Travel Restrictions of a Non-COVID Different Kind

As we, hopefully, get nearer to a time when we can travel again, the IRS has announced resumption of referral of cases to the State Department to revoke the passports of seriously delinquent taxpayers.  The announcement comes on a page with many items of information regarding IRS operations during COVID, and you must scroll down to the Enforcement and Compliance Operations section to find the passport announcement.

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The opening paragraph of the announcement states:

The IRS is resuming programming for notifying the State Department of taxpayers certified as owing seriously delinquent tax debt following the temporary suspension of certain collection activities with the March 25, 2020, People First Initiative announcement in response to COVID-19. Beginning the week of March 14, affected taxpayers will receive notices and are encouraged to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy. 

So, during the past year when you could not travel anyway, the IRS suspended its referral to the State Department of taxpayers with seriously delinquent debt but now that travel might soon be possible again, individuals with this problem have a non-COVID reason for staying home.

Taxpayers impacted by the resumption of referral to the State Department can look for a notice in the mail alerting them to the referral or maybe not based on a recent Tax Court decision regarding notice and the passport revocation statute.

The ability of the IRS to refer a taxpayer for passport revocation derives from IRC Section 7345.  This provisions contains a paragraph governing notice to the individual of the revocation referral:

(d) Contemporaneous notice to individual

The Commissioner shall contemporaneously notify an individual of any certification under subsection (a), or any reversal of certification under subsection (c), with respect to such individual. Such notice shall include a description in simple and nontechnical terms of the right to bring a civil action under subsection (e).

This paragraph does not address the form of the IRS notice, or the manner in which the IRS must deliver the notice, or whether the IRS must address the notice to the taxpayer’s last known address.  In a recent case brought to my attention by Carl Smith, a district court addressed the consequences of sending the notice of passport revocation to an address where the taxpayer had never lived and found that sending the notice to the wrong place had no consequences to the IRS.  (Remember that challenging the revocation of a passport revocation, though limited in scope, may occur in district court or Tax Court.)

Carl also pointed me to the case of Jackson v. Modly, 949 F.3d 763 (D.C. Cir. 2020) which alerted me that under recent precedent in the D.C. Circuit, the taxpayer has an argument for equitable tolling of the 6-year statute of limitations (28 USC 2401(a)) if his 7345 action had been untimely. Since we last wrote about 2401(a)’s application to 7345 (here and here) in 2018, not only the D.C. Circuit but the Second, Sixth and Tenth Circuits have found the 2401(a) statute of limitations to be non-jurisdictional, thus opening up the possibility of equitable tolling for litigants.   

If you are interested in the D.C. Circuit’s reasoning, read this lengthy quote, if the detailed reasoning does not matter to you skip the quote but remember the take away that the Supreme Court precedent is beating a drum to make time periods for filing in court something other than jurisdictional:  

The parties do not dispute that Jackson’s APA claim is time-barred by the six-year statute of limitations in 28 U.S.C. § 2401(a) for all civil actions commenced against the United States. Instead, [***25]  they dispute whether § 2401(a)‘s statute of limitations is a jurisdictional bar—thereby divesting the court of jurisdiction as well as its ability to consider an equitable tolling argument—or whether it is non-jurisdictional. 

The long-held rule in our circuit has been “that section 2401(a) creates ‘a jurisdictional condition attached to the government’s waiver of sovereign immunity.'” P & V Enters. v. U.S. Army Corps of Eng’rs, 516 F.3d 1021, 1026, 380 U.S. App. D.C. 96 (D.C. Cir. 2008) (quoting Spannaus v. U.S. Dep’t of Justice, 824 F.2d 52, 55, 262 U.S. App. D.C. 325 (D.C. Cir. 1987)). Recently, however, especially after the Supreme Court’s decision in Kwai Fun Wong, which held the two-year statute of limitations in § 2401(b) to be nonjurisdictional, 575 U.S. at 407, the soundness of our precedent has been called into doubt. See, e.g., Jafarzadeh v. Nielsen, 321 F. Supp. 3d 19, 37 n.7 (D.D.C. 2018) (“Given the Supreme Court’s clear strictures on this issue, which have undermined the foundations of Spannaus and similar cases, the D.C. Circuit ought to reconsider its § 2401(a) precedents.”). Since Kwai Fun Wong, the Sixth and Tenth Circuits have held that, based on the Supreme Court’s opinion in that case, § 2401(a) is not jurisdictional. Chance v. Zinke, 898 F.3d 1025, 1033 (10th Cir. 2018); Herr v. U.S. Forest Serv., 803 F.3d 809, 817-18 (6th Cir. 2015). Although we have previously “questioned the continuing viability” of our rule without addressing the issue directly, see Mendoza v. Perez, 754 F.3d 1002, 1018 n.11, 410 U.S. App. D.C. 210 (D.C. Cir. 2014) (citing P & V Enters., 516 F.3d at 1027 & n.2; Felter v. Kempthorne, 473 F.3d 1255, 1260, 374 U.S. App. D.C. 272 (D.C. Cir. 2007); Harris v. F.A.A., 353 F.3d 1006, 1013 n.7, 359 U.S. App. D.C. 281 (D.C. Cir. 2004)), we now do so. Accordingly, we hold today that HN5 the Supreme Court’s decision in Kwai Fun Wong overrules our precedent treating [***26]  § 2401(a)‘s statute of limitations as jurisdictional.  

 “In recent years,” the Supreme Court has “repeatedly held that procedural rules, including time bars, cabin a court’s power” to hear a case—i.e., subject matter jurisdiction—”only if Congress has ‘clearly state[d]’ as much.” Kwai Fun Wong, 575 U.S. at 409 (alteration in original) (quoting Sebelius v. Auburn Reg’l Med. Cent., 568 U.S. 145, 153, 133 S. Ct. 817, 184 L. Ed. 2d 627 (2013)). Applying this “clear statement rule,” the Court has “made plain that most time bars are nonjurisdictional.” Id. at 410. In Kwai Fun Wong, the Supreme Court explained 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.” 575 U.S. at 410. Based on that rule, the Court held that the FTCA’s statute of limitations in § 2401(b) was “not a jurisdictional requirement.” Id. at 412

Applying the Court’s ruling in Kwai Fun Wong to § 2401(a), we reach the same conclusion. First, our precedent treating § 2401(a) as a jurisdictional bar was grounded in the belief that the provision is “attached to the government’s waiver of sovereign immunity, and as such must be strictly construed.” Spannaus, 824 F.2d at 55. In Kwai Fun Wong, the Court flatly rejected this reasoning. 575 U.S. at 420 (“[I]t makes [***27]  no difference that a time bar conditions a waiver of sovereign immunity, even if the Congress enacted the measure when different interpretive conventions applied . . . .”). Second, like § 2401(b), § 2401(a) “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts”; rather, it “‘reads like an ordinary, run-of-the-mill statute of limitations,’ spelling out a litigant’s filing obligations without restricting a court’s authority.” Id. at 411 (first quoting Arbaugh, 546 U.S. at 515; then quoting Holland v. Florida, 560 U.S. 631, 647, 130 S. Ct. 2549, 177 L. Ed. 2d 130 (2010)); see 28 U.S.C. § 2401(a) (“[E]very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.”). Also like § 2401(b), § 2401(a)‘s filing deadline appears in a section separate from the general jurisdictional grant of civil actions against the federal government, see 28 U.S.C. § 1346; Herr, 803 F.3d at 817, which the Supreme Court found to be an indication “that the time bar is not jurisdictional.” Kwai Fun Wong, 575 U.S. at 411

