District Court Gets Timely Mailing Is Timely Filing Rule of Section 7502 Wrong as Applied to Refund Claim Lookback Period of Section 6511(b)(2)(A)

I remember when I was a young associate at Roberts & Holland LLP in 1983 and marveled at how Sidney Roberts could remember developments in the tax law from as much as 40 years earlier.  Well, now I am approaching 40 years of doing tax procedure, and I marvel at long-ago fights that I still remember.  One of those fights just came up in a district court case in the Western District of Wisconsin, Harrison v. United States, No. 19-cv-00194 (W.D. Wis. Jan. 9, 2020), and, sadly, the court got the upshot wrong.  The exact issue in the case was definitively resolved the other way in regulations adopted in 2001 that followed a once-controversial Second Circuit opinion.  Neither the DOJ nor the district court in Harrison seems to be aware of the Second Circuit opinion or the relevant regulation.  Sad.

The issue is how the refund claim limitations at section 6511(a) and (b) and the timely mailing is timely filing rules of section 7502(a) interact when a late original return was filed seeking a refund, and the return was mailed out only a few days before the expiration of the period that is 3 years plus the amount of any extension to file after the return’s original due date, where the return/claim is received by the IRS and filed after that period.  The DOJ and the district court correctly recognized that the refund claim is timely under section 6511(a) because it was filed on the same date the return was filed – i.e., that a late return is still a return for purposes of section 6511(a).  See Rev. Rul. 76-511, 1976-2 C.B. 428 (itself trying to resolve a Circuit split on this issue that still continued for almost 30 years after its issuance).  But, then the DOJ argued (and the district court agreed) that the 3 year plus extension lookback period of section 6511(b)(2)(A) looks back from the date of IRS receipt, and since the taxes were deemed paid on the original due date of the return, the refund claim is limited to $0 because no taxes were paid or deemed paid in that lookback period.  It is this second holding that is manifestly incorrect.

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Harrison Facts

The Harrison facts are quite simple and typical:  All of the 2012 taxes at issue were withheld from wages or other income.  Thus, section 6513(b)(1) deems them paid as of April 15, 2013.  The taxpayers obtained a 6-month extension to file their return, but then did not mail an original return under that extension.  Rather, they filed a very late return in 2016.  It showed an overpayment of $7,386.48, which they asked to be refunded.  The return was sent by certified mail on October 11, 2016, and was received by the IRS on October 17, 2016.

The taxpayers argued that, under the timely mailing is timely filing rules of section 7502(a), the 3 years plus 6 month lookback period for taxes paid begins from the October 11, 2016 date of mailing (making the refund amount limit $7,386.48), while the DOJ argued that the 3 years plus 6 month lookback period for taxes paid begins from October 17, 2016 because section 7502(a) has no application in this case (making the refund amount $0).  The DOJ moved (1) to dismiss the case for failure to state a claim on which relief could be granted (i.e., under FRCP 12(b)(6)) – a merits dismissal – or (2), in the alternative, for summary judgment that the claim was limited to $0 (also a merits ruling).

Harrison Ruling

The district court correctly noted that there is no Seventh Circuit authority directly answering the question of the date from which the lookback is determined on these facts.  The district court then reasoned that October 15 or 17, 2016, was not the due date for the return – October 15, 2013 was (taking into account the 6-month extension).  The court concluded that section 7502(a) had no application here.  That statute only provides that if a return or claim is delivered to the IRS after the due date, then the date of the United States postmark is deemed the date of delivery.  However, this rule only applies if the postmark falls on or before the due date of the return or claim.  (For certified mail, used herein, the date on the certified mail receipt, not the postmark, is used.  Section 7502(c).)

What does the district court cite in support of its holding under section 6511(b)(2)(A)?  It cites (1) Pitre v. IRS, 938 F. Supp. 95 (D.N.H. 1996), an on point opinion decided before the Second Circuit’s opinion in Weisbart v. United States Dept. of Treasury, 222 F.3d 93 (2d Cir. 2000) (discussed below) and (2) two opinions reaching the right result (i.e., no refund) – Washington v. United States, 123 AFTR 2d 2019-1585 (S.D.N.Y. 2019), and Doyle v. United States, 88 Fed. Cl. 314 (2009) – but where the mailing date was after the 3 years plus any extension period, so the courts’ statements therein that the even-later received date governed under section 6511(b)(2)(A) were correct because section 7502(a)’s extension does not apply if the mailing is after such date. 

Weisbart and the Regulation

The district court in Harrison neither discussed the Weisbart opinion nor the regulations under section 7502.  Had the district court done so, I expect that it would have reached a different result. 

Weisbart is on all fours with Harrison as to its facts.  In Weisbart, to quote the court:

Emanuel Weisbart’s 1991 income tax return was due on April 15, 1992, but he obtained an automatic extension until August 17, 1992. Despite the extension, Weisbart did not file his return by the August 1992 deadline. Tarrying three years, he mailed his 1991 return to the IRS on August 17, 1995. The tax return was submitted on the customary Form 1040 and included a refund claim for $4,867 from the $12,477 in taxes that had been previously withheld from Weisbart’s 1991 wages. The IRS received the return on August 21, 1995.

222 F.3d at 94.

The Weisbart court, relying on regulations that have since been clarified and expanded, reasoned that the rules of section 7502 apply in this case to make the amount paid on the due date within the period provided by section 6511(b)(2)(A) – i.e. that the lookback date is the date of mailing, not the date the IRS received the refund claim.  The court wrote:

The Service argues, and the district court held, that the “prescribed” period applicable to Weisbart’s tax return should also apply to the refund claim. Applying this construction, Weisbart’s refund claim would not enjoy the benefit of the mailbox rule, and would therefore be barred. . . .

