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.

DOJ Misinfoms District Court on IRC 6015(f) Relief Filing Deadline

Sometimes, I am amazed at what DOJ attorneys don’t know about tax procedure.  Once, I wrote a post on how a court misapplied the amount lookback period of IRC 6511(b)(2)(A) when a refund claim was mailed before the end of the filing deadline but was received by the IRS afterward.  The DOJ in that case had misled the court by not citing the relevant case law and regulations.  I brought the error to the attention of the taxpayer’s attorney, who got the court to immediately reverse its holding and scold the DOJ for not citing the relevant authority.

Well, the DOJ has done it again:  In a collection suit brought against a husband and wife, where the wife has raised IRC 6015 innocent spouse relief as a defense, United States v. Weathers, Docket No. 5:21-cv-5012 (W.D. Arkansas, 8/10/22), not only did the DOJ get the court to follow likely-incorrect district court holdings saying that IRC 6015 relief cannot be raised in a collection suit, but the IRS persuaded the court that it would be too late for the taxpayer to now file a Form 8857 seeking such relief, citing still-current Reg. 1.6015-5(b) and the opinion in Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010) (holding that regulation valid to the extent that it imposes a 2-year limit after collection activity has begun to seek relief under IRC 6015(f)).  While it is true that the statutes impose the 2-year rule for requesting relief under subsections (b) and (c), the regulation, as applied to relief under subsection (f) was abrogated by an amendment to section 6015(f) in 2019 that provides that a taxpayer who hasn’t paid an assessment can file a request for subsection (f) relief at any time while the statute of limitations on collection is still open.  If a collection suit is in process, then the statute of limitations on collection must still be open.

I contacted the taxpayers’ attorney to alert her to the revised statute, but she says that she already brought this information to the attention of the court.  I also suggested to her that the wife immediately file a Form 8857 because, if the wife does so, the district court suit can’t continue against the wife.  IRC 6015(e)(1)(B)(i) prohibits the IRS from levying or commencing or prosecuting a suit for collection of the liability involved in the Form 8857 while the Form 8857 is being considered, including during any subsequent Tax Court suit.  I expect that Form 8857 to be filed very shortly.

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I am not surprised that the district court held that it lacked jurisdiction to consider IRC 6015 relief in a collection suit, since as far as I am aware, all district courts to have considered the issue have held that only the Tax Court can consider IRC 6015 relief.  No appellate court has considered the issue, however, and at least one appellate court noted that the DOJ Appellate Section lawyers conceded that a refund suit could be filed in district court where a taxpayer late-filed a Tax Court IRC 6015(e)(1)(A) stand-alone suit that was dismissed for lack of jurisdiction.  The counter-argument to the district court opinions, to which Nina Olson and various tax procedure professors and former professors agree, is that under former IRC 6013(e) (the innocent spouse statute up to 1998), the courts had considered innocent spouse relief in (1) collection cases in district court, (2) refund cases in district court, (3) deficiency cases in Tax Court, and (4) cases in bankruptcy courts.  In 2000, Congress amended IRC 6015 to make clear that the provision of IRC 6015(e)(1)(A) authorizing a Tax Court stand-alone suit is “[i]n addition to any other remedy provided by law”. 

We did a post in September 2019 on the Hockin district court opinion that held that it had jurisdiction to consider IRC 6015(f) relief in a refund suit.  But, we had also done a post in May 2019 on a contrary district court opinion in Chandler.  The IRS settled Hockin, so the jurisdictional issue never went up to the Ninth Circuit, as we had hoped it would.

And, last year, we noted in a post on the Bowman case that the only two bankruptcy courts to have addressed the issue have ruled that the bankruptcy courts have jurisdiction to consider IRC 6015 relief.

I am not surprised that the DOJ cited the uniform district court rulings holding the district courts to lack jurisdiction to decide IRC 6015 relief in collection cases.  But, what really shocked me about the Weathers case is the following passage from the DOJ’s motion for summary judgment:

Furthermore, as explained above, to qualify for relief under § 6015, a taxpayer must first present an administrative claim to the IRS within two years of the date on which the IRS first began collection activity against the taxpayer claiming innocent spouse relief. 26 U.S.C. § 6015(b)(1)(E), (c)(3)(B) and 26 C.F.R. § 1.6015-5(b) (setting a two-year statute of limitations for 26 U.S.C. § 6015(f)); Lantz v. Comm’r, 607 F.3d 479 (7th Cir. 2010) (upholding the two-year statute of limitations for relief under § 6015(f)); Jones v. Comm’r, 642 F.3d 459, 465 (4th Cir. 2011) (same). The regulations define collection activity as including a Section 6330 notice, which is a statutory notice of intent to levy. 26 C.F.R. § 1.6015-5 (b)(2)(ii). Melissa Weathers received notification of a levy as early as August 12, 2019, more than two years ago. (Statement of Facts “S.O.F.” ¶ 13; Exhibit 107, Final Notice of Intent Levy attached to Beatriz Saiz Declaration (“Saiz Dec.”); see also Exhibits 101-106, certified Forms 4340 attached to Castor Dec. 1). Therefore, not only does this Court lack subject matter jurisdiction of her purported innocent spouse defense, but she is precluded from seeking innocent spouse relief before the IRS.

PT readers of a certain age will remember the huge uproar that the Lantz and Jones opinions generated in Congress and the IRS’ July 2011 capitulation in Notice 2011-70 that it would no longer enforce the 2-year filing deadline contained in the regulation as applied to IRC 6015(f) relief.  In July 2019, Congress also amended IRC 6015(f) to provide a new paragraph (2) conforming to the Notice and reading:

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.

How could the DOJ attorneys not know that the Lantz and Jones cases and the regulation were all legislatively overruled?  The attorney for the wife in Weathers says she pointed this out in her papers (though I haven’t looked through her papers).  Yet the court, borrowing from the DOJ motion, wrote:

Finally, as to Melissa’s request that these proceedings be stayed to permit her time to file an administrative claim with the IRS, such a stay would be exceedingly inefficient. Moreover, Melissa has yet to pursue the defense before the IRS, and it appears that the time to raise the defense has passed. See C.F.R. § 1.6015-5(b) (noting that to request innocent spouse relief under the provisions of § 6015(b), (c), and (f), “a requesting spouse must first file Form 8857 or other similar statement with the Internal Revenue Service no later than two years from the date of the first collection activity against the requesting spouse . . ., with respect to the joint tax liability”) (emphasis added); Lantz v. C.I.R., 607 F.3d 479, 482-83 (7th Cir. 2010) (rejecting argument that equitable relief under § 6015(f) carries with it a ten-year limitations period, as opposed to a two-year period).

To avoid this misreading, it would certainly have helped if the IRS had finalized its August 12, 2013 proposed regulations under IRC 6015 (REG-132251-11, 78 FR 49242) that mimicked Notice 2011-70 and the later Congressional amendment.  Keith blogged on those proposed regulations here.  The IRS proposed more regulations under IRC 6015 on November 20, 2015 (REG-134219-08, 80 FR 72649), which I blogged about here and here.  I recall that Keith and I submitted comments to at least one set of those proposed regulations (perhaps both).  Considering the tens of thousands of taxpayers who seek IRC 6015 relief each year, I think it a scandal that the Treasury hasn’t yet finalized either of those proposed regulations.  I think it no excuse that the proposed regulations would need to be modified to reflect statutory changes from 2019.  It’s been more than 3 years since those statutory changes, and I don’t think the IRS has proposed any regulations to reflect the 2019 statute.

We will follow developments in the Weathers case.  I have pointed out to the wife’s attorney that in a prior district court case, Dew, where a magistrate originally held that the court lacked IRC 6015 jurisdiction and the taxpayer responded by filing a Form 8857 before the district court considered the magistrate’s holding, the DOJ had to concede that, under the collection suspension filing provision at IRC 6015(e)(1)(B)(i), the case against the taxpayer now could not go forward.  I attach the DOJ filing in Dew, making that concession.

Another Update on Boechler Follow-on Litigation – Part 2

This is Part 2 of my post-Boechler litigation update.  Part 1, involving deficiency litigation, ran on August 1, 2022, and can be found here

Today’s post addresses what is happening in the many CDP cases (including Boechler) that are before the courts where the IRS had argued to the Tax Court that the cases should be dismissed for lack of jurisdiction on account of late filing.  As I noted in my Part 1 introduction, the courts have not yet issued any rulings in CDP cases about whether equitable tolling applies on the facts of any case, and I expect we won’t see the first such ruling until 2023.

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Boechler

The taxpayer in Boechler did not put into the record any information as to why it filed late and so deserved equitable tolling.  In its opinion dated April 21, 2022, the Supreme Court remanded the case to the Eighth Circuit to address whether equitable tolling applied on the facts.  There is a May 23, 2022, entry on the Tax Court docket sheet for Boechler (Docket No. 18578-17L) stating, “U.S.C.A. 8th Circuit mandate is recalled, and case is reopened”.  But there have been no further filings in the case in the Tax Court since that date. 

