Second Circuit Reverses Tax Court in Borenstein

This post got lost and so comes onto the cite about six months after I wrote it, but it still might be of interest to some.  Thanks to Jack Townsend for asking about it.  I wrote it just before I took off on my cross country bicycling trip and failed to keep a good track on it as it went to my research assistant.  Keith

The Tax Court held in Borenstein v. Commissioner, 149 T.C. 263 (2017) that a taxpayer who filed her return late and after the IRS had issued a notice of deficiency could not obtain a refund given the specific timing of her late return and the notice of deficiency.  We discussed the case here.  The interpretation of the IRS and the Tax Court in the case created an odd “donut-hole” in the statute during which the taxpayer could not file a late return and obtain a refund if during the applicable time the IRS had sent a notice of deficiency.

The Tax Court reached the decision in the case by interpreting the plain language of the statute and applying an interpretive maxim.  The Second Circuit did not find the language as plain or the maxim as applicable and reversed the decision of the Tax Court allowing Ms. Borenstein to receive a refund of almost $40,000 plus interest.  The tax clinic at the Legal Services Center of Harvard partnered with the tax clinic at Georgia State to file an amicus brief in support of Ms. Borenstein because we thought his issue likely to impact low income taxpayers.

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Ms. Borenstein filed a request to extend the time to file her 2012 individual income tax return from April 15, 2013 to October 15, 2013.  Even though she timely and properly filed the request for an extension of time to file her return, she failed to file the return by the extended due date.  She had a lot of stock sales.  The IRS assigned a zero basis to the stock and eventually sent her a notice of deficiency stating that she owed over $1 million in taxes largely resulting from the sale of stock.  The IRS sent the notice of deficiency on June 19, 2015.  Ms. Borenstein filed her return, showing an almost $40,000 refund because her stock did not have a zero basis, on August 29, 2015.

Because of the timing of the notice of deficiency and of the late filed return, the IRS took the position that IRC 6213(b)(3) prohibited her from obtaining a refund.  The facts in the case were not in dispute.  The only issue was the interpretation of the statute and whether it created an unusual donut-hole time period during which a taxpayer could not file their return and obtain a refund, as the IRS argued, or whether the taxpayer had a continuous time period within which to file the return and still obtain a refund. 

Because this is the first and only case seeking an interpretation of the statute on this issue and because the administrative importance is low as signaled by the lack of litigation over the 20-year span since the statutory provision at issue came into existence, it seems extremely unlikely that the IRS will seek certiorari in this case.  Whether it will make the same argument if the issue arises in another circuit remains to be seen.  I hope that the opinion will cause it to rethink its position.

Congress took a look at IRC 6213 and the refund provision in it after the Supreme Court decided the case of Commissioner v. Lundy, 516 U.S. 235 (1996).  Lundy involved the look back period for refund claims and produced a surprising result causing the changes to the statute.  The Second Circuit described the Congressional intent in changing the statute as follows:

A taxpayer who files a tax return, and within three years after that filing is mailed a notice of deficiency from the Commissioner, is entitled to a look‐back period of at least three years. However, prior to Congress’s amendment of the governing statute, a taxpayer who had not filed a return before the mailing of a notice of deficiency‐‐like Borenstein‐‐was entitled only to a default two‐year look‐back period. Accordingly, Congress, seeking to extend the look‐back period available to such non‐filing taxpayers, provided that if a notice of deficiency is mailed “during the third year after the due date (with extensions) for filing the return,” and if no return was filed before the notice of deficiency was mailed, the applicable look‐back period is three years. This is called the “flush
language” of 26 U.S.C. § 6512(b)(3).

Ms. Borenstein filed her return during the third year after the original due date of the return and after the notice of deficiency.  If Congress had not changed the statute, the Lundy case would have prevented her from obtaining a refund because she filed the return more than two years after the original due date and after the issuance of the statutory notice.  She argued that the change in the statute opened the door for her to obtain the refund, but the IRS said if you carefully looked at the statute it did not work that way for someone who had requested an extension of time to file the return and then filed late.  Looking at the language of the statute quoted above, the IRS argued and the Tax Court accepted that:

“(with extensions)” has the effect of delaying by six
months the beginning of the “third year after the due date, ….”

Under this interpretation, the Tax Court could only look back two years. She had no payments within the two-year period as her payments were deemed made on the original due date of the return.

Borenstein looked at the statute and found different meaning:

Borenstein argues that “(with extensions)” has the effect of extending by six months the “third year after the due date,” and therefore that the notice of deficiency, mailed 26 months after the due date, was mailed during the third year. That would mean that the Tax Court has jurisdiction to look back three years, which would reach the due date and allow Borenstein to recover her overpayment.

The Second Circuit sided with Borenstein but examined the Tax Court decision and explained why it disagreed with that decision.  It described the Tax Court’s basis for the decision as follows:

[T]he Tax Court determined that the meaning of the flush language of 26 U.S.C. § 6512(b)(3) is unambiguous, relying heavily on the canon of statutory construction known as the “rule of the last antecedent” to find that “(with extensions)” modifies only “due date.” However, that canon “is not an absolute and can assuredly be overcome by other indicia of meaning.” Barnhart v. Thomas, 540 U.S. 20, 26 (2003). Here, it does not yield a clear answer.

What the Tax Court found clear, the Second Circuit did not:

While the Tax Court determined that “(with extensions)” modifies the noun “due date,” it is at least as plausible that “(with extensions)” modifies the phrase “third year after the due date,” thereby extending the third year. Accordingly, because the flush language of 26 U.S.C. § 6512(b)(3) supports more than one interpretation, we “consult legislative history and other tools of statutory construction to discern Congress’s meaning.” 

Once it determined it could look at legislative history, the Second Circuit determined that in amending IRC 6213(b)(3) after Lundy, Congress was trying to create a path for taxpayers to have a three-year lookback period in Tax Court in order to obtain their refund.  Congress did not like the fact that a taxpayer had been cut off from obtaining a refund just because the IRS had sent a notice of deficiency prior to the end of three years from the original due date.  Cutting off taxpayers who received a notice of deficiency created disparate treatment among taxpayers who were similarly situated.  Given the Congressional goal in amending the statute, it makes the most sense to read the statute in the way proposed by Ms. Borenstein.  Of course, the Second Circuit needed to throw in a maxim that supported its conclusion and in doing so gave some good language to taxpayers for future cases:

Our conclusion is supported by “the longstanding canon of construction that where ‘the words [of a tax statute] are doubtful, the doubt must be resolved against the government and in favor of the taxpayer,’” a principle of which “we are particularly mindful.” Exxon Mobil Corp. & Affiliated Cos. v. Comm’r of Internal Revenue, 689 F.3d 191, 199‐200 (2d Cir. 2012) (quoting United States v. Merriam, 263 U.S. 179, 188 (1923)). As Borenstein notes, the Tax Court’s interpretation creates a six‐month “black hole” into which her refund disappears, a result that unreasonably harms the taxpayer and is not required by the statutory language.
 
Moreover, the interpretation we adopt is consistent with the language of 26 U.S.C. § 6511(b)(2)(A), which provides for a look‐back period “equal to 3 years plus the period of any extension of time for filing the return.” 26 U.S.C. § 6511(b)(2)(A) (emphasis added). In view of our obligation to resolve doubtful language in tax statutes against the government and in favor of the taxpayer, we conclude that “(with extensions)” has the same effect as does the similar language that existed in § 6511(b)(2)(A) at the time of § 6512(b)(3)’s amendment‐‐that is, the language expand.

The Second Circuit opinion makes sense to me.  I think it achieves the intent of Congress in “fixing” the statute after Lundy.  It also avoids what seems like an absurd result the IRS interpretation achieves by avoiding the six month black hole or donut hole.  Taxpayers should file their returns on time.  If they do not file on time, they can suffer significant consequences including the total loss of their refund if they wait too long.  Taxpayers, however, should receive three years within which to file their late returns and still receive a refund whether or not the IRS issues a notice of deficiency. 

Prison Mailbox Rule Doesn’t Apply to Refund Claims

In what the court thinks is apparently a case of first impression, a district court has held that a refund claim that arrived at the IRS more than three years after it was due is not timely under the “prison mailbox rule”.  Whitaker v. United States, 2019 U.S. Dist. LEXIS 165345 (N.D. Fla. 9/26/19), adopting magistrate’s opinion at 2019 U.S. Dist. LEXIS 166975.  The court also holds (following precedent in the Fifth Circuit which a court in the Eleventh Circuit had to follow) that the common law mailbox rule cannot apply because it has been superseded by section 7502.  Circuits are split as to the latter holding. Further, the court holds that the taxpayer did not make out a factual case for equitable estoppel to apply to the IRS.

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Facts

During 2012, the taxpayer, a single individual, performed some work for which he was eventually sent a Form W-2.  But he did not timely file a return for 2012 until sometime in 2016. 

The taxpayer says he filed an original Form 1040-EZ before he got a copy of the Form W-2.  The original return showed no tax liability for the year, but sought refund of (1) $446 that the taxpayer claimed had been withheld as income taxes from his wages and (2) an EITC of $475.  The taxpayer was incarcerated in 2016 and claims that he handed his original 2012 return to prison authorities for mailing on March 25, 2016 – within the 3-year lookback period of section 6511(b).  (Since it was an original return containing a claim, the return would have been timely under the 3-year look-forward rule of section 6511(a), so the issue is whether the 3-year lookback rule of section 6511(b) regarding the amount of taxes paid has been satisfied.)

