What Happens After Boechler – Part 4: The IRS Argues That Equitable Tolling Would Not Apply in Deficiency Cases

As discussed in the prior three posts of this series, the Supreme Court decision in Boechler clearly rejected the Tax Court’s position set out in the portion of its opinion in Guralnik v. Commissioner, 146 T.C. 230 (2016) that held the time period for filing a petition in the Tax Court in a Collection Due Process (CDP) case is jurisdictional.  Petitioners who file a late Tax Court petition in a CDP case, joining petitioners in whistleblower cases and passport cases, will no longer find themselves tossed from the court automatically based on the date of court filing, but still face significant hurdles.  Petitioners seeking relief in the Tax Court outside of the three types of cases where decisions have removed the time period as a jurisdictional barrier still have some work to do in persuading the Tax Court as to how far the Boechler opinion applies.  Today’s post, part 4 in a four part series looking at the impact of Boechler, discusses the Supreme Court’s approach to the application of equitable tolling, including what CDP petitioners must do to overcome the hurdle of equitable tolling and the application of equitable tolling to deficiency proceedings once the courts determine the time for filing no longer provides a barrier. 

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The Tax Clinic at the Legal Services Center of Harvard Law School wrote its entire amicus brief in the Boechler case on the equitable tolling issue.  It did so because of the importance that the Supreme Court determine not only that the time for filing a petition pursuant to IRC 6330 does not create a jurisdictional barrier but also that petitioners could demonstrate through equitable factors the right to have the merits of their case heard by the Tax Court.  The IRS argued that even if the statute did not create a jurisdictional barrier petitioners should nonetheless still not have the opportunity to come into Tax Court because equitable tolling should not apply to a tax case.  The IRS relied on the Supreme Court’s decision in United States v. Brockamp, 519 U.S. 347 (1997).  The IRS has cited to Brockamp in every case leading up to and including Boechler, essentially arguing that it created a special exception for tax cases making equitable tolling inapplicable.  The Supreme Court soundly rejected this argument.

The Supreme Court started the equitable tolling section of the opinion with a broad statement about the general applicability of equitable tolling:

Equitable tolling is a traditional feature of American jurisprudence and a background principle against which Congress drafts limitations periods. Lozano, 572 U. S., at 10–11. Because we do not understand Con­gress to alter that backdrop lightly, nonjurisdictional limi­tations periods are presumptively subject to equitable toll­ing. Irwin v. Department of Veterans Affairs, 498 U. S. 89, 95–96 (1990).

In a footnote it took a mild swipe at a passing argument by the IRS that equitable tolling only applies in Article III courts, noting that it had already applied equitable tolling to non-Article III courts and citing, inter alia, to its decision in favor of the IRS in Young v. United States, 535 U.S. 43, 47 (2002) in which it, at the request of the IRS, granted equitable tolling to determine that the IRS could have a priority claim in a bankruptcy case.  It’s hard to imagine how the IRS could even make a passing argument on this issue given that it sought, and received, equitable tolling in a non-Article III court just two decades ago.

Applying the general principle of equitable tolling to the CDP statute the Supreme Court said:

We see nothing to rebut the presumption here. Section 6330(d)(1) does not expressly prohibit equitable tolling, and its short, 30-day time limit is directed at the taxpayer, not the court. Cf. id., at 94–96 (holding that a statutory time limit with the same characteristics is subject to equitable tolling). The deadline also appears in a section of the Tax Code that is “‘“unusually protective”’” of taxpayers and a scheme in which “‘laymen, unassisted by trained lawyers,’” often “‘initiate the process.’” Auburn, 568 U. S., at 160. This context does nothing to rebut the presumption that nonjurisdictional deadlines can be equitably tolled.

Count on the IRS arguing that the “unusually protective” aspect of CDP prevents equitable tolling from applying in deficiency cases.  As I discussed in the first post of this series, however, CDP should not be viewed as a unique provision and the same reasons that equitable tolling applies in a CDP case should also apply to deficiency cases.

The Court spent the next couple paragraphs explaining why Brockamp does not apply to CDP cases.  For the same reasons discussed in Boechler, Brockamp should not apply in deficiency cases.  Even though far more deficiency cases are filed in Tax Court than CDP cases, the total number of cases bears no comparison to the number of refund claims at issue in Brockamp.  One can only hope that this explanation resonates with the IRS, and it will refrain from citing Brockamp every time someone wants equitable tolling.  We will soon find out.

The Court then addressed the IRS’s final argument regarding equitable tolling – that creating uncertainty in the timing of the collection injunction of IRC 6330(d)(1) will cause big problems.  Here the Court states:

The Commissioner protests that if equitable tolling is available, the IRS will not know whether it can proceed with a collection action after §6330(d)(1)’s deadline passes. The Commissioner acknowledges that the deadline is al­ready subject to tolling provisions found elsewhere in the Tax Code—for example, tolling is available to taxpayers lo­cated in a combat zone or disaster area. Tr. of Oral Arg.37–40. But he says that the IRS can easily account for these contingencies because it continuously monitors whether any taxpayer is in a combat zone or disaster area. Ibid. Tolling the §6330(d)(1) deadline outside these circum­stances, the Commissioner insists, would create much more uncertainty.

In its brief to the Supreme Court the Solicitor General cited unsupported data not in the record of the case about numbers of cases and IRS internal processes.  I do not understand how that is allowed.  This is not information the Supreme Court could take judicial notice of.  In reviewing the information provided, I did not understand how the IRS arrived at the information the Solicitor General cited to the Supreme Court.  The information did not seem correct but it’s hard to argue against unsupported information that just magically appears. 

Aside from the fact that the Solicitor General feels it is appropriate to raise new information not in the record and not publicly available in its brief, which undermines the whole point of having a record, the data was, in fact, wrong.  It later sent a letter to the Supreme Court walking back the information in its brief and stating that the data was wrong but offering new unsupported data.  I found this offensive to the system.  The Court did not comment on it.  Perhaps it’s normal for the Solicitor General and the agency to toss non-public data into a Supreme Court brief, but I cannot understand how that is appropriate.

The IRS has to deal with uncertainty that a Tax Court case has begun and the collection injunction has come into existence all the time.  No better example exists than what has happened at the Tax Court during the pandemic.  By failing to notify the IRS of the filing of a Tax Court petition for a few months, the Tax Court set the IRS off into collection mode.  This has created problems for taxpayers and for the IRS but they are problems that get worked out and this has happened with thousands of cases.  Arguing that allowing the taxpayer to raise equitable tolling because it will create a problem when the problem already exists and gets fixed on a regular basis should not serve as a reason for preventing equitable tolling.  That solution is anything but equitable for individuals who miss the deadline for a good reason.

In responding to the IRS’s equitable tolling statute of limitations and levy authority uncertainty argument, the Supreme Court avoided discussing the two statutory extensions that the IRS said it could easily deal with (i.e., the IRC 7508 combat zone and IRC 7508A disaster declaration extensions) and simply focused on the more common statutory extension provided in IRC 7502, the timely-mailing-is-timely-filing extension.  The Court wrote:

We are not convinced that the possibility of equitable tolling for the relatively small number of petitions at issue in this case will appreciably add to the uncertainty already present in the process. To take the most obvious example, petitions for review are considered filed when mailed. 26 U. S. C. §7502(a)(1). The 30-day deadline thus may come and go before a petition “filed” within that time comes to the IRS’s attention. Presumably, the IRS does not monitor when petitions for review are mailed. So it is not as if the IRS can confidently rush to seize property on day 31 anyway.

Thus, one would expect that the equitable tolling statute of limitations and levy authority uncertainty argument will be rejected as well in a future court case involving equitable tolling of the IRC 6213(a) deficiency petition filing deadline.

The Supreme Court’s decision sends the Boechler law firm back to the Tax Court which will now decide if the late petition meets the equitable tolling tests.  Because the Tax Court has previously determined all of its deadlines for hearing cases are jurisdictional, it has not developed a body of law on equitable tolling.  Undoubtedly, it will now look to equitable tolling jurisprudence developed in other jurisdictions that did not bar its consideration.  What should we expect?