Taken together, these two Treasury Regulations provide that the applicability of the mailbox rule to the refund claim should be analyzed independently of the timeliness of the tax return itself, regardless of whether they are in the same document. As such, even though Weisbart’s tax return was untimely filed, his refund claim enjoys the benefit of the mailbox rule, and is deemed filed on August 17, 1995. Because that date is within 3 years of the date when Weisbart is deemed to have paid his withheld employment taxes, he may recover any overpayment included in those taxes under the look back provisions of section 6511(b)(2)(A).

222 F.3d at 97 (citation omitted).

The Treasury decided to accept the Weisbart holding, and so, in 2001, promulgated T.D. 8932, 66 FR 2257.  The Treasury decision stated:

[T]he IRS and the Treasury Department have determined that, in certain situations, a claim for credit or refund made on a late filed original income tax return should be treated under section 7502 as timely filed on the postmark date for purposes of section 6511(b)(2)(A). This is consistent with the opinion of the United States Court of Appeals for the Second Circuit in Weisbart v. United States Department of Treasury and Internal Revenue Service, 222 F.3d 93 (2d Cir. 2000), rev’g 99-1 USTC (CCH) P50,549 (E.D.N.Y. 1999), AOD-CC-2000-09 (Nov. 13, 2000).

66 FR at 2258.  The Treasury Decision added a new subsection (f) to Reg. section 301.7502-1.  I won’t quote the technical language of the regulation, but I will quote the one on point example at subsection (f)(3). It reads:

(i) Taxpayer A, an individual, mailed his 2001 Form 1040, “U.S. Individual Income Tax Return,” on April 15, 2005, claiming a refund of amounts paid through withholding during 2001. The date of the postmark on the envelope containing the return and claim for refund is April 15, 2005. The return and claim for refund are received by the Internal Revenue Service (IRS) on April 18, 2005. Amounts withheld in 2001 exceeded A’s tax liability for 2001 and are treated as paid on April 15, 2002, pursuant to section 6513.


(ii) Even though the date of the postmark on the envelope is after the due date of the return, the claim for refund and the late filed return are treated as filed on the postmark date for purposes of this paragraph (f). Accordingly, the return will be treated as filed on April 15, 2005. In addition, the claim for refund will be treated as timely filed on April 15, 2005. Further, the entire amount of the refund attributable to withholding is allowable as a refund under section 6511(b)(2)(A).

Emphasis added.

Observations

Before berating the district judge, who is no doubt not a tax procedure specialist, I would point out that the parties’ briefing on the motion did not mention either the Second Circuit’s opinion in Weisbart or the regulation under section 7502.  The brief accompanying the motion is here, the taxpayers’ brief is here, and the government’s reply brief is here.  I am quite dismayed, though, that the DOJ Trial Section attorney did not know of the relevant authority.  I have sent an e-mail to the Harrisons’ counsel suggesting a motion for reconsideration or an appeal to the Seventh Circuit.

The district court in Harrison did do something else right, though:  It did not treat compliance with the tax paid amounts rules of section 6511(b) as jurisdictional.  Rather, both the DOJ and the court (unlike many other courts) treated compliance with these rules as a merits issue.  The court granted the DOJ’s motion on the ground of summary judgment, not FRCP 12(b)(1) (lack of jurisdiction) or 12(b)(6) (failure to state a claim).  In not treating the rules of section 6511(b) as jurisdictional, the Harrison court followed Seventh Circuit precedent, stating:

In reviewing the caselaw, requiring administrative exhaustion of a refund claim may be a jurisdictional requirement. See Gillespie v. United States, 670 Fed. App’x 393 (7th Cir. 2016) (acknowledging that recent Supreme Court developments “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdiction”). However, the Seventh Circuit has treated whether there are any tax payments within the “look back period” as an element of the claim. See Gessert v. United States, 703 F.3d 1028, 1036-37 (7th Cir. 2013) (holding that the claims do “not meet the [timing] requirements of the statute,” despite headnotes that describe it as a jurisdictional defect); Curry v. United States, 774 F.2d 852, 855 (7th Cir. 1985) (holding court lacks jurisdiction because plaintiffs failed to exhaust their claims, but even if they had exhausted, they would be barred from obtaining a refund because of the time requirements under § 6511). As such, the merits of plaintiffs’ claim appear to be properly before the court.

Footnote 2 (emphasis in original).

The Federal Circuit took a similar position (i.e., that compliance with the section 6511(b) tax payment rules is not jurisdictional) in Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), a case on which Stephen blogged here.  For a discussion of the Gillespie case cited by the Harrison court, see my prior post here.

Review of 2019 (Part 3)

In the last two weeks of 2019 we are running material which we have primarily covered during the year but which discusses the important developments during this year.  As we reflect on what has transpired during the year, let’s also think about how we can improve the tax procedure process going forward.

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Penalty Approval by Manager

The impact of Graev v. Commissioner, a 2017 Tax Court decision, has been felt throughout the world of tax procedure over the last two years. In Graev, the Tax Court adopted the 2nd Circuit’s holding in Chai v. Commissioner and ruled that in order to assess a penalty, the IRS generally has the burden under IRC 6751 of showing that written approval from a supervisor occurred before a Tax Court proceeding was initiated. Automatically-imposed penalties are an exception to the written approval rule. In recent affected Tax Court cases, the IRS has sought to reopen the record in order to submit additional evidence of supervisory approval, as otherwise Graev would preclude the court sustaining a penalty assessment. This is a complicated issue which will continue to drive further litigation in the near-future.

