Capacity to File a Tax Court Petition

At issue in Timbron Holdings Corporation and Timbron International Corporation v. Commissioner, T.C. Memo 2019-31, is whether a corporation can file a Tax Court petition when its corporate charter has lapsed. The Tax Court holds that it cannot and that reviving the charter after the filing of the petition does not save the Tax Court case. The non-precedential opinion reminds us of the importance of corporate formalities when seeking to litigate regarding corporate tax liabilities.

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On March 2, 2009, and August 1, 2013, respectively, the California Franchise Tax Board suspended Timbron International’s and Timbron Holdings’ powers, rights, and privileges for failure to pay State taxes. Petitioners’ powers, rights, and privileges remained suspended as of July 6, 2017. The suspension of corporate powers provides another example of the types of state benefits that taxpayers can lose by not paying state taxes. I had not previously seen this exercise of power by a state but I do not represent corporations. The suspension must happen routinely in California with potentially far sweeping results including those at issue here. This means that corporations that fall behind in paying their state taxes will have difficulty in many contexts. It also could have significant consequences for the responsible persons of the corporations. This post will not discuss the broader issues.

The court notes that as of July 6, 2017, the powers remained suspended. The suspension of the corporate powers, of course, does not stop the IRS from auditing the corporation and from issuing a notice of deficiency. The IRS did issue the notice on July 14, 2016. The corporations responded by filing Tax Court petitions on October 11, 2016 which respondent answered the following month. In the answer the IRS did not raise the jurisdictional issue but such issues can be raised at any time. Several months later the IRS must have noticed the suspended powers and the fact the suspension existed at the time of the filing of the petitions and it filed motions to dismiss for lack of jurisdiction due to the lapse of corporate existence at the time of the filing of the petitions. In response the corporations did not argue with the fact of the suspension but argued that at the time of the filing of the petition “that they had obtained certificates of reviver and were considered ‘active’ as of September 27, 2017 (approximately 11 months after the end of the applicable period).”

The court set up the issue with the following statement:

Whether we have jurisdiction to decide a matter is an issue that a party, or this or an appellate court sua sponte, may raise at any time. David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 269 (2000), aff’d, 22 F. App’x 837 (9th Cir. 2001). Jurisdiction must be shown affirmatively, and petitioners bear the burden of proving all facts necessary to establish jurisdiction in this Court. Id. at 270. Petitioners must establish that: (1) respondent issued them valid notices of deficiency and (2) they, or someone authorized to act on their behalf, filed timely petitions with the Court. See Rule 13(a), (c); Monge v. Commissioner, 93 T.C. 22, 27 (1989); see also secs. 6212 and 6213.

The court noted that corporate petitioners must have capacity to file a petition in order to for the court to have jurisdiction. (For a good discussion of the Timbron case commenting on Tax Court Rule 60(a), see Bryan Camp’s blog post here.) It then looks to California law to determine what it means to have the corporate powers suspended. The IRS relied on the case of David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 269 (2000), aff’d, 22 F.App. 837 (9th Cir. 2001). In that case the Tax Court interpreted California law in a very similar situation and determined that “[i]n reaching our holding we cited Cal. Rev. & Tax. Code secs. 23301 and 23302 (West 1992 & Supp. 1999), noting that the Supreme Court of California has construed those sections to mean that a corporation may not prosecute or defend an action during the period in which it is suspended.”

Petitioners argued that even though the state suspended its powers it still retained some rights and that those residual rights gave it capacity to file the Tax Court petition. They pointed to cases in California courts brought by suspended corporations which were allowed to proceed after the lifting of the suspension. The Tax Court rejected this argument pointing to its long history on this issue and discussing the fact that a post-petition restoration of rights did not revive a petition filed at the time corporate powers were suspended, for a court with limited jurisdiction. In this way it differentiated itself from the courts of general jurisdiction in California to which petitioners had cited.

Petitioners also argued that the 90-day period for filing a petition after the issuance of a notice of deficiency was not a jurisdictional time period. Since that period for filing a petition is not jurisdictional, petitions argued that the period could remain open until the restoration of corporate powers. The court dismissed this argument in a footnote citing to the Guralnik case in which the Tax Court, in a 16-0 reviewed opinion, rejected similar arguments concerning its jurisdiction raised by the tax clinic at Harvard. This is an issue we have discussed repeatedly in the blog though not in the context of lapsed corporate powers and not with an 11-month time frame to equitably toll.

The outcome here comes as no surprise. A host of cases have reached similar results including the almost identical case of David Dung Le. States regularly suspend corporations for failure to pay the annual registration fees. As states find more ways to suspend corporate powers, corporations must pay careful attention to their status at the time of filing the Tax Court petition. Chief Counsel, IRS will pay attention to this issue since it presents an easy way to dispose of a case. Then a corporation already in financial trouble will only have the opportunity to contest the IRS determination if it can come up with full payment of the liability in order to meet the Flora rule.

Don’t Forget Guralnik and Parkinson during Tax Court’s Indefinite Closure

The government shutdown and last Friday’s closure of the Tax Court, as discussed here, provides an opportunity for taxpayers who would otherwise have missed the jurisdictional deadline for filing a Tax Court petition. Since the last government shutdown of any length the Tax Court’s precedent on jurisdiction has changed. A reminder of the Tax Court precedent regarding the impact of the closure of the Tax Court clerk’s office on the timeliness of filing a petition (and other documents?) is worth a visit. Carl Smith assisted me in the preparation of this post.

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Long time readers of this blog know that we paid a fair amount of attention to the Guralnik case a few years ago perhaps because the tax clinic at Harvard filed an amicus brief in that case. See our posts here, here and here. While the tax clinic argued that the Tax Court had the power to open its doors based on equitable tolling, the court rejected the clinic’s argument in favor of a non-equitable remedy that has both broader implications as discussed below and narrower ones for other petitioners.

Mr. Guralnik’s attorney sent a petition to the Tax Court in a Collection Due Process (CDP) case via Fed Ex on the 28th day after the issuance of the CDP Notice. Unfortunately, the Fed Ex delivery service selected (the best one offered) was not on the IRS list of approved delivery services because the IRS had not updated its list in the 11 years prior to Friday, February 13, 2015 when the petition was given to Fed Ex. Because the chosen delivery service was not on the IRS list, the IRS argued and the Tax Court agreed that the mailbox rule of IRC 7502 did not apply.

Petitioner needed the mailbox rule to apply, or an expanded reading of the “weekend and holiday” rule of IRC 7503, because the petition did not arrive in the Tax Court until Wednesday, February 18. Before you conclude that Fed Ex fell down on the job of delivering the petition, it is important to understand what happened in the intervening days during which the Tax Court was closed – Saturday, Sunday, Monday (President’s Day) and Tuesday (Snow closure). The petition arrived at the Court on the first day it opened after petitioner’s attorney delivered the petition to Fed Ex.

Prior law

Among the reasons that the IRS argued that the Tax Court lacked jurisdiction in Guralnik was that there were prior orders of the Tax Court in similar cases of the Clerk’s office being closed, and one of those cases involved a government shutdown.  Government shutdowns formed the basis for dismissals in the pre-Guralnik era. One of the cases forming the body of pre-Guralnik jurisdictional law in the Tax Court, McCoy v. Commissioner, Dk. No. 25941-13S, involved the dismissal of a case in which the taxpayer tried and failed to file the petition prior to the reopening of the Tax Court following the government shutdown.  In McCoy, hand delivery was made at the Tax Court the first date the Clerk’s Office was open after a 2013 government shutdown. The order in McCoy reads differently than the order that the Court posted for this shutdown. The difference might be attributable to the Guralnik case.

Current law

In a fully reviewed, precedential opinion, the Tax Court concluded that because it had no rule regarding days when its clerk’s office was closed it could borrow from the Federal Rules of Civil Procedure and treat filings received on the next day after closure as timely. The IRS argued vigorously against this result; however, as we posted here, the IRS appears to have accepted the result when the issue of the closure of the clerk’s office came up in a subsequent case, Parkinson v. Commissioner, Dk. No. 296-15. In Parkinson the Tax Court asked the parties to address the issue of the Court’s jurisdiction of a case in which the petition was filed after the last date to file unless one considered the Court’s extra holiday closure on January 2, 2015. After both parties filed responses indicating that the Guralnik opinion would apply to the court closure situation, the Tax Court seems to have accepted their arguments without further elaboration in its order.

Given the precedent set by Guralnik and the non-precedential acceptance of that precedent for the situation of the Court closing down to allow its employees off on the Friday after New Year’s Day, it appears almost certain that starting on December 30, 2018, the time for filing a petition in the Tax Court is extended until the government shutdown ends and the Tax Court clerk’s office reopens. Perhaps no taxpayers will benefit from this additional time within which to file their Tax Court petitions but knowing the rule could assist someone who might otherwise have missed the deadline.