As the Tax Clinic’s brief points out, courts have generally developed three bases for applying equitable tolling: 1) actively misleading taxpayers about the filing deadline as the IRS did in Rubel, Matuszak and Nauflett; 2) extraordinary circumstances which prevent taxpayers from timely filing as occurred in Castillo and Atuke; and 3) timely filing petitions in the wrong forum as regularly happens and as we discussed here.

One of the first cases that the Tax Court may hear is the Castillo case which has been held by the Second Circuit awaiting the decision in Boechler.  The Fordham Tax Clinic represents Ms. Castillo who has yet to receive her CDP notice of determination even though it was mailed by the IRS to her last known address more than two years ago.  Postal records show it has never been delivered.  She filed her CDP petition late after finding out about the CDP notice of determination through an informal channel long after the deadline for filing passed. Castillo should provide the Tax Court with a slam dunk opportunity to grant equitable tolling and begin to develop its jurisprudence on this issue.  Undoubtedly petitioners will seek the benefit of equitable tolling without the favorable facts present in the Castillo case and the Tax Court will have the opportunity over the next few years to set the standards it will apply in letting in the handful of cases with deserving facts.  If you are bringing an equitable tolling case to the Tax Court look at the factors other courts have developed and bring deserving cases to the Court with well-developed arguments.

What Happens After Boechler – Part 3:  The IRS Argues that IRC 7459 Requires that IRC 6213(a) Treat the Time for Filing a Tax Court Petition as Jurisdictional

After Congress created the predecessor statute to IRC 6213 in 1924 (and created the Board of Tax Appeals – the predecessor to the Tax Court) it came back in 1926 and 1928 to create a separate statute which is now IRC 7459.  Section 7459 provides that a dismissal from a Tax Court case on jurisdictional grounds does not prevent the taxpayer from paying the tax and suing for refund.

When Carl Smith and I began making the argument that time periods for filing a Tax Court petition are not jurisdictional time periods, we initially confined our arguments to Collection Due Process (CDP) and innocent spouse cases out of concern that succeeding in deficiency cases might harm taxpayers because of 7459.  As we thought about this further over time, we could not remember a single incidence of a taxpayer being dismissed from the Tax Court on jurisdictional grounds and subsequently full paying the tax and suing for refund.  Of course, this does not mean it has never happened, but it does suggest it happens rarely.

This post will explain why IRC 7459 should not factor into the decision of whether IRC 6213 is a jurisdictional provision or a claims processing rule.  That conclusion results from both the language of the two statutes as well as the goal to protect taxpayers.

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In the prior two posts we have explained why the Supreme Court’s decision in Boechler knocks out all of the arguments that IRC 6213 is a jurisdictional provision previously made by the IRS, the Tax Court, and other courts, including the 9th Circuit in Organic Cannabis.  This post looks at the arguments regarding IRC 7459 and the cases the Tax Court dismisses in order to provide an explanation for removing the last argument from consideration.

In Organic Cannabis the 9th Circuit explained the various types of suits a taxpayer could bring to contest a tax liability and pointed out that:

if the taxpayer does file a petition in the Tax Court, then a decision “dismissing the proceeding shall be considered as its decision that the deficiency is the amount determined by the [IRS],” id. § 7459(d), and such decision as to “amount” is entitled to preclusive effect in subsequent proceedings between the taxpayer and the IRS, see Malat v. Commissioner, 302 F.2d 700, 706 (9th Cir. 1962). [emphasis added]

We have written before about the effect of a Tax Court dismissal, and we have explained that petitioners to the Tax Court cannot voluntarily dismiss a Tax Court case once jurisdiction has attached.  After setting up the general rule, the 9th Circuit went on to explain the exception in IRC 7459(d) when the Tax Court dismisses a case because it lacks jurisdiction:

there is no such “decision” as to “amount,” and no preclusive effect, if the Tax Court’s “dismissal is for lack of jurisdiction.” 26 U.S.C. § 7459(d) (emphasis added)

Then the 9th Circuit used as one of its bases for finding IRC 6213 to be a jurisdictional provision with regard to the time of filing the problem that would attach if it were not jurisdictional:

Under Appellants’ non-jurisdictional reading of § 6213(a), the Tax Court’s dismissal of a petition as untimely could potentially have the perverse effect of barring the taxpayer from later challenging the amount in a refund suit—ironically yielding precisely the sort of “harsh consequence[]” that the Supreme Court’s recent “jurisdictional” jurisprudence has sought to avoid.  Kwai Fun Wong, 575 U.S. at 409.  That peculiar outcome is avoided if § 6213(a) is read as being jurisdictional, because then dismissals for failure to meet its timing requirement would fall within § 7459(d)’s safe-harbor denying preclusive effect to Tax Court dismissals “for lack of jurisdiction.” 

So, the 9th Circuit used what it thought would be a negative effect of finding IRC 6213 to be a claims processing rule as a basis for justifying its decision.  This is wrong both as statutory interpretation and wrong in thinking that keeping IRC 6213 as a jurisdictional provision would not harm taxpayers, while making that deadline non-jurisdictional would harm taxpayers.

With respect to statutory interpretation, IRC 7459 simply has no role to play.  The argument for the role of IRC 7459(d), at least based on the IRS argument, is that interpreting the jurisdictional dismissal exception of that subsection to exclude dismissals for late filing would render the exception superfluous.  The IRS has argued that the only dismissals that are currently jurisdictional (other than those when no notice of deficiency was issued and so the amount of a deficiency cannot be set out in the dismissal order) are from late filing. This argument fails because many reasons exist why a petition may be dismissed for lack of jurisdiction other than merely late filing or the lack of a notice of deficiency.  The most obvious situation occurs when the Tax Court dismisses a petition for lack of jurisdiction due to an invalid notice of deficiency because the IRS did not send the notice to the taxpayer’s last known address.  See, e.g., Crum v. Commissioner, 635 F.2d 895 (D.C. Cir. 1980).  Another example occurs when the automatic stay in bankruptcy bars the filing of a Tax Court petition, see, e.g., Halpern v. Commissioner, 96 T.C. 895 (1991).  Another example occurs when a corporation lacks capacity to file the petition, see, e.g., Vahlco Corp. v. Commissioner, 97 T.C. 428 (1991) (Texas law).  The biggest reason for dismissal from Tax Court for lack of jurisdiction occurs for failure to pay the filing fee – almost 2/3rds of the dismissals occur for this reason.  So, the IRS is wrong when it argues that determining IRC 6213 is a claims processing rule renders IRC 7459(d) superfluous.

The legislative history of IRC 7459(d) also does not support the conclusion that Congress enacted the statute to preserve the rights of taxpayers who file late in the Tax Court to avoid res judicata in a subsequent refund suit involving the same deficiency.  There is no such legislative history.  There is also nothing in the language of IRC 7459 that speaks to the time frame for filing a Tax Court petition as a jurisdictional time frame.  There is simply no language to parse.

After you leave the legal arguments that have no merit, you move to the apparent presumption by the 9th Circuit that somehow IRC 7459 helped taxpayers.  First, there’s the problem that Congress gave no indication it sought that result, either in the language of the statute or its legislative history. Second, the actual effect of the 9th Circuit’s take on the statute hurts far more taxpayers than it helps.

Carl Smith looked at the dismissals for lack of jurisdiction due to late filing in February and March of 2022 searching DAWSON using the search words “lack of jurisdiction and timely.”  He found 103 cases which suggests 618 dismissals over the entire year or some similar number.  Each of those individuals could theoretically be adversely impacted if section 7459(d)’s exception for jurisdictional dismissal could not apply, so that res judicata would prohibit their filing later refund suits.

