We have written many posts on jurisdictional issues in Tax Court and other courts. I will not link to them here but wanted to write a short post demonstrating one of the ways jurisdiction matters. Thanks to Carl Smith for bringing this case to my attention.
In the case of Carandang v. Commissioner, Dk. No. 19224-19S the petitioner filed a petition seeking innocent spouse relief. She reached an agreement with the IRS in the Tax Court case conceding the case and the parties filed a joint proposed stipulated decision. Having reached an agreement in the case, the parties filed with the Tax Court a Joint Proposed Stipulated Decision on May 18, 2020. You might expect that where the parties have reached an agreement in a case the Tax Court would sign and file the agreement.
read more...Instead of accepting the agreement, the Tax Court issued a show cause order on May 19, 2020 asking the parties to explain why the Court has jurisdiction. The lawyers reviewing the case for the Chief Judge, who would sign the stipulated decision of a case not on an active calendar, found that the petition appears to have been filed a day late. On May 20, 2020, the IRS responded and provided an explanation of the Court’s basis for jurisdiction. On May 21, 2020, the Tax Court dismissed its order to show cause since the IRS now admits that it failed to send the notice of determination by certified mail. On May 22, the Tax Court entered the Stipulated Decision in the case it had first decline to enter. Very interesting to see docket entries five days in a row and the resolution of an issue so quickly. I don’t know if this efficiency results from the pandemic or just happenstance.
The Tax Court takes the position, upheld by at least three circuit courts the tax clinic at Harvard has visited, that it has jurisdiction of innocent spouse cases only when the petitioner timely files a Tax Court petition. On the face of this case, it appears that the petitioner may have filed the petition late. The Tax Court correctly seeks to make itself certain that it has jurisdiction over the case prior to signing off on the document that will resolve the case. While correct, the raising of the jurisdictional issue by the Court at this stage has the likely effect of dismissing the Tax Court case and moving the parties back into an administrative posture. If the outcome were favorable to the taxpayer in a situation like this, the IRS will almost certainly give the taxpayer the benefit of whatever agreement was reached in the case. Ultimately, the taxpayer and the IRS will end up in the same place although the taxpayer will not have the benefit of a court order approving the agreement. Both the IRS and the Court will spend time and effort finding evidence of the date of mailing of the notice and reviewing the notice before the Court finds the answer to the question of jurisdiction.
Based on reviewing court orders for several years and watching the dismissal of cases, Carl Smith estimates that once or twice each month it happens that a case reaches the stage of settlement and the court raises a jurisdictional issue not previously seen by Chief Counsel’s office or the court. Because the IRS will almost always honor these settlements administratively, the taxpayer receives the benefit of having an attorney for the government work on their case in order to reach a settlement. Perhaps, I should accept that as a good thing and move on; however, it seems like a waste of resources to stop the judicial process and restart the administrative one in cases where the outcome is not a full concession. If the timing of the petition were not considered jurisdictional, Ms. Carandang and the IRS would have the stipulated decision signed by the court and would move on to other affairs of life without having to do a two-step to get there. This provides another policy reason for Congress not to treat the time period as jurisdictional and a reason the Supreme Court has made the determination that time periods for filing in court are only jurisdictional when Congress makes a clear expression it intends the time period to be jurisdictional.
For a case stopped by this process, look at the 2018 order to show cause and the dismissal order in Williams, Docket No. 24954-17. In that case, of course, we can’t see a copy of the proposed decision because the court never entered it. The parties simply had to return to the administrative process to work out the details of the case they had settled through the Tax Court process without knowing the court lacked jurisdiction over the case until they had resolved it.
Special Note about Clerk’s Office at the Tax Court
On May 21, 2020 the Tax Clinic at Harvard received notice that the Tax Court had processed a petition dated March 16, 2020. Earlier indications were that the Court had stopped processing cases about March 9. The receipt of this notice indicates that someone is again working in the clerk’s office. Because of the date of the petition, it would have arrived at the Tax Court before the Court closed the clerk’s office. Unclear if the action on this case just means that a small group is working in the clerk’s office to clean up the 10 days or so of cases received but not processed before the closure of the clerk’s office or if this signals the clerk’s office is about to reopen and the suspension of time to file a petition under Guralnik is about to come to an end.
Additional Resource Regarding the Jurisdictional Issue
If you want more background on the general issue of jurisdiction and the Tax Court just type jurisdiction into the search box on the blog or read the excellent law review article by Bryan Camp “New Thinking About Jurisdictional Time Periods in the Tax Code,” 77 Tax Lawyer 1 (2019).
In an odd way, this raises the same practical issue as the Flynn case in DC. There, the prosecution seeks to dismiss a criminal case with prejudice and the judge is resisting that. The Rule requiring leave of the court to dismiss is meant (depending on one’s politics) only or primarily to protect defendants by restraining prosecutorial manipulations and to ensure, for example, that a dismissal is final and leaves the government no wiggle-room to harass by repeated indictments & dismissals. In the tax case, that kind of finality is precisely the result the taxpayer seeks but which the jurisdictional bar precludes.
