The Coronavirus Shows Why We Need Equitable Tolling Legislation Now for Judicial Tax Filing Deadlines

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Note that after this post below was written, at 9 pm March 18, the Tax Court issued a press release stating that its building is closed and that:

Mail will be held for delivery until the Court reopens. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service. The eAccess and eFiling systems remain operational. Petitions and other documents may not be hand delivered to the Court.

Under Guralnik, this now extends — to the date the Clerk’s Office reopens — the time for filing in person or mailing a Tax Court petition.

Things are moving fast (finally) in D.C.  On March 13, the President sent a letter to three Cabinet Secretaries and the Administrator of FEMA invoking his power under the Stafford Act to declare a national emergency because of the coronavirus.  Part of the letter stated:  “I am also instructing Secretary Mnuchin to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).”

On March 18, the IRS issued Notice 2020-17, providing for a 3-month extension (from April 15, 2020 to July 15, 2020) to “Affected Taxpayers” to pay 2019 income taxes (i.e., not any other taxes) – limited to $1 million for individuals and $10 million for C  corporations or consolidated groups.  Affected Taxpayers are defined as “any person with a Federal income tax payment due April 15, 2020” – apparently regardless of where in the world the taxpayers are located.

A paragraph in the Notice also reads:

Affected Taxpayers subject to penalties or additions to tax despite the relief granted by this section III may seek reasonable cause relief under section 6651 for a failure to pay tax or seek a waiver to a penalty under section 6654 for a failure by an individual or certain trusts and estates to pay estimated income tax, as applicable. Similar relief with respect to estimated tax payments is not available for corporate taxpayers or tax-exempt organizations under section 6655.

I take this to mean that if, say, an individual taxpayer paid $1.5 million in income taxes on July 15, the IRS will impose a late-payment penalty on $500,000 of the payment, but the IRS encourages the taxpayers to seek abatement of that penalty by explaining why the coronavirus prevented payment of that $500,000, as well.  I assume that the IRS will be liberal in granting abatements, but a taxpayer will have to ask.

The IRS has, to date, has said nothing about extending any filing deadlines, though I expect it will act on that in the near future.  

Section 7508A allows the IRS to grant payment and filing extensions of up to one year (including for making refund claims, filing refund suits, and filing Tax Court petitions and notices of appeal; Reg. § 301.7508A-1(c)(1)(iv)-(vi)) for people affected by a Presidentially-declared disaster.  However, unless the IRS extends filing deadlines to people and entities worldwide (don’t forget our overseas U.S. taxpayers and foreigners who are taxpayers in the U.S.) and with respect to all taxes, this provision would not be sufficient to help all the persons who reasonably would need extensions to file tax cases in court.  Further, even a one-year extension for all taxes may not be enough, given that it is estimated that a vaccine for the coronavirus might not be available for 18 months.

I hope at least one person reading this post is a Congressional staffer, who can get what I propose into the next round of legislation to address the coronavirus pandemic.  Taxpayers dealing with the coronavirus will understandably miss tax judicial filing deadlines, such as the 30-day period to file a Collection Due Process petition in the Tax Court under § 6330(d)(1) or the 90-day (or 150-day) periods to file deficiency or innocent spouse petitions in the Tax Court under §§ 6213(a) and 6015(e)(1)(A).  Those taxpayers should be forgiven for missing those deadlines in appropriate cases, even if they are not covered by any announced extension to file under § 7508A.  However, currently, the power of the courts to forgive late judicial filings in the tax area is, according to most courts, nonexistent.  I ask Congress to change the law to clarify that tax judicial filing deadlines are not jurisdictional and are subject to equitable tolling.

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Most courts have held that statutory tax judicial filing deadlines are jurisdictional and not subject to equitable tolling.  That’s the case despite the few appellate rulings that Keith and I have yet won holding that certain tax judicial filing deadlines are not jurisdictional and are subject to equitable tolling.  Although we hope for more, we have, to date, only two Circuit Court victories that only apply to tax filing deadlines used by very few people:  The district court wrongful levy filing deadline of § 6532(c); Volpicelli v. United States,  777 F.3d 1042 (9th Cir. 2015); and the Tax Court whistleblower award filing deadline of § 7623(b)(4)Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019).  Fewer than 200 such petitions/complaints are currently filed each year (combined) in those kinds of cases, and even all the other Circuits to have ruled on the issue of the wrongful levy deadline have ruled the other way. 

Whatever reason that impelled the Supreme Court to hold in United States v. Brockamp, 519 U.S. 347 (1997), that the refund claim filing and payment deadlines of §6511(a) and (b) are not subject to equitable tolling (including administrative problems that might arise because almost a hundred million 1994 returns included claims for refund), the problem of tax judicial filing deadlines is confined to a comparatively very small number of cases.  Currently, fewer than 30,000 tax complaints/petitions are filed annually, and the vast majority of these are filed on time.  It would not be a huge burden on the tax system if equitable tolling could be allowed for the few late-filed complaints/petitions where a plaintiff/taxpayer can give a good excuse for late filing – such as dealing with coronavirus.