Since the IRS moved to dismiss Boechler before the IRS filed an answer, the next step in the case will be for the IRS to file an answer in which, if it wants, it will plead late filing as a statute of limitations defense.  Tax Court Rule 39 provides that statute of limitations defenses and equitable arguments are “special matters” that the parties must plead.  If the IRS in its answer raises a statute of limitations defense, the taxpayer will have to respond by filing a reply in which the taxpayer pleads equitable tolling and sets out some facts in support. 

It is far from clear that Boechler will ever generate a ruling on whether the facts therein justify equitable tolling.  Recall that parties at any time can settle non-jurisdictional issues, such as late filing or the merits.  My hunch is that the Boechler case settles on remand after the IRS attorney for the first time looks at the taxpayer’s proof that it filed W-2s with the Social Security Administration.  Boechler merely involves a penalty for alleged non-filing with that agency.

Castillo

On May 11, 2022, Les did a post on a district court opinion in Castillo.  In that case, the IRS mailed out a CDP notice of determination to the taxpayer and a copy to the taxpayer’s former POA, but not to her current POA.  USPS records reflect that the notice was never delivered to the taxpayer (it’s still listed as “in transit”), and if the prior POA received his copy of the notice, he never alerted the taxpayer or the current POA. 

The current POA is Elizabeth Maresca, the director of the tax clinic at Fordham.  She was puzzled why she hadn’t seen the notice of determination that she had been expecting, so she ordered a transcript of account and discovered thereon an entry for the issuance of such a notice many months before.  Within 30 days after seeing the transcript (but still not having yet seen a copy of the notice), Elizabeth filed a Tax Court petition and sought equitable tolling of the filing deadline.  She also brought suit against the government in district court for the IRS’ wrongful disclosure of tax information to the prior POA.  Les’ post concerns that wrongful disclosure suit.

The IRS in the Castillo Tax Court case (Docket No. 18336-19L) initially filed an answer.  After the court brought to the IRS’ attention the probable late filing of the petition, the IRS then filed a motion to dismiss for lack of jurisdiction.  The Tax Court then dismissed the case for lack of jurisdiction, and Ms. Castillo appealed to the Second Circuit (Docket No. 20-1635).  In the Second Circuit, the parties briefed the issue of whether the CDP petition filing deadline is jurisdictional or subject to equitable tolling, but then asked the Second Circuit to hold the case in abeyance pending the Supreme Court’s ruling in Boechler

Five days after the Supreme Court issued its Boechler ruling, Ms. Castillo moved the Second Circuit to rule by summary reversal, that her Tax Court petition was timely under equitable tolling and to remand the case to the Tax Court for it to consider the merits of her CDP arguments.  On April 29, 2022, the DOJ responded to the motion and agreed that Boechler applied and that the case should be remanded to the Tax Court, but the DOJ argued that the Tax Court, in the first instance, should decide whether the facts justified equitable tolling.

On August 2, 2022, a 3-judge motions panel of the Second Circuit (with one judge mysteriously recusing himself) issued an order vacating the Tax Court’s dismissal order, denying summary reversal, and remanding the case to the Tax Court “for further proceedings in light of the Supreme Court’s decision in Boechler”.

The Tax Court has long held that non-receipt of a properly-addressed notice of deficiency during the 90-day period to file is no excuse for late filing a Tax Court petition, and all those courts of appeal to have faced the issue have agreed.  See, e.g., Guthrie v. Sawyer, 970 F.2d 733, 737 (10th Cir. 1992); Follum v. Commissioner, 128 F.3d 118, 120 (2d Cir. 1997); United States v. Goldston, 324 F. App’x 835, 837 (11th Cir. 2009) (per curiam) (collecting cases).  In Weber v. Commissioner, 122 T.C. 258 (2004), the Tax Court extended this holding to cover properly-addressed CDP notices of determination not received during the 30-day period to file. 

In her initial Tax Court filings and in the Second Circuit briefing, Ms. Castillo argued that, based on legislative history and the structure of CDP, it was wrong of the Tax Court to extend the deficiency precedent to CDP.  I think that for Ms. Castillo to win on remand, she will also have to get the Tax Court to overrule Weber.  In the Second Circuit, The Center for Taxpayer Rights’ amicus brief was devoted entirely to expanding upon the anti-Weber argument.  While the Second Circuit had once, in an unpublished opinion, followed Weber; Kaplan v. Commissioner, 552 Fed. Appx. 77 (2d Cir. 2014); it did so without discussing whether Congress might have wanted a different rule in CDP cases from the rule in deficiency cases.  And Kaplan was litigated by a pro se taxpayer who never argued that Weber was wrongly decided.  The Weber issue has not yet been addressed in any published opinion of any Circuit court. 

The remand order says nothing about this anti-Weber argument.  I presume that the anti-Weber argument can be considered by the Tax Court under the terms of the Second Circuit’s remand order, but I am not 100% certain, as the order makes no reference to the argument.

In Part 1 of this post, I discussed the Culp case, which is a notice of deficiency case where the taxpayers did not receive the notice during the 90-day period to file.  In their brief to the Third Circuit, the Culps go farther and argue that the deficiency precedent should no longer survive Boechler, since there is precedent outside the tax area that non-receipt or late receipt of governmental “tickets” to court are circumstances beyond the plaintiff’s control that can justify equitable tolling.  See, e.g., Checo v. Shinseki, 748 F.3d 1373 (Fed. Cir. 2014) (en banc) (120-day period to file in the Court of Appeals for Veterans Claims); Kramer v. Commissioner of Soc. Sec., 461 Fed. Appx. 167 (3d Cir. 2012) (60-day period in 42 U.S.C. § 405(g) to challenge denial of Social Security disability benefits in district court).

Amanasu Environment Corp.

 In Amanasu Environment Corp. v Commissioner, Docket No. 5192-20L, on December 13, 2019, the IRS issued a CDP notice of determination to a taxpayer having an address in Vancouver, British Columbia.  Presumably because this was international mail, records of the USPS and Canada Post show that the taxpayer did not receive the notice until January 18, 2020 – several days after the 30-day Tax Court petition filing deadline passed.  On March 13, 2020, the taxpayer mailed a petition to the Tax Court, accompanied by a request for New York City as the place of trial.  On March 17, 2020, the Tax Court received and filed the petition and request.  On September 2, 2020, the IRS surprisingly filed an answer in the case.  (The initial filing of answers in the CDP cases of Castillo and Amanasu and the deficiency case of Gruis — discussed in Part 1 of this post — shows, among other things, how often IRS lawyers miss late filing of petitions.)  On November 19, 2020, the IRS woke up and moved to dismiss the case for lack of jurisdiction for late filing. 

Frank Agostino represents the taxpayer, having picked up the case at a New York City calendar call.  Frank responded to the motion to dismiss by arguing that the CDP filing deadline is not jurisdictional and is subject to equitable tolling and should be tolled in this case.  The Tax Court held the motion in abeyance pending the ruling in Boechler.  On May 18, 2022, Judge Carluzzo issued an order, reading in full:

For the reasons set forth in Boechler, P.C. v. Commissioner, No. 20-1472 (U.S. April 21, 2022), it is

ORDERED that respondent’s motion to dismiss for lack of jurisdiction, filed November 19, 2020 is denied.

It is further ORDERED that jurisdiction in this case is no longer retained by the undersigned.

It is further ORDERED that this case is restored to the general docket for trial or other disposition.

On June 22, 2022, the IRS submitted an unopposed motion for leave to file an amendment to its answer in which it raised the statute of limitations defense.  On July 22, 2022, the Tax Court granted the motion.  Frank will be filing a reply to the amendment to the answer, raising equitable tolling as the taxpayer’s defense to the IRS statute of limitations defense.  Since no one has ever seen what such an amendment to answer pleading a statute of limitations defense on account of a petition’s late filing looks like, I attach a copy of the amendment to answer here, courtesy of Frank.

Myers

The filing deadline under IRC 7623(b)(4) for a Tax Court whistleblower award petition was held not jurisdictional and subject to equitable tolling in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019).  However, as in CDP, to date, the Tax Court has not issued a ruling on whether equitable tolling applies on the facts of Myers or any other such whistleblower award case. 

It is my understanding that the Tax Court held off on making any ruling on equitable tolling in Myers, just in case the Supreme Court ruled for the IRS in Boechler.  Had the Supreme Court ruled for the IRS in Boechler, effectively, that would likely have overruled the Myers opinion, since the two filing deadline statutes are worded so similarly. 

In June 2020, the IRS filed an amended answer raising late filing as a statute of limitations defense, and the taxpayer filed a reply seeking equitable tolling.  In November 2020, the IRS moved for summary judgment that the facts alleged in the reply do not give rise to equitable tolling.  That motion is currently pending before Judge Ashford.

Other Cases

By an order dated September 30, 2021, the Supreme Court agreed to hear Boechler.  Shortly thereafter, the Tax Court stopped dismissing late-filed CDP cases for lack of jurisdiction, pending the Supreme Court’s ruling in Boechler

In May and June 2022, after the Supreme Court decided Boechler, the Tax Court issued orders in all of the cases where the motions had been held in abeyance.  There were about 30 such orders, and they all look like the terse order Judge Carluzzo issued in Amanasu (which was one of the 30-or-so cases). 

