Mailing the Collection Due Process Request

The IRS recently released a program manager technical assistant (PMTA) memo entitled Treatment of Incorrectly-addressed CDP Hearing Requests.  This memo reverses the advice of a similar memo written in 2013.  The issue concerns the fate of taxpayers seeking to obtain a Collection Due Process (CDP) hearing who timely mail their CDP hearing request to what the IRS considers to be the wrong office.  In the 2013 advice the IRS took the position that if the “wrong” IRS office got the request to the “right” IRS office before the end of the CDP request period (which differs slightly depending on whether it is a lien or levy case but in both instances is a short window of approximately 30 days from the date the IRS sends the notice), then the taxpayer could have a CDP hearing.  If, however, the wrong office did not get the notice to the right office within the 30-day period, the taxpayer lost the right to have a CDP hearing and would receive only an equivalent hearing.

I wrote an article about this issue in Tax Notes in November of 2018 available here.  The article builds on the work of the tax clinic at Harvard concerning jurisdiction and explains that the 30-day time period to request a CDP hearing is not a jurisdictional time period.  We discussed this issue previously here, here and here.  In the PMTA the IRS essentially agrees with the conclusion that the notice need not be received in the “right” IRS office within the 30-day window, though the PMTA does not address the issue using jurisdictional language in the portion of the PMTA made available to the public.  Perhaps the IRS is concerned that taxpayers might litigate about this issue.  Imagine.

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One of the biggest hurdles facing taxpayers seeking a CDP hearing is the CDP notice.  Not only is the notice that the IRS sends generally not well-designed to give someone notice of an impending deadline impacting their right to go to court, but the notice provided affirmatively confusing instructions concerning where to send the request for a CDP here.  The IRS acknowledged in the PMTA that the notice was not a model of clarity:

This CDP notice can take many forms depending on, for example, the type of collection action (NFTL filing, levy), the issuing component (Automated Collection, Field Collection), and the type of levy (Federal Payment Levy Program, State Income Tax Levy Program). Some notices, like the LT11, serve the dual purpose of informing the taxpayer of their CDP rights and soliciting payment. To facilitate this dual purpose, the notices have one address for submitting the hearing request printed at the top of the first page, and another address for submitting payment printed on a removable payment voucher at the bottom of the first page. These notices are printed double-sided, and the payment address is printed to appear through the cellophane window on the envelope enclosed with the letter. Because the notices are printed double-sided, in addition to appearing on the top of the first page, the mailing address for the CDP hearing request may also be printed on the reverse side of the payment voucher. The payment voucher and CDP hearing request addresses may be the same, but often times they are not. Thus, for this type of notice, the taxpayer can inadvertently mail the CDP hearing request to the payment voucher address simply by inserting the voucher in the envelope backwards. In addition to the LT11, the CP92, CP77/78, and CP90/297 have the payment address printed on one side of the voucher and the mailing address for the CDP hearing request printed on the other side. Other notices, like the Letter 3172, do not solicit payment, but they do have the originating address at the top of the page and the mailing address for a CDP hearing request at the bottom of the page.

So, the IRS suggested giving taxpayers a CDP hearing if the request for the hearing is mailed to the IRS within the appropriate time frame:

Because of the confusion caused by including multiple addresses on current versions of the CDP notices, we recommend that the Service determine timeliness based on the date the request was mailed to the wrong office, so long as the address of the wrong office was shown on the CDP notice (such as the payment voucher address on the LT11 or the originating office on the Letter 3172). This recommendation does not conflict with Treas. Reg. §§ 301.6320-1(c)(2) Q&A-C6 & 301.6330-1(c)(2) Q&A-C6, which state that taxpayers must send the CDP hearing request to “the IRS office and address as directed on the CDP notice.” Any addresses on the notice should be deemed the “address as directed on the CDP notice.” The June 2013 PMTA should no longer be followed.

