Frequent guest blogger Carl Smith writes today about a case in which he and I seek to argue that equitable tolling applies to the time frame for filing innocent spouse cases in Tax Court. If you happen to have an innocent spouse or Collection Due Process case dismissed recently for lack of jurisdiction where the taxpayer had good reason for missing the time frame within which to file, please let us know. Keith
I know that some of you think I only care about equitable tolling in the Tax Code. I don’t. But, it is one of the few areas of tax procedure where the courts created the problem and so are the ones who should fix it. In United States v. Brockamp, the Supreme Court held that the section 6511 periods in which to file tax refund claims are not subject to the judicial doctrine of equitable tolling. Through enactment of section 6511(h) (tolling the statute of limitations in cases of financial disability), Congress overruled Brockamp for the limited circumstances involved therein.
Since then, the government has consistently argued that Brockamp requires that there be no equitable tolling anywhere in the Tax Code.
As to time periods in which to file certain recent-jurisdiction Tax Court petitions (but not the original section 6213(a) deficiency jurisdiction time period), Keith and I would like to ask the Tax Court to reconsider and overrule its precedents on jurisdiction and equitable tolling. This is to inform you that Keith and I have just done so — as new pro bono counsel of record — in a stand-alone innocent spouse case brought in Tax Court under section 6015(e), Matuszak v. Commissioner, Docket No. 471-15. A copy of the December 29, 2015 order of dismissal entered by Judge Marvel in the case is here. A link to our January 22, 2016 memorandum of law in support of a motion to vacate that order is found in two parts here and here. Keith and I argue that the 90-day period at section 6015(e)(1)(A) in which to file a stand-alone innocent spouse petition is not jurisdictional and is subject to equitable tolling. And we ask the Tax Court to reconsider and overrule its contrary precedent as to this particular time period in Pollock v. Commissioner because the reasoning of Pollock has been undermined by five subsequent Supreme Court opinions: Holland v. Florida; Henderson v. Shinseki; Gonzalez v. Thaler: Sebelius v. Auburn Regional Med. Cntr.; and United States v. Wong. (Another opinion issued on January 25, 2016, by the Supreme Court, Musacchio v. United States,also undermines Pollock.)
read more...Last year, as an amicus, I helped obtain a ruling from the Ninth Circuit in the case of Volpicelli v. United States that, under current Supreme Court case law, the 9-month period in section 6532(c) in which to file a wrongful levy suit in district court is not jurisdictional and is subject to equitable tolling. The government vigorously disagrees with that opinion, but decided not to ask the Supreme Court to review it (despite a split with older opinions from other Circuits). See posts on Volpicelli here and here.
In recent posts here and here, PT made you aware that in November, Keith and I, on behalf of the Harvard Federal Tax Clinic, filed an amicus memorandum of law in the Tax Court case of Guralnik v. Commissioner, in which we make the argument that the 30-day period in section 6330(d)(1) in which to file a Collection Due Process (CDP) petition in the Tax Court is not jurisdictional and is subject to equitable tolling. For those interested, as an update, here is a link to the IRS’ January 6, 2016 response to our memorandum. Suffice it to say that the IRS argues that we grossly exaggerate the impact of the recent non-tax Supreme Court opinions on these topics. But, that’s what the government unsuccessfully argued in Volpicelli, too.
I have been using the Tax Court’s order search function to read all recent orders of the Tax Court citing either section 6015 or 6330. From doing that reading, and ordering copies of documents from the Tax Court in cases suggesting that the taxpayers might have had an equitable tolling argument for a late filing, I have located a small number of cases that might be used as test cases. When the order issued in Matuszak on December 29, 2015, this seemed like a promising test case.
Matuszak Facts
Craig Matuszak had a successful career going in the telecommunications business. But, things went off the rails when his employer accused him and other employees of theft. The theft was accomplished by making the employer pay third-party invoices for work never done and pocketing the money sent to pay those invoices. The alleged conduct happened in 2007 and 2008, years in which Craig and his wife Linda filed joint returns that, of course, did not report any money that Craig stole as income.
