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 will be Acting Director from January to June 2019.

Implications for the Tax World of New Supreme Court Opinion Finding Another Claims Processing Rule Not Jurisdictional

I know some of you think I have “jurisdiction” on the brain. However, anyone who reads Supreme Court opinions over the last 15 years should also have that malady by now, since over that period the Court seems to have issued at least one opinion a year on the question of whether a particular rule of federal litigation is jurisdictional or a mandatory non-jurisdictional claims processing rule. Keith and I recognized that this question inevitably also applies to the tax world, where much discussion of the question in court opinions preceded the current thinking making claims processing rules presumptively not jurisdictional. We have tried to alert the lower courts (including the Tax Court) to these Supreme Court developments. Since 2014, tax opinions have begun to follow the developing Supreme Court non-tax authority in analyzing the tax statute requirements. Compare Lippolis v. Commissioner, 143 T.C. 393 (2014) ($2 million amount in dispute whistleblower award threshold in section 7623(b)(5) is not jurisdictional) and Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015) (section 6532(c) wrongful levy judicial filing deadline is not jurisdictional and is subject to equitable tolling) with Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018) (section 6330(d)(1) CDP filing deadline is jurisdictional and not subject to equitable tolling) and Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017) (section 6015(e)(1)(A) innocent spouse filing deadline is jurisdictional and not subject to estoppel).

Well, the Supreme Court just issued its second “jurisdictional” ruling of the current Term, Fort Bend County v. Davis, Docket No. 18-525 (June 3, 2019). The first ruling was in Nutraceutical Corp. v. Lambert, 139 S. Ct. 710 (Feb. 26, 2019). The Court in both cases held mandatory claims processing rules non-jurisdictional. Could these cases contribute to a larger effect in the tax world, since they underscore that almost no claims processing rule is held jurisdictional by the Court these days?

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First, a reminder of the principal differences between jurisdictional rules and non-jurisdictional rules. Non-jurisdictional rules are subject to waiver and also are subject to forfeiture if not raised soon enough in a case; courts need not police these rules. By contrast, courts must independently police jurisdictional rules, and complaints about lack of jurisdiction can be raised at any time during a case – either by the defendant or the court. Some non-jurisdictional claims processing rules are also subject to the equitable exceptions of estoppel and, in the case of rules that are filing deadlines, equitable tolling, but this is a separate issue. The Court in Nutraceutical, for example, held a deadline in which to ask permission from a court of appeal to appeal a district court denial of class certification not jurisdictional and yet still not subject to equitable tolling.

Second, before getting deep into this subject, I highly recommend to readers Bryan Camp’s forthcoming article in The Tax Lawyer (for the Summer 2019 issue) entitled, “New Thinking About Jurisdictional Time Periods in the Tax Code”, where he argues that the filing deadlines for Tax Court deficiency and CDP cases should not be jurisdictional under the new thinking, but that the filing deadline for a stand-alone innocent spouse case should be jurisdictional, and the district court refund suit filing deadline in section 6532(a) should not be jurisdictional.

Fort Bend Facts

Lois Davis worked for Fort Bend County. She filed with the EEOC two documents complaining that she was being harassed and retaliated against, since she had complained of another worker’s sexual harassment, after which the other worker quit. The first document was an intake questionnaire; the second, a formal “charge”.

Subsequent to the EEOC filings, she was ordered to work on a Sunday, when she had a planned church function. When she went to the church function, rather than work, the county fired her. She then went back and tried to amend the EEOC intake questionnaire by handwriting “religion” on it, but she made no similar amendment to the EEOC charge.

A few months later, the DOJ notified her of her right to sue in district court, and she did – arguing both retaliation and religious discrimination. The district court granted the county’s summary judgment motion, but the court of appeals reversed the grant as to the religious discrimination claim. The county then sought cert. on the issue, but cert. was denied.

On remand, the county for the first time moved the district court to dismiss the religious discrimination claim for lack of jurisdiction because Ms. Davis had not alleged religious discrimination in the EEOC charge. The district court dismissed the case for lack of jurisdiction, but on a second trip to the court of appeals, the court of appeals held that the requirement to file an EEOC charge before filing suit was not jurisdictional, but a mandatory claims processing suit. The court of appeals held that the county had forfeited the right to complain about non-compliance with this requirement by waiting until after the case had already gone once through a round of appeals all the way to the Supreme Court. Because other Circuits had held the EEOC charge-filing requirement jurisdictional, the Supreme Court granted cert. this time to resolve the split.

Fort Bend Opinion

The Supreme Court issued a unanimous opinion, authored by Justice Ginsburg – who is the first Justice to have raised the issue of the overuse of the word “jurisdictional” by the courts. Her Fort Bend opinion, therefore, follows her earlier views, which all of the Justices have since adopted. Under those views (the adopted legal standard since 2004), mandatory claims processing rules are not jurisdictional unless either (1) Congress makes a “clear statement” that it wants the rule to be jurisdictional (a rare event, according to the Court) or (2) there exists a long line of Supreme Court precedent over many years holding the rule jurisdictional (a stare decisis exception). Since there was no previous Supreme Court authority on this EEOC requirement, the county only argued for the clear statement exception.

Before deciding the case, the Court noted:

The Court has characterized as nonjurisdictional an array of mandatory claim-processing rules and other preconditions to relief. These include: the Copyright Act’s requirement that parties register their copyrights (or receive a denial of registration from the Copyright Register) before commencing an infringement action, Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157, 163–164 (2010); the Railway Labor Act’s direction that, before arbitrating, parties to certain railroad labor disputes “attempt settlement ‘in conference,’” Union Pacific, 558 U.S., at 82 (quoting 45 U.S.C. §152); the Clean Air Act’s instruction that, to maintain an objection in court on certain issues, one must first raise the objection “with reasonable specificity” during agency rulemaking, EPA v. EME Homer City Generation, L. P., 572 U.S. 489, 511–512 (2014) (quoting 42 U.S.C. § 7607(d)(7)(B)); the Antiterrorism and Effective Death Penalty Act’s requirement that a certificate of appealability “indicate [the] specific issue” warranting issuance of the certificate, Gonzalez, 565 U.S., at 137 (quoting 28 U.S.C. § 2253(c)(3)); Title VII’s limitation of covered “employer[s]” to those with 15 or more employees, Arbaugh v. Y & H Corp., 546 U.S. 500, 503– 504 (2006) (quoting 42 U.S.C. § 2000e(b)); Title VII’s time limit for filing a charge with the EEOC, Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 393 (1982); and several other time prescriptions for procedural steps in judicial or agency forums. See, e.g., Hamer v. Neighborhood Housing Servs. of Chicago, 583 U.S. ___, ___ (2017) (slip op., at 1); Musacchio v. United States, 577 U.S. ___, ___ (2016) (slip op., at 8); Kwai Fun Wong, 575 U.S., at ___ (slip op., at 9); Auburn, 568 U.S., at 149; Henderson, 562 U.S., at 431; Eberhart, 546 U.S., at 13; Scarborough v. Principi, 541 U.S. 401, 414 (2004); Kontrick, 540 U.S., at 447.6/

__________ 6. “If a time prescription governing the transfer of adjudicatory authority from one Article III court to another appears in a statute, the limitation [will rank as] jurisdictional; otherwise, the time specification fits within the claim-processing category.” Hamer, 583 U.S., at ___ (slip op., at 8) (citation omitted).

Slip op. at 7-8.

As to the particular EEOC rule at issue in Fort Bend, the Court wrote:

Title VII’s charge-filing requirement is not of jurisdictional cast. Federal courts exercise jurisdiction over Title VII actions pursuant to 28 U.S.C. § 1331’s grant of general federal-question jurisdiction, and Title VII’s own jurisdictional provision, 42 U.S C. § 2000e–5(f )(3) (giving federal courts “jurisdiction [over] actions brought under this subchapter”). Separate provisions of Title VII, § 2000e–5(e)(1) and (f )(1), contain the Act’s charge-filing requirement. Those provisions “d[o] not speak to a court’s authority,” EME Homer, 572 U.S., at 512, or “refer in any way to the jurisdiction of the district courts,” Arbaugh, 546 U.S., at 515 (quoting Zipes, 455 U.S., at 394). Instead, Title VII’s charge-filing provisions “speak to . . . a party’s procedural obligations.” EME Homer, 572 U.S., at 512. They require complainants to submit information to the EEOC and to wait a specified period before commencing a civil action. Like kindred provisions directing parties to raise objections in agency rulemaking, id., at 511–512; follow procedures governing copyright registration, Reed Elsevier, 559 U.S., at 157; or attempt settlement, Union Pacific, 558 U.S., at 82, Title VII’s charge filing requirement is a processing rule, albeit a mandatory one, not a jurisdictional prescription delineating the adjudicatory authority of courts.

Slip op. at 9-10 (footnotes omitted).

In Zipes and later cases, the Court has stated that the separation of a claims processing rule from a jurisdictional grant is a strong indication that the claims processing rule is not jurisdictional.