Third, we conclude that § 2401(a)‘s origins in the Tucker Act do not make it otherwise jurisdictional. We find the in-depth analyses and reasoning of the Sixth and Tenth Circuits on this point—differentiating between the separate provisions of the Big Tucker Act and the [***28]  Little Tucker Act—particularly cogent and persuasive. See Herr, 803 F.3d at 815-17; Chance, 898 F.3d at 1031-33. As those courts explained, although the Supreme Court has affirmed the jurisdictional nature of the Big Tucker Act’s statute of limitations, see 28 U.S.C. § 2501, its affirmance was grounded solely in the doctrine of stare decisis; further, the Congress altered the Little Tucker Act’s statute of limitations—the provision from which § 2401(a) is derived—by separating it from the jurisdictional grant and expanding its reach. See Chance, 898 F.3d at 1032-33; Herr, 803 F.3d at 816-17. As the Sixth Circuit explains, this alteration “demonstrates that § 2401(a) was designed  [*778]   [**211]  to serve as a standard, mine-run statute of limitations without jurisdictional qualities. That leaves us with a statute (§ 2401(a)) that does not clearly impose a jurisdictional limit.” Herr, 803 F.3d at 817

Accordingly, we hold that § 2401(a)‘s time bar is nonjurisdictional and subject to equitable tolling. Our decisions to the contrary, see, e.g., Spannaus, 824 F.2d at 55, are thus overruled.

Because Jackson v. Modly was decided by the D.C. Circuit and because the appeal of all passport cases goes to the D.C. Circuit, there are now two Tax Court filing deadlines that are not jurisdictional.  The Myers case holds that time frame for filing a whistleblower case in Tax Court pursuant to IRC 7623(b)(4) is not jurisdictional and the Jackson case provides the same result in passport cases through IRC 7345’s 6-year filing period of 28 USC 2401(a).

The recent case of McNeil v. United States (D.D.C. 2021) started out as FOIA litigation, because the taxpayer did not receive notice of the revocation.  Through the FOIA case, Mr. McNeil learned that the IRS had sent a passport revocation request to the State Department for his outstanding liability.  He argued unsuccessfully that the revocation should be undone because of the lack of notice.  Here’s what the district court said:

In his opposition, McNeil gives two reasons why he is entitled to the limited relief he still seeks. First, he argues that he was never notified that the IRS had certified to State that he had a seriously delinquent tax debt. Opp’n at 2. McNeil attached to his amended complaint copies of two different IRS Notices that should have informed him of the IRS’s certification of his debt. Am. Compl., Ex. A at 4-9, 12-17. He obtained these through the FOIA request he submitted to the IRS, but he claims he never received copies from the IRS when he should have because the IRS sent them to a Tucson, Arizona address where he has never lived. Am. Compl. at 11-12; Opp’n at 2. The Court takes this fact as true for purposes of this motion. See Iqbal, 556 U.S. at 678.

Even if McNeil is able to prove that he never received these Notices, though, it would not mean that the IRS’s certification was erroneous. As the Government observes, § 7345 does not say that a flawed or failed notice renders a certification erroneous. Reply at 3-4. Subsections (a) and (b) describe when the Secretary of the Treasury must transmit certification to the Secretary of State and identify which debts qualify as “seriously delinquent tax debt.” 26 U.S.C. § 7345(a)(b). Neither subsection says that proper notice is an element of or a prerequisite to a proper certification by the IRS of a seriously delinquent tax debt. In fact, subsection (d) says that notice to the taxpayer should be “contemporaneous [ ]” with certification to State, so it logically cannot be a prerequisite to that certification. 26 U.S.C. § 7345(d). Further, because subsection (e) includes no statute of limitations, there is no reason why improper notice under subsection (d) would prejudice a taxpayer who, like McNeil, does not learn about the certification of his debt in a sufficiently timely manner. See id. § 7345(e). The text of the statute suggests that the purpose of the notice requirement is to inform the debtor “in simple and nontechnical terms of the right to bring a civil action under subsection (e).” Id. Therefore, McNeil’s argument concerning the notice requirement fails because even if notice was not effected here, it would not mean that the IRS’s certification of his debt to the State Department was erroneous.

The scope of the fight over passport revocation in Tax Court or district court is severely limited by the statute.  We have discussed this in earlier posts on passport revocation here (collecting cites to prior posts.)  Of course, no need to worry about the limited scope of the review if you don’t even receive the notice letting you know of the referral to the State Department.

I know of no proposals to amend 7345 and do not believe that seriously delinquent taxpayers have a large lobbying organization representing them before Congress, but it might be a good idea to tighten up the notice provisions should Congress make any corrections to this statute.  With passports and whistleblowers (see this recent post re whistleblower jurisdiction), Congress has been lax in the way it describes the responsibility of the IRS regarding notification and the precise item that provides the ticket to Tax Court.

In his previous post on passport forum shopping Carl gave the advice that taxpayers seeking passport relief should find the circuit with the favorable jurisdictional view of 2401(a).  Now that the DC Circuit has adopted the favorable jurisdictional view of 2401(a), the safest advice is to go to Tax Court since you know what the outcome will be under application of the Golsen rule and you don’t have to guess what your circuit might do if it has not yet faced this issue.

Review of 2019 (Part 4)

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

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Qualified offers

In BASR Partnership et al. v. United States, a tax matters partners submitted a nominal $1 qualified offer to the IRS, prevailed at summary judgment, and then successfully moved for award of litigation costs under IRC 7430. Upon appeal to the Federal Circuit, the government argued against the award, asserting, among other things, that the award was abuse of discretion because the nominal offer was not a good faith attempt at settlement. Despite the partnership context, the case has implications for low-income taxpayers, who often utilize nominal qualified offers in frozen refund litigation. If the court accepted the government’s argument, it might cost doubt on the validity of nominal qualified offers and lead to further government arguments in the low-income taxpayer context. However, the court ruled for the taxpayer, holding that the nominal qualified offer was reasonable and the award was not an abuse of discretion.  The tax clinics at Georgia State and at the Legal Services Center of Harvard Law School filed an amicus brief in this case on behalf of BASR.

See Ted Afield, Nominal Qualified Offers and TEFRA, Procedurally Taxing (Feb. 25, 2019), https://procedurallytaxing.com/nominal-qualified-offers-and-tefra/

TBOR

Another important issue is the use of the Taxpayer Bill of Rights in litigation. In Moya v. Commissioner, the Tax Court rejected the taxpayer’s TBOR-based argument in a deficiency case, looking to the history of the TBOR to find that it “accords taxpayers no rights they did not already possess”. The Tax Court may soon face such arguments outside the deficiency context and could rule differently. While thus far, the TBOR has not proven a strong support for taxpayers’ arguments, it will hopefully spur new, more taxpayer-protective changes to regulations and subregulatory guidance.

Keith Fogg, NEO – A Series of Reflections, Procedurally Taxing (July 8, 2019), https://procedurallytaxing.com/neo-a-series-of-reflections/

Keith Fogg, TBOR Provides no Relief in Tax Court Deficiency Proceeding, Procedurally Taxing (May 13, 2019), https://procedurallytaxing.com/tbor-provides-no-relief-in-tax-court-deficiency-proceeding/

Miscellaneous

Litigation of merits in bankruptcy

In Bush v. United States, the 7th Circuit addressed whether a bankruptcy court has jurisdiction to determine a debtors’ tax liability. The 7th Circuit found in the affirmative, determining that the bankruptcy court did have jurisdiction, but found that the court had no reason do so over the Tax Court, where the appellants had originally litigated the separate question of the tax liability. The 7th Circuit’s decision favors taxpayers who may have already lost (or never had in the first place) their statutory right to go to Tax Court, by providing another legal avenue for a redetermination of tax liability.