On August 8, 2012, Craig was charged in federal district court both with wire fraud and filing a false 2007 income tax return in violation of section 7602(2). The date the information was filed, Craig pled guilty, since he and his criminal lawyer had negotiated the exact amount of the tax deficiencies for 2007 and 2008 with the federal government in advance. Under the plea deal, Craig and Linda forfeited the primary residence that they had been building in 2007 and 2008 (and completed in 2009) and two automobiles. The primary residence was their only house and major asset. Since January 2014, Craig has been incarcerated, and he is not expected to be released until 2017 at the earliest. If you have access to PACER you can find out more about his case at United States v. Craig Matuszak, N.D.N.Y., Docket No. 1:12-cr-359.
On August 28, 2012, Craig brought a Form 4549 for 2007 and 2008 to Linda, and told her that she needed to sign the form for his plea deal to go through and that she would not be liable for the tax deficiencies shown thereon ($333,964 for 2007 and $105,055 for 2008) beyond the forfeited assets. Late in 2009, Craig had told Linda that he was under criminal investigation for something he did at work, but he minimized the investigation and did not even let Linda go to his plea entry hearing. So, in August 2012, she was rather shocked to hear that, essentially, the Matuszaks would lose all their assets because of the plea and owe additional unpaid taxes. She was not aware at that date that Craig had ever received any unreported income. Even today, she doesn’t know what happened with the money Craig now concedes that he took from his employer. But, taking her husband’s assurances that she would not be liable for anything more, Linda signed the Form 4549, and the IRS assessed the taxes shown thereon and sent both spouses bills seeking payment.
After Craig was incarcerated and Linda was reduced to renting a place to live in, she filed a Form 8857 covering the 2007 and 2008 liabilities. With no fuss, CCISO granted Linda complete section 6015 relief for 2008. (Since 2001, Linda has been disabled, and her sole source of income has been Social Security disability.) But, there was a problem with 2007.
Prior Deficiency Case
In 2010, the IRS had begun a routine audit of some unreimbursed employee business expense deductions claimed by Craig on the Schedule A of the 2007 joint return. In September 2010, the IRS sent a notice of deficiency disallowing most of the deductions and asserting a deficiency of $9,260. Linda had asked Craig if this IRS audit had anything to do with the criminal investigation that was going on. Craig (probably correctly) said, “no”.
Acting pro se, Craig and Linda jointly prepared and filed a Tax Court petition contesting the notice. At this point, Craig was still employed (by a different employer) and the Matuszaks were fairly well off, so Linda had no reason to think that, even if the deductions were wrong, the couple couldn’t afford to pay them. As a result, the petition (given Docket No. 27407-10) did not include a request for section 6015 relief.
When the IRS attorney who was about to prepare the answer in the case searched a database, she discovered a criminal investigation regarding Craig that included the year 2007. So, rather than file an answer, she successfully moved the Tax Court to stay all proceedings in the deficiency case pending resolution of the criminal proceedings. Nothing happened in the deficiency case – other than periodic reports filed by the IRS attorney – until the IRS attorney prepared and sent to the Matuszaks a stipulated decision that showed the $333,964 deficiency for 2007 that appeared in the Form 4549 that both spouses had already signed. Linda co-signed the stipulated decision, again on Craig’s assurances that she wouldn’t owe the tax shown thereon.
During the entire deficiency case, Linda never spoke to the IRS attorney – even failing to respond to voicemail messages from the attorney asking Linda’s position on IRS motions and the status reports prepared by the IRS attorney. Linda was afraid of messing up Craig’s criminal case if she said something wrong to the IRS attorney in the deficiency case.
Current Innocent Spouse Case
CCISO denied Linda’s request for section 6015 relief for 2007 simply on the grounds of res judicata – that Linda could have, but did not, raise section 6015 relief in the deficiency case. CCISO ruled that Linda was not entitled to the statutory exception to res judicata found at section 6015(g)(2) because, it said, Linda had “participated meaningfully” in the deficiency case.