This change in advice should open up the CDP process for a number of taxpayers who send their request to the wrong place.  This is not necessarily the end of the story about timeliness and the CDP request.  Certainly, if a taxpayer mails the request late but has a good reason for doing so, the late mailing of the CDP request should not act as an automatic bar to obtaining a CDP hearing.  Taxpayers in this situation should look to the arguments regarding jurisdiction and equitable tolling to fine situations in which even a late mailed request could still result in a CDP hearing.

The PMTA is welcome news.  The CDP summit work, described in prior posts here and here, deserves credit for engaging the IRS to make improvements in this area.  I hope that this is one of many improvements that the IRS can make administratively.  I also hope this effort also suggests that the IRS will take a hard look at the CDP notices that it issues and the location for making a CDP request.  The notices need significant restructuring to make them more appropriate vehicles for informing taxpayers of their right to a CDP hearing.  The current notices place far too much emphasis on seeking payment and too little information on the right to request a hearing.  I know that members of the CDP summit would be happy to work with the IRS to help to write more effective notices that protect and preserve taxpayer rights.

Additionally, the IRS could make it much easier to make the request by picking a single point of contact for the nation.  It could create a single fax number such as the one used by the CAF unit.  It could create a single mailing address.  The process of making the request does not need to be complicated.  The IRS can move the information around from the single point of contact to the offices that need the information.  It does this regularly with Tax Court petitions, powers of attorney and other documents.  Doing so would also be consistent with the practices of other federal agencies who have similar types of hearing requests being received.

Kudos to the IRS for taking this step.  Let’s work together to keep up the momentum.

SG Seeks Extension to File Cert. in Myers

A further quick update:  Today, the Solicitor General asked the Supreme Court to allow it 30 more days (until February 1, 2020) to file a petition for certiorari in Myers.  A copy of the request can be found here.  I am told by people who practice regularly in the Supreme Court that, these days, if the SG is considering filing a cert. petition, he always now first asks for an extension to file.  Thus, the lack of an extension request would indicate that the SG was not going to file a cert. petition.  But, they also tell me that the request for an extension is not always a prelude to an actual cert. petition.  So, stay tuned.

D.C. Cir. Myers Whistleblower Opinion Status Affecting Some Other Tax Court Cases

Just a short update post.  We blogged here last summer when the D.C. Circuit in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), reversed the Tax Court and held that the petition filing deadline at section 7623(b)(4) for a whistleblower award review proceeding is not jurisdictional and is subject to equitable tolling under recent non-tax Supreme Court case law.  We also reported here when the D.C. Circuit rejected a DOJ petition and refused to rehear the case en banc.  The Solicitor General has not yet decided whether to file a petition for cert. in Myers.  He must do so, if at all, by January 2, 2020.  In the meantime, the Tax Court has put all whistleblower cases involving late filing on hold.

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As a result of Myers, the Tax Court has been put in a bit of a quandary as to what to do with late-filed whistleblower award cases (whether or not the petitioners therein have any argument for equitable tolling).  There are currently five whistleblower cases pending in which the IRS has moved to dismiss the case for lack of jurisdiction for being late filed.  Since all whistleblower cases are appealable to the D.C. Circuit under section 7482(b)(1)(flush language), the Tax Court under Golsen will have to follow whatever happens ultimately in Myers.  If the SG does not seek cert. and the petitioners filed late and do not make any successful equitable tolling argument, then the Tax Court will have to dismiss the cases on the merits, not for lack of jurisdiction.  Given that there is no other court in which such petitioners can litigate such awards (or lack thereof), a loss in the Tax Court on the merits or for lack of jurisdiction is probably of no practical difference to the petitioners.  But, the Tax Court cares about whether it has jurisdiction to rule or not.

So, in each of the five cases, the Tax Court has decided simply not to rule on the IRS motions at this time, but to order the IRS to provide status reports on the progress of the Myers opinion becoming final.  See Tax Court orders in Aghadjanian v. Commissioner, Docket No. 9339-18W (dated 9/4/19 and 12/9/19); McCrory v. Commissioner, Docket No. 3443-18W (dated 9/4/19 and 12/6/19); Bond v. Commissioner, Docket No. 5690-19W (dated 10/8/19); Bond v. Commissioner, Docket No. 6267-19W (dated 10/30/19); Bond v. Commissioner, Docket No. 6982-19W (dated 11/5/19).