See Keith Fogg, New Circuit Precedent on Issue of Litigating Tax Merits in Bankruptcy, Procedurally Taxing (Oct. 18, 2019), https://procedurallytaxing.com/new-circuit-precedent-on-issue-of-litigating-tax-merits-in-bankruptcy/

Late e-filed returns and reliance

Generally, taxpayers cannot avoid assessment of a late-filing penalty due to reliance upon a third-party preparer, per the 1985 case United States v. Boyle. Courts have recently begun to address whether this applies to e-filing of tax returns. In Intress v. United States, the taxpayers made the argument that a late filing penalty was inappropriate, because the late filing was due to their tax preparer failing to hit ‘send’ when filing through e-file software. However, the district court was unconvinced, applying Boyle to the e-filing context and rejecting taxpayers’ attempt to avoid the penalty. Nevertheless, as e-filing becomes the dominant form of tax return filing, this issue may increasingly be litigated.

See Keith Fogg, Reliance on Preparer Does Not Excuse Late E-Filing of Return, Procedurally Taxing (Sep. 4, 2019), https://procedurallytaxing.com/reliance-on-preparer-does-not-excuse-late-e-filing-of-return/

Leslie Book, Update on Haynes v US: Fifth Circuit Remands and Punts on Whether Boyle Applies in E-Filing Cases, Procedurally Taxing (Feb. 12, 2019), https://procedurallytaxing.com/update-on-haynes-v-us-fifth-circuit-remands-and-punts-on-whether-boyle-applies-in-e-filing-cases/

Passport revocation

Passport revocation is expected to be an increasingly utilized and contested IRS enforcement technique. In July 2019, the IRS released a revision to the Internal Revenue Manual (5.1.12) that provides guidance on the passport decertification process. Currently, taxpayers with tax debts in excess of $50,000 (and satisfy other criteria listed in the IRM) are considered to have “seriously delinquent tax debts”, which can result in certification of the debt to the State Department. Taxpayers with such debts will eventually receive notices, which carry a right of appeal to the Tax Court or U.S. District Court. The IRM revision details these processes, as well as the process of reversing a passport certification to the State Department.

See Nancy Rossner, IRM Changes to Passport Decertification and Revocation Procedures, Procedurally Taxing (Aug. 27, 2019), https://procedurallytaxing.com/irm-changes-to-passport-decertification-and-revocation-procedures/

Fraud by return preparer

Another potential issue for future litigation is the question of whether tax return preparer fraud triggers the fraud exception to the three-year statute of limitations for assessment. In the most recent instance, Finnegan v. Commissioner, the 11th Circuit briefly addressed the issue but ended up ruling that the taxpayers had failed to preserve the issue for appeal. In 2015, the Federal Circuit addressed the question in a similar case, BASR Partnership v. United States, and found that the fraud exception is not triggered by third party fraud and only applies when the actual taxpayer acts with “intent to evade tax”. The Tax Court, meanwhile, has held to its ruling in Allen v. Commissioner, which held that a fraudulent return triggers the fraud exception, regardless if the taxpayer had the requisite intent or not.

See Keith Fogg, 11th Circuit Affirms Tax Court Decision Regarding Fraud by Preparer, Procedurally Taxing (July 22, 2019), https://procedurallytaxing.com/11th-circuit-affirms-tax-court-decision-regarding-fraud-by-preparer/

Last known address

Another recently litigated question is whether filing a Form 2848 with a new taxpayer address is sufficient to put the IRS on notice of the taxpayer’s last known address. In Gregory v. Commissioner, the taxpayers submitted a new 2848 and a 4868 extension request with their new address, but the IRS did not adjust its records and issued a subsequent notice of deficiency to the taxpayer’s old address. The Tax Court looked to the applicable regulation, 301.6212-2, which defines “last known address” as “the address that appears on the taxpayer’s most recently filed and properly processed Federal tax return”. The Tax Court then found that neither the 2848 nor 4868 constituted a “return” under the regulatory definition and thus did not give notice. The court then proceeded to analyze whether the forms gave “clear and concise notice” of the address change, finding that they did not, in part because both included disclaimers that their filing will not change last known address. The taxpayers have appealed to the 3rd Circuit and are now represented by the tax clinic at the Legal Services Center of Harvard Law School.  The opening brief for the Appellant was filed on November 20.

See Keith Fogg, Tax Court Holds Power of Attorney Form Inadequate to Change a Taxpayer’s Address, Procedurally Taxing (Apr. 2, 2019), https://procedurallytaxing.com/tax-court-holds-power-of-attorney-form-inadequate-to-change-a-taxpayers-address/

Notes from the Fall 2019 ABA Tax Section Meeting

From October 3 to 5 Les, Christine and I attended the tax section meeting in San Francisco.  We were each on different panels and we each enjoyed a delightful dinner cruise on the bay Friday night courtesy of tax procedure guru, Frank Agostino.  During the cruise the three of us had an in depth discussion with Frank about his latest ground-breaking tax procedure initiatives which we hope to highlight in coming posts.

For this post I intend to provide some of the information passed out during the update sessions in the Administrative Practice and Court Procedure Committees.  For anyone interested in more depth or more precision, it is possible to purchase audio tapes of the committee meetings from the tax section.

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Administrative Practice Committee

The discussion initially focused on Appeals and the Taxpayer First legislation seeking to create a more independent Appeals.  Apart from the legislation, Appeals issued a new conferencing initiative on September 19, 2019.  A request for comments on the new process went out. 

The presenter discussed the change to IRC 7803(e)(5)(A) and the right to a hearing in Appeals.  This change resulted from the Facebook case discussed here.  For those who do not remember the Facebook litigation, Chief Counsel denied Facebook the opportunity for a conference with Appeals after Facebook filed its Tax Court petition — even though Facebook had not met with Appeals prior to filing the petition.  The new provision will make it more difficult to deny a taxpayer the opportunity to meet with Appeals in this circumstance.

Another provision of the Taxpayer First Act, IRC 7803(e)(7)(A), grants taxpayers the right to their file 10 days in advance of a meeting with Appeals.  This provision has some income limitations but will generally benefit the vast majority of individual taxpayers.  It seems like a good step forward, though I would like the file much earlier than 10 days before the meeting, and I have had trouble getting it from Appeals in the past.  Some Appeals Officers (AOs) have denied my request for information in the administrative file, even though taxpayers have always had the right to this information.  If the case is in Tax Court, a Branerton letter to the Chief Counsel attorney will almost always result in that attorney calling the AO to tell the AO to send the material.  If you go to Appeals prior to Tax Court and have no Chief Counsel attorney to make this call, I wonder if the legislation will cause Appeals to take the position that a taxpayer cannot receive the material until 10 days prior to the meeting.  This would be a shame, because meetings are much more productive when parties can properly prepare.

