Bankruptcy Filing Deadlines and Jurisdiction

Regular readers of this blog know that we write regularly, and some would say too often, on the issue of filing deadlines and jurisdiction.  Hat tip to PT reader Ronald Byers and to Carl Smith for alerting me to this case.  Because of a series of Supreme Court cases over the past 15+ years, a number of courts have shifted their views on what makes a time frame jurisdictional.  The most recent court to weigh in on this issue occurred on October 28, 2020, in the case of Tennial v. REI Nation, LLC (6th Cir.)

In this case the Sixth Circuit overturns the decision of the lower courts regarding the jurisdictional nature of the time frame to file an appeal from a bankruptcy court decision holding that the time frame, created by a Bankruptcy Rule, does not create a jurisdictional period.  Nonetheless, it finds the time period mandatory and the debtor lacking in a basis for equitable tolling.  So, it affirms the decision of the lower court that her time to appeal passed before she acted cutting off her opportunity to appeal. 

The outcome parallels the outcome in the CDP case of Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018) where the Fourth Circuit declined to even get to the jurisdictional issue because it found her excuse lacking under the Supreme Court’s decision in Irwin v Veterans Administration, 498 U.S. 89 (1990).  Having a time period declared non-jurisdictional will not get a late litigant into court without a good reason for being late.  I also wrote specifically about the jurisdictional issues regarding the timing of an appeal from the Tax Court to a circuit court here.

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Ms. Tennial filed bankruptcy to stop the foreclosure of her home.  After she entered bankruptcy her lender sold the mortgage to REI Nation, which moved the lift the automatic stay in order that it could move forward and complete foreclosure on her home.  The bankruptcy court granted the motion to lift the stay.  Bankruptcy Rule 8002(a)(1) proves a 14-day time period to appeal an order of this type.

The order terminating the stay was entered on September 12, 2019.  Her attorney received electronic notice of the order that day.  On September 14, 2019 a copy of the order was mailed to her.  She did not file notice of appeal until October 9, 2019.  In her notice of appeal, she stated that she did not receive the mailed copy of the order until September 26, 2019 – the day on which the appeal needed to be filed.  She did not explain what happened to the electronic notice sent to her attorney on the day of the order.

The district court determined that it lacked jurisdiction because of the late filing of the appeal.  It cited to 28 U.S.C. 158(c)(2) which provides that bankruptcy appeals “shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts and in the time provided by Rule 8002 of the Bankruptcy Rules.”

The Sixth Circuit noted that it had treated this deadline as jurisdictional in prior opinions, which would have bound the district court.  One of the prior opinions issued in 2017; however, the court noted that it had not looked at the question of jurisdiction in light of the recent Supreme Court guidance.  Looking at it in that light, it determined that a time frame created by a rule and not by a statute could not impose a jurisdictional limit on the federal courts.

The Sixth Circuit analyzed some of the same Supreme Court jurisprudence that we have written about in prior posts here and here.  It found that its prior decisions on this subject failed to take into account the jurisprudence coming from the Supreme Court noting:

the Supreme Court has been rigorous and vigorous in distinguishing between requirements that go to the subject matter jurisdiction of the federal courts and requirements that are merely mandatory. To the end of simplifying and clarifying the issue, Justice Ginsburg wrote a trailblazing unanimous decision for the Court that created a clear-statement rule for the daunting array of settings in which the question arises. Congress must “clearly state[]” that the requirement implicates the judiciary’s subject matter jurisdiction—its “statutory or constitutional power to adjudicate the case”—before the federal courts will treat the requirement as a non-waivable and non-forfeitable jurisdictional imperative. Arbaugh v. Y&H Corp., 546 U.S. 500, 515 (2006) … Consistent with that goal and consistent with the clear-statement rule, the Court has treated most of the procedural requirements that have come before it since then as not being jurisdictional in the constitutional sense of the term. See, e.g., Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (2010); United States v. Kwai Fun Wong, 575 U.S. 402 (2015); Musacchio v. United States, 136 S. Ct. 709 (2016).    

The Sixth Circuit says the rule is not hard to apply in this situation because nothing in the statute establishes the bankruptcy appeal deadline as a jurisdictional prerequisite much less a clearly stated one.  It goes on to find as a second prong for its decision that four of the jurisdictional cases decided by the Supreme Court in its spate of cases about jurisdiction deal with time frames established by rule rather than by statute.  It finds that the four cases addressing time frames set by rules establish a precedent that rule based time frames do not create a jurisdictional issue.  It lists the four cases and then draws from them a general principle:

How did the Court resolve these cases? Based on this straightforward principle: Rule-based deadlines are jurisdictional when they implement an appeal deadline created by Congress. Otherwise, they are not.

In explaining this principle it states further that:

No less significantly, if deadlines established by the rules process alone created jurisdictional limits, that would mean the rules committee could change the scope of federal court subject matter jurisdiction on its own. That’s good work if you can get it, to be sure. But the Constitution gives that power to Congress alone.

The Court notes that its decision here runs contrary not only to its own prior decisions but to the of other circuit courts.  This statement reminded me of advice of my dean, John Manning, who assisted in the moot of the argument our clinic made in a case before the Second Circuit four years ago.  Dean Manning had been asked by the Supreme Court to participate as an amicus in a jurisdictional case to argue the court lacked jurisdiction.  After inviting him to make the argument, the Supreme Court ruled that the timing issue was not jurisdictional – as it has done in all of the cases post 2004 not covered by prior Supreme Court precedent.  He told the student and me that we would lose our case in the Second Circuit but if we could get to the Supreme Court we would win. 

Just as the circuit courts are almost uniformly rejecting our arguments in tax cases, they have done so in bankruptcy cases.  The Sixth Circuit makes a break from precedent here.  It will be interesting to watch if this changes the situation in the bankruptcy area and has any impact on non-bankruptcy jurisdictional cases.  I am inspired to find a jurisdictional case in the Sixth Circuit, which has not faced the issue in a tax case.

Postscript

I recently discussed the two pending jurisdictional cases involving the Tax Court here.  Both are CDP cases.  There is a small update in one of the two cases.  The taxpayer has now filed its brief with the Second Circuit in the Castillo case.  That brief can be found here.  The IRS response is not yet due.  In the Boechler case pending in the 8th Circuit, the IRS response to the motion for rehearing en banc was filed on October 16th and can be found here. The en banc 8th Circuit has not yet ruled on the motion.

Eighth Circuit Holds Tax Court CDP Filing Deadline Jurisdictional Under SCOTUS Case Law

For those interested, the DOJ Tax Division is currently advertising for experienced attorneys in the Civil Trial Sections in Washington, DC.  The job posting can be found on the Department of Justice’s Website at https://www.justice.gov/legal-careers/job/trial-attorney-451 and on USAJobs at https://www.usajobs.gov/GetJob/ViewDetails/573997200. Keith.

In Boechler, P.C. v. Commissioner, 2020 U.S. App. LEXIS 23306, on July 24, the Eighth Circuit aligned itself with the Ninth Circuit in Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018), and held that, even considering recent Supreme Court case law that generally treats filing deadlines as not jurisdictional, the Collection Due Process (CDP) Tax Court filing deadline at section 6330(d)(1) is jurisdictional.  The majority predicated its holding on an exception that Congress may override the general rule by making a clear statement in the statute that Congress wants the filing deadline to be jurisdictional.  In ruling that Congress had made a clear enough statement in the CDP provision, the Boechler majority rejected the D.C. Circuit’s opinion in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), holding that the similarly-worded Tax Court filing deadline at section 7623(b)(4) for whistleblower award actions is not jurisdictional.  A concurring judge in Boechler said she felt bound to agree with the majority because of prior Eighth Circuit precedent, but if she were presented with the issue without that precedent, she would hold the filing deadline not jurisdictional.

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The facts of Boechler are simple:  The IRS mailed a CDP notice of determination to the taxpayer by certified mail at its last known address.  The taxpayer received the notice three days later, but did not mail a petition to the Tax Court until 31 days after the notice was mailed.  (Having spoken with Boechler’s lawyer who prepared and mailed the petition, I was told that he did not see the notice until the date he mailed the petition.  Unlike in many recent litigated cases we have discussed on PT, therefore, you can’t blame the lawyer here.)

In the Tax Court, Boechler argued that Due Process required that the 30 days to file a petition must be counted from the date of the notice’s receipt, not the date of its mailing.  In the alternative, Boechler argued that, under recent Supreme Court case law, the filing deadline is not jurisdictional, but is subject to equitable tolling.  Boechler did not set out any facts supporting equitable tolling in its case, but the Tax Court would not have cared if Boechler had, anyway.  In an unpublished order , the Tax Court, citing its opinion in Guralnik v. Commissioner, 146 T.C. 230, 237-238 (2016), held that the filing deadline is jurisdictional and thus is not subject to equitable tolling.  Jurisdictional filing deadlines can never be equitably tolled.  The order also found no Due Process violation, noting that “the method reflects the standard and consistent way that various periods provided for under the Internal Revenue Code and other Federal statutes are calculated.”

