This is the sixth of a multipart post discussing the recent Tax Court opinion in Hallmark Research Collective v. Commissioner, 159 T.C. No. 6 (11/29/22).
Since 2004, the Supreme Court has attempted to reduce the number of jurisdictional claim-processing rules, including jurisdictional filing deadlines, because of the Court’s concern that holding a rule jurisdictional results in unduly “harsh” and “drastic” consequences to litigants and the courts.
Perhaps my biggest disappointment with the Hallmark opinion is its complete apparent indifference to those harsh and drastic consequences to taxpayers and the Tax Court’s own judges. Hallmark attempted to quantify for the court the number of taxpayers who would likely be adversely affected each year by a holding that the deficiency petition filing deadline is jurisdictional. In its opinion, the court wouldn’t discuss this research.
And, of course, if, say, 30,000 deficiency petitions are filed in the court this year, the judges will have to spend considerable time policing the filing deadline as jurisdictional in every single one of those deficiency cases. (Thankfully, after Myers and Boechler, the judges don’t have to police the filing deadlines for whistleblower award and Collection Due Process (CDP) petitions.)
The judges must compare every deficiency petition filing date (usually by looking at the envelope in which the petition was mailed) to the last date to file shown in the notice of deficiency, since the court is not allowed to leave to the IRS the raising of jurisdictional defects. Parties are not allowed to forfeit or waive jurisdictional defects.
Further, the Tax Court regularly finds late filing when the parties have submitted stipulated decision documents settling a case. If the filing deadline were not jurisdictional, then late filing would be a merits defense that would automatically be forfeited or waived if the IRS signed a decision document settling a case. What a waste it is for the court to have to dismiss a settled case after making its own investigation as to the petition’s timeliness (one including issuing an order to show cause why the case shouldn’t be dismissed for lack of jurisdiction for late filing). Clearly, the IRS will give the taxpayer the agreed settlement administratively if the court refuses to enter a Tax Court decision setting forth the agreed deficiency. Keith has done a post on this stipulated decision jurisdictional problem, which, in my experience typically seems to happen once or twice a month.
In this post, I will remind readers of the information that I dug up, uncredited and pro bono, for Hallmark (and that Hallmark showed to the court) as to how many petitioners are hurt by the Tax Court’s position that the deficiency filing deadline is jurisdictional. For the most detail on this information and how I found it, see the tables of cases listing docket numbers, names, and the dates of dismissal orders or orders to show cause in Hallmark’s memorandum of law in support of its motion to vacate the Tax Court’s April Fool’s Day dismissal in its case. For a less detailed summary (without the tables and missing some information), see an earlier post Keith did here. In this post, I will condense even more the information revealed in Keith’s prior post, but I will supplement the information a bit from the Hallmark case filing.
To show that the Tax Court should have agonized about the harsh and drastic consequences of finding the filing deadline jurisdictional, I first quote from Henderson v. Shinseki, 563 U.S. 428 (2011):
In this case, as in others that have come before us in recent years, we must decide whether a procedural rule is “jurisdictional.” This question is not merely semantic but one of considerable practical importance for judges and litigants. Branding a rule as going to a court’s subject-matter jurisdiction alters the normal operation of our adversarial system. Under that system, Courts are generally limited to addressing the claims and arguments advanced by the parties. Courts do not usually raise claims or arguments on their own. But federal courts have an independent obligation to ensure that they do not exceed the scope of their jurisdiction, and therefore they must raise and decide jurisdictional questions that the parties either overlook or elect not to press.
Jurisdictional rules may also result in the waste of judicial resources and may unfairly prejudice litigants. For purposes of efficiency and fairness, our legal system is replete with rules requiring that certain matters be raised at particular times. Objections to subject-matter jurisdiction, however, may be raised at any time. Thus, a party, after losing at trial, may move to dismiss the case because the trial court lacked subject-matter jurisdiction. Indeed, a party may raise such an objection even if the party had previously acknowledged the trial court’s jurisdiction. And if the trial court lacked jurisdiction, many months of work on the part of the attorneys and the court may be wasted.
Because the consequences that attach to the jurisdictional label may be so drastic, we have tried in recent cases to bring some discipline to the use of this term. We have urged that a rule should not be referred to as jurisdictional unless it governs a court’s adjudicatory capacity, that is, its subject-matter or personal jurisdiction. Other rules, even if important and mandatory, we have said, should not be given the jurisdictional brand.
Id. at 434-435 (citations omitted). Accord United States v. Kwai Fun Wong, 575 U.S. 402, 409 (2015) (“Given those harsh consequences, the Government must clear a high bar to establish that a statute of limitations is jurisdictional.”).
I looked at all orders of dismissal in late-filed deficiency cases during the pre-Boechler months of February and March of this year. (I can’t look at most later months, since, after May 6, the Tax Court put a hold on the dismissal of all late-filed deficiency cases until it issued the Hallmark opinion.) I found about 100 dismissals over those two months. Annualizing that figure (multiplying by 6) gives about 600 people whose cases would be dismissed for lack of jurisdiction for late filing in a typical year.
I then found that about a quarter of dismissals are the result of Tax Court judges issuing orders to show cause why the case should not be dismissed for lack of jurisdiction for late filing. Tax Court judges actually issue orders to show cause in about a third more cases than actually get dismissed after such orders, since, in a substantial minority of cases, the IRS eventually satisfies the Tax Court that, in fact, the petition was timely filed. So, that means that the IRS misses about 150 taxpayers each year (600 x 1/4) who have filed late deficiency petitions, and the Tax Court needlessly issues about 50 orders to show cause where the IRS usually already knows the petition was timely filed. If the filing deadline were not jurisdictional, all of these 150 taxpayers whose cases would otherwise have been dismissed for lack of jurisdiction for late filing would benefit by having the opportunity to litigate their cases on the merits. I have no reason to think that the IRS will ever get better at finding late-filed deficiency petitions, so this number of taxpayers who would benefit from the IRS missing late filing should probably continue in 2023 and thereafter.