That there were only about 30 CDP cases with this issue over 7 months confirms that the IRS and DOJ have always vastly overstated to the courts the number of Tax Court cases that would be affected by Boechler annually.  In oral argument at the Supreme Court, the lawyer arguing the case on behalf of the Solicitor General told Justice Thomas that the government estimated that 300 cases a year would be affected by the Boechler ruling.  That figure was obviously wrong because it was an estimate of how many CDP cases are dismissed each year for lack of jurisdiction for any reason, not how many cases are dismissed for lack of jurisdiction for late filing.  Typically, two-thirds of dismissals for lack of jurisdiction are only for failure to pay the filing fee or obtain a fee waiver. 

Keith and I knew that far fewer than 100 CDP cases each year would be affected by Boechler and that the primary effect of the Boechler ruling would be to eliminate the Tax Court’s sua sponte issuing orders to show cause why a CDP case should not be dismissed for lack of jurisdiction for late filing.  Probably a quarter of all dismissals of late-filed CDP and deficiency cases come after the Tax Court has pointed out to the IRS, in an order to show cause, the probable late filing of the petition – a fact which the IRS hadn’t noticed.  After Boechler, such orders to show cause in CDP will be a thing of the past, and so a small but significant number of taxpayers who filed late will stay in the Tax Court, even without having to argue for, or even having facts plausibly justifying, equitable tolling.

In the roughly 30 CDP cases where the IRS moved to dismiss for lack of jurisdiction or the Tax Court issued an order to show cause, the IRS will now have to file answers or amendments to answers if it wants to argue for dismissal for late filing.  Other than Amanasu, I haven’t looked an any of these cases’ docket sheets to see whether the IRS has yet done so.  It is my expectation that the IRS will again complain of late filing in nearly all of these cases.  And it is my further expectation, based on the usual lack of response by taxpayers to motions to dismiss for late filing, that only about 5% of taxpayers will respond with what could be termed an equitable tolling excuse for late filing.  Five percent of 30 is 1.5 cases, and one of those cases is Amanasu.  So, I expect extremely few of the other 30-or-so cases to become litigating vehicles for equitable tolling.  (The number of deficiency equitable tolling cases, if Hallmark goes the taxpayer’s way, will be an order of magnitude higher, though still not back-breaking for the IRS or Tax Court.) 

I think the Tax Court will issue a precedential opinion the first time that it considers whether the facts in any CDP or whistleblower award case qualify for equitable tolling.  A published opinion is needed because it is unclear what law on equitable tolling would apply in the Tax Court.  There appears to be a federal common law of equitable tolling generated outside the tax law that I suspect the Tax Court will adopt.  Among other things, I hope the Tax Court looks to equitable tolling opinions coming out of the Article I Court of Appeals for Veterans Claims and its reviewing court, the Federal Circuit, that have been applied to late-filed petitions in the Veterans Court for decades. 

My guess is that the initial ruling of how the Tax Court will apply the doctrine of equitable tolling will come in Amanasu or Myers, which are furthest along on the newly-required pleading of the issues.  I also guess that the first equitable tolling ruling will come out in 2023.

Another Update on Boechler Follow-on Litigation – Part 1

On June 28, 2022, I did a post summarizing the status of post-Boechler litigation over whether the IRC 6213(a) deficiency petition filing deadline is still jurisdictional and not subject to equitable tolling after Boechler.  There have been a few developments in the two cases discussed in the post, and I wanted to update you and provide links to recent filings.  The short update is that (1) all briefing has been completed in the Hallmark case before Judge Gustafson, and he is presumably already actively working on a Tax Court opinion, and (2) the Culp case in the Third Circuit survived the government’s motion for summary affirmance, and the Culps have filed their opening brief.  The Third Circuit also denied the government’s motion to strike the merits amicus brief of The Center for Taxpayer Rights that had been filed shortly after the government moved for summary affirmance. 

I also wanted to do an initial post on what has been happening after Boechler with CDP cases that present the questions resolved by the Supreme Court.  The short update here is that the courts have not yet issued any rulings in CDP cases about whether equitable tolling applied on the facts of a particular case, and I don’t expect we will see the first such ruling until 2023.  

Because of the length of the update, I am breaking it into two parts.  Part 1 discusses the deficiency litigation.  Part 2 will discuss the CDP litigation.

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Hallmark

In my June 28 post, I wrote that, a few days after Boechler was decided, a taxpayer named Hallmark Research Collective had moved to vacate the Tax Court’s dismissal for lack of jurisdiction of its one-day-late deficiency petition.  Even before the Supreme Court decided Boechler, Hallmark had argued that the deficiency filing deadline is no longer jurisdictional and is subject to equitable tolling.  Hallmark is seeking COVID-related equitable tolling. 

The motion to vacate was assigned to Judge Gustafson, and the Tax Court promptly stopped issuing orders of dismissals for lack of jurisdiction in all other cases where the IRS moved to dismiss a deficiency case for lack of jurisdiction, pending the ruling in Hallmark.  In a post Keith did on Hallmark on May 3, 2022, Keith provided links to the taxpayer’s motion to vacate and its 51-page memorandum of law that accompanied the motion.  In my July 28 post, I provided a link to the IRS’ 18-page response objecting to granting the motion.  On July 15, 2022, the taxpayer filed a 32-page reply to the IRS’ response, which you can find here.

As to why the reply was so long, the main reason is that the taxpayer chose to expand upon its argument that the filing deadline in IRC 6213(a) is not jurisdictional by presenting a more detailed analysis of how the Board of Tax Appeals acquired its deficiency jurisdiction in 1924 and 1926. 

The original Board filing deadline for income tax deficiency petitions was in the second sentence of sec. 274(a) of the Revenue Act of 1924.  The taxpayer argues that the actual jurisdictional grant to the Board to hear deficiency cases was at sec. 900(e) of that act, though neither provision used the word “jurisdiction”.

In the Revenue Act of 1926, sec. 274(a)’s second sentence was amended to prohibit Sundays from being the end of the filing deadline, but Congress did not, when redrafting the sentence, include the word “jurisdiction”.  By contrast, Congress first used the word “jurisdiction” in multiple provision of that act (which made the Board more court-like and provided for Circuit Court direct review of Board rulings).  Congress also enacted in that act the predecessors of IRC 6214(a) and (b) and 6512(b)(2), in each case using the word “jurisdiction”.

Hallmark’s reply also contains several pages of quotes from opinions by Tax Court judges (most currently sitting) calling IRC 6214(a) the source of the Tax Court’s deficiency jurisdiction.  In its response, the IRS had simply ignored the argument that IRC 6214(a) is the source of the Tax Court’s deficiency jurisdiction, not IRC 6213(a).  The IRS argues that IRC 6213(a) is the source of the Tax Court’s deficiency jurisdiction, except in cases where a larger deficiency is sought than is set out in the notice of deficiency, in which case IRC 6214(a) is merely the source of the Tax Court’s jurisdiction for the excess.

Hallmark is now fully briefed.  My expectation is that Judge Gustafson will be drafting an opinion that the Chief Judge will send to the full court for review.  I would love to be proved wrong and see an earlier opinion, but my guess is that the opinion of the full court in Hallmark will not come out before Christmas, even though hundreds of motions to dismiss are probably already currently sitting in limbo pending the opinion and more will be filed in the interim.

Culp

In my June 28 post, I wrote about a pro se appeal of a Tax Court dismissal of a late-filed deficiency case, Culp, that is before the Third Circuit.  The Culps argue that they filed a late Tax Court petition both (1) because before they filed they had never received the original or a copy of the notice of deficiency and (2) because TAS, purporting to help them fight levies, bamboozled them into not going to court.  TAS never told them that a notice of deficiency had been sent.  The Culps seek equitable tolling and a refund of monies taken by (1) levies on their Social Security benefits and (2) an offset of a later-year overpayment against the deficiency.

In my post, I mentioned the DOJ’s motion for summary affirmance.  I also mentioned and provided a link to the merits amicus brief that The Center for Taxpayer Rights filed in the case a few days after the DOJ motion for summary affirmance, but before the Third Circuit had ruled on the motion.  The DOJ had also moved to strike the amicus brief as premature.  On July 6, 2022, a 3-judge motions panel of the Third Circuit denied both DOJ motions, so the case proceeds to regular briefing.

On July 29, 2022, the Culps filed their opening brief for the appellants, which can be found here.  Although the Culps are retired lawyers in their 70s, their specialty was employment discrimination law.  Their pro se brief may disappoint some of us who are tax procedure specialists.

The DOJ’s brief for appellee is due in late August or early September.  (I am not sure the exact date because the Culps filed their brief a few days early, and I don’t know if that impacts the date that the DOJ’s brief is due.)  However, I anticipate that the DOJ will, as usual, ask for and be granted a 21- or 30-day extension to file its brief.

I expect oral argument in Culp will occur in the Third Circuit early next year and an opinion will be issued in the spring.  I expect that the Tax Court’s ruling in Hallmark (1) will precede the Third Circuit’s ruling in Culp and (2) will be brought to the attention of the Third Circuit before it rules.

