Supreme Court Update for Taxes and the October 2022 Term

October 3, 2022 by 2 Comments

Thanks to Carl Smith, I write to point out the cases accepted for the Supreme Court term starting October 3, 2022, that might have some impact on tax procedure.  Three of the cases are related to the issues of jurisdiction and equitable tolling raised in Boechler during the last term and one relates to the calculation of the FBAR penalty.

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1)  Arellano v. McDonough – This case will be argued October 4.  The questions presented are:  (1) Whether the rebuttable presumption of equitable tolling from Irwin v. Department of Veterans Affairs applies to the one-year statutory deadline in 38 U.S.C. § 5110(b)(1) for seeking retroactive disability benefits, and, if so, whether the government has rebutted that presumption; and (2) whether, if 38 U.S.C. § 5110(b)(1) is amenable to equitable tolling, this case should be remanded so the agency can consider the particular facts and circumstances in the first instance.

2)  United States v. Bittner – This case will be argued on November 2.  Andy Weiner blogged this case for PT back in January.  This case presents the issue of the calculation of the penalty for failure to timely file the Foreign Bank & Financial Accounts information, commonly known as FBAR.  The IRS seeks to calculate the penalty based on each account not reported and taxpayers want to limit the penalty to the failure to file the form (which could contain multiple accounts).  The circuits are split.  The financial difference in the calculation of the penalty can be enormous with the per form approach limiting the penalty to $10,000 per year while the amount with the IRS approach is a multiple of the number of accounts times $10,000.  The Center for Taxpayer Rights has filed an amicus brief on behalf of the per form approach.  This brief was authored by Gwen Moore.  The American College of Tax Counsel has also filed an amicus brief arguing for the per form approach.  This brief was authored by the law firm of Kostelanetz & Fink.

3)  Wilkins v. United States – This is a private quiet title action, where the Circuits are split over whether the quiet title filing deadline in district court is jurisdictional. The issue of equitable tolling is not involved. I think this is an easy win for the petitioners.  The provisions granting district court’s jurisdiction are not the same as the filing deadline, and the filing deadline merely reads:

(g) Any civil action under this section, except for an action brought by a State, shall be barred unless it is commenced within twelve years of the date upon which it accrued. Such action shall be deemed to have accrued on the date the plaintiff or his predecessor in interest knew or should have known of the claim of the United States. 

The “shall be barred” language is similar to that in the FTCA deadlines, which were held not jurisdictional in Kwai Fun Wong (2015).  Oral argument has not yet been set.

4) MOAC Mall Holdings LLC v. Transform Holdco LLC — The cert. petition reads:

In Arbaugh v. Y & H Corp., this Court clarified that limitations on judicial relief should not be treated as jurisdictional absent a clear statement by Congress. At least six circuits have held that 11 U.S.C. 363(m) does not limit the appellate courts’ jurisdiction to review unstayed bankruptcy court sale orders, but rather limits only the remedies available in such an appeal. By its plain terms, Section 363(m) presupposes a “reversal or modification on appeal” of a sale order, and specifies only that such reversal or modification “does not affect the validity of [the] sale” to a good faith purchaser, leaving the courts free to fashion other remedies without that effect.

In the present case, the Second Circuit held, to the contrary, that Section 363(m) deprived the appellate courts of jurisdiction over an appeal from a lease assignment order deemed “integral” to an already completed sale order, notwithstanding that: the sale order was not contingent on the assignment; the sale price was fixed without regard to whether the lease could be assigned; and respondent had expressly waived (in successfully opposing a stay) any argument that Section 363(m) would bar appellate review. A month later, the Fifth Circuit re-confirmed that it also treats Section 363(m) as jurisdiction-stripping.

The question presented is:

Whether Bankruptcy Code Section 363(m) limits the appellate courts’ jurisdiction over any sale order or order deemed “integral” to a sale order, such that it is not subject to waiver, and even when a remedy could be fashioned that does not affect the validity of the sale.

Oral argument has not yet been set.

Filed Under: Equitable tolling, FBAR, Federal Courts - Jurisdiction, Supreme Court

DOJ Apologizes for Misinforming District Court on IRC 6015(f) Deadline

August 18, 2022 by 3 Comments

I did a post on August 15 in which I expressed shock that the DOJ lawyers in a district court collection suit told the court that the taxpayer could no longer seek IRC 6015(f) relief, since a two-year period to ask for such relief had passed.  The DOJ had cited a regulation that is no longer effective after a 2019 statutory amendment allowing a taxpayer to seek (f) relief at any time while the collection statute of limitations is still open, as it is in the case before the court.  This is a short post, just to let everyone know that on August 17, the United States filed a document in the district court entitled “United States’ Notice of Errata to United States’ Memorandum in Support of Motion for Partial Summary Judgment.”

The operative language from the notice is as follows:

[T]he United States . . .  argued that to qualify for relief under § 6015, a taxpayer must first present an administrative claim to the IRS within two years of the date on which the IRS first began collection activity against the taxpayer claiming innocent spouse relief. While innocent spouse relief under 26 U.S.C. § 6015(b) and (c) is limited by a two-year statute of limitations, the United States erroneously asserted that the same statute of limitations also applies to innocent spouse relief sought under 26 U.S.C. § 6015(f). Although Mrs. Weathers remains time barred from seeking innocent spouse relief under 26 U.S.C. § 6015(b) and (c), she could seek relief under 26 U.S.C. § 6015(f) before the IRS. This does not impact the Court’s lack of subject matter jurisdiction, as Mrs. Weathers would still have to avail herself of the administrative processes before the IRS to seek this relief and, if necessary, follow procedures for review established in 26 U.S.C. § 6015(e).

We just understood our error and respectfully alert the Court and parties through this errata filing. As stated, however, our inadvertent error does not impact the Court’s memorandum opinion and Order, which properly dismissed the asserted affirmative defense for lack of subject matter jurisdiction.

Undersigned counsel apologizes to the Court for the mistake.

The case was headed for a jury trial beginning August 22.  However, there is an entry on the docket sheet that the case settled on August 18.  There is no entry (yet?) correcting the district court’s order, though.

Filed Under: Federal Courts - Jurisdiction, Innocent Spouse

DOJ Misinfoms District Court on IRC 6015(f) Relief Filing Deadline

August 15, 2022 by 4 Comments

Sometimes, I am amazed at what DOJ attorneys don’t know about tax procedure.  Once, I wrote a post on how a court misapplied the amount lookback period of IRC 6511(b)(2)(A) when a refund claim was mailed before the end of the filing deadline but was received by the IRS afterward.  The DOJ in that case had misled the court by not citing the relevant case law and regulations.  I brought the error to the attention of the taxpayer’s attorney, who got the court to immediately reverse its holding and scold the DOJ for not citing the relevant authority.

Well, the DOJ has done it again:  In a collection suit brought against a husband and wife, where the wife has raised IRC 6015 innocent spouse relief as a defense, United States v. Weathers, Docket No. 5:21-cv-5012 (W.D. Arkansas, 8/10/22), not only did the DOJ get the court to follow likely-incorrect district court holdings saying that IRC 6015 relief cannot be raised in a collection suit, but the IRS persuaded the court that it would be too late for the taxpayer to now file a Form 8857 seeking such relief, citing still-current Reg. 1.6015-5(b) and the opinion in Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010) (holding that regulation valid to the extent that it imposes a 2-year limit after collection activity has begun to seek relief under IRC 6015(f)).  While it is true that the statutes impose the 2-year rule for requesting relief under subsections (b) and (c), the regulation, as applied to relief under subsection (f) was abrogated by an amendment to section 6015(f) in 2019 that provides that a taxpayer who hasn’t paid an assessment can file a request for subsection (f) relief at any time while the statute of limitations on collection is still open.  If a collection suit is in process, then the statute of limitations on collection must still be open.