To know how the loss of 7459(d) protection could adversely impact this group, it’s necessary to know how many taxpayers in this group paid the tax and filed a suit for refund.  For this fiscal year ending September 30, 2020, 188 refund suits in total were brought in the Court of Federal Claims and the district courts.  Not all of the 188 complainants filed after a prior Tax Court dismissal for late filing and perhaps none of them did.  Indeed, Carl looked at all district court and CFC opinions issued in 2021 using the search terms “refund and (Tax Court) and dismiss!” and could not find a single refund suit in which it was clear that the IRS had issued a notice of deficiency, the taxpayer had then late-filed a Tax Court suit, and, after the suit’s dismissal, the taxpayer sued for a refund. 

Carl did come across one 2021 opinion where a taxpayer’s Tax Court deficiency suit had been dismissed for lack of jurisdiction, purportedly for late filing, and a CFC refund suit ensued — see my post of June 4, 2021 on the case, Jolly.  However, in that case, it was unclear whether the IRS had ever issued a notice of deficiency, with the IRS arguing in the Tax Court that a notice of deficiency had been issued, but arguing in the CFC that the IRS had never issued one and that the Tax Court dismissal was wrong for saying there had been a late-filed petition rather than a petition lacking an underlying notice of deficiency.  And, in Jolly, the taxpayer did not fully pay the tax before bringing the CFC suit.    Reading the 2021 opinions, Carl also found a citation to a pre-2021 opinion in a refund suit where a taxpayer brought a CFC suit after his Tax Court deficiency suit was dismissed for lack of jurisdiction for late filing and where there was no dispute that a notice of deficiency had been issued, Wall v. United States, 141 Fed. Cl. 585 (2019), but the taxpayer in the suit was only seeking relief from liens, not a refund, and, in any event, had not fully paid the deficiency before bringing the suit.

It’s probable that no refund suits resulted from the Tax Court dismissals for failure to timely file the petition because a very high percentage of the petitioners dismissed were pro se taxpayers who lack knowledge of tax procedure and funds to full pay.  Only in a rare cases does the taxpayer benefit from IRC 7459(d), and not one that we know of.  Yet, we know there are cases in which taxpayers could benefit from the interpretation of IRC 6213 as a claims processing rule.

Petitioners who would especially benefit from the interpretation of IRC 6213 as a claims processing rule are petitioners with a good basis for equitable tolling.  While this is not a large number, the individuals with a good reason for filing late present very sympathetic cases in which the petitioners deserve the chance to have the merits of their case heard.  The next post will talk about the equitable tolling rules and who these petitioners might be. 

In addition, petitioners who would benefit are the petitioners dismissed because the Tax Court spent the time and effort to carefully review each case to determine if it had jurisdiction and issued an order to show cause when it had concerns about its jurisdiction even though Chief Counsel did not raise an issue.  In February and March of 2022, Carl searched for this type of order to show cause and found 34 cases.  This means that about 204 petitioners a year might benefit if the Tax Court did not need to spend time carefully scouring each case to check on its jurisdiction.  This would not only give these taxpayers a chance to have the merits of their argument heard but would save the Tax Court all of the time it currently spends looking at each case to determine if it has jurisdiction. 

To determine how many of the cases in which the Tax Court show cause orders resulted in a dismissal, Carl went back to April and May of 2021 expecting that most of those cases would have cleared through the system by now, offering a percentage of cases dismissed after a show cause order.  His research suggests that about 75% of the cases identified were dismissed as untimely.  The 9th Circuit’s effort to “help” taxpayers by citing to IRC 7459(d) instead created a misguided view of the system.  The actual cases show that few, if any, taxpayers receive a benefit from IRC 7459(d) but quite a few taxpayers might benefit from a claims processing rule, either because they have a basis for equitable tolling or, more likely assuming the Chief Counsel attorneys continue to fail to identify issues of timely filing, because taxpayers will no longer face orders to show cause for dismissal for lack of jurisdiction on account of late filing.

What Happens After Boechler – Part 2:  The IRS Argues the Floodgates Will Open if the Tax Court Follows Boechler in Interpreting IRC 6213(a)

Boechler involves the Tax Court’s jurisdiction in Collection Due Process (CDP) cases.  The Tax Court Congressional Budget Justification Fiscal Year 2023 (Feb. 28, 2022), at page 19 reports that CDP cases filed in the fiscal year ended 9/30/21 made up 3.29% of its total caseload and deficiency cases made up 96.46% of its total caseload (though the Tax Court overstates the deficiency case figure by apparently including in that deficiency figure all dockets that do not have letters at the end of their docket numbers — which would mean that the deficiency figure erroneously also sweeps in 6015(e) cases and all those cases later dismissed for LOJ because no ticket to the Tax Court under any jurisdiction had been issued). If the Tax Court determines that the time period for filing petitions in deficiency cases is not a jurisdictional time period, many more petitioners will have the opportunity to argue that the Court should hear their late petition than would have the opportunity in CDP cases – almost 20 times as many.  What does the floodgate argument really mean here?  Should it make a difference?

There are at least two parts to the question of the impact of finding that the time period for filing a Tax Court petition in a deficiency case is not jurisdictional.  One, what is the volume of late filed cases?  Two, how many of the late filed cases have a marginally meritorious case that will require actual resources at the Court and at Chief Counsel, IRS to resolve?  One possible result, discussed below, is that the net effect will cause little if any additional work for the Court or Chief Counsel.  If the Tax Court finds or is instructed that 6213(a) is not a statute in which the time for filing creates a jurisdictional bar, the net result of any additional work should not be significant.

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The Tax Clinic at the Legal Services Center of Harvard Law School has been looking at Tax Court dismissals for several years, monitoring the cases in search of meritorious cases that might provide a challenge to the Court’s view that all of its bases for jurisdiction have a jurisdictional time frame.  Looking at the cases primarily means Carl Smith reviewing the daily docket, Carl passing to me any cases that look like they were dismissed for a reason based on late filing where the petitioner has raised some type of excuse that seems more than frivolous, me ordering the documents from the Court that led to the Court’s order, Carl and me reviewing the documents to decide if the case has a potentially meritorious argument on the excuse and on the merits, me calling the taxpayers with a potentially meritorious case to get further information and a sense of their interest in pursuing the case further and a follow up discussion between Carl and me on whether to move forward with the case.  We find very few cases that meet our criteria – less than 10 each year in all Tax Court bases for jurisdiction combined.

Backing up from our criteria to the criteria that will cause work for the Court and Chief Counsel, it’s necessary to decide how many cases will have an argument for equitable tolling that requires a hearing of some type.  When Chief Counsel identifies a case as late filed, more about why I say only Chief Counsel below, it will make affirmative allegations in its answer that the petition was untimely.  It already spends at least as much time as the affirmative allegations will take by filing a motion to dismiss on all of the cases it determines were filed late.  So, no additional work there.  The taxpayer will, or should, respond to the affirmative allegations setting forth the defense(s) that the petition was timely filed and/or that the time for filing should be equitably tolled.  This process saves the Court the time it takes to produce and send out show cause orders.  At some point the Court will rule on the effect of late filing.  The Court already rules on this issue after the show cause order.  So, no additional work there.

Not all taxpayers will file a response to the answer.  Taxpayers who do not respond will cause the IRS to file a Rule 37(c) motion.  This may cause the Court to give the taxpayers a second chance to respond or may cause the Court to rule at that point.  The filing of this motion will cause Chief Counsel a little more work.  If the Court issues an order giving taxpayers a second chance to respond, this will cause the Court a little more work.

Taxpayers who do respond will now respond with different/additional information from the information provided in responses prior to a change in the jurisdictional nature of IRC 6213.  Some taxpayers will respond with a detailed explanation of the reason for the late filing.  Some of these responses will make clear that the taxpayers do not fit into the Court’s criteria for equitable tolling.  It will take the Court several opinions in the early years after determining IRC 6213 does not have a jurisdictional time frame for the Court to develop a body of jurisprudence on equitable tolling.  It must do so now for IRC 6330 cases.  It’s worth noting that the Tax Court could have been building its body of equitable tolling law since the D.C. Circuit’s decision regarding whistleblower petitions in the Myers case.  It has not and may have been holding the Myers case in abeyance pending the outcome of Boechler but that is another source of equitable tolling jurisprudence that can inform IRC 6213 cases.  There is no indication that in the whistleblower or passport cases, both areas of Tax Court jurisdiction with relatively low filing numbers, that a stampede of equitable tolling requests, or any such requests, has occurred. 

