Menu
Tax Notes logo

What Happens After Boechler – Part 3: The IRS Argues that IRC 7459 Requires that IRC 6213(a) Treat the Time for Filing a Tax Court Petition as Jurisdictional

Posted on Apr. 27, 2022

After Congress created the predecessor statute to IRC 6213 in 1924 (and created the Board of Tax Appeals – the predecessor to the Tax Court) it came back in 1926 and 1928 to create a separate statute which is now IRC 7459. Section 7459 provides that a dismissal from a Tax Court case on jurisdictional grounds does not prevent the taxpayer from paying the tax and suing for refund.

When Carl Smith and I began making the argument that time periods for filing a Tax Court petition are not jurisdictional time periods, we initially confined our arguments to Collection Due Process (CDP) and innocent spouse cases out of concern that succeeding in deficiency cases might harm taxpayers because of 7459. As we thought about this further over time, we could not remember a single incidence of a taxpayer being dismissed from the Tax Court on jurisdictional grounds and subsequently full paying the tax and suing for refund. Of course, this does not mean it has never happened, but it does suggest it happens rarely.

This post will explain why IRC 7459 should not factor into the decision of whether IRC 6213 is a jurisdictional provision or a claims processing rule. That conclusion results from both the language of the two statutes as well as the goal to protect taxpayers.

In the prior two posts we have explained why the Supreme Court’s decision in Boechler knocks out all of the arguments that IRC 6213 is a jurisdictional provision previously made by the IRS, the Tax Court, and other courts, including the 9th Circuit in Organic Cannabis. This post looks at the arguments regarding IRC 7459 and the cases the Tax Court dismisses in order to provide an explanation for removing the last argument from consideration.

In Organic Cannabis the 9th Circuit explained the various types of suits a taxpayer could bring to contest a tax liability and pointed out that:

if the taxpayer does file a petition in the Tax Court, then a decision “dismissing the proceeding shall be considered as its decision that the deficiency is the amount determined by the [IRS],” id. § 7459(d), and such decision as to “amount” is entitled to preclusive effect in subsequent proceedings between the taxpayer and the IRS, see Malat v. Commissioner, 302 F.2d 700, 706 (9th Cir. 1962). [emphasis added]

We have written before about the effect of a Tax Court dismissal, and we have explained that petitioners to the Tax Court cannot voluntarily dismiss a Tax Court case once jurisdiction has attached. After setting up the general rule, the 9th Circuit went on to explain the exception in IRC 7459(d) when the Tax Court dismisses a case because it lacks jurisdiction:

there is no such “decision” as to “amount,” and no preclusive effect, if the Tax Court’s “dismissal is for lack of jurisdiction.” 26 U.S.C. § 7459(d) (emphasis added)

Then the 9th Circuit used as one of its bases for finding IRC 6213 to be a jurisdictional provision with regard to the time of filing the problem that would attach if it were not jurisdictional:

Under Appellants’ non-jurisdictional reading of § 6213(a), the Tax Court’s dismissal of a petition as untimely could potentially have the perverse effect of barring the taxpayer from later challenging the amount in a refund suit—ironically yielding precisely the sort of “harsh consequence[]” that the Supreme Court’s recent “jurisdictional” jurisprudence has sought to avoid. Kwai Fun Wong, 575 U.S. at 409.  That peculiar outcome is avoided if § 6213(a) is read as being jurisdictional, because then dismissals for failure to meet its timing requirement would fall within § 7459(d)’s safe-harbor denying preclusive effect to Tax Court dismissals “for lack of jurisdiction.”

So, the 9th Circuit used what it thought would be a negative effect of finding IRC 6213 to be a claims processing rule as a basis for justifying its decision. This is wrong both as statutory interpretation and wrong in thinking that keeping IRC 6213 as a jurisdictional provision would not harm taxpayers, while making that deadline non-jurisdictional would harm taxpayers.

With respect to statutory interpretation, IRC 7459 simply has no role to play. The argument for the role of IRC 7459(d), at least based on the IRS argument, is that interpreting the jurisdictional dismissal exception of that subsection to exclude dismissals for late filing would render the exception superfluous. The IRS has argued that the only dismissals that are currently jurisdictional (other than those when no notice of deficiency was issued and so the amount of a deficiency cannot be set out in the dismissal order) are from late filing. This argument fails because many reasons exist why a petition may be dismissed for lack of jurisdiction other than merely late filing or the lack of a notice of deficiency. The most obvious situation occurs when the Tax Court dismisses a petition for lack of jurisdiction due to an invalid notice of deficiency because the IRS did not send the notice to the taxpayer’s last known address. See, e.g., Crum v. Commissioner, 635 F.2d 895 (D.C. Cir. 1980). Another example occurs when the automatic stay in bankruptcy bars the filing of a Tax Court petition, see, e.g., Halpern v. Commissioner, 96 T.C. 895 (1991). Another example occurs when a corporation lacks capacity to file the petition, see, e.g., Vahlco Corp. v. Commissioner, 97 T.C. 428 (1991) (Texas law). The biggest reason for dismissal from Tax Court for lack of jurisdiction occurs for failure to pay the filing fee – almost 2/3rds of the dismissals occur for this reason. So, the IRS is wrong when it argues that determining IRC 6213 is a claims processing rule renders IRC 7459(d) superfluous.