I reviewed the 100 or so dismissals from February or March to get a sense of how many cases might also benefit from equitable tolling of the filing deadline if the deadline could be equitably tolled. The vast majority of taxpayers who are asked by the Tax Court to explain their late filing never file responses or file responses that do not address the late filing but just argue the merits of the proposed deficiency. My sense is that only 5% of taxpayers, or about 30 per year (5% of 600), will file responses in which they set forth facts that would plausibly justify making an equitable tolling argument. Of course, not all of these taxpayers would win such an argument if litigated. But, the IRS might simply have its attorneys concede equitable tolling in particularly egregious cases justifying tolling and only contest the cases of the few other people who articulate a plausible, but not wining, equitable tolling argument.
That the IRS lawyers may actually grant equitable tolling themselves, without the court’s ruling, is buttressed by what happened in the Castillo case, which Keith discussed in a post on April 29, 2022, and which I later discussed in a post on August 3, 2022. In Castillo, the taxpayer belatedly filed a CDP petition after her new attorney learned (only from an IRS transcript) that 8 months earlier the IRS had issued a notice of determination. USPS records show that the notice was never delivered to the taxpayer; the notice is still listed as in transit. Castillo’s lawyer argued to the Tax Court that the CDP petition filing deadline is not jurisdictional and is subject to equitable tolling and that non-receipt of the “ticket to the Tax Court” is a proper ground for equitable tolling of the petition filing deadline. When the Tax Court dismissed the case for lack of jurisdiction, Ms. Castillo appealed her case to the Second Circuit, where the parties fully briefed the case. The appeal, though, was then put on hold, awaiting the Supreme Court’s ruling in Boechler. After Boechler held the CDP petition filing deadline not jurisdictional and subject to equitable tolling, the Second Circuit remanded Ms. Castillo’s case to the Tax Court for an inquiry into whether the facts justified equitable tolling.
All along, Ms. Castillo had also argued that the deficiency was clearly incorrect and that she owed no taxes. I have been told that in the remand, the IRS attorneys have simply conceded her case. That means that the IRS attorneys both conceded that the petition was timely filed and that there is no deficiency. A stipulation of settled issues in Castillo was entered by the Tax Court on November 8, 2022 (Docket No. 18336-19). I have not seen it. Presumably, a stipulated decision will follow shortly. I am not sure why no stipulated decision has yet been entered.
On April 17, 2020, I did a post in which I also discussed how IRS attorneys made pointless three ideal test cases that Keith and I had found for challenging whether the deficiency filing deadline is jurisdictional or subject to equitable tolling. In one case, the IRS reissued the notice of deficiency, and the taxpayers timely filed a new petition, so it made no sense to further dispute that the filing deadline in the earlier case should be equitably tolled. In the two other cases, the IRS attorneys looked at the merits of the underlying liability and concluded that the taxpayers had no deficiencies. The IRS was willing to give the taxpayers administratively “no deficiency”, so it made no sense to continue litigating whether their Tax Court cases should be dismissed for lack of jurisdiction. If the deficiency petition filing deadline is ultimately held not jurisdictional, I suspect that these resolutions without court intervention may become a regular practice of IRS attorneys where the arguments for equitable tolling are compelling.
After Hallmark was decided, Anna Gooch of the Center for Taxpayer Rights and I again began monitoring newly-issued orders of dismissal for lack of jurisdiction for late filing in deficiency cases. A considerable number or orders will be issued over the next month or two in what I estimate will be about 350 cases in which the Tax Court had suspended rulings on motions to dismiss and orders to show cause pending the Hallmark ruling. I get to the 350 figure by multiplying the typical figure for annual dismissals of late-filed deficiency cases (600) by 7/12 to account for the roughly 7 months during which the Tax Court suspended issuing dismissal order pending the outcome in Hallmark. In the first six business days after Hallmark was issued, Anna and I found about over 100 dismissals of deficiency cases for lack of jurisdiction for late filing and only one case in which it seemed that a taxpayer had probably-good arguments for equitable tolling. That accords pretty well with my estimate that only about 5% of late-filed deficiency cases would ever argue for equitable tolling. It appears that the Tax Court is primarily first dismissing those cases where taxpayers never responded to the IRS’ motion to dismiss or the Court’s order to show cause. (Orders where a taxpayer responded usually take a page or two more to write.)
So, despite the fears I have heard from tax lawyers that equitable tolling of the deficiency filing deadline would overwhelm the Tax Court in equitable tolling disputes, I think the Tax Court judges each year will have to decide few equitable tolling disputes, perhaps through hearings or motions for summary judgment on the issue filed by the IRS. Offsetting this small extra work where equitable tolling will be alleged in a few cases each year (perhaps 30) is the saving of Tax Court judges’ time in not having to police the timely filing of all 30,000 deficiency petitions that will likely be filed each year.
In summary, each year probably 150 taxpayers would benefit if the deficiency filing deadline is held not jurisdictional (in cases where the IRS simply misses the late filing), and fewer than 30 taxpayers would actually get equitable tolling in their cases either by judicial ruling or from IRS attorneys not wanting to litigate the equitable tolling issue. I simply can’t understand why the Tax Court, when presented with this information in Hallmark about the drastic and harsh impact on the court and litigants of holding the filing deadline jurisdictional, did not mention this data at all in the opinion.