 6511(a). Rev. Rul. 76-511, 1976-2 C.B. 428. But, if one gets an extension to file to October 15, 2012 (as Mr. Patel claimed he had), then the amount of the claim is limited to the tax paid in the three years immediately preceding the claim plus the extension period. Section 6511(b)(2)(A). Since the tax involved was withholding, it was treated as paid on April 15, 2012. Section 6513(b)(1). Therefore, if Mr. Patel had gotten an extension to file, his claim could have been granted in full, since October 8, 2015 is less than three years and six months after April 16, 2012.

However, the IRS said it never got an extension request from Mr. Patel, so the amount limitation in this case reduced the allowable refund to $0 (the tax paid within three years prior to October 8, 2015).

Acting with what I find surprising speed, on December 17, 2015, the IRS sent Mr. Patel a notification of claim disallowance. Under section 6532(a)(1), Mr. Patel then had two years to file a complaint seeking a refund in either the district court or the Court of Federal Claims. The complaint arrived in the mail at the district court on Wednesday, December 20, 2017 – two days past the due date (FRCP 6(a)(1)(C) having extended the due date to Monday, December 18, 2017). The court found that Mr. Patel credibly testified that he put the envelope in the mail on Friday, December 15, 2017 – three days before the filing deadline expired.

In the opinion, the court notes that it is well-settled that district court filings are made on the day the court receives a document – even if the document is sent by mail. McIntosh v. Antonio, 71 F.3d 29, 36 (1st Cir. 1995). So, the court dismissed the case as untimely brought. The court did not decide the other issue of whether the administrative refund claim amount limit was $0 because that would have required an evidentiary hearing, since Mr. Patel showed the court a copy of a Form 4868 extension form for 2011 that he claimed he had filed, while the IRS denied receipt of such form.

Being a tax controversy lawyer, I would have expected the court to discuss the timely-mailing-is-timely-filing rules of section 7502(a). However, the court didn’t, for reasons that become obvious once you read those rules. Section 7502(a)(1) states:

If any return, claim, statement, or other document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.

But, section 7502(d) states, in part: “This section shall not apply with respect to—(1) the filing of a document in, or the making of a payment to, any court other than the Tax Court . . . .” (Emphasis added.) Since I have filed few refund suits in my life, and I have always filed those in person at the local New York district court courthouse, I was never aware of this limitation. Both petitions to the Tax Court and notices of appeals from the Tax Court (which I have more often filed, and always by mail) are filed in the Tax Court, so are subject to the section 7502(a) timely-mailing-is-timely-filing rules. I bet I am not the only tax controversy lawyer who is surprised to find these rule inapplicable to refund lawsuits. So, I write this post as a warning to people like me.

In one of his filings in response to the motion to dismiss, Mr. Patel argued that it must be the case that the district court actually received the mailing within two days, which would make the filing timely (on Monday, December 18, 2017), even if the receipt date governed. As evidence that it usually took only two days to mail something from his home in West New York, New Jersey to the district court in Newark, he attached a printout from a USPS website in connection with his mailing of a document in the refund suit to the court in May, 2019, indicating likely delivery in two days.

The district court in Mr. Patel’s case noted, however, that the mailing done of the complaint was done both over a weekend and at the height of the Christmas mailing season, so the court wouldn’t accept this proof from a more normal time of year. But, the court clearly felt bad for Mr. Patel, writing:

One may sympathize with the plaintiff here. The § 6532(a)(1) deadline, however, is a rigid one; it is not subject to equitable tolling on sympathetic or other grounds. See RHI Holdings, Inc. v. United States, 142 F.3d 1459, 1462 (Fed. Cir. 1998); cf. United States v. Brockamp, 519 U.S. 347, 348 (1997) (analogous statute of limitations in 26 U.S.C. § 6511 not subject to equitable tolling).

Still, the district court found that the filing deadline issue is jurisdictional, so the court dismissed the case for lack of jurisdiction (as opposed to failure to state a claim on which relief could be granted).

