A recurring issue in Tax Court litigation is the timeliness of petitions. Currently the rules are strict. While the Tax Court has used some very creative legal reasoning over the years to find some small stretch in the statutes, it steadfastly holds to the view that it is powerless to apply basic and well-settled equitable principles to stretch the statutes any further. Thus Tax Court judges routinely, and reluctantly, kick taxpayers out of court.
Today’s case shows both the routine and the rigidity of the Tax Court’s approach to petition timing rules. It’s a timely lesson because the COVID-19 pandemic has huge potential to create significant litigation on this issue. I predict there will be many late-filed petitions that, in equity and good conscience, should be heard, but will have to be dismissed unless (1) the Court changes its mind and begins to apply well-settled equitable principles to alter statutory timing requirements or (2) Congress explicitly grants the Court authority to apply timing rules using equity.
In Bryce Kent Smith & Natosha Ann Smith v. Commissioner, Docket No. 3463-20 (Order of Dismissal)(May 7, 2020) (Judge Foley), the taxpayers filed their petition timely but filed with the IRS. By the time it got to the Court it was three days late. And late is late! The Court dismissed the petition. Details below the fold.
When the IRS sends out a Notice of Deficiency (NOD), taxpayers have only a limited amount of time to petition the Tax Court for review. Section 6213 defines that time period using these words: “Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency.” (Emphasis supplied)
The Tax Court doggedly maintains that this timing rule is “jurisdictional.” Guralnik v. Commissioner, 146 T.C. 230 (2016). A jurisdictional rule is one set by Congress to mark the boundaries of a federal court’s power to hear a case. It is unalterable by either of the other two branches of government. Thus the IRS can not consent or waive a jurisdictional rule, and the Tax Court cannot give an extension no matter the reasons for the lateness. Late is late!
But...still...notwithstanding its view, the Tax Court has engaged in some astonishing legal legerdemain to define what “late” means in the first place. For example, go back to the “is mailed” part of the rule. Despite that seemingly clear text, the Tax Court has defined “mailed” to mean the later of two dates: (1) the date appearing on the NOD itself; (2) the date of actual mailing as reflected by the postmark on the envelope, or the IRS certified mail receipt. See e.g. Loyd v. Commissioner, T.C. Memo. 1984-172 (finding petition was not late when filed within 90 days of date appearing on the notice even though it was filed more than 90 days after the postmark date). Heck the Court has even used the date the taxpayer actually receives the document to be the “is mailed” date. See Bongam v. Commissioner, 146 T.C. 52 (2016)(finding petition was not “late” by using actual date of receipt and ignoring both the date on the Notice of Decision and the date on the postmark because original mailing was mailed to wrong address, returned to IRS by the Post Office, then re-sent in the original envelope to taxpayer).
The Court justifies its legal gyrations by recognizing the strong remedial purpose of allowing access to Tax Court. It strives to find ways “to avoid frustrating the statutory provisions designed to afford taxpayers an opportunity to prepayment review of the Commissioner’s deficiency determinations.” Lundy v. Commissioner, T.C. Memo 1997-14. For more details, feel free to grab a large cup of coffee and sit down with Bryan T. Camp, “Equitable Principles and Jurisdictional Time Periods, Part 2,” 159 Tax Notes 1581 (June 11, 2018).
But the Court is cautious. Once it determines a petition was “late,” it consistently refuses to even consider applying generally accepted equitable principles to excuse the late filling. Today’s case showcases that caution and shows what may well happen over the next year as taxpayers affected by the COVID-19 pandemic attempt to file late petitions.
On November 18, 2019, the IRS mailed Mr. and Ms. Smith an NOD for their tax year 2017. The NOD was also dated November 18, 2019. And it was properly delivered to the Smiths who did actually receive it. So there would be no real choice here on what date counts to start the 90 day period. It started on November 18, making February 18th the last day to file a petition.
But the NOD was confusing to the Smiths. It contains many paragraphs of instructions to taxpayers on the different actions they can take in response to the NOD. On February 15, 2020 the Smiths had apparently prepared their petition but they were apparently confused by the NOD instructions that if a taxpayer “disagreed” with the NOD the taxpayer could tell the IRS that and the NOD gave a fax number.
To resolve their confusion they chose to contact the IRS telephone help line. That turned out not to be the best choice because they were told the NOD was not in the system. It may well be that the IRS employee told the Smiths to use the IRS fax number, which would be the right advice if there were, in fact, no NOD. Or perhaps the IRS employee gave the wrong advice---certainly a possibility given the incessant and insidious budget cuts Congress has forced on the IRS for the past 10 years, creating significant diminution in training programs.
At any rate, on February 17, 2020 the Smiths faxed their petition to the IRS fax number contained in the NOD. They then followed up on Monday the 18th by Fed-Exing the documents to the IRS at the Andover Campus. The Andover Campus received those documents on Tuesday the 19th and on Wednesday the 20th the IRS office forwarded the petition to the Tax Court using Fed Ex Next Day Air service. So the Tax Court Clerk’s Office received the petition on Thursday February 21st. Three days late. But they really tried.
Lesson: Late is Late!
Judge Foley carefully and sympathetically recites the facts that led the Smiths’ petition to arrive late. He then looks to see whether he can apply any of the statute exceptions such as the timely mailing rule. He cannot. He writes:
“Thus, while the Court is sympathetic to petitioners' situation and understands the unintentional character of the inadvertence here, as well as the challenges of the circumstances faced and the good faith efforts made, governing law recognizes no applicable exceptions that would allow petitioners to proceed in this judicial forum.”