Although arguably the language in section 7623(b)(4) is virtually identical to that in the Collection Due Process (CDP) provision at section 6330(d)(1), the Tax Court has not been holding up rulings on similar CDP case motions to dismiss – still following its holding in Guralnik v. Commissioner, 146 T.C. 230, 235-238 (2016), that the CDP filing deadline is jurisdictional and not subject to equitable tolling under recent Supreme Court case law.  The Ninth Circuit agreed with Guralnik in Duggan v. Commissioner, 879 F.3d (9th Cir. 2018).  A case on the CDP filing deadline is currently pending before the Eighth Circuit, where briefing is complete, and the case is awaiting oral argument (not yet scheduled).  Boechler, P.C. v. Commissioner, 8th Cir. Docket No. 19-2003.  In Boechler, the taxpayer asks the court to follow Myers and not Duggan.  Here are links to the briefs filed in the Boechler case:  the brief for the appellant, an amicus brief filed by the Harvard clinic, the brief for the appellee, and the reply brief for the appellant.  No doubt, the existence of the Boechler case will be one of the things that the SG will consider in deciding whether to seek cert. in Myers

Whatever the SG does about Myers, the arguments therein are not going away anytime soon with respect to at least some other Tax Court jurisdictions.

At least one other practitioner has contacted Keith and me and is considering raising the Myers arguments in pending Tax Court CDP cases appealable to a Circuit that hasn’t spoken yet on the arguments.  Further, as we have blogged before, there are two late-filed deficiency jurisdiction cases that were argued to the Ninth Circuit on October 22, 2019 in which the Myers arguments were raised.  Organic Cannabis Foundation LLC v. Commissioner, 9th Cir. Docket No. 17-72874, and Northern California Small Business Assistants, Inc. v. Commissioner, 9th Cir. Docket No. 17-72877.  A ruling in those cases could come any day now.

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

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

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

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

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

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

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

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

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

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

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

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

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

Observations

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

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

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

D.C. Circuit Holds Tax Court Whistleblower Award Filing Deadline Not Jurisdictional and Subject to Equitable tolling

As many of you know, the Tax Clinic at the Legal Services Center of Harvard Law School has been arguing, since its 2015 inception, that judicial filing deadlines in tax are not jurisdictional and are subject to equitable tolling under recent Supreme Court case law. Accepting this argument would upend decades of case law in the appellate courts and the Tax Court. We first made the argument in a Collection Due Process (CDP) case filed in the Tax Court. In Guralnik v. Commissioner, 146 T.C. 230, 235-238 (2016), an en banc Tax Court unanimously rejected our argument (but found another way to rule for the taxpayer). Later, in another case, Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), the Ninth Circuit also held the CDP filing deadline at section 6330(d) jurisdictional and not subject to equitable tolling. (In Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018), the Fourth Circuit said there were no facts that would justify equitable tolling, so it passed on deciding whether the CDP filing deadline was jurisdictional.) 

The whistleblower award jurisdiction of the Tax Court at section 7623(b)(4) dates from 2006 and was copied almost verbatim from the CDP filing deadline language. In a 2-1 opinion in Myers v. Commmissioner, U.S. App. LEXIS 19757 (D.C. Cir. July 2, 2019), rev’g 148 T.C. 148 (2017), the D.C. Circuit has just held that the whistleblower award petition filing deadline is not jurisdictional and is subject to equitable tolling. The D.C. Circuit reversed the Tax Court’s dismissal of the case for lack of jurisdiction. The Tax Court had so held because it felt that the whistleblower’s failure to timely file the petition within 30 days of the issuance of various notices that the Tax Court found were notices of determination deprived the Tax Court of jurisdiction. I previously blogged on the Tax Court’s Myers opinion here. The D.C. Circuit remanded the Myers case to the Tax Court for the Tax Court to decide, in the first instance, whether the confusing nature of the determinations and their being sent by regular mail (and not even mentioning possible Tax Court review) justified equitable tolling in this case to make the Tax Court petition timely.