Other Deficiency Cases

Of course, once an opinion in Hallmark is issued, the Tax Court will likely promptly issue hundreds of similarly-ruling orders in cases in which either the IRS had moved to dismiss a late-filed deficiency petition for lack of jurisdiction or the Tax Court had issued an order to show cause why the deficiency case should not be dismissed for lack of jurisdiction on account of late filing. 

If the Tax Court in Hallmark rules against the taxpayer, those hundreds of orders will be final and immediately appealable to nearly every Circuit Court of Appeals, except the Federal Circuit.  However, I don’t expect many taxpayers to appeal such dismissals.  It would only make sense to appeal such a dismissal if the taxpayer thought he or she had good ground for equitable tolling.  And, I suspect that only about 5% of such dismissals would involve even a plausible argument for equitable tolling. 

Hallmark is appealable to the Ninth Circuit, and I expect that it would be the first case to be appealed.  I would be surprised if more than 5-8 deficiency cases got appealed in 2023 to Circuits other than the Ninth Circuit.  Over time, though, new orders of dismissal in other case would be issued.  If any Circuit disagreed with another Circuit in a post-Boechler ruling, I would anticipate a new Supreme Court opinion to resolve the issue, unless Congress (hopefully) stepped in to resolve the dispute.  I do not look forward to so much future appellate litigation.

If the Tax Court in Hallmark holds that the deficiency filing deadline is no longer jurisdictional and is subject to equitable tolling, the court will deny all of the held-up IRS motions to dismiss and discharge any held-up orders to show cause.  Such rulings allowing the cases to go forward would be interlocutory rulings, not ordinarily subject to immediate review.

IRC 7482(a)(2)(A) states:

When any judge of the Tax Court includes in an interlocutory order a statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation, the United States Court of Appeals may, in its discretion, permit an appeal to be taken from such order, if application is made to it within 10 days after the entry of such order.  Neither the application for nor the granting of an appeal under this paragraph shall stay proceedings in the Tax Court, unless a stay is ordered by a judge of the Tax Court or by the United States Court of Appeals which has jurisdiction of the appeal or a judge of that court.

Tax Court Rule 193(a) provides, in part:

For the purpose of seeking the review of any order of the Tax Court which is not otherwise immediately appealable, a party may request the Court to include, or the Court on its own motion may include, a statement in such order that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.  Any such request by a party shall be made by motion which shall set forth with particularity the grounds therefor and note whether there is any objection thereto.  

Perhaps being over-confident that it will win the Hallmark case, the IRS has not yet filed any motion under Rule 193(a).  It is unclear whether a pro-taxpayer ruling in Hallmark will, without such a motion, contain a statement “that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.”

It is my hope that, if the Tax Court rules that IRC 6213(a)’s deficiency filing deadline is not jurisdictional and is subject to equitable tolling, both the IRS and DOJ would accept that ruling and would argue in support of that ruling in any appellate court that, on its own, decides to consider the issue.  Perhaps my hope is naïve, but one can always hope.

I am aware of only one other late-filed deficiency case in which the taxpayer is already arguing that the IRC 6213(a) filing deadline is not jurisdictional and is subject to equitable tolling, Gruis v. Commissioner, Tax Court Docket No. 11951-22.  I mentioned Gruis in my June 28 post.  On May 27, 2022, a lawyer for an LITC who is aware of the Boechler opinion late-filed the petition, which asked for equitable tolling.  The case involves HOH status and disallowed EITC and CTC.  It will be appealable to the Eighth Circuit – the same Circuit that got the law wrong on CDP in Boechler.  As an update, surprisingly, on July 15, 2022, the IRS filed an answer in the case.  The IRS has not (yet) moved to dismiss for lack of jurisdiction.  I don’t know where this case might be going.  It may get resolved a different way, though, since the taxpayer also argues that the IRS sent the notice of deficiency to an address that was no longer her last known address (hence, she did not receive the notice in time to timely petition).

Update on Litigation Over Whether the Deficiency Petition Filing Deadline is Still Jurisdictional

We welcome back Carl Smith who keeps us updated on the progress of the jurisdiction motions now in litigation regarding deficiency proceedings in the Tax Court. Some might view the IRS response in Hallmark as one that places the Golsen rule regarding circuit court decisions above a Supreme Court decision but we have a link to the IRS response and you can decide for yourself. Keith

On May 3, 2022, and May 17, 2022, we did a couple of posts on the post-Boechler litigation over whether the deficiency petition filing deadline under IRC 6213(a) is still jurisdictional and not subject to equitable tolling.  In Hallmark Research Collective v. Commissioner, Tax Court Docker No. 21284-21, the taxpayer timely moved to vacate an April 1, 2022, order dismissing the case for lack of jurisdiction on account of late filing.  A link to the taxpayer’s memorandum of law in support of that motion was attached to the May 3, 2022, post.  This post is both to provide you with a link to the IRS’ June 22, 2022, response, and to give a little update on where Hallmark and other test cases stand as well as the Tax Court’s actions in similar cases.

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I have few comments on the IRS Hallmark response, since you can read it for yourself.  It is only 18 pages in length and does not address in detail many of the points raised in the taxpayer’s 50-page memorandum of law.  The main thing to note is that there had been speculation (based on comments by the IRS at the May ABA Tax Section meeting) that the IRS was rethinking its position on various non-CDP Tax Court filing deadlines.  Whatever the IRS may be thinking as to other filing deadlines, its reconsideration of the deficiency filing deadline has led it to reaffirm the Tax Court’s long-standing position that the deficiency filing deadline is still jurisdictional after Boechler.

There are two more things in the IRS response to note:

Frist, in the taxpayer’s memorandum in Hallmark, the taxpayer argued that the source of the Tax Court’s deficiency jurisdiction is IRC 6214(a), not IRC 6213(a).  That is a respectable position because a number of current Tax Court judges have said as much in opinions.  The IRS response ignores the mention of IRC 6214(a) and talks only about whether IRC 6213(a), which the IRS believes contains the jurisdictional grant, also contains a jurisdictional filing deadline.

Second, the IRS raises new arguments about how IRC 6213(c) and 6215 are incompatible with a ruling that the deficiency filing deadline is not jurisdictional.  I don’t agree, but you can read the IRS argument for yourself.

Judge Gustafson has directed the taxpayer to file a reply to the IRS response by July 22, 2022.  We will provide a link to the reply after it is filed.

In my May 17, 2022, post, I noted that, since May 6, 2022, the Tax Court had stopped issuing dismissal orders in response to either (1) IRS motions to dismiss late-filed deficiency petitions for lack of jurisdiction or (2) Tax Court orders to show cause why a late-filed deficiency petition should not be dismissed for lack of jurisdiction.  On average, before the Hallmark motion was filed, the Tax Court had dismissed 2 to 3 deficiency petitions a day for lack of jurisdiction for late filing.  This halt on dismissals has continued, except for one case (probably an accident) in Saltmarsh v. Commissioner, Tax Court Docket No. 5779-21, where, on June 14, 2022, Judge Urda dismissed a late-filed deficiency case for lack of jurisdiction.

In my May 17, 2022, post, it was only my speculation that this halt was due to the pendency of the Hallmark motion.  But, now my speculation has some concrete support. On May 12, 2022, the IRS filed a motion to dismiss a late-filed deficiency case for lack of jurisdiction in Spears v. Commissioner, Tax Court Docket No. 6232-21.  On May 18, 2022, Judge Copeland issued an order in Spears striking the case from a trial calendar and wrote: “Before taking further action in this case, we will await the ruling of this Court on the Hallmark motion to vacate.”

If the Tax Court ultimately agrees with Hallmark that the filing deadline is not jurisdictional, then one consequence (probably affecting the largest number of taxpayers) is that the Tax Court will have to stop issuing orders to show cause why a late-filed deficiency case should not be dismissed for lack of jurisdiction.  The court will then have no business issuing an order pointing out to one party a non-jurisdictional defense that the party (here, the IRS) had not thought to make.  An odd thing is that it appears that a minority of Tax Court judges are continuing to issue orders to show cause why late-filed deficiency cases should not be dismissed for lack of jurisdiction – though the number of orders to show cause has fallen off by well over 50%.  Here are two examples of cases in which the Tax Court recently issued such orders to show cause:  Madrid v. Commissioner, Tax Court Docket No. 3731-21 (order of Judge Morrison dated June 3, 2022); Murtaza v. Commissioner, Tax Court Docket No. 23342-21S (order of Judge Landy dated June 15, 2022).  I think the issuance of such orders while the Hallmark motion is pending does a disservice to taxpayers if Hallmark ends up ruling that the filing deadline is not jurisdictional.  In effect, such orders alert the IRS to a possible late filing, which the IRS can later raise as a defense in an amendment to its answer.