There were two prior opinions of the Eighth Circuit that had stated that the CDP filing deadline is jurisdictional, but neither of those opinions discussed recent Supreme Court case law or Due Process. 

The first Eighth Circuit opinion, Tschida v. Commissioner, 57 Fed. Appx. 715 (8th Cir. 2003), was decided before the Supreme Court in Kontrick v. Ryan, 540 U.S. 443 (2004), made clear that filing deadlines are generally no longer to be considered jurisdictional.  The Tschida court wrote: “the untimely filing deprived the tax court of jurisdiction”.  While Tschida is on all fours with Boechler factually, it was not a published, precedential opinion.

The second Eighth Circuit opinion was precedential, Hauptman v. Commissioner, 831 F.3d 950 (8th Cir. 2016).  In that case, a taxpayer timely filed a Tax Court CDP petition, and, during the case, Appeals issued a Supplemental Notice of determination.  The Tax Court upheld the Supplemental Notice.  On appeal, the taxpayer argued that the Tax Court lacked jurisdiction to consider the Supplemental Notice.  The parties did not brief the issue of whether the CDP filing deadline is jurisdictional, but in some prefatory remarks before reaching its holding that the Tax Court had jurisdiction to consider the Supplemental Notice, the Eighth Circuit stated that there were only two jurisdictional requirements for a Tax Court CDP suit: issuance of a notice of determination and timely filing.  For that timely filing requirement, the Eighth Circuit inserted a “see” cite to the Seventh Circuit opinion in Gray v. Commissioner, 723 F.3d 790 (7th Cir. 2013)

In Gray, a taxpayer filed late original returns, which the IRS accepted, but she did not pay the taxes shown due on the returns (or a late-filing penalty later imposed by the IRS).  She had a CDP hearing, after which the IRS issued a notice of determination.  She then filed two Tax Court petitions – both after the 30-day period in section 6330(d)(1) had expired.  The Tax Court dismissed the petitions for lack of jurisdiction.  On appeal, pro se, she argued that the petitions were timely under the 90-day period applicable to deficiency petitions at section 6213(a).  The parties did not brief whether the filing deadlines at sections 6213(a) or 6330(d)(1) are jurisdictional.  But, the Seventh Circuit, in the course of getting to its ruling that the 30-day period applied, cited a couple of Tax Court opinions holding that the CDP filing deadline is jurisdictional.  The Gray court did not discuss the recent Supreme Court case law (as, neither did the Tax Court in the cited pre-Guralnik opinions).

In Boechler, the majority of the panel first held that it was not bound by the prior Eighth Circuit opinions. The court wrote that “the jurisdictional test laid out in Hauptman was obiter dicta addressing an issue not before the court”.  Slip op. at 4.

At this point, the Eighth Circuit could have written that it need not decide whether the CDP filing deadline is jurisdictional because Boechler had not even alleged any facts showing its entitlement to equitable tolling.  That’s the approach the Fourth Circuit took in Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018).  But, the panel chose to decide the issue of whether the filing deadline is jurisdictional in light of the recent Supreme Court case law.  The court wrote:

We find the Ninth Circuit’s analysis [in Duggan] persuasive. The statutory text of § 6330(d)(1) is a rare instance where Congress clearly expressed its intent to make the filing deadline jurisdictional. The provision states: The person may, within 30 days of a 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). 26 U.S.C. § 6330(d)(1). The parenthetical “(and the Tax Court shall have jurisdiction with respect to such matter)” is clearly jurisdictional and renders the remainder of the sentence jurisdictional. See Fort Bend Cty. v. Davis, 139 S. Ct. 1843, 1849 (2019).

A plain reading demonstrates that the phrase “such matter” refers to a petition to the tax court that: (1) arises from “a determination under this section” and (2) was filed “within 30 days” of that determination. See Myers, 928 F.3d at 1039 (Henderson, J., dissenting) (reaching the same conclusion when analyzing the identically worded parenthetical in § 7623(b)(4)); see also 26 U.S.C. § 6330(e)(1) (“The Tax Court shall have no jurisdiction under this paragraph to enjoin any action or proceeding unless a timely appeal has been filed under subsection (d)(1). . .”). Unlike other statutory provisions that have been found to be non-jurisdictional by the Supreme Court, § 6330(d)(1) speaks “in jurisdictional terms.” Musacchio, 136 S. Ct. at 717 (finding 18 U.S.C. § 3282(a) non-jurisdictional). The use of “such matter” “plainly show[s] that Congress imbued a procedural bar with jurisdictional consequences.” Kwai Fun Wong, 575 U.S. at 410. This phrase provides the link between the 30-day filing deadline and the grant of jurisdiction to the tax court that other statutory provisions lack. While there might be alternative ways that Congress could have stated the jurisdictional nature of the statute more plainly, it has spoken clearly enough to establish that § 6330(d)(1)’s 30-day filing deadline is jurisdictional.

Slip op. at 6-7 (footnote and some citations omitted; emphasis in original).  The court rejected the Myers’ majority holding that similar language in the whistleblower award provision of section 7623(b)(4), while clearly predicating Tax Court jurisdiction on a notice of determination, was not sufficiently clear also to refer, with the words “such matter”, to the filing deadline.

As to Boechler’s Due Process argument, the court stated that both Due Process and Equal Protection arguments in this case must be analyzed under a rational basis standard.  The court held that it was rational for Congress to make the 30-day period begin on the date of mailing:

[C]alculating the filing deadline from the date of determination streamlines and simplifies the complex undertaking of enforcing the tax code. If the IRS were required to wait 30 days from the date that each individual received notice, it would be unable to levy at the statutory, uniform time. Calculating from the date of determination guards against taxpayers refusing to accept delivery of the notice and promotes efficient tax enforcement by ensuring a reasonable and workable timeframe and deadline.

Slip op. at 8.

Concurring Judge Kelly argued that the panel was wrong not to follow Hauptman, contending that while the issue of whether the filing deadline is jurisdictional was not briefed in Hauptman, the statement therein that the filing deadline is jurisdictional was necessary to the ultimate holding that the Tax Court had jurisdiction to consider the Supplemental Notice and so was binding on the current panel.

Judge Kelly indicated that, had she not felt bound by the holding in Hauptman, she would have come out differently with the majority on the nature of the filing deadline.  She wrote:

As the court notes, deeming the 30-day filing deadline in 26 U.S.C. § 6330(d)(1) jurisdictional is an unusual departure from the ordinary rule that filing deadlines are “quintessential claim-processing rules.” See Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 435 (2011). This may have “drastic” consequences for litigants, id., and I am concerned the burden may fall disproportionately on low-income taxpayers, as the amicus [the Tax Clinic at the Legal Services Center of Harvard Law School] suggests. I am not convinced the statute contains a sufficiently clear statement to justify this result. See Myers v. Comm’r, 928 F.3d 1025, 1036 (D.C. Cir. 2019) (holding that the “nearly identical” filing deadline in 26 U.S.C. § 7623(b)(4) is not jurisdictional). But in light of our long-standing precedent, I concur in the court’s judgment.

Slip op. at 10.

Observations

Nine appellate judges have now considered the filing deadline language in the Tax Court’s CDP and whistleblower award jurisdictions (in Duggan, Myers, and Boechler).  Of those nine, six have held that the filing deadlines should be jurisdictional and three have held the deadlines should not be (at least, if writing on a blank slate).  Thus, one should not be embarrassed to continue litigating this issue. 

In fact, the issue is currently before another Circuit – the Second Circuit, in a case named Castillo v. Commissioner, Second Circuit Docket No. 20-1635.  The case was filed in the Tax Court by the tax clinic at Fordham Law School headed by Prof. Elizabeth Maresca.  The clinic’s client never received a CDP notice of determination that the IRS had mailed to the client’s last known address.  USPS records state that the notice is still “in transit”.  Several months after the notice was sent, Elizabeth saw an IRS transcript indicating that such a notice had been issued.  Within 30 days after seeing the transcript, the clinic filed a Tax Court petition.  In response to a motion to dismiss, the clinic argued (1) that the filing deadline is not jurisdictional and should be equitably tolled under the facts of the case, and (2) that the Tax Court was wrong in Weber v. Commissioner, 122 T.C. 258 (2004), to have imported into its CDP jurisdiction case law from its deficiency jurisdiction holding that a notice of deficiency mailed to the taxpayer’s last known address starts the filing period, even if the notice is never received.  The Tax Clinic at the Legal Services Center of Harvard Law School has filed an amicus brief  in Castillo limited to making the second (anti-Weber) argument.  Ms. Castillo’s opening brief is due October 22.  An amicus brief from some other party arguing that the filing deadline is not jurisdictional and is subject to equitable tolling is also expected.