I contacted the taxpayers’ attorney to alert her to the revised statute, but she says that she already brought this information to the attention of the court.  I also suggested to her that the wife immediately file a Form 8857 because, if the wife does so, the district court suit can’t continue against the wife.  IRC 6015(e)(1)(B)(i) prohibits the IRS from levying or commencing or prosecuting a suit for collection of the liability involved in the Form 8857 while the Form 8857 is being considered, including during any subsequent Tax Court suit.  I expect that Form 8857 to be filed very shortly.

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I am not surprised that the district court held that it lacked jurisdiction to consider IRC 6015 relief in a collection suit, since as far as I am aware, all district courts to have considered the issue have held that only the Tax Court can consider IRC 6015 relief.  No appellate court has considered the issue, however, and at least one appellate court noted that the DOJ Appellate Section lawyers conceded that a refund suit could be filed in district court where a taxpayer late-filed a Tax Court IRC 6015(e)(1)(A) stand-alone suit that was dismissed for lack of jurisdiction.  The counter-argument to the district court opinions, to which Nina Olson and various tax procedure professors and former professors agree, is that under former IRC 6013(e) (the innocent spouse statute up to 1998), the courts had considered innocent spouse relief in (1) collection cases in district court, (2) refund cases in district court, (3) deficiency cases in Tax Court, and (4) cases in bankruptcy courts.  In 2000, Congress amended IRC 6015 to make clear that the provision of IRC 6015(e)(1)(A) authorizing a Tax Court stand-alone suit is “[i]n addition to any other remedy provided by law”. 

We did a post in September 2019 on the Hockin district court opinion that held that it had jurisdiction to consider IRC 6015(f) relief in a refund suit.  But, we had also done a post in May 2019 on a contrary district court opinion in Chandler.  The IRS settled Hockin, so the jurisdictional issue never went up to the Ninth Circuit, as we had hoped it would.

And, last year, we noted in a post on the Bowman case that the only two bankruptcy courts to have addressed the issue have ruled that the bankruptcy courts have jurisdiction to consider IRC 6015 relief.

I am not surprised that the DOJ cited the uniform district court rulings holding the district courts to lack jurisdiction to decide IRC 6015 relief in collection cases.  But, what really shocked me about the Weathers case is the following passage from the DOJ’s motion for summary judgment:

Furthermore, as explained above, to qualify for relief under § 6015, a taxpayer must first present an administrative claim to the IRS within two years of the date on which the IRS first began collection activity against the taxpayer claiming innocent spouse relief. 26 U.S.C. § 6015(b)(1)(E), (c)(3)(B) and 26 C.F.R. § 1.6015-5(b) (setting a two-year statute of limitations for 26 U.S.C. § 6015(f)); Lantz v. Comm’r, 607 F.3d 479 (7th Cir. 2010) (upholding the two-year statute of limitations for relief under § 6015(f)); Jones v. Comm’r, 642 F.3d 459, 465 (4th Cir. 2011) (same). The regulations define collection activity as including a Section 6330 notice, which is a statutory notice of intent to levy. 26 C.F.R. § 1.6015-5 (b)(2)(ii). Melissa Weathers received notification of a levy as early as August 12, 2019, more than two years ago. (Statement of Facts “S.O.F.” ¶ 13; Exhibit 107, Final Notice of Intent Levy attached to Beatriz Saiz Declaration (“Saiz Dec.”); see also Exhibits 101-106, certified Forms 4340 attached to Castor Dec. 1). Therefore, not only does this Court lack subject matter jurisdiction of her purported innocent spouse defense, but she is precluded from seeking innocent spouse relief before the IRS.

PT readers of a certain age will remember the huge uproar that the Lantz and Jones opinions generated in Congress and the IRS’ July 2011 capitulation in Notice 2011-70 that it would no longer enforce the 2-year filing deadline contained in the regulation as applied to IRC 6015(f) relief.  In July 2019, Congress also amended IRC 6015(f) to provide a new paragraph (2) conforming to the Notice and reading:

A request for equitable relief under this subsection may be made with respect to any portion of any liability that—

(A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or

(B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.

How could the DOJ attorneys not know that the Lantz and Jones cases and the regulation were all legislatively overruled?  The attorney for the wife in Weathers says she pointed this out in her papers (though I haven’t looked through her papers).  Yet the court, borrowing from the DOJ motion, wrote:

Finally, as to Melissa’s request that these proceedings be stayed to permit her time to file an administrative claim with the IRS, such a stay would be exceedingly inefficient. Moreover, Melissa has yet to pursue the defense before the IRS, and it appears that the time to raise the defense has passed. See C.F.R. § 1.6015-5(b) (noting that to request innocent spouse relief under the provisions of § 6015(b), (c), and (f), “a requesting spouse must first file Form 8857 or other similar statement with the Internal Revenue Service no later than two years from the date of the first collection activity against the requesting spouse . . ., with respect to the joint tax liability”) (emphasis added); Lantz v. C.I.R., 607 F.3d 479, 482-83 (7th Cir. 2010) (rejecting argument that equitable relief under § 6015(f) carries with it a ten-year limitations period, as opposed to a two-year period).

To avoid this misreading, it would certainly have helped if the IRS had finalized its August 12, 2013 proposed regulations under IRC 6015 (REG-132251-11, 78 FR 49242) that mimicked Notice 2011-70 and the later Congressional amendment.  Keith blogged on those proposed regulations here.  The IRS proposed more regulations under IRC 6015 on November 20, 2015 (REG-134219-08, 80 FR 72649), which I blogged about here and here.  I recall that Keith and I submitted comments to at least one set of those proposed regulations (perhaps both).  Considering the tens of thousands of taxpayers who seek IRC 6015 relief each year, I think it a scandal that the Treasury hasn’t yet finalized either of those proposed regulations.  I think it no excuse that the proposed regulations would need to be modified to reflect statutory changes from 2019.  It’s been more than 3 years since those statutory changes, and I don’t think the IRS has proposed any regulations to reflect the 2019 statute.

We will follow developments in the Weathers case.  I have pointed out to the wife’s attorney that in a prior district court case, Dew, where a magistrate originally held that the court lacked IRC 6015 jurisdiction and the taxpayer responded by filing a Form 8857 before the district court considered the magistrate’s holding, the DOJ had to concede that, under the collection suspension filing provision at IRC 6015(e)(1)(B)(i), the case against the taxpayer now could not go forward.  I attach the DOJ filing in Dew, making that concession.

Filed Under: Federal Courts - Jurisdiction, Innocent Spouse

Another Update on Boechler Follow-on Litigation – Part 2

August 3, 2022 by 1 Comment

This is Part 2 of my post-Boechler litigation update.  Part 1, involving deficiency litigation, ran on August 1, 2022, and can be found here. 

Today’s post addresses what is happening in the many CDP cases (including Boechler) that are before the courts where the IRS had argued to the Tax Court that the cases should be dismissed for lack of jurisdiction on account of late filing.  As I noted in my Part 1 introduction, the courts have not yet issued any rulings in CDP cases about whether equitable tolling applies on the facts of any case, and I expect we won’t see the first such ruling until 2023.