So, developing this body of jurisprudence should not add much to the burden of the Tax Court.  Once it has established its criteria for reviewing cases for equitable tolling, it will be able to dismiss some cases in which taxpayers response to the affirmative allegations in the answer discloses a reason for filing a late petition that does not fit within the established bases for accepting the case.  Making decisions on these cases will not cause much additional work and probably will occur in the office of the Chief Judge with the attorneys who work there.  This will cause little or no additional work for Chief Counsel attorneys.

Unquestionably, some cases will respond to the motion and raise enough concerns about the nature of their argument for jurisdiction that the Court will need to schedule a hearing in order to take evidence and to allow further argument.  These cases will cause more work for the Court and for Chief Counsel.  In order to guess how many cases we might be talking about here, it is necessary to start with the number of cases typically dismissed for lack of jurisdiction based on an untimely petition.  No need to look at other bases for dismissal since they are not implicated by the Boechler decisions.

Carl Smith did research on the number of dismissals for lack of jurisdiction based on timeliness and found 103 cases in February and March of 2022.  At that pace one might expect about 600 cases in a year.  Based on these raw numbers, we need to determine how many of the petitioners filed a response that would require more work of the Court and Chief Counsel.  Carl Smith has been reviewing all orders of dismissal for the last four months for late filing under all jurisdictions, and he estimates he has seen only about 30 orders where taxpayers have tried to provide a good excuse for late filing.  Assuming that number holds and that similar numbers of articulated excuses in future cases will require the litigation of equitable tolling if the filing deadlines are no longer jurisdictional, that means that about 90 cases a year will involve parties doing filings relating to the assertion of equitable tolling.  So, probably there would be 87 cases a year that would require additional work from the Tax Court and Chief Counsel to deal with taxpayer-pleaded equitable tolling defenses if IRC 6213 creates a claims processing rule.  Under Boechler, about 3 cases a year will probably be CDP cases in which a taxpayer pleads equitable tolling.  That low CDP number may surprise a lot of people who thought Boechler would open floodgates under CDP.  Of course, the new legal possibility of equitable tolling under all jurisdictions may bring additional taxpayers to assert facts that can give rise to equitable tolling, but it is hard to believe that these new assertions would any more than double the number of cases each year where equitable tolling would be argued.  Further, probably only a third of such cases will actually be granted equitable tolling (30).  There will be additional work to Counsel and the Court on the merits in such cases, but 30 cases is only 0.1% of the Tax Court’s docket each year.  So, given that over 90% of cases settle on the merits anyway, the additional work will probably not involve more than a single extra merits trial a year.

Tomorrow’s post will explain in more detail why Chief Counsel must make its objection early in the case.  Chief Counsel attorneys will also have a time savings because they will no longer need to respond to orders to show cause in cases where they do not raise the issue in the answer.  For reasons discussed in the next post, the failure to raise the timing of the filing in the answer will probably end any argument on timing allowing the parties to focus on the merits.

What Happens After Boechler – Part 1: The IRS Argues IRC 6330 is Unique

In Boechler, the Supreme Court parsed the language of IRC 6330 looking for a clear statement from Congress that Congress intended to make into a jurisdictional limit the 30-day deadline to file a Tax Court petition after a Collection Due Process (CDP) notice of determination.   It did not find that clear statement. 

The next big fight will be interpreting IRC 6213(a) to determine if Congress made a clear statement in that provision.  In today’s blog post and in the posts in this series that will follow, I will examine the arguments the IRS will make based on the arguments it has made previously.  The posts will focus on the clear statement rule since the Supreme Court has held on numerous occasions that two tests apply in determining if a statute provides a jurisdictional time frame.  Carl Smith blogged about the jurisdictional nature of the time period in IRC 6213(a) two years ago when the Tax Clinic at the Legal Services Center filed motions for reconsideration in three cases with strong equitable facts and favorable merits arguments. 

In addition to the clear statement rule, the second test – whether controlling Supreme Court jurisprudence exists to create a stare decisis exception to the general rule that filing deadlines are not jurisdictional – clearly does not apply to IRC 6213(a), since the question of whether the time period for filing a petition in Tax Court is jurisdictional has never resulted in a Supreme Court decision.  The Tax Court (in Guralnik) and the IRS have pointed to a long list of lower court opinions holding the IRC 6213(a) filing deadline jurisdictional.  Those cases do not qualify for the stare decisis exception. 

In Boechler, the IRS also cited that IRC 6213(a) precedent to the Supreme Court when arguing that Congress in 1998 intended to make the CDP filing deadline jurisdictional.  The Court not only rejected this argument, but also dismissed giving any deference to the IRC 6213(a) authority as follows:

The Commissioner’s weakest argument is his last: He insists that § 6330(d)(1)’s filing deadline is jurisdictional because at the time that deadline was enacted, lower courts had held that an analogous tax provision regarding IRS deficiency determinations is jurisdictional. (That provision says that “[w]ithin 90 days . . . the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency.” 26 U.S.C. § 6213(a).) According to the Commissioner, Congress was aware of these lower court cases and expected § 6330(d)(1)’s time limit to have the same effect. So, he says, the statutory backdrop resolves any doubt that might linger in the text.

The Commissioner’s argument misses the mark. The cases he cites almost all predate this Court’s effort to “bring some discipline” to the use of the term “jurisdictional.”  Henderson, 562 U.S., at 435. And while this Court has been willing to treat “‘a long line of [Supreme] Cour[t] decisions left undisturbed by Congress’” as a clear indication that a requirement is jurisdictional, Fort Bend County v. Davis, 587 U.S. ___, ___, 139 S. Ct. 1843 (2019), no such “long line” of authority exists here.

So, I will spend no further time on the second test and focus exclusively on the clear statement rule.  I assume the IRS will do the same.

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The IRS will argue that Congress created IRC 6330 as a benefit for taxpayers uniquely crafted to play a highly protective role by a Congress seeking to remedy perceived IRS abuses.  This makes IRC 6330 special and the outcome in Boechler limited. 

Looking back almost 100 years, you can find that the deficiency procedure created in 1924 also resulted from a Congress that sought to protect taxpayers from having to pay the relatively new income and estate taxes before contesting IRS adjustments.  The legislative history has statements about allowing taxpayers to avoid the need to go into bankruptcy because of an inability to pay and an inability to contest the additional taxes in court without first paying.  While the general perception sees the CDP provisions as taxpayer friendly ones and perceives, at this point in time, the deficiency procedures simply as the way the code is structured, both provisions arose out of a desire to protect taxpayer rights.  CDP provisions arrived later after Congress began enacting assessable penalties that skirted the deficiency procedures and after it broadened the scope of citizens impacted by taxes from the narrow band of high income individuals taxed in 1924 to the entire populace by 1998.  So, we shouldn’t dismiss Boechler as unique because it pertains to a provision designed to protect taxpayers.

Parsing IRC 6213(a) looking for a link between the grant of jurisdiction and the time period for filing presents an even greater challenge for the IRS than IRC 6330.  IRC 6213(a) just doesn’t link the time period for filing the petition with the grant of jurisdiction.  Bryan Camp’s article New Thinking About Jurisdictional Time Periods in the Tax Code (January 21, 2019), 73 The Tax Lawyer 1 (2019) parses several Tax Court jurisdictional provisions and determines that IRC 6213 does not link the time period to the grant of jurisdiction.  In getting to the parsing of the current language, Bryan takes a long walk through the history of IRC 6213(a) and how it arrived at its current language.  He then walks through the current language of this section of the Code:

The text of sentence (1) is not the kind of text that the Supreme Court has ever held to speak in jurisdictional terms. It contains no mandatory language, such as “the taxpayer must file . . . .” Even if it had mandatory language, the Court has repeatedly said that “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.” 101 And there is nothing special about the text in sentence (1) of section 6213(a). It says nothing about what powers the Tax Court has. It says only what a taxpayer must do: petition for redetermination.

