Tax Court Jurisdiction in Late-Filed Deficiency Cases

0 Flares Filament.io 0 Flares ×

Yesterday, PT put up a post providing guidance in the timing of the filing of Tax Court petitions and noting the different time frames for filing caused by the Tax Court shutdown and IRS Notice 2020-23 exercising the power to extend Tax Court filing deadlines granted in IRC 7508A. If last year’s government shutdown is any indication of what will happen in 2020, it is almost a certainty that some taxpayers who try to get into the Tax Court will miss the deadline for one reason or another.  Some of those reasons are good reasons.  Those taxpayers will face a motion to dismiss filed by the IRS or an order to show cause generated by the Tax Court seeking to knock them out of Tax Court because of a late filing.  For those of you who read yesterday’s post and have a good grasp of the time to file your Tax Court petition and the need to file using the USPS, certified mail with a filing slip, this post is unnecessary.  For the rest of you, including those who come to the rescue of pro se taxpayers who may have filed late, this post will provide you with assistance if yesterday’s post did not keep you, or your current client from the shoals of a jurisdictional dismissal.

In a post last month, I called for a legislative clarification that judicial filing deadlines in most tax cases are not jurisdictional and are subject to equitable tolling.  The extensions for filing Tax Court petitions provided by the IRS in its recent Notice 2020-23 (from April 1, 2020 to July 15, 2020) and, effectively, by the Tax Court itself in Guralnik v. Commissioner, 146 T.C. 230 (2016) (from March 19, 2020 [when the Clerk’s Office first closed] until the Clerk’s Office reopens) may not be sufficient for all COVID-19 sufferers.  Reports are that people coming out of the hospital are often extremely weakened by the virus.  They may not be physically able to meet even these extended deadlines.  That’s where equitable tolling may help, for one of the most common grounds for equitable tolling is the plaintiff being prevented by circumstances beyond his or her control from complying with the filing deadline.  Using equitable tolling, judges using their equity hats can give extensions after hearing all the facts and circumstances and making sure the taxpayer behaved at least with reasonable diligence under the circumstances.

Over the last year, The Tax Clinic at the Legal Services Center of Harvard Law School (The Clinic) has been looking to litigate test cases in the Tax Court concerning whether the deficiency filing deadline of section 6213(a) is still jurisdictional or is subject to equitable tolling under recent Supreme Court case law that, starting in 2004, made filing deadlines now almost never jurisdictional and usually subject to equitable tolling.  I assist The Clinic in finding good test cases by nightly scouring Tax Court orders in this area (not just designated orders).

I thought it would be useful to tell the story of the cat and mouse game that has been going on between The Clinic and the IRS since last fall in The Clinic’s attempt to litigate these issues.  In the three best test cases that I found, and where Keith and I entered appearances and filed lengthy papers to litigate the issues, in each case, the IRS took steps to avoid having to respond – in one case reissuing the notice of deficiency just before The Clinic filed its response to an order to show cause and in two others conceding the underlying deficiency shortly after The Clinic filed motions to vacate dismissal orders, leading to withdrawal of the motions to vacate as moot.  Is the IRS that afraid that The Clinic may be right? 

With this post, I also share the filing we made in one such case, since there is no reason that others shouldn’t be able to borrow from it for purposes of making these same arguments in their cases.  All I would ask is that you keep Keith or me informed if you do use it and have such a test case for yourself.

read more...

You know from prior posts (too many, so I won’t give cites) that The Clinic initially tried to argue that the Tax Court innocent spouse (section 6015(e)(1)(A)) and Collection Due Process (section 6330(d)(1)) petition filing deadlines are not jurisdictional and are subject to equitable tolling under recent Supreme Court case law.  We lost the innocent spouse cases in three Circuits.  We lost the Collection Due Process cases in the Tax Court (Guralnik) and the Ninth Circuit (as amicus).  But, we won a case in the D.C. Circuit (as amicus with the court adopting significant portions of our brief) concerning the section 7623(b)(4) whistleblower award petition filing deadline, where the statutory language regarding the time period for filing the petition was taken almost verbatim, from the Collection Due Process provision. And for further discussion of these issues, see Bryan Camp’s article on jurisdictional tax deadlines (Prof. Camp argues that the deficiency, CDP and refund deadlines are non-jurisdictional, but that the innocent spouse deadline is jurisdictional).