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Boechler

The taxpayer in Boechler did not put into the record any information as to why it filed late and so deserved equitable tolling.  In its opinion dated April 21, 2022, the Supreme Court remanded the case to the Eighth Circuit to address whether equitable tolling applied on the facts.  There is a May 23, 2022, entry on the Tax Court docket sheet for Boechler (Docket No. 18578-17L) stating, “U.S.C.A. 8th Circuit mandate is recalled, and case is reopened”.  But there have been no further filings in the case in the Tax Court since that date. 

Since the IRS moved to dismiss Boechler before the IRS filed an answer, the next step in the case will be for the IRS to file an answer in which, if it wants, it will plead late filing as a statute of limitations defense.  Tax Court Rule 39 provides that statute of limitations defenses and equitable arguments are “special matters” that the parties must plead.  If the IRS in its answer raises a statute of limitations defense, the taxpayer will have to respond by filing a reply in which the taxpayer pleads equitable tolling and sets out some facts in support. 

It is far from clear that Boechler will ever generate a ruling on whether the facts therein justify equitable tolling.  Recall that parties at any time can settle non-jurisdictional issues, such as late filing or the merits.  My hunch is that the Boechler case settles on remand after the IRS attorney for the first time looks at the taxpayer’s proof that it filed W-2s with the Social Security Administration.  Boechler merely involves a penalty for alleged non-filing with that agency.

Castillo

On May 11, 2022, Les did a post on a district court opinion in Castillo.  In that case, the IRS mailed out a CDP notice of determination to the taxpayer and a copy to the taxpayer’s former POA, but not to her current POA.  USPS records reflect that the notice was never delivered to the taxpayer (it’s still listed as “in transit”), and if the prior POA received his copy of the notice, he never alerted the taxpayer or the current POA. 

The current POA is Elizabeth Maresca, the director of the tax clinic at Fordham.  She was puzzled why she hadn’t seen the notice of determination that she had been expecting, so she ordered a transcript of account and discovered thereon an entry for the issuance of such a notice many months before.  Within 30 days after seeing the transcript (but still not having yet seen a copy of the notice), Elizabeth filed a Tax Court petition and sought equitable tolling of the filing deadline.  She also brought suit against the government in district court for the IRS’ wrongful disclosure of tax information to the prior POA.  Les’ post concerns that wrongful disclosure suit.

The IRS in the Castillo Tax Court case (Docket No. 18336-19L) initially filed an answer.  After the court brought to the IRS’ attention the probable late filing of the petition, the IRS then filed a motion to dismiss for lack of jurisdiction.  The Tax Court then dismissed the case for lack of jurisdiction, and Ms. Castillo appealed to the Second Circuit (Docket No. 20-1635).  In the Second Circuit, the parties briefed the issue of whether the CDP petition filing deadline is jurisdictional or subject to equitable tolling, but then asked the Second Circuit to hold the case in abeyance pending the Supreme Court’s ruling in Boechler. 

Five days after the Supreme Court issued its Boechler ruling, Ms. Castillo moved the Second Circuit to rule by summary reversal, that her Tax Court petition was timely under equitable tolling and to remand the case to the Tax Court for it to consider the merits of her CDP arguments.  On April 29, 2022, the DOJ responded to the motion and agreed that Boechler applied and that the case should be remanded to the Tax Court, but the DOJ argued that the Tax Court, in the first instance, should decide whether the facts justified equitable tolling.

On August 2, 2022, a 3-judge motions panel of the Second Circuit (with one judge mysteriously recusing himself) issued an order vacating the Tax Court’s dismissal order, denying summary reversal, and remanding the case to the Tax Court “for further proceedings in light of the Supreme Court’s decision in Boechler”.

The Tax Court has long held that non-receipt of a properly-addressed notice of deficiency during the 90-day period to file is no excuse for late filing a Tax Court petition, and all those courts of appeal to have faced the issue have agreed.  See, e.g., Guthrie v. Sawyer, 970 F.2d 733, 737 (10th Cir. 1992); Follum v. Commissioner, 128 F.3d 118, 120 (2d Cir. 1997); United States v. Goldston, 324 F. App’x 835, 837 (11th Cir. 2009) (per curiam) (collecting cases).  In Weber v. Commissioner, 122 T.C. 258 (2004), the Tax Court extended this holding to cover properly-addressed CDP notices of determination not received during the 30-day period to file. 

In her initial Tax Court filings and in the Second Circuit briefing, Ms. Castillo argued that, based on legislative history and the structure of CDP, it was wrong of the Tax Court to extend the deficiency precedent to CDP.  I think that for Ms. Castillo to win on remand, she will also have to get the Tax Court to overrule Weber.  In the Second Circuit, The Center for Taxpayer Rights’ amicus brief was devoted entirely to expanding upon the anti-Weber argument.  While the Second Circuit had once, in an unpublished opinion, followed Weber; Kaplan v. Commissioner, 552 Fed. Appx. 77 (2d Cir. 2014); it did so without discussing whether Congress might have wanted a different rule in CDP cases from the rule in deficiency cases.  And Kaplan was litigated by a pro se taxpayer who never argued that Weber was wrongly decided.  The Weber issue has not yet been addressed in any published opinion of any Circuit court. 

The remand order says nothing about this anti-Weber argument.  I presume that the anti-Weber argument can be considered by the Tax Court under the terms of the Second Circuit’s remand order, but I am not 100% certain, as the order makes no reference to the argument.

In Part 1 of this post, I discussed the Culp case, which is a notice of deficiency case where the taxpayers did not receive the notice during the 90-day period to file.  In their brief to the Third Circuit, the Culps go farther and argue that the deficiency precedent should no longer survive Boechler, since there is precedent outside the tax area that non-receipt or late receipt of governmental “tickets” to court are circumstances beyond the plaintiff’s control that can justify equitable tolling.  See, e.g., Checo v. Shinseki, 748 F.3d 1373 (Fed. Cir. 2014) (en banc) (120-day period to file in the Court of Appeals for Veterans Claims); Kramer v. Commissioner of Soc. Sec., 461 Fed. Appx. 167 (3d Cir. 2012) (60-day period in 42 U.S.C. § 405(g) to challenge denial of Social Security disability benefits in district court).

Amanasu Environment Corp.

 In Amanasu Environment Corp. v Commissioner, Docket No. 5192-20L, on December 13, 2019, the IRS issued a CDP notice of determination to a taxpayer having an address in Vancouver, British Columbia.  Presumably because this was international mail, records of the USPS and Canada Post show that the taxpayer did not receive the notice until January 18, 2020 – several days after the 30-day Tax Court petition filing deadline passed.  On March 13, 2020, the taxpayer mailed a petition to the Tax Court, accompanied by a request for New York City as the place of trial.  On March 17, 2020, the Tax Court received and filed the petition and request.  On September 2, 2020, the IRS surprisingly filed an answer in the case.  (The initial filing of answers in the CDP cases of Castillo and Amanasu and the deficiency case of Gruis — discussed in Part 1 of this post — shows, among other things, how often IRS lawyers miss late filing of petitions.)  On November 19, 2020, the IRS woke up and moved to dismiss the case for lack of jurisdiction for late filing. 