Following on the logic of filing documents late when the clerk’s office is closed, it would also seem that brief and other responses due to the Tax Court during the period of the clerk’s office closure can also be filed when the court reopens. For veteran procrastinators this may seem like an opportunity to sit back and wait; however, government shutdowns can end as quickly as they begin. A late night agreement among the parties could restart the government unexpectedly. While we do not recommend delaying a filing because of the shutdown, perhaps an opportunity exists for those who prefer not to file before the absolute last minute. Another reason for not waiting is discussed below; however, if you have a client appear in a situation that would otherwise be too late to file the petition, perhaps Guralnik will provide some magic for your client.

Tax Court action prior to shutdown

In addition to posting the notice on its website that we discussed in a prior post, the court issued nearly 300 orders on Thursday and Friday before it shutdown to the parties involved in the cases set for trial in the first two weeks of trial session in January. The orders generally contain the following language:

The parties are notified that the cases set for trial and/or hearing during the trial session scheduled to begin in New York, New York, on January 14, 2019, shall proceed as scheduled. To avoid potential complications caused by the partial government shutdown, it is

ORDERED that a paper copy of any document submitted to the Court for filing, either electronically or in paper, between the date of this Order and the date of the above-referenced trial session, shall be made available at the trial session by the party who submitted the document.

For a case containing the sample language see the order in Gross v. Commissioner (Docket No. 2010-18S). The fact that the Tax Court had to issue nearly 300 orders is just another example of the colossal waste of resources when the government shuts down. This one is probably small in comparison to others but provides a very tangible example.

Caveat

One caveat should be noted before relying on a government closure to make a petition filing’s timely: The Tax Court’s Guralnik ruling was never appealed, and no court of appeals has yet considered whether the Tax Court may import rules from the Federal Rules of Civil Procedure to extend Tax Court filing deadlines that have been in the past held jurisdictional. But, there are currently before the Ninth Circuit two companion cases of petitions sent in around the same time as Guralnik, also by FedEx First Overnight, that arrived a day late. In these cases, Organic Cannabis Foundation LLC v. Commissioner, Ninth Cir. Docket No. 17-72874, and Northern California Small Business Assistants, Inc. v. Commissioner, Ninth Circuit Docket No. 17-72877, it is not clear why the petitions were filed late, but it appears that the Federal Express driver could not access the open Tax Court Clerk’s Office on the last day – either because of construction work, police activity, or some other reason – so the driver returned the following day (one day too late if section 7502 can’t be used). In unpublished orders issued on July 25, 2017 (here and here), the Tax Court declined to extend Guranik to cover situations where the Clerk’s Office was in fact open.

In the Ninth Circuit, the taxpayers not only seek to extend Guralnik, but also argue (as the tax clinic at Harvard did in Guralnik) that the deficiency petition filing deadline is not jurisdictional and is subject to equitable tolling. The DOJ relies on the holding in Guralnik, but argues that Guralnik cannot be stretched to cover the situation where the Clerk’s office is actually open. Since the parties cannot confer jurisdiction in a case merely by not making certain arguments, it would not be impossible for the Ninth Circuit to eventually rule both in these cases that the filing deadline is jurisdictional and that the Tax Court cannot import into its own rules any rule from the Federal Rules of Civil Procedure that extends the filing deadline when the Clerk’s Office is formally closed. That is, nothing stops the Ninth Circuit from rejecting the latter holding in Guralnik. Thus, until there are some court of appeals rulings on this fact pattern, it may be wise not to try to rely on the closure of the government as a reason for not mailing a Tax Court petition on time or attempting hand delivery to the court on the first date it reopens. The cases before the Ninth Circuit are fully briefed, but a date for oral argument therein has not yet been set. Among the briefs there are amicus briefs from the Harvard tax clinic arguing that the filing deadline is not jurisdictional and is subject to equitable tolling.

 

Fourth Circuit Declines to Rule on Whether CDP Filing Period is Jurisdictional, but Holds Against Taxpayer, Since It Says Facts Do Not Justify Equitable Tolling

We welcome back frequent guest blogger Carl Smith who discusses the most recent circuit court opinion regarding the jurisdictional nature of the time frames for filing a petition in Tax Court. The Fourth Circuit takes a different tack but reaches the same result as prior cases. Keith 

A few days ago, I did a post on the Ninth Circuit opinion in Duggan v. Commissioner, 2018 U.S. App. LEXIS 886 (9th Cir. 1/12/18). In Duggan, a pro se taxpayer mailed a Collection Due Process (CDP) petition to the Tax Court one day late, relying on language in the notice of determination that stated that the 30-day period to file a petition did not start until the day after the notice of determination. He read this to mean that he had 31 days to file after the date of the notice of determination. Keith and I filed an amicus brief in Duggan arguing that (1) the filing deadline in section 6330(d)(1) is not jurisdictional, (2) the deadline is subject to equitable tolling, and (3) in light of the fact that 7 other pro se taxpayers over the last 2 ½ years read the notice the same way, the IRS misled the taxpayer into filing a day late – justifying equitable tolling on these facts to make the filing timely. In Duggan, the Ninth Circuit did not have to reach the second or third arguments, since it held that the language of section 6330(d)(1) made its filing deadline jurisdictional under a “clear statement” exception to the Supreme Court’s usual rule (since 2004) that filing deadlines are no longer jurisdictional. Thus, the Ninth Circuit affirmed the Tax Court’s dismissal of the case for lack of jurisdiction – a dismissal that had originally been done in an unpublished order.

Keith and I represented a formerly-pro se taxpayer in the Fourth Circuit who had a case on all fours with Duggan, Cunningham v. Commissioner. In another unpublished Tax Court order, she also had her CDP petition dismissed for lack of jurisdiction as untimely. Like the Ninth Circuit, the Fourth Circuit had no precedent on whether the CDP filing deadline is jurisdictional or subject to equitable tolling. Only days after the Ninth Circuit’s published opinion in Duggan, the Fourth Circuit, on January 18, 2018, issued an unpublished opinion in Cunningham affirming the Tax Court. But, the Fourth Circuit avoided the tricky issues of whether the filing deadline is jurisdictional or whether it might be subject to equitable tolling in an appropriate case. Instead, the Fourth Circuit held that Ms. Cunningham has misread a clear notice of determination and that her mere error was not a fact sufficient to sustain a holding of equitable tolling, even assuming (without deciding) that the filing deadline might be nonjurisdictional and might be subject to equitable tolling in an appropriate case.

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The opinions in Duggan and Cunningham do not mention the significant number of pro se taxpayers who have recently read the notice of determination filing period language differently, although the Cunningham opinion acknowledges that “other taxpayers” (number unspecified) have read the language like Ms. Cunningham.

The key passage in the Cunningham opinion states:

We have said that equitable tolling is appropriate “in those rare instances where—due to circumstances external to the party’s own conduct—it would be unconscionable to enforce the limitation period against the party and gross injustice would result.” Whiteside v. United States, 775 F.3d 180, 184 (4th Cir. 2014) (en banc) (internal quotation marks omitted).

We find these considerations to be wholly absent here. There is no suggestion of extraordinary circumstances that prevented Cunningham from timely filing her appeal, nor of circumstances external to her own conduct. Cunningham simply points to the language in the IRS’s letter, which she claims is misleading and tricked her and other taxpayers into filing late. But we see nothing misleading about it.

The letter informed Cunningham that she had “a 30-day period beginning the day after the date of this letter” to file an appeal. J.A. 5. We think the only reasonable reading of that language requires counting the day after the date of the letter (here, May 17) as “day one,” the following day (May 18) as “day two,” and so on up to “day thirty”—June 15. Cunningham claims she understood the language in the IRS letter to essentially count May 17 as “day zero,” and onward from there, resulting in a cutoff date one day later than the true deadline. Such a method of counting is certainly contrary to the practice set forth in Rule 25(a) of the Tax Court Rules of Practice and Procedure. See United States v. Sosa, 364 F.3d 507, 512 (4th Cir. 2004) (“[I]gnorance of the law is not a basis for equitable tolling.”). We think it is also contrary to the plain language of the IRS letter and to principles of common sense.2

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2Cunningham also points out (correctly) that the language in the letter is not identical to the language in the statute. But it need not be, and Cunningham fails to explain why the difference in wording matters. In our view, the language of the letter and the language of the statute are two commonsense ways of expressing the same message.

 

After the Duggan opinion was issued, the DOJ filed a FRAP 28(j) letter in the Fourth Circuit to alert the latter court to the ruling of the former. But, pointedly, the Fourth Circuit in Cunningham does not mention Duggan, even for contrast.

Since there is no Circuit split between Duggan and Cunningham (just different reasoning for affirming the Tax Court’s dismissals), it is almost certain that the Supreme Court would never grant cert. to review either of these opinions. Thus, no cert. petitions will be filed.