Impact of Fort Bend on Tax Rules

Any tax lawyer reading Fort Bend will instantly recognize the similarity between the EEOC charge stating rule and the tax refund claim rule of section 7422(a), requiring an administrative claim to have been filed before a refund suit is brought. In United States v. Dalm, 494 U.S. 596 (1990) (involving equitable recoupment jurisdiction), the Court stated that the section 7422(a) requirement is jurisdictional, but the Court’s statement was not really important to the outcome of the case, since the taxpayer would lose whether the section 7422(a) requirement was jurisdictional or not. Dalm is likely one of the opinions that the current Court would call “drive-by jurisdictional rulings”, entitled to no weight since the new rules of jurisdiction have applied. In Gillespie v. United States, 670 Fed. Appx. 393 (7th Cir. 2016), the Seventh Circuit recently observed (in dicta) that recent Supreme Court case law on jurisdiction “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional”, including Dalm. Fort Bend throws more shade on this statement in Dalm.

Tax lawyers reading Fort Bend will also recognize the similarity between the EEOC charge stating rule and the rule (related to that of section 7422(a)) that a tax refund suit cannot have its basis be at substantial variance with the basis for the refund set out in the administrative claim. I have not made a study of all case law on the substantial variance rule, but I do know that the Federal Circuit treats that rule as jurisdictional. See Ottawa Silica Co. v. United States, 699 F.2d 1124, 1135-1136 (Fed. Cir. 1983). It also seems doubtful that such rule is jurisdictional after Fort Bend.

Finally, Fort Bend may help the D.C. Circuit resolve an issue presented to it in an appeal of the opinion of the Tax Court in Myers v. Commissioner, 148 T.C. 438 (a section 7623(b)(4) whistleblower action, previously discussed on PT here and here). The issue is whether the appeal to the D.C. Circuit was taken timely under section 7483, which provides only 90 days after the Tax Court decision is entered to file a notice of appeal. The jurisdictional grant for courts of appeals to hear appeals from the Tax Court is elsewhere, at section 7482(a)(1), and the word “jurisdiction” does not appear in section 7483. Section 7483 appears to be a mere run-of-the-mill, non-jurisdictional claims processing rule. Yet the D.C. Circuit has no precedent on this section 7483 jurisdictional issue, and the notice of appeal was filed more than 90 days after the Tax Court decision was entered.

FRAP 13(a)(1)(B) provides: “If, under Tax Court rules, a party makes a timely motion to vacate or revise the Tax Court’s decision, the time to file a notice of appeal runs from the entry of the order disposing of the motion or from the entry of a new decision, whichever is later.” After the Tax Court decision was entered, Mr. Myers had made a timely motion that he styled one for reconsideration (not to vacate). He filed his notice of appeal within 90 days of the Tax Court’s denial of this motion.

The D.C. Circuit raised sua sponte during the Myers appeal whether the notice of appeal was timely filed – something the court may do only if the filing deadline is jurisdictional. Both parties argue that the appeal was timely brought – with the DOJ arguing that the motion for reconsideration should be treated as a motion to vacate, as a practical matter, for purposes of FRAP 13(a)(1)(B). If the appellate filing deadline is not jurisdictional, the DOJ is clearly validly waiving any complaint about late filing.

But, at oral argument this past December, judges on the panel thought that maybe section 7483’s deadline is jurisdictional. If it is, then the judges did not see how a mere FRAP could extend the statutory 90-day period. Further, in Bowles v. Russell, 551 U.S. 205 (2007), creating the stare decisis exception to the new jurisdictional rules, the Supreme Court held that a deadline in 28 U.S.C. section 2107 to file a civil appeal from a federal district court to a court of appeal is jurisdictional because for over 100 years, in multiple opinions, the Supreme Court had called that deadline jurisdictional. The Myers judges wondered why Bowles does not dictate that section 7483’s filing deadline is also jurisdictional because this is a civil appeal.

In response, Mr. Myers’ counsel, Joe DiRuzzo, argued that Bowles only applied to appeals between Article III courts, and did not apply to an appeal from an Article I court (the Tax Court) to an Article III court. Mr. DiRuzzo noted a footnote in Hamer v. Neighborhood Housing Servs. of Chicago, 138 S. Ct. 13, 20 n.9 (2017), suggesting that Bowles only applied to appeals between Article III courts. The Myers judges seemed not impressed by this footnote, correctly noting that it was dicta. However, it is interesting that Justice Ginsburg, in footnote 6 of Fort Bend (quoted above), again states this limitation (between Article III courts), citing Hamer. Again, Justice Ginsburg’s statement constitutes dicta, but how many courts of appeal will disregard well-considered, repeated dicta of the Supreme Court characterizing the scope of the Court’s own precedent?

The opinion of the D.C. Circuit in Myers is by now overdue. We shall see what it decides.

Note that the D.C. Circuit is not hostile to the new Supreme Court jurisdictional rules in tax cases. In Kim v. United States, 632 F.3d 713 (D.C. Cir. 2011), that court held that failure to comply with the administrative exhaustion requirement of section 7433(d)(1) before bringing a suit for damages for wrongful collection actions is a merits affirmative defense. Further, the next year, the court held that the filing deadline for such a suit at section 7433(d)(3) is also not jurisdictional – citing recent Supreme Court case law. Keohane v. United States, 669 F.3d 325, 330 (D.C. Cir. 2012).

Supreme Court Reaffirms that Agencies Are Not Entitled to Chevron Deference on Their Interpretations of Judicial Review Issues

There have been occasions over the years where I have seen Collection Due Process or innocent spouse regulations place indirect limits on what the Tax Court may do.  For example, under section 6015(g)(3), refunds can be awarded as part of relief under subsections (b) and (f), but not (c).  Regulation § 1.6015-4 further provides that subsection (f) (which applies when relief is not available under subsections (b) or (c)) may not be used to circumvent the limitation of subsection (g)(3) of no refunds under (c):  “Therefore, relief is not available under [subsection (f)] to obtain a refund of liabilities paid for which the requesting spouse would otherwise qualify for relief under [subsection (c)].”  These are indirect limits on the Tax Court’s power, since they initially only limit what the IRS may do by way of awarding a refund under subsection (f).  But, I have wondered about whether such regulations deserve Chevron deference because they also impinge on the Tax Court’s powers.  In an amicus brief that Keith and I filed in a case challenging this particular regulation (but where the Court ultimately ruled so that it did not have to reach the regulation validity issue), we argued that Chevron deference should not be given to it – pointing to Supreme Court authority saying that deference is not owed to agency views as to judicial review matters.

I am still not sure that I am right as to no Chevron deference to such indirect limitations, but the Supreme Court recently decided a case, Smith v. Berryhill, 587 U. S. __ (2019) (May 28, 2019), where it repeated the rule that agencies are not entitled to Chevron deference as to their views on judicial review.  Because many are not familiar with this exception to Chevron deference, I thought it would be useful to quote what the Court said in this recent case.  

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The issue in the case was whether certain Social Security disability benefits rulings are subject to judicial review.  The rulings were those of an internal Appeals Council, holding that benefits applicant Mr. Smith’s appeal to that Council was untimely.  The Council rulings were made after a full hearing on the merits before an administrative law judge. Mr. Smith then sued for judicial review, and lost at both the district court and the court of appeals. 

In the Supreme Court, the government reversed its prior position and agreed that claimant Smith was entitled to judicial review of the Appeals Council’s determination regarding the timeliness of his administrative appeal. The Court appointed an amicus to argue the government’s prior position – that the rulings were not “final” under the Social Security Act, and therefore not subject to judicial review. In its argument, the amicus contended that the Court should give Chevron deference to the position of the agency (prior to its switch in the case) that these rulings were not “final” agency decisions.  Rejecting Chevron deference to this prior regulatory interpretation, the Court wrote:

Chevron deference “‘is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.’” King v. Burwell, 576 U. S. ___, ___ (2015) (slip op., at 8). The scope of judicial review, meanwhile, is hardly the kind of question that the Court presumes that Congress implicitly delegated to an agency.

Indeed, roughly six years after Chevron was decided, the Court declined to give Chevron deference to the Secretary of Labor’s interpretation of a federal statute that would have foreclosed private rights of action under certain circumstances. See Adams Fruit Co. v. Barrett, 494 U. S. 638, 649–650 (1990). As the Court explained, Congress’ having created “a role for the Department of Labor in administering the statute” did “not empower the Secretary to regulate the scope of the judicial power vested by the statute.” Id., at 650. Rather, “[a]lthough agency determinations within the scope of delegated authority are entitled to deference, it is fundamental ‘that an agency may not bootstrap itself into an area in which it has no jurisdiction.’” Ibid. Here, too, while Congress has empowered the SSA to create a scheme of administrative exhaustion, see Sims, 530 U. S., at 106, Congress did not delegate to the SSA the power to determine “the scope of the judicial power vested by” §405(g) or to determine conclusively when its dictates are satisfied. Adams Fruit Co., 494 U. S., at 650. Consequently, having concluded that Smith and the Government have the better reading of §405(g), we need go no further.


Slip op. at 14.

Of course, some justices on the Supreme Court currently think that Chevron deference should be abandoned entirely.  But, until it is (if ever), tax practitioners may consider whether to raise this exception to Chevron when litigating the validity of regulations that directly or indirectly impinge on the Tax Court’s powers.

CFC Holds that Math Error Notices Reducing Refund Claims Are Not Notices of Claim Disallowance for Purposes of SOL to Bring Suit

In a case brought by a pro se taxpayer in the Court of Federal Claims (CFC), Hale v. United States, 2019 U.S. Claims LEXIS 502 (May 14, 2019), the CFC held, among other interesting things, that math error notices that reduced refunds sought on original tax returns were not formal notices of claim disallowance as to the reductions for purposes of the 2-year statute of limitations for bringing refund suits at section 6532(a). The suit was thus timely for years for which such math error notices were sent, though was dismissed for failure to state a claim under CFC Rule 12(b)(6) because the taxpayer didn’t articulate a reason for why the math error notices were wrong.