The Taxpayer First Act also made changes to the ex parte provisions, set out in 7803(e)(6)(B), first enacted in 1998 as a means of insulating Appeals from the corrupting influence of other parts of the IRS.  The ex parte provisions were previously off-code but picked up by the IRS in a pair of Revenue Procedures describing how they would work.  The new provision allows Appeals to communicate with Chief Counsel’s office in order to obtain a legal opinion as it considers a matter, as long as the Chief Counsel attorney providing the advice was not previously involved in the case.  I don’t think this changes much.  Rev. Proc. 201218 already allowed attorneys in Chief Counsel to provide legal advice to Appeals.  Maybe this makes it clear that Appeals is not so independent that it cannot receive legal advice when it needs it, but it seemed that Chief Counsel and Appeals had already figured that out — even if some taxpayers criticized Appeals for obtaining legal advice.  Of course, when obtaining advice Appeals needs to seek out someone other than the attorney who was providing advice to Examination, in order to avoid having the attorney be the Trojan horse improperly influencing Appeals.

The panel mentioned Amazon v. Commissioner, 2019 U.S. App. Lexis 24453 (9th Cir. 2019). This is an important transfer pricing case clarifying what constitutes an “intangible” that must be valued and included in a buy-in payment to a cost-sharing arrangement between a parent company and its foreign subsidiary entity. The 9th Circuit panel affirmed the Tax Court, declining to apply Auer deference and holding that certain of Amazon’s abstract assets, like its goodwill, innovative culture, and valuable workforce, are not intangibles.

The committee also discussed Chief Counsel Notice CC-2019-006 “Policy Statement on Tax Regulatory Process” (9-17-2019).  A copy of the complete policy statement can be found here.   Each of the four points is important in its own way.  I find number three to be especially important.  We discussed the notice previously in a post here.

A few recent cases were mentioned as especially important to administrative practice:

Mayo Clinic v. United States, 124 AFTR2d 2019-5448 (D. Minn. 2019) provides the most recent interpretation of Mayo and what it means, in the context of whether Mayo Clinic was entitled to an exemption as an “educational organization” under Treas. Reg. § 1.170A-9(c).

Baldwin v. Commissioner, 921 F.3d 836 (9th Cir. 2019) is a mailbox rule case in which the taxpayer seeks to overrule National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005).

Bullock v. IRS, 2019 U.S. Dist. LEXIS 126921 (D. Mont. 2019) is a pre-enforcement challenge to Rev. Proc. 2018-38 which relieves 501(c) organizations of the obligation to disclose the names and addresses of their donors.

Court Practice and Procedure Committee

Robin Greenhouse, who now heads Chief Counsel’s LB&I office, gave the report for Chief Counsel’s office.  She read from her notes and provided no PowerPoint presentation or handout material, so this time I cannot FOIA the PowerPoint presentation to provide the data.

She discussed two financial disability decisions which seems like an interesting place to begin.  First she mentioned Carter, as representative for Roper, v. United States, 2019 U.S. Dist. LEXIS 134035 at( N.D. Ala. 2019) in which the court determined that an estate cannot use 6511(h) to assert financial disability because an estate is not an individual.  I wrote a post on this case earlier in the fall.   Next she mentioned the case of Stauffer v. Internal Revenue Service, which I recently wrote about here.  I failed to make notes on the other cases she discussed and I cannot remember why.

Judge Marvel talked about the new Tax Court announcement on limited scope representation and the Chief Counsel Notice, CC-2020-001 on that issue.  During the first month of the fall Tax Court calendar four persons entered a limited appearance, including our own Christine Speidel.  The limited appearance ends when the calendar ends, making it not entirely clear what to do with a decision document.  Some suggested getting the decision document signed by the petitioner was the way to go.

So far the Tax Court has 18 pending passport cases.  Judge Marvel indicated that we might see the first opinion in a passport case soon.

Effective on September 30, 2019 the Tax Court has begun accepting electronic filing of stipulated decisions.  The practical effect of this is that because the IRS always signs the decision document last, it will be the party to submit the document.  I doubt this change will have a profound impact on Tax Court practice but, in general, more electronic filing is better.

Development of the Tax Court’s new case management system is moving quickly.  The court expects it to go online by Spring of 2020.  When implemented, this system will allow parties to file petitions electronically.  Judge Marvel expects that practitioners will like the new system.  The new system may allow changes to the public’s access to documents; however, whether and how that might happen is unclear.

Gil Rothenberg, the head of the Department of Justice Tax Division’s Appellate Section gave an update on things happening at DOJ.  He said there have been 75 FBAR cases filed since 2018 with over $85 million at issue.  Several FBAR cases are now on appeal – Norman (No. 18-02408) (oral argument held on October 4th) and Kimble (No. 19-1590) (oral argument to be scheduled) both in the Federal Circuit; Horowitz (No. 19-1280) (reply brief filed on July 18th) in the 4th Circuit and Boyd (No. 19-55585) (opening brief not yet filed) in the 9th Circuit.

Over 40 bankers and financial advisors have been charged with criminal activity in recent years and the government has collected over $10 billion in the past decade.  I credit a lot of the government’s success in this area to John McDougal discussed here but the Tax Division certainly deserves credit for this success as well.

DOJ has obtained numerous injunctions for unpaid employment taxes in the past decade.  It has brought over 60 injunction cases against tax preparers and obtained over 40 injunctions.  These cases take a fair amount of time and resource on the part of both the IRS and DOJ.  They provide an important bulwark against taxpayers who run businesses and repeatedly fail to pay their employment taxes.  Usually the IRS revenue officers turn to an injunction when the businesses have no assets from which to administratively collect.  We have discussed these cases here.  I applaud DOJ’s efforts to shut down the pyramiding of taxes.  Congress should look to provide a more efficient remedy, however, for addressing taxpayers who engage in this behavior.

He said that while tax shelter litigation was generally down, the Midco cases continued.  He mentioned Marshall v. Commissioner in the 9th Circuit (petition for rehearing en banc was denied on October 2nd) and Hawk v. Commissioner in the 6th Circuit (petition for certiorari was denied by the Supreme Court on October 7th).  We have discussed Midco cases in several posts written by Marilyn Ames.  These cases arise as transferee liability cases.  See our discussion of some past decisions here and here.  My hope is that the government will continue to prevail on these cases as the scheme generally serves as a way to avoid paying taxes in situations with large gains.  I wonder how many of these cases the IRS misses.

In Fiscal 2019 there were 200 appeals.  The government won 94% of the cases appealed by taxpayers and 56% of the cases appealed by the government.  I was naturally disappointed that he only talked about cases in which the government prevailed and did not discuss some of the larger losses such as the one in Myers v. Commissioner discussed here.

He briefly discussed the Supreme Court’s decision in Taggart v. Lorenzen, a bankruptcy case, in which the court held that the proper standard for holding the government in contempt for violating the discharge injunction required mens rea.  This followed the position of the amicus brief submitted by the Solicitor General. The Court declined to adopt the petitioner’s position, which would permit a finding of civil contempt against creditors who are aware of a discharge and intentionally take actions that violate the discharge order. The Court found this proposal to be administratively problematic for bankruptcy courts, distinguishing between the purpose and statutory language of bankruptcy discharge orders (which require mens rea) and automatic stays (which do not).

He ended by announcing that he will retire on November 1, 2019.

Treasury Inspector General for Tax Administration Report on Passport Revocation

It’s the season for annual reports from TIGTA.  In 1998, Congress ordered TIGTA to create annual reports on several aspects of IRS operations.  In addition to those mandated reports, many of which would benefit from a longer timeline at this point, TIGTA also performs regular audits to check on IRS performance.  We will be writing on some of the annual reports as we have done in the past.  On September 19, 2019, it issued a report on passport revocation. While this may not have many surprises, it does provide a fair amount of detail on whose tax debts the IRS has targeted for passport revocation, how many have been revoked, and what has happened after the sending of the revocation.