The Tide Keeps Going Out, Carrying Overpayment Interest Suits Away from District Courts

We welcome back regular guest blogger Bob Probasco. Bob is the director of the Low Income tax Clinic at Texas A&M University School of Law. Prior to starting the clinic at Texas A&M, Bob had a long a varied career in different tax positions. Before law school, he spent more than twenty years in various accounting and business positions, including with one of the “Big Four” CPA firms and Mobil Oil Corporation. After law school and a year clerking with Judge Lindsay of the Northern District of Texas, he practiced tax law with the Dallas office of Thompson & Knight. He left T&K in 2014 and started a solo practice before switching to full time academia. Keith

We return to the jurisdictional dispute over taxpayer stand-alone suits claiming additional overpayment interest in excess of $10,000.  The latest development, a decision on July 2nd by the Federal Circuit in Bank of America v. United States, docket number 19-2357, continues a trend that I’ve been following for two years now.  Until recently, the only decision on this issue at the Circuit Court level was E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005), which concluded that district courts can hear such claims.  For years, most lower courts followed the Sixth Circuit.  But recently the tide turned.  Here’s a timeline of recent cases illustrating the change.

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First, the lower courts follow Scripps and agree that district courts have jurisdiction over these claims:

  • October 31, 2016:  The Southern District of New York follows Scripps in Pfizer, Inc. v. United States, 118 A.F.T.R.2d (RIA) 2016-6405 (S.D.N.Y. 2016) and decides it has subject matter jurisdiction.  On May 12, 2017, the court dismissed the case for lack of jurisdiction for failure to timely file the refund suit.  Prior discussion here.  The taxpayer appeals.
  • July 1, 2019:  The Western District of North Carolina follows Scripps in Bank of America Corp. v. United States, 2019 U.S. Dist. LEXIS 109238, 2019 WL 2745856 (W.D.N.C. 2019), and denies the motion to transfer the case to the Court of Federal Claims.  Prior discussion here.  The government appeals.
  • August 30, 2019:  In the Southern District of Florida, the magistrate judge’s report and recommendation in Paresky v. United States, 2019 U.S. Dist. Lexis 149629, 2019 WL 4888689 (S.D. Fla. 2019) follows Scripps.  The magistrate judge concludes that the court has subject matter jurisdiction but recommends dismissal in part for failure to file timely refund claims. Prior discussion here.

And then a break, with cases now holding that only the Court of Federal Claims, not district courts, have jurisdiction over these claims:

  • September 16, 2019: The Second Circuit reverses the S.D.N.Y., in Pfizer, Inc. v. United States, 939 F.3d 173 (2d Cir. 2019) and concludes there is no subject matter jurisdiction.  Prior discussion here.  The court transfers the case to the Court of Federal Claims, docket number 19-1803. Plaintiff files a motion for summary judgment on April 30, 2020.
  • October 7, 2019:  The District of Colorado agrees with Pfizer, in Estate of Culver v. United States, 2019 U.S. Dist. LEXIS 173235, 2019 WL 4930225 (D. Colo. 2019).  The court transfers the case to the Court of Federal Claims, docket number 19-1941.
  • October 21, 2019:  In the Southern District of Florida, the district court judge in Paresky v. United States declines to adopt the magistrate judge’s report and recommendation and follows Pfizer, dismissing the case for lack of subject matter jurisdiction.  Prior discussion here.  The taxpayers appeal.
  • July 2, 2020:  The Federal Circuit agrees with Pfizer and reverses the WDNC, in Bank of America Corp. v. United States. It remands the case to the WDNC, to sever some of the claims and transfer them to the Court of Federal Claims.

So now we have the Sixth Circuit holding that district courts have jurisdiction over such suits while the Second and Federal Circuits disagree, with one more circuit court considering the issue.  Mr. and Mrs. Paresky’s case is currently pending in the Eleventh Circuit, docket number 19-14589.  Appellants filed their primary brief on May 27, 2020.  The government’s brief is due on July 27, 2020.

When only one circuit court has ruled on a difficult issue, district courts – even in other circuits – tend to follow that decision.  But once another circuit court disagrees, the better analysis tends to win out and lower courts change direction.  It’s possible that the magistrate judge in Paresky, and the district court in Bank of America, would have reached a different conclusion if they were deciding after Pfizer.  My guess is that the Eleventh Circuit will agree with the Second and Federal Circuits on this issue.  This is still a small sample size, but I suspect the tide has turned decisively.

Caveat:  Bank of America lost in the Federal Circuit but has a strong incentive (see below) to seek review by the Supreme Court.  Similarly, the government may want a ruling by the Supreme Court to overturn Scripps once and for all.  With a circuit split, and if both parties ask the Supreme Court to hear the case – well, the Court hates tax cases but might take this one.  If so, all bets are off.

How did we get here?

Before I get into the court’s decision, a brief reminder why Bank of America, appealed from the Western District of North Carolina, wound up in the Federal Circuit instead of the Fourth Circuit. The government had moved to dismiss the case, or in the alternative to transfer it to the Court of Federal Claims, on the basis that the district court did not have jurisdiction for such cases. The district court denied both alternatives, as the court concluded it had jurisdiction. However, if a district court issues an interlocutory order “granting or denying, in whole or in part, a motion to transfer an action to the United States Court of Federal Claims,” a party can make an interlocutory appeal and the Federal Circuit has exclusive jurisdiction. 28 U.S.C. § 1292(d)(4). The government could have done the same in Pfizer, when the district court ruled against it on the first motion to dismiss for lack of subject matter jurisdiction, but it chose not to do so. In the second motion to dismiss, based on failure to timely file the refund suit, the government did not request transfer, so Pfizer’s appeal was to the Second Circuit.

Statutory interpretation

The jurisdictional provision at issue in these cases 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, so I think of it as “tax refund jurisdiction.”  The taxpayers in these cases argued that it also covers stand-alone suits for overpayment interest, although technically those are not refund suits.  The alternative jurisdictional provision for district courts, the “little Tucker Act” at § 1346(a)(2), provides jurisdiction for any claim against the United States “founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department . . . .” but 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 limitation.  So, if § 1346(a)(1) covers stand-alone suits for overpayment interest, taxpayers can bring suit in either district court or the CFC.  If it doesn’t, and the claim exceeds $10,000, the only option is the CFC.

Here’s what § 1346(a)(1) says, with the relevant language italicized:

Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws

The language is very similar to Section 7422(a), which sets forth requirements for tax refund suits.  Because those requirements – exhaustion of administrative remedies and a shorter statute of limitations than for the little Tucker Act – have frequently been held not applicable to these stand-alone overpayment interest suits, the government argues that § 1346(a)(1) doesn’t apply to such suits either.

Overpayment interest doesn’t fall within the first two categories because it is neither tax nor penalty.  But Scripps interpreted the third category, “any sum alleged to have been excessive,” as broad enough to cover overpayment interest suits.  After all, the Supreme Court had stated in Flora v. United States, 362 U.S. 145, 149 (1960): “One obvious example of such a ‘sum’ is interest.”  Scripps concluded that the amount was “excessive” if you looked at how much the government retained rather than collected and, more importantly, focused on the entire balance of the account rather just individual components such as the overpayment interest.  (I provided an illustration of this last point here.)  The comparison to section 7422(a) was inapt because section 7422(a) includes a qualifying header (“No suit prior to filing claim for refund”); § 1346(a)(1) does not and therefore could include both refund suits and “non-refund” suits.

Both the Second Circuit and the Federal Circuit disagreed completely with that analysis.  The comment in Flora, in context, referred to underpayment interest (which is assessed and collected) rather than overpayment interest (which is paid out).  The structure of § 1346(a)(1), including the first two categories in the list, and the use of the present-perfect tense “have been” made it clear that it referred to amounts that had been previously paid to, or collected by, the IRS.  And the statutory language mattered much more than the header for section 7422(a) versus lack of such for § 1346(a)(1).

Legislative history

Both parties in Bank of America also pointed the court to legislative history in support of their positions.  In its opening brief, the government pointed out that the final version of the provision was understood by courts to establish a narrow exception to the $10,000 limitation for “little Tucker Act” claims – only for tax refund claims.  The government also focused on the Supreme Court’s discussions of the legislative history in Flora v. United States, 357 U.S. 63 (1958), and Flora v. United States, 362 U.S. 145 (1960).

Here is a summary of the arguments in the taxpayer’s brief: 

  • The predecessor statutes to § 1346(a)(1) were designed to eliminate several distinctions and inequities.  For example, the earlier provisions (a) for district court jurisdiction, requiring suing the Collector and could not brought after he died; and (b) for Court of Claims jurisdiction, did not allow for awarding interest.  Thus, in some instances, a taxpayer would have no way to recover overpayment interest.  In a floor statement introducing an amendment to the Revenue Act of 1921, a Senator noted those issues and stated that the amendment was intended to eliminate the problems.
  • The Assistant Chief Counsel of the Bureau of Internal Revenue represented, in a 1953 Senate subcommittee hearing, his opinion that the language of § 1346(a)(1) already covered stand-alone overpayment interest suits.
  • In connection with that same hearing, Treasury later provided by letter a list of several cases in district court involving stand-alone claims for interest.    