He then invokes the old tired-and-true justification for refusing to even consider whether kicking the Smith’s out of their opportunity for prepayment judicial review is fair: “The Court has no authority to extend that period provided by law for filing a petition whatever the equities of a particular case may be and regardless of the cause for its not being filed within the required period."
Comments: The Looming COVID-19 Filing Cluster-Fork (With apologies to “The Good Place”)
The COVID-19 pandemic has significantly affected IRS and Tax Court operations. The Tax Court shut the Clerk’s Office on March 18, 2020. And since the March 13th Presidential declaration of this IRS webpage has told us that “certain IRS services such as live assistance on telephones, processing paper tax returns and responding to correspondence are extremely limited or suspended until further notice.”
During all this time the various petition timing periods have continued to run, or have run out. Every day that passes is another last day for some taxpayers’ deadline to petition the Tax Court. In addition, every day that passes is a lost opportunity to get one's ducks in the proverbial row.
Despite it’s ostensible reluctance to invoke equity, the Tax Court has indeed fashioned a limited equitable relief rule for late petitions by incorporating Federal Rule of Civil Procedure 6(a)(3) to hold that if the last day for filing a petition falls on a day when the Tax Court is inaccessible, then the last day is extended to the first day the Tax Court reopens. Guralnik v. Commissioner, 146 T.C. 230 (2016).
The Guralnik rule is helpful. It is also inadequate. The Tax Court insists this is not an equitable tolling rule. It is just a “counting” rule to determine whether a petition is “late” in the first place. I critiqued that view in this blog post “Gurlanik: Equity Through Court Rules Not Court Rulings.”
While Guralnik works for a snowstorm, it does not work for a shutdown, where government offices are closed for an uncertain period. That is because it applies only when the last day to file a petition falls on a day the Tax Court is closed and the Tax Court has held that in such situations taxpayers must then file on the first day the Tax Court reopens. Taxpayers must thus be extraordinarily vigilant to re-file on the first day the Court reopens. In addition, taxpayers have lost all the time during a shutdown to access government resources needed to resolve their dispute with the IRS.
An example of Gurlanik’s limited usefulness is seen in in McClain v. Commissioner, Dk. No. 2699-19S (sorry, no link). There, the taxpayer had until January 7, 2019, to file its petition. It filed by then but because the Tax Court was closed, the petition was returned to the taxpayer. A few days later the taxpayer then tried again. Again, the petition was returned because the Court was still closed. And again, a few days later, the taxpayer tried a third time. That time, the Tax Court was open. However, the Tax Court still found that the petition was untimely because the third attempt to file reached the Tax Court after the very first day it reopened. The petition was filed on February 4, 2019 and the Tax Court had reopened on January 28, 2019. The Court held it lacked jurisdiction over the taxpayer’s petition. My thanks to Keith Fogg for sending me the McClain example.
A more important issue, however, is that the COVID-19 pandemic not only makes the IRS and Tax Court inaccessible, but also wreaks havoc with taxpayers' ability to gather documents, find paid help, or even find free help.
Consider a taxpayer who was sent an NOD just before the shutdown, say on March 9th. 90 days later is June 7th, a Sunday. So the last day to petition would be Monday June 8th. Assume the Tax Court reopens on Monday June 1st. Under the Tax Court’s current interpretation, this hypothetical taxpayer’s 90 day period would be reduced to just over 7 days.
The problem is that during the 90 days our hypothetical taxpayer would have been affected by the same national emergency that caused the Tax Court to shut its doors and the IRS to severely restrict operations. It would be manifestly a double-standard to tell taxpayers “well, you had 90 days to figure out what to do” when the government itself ceased figuring out similar matters. The entire nation was subject to various stay-home orders, making it extraordinarily difficult for even the most diligent taxpayer to obtain records, obtain advice, and make any functional use of the filing period.
The proper rule here is to treat petition filing rules as non-jurisdictional rules. The Supreme Court calls those “claim-processing” rules. They are still really important. Almost all taxpayers who file late would still get kicked out of Tax Court. But if the timing rules are treated as non-jurisdictional claim-processing rules, then (1) the IRS could actually waive any objection to a late-filed return and (2) the Court could allow taxpayers to be heard on the merits if they have really good excuses for filing late.
Today’s case is an example. I do not know which way equity would cut. On the one hand, the NOD is pretty clear that taxpayers have to challenge the NOD in Tax Court by filing a petition with the Tax Court and not with the IRS. The IRS website is also pretty clear about that as well. Unless there are some facts showing the Smiths were incapacitated to deal with the NOD before the third-to-last day in the filing period, I would think that delay is on them.
On the other hand, these taxpayers were trying to respond and to be heard. Faced with similar fact-patterns, the Federal Circuit has created a broad rule of equity that veterans claims will be deemed timely if timely filed even in the wrong office. See Santana-Venegas v. Principi, 314 F.3d 1293, 1298 (Fed. Cir. 2002). The Tax Court might adopt a similar rule if it were allowed to treat filing rules as non-jurisdictional.
The point here is that while we do not know all the facts necessary for an equitable determination, both the IRS Chief Counsel attorney and the Tax Court should be able to make that call. The attorney should be allowed to consent to have the merits heard in Tax Court. And Judge Foley should be allowed to evaluate the fairness if Chief Counsel contests the timing of the petition. Folks, equity is not some touchy-feely mystery. As the Supreme Court pointed out not long ago:
“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. ....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)(internal quotations and citations omitted). My thanks to the indefatigable Carl Smith for sending me that quote from Holland.
Late should not always be late.
Bryan Camp is the George H. Mahon Professor In Exile From The Texas Tech University School of Law