Keith and I want to thank Harvard Law student Amy Feinberg, who did the oral argument in Cunningham before the Fourth Circuit on December 5, 2017.

Keith and I also represent in the Fourth Circuit another formerly-pro se taxpayer who filed her Tax Court petition late. In the case of Nauflett v. Commissioner, Fourth Circuit Docket No. 17-1986, however, the notice of determination was issued under the innocent spouse provisions, and the language governing her filing deadline is contained in section 6015(e)(1)(A). In Ms. Nauflett’s case, there is a better argument for equitable tolling because (1) notes of a TAS employee clearly show that, prior to the last date to file (a date also not shown on the innocent spouse notice of determination), that TAS employee told Ms. Nauflett the wrong last date to file, on which she relied, and (2) Ms. Nauflett alleges by affidavit that the IRS CCISO employee who actually issued the notice of determination also told Ms. Nauflett (over the telephone) the identical wrong last date to file. The Tax Court, in an unpublished order, dismissed Ms. Nauflett’s petition for lack of jurisdiction as untimely. We are arguing in the case that, under recent Supreme Court case law, the innocent spouse filing period is not jurisdictional and is subject to equitable tolling, and the facts in her case justify equitable tolling. It may be harder for the Fourth Circuit to avoid issuing a ruling in Nauflett on whether or not the filing period is jurisdictional or subject, theoretically, to equitable tolling in the right case. Nauflett is fully briefed. It is not yet clear whether or when oral argument will be scheduled in the case.

Nauflett will no doubt be another uphill battle for Keith and me, however, since last year, two Circuits, in two other cases where we represented the taxpayers, held that the filing deadline in section 6015(e)(1)(A) is jurisdictional under current Supreme Court case law. Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017).

Despite recent setbacks in court, I do not consider Keith and my litigation of the nature of tax suit filing deadlines under current Supreme Court case law to be a waste of time. Clearly, although we have not (yet) convinced any Circuit court to find the innocent spouse or CDP Tax Court petition filing deadline not to be jurisdictional, we have highlighted problems in those areas that have led Nina Olson to propose two legislative fixes.

Further, there is a much better case under current Supreme Court case law for finding district court filing deadlines under section 6532 nonjurisdictional and subject to equitable exceptions like tolling or estoppel. As an amicus in Volpicelli v. Commissioner, 777 F.3d 1042 (9th Cir. 2015), I helped persuade the Ninth Circuit to hold that the period in section 6532(c) in which to file a district court wrongful levy suit is nonjurisdictional and subject to equitable tolling. And, if the court reaches the issue, Keith and I hope, as amicus, to help persuade the Second Circuit to hold that the 2-year period in section 6532(a) in which to file a district court refund suit is nonjurisdictional and subject to estoppel. In both section 6532 instances, by contrast to sections 6015(e)(1)(A) and 6330(d)(1), the sentence containing the filing deadline does not also contain the word “jurisdiction”, and the jurisdictional grants to hear such suits are far away (in 28 U.S.C. section 1346) – key factors under current Supreme Court case law demonstrating that filing deadlines are not jurisdictional. As I noted in my post on Duggan, the jurisdictional and estoppel issues under section 6532(a) are among the issues presented in Pfizer v. United States, Second Circuit Docket No. 17-2307, where oral argument is scheduled for February 13.

 

Ninth Circuit Holds Period to File Tax Court Collection Due Process Petition Jurisdictional Under Current Supreme Court Case Law Usually Treating Filing Deadlines as Nonjurisdictional

This will be a very brief post. Today, subsequent to my post on the NTA Report calling for certain legislative fixes, the Ninth Circuit held, in a published opinion in Duggan v. Commissioner, that the 30-day period in section 6330(d) to file a Tax Court Collection Due Process petition is jurisdictional and not subject to equitable tolling under the Supreme Court’s post-2004 case law that generally excludes filing deadlines from jurisdictional status. The Ninth Circuit relied on an exception to the current Supreme Court rule that applies where Congress clearly states that the time period is jurisdictional, although the court admits that language Keith and I suggested in our amicus brief in the case might be clearer. The Ninth Circuit noted that the jurisdictional grant for the Tax Court suit was in the same sentence that set out the filing deadline. We have blogged before on Duggan here. In essence, the Ninth Circuit in Duggan adopts the position that the Tax Court adopted in Guralnik v. Commissioner, 146 T.C. 230 (2016) (where Keith and I filed an amicus brief making the same arguments that were rejected in Duggan).

Mr. Duggan was one of at least eight taxpayers over the last two years who have been misled into filing his or her Tax Court Collection Due Process petition one day late because of confusing language in the current notice of determination – a notice that does not show the last date to file.

The Duggan opinion is not the first court of appeals opinion to hold that Collection Due Process petition filing period jurisdictional. However, it is the first such court of appeals opinion that has considered the interaction of the Supreme Court’s current rules on the usual nonjurisdictional nature of most filing periods with the statutory language in section 6330(d)(1).

As I noted in my post on the NTA report from earlier today, Keith and I are imminently awaiting an opinion from the Fourth Circuit in Cunningham v. Commissioner, 4th Cir. Docket No. 17-1433 (oral argument held on Dec. 5, 2017; the Harvard Federal Tax Clinic is counsel for the taxpayer). Cunningham is on all fours with the facts and legal arguments presented in Duggan. She also argues that she was misled by the IRS through confusing language in the Collection Due Process notice of determination into mailing her Tax Court petitions to the court a day late. Like Duggan, she seeks equitable tolling to make her filing timely.

IRS Accepts Guralnik Holding in Another Case Where the Clerk’s Office Was Closed

We welcome back frequent guest blogger Carl Smith.  Carl writes today about another case involving timely filing with the Tax Court.  He explains why the Tax Court will likely find the case timely based on its new precedent and points out the apparent IRS acceptance of the new precedent.  Carl states that he would not argue for equitable tolling in a case like this because it is a deficiency case and because the Court gave prior notice of the closing.  I agree with Carl on the issue that it is a deficiency case.  While acknowledging that statements by a Court are not a usual basis for equitable tolling, the statement issued by the Tax Court concerning its closing could lead pro se petitioners and perhaps practitioners to believe that special days the Tax Court closes that are not government holidays but which it says will be treated as such for purposes of computing time under Rule 25 give a petitioner extra time to file their Tax Court petitions.  Keith

One of the big questions after the IRS on June 2 lost the Tax Court’s opinion in Guralnik v. Commissioner, 145 T.C. No. 15, unanimously en banc was whether the IRS would pursue the arguments it made in that case in other Tax Court cases and eventually try to seek appellate court review of the Tax Court’s holding.  After all, the IRS’ cumulative motion papers in Guralnik exceeded 100 pages and pointed out that several previous unpublished orders of the court involving dates on which the Tax Court Clerk’s Office was closed had come out the other way.  In its Guralnik filings, the IRS was pretty steamed about a potential loss.

In Guralnik, as Bryan Camp blogged here, the Tax Court held that when its Clerk’s Office was closed (there, because of a snowstorm), the last date to file was moved to the next business day when the office was open.  The Tax Court imported this rule from the FRCP because both the Internal Revenue Code and Tax Court Rule 25 did not address non-holiday Clerk’s Office closing days.

An August 18 filing in the Tax Court in Parkinson v. Commissioner, Docket No. 296-15 indicates that the IRS has decided to throw in the towel and simply live with the Tax Court’s Guralnik holding.

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The facts of Parkinson are as follows:  The IRS mailed Mr. Parkinson a notice of deficiency on October 3, 2014 for his 2005, 2007, and 2008 income taxes.  Ninety days from that date would have been Thursday, January 1, 2015, which, of course, was a holiday, New Year’s Day.  Thus, section 7503 would have made the last day to file Friday, January 2, 2015 (the next business day after a Saturday, Sunday, or legal holiday in the District of Columbia).

Rather than simply put his Tax Court petition in the U.S. mails (which would have completely avoided any problem), on December 31, 2014, Mr. Parkinson, acting pro se, sent his petition to the Tax Court by FedEx First Overnight service.  That service – the same one used by Mr. Guralnik – was not, at the time, a designated service under section 7502(f) that got the benefit of the timely-mailing-is-timely-filing rules of section 7502(a) applicable to use of the U.S. mails.  (But, since May 6, 2015, FedEx First Overnight is now a designated service.)

FedEx would have delivered the petition to the Tax Court on January 2, but for the fact that the Clerk’s Office was closed.  As often happens at Thanksgiving, Christmas, and New Year, the Tax Court closes to make 4-day weekends.  Indeed, on December 10, the Tax Court had issued notice to the public that the Clerk’s Office would be closed on January 2, 2015.  The notice read as follows:

The United States Tax Court will be closed on Friday, December 26, 2014, and Friday, January 2, 2015.