Sentence (4) does contain the magic word “jurisdiction.” The new thinking teaches that even the magic word “jurisdiction” appearing somewhere in the statute is not the kind of “clear statement” needed to overcome the presumption unless it hooks up to the limitations period tightly. At first glance, sentence (4) appears to contain the requisite connection because it references the need for a “timely petition.”

A closer look at what sentence (4) does dispels the appearance. The sentence removes power from the Tax Court in the face of an untimely petition. What power? Why, the power granted the Tax Court in sentence (3), the power to enjoin the Service. Sentence (4) does not say that the Tax Court shall have no powers at all in the face of an untimely petition, just that it will not have jurisdiction to enjoin or order a refund. The word jurisdiction in sentence (4) thus quite reasonably links to the Tax Court’s power to enjoin given in sentence (3). But nothing in sentence (4) hooks the timing requirements in sentence (1) to the jurisdictional grant in section 6214 to redetermine a deficiency.

Bryan discusses the link between IRC 6213 and 6214.  He finds that each provision contains a separate grant of jurisdiction.  Section 6213 creates jurisdiction to prohibit assessment with an injunction while section 6214 gives jurisdiction to redetermine a deficiency.  The injunction power, another taxpayer friendly provision, was added to the Code in 1988 as part of the first Taxpayer Bill of Rights.  Bryan points out that the word jurisdiction refers to the Tax Court’s power to enjoin and to issue a refund and not time limitations.  Even the title of the provision supports this reading – “Restrictions Applicable to Deficiencies: Petition to Tax Court.”

The Supreme Court’s precedent on jurisdiction does not turn on whether a statute seeks to assist or other factors that might make certain provisions unique.  Instead, it starts with a presumption that a time period is not jurisdictional.  It moves from that presumption to examining the statute to determine whether Congress has made a clear statement.  Making the determination requires carefully examining the text of the statute.  As described above in the language quoted from Bryan’s article, the text does not lead to the conclusion that IRC 6213(a) links the 90-day period to filing a petition to the grant of jurisdiction.

Not only is the text important but context is as well.  How does the time period relate to the statutory scheme surrounding the provision?  Bryan’s article looks at legislative context, judicial context and statutory context in explaining why, in none of these contexts, IRC 6213 provides the type of language or history that suggests the 90-day period for filing of petition creates a jurisdictional rule.

The main reason why the courts of appeal in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), and Organic Cannabis Foundation v. Commissioner, 962 F.3d 1082 (9th Cir. 2020), held the IRC 6213(a) filing deadline jurisdictional under the “clear statement” exception despite the first sentence of that section not even containing the word “jurisdiction” – is the word “jurisdiction” in the fourth sentence of IRC 6213(a), which limits the Tax Court’s injunctive jurisdiction to cases in which the petition in the main Tax Court action under the first sentence is “timely filed”.  But, that logic can no longer be relied on after Boechler.  IRC 6330(e)(1) contains copycat language giving the Tax Court jurisdiction to enjoin the IRS from improper levying during a CDP case in the Tax Court only if there was a “timely petition” in the main CDP action under IRC 6330(d).  Boechler’s demolition of the argument that IRC 6330(e)(1) language can cause the IRC 6330(d)(1) filing deadline to be jurisdictional should fully undermine the argument that similar language in the fourth sentence of IRC 6213(a) makes the filing deadline in the first sentence of that subsection jurisdictional.  Here’s what the Court wrote about this in Boechler:

The Commissioner contends that a neighboring provision clarifies the jurisdictional effect of the filing deadline.  Section 6330(e)(1) provides that “if a [collection due process] hearing is requested . . . the levy actions which are the subject of the requested hearing . . . shall be suspended for the period during which such hearing, and appeals therein, are pending.” To enforce that suspension, a “proper court, including the Tax Court,” may “enjoi[n]” a “levy or proceeding during the time the suspension . . . is in force,” but “[t]he 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).” § 6330(e)(1).

Section 6330(e)(1) thus plainly conditions the Tax Court’s jurisdiction to enjoin a levy on a timely filing under § 6330(d)(1). According to the Commissioner, this suggests that § 6330(d)(1)’s filing deadline is also jurisdictional. It would be strange, the Commissioner says, to make the deadline a jurisdictional requirement for a particular remedy (an injunction), but not for the underlying merits proceeding itself. If that were so, the Tax Court could accept late-filed petitions but would lack jurisdiction to enjoin collection in such cases. So if the IRS disobeyed § 6330(e)(1)’s instruction to suspend the levy during the hearing and any appeal, the taxpayer would have to initiate a new proceeding in district court to make the IRS stop.

We are unmoved—and not only because the scenario the Commissioner posits would arise from the IRS’s own recalcitrance. The possibility of dual-track jurisdiction might strengthen the Commissioner’s argument that his interpretation is superior to Boechler’s. Yet as we have already explained, the Commissioner’s interpretation must be not only better, but also clear. And the prospect that § 6330(e)(1) deprives the Tax Court of authority to issue an injunction in a subset of appeals (where a petition for review is both filed late and accepted on equitable tolling grounds) does not carry the Commissioner over that line. If anything, § 6330(e)(1)’s clear statement—that “[t]he Tax Court shall have no jurisdiction . . . to enjoin any action or proceeding unless a timely appeal has been filed”—highlights the lack of such clarity in § 6330(d)(1).

Think of IRC 6213(a) when you read the quote.

Avoid thinking about IRC 6330 as somehow a unique tax statute creating a time period for filing a Tax Court petition that is not jurisdictional.  Instead, focus on the purpose and the language of IRC 6213(a) in recognizing that for the same reason, though parsing though different statutory language, that the CDP provision does not create a jurisdictional time period for filing a petition, neither does the deficiency statute.

District Court in Rewwer Holds Improperly-Signed Timely Forms 843 Can be Informal Refund Claims

The recent decision in Rewwer v. United States, 1:20cv495 (S.D. Ohio 2022) regarding a misfiled refund claim later corrected reaches the opposite conclusion from the Court of Federal Claims’ recent decision in Dixon v. United States, (Ct. Fed. Cl. 2022) (Dixon 2) (blogged here) and contradicts the decision in Fulham v. United States, 1:20-cv-05871 (N.D. Ill. 2021), that I blogged about on December 17, 2021, which took a very narrow view of what could pass muster as an informal claim.  In each case the taxpayer did not properly file the original claim.  Rewwer more or less combines the mistakes made in Fulham and the Dixon cases, yet the taxpayer in Rewwer moves on to the merits while the taxpayers in Fulham and Dixon can’t get out of the starting gate. Another recent case, Deeb v. United States, 1:20-cv-01456 (N.D. Ga. 2022), doesn’t concern itself with whether the form is correct but dismisses on variance. Credit to Carl Smith for staying on top of these issues and providing much of the language for this post.

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Fulham

In Fulham, the taxpayer filed a Form 843, seeking a refund of income taxes.  After not getting a response, he filed a refund suit.  While in court, he learned that he should have used a Form 1040X, so he filed a Form 1040X with the court using PACER, not with the IRS.  The court dismissed the case for lack of jurisdiction (LOJ) because the Form 843 was the wrong form, and the right form was not filed with the IRS before suit began.

Dixon 1

In Dixon 1 (at 147 Fed. Cl. 469 (2020)), the taxpayer filed Forms 1040X with the IRS, but those forms were signed for the taxpayer by his attorney, John Castro, who held a POA, but not one entitling him to sign tax returns for the taxpayer.  The signature on the taxpayer signature line was hard to read, and the IRS did not realize until the first Dixon case was in court that Castro had signed the Forms 1040X.  Prior to the suit being brought, the IRS had reviewed the claims and denied them on the merits. The Court of Federal Claims (CFC) held that the lack of signatures from the taxpayer on the Forms 1040X was fatal to jurisdiction because the requirements to sign and to verify under penalties of perjury were statutory and not waivable.  The court distinguished the Supreme Court’s opinion in Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945), which held that the IRS could waive the non-statutory claim specificity requirement by rejecting a claim on the merits.  The Dixon court said that the signature and verification requirements are statutory and not waivable.