Frank Agostino represents the taxpayer, having picked up the case at a New York City calendar call.  Frank responded to the motion to dismiss by arguing that the CDP filing deadline is not jurisdictional and is subject to equitable tolling and should be tolled in this case.  The Tax Court held the motion in abeyance pending the ruling in Boechler.  On May 18, 2022, Judge Carluzzo issued an order, reading in full:

For the reasons set forth in Boechler, P.C. v. Commissioner, No. 20-1472 (U.S. April 21, 2022), it is

ORDERED that respondent’s motion to dismiss for lack of jurisdiction, filed November 19, 2020 is denied.

It is further ORDERED that jurisdiction in this case is no longer retained by the undersigned.

It is further ORDERED that this case is restored to the general docket for trial or other disposition.

On June 22, 2022, the IRS submitted an unopposed motion for leave to file an amendment to its answer in which it raised the statute of limitations defense.  On July 22, 2022, the Tax Court granted the motion.  Frank will be filing a reply to the amendment to the answer, raising equitable tolling as the taxpayer’s defense to the IRS statute of limitations defense.  Since no one has ever seen what such an amendment to answer pleading a statute of limitations defense on account of a petition’s late filing looks like, I attach a copy of the amendment to answer here, courtesy of Frank.

Myers

The filing deadline under IRC 7623(b)(4) for a Tax Court whistleblower award petition was held not jurisdictional and subject to equitable tolling in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019).  However, as in CDP, to date, the Tax Court has not issued a ruling on whether equitable tolling applies on the facts of Myers or any other such whistleblower award case. 

It is my understanding that the Tax Court held off on making any ruling on equitable tolling in Myers, just in case the Supreme Court ruled for the IRS in Boechler.  Had the Supreme Court ruled for the IRS in Boechler, effectively, that would likely have overruled the Myers opinion, since the two filing deadline statutes are worded so similarly. 

In June 2020, the IRS filed an amended answer raising late filing as a statute of limitations defense, and the taxpayer filed a reply seeking equitable tolling.  In November 2020, the IRS moved for summary judgment that the facts alleged in the reply do not give rise to equitable tolling.  That motion is currently pending before Judge Ashford.

Other Cases

By an order dated September 30, 2021, the Supreme Court agreed to hear Boechler.  Shortly thereafter, the Tax Court stopped dismissing late-filed CDP cases for lack of jurisdiction, pending the Supreme Court’s ruling in Boechler. 

In May and June 2022, after the Supreme Court decided Boechler, the Tax Court issued orders in all of the cases where the motions had been held in abeyance.  There were about 30 such orders, and they all look like the terse order Judge Carluzzo issued in Amanasu (which was one of the 30-or-so cases). 

That there were only about 30 CDP cases with this issue over 7 months confirms that the IRS and DOJ have always vastly overstated to the courts the number of Tax Court cases that would be affected by Boechler annually.  In oral argument at the Supreme Court, the lawyer arguing the case on behalf of the Solicitor General told Justice Thomas that the government estimated that 300 cases a year would be affected by the Boechler ruling.  That figure was obviously wrong because it was an estimate of how many CDP cases are dismissed each year for lack of jurisdiction for any reason, not how many cases are dismissed for lack of jurisdiction for late filing.  Typically, two-thirds of dismissals for lack of jurisdiction are only for failure to pay the filing fee or obtain a fee waiver. 

Keith and I knew that far fewer than 100 CDP cases each year would be affected by Boechler and that the primary effect of the Boechler ruling would be to eliminate the Tax Court’s sua sponte issuing orders to show cause why a CDP case should not be dismissed for lack of jurisdiction for late filing.  Probably a quarter of all dismissals of late-filed CDP and deficiency cases come after the Tax Court has pointed out to the IRS, in an order to show cause, the probable late filing of the petition – a fact which the IRS hadn’t noticed.  After Boechler, such orders to show cause in CDP will be a thing of the past, and so a small but significant number of taxpayers who filed late will stay in the Tax Court, even without having to argue for, or even having facts plausibly justifying, equitable tolling.

In the roughly 30 CDP cases where the IRS moved to dismiss for lack of jurisdiction or the Tax Court issued an order to show cause, the IRS will now have to file answers or amendments to answers if it wants to argue for dismissal for late filing.  Other than Amanasu, I haven’t looked an any of these cases’ docket sheets to see whether the IRS has yet done so.  It is my expectation that the IRS will again complain of late filing in nearly all of these cases.  And it is my further expectation, based on the usual lack of response by taxpayers to motions to dismiss for late filing, that only about 5% of taxpayers will respond with what could be termed an equitable tolling excuse for late filing.  Five percent of 30 is 1.5 cases, and one of those cases is Amanasu.  So, I expect extremely few of the other 30-or-so cases to become litigating vehicles for equitable tolling.  (The number of deficiency equitable tolling cases, if Hallmark goes the taxpayer’s way, will be an order of magnitude higher, though still not back-breaking for the IRS or Tax Court.) 

I think the Tax Court will issue a precedential opinion the first time that it considers whether the facts in any CDP or whistleblower award case qualify for equitable tolling.  A published opinion is needed because it is unclear what law on equitable tolling would apply in the Tax Court.  There appears to be a federal common law of equitable tolling generated outside the tax law that I suspect the Tax Court will adopt.  Among other things, I hope the Tax Court looks to equitable tolling opinions coming out of the Article I Court of Appeals for Veterans Claims and its reviewing court, the Federal Circuit, that have been applied to late-filed petitions in the Veterans Court for decades. 

My guess is that the initial ruling of how the Tax Court will apply the doctrine of equitable tolling will come in Amanasu or Myers, which are furthest along on the newly-required pleading of the issues.  I also guess that the first equitable tolling ruling will come out in 2023.

Filed Under: Equitable tolling, Federal Courts - Jurisdiction, Tax Court

Another Update on Boechler Follow-on Litigation – Part 1

August 1, 2022 by 3 Comments

On June 28, 2022, I did a post summarizing the status of post-Boechler litigation over whether the IRC 6213(a) deficiency petition filing deadline is still jurisdictional and not subject to equitable tolling after Boechler.  There have been a few developments in the two cases discussed in the post, and I wanted to update you and provide links to recent filings.  The short update is that (1) all briefing has been completed in the Hallmark case before Judge Gustafson, and he is presumably already actively working on a Tax Court opinion, and (2) the Culp case in the Third Circuit survived the government’s motion for summary affirmance, and the Culps have filed their opening brief.  The Third Circuit also denied the government’s motion to strike the merits amicus brief of The Center for Taxpayer Rights that had been filed shortly after the government moved for summary affirmance. 

I also wanted to do an initial post on what has been happening after Boechler with CDP cases that present the questions resolved by the Supreme Court.  The short update here is that the courts have not yet issued any rulings in CDP cases about whether equitable tolling applied on the facts of a particular case, and I don’t expect we will see the first such ruling until 2023.  

Because of the length of the update, I am breaking it into two parts.  Part 1 discusses the deficiency litigation.  Part 2 will discuss the CDP litigation.

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Hallmark

In my June 28 post, I wrote that, a few days after Boechler was decided, a taxpayer named Hallmark Research Collective had moved to vacate the Tax Court’s dismissal for lack of jurisdiction of its one-day-late deficiency petition.  Even before the Supreme Court decided Boechler, Hallmark had argued that the deficiency filing deadline is no longer jurisdictional and is subject to equitable tolling.  Hallmark is seeking COVID-related equitable tolling. 