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In a nutshell, the court describes the case as follows:

In this tax refund case, pro se Plaintiff Annice Hale claims that she is entitled to a refund of taxes for the tax years 2012 through 2017 because the government improperly adjusted downward the refunds claimed in her returns for each of those tax years. Ms. Hale’s complaint, liberally construed, also alleges civil rights and tort claims against the government in connection with these tax-related government actions. The government has moved to dismiss Ms. Hale’s complaint under Rules 12(b)(1) and 12(b)(6) of the Rules of the Court of Federal Claims (“RCFC”).

As discussed below, the Court lacks subject-matter jurisdiction over Ms. Hale’s civil rights and tort claims, part of her 2012 tax refund claim, and her 2014 refund claim. Moreover, Ms. Hale has failed to state a claim with respect to tax years 2013, 2015, 2016, and 2017, as well as the portion of her claim for tax year 2012 over which the Court has jurisdiction. As to these remaining claims Ms. Hale’s allegations, taken as true, do not establish any claim upon which relief can be granted.

I will discuss the years separately, for the most part. It appears that all of the claims were made on original tax returns that were timely filed.

2014

The 2014 year was perhaps the easiest year for the court. In that year, the IRS sent a notification of claim disallowance as to part of the claim on September, 9, 2015. Under section 6532(a), a notification of claim disallowance triggers a 2-year period in which a taxpayer must bring suit on the refund claim. Ms. Hale, however, waited over 3 years to bring suit. Thus her case was untimely. Following other CFC case law, which relies on Federal Circuit precedent, the court held that it lacked jurisdiction under CFC Rule 12(b)(1) because the deadline in section 6532(a) is jurisdictional.

I agree with the court that the case as regards 2014 should be dismissed for untimely filing, but under CFC Rule 12(b)(6) (failure to state a claim on which relief could be granted), not 12(b)(1) (lack of jurisdiction). In a comment to a Bob Probasco post on the refund case of Pfizer v. United States, 2d Cir. Docket No. 17-2307 (which has still not yet been decided by the Second Circuit, despite oral argument having happened on February 13, 2018), I pointed out that Keith and I have filed an amicus brief on behalf of the Harvard clinic arguing that the section 6532(a) deadline is not jurisdictional and is subject to estoppel under recent Supreme Court case law making most filing deadlines now nonjurisdictional. Our amicus brief criticizes the Federal Circuit authority, which was decided before the recent Supreme Court case law making filing deadlines only rarely now jurisdictional.

2012

Ms. Hale was a low-income taxpayer who had no income tax liability in 2012, but who reported self-employment tax of $1,192. On her original 2012 return, she sought a refund of $2,977 based on subtracting that tax liability from an earned income tax credit (EITC) of $3,169 and an American Opportunity Credit of $1,000. The IRS, apparently, did not send her a math error notice, but in processing the return, it reduced the EITC by $100 because, presumably, Ms. Hale simply misread the EITC table. That left a potential refund of $2,877, but the IRS had been informed by FEMA that the taxpayer owed FEMA $2,119. The IRS sent that amount to FEMA and issued a refund check for the balance, $758. The court does not explain it, but apparently, Ms. Hale also sent several more amended returns seeking from the IRS the balance of the original refund amount that had not previously been paid to her. The last of those amended returns was filed on June 15, 2015, and the court mysteriously treats it as the refund claim underlying the suit for purposes of timely bringing suit.

The CFC first noted that section 6402(d)(1)(A) authorizes offsets to other government agencies like FEMA, and section 6402(g) also provides that “[n]o court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c), (d), (e), or (f).” Thus, it lacked jurisdiction to consider the reduction. However, the CFC also noted that it has broad jurisdiction under the Tucker Act, 28 U.S.C. section 1491(a)(1), which permits the CFC to hear “any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.” While a claim against FEMA might be heard by the CFC as an illegal exaction case, the CFC held that, since Ms. Hale’s pleadings did not even mention FEMA, the CFC had no jurisdiction to consider a suit against FEMA. Besides, documents in the record of the refund suit indicated that Ms. Hale later got the funds back from FEMA through a separate, internal FEMA proceeding.

The court then entered into a controversial discussion that it need not have done, since it is clear that, as to the 2012 claim (and all other claims), suit was brought within 6 years and 6 months after the claim was filed.

Some district courts have held that, in addition to the statute of limitation of section 6532(a), suits for refund must also satisfy the statute of limitation set out as a catchall at 28 U.S.C. section 2401(a). Section 2401(a) requires suits to be brought within 6 years of the time that they first could have been brought. Since a refund suit can be brought as soon as 6 months after the claim is filed if there has not earlier been a notification of claim disallowance, those courts held that a taxpayer has only 6 years and 6 months from the date of the refund claim to bring a refund suit where the IRS has never sent out a notification of claim disallowance. There is a parallel 6-year catchall statute of limitations under 28 U.S.C. section 2501 that applies to the CFC. In footnote 5 of its opinion in Hale, the CFC wrote:

The Court observes that in United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1 (2008), the Supreme Court suggested—but did not hold—that in the absence of another, more specific limitations period, tax refund cases are subject to the federal “outside limit” six-year statute of limitations provided in 28 U.S.C. §2401(a). Id. at 8. (quoting United States v. A.S. Kreider Co., 313 U.S. 443, 447 (1941). The Supreme Court thus implied that the Court of Claims was incorrect in its 1955 holding that the six-year general statute of limitations never applies in tax refund cases. See Detroit Trust Co. v. United States, 130 F. Supp. 815, 131Ct. Cl. 223, 226-28 (1955) (finding that six-year statute of limitations did not bar action based in part on refund claim filed in 1917 and disallowed in 1951, where suit was filed within two years of 1951 disallowance); Wagenet v. United States, No. 08-142, 2009 U.S. Dist. LEXIS 115547, 2009 WL 4895363, at *2 (C.D. Cal. Sept. 14, 2009) (applying the six-year statute of limitations set forth in 28 U.S.C. §2401(a) because where “no notice of disallowance was mailed . . . Section 6532(a)(1) does not apply”). Ms. Hale filed suit within six years of her claims for refund. With respect to her $100 EIC claim for tax year 2012, Ms. Hale’s complaint is timely because her last amended return (in other words, her claim for refund) for 2012 was filed on June 15, 2015 and her complaint was filed on October 11, 2018.

However, as Bob Probasco has noted in another prior post, the IRS takes the position that Detroit Trust was correctly decided. Chief Counsel Notice 2012-012. I am surprised to see the CFC needlessly disregarding precedent of the Court of Claims (the forerunner to the Federal Circuit, which would have to follow Detroit Trust or formally overrule it). For an excellent law review article that has convinced me that Detroit Trust is wrong, see Adam R.F. Gustafson (the son of Tax Court Judge Gustafson), “An ‘Outside Limit’ for Refund Suits: The Case Against the Tax Exception to the Six-Year Bar on Claims Against the Government”, 90 Or. L. Rev. 191 (2011).

As to the extra $100 of the refund sought that had not been sent to FEMA, the CFC in Hale ruled that Ms. Hale’s pleadings made no mention of why the IRS was wrong on the EITC adjustment, so she had failed to state a claim on which relief could be granted.

2013, 2015, 2016, and 2017

The court next inquired whether the refund claims and refund suit were timely as to the claims for the years 2013, 2015, 2016, and 2017. It noted that the refund claims were timely made, since they appeared on the original returns – i.e., within 3 years after the returns were filed under section 6511(a). Under section 6532(a), Ms. Hale was thus entitled to bring suit on the reduced claims any time after 6 months, unless the IRS sent her a notification of claim disallowance. In the latter case, the Ms. Hale would have had to bring suit within 2 years thereafter. The court found that the IRS had “sent Ms. Hale ‘math error notices’ using form letter 474C for tax years 2013 and 2017, a 288C letter requesting more information for tax year 2015, and a 12C letter requesting more information for tax year 2016.” Citing no case law as authority, the CFC held that none of these notices or letters constituted a notification of claim disallowance for purposes of section 6532(a), writing:

Internal guidance from the IRS suggests that—among other criteria—a notice of disallowance must inform the taxpayer of her “right to file suit” and of the “period in which suit may be filed.” Chief Counsel Advisory, IRS CCA 200203002 (Jan. 18, 2002). Notices informing taxpayers that the IRS needs more information to process a claim, along with math error notices or similar correspondence, typically fail to adequately notify taxpayers of a final adverse action or of their right to file suit within two years. Id.Form of Notice of Disallowance of a Refund Claim—Refund Suits, Fed. Tax Coordinator ¶ T-9022 (2d ed. 2019) (discussing “dual purposes” of informing taxpayer of final disallowance and of the right to sue along with applicable statute of limitations).

Here, none of the correspondence in the record pertaining to tax years 2013, 2015, 2016, and 2017 meets these criteria for effective notices of disallowance. They do not inform Ms. Hale of her right to sue or of the applicable two-year limitations period.