Linda took her disallowance to Appeals, which upheld the CCISO ruling and issued a notice of determination denying relief on October 7, 2014. Linda was concerned that she timely file a Tax Court petition, so she spoke twice to the Appeals Officer (AO) about the final date by which the petition needed to be mailed to the Tax Court. Linda has contemporaneous notes in three places regarding the two phone conversations she had with the AO that seem to corroborate Linda’s story that the AO told Linda the final date to file was January 7, 2015. In fact, the final date was January 5, 2015. Linda thought she mailed her petition a day early when she mailed it out on January 6, 2015. But, in fact, she mailed her petition a day late.
You may be wondering why Linda did not go to a tax clinic to get help with filing, since, of course, at that point, she could not afford to hire an attorney. Well, Linda lives far upstate in New York, not near any New York City clinic. And the closest clinic, in Albany, could not help her, since its intake procedures prohibited taking cases involving more than $50,000 of tax. Linda went to her local library to research her case. Linda’s research and frequent migraine headaches were among the reasons why she took so long to file the petition.
After Linda filed the section 6015(e) petition, the IRS attorney filed an answer and then went out on maternity leave. A second IRS attorney who was assigned the case after it was noticed for trial before Judge Marvel (on February 1, 2016 in New York City) noticed the late filing issue. Because jurisdictional issues can be raised at any time (unlike statute of limitation issues, which should be raised in the answer), the second IRS attorney then moved to dismiss the case for lack of jurisdiction.
On December 29, 2015, Judge Marvel dismissed the petition, pointing out that Tax Court precedent is that its filing dates in that court cannot be extended. While sympathetic, Judge Marvel said there was nothing that she could do if Linda was misled by the AO into filing a day late.
Keith and I read the order and decided to contact Linda and offer our services, pro bono, to try to get the Tax Court to overturn its precedent that the section 6015(e)(1)(A) 90-day period in which to file a Tax Court innocent spouse petition is jurisdictional and not subject to equitable tolling. We have asked the court to rule that the time period is not jurisdictional, but is merely a period of limitations subject to equitable tolling in the right circumstances. We have also asked the court to take back jurisdiction in the case and then invite the IRS, if it chooses, to file a motion for leave to amend its answer to plead non-compliance with the period of limitations. Under Rule 39, both the statute of limitations and estoppel are special issues that must be set forth in a party’s pleadings. If the IRS does plead the statute of limitations, Linda, in turn, will plead estoppel as a result of the AO’s statements as to the filing date – estoppel being one of the usual grounds giving rise to equitable tolling.
Frankly, an example in the proposed section 6015 regulations seems to exactly cover Linda’s case on the res judicata issue, so that if the Tax Court takes back jurisdiction and the IRS does not raise (or raises, but loses) the statute of limitations issue, I would expect the IRS to concede the case on the merits. Example 5 of Proposed Reg. 1.6015-1(e)(4) (proposed on November 20, 2015) states:
“In March 2014, the IRS issued a notice of deficiency to H and W determining a deficiency on H and W’s joint income tax return for tax year 2011. H and W timely filed a pro se petition in the United States Tax Court for redetermination of the deficiency. W signed the petition, but otherwise, H handled the entire litigation, from discussing the case with the IRS Chief Counsel attorney to agreeing to a settlement of the case. Relief under section 6015 was never raised. W signed the decision document that H had agreed to with the IRS Chief Counsel attorney. If W were to later file a claim requesting relief under section 6015, W’s claim would not be barred by res judicata. Considering these facts and circumstances, W’s involvement in the prior court proceeding regarding the deficiency did not rise to the level of meaningful participation. [REG-134219-08, 2015-49 I.R.B. 842, 851]”
If this proposed regulation had been on the books when CCISO reviewed Linda’s Form 8857, I don’t believe that CCISO would have even asserted that Linda’s limited participation in the deficiency case caused res judicata to apply to her request for innocent spouse relief.
In a future post in March, Keith and I will report on another CDP case (i.e., beyond Guralnik) in which we will hopefully be arguing as amicus – this time in a pending pro se Ninth Circuit appeal – that the 30-day period in section 6330(d)(1) in which to file a CDP petition in the Tax Court is not jurisdictional and is subject to equitable tolling. Stay tuned.