For purposes of computation of time under Rule 25, Tax Court Rules of Practice and Procedure, December 26, 2014, and January 2, 2015, shall each be treated in the same manner as a legal holiday. See Rule 25 (a) (2) ånd (b), Tax Court Rules of Practice and Procedure.

Actually, the second paragraph of this notice was wrong, since Tax Court Rule 25 doesn’t contain a provision indicating that any date that the Clerk’s Office is closed is treated as a legal holiday for purposes of section 7503.  That is one of the issues that was litigated in Guralnik, where the court held that a date that the Clerk’s Office was closed for a snowstorm was not a legal holiday for purposes of section 7503.

FedEx delivered Mr. Parkinson’s petition to the Tax Court on Monday, January 5, 2015.

The IRS initially raised no question about the timelines of the petition’s filing.  But, on July 7, 2015, the Tax Court itself raised the issue.  In an order issued that date, the Court noted the possible late filing and ordered the parties to show cause why the petition should not be dismissed for lack of jurisdiction on the grounds of untimeliness.  Although I have not seen it, I believe that the IRS, in its response filed July 28, 2015, argued what it was then arguing in Guralnik – that a day that the Clerk’s Office closed was not to be treated as a holiday for purposes of section 7503 unless it was one of the stated holidays listed in Tax Court Rule 25(b).

On May 28, 2015, Chief Judge Thornton issued an order assigning the Guralnik case to Special Trial Judge Armen to decide the motion to dismiss in that case.  Recognizing that Parkinson presented possibly the same issue, the Chief Judge apparently just stuck the Parkinson case in a drawer to await the ruling in Guralnik – a ruling eventually written by Judge Lauber.

The Guralnik opinion was issued on June 2, 2016.  It held that a day that the Tax Court Clerk’s Office was closed that was not a legal holiday in the District of Columbia should still not be treated as the last day to file.  Rather, importing a rule from the FRCP, the Tax Court held that if the last day to file had otherwise fallen on such a day, the last day to file would be moved to the next business day when the Clerk’s Office was open.

On August 1, 2016, now Chief Judge Marvel issued an order in Parkinson directing each party to “set forth and discuss fully that party’s position as to the possible application, if any, to this case of Guralnik v. Commissioner.”

On August 18, 2016, the IRS filed a response stating, in part:  “The petition in this case was timely filed. . . .  It is respondent’s position that this case should not be dismissed for lack of jurisdiction.”  This is the first indication that the IRS is not going to fight the Guralnik holding in the Tax Court or any appellate court.

The Tax Court has not yet issued its ruling in Parkinson, but the court is likely to rule that it has jurisdiction, based on its holding in Guralnik, which would have pushed the last date to file all the way to Monday, January 5, 2016, since the Clerk’s Office was closed on Friday, January 2, 2015.

Observations 

Parkinson is a deficiency case.  Guralnik was a Collection Due Process (CDP) case.  But the reasoning of the Tax Court in Guralnik did not depend upon which jurisdiction underlay the case.

Nor did the Guralnik holding turn on whether the Clerk’s Office closure was something that was unexpected (e.g., from a snowstorm) or long-anticipated (e.g., a closing to make a 4-day weekend, announced 3 weeks in advance).  In some ways, practitioners may see Parkinson as an extension of Guralnik, since many might have expected that an unanticipated snow day should get more compassion than a long-foreseeable Clerk’s Office closing day.

The instinct of greater compassion for a snow day is one based on equity.  Keith and I had made an argument in Guralnik (as amicus) that the 30-day period in section 6330(d)(1) in which to file a CDP petition is not jurisdictional and is subject to equitable tolling in an appropriate case, such as the unexpected snow day situation involved there.  My personal view is that equitable tolling would have no application in Parkinson, since the Clerk’s Office closing in Parkinson should have been taken into account by any petitioner.  It was not an unexpected circumstance beyond the petitioner’s control (one of the common grounds for equitable tolling).  Further, Keith and I don’t believe that the 90-day period to file a deficiency petition is subject to equitable tolling.  We make a distinction between the two jurisdictions.  There is a clearer statement that the section 6213(a) time period is jurisdictional.  For one thing, the legislative history of an amendment to section 6213(a) in 1998 called the time period therein “jurisdictional”.  In contrast, Congress in December 2015 called the CDP and section 6015(e)(1)(A) time periods to file “periods of limitations”.  Equitable tolling typically applies to periods of limitations, but cannot apply to a filing limit that is jurisdictional.

I’ll have a lot more to say about the argument that Keith and I made in Guralnik in a later post.  Suffice it to say that, respectfully, like Bryan Camp, Keith and I are not persuaded by the portion of the Tax Court’s opinion there holding that under current Supreme Court case law, the 30-day period in which to file a CDP petition is jurisdictional and not subject to equitable tolling.  We have some appellate test cases in the works both as to the CDP filing period and the section 6015 filing period.  Those will be discussed in a post coming out shortly.

Guralnik – Equity Through Court Rules not Court Rulings

Today we welcome back guest blogger Bryan Camp. Professor Camp, my former colleague in the General Litigation Division (aka collection division) of Chief Counsel, IRS now teaches at Texas Tech. Because Bryan teaches a wide range of subjects including administrative law and civil procedure in addition to tax, he has a perspective on the Guralnik case that someone like me, who is grounded primarily in tax, does not have.  

It is weird to receive congratulations about a case in which the Court rejected your argument 16-0. I had never had the pleasure of losing by that margin before and hope to not have that pleasure again. It gives me a better perspective of how all of the Republican Presidential wannabes felt when the voters rejected them though even their voting margins were not as bad as mine. Without going too deeply into an analogy I am ill-equipped to carry out, the case reminds me a bit of the superpower movies of the past 10-15 years. The characters frequently have misgivings about the powers they find they have and struggle to cope with their special powers. The Harvard tax clinic argued that the Tax Court has powers it has not previously exercised. The Court emphatically rejected that idea. Yet, it found it had another power it had not previously exercised and which it had rejected on more than one occasion. I might argue that the power it found it had is a more exceptional power than the one the Harvard tax clinic suggested since the Supreme Court has previously limited the power of court Rules to expand jurisdictional limits but I have had my time to argue and now it is Professor Camp’s turn to explain. Keith

Congratulations to Keith and Carl for helping the Tax Court find a way to get to the right decision in Guralnik v. CIR, 145 T.C. No. 15 (June 2, 2016). Yeah, they struck out on the home run swing, but Mr. Guralnik still managed to eke out a win, in part I think because Tax Court (mistakenly) thought the step it took was not nearly as large as what Keith and Carl urged. I am grateful to the Procedurally Taxing gang for allowing me to write my thoughts about this very interesting 37 page Tax Court opinion.

The judge I clerked for in the Court of Federal Claims used to say “where equity lies, the law will follow.” Of course, he usually said that while strictly construing jurisdictional requirements to deny the petitioner relief. So he might as well have added the caveat: “but the law has not yet followed in this case.”   Like the Court of Federal Claims, the Tax Court is very, very cautious about not overstepping its Congressionally-given bounds. In Guralnik, however, the Tax Court at least found some “law” to follow “equity” and so came to a good result. But one has to be discouraged by the convoluted path the Court took, a path forced upon it, in part, by the Supreme Court.

I have three comments about this case that may be of interest to readers. First, the Court’s opinion relies on what I believe is a mischievous distinction between “claim processing rules” and “jurisdictional rules.” Second, the Court could have done a better job applying that distinction. Third, by applying FRCP 6(a), the Court actually may be contradicting its own rationale for not applying equitable tolling, because FRCP 6(a) is best viewed as itself nothing more than an equitable tolling rule, albeit one put into the “form” of a rule (hence the law following equity idea). While I think the Court was right to follow the FRCP, I wish it had given a better reason than it did.

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For those unfamiliar with the case, here are the facts reduced to their essentials: taxpayer (TP) was trying to file a collection due process (CDP) petition. TP tried to deliver the petition on the last day of the filing period, but was unable make delivery because the Tax Court was officially closed that day due to a snowstorm. So TP had to file the next day. The question was whether the petition was untimely.

The TP, aided by Keith and Carl’s amicus brief, urged the Tax Court to find that these circumstances equitably tolled the period for filing a timely petition. The Tax Court rejected the argument because, it said, the statute granting the Court subject matter jurisdiction (SMJ) over a CDP petition made the timely filing of the CDP petition part of the jurisdictional grant. The Tax Court reasoned that while it could apply equitable tolling to what it called “claim-processing rules” it could “not apply equitable tolling to a jurisdictional filing requirement.” The Court cited to Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2014) for that proposition.