Comments

Readers of PT know that Keith and I have litigated whether certain judicial filing deadlines in tax are jurisdictional or subject to equitable tolling in light of Supreme Court changed case law since 2004. Indeed, for over a year now, the Second Circuit has been working on an opinion in Pfizer v. United States, 2d Cir. Docket No. 17-2307, where the Harvard clinic (as amicus) has asked the court to be the first appellate court since the Supreme Court changed the rules to reconsider the issue of whether the section 6532(a) filing deadline is still jurisdictional (as many other courts of appeal had held prior to 2004). In our brief, we criticize RHI Holdings as a case that both predated the 2004 change in the jurisdictional rules and improperly conflated the factors that go into the equitable tolling question with the jurisdictional question. We also found Brockamp distinguishable on many factors that went into the Supreme Court’s analysis there of the section 6511 filing deadline’s ability to be equitable tolled.

And I blogged last November on an opinion in Wagner v. United States, 353 F. Supp. 3d 1062 (E.D. Wash. 2018), where the district court, in a refund suit, considered the recent Supreme Court case law and held that the section 6532(a) filing deadline is not jurisdictional and is subject to equitable tolling (and actually tolled the deadline in the case). So, the Patel case is in clear conflict with Wagner.

It will be interesting to see if Mr. Patel appeals the dismissal. Although the clinic at Harvard doesn’t plan to volunteer to represent him, if he does appeal, we would likely want to file an amicus brief in the Third Circuit arguing that the filing deadline is not jurisdictional and is subject to equitable tolling under the right facts. Anyone else who thinks they want to help the pro se Mr. Patel file an appeal, be our guest.

Seventh Circuit to Hear First Case about Applying Latest Innocent Spouse Equitable Rev. Proc.

Last summer, the Tax Court decided what seemed to be a fairly routine innocent spouse case involving three tax years, Jacobsen v. Commissioner, T.C. Memo. 2018-115. Mr. Jacobsen’s former wife had embezzled about $500,000 from her employer, and he was seeking to be relieved of taxes on the embezzlement income that had been omitted from their joint returns. The Tax Court dismissed the 2009 year from the case because the taxes had already been discharged in Mr. Jacobsen’s unfortunate ensuing bankruptcy. For the 2010 year, the court relieved him under section 6015(b) because he did not even have reason to know of the embezzlement (his ex-wife having hidden the money in small deposits in their joint business account and then gambled it all away), and four other equitable factors favored relief, while none disfavored relief. For the 2011 year, though, the court denied him relief under section 6015(b), (c), and (f), holding that, because he helped a return preparer prepare the 2011 return after his wife had already gone to jail, he had actual knowledge by then of the omitted income.

Of course, actual knowledge precludes relief under subsections (b) and (c), but it doesn’t preclude relief under subsection (f), equitable relief. Rev. Proc. 2013-34, 2013-2 C.B. 397, applicable to the case, provides factors to consider for equitable relief. Prior Rev. Proc. 2003-61, 2003-2 C.B. 296, had provided that actual knowledge was an especially strong factor weighing against relief, though it could be overcome. A major liberalization of relief in the 2013 Rev. Proc. is that actual knowledge is now weighed no more heavily against a taxpayer than reason to know. But then, Judge Paris, purporting to apply the 2013 Rev. Proc., but with no comparison of the factors for 2011, held that because Mr. Jacobsen had actual knowledge and helped prepare the 2011 return, he could not get equitable relief.

Mr. Jacobsen had been pro se. Keith and I were perplexed by the 2011 ruling. There were four positive factors for relief – marital status (divorced), no significant benefit, compliance with later tax filing requirements, and adverse health issues (Mr. Jacobsen is a vet with PTSD). How could they be outweighed by merely one negative factor, actual knowledge, which is no longer held extra-strong weight? (Helping prepare a return does not seem to be a separate factor, but simply part of the knowledge factor.) So, the Harvard Federal Tax Clinic volunteered to represent Mr. Jacobsen in an appeal of the 2011 part of the case to the Seventh Circuit. The DOJ did not cross-appeal the IRS loss on the 2010 year.