The taxpayer says that in late April 2016, he first obtained a copy of the Form W-2 for 2012 and only then learned that no income tax withholding had been done on his wages.  He prepared an amended return, therefore, removing the portion of the prior claim for withheld income taxes.  The amended return still sought an EITC refund of $475.  The taxpayer handed this amended return to prison authorities for mailing on April 21, 2016.

The IRS says that it never received the original return, but on April 30, 2016, it received the amended return and filed it as of that date.  The IRS denied the claim as untimely.

The taxpayer brought suit on the $475 refund claim in the district court for the Northern District of Florida.  The DOJ moved for summary judgment that the amount of the claim was limited under section 6511(b) to $0.  The taxpayer cross-moved for summary judgment, arguing that the claim should be deemed filed on March 25, 2016.  The taxpayer supported his motion with an unsigned note purportedly from “Classification Counselor Mrs. Doll.” In that unsigned note, Mrs. Doll stated that “[o]n 3/25/16 Mailroom Staff Ms. Bailey sealed, timestamped and post-dated the 2012 tax return. This is logged in the legal/privileged mail log.”   The taxpayer also submitted a copy of his original return, his amended return, and affidavits of inmates who helped or observed him preparing his 2012 tax return.  The taxpayer did not, however, submit the envelope in which the original return was mailed or any proof of its mailing by registered or certified mail.

Holdings

The magistrate’s opinion that was later adopted by the district court judge begins by taking the position that a timely-filed refund claim is necessary to the district court’s jurisdiction, citing United States v. Dalm, 494 U.S. 596, 609 (1990).  As an aside, Keith and I have been arguing recently that Dalm is no longer good law on these points – that under more recent Supreme Court case law, both the filing of an administrative claim (required by section 7422(a)) and its timely filing (required by section 6511(a)) are merely mandatory claims processing rules not going to the court’s jurisdiction.  See Gillespie v. United States, 670 Fed. Appx. 393, 395 (7th Cir. 2016) (not deciding issue, but noting that current Supreme Court case law on the distinction between subject matter jurisdiction and mere claims processing rules “may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional”, including Dalm.).

Without discussion, the magistrate’s opinion then mentions the further tax amount paid look-back requirements of section 6511(b) and overall treats compliance with that subsection as a nonjurisdictional matter.  As another aside, most courts today, without noting it, still treat compliance with section 6511(b) as a jurisdictional matter.  However, the Federal Circuit has held that the issue of how much tax was paid during the lookback period of section 6511(b) is not jurisdictional.  See Boeri v. United States, 724 F.3d 1367, 1369 (Fed. Cir. 2013), on which Stephen blogged here.  So, the magistrate in Whitaker unknowingly aligns himself with the Federal Circuit.  By moving for summary judgment, the parties also seem to align with the Federal Circuit, since, if compliance with section 6511(b) is jurisdictional, the DOJ should, instead, have moved to dismiss for lack of jurisdiction under FRCP 12(b)(1).  It is odd, though, that sometimes in the opinion, the magistrate seems to equate compliance with section 6511(b)’s payment rules as also jurisdictional, but yet grants the DOJ summary judgment that he refund is limited to $0 – a merits holding.

Third, in applying the lookback rules of section 6511(b), the court is supposed to look at how much tax was “paid” in the 3-year period before the claim was filed.  The statute limits the refund to those taxes paid within the lookback period.  But, Whitaker’s claim is now solely predicated on the EITC, which, of course, he never actually “paid”.  Over a decade ago, while the director of the tax clinic of the University of Connecticut, now-Tax-Court-Special-Trial-Judge Leyden argued to the Second Circuit that there is no time limitation under section 6511(b) on EITC claims because they were never “paid” by the taxpayer.  In Israel v. United States, 356 F.3d 221, 225 (2d Cir. 2004), the court held that the EITC should be treated as “deemed paid” by the taxpayer on the April 15 following the end of the tax year, just like withholding and estimated taxes under section 6513(b)(1) and (2) are treated as paid on that date.  The magistrate in Whitaker cites and applies Israel.  Thus, he deems the EITC “paid” on April 15, 2013, so the amount of the claim allowable is limited to $0 if the claim was filed after April 15, 2016.  Aside:  I wonder why no one has ever litigated the Israel issue in any other Circuit?  As I see it, the Israel opinion’s reasoning is something like “ipse dixit”.

The magistrate in Whitaker then notes that section 7502(a) provides a timely-mailing-is-timely-filing rule for, among other things, refund claims.  But, that rule doesn’t benefit Whitaker, since it only extends the filing date when there is a postmark on the envelope that shows the envelope was mailed on or before the last date to file.  There is no envelope in the record, let alone one bearing such a postmark.  The court also notes the special rule under section 7502(c) that could deem evidence of the date of mailing by registered or certified mail as the date of the postmark under subsection (a), but there is also no evidence in the record as to registered or certified mailing of an envelope.

Next, the magistrate considers the possibility that the common law mailbox rule (allowing for parol and other extrinsic evidence of mailing) has not been eliminated by section 7502 or the regulations thereunder.  The court notes the existing split among the Circuits about whether the common law mailbox rule survived the enactment of section 7502 and the recent ruling of the Ninth Circuit in Baldwin v. United States, 921 F.3d 836 (9th Cir. 2019), that regulations under section 7502 have abrogated all case law holding that the common law mailbox rule still survives the enactment of section 7502.  We blogged on Baldwin and that case law split here.  As an aside (boy, am I abusing the privilege of asides), the Baldwins filed a petition for certiorari on September 23, 2019 at Supreme Court Docket No. 19-402, a copy of which can be found here.  In the petition, they argue that the Court should revisit the correctness of its opinion in National Cable & Telecomms. Assn. v. Band X Internet Services, 545 U.S. 967 (2005), where it held that regulations may overrule preexisting case law where the case law was not predicated on the court holding the statute’s language unambiguous.  In the alternative, the petition argues for Brand X to be limited so as not to permit regulations that overrule common law case law like the mailbox rule.

The district court in Whitaker is located in the Eleventh Circuit, which has not taken a precedential position regarding the continued existence of the common law mailbox rule since the passage of section 7502 or the enactment of the regulations thereunder.  However, the magistrate notes that the Fifth Circuit in Drake v. Commissioner, 554 F.2d 736, 738-39 (5th Cir. 1977), held the common law mailbox rule to no longer exist after section 7502.  Since that opinion was issued before the Eleventh Circuit was carved out of the Fifth Circuit in 1981, Drake is thus binding precedent on district courts in the Eleventh Circuit under Bonner v. City of Prichard, 661 F.2d 1206, 1209-10 (11th Cir. 1981), and the common law mailbox rule proof offered by Whitaker can be of no use to him.

Next, and most novel, the magistrate considers whether the “prison mailbox rule” applies to assist Whitaker.  The court apparently finds no case law on whether the prison mailbox rule can apply to tax refund claims.  In the following passage, the magistrate declines to extend the prison mailbox rule to tax refund claims:

The Supreme Court created the prison mailbox rule when it held that — for purposes of Rule 4(a)(1) of the Federal Rules of Appellate Procedure — a notice of appeal that a pro se prisoner sought to file in a federal court of appeals should be considered filed on the date the prisoner delivered it “to the prison authorities for forwarding to the court clerk.” Houston v. Lack, 487 U.S. 266, 275, 108 S. Ct. 2379, 2385 (1988); Daker v. Comm’r, Ga. Dep’t of Corrs., 820 F.3d 1278, 1286 (11th Cir. 2016). In reaching its decision, the Court reasoned that the word “filed” was ambiguous insofar as neither Rule 4(a)(1) nor the applicable statute set “forth criteria for determining the moment at which . . . ‘filing’ has occurred.” Houston at 272-76, 108 S. Ct. 2383-85; Bonilla v. United States Dep’t of Justice, 535 F. App’x 891, 893 (11th Cir. 2013). Additionally, in creating the prison mailbox rule, the Supreme Court never stated that the rule applies to every document a prisoner seeks to mail. Rather, the rule announced by the Supreme Court applied only to notices of appeal submitted to federal courts of appeals, and was subsequently codified consistent with that limitation. See Fed. R. App. P. 4(c).


Other courts expanded the rule announced in Houston v. Lack to apply the prison mailbox rule to other court filings. See Edwards v. United States, 266 F.3d 756, 758 (7th Cir. 2001) (per curiam) (noting that courts expanded the prison mailbox rule to include many other types of court filings). This expansion was codified to apply to appellate documents and habeas petitions filed with federal courts. See Fed. R. App. P. 25(a)(2)(A)(iii); Fed. R. Bankr. P. 8002(c); Rules Governing Section 2254 Proceedings For the United States District Courts, Rule 3(d); Rules Governing Section 2255 Proceedings For the United States District Courts, Rule 3(d).
Consistent with its historical roots, in the Eleventh Circuit, the prison mailbox rule is limited to filings made to courts. See Williams v. McNeil, 557 F.3d 1287, 1290 n.2 (11th Cir. 2009) (“Under the ‘prison mailbox rule,’ a pro se prisoner’s court filing is deemed filed on the date it is delivered to prison authorities for mailing.”) (emphasis added); Garvey v. Vaughn, 993 F.2d 776, 783 (11th Cir. 1993) (holding that the prison mailbox rule announced in Houston applies to pro se prisoners seeking to file in federal courts complaints under 42 U.S.C. § 1983 and the Federal Tort Claims Act) (emphasis added). Plaintiff has not cited any authority demonstrating that the prison mailbox rule applies to tax returns submitted to prison officials for mailing to the IRS.