TP won his backstop position, however. Federal Rule of Civil Procedure 6(a)(3)(A) says that “Unless the court orders otherwise, if the clerk’s office is inaccessible…on the last day for filing…then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday.”   The Tax Court had no difficulty in applying FRCP 6(a)(3)(A) to save the taxpayer, reasoning that “procedural rules for computing time are fully applicable where the time period in question embodies a jurisdictional requirement. Rather than expanding a court’s jurisdiction, Civil Rule 6 simply supplies the tools for counting days to determine the precise due date.” (Internal quotes and cites omitted).

  1. The Silly Distinction between “Claim Processing” and “Jurisdictional” Timing Rules

The notion that courts have equitable powers to modify ordinary “claim processing” rules but have no ability to modify “jurisdictional” timing rules is a nefarious formalist distinction. This is not the Tax Court’s doing. The Court here is just obeying the distinction created by the Supreme Court in cases such as Irwin v. Department of Veterans Affairs. 498 U.S. 89 (1990). As that Court noted in Auburn Reg’l Med. Ctr., 133 S. Ct. 817 at 824, it has “tried in recent cases to bring some discipline to the use” of the term “jurisdiction” which it has called a “word of many, too many, meanings.” (Internal quotation marks and citations omitted).

I have two reasons for disliking the distinction. I think briefly stating them may help future courts (or to litigants educating courts!) who are called upon to make the distinction.

First, the word “jurisdiction” just means “power.” It is true there are many types of jurisdiction that one considers, but, for this type of case, we are concerned with the problem faced by all federal courts, whether established under Article I or III: their power over the substance of the lawsuit comes from statutes. We call that Subject Matter Jurisdiction (SMJ).

I do not believe rules about filing deadlines are usually really rules about power, such as to say “oh, you HAD power, but after this deadline passes, you no longer have power, nanny nanny boo boo.” All deadlines are “claim processing rules” in the sense that they speak to a party’s ability to invoke the power, to open the courthouse door, so to speak. They do not speak to a court’s power over a subject per se. Consider a statute that says “A party wishing to invoke the court’s subject matter powers must dance the Macarena for five minutes in the street before the party may open the courthouse door.” Determining whether a party actually performs the dance or leaves out a step is not a question about the court’s power over the subject of the lawsuit but is only a determination about whether the party has earned the right to come in. Determining whether a party has taken the proper action to have filed a timely petition is like evaluating whether the dance was properly done.

To be sure, there is a long-standing, never-ending, permanent, floating crap-game of arguments that one throws up to debate whether timing provisions are “substantive” or “procedural.” First year law students study one (and only one) dimension of this debate in the context of studying the Erie Doctrine. And when one looks carefully at the Erie case law, one finds that courts (and the Supreme Court) are careful to answer the question “is it substantive or procedural” with “why do you want to know.” So, while timing rules might be substantive for some purposes, that does not make them per se part and parcel of a jurisdictional grant.

The second reason I dislike the distinction is because it ignores the fundamentals of separation of powers. Every branch of government (legislative, executive, judicial) has the power to determine its own powers, subject to the allowed corrections from the other branches. So there is really no reason for courts not to apply equitable powers to modify even “jurisdictional” provisions. If the courts get it wrong, the legislatures can always come back and codify corrections. Maintaining the distinction between “claim processing rules” and “jurisdictional rules” just seems to create unneeded problems and litigation.

2. Applying the Silly Distinction to Section 6330.

Recognizing that the Tax Court was stuck with the distinction, I nonetheless wished it had given more attention to analyzing the particular statute that gives it SMJ over CDP claims. Section 6330(d) provides that the TP “may, within 30 days of a determination under this section, appeal such determination to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).” (Emphasis supplied, for reasons you will shortly read.)

In the Guralnik opinion, the Tax Court focuses on the fact that the parenthetical occurs in the same sentence as the SMJ grant. That’s a strange reason to find the timing rule jurisdictional. There are two better reasons to find otherwise. First, the use of the word “and” is, to me, a HUGE clue that the SMJ grant has nothing to do with the 30 day period. Grammatically, the connector “and” denotes the start of a new independent clause, a clause that can stand on its own as a separate sentence. I am all the time telling my students to write shorter sentences. That often means substituting a period for an “and.” So, functionally, the clause after the “and” in 6330(d) is a different sentence.

Second, the statute says the Tax Court has SMJ “with respect to such matters.” If you want to find a reference in the same subsection, the word “such” most naturally references the phrase “determination under this section” and not the clause “within 30 days.” However, I think the better reading is to read section 6330 as a whole. In the immediately preceding subsection, 6330(c) lists all the “Matters Considered at Hearing.” So it makes sense to me that 6330(c) tells the IRS what matters it must consider at the CDP hearing and then 6330(d) tells the Tax Court it has SMJ over “such matters.” I think THAT’s the reference as to what the Tax Court has power to review.   Again, SMJ is just the power Congress gives a court over the subject of a lawsuit. Here, the subject is the review of the CDP hearing and the “matters” contained in the CDP hearing are listed in 6330(c).

3. Is The Tax Court’s Reason for Applying FRCP 6 Consistent With Its Reason for Refusing to Apply Equitable Tolling?

Once the Tax Court concludes that the 30-day requirements is not just a “claim-processing rule” but is jurisdiction, it rejects the Taxpayer’s equitable tolling argument because, it says, “A court may not apply equitable tolling to a jurisdictional filing requirement.” The Court never explains why it cannot apply equitable tolling to a jurisdictional filing requirement but instead just cites to the Supreme Court’s opinion in Sebelius v.Auburn Reg’l Med. Ctr., 133 S. Ct. 817 (2914) and to its own opinion in Pollock v. CIR, 132 T.C. 21 (2009). When one reads the cited opinions, however, and then reads the opinions cited in the cited opinions (!) one sees two basic concerns courts have articulated in explaining their reluctance to use equitable powers to jurisdictional filing requirements. First is a concern for finality. Here is how the 11th Cir. has explained it:

The principal reason underlying decisions which hold that statutory periods of limitation are jurisdictional… is to set a definite point of time when litigation shall be at an end, unless within that time the prescribed application has been made; and if it has not, to advise prospective appellees that they are freed of the appellant’s demands. In the specific context of direct appeals from decisions of administrative agencies, the time limitation serves the important purpose of imparting finality into the administrative process, thereby conserving administrative resources and protecting the reliance interests of regulatees who conform their conduct to the regulations.

Brown v. Dir., Office of Workers’ Comp. Programs, 864 F.2d 120, 124 (11th Cir.1989) (citations and internal quote marks omitted).

The second concern is about the proper separation of powers. Courts might abuse their equitable tolling powers and thereby screw up a carefully calibrated statutory scheme. That’s the thrust of the Supreme Court’s concern in United States v. Brockamp, 519 U.S. 347 (1997), when it refused to allow equitable tolling to the section 6511 limitations on refund claims and suits.

Section 6511’s detail, its technical language, the iteration of the limitations in both procedural and substantive forms, and the explicit listing of exceptions, taken together, indicate to us that Congress did not intend courts to read other unmentioned, open-ended, “equitable” exceptions into the statute that it wrote. There are no counter-indications. Tax law, after all, is not normally characterized by case-specific exceptions reflecting individualized equities.

The nature of the underlying subject matter—tax collection—underscores the linguistic point. The IRS processes more than 200 million tax returns each year. It issues more than 90 million refunds. To read an “equitable tolling” exception into § 6511 could create serious administrative problems by forcing the IRS to respond to, and perhaps litigate, large numbers of late claims, accompanied by requests for “equitable tolling” which, upon close inspection, might turn out to lack sufficient equitable justification. See H.R. Conf. Rep. No. 356, 69th Cong., 1st Sess., 41 (1926) (deleting provision excusing tax deficiencies in the estates of insane or deceased individuals because of difficulties involved in defining incompetence). The nature and potential magnitude of the administrative problem suggest that Congress decided to pay the price of occasional unfairness in individual cases (penalizing a taxpayer whose claim is unavoidably delayed) in order to maintain a more workable tax enforcement system. At the least it tells us that Congress would likely have wanted to decide explicitly whether, or just where and when, to expand the statute’s limitations periods, rather than delegate to the courts a generalized power to do so wherever a court concludes that equity so requires.

United States v. Brockamp, 519 U.S. at 352 (citations and internal quote marks omitted).

Tax exceptionalism alert!! Note the way the Supreme Court acknowledges how “the nature of the underlying subject matter” is an important part of its analysis. That’s tax exceptionalism, folks.

It would have been helpful for the Tax Court to explicitly acknowledge these two traditional concerns underlying the historic refusal of courts to apply equitable tolling to jurisdictional timing periods because the Tax Court then goes on to find a substitute for equitable tolling in FRCP Rule 6.