The motion to vacate was assigned to Judge Gustafson, and the Tax Court promptly stopped issuing orders of dismissals for lack of jurisdiction in all other cases where the IRS moved to dismiss a deficiency case for lack of jurisdiction, pending the ruling in Hallmark.  In a post Keith did on Hallmark on May 3, 2022, Keith provided links to the taxpayer’s motion to vacate and its 51-page memorandum of law that accompanied the motion.  In my July 28 post, I provided a link to the IRS’ 18-page response objecting to granting the motion.  On July 15, 2022, the taxpayer filed a 32-page reply to the IRS’ response, which you can find here.

As to why the reply was so long, the main reason is that the taxpayer chose to expand upon its argument that the filing deadline in IRC 6213(a) is not jurisdictional by presenting a more detailed analysis of how the Board of Tax Appeals acquired its deficiency jurisdiction in 1924 and 1926. 

The original Board filing deadline for income tax deficiency petitions was in the second sentence of sec. 274(a) of the Revenue Act of 1924.  The taxpayer argues that the actual jurisdictional grant to the Board to hear deficiency cases was at sec. 900(e) of that act, though neither provision used the word “jurisdiction”.

In the Revenue Act of 1926, sec. 274(a)’s second sentence was amended to prohibit Sundays from being the end of the filing deadline, but Congress did not, when redrafting the sentence, include the word “jurisdiction”.  By contrast, Congress first used the word “jurisdiction” in multiple provision of that act (which made the Board more court-like and provided for Circuit Court direct review of Board rulings).  Congress also enacted in that act the predecessors of IRC 6214(a) and (b) and 6512(b)(2), in each case using the word “jurisdiction”.

Hallmark’s reply also contains several pages of quotes from opinions by Tax Court judges (most currently sitting) calling IRC 6214(a) the source of the Tax Court’s deficiency jurisdiction.  In its response, the IRS had simply ignored the argument that IRC 6214(a) is the source of the Tax Court’s deficiency jurisdiction, not IRC 6213(a).  The IRS argues that IRC 6213(a) is the source of the Tax Court’s deficiency jurisdiction, except in cases where a larger deficiency is sought than is set out in the notice of deficiency, in which case IRC 6214(a) is merely the source of the Tax Court’s jurisdiction for the excess.

Hallmark is now fully briefed.  My expectation is that Judge Gustafson will be drafting an opinion that the Chief Judge will send to the full court for review.  I would love to be proved wrong and see an earlier opinion, but my guess is that the opinion of the full court in Hallmark will not come out before Christmas, even though hundreds of motions to dismiss are probably already currently sitting in limbo pending the opinion and more will be filed in the interim.

Culp

In my June 28 post, I wrote about a pro se appeal of a Tax Court dismissal of a late-filed deficiency case, Culp, that is before the Third Circuit.  The Culps argue that they filed a late Tax Court petition both (1) because before they filed they had never received the original or a copy of the notice of deficiency and (2) because TAS, purporting to help them fight levies, bamboozled them into not going to court.  TAS never told them that a notice of deficiency had been sent.  The Culps seek equitable tolling and a refund of monies taken by (1) levies on their Social Security benefits and (2) an offset of a later-year overpayment against the deficiency.

In my post, I mentioned the DOJ’s motion for summary affirmance.  I also mentioned and provided a link to the merits amicus brief that The Center for Taxpayer Rights filed in the case a few days after the DOJ motion for summary affirmance, but before the Third Circuit had ruled on the motion.  The DOJ had also moved to strike the amicus brief as premature.  On July 6, 2022, a 3-judge motions panel of the Third Circuit denied both DOJ motions, so the case proceeds to regular briefing.

On July 29, 2022, the Culps filed their opening brief for the appellants, which can be found here.  Although the Culps are retired lawyers in their 70s, their specialty was employment discrimination law.  Their pro se brief may disappoint some of us who are tax procedure specialists.

The DOJ’s brief for appellee is due in late August or early September.  (I am not sure the exact date because the Culps filed their brief a few days early, and I don’t know if that impacts the date that the DOJ’s brief is due.)  However, I anticipate that the DOJ will, as usual, ask for and be granted a 21- or 30-day extension to file its brief.

I expect oral argument in Culp will occur in the Third Circuit early next year and an opinion will be issued in the spring.  I expect that the Tax Court’s ruling in Hallmark (1) will precede the Third Circuit’s ruling in Culp and (2) will be brought to the attention of the Third Circuit before it rules.

Other Deficiency Cases

Of course, once an opinion in Hallmark is issued, the Tax Court will likely promptly issue hundreds of similarly-ruling orders in cases in which either the IRS had moved to dismiss a late-filed deficiency petition for lack of jurisdiction or the Tax Court had issued an order to show cause why the deficiency case should not be dismissed for lack of jurisdiction on account of late filing. 

If the Tax Court in Hallmark rules against the taxpayer, those hundreds of orders will be final and immediately appealable to nearly every Circuit Court of Appeals, except the Federal Circuit.  However, I don’t expect many taxpayers to appeal such dismissals.  It would only make sense to appeal such a dismissal if the taxpayer thought he or she had good ground for equitable tolling.  And, I suspect that only about 5% of such dismissals would involve even a plausible argument for equitable tolling. 

Hallmark is appealable to the Ninth Circuit, and I expect that it would be the first case to be appealed.  I would be surprised if more than 5-8 deficiency cases got appealed in 2023 to Circuits other than the Ninth Circuit.  Over time, though, new orders of dismissal in other case would be issued.  If any Circuit disagreed with another Circuit in a post-Boechler ruling, I would anticipate a new Supreme Court opinion to resolve the issue, unless Congress (hopefully) stepped in to resolve the dispute.  I do not look forward to so much future appellate litigation.

If the Tax Court in Hallmark holds that the deficiency filing deadline is no longer jurisdictional and is subject to equitable tolling, the court will deny all of the held-up IRS motions to dismiss and discharge any held-up orders to show cause.  Such rulings allowing the cases to go forward would be interlocutory rulings, not ordinarily subject to immediate review.

IRC 7482(a)(2)(A) states:

When any judge of the Tax Court includes in an interlocutory order a statement that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation, the United States Court of Appeals may, in its discretion, permit an appeal to be taken from such order, if application is made to it within 10 days after the entry of such order.  Neither the application for nor the granting of an appeal under this paragraph shall stay proceedings in the Tax Court, unless a stay is ordered by a judge of the Tax Court or by the United States Court of Appeals which has jurisdiction of the appeal or a judge of that court.

Tax Court Rule 193(a) provides, in part:

For the purpose of seeking the review of any order of the Tax Court which is not otherwise immediately appealable, a party may request the Court to include, or the Court on its own motion may include, a statement in such order that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.  Any such request by a party shall be made by motion which shall set forth with particularity the grounds therefor and note whether there is any objection thereto.  

Perhaps being over-confident that it will win the Hallmark case, the IRS has not yet filed any motion under Rule 193(a).  It is unclear whether a pro-taxpayer ruling in Hallmark will, without such a motion, contain a statement “that a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.”

It is my hope that, if the Tax Court rules that IRC 6213(a)’s deficiency filing deadline is not jurisdictional and is subject to equitable tolling, both the IRS and DOJ would accept that ruling and would argue in support of that ruling in any appellate court that, on its own, decides to consider the issue.  Perhaps my hope is naïve, but one can always hope.