See William Schmidt, Designated Orders: Another Graev Issue and More Petitioners Refusing to Sign a Decision (5/13/19 to 5/17/19), Procedurally Taxing (July 10, 2019), https://procedurallytaxing.com/designated-orders-another-graev-issue-and-more-petitioners-refusing-to-sign-a-decision-5-13-19-to-5-17-19/

Keith Fogg, Prior Supervisory Approval Not Necessary for Late Filing Penalty Imposed Under IRC 6699, Procedurally Taxing (June 18, 2019), https://procedurallytaxing.com/prior-supervisory-approval-not-necessary-for-late-filing-penalty-imposed-under-irc-6699/

Keith Fogg, An IRC 6751 Decision Regarding the Initial Penalty Determination, Procedurally Taxing (June 10, 2019), https://procedurallytaxing.com/an-irc-6751-decision-regarding-the-initial-penalty-determination/

Keith Fogg, Automatically Generated Penalties Do not Require Managerial Approval, Procedurally Taxing (June 6, 2019), https://procedurallytaxing.com/automatically-generated-penalties-do-not-require-managerial-approval/

Keith Fogg, Tenth Circuit Agrees with Graev II – IRS Attorney Can Impose Penalties, Procedurally Taxing (May 20, 2019), https://procedurallytaxing.com/tenth-circuit-agrees-with-graev-ii-irs-attorney-can-impose-penalties/

Keith Fogg, Variance Doctrine Trumps IRS Failure to Obtain Administrative Approval of Penalty, Procedurally Taxing (May 6, 2019), https://procedurallytaxing.com/variance-doctrine-trumps-irs-failure-to-obtain-administrative-approval-of-penalty/

Government Closure

Jurisdiction of Tax Court

Government shutdowns continue to pose problems for tax procedure, and particularly for taxpayers attempting to file petitions with the Tax Court. In 2016, in Guralnik v. Commissioner, the Tax Court held that a day on which the Tax Court was closed due to a snowstorm did not hold open IRC 6330(d)’s statutory deadline based on IRC 7503 – the Saturday, Sunday and holiday rule; that the 30-day time period in IRC 6330 was a jurisdictional time period not subject to equitable tolling; and that taxpayer’s use of a better private mailing service than was included on the approved IRS list did not meeting the timely mailing rule of IRC 7502.  However, the Tax Court allowed the taxpayer into the court based on a determination that no Tax Court rule governed the circumstance when the court closed for a reason other than a Saturday, Sunday or holiday and in the absence of a rule it could keep the time period open using Federal Rule of Civil Procedure 6. That holding greatly informed the Tax Court’s treatment of petitions filed during the lengthy government shutdown of 2018-2019. Petitions due during the period of the shutdown were facially untimely, and thus the IRS sought to dismiss the resulting cases. In response, the Tax Court adopted a standard policy of issuing a generic order, requiring that the IRS supplement its motion to dismiss to address the applicability of Guralnik. In the majority of the cases, the IRS then conceded the issue and the Tax Court denied the pending motions to dismiss. Thus, in effect, Guralnik appears to govern in government shutdowns, and thus taxpayers can have their petitions treated as timely filed when delivered to the court upon the conclusion of a shutdown.

See Keith Fogg, The Broad Impact of Guralnik, Procedurally Taxing (Aug. 16, 2019), https://procedurallytaxing.com/the-broad-impact-of-guralnik/

Keith Fogg, How the Government Shutdown Impacted the Tax Court Filing Deadline, Procedurally Taxing (July 12, 2019), https://procedurallytaxing.com/how-the-government-shutdown-impacted-the-tax-court-filing-deadline/

Keith Fogg, Fallout from the Shutdown – The Odyssey of a Tax Court Petition, Procedurally Taxing (May 28, 2019), https://procedurallytaxing.com/fallout-from-the-shutdown-the-odyssey-of-a-tax-court-petition/

Jurisdiction and Equitable Tolling                                            

Myers v. Commissioner, a case decided this summer in the D.C. Circuit, is the first time that an appellate court has found a Tax Court statutory deadline to be nonjurisdictional. Myers concerned IRC 7623(b)(4), which sets forth the deadline for filing a whistleblower award petition in Tax Court. More importantly, the language of section 7623(b)(4) is a near-exact mirror of the deadline language found in the CDP deadline statute, 6330(d)(1) – which the 9th Circuit found was jurisdictional in Duggan v. Commissioner. Accordingly, the ruling for the petitioner in Myers creates a circuit split, which could very well generate a future hearing of the issue by the Supreme Court – which has consistently found statutory deadlines to be nonjurisdictional in recent years.  The D.C. Circuit has denied an en banc hear, the government has asked for an extended time within which to decide whether to make a cert petition because of the perceived circuit split.  The issue has far reaching implications for tax litigation deadlines and the ability of taxpayers with strong excuses for filing late to have their day in court.

The implication of a nonjurisdictional finding is that it allows the Tax Court to hear cases when a petition is not timely filed, if doing so would be fair under the doctrine of equitable tolling. Currently, if a taxpayer fails to timely their petition, then the Tax Court is unable to hear their case, regardless of the circumstances.  The tax clinic at the Legal Services Center of Harvard Law School filed an amicus brief in this case on behalf of Mr. Myers as it had done for Mr. Duggan.

See Carlton Smith, D.C. Circuit Denies DOJ En Banc Rehearing Petition in Myers Whistleblower Case, Procedurally Taxing (Oct. 9, 2019) https://procedurallytaxing.com/d-c-circuit-denies-doj-en-banc-rehearing-petition-in-myers-whistleblower-case/

Carlton Smith, D.C. Circuit Holds Tax Court Whistleblower Award Filing Deadline Not Jurisdictional and Subject to Equitable Tolling, Procedurally Taxing (July 3, 2019), https://procedurallytaxing.com/d-c-circuit-holds-tax-court-whistleblower-award-filing-deadline-not-jurisdictional-and-subject-to-equitable-tolling/

Gov’t Jurisdiction & closure

This past year’s federal government shutdown was the longest in U.S. history and as a result, posed many unique and challenging issues for taxpayers and practitioners. For one, as discussed at length above, it was unclear for much of the year whether the Tax Court would apply Guralnik to allow petitions due during the shutdown to be deemed timely. Perhaps more obviously, the shutdown was deeply disruptive for taxpayers engaged in collection matters with the IRS, who were unable to communicate with furloughed IRS employees. The recently-departed former National Taxpayer Advocate, Nina Olson, has in the past proposed that the IRS apply an emergency exception to the Anti-Deficiency Act to allow TAS employees to continue to work during a shutdown to assist taxpayers experiencing economic hardship. As future government shutdowns are unfortunately likely, hopefully the IRS will continue to implement reforms that will mitigate the impact of shutdowns on taxpayers.