Can the taxpayer not get the same certainty with a closing agreement; is that not as effective a bar as a court order to the IRS’s changing its mind later?
A closing agreement would be as effective as a court order but would generally be unnecessary for the issues that go unresolved when the court ends up lacking jurisdiction. Because the parties believed the court had jurisdiction when they negotiated, they would not have thought about a closing agreement. Once they learn that their court agreement will not work because of the jurisdictional issue, the taxpayer (or the IRS) could request a closing agreement if it was felt one was needed but it the vast majority of cases it would not be the type of issue that would normally trigger a closing agreement. As I mentioned in the post, in almost all cases the IRS will honor the agreement and just go through the steps to resolve the case administratively. The problem is usually not the lack of finality the court decision would bring but rather the bother of having to go through the administrative process when a court resolution appeared within the grasp of the parties.
Looking at this from the standpoint of the other spouse (who, after all, may be the innocent one):
1) He had the right to intervene in the Tax Court case. He was mailed notice of it on December 26, 2019. He had 60 days from date of service to respond, and apparently did not.
2) If the case is dismissed for lack of jurisdiction and settled by administrative order, is there anything to prevent him from commencing his own claim and, if denied by IRS, taking it to Tax Court?
If the other spouse did not participate in the Tax Court case and has not already been to Tax Court, he or she could request innocent spouse relief and petition the Tax Court if the relief was denied. I am unaware of a case holding that intervention in the first innocent spouse case is mandatory in order to preserve the right to seek innocent spouse relief. The failure to intervene should not impact the ability of the other spouse to pursue relief in their own right.
I was interested in the fact that the Court accepted the no-certified-mail argument. I vaguely recall some authority that even though that requirement is in the Code, if the taxpayer actually got the NOD, it doesn’t matter how it was sent. That bothered me. I like this better. Of course, my memory could be lacking.
If the IRS mails the notice of deficiency or notice of determination to the wrong place but it gets to the taxpayer in time for the taxpayer to file a petitioner, the notice is acceptable even if it would otherwise not have satisfied the statutory requirement upon which the IRS could base an assessment.
Rob,
What you are recalling is that in the notice of deficiency area, mailing to the last known address under 6212(b)(1) is “sufficient”, not mandatory. It’s a “safe harbor” for the IRS. However, the 6015(e)(1)(A) language is different. One can file a stand-alone case if one waits 6 months from the time the Form 8857 was filed. Only if the IRS sends a notice of determination to “the last known address” by certified or registered mail, the taxpayer must file the petition in 90 days. In this case, the IRS could not find it sent the notice to the taxpayer’s last known address by certified or registered mail. I assume that they sent it to her last known address, but couldn’t find it was done certified or registered. So, the cutoff did not apply, and the Tax Court had jurisdiction because she sent in her petition more than 6 months after filing her Form 8857.
Now, really, there is a much bigger issue here because my recitation of what the statute says is not apparently the Tax Court’s precedent on this matter under 6015(e)(1)(A). In Ewing v. Commissioner, 118 T.C. 494 (2002) (later vacated by the 9th Cir. for LOJ under 6015(f) before the 2006 amendment of 6015(e) to cover (f) cases), the IRS raised the argument that, even if a notice of determination wasn’t sent to the last known address, it was obvious that the taxpayer received it before the 90 days was up because she dated the petition 2 days before the end of the 90 days (though she mailed the envelope containing the petition beyond the 90 days), so there was no prejudice. The IRS asked to Tax Court to import into 6015 the deficiency case jurisprudence about whether actual receipt in time to file might rescue a notice of determination that was not sent to the taxpayer’s last known address. The Tax Court did not decide whether it could import such case law, but held that even under that deficiency case law there was prejudicial delay in the Ewing case. I am not sure that another Tax Court case has ever addressed this question of whether the Tax Court can import the deficiency jurisdiction case law into 6015. I don’t think so, but I would welcome correction on this by anyone reading this comment.
Here’s the relevant passage from Ewing:
III. Timeliness of Petition
The next issue is whether the petition was timely filed under section 6015(e). Section 6015(e)(1)(A) provides, in pertinent part, that an individual may file a petition:
(i) at any time after the earlier of —
(I) the date the Secretary mails, by certified or registered mail to the taxpayer’s last known address, notice of the Secretary’s final determination of relief available to the individual, or
(II) the date which is 6 months after the date such election is filed with the Secretary, and
(ii) not later than the close of the 90th day after the date described in clause (i)(I).