In its reply brief, the government took issue with the taxpayer’s arguments based on legislative history:

  • The Senator who introduced amendments to the Revenue Act of 1921 was concerned about tax refund claims, on which overpayment interest might be paid, rather than stand-alone claims for overpayment interest.
  • It was not entirely clear that the Assistant Chief Counsel’s statement at the 1953 Senate subcommittee hearing concerned stand-alone claims for overpayment interest.  In any event, a witness from the ABA testifying at the same hearing disagreed with the Assistant Chief Counsel’s opinion that the existing statute covered stand-alone claims. 
  • None of the 14 cases listed on the letter from Treasury of district court litigation concerned jurisdiction under § 1346(a)(1) for stand-alone claims of overpayment interest, the issue in Bank of America.  Only six cases involved overpayment interest at all, of which: (a) two declined to exercise jurisdiction; (b) two didn’t question jurisdiction; and (c) two were based on different jurisdictional provisions and involved claims under $10,000.

This brief summary doesn’t do the arguments justice, of course.  For those interested in more details, I suggest a review of the parties’ briefs, which provide a detailed history of the evolution of the jurisdictional provisions.  I was impressed by the thoroughness of both sides’ work, scratching and clawing for anything they could find or infer in support of their respective positions.  They did the best possible with what little was out there.

I count myself among those who consider legislative history relevant in interpreting ambiguous statutes, and a good tax lawyer (or judge) can find ambiguity in almost anything if they want to.  Even so, I considered these examples unlikely to persuade a court that had not already decided for other reasons.  I went back and looked at some of the original sources when reading the district court decision and they didn’t persuade me in either direction.  The Federal Circuit didn’t seem impressed either.

Impact on Bank of America

When I originally looked at the case, I thought that “most” of Bank of America’s claim would be eliminated if it lost in the Federal Circuit.  The third amended complaint was for $163 million, of which $141 million related to interest netting.  The interest netting claims seemed particularly vulnerable if Bank of America had to litigate in the CFC (see below), based on a cursory review of the complaint.  Now that I’ve reviewed the motion to dismiss more carefully, it appears that “most” overstated the potential impact on Bank of America, although it’s still significant.

The benefits of interest netting – the section 6621(d) adjustments to eliminate the interest rate differential – can be effected two ways.  The government can pay additional overpayment interest to bring that rate up to the underpayment interest rate, or it can refund underpayment interest to bring that rate down to the overpayment interest rate. 

Over $95 million of the benefit from interest netting came from years in which the adjustments were for reductions/refund of underpayment interest. A claim for refund of excessive underpayment interest clearly fits with § 1346(a)(1); under section 6601(e)(1), underpayment interest is treated as tax, except that it is not subject to deficiency procedures. 

Thus, there would be no basis for transferring those claims to the CFC.  (There were small amounts of overpayment interest in those years, presumably interest on the claimed refund of underpayment interest rather than directly from interest netting.  That overpayment interest would not be a disallowed stand-alone claim for overpayment interest; it would be permitted under ancillary jurisdiction.)  The government sought to transfer only $67 million of the total complaint amount to the CFC, of which only $44 million involved interest netting.  Assuming that the non-interest netting claims are not at a particular disadvantage in the CFC, Bank of America’s loss from the Federal Circuit’s decision may be only $44 million, or even less.  Well, to the taxpayer losing the claim, “only” is an inappropriate adverb; that’s still a lot of money.

Interest netting

Most taxpayers are perfectly willing to litigate interest cases in the CFC.  The CFC judges tend to have more experience with interest issues and most large interest cases are litigated there instead of district courts. In fact, Bank of America has another interest netting case pending there now. Taxpayers tend to bring substantial stand-alone interest cases in district court only to: (a) take advantage of favorable precedent in that circuit; or (b) avoid unfavorable precedent in the Federal Circuit.  Pfizer was an example of the former.  It wanted to rely on a favorable precedent, Doolin v. United States, 918 F.2d 15 (2d Cir. 1990).  It won’t necessarily lose its case elsewhere; it might persuade the CFC to reach the same decision as the Second Circuit did in Doolin.  Based on the complaint, I suspect Bank of America is an example of the latter, in this case trying to avoid an unfavorable precedent regarding interest netting, Wells Fargo & Co. v. United States, 827 F.3d 1026 (Fed. Cir. 2016).  (Prior discussion here.) 

Wells Fargo involved interest netting claims between separate corporations that had merged.  The Federal Circuit decided that, in such contexts, interest netting is only permitted if the period of overlap (an underpayment balance for one period and an overpayment balance for another period) began after the date of the merger. Here’s an illustration:

Company A had a $2.5 million underpayment balance for its 2008 tax year outstanding from 3/15/2009.  Company B had a $2 million overpayment balance for its 2011 tax year outstanding from 3/15/2012.  If the balances were still outstanding until paid/refunded on 12/1/2016, there was a $2 million overlap from 3/15/2012 (when the second balance began) until 12/1/2016 (when both balances ended).  During that overlap period, there was an interest rate differential; corporations earned from 1% to 4.5% less on overpayments than they paid on underpayments, and in this scenario the difference would more likely be 4.5% than 1%. 

If the companies merged in 2010, $2 million of the respective balances could be netted to avoid that differential, for the entire period from 3/15/2012 to 12/1/2016.  But if the companies merged in 2013, under Wells Fargo those balances could not be netted at all.  I think a better interpretation of the law would allow interest netting for part of the overlap period, starting from the date of the merger.  But the CFC will rule based on Wells Fargo, not based on my interpretation.

As noted above, Bank of America’s claims that will now wind up in the CFC include $44 million of interest netting benefits.  I don’t know if the entire $44 million will be denied based on Wells Fargo.  But (a) those claims involve Merrill Lynch’s tax years 1987, 1990, 1991, 1999, 2002, 2003, 2005, 2006, and 2007 tax years; and (b) Merrill Lynch merged with Bank of America on October 1, 2013.  I didn’t try to review the interest computations attached to the motion to dismiss, but I anticipate Bank of America stands to lose the vast majority of the $44 million.  Worth a cert petition to the Supreme Court?

Impact elsewhere?

The above discussion concerns how this case impacts Bank of America and more broadly other companies that might prefer to bring stand-alone overpayment interest suits in district court.  That doesn’t mean the impact of this line of cases is limited to overpayment interest.  Pfizer and Bank of America identified a certain type of claim that arises under the Internal Revenue Code but is not a tax refund claim for purposes of jurisdiction.  This distinction might affect not only the available forum, which is what I’ve been focusing on here, but also other issues. For example, a “non-refund claim” under the little Tucker Act will not be subject to the requirement to exhaust administrative remedies and will have a different statute of limitation.

Are there other examples of “non-refund claims” arising under the Code?There may well be, and Carl Smith pointed out one prominent recent example that cited Pfizer. On June 19, 2020, the district court of Maryland decided in R.V. v. Mnuchin, 2020 U.S. Dist. LEXIS 107420 (D. Md. 2020), that the government had waived its sovereign immunity with respect to the CARES Act economic impact payments (EIPs).  The plaintiffs claimed jurisdiction under, among others, the little Tucker Act, § 1346(a)(2).  That jurisdiction requires a separate “money-mandating” statute, for which the plaintiffs pointed to section 6428.  The government argued that section 6428 is a tax statute; any challenge to the denial of a credit falls within the jurisdiction of § 1346(a)(1) instead of § 1346(a)(2) and is subject to the restrictions of section 7422.  The plaintiffs’ failure to exhaust administrative remedies was fatal to their claim. 

The court dismissed the government’s motion to dismiss without prejudice.  It stated: “The Government argues that 26 U.S.C. § 6428 is not a money-mandating statute because it is a tax statute.  True.  But the two are not mutually exclusive.”  It cited Pfizer for that proposition.  To put it another way, a tax statute authorizes refund claims, but it also may authorize claims that are not “tax refund claims” for purposes of § 1346(a)(1) and not subject to section 7422 but are money-mandating provisions sufficient to support a Tucker Act claim.

The Advance Premium Tax Credit under the Affordable Care Act would likely be another “non-refund claim.” As with the EIPs, it is reconciled on the taxpayer’s tax return, but it is paid in advance pursuant to a clear money-mandating statute. Michelle Drumbl points out that the U.S. at one time had an advance earned income credit and other countries currently have similar advance credits. If Congress ever enacted her proposal for a transition to periodic payments rather than when the tax return is filed, that would likely also qualify as a “non-refund claim.”

What about refundable credits that are not paid in advance? That might be a harder argument to make; it’s not clear whether there is a money-mandating provision other than section 6402(a), working with section 6401(b)(1). But “hard” doesn’t always mean “impossible.” I haven’t researched enough to know whether a taxpayer has ever tried filing suit for payment of refundable credits based on the little Tucker Act instead of § 1346(a)(1). It might be the only route for recovery for a taxpayer who filed a return claiming a refund (based on a refundable credit) more than three years after the due date. The six-year statute of limitations for a little Tucker Act suit might avoid the problem of the “look back” limitation of section 6511(b)(2). It might be worth a try if you have a client with the right facts.

After all, ten months ago we weren’t sure the government would convince a court that stand-alone overpayment interest suits are “non-refund claims” for which district court jurisdiction is only available under the little Tucker Act. Now, the government has won in the Second and Federal Circuits and seems to have momentum heading into the Eleventh Circuit.