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As of December 20, 2018, the IRS had certified 306,988 taxpayers for passport revocation.  Of those individuals, by that same date the IRS had decertified 68,764 of the cases, or not quite 25%.  By May 17, 2019, the IRS had decertified 99,867 taxpayers.  Before getting too excited about all of the money the IRS must have collected in order to decertify this many taxpayers, you must look at the list TIGTA created of the reasons for decertification.  Here is the breakdown of the bases for decertification:

Decertification Reason Number of Taxpayers Percentage of Decertifications
     
Pending Installment Agreement 18,516 19%
Installment Agreement 8,596 9%
Full Paid 6,815 7%
Pending Offer in Compromise 5,887 6%
Pending Full Pay Adjustment 224 <1%
Accepted Offer in Compromise 24 <1%
     
Total of Compliant Taxpayers 40,062 40%
     
Disaster Zone 27,137 27%
CSED Expiration 11,507 12%
Currently Not Collectible Hardship 8,716 9%
Bankruptcy 3,597 4%
Deceased taxpayer 2,696 3%
CDP Hearing 2,262 2%
Identity Theft 1,663 2%
Threshold18 1,045 1%
Manual Block/Other 472 <1%
Innocent Spouse 438 <1%
Erroneous Decertification 244 <1%
Combat Zone 28 <1%
     
Total of Noncompliant Taxpayers 59,805 60%
     
Total of All Decertifications 99,867 100%

Source: Passport Program Office.

About 40% of the decertifications resulted from actions TIGTA described as compliance, while the remaining 60% resulted from the statutory or administrative basis for recertification other than compliance.  Even within the compliance category, pending or actual installment agreements comprise, by far, the largest number of taxpayers coming into compliance.  So, the revocation of the passports of these taxpayers did not, as of yet, result in many fully paid accounts – only 6,815 of the almost 100,000 cases decertified (or looking at it another way only 6,815 of the over 300,000 taxpayers sent for revocation.  This does not seem like much bang for the passport revocation buck, but the TIGTA report does not approach its investigation in this manner.

We are not provided with how much it has cost the IRS to implement this collection tool nor are we provided with the dollars collected at this point.  Without that type of analysis, it is not possible to draw conclusions on the success of the revocation legislation.  TIGTA does say that the revocation program has brought many taxpayers back into payment compliance and has resulted in hundreds of millions in revenue.  That sounds positive from an enforcement point of view.

The biggest reason for decertifying the revocation surprised me.  Almost 27% of the decertifications resulted from applying the disaster zone rules.  I do not know enough about how many disasters existed.  I would not have expected this many decertifications for this reason, but they may just reflect my ignorance of the coverage of the disaster zones.  The second largest reason, CSED expiration, did not surprise me.  The chart gives a great picture of what happens once the IRS revokes someone’s passport.  The most likely thing to happen, which the chart shows by negative implication, is the taxpayer does not address the revocation and, I assume, does not care or feels powerless to do anything.

Of course, the report finds that the IRS certified some taxpayers for revocation that it should not have.  It identifies most of the problems in this area as a result of not correctly calculating the impact of the statute of limitations on collection.

The other interesting part of the report is the discussion of who the IRS identified for revocation in the first phase of the program and who it has identified next.  The first phase targeted taxpayers with “simple” tax debt in the IRS parlance.  The IRS considers simple debt as debt resulting from “filing single, head of household, married filing separately, or married filing jointly status for which the filing status of the primary and secondary filers is consistent from tax year to tax year.”

Now the IRS has started looking at taxpayers with complex debt.  It considers complex debt as aggregate debt from a variety of filing statuses “on different tax modules with an outstanding tax liability.”  As of March 22, 2019, the IRS had identified 69,460 taxpayers with complex debt of more than $52,000.  The report says that the IRS expects to send notices for these taxpayers starting in September 2019.

The report provides an interesting window into the passport program.  Much more data will inevitably be available in the future.  My limited view of the program suggests that it highly motivates some individuals to come forward and work with the IRS in situations in which they had not previously done.  Because the program limits constitutional rights, I hope that Congress takes a hard look at its success to ensure that increased collection justifies the limitation of travel rights of some.

IRM Changes to Passport Decertification and Revocation Procedures

Today we welcome Nancy Rossner who practices with the Community Tax Law Project in Richmond, Virginia.  Nancy is a graduate of the University of Richmond Law School which also happens to be my alma mater.  She recently gave a presentation to the ABA Tax Section Administrative Practice committee as a part of their monthly series of procedure updates and agreed to write this post for us on the topic of her presentation.  We have blogged before about passport revocation here, here, here and here.  As Nancy mentions below, the Tax Court did recently take action to amend the form petition recommended by Carl Smith in one of the earlier post.  Passport cases are now making their way to the Tax Court.  I anticipate we will be blogging about this issue a fair amount over the next couple of years. Keith

Leaving and re-entering the U.S. was made a bit more difficult for Americans by the Fixing America’s Surface Transportation (FAST) Act, signed into law December 4, 2015 and creating IRC Section 7345.  The law requires the IRS to notify the State Department when an individual is certified as owing “seriously delinquent debt,” at which time the State Department then has the authority to deny the individual’s passport application, application for passport renewal, or even revoke any U.S. passport previously issued to that individual.  The IRS recently released a revision to the IRM on July 19, 2019 to provide guidance on passport decertification and revocation. I will be writing about these updates today.  But first, I would like to provide a brief refresher on passport certification and revocation.

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In order to be considered a “seriously delinquent tax debt” resulting in certification to the State Department, the debt must be assessed, unpaid, legally enforceable, in excess of $50,000 (indexed for inflation, which brings it to $52,000 for the current year) and meet other conditions outlined in IRM 5.1.12.27.2.  However, even if a tax debt meets the criteria outlined in IRM 5.1.12.27.2, there are certain statutory exclusions from the certification listed in IRC Section 7345(b)(2).  In addition to the enumerated exclusions in IRC Section 7345(b)(2), the IRS also has discretion under IRC Section 7345 to exclude categories of tax debt from certification, despite meeting the criteria in IRM 5.1.12.27.2. These discretionary exclusions are listed in IRM 5.1.12.27.4.

Now, when the taxpayer is determined to have a seriously delinquent debt, the IRS is supposed to send the taxpayer a Letter CP 508C informing the taxpayer of the debt certification and providing the taxpayer with 30 days to challenge the notice (increased to 90 days if the taxpayer is out of the country).  If the debt remains unresolved, the IRS sends the taxpayer Letter 6152, Notice of Intent to Request U.S. Department of State Revoke Your Passport, to give the taxpayer one last chance to resolve the debt before recommending passport revocation to the State Department. The taxpayer is entitled to appeal the debt certification to the U.S. Tax Court or a U.S. District Court to have a court determine if certification was erroneous or if the IRS failed to reverse the certification under IRC Section 7345(c).  As per the U.S. Tax Court’s press release dated July 15, 2019, the Court adopted final amendments to its Rules of Practice and Procedure and adopted revisions to Form 1(Petition) among other forms.  As a result, Rule 13. Jurisdiction was updated to include “certification actions with respect to passports” and Rule 34. Petition was updated to include “certification actions with respect to passports.”  These changes are also reflected on the new Petition form which now includes a checkbox for “Notice of Certification of Your Seriously Delinquent Tax Debt to the Department of State.”  Yes, Carlton Smith did get his wish from this previous blog post

The new IRM guidance also provides some updates to the reversal of certification of seriously delinquent tax debt as well as expedited decertification.  As per IRM 5.1.12.27.8, the IRS will reverse the certification of seriously delinquent tax debt and notify the State Department within 30 days if the previously certified tax debt is fully satisfied, becomes legally unenforceable or ceases to be seriously delinquent debt (previously delinquent debt ceases to be seriously delinquent tax debt when a statutory exclusion is met).  If the certification is found to be erroneous the IRS will notify the State Department “as soon as practicable” and the IRS will notify the taxpayer once the certification is reversed.  One thing that I have learned as a practitioner at an LITC is that “as soon as practicable” can mean many different things to many different people. The U.S. Tax Court or U.S. District Court may also order the IRS to reverse the certification as a result of tax court litigation.