After concluding that it had jurisdiction, the CFC then dismissed the suit for each of these years for failure to state a claim: For 2013, Ms. Hale had apparently already been sent two refund checks exceeding her original claim. For the other years, the IRS had either reduced credits that she claimed or subtracted from her claimed refunds the self-employment tax that would apply based on the Schedules C or C-EZ that she filed with the returns. She made no allegations showing the IRS was wrong to make these adjustments.

Civil Rights and Tort Claims

Finally, the CFC also discussed certain civil rights and tort claims contained in Ms. Hale’s complaint, finding that the Tucker Act did not authorize it to consider such claims. Interestingly, although the CFC (on PACER.gov) will not allow me to see her complaint or response to the DOJ motion, it appears Ms. Hale’s claims, in part, relied on the Taxpayer Bill of Rights (not sure if the IRS version or the statutory version). I am not sure that the CFC was aware of this, since it made no mention of the Taxpayer Bill of Rights in its opinion – an opportunity wasted, but perhaps better, since I would think that a pro se person could not make a serious argument for the application of the Taxpayer Bill of Rights in court. The CFC wrote:

As noted, the government has construed Ms. Hale’s assertions concerning violations of certain alleged rights as civil rights and tortious damages claims. The Court concurs with this interpretation of Ms. Hale’s references to alleged violations of her “Right to a Fair and Just Tax System,” “Right to Quality Tax Service,” “Right to Pay no more than the Correct Amount of Tax,” “Right to be Informed,” and “Right to Finality,” as well as her allegations that the government’s actions have damaged her credit history and caused her “financial disparity.” Compl. at 4; see also Pl. Resp. Mem. (“Pl.’s Resp.”) at 99, Docket No. 13.

The Court finds that it lacks subject-matter jurisdiction over these claims. The Tucker Act serves as a waiver of sovereign immunity and a jurisdictional grant, but it does not create a substantive cause of action.

(citations omitted).

Here’s a link to Keith’s recent PT post on the Tax Court’s opinion in Moya v. Commissioner, 152 T.C. No. 11 (Apr. 17, 2019), in which it held that the IRS version of the Taxpayer Bill of Rights does not give a taxpayer any additional procedural rights in the Tax Court.

Another District Court Holds It Lacks Jurisdiction to Consider Innocent Spouse Refund Suits – at Least for Section 6015(f) Underpayment Cases

Last year, in Chandler v. United States, 2018 U.S. Dist. LEXIS 174482 (N.D. Tex. Sept. 17, 2018) (magistrate opinion), adopted by judge at 2018 U.S. Dist. LEXIS 173880 (N.D. Tex. Oct. 9, 2018) (on which Keith blogged here), a district court – relying mostly on a majority of other district courts holding that section 6015 innocent spouse relief can’t be raised as a defense in collection suits – held that section 6015 relief can’t be raised in refund suits, either. The Chandler and other courts reasoned that, by creating section 6015(e) allowing for a stand-alone Tax Court proceeding to review denials of innocent spouse relief, Congress (with one minor exception) wanted the Tax Court to be the exclusive court to consider section 6015 relief. Chandler prompted Nina Olson in her 2018 Annual Report to Congress to add to her Congressional wish list that already included an overruling of the collection opinions an overruling of Chandler as to district court refund suits considering innocent spouse relief. See my post on her report here.

Well, Chandler has a companion now: In Hockin v. United States, on May 1, a magistrate in the district court of Oregon held that, at least for section 6015(f) underpayment cases, the district court lacks jurisdiction to award innocent spouse relief in refund suits because the Tax Court, under section 6015(e), is the sole location for reviewing denials of that relief.

This ruling is particularly disappointing, since both the Lewis and Clark School of Law and Harvard tax clinics extensively briefed this issue in Hockin – probably for the first time – including discussing case law under former section 6013(e) and quoting from the legislative history of the 1998 legislation adopting section 6015 and the 2000 legislation amending section 6015(e) to add the phrase “in addition to any other remedy provided by law”. This 2000 amendment and another were intended to (1) reject confusion over the issue of whether section 6015(e) was the exclusive avenue for judicial review of IRS innocent spouse rulings and (2) clarify that refund provisions apply both “administratively and in all courts”, not just in the Tax Court.

After allowing a period for the parties to object to the ruling, the district court in the Hockin case will now review the magistrate’s opinion.

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In Hockin, the husband of the taxpayer apparently filed joint 2007 and 2008 returns while the couple were in the process of divorcing. The returns showed balances due, all attributable to the husband’s businesses. But he did not pay the balances. She now says that she never signed the returns and did not authorize them. Their divorce decree says that the husband agrees to pay all liabilities for 2007 and 2008. In a Collection Due Process hearing only involving 2008, the IRS agreed to abandon collection from the taxpayer because it concluded that she did not file a joint return for that year. The IRS does not now have a copy of the 2007 return, so it cannot be looked at to determine whether Ms. Hockin is correct that she did not sign it.

For 2007, Ms. Hockin also filed a Form 8857 seeking innocent spouse relief from the underpayment. Relief was denied, but she did not petition the Tax Court for review under section 6015(e). Thereafter, the IRS fully collected the balance of the 2007 liability from her, mostly by taking later-year refunds. Then, she filed a refund claim on an amended return, arguing that she did not file a joint return, and, if she did, she was entitled to innocent spouse relief. The case involves about $10,000 of liability.

In Ms. Hockin’s district court suit, she seeks a refund on the grounds that (1) she did not file a joint return for 2007, (2) the IRS was required to give her relief for 2007 because it had given relief for 2008 (quasi-estoppel), and (3) if she had filed a joint return for 2007, she is entitled to innocent spouse relief from what had originally been an underpayment, under section 6015(f).

The DOJ moved to dismiss the case for lack of jurisdiction under FRCP 12(b)(1). During the course of the filings on the motion, the DOJ realized that Ms. Hockin had made a statement in her refund claim that she did not file a joint return. District courts have long heard refund suits where the taxpayer claimed that he or she had not filed a joint return. See, e.g., McCord v. Granger, 201 F.2d 103 (3d Cir. 1952); Anderson v. United States, 48 F.2d 201 (5th Cir. 1931). So, the DOJ agreed that this claim should go forward in district court and changed its motion to one only for partial summary judgment. The magistrate agreed that this “no return” refund suit claim may go forward.

In the opinion, the magistrate further held that the quasi-estoppel claim cannot be heard because it was not raised in the refund claim – i.e., that the argument fell afoul of the substantial variance rule prohibiting a court from considering issues not raised in refund claims.

But, the focus of the magistrate’s opinion was on the issue of whether the district court has jurisdiction to consider section 6015(f) relief in a refund suit (or whether it has jurisdiction to consider (f) relief for underpayment cases in a refund suit – the opinion not being too clear between the two statements of the issues).

I won’t repeat all of the reasoning of the court on the section 6015(f) issue, as that part of the opinion is 14 pages in length. But, here is a synopsis:

The court notes that, even if refund suits involving innocent spouse relief had been heard under the original innocent spouse provision, section 6013(e) (in existence from 1971 to 1998), those refund suits involved relief from deficiencies, not underpayments. Section 6015(f) first allowed relief from underpayments in 1998. Thus, there was no prior history of underpayment innocent spouse refund suits until section 6015 was enacted, along with the stand-alone Tax Court review provision at section 6015(e). Thus, section 6015(e) is arguably the only statutory way to review (f) underpayment rulings by the IRS. And, it was not until 2006 that Congress specifically added subsection (f) relief to the Tax Court’s jurisdiction in stand-alone cases. There is no discussion in the 2006 legislative history of the amendment to section 6015(e) of the possibility of going to the district courts for subsection (f) refund suits. (Note, however, there is a rare case where a district court refund suit is allowed to proceed about section 6015 relief: Under section 6015(e)(3), where a section 6015(e) suit is filed in the Tax Court while a district court refund suit was already pending, the section 6015 issues are transferred over to the district court for it to consider as part of the existing suit.)

The magistrate in Hockin acknowledged that there is some legislative history in 1998 and 2000 indicating that Congress thought that district courts could and should hear section 6015 refund suits generally, but the magistrate did not find any statutory language enacted to specifically so provide and would not let legislative history confer jurisdiction on a court.

The magistrate also discussed the language added to subsection (e) in 2000 providing that the stand-alone provision was intended to be “in addition to any other remedy provided by law”, writing:

Indeed, the Conference Committee Report states:

Non-exclusivity of judicial remedy. Some have suggested that the IRS Restructuring Act administrative and judicial process for innocent spouse relief was intended to be the exclusive avenue by which relief could be sought. The bill clarifies Congressional intent that the procedures of section 6015(e) were intended to be additional, non-exclusive avenues by which innocent spouse relief could be considered.

H.R. CONF. REP. 106-1033, l 023. However, this does not make explicit that an innocent spouse claim, after denial by the Secretary, may be made in a refund suit. The “any other remedy” language does not create jurisdiction where jurisdiction did not exist prior to the 2000 amendments. When Congress enacts a specific remedy when no remedy was previously recognized, or where it was “problematic” whether any judicial relief existed at all, the remedy provided is generally regarded as exclusive. Block v. N. Dakota ex rel. Bd. Of Univ. & Sch. Lands, 461 U.S. 273,285 (1983).