Postscript

While I was working on this post, Jack Townsend posted on his blog concerning the Federal Circuit’s decision in Bank of America.  Jack’s observations are always worth reading.

Tax Court Announces It Will Start Receiving Hand Delivered Documents

In an announcement on Friday, June 19 the Tax Court stated that it will start receiving mail from the postal service and private delivery services on July 10.  It also stated “The building remains closed to the public, and until further notice, documents may not be hand-delivered.” We wrote a short post about it here.

Today, the Tax Court issued another announcement.   In today’s announcement the Tax Court stated that beginning on July 10, the same day the avalanche of mail rolls in, the Clerk’s office will also accept hand-delivered documents.  Today’s announcement does not specifically say that the Tax Court building is open but unless the Clerk’s office is accepting curbside service of the hand-delivered mail, it seems that the building will at least be open for people to walk through the ground level corridor from the security check point to the Clerk’s docket room about 150 down the hall to the left.

In yesterday’s post I wondered whether opening the Clerk’s office for receipt of mail from the postal service and private delivery services coupled with the Clerk’s office answering the phone and providing copies of court document to non-parties was enough to stop the suspension of time under the Court’s decision in Guralnik.  To the extent that was an open question yesterday because of the sentence quoted above regarding the building being closed and documents not available for hand delivery, today’s announcement seems to answer that question.  I would not want to rely on Guralnik when the Clerk’s office is accepting mail from the postal service, accepting mail from people making hand deliveries and responding to phone calls.

When the Tax Court building is fully open, it is possible to go to Clerk’s office and use the two computers available to the public to look up information about cases in which you are not a party.  I do not get the sense that today’s announcement opens access to those machines; however, using those machines has nothing to do with filing a petition.  It seems the Court has removed any potential argument someone might have that a barrier exists to filing a petition.  Barring a snow storm in July in Washington, DC or some other cataclysmic event that keeps people and delivery services from accessing the Clerk’s office, starting July 10 taxpayers should consider that the application of FRCP 6 adopted in Guralnik to extend the time to file is no longer at play as a result of the pandemic.

As a short aside regarding access to documents, I have not tried the new system the Tax Court announced on May 29, 2020 which I discussed in an earlier post here.  For the reasons discussed in the prior post, the new system creates a vast improvement over the old in boththe delivery mechanism and the cost.  I received a message today from Patrick Thomas that he tried the new system and it was taking a long time to receive call backs.  I think it’s hard to gauge the effectiveness of the system under the current circumstances which must be quite trying for those working in the Clerk’s office, but we welcome comments from individuals using the new system about your experience in obtaining documents from the Court.

Ninth Circuit Holds the Deficiency Petition Filing Deadline Still Jurisdictional

The Tax Court and every Circuit court has long held the deadline to file a Tax Court deficiency petition at section 6213(a) to be a jurisdictional condition of the suit.  Of course, jurisdictional deadlines are never subject to equitable tolling, waiver, estoppel, or forfeiture.  But, nearly every court opinion so holding had been issued before the Supreme Court changed the rules in 2004 making filing deadlines now almost never jurisdictional.

In 2016, a panel of the Seventh Circuit, sua sponte, at oral argument, questioned whether the section 6213(a) filing deadline is still jurisdictional under the recent Supreme Court case law.  In Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), on which we blogged here, in spite of the Tax Court’s dismissing the petition for lack of jurisdiction as untimely, on appeal, the IRS and taxpayer both agreed that the petition was timely under section 7502.  The panel wondered why the IRS was not waiving any untimeliness argument if the filing deadline isn’t still jurisdictional.  However, after some post-argument supplemental briefing on the issue of whether the filing deadline is still jurisdictional, the panel ruled that it is. Id. at 886-887.  (The panel went on to rule the filing timely.)

No other Circuit had since addressed in a published opinion whether the deficiency filing deadline is still jurisdictional under recent Supreme Court case law.  (Though, in an unpublished last known address case, where the parties did not brief the issue, the Third Circuit last year stated that the filing deadline still jurisdictional under recent Supreme Court case law.  Garrett v. Commissioner, 798 Fed. Appx. 731, 733.)  That changed on June 18, 2020, when the Ninth Circuit issued its opinion in Organic Cannabis Foundation v. Commissioner, ___________, in which it affirmed the Tax Court’s dismissal of two deficiency petitions of California marijuana dispensaries.  The Ninth Circuit, aligning with the Seventh Circuit in Tilden, held that untimely petitions should be dismissed for lack of jurisdiction, even under current Supreme Court case law. 

As will be discussed below, the fact pattern in Organic Cannabis paralleled that in the CDP case of Guralnik v. Commissioner, 146 T.C.230 (2016) – an opinion that was never appealed.  Organic Cannabis adopts and expands upon the Tax Court’s additional analysis in Guralnik of what consequences ensue when the Tax Court Clerk’s Office is inaccessible for filing and what makes the Clerk’s Office inaccessible.

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Organic Cannabis Facts

Both Organic Cannabis Foundation LLC and its sister company, Northern California Small Business Assistants, Inc., ran California marijuana dispensaries.  On the same date, the IRS issued separate notices of deficiency to the two taxpayers disallowing, under section 280E, all their deductions.  (For a Tax Court opinion involving the latter company’s taxes for a different tax year and where the application of section 280E was upheld, see Northern California Small Business Assistants, Inc. v. Commissioner, 153 T.C. 65 (2019).) 

A single law firm represented both taxpayers.  That law firm sent the petitions jointly in a single envelope by FedEx on the day before the petitions were due.  Like the taxpayer in Guralnik, the firm used the FedEx First Overnight Service, which, at the time (as opposed to a few weeks later), was not listed by the IRS as an approved private delivery service under section 7502(f).  First Overnight differs from the previously-approved Standard Overnight and Priority Overnight FedEx services only in promising the earliest possible delivery.  Thus, even if First Overnight was not an approved service, the petitions still should have gotten to the Tax Court Clerk’s Office on the last date to file.

But, there was a problem.  For some reason, the FedEx driver didn’t deliver the envelope on the last date to file, but delivered it a day later.  A secretary in the law firm’s office, concerned that she had not received delivery confirmation from FedEx, called FedEx and learned of the non-delivery mid-day on the last date to file.  FedEx told her something like that the driver couldn’t get through to the Clerk’s Office because of construction or police activity nearby.  Unwisely, the secretary did not think to mail out new petitions that afternoon or evening, say, by certified mail.  There would have been no Ninth Circuit opinion had she done so.

The IRS filed answers in both cases.  Neither answer raised any issue of untimely filing.  About a year later, the IRS moved to dismiss both cases for lack of jurisdiction as having been late filed.  When the taxpayers then went back to FedEx for the driver’s written explanation of what had gone wrong, FedEx told the taxpayers that it had deleted all delivery information, which it did not keep for that long a period.

Tax Court Orders

In responses to the motions to dismiss, the taxpayers argued that the petitions were timely filed because FedEx First Overnight should be deemed to be the same service as FedEx Standard Overnight or Priority Overnight, just with a faster delivery feature.  In Guralnik, the Tax Court had rejected this very argument, and it did so in the two unpublished orders in which it dismissed the taxpayers’ petitions for lack of jurisdiction as being untimely, here and here.

The taxpayers also argued that the Clerk’s Office was not accessible at the time the FedEx driver arrived, citing Guralnik, so that the last date to file should be moved to the following day, making the petitions timely.  In Guralnik, the last date to file turned out to be a day on which the Clerk’s Office was closed all day due to a snowstorm.  The Guralnik court borrowed from FRCP 6 and held that when its Clerk’s Office is inaccessible, the last date to file is moved to the next day when the Clerk’s Office is open.  In the two taxpayers’ cases, though, the Tax Court distinguished Guralnik as follows: “Unlike the snow emergency closing in Guralnik, here, the Court’s Clerk’s office was open during its normal business hours and was not inaccessible the entire day due to inclement weather, government closings, or other reasons.”

Finally, the taxpayers had contended that the notices of deficiency were not mailed to the taxpayer’s last known addresses, citing discrepancies in the address of one (omission of a P.O. Box, though the box number was shown as part of the 9-digit ZIP Code) and a wrong digit on the Form 3877 proving mailing of the other.  The Tax Court said it need not determine whether the deficiency notices were sent to the last known addresses, since the taxpayers clearly got the notices 78 days before the filing date, which was enough to make the notices valid under Tax Court precedent, even if they were not sent to the last known addresses.

Ninth Circuit Holdings

On appeal, the taxpayers made the same arguments (except the taxpayers abandoned the Form 3877 argument).  The taxpayers also added the argument that the filing deadline is no longer jurisdictional and is subject to forfeiture, waiver, and equitable tolling.  The taxpayers argued that the IRS had waived or forfeited the right to complain about late filing by waiting too long to raise the issue – i.e., at a time when FedEx had deleted the driver’s notes concerning what had happened. 

In the Ninth Circuit, the Harvard clinic filed amicus briefs supporting the taxpayers only in the arguments that the filing deadline is no longer jurisdictional and is subject to forfeiture, waiver, and equitable tolling.