Other than Hallmark, there is one case where other taxpayers are currently litigating the issue of whether the deficiency petition filing deadline is jurisdictional post-Boechler.  As noted in my May 17, 2022, post, in Culp v. Commissioner, Third Circuit Docket No. 22-1789, the IRS sent a notice of deficiency to the taxpayers, but the taxpayers say they never received the notice of deficiency or a later notice of intention to levy, but only became aware of a notice of deficiency’s possible issuance when the IRS started levying.  The Culps had contacted TAS about the mysterious levies, but before TAS had done anything, the IRS satisfied the balance of the deficiency by offset of an overpayment from a later tax year.  This put the Culps in a refund posture.  TAS did not get them a refund, so the Culps belatedly filed a Tax Court deficiency petition seeking a refund under the court’s IRC 6512(b) overpayment jurisdiction.  The Culps also argued that the IRS had never sent a notice of deficiency to their last known address.  In response, the IRS produced a copy of the notice and proof of mailing to their last known address.  The Tax Court found the proof of mailing sufficient and dismissed the petition for lack of jurisdiction for late filing.  On appeal, the Culps argue (1) that no notice of deficiency was sent (which, if true, will actually hurt them because the Tax Court will then lose any overpayment jurisdiction) and (2) if the notice was sent, then the Tax Court has deficiency and overpayment jurisdiction because the filing deadline should be equitably tolled.

In my May 17, 2022, post, I noted that the Tax Clinic of the Legal Services Center of Harvard Law School, acting on behalf of The Center for Taxpayer Rights, planned to file an amicus brief in the Culp case in support of the argument that, since Boechler, the deficiency petition filing deadline is not jurisdictional and is subject to equitable tolling.  After showing the DOJ lawyers in Culp a copy of a nearly-6,500-word amicus brief and getting the DOJ’s and the Culps’ consent to file it, the Center filed the amicus brief.  The DOJ then moved to strike the brief.  Why?  A few days before the amicus brief was filed, the DOJ had moved for summary affirmance in the appeal, arguing that there was no significant legal issue for an appeal.  The DOJ motion for summary affirmance did not mention Boechler, but merely cited an existing Third Circuit opinion holding that the filing deadline in the Tax Court is jurisdictional.  The DOJ objects to the filing of the amicus brief both before the Third Circuit has ruled on the motion for summary affirmance and before the Culps file their opening brief for appellant.  The DOJ also argues that an amicus brief at the current stage of the case should be no more than 2,600 words.

The Center for Taxpayer Rights believes that it has done nothing wrong in filing a brief of almost 6,500 words at this stage of the case.  Comments to the rules say that the briefing schedule is not suspended when a motion for summary affirmance is filed.  The Center’s response to DOJ’s motion to strike its amicus brief also noted that the brief does not specifically address the motion for summary affirmance. A link to the affidavit mentioned in the response can be found here.

The Culps have filed a response to the motion for summary affirmance. The DOJ has filed a reply to the Culps’ response. In it, the DOJ criticizes several of the Culps’ arguments, including alleging that the Culps are making new arguments not presented below. But, crucially, the DOJ also argues (at pp. 10-12) that “neither Boechler nor the doctrine of equitable tolling affects the outcome here”. The DOJ says that Boechler is limited to CDP cases, and there is long-standing Circuit court precedent (including in the Third Circuit) that the IRC 6213(a) filing deadline is jurisdictional. In addition, the DOJ argues that, even if equitable tolling were allowed, the Culps only argue for equitable tolling because of IRS misconduct in 2019, long after the filing deadline in mid-2018 had passed. The DOJ says there is no excuse for the Culps to have waited until 2021 to file a Tax Court petition. (Note: The Culps should also have argued that non-receipt of the notice of deficiency in 2018 was sufficient for equitable tolling purposes, since the Culps never received even a copy of the notice of deficiency until after they filed the Tax Court petition. We recognize that other Tax Court and some appellate precedent would also have to be overruled to make this argument that in the case of mere non-receipt of a notice of deficiency, a late petition may be filed under equitable tolling.)

The Third Circuit has referred both motions to a motions panel for ruling, and it has only now suspended the filing schedule for merits briefs.  We will keep you posted on whether the case survives the motion for summary affirmance.  If summary affirmance is denied, at worst, if the motion to strike the amicus brief at this time is granted, a similar amicus brief will be filed after the Culps file their first merits brief.

Finally, there is at least one new Tax Court deficiency case, filed on May 31, 2022, where the taxpayer filed late and is seeking equitable tolling, Gruis v. Commissioner, Tax Court Docket No. 11951-22.  The petition was filed by a lawyer for an LITC, who is aware of the Boechler case.  The case involves HOH status and disallowed EITC and CTC.  It will be appealable to the Eighth Circuit – the same Circuit that got the law wrong on CDP in Boechler.

Tax Court Temporarily Stops Issuing Dismissals for Lack of Jurisdiction of Late Deficiency Petitions

This is an update to the post of May 3, 2022, which discussed a May 2, 2022 motion to vacate a dismissal for lack of jurisdiction of a late-filed deficiency case in Hallmark Research Collective, Docket No. 21284-21.  In the motion, Hallmark argued that, after Boechler (a Collection Due Process case), the IRC 6213(a) deadline for filing a deficiency petition also is not jurisdictional and is subject to equitable tolling.  The prior post noted that, a day after the motion was filed, the Chief Judge issued an order directing the IRS to file a response within 30 days (i.e., by June 2).  The update is that on May 10, the Chief Judge assigned the motion to Judge Gustafson for purposes of ruling on the motion.    Motions in cases that had been decided by the Chief Judge are usually assigned to Special Trial Judges for disposition, not currently active Tax Court judges.  So, this unusual assignment shows the Court is taking the motion to vacate very seriously.

Simultaneously, it appears that the Tax Court, unannounced, has stopped issuing orders of dismissal for lack of jurisdiction in late-filed deficiency cases until Judge Gustafson (or, more probably, the Tax Court en banc) rules on the Hallmark motion.

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Research shows that the Tax Court in February and March 2022, combined, dismissed 103 late deficiency petitions for lack of jurisdiction – an average dismissal rate of between 2 and 3 cases a business day.  Yet, the last order of dismissal of a deficiency petition for late filing was entered on Friday, May 6. 

PT will post the IRS response to Hallmark’s motion when that response is filed, though PT expects the IRS will ask for and get a bit more time to file its response, to coordinate its response with the National Office.

One effect of the Tax Court’s suspension of ruling on such motions to dismiss in late-filed deficiency cases is that the Court will thus not, for some time, be creating appealable orders which could be challenged by appeals to the Circuit courts as test cases for the IRC 6213(a) issue.  The time is ticking on any appeals that may be filed concerning orders of dismissal entered between mid-February and May 6.

PT is aware of only one case where an order of dismissal has been appealed:  The February 15, 2022 order of dismissal in Culp, Docket No. 14054-21, was timely appealed to the Third Circuit on April 25, 2022 (3d Cir. Docket No. 22-1789).  In Culp, the IRS sent a notice of deficiency to the taxpayers, but the taxpayers say they never received the notice and only became aware of its possible issuance when the IRS started levying.  (We assume that the Culps also did not receive the notice of intention to levy, since they filed no Collection Due Process hearing request.)  They belatedly filed a Tax Court petition, arguing that the IRS had never sent a notice of deficiency to their last known address.  In response, the IRS produced a copy of the notice and proof of proper mailing to their last known address.  So, the court dismissed the petition for lack of jurisdiction for late filing – the long-standing position of the Tax Court and most courts of appeal, pre-Boechler, being that timely filing of a deficiency petition is a necessary predicate to the Tax Court’s jurisdiction. 

The Center for Taxpayer Rights plans to file an amicus brief in Culp (drafted by the Tax Clinic at the Legal Services at Harvard Law School) that sets forth all the arguments made in the memorandum of law filed to accompany the motion to vacate in the Tax Court Hallmark case for why the Tax Court was wrong to treat timely filing as a jurisdictional requirement of a deficiency suit.

Winning Boechler Took a Village

Today we welcome back retired blogger, Carl Smith.  Carl was the architect of the argument that time periods for filing a petition in Tax Court are not jurisdictional based on his reading of Supreme Court cases coming out in other areas of the law.  He worked with the Tax Clinic at the Legal Services Center of Harvard Law School to assist in writing briefs and preparing the students to make oral arguments to Circuit courts.  He worked to identify cases in which we should make the arguments, including the first case it entered (as an amicus), Guralnik v. Commissioner, in which the Tax Clinic made the argument in a case involving a snow day and the Tax Court rejected our argument 17-0.  He also worked with attorneys around the country who had these cases helping them craft their arguments and helping the Harvard students write amicus briefs.  Today’s post is Carl recognizing the village, but I want to recognize him for creating the legal designs that ultimately led to the Supreme Court’s decision.  Keith

In Boechler v. Commissioner, the Supreme Court held that the filing deadline for a Tax Court Collection Due Process petition is not jurisdictional and is subject to equitable tolling.  This victory was about 15 years in the making, and it took a village of almost all pro bono attorneys and clinicians to make it happen.  I wanted to send out thanks to those who helped along the way:

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Jason Grimes – the young pro bono Florida attorney who first made the argument, in a district court suit brought by the IRS to collect taxes, that one of the taxpayers should be entitled to raise section 6015 innocent spouse relief as a defense.  The district court (I think, erroneously) concluded that it lacked jurisdiction to consider relief under section 6015.  Jason persuaded the district court to equitably toll the section 6015(e) filing deadline so that the taxpayer could belatedly file a Tax Court petition.  United States v. Pollock, 2007 U.S. Dist. LEXIS 98153 (S.D. Fla. 2007).  When Jason filed the Tax Court petition on behalf of Mrs. Pollock, he argued that the recent Supreme Court non-tax case law making filing deadlines usually not jurisdictional required the Tax Court to accept the case.  The Tax Court rejected accepting the case, holding the deadline jurisdictional and not subject to equitable tolling.  Pollock v. Commissioner, 132 T.C. 21 (2009).  I became aware of the argument that Tax Court filing deadlines might no longer be jurisdictional when I read the Pollock opinion and the recent Supreme Court non-tax opinions concerning jurisdiction, and I made the same argument Jason did (also unsuccessfully) for a client of the Cardozo Tax Clinic in Gormeley v. Commissioner, T.C. Memo. 2009-252.  (By the way, appeals were docketed from both the Pollock and Gormeley opinions, but the taxpayer appeals were dropped before opinion after the IRS stopped pursuing Mrs. Pollock for collection and the IRS belatedly discovered (at my insistence that they look) that they had never sent Ms. Gormeley the notice of deficiency that underlay her section 6015 relief request.)