Importantly, taxpayers may also request expedited decertification, which can shorten the processing time by 2-3 weeks, but the taxpayer must meet all three of the following conditions: 1. The taxpayer meets a condition in 5.1.12.27.8 Reversal of Certification; 2. The taxpayer states that they have foreign travel scheduled within 45 days and can provide proof of travel OR the taxpayer lives outside of the US; and 3. The taxpayer has a pending application for a passport or renewal, has received notification their passport was denied or revoked, and provides a denial letter from the State Department (read: not the CP508-C). The updates to the IRM made proof of travel necessary in 2. and a copy of the State Department denial letter necessary in 3.  There is an exception for taxpayers residing out of the United States who do not have imminent travel plans.  If the taxpayer meets the conditions outlined in IRM 5.1.12.27.3 or IRM 5.1.12.27.4 and expresses an urgent need for decertification the IRS is supposed to request expedited decertification.

One last item of note on this topic, according to a recent memo from Acting Taxpayer Advocate Bridget Roberts (TAS-13-0819-0014), effective July 25, 2019, all open TAS cases with a certified taxpayer will be decertified and new TAS taxpayer cases will also be systemically decertified until further notice. This is something for which former NTA Nina Olson advocated prior to leaving office this year.

The Tax Court Should Modify its Form 2 Petition to Add a Checkbox for Passport Actions

We welcome back frequent guest blogger Carlton Smith. Today Carl highlights a possible cause of confusion for taxpayers, IRS and the Court, involving the Tax Court’s new passport-related jurisdiction. Christine

Section 7345(d) requires the IRS to notify taxpayers when it has sent a certification to the Secretary of State with respect to a “seriously delinquent tax debt” for which the IRS is asking that a passport be denied, revoked, or limited.  Section 7345(e)(1) states, in part:  “After the Commissioner notifies an individual under subsection (d), the taxpayer may bring a civil action against the United States in a district court of the United States, or against the Commissioner in the Tax Court, to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification.” 

The Tax Court is now seeing its first passport actions under section 7345(e)(1), and I can report that the Tax Court has decided to place a “P” at the end of the docket number when a taxpayer files a passport action.  What the Tax Court has so far failed to do is modify the simplified petition form appearing on its website (Form 2) to contain a box to check for a passport action.  I think that is why the Tax Court recently had to enter the following order in Brancatelli v. Commissioner, Docket No. 13836-18P.  My guess is that the taxpayer used Form 2, could not figure out which box(es) to check, and so checked boxes relating to notices of deficiency and notices of determination for Collection Due Process actions.  The Chief Judge’s September 10 order in the case reads, in full:

The petition in this case was filed on July 13, 2018. Among other things, in his petition petitioner seeks review of (1) a purported notice of deficiency dated June 18, 2018, allegedly issued for his taxable years 2005, and 2007 through 2014, and (2) a purported notice of determination concerning collection action dated June 18, 2018,  allegedly issued with respect to his taxable years 2005, and 2007 through 2014. 

On September 6, 2018, respondent filed a Motion To Dismiss on Grounds of Mootness stating that respondent, subsequent to the filing of the petition, has notified the Secretary of State that respondent has reversed respondent’s certification of petitioner as an individual owing serous delinquent tax debt for 2005, and 2007 through 2014. 

On September 7, 2018, respondent filed an Answer to the petition. In his 

Answer respondent acknowledges that a Notice CP508C, notice of your seriously delinquent tax debt was issued to the State Department, was issued with respect to 2005, and 2007 through 2014, but respondent denies that any notice of deficiency for 2005, and 2007 through 2014, and/or notice of determination under I.R.C. section 6320 or 6330 for 2005, and 2007 through 2014, was issued to petitioner. 

Upon due consideration, it is  

ORDERED that, on or before October 1, 2018, respondent shall file an appropriate jurisdictional motion as to so much of this case relating to the notice of deficiency for 2005, and 2007 through 2014, and the notice of determination under I.R.C. section 6320 or 6330 for 2005, and 2007 through 2014. The Court will hold in abeyance respondent’s September 6, 2018, motion to dismiss on grounds of mootness. 

In order to avoid further wasteful use of judicial and party resources dealing with jurisdictional issues, I would hope and expect that the Tax Court would adopt a new Form 2 as soon as possible that contains a box to check for passport actions.  Until the Tax Court does so, however, I would advise practitioners representing taxpayers in passport actions not to use Form 2, but to draft custom petitions. 

 On March 28, 2016, the Tax Court adopted interim rules (which were also issued as proposed rules) dealing with passport actions at Title XXXIV of its Rules of Practice and Procedure (Rules 350 to 354).  They can be found on the Tax Court’s website under “Press Releases” for that date.  Interim Rule 351(b) specifies the contents of a passport action petition and directs that such petition be captioned:  “Petition for Certification or Failure to Reverse Certification Action Under Code Section 7345(e)”.  Oddly, while the Tax Court also modified Form 2 at the same time that it proposed and adopted these passport action rules, the new Form 2 did not contain a box to check for passport actions.  Nor do the instructions to Form 2 mention passport actions.

Passport Action Appellate Forum Shopping

Frequent guest blogger Carlton Smith discusses the possibility of appellate forum shopping in passport actions, and alerts us to one pertinent Circuit split that will apply to passport actions. -Christine

Keith did a post discussing CC-2018-005, which gives Chief Counsel advice to IRS attorneys in passport actions brought by taxpayers in the Tax Court under section 7345(e).  Section 7345(a) authorizes the Treasury Secretary to transmit an IRS certification to the Secretary of State that there exists a “seriously delinquent tax debt” “for action with respect to denial, revocation, or limitation of a passport pursuant to section 32101 of the FAST Act.”  Section 7345(d) requires the IRS to “contemporaneously notify an individual of any certification under subsection (a) . . . with respect to such individual.” And section 7345(e) allows a taxpayer to bring a suit to determine whether the certification was erroneous in either a district court or the Tax Court.  Apparently, during this winter or spring, the IRS issued or will issue the first notices to taxpayers under section 7345(d).

Before I read Keith’s post, I had not thought of the possible opportunities that this system of passport action litigation in different courts provides for appellate forum shopping.  I had assumed that Tax Court passport actions would be made appealable to the regional Circuit Courts of Appeals in which the taxpayer resided – i.e., the same appellate court to which the district court would look for controlling authority.  Under Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971), the Tax Court will follow the precedent, if there is any, of the Circuit Court to which the Tax Court case is appealable.  Flush language at the end of section 7482(b)(1) provides that if no subparagraph applies to direct venue otherwise (such as subparagraph (A) directing non-corporate deficiency cases to the Circuit of residence), venue on appeal from the Tax Court is only to the D.C. Circuit.  But, as in the case of whistleblower award jurisdiction under section 7623(b)(4), there is no subparagraph of section 7482(b)(1) mentioning passport actions, so the flush language directs all appeals from Tax Court passport actions to the D.C. Circuit.  (The Tax Court has stated that, under that flush language, all whistleblower award actions appear appealable only to the D.C. Circuit.  See Kasper v. Commissioner, 150 T.C. No. 2, at slip op. page 6 n.1 (Jan. 9, 2018).)