The Ninth Circuit began its opinion stating, “This unhappy case presents a cautionary tale about the need for lawyers to ensure that they have done exactly what is statutorily required to invoke a court’s jurisdiction.”  Slip op. at 4. 

In its 28-page opinion (of which I give only a thumbnail sketch here), the Ninth Circuit first accepted the Tax Court’s Guralnik adoption of FRCP 6 – which the Ninth Circuit was probably compelled to do, since the Tax Court, under section 7453, is entitled to set up its own rules, and its rules (i.e., Rule 1) allow it to borrow FRCP rules in the absence of a Tax Court rule directly on point. 

The Ninth Circuit acknowledged that case law under FRCP 6 did not limit the word “inaccessible” only to the situation where the Clerk’s Office was closed for the day – citing the inaccessibility holding of several appellate courts making clear that, even if a Clerk’s Office is technically open, it is still “inaccessible” if it would only be possible to access the office through “heroic” measures.  See, e.g., U.S. Leather, Inc. v. H&W P’ship, 60 F.3d 222, 226 (5th Cir. 1995) (where “ice storm . . . temporarily knocks out an area’s power and telephone service and makes travelling dangerous, difficult or impossible,” clerk’s office, even though open, was rendered “inaccessible to those in the area near the courthouse”), abrogated on other grounds by Kontrick v. Ryan, 540 U.S. 443 (2004).  The court held that,

for non-electronic filings (such as those at issue here), a clerk’s office is “inaccessible” on the “last day” of a filing period only if the office cannot practicably be accessed for delivery of documents during a sufficient period of time up to and including the point at which “the clerk’s office is scheduled to close.” Fed. R. Civ. P. 6(a)(3), (4)(B). Because, as the Tax Court noted, Appellants presented no evidence to show that the clerk’s office could not be accessed during the substantial remaining portion of the day after FedEx’s unsuccessful earlier delivery attempt, the extension in Rule 6(a)(3) did not apply.

Slip op. at 14-15. 

Of course, it is hard to criticize the taxpayers for lack of proof on how long the obstruction to the Clerk’s Office lasted, since, by the time anyone asked about it, FedEx had no evidence of what happened in this case or to other drivers perhaps attempting to deliver envelopes to the Tax Court later in the day.

Next, agreeing with the Tax Court, the Ninth Circuit held that the FedEx First Overnight service was a different service from the other two approved FedEx services, so was not yet an approved delivery service under section 7502(f) on the date of its use. 

As to Organic Cannabis’s complaint that its notice was not mailed to its last known address because the address was lacking “P.O. Box 5286”, the Ninth Circuit affirmed the Tax Court, but on different reasoning.  The Tax Court held that actual receipt of the notice with 78 days left to file was good enough to make the notice valid, even if the notice might not have been mailed to the last known address.  Apparently concerned because the taxpayer had pointed out that the Ninth Circuit had never held an incorrectly-addressed notice to be valid when the taxpayer did not timely file that Tax Court petition, the Ninth Circuit decided to hold that the notice was indeed sent to the taxpayer’s last known address.  The panel observed that the first 5 digits of the 9-digit ZIP Code were not only the ZIP Code of the post office, but was only used for post office boxes at that office.  The panel observed that the last 4 digits of the 9-digit ZIP Code showed the P.O. Box number.  Thus, in this case, the ZIP Code alone could constitute the last known address.  Query if this means that any 9-digit ZIP Code that only relates to a single location (e.g., an individual’s apartment number) alone can constitute a last known address if the street address, city, and state are all omitted from the IRS address used?

Finally, the Ninth Circuit faced the question of whether the filing deadline was still jurisdictional.  The DOJ asked the court not to rule on the issue, since it had not been properly raised below.  However, the Ninth Circuit exercised its discretion to consider this issue, since it was purely a question of law, “[a]nd the issue has been well briefed by both sides, including with the helpful participation of amicus curiae from a law school clinic.”  Slip op. at 19 n.6.

Readers of PT know from too numerous posts that current Supreme Court case law begins with the general rule that filing deadlines are no longer jurisdictional.  The two exceptions to the rule are (1) if Congress made a clear statement in the statute that it wanted the filing deadline to be jurisdictional, and (2) a stare decisis exception to a long line of Supreme Court case law holding the deadline to be jurisdictional.

The Ninth Circuit found three reasons why the deadline should be still treated as jurisdictional. 

First, in the fourth sentence of section 6213(a), the Tax Court is also awarded injunctive jurisdiction to enforce a stay on collection after a notice of deficiency is issued, but only in the case of a petition that is “timely filed”.  The Ninth Circuit apparently assumed that a timely filing can’t occur through equitable tolling, forfeiture, or waiver, so said that, if the injunctive jurisdiction was one limited to timely filed petitions, then the regular deficiency jurisdiction must also be limited to timely filed petitions.  (I think that a non sequitur, but who am I?)  The Ninth Circuit adopted the reasoning of Tilden that the appearance of the word “jurisdiction” in the fourth sentence in section 6213(a) (giving the Tax Court injunctive jurisdiction only in the case of timely filed petitions) meant that the filing deadline in the first sentence – a sentence that does not contain the word “jurisdiction” – must also be jurisdictional.  The Ninth Circuit also argued that accepting the taxpayers’ arguments would cause discontinuities in the periods in which the IRS was prohibited from assessment if the Tax Court could later accept a petition under equitable tolling.  We addressed this issue in the Harvard clinic amicus brief, arguing that there was no discontinuity, since the word “timely filed” must necessarily include filings made under statutory extensions (such as those allowed by sections 7502, 7508, and 7508A), and we saw no reason why equitable exceptions could not also be considered in whether a Tax Court petition had been timely filed.

Second, the Ninth Circuit raised a problem with section 7459(d) if the filing deadline is not jurisdictional.  Tilden had not discussed this section.  Section 7459(d) provides that dismissals from the Tax Court in deficiency cases uphold the deficiency on the merits, except in cases where the dismissal is for lack of jurisdiction.  The Ninth Circuit noted the long-standing belief of the courts (which it imputed to Congress) that the jurisdictional dismissal exception allowed a person who had filed a late Tax Court petition to later pay and sue for a refund, without having a res judicata issue of a merits finding from the prior Tax Court dismissal.  The Ninth Circuit did not want to undermine that judicial understanding, though I would note that the exception for jurisdictional dismissals was added by the Revenue Act of 1928, and Congress nowhere explained why the jurisdictional exception was being adopted.  Dismissals can be for lack of jurisdiction on ground other than untimeliness – e.g., a petition (1) filed challenging the validity of the notice of deficiency, (2) filed by the wrong taxpayer, or (3) filed by the right taxpayer, but who lost corporate capacity or who filed during a bankruptcy stay.

Third, the Ninth Circuit noted the long-standing judicial interpretations of section 6213(a)’s filing deadline being jurisdictional.  The Ninth Circuit wrote,

As noted earlier, the circuits have uniformly adopted a jurisdictional reading of § 6213(a) or its predecessor since at least 1928. See supra at 20. Congress presumptively “‘legislates against the backdrop of existing law,’” Parker Drilling Mgmt. Servs., Ltd. v. Newton, 139 S. Ct. 1881, 1890 (2019) (citation omitted), and despite multiple amendments to the Code (including two substantial overhauls in 1954 and 1986), Congress has never seen fit to disturb this long-settled understanding of § 6213(a). Cf. Fort Bend County v. Davis, 139 S. Ct. 1843, 1849 (2019) (“[T]he Court has stated it would treat a requirement as jurisdictional when a long line of Supreme Court decisions left undisturbed by Congress attached a jurisdictional label to the prescription.” (cleaned up)).

Slip op. at 25-26.  In response, I would point out (as the Harvard clinic told the court) that the Supreme Court has never ruled one way or the other on whether the deficiency filing deadline is jurisdictional and has 7 times (most recently in the above quote from Fort Bend) stated that the stare decisis exception from the current treatment of claims processing rules (including filing deadlines) as not jurisdictional only applies to a long line of Supreme Court opinions.  Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 173-174 (2010) (Ginsburg, J, concurring, joined by Stevens and Breyer, JJ.) (“[I]n Bowles and John R. Sand & Gravel Co. . . . we relied on longstanding decisions of this Court typing the relevant prescriptions ‘jurisdictional.’  Amicus cites well over 200 opinions that characterize § 411(a) as jurisdictional, but not one is from this Court. . . .”; emphasis in original; citations omitted).  All the opinions on which the Ninth Circuit relies are opinions of lower courts.  Sigh.

Finally, in prior posts, I have mentioned the CDP case dismissed for late filing for lack of jurisdiction that is before the Eighth Circuit, Boechler, P.C. v. Commissioner, Eighth Circuit Docket No. 19-2003.  In that case, the parties are litigating whether the CDP Tax Court filing deadline at section 6330(d) is still jurisdictional and not subject to equitable tolling.  Oral argument occurred in Boechler the day before the Ninth Circuit ruled in Organic Cannabis. The day Organic Cannabis was issued, the DOJ immediately brought the opinion to the attention of the Eighth Circuit through an FRAP 28(j) letter.