Keith Fogg – who, as the Director of the Tax Clinic at the Legal Services Center of Harvard Law School, agreed to lend his clinic’s name and assistance to an amicus brief that he and I filed in the Tax Court case of Guralnik v. Commissioner, 146 T.C. 230 (2016), arguing that the section 6330(d)(1) deadline to file a Tax Court Collection Due Process (CDP) petition is not jurisdictional and is subject to equitable tolling under the recent Supreme Court non-tax case law on jurisdiction and equitable tolling.  We lost that argument in the case by a vote of 17 judges to zero, which might have deterred Keith from ever making the argument again, but he persisted in lending the clinic’s name and students to many later cases in which the clinic  argued (either as counsel for taxpayers or as amicus) that the Tax Court filing deadlines for innocent spouse, CDP, deficiency, and whistleblower awards petitions are not jurisdictional and are subject to equitable tolling.  In addition to Boechler v. Commissioner, 967 F.3d 760 (8th Cir. 2020) (CDP), the Harvard clinic was involved in Organic Cannabis Foundation LLC v. Commissioner, 962 F.3d 1082 (9th Cir. 2020) (deficiency); Myers v. Commissioner, 928 F.3d 1025 (9th Cir. 2019) (whistleblower award); Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018) (innocent spouse); Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018) (CDP); Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018) (CDP); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017) (innocent spouse); and Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017) (innocent spouse).

Amy Feinberg – a student of Keith’s in the Tax Clinic who did oral argument to the 4th Cir. in Cunningham while a Harvard Law student, and then, while at Latham & Watkins, persuaded her firm to allow her to do the oral argument in the 8th Cir. in Boechler pro bono.  Amy also persuaded her firm to do the Supreme Court Boechler case pro bono.  Amy also helped draft the taxpayer’s Supreme Court filings.  In addition to Amy, Harvard Law Students Jeff Zink, now an associate with Covington and Burling in D.C., argued the Matuszak case before the Second Circuit and Allison Bray, now an associate with Kirkland and Ellis in San Francisco, argued the Nauflett case before the Fourth Circuit.  Numerous students at the Tax Clinic assisted in writing amicus briefs over the six years since the Tax Clinic began pursuing this issue.  Jonathan Blake and Nathan Raab worked on the amicus brief in Boechler following a long line of prior clinic students. 

Melissa Sherry – the Latham attorney who took on the Supreme Court Boechler case pro bono and did one of the most outstanding oral arguments I have ever heard and who did briefing in the Supreme Court case that improved on several of the arguments that Keith and I had first made in Guralnik.

Carolyn Flynn – a Latham attorney who helped write the Supreme Court briefs in Boechler.

Joseph DiRuzzo – who, at my suggestion, entered a pro bono appearance for the petitioner in Myers v. Commissioner, where Joe successfully argued that the whistleblower award filing deadline at section 7623(b)(4) is not jurisdictional and is subject to equitable tolling.  Myers created the Circuit split that caused the Supreme Court to grant review in Boechler, since there is no practical difference between the language of sections 6330(d)(1) and 7623(b)(4).

David Clark Thompson – who represented the taxpayer in Boechler in the Tax Court and 8th Cir. and had the wisdom to make the argument that the Harvard clinic had made in Duggan to the 9th Cir.

Elizabeth Maresca – Director of the tax clinic at Fordham, who decided to pursue the argument that the CDP petition filing deadline is not jurisdictional and is subject to equitable tolling in the factually-appealing case of Castillo v. Commissioner (currently pending in the 2d Cir., waiting the Boechler ruling) – a case much cited in the briefs in the Supreme Court in Boechler.

Nina Olson – who, as IRS National Taxpayer Advocate, argued that Congress should clarify that all Tax Court petition filing deadlines are not jurisdictional and are subject to equitable tolling.  Later, as the Director of the Center for Taxpayer Rights, Nina also lent her organization’s name to briefs drafted by Keith, me, and students in the Harvard clinic in Boechler.

Frank Agostino – who, acting pro bono, raised the Boechler argument in a late-filed CDP case apparently appealable to the D.C. Circuit, Amanasu Environment Crop. v. Commissioner, T.C. Docket No. 5192-20L, even before the Supreme Court granted cert. in Boechler.  Frank was hoping not only to benefit the taxpayer, but create a direct Circuit split with the 8th Cir. Opinion in Boechler over the section 6330(d)(1) filing deadline – on the assumption that the D.C. Circuit panel would feel compelled to follow a prior panel’s Myers opinion involving the whistleblower award filing deadline.  To this end, in April 2021, Frank also successfully made a motion to remove the case’s original small tax case designation.  However, the Tax Court deferred deciding the pending motion to dismiss in the case until after the Boechler opinion was issued.

Lavar Taylor and team at Skadden, Arps, Slate, Meagher & Flom LLP (Sam Auld, Peter Bruland, Shay Dvoretzky and Emily Kennedy) – who wrote excellent amicus briefs in support of Boechler.

CFC in Dixon Holds Improperly-Signed Timely Forms 1040-X Cannot Be Informal Refund Claims

We have reported before on a series of refund suits pending in cases brought by accountant John Castro on behalf of his clients.  The most recent post is on the recent Fed. Cir. opinion in Brown (on which Keith blogged here).  The Brown opinion actually came down before the opinion discussed in this post but is erroneously not acknowledged or followed in the CFC holding on the jurisdictional issue.  Mr. Castro’s latest opinion out of the Court of Federal Claims (CFC), issued on January 18, is in the case of Dixon v. United States, No. 20-1258T (Ct. Cl. 2022).  This is another taxpayer for whom Mr. Castro (as he did for many other taxpayers), without proper POA authorization, initially signed and filed amended returns claiming refunds, instead of properly having the clients sign.  In an earlier Dixon case, the CFC (as in all Castro cases) held that the signature requirement mandating that the taxpayer sign is statutory and not subject to waiver, so dismissed the case for Lack of Jurisdiction (LOJ). 

Once it became clear from the first Dixon case’s opinion that the client and not the representative must sign the amended return, Mr. Castro had Dixon sign copies of the amended returns and refiled them.  Since this was after the refund statute of limitations (SOL) had expired, he had to argue in this latest Dixon case that the earlier, improperly-signed claims were informal claims under the doctrine set out in United States v. Kales, 314 U.S. 186, 194 (1941) to which the properly-signed claims related back.  The latest Dixon opinion appears to be the first in which the informal claim doctrine has been litigated in one of Castro’s cases.  So, it is important that he win this because he has had other taxpayers go back and sign and file amended returns after the SOL expired.

Another recent loss in this group of cases occurred in Mills v. United States, No. 1:20-cv-00417 (Fed. Cl. 2021), blogged here. After realizing that the initial claims were not properly signed, Castro submitted a second set of amended returns electronically, but unfortunately at a time when the IRS was not accepting amended returns that way.  But Dixon’s properly-signed second set of refund claims apparently were filed by mail, not electronically, so Mills has no relevance, and the Dixon court must decide for the first time whether unsigned refund claims can constitute informal claims.

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The new Dixon case involves Department of Justice (DOJ) motions to dismiss under Rules of the Court of Federal Claims (RCFC) 12(b)(1) (lack of subject matter jurisdiction) and 6 (failure to state a claim on which relief can be granted), which are identical to the Federal Rules of Civil Procedure 12(b)(1) and (6).  

In the first issue (involving a refund sought of tax assessed by the IRS on certain additional income reported in the amended returns), the court finds a variance problem in that Dixon is trying to litigate an issue not mentioned in the initial amended returns.  Indeed, the court says Dixon seeks a refund of taxes paid after filing the first refund claims, so those taxes could not be the subject of that claim.  The court dismisses this first issue for lack of jurisdiction. 