Furthermore, the Supreme Court’s holding in Fex v. Michigan strongly suggests that the prison mailbox rule does not apply generally to all documents a prisoner seeks to mail to government entities. 507 U.S. 43, 47, 113 S. Ct. 1085, 1089 (1993). In that case, the prisoner sought to apply the prison mailbox rule to a request for disposition under the Interstate Agreement on Detainers that he had provided to prison officials to mail. Fex, 507 U.S. at 46, 113 S. Ct. at 1088. In determining the date the document was “caused to be delivered,” the Supreme Court did not apply the prison mailbox rule and instead held that the document was “caused to be delivered” on the date the prosecutor’s office and court received the request, and not on the date the inmate gave the request to prison officials for mailing. Fex, 507 U.S. at 47, 113 S. Ct. at 1089.


Other courts have noted that “the prison mailbox rule does not apply when there is a ‘specific statutory or regulatory regime’ governing the filing at issue.” Crook v. Comm’r of Internal Revenue Serv., 173 F. App’x 653, 656 (10th Cir. 2006) (quoting Longenette v. Krusing, 322 F.3d 758, 763 (3d Cir. 2003)); Smith v. Conner, 250 F.3d 277, 277, 279 (5th Cir. 2001); Nigro v. Sullivan, 40 F.3d 990, 994-95 (9th Cir. 1994). More specifically, when the particular statute defines the term “filing” or “filed” — as § 7502 essentially does — courts have seen no reason to usurp a statutory or regulatory definition by resorting to the prison mailbox rule. See Crook, 173 F. App’x at 656 (interpreting the word “filed” defined in Section 7502(a)(1) of the Internal Revenue Code); Smith, 250 F.3d at 279 (holding that the court “shall resort to Houston if the rule does not clearly define filing” and in all other cases the court “will enforce the regulations as written”); Nigro, 40 F.3d at 994 (noting that the prison-mailbox rule did not apply because the administrative regulations defined the word “filed” as “when the receipt is issued.”).  [Emphasis in original.]

Finally, Whitaker had argued that the government should be estopped from arguing for the section 6511(b) limitation in this case. It is well-settled that jurisdictional conditions are not subject to estoppel (just like they are not subject to waiver, forfeiture or equitable tolling).  Dolan v. United States, 560 U.S. 605, 610 (2010).  Since the magistrate appears not to treat section 6511(b) compliance as jurisdictional, this presents him with the question of whether estoppel could apply to the assertion that section 6511(b)’s conditions were not met. The magistrate states:

Plaintiff asserts that Defendant should be estopped from invoking § 6511’s three-year deadline because the IRS sent him a disallowance letter — dated and sent to Plaintiff on May 5, 2017 — in which the IRS incorrectly stated that May 15, 2016, was Plaintiff’s (already expired) deadline to file his claim for 2012 taxes. (Doc. 56-13 at 2). Plaintiff intimates that he relied on this letter (Doc. 56-13), even though the IRS issued this letter on May 5, 2017, more than a year after the deadline to file his return had expired (April 15, 2016), and long after the date Plaintiff claims that he sent his initial 2012 tax return to the IRS (March 25, 2016).


“The question of whether equitable estoppel is ever available against the federal government is unresolved,” but it is clear that the party asserting estoppel against the government has a heavy burden. Ferry v. Hayden, 954 F.2d 658, 661 (11th Cir. 1992) (citing Heckler v. Cmty. Health Servs., 467 U.S. 51, 61, 104 S. Ct. 2218, 2224 (1984)).  [footnote and some citations omitted; emphasis in original]

The magistrate does not decide whether estoppel could ever apply to section 6511, but details exhaustively why the facts alleged by Whitaker could not give rise to estoppel in any event.

Observations

I wonder if Whitaker will appeal his loss to the Eleventh Circuit?  The case only involves $475 plus interest from March or April of 2016 to date. 

Whitaker proceeded pro se in the district court and got the district court $350 filing fee put on an installment agreement so he could proceed in forma pauperis.  He is obligated to pay 20% of his income out of his “inmate account” towards the full $350 fee, over time.  He has so far paid $139.66 towards the fee.  Could he get the $505 appellate filing fee waived? 

Does anyone admitted to the Eleventh Circuit want to represent him?  (He appears to be quite the prison litigator, having filed numerous papers in the district court citing case law.)  In his motion for summary judgment, he argued for the application of the common law mailbox rule and estoppel.  In order for him to prevail in the Eleventh Circuit on the mailbox rule, he would need an en banc panel that decided to no longer follow the Fifth Circuit’s controlling Drake opinion holding that the common law mailbox rule has been supplanted by section 7502.  That is pretty unlikely.  And the Supreme Court in Baldwin is not being asked to resolve that Circuit split about the common law mailbox rule – merely to hold that the regulation under section 7502 doesn’t overrule any Circuit Court that has already held that the common law mailbox rule still applies after section 7502.  So, a taxpayer victory in Baldwin won’t be enough help Whitaker.

Whitaker’s case might have been a good litigating vehicle for the Israel issue of whether the section 6511(b) limits apply at all to EITC claims.  If section 6511(b) doesn’t apply, then all the issues decided by the magistrate on whether Whitaker mailed too late go by the wayside as irrelevant.  But, I have read Whitaker’s motion for summary judgment, and he doesn’t argue that section 6511(b) doesn’t limit EITC claims. It appears he has waived that Israel issue.  Too bad.

Timely Filing Issues in Bankruptcy Court

Dixon v. IRS, No. 2:18-cv-00274 (N.D. Ind. July 24, 2019) presents the issue of whether filing a bankruptcy petition extends the time within which a taxpayer can file a claim for refund.  In re Long, No. 19-20186 (Bankr. E.D. Wis. July 29, 2019) raises the issue of whether a debtor in a bankruptcy case must accelerate the time for filing their income tax return because of filing bankruptcy.  The answer to both questions is no.  Details and explanation below.

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Charles Dixon filed a chapter 13 bankruptcy petition on September 2, 2010.  As with most chapter 13 cases, it took time before his bankruptcy case came to an end on July 22, 2016.  While his bankruptcy cases was pending Mr. Dixon filed an amended return for tax year 2012 on April 13, 2015.  The IRS notified him by Letter 105C, a statutory notice of claim disallowance, on January 21, 2016, that it would not allow his claim.  For some reason he filed another amended return for 2012 in June of 2016 and the IRS sent him a statutory notice of claim disallowance with respect to that claim on August 3, 2016. 

On July 26, 2018, Dixon filed a complaint alleging that the IRS improperly denied his first claim.  The IRS filed a motion to dismiss because of the filing of the complaint more than two years after the notice of claim disallowance.  Though the court couches the dismissal discussion in jurisdictional terms, readers of this blog know that the timing of filing of the complaint vis a vis the sending of the claim disallowance issue may not present a jurisdictional issue though the time frame for filing provided in IRC 6532(a)(1) does represent an important time frame that a taxpayer must meet or show reasons for the failure to meet the time frame.

The statute requires that the taxpayer file the refund suit within two years of the sending of the statutory notice of claim disallowance.  Here, Mr. Dixon filed suit more than two years after the notice.  To overcome this timing problem, Mr. Dixon argues that his bankruptcy case tolled the time for filing the refund suit.  In support of this argument he cites to IRC 6503(h).  This section provides a tolling of “the period of time in which the United States can collect a tax against a taxpayer/debtor.” But it does not mention tolling the time within which to bring a refund suit.  The bankruptcy court declined to extend the tolling provision to the refund situation.  Doing so would have created a shocking result.  The tolling statute that he cited in support of the timeliness of his claim seeks to give the IRS more time to collect a liability in situations in which the automatic stay of bankruptcy prevents it from collecting.  The statute has nothing to do with extending the time for a taxpayer to file bankruptcy.

Next he argued essentially that his second refund claim gave him more time; however, the second claim mirrored the first claim.  It did not raise new grounds for recovery.  The court found that a second claim could only extend the time within which to bring suit if the second claim raised new legal arguments.  Since it did not, the filing of the second claim here had no meaning.  (The IRS pointed out that even if the second claim had contained a second ground for recovery it would have done no good here because Mr. Dixon filed it after the statute of limitations for filing a refund claim.)  Although Mr. Dixon did not argue that the statute of limitations for filing his refund claim did not create a jurisdictional bar to filing a claim after that date, he presented no evidence that appeared in the opinion which would have allowed him to miss the due date.

As a result of making arguments on which he achieved little traction, the court grants the motion to dismiss filed by the IRS with relatively little discussion.  He does not appear to have made the argument that the time frame for filing a refund suit is not a jurisdictional time frame.  The facts available in the published opinion do not suggest that he would succeed in an equitable tolling argument.

