The Sixth Annual Tax Controversy Institute will be held online on Friday, July 16th, 2021. The virtual institute is sponsored by the University of San Diego School of Law and the tax law firm RJS Law. The event will be free of charge and will allow practitioners to earn free education credits. Speakers will include IRS Commissioner Charles Rettig and Tax Court Judge Copeland. The Institute will also be presenting the Richard Carpenter Award for integrity, dedication and expertise in representing taxpayers to Nina Olson, former National Taxpayer Advocate and the Executive Director of the Center for Taxpayer Rights. For more information about the event and to register, click here.
Thanks to Carl Smith for bringing to my attention another interesting decision. The recent case of Kirik v. Commissioner,—Fed. Appx.—(2nd Cir. 2021) in an unpublished opinion addresses the issue of when the Tax Court retains jurisdiction to modify its decision or order of dismissal after the 90 days to appeal has run, but no appeal has been taken. The statute at issue is IRC § 7481(a) and the circuits have split on the issue. Section 7481(a) provides that a Tax Court decision becomes final upon the expiration of the time allowed for filing a notice of appeal (90 days under section 7483), where no notice of appeal has been filed within such time.
In a related but definitely distinct issue, in the case of Myers v. Commissioner Joseph DiRuzzo, representing petitioner Myers, asked the D.C. Circuit to hold that the 90-day period in IRC § 7483 to file a notice of appeal in the Tax Court is non-jurisdictional and subject to equitable tolling. The D.C. Cir. had no precedent on the issue one way or another, but refused to decide the issue — instead holding that a motion for reconsideration tolled the appeal period under the FRCP, just like a motion to vacate explicitly would under the FRCP. As we wrote after the Guralnik decision, it’s hard to see how an FRCP rule can extend a statutory deadline that is jurisdictional, but life has its mysteries. The issue in Kirik involves a different code section but some of the same underlying principles are at play.
The Second Circuit described the issue in Kirik as follows:
Although § 7481(a) is quite explicit as to when a decision of the Tax Court becomes final, circuit courts have split on whether, and under what circumstances, the Tax Court may vacate or revise one of its finalized decisions. The Sixth Circuit has concluded emphatically that “once a decision of the Tax Court becomes final, the Tax Court no longer has jurisdiction to consider a motion to vacate its decision.” Harbold v. Comm’r, 51 F.3d 618, 621 (6th Cir. 1995). Other circuits, and the Tax Court itself, have acknowledged a few narrow exceptions to this rule, including situations in which there has been a fraud on the court, where the Tax Court did not have jurisdiction in the first place, Davenport Recycling Assocs. v. Comm’r, 220 F.3d 1255, 1259 (11th Cir. 2000), and where the Tax Court discovers a clerical error after the decision became final, Stewart v. Comm’r, 127 T.C. 109, 112 n.3 (2006).
The Second Circuit has never definitively decided whether the finality rule is jurisdictional or merely a claim processing rule that is subject to judicially‐created exceptions. In Cinema ’84, 412 F.3d at 371, it declined to expressly adopt any of the exceptions identified above. Assuming that the Tax Court’s finality rule is not strictly jurisdictional and the above‐referenced exceptions could be properly considered by the Tax Court, none would make the slightest difference in this case, since there is no possible argument that the Kiriks’ delay was caused by fraud, mutual mistake, clerical errors, or the Tax Court’s lack of jurisdiction to enter a decision in the first place. Indeed, the Kiriks do not argue otherwise.
The paragraph summarizing the law is a shortened version of what the 2d Cir. wrote in its 2005 opinion in Cinema ’84, except that Cinema ’84, being decided only shortly after the Supreme Court in Kontrick v. Ryan in 2004 for the first time distinguished “claim-processing rules” from jurisdictional rules, does not use those two terms. Thus, in Kirik, the 2d Cir. seems to realize for the first time that it may, in an appropriate case, have to rule on the issue of whether the Tax Court loses the ability to modify its decision after 90 days as a jurisdictional matter or whether there might be exceptions because the 90-day rule is only a claim-processing rule.
The facts of Kirik were terrible. The notice of deficiency had sought about $3 million in taxes and penalties alone. The Kiriks did not seek to vacate the Tax Court’s order of dismissal for lack of prosecution until almost 9 months had elapsed (instead of the 30 days generally provided for in Tax Court rules). Although the 2d Cir. in Kirik could have used the words and the tests for “equitable tolling”, it did not; instead, it discussed the taxpayers’ request for an excusable neglect exception. It stated:
[t]he Kiriks essentially argue that we should create a new exception to the finality rule based on the concept of excusable neglect. But we need not decide whether we can, or even should, acknowledge such an exception because even the most charitable and expansive definition of excusable neglect could not salvage the Kiriks’ claims here.Although excusable neglect provides a permissible basis for noncompliance with court rules in a variety of contexts, all applications of the doctrine require courts to consider “the reason for the delay, including whether it was within the reasonable control of the movant.” Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (internal quotation marks omitted). “We have noted that the equities will rarely if ever favor a party who fails to follow the clear dictates of a court rule,” id. (internal quotation marks and alteration omitted), going so far as to observe that where the rule governing a filing deadline “is entirely clear . . . a party claiming excusable neglect will, in the ordinary course, lose,” Canfield v. Van Atta Buick/GMC Truck, Inc., 127 F.3d 248, 251 (2d Cir. 1997).
Here, the Kiriks’ delay in filing their motion was entirely within their control. There is no dispute that the Kiriks fired their attorney, thus taking on the risks associated with navigating the Tax Court alone, notwithstanding their self-professed lack of sophistication and less-than-complete fluency in English. Inexplicably, they then failed to respond to multiple orders from the Tax Court, including the order dismissing their case for lack of prosecution. Several months later, the IRS sought to levy on the Kiriks’ assets, yet even then the Kiriks did not file a motion to vacate the order dismissing their case. It was not until July 2020 – almost nine months after the Tax Court issued its dismissal order – that the Kiriks finally got around to making their motion. Nothing in our case law suggests that the Kiriks’ neglect, which was considerable, was even remotely excusable. Consequently, we see no reason to second guess the Tax Court’s denial of the Kiriks’ motion to vacate the October 2019 order dismissing their case.
In its Cinema ’84 opinion, the 2d Cir. also dodged deciding the issue of whether the Tax Court retained jurisdiction to modify its decisions after 90 days. Cinema ’84 was a TEFRA case. Here are the sentences in which Cinema ’84 declined to consider that taxpayer’s argument for an exception:
However, we have not explicitly adopted any of the exceptions to the general rule, discussed supra. In any event, it is unnecessary for us to decide in the present case which, if any, of the exceptions this Court recognizes because regardless of how Reigler’s argument is characterized, vacatur was not warranted here, where the Tax Court was under no duty to appoint a TMP and its failure to do so did not deprive Reigler of due process.
So, while the Kirik case does not really add to the resolution of this issue, it points out the conflicting case law and once again highlights the existence of the issue. Because the facts in the Kirik case do not favor relief, perhaps for those who want to reopen the door after the 90-day period has run, the failure of the 2nd Circuit to address this issue head-on provides a benefit. Here, bad facts did not really influence the further development of the law. Of course, no one should wait until after 90 days have passed before coming back to the Tax Court to seek a reversal of the decision. Convincing the Court to reverse will be hard enough. Adding onto that an uncertain test with a high bar makes it almost impossible.