That jurisdictional dismissal has to be wrong in light of Brown (decided on January 5, 2022), where the Federal Circuit held that the requirement to file an administrative claim is not jurisdictional.  How can there be a variance problem that is jurisdictional, when the court’s jurisdiction doesn’t even depend on a taxpayer having duly filed an administrative claim?  It is true that in the past, courts have treated variance as a jurisdictional defect, but that can no longer be true in light of Brown in the Federal Circuit. Curiously, Brown is nowhere mentioned in the opinion, though it was decided only days before Dixon.  The Dixon court issued its opinion likely in ignorance of the Brown opinion.

In the second issue (the net investment income tax), the issue was mentioned in both amended returns, so there is no variance problem.  This second issue is the most important in the case because it is the first time a CFC judge has written on whether improperly-signed amended returns can be considered informal claims under Kales to which the untimely perfecting claims relate back.  The court holds that improperly-signed returns are not informal claims — citing no other case for such holding.  Here’s language from the opinion:

Mr. Dixon’s unsigned returns cannot form the foundation of an informal claim before the IRS. The Internal Revenue Code bars a taxpayer from filing a suit for tax refund until a claim for refund has been “duly filed” with the IRS according to the regulations set out by the Secretary of Treasury. 26 U.S.C § 7422. These regulations expand on what it means for an administrative tax refund claim to be “duly filed.” Treasury Regulations require that tax refund claims before the IRS “must be verified by a written declaration that is made under the penalty of perjury.” 26 C.F.R. § 301.6402-2(b)(1). The regulation further mandates that a tax refund claim that does not comply with this requirement will not be considered “for any purpose as a claim for refund or credit.” Id. (emphasis added). The United States argues that, by incorporating the phrase “for any purpose,” the plain text of the regulation bars any unsigned tax refund claims from being considered for the purposes of the informal claim doctrine. The Court agrees.

After knocking out the claim signed by the representative as an informal claim based on the language of the regulation, the court then takes on the Supreme Court opinion in Kales:

Mr. Dixon relies on the Supreme Court’s decision in Kales in arguing that the unsigned amended tax returns qualify as valid informal claims.  Kales involved a taxpayer who submitted a timely informal letter, rather than the correct IRS form, to request a tax refund.  The taxpayer later filed an untimely amendment that complied with the regulation and remedied that error. Id. In describing the tenets of the informal claim doctrine, the Supreme Court stated that “a [timely] notice fairly advising the Commissioner of the nature of the taxpayer’s claim, which . . . does not comply with formal requirements of the statute and regulations, will nevertheless be treated as a claim,” if the “formal defects” are later remedied by another filing. Id. at 194. Mr. Dixon claims that because his unsigned amended tax returns provided the IRS with notice that he sought a tax refund, and because the amended tax returns laid out the legal and factual basis for that refund, his returns qualify as informal claims under Kales, though unsigned. (Pl.’s Resp. at 13–16). That particular deficiency, Mr. Dixon claims, was later remedied by submitting the signed amended tax returns in 2020. (Id.).

A more careful reading of the Supreme Court’s guidance in Kales undermines Mr. Dixon’s reliance on that case. Most importantly, the Court elaborated on the scope of the informal claim doctrine by emphasizing that valid informal claims are only those that “[have] not misled the [IRS] and [have been] accepted and treated” by the IRS as valid claims. Kales, 314 U.S. at 194 (emphasis added). Tax returns that are unsigned, and therefore not made under the penalty of perjury, can never be accepted and treated as valid claims by the IRS and, as such, they cannot constitute informal claims under Kales. To be legally valid, a claim must be “duly filed” with the IRS, “according to the regulations” established by the Secretary of Treasury. 26 U.S.C. § 7422(a)see also Clintwood Elkhorn Min. Co., 553 U.S. at 4 (2008) (to seek a tax refund “the taxpayer must comply with the tax refund scheme established in the [Internal Revenue] Code”). Those regulations state that any declaration that is not “verified” and is not “made under the penalties of perjury,” is not “duly filed.” Hall v. United States, 148 Fed. Cl. 371, 379 (2020) (addressing the requirements of Treas. Reg. § 301.6402-2(b)(1)). Because unsigned claims can never be deemed “duly filed” under Section 7422(a), the IRS would be prohibited from “accepting and treating as valid claims,” requests not made under the penalty of perjury. Sicanoff Vegetable Oil Corp. v. United States, 149 Ct. Cl. 278, 285 (1960) (when the IRS is “not permitted by law” to pay a claim, it cannot “enlarge [its] legal authority” by considering that claim.); see also Mobil Corp. v. United States, 52 Fed. Cl. 327, 337 (2002) (citing Finn v. United States, 123 U.S. 227 (1887)) (finding that the IRS cannot waive the requirements of § 7422 or its regulations because it cannot “require the Government to make a payment that legally it was not obligated to pay”).

Because the taxpayer signature requirement derives from statute, the IRS cannot waive those requirements. See Angelus Milling Co., 325 U.S. at 296 (1945) (finding that although IRS could waive regulatory requirements in reviewing informal claims, it cannot waive “statutory requirements”). In other words, unsigned tax returns present a more serious deficiency than garden-variety technical deficiencies that are normally protected under the informal claim doctrine. Barenfeld v. United States, 194 Ct. Cl. at 908–9 (1971); Wilson v. United States, No. 18-408, 2019 WL 988600, at *4 (Fed. Cl. Feb. 27, 2019).

Having gone back to look at both the Supreme Court and appellate court opinions in Kales, it is clear to me from the quote from the letter in the appellate opinion that a lawyer drafted the text of the letter that was held to be an informal claim.  The letter was termed a protest.  It is not clear from Kales whether the letter was signed by the taxpayer with a paragraph verifying the facts in the letter under penalties of perjury or whether it was instead signed by the taxpayer’s lawyer who at that time had held a POA authorizing him or her to sign refund claims on behalf of the taxpayer.  I can’t recall other informal refund claim cases I have read, but I am sure I have read many where a letter was considered an informal claim, and I somehow doubt that, even if those letters were signed by the taxpayers (as opposed to a POA who probably did not have authority to sign a refund claim), the letters all contained a jurat paragraph.  Somehow, I doubt that the letters held to constitute informal claims did contain jurats, which makes the Dixon court’s distinguishing of Kales surprising.

If followed in other CFC cases of Castro, this holding will kill all the other cases where he went back, after the SOL had expired, and had his clients properly sign new refund claims.

Dixon then argued that the claim filing requirement is not jurisdictional and is subject to waiver.  The court (not yet knowing about Brown), disagreed.  In Brown, the Fed. Cir. held that the signature and verification requirements relate to the requirement in IRC 7422(a) that a claim be “duly filed” and that these are not jurisdictional requirements to a refund suit.  I won’t quote all the Dixon court’s opinion holding the claim-filing requirement jurisdictional, since that jurisdictional holding is not consistent with the recent Federal Circuit precedent (Brown), nor does the holding contain a persuasive discussion of current Supreme Court case law.  I will quote the part in which, like the Tax Court in Guralnik v. Commissioner, 146 T.C. 230, 235-238 (2016) (en banc), the CFC distinguishes all the recent Supreme Court case law as not in the tax area, so ignorable. 

In discussing jurisdiction, the Dixon court wrote:

There is reason to believe that Section 7422(a) should be deemed jurisdictional. The cases cited by Mr. Dixon involve the Supreme Court’s review of administrative exhaustion requirements in modern administrative schemes, outside of the context of tax and revenue collection. To this end, so far, none of the statutes held to be non-jurisdictional under the Supreme Court’s administrative exhaustion jurisprudence implicate an administrative program with such a lengthy lineage in administrative claim requirements as tax and revenue collection. The Supreme Court’s treatment of administrative tax claims as jurisdictional far pre-dates the current codification of that rule at 26 U.S.C. § 7422(a)See Nichols v. United States, 74 U.S. 122, 129–30 (1869) (finding that public interest behind “prompt collection of the revenue” bars the Court of Claims from ruling on tax refund claims when the “alleged errors and mistakes” were not communicated to the tax collector). For over 100 years, the Court in addressing the predecessor to Section 7422(a) has held that “[n]o suit can be maintained for taxes illegally collected unless a claim therefor has been made” with the tax collector “within the time and in the manner pointed out by law [ ].” Kings County Savings Institution v. Blair, 116 U.S. 200, 205 (1886) (citing Cheatham v. United States, 92 U.S. 85 (1875)) (emphasis added).

The CFC in Dixon overstates the consistency of the Supreme Court’s opinions terming (often in dicta) the refund claim filing requirement of IRC 7422(a) or its predecessors jurisdictional.  In recent non-tax opinions, the Supreme Court has created a stare decisis exception to its current rule that claim-processing rules (including administrative exhaustion requirements) are generally no longer jurisdictional.  The stare decisis exception applies where, if writing on a clean slate, the Court would not currently hold the requirement jurisdictional, but a consistent line of Supreme Court opinion (generally over 100 years) has held the rule jurisdictional.