The second case pits the taxpayer/debtor against the chapter 13 trustee rather than the IRS.  Here, the trustee argues that the taxpayer should have filed his return prior to the first meeting of creditors in his chapter 13 bankruptcy case.  The opinion parses the interpretation of a statute designed to require taxpayers to file their tax returns in order to obtain chapter 13 relief. 

Before the passage of the relevant statute in 2005, at almost every chapter 13 confirmation hearing day across the country, the IRS routinely sent attorneys who objected to the confirmation of a debtor’s plan because the debtor had unfiled returns which prevented the IRS from knowing whether, and how much, to claim against the estate.  Bankruptcy judges got tired of postponing hearings so that delinquent debtors could file these returns.  I made the objections in the 1980s and 1990s in the bankruptcy court in Richmond.  When we first started making them, the bankruptcy judge would give a stern lecture to the debtor about their criminal behavior in not filing returns.  It didn’t take too long before the judge realized that far more people failed to file their returns than he thought possible.  So, he stopped making the lectures but he still denied confirmation.  Stopping confirmation wastes the time of the court which must reschedule the hearing, prevents creditors from getting paid, costs the debtor’s attorney money to fix the plan and reappear and costs the trustee time and effort.  In 1994 when Congress appointed a bankruptcy commission to assist it in revising the bankruptcy laws to fix problems stemming from the Bankruptcy Code’s passage in 1978, the commissioners quickly identified this as a problem that needed to be fixed.  It took about eight years after the commission presented its findings before Congress got around to passing the correctively legislation but now anyone going into bankruptcy must be up to date on their return filing (the same basic rule that applies to anyone seeking an installment agreement or offer in compromise from the IRS). 

The Long case looks at the meaning of the statute requiring chapter 13 debtors to be current in their tax filing.  The bankruptcy case here was filed on January 8, 2019, during the filing season.  Usually the first meeting of creditors is scheduled within 20 to 40 days of the bankruptcy petition.  So, the debtor had more time to file their return according to the Internal Revenue Code than the date scheduled for the first meeting of creditors.  The issue before the court was whether the bankruptcy code accelerates the return filing date in this situation.  Here’s how the bankruptcy court framed the question at the outset of its opinion:

“Shortly after a debtor commences such a case, the United States trustee (or a designee) must “convene and preside at a meeting of creditors.” Id. §341(a); Fed. R. Bankr. P. 2003(a). By no later than “the day before the date on which the meeting of the creditors is first scheduled to be held”, the debtor must file with appropriate tax authorities the prepetition tax returns specified in 11 U.S.C. §1308(a), unless the chapter 13 trustee gives the debtor more time, see §1308(b). If the debtor does not file “all applicable Federal, State, and local tax returns as required by section 1308”, the court cannot confirm the debtor’s plan. Id.§1325(a)(9). The issue presented here is whether the prepetition tax returns specified in §1308(a) include returns that are not due to be filed with the appropriate tax authority before the date on which the meeting of creditors is first scheduled to be held.”

The bankruptcy court in Wisconsin was not working with a clean slate.  This issue, at least in that jurisdiction had been bubbling for quite a long time.  The court described the situation:

“This provision [Section 1308] may simply require the debtor to file, before the date on which the meeting of creditors is first scheduled to be held, all tax returns for the specified prepetition taxable periods that the debtor was otherwise required to file — i.e., that were due to be filed — before that date. But In re French, 354 B.R. 258 (Bankr. E.D. Wis. 2006), offers a competing construction: that §1308(a) requires “debtors who file for Chapter 13 protection . . . to have their return for the prior year filed by the date first scheduled for the meeting of creditors, even if the return is not yet delinquent under [applicable nonbankruptcy law].” Id. at 263.”

The opinion is lengthy and goes into some depth in seeking to find the meaning of Section 1308 and how it interacts with other provisions of the bankruptcy and tax codes.  The court expresses concern that following French really puts debtors filing early in the calendar year into a near impossible bind and allows the trustee to stop their bankruptcy cases by the simple act of refusing to extend the time of the first meeting of creditors.  After balancing the competing provisions, the court decides that the French case reaches the wrong conclusion and allows the debtor here to confirm a plan without filing the return not yet due under the tax code. 

I agree with this result as a logical reading of the code and the intent of the statute.  The statute seeks to require debtors to file past due returns.  The IRS or the debtor have a mechanism to add the debt for the 2018 year into the plan if they choose to do so.  Adding in the debt for the prepetition year after plan confirmation is a bit messy and expensive but denying confirmation to someone for not filing a return by the end of January also presents problems.  On balance the court reaches the logical result, but debtors who know they will owe taxes for the immediately past year do themselves no favors by failing to address the year in their plan.  Perhaps chapter 13 debtors should consider, as one of the factors in deciding the timing of filing a bankruptcy petition, postponing if possible to avoid filing at the very beginning of a calendar year.  If they can wait a few weeks or months before filing, they can avoid this problem.  Such a delay, however, is not always possible and taxes should not drive this timing.

Reminder: The Timely Mailing Rules of Section 7502 Do Not Apply in Refund Suits

In Patel v. IRS, 124 AFTR 2d ¶2019-5097 (D. N.J. 7/29/19), a pro se CPA seeking a $4,000 refund of his income taxes found out the hard way that the timely-mailing-is-timely-filing rules of section 7502(a) do not apply to filings in district court. Section 7502(d)(1). Accordingly, even though he mailed his complaint seeking a refund to the district court just days before the 2-year deadline for filing under section 6532(a) was set to expire, because the complaint arrived after the 2-year period ended, the court dismissed his case.

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On October 8, 2015, Mr. Patel filed his original 2011 Form 1040 showing a $4,000 overpayment. One has only three years from the date a return is filed to seek a refund under section 6511(a) (leaving aside the 2 years from payment rule that can also apply in some cases). When an original return is filed late (as in this case), the refund claim shown thereon is treated as filed the same day as the tax return, so the claim is treated as timely under the 3-year rule of section 6511(a). Rev. Rul. 76-511, 1976-2 C.B. 428. But, if one gets an extension to file to October 15, 2012 (as Mr. Patel claimed he had), then the amount of the claim is limited to the tax paid in the three years immediately preceding the claim plus the extension period. Section 6511(b)(2)(A). Since the tax involved was withholding, it was treated as paid on April 15, 2012. Section 6513(b)(1). Therefore, if Mr. Patel had gotten an extension to file, his claim could have been granted in full, since October 8, 2015 is less than three years and six months after April 16, 2012.

However, the IRS said it never got an extension request from Mr. Patel, so the amount limitation in this case reduced the allowable refund to $0 (the tax paid within three years prior to October 8, 2015).

Acting with what I find surprising speed, on December 17, 2015, the IRS sent Mr. Patel a notification of claim disallowance. Under section 6532(a)(1), Mr. Patel then had two years to file a complaint seeking a refund in either the district court or the Court of Federal Claims. The complaint arrived in the mail at the district court on Wednesday, December 20, 2017 – two days past the due date (FRCP 6(a)(1)(C) having extended the due date to Monday, December 18, 2017). The court found that Mr. Patel credibly testified that he put the envelope in the mail on Friday, December 15, 2017 – three days before the filing deadline expired.

In the opinion, the court notes that it is well-settled that district court filings are made on the day the court receives a document – even if the document is sent by mail. McIntosh v. Antonio, 71 F.3d 29, 36 (1st Cir. 1995). So, the court dismissed the case as untimely brought. The court did not decide the other issue of whether the administrative refund claim amount limit was $0 because that would have required an evidentiary hearing, since Mr. Patel showed the court a copy of a Form 4868 extension form for 2011 that he claimed he had filed, while the IRS denied receipt of such form.

Being a tax controversy lawyer, I would have expected the court to discuss the timely-mailing-is-timely-filing rules of section 7502(a). However, the court didn’t, for reasons that become obvious once you read those rules. Section 7502(a)(1) states:

If any return, claim, statement, or other document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by United States mail to the agency, officer, or office with which such return, claim, statement, or other document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.

But, section 7502(d) states, in part: “This section shall not apply with respect to—(1) the filing of a document in, or the making of a payment to, any court other than the Tax Court . . . .” (Emphasis added.) Since I have filed few refund suits in my life, and I have always filed those in person at the local New York district court courthouse, I was never aware of this limitation. Both petitions to the Tax Court and notices of appeals from the Tax Court (which I have more often filed, and always by mail) are filed in the Tax Court, so are subject to the section 7502(a) timely-mailing-is-timely-filing rules. I bet I am not the only tax controversy lawyer who is surprised to find these rule inapplicable to refund lawsuits. So, I write this post as a warning to people like me.

In one of his filings in response to the motion to dismiss, Mr. Patel argued that it must be the case that the district court actually received the mailing within two days, which would make the filing timely (on Monday, December 18, 2017), even if the receipt date governed. As evidence that it usually took only two days to mail something from his home in West New York, New Jersey to the district court in Newark, he attached a printout from a USPS website in connection with his mailing of a document in the refund suit to the court in May, 2019, indicating likely delivery in two days.