In the instant case, the petition was filed more than 6 months after the date petitioner submitted to respondent her request for relief under section 6015. The notice of determination was not mailed to petitioner’s last known address. Thus, the petition was not filed later than the close of the 90th day after the date respondent mailed the notice of determination to petitioner’s last known address. While this would seem to end the matter, respondent argues that petitioner received the notice in sufficient time to file a timely petition within 90 days and that somehow we should therefore find that the petition was filed after the 90-day period described in section 6015(e)(1)(A)(ii).
Respondent relies on the fact that the petition is dated 2 days before the 90th day after respondent mailed the notice of determination. Respondent points out that the petition would have been timely if mailed on the date shown on the petition. Respondent notes that cases involving a notice of deficiency have recognized that actual receipt of the notice without prejudicial delay is sufficient for the notice to be effective even though not sent to the taxpayer’s last known address. Assuming that this rationale could have some application in deciding when the 90-day period referred to in section 6015(e)(1)(A)(ii) begins, we find that the improperly addressed notice did result in prejudicial delay.
In a deficiency proceeding, our jurisdiction depends on the issuance of a valid notice of deficiency and a timely filed petition. Rule 13(a), (c); Monge v. Commissioner, 93 T.C. 22, 27 (1989). Section 6212(a) authorizes the Commissioner to send a notice of deficiency to a taxpayer by certified mail or registered mail. The taxpayer must generally file a petition to this Court within 90 days after the date the notice of deficiency is mailed. Sec. 6213(a). Section 6212(b)(1) provides that it “shall be sufficient” for jurisdictional purposes if the Commissioner mails the notice of deficiency to the taxpayer at the taxpayer’s last known address. Frieling v. Commissioner, 81 T.C. 42, 52 (1983). It is well settled that, although a deficiency notice properly mailed to a taxpayer’s last known address provides the Commissioner with a “safe harbor” under section 6212(b), an improperly addressed notice of deficiency remains valid under section 6212(a) if it is actually received in sufficient time to permit the taxpayer to file a timely petition for redetermination. Mulvania v. Commissioner, 81 T.C. 65, 67-69 (1983), affd. 769 F.2d 1376 (9th Cir. 1985).
The determination of whether a taxpayer’s ability to file a timely petition has been prejudiced by an improperly addressed notice is factual in nature. Looper v. Commissioner, 73 T.C. 690, 699 (1980). In general, the cases in which we have held that an improperly addressed notice of deficiency was actually received with sufficient time to permit the taxpayer to file a timely petition for redetermination have involved receipt with at least 30 days left in the filing period. See, e.g., Mulvania v. Commissioner, 81 T.C. at 68 (74 days remaining); Bowers v. Commissioner, T.C. Memo 1991-609 (69 days remaining); Fileff v. Commissioner, T.C. Memo 1990-452 (60 days remaining); George v. Commissioner, T.C. Memo 1990-147 (52 days remaining); Bulakites v. Commissioner, T.C. Memo 1998-256 (45 days remaining); Loftin v. Commissioner, T.C. Memo 1986-322 (30 days remaining); Eger v. Commissioner, T.C. Memo 1984-325 (30 days remaining). In a situation where a notice was actually received with only 17 days left in the filing period, we held that the taxpayer was prejudiced by the improperly addressed notice because he did not let the notice languish and “he took responsible steps in an attempt to fulfill requisites to contest the Commissioner’s determination in the Tax Court.” Looper v. Commissioner, supra at 699.
Applying this standard in the context of a notice of determination under section 6015, we find that petitioner’s ability to timely file the petition was prejudiced by the improperly addressed notice. At the hearing, petitioner stated that during the relevant time period she was busy attending to her injured husband and did not know when she received the notice of determination. The only evidence of a specific date shows that the notice was received by January 27, 2001, which was the date written on the petition. This date, upon which respondent relies, was 88 days after respondent mailed the notice of determination and only 2 days prior to the last day for filing a petition.
Petitioner initiated and has diligently pursued relief from joint liability. There is no evidence that petitioner let the notice languish or otherwise failed to take responsible steps to contest respondent’s determination in this Court. Therefore, on the basis of the evidence in the record, we find that the delay caused by the improperly addressed notice was prejudicial to petitioner’s ability to timely, by January 29, 2001, file her petition.
Id. at 507-510 (footnotes omitted).
In contrast, the IRS in Carandang did not argue that she received the notice of determination without prejudicial delay, even if it was not sent certified or registered. Since whether the deficiency “no prejudicial receipt” case law applies to 6015(e) cases is an open question, maybe it was improper of the Tax Court not to inquire into that issue and then hold it did not have jurisdiction if there was no prejudicial delay in the case — deciding the issue left open in Ewing. Frankly, if the Tax Court is going to treat filing deadlines as jurisdictional, I think it had the obligation to inquire into this question — unless it wanted to hold as a matter of law that the deficiency jurisdiction precedent has no application to 6015(e) (which I think would be the correct holding).
THANK YOU, Keith and Carl