The court analogized this situation to that involved in Hinck v. United States, 550 U.S. 501 (2007). In Hinck, the issue was whether refund suits could be maintained in district court over whether the IRS had abused its discretion under section 6404(e) in failing to abate certain interest incurred as a result of unreasonable IRS delays. In Hinck, the Court pointed out that, prior to 1996, no court had found that the IRS’ interest abatement decisions were subject to judicial review because Congress had given the IRS full discretion on abatement, without setting out a judicial review standard. In 1996, Congress both added a review standard (“unreasonable”) and a special provision for Tax Court review at section 6404(h). Because the new Tax Court review provision was much narrower than the general refund suit jurisdictional grant at 28 U.S.C. section 1346(a)(1), the Supreme Court held that Congress intended that the only review of interest abatement decisions was through Tax Court section 6404(h) proceedings.

The magistrate in Hockin dismissed the taxpayer’s argument that Hinck was distinguishable because there had been a history of refund suits under former section 6013(e) (and even a few under section 6015). In the magistrate’s view, the amendment of section 6015(e) in 2000 to add “in addition to any other remedy provided by law” was ambiguous, and only the 2006 amendment of section 6015(e) to allow Tax Court consideration of (f) relief was important.

The magistrate also was not persuaded to give any weight to the positions taken both by (1) the IRS in a 2000 Chief Counsel notice that all courts (including the district courts) could consider section 6015(f) relief and (2) the DOJ Tax Division Appellate Section in recent appellate cases involving untimely section 6015(e) filings arguing that the taxpayers could always pay and sue for a refund arguing for innocent spouse relief in district court. The magistrate was also not impressed by Nina Olson’s having argued since 2007 that section 6015 should be clarified to make its relief something that can be raised as a defense in a collection suit in district court. Indeed, the magistrate thought Congress’ failure to act on her request for this long telling against her interpretation of current law, writing:

[A]lthough Congress acted almost immediately to amend the legislation to provide for review in the Tax Court when alerted by the Eighth and Ninth Circuits that the Tax Court lacked jurisdiction to hear such equitable claims, Congress’ decided inaction in the face of the National Taxpayer Advocate’s concerns via yearly reports since 2007, suggests Congress intended 26 U.S.C. § 6015(e) to limit review of a stand-alone subsection (f) claim to the Tax Court.

Observations

Keith and I are not exactly disinterested about the Hockin case. We caused the tax clinic at Harvard to file an amicus memorandum supporting the taxpayer. As a result, much of the opinion of the magistrate is a direct response to what we wrote in the memorandum.

Ms. Hockin was actually represented by the Lewis & Clark School of Law Low-Income Taxpayer Clinic. A student for the clinic, John MacMorris-Adix, argued the motion before the magistrate. Because most clinics do little in district courts, not surprisingly, the Lewis & Clark clinic sought help from lawyers on its pro bono panel. The assisting lawyer was Scott Moede, who works for the City of Portland. Mr. Moede was acting in his personal capacity, though, not on behalf of the City.

I am sure that this was the best-briefed motion on section 6015 relief that any district court has yet considered. In many cases, such as Chandler, taxpayers did not even file responses to DOJ motions to dismiss the section 6015 relief claims. So, it is not surprising that the district courts seemed to just copy and paste from DOJ filings saying that there was no jurisdiction.

Readers of the Hockin opinion may also want to consider a piece of legislative history which, though quoted in the Harvard memorandum, was not included in the magistrate’s opinion. While the magistrate quotes the part of the 2000 legislative history behind adding the words “in addition to any other remedy provided by law”, the magistrate does not quote the part of that same report that accompanied the moving of the refund rules out from under 6015(e) (involving only the Tax Court suit) to a new subsection (g). The omitted paragraph reads as follows:

Allowance of refunds.—The current placement in the statute of the provision for allowance of refunds may inappropriately suggest that the provision applies only to the United States Tax Court, whereas it was intended to apply administratively and in all courts. The bill clarifies this by moving the provision to its own subsection.

H. Rep. 106-1033 at 1023 (emphasis added). This seems another strong indication that Congress thought district courts in refund suits should be able to award 6015 relief. But, this will have to be a discussion saved for a court of appeals, if the Hockin case gets that far.

And the magistrate was simply legally wrong, for purposes of the Hinck analogy, in assuming there was no way to get judicial review of (f) underpayment cases until subsection (f) was added to subsection (e) in 2006. The magistrate neglected to appreciate that Collection Due Process allowed the Tax Court to consider (f) underpayment relief as early as 1998 through the CDP “spousal defenses” language. Amending section 6015(e) in 2006 merely added a second avenue for the Tax Court to give judicial review of (f) underpayment IRS rulings.

The parties are allowed to file objections to the magistrate’s opinion in Hockin, and a district court judge will be the ultimate one ruling on the motion for the district court.

Ninth Circuit Holds Reg. Validly Overrules Case Law; Disallows Parol Evidence of Timely Mailing

In Baldwin v. United States, 2019 U.S. App. LEXIS 11036 (9th Cir. April 16, 2019), in a case of first impression in the appellate courts, the Ninth Circuit has held that a 2011 regulation under section 7502 is valid under the deference rules of Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), and Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005), and therefore it invalidates all prior case law in some Circuits (including the Ninth) holding that the common law mailbox rule can be used to prove the IRS’ timely receipt of a document by parol evidence. The Circuit reversed the district court and directed it to dismiss the case because the only evidence offered of timely mailing of a Form 1040X refund claim was the testimony of the Baldwins’ employees that they remember timely posting the envelope containing the claim by regular mail months before the claim was due – evidence that is only relevant if the common law mailbox rule still exists in the tax law. I blogged on Baldwin before the oral argument here.

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Facts

Baldwin is a tax refund suit. There, the taxpayers reported a loss on their 2007 income tax return, filed on or before the extended due date of October 15, 2008. They wished to file an amended return for 2005, carrying back the 2007 loss to generate a refund in 2005. Under section 6511(d), this had to be done by filing the amended return within three years of the due date of the return generating the loss – i.e., by October 15, 2011. The taxpayers introduced testimony of their employees that the employees mailed the 2005 amended return by regular mail on June 21, 2011 from a Hartford Post Office to the Andover Service Center. But, the IRS claimed it never received the Form 1040X.

The California district court followed Anderson v. United States, 966 F.2d 487 (9th Cir. 1992), in which the Ninth Circuit had held that the enactment of section 7502 in 1954 did not eliminate the common law mailbox rule and still allowed taxpayers to prove by parol evidence that a document not sent by registered or certified mail or a designated private delivery service was actually mailed and so was presumed to have been received by the IRS prior to the due date. The district court credited the testimony of the employees and held that the refund claim was timely filed. The court later awarded the taxpayers a refund of roughly $167,000 and litigation costs of roughly $25,000.

The DOJ appealed the loss to the Ninth Circuit, where it argued that the suit should have been dismissed because the refund claim was not timely filed. The DOJ argued that in August 2011, the IRS adopted a regulation intended to overrule some Circuit court opinions (including Anderson) that had held that the common law mailbox rule still survived the enactment of section 7502. At least one other Circuit had agreed with Anderson; Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir. 1990); but several other Circuits had disagreed and held that the common law mailbox rule did not survive the enactment of section 7502. See Miller v. United States, 784 F.2d 728 (6th Cir. 1986)Deutsch v. Commissioner, 599 F.2d 44 (2d Cir. 1979)See also Sorrentino v. Internal Revenue Service, 383 F.3d 1187 (10th Cir. 2004) (carving out a middle position).

As amended by T.D. 9543 at 76 Fed. Reg. 52,561-52,563 (Aug. 23, 2011), Reg. § 301.7502-1(e)(2)(i) provides, in relevant part:

Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated [private delivery service] . . . are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed. No other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered.

Ninth Circuit Opinion

The Ninth Circuit began its analysis with a little history: Prior to 1954, there was no timely-mailing-is-timely-filing provision in the Internal Revenue Code. That meant that the only way to timely file a document was for it to arrive at the IRS on or before the due date. At common law, there is a presumption that a properly-mailed envelope will arrive in the ordinary time for mail to go between its origin and destination. At common law, a party could bring in any evidence (including testimony) to show that the envelope likely arrived at the IRS on or before the due date.

In 1954, Congress added section 7502 to the Code. We all think of it as a provision that allows a mailing made on or before the due date to be treated as timely filed, whether or not the IRS receives the document on, before, or after the due date. But, that is not an accurate summary of the provision. In fact, subsection (a) provides, in general, that if a document is delivered to the IRS by the United States mail after the due date, then the date of the United States postmark on the envelope is deemed to be the date of delivery (i.e., filing). Other rules extend the benefits of subsection (a) to designated private delivery services and electronic filing, but only pursuant to regulations. However, subsection (c) also includes a presumption of delivery that applies in the case of use of certified or registered mail: If an envelope is sent certified or registered mail, then (1) the certification or registration is prima facie evidence that the envelope was delivered to the place to which it was addressed and (2) the date of registration or certification is deemed the date of the postmark for purposes of subsection (a).

In Anderson, the Ninth Circuit had held that subsection (c)’s presumption of delivery language (and the regulations thereunder) did not supplant the common law way to prove delivery on or before the due date. Rather, subsection (c) provided only a safe harbor for proof of delivery if certified or registered mail was used. Where ordinary mail was used, there was no statutory provision presuming or denying proof of delivery, so the common law mailbox rule could still operate to allow proof of timely mailing by any evidence.