The district court in Mr. Patel’s case noted, however, that the mailing done of the complaint was done both over a weekend and at the height of the Christmas mailing season, so the court wouldn’t accept this proof from a more normal time of year. But, the court clearly felt bad for Mr. Patel, writing:

One may sympathize with the plaintiff here. The § 6532(a)(1) deadline, however, is a rigid one; it is not subject to equitable tolling on sympathetic or other grounds. See RHI Holdings, Inc. v. United States, 142 F.3d 1459, 1462 (Fed. Cir. 1998); cf. United States v. Brockamp, 519 U.S. 347, 348 (1997) (analogous statute of limitations in 26 U.S.C. § 6511 not subject to equitable tolling).

Still, the district court found that the filing deadline issue is jurisdictional, so the court dismissed the case for lack of jurisdiction (as opposed to failure to state a claim on which relief could be granted).

Comments

Readers of PT know that Keith and I have litigated whether certain judicial filing deadlines in tax are jurisdictional or subject to equitable tolling in light of Supreme Court changed case law since 2004. Indeed, for over a year now, the Second Circuit has been working on an opinion in Pfizer v. United States, 2d Cir. Docket No. 17-2307, where the Harvard clinic (as amicus) has asked the court to be the first appellate court since the Supreme Court changed the rules to reconsider the issue of whether the section 6532(a) filing deadline is still jurisdictional (as many other courts of appeal had held prior to 2004). In our brief, we criticize RHI Holdings as a case that both predated the 2004 change in the jurisdictional rules and improperly conflated the factors that go into the equitable tolling question with the jurisdictional question. We also found Brockamp distinguishable on many factors that went into the Supreme Court’s analysis there of the section 6511 filing deadline’s ability to be equitable tolled.

And I blogged last November on an opinion in Wagner v. United States, 353 F. Supp. 3d 1062 (E.D. Wash. 2018), where the district court, in a refund suit, considered the recent Supreme Court case law and held that the section 6532(a) filing deadline is not jurisdictional and is subject to equitable tolling (and actually tolled the deadline in the case). So, the Patel case is in clear conflict with Wagner.

It will be interesting to see if Mr. Patel appeals the dismissal. Although the clinic at Harvard doesn’t plan to volunteer to represent him, if he does appeal, we would likely want to file an amicus brief in the Third Circuit arguing that the filing deadline is not jurisdictional and is subject to equitable tolling under the right facts. Anyone else who thinks they want to help the pro se Mr. Patel file an appeal, be our guest.

The Scope of a Power of Attorney: When Can a Representative Sign a Refund Claim?

Today we welcome guest blogger Tameka Lester from the Philip C. Cook Low-Income Taxpayer Clinic at Georgia State University College of Law. With Derek Wheeler of the Erie County Bar Association Volunteer Lawyers Project LITC, Tameka is creating a chapter on Power of Attorney issues for the next edition of Effectively Representing Your Client Before the IRS. In this post she looks at a case where a misunderstanding about the scope of authority under Form 2848 doomed a taxpayer’s refund claim. Christine

A power of attorney allows an authorized representative to step into the shoes of a taxpayer. Once there, the representative can execute many of the same acts normally done by that taxpayer. Form 2848 establishes this authority for purposes of dealing with tax related matters before the Internal Revenue Service (IRS). In addition to working directly with IRS personnel, the Form 2848 allows the representative to complete additional actions such as substituting or adding representatives and signing returns on behalf of the taxpayer. Many issues can arise when utilizing the power of attorney, including whether authority has in fact been conveyed to complete a particular action. This issue is examined in a refund suit before the U.S. Court of Federal Claims, Wilson v. United States (Feb. 27, 2019).

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This case was presented before the Court to review a penalty imposed against the plaintiff for the untimely reporting of his status in reference to a foreign trust. Plaintiff maintained the IRS applied the incorrect percentage of penalties prescribed by IRC 6677. Under this statute, the civil penalty for filing Form 3520 late is “the greater of $10,000 or 35% of the gross reported amount” unless the taxpayer filing the return is an owner/grantor of the foreign trust. Plaintiff maintained that he was the owner/grantor of the trust as opposed to the beneficiary (which would reduce his penalty from 35% to 5%), paid the penalty assessed in June 2017, and instructed his attorney-in-fact to file a claim for refund in August 2017. The attorney-in-fact, who was listed on the plaintiff’s Form 2848 power of attorney, prepared the claim for refund (IRS Form 843), signed on the line provided for the paid preparer, and filed it without the taxpayer’s signature. In response to the suit, the government filed a motion to dismiss for a lack of subject matter jurisdiction on the basis that a claim for refund was not “duly filed.” Their contention was the power of attorney issued by plaintiff did not provide the attorney-in-fact the authority to sign a claim for refund under penalty of perjury as required. The Court considered this a unique issue, as they had not previously encountered a situation where the person signing the return as the paid preparer was also the taxpayer’s attorney-in-fact under a power of attorney.

Upon review, the Court never gets to the merits of the case although the prevailing position is that the document should be signed under penalty of perjury. Instead, the court looks to determine if, by simply executing a general IRS Form 2848, the plaintiff conveyed the necessary authority for his attorney-in-fact to sign a refund claim on his behalf. After reviewing the instructions for the Form 2848, Form 843, and the requisite case law involving similar issues of powers of attorney, the Court granted the Government’s motion to dismiss for lack of subject matter jurisdiction.

The Court arrives at this conclusion by first reviewing the instructions provided for the Form 843. The instructions state that the authorized representative can file the form for the taxpayer as long as he includes a copy of the 2848 authorizing the representative to complete this particular request.

Under the Form 2848 instructions, some actions are considered general grants of authority while others must be specifically stated. The general actions include the authority “to receive and inspect [the taxpayer’s] confidential tax information and to perform acts that [the taxpayer] can perform with respect to the tax matters described below [on the power of attorney].” For purposes of the taxpayer in this case, these general actions included “income tax (Form 1040), civil penalties (From 3520 and 3520-A), and matters relating to foreign banks and financial account reports.” When the Centralized Authorization File system receives a power of attorney with general actions authorized, those authorizations are recorded on the IRS’s systems; however, for specific actions the instructions for Form 2848 provide that if the power of attorney is “a one-time or specific-issue grant of authority to a representative or is a POA that does not relate to a specific tax period…the IRS does not record [it] on the system. Claims for refund are considered a specific-use not recorded on the system.” Because the claim for refund requires a specific grant of authority and the claim must be “duly filed” in order to be considered by the Court, whether the authority was actually given goes to the heart of the issue of subject matter jurisdiction. 26 U.S.C. 7422(a). The burden of establishing jurisdiction falls on the plaintiff to prove it by a preponderance of the evidence. Reynolds v. Army & Air Force Exch. Serv., 846 F. 2d 746, 748 (Fed. Cir. 2008).

In an attempt to establish subject matter jurisdiction, plaintiff cited Aronsohn v. Commissioner. In Aronshohn, the Third Circuit explored the issue of whether a general power of attorney authorized the taxpayer’s authorized representative to sign a waiver (Form 870-
AD), which precludes the taxpayer from later filing a refund claim.   According to that court, “a more specific power of attorney” is not required before the authorized representative could give up the taxpayer’s potential future refund claim. The Government, however, argues that this is only one part of the requirement. It contends in addition to authorizing the representative to sign the claim for refund, the claim for refund must be signed under penalty of perjury like an actual return.

“The statement of the grounds and facts [of the claim] must be verified by a written declaration that it is made under penalties of perjury. A claim which does not comply with this paragraph will be not considered for any purpose for claim for refund or credit.” 26 C.F.R. 301.6402-2(b)(1).

Although plaintiff draws a distinction between returns and refunds that the Court recognizes, the Court follows the guidance provided in the regulations. The Court also reviews the Form 2848 requirements for giving a representative authority to sign a return. The form requires a taxpayer to check a box on line 5 allowing his representative to sign a return and to expressly state the representative is signing the return under penalty of perjury. No such requirement is specifically stated for Form 843; however, since the claim for refund must also be signed under penalty of perjury the Court was not convinced plaintiff provided a reason why an express statement should not also be required. Without the mandate that the claim is being signed under penalty of perjury, Form 2848’s general authority cannot authorize a representative to execute this action or create a “duly filed” claim for refund. As an ancillary matter, the Court noted that even if the POA provided the requisite authority necessary to file the claim for refund, there may be an issue with whether the representative’s signature on the preparer line was sufficient, or if the representative would also have been required to sign the plaintiff’s name on the signature line.

As an additional matter, the Court briefly reviewed the informal claim doctrine (which has been discussed in previous posts on Palomares v. CommissionerandVoulgaris v. United States) to determine whether it should be applied in this case to prevent plaintiff from having to refile the claim. The Court rejects the doctrine’s application and does not use it to remedy the jurisdiction issue, noting that plaintiff still has time to file a timely claim for refund. In fact, prior to the Court’s decision, plaintiff filed an amended claim for refund in January 2019, which he signed under penalty of perjury. Thus, plaintiff must allow the Service to make a determination on the amended claim. If that claim is rejected or not decided within 6 months, plaintiff will be permitted to file a new refund suit.