Stalled Settlement in Innocent Spouse Case – Why Jurisdiction Matters

We have written many posts on jurisdictional issues in Tax Court and other courts.  I will not link to them here but wanted to write a short post demonstrating one of the ways jurisdiction matters.  Thanks to Carl Smith for bringing this case to my attention.

In the case of Carandang v. Commissioner, Dk. No. 19224-19S the petitioner filed a petition seeking innocent spouse relief.  She reached an agreement with the IRS in the Tax Court case conceding the case and the parties filed a joint proposed stipulated decision.  Having reached an agreement in the case, the parties filed with the Tax Court a Joint Proposed Stipulated Decision on May 18, 2020.  You might expect that where the parties have reached an agreement in a case the Tax Court would sign and file the agreement.

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Instead of accepting the agreement, the Tax Court issued a show cause order on May 19, 2020 asking the parties to explain why the Court has jurisdiction.  The lawyers reviewing the case for the Chief Judge, who would sign the stipulated decision of a case not on an active calendar, found that the petition appears to have been filed a day late.  On May 20, 2020, the IRS responded and provided an explanation of the Court’s basis for jurisdiction.  On May 21, 2020, the Tax Court dismissed its order to show cause since the IRS now admits that it failed to send the notice of determination by certified mail. On May 22, the Tax Court entered the Stipulated Decision in the case it had first decline to enter.  Very interesting to see docket entries five days in a row and the resolution of an issue so quickly.  I don’t know if this efficiency results from the pandemic or just happenstance.

The Tax Court takes the position, upheld by at least three circuit courts the tax clinic at Harvard has visited, that it has jurisdiction of innocent spouse cases only when the petitioner timely files a Tax Court petition.  On the face of this case, it appears that the petitioner may have filed the petition late.  The Tax Court correctly seeks to make itself certain that it has jurisdiction over the case prior to signing off on the document that will resolve the case.  While correct, the raising of the jurisdictional issue by the Court at this stage has the likely effect of dismissing the Tax Court case and moving the parties back into an administrative posture. If the outcome were favorable to the taxpayer in a situation like this, the IRS will almost certainly give the taxpayer the benefit of whatever agreement was reached in the case.  Ultimately, the taxpayer and the IRS will end up in the same place although the taxpayer will not have the benefit of a court order approving the agreement.  Both the IRS and the Court will spend time and effort finding evidence of the date of mailing of the notice and reviewing the notice before the Court finds the answer to the question of jurisdiction.

Based on reviewing court orders for several years and watching the dismissal of cases, Carl Smith estimates that once or twice each month it happens that a case reaches the stage of settlement and the court raises a jurisdictional issue not previously seen by Chief Counsel’s office or the court.  Because the IRS will almost always honor these settlements administratively, the taxpayer receives the benefit of having an attorney for the government work on their case in order to reach a settlement.  Perhaps, I should accept that as a good thing and move on; however, it seems like a waste of resources to stop the judicial process and restart the administrative one in cases where the outcome is not a full concession.  If the timing of the petition were not considered jurisdictional, Ms. Carandang and the IRS would have the stipulated decision signed by the court and would move on to other affairs of life without having to do a two-step to get there.  This provides another policy reason for Congress not to treat the time period as jurisdictional and a reason the Supreme Court has made the determination that time periods for filing in court are only jurisdictional when Congress makes a clear expression it intends the time period to be jurisdictional.

For a case stopped by this process, look at the 2018 order to show cause and the dismissal order in Williams, Docket No.  24954-17.  In that case, of course, we can’t see a copy of the proposed decision because the court never entered it.  The parties simply had to return to the administrative process to work out the details of the case they had settled through the Tax Court process without knowing the court lacked jurisdiction over the case until they had resolved it.

Special Note about Clerk’s Office at the Tax Court

On May 21, 2020 the Tax Clinic at Harvard received notice that the Tax Court had processed a petition dated March 16, 2020.  Earlier indications were that the Court had stopped processing cases about March 9.  The receipt of this notice indicates that someone is again working in the clerk’s office.  Because of the date of the petition, it would have arrived at the Tax Court before the Court closed the clerk’s office.  Unclear if the action on this case just means that a small group is working in the clerk’s office to clean up the 10 days or so of cases received but not processed before the closure of the clerk’s office or if this signals the clerk’s office is about to reopen and the suspension of time to file a petition under Guralnik is about to come to an end.

Additional Resource Regarding the Jurisdictional Issue

If you want more background on the general issue of jurisdiction and the Tax Court just type jurisdiction into the search box on the blog or read the excellent law review article by Bryan Camp “New Thinking About Jurisdictional Time Periods in the Tax Code,” 77 Tax Lawyer 1 (2019).

Federal Circuit Panel Calls For Reconsidering the Court’s Precedent Holding Refund Claim Filing and Timing Requirements Jurisdictional to a Refund Suit

In posts too numerous to cite, I have been calling for the courts to reexamine their prior precedents calling many tax filing deadlines and administrative exhaustion requirements jurisdictional.  In non-tax opinions issued by the Supreme Court since 2004, the Court has changed its precedent and held that “claims processing rules” that merely move litigation along are now almost never jurisdictional.  See, e,g. United States v. Wong, 575 U.S. 402 (2015) (Federal Tort Claims Act suit filing deadlines in agency and courts are not jurisdictional and are subject to equitable tolling); Fort Bend County v. Davis, 139 S. Ct. 1843 (2019) (Title VII charge filing requirement is not jurisdictional) (see here for my thoughts on the implications of Fort Bend to the tax world).  Now, a panel of the Federal Circuit in a pro se tax protester case, Walby v. United States, 2020 U.S. App. LEXIS 13711 (Apr. 29, 2020), has joined a panel of the Seventh Circuit in Gillepsie v. United States, 670 F. App’x 393, 394–95 (7th Cir. 2016), in questioning their Circuit’s precedent holding that the administrative tax refund claim filing requirement at section 7422(a) is a jurisdictional requirement to the brining of a refund suit.  Further, the Federal Circuit panel in the Walby opinion stated it believes that the filing deadlines for tax refund administrative claims at section 6511(a) are no longer jurisdictional, also calling for overturning its Circuit’s precedent.

It will take an en banc Federal Circuit opinion to overrule the Circuit’s prior precedents, so the panels’ opinion in Walby doesn’t change that court’s precedents, yet.  But, it certainly makes it likely that the issues will reach an en banc panel soon.

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What is perhaps most surprising about the Walby panel’s statements is that the opinion below did not raise these concerns about recent Supreme Court opinions, but simply followed the Federal Circuit precedents holding that sections 6511(a)’s and 7422(a)’s requirements are jurisdictional.  Further, the DOJ brief in Walby in the Federal Circuit did not discuss the potential impact of the recent Supreme Court case law on this question, but merely cited prior Federal Circuit precedent.  And the pro se taxpayer, of course, did not complain about the Circuit precedents.  So, the panel on its own chose to research these issues and make its statement in a published opinion.

Here is what the Federal Circuit panel wrote in Walby on these issues:

In Walby’s case, her 2014 claims were deemed paid on April 15, 2015 because withheld income taxes are deemed to have been paid on April 15th of the following year. I.R.C. § 6513(b). To be timely, her administrative refund claim should have been filed with the IRS by April 15, 2017. But Walby did not file her refund claim until December 22, 2017. Walby’s 2014 refund claim was, therefore, untimely and the Claims Court properly dismissed that claim.

There is one aspect of the court’s conclusion regarding this claim, however, that warrants additional examination. The Claims Court concluded that, because Walby’s 2014 administrative refund claim was untimely, pursuant to 26 U.S.C. § 7422(a), it lacked subject matter jurisdiction over that claim. Although this conclusion is correct under our existing case law, see, e.g.Stephens v. United States, 884 F.3d 1151, 1156 (Fed. Cir. 2018), it may be time to reexamine that case law in light of the Supreme Court’s clarification that so-called “statutory standing” defects — i.e., whether a party can sue under a given statute — do not implicate a court’s subject matter jurisdiction. Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 n.4 (2014)see also Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1235 (Fed. Cir. 2019) (recognizing that, following Lexmark, it is incorrect to classify “so-called” statutory-standing defects as jurisdictional).

The Tucker Act grants the Claims Court jurisdiction to render judgment “upon any claim against the United States founded either upon the Constitution, or any Act of Congress . . . in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1). Additionally, 28 U.S.C. § 1346(a) provides that the Claims Court shall have original jurisdiction (concurrent with the district courts) of “[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” As such, Walby’s failure to meet the § 7422(a) statutory requirement of a timely administrative claim for her 2014 tax claim would not seem to implicate the Claims Court’s subject matter jurisdiction; rather, it appears to be a simple failure to meet the statutory precondition to maintain a suit against the government with respect to those taxes.