In Baldwin, the Ninth Circuit noted that under Chevron Step 2, a court must defer to an agency’s interpretation in a regulation if that interpretation is one of the reasonable ways an ambiguous statute could be interpreted. And in Brand X, the Supreme Court held that, unless an appellate court opinion had said that the statute was unambiguous (and therefore Chevron Step 1 would deny any regulatory input), an agency could issue valid regulations overruling that appellate precedent.

In the case of the 2011 regulation under section 7502, the Ninth Circuit in Baldwin held that an interpretation that section 7502 completely supplanted the common law mailbox rule was one of the reasonable interpretations of that statute and that the Ninth Circuit had not, in its Anderson opinion, rested its holding on the unambiguous nature of section 7502’s language. Therefore, under Chevron and Brand X, the regulation barring the use of the common law mailbox rule was valid.

The taxpayers had two arguments that the Ninth Circuit quickly dismissed:

First, the taxpayers argued that there is a rule of construction that makes repeal of common law rules by statute not to be easily implied. With respect to this argument, the Ninth Circuit noted a contrary rule of construction (one that other Circuits had relied on) that when a statute speaks on an issue and makes an exception, that statutory exception eliminates all nonstatutory exceptions. The Ninth Circuit held that the subsection (c) rules presuming delivery in the case of certified or registered mail could benefit by the latter interpretive rule. Thus, these countervailing statutory rules of construction could lead to two different reasonable interpretations of the statute.

Second, the taxpayers argued that the regulation was improperly being applied retroactively, since they had claimed that they mailed the envelope in June 2011, but the regulation was only adopted in August 2011. But, the Ninth Circuit pointed out that the regulation was effective for all documents mailed after September 21, 2004 (the date the regulation was first proposed), and the court did not find that such retroactive effective date violated section 7805(b)(1)(B), which allows the IRS to make its regulations retroactive to the date they are first proposed.

Observations

Several Supreme Court Justices have recently criticized Chevron and Brand X. It is interesting that Judge Watford, who wrote the Baldwin opinion, only predicated the panel’s ruling for the IRS on the basis of reliance on those two opinions. What, then, happens if Chevron and Brand X are overruled? Will the Ninth Circuit’s precedent then revert to Anderson, which allows use of the common law mailbox rule?

Judge Watford also seems to be deliberately vague in his opinion as to the ground on which the district court should dismiss the case on remand. He does not say the dismissal should be for lack of jurisdiction (FRCP 12(b)(1)) or for failure to state a claim (FRCP 12(b)(6)). It would not much matter in this case whether the section 6511 filing deadline were jurisdictional or not, but it might matter in a future case (e.g., one where there was an argument for waiver, forfeiture, or estoppel, but not equitable tolling (see United States v. Brockamp, 519 U.S. 347 (1997) (holding the deadline not subject to equitable tolling, but not discussing whether the deadline is jurisdictional)). Indeed, Judge Watford’s Baldwin opinion really relies on section 7422(a), which requires the filing of a refund claim before a refund suit may be maintained. The opinion states that section 7422(a) also requires a timely claim. In fact, Judge Watford only writes:

The Baldwins then brought this action against the United States in the district court. Although the doctrine of sovereign immunity would ordinarily bar such a suit, the United States has waived its immunity from suit by allowing a taxpayer to file a civil action to recover “any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” 28 U.S.C. § 1346(a)(1). Under the Internal Revenue Code (IRC), though, no such action may be maintained in any court “until a claim for refund or credit has been duly filed” with the IRS, in accordance with IRS regulations. 26 U.S.C. § 7422(a); see United States v. Dalm, 494 U.S. 596, 609 (1990). To be “duly filed,” a claim for refund must be filed within the time limit set by law. Yuen v. United States, 825 F.2d 244, 245 (9th Cir. 1987) (per curiam).

Judge Watford is the author of the opinion in Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), which we blogged on here and where I was amicus. In that opinion, he held that the then-9-month filing deadline to bring a wrongful levy suit in district court is not jurisdictional and is subject to equitable tolling under recent Supreme Court case law making filing deadlines now only rarely jurisdictional. Note that his language above from Baldwin does not mention the word “jurisdictional” with regard to section 7422(a)’s requirement. Judge Watford may not be wanting to say that section 7422(a)’s administrative exhaustion requirement is jurisdictional, rather than a nonjurisdictional mandatory claims processing rule possibly subject to waiver, forfeiture, or estoppel. It is true that in Dalm (which he cites only with a “see”), the Supreme Court called the requirements of sections 7422(a) and 6511 jurisdictional with respect to a refund suit, but the reasoning of Dalm does not accord with current Supreme Court case law. In 2016, the Seventh Circuit questioned whether Dalm is still good law, though it did not reach the question, writing:

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

Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016) (some citations omitted). It was this passage from Gillespie that the DOJ cited as grounds for its need to file a post-oral argument memorandum of law in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), arguing that the section 6213(a) Tax Court deficiency petition filing deadline is jurisdictional and not subject to waiver. The DOJ won that argument in that case, but it is currently before the Ninth Circuit on the issues of jurisdictional and equitable tolling in companion cases on which we previously blogged here.

Congress Set to Enact Only Now-Unneeded Innocent Spouse Fixes, Part 2

This is the second part of a two-part post on innocent spouse legislative changes proposed to be made in the Taxpayer First Act of 2019. 

This part of the post discusses the bill’s proposed change that would override an existing IRS regulation that provides for a 2-year limit for filing a request for innocent spouse relief under section 6015(f).  Of course, the IRS has long ago abandoned enforcing that regulation limit and has issued proposed regulations that follow the proposed statutory amendment.  So, this provision is essentially unnecessary, unless you don’t trust the IRS to stick with the position that it has now maintained since 2011. 

This part of the post also details three other proposed changes to the innocent spouse section that Nina Olson has previously sought, but that, sadly, are not included in the bill.

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Background on 2-Year Rule

For a spouse to elect relief under subsection (b) or (c), the statute requires that an election be made no later than 2 years after the IRS commences collection activities. Subsection (f) equitable relief applies only if relief is not available under the other 2 subsections, but the subsection (f) contains no provision for a date by which relief under it must be requested.

In a 2002 regulation (Reg. sec. 1.6015-5(b)(1)), the IRS provided that a request for subsection (f) relief must be made no later than the same 2-year deadline applicable to elections for relief under subsections (b) or (c).

In Additional Legislative Recommendation #1 of her 2006 Annual Report to Congress, at Vol. I, pp. 540-541, Nina Olson first recommend that Congress amend subsection (f) to provide that a taxpayer may request relief thereunder at any time that the collection statute of limitations is open.

Then, in Lantz v. Commissioner, 132 T.C. 131 (2009) (en banc), the Tax Court held that Congress had deliberately spoken by its silence in not providing for a statute of limitations for requesting relief under subsection (f), and, therefore, the regulation was invalid.  

The IRS appealed Lantz and similar Tax Court rulings that followed it to various Circuits. Three Circuits promptly disagreed with the Tax Court and held that the regulation was valid.  Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010); Mannella v. Commissioner, 631 F.3d 115 (3d Cir. 2011); Jones v. Commissioner, 642 F.3d 459 (4th Cir. 2011).

Information provided to Congress by Ms. Olson in early 2011 provoked letters from Congress to the Commissioner in April 2011 asking the IRS to withdraw its regulation under subsection (f) as not in accordance with Congressional intent.

A few weeks after those letters, I had a chat with Ms. Olson in the hallway at the May 2011 ABA Tax Section meeting.  She told me that the IRS was worried that if there was no 2-year limit, then taxpayers would forever request relief under subsection (f).  I told Ms. Olson that this was not a real concern, since taxpayers would only request relief from balances due while the collection statute of limitations under section 6502 was still open and would seek refunds only while the statute of limitations for refunds under section 6511 was still open.  I told her that the situation was analogous to that for people seeking relief from penalties under section 6404(f) on account of erroneous IRS written advice. I pointed out to her that there is a regulation under section 6404(f) (Reg. sec. 301.6404-3(e)) that provides: 

An abatement of any penalty or addition to tax pursuant to section 6404(f) and this section shall be allowed only if the request for abatement described in paragraph (d) of this section is submitted within the period allowed for collection of such penalty or addition to tax, or, if the penalty or addition to tax has been paid, the period allowed for claiming a credit or refund of such penalty or addition to tax.

I suggested that such section 6404(f) regulation could be modified for a replacement section 6015(f) regulation. To my embarrassment, minutes later, in a speech she gave to the whole Tax Section, she thanked me for “solving” the Service’s Lantz regulation repeal concern.

Christine and I represented a taxpayer in a Lantz-type case, Ms. Coulter, in the Second Circuit.  After oral argument there (held the day after the Fourth Circuit opinion was filed in Jones), it appeared that the Second Circuit intended to affirm the Tax Court and create a Circuit split.  However, the Second Circuit never ruled in the Coulter case because, in July 2011, the IRS issued Notice 2011-70, 2011-2 C.B. 135, stating that the IRS would no longer argue for any 2-year limit for requesting relief under subsection (f).  The Notice stated: 

Individuals may request equitable relief under section 6015(f) after the date of this notice without regard to when the first collection activity was taken.  Requests must be filed within the period of limitation on collection in section 6502 or, for any credit or refund of tax, within the period of limitation in section 6511.