CFC Holds that Math Error Notices Reducing Refund Claims Are Not Notices of Claim Disallowance for Purposes of SOL to Bring Suit

In a case brought by a pro se taxpayer in the Court of Federal Claims (CFC), Hale v. United States, 2019 U.S. Claims LEXIS 502 (May 14, 2019), the CFC held, among other interesting things, that math error notices that reduced refunds sought on original tax returns were not formal notices of claim disallowance as to the reductions for purposes of the 2-year statute of limitations for bringing refund suits at section 6532(a). The suit was thus timely for years for which such math error notices were sent, though was dismissed for failure to state a claim under CFC Rule 12(b)(6) because the taxpayer didn’t articulate a reason for why the math error notices were wrong.

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In a nutshell, the court describes the case as follows:

In this tax refund case, pro se Plaintiff Annice Hale claims that she is entitled to a refund of taxes for the tax years 2012 through 2017 because the government improperly adjusted downward the refunds claimed in her returns for each of those tax years. Ms. Hale’s complaint, liberally construed, also alleges civil rights and tort claims against the government in connection with these tax-related government actions. The government has moved to dismiss Ms. Hale’s complaint under Rules 12(b)(1) and 12(b)(6) of the Rules of the Court of Federal Claims (“RCFC”).

As discussed below, the Court lacks subject-matter jurisdiction over Ms. Hale’s civil rights and tort claims, part of her 2012 tax refund claim, and her 2014 refund claim. Moreover, Ms. Hale has failed to state a claim with respect to tax years 2013, 2015, 2016, and 2017, as well as the portion of her claim for tax year 2012 over which the Court has jurisdiction. As to these remaining claims Ms. Hale’s allegations, taken as true, do not establish any claim upon which relief can be granted.

I will discuss the years separately, for the most part. It appears that all of the claims were made on original tax returns that were timely filed.

2014

The 2014 year was perhaps the easiest year for the court. In that year, the IRS sent a notification of claim disallowance as to part of the claim on September, 9, 2015. Under section 6532(a), a notification of claim disallowance triggers a 2-year period in which a taxpayer must bring suit on the refund claim. Ms. Hale, however, waited over 3 years to bring suit. Thus her case was untimely. Following other CFC case law, which relies on Federal Circuit precedent, the court held that it lacked jurisdiction under CFC Rule 12(b)(1) because the deadline in section 6532(a) is jurisdictional.

I agree with the court that the case as regards 2014 should be dismissed for untimely filing, but under CFC Rule 12(b)(6) (failure to state a claim on which relief could be granted), not 12(b)(1) (lack of jurisdiction). In a comment to a Bob Probasco post on the refund case of Pfizer v. United States, 2d Cir. Docket No. 17-2307 (which has still not yet been decided by the Second Circuit, despite oral argument having happened on February 13, 2018), I pointed out that Keith and I have filed an amicus brief on behalf of the Harvard clinic arguing that the section 6532(a) deadline is not jurisdictional and is subject to estoppel under recent Supreme Court case law making most filing deadlines now nonjurisdictional. Our amicus brief criticizes the Federal Circuit authority, which was decided before the recent Supreme Court case law making filing deadlines only rarely now jurisdictional.

2012

Ms. Hale was a low-income taxpayer who had no income tax liability in 2012, but who reported self-employment tax of $1,192. On her original 2012 return, she sought a refund of $2,977 based on subtracting that tax liability from an earned income tax credit (EITC) of $3,169 and an American Opportunity Credit of $1,000. The IRS, apparently, did not send her a math error notice, but in processing the return, it reduced the EITC by $100 because, presumably, Ms. Hale simply misread the EITC table. That left a potential refund of $2,877, but the IRS had been informed by FEMA that the taxpayer owed FEMA $2,119. The IRS sent that amount to FEMA and issued a refund check for the balance, $758. The court does not explain it, but apparently, Ms. Hale also sent several more amended returns seeking from the IRS the balance of the original refund amount that had not previously been paid to her. The last of those amended returns was filed on June 15, 2015, and the court mysteriously treats it as the refund claim underlying the suit for purposes of timely bringing suit.

The CFC first noted that section 6402(d)(1)(A) authorizes offsets to other government agencies like FEMA, and section 6402(g) also provides that “[n]o court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c), (d), (e), or (f).” Thus, it lacked jurisdiction to consider the reduction. However, the CFC also noted that it has broad jurisdiction under the Tucker Act, 28 U.S.C. section 1491(a)(1), which permits the CFC to hear “any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.” While a claim against FEMA might be heard by the CFC as an illegal exaction case, the CFC held that, since Ms. Hale’s pleadings did not even mention FEMA, the CFC had no jurisdiction to consider a suit against FEMA. Besides, documents in the record of the refund suit indicated that Ms. Hale later got the funds back from FEMA through a separate, internal FEMA proceeding.

The court then entered into a controversial discussion that it need not have done, since it is clear that, as to the 2012 claim (and all other claims), suit was brought within 6 years and 6 months after the claim was filed.

Some district courts have held that, in addition to the statute of limitation of section 6532(a), suits for refund must also satisfy the statute of limitation set out as a catchall at 28 U.S.C. section 2401(a). Section 2401(a) requires suits to be brought within 6 years of the time that they first could have been brought. Since a refund suit can be brought as soon as 6 months after the claim is filed if there has not earlier been a notification of claim disallowance, those courts held that a taxpayer has only 6 years and 6 months from the date of the refund claim to bring a refund suit where the IRS has never sent out a notification of claim disallowance. There is a parallel 6-year catchall statute of limitations under 28 U.S.C. section 2501 that applies to the CFC. In footnote 5 of its opinion in Hale, the CFC wrote:

The Court observes that in United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1 (2008), the Supreme Court suggested—but did not hold—that in the absence of another, more specific limitations period, tax refund cases are subject to the federal “outside limit” six-year statute of limitations provided in 28 U.S.C. §2401(a). Id. at 8. (quoting United States v. A.S. Kreider Co., 313 U.S. 443, 447 (1941). The Supreme Court thus implied that the Court of Claims was incorrect in its 1955 holding that the six-year general statute of limitations never applies in tax refund cases. See Detroit Trust Co. v. United States, 130 F. Supp. 815, 131Ct. Cl. 223, 226-28 (1955) (finding that six-year statute of limitations did not bar action based in part on refund claim filed in 1917 and disallowed in 1951, where suit was filed within two years of 1951 disallowance); Wagenet v. United States, No. 08-142, 2009 U.S. Dist. LEXIS 115547, 2009 WL 4895363, at *2 (C.D. Cal. Sept. 14, 2009) (applying the six-year statute of limitations set forth in 28 U.S.C. §2401(a) because where “no notice of disallowance was mailed . . . Section 6532(a)(1) does not apply”). Ms. Hale filed suit within six years of her claims for refund. With respect to her $100 EIC claim for tax year 2012, Ms. Hale’s complaint is timely because her last amended return (in other words, her claim for refund) for 2012 was filed on June 15, 2015 and her complaint was filed on October 11, 2018.

However, as Bob Probasco has noted in another prior post, the IRS takes the position that Detroit Trust was correctly decided. Chief Counsel Notice 2012-012. I am surprised to see the CFC needlessly disregarding precedent of the Court of Claims (the forerunner to the Federal Circuit, which would have to follow Detroit Trust or formally overrule it). For an excellent law review article that has convinced me that Detroit Trust is wrong, see Adam R.F. Gustafson (the son of Tax Court Judge Gustafson), “An ‘Outside Limit’ for Refund Suits: The Case Against the Tax Exception to the Six-Year Bar on Claims Against the Government”, 90 Or. L. Rev. 191 (2011).

As to the extra $100 of the refund sought that had not been sent to FEMA, the CFC in Hale ruled that Ms. Hale’s pleadings made no mention of why the IRS was wrong on the EITC adjustment, so she had failed to state a claim on which relief could be granted.

2013, 2015, 2016, and 2017

The court next inquired whether the refund claims and refund suit were timely as to the claims for the years 2013, 2015, 2016, and 2017. It noted that the refund claims were timely made, since they appeared on the original returns – i.e., within 3 years after the returns were filed under section 6511(a). Under section 6532(a), Ms. Hale was thus entitled to bring suit on the reduced claims any time after 6 months, unless the IRS sent her a notification of claim disallowance. In the latter case, the Ms. Hale would have had to bring suit within 2 years thereafter. The court found that the IRS had “sent Ms. Hale ‘math error notices’ using form letter 474C for tax years 2013 and 2017, a 288C letter requesting more information for tax year 2015, and a 12C letter requesting more information for tax year 2016.” Citing no case law as authority, the CFC held that none of these notices or letters constituted a notification of claim disallowance for purposes of section 6532(a), writing:

Internal guidance from the IRS suggests that—among other criteria—a notice of disallowance must inform the taxpayer of her “right to file suit” and of the “period in which suit may be filed.” Chief Counsel Advisory, IRS CCA 200203002 (Jan. 18, 2002). Notices informing taxpayers that the IRS needs more information to process a claim, along with math error notices or similar correspondence, typically fail to adequately notify taxpayers of a final adverse action or of their right to file suit within two years. Id.Form of Notice of Disallowance of a Refund Claim—Refund Suits, Fed. Tax Coordinator ¶ T-9022 (2d ed. 2019) (discussing “dual purposes” of informing taxpayer of final disallowance and of the right to sue along with applicable statute of limitations).