I am aware of only one other late-filed deficiency case in which the taxpayer is already arguing that the IRC 6213(a) filing deadline is not jurisdictional and is subject to equitable tolling, Gruis v. Commissioner, Tax Court Docket No. 11951-22.  I mentioned Gruis in my June 28 post.  On May 27, 2022, a lawyer for an LITC who is aware of the Boechler opinion late-filed the petition, which asked for equitable tolling.  The case involves HOH status and disallowed EITC and CTC.  It will be appealable to the Eighth Circuit – the same Circuit that got the law wrong on CDP in Boechler.  As an update, surprisingly, on July 15, 2022, the IRS filed an answer in the case.  The IRS has not (yet) moved to dismiss for lack of jurisdiction.  I don’t know where this case might be going.  It may get resolved a different way, though, since the taxpayer also argues that the IRS sent the notice of deficiency to an address that was no longer her last known address (hence, she did not receive the notice in time to timely petition).

Filed Under: Collection Due Process, Equitable tolling, Federal Courts - Jurisdiction, Tax Court

Another Tax Provision Found to Not Create a Jurisdictional Time Period for Filing

July 29, 2022 by Leave a Comment

In Clark v. United States, No. 9:21-cv-82056 (S.D. Fla. 2022) a tax attorney, Celia Clark, brought an action for unlawful disclosure under IRC 7431.  The IRS moved to dismiss the case for lack of jurisdiction arguing that she waited too long to bring the suit.  The court denied the motion finding that the time period for filing suit under section 7431 is not a jurisdictional time period.

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The opinion indicates that during the years 2008 to 2016 Ms. Clark’s tax practice involved assisting small businesses establish microcaptive insurance companies.  It states that the IRS started investigating her in 2012 to determine if she was promoting abusive tax shelters.  Following its investigation, it assessed penalties against her for over $11 million.  She brought a complaint against the IRS alleging the investigation was abusive both because of its length and its failure to take “a firm position on the proper tax treatment of captive insurance companies.”

Relative to the issue here, she also alleged that during the investigation the IRS inappropriately provided information about her to her clients and to others in violation of the disclosure provisions.  During the course of the investigation she had complained to the IRS and to the Treasury Inspector for Tax Administration (TIGTA) alleging disclosure violations.

She filed her complaint in November, 2021 and the IRS filed a motion to dismiss for lack of jurisdiction the disclosure portion of the complaint in February, 2022 alleging that the two-year statute of limitations set out in 7431(d) barred the complaint.  Attached to its motion, the IRS provided the court with five letters sent in 2014 from Mr. Clark’s attorneys at Caplin & Drysdale to the IRS and TIGTA.  The letters complained about communications by IRS agents.  The IRS argued that the letters show the discovery of any disclosure violations occurred in 2014 seven years before she brought suit.

As it does in every case, the IRS argued that the time to bring the disclosure suit is a jurisdictional time frame.  The IRS remains uninterested in Supreme Court opinions regarding jurisdiction.  Ms. Clark cited an opinion from the district court in DC, Bancroft Global Dev. v. United States, 330 F. Supp. 3d 82 (D.D.C. 2018) which analyzed 7431(d) and determined it did not create a jurisdictional time period.  The court states that “The Government did not respond or further address this point in Reply.”  The court in Clark analyzed the Bancroft decision and agreed with it. 

In Bancroft, the district court noted the change in Supreme Court case law since Kontrick v. Ryan, 540 U.S. 443 (2004), and that the Supreme Court now holds that a filing deadline is not jurisdictional unless Congress makes a “clear statement” that it wants the filing deadline to be jurisdictional.  Bancroft applied that case law and found no clear statement from Congress that the deadline in IRC 7431(d) should be jurisdictional, noting, among other things, that the jurisdictional grant for these suits in district court is in IRC 7431(a) and is separate from the filing deadline in IRC 7431(d).  The Bancroft court quoted from Gonzalez v. Thaler, 565 U.S. 134, 146-148 (2012) (comparing the wording of close subparagraphs of a habeous corpus statute), that “[m]ere proximity will not turn a rule that speaks in nonjurisdictional terms into a jurisdictional hurdle”. 

The Bancroft court noted that by 2018, only two Circuits had directly addressed this issue under IRC 7431(d).  In Gandy v. United States, 234 F.3d 281, 283 (5th Cir. 2000) (i.e., decided before Kontrick), the Fifth Circuit held that the filing deadline is jurisdictional.  In Aloe Vera of America, Inc. v. United States (9th Cir. 2009), the Ninth Circuit — much influenced by language in a recent Supreme Court opinion in John R. Sand & Gravel, Inc. v. United States, 552 U.S. 130 (2008) (finding the filing deadline at 28 U.S.C. 2501 jurisdictional) — held the IRC 7431(d) filing deadline jurisdictional.  The Bancroft court noted that more recent Supreme Court opinions make clear that John R. Sand’s holding was based really on an exception to the new jurisdictional rules in the case of a long line of prior Supreme Court cases holding the filing deadline jurisdictional.  But, the Bancroft court stated that, since the Supreme Court has never addressed IRC 7431(d), the John R. Sand case exception does not apply.  The Bancroft court cited several post-2009 Supreme Court opinions making clear how the new jurisdictional rules apply.  Oddly, though, the Bancroft court did not cite a very analogous opinion from its supervising Circuit, the D.C. Circuit, in Keohane v. United States, 669 F.3d 325, 330 (D.C. Cir. 2012), holding the filing deadline in IRC 7433(d) (a provision almost identically-phrased to IRC 7431(d)) not jurisdictional under current Supreme Court case law.

Based on that decision, it refused to dismiss the case based on the Federal Rule of Civil Procedure (FRCP) 12(b)(1) motion submitted by the IRS.

That did not end the inquiry because the court then shifted to an analysis of whether it should dismiss the case under FRCP 12(b)(6).  This rule requires a complaint to provide “a short and plain statement of the claim showing that the pleader is entitled to relief.”  To avoid dismissal under this rule the complaint must state a claim for relief plausible on its face meaning that the complaint will allow the court to draw an inference that the defendant committed an act that could give rise to relief.

The court decided that it could not base a dismissal of the case on the attached letters at this stage of the proceeding.  While Ms. Clark did not challenge the authenticity of the letters the court found that a significant dispute remains regarding the centrality of the letter to her disclosure complaint.  In other words, it’s possible that the IRS made wrongful disclosures after these letters and within the statutory time period for bring suit.  The court’s decision does not mean Ms. Clark will win the case or even that the IRS committed a disclosure violation at any time.  It simply allows the case to proceed so that she can show a disclosure violation occurred and that it did so in the appropriate time frame relative to the bringing of the suit.

Filed Under: Federal Courts - Jurisdiction

Update on Litigation Over Whether the Deficiency Petition Filing Deadline is Still Jurisdictional

June 28, 2022 by 1 Comment

We welcome back Carl Smith who keeps us updated on the progress of the jurisdiction motions now in litigation regarding deficiency proceedings in the Tax Court. Some might view the IRS response in Hallmark as one that places the Golsen rule regarding circuit court decisions above a Supreme Court decision but we have a link to the IRS response and you can decide for yourself. Keith

On May 3, 2022, and May 17, 2022, we did a couple of posts on the post-Boechler litigation over whether the deficiency petition filing deadline under IRC 6213(a) is still jurisdictional and not subject to equitable tolling.  In Hallmark Research Collective v. Commissioner, Tax Court Docker No. 21284-21, the taxpayer timely moved to vacate an April 1, 2022, order dismissing the case for lack of jurisdiction on account of late filing.  A link to the taxpayer’s memorandum of law in support of that motion was attached to the May 3, 2022, post.  This post is both to provide you with a link to the IRS’ June 22, 2022, response, and to give a little update on where Hallmark and other test cases stand as well as the Tax Court’s actions in similar cases.