This means that one of the considerations in choosing the court in which to bring a passport action will be whether there is more favorable appellate authority for the taxpayer in either the D.C. Circuit or the Circuit of the taxpayer’s residence.  In deficiency cases, appellate forum shopping is discouraged (though not eliminated) by the requirement that to file a refund lawsuit in the district court or the Court of Federal Claims (e.g., to obtain more favorable appellate precedent), one must first pay all the tax under the rule of Flora v. United States, 362 U.S. 145 (1960).  But no full payment rule applies to passport actions.  While the district court filing fee is a few hundred dollars more than the $60 Tax Court filing fee, that will be little discouragement from filing passport actions in the district courts.  So, there may end up quite a lot of passport actions brought in the district courts (by comparison to only about 200 refund suits being brought annually).

The rest of this post will address one issue relevant to passport actions as to which there is already a split of authority between the D.C. Circuit and some regional Circuits – i.e., whether the filing deadline in 28 U.S.C. section 2401(a) is “jurisdictional”.

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PT readers are well aware that Keith and I are in the midst of litigating the issue of whether, under recent nontax Supreme Court case law, many Tax Court and other judicial tax filing deadlines are not jurisdictional and are subject to equitable exceptions (such as tolling or estoppel), waiver, and forfeiture. The Tax Court takes what I believe to be the today untenable position that all of its roughly 20 petition filing deadlines are jurisdictional, regardless of the varying language of the statutes giving the court the power to hear such cases. See Tax Court Rule 13(c).

CC-2018-005 notes that section 7345 contains no judicial filing deadline for a passport action after the notice under section 7345(d) is issued.  The Chief Counsel notice states that, absent a filing deadline in section 7435, the courts must apply the catchall federal judicial 6-year filing deadline contained in 28 U.S.C. section 2401(a).  I agree with Chief Counsel’s analysis that section 2401(a) is the relevant filing deadline for passport actions.

In United States v. Wong, 135 S. Ct. 1625 (2015), the Supreme Court held that the 2-year administrative and 6-month judicial filing deadlines under 28 U.S.C. section 2401(b) (the Federal Tort Claims Act) are not jurisdictional and are subject to equitable tolling — consistent with its current position that filing deadlines are no longer jurisdictional (except for when (1) stare decisis to previous Supreme Court opinions requires or (2) Congress makes a “clear statement” otherwise).

Without making an exhaustive search of every Circuit currently, I note that there has long existed a split in the Circuit courts over whether the 6-year filing deadline of 28 U.S.C. section 2401(a) is jurisdictional.  Here’s from a 2015 opinion of the Sixth Circuit (decided shortly after Wong) that explains where the split then stood and holding that under the recent Supreme Court case law the filing deadline is not jurisdictional:

After today’s decision, it is true, there is a 4-3 circuit split on the point, with four of the circuits favoring the government’s position that § 2401(a) creates a jurisdictional bar. Compare Konecny v. United States, 388 F.2d 59, 61-62 (8th Cir. 1967); Ctr. for Biological Diversity v. Hamilton, 453 F.3d 1331, 1334 (11th Cir. 2006) (per curiam); Mendoza v. Perez, 754 F.3d 1002, 1018, 410 U.S. App. D.C. 210 (D.C. Cir. 2014); and Hopland Band of Pomo Indians v. United States, 855 F.2d 1573, 1576-77 (Fed. Cir. 1988), with Clymore v. United States, 217 F.3d 370, 374 (5th Cir. 2000); Herr v. U.S. Forest Serv., [i.e., this case] (6th Cir. Oct. 9, 2015); and Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 770 (9th Cir. 1997). Many of these cases, however, have not grappled with the Supreme Court’s recent cases limiting the concept of jurisdiction. None has considered the impact of Kwai Fun Wong, decided just this year. When the D.C. Circuit has noted the apparent conflict between its decision and the Arbaugh [v. Y & H Corp., 546 U.S. 500 (2006),] line of cases, it has acknowledged the point each time yet steered the basis for decision to other grounds. See Mendoza, 754 F.3d at 1018 n.11; P & V Enters. v. U.S. Army Corps of Eng’rs, 516 F.3d 1021, 1026-27, 380 U.S. App. D.C. 96 & n.2 (D.C. Cir. 2008); Felter v. Kempthorne, 473 F.3d 1255, 1260, 374 U.S. App. D.C. 272 (D.C. Cir. 2007); Harris v. FAA, 353 F.3d 1006, 1013 n.7, 359 U.S. App. D.C. 281 (D.C. Cir. 2004). The Arbaugh rule [(that Congress must make a clear statement to make a claims processing rule, such as a filing deadline, jurisdictional)] together with its application in Kwai Fun Wong gives us comfort in siding with the non-jurisdictional side of this split. Section 2401(a) does not limit a federal court’s subject-matter jurisdiction.

Herr v. U.S. Forest Service, 803 F.3d 809, 817-818 (6th Cir. 2015).

Even since the Herr opinion, the D.C. Circuit has noted its prior holdings that the 6-year filing deadline in section 2401(a) is jurisdictional.  See Owens v. Republic of Sudan, 864 F.3d 751, 802 (D.C. Cir. 2017), noting, without reexamining, the holding of the D.C. Circuit in Spannus v. U.S.D.O.J., 824 F.2d 52 (D.C. Cir. 1987). So, under Golsen, the Tax Court will have to find the 6-year section 7345 action filing deadline in section 2401(a) jurisdictional.

It will be a long time (if ever) before the issue of whether the passport action deadline is jurisdictional comes before a district court or the Tax Court, since the issue will only be relevant if a taxpayer files the action late (i.e., after the 6-year statute has expired) and seeks a judicial extension occasioned by equitable tolling or estoppel.  But, this is only one potential Circuit split as to which appellate forum shopping in passport actions may be beneficial.  There may eventually be others – and ones that come about more rapidly.

Anyway, to eliminate the possibility of appellate form shopping as to passport actions, perhaps it is time for Congress to consider adding section 7345(e) passport actions to the list of subparagraphs in section 7482(b)(1) that direct appeals of Tax Court cases to the Circuit of an individual’s residence.

Chief Counsel Guidance on Passport Denials and Recent Legislative Change

On April 5, 2018, the IRS issued CC-2018-005 providing guidance to Chief Counsel attorneys regarding how to handle IRC 7345 cases brought in Tax Court. We reported in a prior post that Deputy Chief Counsel Drita Tunuzi stated at the last ABA Tax Section meeting that the IRS would probably start issuing the notices by the end of February. The timing of this guidance syncs with the timing of the earliest Tax Court cases Chief Counsel’s office might expect based on the issuance of the revocation notices. We are unaware of any pending cases on this issue and welcome comments directing us to filings under this new provision of the code. In addition to discussing the recent guidance, I have copied below, thanks to an alert from Carl Smith, the language of a small amendment to jurisdiction of these cases.