About Carlton Smith
Keith and Carl’s representation of Linda Matuszak is an exercise in futility. Mrs. Matuszak has endured enough heartache and disappointment in these last few years. She needs not endure the inevitable bursting of the false hope that, shockingly, Keith and Carl have fostered in her.
Mrs. Matuszak’s case is a poor vehicle for an equitable tolling argument. Unfortunately, this time, Mrs. Matuszak’s plight is one of her own making. As Judge Marvel correctly noted, Mrs. Matuszak’s October 7, 2014 dated innocent spouse determination notice was unequivocal: she had only 90 days to dispute the determination by petition to the United States Tax Court. But she did not file her petition until the 92nd day.
Carl blames Mrs. Matuszek’s failure to file a timely petition on (among other unstated reasons) an Appeals Officer’s misstatements, her library research of her case and her frequent migraine headaches. Neither reason shouts “inequitable!”
I doubt that any disability Mrs. Matuszek may have suffered caused her to lose her presumptive ability to count to 90. Carl says the Appeals Officer twice incorrectly told Mrs. Matuszek that her petition due date was January 7th. But he does not tell us how Ms. Matuszek responded. Did she say something like, “That’s funny, because I counted the 90th day as January X” or “Ok, that’s the same date I determined”? If she did, I guess that Carl would have told us so.
Also, what did Ms. Matuszek need to “research” at the library? Certainly not her petition due date. Any librarian could have helped Mrs. Matuszek determine that date in 15 minutes.
Further, Carl relates that “[Mrs. Matuszek] was concerned that she timely file a Tax Court petition.” She was not that concerned. If Mrs. Matuszek had been concerned about the timeliness of her petition, then she would not have waited to mail her petition until the next-to-last day to do so. How could she be 100% certain that UPS Next Day Air could deliver her petition to the Tax Court in Washington, D.C. on January 7th, the purported (in winter) due date?
Of course, the last question I posed is a trick question. Mrs. Matuszek used UPS Next Day Air, which is an IRS designated private delivery service. Thus, if her due date was January 7th, her petition was timely mailed and therefore timely filed. So Mrs. Matuszek knew she could use UPS Next Day Air to timely deliver her petition. And if she believed she was “filing a day early,” she must have also known that “timely mailed is timely filed.” But that same knowledgeable Mrs. Matuszek did not know how to count 90 days from October 7th???
I must urge Keith and Carl:
Please find another test subject for your equitable tolling theories.
Jason,
You may not be aware of it, but there are several grounds for equitable tolling. One is if a plaintiff timely filed, but in the wrong forum. Another is if circumstances beyond the plaintiff’s control kept the plaintiff from timely filing. A third is if the defendant misled the plaintiff as to the filing date. Ms. Matuszak falls squarely into the latter category.
Even if you, as a lawyer, know how to count days, she did not. If pro se taxpayers should all be expected to know how to count days, the Congress would not have added a sentence to section 6213(a) in 1998 that required the last day to file be shown on a notice of deficiency. Nina Olson has long called for 6015 notices of determination similarly to show the last date to file because, as she pointed out, a high number of 6015 filers are low-income pro se taxpayers who are uncertain as to the last date to file. Apparently, according to Nina, the IRS is afraid to do that administratively because it doesn’t want to risk misleading a taxpayer into filing late, since at the moment, the 6015(e) period is treated as jurisdictional by the courts.
If we win the Matuszak motion, then the IRS will be free to put a last date to file on the notice of determination, even without Congress’ intervention. Congress had to intervene in 1998 with respect to section 6213(a) because, it said in its Committee reports, the 6213(a) period is jurisdictional. (I agree.)
Ms. Matuszak has been warned that our motion may not succeed. But, what is the alternative for her? Being held liable immediately for over $400,000 of tax and interest because she did not file on time? While, in the end, she could likely get some of the liability eliminated by an OIC, an OIC would cost at least some money. As I usually did in my clinic, she is trying to get innocent spouse relief (for free) before possibly going the OIC route (which requires a taxpayer to offer what remains of her net worth).