See Bryan Camp, After The Shutdown:  Dealing with Time Limitations, Part IV — Equity, Procedurally Taxing (Jan. 31, 2019), https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-iv-equity/

Bryan Camp, After The Shutdown:  Dealing with Time Limitations, Part III, Procedurally Taxing (Jan. 28, 2019), https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-iii/

Leslie Book, Finding Guidance on the Effects of the Shutdown, Procedurally Taxing (Jan. 27, 2019), https://procedurallytaxing.com/finding-guidance-on-the-effects-of-the-shutdown/

Christine Speidel, The Taxpayer Advocate Service’s Role During an IRS Shutdown, Procedurally Taxing (Jan. 25, 2019), https://procedurallytaxing.com/the-taxpayer-advocate-services-role-during-an-irs-shutdown/

Bryan Camp, After The Shutdown:  Dealing with Time Limitations, Part II, Procedurally Taxing (Jan. 23, 2019),  https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-ii/

Bryan Camp, After The Shutdown:  Dealing with Time Limitations, Part I, Procedurally Taxing (Jan. 22, 2019),  https://procedurallytaxing.com/after-the-shutdown-dealing-with-time-limitations-part-i/

Financial Disability

Stauffer and others

Recent litigation has clarified the narrow scope of the financial disability exception of IRC 6511, which suspends the statute of limitations (“SOL”) for a refund claim if an individual is “financially disabled”. In Stauffer v. Internal Revenue Service, the 1st Circuit recently ruled against the estate of the taxpayer, finding that because the taxpayer’s son held a durable POA during the period in question, the estate is not entitled to file a refund claim outside of the SOL. Similarly, in Carter v. United States, a district court recently found that an estate executor’s disability was irrelevant to the SOL consideration, because the estate was the actual taxpayer in question. Finally, in Thorpe v. Department of Treasury, another district court held against the taxpayers who tried to make a disability argument but failed to comply with any of the enumerated requirements of Rev. Proc. 99-21.

See Keith Fogg, First Circuit Sustains Denial of Financial Disability Claim, Procedurally Taxing (Oct. 21, 2019), https://procedurallytaxing.com/first-circuit-sustains-denial-of-financial-disability-claim/

Keith Fogg, An Estate Cannot Use the Financial Disability Provisions to Toll the Statute of Limitations for Filing a Refund Claim, Procedurally Taxing (Sep. 12, 2019), https://procedurallytaxing.com/an-estate-cannot-use-the-financial-disability-provisions-to-toll-the-statute-of-limitations-for-filing-a-refund-claim

Keith Fogg, Financial Disability Argument Loses Because Taxpayer Husband Did not even Allege Disability, Procedurally Taxing (Mar. 25, 2019), https://procedurallytaxing.com/financial-disability-argument-loses-because-taxpayer-husband-did-not-even-allege-disability/

CDP

Summit

The new CDP Summit initiative seeks to improve the CDP process with input from taxpayers, practitioners and IRS staff. Many ideas are on the table as potential ideas for reform. A recent case, Webber v. Commissioner illustrates the need for improvements to the actual physical CDP notices themselves. In Webber, the taxpayer was misled by the multiple IRS mailing addresses on the received CDP notice (one for the CDP appeal and one for remittance of payment) and timely filed his CDP appeal with the incorrect address – thus missing the statutory deadline. Upon later appeal to the Tax Court, the IRS initially filed a motion to dismiss but then quickly withdrew the motion, perhaps recognizing the unfair result and the potential for the Tax Court to reach the issue of the jurisdictional nature of the deadline. The CDP Summit initiative seeks to make improvements to protect such taxpayers from unfair results, which defeat the purpose of CDP as a tool for taxpayers to quickly and effectively settle disputes with the IRS.

Carolyn Lee, Two tickets to Tax Court, by way of § 6015 and Collection Due Process, Procedurally Taxing (Aug. 28, 2019), https://procedurallytaxing.com/two-tickets-to-tax-court-by-way-of-%c2%a7-6015-and-collection-due-process/

William Schmidt, Collection Due Process and Webber v. C.I.R., Procedurally Taxing (July 24, 2019), https://procedurallytaxing.com/collection-due-process-and-webber-v-c-i-r/

Carolyn Lee, Collection Due Process Summit Initiative, Procedurally Taxing (July 18, 2019), https://procedurallytaxing.com/collection-due-process-summit-initiative/

Litigating merits

Under IRC 6330(c)(2)(B), taxpayers are able to contest the merits of their underlying liability in CDP proceedings only if they had (1) not previously received a statutory notice of deficiency for the liability or (2) not had a “prior opportunity” to dispute the liability. While the first element of this provision is relatively clear, the question of what constitutes a prior opportunity has been a topic of recent discussion for practitioners. In a series of recent cases, several circuits agreed with the IRS that a taxpayer is precluded from litigating the merits in CDP hearing if they previously had the ability to request a pre-assessment hearing. The IRS has also apparently taken the position that failure to receive a SNOD is not sufficient for a taxpayer to dispute liability on the merits if the taxpayer later files an audit reconsideration request and receives an opportunity for an appeals hearing in the process.  The opinion appeared to ignore the “or” language in the statute. And in a recent Tax Court proposed opinion in Lander v. Commissioner, a Special Trial Judge has accepted this argument. The proposed opinion in Lander is interesting, as the taxpayer did not receive a SNOD but, per the opinion, was still precluded from challenging on the merits because a pre-assessment hearing had already been offered. However, the case was recently submitted to Judge Goeke on November 13th, so the final disposition of the case may change.