Here, none of the correspondence in the record pertaining to tax years 2013, 2015, 2016, and 2017 meets these criteria for effective notices of disallowance. They do not inform Ms. Hale of her right to sue or of the applicable two-year limitations period.

After concluding that it had jurisdiction, the CFC then dismissed the suit for each of these years for failure to state a claim: For 2013, Ms. Hale had apparently already been sent two refund checks exceeding her original claim. For the other years, the IRS had either reduced credits that she claimed or subtracted from her claimed refunds the self-employment tax that would apply based on the Schedules C or C-EZ that she filed with the returns. She made no allegations showing the IRS was wrong to make these adjustments.

Civil Rights and Tort Claims

Finally, the CFC also discussed certain civil rights and tort claims contained in Ms. Hale’s complaint, finding that the Tucker Act did not authorize it to consider such claims. Interestingly, although the CFC (on PACER.gov) will not allow me to see her complaint or response to the DOJ motion, it appears Ms. Hale’s claims, in part, relied on the Taxpayer Bill of Rights (not sure if the IRS version or the statutory version). I am not sure that the CFC was aware of this, since it made no mention of the Taxpayer Bill of Rights in its opinion – an opportunity wasted, but perhaps better, since I would think that a pro se person could not make a serious argument for the application of the Taxpayer Bill of Rights in court. The CFC wrote:

As noted, the government has construed Ms. Hale’s assertions concerning violations of certain alleged rights as civil rights and tortious damages claims. The Court concurs with this interpretation of Ms. Hale’s references to alleged violations of her “Right to a Fair and Just Tax System,” “Right to Quality Tax Service,” “Right to Pay no more than the Correct Amount of Tax,” “Right to be Informed,” and “Right to Finality,” as well as her allegations that the government’s actions have damaged her credit history and caused her “financial disparity.” Compl. at 4; see also Pl. Resp. Mem. (“Pl.’s Resp.”) at 99, Docket No. 13.

The Court finds that it lacks subject-matter jurisdiction over these claims. The Tucker Act serves as a waiver of sovereign immunity and a jurisdictional grant, but it does not create a substantive cause of action.

(citations omitted).

Here’s a link to Keith’s recent PT post on the Tax Court’s opinion in Moya v. Commissioner, 152 T.C. No. 11 (Apr. 17, 2019), in which it held that the IRS version of the Taxpayer Bill of Rights does not give a taxpayer any additional procedural rights in the Tax Court.

Ninth Circuit Holds Reg. Validly Overrules Case Law; Disallows Parol Evidence of Timely Mailing

In Baldwin v. United States, 2019 U.S. App. LEXIS 11036 (9th Cir. April 16, 2019), in a case of first impression in the appellate courts, the Ninth Circuit has held that a 2011 regulation under section 7502 is valid under the deference rules of Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), and Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005), and therefore it invalidates all prior case law in some Circuits (including the Ninth) holding that the common law mailbox rule can be used to prove the IRS’ timely receipt of a document by parol evidence. The Circuit reversed the district court and directed it to dismiss the case because the only evidence offered of timely mailing of a Form 1040X refund claim was the testimony of the Baldwins’ employees that they remember timely posting the envelope containing the claim by regular mail months before the claim was due – evidence that is only relevant if the common law mailbox rule still exists in the tax law. I blogged on Baldwin before the oral argument here.

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Facts

Baldwin is a tax refund suit. There, the taxpayers reported a loss on their 2007 income tax return, filed on or before the extended due date of October 15, 2008. They wished to file an amended return for 2005, carrying back the 2007 loss to generate a refund in 2005. Under section 6511(d), this had to be done by filing the amended return within three years of the due date of the return generating the loss – i.e., by October 15, 2011. The taxpayers introduced testimony of their employees that the employees mailed the 2005 amended return by regular mail on June 21, 2011 from a Hartford Post Office to the Andover Service Center. But, the IRS claimed it never received the Form 1040X.

The California district court followed Anderson v. United States, 966 F.2d 487 (9th Cir. 1992), in which the Ninth Circuit had held that the enactment of section 7502 in 1954 did not eliminate the common law mailbox rule and still allowed taxpayers to prove by parol evidence that a document not sent by registered or certified mail or a designated private delivery service was actually mailed and so was presumed to have been received by the IRS prior to the due date. The district court credited the testimony of the employees and held that the refund claim was timely filed. The court later awarded the taxpayers a refund of roughly $167,000 and litigation costs of roughly $25,000.

The DOJ appealed the loss to the Ninth Circuit, where it argued that the suit should have been dismissed because the refund claim was not timely filed. The DOJ argued that in August 2011, the IRS adopted a regulation intended to overrule some Circuit court opinions (including Anderson) that had held that the common law mailbox rule still survived the enactment of section 7502. At least one other Circuit had agreed with Anderson; Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir. 1990); but several other Circuits had disagreed and held that the common law mailbox rule did not survive the enactment of section 7502. See Miller v. United States, 784 F.2d 728 (6th Cir. 1986)Deutsch v. Commissioner, 599 F.2d 44 (2d Cir. 1979)See also Sorrentino v. Internal Revenue Service, 383 F.3d 1187 (10th Cir. 2004) (carving out a middle position).

As amended by T.D. 9543 at 76 Fed. Reg. 52,561-52,563 (Aug. 23, 2011), Reg. § 301.7502-1(e)(2)(i) provides, in relevant part:

Other than direct proof of actual delivery, proof of proper use of registered or certified mail, and proof of proper use of a duly designated [private delivery service] . . . are the exclusive means to establish prima facie evidence of delivery of a document to the agency, officer, or office with which the document is required to be filed. No other evidence of a postmark or of mailing will be prima facie evidence of delivery or raise a presumption that the document was delivered.

Ninth Circuit Opinion

The Ninth Circuit began its analysis with a little history: Prior to 1954, there was no timely-mailing-is-timely-filing provision in the Internal Revenue Code. That meant that the only way to timely file a document was for it to arrive at the IRS on or before the due date. At common law, there is a presumption that a properly-mailed envelope will arrive in the ordinary time for mail to go between its origin and destination. At common law, a party could bring in any evidence (including testimony) to show that the envelope likely arrived at the IRS on or before the due date.

In 1954, Congress added section 7502 to the Code. We all think of it as a provision that allows a mailing made on or before the due date to be treated as timely filed, whether or not the IRS receives the document on, before, or after the due date. But, that is not an accurate summary of the provision. In fact, subsection (a) provides, in general, that if a document is delivered to the IRS by the United States mail after the due date, then the date of the United States postmark on the envelope is deemed to be the date of delivery (i.e., filing). Other rules extend the benefits of subsection (a) to designated private delivery services and electronic filing, but only pursuant to regulations. However, subsection (c) also includes a presumption of delivery that applies in the case of use of certified or registered mail: If an envelope is sent certified or registered mail, then (1) the certification or registration is prima facie evidence that the envelope was delivered to the place to which it was addressed and (2) the date of registration or certification is deemed the date of the postmark for purposes of subsection (a).

In Anderson, the Ninth Circuit had held that subsection (c)’s presumption of delivery language (and the regulations thereunder) did not supplant the common law way to prove delivery on or before the due date. Rather, subsection (c) provided only a safe harbor for proof of delivery if certified or registered mail was used. Where ordinary mail was used, there was no statutory provision presuming or denying proof of delivery, so the common law mailbox rule could still operate to allow proof of timely mailing by any evidence.

In Baldwin, the Ninth Circuit noted that under Chevron Step 2, a court must defer to an agency’s interpretation in a regulation if that interpretation is one of the reasonable ways an ambiguous statute could be interpreted. And in Brand X, the Supreme Court held that, unless an appellate court opinion had said that the statute was unambiguous (and therefore Chevron Step 1 would deny any regulatory input), an agency could issue valid regulations overruling that appellate precedent.

In the case of the 2011 regulation under section 7502, the Ninth Circuit in Baldwin held that an interpretation that section 7502 completely supplanted the common law mailbox rule was one of the reasonable interpretations of that statute and that the Ninth Circuit had not, in its Anderson opinion, rested its holding on the unambiguous nature of section 7502’s language. Therefore, under Chevron and Brand X, the regulation barring the use of the common law mailbox rule was valid.

The taxpayers had two arguments that the Ninth Circuit quickly dismissed:

First, the taxpayers argued that there is a rule of construction that makes repeal of common law rules by statute not to be easily implied. With respect to this argument, the Ninth Circuit noted a contrary rule of construction (one that other Circuits had relied on) that when a statute speaks on an issue and makes an exception, that statutory exception eliminates all nonstatutory exceptions. The Ninth Circuit held that the subsection (c) rules presuming delivery in the case of certified or registered mail could benefit by the latter interpretive rule. Thus, these countervailing statutory rules of construction could lead to two different reasonable interpretations of the statute.

Second, the taxpayers argued that the regulation was improperly being applied retroactively, since they had claimed that they mailed the envelope in June 2011, but the regulation was only adopted in August 2011. But, the Ninth Circuit pointed out that the regulation was effective for all documents mailed after September 21, 2004 (the date the regulation was first proposed), and the court did not find that such retroactive effective date violated section 7805(b)(1)(B), which allows the IRS to make its regulations retroactive to the date they are first proposed.