However, probably 90% of Tax Court petitions are not under these jurisdictions, but are deficiency cases, where section 6213(a) supplies the deadline.  Initially, The Clinic avoided litigating the section 6213(a) deadline because of concerns that under section 7459(d), any late-filed petition that was dismissed would end up being dismissed on the merits and upholding the deficiency – thereby precluding by res judicata the taxpayer from subsequently paying and suing for a refund in district court. 

Only later, by doing a little research and thinking did we conclude that almost no one who is dismissed from the Tax Court for having late filed a deficiency case ever pays and sues for a refund.  There are only about 200 refund suits brought in the entire U.S. each year, and Keith and I don’t recall seeing any having been brought after a Tax Court dismissal for late filing.  So, the section 7459(d) concern is extremely unlikely as a factual matter. 

On the other hand, if the filing deadline is no longer jurisdictional, judges wouldn’t police the filing deadline themselves as they now do.  Our research showed that, each month, Tax Court judges on their own find 7 to 10 cases in which the IRS failed to notice a possible late filing and so the judges issue orders to show cause why the cases should not be dismissed.  So, 7 to 10 taxpayers a month might benefit if the deficiency filing deadline were not jurisdictional.  If the IRS fails to raise late filing as to a nonjurisdictional deadline, the IRS simply forfeits the issue.

The Tax Court and every Circuit court has long held that the deficiency filing deadline is jurisdictional.  But, surprisingly, only two Circuit courts to date and no Tax Court opinion has analyzed whether the deficiency filing deadline is still jurisdictional or is subject to equitable tolling under recent Supreme Court case law.  The one Circuit court precedential opinion, Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), held that the filing deadline is still jurisdictional, but its reasoning is subject to substantial criticism.  Another Circuit court opinion reaches the same result in an unpublished opinion; Garrett v. Commissioner, 2019 U.S. App. LEXIS 37483 (3d Cir. 2019); yet the case was a last known address case in which the parties did not even discuss in their briefs the issue of whether the filing deadline is still jurisdictional, and the court’s reasoning is similar to Tilden (which it doesn’t even cite).  So, since 2004 (when the Supreme Court changed its precedent), the issues have somehow been avoided in the Tax Court and most Circuits.

There are pending two companion cases in the Ninth Circuit presenting the issues of whether the section 6213(a) filing deadline is still jurisdictional or is subject to equitable tolling under the recent Supreme Court case law, Organic Cannabis Foundation v. Commissioner, Ninth Circuit Docket No. 17-72874, and Northern California Small Business Assistants, Inc. v. Commissioner, Ninth Circuit Docket No. 17-72877.  The cases had oral argument on October 22, 2019.  An opinion

could issue in the cases any day.  However, because of another issue presented in the cases, the Ninth Circuit may never reach the jurisdiction and equitable tolling issues.  (The Clinic filed amicus briefs in the cases.)

Because the issues may be avoided in those two Ninth Circuit cases, since last year, Keith and I have been looking in pro se Tax Court cases for fact patterns that would make great test cases on the issue.  We find the cases by searching orders issued daily by the Tax Court.  The orders are ones of dismissal or to show cause why the petition should not be dismissed for late filing.  Some of the orders come from S cases, which presents an extra layer of problem because, to date, no court has held that an S case petitioner can appeal a Tax Court dismissal of a petition for lack of jurisdiction.  (That’s another issue The Clinic is litigating and in another Ninth Circuit case – but I will not go into that issue here.)  If the order we find is one for dismissal, we try to enter an appearance and, within 30 days, move to vacate the dismissal, arguing that the Tax Court erred in treating the filing deadline as still jurisdictional.  If it is an order to show cause, we try to enter an appearance and respond to the order on behalf of the taxpayer.  If the case is an S case, we also move to remove the S designation, since it would be easier to appeal if that designation were removed.  To date, we have found about a half dozen apparently great test cases on the facts, but taxpayers have only responded to our approaches in three cases.