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Facts

Davis Myers told the whistleblowers office that he thought a company at which he had worked had misclassified employees as independent contractors. He sought a mandatory whistleblower award under section 7623(b) for a portion of the proceeds of any audit of the company. In a series of four letters written by the office to him and sent by regular mail, the office declined to pay him an award. The letters did not state that they were determinations under the statute, nor did they explain that the next step the whistleblower could take to contest the letters was to file a Tax Court petition within 30 days. Myers was puzzled what to do next. He wrote various people in the government complaining of his lack of award and mentioning the letters he had received. After getting no satisfaction form anyone, he decided to try filing a Tax Court petition – more than a year after the date on the last letter.

In the Tax Court, the IRS moved to dismiss the petition for lack of jurisdiction, arguing that the filing deadline is jurisdictional. The Tax Court asked the IRS for proof of mailing of each letter. Normally, other tickets to the Tax Court are sent certified mail, but these letters hadn’t been. The IRS conceded that it had no proof of when the letters were actually mailed. But, pointing to Myers’ correspondence with other government individuals, the IRS argued that Myers had received the letters at least by the dates of such correspondence. Since he had waited more than 30 days thereafter to file, the IRS argued that the petition was untimely. In an opinion importing some of its case law from its deficiency jurisdiction, the Tax Court granted the IRS motion.

Myers then had 30 days to file either a motion to vacate under Rule 162 or a motion for reconsideration of findings or opinion under Rule 161. He filed such a timely motion, but styled it one for reconsideration when he uploaded it electronically though the Tax Court’s efiling system. After the Tax Court denied the motion, he filed a notice of appeal of the Tax Court case, seeking an appeal to the Tenth Circuit. The notice of appeal was filed more than 90 days after the entry of the decision in the Tax Court case. Section 7483 gives an appellant only 90 days from the decision’s entry to file an appeal. But, FRAP 13 provides that if a person files a timely motion to vacate the decision, then the 90-day period to appeal starts running on the date the Tax Court rules on the motion. The FRAP does not mention motions to reconsider findings or opinions, however.

The Tenth Circuit transferred the appeal to the D.C. Circuit because, under section 7482(b)(1), the D.C. Circuit is the sole proper appellate venue for whistleblower appeals from the Tax Court.

Myers had been pro se to this point. But, for the D.C. Circuit, Joe DiRuzzo and Alex Golubitsky entered appearances on Myers’ behalf. The Harvard Federal Tax Clinic filed an amicus brief in the D.C. Circuit case.

D.C. Circuit Rulings

Initially, in its ruling, the D.C. Circuit addressed whether it had proper appellate jurisdiction from the Tax Court. Only one Circuit had ruled precedentially on the issue, the Ninth in Nordvik v. Commissioner, 67 F.3d 1489, 1493-1494 (9th Cir. 1995). In Nordvik, the court held that, despite FRAP 13’s lack of mention of a motion for reconsideration, such a motion also triggers the running of the 90-day period beginning from the date the Tax Court rules on the motion. In Myers, the D.C. Circuit reasoned that many Tax Court petitioners file pro se, and there is no explanation in Tax Court rules as to the difference between the two types of motions. Indeed, the motions are governed by similar review standards. Further, in non-tax appeals, motions for reconsideration are treated the same as motions to vacate a judgment – i.e., both postponing the appeal period until after such motions are ruled on. In order not to create a trap for unwary pro se filers, the D.C. Circuit held that motions for reconsideration are treated the same as motions to vacate the decision for purposes of the 90-day period to appeal under FRAP 13. Thus, Myers had filed a timely notice of appeal within 90 days of the Tax Court’s ruling on his motion for reconsideration.

Regarding the question of whether the Tax Court whistleblower award petition’s filing deadline is jurisdictional, the appellate court took a liberal view of Myers’ pro se pleadings to consider this issue and the issue of equitable tolling (even though Myers had never mentioned that exact doctrine before the Tax Court).