The Supreme Court has not addressed § 7422(a) following Lexmark. We note, however, that the Court’s most recent discussion of § 7422(a) does not describe it as “jurisdictional.” See Clintwood Elkhorn Mining Co., 553 U.S. 1 at 4–5, 11–12. And, although our court has continued to refer to this statute as jurisdictional following Lexmark, we have not yet addressed the implications of that case and the many Supreme Court cases applying it.2

In view of the Supreme Court’s guidance in Lexmark, it may be improper to continue to refer to the administrative exhaustion requirements of § 7422(a) and § 6511 as “jurisdictional prerequisites.” That these provisions concern the United States’ consent to be sued would not seem to change this conclusion. The Supreme Court has “made plain that most time bars are nonjurisdictional.” United States v. Kwai Fun Wong, 575 U.S. 402, 410 (2015). In Kwai Fun, the Court held that the time bar in the Federal Tort Claims Act is nonjurisdictional. In doing so, it rejected the Government’s argument that, because that time bar is a precondition to the FTCA’s waiver of sovereign immunity, the time bar must be jurisdictional. As it had in Lexmark, the Court distinguished jurisdictional statutes from “quintessential claim-processing rules which seek to promote the orderly progress of litigation, but do not deprive a court of authority to hear a case.” Id. (internal quotation marks omitted). It did not except statutes that implicate the government’s waiver of sovereign immunity from that distinction.

In reaching this conclusion, the Court relied on Arbaugh v. Y&H Corp., where, finding Title VII’s numerical employee threshold nonjurisdictional, the Supreme Court stated:

“If the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.”

546 U.S. 500, 515–16 (2006). This “clear statement” rule “does not mean Congress must incant magic words. But traditional tools of statutory construction must plainly show that Congress imbued a procedural bar with jurisdictional consequences.” Kwai Fun, 575 U.S. at 410 (internal quotation marks omitted). There is no such clear statement apparent in the statutes at issue here, 28 U.S.C. § 7422(a) and § 6511(a).3 Other courts also have begun to question whether the time limits and administrative exhaustion requirements in these and other tax provisions should continue to be deemed jurisdictional. See Gillespie v. United States, 670 F. App’x 393, 394–95 (7th Cir. 2016) (whether § 7422(a) is jurisdictional); Bullock v. I.R.S, 602 F. App’x 58, 60 n.3 (3d Cir. 2015) (whether I.R.C. § 7433 is jurisdictional). As to at least one administrative exhaustion requirement, one court has held that it should not be deemed jurisdictional. See Gray v. United States, 723 F.3d 795, 798 (7th Cir. 2013) (I.R.C. § 7433 “contains no language suggesting that Congress intended to strip federal courts of jurisdiction when plaintiffs do not exhaust administrative remedies”); cf. Duggan v. Comm’r of Internal Revenue, 879 F.3d 1029, 1034 (9th Cir. 2018) (I.R.C. § 6630(d)(1)‘s 30-day filing deadline “expressly contemplates the Tax Court’s jurisdiction . . . the filing deadline is given in the same breath as the grant of jurisdiction.”).

Accordingly, although the Claims Court properly dismissed Walby’s 2014 refund claim because she did not meet the prerequisite for bringing such a claim, we think that, under LexmarkArbaugh, and their progeny, the court likely did not lack subject matter jurisdiction over this claim.

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2. See, e.g., Stephens v. United States, 884 F.3d 1151, 1156 (Fed. Cir. 2018); see also Ellis v. United States, 796 F. App’x 749, 750 (Fed. Cir. 2020); Langley v. United States, 716 F. App’x 960, 963 (Fed. Cir. 2017).

3. We are mindful of the Supreme Court’s pre-Lexmark jurisprudence concerning § 7422(a). In United States v. Dalm, the Court held that the district court lacked jurisdiction over gift tax refund suit because “[d]espite its spacious terms, § 1346(a)(1) must be read in conformity with [§ 7422(a) and § 6511(a)] which qualify a taxpayer’s right to bring a refund suit upon compliance with certain conditions.” 494 U.S. 596, 601 (1990). The Court referred to the statutes as “controlling jurisdictional statutes.” Id. at 611. But this view was a departure from the Court’s prior commentary on a predecessor to § 7422(a), recognizing that it “was not a jurisdictional statute at all; it simply specified that suits for recovery of taxes, penalties, or sums could not be maintained until after a claim for refund had been submitted.” Flora v. United States, 362 U.S. 145 (1960).

If you would like to read a little of the Gillespie opinion of the Seventh Circuit, see my post on it here.  It was the statements within Gillespie questioning whether section 7422(a)’s claim-filing requirement is still jurisdictional that the DOJ cited for its decision, post-oral argument, in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), to file a memorandum of law arguing that the section 6213(a) Tax Court deficiency jurisdiction filing deadline is still jurisdictional – a point with which the Seventh Circuit in Tilden agreed, despite Gillepsie.  See my post on Tilden here.  Of course, as I have noted before, the Harvard tax clinic continues to litigate the issues under section 6213(a) of whether the filing deadlines are still jurisdictional or subject to equitable tolling; companion cases on that issue are currently pending in the Ninth Circuit (and have been pending for over 6 months after oral argument there).

Observations

For most refund suit plaintiffs, it will make little difference whether the section 6511(a) and 7422(a) requirements are jurisdictional, since no one expects the Supreme Court to overturn its ruling in United States v. Brockamp, 519 U.S. 347 (1997), that the filing deadline of section 6511(a) is, in any case, not subject to equitable tolling.  So, who might benefit from making these two requirements nonjurisdictional?  Well, there are always a small number of cases where the DOJ could make an argument that the refund claim filing deadline was missed or that a refund claim was not in proper form, but the DOJ either chose not to raise those issues or just missed that the DOJ had potential arguments under those provisions.  Under current law, treating the requirements as jurisdictional, courts should step in in such cases and police their jurisdiction by raising issues not raised by the DOJ.  But, if the claim filing requirement and claim filing deadline are not jurisdictional to a refund suit, then, in such cases, the court will no longer worry about the issues if the DOJ never raises them.  Non-jurisdictional conditions of suit are merely affirmative defenses.  If the DOJ doesn’t raise an affirmative defense (either accidentally or knowingly), it simply forfeits or waives the defense.  Indeed, if the DOJ wanted to expeditiously litigate a test case brought by a plaintiff who hadn’t yet filed a refund claim, if the claim filing requirements is no longer jurisdictional, the DOJ could choose to waive any argument that a claim should have been filed before suit was brought.

Extended Tax Court Due Dates – Interplay of Guralnik and Notice 2020-23

Yesterday, the IRS added a new Q & A to its coronavirus page:

Q. How does this notice operate with the Tax Court case of Guralnik v. Commissioner, 146 T.C. 230 (2016), which applied Federal Rule of Civil Procedure Rule 6(a)(3)(A) to provide additional time for the filing of a petition when the clerk’s office was closed due to a snow emergency?  Does the taxpayer get the benefit of both periods?

A. Yes, a taxpayer will get the benefit of both periods.  For example, if the last day for filing a petition fell on March 19, 2020, the date that the Tax Court closed, the taxpayer will get the benefit of Guralnik from March 19, 2020 and the benefit of this notice from April 1, 2020 until July 15, 2020.  If the court were to reopen before the expiration of the notice postponement period, the taxpayer will get the benefit of the postponement until July 15, 2020.  If the court reopens after the notice postponement period (that is, after July 15, 2020), the due date for the taxpayer’s petition is extended to the Tax Court’s reopening date under Guralnik and the relief under Notice 2020-23 does not apply.

When I wrote about the interplay of Tax Court deadlines in a prior post, I hedged on how the two provisions would interact and counseled caution.  While the IRS cannot confer jurisdiction on the Tax Court, the Q&A goes a long way in providing comfort that the extension of the Tax Court due date by Guralnik into the period in which the 7508A extension comes into being causes the potentially longer 7508A period to come into play and provide the taxpayer with the benefit of both extensions.

It is great that the IRS, through the Office of Chief Counsel, has provided this guidance.  If you are interested in hearing more about Tax Court timing issues, tune into the CLE program sponsored by the ABA Tax Section tomorrow.  Details here:

The Agony of a Missed Tax Court Deadline, Or, Was That Deadline Really Missed? | April 29 at 1:00 pm Eastern

This webinar is free for ABA Members, LITC and Government Employees.

This timely webinar will discuss issues associated with what may be missed tax court filing deadlines, missed administrative appeal deadlines, and extended refund claim deadlines in an extraordinary time. Potential issues include those associated with access to the court, returned mail from the court, the closing of the court, and the extend filing and claim relief IRS is providing in Notice 2020-23. The IRS has opened the door to jurisdictional relief, and the panelists will discuss that relief as well as the interplay of court rules and court decisions including and since Guralnik to clarify the complex litigating position in which some petitioners may find themselves.

Keith Fogg, Clinical Professor of Law and Director of Federal Tax Clinic, Legal Services Center, Harvard Law School (Moderator)
Sheri Dillon, Partner, Morgan Lewis & Bockius
Carlton Smith, Volunteer, Tax Clinic at the Legal Services Center, Harvard Law School
Elizabeth Maresca, Clinical Professor of Law, Fordham University School of Law
Drita Tonuzi, Deputy Chief Counsel (Operations), Internal Revenue Service