See Keith Fogg, More on the Muddle of CDP, Procedurally Taxing (Sep. 9, 2019), https://procedurallytaxing.com/more-on-the-muddle-of-cdp/

Keith Fogg, The Muddle of Seeking to Litigate the Merits of a Tax Liability in Collection Due Process Cases, Procedurally Taxing (Aug. 6, 2019), https://procedurallytaxing.com/the-muddle-of-seeking-to-litigate-the-merits-of-a-tax-liability-in-collection-due-process-cases/

POA

Scope

A recent case in the Court of Federal Claims provides guidance on the scope of authority conveyed by a Power of Attorney Form 2848. In Wilson v. United States, the taxpayer’s 2848 representative, upon the taxpayer’s instructions, prepared a claim for refund and signed on the paid preparer line, but did not get the taxpayer’s signature before filing. In the subsequent suit, the government filed a motion to dismiss for lack of subject matter jurisdiction, asserting that the claim had not been “duly filed” under IRC 7422. The government argued that the 2848 did not provide the taxpayer’s representative with the authority to sign and file refund claim on the taxpayer’s behalf. The court looked to the instructions on the 2848 and found significance in the form’s express inclusion of a check box for taxpayers to authorize representatives to sign returns on their behalf. The court thus found that the plaintiff had not explained why the 2848 requires express authorization for signing one form under penalty of perjury but not for another. Accordingly, the court ruled for the government, finding that the plaintiff’s representative did not have broad authority under the 2848 to sign the claim for refund.

See Tameka Lester, The Scope of a Power of Attorney: When Can a Representative Sign a Refund Claim?, Procedurally Taxing (Aug. 13, 2019), https://procedurallytaxing.com/the-scope-of-a-power-of-attorney-when-can-a-representative-sign-a-refund-claim/

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.

Overpayment Interest – Is the Tide Turning?, Part Two

Guest blogger Bob Probasco returns with the second of a two-part post on developments in overpayment interest litigation. Christine

In the last post, I discussed the latest developments in the Paresky and Pfizer cases.  The latter in particular was an important milestone that may change how courts approach the issue of district court jurisdiction for taxpayer suits seeking interest payable to them by the government on tax refunds.  This post turns to Bank of America, with some additional general observations.

These cases involve the interpretation of 28 U.S.C. § 1346(a)(1), which provides district court jurisdiction over tax refund suits.  Does it also offer jurisdiction for suits for overpayment interest, even though technically those are not refund suits?  The government says no, but taxpayers may argue it does, in order to escape the $10,000 dollar limitation for district court jurisdiction under the “little” Tucker Act, § 1346(a)(2).  If § 1346(a)(1) provides jurisdiction for these overpayment interest suits, which statute of limitations applies – the general six-year statute of limitations under § 2401 or the two-year statute of limitations for refund suits under section 6532(a)(1)?

As discussed in the last post, the report and recommendation by the magistrate judge in Paresky concluded that the Southern District of Florida had jurisdiction under § 1346(a)(1) but the suit should be dismissed because the refund claim was not filed timely.  We’re waiting to see what the district court judge thinks.  In Pfizer, we had the first Circuit Court decision to directly decide that § 1346(a)(1) does not provide jurisdiction for these kinds of suits, setting up a circuit split.  And in Estate of Culver, the District of Colorado adopted the Second Circuit’s reasoning in Pfizer.  It will be a while before we see what effect, if any, Pfizer has in the Bank of America case, where there has also been a new development.

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What is happening with Bank of America?

Bank of America filed this case in the Western District of North Carolina (WDNC), apparently to avoid an unfavorable precedent in the CFC (see here for details).  The bank’s interest netting case sought both recovery of underpayment interest and additional overpayment interest.  The government filed a motion to transfer the claims requesting overpayment interest to the CFC; in the alternative, to dismiss because § 1346(a)(1) does not cover suits for overpayment interest.  It also suggested that cases filed under § 1346(a)(1) would be subject to the Code refund claim requirement and statute of limitations, sections 7422 and 6532 respectively.  The WDNC denied the government’s motion on June 30, 2019, relying heavily on the Scripps decision.

An interlocutory appeal by the government to the Fourth Circuit seemed more probable than the alternative of waiting until a decision on the merits.  A transfer to the CFC would likely result in certain victory by the government for most of the amount at issue, so it certainly would make sense to challenge the jurisdictional ruling now.   Then I belatedly checked the docket for Bank of America and realized there was a third possibility that I hadn’t even counted upon (gratuitous reference for fellow baby boomers).  The government filed a notice of appeal on August 28, 2019 – not to the Fourth Circuit, but to the Federal Circuit. 

Appellate specialists are probably nodding their heads now and murmuring “of course.”  And they may have been rolling their eyes at my earlier speculation about an interlocutory appeal to the Fourth Circuit.  But, alas, I am not an appellage specialist and had never before encountered 28 U.S.C. § 1292(d)(4).  I now know that the Federal Circuit has exclusive jurisdiction for appeals of a district court interlocutory order granting or denying, in whole or in part, a motion to transfer an action to the CFC.  Before I ran across this provision, I assumed that the CFC and Federal Circuit would never have occasion to rule on a jurisdictional provision that applied only to district courts (more about that below).  But that assumption is apparently wrong.  The WDNC’s denial of the motion to transfer the case to the CFC was based on its determination that district courts do have jurisdiction under § 1346(a)(1) so that is presumably what the Federal Circuit will have to decide.

The government could also have appealed to the Federal Circuit in the Pfizer case, after the denial by the SDNY back in 2016 of the first motion to dismiss, but did not do so.  Perhaps it wanted to get a ruling on the separate statute of limitations issue.  But it may have just been a case of different strategies by different trial teams.  Pfizer was handled by the U.S. Attorney’s office for the SNDY; while Bank of America was handled by DOJ Tax Division, as was Paresky.

Is there a Supreme Court visit in the future?

We now have a circuit split between the Second (Pfizer) and the Sixth (Scripps).  But the government won in Pfizer, so the taxpayer would have to seek certiorari.  Pfizer may decide to proceed without the favorable Second Circuit precedent; it can still win in the CFC.  Bank of America seems more likely than Pfizer to go to the Supreme Court, since both parties have strong motivations.  The government wants to overrule Scripps and Bank of America would lose most of the value of its interest netting claim if forced to litigate in the CFC.  We’ll have to wait to see how Paresky and Estate of Culver proceed.