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Legislative Change

Congress made a minor change to the provisions on the Tax Court and district court review of passport revocation decisions, taken from the Joint Committee print description of the bill:

Amendments relating to the Fixing America’s Surface Transportation Act (2015)

Revocation or denial of passport in case of certain unpaid taxes (Act sec. 32101). – The Act provides for judicial review of the Secretary’s certification that an individual has a seriously delinquent tax debt, either in a U.S. district court or in the Tax Court. The provision clarifies that the party against whom a Tax Court petition is filed is the Commissioner of the Internal Revenue Service. The provision also provides a tie-breaker rule clarifying that the court first acquiring jurisdiction over the action has sole jurisdiction, and corrects a cross reference.

Here’s the text of the changes, which can be found at pages 2804-2805 of the bill:

21 SEC. 103. AMENDMENTS RELATING TO FIXING AMERICA’S

22 SURFACE TRANSPORTATION ACT.

23 (a) AMENDMENTS RELATING TO SECTION 32101.—

24 (1) Section 7345(e)(1) is amended—

1 (A) by striking ‘‘or the Tax Court’’ and in-

2 serting ‘‘, or against the Commissioner in the

3 Tax Court,’’, and

4 (B) by adding at the end the following:

5 ‘‘For purposes of the preceding sentence, the

6 court first acquiring jurisdiction over such an

7 action shall have sole jurisdiction.’’.

8 (2) Section 7345(f) is amended by striking

9 ‘‘subsection (a)’’ and inserting ‘‘subsection

10 (b)(1)(B)’’.

11 (b) EFFECTIVE DATE.—The amendments made by

12 this section shall take effect as if included in section

13 32101 of the Fixing America’s Surface Transportation

14 Act.

New Chief Counsel Guidance

The guidance starts by describing the statute and the IRM provisions that we discussed in our prior post. It provides that the IRS will rely on automated systems to identify

“every module on an individual’s account with an unpaid assessed tax liability that is not statutorily excepted from the definition of seriously delinquent tax debt or otherwise in a category excluded from certification. Once all eligible modules have been identified, the systems will aggregate the amount of unpaid liabilities. If the total is more than the statutory threshold, the taxpayer will be identified as having a seriously delinquent tax debt, and a Transaction Code (TC) 971 Action Code (AC) 641 will post to each module.

The SBSE Commissioner will certify that the identified individuals each have a seriously delinquent tax debt. The Service, under section 7508(a)(3), will postpone the certification of taxpayer serving in a combat zone or contingency operation. The Service will send a list of all certified individuals to the State Department. Once it has received notice from the Service, the State Department will not issue a new or renewed passport to a certified individual and it may revoke a previously issued passport, except for return travel to the United States…. Contemporaneously with the certification, the Service will notify individuals of their certification by sending them a CP508C notice by regular mail. The CP508C notice will list the tax liabilities giving rise to the certification by taxpayer identification number, tax period, and type and will inform the individual of the right to seek judicial review in a federal district court or the Tax Court.”

The Notice anticipates that taxpayers will raise challenges to the underlying liabilities, the period of limitations, and the scope and standard of review. It lays out the responses the Chief Counsel attorneys should make to those arguments.

Judicial Review of the Underlying Liability

The Notice takes the position that IRC 7345 does not provide for judicial review of the liability through this process. This statute does not waive sovereign immunity. A suit seeking to challenge the liability would effectively seek to restrain collection of an assessed tax and that would be prohibited by the Anti-Injunction Act. Section 7345 is not a provision providing an exception to that act.

Time for Seeking Review

IRC 7345 does not provide a period of limitations for bringing a certification action. While many people may rush to Court to avoid having their travel restricted, others may not even receive the notice sent by regular mail or may not appreciate its meaning immediately. The Notice takes the position that the general statute of limitations provided in 28 USC 2401(a) applies. This is a six year period. So, the IRS will not argue that the court lacks jurisdiction if the taxpayer brings a suit contesting certification within six years of issuance of the certification notice. The Notice also provides that taxpayers will have six years from the date grounds for reversal existed to bring an action challenging whether the IRS failed to reverse certification.

Scope of Review

IRC 7345 does not specify the scope or standard of review applicable to certification actions. The IRS takes the position that, in the absence of a statutory standard of review, the review is “confined to the administrative record, and ‘no de novo proceeding may be held. United States v. Carlo Bianchi & Co., 373 U.S. 709, 715 (1963).’” Because the IRS bases its decisions on its computer records of taxpayer accounts, it takes the position in the Notice that review is limited to the computerized records of those modules. The standard the IRS tells its attorneys that the Court should apply is whether the IRS action was “arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.”

Answers

The Notice tells IRS attorneys that the title of the response to the action brought by a taxpayer under IRC 7345 should be “Answer.” The Notice directs attorneys to attach the certification letter to the answer if the taxpayer fails to attach it to the petition. Once the attorney answers the case, it will not be referred to Appeals because of the ”automated nature of the Service’s process for identifying modules and certifying individuals with seriously delinquent tax debts and because the determinations will have been verified by the assigned attorneys in answering the cases.”

This guidance together with the other guidance provided above tells you what the IRS thinks of the scope of judicial review here. The IRS expects the courts to have little to say. I expect the courts may have something to say about that even if they generally agree with the scope of review. It will be interesting to see if someone brings a Facebook-type action seeking to get to Appeals to discuss their passport certification case. The Notice begins to bring into focus the areas where the initial fights over procedure will occur.

Motions

The Notices walks the attorneys through five types of motions – Motion to Dismiss for Lack of Jurisdiction, Motion to Change Caption, Motion to Dismiss for Failure to State a Claim or Motion for Judgment on the Pleadings, Motion for Summary Judgment, and Motion to Dismiss on the Grounds of Mootness. I suspect that the IRS will crank out a Motion for Summary Judgment on almost every one of these cases given its view of the standard of review and the issues the taxpayer can raise. The other motions will be used depending on the circumstances of the case. The Notice also talks about what the attorneys should put in a stipulated decision document. It contemplates that the IRS will enter into a stipulated decision if the IRS erroneously certifies a taxpayer, a valid basis for reversing the certification exists or the taxpayer concedes the case.

Who Represents the IRS

The Notice provides the normal breakdown of representation with the Tax Division of the DOJ representing the IRS in cases brought in District Court and Chief Counsel attorneys providing representation in Tax Court. If the case is brought in District Court, Chief Counsel would provide a defense letter and the information the DOJ attorneys would need in order to properly defend the case. The Notice instructs attorneys to always use the settlement classification of “Standard.” The Standard classification in a defense letter means that the DOJ should coordinate with Chief Counsel prior to settling the case. The other classification provided in a defense letter is Settlement Option Procedure which signals to DOJ that it can settle the case without coming back to Chief Counsel. Even in cases classified as Standard, the DOJ has ultimate settlement authority. So, it must contact Chief Counsel if it wants to settle a case but it need not listen to what they say. Because this is a new basis for jurisdiction, the IRS naturally wants to know about and have a voice in any decisions made on these cases. After five or ten years, it will probably revert the process to the normal process in which the issues in the case cause the settlement classification rather than having a blanket Standard classification apply.

Coordination with the National Office

As with the Standard classification, the norm when a new statute is rolling out is to have every case coordinated through the National Office and that is what the Notice provides here. This means that if you have one of these cases it will take longer to get a settled resolution since the local attorney will need to coordinate with their counterpart in the National Office. Coordination is not a bad thing. It will provide uniformity while slightly slowing down the process.

Conclusion

The Notice provides clarity on how Chief Counsel’s office will handle these case. I expect that after a year or so of working with these cases, another Notice might get issued further clarifying the procedures and dealing with the situations that have arisen which no one anticipated or dealing with adverse decisional law.