FRCP Rule 6, however, is just a rule that explicitly permits federal courts to equitably toll a filing limitation when the place of filing is “inaccessible.” My claim that this is an equitable rule rests on two observations. First, note how FRCP 6(a)(3)(A) starts: “Unless the court orders otherwise…” In order words, the courts have discretion to overrule the rule. Why would they do that? Why, for “good cause.” That’s all equitable tolling is, a determination that for a good reason or good cause a seemingly late-filed document will be deemed to have been filed within the applicable period. FRCP just reverses the presumption, but it still leaves the determination up to the court. If there is a good reason to NOT extend the time for filing despite the inaccessibility of the court, the court may “order otherwise.” So in this case, for example, if Mr. Guralnik’s Fed Ex delivery person had been scheduled to deliver the package late, the fact that the Court was inaccessible the day before scheduled delivery would probably be a good reason to “order otherwise.”

Second, note that the FRCP applies whenever the clerk’s office is “inaccessible.” What does that word mean? Does that mean physically inaccessible? Some courts think so. U.S. Leather, Inc. v. H & W Partnership, 60 F.3d 222, 225, (5th Cir. 1995). Other disagree and say it means only when legally closed. In re Bicoastal Corp., 136 B.R. 288 (Bankr.M.D.Fla.1990). Does the term include situations when the clerk’s office is physically open but the party is trying to electronically file from across the country and the servers are down?   All of these questions rest in the good hands and heads of the judges applying the FRCP. They will decide in light of what is fair. That is what the drafters say they intended in the 2009 Advisory Committee Notes: “The rule does not attempt to define inaccessibility. Rather, the concept will continue to develop through case law.” And “case law” here just means the judicial application both legal rules and of equitable rules. After all, law and equity have been merged in the federal courts since 1938. There is no longer a “law” side and an “equity” side and both sets of rules—legal and equitable—are in the judicial tool box under every federal bench.

So if the Tax Court is not going to apply “equitable tolling” doctrines to the section 6330 30-day deadline, why does it decide to use FRCP 6? After all, not only does the Advisory Committee say that the FRCP will develop by case law, the FRCP itself is a judge-made rule, subject to case law development, just as is the doctrine of equitable tolling. To be sure, the FRCPs are promulgated by the Supreme Court pursuant to the Rules Enabling Act (REA), but it would be difficult to argue that the writers of the REA thought they were thereby giving courts license to alter SMJ! So is not using the FRCP to alter the jurisdictional timing rule of 6330 doing exactly what the Tax Court says it courts cannot do??

The Tax Court thinks applying FRCP 6 is different than applying equitable tolling. It says “Rather than expanding a court’s jurisdiction, Civil Rule 6 simply supplies the tools for counting days to determine the precise due date. Such rules of procedure do nothing more than provide the court and the parties with a means of determining the beginning and end of a statute of limitations prescribed elsewhere in the law.” (Internal quotes and cites omitted).

I confess I do not follow this reasoning. That is, I think one can make the same statements about equitable tolling. Let’s try: “Rather than expanding a court’s jurisdiction, the rules of equitable tolling simply supply the tools for counting days to determine the precise due date. Such rules do nothing more than provide the court and the parties with a means of determining the beginning and end of a statute of limitations prescribed elsewhere in the law.”

Hmmm. What’s the difference here? Both sets of rules are entirely judge made!   Well, one obvious difference is that the “rules” of equitable tolling are manifold whereas FRCP 6 is narrower, dealing with only one (recurring) set of facts that, as such, warrant an actual rule.   The Tax Court implicitly claims that FRCP 6 gives parties more certainty than the myriad rules of equitable tolling.   So that may go to the first concern about allowing equitable tolling of jurisdictional timing rules: finality. It would have been better for the Court to explicitly discuss that concern.

The Tax Court’s reluctance to embrace a far-reaching ill-defined equitable tolling concept may also reflect the Brockcamp concerns. That is, at first blush the CDP provisions do not appear nearly as integral to tax administration as the 6511 periods. Something like 1% of taxpayers who receive a CDP Notice actually try for a CDP hearing. But perhaps the concern is that if the Tax Court allows equitable tolling, you will start getting double or triple the number of petitions to deal with. Or more. You will start getting really, really stale petitions and lame excuses. Hey, I am a professor. I know from lame excuses. So is that what the Tax Court fears? Is it worried about opening the proverbial floodgates of lame excuses?

If the flood-gate concern is what is really animating the Tax Court’s decision here, it would have been useful to see it and to see the Tax Court more explicitly tie it to Brockcamp. I personally think there is a plausible argument that sticking with a bright line rule is itself equitable, especially since there is absolutely no constitutional concern here about due process. Phillips v. Commissioner, 283 U.S. 589 (1931). So I am not unhappy with the Tax Court’s Solomonic decision to reject one form of equitable tolling in favor of what may well be a more limited exercise of equitable tolling. And for this TP, in this case, that’s all that is needed.

 

 

 

A Snow Holiday? Not if the IRS Can Help It.

Today we welcome guest blogger, Amanda Klopp.  Amanda is a student in the Harvard Federal Tax Clinic.  This semester she participated in drafting the amicus brief filed by the Harvard Federal Tax Clinic in the Guralnik case.  After graduation she plans to flee the snow of New England and work in sunny Florida with the firm of Akerman LLP.  Keith

In Bing Crosby’s classic Christmas movie White Christmas everyone pitches in to save the hotel run by their former company commander.  In Guralnik, a case in which Tax Court Special Trial Judge Armen issued a tentative opinion finding that a snow day in DC satisfies the holiday rule of IRC 7503, read our blog post on the case here, the IRS is not pitching in to save the holiday.  Instead, in Grinch-like fashion, it goes to great lengths in its response to the Tax Court to explain why a snow day should not be treated as a holiday.  This post will examine the arguments the IRS makes in its response.

In full disclosure, the Harvard Federal Tax Clinic has filed an amicus brief in this case arguing that the Court should use equitable tolling to find that it has jurisdiction to hear this case.

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First, it is helpful to explain the procedural posture of the case. As previously discussed in a blog post, Special Trial Judge Armen issued a Recommended Findings of Fact and Conclusions of Law pursuant to Tax Court Rule 182(e). Within forty-five days of a Special Trial Judge issuing recommended findings of fact and conclusions of law, all parties may file objections to such recommended findings of fact and conclusions of law under Rule 183(c). This procedure of publishing the Special Trial Judge’s recommended opinion and allowing the parties to comment was the Tax Court’s response to Ballard v. Commissioner.  Previously, the Special Trial Judge’s report was not issued to the parties and instead was issued only to the Regular Judge. The two judges would engage in a collaborative revision process, which resulted in a final, published opinion. Ballard rejected this collaborative approach, and found that the Regular Judge should merely adopt, modify, or reject the Special Trial Judge’s report. Furthermore, Ballard held that the Tax Court was required to serve a copy of the Special Trial Judge’s report to the parties. In Guralnik, the IRS filed objections to the Special Trial Judge’s report pursuant to Rule 183(c), and the rest of this blog post analyzes these objections.

The IRS’s objections begin with a textual argument, tracking Section 7503’s definition of “legal holiday,” Treasury Regulation 301.7503-1, which interprets Section 7503, D.C. Code Ann. 28-2701, which lists legal holidays in D.C., and dictionaries, which define legal holiday, to argue for why the snow day at issue does not constitute a “legal holiday” under Section 7503. From the IRS’s argument, it is clear that “snowstorm” never has been included as a “legal holiday” in any statute or regulation, and the particular snowstorm at issue was not declared by any executive or mayoral order to be a legal holiday. The IRS probably viewed these arguments as necessary because they establish that snowstorm is not within the legislative definitions or even the plain meaning of a “legal holiday” under 7503, but these arguments are not counter to the reasoning in the recommended opinion issued by Special Trial Judge Armen. This question was a difficult one in the first place because the contingency of an office-closing snowstorm was not provided for in the statute or regulations. Thus from the start, it almost seems like the IRS is talking past the court, because the recommended opinion’s reasoning was based on legislative history which explained the rationale of the statute.

Special Trial Judge Armen’s recommended opinion was supported in no small part by the legislative history of Section 7503. The recommended opinion reasoned that when Congress added Saturdays and Sundays to 7503 to prevent those days from being counted as the last day in a filing period, it did so because the Tax Court was closed on those days. When the IRS does address the legislative history of 7503, it still does not contradict the recommended opinion’s interpretation that the rationale behind each carve out in 7503 was based on the Tax Court’s inaccessibility. Instead, the IRS argues that the incremental nature of the carve outs evince an intent by Congress to not add any other types of days not named. The IRS cites case law in which courts refused to extend the statutory rationale of the Tax Court’s inaccessibility to holidays or Saturdays, before such days were included in the statute. In essence, the IRS is just countering the recommended opinion’s use of legislative history to expand 7503 based on the statutory rationale, with case law in which courts refused to do the same. But this seems less like an argument based in legislative history, and more like an argument to use a strict textual reading rather than relying on legislative history.