In 2013, the IRS issued proposed regulations that would incorporate the filing deadlines set out in Notice 2011-70.  REG-132251-11, 2013-2 C.B. 191.  However, those proposed regulations have not yet been finalized.

Proposed Statutory Language on 2-Year Rule Repeal

Despite the legislation probably no longer being needed, section 1203(a)(2) of the Taxpayer First Act of 2019 would amend section 6015(f) to add a new paragraph (2) reading as follows:

(2) LIMITATION. — A request for equitable relief under this subsection may be made with respect to any portion of any liability that —

(A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or

(B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.

Other Needed Statutory Fixes Not Adopted

In prior posts here and here, I have noted that Ms. Olson has also requested that Congress amend section 6015 to:

  1. Make the subsection (e) filing deadline nonjurisdictional and subject to equitable exceptions. NTA 2017 Annual Report to Congress, Legislative Recommendation #3, at Vol. I, pp. 283-292.  This change would result in the overruling of three recent opinions where employees of the IRS accidentally misled taxpayers into filing late by telling the taxpayers the wrong date for the 90th day.  In the cases (where the Harvard clinic was counsel for the taxpayers), the taxpayers argued that the subsection (e) filing deadline is not jurisdictional and is subject to estoppel and equitable tolling.  The appeals courts all held that the filing deadline is jurisdictional, so cannot be subject to equitable exceptions.  Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017); and Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018).
  2. Clarify that section 6015 relief can be raised in district court collection suits brought by the DOJ. NTA 2007 Annual Report to Congress, Additional Legislative Recommendation #3, at Vol. I, pp. 549-550.  This change would overrule a number of district court opinions that have held that they lack jurisdiction to give section 6015 relief in such suits.  See, e.g., United States v. Elman, 110 AFTR 2d 2012-6993 (N.D. Ill. 2012); United States v. LeBeau, 109 AFTR 2d 2012-1369 (S.D. Cal. 2012), and United States v. Stein, 116 AFTR 2d 2015-6504 (W.D. Ky. 2015) 
  3. Clarify that section 6015 relief can be raised in district court and Court of Federal Claims refund suits brought by taxpayers. NTA 2018 Annual Report to Congress, Legislative Recommendation #4, at Vol. I, pp. 387-391.  This change would overrule the district court magistrate’s opinion in Chandler v. United States, 2018 U.S. Dist. LEXIS 174482 (N.D. Tex. 2018), adopted by district court at 2018 U.S. Dist. LEXIS 173880 (N.D. Tex. 2018), which held that district courts lack jurisdiction to consider section 6015 relief in tax refund suits.

It is unfortunate that these more urgent fixes to the statute have been ignored.  I wonder, though, if the reason that these additional proposals have been ignored is that they are opposed by the IRS, but the changes proposed for the Taxpayer First Act of 2019 have not been so opposed (because, really, not changing current IRS practice)?  It would be unfortunate if the Congress is giving the IRS veto power over good ideas to amend section 6015.

Congress Set to Enact Only Now-Unneeded Innocent Spouse Fixes, Part 1

Sometimes, Congress drives me batty.  Its latest silliness is proposing to resolve legislatively two formerly-contested issues under the section 6015 innocent spouse provisions in the taxpayer-favorable ways that the courts and the IRS already had settled those issues many years ago.  

Section 1203 of the new Taxpayer First Act of 2019, as introduced in both houses, proposes to modify section 6015 in two ways: (1) It would codify judicial holdings that reviews of IRS determinations of equitable relief under subsection (f) are de novo as to scope and standard, and (2) It would amend subsection (f) to codify the IRS notice from 2011 that allows essentially unlimited time to request relief — effectively overruling the 2-year limit for requesting such relief contained in Reg. Sec. 1.6015-1(b)(5).  These are proposals that Nina Olson had long ago sought in prior annual reports to Congress (in 2011 and 2006, respectively). The House bill, H.R. 1957, was marked up in the Ways & Means Committee on April 2.  The Senate bill, S. 928, has been introduced by Senator Grassley, the Chair of the Finance Committee, but has not yet been marked up.

Sadly, however, the Taxpayer First Act of 2019 will not also amend section 6015, as Nina Olson has also asked in her annual reports, (1) to make the subsection (e) filing deadline nonjurisdictional and subject to equitable exceptions and (2) to clarify that section 6015 relief can be raised in district court collection suits brought by the DOJ and in district court and Court of Federal Claims refund suits brought by taxpayers. The latter changes would actually modify current case law.

In this first of a two-part post, I will only discuss the scope and standard of review modification.

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Background on Trial Scope and Standard

I apologize to older PT readers who vividly recall the battles described below, but since many of the events happened a decade ago, younger PT readers may be unaware of the battles and the number of en banc Tax Court opinions that formed parts of those battles.  Below is my own description of the background, but you can also find the Joint Committee on Taxation’s description of the background at “Description of H.R. 1957, The ‘Taxpayer First Act of 2019’”, JCX-15-19 (Apr. 1, 2019).

Shortly after the section 6015 innocent spouse provision was enacted in 1998, the courts wrestled with the issue of what is the standard of judicial review under the equitable relief subsection, (f). While the courts and the IRS readily agreed that the standard of judicial review of determinations under subsections (b) and (c) is de novo, the courts decided that the standard of judicial review of determinations under subsection (f) is abuse of discretion. See, e.g., Cheshire v. Commissioner, 282 F.3d 326, 338 (5th Cir. 2002) (in which section 6015(b), (c), and (f) relief were raised as defenses in a Tax Court deficiency proceeding brought under section 6123(a)).  

There was also litigation over whether the Tax Court, in a stand-alone innocent spouse proceeding brought under section 6015(e), had jurisdiction to rule on subsection (f) relief and, if so, was the court limited to reviewing the administrative record, or did it do a trial de novo in which any relevant evidence could be introduced?

In Ewing v. Commissioner, 118 T.C. 494, 498-507 (2002) (en banc), the Tax Court held that it had jurisdiction to decide subsection (f) relief in a proceeding involving relief sought from an underpayment brought under subsection (e).  In a later opinion in the case, the Tax Court also held that the scope of such a proceeding under (f) was the same as that under subsections (b) and (c) — a trial de novo as to evidence — even though the standard of review under subsection (f) was abuse of discretion. 122 T.C. 32 (2004) (en banc).

Ewing was vacated by the Ninth Circuit because that court held that the Tax Court lacked jurisdiction to make subsection (f) determinations in subsection (e) stand-alone proceedings. 439 F.3d 1009 (9th Cir. 2006). Almost immediately thereafter, the Eighth Circuit agreed with the Ninth Circuit; Bartman v. Commissioner, 446 F.3d 785 (8th Cir. 2006); and the Tax Court reversed course on the jurisdictional question and decided to follow those appellate rulings. Billings v. Commissioner, 127 T.C. 7 (2006) (en banc).

In response, in December 2006, Congress amended subsection (e) to explicitly give the Tax Court jurisdiction to consider subsection (f) relief in stand-alone proceedings.

Thereafter, in Porter v. Commissioner (Porter I), 130 T.C. 115 (2008) (en banc), the Tax Court again held that relief under subsection (f) in a proceeding under subsection (e) was to be determined after a trial de novo as to evidence. And, the following year, in Porter v. Commissioner (Porter II), 132 T.C. 203 (2009) (en banc), the Tax Court held that, when Congress amended the statute in 2006, Congress also intended that henceforward the standard of judicial review under subsection (f) — whether in subsection (e) or deficiency proceedings — should be de novo.

The IRS challenged the rulings of both Porter I and II, not by appealing that case, but by appealing rulings in two other cases. However, in Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009), relying on the reasoning of Porter I, the Eleventh Circuit held that a proceeding under subsection (e) concerning relief under subsection (f) should be de novo as to evidence admitted. (In Neal, which was argued before the Tax Court decided Porter II, the parties and the court continued to assume that the standard of review in such cases was for abuse of discretion.  See, id., at 1276.)  

And, in Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013), the Ninth Circuit both (1) agreed with the Eleventh Circuit in Neal and the Tax Court in Porter I and held that the scope of review of determinations under subsection (f) was now de novo and (2) agreed with the Tax Court in Porter II that the standard of review was also de novo.

In 2011, Nina Olson asked Congress to amend section 6015 to codify the rulings in Porter I and IINTA 2011Annual Report to Congress, Legislative Recommendation #4, at Vol. I, pp. 533-536.

In 2013, the IRS announced that it would no longer contest the rulings in Porter I and II.  Notice CC-2013-011, Litigating Cases that Involve Claims for Relief from Joint and Several Liability Under Section 6015 (June 7, 2013).

However, just “to eliminate any ambiguity and preclude future changes in the IRS’s litigating position”, Nina Olson has continued to call for a legislative codification of the Porter I and II rulings — most recently in her Purple Book accompanying her 2018 Annual Report to Congress, pp. 91-92.

Proposed Statutory Language on Trial Scope and Standard

Section 1203(a)(1) of the Taxpayer First Act of 2019 would amend section 6015(e) to add at the end thereof a new paragraph (7) reading as follows:

(7) STANDARD AND SCOPE OF REVIEW. — Any review of a determination made under this section shall be reviewed de novo by the Tax Court and shall be based upon —

(A) the administrative record established at the time of the determination, and

(B) any additional newly discovered or previously unavailable evidence.