A comment on underlying policy

We all recognize the Tax Court’s relative expertise, compared to courts of general jurisdiction, on tax issues.  But there is also a difference in expertise between the CFC and district courts.  The district court jurisdictional structure demonstrates two different policy decisions, aiming in different directions.  The dollar limitation in § 1346(a)(2) – the “little” Tucker Act – was based on a judgement by Congress that the Court of Claims (now the CFC) would have more expertise with claims against the government, because that is a major part of its caseload compared to district courts.  Small claims could be pursued in district courts so that taxpayers wouldn’t have to litigate in far off Washington, D.C., but larger ones should be filed in the Court of Claims.

When the predecessor of § 1346(a)(1) was enacted, it also was subject to a dollar limitation but that limitation was later removed.  That was based on a judgement by Congress that tax refund suits were different from other claims against the government and taxpayers should always be able to litigate those locally instead of with the CFC.

Which of those policy judgements should apply to the specific questions of interest on overpayments and underpayments of tax?

Many years ago, Mary McNulty and I were tracking all significant interest cases (both overpayment interest and underpayment interest).  I recently looked back at the list as of five years ago.  It showed 5 cases filed in district courts and 63 filed in the CFC.  When you factor in the number of district court judges compared to the number of CFC judges, that ratio is orders of magnitude more experience by the CFC judges (as well as the Federal Circuit) with the specific, complex issues of interest.  Most taxpayers chose that forum, although as precedents built up and unresolved issues were narrowed, there may be more motivation for taxpayers to avoid unfavorable precedents in the CFC and Federal Circuit, as in Bank of America.

And a final comment on CFC jurisdiction

I’ve been focusing in all of these blog posts on district court jurisdiction.  But when I discussed Pfizer recently with Jack Townsend, he pointed out something in some of these opinions that I skipped over.  The courts occasionally referred to § 1346(a)(1) as granting jurisdiction to both the district courts and the CFC.  Early in my career, I read the provision that way but over the years I came around to the idea that the reference to the CFC is just a reminder rather than an actual grant of jurisdiction.  I don’t recall offhand ever seeing the CFC refer to that provision as the basis for its jurisdiction over a tax refund suit.  I mentioned that briefly in this blog post but it’s worth pointing out explicitly.

The structure of the statute strongly supports that interpretation.  Section 1346(a)(1) is part of Chapter 85 of Title 28, which is titled “District Courts; Jurisdiction.”  Chapter 91 covers the CFC’s jurisdiction.  The specific language “shall have original jurisdiction, concurrent with the United States Court of Federal Claims, of” appears in § 1346(a) and thus applies not only to § 1346(a)(1) but also to § 1346(a)(2).  The latter certainly doesn’t grant jurisdiction to the CFC for Tucker Act claims, since the CFC already has jurisdiction under § 1491.  And § 1346(a)(2) refers to “any other civil action or claim against the United States,” whereas § 1491 just says “any claim against the United States.”  That convinces me that tax refund suits, covered by § 1346(a)(1), are a “claim against the United States” encompassed within § 1491.

If that doesn’t convince you, Jack’s blog post has a footnote by Judge Allegra on the topic that should.

Overpayment Interest – Is the Tide Turning?, Part One

Today Bob Probasco returns with further updates on overpayment interest litigation, in a two-part post. We are grateful to Bob for following the issue closely and sharing his observations with us. Christine

In August, I wrote about the Bank of America case (here and here), and provided updates on the status of the Pfizer and Paresky cases, all of which addressed the question of district court jurisdiction for taxpayer suits seeking interest payable to them by the government on tax refunds.  Recently we’ve had developments in all three cases, plus one new case.  This post will cover Paresky and Pfizer.  Part Two will move on to Bank of America, speculation concerning where this issue may head next, and some general observations about jurisdiction and policy considerations.

Setting the stage

There are two district court jurisdictional statutes at issue in these cases. This first is 28 U.S.C. § 1346(a)(1). It has no dollar limitation. That’s the statute we rely on when filing tax refund suits in district court, so I usually refer to it as “tax refund jurisdiction.” However, some taxpayers argue that this provision also covers suits for overpayment interest, although technically those are not refund suits.  The government strongly opposes that interpretation and we’ve seen a lot of litigation over the issue recently.

The second is § 1346(a)(2), which provides jurisdiction for any other claim against the United States “founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department . . . .” This is commonly referred to as “Tucker Act jurisdiction” and for district courts is limited to claims of $10,000 or less. The comparable jurisdictional statute for the Court of Federal Claims, § 1491(a)(1), has no such dollar limitation.  Practitioners often refer to § 1346(a)(2) as the “little” Tucker Act.

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There are also two different statutes of limitation potentially applicable. The general federal statute of limitations, § 2401 (for district courts or § 2501 for the Court of Federal Claims), requires that complaints be filed within six years after the right of action first accrues. In the Code, section 6532(a)(1) requires the taxpayer to file a refund suit no later than two years after the claim is disallowed.

A preliminary decision in Paresky

In the interest of space, I’ll just refer you back to the earlier blog post for the factual background on Paresky.  The taxpayers originally filed in the Court of Federal Claims (CFC).  That court concluded that it did not have jurisdiction over the suit because the applicable six-year statute of limitations in § 2501 began running in 2010 and had expired.  The Pareskys had previously requested that the court transfer the suit to the Southern District of Florida (SDF), in response to the government’s motion to dismiss, and the CFC agreed.  That would allow the Pareskys to try to persuade the SDF that § 1346(a)(1) covers claims for overpayment interest and that the two-year statute of limitations in section 6532(a)(1) applies.