The legislative history of IRC 7459(d) also does not support the conclusion that Congress enacted the statute to preserve the rights of taxpayers who file late in the Tax Court to avoid res judicata in a subsequent refund suit involving the same deficiency. There is no such legislative history. There is also nothing in the language of IRC 7459 that speaks to the time frame for filing a Tax Court petition as a jurisdictional time frame. There is simply no language to parse.

After you leave the legal arguments that have no merit, you move to the apparent presumption by the 9th Circuit that somehow IRC 7459 helped taxpayers. First, there’s the problem that Congress gave no indication it sought that result, either in the language of the statute or its legislative history. Second, the actual effect of the 9th Circuit’s take on the statute hurts far more taxpayers than it helps.

Carl Smith looked at the dismissals for lack of jurisdiction due to late filing in February and March of 2022 searching DAWSON using the search words “lack of jurisdiction and timely.” He found 103 cases which suggests 618 dismissals over the entire year or some similar number. Each of those individuals could theoretically be adversely impacted if section 7459(d)’s exception for jurisdictional dismissal could not apply, so that res judicata would prohibit their filing later refund suits.

To know how the loss of 7459(d) protection could adversely impact this group, it’s necessary to know how many taxpayers in this group paid the tax and filed a suit for refund. For this fiscal year ending September 30, 2020, 188 refund suits in total were brought in the Court of Federal Claims and the district courts. Not all of the 188 complainants filed after a prior Tax Court dismissal for late filing and perhaps none of them did. Indeed, Carl looked at all district court and CFC opinions issued in 2021 using the search terms “refund and (Tax Court) and dismiss!” and could not find a single refund suit in which it was clear that the IRS had issued a notice of deficiency, the taxpayer had then late-filed a Tax Court suit, and, after the suit’s dismissal, the taxpayer sued for a refund.

Carl did come across one 2021 opinion where a taxpayer’s Tax Court deficiency suit had been dismissed for lack of jurisdiction, purportedly for late filing, and a CFC refund suit ensued — see my post of June 4, 2021 on the case, Jolly. However, in that case, it was unclear whether the IRS had ever issued a notice of deficiency, with the IRS arguing in the Tax Court that a notice of deficiency had been issued, but arguing in the CFC that the IRS had never issued one and that the Tax Court dismissal was wrong for saying there had been a late-filed petition rather than a petition lacking an underlying notice of deficiency. And, in Jolly, the taxpayer did not fully pay the tax before bringing the CFC suit. Reading the 2021 opinions, Carl also found a citation to a pre-2021 opinion in a refund suit where a taxpayer brought a CFC suit after his Tax Court deficiency suit was dismissed for lack of jurisdiction for late filing and where there was no dispute that a notice of deficiency had been issued, Wall v. United States, 141 Fed. Cl. 585 (2019), but the taxpayer in the suit was only seeking relief from liens, not a refund, and, in any event, had not fully paid the deficiency before bringing the suit.

It’s probable that no refund suits resulted from the Tax Court dismissals for failure to timely file the petition because a very high percentage of the petitioners dismissed were pro se taxpayers who lack knowledge of tax procedure and funds to full pay. Only in a rare cases does the taxpayer benefit from IRC 7459(d), and not one that we know of. Yet, we know there are cases in which taxpayers could benefit from the interpretation of IRC 6213 as a claims processing rule.

Petitioners who would especially benefit from the interpretation of IRC 6213 as a claims processing rule are petitioners with a good basis for equitable tolling. While this is not a large number, the individuals with a good reason for filing late present very sympathetic cases in which the petitioners deserve the chance to have the merits of their case heard. The next post will talk about the equitable tolling rules and who these petitioners might be.

In addition, petitioners who would benefit are the petitioners dismissed because the Tax Court spent the time and effort to carefully review each case to determine if it had jurisdiction and issued an order to show cause when it had concerns about its jurisdiction even though Chief Counsel did not raise an issue. In February and March of 2022, Carl searched for this type of order to show cause and found 34 cases. This means that about 204 petitioners a year might benefit if the Tax Court did not need to spend time carefully scouring each case to check on its jurisdiction. This would not only give these taxpayers a chance to have the merits of their argument heard but would save the Tax Court all of the time it currently spends looking at each case to determine if it has jurisdiction.

To determine how many of the cases in which the Tax Court show cause orders resulted in a dismissal, Carl went back to April and May of 2021 expecting that most of those cases would have cleared through the system by now, offering a percentage of cases dismissed after a show cause order. His research suggests that about 75% of the cases identified were dismissed as untimely. The 9th Circuit’s effort to “help” taxpayers by citing to IRC 7459(d) instead created a misguided view of the system. The actual cases show that few, if any, taxpayers receive a benefit from IRC 7459(d) but quite a few taxpayers might benefit from a claims processing rule, either because they have a basis for equitable tolling or, more likely assuming the Chief Counsel attorneys continue to fail to identify issues of timely filing, because taxpayers will no longer face orders to show cause for dismissal for lack of jurisdiction on account of late filing.

Copy RID