Dixon 2

The Dixon 2 case arose after Mr. Dixon went back and properly signed identical Forms 1040X to the ones originally signed by Mr. Castro and filed them with the IRS.  They were filed, however, after the statute of limitations for refund claims expired.  When the IRS did not allow the corrected refund claims, Mr. Dixon then brought a new CFC refund suit on the new Forms 1040X, where he argued that the original Forms 1040X were informal claims that were perfected by the corrected Forms 1040X, so the corrected Forms 1040X were deemed to relate back to the originals for purposes of the timely filing requirement.  In the Dixon 2 opinion, the CFC again dismisses for LOJ, holding that the improperly-signed Forms 1040X cannot constitute informal claims because of the lack of the taxpayer’s signature and compliance with the verification requirement.

Rewwer

Rewwer presents a combination of facts from both the Fulham and Dixon cases.  In Rewwer, the taxpayers timely filed Forms 843 with the IRS for a few years, which the IRS considered on the merits, granting one and denying two.  The Forms 843 were signed on the taxpayer signature lines by a holder of a POA, as “[taxpayer] POA”.  During consideration of the claims, the IRS told the taxpayers that Forms 843 were not the right forms, so the taxpayers then submitted Forms 1040X in replacement.  The Forms 1040X were not properly signed and verified by the taxpayers, either.  The Forms 1040X were filed after the 3-year SOL under 6511 had expired.  After two Form 1040X claims were disallowed, the taxpayers brought suit in district court.  Only then did the taxpayers learn that the Forms 1040X were not properly signed, so the taxpayers prepared new, identical Forms 1040X and filed them with the IRS during the refund suit.  The court rejected an IRS motion to dismiss, finding the Forms 843 to be informal claims for refund that had been timely filed, even though on the wrong form and with the wrong person signing and verifying.  Here’s a quote from the Rewwer opinion:

An informal claim must have ‘a written component . . . and should adequately apprise the Internal Revenue Service that a refund is sought and for certain years.’” Estate of Hale v. United States, 876 F.2d 1258, 1262 (6th Cir. 1989) (quoting American Radiator & Standard Sanitary Corp. v. United States, 318 F.2d 915, 920 (Ct. Cl. 1963)). “[T]he writing should not be given a crabbed or literal reading, ignoring all the surrounding circumstances which give it body and content. The focus is on the claim as a whole, not merely the written component.” Id. Accord Wilshire v. United States, No. 1:07-CV-00377, 2008 WL 4858256, at *1 (S.D. Ohio Nov. 10, 2008) (two years of oral and written communications from the executor of the taxpayer’s estate, along with a copy of the will and original tax return were sufficient to constitute a valid informal claim for a refund).

The Rewwer court also discussed a Sixth Circuit decision, Thomas v. United States, 166 F.3d 825, 831 (6th Cir. 1999), in which that court addressed the specific issue of Form 843 as an informal claim, holding:

the “Forms 843” dated November 1, 1995 are sufficient administrative claims. Although filed on the wrong form, the “Forms 843” dated November 1, 1995 put the IRS on notice. This fact is evidenced by the corresponding IRS rejection letters dated June 27, 1996, which refer Thomas to the IRS’ initial examination of his tax returns. Therefore, the IRS was aware of the nature of Thomas’ claims.

In Rewwer, the court based its decision on the totality of the facts.  It found that:

the IRS understood that Plaintiffs were seeking a refund, even though the proper form was not used. The Form 843s which were submitted made it clear which years were being claimed

The court described the information in the Form 843 and explained that in the correspondence back and forth between the IRS and the taxpayer that followed the filing of the Form 843,

there is no indication that the IRS did not understand Plaintiffs’ request. Rather, the IRS asked for more time to conduct research, sent the claims to the Cincinnati Service Center for processing, and at one point, actually appeared to allow the requested adjustment for tax year 2007. Moreover, the IRS allowed the full amount of Plaintiffs’ claim for tax year 2008, which was also filed on Form 843.

The Rewwer court then quoted from Angelus Milling, where the Supreme Court stated:

If the Commissioner chooses not to stand on his own formal or detailed requirements, it would be making an empty abstraction, and not a practical safeguard, of a regulation to allow the Commissioner to invoke technical objections after he has investigated the merits of a claim and taken action upon it.

The Rewwer court also found that any deficiencies in the informal claim were cured by the filing of the formal claims. The Court concludes that the IRS should be estopped from asserting this formal requirement since it waived strict compliance until Plaintiffs filed their claim here. 

Note the use of estoppel.  Only non-jurisdictional claim processing rules are subject to waiver, forfeiture, and, in some cases, estoppel and equitable tolling.  Implicit in the court’s holding is that the signature and verification requirements are not jurisdictional and are subject to waiver, forfeiture, and estoppel.

Deeb

One more case presenting this issue has recently come out, Deeb v. United States, 1:20-cv-01456 (N.D. Ga. 2022).  He sought refunds of income tax deficiencies and accuracy-related penalties which he had paid for 2010 and 2011.  For the 2010 year, the court cites Dalm for the proposition that a late-filed refund claim is a jurisdictional defect to a refund suit, but then inconsistently grants an IRS merits motion for summary judgment for 2010 because the refund claim was filed late.  Of course, if Dalm is the law, the 2010 year should have been dismissed for LOJ. For the 2011 year, the court finds a variance between the refund claim and the refund suit and so doesn’t allow the taxpayer to contest certain non-travel disallowed business expenses.  The court (citing precedent) calls the variance doctrine jurisdictional, though this is not necessarily the case.  No court I know of has discussed whether variance is still jurisdictional.

The court then goes on to rule on the deductibility of certain travel expenses and finds them not deductible for reasons of the taxpayers not being away from home (a tax home issue) and substantiation.  The court grants summary judgment to the IRS on these travel expenses.  The court finds the accuracy-related penalties to apply because the taxpayers made no separate contest of the penalties beyond arguing that the travel expenses were deductible.

The claim was filed on a single Form 843 covering both years and covering both penalties and income taxes.  There is no discussion in the opinion that the Form 843 would not be the right form (other than possibly for the accuracy-related penalties).  Deeb shows that, at least for some courts, Form 843 can at least constitute an informal claim that can be perfected prior to suit when a Form 1040X is filed after the SOL has passed.  In Deeb, the Form 843 was never perfected by the filing of Forms 1040X.  The IRS did not argue that he had filed the wrong claim form and did not move for dismissal based on lack of jurisdiction.  What seem like odd rulings from the court based on the other cases litigated probably flowed from the arguments the court received (and did not receive).

Two Recent Circuit Level Decisions Appear to Dispute View That the Refund Claim Filing Requirement is Jurisdictional (Part 2)

This is part two of a two-part post on jurisdiction issues arising from the filing of a claim for refund and the subsequent litigation.  The prior post focused on the case of Morton v. United States and this post will focus on Brown v. United States.  Carl Smith contributed to the commentary in this post.

The Brown case is part of a group of refund suits brought in the Court of Federal Claims involving US citizens living abroad seeking a refund based on the foreign earned income exclusion.  Their refund claims were prepared and signed by John Castro who held a power of attorney but not one that authorized the signing of a return.  The IRS disallowed the refund claims citing to a closing agreement that foreclosed their right to claim the credit but not to any procedural defect.  The Federal Circuit notes that “neither party seems to dispute that the Browns claim was properly before the Claims Court if it was ‘duly filed.’”

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The IRS moved to dismiss the suit for lack of jurisdiction because the Browns did not sign the claim which prevented it from meeting the duly filed test.  The Browns responded that even if they did not properly sign the claims the IRS waived that requirement by processing the claims.  Additionally, they argued:

signature and verification requirements are regulatory conditions, which the Supreme Court has deemed waivable, instead of unwaivable statutory conditions.