After the transfer, the government quickly filed a motion to dismiss for lack of jurisdiction, arguing that § 1346(a)(1) did not apply and that the Pareskys’ claim exceeded the $10,000 limit for jurisdiction under the “little” Tucker Act.  On August 30, 2019, the magistrate judge issued her report and recommendation.  The report agreed with the Pareskys that § 1346(a)(1) covers claims for overpayment interest but also agreed with the government that taxpayers have to file an administrative refund claim within the time limitations set forth in the Code.  They had done so timely for the 2007 tax year but not for the earlier years.  The Pareskys argued for equitable estoppel based on the directions they had received from IRS personnel, but the judge was not convinced.  She concluded that equitable estoppel for the timely refund claim requirement is not available, based on the decision in United States v. Brockamp, 519 U.S. 347 (1997).  Technically, Brockamp involved an equitable tolling claim but the judge quoted a statement in the decision that suggested application to any equitable doctrines.

This is still a preliminary decision, not yet adopted by the district court judge in the case.  Both parties filed objections (on different grounds) to the report and recommendation on September 10, 2019; both parties filed a response to the other side’s objections on September 19, 2019; and the government then filed a reply on October 7th.  We’re still waiting to hear from the district court judge.  That decision may be complicated by the development in our next case.

A new decision in Pfizer

The IRS mailed refund checks to Pfizer within the 45-day safe harbor of section 6611(e).  The checks were never received, and the IRS eventually direct deposited a replacement approximately a year later, without overpayment interest.  The IRS takes the position that when the original refund check is issued timely but never received, the replacement refund still falls within section 6611(e).  (Some exceptions to this position are set forth in I.R.M 20.2.4.7.3.) Pfizer filed suit in the Southern District of New York (SDNY), asserting jurisdiction under § 1346(a)(1) to take advantage of the favorable Doolin v. United States, 918 F.2d 15 (2d Cir. 1990) precedent on the issue of interest on replacement refund checks. The government filed a motion to dismiss for lack of jurisdiction, arguing that district courts only have jurisdiction for standalone suits for overpayment interest under the “little” Tucker Act but the amount at issue exceeded the $10,000 limit. The court agreed with Pfizer and denied that motion to dismiss.  The court granted a second motion to dismiss, because the refund statute of limitations under section 6532(a)(1) had expired before suit was filed.  Pfizer argued that the general six-year statute of limitations in § 2401 applied.  But the court agreed with the government regarding the statute of limitations and dismissed the case.

In the first motion to dismiss, Pfizer requested that the case be transferred to the Court of Federal Claims (CFC) if the motion to dismiss were granted.  That was denied when the SDNY ruled that it had jurisdiction under § 1346(a)(1).  In the second motion to dismiss, Pfizer did not make the same request for transfer.  The government also did not recommend transfer.  But on appeal, Pfizer asked that the Second Circuit, if it affirmed the decision by the SDNY, transfer the case.  That would allow the case to proceed, as suit was filed within the six-year general statute of limitations for Tucker Act claims, although the Second Circuit precedent Pfizer wanted to rely on would not be binding in the CFC.  

The government argued that if the Second Circuit concluded that § 1346(a)(1) applies to suits for overpayment interest but affirmed the SDNY because of the statute of limitations issue, it should not transfer the case because it was not timely when originally filed in the SDNY.  This struck me as over-reaching.  The CFC does not apply the Code statute of limitations to these cases and under the CFC’s jurisdictional statute (more discussion below), it would have been timely filed.   The argument that transfer would not be in the interests of justice because Pfizer had successfully resisted transfer under the first motion of dismiss might carry more weight.  In any event, the government said that it would not oppose transfer if the Second Circuit concluded that § 1346(a)(1) does not apply to suits for overpayment interest.  That is the result the government was hoping for.

On September 16, 2019, the Second Circuit ruled – and the government got exactly what it was hoping for.  The court disagreed completely with the analysis by the district court and in E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005).  The text in § 1346(a)(1) that those decisions relied on – “a sum alleged to have been excessive or in any manner wrongfully collected” – did not apply to suits for overpayment interest.  Read in harmony with the rest of the statute, that would “plainly refer to amounts the taxpayer has previously paid to the government and which the taxpayer now seeks to recover.”  Further, “any sum alleged to have been excessive or in any manner wrongfully collected” is written in present-perfect tense, indicating that “excessive” or “wrongfully collected” occurred in the past, that is, an assessment previously paid by the taxpayer.  Finally, dicta in Flora v. United States, 362 U.S. 145 (1960), stating that “any sum” would encompass interest, was clearly referring to underpayment interest based on the context.  The Second Circuit therefore transferred the case to the CFC.

Judge Lohier filed a concurrence to point out that if the district court had jurisdiction under § 1346(a)(1), it would have been subject to the Code statute of limitations and Pfizer would have lost anyway.  He rejected Pfizer’s attempt to disassociate § 1346(a)(1) and section 7422 of the Code.  Keith and Carl had filed an amicus brief arguing that even if the filing deadline in section 6532(a) applies, it is not jurisdictional and is subject to estoppel or equitable tolling arguments.  The judge rejected equitable tolling in a footnote due to the lack of an “extraordinary circumstance” but did not mention estoppel.  But it’s a footnote in a concurrence, so this is still an open question.

I found the statutory interpretation in this decision much more persuasive than that in Scripps, although the statute may be sufficiently ambiguous that other courts could reasonably disagree.  In any event, this is a significant milestone.  Before Pfizer, Scripps was the only other Circuit Court decision to have directly ruled on this issue.  (Sunoco, Inc. v. Commissioner, 663 F.3d 181, 190 (3d Cir. 2011) suggested the same interpretation, but that was dicta.)

What effect will this have on other cases?  On October 7th, in Estate of Culver v. United States, the district court for the District of Colorado also adopted the reasoning of the Second Circuit and transferred that case to the CFC.  Even district court decisions disagreeing with Scripps have been rare, so this may also be a sign that the tide is turning.  As with Bank of America, an immediate appeal of that order would go to the Federal Circuit.