If the Article I Court of Appeals for Veterans Claims can employ equitable tolling and district courts can employ equitable tolling in connection with Federal Tort Claims Act suits, I see no reason why tax suits should be excluded from equitable tolling.  So, legislation to change the tax law is urgently needed.

For filings in tax cases in the district courts and the Tax Court, if the clerk’s offices of those courts close during this pandemic, that will give automatic extensions to file initial pleadings until those offices reopen.  See, e.g., Guralnik v. Commissioner, 146 T.C. 230 (2016) (borrowing a rule from the FRCP).  But, it is not clear that clerks offices will have to close during this pandemic.  Indeed, while the Tax Court has canceled certain upcoming trial calendars, it has not (at least yet) closed its clerk’s office to hand-delivered petitions.  Indeed, the Tax Court has announced that its Clerk’s office is still open for filing petitions, though only for four hours a day.  So, Guralnik can’t apply.

Reg. § 301.9100-1 et seq. allows the IRS to extend statutory and regulatory deadlines for making elections.  But, the IRS can’t extend judicial filing deadlines. 

Equitable tolling is generally appropriate only where the defendant [1] has actively misled the plaintiff respecting the cause of action, or [2] where the plaintiff has in some extraordinary way been prevented from asserting his rights, or [3] has raised the precise statutory claim in issue but has mistakenly done so in the wrong forum.

Mazurkiewicz v. New York City Health & Hosps. Corp., 356 Fed. Appx. 521, 522 (2d Cir. 2009) (cleaned up).  Accord Mannella v. Commissioner, 631 F.3d 115, 125 (3d Cir. 2011).  While coronoavirus interference with taxpayer lives (be it illness, quarantine, tending to others who are sick, or simply not being able to access necessary paperwork because of lock-downs) would likely fall into the “extraordinary circumstances” usual reason, equitable tolling is not limited to only those usual reasons.  As the Supreme Court has said:

The “flexibility” inherent in “equitable procedure” enables courts “to meet new situations [that] demand equitable intervention, and to accord all the relief necessary to correct . . . particular injustices.”  [Hazel-Atlas Glass Co. v. Hartford Empire Co., 322 U.S. 238, 248 (1944)] (permitting postdeadline filing of bill of review).  Taken together, these cases recognize that courts of equity can and do draw upon decisions made in other similar cases for guidance.  Such courts exercise judgment in light of prior precedent, but with awareness of the fact that specific circumstances, often hard to predict in advance, could warrant special treatment in an appropriate case.

Holland v. Florida, 560 U.S. 631, 650 (2010).

The former and current National Taxpayer Advocates have agreed with my push to get equitable tolling into judicial tax filing deadlines.  NTA 2017 Annual Report to Congress, Vol. 1, at pp. 283-292 (Legislative Recommendation Number 3); NTA 2018 Annual Report to Congress, 2019 Purple Book at pp. 88-90; NTA 2019 Annual Report to Congress, 2020 Purple Book at pp. 85-87.

And, I long ago drafted legislation to accomplish this.  Here’s my draft.  No doubt Congressional staffers should give it a review, as I am no expert drafter of legislation.  I would:

Amend section 7442 to add new section (b) as follows:

(b) Timely Filing Nonjurisdictional.—Notwithstanding any other provision of this title,

  • all periods of limitations for filing suit in the Tax Court are subject to waiver, forfeiture, estoppel, and equitable tolling; and
  • an order of the Tax Court dismissing a suit for untimely filing shall not be considered a ruling on the merits and shall not preclude the litigation of any later claim or issue brought in the Tax Court or any other court.

Amend section 7459(d)’s last sentence to add before the period:  “or untimely filing”.

Amend section 6532 to add a new subsection (d) reading:

(d) Timely Filing Nonjurisdictional.—The time periods set out in subsections (a) and (c) are subject to waiver, forfeiture, estoppel, and equitable tolling.

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.

Comments

  1. Randall KC Kau says

    Thank you for the analysis. What is the basis for your expectation that the IRS will issue another pronouncement with respect fo filing deadlines or “liberal” granting of abatement of penalties for untimely filings? In my experience most penalties are imposed automatically by a computer, and it is a rather lengthy process to secure an abatement. Is it your opinion that the President’s Executive Order constitutes “substantial authority”?

    Randall KC Kau
    Taxpayer Sheltering in Place

    • Carl Smith says

      That the IRS will end up having to extend at least some filing deadlines seems likely, but is just a hunch. That the IRS will be liberal in granting abatements is simply based on the fact that the IRS Notice suggests raising this issue in an abatement request.

      No, I don’t think the President’s letter constitutes “substantial authority”. And, in any case, to get relieved of the late-filing and late-payment penalties of section 6651, “substantial authority” is not relevant. Relevant is whether there was “reasonable cause and not. . . willful neglect”.

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