But first, contrary to some of Myers’ arguments, the D.C. Circuit held that the letters were proper notices of determination, since there was no legal requirement that the notices be sent certified mail, mention Tax Court review, or mention a 30-day filing period to contest them. Further, the D.C. Circuit did not disturb the Tax Court’s holding that Myers actually received the letters more than 30 days before he filed the Tax Court petition, and the 30-day period started no later than the date of provable receipt.

Turning to whether Myers could be forgiven for not filing timely, this raised two separate questions: Whether the filing deadline is jurisdictional and, if not, whether it is subject to equitable tolling?

Section 7623(b)(4) provides: “Any determination regarding [a whistleblower] award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).” This language is virtually the same as the CDP jurisdiction language at section 6330(d)(1), from which it was copied. Section 6330(d)(1) provides: “The person may, within 30 days of a [CDP] determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).” Both provide a deadline for filing a Tax Court petition 30 days after the issuance of a determination, and both contain an ending parenthetical stating “and the Tax Court shall have jurisdiction with respect to such matter”.

PT had published a post by Texas Tech Prof. Bryan Camp criticizing Guralnik’s holding that the CDP filing deadline is jurisdictional. The post can be found here. In the clinic’s amicus brief in Myers, we quoted Bryan’s criticism of the Tax Court’s logic that the jurisdictional grant was made in the same breath as the filing deadline, so the filing deadline must also be jurisdictional. In its Myers opinion, although the D.C. Circuit did not cite Bryan’s blog post, it clearly borrowed from it in coming to its conclusion.

Under recent Supreme Court case law, a filing deadline is almost never jurisdictional. But, Congress can override that conclusion by making a “clear statement” that the filing deadline is intended to be jurisdictional. The D.C. Circuit acknowledged that it may be pushing the law a bit farther than the Supreme Court had so far in its cases, but the D.C. Circuit simply did not see that Congress had made a clear statement that the filing deadline in section 7623(b)(4) is jurisdictional by inserting the parenthetical grant “with respect to such matter”. The D.C. Circuit wrote:

The IRS contends this constitutes a “clear statement” because the Congress “placed the jurisdictional language in the same sentence and subsection as the time limit.” As our amicus points out, however, the Supreme Court has explicitly rejected “proximity-based arguments” to that effect. See Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 155 (2013) [where a single sentence contained both the jurisdictional grant and a filing deadline, but the Supreme Court still held the filing deadline not jurisdictional] . . . .

On the contrary, the jurisdictional grant is separated from the rest of the provision by being put in parentheses and introduced by the word “and,” which announces a new independent clause. We therefore do not attach dispositive significance to the proximity between the provision setting the time period and the jurisdictional grant. . . .

The IRS counters that “the test is whether Congress made a clear statement, not whether it made the clearest statement possible.” See Duggan v. Commissioner, 879 F.3d 1029, 1034 (9th Cir. 2018). True enough, but we are not saying the Congress must “incant magic words in order to speak clearly.” Auburn, 568 U.S. at 153. The Congress need only include words linking the time period for filing to the grant of jurisdiction . . . .

Our dissenting colleague reads “such matter” in the parenthetical to provide the connection that makes the filing period jurisdictional. We agree that “such matter” means “the subject of litigation previously specified,” which is “an appeal to the Tax Court.” Dissent 3. In our view, however, the type of appeal to which “such matter” refers is most naturally identified by the subject matter of the appeal – namely, “any determination regarding an award under paragraph (1), (2), or (3)” – and not by the requirement that it be filed “within 30 days of such determination.”

Slip Op. at 16-19 (some citations omitted).

The majority distinguished the three recent court of appeals opinions in which the Harvard clinic had unsuccessfully argued that the innocent spouse filing deadline at section 6015(e) is also not jurisdictional (Rubel v. Commissioner, 856 F.3d 301(3d Cir. 2017), Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017), and Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018)) because the language in the innocent spouse jurisdictional grant contains an “if” condition that is not present in the CDP or whistleblower award provision. The D.C. Circuit wrote:

[Section 6015(e)(1)(A)] differs from the provision at hand in one critical respect: The grant of jurisdiction is followed by an “if” clause that expressly conditions jurisdiction upon timely filing. There is no conflict, therefore, between this case and the cited decisions. Indeed, we think § 6015(e)(1)(A) just shows one way the Congress could have more clearly conditioned the Tax Court’s jurisdiction upon timely filing in § 7623(b)(4), viz., with a parenthetical that stated “the Tax Court shall have jurisdiction with respect to such matter if the appeal is brought within such period.”