Observations

Several Supreme Court Justices have recently criticized Chevron and Brand X. It is interesting that Judge Watford, who wrote the Baldwin opinion, only predicated the panel’s ruling for the IRS on the basis of reliance on those two opinions. What, then, happens if Chevron and Brand X are overruled? Will the Ninth Circuit’s precedent then revert to Anderson, which allows use of the common law mailbox rule?

Judge Watford also seems to be deliberately vague in his opinion as to the ground on which the district court should dismiss the case on remand. He does not say the dismissal should be for lack of jurisdiction (FRCP 12(b)(1)) or for failure to state a claim (FRCP 12(b)(6)). It would not much matter in this case whether the section 6511 filing deadline were jurisdictional or not, but it might matter in a future case (e.g., one where there was an argument for waiver, forfeiture, or estoppel, but not equitable tolling (see United States v. Brockamp, 519 U.S. 347 (1997) (holding the deadline not subject to equitable tolling, but not discussing whether the deadline is jurisdictional)). Indeed, Judge Watford’s Baldwin opinion really relies on section 7422(a), which requires the filing of a refund claim before a refund suit may be maintained. The opinion states that section 7422(a) also requires a timely claim. In fact, Judge Watford only writes:

The Baldwins then brought this action against the United States in the district court. Although the doctrine of sovereign immunity would ordinarily bar such a suit, the United States has waived its immunity from suit by allowing a taxpayer to file a civil action to recover “any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.” 28 U.S.C. § 1346(a)(1). Under the Internal Revenue Code (IRC), though, no such action may be maintained in any court “until a claim for refund or credit has been duly filed” with the IRS, in accordance with IRS regulations. 26 U.S.C. § 7422(a); see United States v. Dalm, 494 U.S. 596, 609 (1990). To be “duly filed,” a claim for refund must be filed within the time limit set by law. Yuen v. United States, 825 F.2d 244, 245 (9th Cir. 1987) (per curiam).

Judge Watford is the author of the opinion in Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), which we blogged on here and where I was amicus. In that opinion, he held that the then-9-month filing deadline to bring a wrongful levy suit in district court is not jurisdictional and is subject to equitable tolling under recent Supreme Court case law making filing deadlines now only rarely jurisdictional. Note that his language above from Baldwin does not mention the word “jurisdictional” with regard to section 7422(a)’s requirement. Judge Watford may not be wanting to say that section 7422(a)’s administrative exhaustion requirement is jurisdictional, rather than a nonjurisdictional mandatory claims processing rule possibly subject to waiver, forfeiture, or estoppel. It is true that in Dalm (which he cites only with a “see”), the Supreme Court called the requirements of sections 7422(a) and 6511 jurisdictional with respect to a refund suit, but the reasoning of Dalm does not accord with current Supreme Court case law. In 2016, the Seventh Circuit questioned whether Dalm is still good law, though it did not reach the question, writing:

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

Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016) (some citations omitted). It was this passage from Gillespie that the DOJ cited as grounds for its need to file a post-oral argument memorandum of law in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), arguing that the section 6213(a) Tax Court deficiency petition filing deadline is jurisdictional and not subject to waiver. The DOJ won that argument in that case, but it is currently before the Ninth Circuit on the issues of jurisdictional and equitable tolling in companion cases on which we previously blogged here.

Another Return Preparer Fails to Take Advantage of Special Time for Filing Refund Suit under 6694

Carl wrote last summer about a 9th Circuit case in which a return preparer failed to take advantage of the special rule for filing a refund suit under IRC 6694.  Les wrote about the same issue last winter.  As a result of failing to take advantage of the special path to contesting a refund claim under IRC 6694, the return preparers in the cases described by Carl and Les fell back into the full payment rule of Flora which we have discussed at some length in earlier posts such as the ones here and here

Now another 6694 case has come to the same sad ending where the return preparer paid the 15% which would have triggered the exception to the Flora rule, but did not file the complaint timely, resulting in a dismissal with a remonstration to fully pay the tax before coming back to have the court take a look at the merits.  The return preparer in Riter v. United States, No. 2:17-cv-01265 (D. Utah March 15, 2019) did not give up easily.  He made arguments challenging the Flora rule and requesting equitable tolling, but he lost all of his arguments.  The case points out once again the somewhat tricky exception to Flora created by IRC 6694 (also created in IRC 6703) and the carefully prescribed steps a penalized return preparer must take to comply.  The existence of three cases with the same problem in one year points out that the perceived benefit of the Flora exception in IRC 6694 can be somewhat illusory unless you follow the precise steps Congress set out for this section alone.  While it’s worth asking why Congress created a unique path to refund litigation for one section, these cases show why it’s not worth litigating the issue to ask the court to answer that question.

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Mr. Riter may be a subscriber to this blog because he makes an equitable tolling argument not made in the prior two cases mentioned above.  Before getting to his argument and the court’s response, here is the succinct statement of the facts set out in the magistrate judge’s report:

In this case, on June 27, 2016, the United States assessed Mr. Riter penalties under 26 U.S.C. § 6694(b) for tax years 2010 through 2014 in the amount of $5,000 for each year, or a combined total of $25,000. (Compl., ¶ 13, ECF No. 2.) In compliance with § 6694(c)(1), Mr. Riter, on July 22, 2016, filed a claim for refund and paid $750, or 15% of the total penalty, for each tax year, totaling $3,750 for the five tax years. (Id., ¶ 15.) However, Mr. Riter did not satisfy the prerequisites of § 6694(c)(2). That provision required Mr. Riter to file his lawsuit by the earlier of either (1) thirty days after the United Sates denied his refund claim, or (2) thirty days after six months from the date he filed his refund claim. The United States denied Mr. Riter’s refund claim on November 16, 2017. (Id., ¶ 26.) Thirty days after this date is December 16, 2017. Mr. Riter filed his refund claim on July 22, 2016. Thirty days after six months from July 22, 2016 is February 27, 2017. February 27, 2017 is clearly the earlier of the two dates. However, Mr. Riter did not file this lawsuit seeking a refund of the penalties until December 8, 2017, (see id.), well beyond the February 27, 2017 deadline to do so. After February 27, 2017, the 15% limited exception to the full payment rule “cease[d] to apply with respect to such penalty,” meaning that the full payment rule applied after that time. 26 U.S.C. § 6694(c)(2). However, Mr. Riter admits he paid only 15% of the penalties, (see Compl., ¶ 15, ECF No. 2), thereby conceding he did not comply § 1346(a)(1) and Flora’s full payment requirement.

If not before then certainly by the time the IRS filed its motion to dismiss for lack of jurisdiction, Mr. Riter knew that he had not followed the very precise rules required to satisfy the exception to the Flora rule available in IRC 6694.  In order to move his case forward, he did not argue that he complied with the IRC 6694 provisions, but instead argued that they were claims processing rules rather than a jurisdictional requirement.  He cited to United States v. Wong, 575 U.S. __, 135 S. Ct. 1625, 1632 (2015), arguing that because IRC 6694 does not use the word jurisdictional, the court has the ability to determine that his late performance of the requirements of IRC 6694 could be excused under the principle of equitable tolling.

Responding to this argument, the magistrate judge stated:

…as the United States points out, Wong involved a failure to comply with the Federal Tort Claims Act statute of limitations, and § 6694(c) is not a statute of limitations similar to the one at issue in Wong. (Reply in Supp. of Pl.’s Mem. in Opp’n to United States’ Mot. to Dismiss for Lack of Subject Matter Jurisdiction 4, ECF No. 12.) Significantly, Mr. Riter does not cite to any case law finding that § 6694(c) or the nearly identical § 6703(c) constitute merely claims processing rules.

The fact that 6694 is in the Internal Revenue Code and not the Federal Tort Claims Act should not control the outcome, nor should the fact that no one had previously successfully argued the claims processing issue.  The specificity of the statute and the fact that Congress knew it was creating an exception to a jurisdictional rule support the court’s conclusion.  I am troubled by the court’s view of the statement that Congress must make about jurisdiction.  It stated “If the Supreme Court considers § 6694(c) a claims processing rule and not jurisdictional, it will need to state as much explicitly before a lower court can make such a finding.”  This reverses the normal rule which requires Congress to make it clear a provision is jurisdictional and not make it clear that one is not.  The court gets to this twist because it views the law as well established that Flora is a jurisdictional requirement and sees 6694 as an exception to that requirement.

Going beyond the claim processing issue, Mr. Riter does not appear to have offered the court much, if any, reason that he missed the statutory time periods.  For his argument to succeed, assuming he were to get past the jurisdictional issue, he still must show the court why it should give him relief.  Just saying a statute is a claims processing rule does not win the day.  Someone who misses the deadline for a claims processing rule must still demonstrate a reason why they deserve relief.  He does not seem to have done this.

In losing, Mr. Riter shows that he learned from the earlier cases and made arguments attacking the standard interpretation of the statute.  Unfortunately, his argument was unsuccessful, perhaps because he did not have the facts to support the equitable tolling.  The case reminds us again of the care required from individuals assessed a penalty under IRC 6694 or 6703 if they wish to contest the penalty without fully paying it.