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I have few comments on the IRS Hallmark response, since you can read it for yourself.  It is only 18 pages in length and does not address in detail many of the points raised in the taxpayer’s 50-page memorandum of law.  The main thing to note is that there had been speculation (based on comments by the IRS at the May ABA Tax Section meeting) that the IRS was rethinking its position on various non-CDP Tax Court filing deadlines.  Whatever the IRS may be thinking as to other filing deadlines, its reconsideration of the deficiency filing deadline has led it to reaffirm the Tax Court’s long-standing position that the deficiency filing deadline is still jurisdictional after Boechler.

There are two more things in the IRS response to note:

Frist, in the taxpayer’s memorandum in Hallmark, the taxpayer argued that the source of the Tax Court’s deficiency jurisdiction is IRC 6214(a), not IRC 6213(a).  That is a respectable position because a number of current Tax Court judges have said as much in opinions.  The IRS response ignores the mention of IRC 6214(a) and talks only about whether IRC 6213(a), which the IRS believes contains the jurisdictional grant, also contains a jurisdictional filing deadline.

Second, the IRS raises new arguments about how IRC 6213(c) and 6215 are incompatible with a ruling that the deficiency filing deadline is not jurisdictional.  I don’t agree, but you can read the IRS argument for yourself.

Judge Gustafson has directed the taxpayer to file a reply to the IRS response by July 22, 2022.  We will provide a link to the reply after it is filed.

In my May 17, 2022, post, I noted that, since May 6, 2022, the Tax Court had stopped issuing dismissal orders in response to either (1) IRS motions to dismiss late-filed deficiency petitions for lack of jurisdiction or (2) Tax Court orders to show cause why a late-filed deficiency petition should not be dismissed for lack of jurisdiction.  On average, before the Hallmark motion was filed, the Tax Court had dismissed 2 to 3 deficiency petitions a day for lack of jurisdiction for late filing.  This halt on dismissals has continued, except for one case (probably an accident) in Saltmarsh v. Commissioner, Tax Court Docket No. 5779-21, where, on June 14, 2022, Judge Urda dismissed a late-filed deficiency case for lack of jurisdiction.

In my May 17, 2022, post, it was only my speculation that this halt was due to the pendency of the Hallmark motion.  But, now my speculation has some concrete support. On May 12, 2022, the IRS filed a motion to dismiss a late-filed deficiency case for lack of jurisdiction in Spears v. Commissioner, Tax Court Docket No. 6232-21.  On May 18, 2022, Judge Copeland issued an order in Spears striking the case from a trial calendar and wrote: “Before taking further action in this case, we will await the ruling of this Court on the Hallmark motion to vacate.”

If the Tax Court ultimately agrees with Hallmark that the filing deadline is not jurisdictional, then one consequence (probably affecting the largest number of taxpayers) is that the Tax Court will have to stop issuing orders to show cause why a late-filed deficiency case should not be dismissed for lack of jurisdiction.  The court will then have no business issuing an order pointing out to one party a non-jurisdictional defense that the party (here, the IRS) had not thought to make.  An odd thing is that it appears that a minority of Tax Court judges are continuing to issue orders to show cause why late-filed deficiency cases should not be dismissed for lack of jurisdiction – though the number of orders to show cause has fallen off by well over 50%.  Here are two examples of cases in which the Tax Court recently issued such orders to show cause:  Madrid v. Commissioner, Tax Court Docket No. 3731-21 (order of Judge Morrison dated June 3, 2022); Murtaza v. Commissioner, Tax Court Docket No. 23342-21S (order of Judge Landy dated June 15, 2022).  I think the issuance of such orders while the Hallmark motion is pending does a disservice to taxpayers if Hallmark ends up ruling that the filing deadline is not jurisdictional.  In effect, such orders alert the IRS to a possible late filing, which the IRS can later raise as a defense in an amendment to its answer.

Other than Hallmark, there is one case where other taxpayers are currently litigating the issue of whether the deficiency petition filing deadline is jurisdictional post-Boechler.  As noted in my May 17, 2022, post, in Culp v. Commissioner, Third Circuit Docket No. 22-1789, the IRS sent a notice of deficiency to the taxpayers, but the taxpayers say they never received the notice of deficiency or a later notice of intention to levy, but only became aware of a notice of deficiency’s possible issuance when the IRS started levying.  The Culps had contacted TAS about the mysterious levies, but before TAS had done anything, the IRS satisfied the balance of the deficiency by offset of an overpayment from a later tax year.  This put the Culps in a refund posture.  TAS did not get them a refund, so the Culps belatedly filed a Tax Court deficiency petition seeking a refund under the court’s IRC 6512(b) overpayment jurisdiction.  The Culps also argued that the IRS had never sent a notice of deficiency to their last known address.  In response, the IRS produced a copy of the notice and proof of mailing to their last known address.  The Tax Court found the proof of mailing sufficient and dismissed the petition for lack of jurisdiction for late filing.  On appeal, the Culps argue (1) that no notice of deficiency was sent (which, if true, will actually hurt them because the Tax Court will then lose any overpayment jurisdiction) and (2) if the notice was sent, then the Tax Court has deficiency and overpayment jurisdiction because the filing deadline should be equitably tolled.

In my May 17, 2022, post, I noted that the Tax Clinic of the Legal Services Center of Harvard Law School, acting on behalf of The Center for Taxpayer Rights, planned to file an amicus brief in the Culp case in support of the argument that, since Boechler, the deficiency petition filing deadline is not jurisdictional and is subject to equitable tolling.  After showing the DOJ lawyers in Culp a copy of a nearly-6,500-word amicus brief and getting the DOJ’s and the Culps’ consent to file it, the Center filed the amicus brief.  The DOJ then moved to strike the brief.  Why?  A few days before the amicus brief was filed, the DOJ had moved for summary affirmance in the appeal, arguing that there was no significant legal issue for an appeal.  The DOJ motion for summary affirmance did not mention Boechler, but merely cited an existing Third Circuit opinion holding that the filing deadline in the Tax Court is jurisdictional.  The DOJ objects to the filing of the amicus brief both before the Third Circuit has ruled on the motion for summary affirmance and before the Culps file their opening brief for appellant.  The DOJ also argues that an amicus brief at the current stage of the case should be no more than 2,600 words.

The Center for Taxpayer Rights believes that it has done nothing wrong in filing a brief of almost 6,500 words at this stage of the case.  Comments to the rules say that the briefing schedule is not suspended when a motion for summary affirmance is filed.  The Center’s response to DOJ’s motion to strike its amicus brief also noted that the brief does not specifically address the motion for summary affirmance. A link to the affidavit mentioned in the response can be found here.