The Dixon court relies on a couple of 19th Century opinions for stare decisis.  (The opinion notes that the DOJ also cited a statement in United States v. Dalm, 494 U.S. 596 (1990) calling the filing requirement jurisdictional.) But, in Flora v. United States, 362 U.S. 145 (1960) (which the Dixon court does not mention), the Court stated:

The ancestry of the language of § 1346(a)(1) [(i.e., “any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws”)] is no more enlightening than is the legislative history of the 1921 provision. This language, which, as we have stated, appeared in substantially its present form in the 1921 amendment, was apparently taken from R.S. § 3226 (1878).  But § 3226 was not a jurisdictional statute at all; it simply specified that suits for recovery of taxes, penalties, or sums could not be maintained until after a claim for refund had been submitted to the Commissioner. 362 U.S. at p. 152 (emphasis added).  (At the end of this quoted material the Court added footnote 11 which stated: “The successor of R. S. § 3226 is I. R. C. (1954), § 7422 (a), 68A Stat. 876.”)

In the end, the Dixon court hedges its bets and holds that the dismissal with respect to the net investment income tax issue is either under RCFC 12(b)(1) or (6).  The court says the same thing as Brown, though, that, even if not jurisdictional, based on the Supreme Court’s 1945 dicta in Angelus Milling Co. v. Commissioner, 325 U.S. 293, 296 (1945), the signing requirement is statutory and can’t be waived.  The court writes:

Regardless, the Court need not determine this issue, given that Mr. Dixon’s claims fail even if, as he urges, the signature requirement was merely a claims-processing rule. If Section 7422(a) is viewed as a claims-processing rule, that only means that its requirements are subject to equitable exceptions. Bowles v. Russell, 551 U.S. 205, 213 (2007) (claims-processing rules are subject to equitable exceptions and jurisdictional limits are not). Importantly, Mr. Dixon has not established that equitable exceptions apply in this case. The only equitable exception indirectly relied upon by Mr. Dixon is the waiver exception. As the Court has already addressed, because the signature requirement is a statutory requirement, the IRS could not have waived this requirement. Therefore, even if the Court were to find the requirements of Section 7422(a) to be a claims-processing rule, because the waiver exception cannot apply, Mr. Dixon’s claim still should be dismissed for failure to state a claim upon which relief can be granted. RCFC 12(b)(6).

As in Brown, the Dixon court makes the error of holding that statutory claim-processing rules cannot be waived because dicta in the Angelus Milling case said so.  But that dicta was based on the general thinking in 1945 that any procedural requirement that Congress wrote into a statute in connection with a court case is jurisdictional.  That Angelus Milling dicta is no longer good law.  More recent Supreme Court cases make clear that anytime even a statutory rule is held to be a non-jurisdictional claim-processing rule, it is subject to waiver and forfeiture (though not necessarily estoppel or equitable tolling). Fort Bend Cnty. v. Davis, 139 S. Ct. 1843, 1849 (2019) (statutory requirement to file a predicate claim with the EEOC before district court suit was forfeited because noncompliance was raised too late in the case; “A claim-processing rule may be “mandatory” in the sense that a court must enforce the rule if a party “properly raise[s]” it. Eberhart v. United States, 546 U.S. 12, 19 (2005) (per curiam). But an objection based on a mandatory claim-processing rule may be forfeited “if the party asserting the rule waits too long to raise the point.” Id., at 15 (quoting Kontrick, 540 U.S., at 456).

The third issue in the case involves foreign tax credits with respect to the additional income reported that would only be due to Dixon if a certain entity was a partnership.  The IRS accepted the additional income (the first issue in the case) but rejected the foreign tax credits relating thereto.  The court holds against Dixon on this foreign tax credit issue on the merits (RCFC 12(b)(6)), though the court finds a variance issue with regard to some arguments made by Dixon in the CFC that were not made in the claims.  I am not sure how the court can get to this issue on the merits, since Castro signed the only timely claim, which the court held in the second issue, could not be considered an informal claim.

What a mess!

Trump Authorizes Mnuchin to Use Section 7508A to Extend Time to Pay Certain Employment Taxes Through End of Year

On August 8, President Trump issued a document entitled “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.” Despite the impression of sloppy reporters in the non-tax press, the memorandum actually does not do anything yet.  In fact, the memorandum merely instructs Treasury Secretary Mnuchin to exercise his authority under section 7508A to extend certain tax deadlines for up to one year on account of Presidentially-declared disasters with respect to certain employees’ Social Security taxes.

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The operative part of the memorandum’s instructions read as follows:

Sec. 2.  Deferring Certain Payroll Tax Obligations.  The Secretary of the Treasury is hereby directed to use his authority pursuant to 26 U.S.C. 7508A to defer the withholding, deposit, and payment of the tax imposed by 26 U.S.C. 3101(a), and so much of the tax imposed by 26 U.S.C. 3201 as is attributable to the rate in effect under 26 U.S.C. 3101(a), on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020, subject to the following conditions:

(a)  The deferral shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.

(b)  Amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax.

As you can see, the President is asking Secretary Mnuchin essentially to provide an extension to pay for the compensation period from September 1 to December 31 of this year, but the instructions do not provide for a date by which those taxes must be paid.  That is being left to the IRS. 

Obviously, the statute prevents Secretary Mnuchin from providing for a deferral of more than one year.  However, the President is asking the Secretary to try to figure out a legal way that the taxes can simply be forgiven.  Section 4 of the memorandum states: “The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

The extensions will only apply to taxes imposed by section 3101(a) (and the equivalent portion of employment taxes imposed under the Railroad Retirement Act at section 3201).  Section 3101(a) imposes a 6.2 % Social Security tax on employees, which is withheld from their wages.  Thus, the extension does not apply to any amount of taxes imposed by section 3101(b) – the 1.45% Medicare taxes imposed on employees – or to any employment taxes normally imposed on employers under section 3301. 

Equivalent self-employment taxes under section 1401 are usually paid by the self-employed as part of their quarterly estimated tax payments.  Note that the extension will not apply to any portion of self-employment taxes.

Not to mislead anyone, in section 2302 of the CARES Act, Congress already extended, for the period from the date of enactment through the end of 2020, the times for (1) employers to pay the employer share of Social Security taxes and (2) self-employed taxpayers to pay 50% of self-employment taxes related to funding Social Security.  The deferred amounts are payable, instead, 50% on December 31, 2021 and 50% on December 31, 2022.

The IRS may also need to provide some detail as to how to apply the provision that the extension is only with respect to employees “the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period is generally less than $4,000, calculated on a pre-tax basis”.  I can see a whole host of complicated issues that the IRS and employers must face in interpreting the word “generally”.  For example, what if an employee gets a regular salary plus commissions, so that the employee’s compensation varies considerably each pay period?  If the IRS instructs to take an average of pay, what will be the testing period for the average?  Year to date during 2020 (when many employees had their incomes plunge starting in March)?  Or will it be the average earnings for a one-year period ending in February 29, 2020, before the country largely shut down?  I am sure others can come up with many other interpretive issues. 

Then, will employers even be able to figure out who are the employees to whom the extensions applies?  Employers don’t currently have software to deal with compliance with any formula that Secretary Mnuchin will come up with.  And presumably, Secretary Mnuchin needs to figure this all out and issue an IRS Notice sufficiently prior to September 1 so that employer computers can be reprogrammed (if they can be) to do appropriate paycheck withholding. 

I would not be surprised if it takes employers months to figure out the correct amount of the reduced employment tax that they are required to withhold and pay over to the IRS in each pay period. However, the memorandum contemplates that the IRS Notice will provide that nothing be withheld of the 6.2% taxes during the deferral period.  The memorandum contemplates not just an extension for the employers to pay the tax, but deferral of “withholding”.

Assuming that employers are not allowed to withhold these taxes during the deferral period, how are employers later going to collect these taxes so that they can be paid over sometime in 2021?  The Notice will have to deal with this, though the President has indicated he doesn’t believe that any employer will eventually have to pay over these taxes.  Politically, he may be right.  But, what if he is wrong because Congress doesn’t forgive the taxes – worrying about the financial stability of the Social Security trust fund?

One former IRS employee (who will remain nameless) speculated to me that, perhaps, the amounts to make the employer whole (so that funds could be paid over) could be withheld from the first paycheck of 2021.  I don’t know if that is a good idea or even possible for all employees.  For example, assume an employee worked for all of the last four months of 2020.  She was in 2020 and will in 2021 be paid $3,500 per bi-weekly pay period.  The deferral would be $217 per pay period (6.2% of $3,500).  The deferral would apply to approximately 9 pay periods, so the total deferral would be $1,953 (9 x $217).  That first paycheck of 2021 will have to reflect current income tax withholding (federal and state) and 7.65% current employee employment tax obligations.  Current 7.65% withholding would be $268.  State and local income tax withholding could eat up more than the rest of the $3,500 gross pay.

And, of course, what happens when an employee leaves between September 1, 2020 and December 31, 2020?  Say, an employee left in October and her last paycheck was October 20?  There won’t be any paychecks in 2021.  Can the employer take the money out of her last paycheck, anyway, even if that paycheck is during the extension period?

Finally, remember that failure to pay over the right amount of employment taxes could result in very large failure to deposit and failure to pay penalties, if the employers are wrong in their calculations.