Footnote on slip op. at 18-19.

In his forthcoming law review article in The Tax Lawyer, Prof. Camp makes the similar distinction, concluding that section 6330(d)(1)’s filing deadline is not jurisdictional, while section 6015(e)(1)(A)’s filing deadline is jurisdictional. See “New Thinking About Jurisdictional Time Periods in the Tax Code.

The D.C. Circuit in Myers noted that its holding is “in some tension with that of another circuit regarding a similarly worded provision of the Internal Revenue Code, 26 U.S.C. §6330(d)(1)”, citing the Ninth Circuit’s opinion in Duggan and the Tax Court’s opinion in Guralnik, and writing:

This provision is nearly identical in structure to the one at hand. Nevertheless, for the reasons given above, we cannot agree that ‘timely filing of the petition [is] a condition of the Tax Court’s jurisdiction’ simply because ‘the filing deadline is given in the same breath as the grant of jurisdiction.’ Duggan, 879 F.3d at 1034.

Slip op. at 20.

Moving on to whether the filing deadline is subject to equitable tolling, the Myers court noted that in Irwin v. Dept. of Veterans Affairs, 498 U.S. 89 (1990), the Supreme Court laid down a rebuttable presumption that nonjurisdictional federal statutes of limitations are subject to equitable tolling. The Myers court dismissed the DOJ’s argument that the filing deadline, even if not jurisdictional, is not subject to equitable tolling because, the DOJ argued, the whistleblower award Tax Court filing deadline is similar to the internal administrative filing deadline held not subject to equitable tolling in the Auburn case. The scheme in Auburn involved health care providers seeking reimbursements from Medicare internal boards, where the providers were represented by counsel and were repeat players before the boards. The Myers court wrote:

None of these other indicators of legislative intent is present in this case: The Tax Court is not an “internal” “administrative body” and Tax Court petitioners are typically pro se, individual taxpayers who have never petitioned the Tax Court before. Moreover, the IRS points to no regulation or history of legislative revision that might contradict the Irwin presumption. That the whistleblower award statute is not unusually protective of claimants is the only consideration on the IRS side of the ledger. Without more, we are not persuaded to set aside a presumption that has been so consistently applied. See, e.g. Young v. United States, 535 U.S. 43, 49 (2002) (“It is hornbook law that limitations periods are customarily subject to equitable tolling”) (cleaned up).

Slip op. at 22.

The D.C. Circuit remanded the case to the Tax Court for the Tax Court to determine, in the first instance, whether the facts in Myers required equitable tolling.

Observations

The D.C. Circuit is the sole appellate jurisdiction for whistleblower award ruling appeals from the Tax Court. So, this is a nationwide victory for whistleblowers. But, the DOJ might seek reconsideration en banc or cert. because of the split with the Ninth Circuit in Duggan. I would not be shocked if the Supreme Court would grant cert., since it has always been the position of the Tax Court and the government that the filing of a timely petition is necessary to any of its jurisdictions. See Tax Court Rule 13(c). Yet, the Supreme Court has never said anything about the jurisdictional nature of the Tax Court’s filing deadlines or whether they are subject to equitable tolling.

In sum, I am delighted to report that, after a series of disappointing losses involving Tax Court filing deadlines, we finally have a winner — and one that might generate a Supreme Court opinion, depending on how the Solicitor General feels about the case.

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

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

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

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

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

Fort Bend Facts

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

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

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

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

Fort Bend Opinion

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

Before deciding the case, the Court noted:

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

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

Slip op. at 7-8.

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

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

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

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

Impact of Fort Bend on Tax Rules

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

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

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

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

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

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

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

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

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

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.