Carl makes some good points about why Congress should incorporate a § 6213(a)-type sentence into § 6015(e). But I still see no inequity in Mrs. Matuszak’s plight.
I must confess: I do not assume that one of low-income is likely incapable of counting up to 90. If he or she can count dollars, then I presume he or she can count days too. If I told a low-income person that a government check would be waiting for him at the Post Office 90 days from that day, I would bet he would appear to claim it right on the 90th day.
I don’t see how Mrs. Matuszak falls at all, let alone “squarely,” into the group of those who have been “misled” into acting late. The Appeals Officer had no obligation to answer Mrs. Matuszak’s query. After the AO had answered, albeit incorrectly, Carl accuses him of “misleading” his now-client.
Carl’s argument seems to be Mrs. Matuszak may avail herself in her § 6015 case of an oral version of § 6213(a):
“The Appeals Officer got the petition due date wrong, I relied on the petition due date he gave me, and therefore my petition was timely filed.”
Rather than having “misled” Mrs. Matuszak, the Appeals Officer appears to have been the blind leading the blind. But that act is a touching, if not a sad, one; it is hardly an inequitable one.
I’m relieved to know that Mrs. Matuszak knows she may not prevail. What is, indeed, her alternative? From what I’ve read, she may have two additional alternatives:
1. When the Matuszaks petitioned the Tax Court over their 2007 deficiency, they were still married and living together. Mrs. Matuszak, then, could not have raised in that proceeding a separation of liability spousal claim under § 6015(c). Res judicata therefore did not bar that claim if she later raised it in her Form 8857. Of course, I don’t know that the Matuszaks are divorced or legally separated. I do know that Mr. Matuszak was incarcerated when his wife filed her spousal relief claim form. If their separation was for more than 12 months, then she likely qualifies to make the separation of liability spousal relief claim under § 6015(c)(3)(A)(i)(II). Alternatively,
2. Mrs. Matuszek can request that the IRS reconsider its spousal relief determination. See IRM 25.15.17.1 (07-29-2014). Although “a claim can’t be reconsidered if res judicata applies,” Id. at 4, Carl’s argument would be that the res judicata decision, made only by the IRS, is wrong.
Mrs. Matuszak, however, must present new information that would warrant reconsideration. Carl has that in the proposed Treasury Regulation that provides “additional guidance on the judicial doctrine of res judicata and the section 6015(g)(2) exception to res judicata when a requesting spouse did not meaningfully participate in a prior court proceeding.”
On reconsideration, I would argue that the IRS is now merely detailing the steps to implement 6015(g)(2) that it should have considered all along, such as in Mrs. Matuszak’s case.
Other than offer those possible alternatives, I can only wish her well.
Jason,
The Matuszaks are not divorced. I considered the subsection (c) qualification argument, since he is now in prison. But, there are two problems:
First, the regs. under 1.6015-3(b)(3)(i) state:
A requesting spouse and a nonrequesting spouse are considered members of the same household during either spouse’s temporary absences from the household if it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of such return. Examples of temporary absences may include, but are not limited to, absence due to incarceration, illness, business, vacation, military service, or education.
So, I would have to argue that the incarceration is not temporary absence because they are anticipating divorce upon his release. She doesn’t want to say that. The have been married for over 25 years.
Second, and more problematic is that the forfeiture of the jointly-held assets was accomplished in January 2014, pursuant to a suit brought in August 2012. The bringing of a suit involving the jointly-held assets is a collection activity that triggers the two-year period for electing (c) relief. See reg. 1.6015-5(b)(2)(i), which states:
For purposes of this paragraph (b), collection activity means a section 6330 notice; an offset of an overpayment of the requesting spouse against a liability under section 6402; the filing of a suit by the United States against the requesting spouse for the collection of the joint tax liability; or the filing of a claim by the United States in a court proceeding in which the requesting spouse is a party or which involves property of the requesting spouse.
Thus, it is now too late to elect (c) relief.