We think this is an important case to vindicate the liberalization of the actual knowledge factor in Rev. Proc. 2013-34. While there have been many court of appeals opinions under the prior Rev. Procs. under subsection (f), this will apparently be the first appellate case applying Rev. Proc. 2013-34. We know that the Tax Court has held that it isn’t bound to follow the Rev. Proc., but Judge Paris purported to follow the Rev. Proc. when discussing the equity factor for relief under subsection (b) for 2010. Even if the Rev. Proc. is only advisory, can a court purporting to apply it let one negative factor outweigh four positive factors? And isn’t the judge making actual knowledge, in effect, a per se disqualifier from relief under subsection (f), which contains no provision concerning knowledge?

A law student helped the IRS try the case in the Tax Court. Three law students at Harvard helped Keith and me draft our appellate brief. Here is the appellee’s brief. No reply brief was filed. A Harvard clinic student will do the oral argument for Mr. Jacobsen in the Seventh Circuit on September 13 – which we hope will be a lucky day, despite its being a Friday. This must be either the first case or one of the first cases where law students have helped both taxpayers and the IRS in litigating a case.

Appointments Clause Errors in the Taxpayer First Act that the President is Deeming that He Corrected

On July 1, 2019, the President signed into law H.R. 3151, the Taxpayer First Act – bipartisan legislation primarily making a number of changes to the IRS. Section 1001 of the Act amends Code section 7803 to add a new subsection (e), creating the IRS “Independent Office of Appeals” as a separate office within the IRS, whose “Chief of Appeals” reports directly to the Commissioner of Internal Revenue. Section 2101 of the Act also amends Code section 7803 to add a new subsection (f), creating within the IRS a new position of IRS “Chief Information Officer” (CIO).

No doubt the drafters of the legislation (presumably, the staffs of the Joint Committee on Taxation, the Senate Finance Committee, and the House Ways & Means Committee) have little experience with the requirements of the Constitution’s Appointments Clause (art. II, sec. 2, cl. 2), since there are so few appointed “Officers of the Unites States” in the IRS. Indeed, as far as I can tell, the only appointed “Officers” in that vast bureaucracy are the Commissioner, the Chief Counsel, and the members of the IRS Oversight Board (each appointed by the President with the advice and consent of the Senate); sections 7802(b)(1)(A) and 7803(a)(1)(A) and (b)(1); and the National Taxpayer Advocate (appointed by the Secretary of the Treasury). Section 7803(c)(1)(B)(ii).

New Code section 7803(e)(2)(B) and (f)(1) provide that the Chief of Appeals and the CIO shall be appointed by the Commissioner of Internal Revenue. Unfortunately, assuming that those individuals are “inferior officers” under the Appointments Clause (as opposed to a mere governmental employee lacking “significant authority” to act on behalf of the government), those appointment delegations would be invalid.

Somebody at the White House or DOJ noticed this error before the President signed the bill and thought that the President had an easy work-around. So, in signing the bill into law, the President executed a signing statement that reads in its entirety:

Today, I have signed into law H.R. 3151, the “Taxpayer First Act” (the “Act”). Sections 1001(a) and 2101(a) of the Act require the Commissioner of Internal Revenue to appoint persons to positions responsible for significant functions of the Internal Revenue Service (IRS). Such persons are likely inferior officers under the Appointments Clause of the Constitution. Because the IRS is a component of the Department of the Treasury, the Commissioner is not the head of a department and thus lacks constitutional authority to appoint inferior officers. I therefore direct the Secretary of the Treasury, as the head of the department, to approve any appointments made pursuant to sections 1001(a) and 2101(a) of the Act. DONALD J. TRUMP

Having litigated a case involving the Appointments Clause; see Tucker v Commissioner, 676 F. 3d 1129 (D.C. Cir. 2012), aff’g 135 T.C. 114 (2010) (holding that Appeals Settlement Officers and their Team Managers holding Collection Due Process hearings are not inferior officers, but mere employees not needing appointment), I am quite familiar with case law under the Clause outside the tax area. And, it is my considered opinion that if the Supreme Court were asked if the President’s fix worked, the ghost of former Justice Scalia would cause the Court to call the President’s signing statement “applesauce”. In my view, only Congress can fix the problem, not the President.

read more...