The Claims Court dismissed the case for lack of jurisdiction pursuant to Rules of Court of Federal Claims (RCFC) 12(b)(1).  The Federal Circuit reversed this holding, finding that the procedural defect in the claim did not create a jurisdictional barrier to the suit; however, it determined that the defect caused the claim to fail the duly filed requirement, making the Claims Court’s decision harmless error since the case could be dismissed under RCFC 12(b)(6) for failure to state a claim.  The Tax Clinic at the Legal Services Center of Harvard filed an amicus brief in this case arguing that the court had jurisdiction based on relevant Supreme Court precedent.

The Federal Circuit distinguished the facts here from those in United States v. Dalm, 494 U.S. 596 (1990), and distinguished its own prior precedent.  It concluded that the duly filed requirement in IRC 7422(a) serves as a claims processing rule rather than a jurisdictional requirement.  This is an important concession by the Federal Circuit which could assist claim filers across the country because anyone filing a refund suit can choose Claims Court.

The Federal Circuit still upholds the dismissal of the Browns’ case because of the lack of their signature.  The court spends the remainder of the opinion explaining why and addressing the Browns’ argument that the IRS waived the duly filed argument by processing the claim.  The court finds:

Because the taxpayer signature and verification requirements derive from statute, the IRS cannot waive those requirements. See Angelus Milling, 325 U.S. at 296. Therefore, the IRS had no authority to accept the Browns’ improperly executed refund claims.

Whatever other requirements may exist to render a return “duly filed” we cannot say. We deal here only with the facts presented to us, relating to a return that is both unsigned by the taxpayers and not accompanied by a power of attorney.

The court finds in the alternative that even if the signature requirement is only a regulatory provision that the IRS could waive, under the applicable Supreme Court case, Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945) (the seminal case for informal claims), the Browns cannot show that the IRS knew that the claim forms did not bear their signature at the time it processed the claim.

What Next

The Federal Circuit’s attempt to distinguish Dalm and its own case law on 7422(a), but then citing Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016), blogged here, arguably doesn’t work.  In Gillespie, the taxpayer filed a timely refund claim, but the claim was a tax protestor one which reported all zeros.  The district court held that this form was not a valid claim because it was frivolous, but the requirement to file a predicate claim was not jurisdictional to a refund suit.  The 7th Cir. in affirming the district court – but, without deciding the jurisdictional issue (because the court said it was unnecessary) – suggested that Dalm and 7th Cir. precedent holding the filing requirement jurisdictional are no longer good law.  In Gillespie, the 7th Cir. wrote:

The Gillespies do not respond to the government’s renewed argument that § 7422(a) is jurisdictional, though we note that the Supreme Court’s most recent discussion of § 7422(a) does not describe it in this manner, see United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5, 11-12 (2008). And other recent decisions by the Court construe similar prerequisites as claims-processing rules rather than jurisdictional requirements, see, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632-33 (2015) (concluding that administrative exhaustion requirement of Federal Tort Claims Act is not jurisdictional); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (concluding that Copyright Act’s registration requirement is not jurisdictional); Arbaugh v. Y & H Corp., 546 U.S. 500, 504 (2006) (concluding that statutory minimum of 50 workers for employer to be subject to Title VII of the Civil Rights Act of 1964 is not jurisdictional). These developments may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional. See, e.g., United States v. Dalm, 494 U.S. 596, 601-02 (1990); Greene-Thapedi v. United States, 549 F.3d 530, 532-33 (7th Cir. 2008); Nick’s Cigarette City, Inc. v. United States, 531 F.3d 516, 520-21 (7th Cir. 2008).

Although the amicus brief prominently featured the Federal Circuit’s opinion in Walby v. United States, 957 F.3d 1295 (2020), the Brown opinion makes no mention of Walby, which was blogged here.  In Walby, the taxpayer filed a proper refund claim, but it was late. The Court of Federal Claims dismissed the case for lack of jurisdiction.  In dicta, the Fed. Cir. panel made no distinction between its prior precedent holding the requirements to timely file predicate refund claims as jurisdictional to a refund suit, but head on called for the reconsideration of that precedent in light of the Supreme Court opinion in Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014).  Note that, in holding the duly filed requirement of IRC 7422(a) non-jurisdictional, the Brown panel only cited Lexmark (a case involving statutory standing defects), without citing Supreme Court opinions like the 2019 opinion in Fort Bend County v. Davis, 139 S. Ct. 1843 (2019) (blogged here).  Fort Bend held that the failure to comply with the statutory requirement to file a predicate claim with the EEOC before bringing a district court discrimination suit was not jurisdictional and was subject to forfeiture when the failure was not raised by the defendant in the district court case soon enough. The Walby panel wrote, in part:

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, 134 S. Ct. 1377, 188 L. Ed. 2d 392 (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 Walby court went on to discuss recent Supreme Court case law on jurisdiction and cited Gillespie, as well.  So, it’s hard to understand why the Brown panel decided not to simply overrule the Federal Circuit’s prior precedent and instead attempted to just distinguish that precedent and Dalm. 

Conclusion

Since the decision in Brown, additional decisions have come down regarding the issue of refund jurisdiction.  We will be posting on these decisions in the coming days.  The cases signal a shift as recent Supreme Court precedent comes into play but do not suggest a consensus which may lead ultimately to another Supreme Court decision addressing the issue of jurisdiction in tax cases.

Two Recent Circuit Level Decisions Appear to Dispute View That the Refund Claim Filing Requirement is Jurisdictional (Part 1)

At the end of 2021 and beginning of 2022, a pair of cases came out which may create a turning point in the view of courts regarding a court’s jurisdiction in refund suits where a possible defect in or the absence of an administrative claim exists.  In the Third Circuit the case of Morton v. United States Virgin Islands, No. 21-1292 (3rd Cir. 2021) held that the district court erred in applying a failure-to-state-a-claim analysis to the issue of Mr. Morton’s Article III standing to bring the claim.  In Brown v. United States, No. 2021-1721 (Fed. Cir. 2022), the court held that the dismissal of the Browns’ refund suit for lack of jurisdiction was incorrect but sustained the decision below because the Browns failed to prove that their claim for refund was duly filed.

The Morton opinion is not precedential but the Brown opinion is.  This post will focus on Morton and is the shorter of the two posts.  The Brown case sets the scene for an even more recent Court of Federal Claims case which will be discussed in a forthcoming post.

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The Morton case is a class action prisoner case in which Joe DiRuzzo and Daniel Lader, representing the prisoners pro se, sought to bring to prisoners in the Virgin Islands the same relief that prisoners in the United States received as a result of Scholl v. Mnuchin, Dk. No. 20-cv-05309-PJH (N.D. Cal. 2020) blogged here, here, here, and here.  The final link discusses both the Scholl case which was coming to an end and the Morton case which was beginning at the time of that post.  It contains links to the pleadings in Morton.  The Scholl and Morton cases seek to set aside the administrative denial of the stimulus payments to prisoners.  Even though at the time of deciding the case the district court had the benefit of the Scholl decision, the district court in Morton dismissed the claim for lack of jurisdiction because Mr. Morton had not filed a return which it read as a prerequisite to relief.

The Third Circuit disagreed, stating that standing requires that he establish three things:

Morton must have “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Thorne v. Pep Boys Manny Moe & Jack Inc., 980 F.3d 879, 885 (3d Cir. 2020) (quoting Spokeo v. Robins, 578 U.S. 330, 338 (2016)). Morton has met all three elements for each of his three claims.

He could show that the Virgin Islands would have denied his claim for the stimulus payment had he filed a return.  He could show that his injury is directly traceable to the refusal to issue stimulus payments to incarcerated individuals, and he could show that the harm could be remedied by the equitable and monetary relief he proposed.  Based on these conclusions which directly tied to the requirement for standing, the Third Circuit determined that the district court erred in dismissing the case on this ground. 