What was missing in the legislative history argument that would have strengthened the IRS’s position? Perhaps some history supporting the IRS’s statement that “Congress knows how to add language that would include days when the Tax Court is inaccessible.” The IRS did not show that Congress had enacted inaccessibility provisions in other parts of the Tax Code, which would have been helpful to properly analogize to the cited case, Omni Capital Int’l v. Rudolf Wolff & Co., 484 U.S. 97, 106 (1987). In Omni, the Supreme Court found Congress’s exclusion of a nationwide service of process provision in Section 22 of the Commodity Exchange Act was significant because Congress had included nationwide service of process provisions in other sections of the Act.

The IRS also did not support the proposition that Congress had ever considered an amendment that would provide broadly for the inaccessibility of the clerk’s office. The IRS cited Southern California Loan Ass’n v. Commissioner, 4 B.T.A. 223 (1926), in which the Board of Tax Appeals (the predecessor to the Tax Court) analyzed a subsequently enacted Congressional amendment that tolled the time period for filing a petition with the BTA if the last day to file was a Sunday. In Southern California, the BTA refused to apply this Sunday tolling provision retroactively to a taxpayer whose final filing day was a Sunday. The BTA reasoned that the addition of a Sunday carve out in a subsequent amendment evidenced that Sundays were not intended to be tolled in the previous version of the statute. Thus, Southern California does not quite support the proposition that the rationale behind a statute should not be extended to trump the explicit statutory language – which seems to be what the IRS intended. Clearly, the IRS wants the Tax Court to prioritize the explicit statutory language. However, unlike Southern California, the IRS did not show that Congress ever considered an amendment to the Tax Code that would provide for the contingency of inaccessibility of the clerk’s office.

Special Trial Judge Armen’s recommended opinion also noted that the Tax Court rules are silent as to the tolling of a filing period due to the inaccessibility of the clerk’s office. FRCP 6(a)(3) tolls filing periods due to inaccessibility of the clerk’s office. The silence in the Tax Court rules regarding this FRCP provision implicates Tax Court Rule 1(b), which provides, “Where in any instance there is not applicable rule of procedure, the Court or the Judge before whom the matter is pending may prescribe the procedure, giving particular weight to the Federal Rule of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.” The IRS countered this argument in three ways. First, the IRS stated that Tax Court rule 1(b) did not apply, because there were applicable rules of procedure, namely Tax Court Rule 25, Section 7502 and Section 7503, which specify methods of computing timely filing. Second, the IRS argued that while the FRCP and other court rules of procedure have been amended in the past thirty years to add an inaccessibility provision, the Tax Court rules have not been similarly amended. Of course, the IRS does not provide a reason for this because it is impossible to comment on why such a provision has not been adopted.  We can imagine that this issue just has not previously provided such a compelling case to cause the court to address the need for an inaccessibility provision in the Tax Court Rules. Third, the IRS argues precedent: that the court has not relied on FRCP 6(a)(3) to fill gaps in the Tax Court rules in three recent unpublished cases with similar facts.

A previous blog post has discussed the IRS’s use of unpublished cases in unrelated Tax Court cases. The three unpublished cases, Fitzpatrick v. Commissioner, Docket No. 4416-15S; Colabella v. Commissioner, Docket No. 1034-14S; and McCoy v. Commissioner, Docket No. 25941-13S, seem to hold the opposite of the recommended opinion. These cases were all decided by Chief Judge Thornton, which perhaps reveals the reason that Special Trial Judge Armen issued recommended findings of fact and conclusions of law, rather than an opinion. The IRS acknowledges that these cases are not “to be treated as precedent,” but states that “they are illustrative with respect to how the Court has handled identical and similar cases in the past.” In Fitzpatrick and Colabella, which both dealt with Tax Court closings due to inclement weather, Chief Judge Thornton held that the one day late hand delivered petition should be dismissed for lack of jurisdiction. The facts of McCoy involve late filing due to the inability to hand deliver a petition to the Tax Court, which was closed due to a government shutdown. McCoy is less comparable to the facts in Guralnik, due to the Tax Court’s website notice which informed the public of how to file timely petitions during the government shutdown and the necessity to timely file.

These three cases are deficiency cases rather than CDP cases.  The IRS does not note that distinction in its brief or address the equitable differences between deficiency proceedings and CDP proceedings.  Although that distinction may not seem relevant when considering that Section 7503 governs computation of time for both deficiency and CDP jurisdiction, the distinction is relevant for purposes of the amicus brief which only focuses on the equitable tolling of Section 6330(d)(1). In Section 6330(d)(1) considerations of equity have been more prevalent, compared to deficiency jurisdiction.

The IRS makes a good point about the implications of expanding Section 7503. Section 7503 covers not only filing of petitions, but numerous other events such as filing of tax returns and refund claims. The IRS points out that the scope of filings and acts affected by this decision will be broad, and that the decision could be even further expanded to local inclement weather events.   The scope of a ruling under Section 7503 and its impact on tax administration will cause the IRS to fight this case beyond the Tax Court.

Although the IRS makes good textual arguments, and with strong supporting case law, explaining why a snowstorm should not be considered a legal holiday under 7503, the IRS did not address the recommended opinion’s concern with the equities of the situation, beyond stating that the Tax Court lacks equity jurisdiction to prevent harsh results, and that the taxpayer might have avoided this result by using a designated delivery service under 7502. The recommended opinion stated “we find it inconceivable that Congress would have intended, absent a specific statutory provision requiring otherwise, to bar a taxpayer who fails to anticipate on a Friday that the Government will decide to close a filing office on the first workday of the following week on account of a snowstorm.” Instead of arguing that it was conceivable, the IRS has advocated for an approach that would leave the taxpayer literally out in the cold.

The next development in Guralnik is expected by January 8, 2016, the date by which parties may file a memorandum in response to the Amicus Memorandum. We expect the IRS’s response will argue the jurisdictional nature of Section 6330(d)(1), and that it is not subject to equitable tolling.

Time Stands Still for Snow – Expanding Section 7503 on the Last Day to Timely Complete a Task

We have all prayed for snow days since entering kindergarten. Now, we have another reason to continue those prayers. The Tax Court is posed to turn a snow day from day creating terrible results for those trying to get in its doors to another legal holiday extending the time upon which to act. Let’s hope it succeeds.

Special Trial Judge Armen has issued an extraordinary order in Guralnik v. Commissioner pursuant to Tax Court Rules 182(e) and 183. Depending on what happens to this order in the Tax Court and, on appeal if the Government goes that route, a new basis for getting a petition into the Court on time may have just come into being. The facts in the case cry out for relief. Judge Armen found two possible routes to relief. Perhaps a third exists. The private carrier list update in May 2015 also gets attention in the order and deserves your attention as you read about this case.

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The Order

Perhaps the first matter to address is the order itself. Petitioner filed a petition seeking relief in a collection due process case (CDP) following the issuance of a determination letter. The letter was issued on January 16, 2015. The determination letter itself is not at issue. It seems to have been properly mailed and addressed. The last date to file a Tax Court petition in a CDP case runs 30 days after the mailing of a determination letter. In this case it would ordinarily have run on February 15, 2015. That date was a Sunday. The following date was a federal holiday, President’s Day, and the following day was a snow day in Washington, D.C., when all Federal and District offices, including the Tax Court were closed. So, the first day the Tax Court was open after February 15 was Wednesday February 18 and the petition arrived in the Tax Court early that morning.

Unfortunately, petitioner mailed the petition to the Tax Court on Friday, February 13 (an appropriate day for what he has gone through in this case) using FedEx “First Overnight” service – the most expedited and expensive service that FedEx offers. You might be thinking FedEx is an approved private carrier and you would be right; however, not every FedEx delivery service is approved. The “First Overnight” service did not exist in 2004 when the IRS had last published its list of approved private delivery services and so was not on the list. In May 2015, when the IRS next updated the list, this service did make it on the list as it logically should since it is better than all of the other FedEx services already on the list. Now you are starting to get a sense of why you should not send important documents on Friday the 13th. You are also getting a sense of why the Court might want to find a way to help Mr. Guralnik in this situation since he seems to have tried to do the right thing only to have not one but two odd things prevent him from reaching his goal.

The IRS filed a motion to dismiss the petition as untimely. Judge Armen’s order, an order ordinarily issued following such a motion, resolves the motion but in an extraordinary way. This past May 28, the Chief Judge assigned this case to Special Trial Judge Armen “for disposition”. Under 7443A(b)(4) and (c), Special Trial Judges are authorized to enter the decision of the Tax Court in CDP cases. It would appear that Judge Armen could rule on this motion without any further review.  However, he issued a “recommended” ruling that is attached to his order.  The recommended ruling is in the format of a T.C. Opinion (complete with proposed headnote).  The accompanying order says that this is governed by Rules 182 and 183, and that the parties can submit comments on the recommended ruling — the procedure the Tax Court adopted in response to Ballard v. Commissioner. The order itself gives you some sense of the importance of the decision in this case. If the proposed order stands, it may well get issued as a fully reviewed opinion of the Court because of the new ground that it stakes out in the last date to perform an act area. Since the Court started putting up designated orders on its website in 2011, this may be the first order that attached a recommended opinion.