As one might expect, the government quickly brought the Pfizer decision (on September 18th) and the Culver decision (October 7th) to the attention of the SDF in the Paresky case.  If the district court judge is influenced by Pfizer and rejects the magistrate judge’s report and recommendation, the Pareskys may have to appeal to the Eleventh Circuit and hope that court agrees with Scripps

It will be a while before we see what effect, if any, Pfizer has in the Bank of America case, where there has also been a new development.  I’ll turn to that in Part Two.

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?

Whistleblower Jurisdiction: Is Anyone Listening? – Designated Orders: July 22 – 26, 2019

This week featured three orders from Judge Armen, along with another brief order from Judge Kerrigan that extended the time for responding to a discovery request.

These will be among the last orders from Judge Armen. The Tax Court recently announced that Judge Armen retired from the bench, effective August 31, 2019. I’ve appeared before Judge Armen numerous times for trial sessions in Chicago. In those sessions, I always found him to be fair, thorough, and thoughtful. He always took time to walk pro se petitioners through the Court’s procedures, carefully listened to them, and explained the applicable law in an approachable manner. His presence on the bench will, indeed, be missed.

His first order is relatively unremarkable, save the exacting detail that Judge Armen uses to walk a pro se taxpayer through a relative simple issue (unsurprising, given his similar willingness to do so at trial sessions). Petitioner had contended that including unemployment income in gross income is “cruel, short-sighted, and runs afoul any theory of economic success.” That may well be, but Judge Armen painstakingly runs through the Code to demonstrate that unemployment income is specifically included in gross income under § 85 (and is otherwise generally includable under § 61(a)).

The other two orders are in pro se Whistleblower cases. Both grant summary judgment to the government because there was no administrative or judicial action to collect unpaid tax or otherwise enforce the internal revenue laws. For the Tax Court to obtain jurisdiction under IRC § 7623(b)(4), the IRS must commence such an action.

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Docket No. 17586-18W, Hammash v. C.I.R. (Order Here)

Petitioner submitted a Form 211, Application for Award for Original Information, with the IRS Whistleblower office, alleging that a certain business underreported taxes, and that the Petitioner had previously reported the business to the “IRS in California”. (One wonders whether Petitioner means an IRS office in California, or the California Franchise Tax Board; my clients often refer to the Indiana Department of Revenue as the “Indiana IRS”.) But, there wasn’t any further explanation or supporting documentation of the alleged malfeasance.

According to Respondent’s exhibits, the Whistleblower Office denied an award and didn’t otherwise refer the case for further investigation. The Petitioner timely filed a petition; from a review of the docket, it seems he may been represented by a POA at the administrative level, as a motion to proceed anonymously was originally filed by someone not admitted to practice before the Tax Court. The Court struck it from the record soon thereafter.

In any case, the particulars don’t really matter here. The limited information provided in the Form 211 isn’t what dooms Petitioner’s case; rather, it’s that the IRS never initiated an administrative or judicial proceeding to collect tax from the allegedly delinquent taxpayer.

For the Tax Court, this is a jurisdictional requirement under IRC § 7623(b)(4). The Tax Court is authorized to review a “determination regarding an award under [§ 7623(b)(1)-(3)]. IRC § 7623(a)(1), (2), and (3) provide for various awards. Paragraph (1) authorizes an award “[i]f the Secretary proceeds with any administrative or judicial action” related to detecting underpayments of tax or detecting and bringing to trial and punishment criminal tax violators. See IRC § 7623(a), (b)(1); see also Cohen v. Commissioner,139 T.C. 299, 302 (2012). Paragraph (2) and (3) awards are likewise premised upon an “action described in paragraph (1)”. Moreover, the government must collect some unpaid tax from the target taxpayer pursuant to such action, for the Tax Court to obtain jurisdiction.  

Neither an investigative action nor collection of proceeds occurred here. Petitioner didn’t provide any evidence to the contrary in the Tax Court proceeding; indeed, after the Tax Court struck his representative’s motion to proceed anonymously, he seemed to not participate at all. Therefore, summary judgment was appropriate and the Court sustained Respondent’s whistleblower determination.

Docket  No. 19512-18W, Elliott v. C.I.R. (Order Here)

This whistleblower claim contained substantially more detail than Hammash, but nevertheless Petitioner finds herself in the same situation.

Petitioner filed a Form 211, which according to the Court, alleged “a brokerage services firm . . . that was custodian for a certain qualified retirement plan was mishandling former plan participants’ accounts.” Unlike in Hammash, where it appears no outside review occurred, here the Whistleblower Office did forward the claim to a Revenue Agent at the IRS Tax Exempt and Government Entities division. The RA sent the claim back to the Whistleblower Office, noting that TEGE does not investigate custodians, but rather investigates qualified plans themselves.

The Whistleblower Office didn’t send the claim on to any other division of the IRS. Instead, it issued a denial letter essentially identical to the one in Hammash, noting that the information provided was speculative, lacked credibility, and/or lacked specificity.

Petitioner argued that her information was, in fact, credible and specific, and asked the Court to compel Respondent to investigate the claim.

While this case involved a much more engaged Petitioner with facially troubling allegations, one fact remains: it’s undisputed that the IRS did not conduct an administrative or judicial action to recoup any unpaid tax or otherwise prosecute violations of the internal revenue laws. No proceeds were collected either. Further, the Court cannot, under the limited jurisdiction provided in IRC § 7623, determine the proper tax liability of the target taxpayer or require the IRS to initiate an investigation. See Cooper v. Commissioner, 136 T.C. 597, 600 (2011).

Thus, the Court granted Respondent’s motion for summary judgment and sustained Respondent’s administrative denial of the whistleblower award claim.

One small nitpick: here and in Hammash, the Court determined that it lacked jurisdiction. Yet it “sustained” Respondent’s administrative determination. While it arrives at the same conclusion, I don’t believe that’s the proper result under Cohen or Cooper. Under those cases, the Court lacks the power to sustain or overturn the determination to deny the claim; it should therefore dismiss the case for lack of jurisdiction, rather than sustaining Respondent’s determination.