After holding that Morton had Article III standing to bring the suit, the court indicated that the IRC 7422(a) requirement to file a predicate administrative refund claim is not jurisdictional, writing:

The Virgin Islands’ arguments to the contrary — that Morton did not file a tax return before suing and does not belong to a protected class — bear on the merits of Morton’s claims rather than whether he had standing to bring them. They are arguments for a motion to dismiss for failure to state a claim, not a motion to dismiss for lack of subject matter jurisdiction. Bell v. Hood, 327 U.S. 678, 682 (1946); Mielo, 897 F.3d at 479 (“our standing inquiry must avoid any consideration of the merits beyond a screening for mere frivolity.”). For that reason, the District Court erred by crediting these arguments in concluding that Morton lacked Article III standing.

Oddly, however, the Third Circuit did not cite the recent Supreme Court case law holding that most claim-processing rules for court suits (including administrative exhaustion requirements) are no longer jurisdictional.  The Third Circuit merely remanded the case to the district court for further proceedings on the merits.

In part two of this post, I will take up the decision in Brown.

D.C. Circuit Narrows Tax Court Whistleblower Award Jurisdiction

In Li v. Commissioner, No. 20-1245 (D.C. Cir. 2021) the court holds that the Tax Court lacks jurisdiction to hear appeal of threshold rejection of whistleblower award requests.  The case arrived in the circuit court after the Tax Court held the IRS did not abuse its discretion in rejecting the award request.  In deciding the Li case the D.C. Circuit also found that two prior precedential Tax Court cases, Cooper v. Commissioner, 135 T.C. 70 (2010) and Lacey v. Commissioner, 153 T.C. 146 (2019), were wrongly decided.  As we have discussed here, all appeals of whistleblower cases from the Tax Court go to the D.C. Circuit because of the language in IRC 7482.  Therefore, the decision in the Li case binds the Tax Court in its consideration of future whistleblower cases unless the Supreme Court takes up the issue.  Having knocked out two precedential Tax Court opinions in one blow, the Li case will create at least one more when the Tax Court takes up the issue again.

An interesting side note in this case before moving on to the jurisdictional issue involves the D.C. Circuit’s appointment of an amicus to argue the issue of jurisdiction before it.  Neither Ms. Li, the IRS nor the Tax Court raised any jurisdictional concerns and the court felt the need to have legal argument from a lawyer on the jurisdictional point, as the Supreme Court had done in a case involving jurisdiction, Sebelius v. Auburn Regional Medical Center, where it appointed John Manning, my dean at Harvard Law School, to brief the jurisdictional issue. 

Robert Manhas and Robert Loeb filed an amicus brief in Li concluding that the Tax Court lacked jurisdiction to hear the case at the time of the filing of the Tax Court petition.  After the amicus brief was filed making the argument that the courts lacked jurisdiction, the DOJ (but not the taxpayer) filed a “final reply brief” (i.e., in addition to the DOJ prior reply brief) in which the DOJ changed position and agreed with the amicus that the Tax Court, and therefore, the D.C. Circuit, lacked jurisdiction.  No one briefed the argument that the Tax Court actually had jurisdiction.  So, once again, a pro se taxpayer effectively lost on an issue without representation.

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The taxpayer had submitted a Form 211, and the reviewer in the IRS Whistleblower Office (WBO) decided that the information on the target taxpayer was too vague and speculative to forward the Form 211 for further action.  The WBO issued a determination letter telling the whistleblower that she could contest the decision by petitioning the Tax Court.  She did, pro se.  After she lost in the Tax Court, she appealed pro se. 

Neither the IRS nor Ms. Li nor the Tax Court identified a possible jurisdictional issue.  The Tax Court decision found that:

the WBO adequately performed its evaluative function in reviewing Li’s application and did not abuse its discretion by rejecting it for an award.

The D.C. Circuit, sua sponte, wondered whether the Tax Court lacked jurisdiction and so appointed an amicus to argue that jurisdiction was lacking.  In the published ruling, the D.C. Circuit overturns Tax Court precedent that holds that pretty much any reason (even a preliminary ruling) for turning down an award can be the subject of a Tax Court suit.  The D.C. Circuit finds that it only has jurisdiction to rule on the whistleblower decision if the Tax Court had jurisdiction.  Since it determines the Tax Court lacked jurisdiction, it only has jurisdiction to cure the defect caused by the incorrect exercise of jurisdiction.  It writes:

After review, we conclude that Cooper and Lacey were wrongly decided. The Tax Court lacks jurisdiction to hear appeals from threshold rejections of whistleblower award requests.

Subsection (b)(4) of § 7623 gives the Tax Court exclusive jurisdiction over only a “determination regarding an award” under subsections (b)(1)(3). The Cooper and Lacey Courts held that a threshold rejection of a whistleblower award request constituted such an award determination because the rejection of an award was a so-called “negative” award determination. Lacey, 153 T.C. 163 n.19 (citing in accompanying text Cooper, 135 T.C. 70); see also id. at 150 n.5 (“[A] ‘rejection’ is also a ‘determination’. . . .”). We disagree. A threshold rejection of a whistleblower’s Form 211 for vague and speculative information is not a negative award determination, as there is no determination as to an award under subsections (b)(1)(3) whatsoever. Per subsection (b)(1), an award determination by the IRS arises only when the IRS “proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary’s attention by [the whistleblower]. . . .” 26 U.S.C. § 7623(b)(1) (emphasis added). A threshold rejection of a Form 211 by nature means the IRS is not proceeding with an action against the target taxpayer. See Cline v. Comm’r, 119 T.C.M. (CCH) 1199, 2020 WL 1249454, at *5 (T.C. 2020). Therefore, there is no award determination, negative or otherwise, and no jurisdiction for the Tax Court.2

In this case, the WBO rejected Li’s Form 211 for providing vague and speculative information it could not corroborate, even after examining supplemental material Li herself did not provide. The WBO did not forward Li’s Form 211 to an IRS examiner for further action, and the IRS did not take any action against the target taxpayer. There was no proceeding and thus no “award determination” by the IRS for Li’s whistleblower information. Therefore, the Tax Court had no jurisdiction to review the WBO’s threshold rejection of Li’s Form 211.

This Court regrets that Li was informed otherwise by letter to her from the WBO. However, “no action of the parties can confer subject-matter jurisdiction upon a federal court.” Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982).

Finally, the parties have called our attention to our decision in Myers v. Comm’r which contains the statement that “’written notice informing a claimant that the IRS has considered information that he submitted and has decided whether the information qualifies the claimant for an award’ suffices to constitute a ‘determination’ for the purpose of § 7623(b)(4).” 928 F.3d 1025, 1032 (D.C. Cir. 2019). Upon review, we conclude that this statement is not a holding concerning the issue in the present case. This statement was responding to petitioner’s argument that the WBO denial letter in his case did not contain enough information to qualify as a “determination” under the statute. Id. We subsequently declined to “craft requirements out of whole cloth” regarding what information a WBO denial letter must contain. Id. at 1033. By contrast, the question in this case asks whether § 7623(b)(4) confers jurisdiction only when there is both an IRS action based on whistleblower information and proceeds collected from that action. As this issue was not squarely before us in Myers, the above statement from Myers does not bind our decision today.

The Li decision will undoubtedly cause attorneys in the whistleblower bar to take notice and this may be a case in which a petition for certiorari is filed since the issue is important to the determination of the Tax Court’s jurisdiction and no possibility of a circuit split exists.

The Myers case referred to in the final quoted paragraph is still pending in the Tax Court after a trip to the D.C. Circuit.  If I recall the facts there, Myers may be in a similar situation to Li (though the parties are, I think, in discovery about whether the IRS actually used the information and conducted an audit of the taxpayer).  Will the IRS now move to dismiss the Myers case for lack of jurisdiction?  Remember that jurisdictional issues can be raised at any time.  The D.C. Circuit opinion in Myers created the conflict in the circuits on the jurisdictional issue recently argued in Boechler before the Supreme Court.  If Myers is dismissed belatedly for lack of jurisdiction, does that cause the opinion of the D.C. Circuit in that case to be vacated, canceling it as precedent?  The continuing precedential validity of Myers regarding the interpretation at issue in Boechler, though, will no doubt be decided by the Boechler case, as it is unlikely that, after Boechler, the D.C. Circuit will differ in future whistleblower rulings from the ruling of the Supreme Court in CDP cases.