I understand Mrs. Matuszak will neither allege that she is not maintaining her rental home in anticipation of her husband’s return from prison nor allege that she and her husband are estranged. As Carl says, that position would preclude a § 6015(c) relief request.
Although I agree with Carl on that point, on his second, “more problematic,” point, I’m unsure that I can agree. Carl says “the bringing of a suit involving [the Matuszak’s] jointly-held assets is a collection activity that triggers the two-year period for electing (c) relief. See reg. 1.6015-5(b)(2)(i).” He then directs us to that regulation, which provides:
“For purposes of this paragraph (b), collection activity means a section 6330 notice; an offset of an overpayment of the requesting spouse against a liability under section 6402; the filing of a suit by the United States against the requesting spouse for the collection of the joint tax liability; or the filing of a claim by the United States in a court proceeding in which the requesting spouse is a party or which involves property of the requesting spouse.”
From what Carl said, and from what I read in the regulation he cites, I can draw only one conclusion. That is, Mrs. Matuszak is also barred from § 6015(c) relief because “of a claim by the United States in a court proceeding…which involves property of the requesting spouse.”
I’m not so sure because Carl directs us only to Mr. Matuszak’s criminal case. I will presume, then, that is the sole relevant case.
To me, the United States’ August 2012 initiation of a criminal case, or “suit,” as Carl describes it, against Mr. Matuszak is not a property claim against Mrs. Matuszak. If it isn’t one, then the United States had to have filed its claim in a different manner, if not on a different date. Did it? When? The answer may not help Mrs. Matuszak; it could help the, no doubt inevitable, future Mrs. Matuszaks.
As to my other suggested alternative for Mrs. Matuszak to pursue, Carl did not address it. May we presume, then, that Mrs. Matuszak could request that the IRS reconsider its spousal relief denial?
Jason,
I suppose that Ms. Matuszak could go back to the IRS for reconsideration, but at the moment, the positions of CCISO, Appeals, and Counsel are all that she is bound by res judicata to the prior suit, where, the IRS alleges, she meaningfully participated (even though I think her participation was not meaningful). So, audit reconsideration is not my favorite solution to her problem right now..
The criminal suit against Mr. Matuszak was resolved immediately by a plea in August 2012 — one made the day the criminal information was filed. In the plea, Mr. Matuszak agreed to tax deficiencies for 2007 and 2008 and restitution owed to his employer. He also agree to forfeiture to the IRS of the jointly-owned house, and he got Mrs. Matuszak’s signature on a Form 4549 allowing assessment of the agreed deficiencies against her, as well. So, the IRS took the entire proceeds of the sale of the house, not just his share. I don’t see any way around the conclusion that the criminal case, and the forfeiture involved to resolve it, was a claim by the U.S. in a court proceeding involving property of the requesting spouse (her share of the house). Given that the point of the 2-year period was only Congress wanting the spouse to be on notice of a collection action taken against her property, her effectively agreeing to the house forfeiture, I believe, would be held to be the first collection activity she faced for the 2007 tax deficiency.
I will accept Carl’s take on the “collection activity” question only because it seems immaterial under the circumstances. If I had a similarly situated client where I could get in under the 2 year limit, however, I would argue that the United States did not make the required “claim” in the criminal case.
As for reconsideration, I did not suggest that Mrs. Matuszak seek “audit reconsideration.” Rather, I suggested that she seek reconsideration of her spousal relief denial, which the IRM permits.
I imagine that CCISO, Appeals, and Counsel each made its res judicata decisions before November 20, 2015–the date the IRS proposed a regulation that, as Carl suggested, implies that Mrs. Matuszak’s participation in the joint petition deficiency proceeding was not “meaningful.”
My position would be that the law had already required CCISO, Appeals, and Counsel in Mrs. Matuszak’s case to take the position that the proposed regulation would take. In other words, the proposed regulation demonstrates that the IRS’s respective res judicata decisions were unlawful ab initio.
The IRM exception to reconsideration of a res judicata based determination should not deter. I read that procedural exception to preclude a requesting spouse only from presenting new merits information. For one to challenge the res judicata decision itself, though, would be to ride a horse of a different color.