NTA Report Seeks Legislation to Address Refund Suit Innocent Spouse Jurisdiction and Full Payment Rule Problems

The National Taxpayer Advocate’s 2018 annual report to Congress seeks legislation to address two refund suit issues that have been extensively discussed on PT: (1) legislation clarifying that a tax refund suit in district court or the Court of Federal Claims may consider innocent spouse relief under § 6015, and (2) legislation repealing or substantially modifying the refund suit full payment rule established by Flora v. United States, 362 U.S. 145 (1960).

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Section 6015 as a Defense in Collection Suits

Since 2007, the NTA has been alerting Congress to numerous district court holdings that the Tax Court has exclusive jurisdiction to make rulings concerning § 6015 relief, such that § 6015 relief may not be considered by the district courts as a defense in government-brought suits for collection under § 7402 or § 7403. NTA 2007 Annual Report to Congress, Vol. I, p. 631; NTA 2008 Annual Report to Congress, Vol. I, p. 525; NTA 2009 Annual Report to Congress, Vol. I , pp. 494-495; NTA 2010 Annual Report to Congress, Vol. I, pp. 504-505; NTA 2012 Annual Report to Congress, Vol. I., pp. 648, 652; NTA 2015 Annual Report to Congress, Vol. I, pp. 532-536. For a partial listing of many such district court rulings, see Keith’s post here, which links to a 2015 opinion in United States v. Stein. Footnote 1 in Stein cites most cases so holding decided up to 2015. Keith also did a post on this issue in 2018, when another district court held to the same effect. The 2018 post can be found here. Interestingly, no appellate court has been forced to face this issue, so the issue is still one of first impression there. Keith and I have been looking for a test case to bring, but the two district court cases that we have considered to date were not good candidates (for reasons I won’t get into here).

In her 2013 report, the NTA wrote:

As the National Taxpayer Advocate has pointed out, these district court decisions are inconsistent with the statutory language of IRC § 6015, which does not give the Tax Court exclusive jurisdiction to determine innocent spouse claims, but rather confers Tax Court jurisdiction “in addition to any other remedy provided by law.” Nothing in IRC § 6015 prevents a district court from determining, in a collection suit, whether innocent spouse relief is available. . . . Moreover, the refusal to allow a taxpayer to raise IRC § 6015 as a defense in a collection suit may create hardship because a taxpayer may be left without a forum in which to raise IRC § 6015 as a defense before losing her home to foreclosure by the IRS.

NTA 2013 Annual Report to Congress, Vol. I, pp. 416-417.

The NTA has also repeatedly asked that, if the courts do not correct their rulings, Congress adopt legislation that would make it even more clear that § 6015 relief is available as a defense in a district court collection suit. NTA 2007 Annual Report to Congress, Vol. I, pp. 549-550; NTA 2009 Annual Report to Congress, Vol. I, pp. 378-380; NTA 2010 Annual Report to Congress, Vol. I, p. 378-382; NTA 2017 Annual Report to Congress, Purple Book, p. 53.

The NTA collected her most important legislative recommendations (both those from the current year and those from prior years) into a Purple Book that accompanied her 2017 annual report to Congress. In the Purple Book accompanying her 2018 report, she repeats this legislative recommendation here as number 53 of her 58 collected legislative proposals.

Section 6015 Relief Consideration in Refund Suits

But, she also discusses, in the main body of her 2018 report, 10 new legislative proposals, one of which is to clarify that district courts and the Court of Federal Claims also have jurisdiction to consider § 6015 relief in tax refund suits. This clarification is necessary, since the DOJ has been arguing, in two recent refund suits, that the district courts lacked jurisdiction to rule on § 6015 relief because only the Tax Court has jurisdiction to rule on § 6015 relief – citing the DOJ victories in the collection suits.

Keith had blogged here when a district court last year in Chandler v. United States had held that it lacked jurisdiction to consider § 6015 relief in a refund suit. The NTA cites Chandler as the reason provoking her recommendation here.

What the NTA does not mention is that the same issue is currently presented in a district court case, Hockin v. United States, on which I recently blogged here. In my post on Hockin, I noted that the tax clinic at Harvard had submitted an amicus memorandum. My post also had links to the original DOJ motion to dismiss for lack of jurisdiction, the Harvard clinic’s amicus memorandum, and the taxpayer’s response to the motion. On February 26, the taxpayer submitted a supplementary response, which can be found here.  One of the major reasons for this supplementary response was that the taxpayer wanted to show the court that the IRS had issued a Chief Counsel Notice in 2000 in which the IRS wrote:  “The Service now agrees that the Tax Court, the United States district courts (including the bankruptcy courts) and the Court of Federal Claims have jurisdiction to consider whether the Service abused its discretion in denying equitable relief under I.R.C. § 6015(f).”  This Notice had not been mentioned in prior filings in the Hockin case.  (Of course, the DOJ Tax Division Trial Section is not bound by the IRS’ view, but this tends further to undermine the Trial Section’s argument in Hockin because the DOJ Tax Division Appellate Section has also recently agreed with the IRS.)

On March 12, the DOJ in the Hockin case will file its reply to the amicus memorandum and the taxpayer’s original and supplemental responses.  On April 25, 2019, John MacMorris-Adix, a student in the Low-Income Taxpayer Clinic at Lewis & Clark Law School in Portland, Oregon, will argue the Hockin motion on behalf of the taxpayer before a magistrate in the United States District Court for the District of Oregon..

Chandler was never appealed, but a loss on the same issue in Hockin is likely to be appealed by the taxpayer to the Ninth Circuit.

Repealing or Modifying the Flora Refund Suit Full Payment Rule

The Supreme Court in Flora held that in order for district courts and the Court of Federal Claims to have jurisdiction in a tax refund suit, the taxpayer must have paid the disputed tax in full. In Flora, the IRS had sent a notice of deficiency proposing an increase in income taxes. Rather than petitioning the Tax Court, the taxpayer paid part of the deficiency, filed a refund claim, and later brought a refund suit on that claim in the district court. Part of the rationale of the Supreme Court in so holding in Flora was that the taxpayer could have fought the deficiency, prepayment, in the Tax Court, so should not be heard to complain about the full payment rule. And, in a later Supreme Court case, the Solicitor General told the Court that the DOJ’s position was that the Flora full payment rule only applied when the taxpayer forwent filing a permissible Tax Court deficiency suit.

Les and I did a two-part post last year here and here on the Second Circuit’s Larson opinion from last April. In Larson, a tax shelter promoter had been assessed (jointly with other promoters) a penalty under § 6707 of about $160 million. The other promoters paid about $100 million of the penalty, and Larson paid $1 million and contended that he could not pay the balance. Larson brought a refund suit, and the court held that, even in the case of this assessable penalty, where no Tax Court prepayment suit was ever possible, Flora applies to require full payment before a refund suit may be maintained.

Keith is currently working on a law review article on the unfairness of the full-payment rule. The Harvard clinic had also submitted an amicus brief in Larson that argued the full payment rule should not apply to refund suits involving assessable penalties. Long ago, I had published an article, “Let the Poor Sue for Refund Without Full Payment”, 125 Tax Notes 131 (Oct. 5, 2009), in which I proposed that the full payment rule not apply where the taxpayer had already paid a part of the disputed liability and the taxpayer was current on an installment agreement to pay the rest or was in currently not collectible status. In April 2018, the Harvard clinic also submitted comments to Congress on the “Taxpayer First Act.” A link to the complete comments can be found within a blog post that Keith did on the proposed act here. One of the comments proposed that the Tax Court be given jurisdiction to review assessable penalties prepayment.

Acknowledging that her proposals were inspired, in part, by Larson and analogous to those made by Keith, the Harvard tax clinic, and me, in her 2018 report to Congress here, the NTA summarizes her legislative proposals regarding the full payment rule as follows (footnotes omitted):

A simple solution would be to repeal the full payment rule. If Congress prefers a more tailored approach to improve access to judicial review, the National Taxpayer Advocate recommends Congress:

  1. Amend 28 U.S.C. § 1346(a)(1) to clarify that full payment of a disputed amount is only a prerequisite for jurisdiction by district courts and the U.S. Court of Federal Claims if the taxpayer has received a notice of deficiency. If enacted, taxpayers who are subject to assessable penalties would not need to pay them in full before filing suit in a district court or the Court of Federal Claims.
  2. Amend 28 U.S.C. § 1346(a)(1) to clarify that a taxpayer is treated as having fully paid a disputed amount for purposes of the full payment rule at the earlier of when the taxpayer has paid some of it (including by offset) and either (a) the IRS has classified the account as currently not collectible due to economic hardship, or (b) the taxpayer has entered into an agreement to pay the liability in installments. If enacted, taxpayers who cannot afford to pay would have the same access to judicial review as those who can (e., the option to file suit in a district court or the U.S. Court of Federal Claims).
  1. Amend IRC § 6214 to authorize the U.S. Tax Court to review liabilities where the taxpayer has not received a notice of deficiency (g., assessable penalties) in a manner that parallels the deficiency process. In addition, allow the IRS to assess and collect liabilities only after any such review is complete or the period for filing a Tax Court petition has expired. Alternatively, Congress could expand the Tax Court’s jurisdiction to review liabilities in connection with CDP appeals when the taxpayer has not received a notice of deficiency. These changes would authorize review of assessable penalties by the Tax Court even if the taxpayer had an opportunity for an administrative appeal.