The funny thing about those three cases, though, is that the IRS attorneys in the cases have done everything possible to avoid having to respond to our papers.  In two cases, where we had moved to vacate dismissal orders, the IRS, before responding, looked into the facts of the underlying deficiency and represented that the deficiency would be abandoned by the IRS.  Such actions made our pursing further Tax Court litigation moot, so we moved to withdraw our motions to vacate (and, in one case, to remove the S designation).  The Tax Court granted our motion to withdraw without comment in one case and we are awaiting the outcome of the motion to withdraw in the other.  In effect, The Clinic helped the taxpayers in these cases to win the cases by other means.

In the third case, the IRS felt so bad about what had happened that it reissued the notice of deficiency and represented that it would not try to assess the deficiency sent out in the first notice.  The IRS sent out the new notice of deficiency shortly after the Tax Court issued an order to show cause why the case should not be dismissed and just prior to our entry of appearance though neither the taxpayers nor The Clinic knew this at the time of filing the taxpayers’ response to the order.  Only after The Clinic filed its response did the IRS inform The Clinic and the court that the IRS had sent out a new notice of deficiency. The new notice of deficiency afforded the taxpayers an opportunity to timely file in the Tax Court which the IRS hoped would make any fight on the first notice moot. 

However, the Tax Court has not cooperated with the IRS strategy (at least, yet).  The court does not simply dismiss a petition as duplicative when it might be that the petition did give the Tax Court jurisdiction.  Parties can’t stipulate the court into or out of jurisdiction.  So, in the case involving the first notice of deficiency, where the court had issued an order to show cause, and The Clinic filed papers, the Court has ordered the IRS to respond to our papers by April 27.  This may result in a Tax Court opinion, not just an unpublished order – especially if the Tax Court decides that the deficiency filing deadline is not jurisdictional and is subject to equitable tolling (which would no doubt be a court-reviewed opinion).

This third case is an S case, Rosenthal v. Commissioner, T.C. Docket No. 18392-19S[WMS1] , possibly appealable to the Ninth Circuit.  Here are the facts that we think present an excellent case for equitable tolling:  The taxpayers received a notice of deficiency and filled out a Tax Court Form 2 petition.  They incorrectly mailed the petition to the IRS Laguna Nigel office.  That office stamped the petition “received” four days before the end of the 90-day filing deadline.  Weeks later, the IRS forwarded the petition to the Tax Court, which filed it as of the date the Tax Court received the petition.  One of the classic grounds for equitable tolling is timely filing in the wrong forum.  Just in case anyone wants to read our response to the order to show cause (or copy from it), here it is in Word.

Since the first two cases got resolved in favor of the taxpayers without an opinion or order, for privacy purposes, I won’t identify them here by name or docket number.  But, one of those cases presented the exact same factual pattern as Rosenthal – i.e., timely filing of the Form 2 petition with the IRS office that generated the notice of deficiency. 

In sum, it is rather curious that the IRS keeps trying to prevent The Clinic from litigating in the Tax Court the issues of whether the deficiency petition filing deadline is not jurisdictional and is subject to equitable tolling.  But, these issues won’t be dodged forever.  If the Ninth Circuit rules favorably in the two pending test cases in which The Clinic filed amicus briefs, I expect the DOJ to seek en banc rehearing and Supreme Court review, if necessary.  In the event The Clinic loses in the Ninth Circuit, it is not yet prepared to give up on these issues in other appellate courts.  So, we will continue looking for Tax Court deficiency test cases.

About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he was Acting Director from January to June 2019.

Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

Speak Your Mind

*