Oddly, this issue of a snow day has apparently not come up before in deficiency cases.  Based on (1) the legislative history of 7503, (2) the Federal Rule of Civil Procedure rule governing this circumstance, and (3) a belief that Congress would want this result, Judge Armen recommends finding that the Court has jurisdiction over the case. Therefore, his proposed order restores the case to the general docket for eventual trial.

The Statute

The timely mailing rule of IRC 7502 provides that if a document is mailed timely it may be treated as timely filed. Section 7503 provides that “When the last day prescribed under authority of the internal revenue laws for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday.” The term legal holiday refers to legal holidays in the District of Columbia. Thus, a petition received by the Tax Court “after the expiration of the statutory filing period … is nevertheless deemed to be timely filed if the date of the U.S. Postal Service postmark stamped on the envelope in which the petition was mailed is within the time prescribed for filing.” Reg 301.7502-1.

If the petition comes to the court through a “designated delivery service”, it may also meet the timely mailing requirement as if it was mailed through the USPS. See 26 U.S.C. § 7502(f)(1). The IRS says what meets the requirements of a designated delivery service and here, for the reasons discussed above, petitioner did not meet that requirement. No dispute exists, however, concerning the date petitioner gave the petition to FedEx and the fact that the petition was delivered to the Court on the first day it was open after petitioner gave the petition to FedEx. Agreeing with the IRS that the delivery service did not meet the statutory requirements, Judge Armen nevertheless found that “we hold that the petition was timely filed and that the Court has jurisdiction to hear petitioner’s case… because section 7503 served to extend the filing deadline to Wednesday, February 18, 2015, thereby making the receipt of the petition on that date timely.” To reach this conclusion, he found that the “official closing of both District and Federal government offices, specifically including the Tax Court, on Tuesday, February 17, 2015, because of a winter snowstorm as a legal holiday in the District of Columbia for purposes of section 7503.”

How did Judge Armen work his way past many decades of the Tax Court not recognizing snow days as legal holidays for purposes of the timeliness of petitions in the Tax Court? He did it by looking back at the long history and purpose of the statute which came into existence as a result of the position that if the last day for performing an act fell on a Sunday and the taxpayer had not performed the act by that date the taxpayer had missed the deadline. See Section 274(a) of the Revenue Act of 1926, ch.27, 44 Stat at 55. See also Satovsky v. Commissioner, 1 B.T.A. 22 (1924). The Sunday rule was changed about a decade later to include legal holidays in the District of Columbia. See Section 272(a), Rev Act of 1934, ch.277, 48 Stat at 741. See also S. Rept No. 558 (1034), 1939-1 C.B. (Part 2) 586. See also S.Cal. Loan Ass’n v. Commissioner, 4 B.T.A. at 237-238. The rule was changed again after another decade to include Saturdays. See Pub. L. No. 79-291, sec. 203, 59 Stat. at 673 (1945). The change in 1945 to add Saturdays to the list of days not counted as the last day to perform an act resulted because the Tax Court closed its docket room on Saturdays after September 8, 1945 to comply with the Federal Employees Pact Act of 1945. See Pub. L. No. 79-106, 59 Stat. at 303. See also Pleasant Valley Wine Co. v. Commissioner 14 T.C. 519 (1950).

In reviewing the changes to the law regarding the days that would no longer count as the last day to perform an act, Judge Armen determined that the reasons for the changes resulted from the fact that the Tax Court was closed for business on those days. He then reasoned that the same basis for not allowing the last day to fall on a day when the Tax Court was not opened because it was not a federal work day also applied when the office was closed due to weather. In some ways it is even more logical to extend the rule to weather related closings because taxpayers cannot predict them. Before the changes to the law concerning the counting of weekend days or federal holidays, taxpayers at least knew that if the last day to perform an act fell on a day the Court would not be open it was incumbent upon them to perform the act on the last day the Court was open before the deadline passed. It is not possible to predict, at least not with certainty, when a weather related closing will occur. Allowing a weather related closing, or any externally created closing, to serve as a day not counted as the last date for filing, gives taxpayers a result that places them in a position to know when to act and does not punish them for a failure caused by an external source.

The Rule

Having worked through the legal basis for interpreting section 7503 to allow a weather closing to push forward the last date to perform an act, Judge Armen circled back to the Tax Court rules. There is no Tax Court rule dealing with this situation, though there is an FRCP that would extend the filing date in these circumstances.  Rule 6(a)(3)(A) of the FRCP addresses the issue of computing and extending time when the clerk’s office is inaccessible. Judge Armen cites In re Swine Flu Immunization Prod. Liab. Litig., where the court held that the last day to file an administrative claim under the Federal Tort Claims Act excluded both Sunday and the following Monday which was a snow day when government offices were closed. The decision looked to the FRCP.

Similarly, Rule 26(a)(3)(A) of the Federal Rules of Appellate Procedure extend the filing time when the clerk’s office is inaccessible. Tax Court Rule 25 is silent regarding inaccessibility of the Tax Court; however, that silence implicates Tax Court Rule 1(b) which provides “Where in any instance there is not applicable rule of procedure, the Court or the Judge before whom the matter is pending may prescribe the procedure, giving particular weight to the Federal Rule of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.”

Equitable Tolling

If the IRS appeals this decision, petitioner may have another avenue for arguing that the time period should be held open for the filing of this petition – equitable tolling. We have written on equitable tolling many times and will probably write on it many more times. I credit Carl Smith with keeping this issue in our thinking and for many of the thoughts expressed here. Mr. Guralnik’s facts certainly present the type of situation in which one would want to raise equitable tolling. Denying him the opportunity to have his petition heard under these circumstances would not seem equitable. The IRS in its response in this case to the Court’s order to address the impact of the official closing of the Court due to snow acknowledged that dismissal of petitioner’s case “may seem harsh.” With a concession like that how could equitable tolling not apply?

This discussion needs to start by acknowledging that the Tax Court held that section 6330(d)(1)’s 30-day filing deadline is jurisdictional and not subject to extension in Boyd v. Commissioner, 124 T.C. 296, 303 (2005), aff’d 451 F.3d 8 (1st Cir. 2006).  The Tax Court made that ruling based on the since-rejected view of “jurisdictional” as any mandatory deadline.  Since the recent narrowing of the use of the word “jurisdictional” by the Supreme Court, the Tax Court has not revisited that Boyd holding.  Yet, Judge Armen has called the 30-day period jurisdictional in the recommended ruling. Even including the 1st Cir. in Boyd, no Circuit has ruled on the 6330(d)(1) period’s jurisdictional status one way or the other.  See Carlton M. Smith, “Equitably Tolling Innocent Spouse and Collection Due Process Periods”, Tax Notes Today, 2010 TNT 41-8 (Mar. 3, 2010) and several prior posts for a detailed discussion of equitable tolling issues as they might apply to this situation.

Within the last year, the Tax Court in Lippolis v. Commissioner has cited Supreme Court case law for the proposition that proximity of a dollar-amount requirement in whistleblower cases to the jurisdictional grant does not make that other requirement jurisdictional. Raising the equitable tolling argument here may provide another path to success even though it would require overturning the Tax Court’s decision in Boyd.    Since section 7503 does not literally mention snow days or other non-holidays when the federal government in D.C. is closed down, it is possible that the IRS will appeal this decision and seek to limit the scope of section 7503. Opening up another pathway for possible success could not hurt Mr. Guralnik’s chances to ultimately have his CDP argument heard on the merits.

Under recent case law, “filing deadlines ordinarily are not jurisdictional.”  Sebelius v. Auburn Regional Med. Center, 133 S. Ct. 817, 825 (2013). The Supreme Court in Auburn wrote:  “”We inquire whether Congress has ‘clearly state[d]’ that the rule is jurisdictional; absent such a clear statement, we have cautioned, ‘courts should treat the restriction as nonjurisdictional in character.’” Id. at 824. In a number of recent cases, the Supreme Court has found filing deadlines not to be jurisdictional. See Henderson v. Shinseki, 131 S. Ct. 1197 (2011) (time to file in Art. I Veterans Appeals Ct.); Auburn (time to file in a Medicare reimbursement contest forum); United States v. Wong, 135 S. Ct. 1625 (4-22-15) (FTCA times to file administrative claims and court suits under 28 usc 2401(b)).

Conclusion

This is an important case changing a long held position on the last day for performing an act. The procedural aspect of the case is interesting as well. Watch closely to see what the Tax Court does and how the IRS reacts. I suspect this is not the last time we write about Mr. Guralnik.

 

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