The Culps have filed a response to the motion for summary affirmance. The DOJ has filed a reply to the Culps’ response. In it, the DOJ criticizes several of the Culps’ arguments, including alleging that the Culps are making new arguments not presented below. But, crucially, the DOJ also argues (at pp. 10-12) that “neither Boechler nor the doctrine of equitable tolling affects the outcome here”. The DOJ says that Boechler is limited to CDP cases, and there is long-standing Circuit court precedent (including in the Third Circuit) that the IRC 6213(a) filing deadline is jurisdictional. In addition, the DOJ argues that, even if equitable tolling were allowed, the Culps only argue for equitable tolling because of IRS misconduct in 2019, long after the filing deadline in mid-2018 had passed. The DOJ says there is no excuse for the Culps to have waited until 2021 to file a Tax Court petition. (Note: The Culps should also have argued that non-receipt of the notice of deficiency in 2018 was sufficient for equitable tolling purposes, since the Culps never received even a copy of the notice of deficiency until after they filed the Tax Court petition. We recognize that other Tax Court and some appellate precedent would also have to be overruled to make this argument that in the case of mere non-receipt of a notice of deficiency, a late petition may be filed under equitable tolling.)

The Third Circuit has referred both motions to a motions panel for ruling, and it has only now suspended the filing schedule for merits briefs.  We will keep you posted on whether the case survives the motion for summary affirmance.  If summary affirmance is denied, at worst, if the motion to strike the amicus brief at this time is granted, a similar amicus brief will be filed after the Culps file their first merits brief.

Finally, there is at least one new Tax Court deficiency case, filed on May 31, 2022, where the taxpayer filed late and is seeking equitable tolling, Gruis v. Commissioner, Tax Court Docket No. 11951-22.  The petition was filed by a lawyer for an LITC, who is aware of the Boechler case.  The case involves HOH status and disallowed EITC and CTC.  It will be appealable to the Eighth Circuit – the same Circuit that got the law wrong on CDP in Boechler.

Filed Under: Federal Courts - Jurisdiction, Tax Court

The Ongoing Effort to Properly Situate the Tax Court

May 24, 2022 by 4 Comments

What is the Tax Court?  Does it reside in the judicial branch?  Might it qualify as an executive agency?  Isn’t this issue resolved?

The issue of the proper locus of the Tax Court has rattled around for a few decades now.  The most recent case making a serious effort to resolve the issue was Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), where the D.C. Circuit had held that the President’s power to remove Tax Court judges at section 7443(f) did not violate the separation of powers.  Carl wrote a post when the Supreme Court declined cert.  Bryan Camp wrote a post reacting to the initial legislation proposed after the decision in Kuretski.  As Bryan pointed out the D.C. Circuit decided in Kuretski that the Tax Court “had to be “located” within the Executive branch.”  Almost three decades ago, the Supreme Court in Freytag held that the Tax Court performs a judicial function.

While the uncertainty of the nature of the Tax Court within our constitutional system of three branches of government may leave academics uncomfortable, for most people life goes on and the Tax Court continues to adjudicate tax disputes between taxpayers and the IRS.  It seemed the debate over the status of the Tax Court, which you can read about in more detail in the posts linked here, had fizzled; however, embers from the debate still glow.

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Kuretski was a Collection Due Process case where Frank Agostino was pro bono counsel.  Kuretski is one of many interesting cases Frank has picked up at a New York calendar call over the years.  Eventually, Tuan Samahon, my then colleague at Villanova Law School and constitutional law scholar, and Carl Smith entered appearances in the Tax Court case and argued that the President’s removal power over Tax Court judges at section 7433(f) violates the separation of powers and so should be stricken. 

Even though the Kuretskis lived in Staten Island, an appeal of the Tax Court’s adverse decision on separation of powers issue was taken to the D.C. Circuit.  At the time, section 7482(b)(1) provided no specific venue rule for CDP cases.  This allowed an appeal in Kuretski to the D.C. Circuit under the default language at the end of that paragraph.  Ultimately, the D.C. Circuit held that there was no interbranch removal power problem because the Tax Court (supposedly per Freytag) is an Executive Agency.  As an executive agency, the President should have the constitutional power to remove Tax Court judges.  While that decision satisfied constitutional muster in preserving the Presidential removal power of IRC 7433(f), the Tax Court judges may not have appreciated finding that they were an executive agency rather than a court.  The Supreme Court in Freytag gave them a more comfortable landing place (but for the issue of separation of powers).

Two legislative developments happened as a result of Kuretski:  First, Congress amended section 7441 (effective Dec. 18, 2015) to add the following sentence to section 7441:  “The Tax Court is not an agency of, and shall be independent of the executive branch of the Government.”  Second, Congress amended section 7482(b)(1) to add a new subparagraph (G) that directed appeals in all CDP cases to the Circuit of residence.  This new venue rule applied to all Tax Court CDP petitions filed after Dec. 31, 2017.  So, even though the statutory challenge in Kuretski may have seemed like one that only academics would follow, it had real consequences.

It seemed that the legislation and the Kuretski decision may have provided the end of the story, but it has not.  Enter Florida attorney Joe DiRuzzo who had a number of Tax Court cases in which he wished to get rulings to overturn Kuretski. 

He moved to recuse the judges in all Tax Court cases because of the constitutional issue.  In Battat v. Commissioner, 148 T.C. 32  (one of Joe’s cases), the Tax Court issued an opinion holding that, despite the amendment to section 7441, there was no constitutional problem in the removal power.  The case goes into the history of the Tax Court and the factors necessary for removal of a Tax Court judge from a case.  For that reason alone, the decision provides an interesting read.  You can find our prior posts on Battat here.

However, in Battat, the Tax Court also held that it was not an executive agency — disagreeing with the D.C. Circuit in Kuretski.  The Tax Court refused to state in which branch of government it lay.  The removal argument actually does not depend on whether the Tax Court is in any particular branch, since, in Freytag, the Supreme Court held that the Tax Court exercises a portion of the judicial power.  The real problem is interpower removal, not interbranch removal.

Joe tried to appeal the holding of Battat to an appellate court, but the appellate court wouldn’t hear the case yet because the appeal was interlocutory.  No final decision had been entered by the Tax Court in the case.  Joe got similar rulings from the Tax Court in unpublished orders in several other cases of his, which he also tried to appeal to other Circuits.  However, every Circuit refused to hear the issue on an interlocutory basis.  One of the cases in which Joe tried an appeal was Crim (Tax Court docket no. 1638-15).  This Crim case was a CDP case that the Tax Court had actually dismissed for lack of jurisdiction — a final ruling.  Joe appealed this Crim ruling to the 9th Cir. It affirmed that the Tax Court lacked jurisdiction, so it declined to rule on the recusal issue.  See this ruling in Crim here.

There was a second Crim Tax Court CDP case in which Joe had also made a recusal motion.  The case was filed in the Tax Court in 2017 (Docket No. 16574-17L).  So, Joe could appeal it to D.C., which he did.  On April 21, 2022, in the D.C. Cir. Joe filed his opening brief and the joint appendix (copies attached here and here).  Joe is making the removal power argument, asking for the D.C. Circuit to overrule its Kuretski holding.

Maybe no one cares or maybe this will lead to more interesting discussions about the Tax Court or other matters.  As Carl mentioned in his post about the many people who made a difference leading up to the Boechler decision, it was Joe who took on the appeal of the Myers whistleblower case pro bono which created the conflict that was instrumental in persuading the Supreme Court to accept the Boechler case.  Who knows where Joe’s appeal of Crim may lead?

Filed Under: Appeals, Federal Courts - Jurisdiction
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