The Appointments Clause provides in relevant part:

[The President] . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

The Framers sought to prevent the diffusion of appointment power by limiting who may make appointments and to whom Congress, by enacting a law, may delegate appointing power. The default is that, assuming a delegation law is invalid, the appointment of inferior Officers must be made by the President with the advice and consent of the Senate. There is little question that, if these new IRS individuals are “Officers of the United States” (which I am confident that they are), they are inferior officers, since they report to a higher officer, the Commissioner. Edmond v. United States, 520 U.S. 651, 662 (1997) (“Generally speaking, the term ‘inferior officer’ connotes a relationship with some higher ranking officer or officers below the President: whether one is an ‘inferior’ officer depends on whether he has a superior.”)

In the case of Cabinet Departments, only the Department’s Secretary has been held to be the Head of a Department under Supreme Court Appointments Clause case law. Freytag v. Commissioner, 501 U.S. 868, 886 (1990) (“This Court for more than a century has held that the term ‘Department’ refers only to “‘a part or division of the executive government, as the Department of State, or of the Treasury,'” expressly ‘created’ and ‘giv[en] . . . the name of a department’ by Congress.”). (Note that, since Freytag, the Supreme Court has also held that independent agencies, such as the SEC, can also be “Departments”. See Free Enterprise Fund v. PCOAB, 561 U.S. 477, 510-511 (2010).) Thus, the Commissioner of Internal Revenue, as the head of a mere unit within the Treasury Department, is not one of the individuals to whom Congress may delegate appointment power for an inferior officer. The Commissioner is not the Head of a Department.

This is not the first time Congressional drafters made an Appointments Clause error in naming an appointer who was not the Head of a Department. What happened most recently to the Patent and Trademark Judges is instructive. The history is set out in detail in Stryker Spine v. Biedermann Motech GmbH, 684 F. Supp. 2d 68, 80-88 (D.D.C. 2010). The Patent and Trademark Judges were part of the Patent and Trademark Office of the Department of Commerce. Congress had long given the Secretary of Commerce the power to appoint such judges. But, in 2000, some bright bulb in Congress changed the law so that the Director of the Patent and Trademark Office could appoint such judges. When Prof. John Duffy, in a 2007 blog post, questioned the constitutionality of this appointment if the judges, as he argued, were inferior officers, not employees, patent and trademark lawyers started to raise this issue in the courts in challenges to the post-2000 rulings of such judges. Congress solved the problem by enacting a law allowing the Secretary of Commerce to appoint such judges – i.e., reverting to the prior law. Congress purported to make the new law retroactive to cure any error, something at least Duffy thought not constitutional, either. But, no court has ever held the Congressional fix improper.

I don’t see how the Secretary of the Treasury has been authorized by law to appoint the new IRS officers. The President’s mere deeming the Secretary to be the proper co-appointer has not been approved by Congress.

On the bright side for Congress, though, they can clearly add this fix to a Technical Correction Act. And, when they do so, I expect that they will follow the lead of what they did in fixing the similar problem with the Patent and Trademark Judges – complete with making the fix retroactive.

Also on the bright side for both the President and the IRS, I have a hard time figuring out who has the standing to bring a legal challenge under the Appointments Clause to what the President just did. After all, who is aggrieved by the error? The Chief of Appeals doesn’t make individual taxpayer rulings within Appeals. Perhaps some government contractor, whose proposed information technology contract was turned down by the IRS CIO, though, might have standing to complain. But, really, would such a lawsuit really be worth it to anyone?