Lesson From The Tax Court: On Time Is Late

In law, even more than in comedy, timing can be critical.  In comedy you just lose a laugh.  In law, you lose a case.  In Roy A. Nutt and Bonnie W. Nutt v. Commissioner, 160 T.C. No. 10 (May 2, 2023) (Judge Buch), we learn why a petition seemingly submitted on time will be rejected as late.  There, the Nutts electronically submitted their Petition to the Tax Court on the last day they could file.  Now we all know you really don't want to ever do that.  But sometimes it just happens.  And the last day to file is just as timely as the first day to file.  The Nutts submitted their Petition at 11:05 p.m.  So they seemed to be on time.

The problem was that they were filing from Alabama (Central Time) and the Tax Court’s Clerk’s office is in Washington D.C. (Eastern Time).  Thus, even though they submitted on time, Judge Buch holds that their Petition was filed late, because 11:05 p.m. in Alabama was five minutes after midnight in Washington D.C.  Thus, sticking to its increasingly archaic view that the timing rules for filing a Petition are jurisdictional, the Tax Court dismissed the Petition.

Note this is another precedential opinion issued in a case with unrepresented taxpayers.  Here, the IRS moved to dismiss and briefed the issue, but there was no responding brief to counter the government’s view.  These pro-se taxpayers probably did not know about all the Tax Court precedent applying equitable principles to rescue seemingly late-filed petitions.  I give a close review of those cases in Bryan Camp, Equitable Doctrines and Jurisdictional Time Periods, Part 2, 159 Tax Notes 1581 (June 11, 2018).

To his great credit, Judge Buch has, in a similar case, asked for amicus briefs on the issue.  I hope the Tax Court there comes to a different conclusion.  It’s always a balancing act: weighing the need for taxpayer access to judicial review with the need to obey statutory limits. Perhaps the Tax Court might reconsider how that balance should work for electronically filed documents.  However, as Professor Book puts it in this post over at Procedurally Taxing, after this case taxpayers now have a steeper hill to climb. You will find the sad details below the fold, along with my modest thoughts on how to strike a better balance. 

Law: When Is a Petition “Filed” in Tax Court For SOL Purposes?
When the IRS sends a taxpayer a Notice of Deficiency (NOD), §6213(a) says that “the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency” so long as the taxpayer does so “[w]ithin 90 days, or 150 days if the notice is addressed to a person outside the United States,” after the NOD is mailed.  There is a safe-harbor rule Congress recently added at the very end of the subsection.  The IRS is supposed to tell taxpayers in the NOD when that deadline is.  So the last sentence in §6213(a) says that a petition filed “on or before the last date specified for filing...in the notice of deficiency shall be treated as timely filed.”

The tax statutes do not define what it means to “file” a petition.  That question has been relegated to the Tax Court to answer through both case law and its Rules.  Those sources have long applied the physical delivery rule: a document is not filed until it is received in the proper office, here the Tax Court Clerk’s office.  See Bongam v. Commissioner, 146 T.C. 52 (2016).  Under the old version of Tax Court Rule 22, petitions had to be physically delivered to the Tax Court.  The general rule was that petitions were filed only when actually received in the Tax Court Clerk’s office.

The tax statutes do, however, imply this physical delivery rule because of the statutory safe-harbor exception for timely mailed documents in §7502.  That statute provides that a document physically received after a deadline will be deemed timely filed if the party timely mailed it.  See Lesson From The Tax Court: Using § 7502 To Beat The Statute Of Limitations, TaxProf Blog (Dec. 11, 2017).

Look carefully at §7502(a).  It’s plain wording applies to Tax Court petitions, regardless of what the Tax Court puts in the Tax Court Rules.  Notice that it covers “any return, claim, statement, or other document required to be filed...within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws.”  Well, gosh, §6213 is certainly one of those internal revenue laws that prescribe a period for filing a document, a document we call a petition.

Look more carefully at §7502(a), however.  It only kicks in when a document “is mailed.”  And while there are all kinds of gnarly rules about that in both the statute, the regulations, and the case law, the bottom line is, as Judge Buch reminds us in this case, “the timely mailing rule does not apply to an electronically filed petition.”  Op. at 4.

Finally, note that §7502 is a statutory mailbox rule.  But United State courts have since forever created, expanded, and applied a common law mailbox rule.  And the Tax Court has not hesitated in the past to use that common law.  See Lesson From The Tax Court: The Common Law Mailbox Rule Lives!, TaxProf Blog (Feb. 3, 2020).

The current Tax Court Rules now generally require electronic filing of Tax Court petitions when taxpayers are represented, but permit pro-se taxpayers to file the old-fashioned way.  Tax Court Rule 26.  Current Tax Court Rule 22(a) says that non-electronic filings must be received “during business hours” but don't worry: the §7502 safe-harbor exception still applies in those situations (again, whether or not the Tax Court Rules say so).  I do not know whether the Tax Court still has a drop-box or, if so, how it treats petitions recovered from the drop box the following day.  I welcome any comments from those who know.

What I do know is that Tax Court Rule 22(a)’s general rule now does not apply to electronically filed petitions.  It says so right in Rule 22(a) (“Except for a paper filed electronically in accordance with electronic filing procedures established by the Court...”).  The rule for electronically filed petitions is found in 22(d), which says a petition “will be considered timely filed if it is electronically filed at or before 11:59 p.m., eastern time, on the last day of the applicable period.”

That’s the language at issue in today’s case.  Does that language create a safe harbor or a hard cut-off?  That is, it only says that a petition submitted before midnight east coast time is per se timely (“will be considered timely filed”).  It does not say a petition submitted after midnight east coast time is per se late.  If read as a safe harbor, a taxpayer’s time zone could be relevant just as the mailing date of a hard-copy petition is relevant for the mailbox rule.  If read as a hard cut-off, however, a taxpayer’s time zone may be irrelevant.

Today we learn that the Tax Court reads the Rule as a hard cut-off; the Rule just extends the Clerk’s “office hours” for electronically filed petitions to the end of the east coast day.  The taxpayer’s time zone is irrelevant.

Let’s take a closer look.

Facts and Lesson: Your Last Day To File Ends at 11:59 pm East Coast Time
The IRS mailed the Nutts an NOD on Thursday, April 14, 2022.  Under the general rule in §6213(a) that gave the Nutts until Wednesday, July 15th.  However, the NOD told the Nutts they had until Monday, July 18, 2022 to file their petition and so §6213(a)’s last sentence made that the last day to file.

The Nutts lived in Alabama.  At 11:05 p.m. their time on July 18th, they uploaded their petition to the Tax Court using the awesome DAWSON system (Hi Lewis!).  Awesome DAWSON recorded the filing as received at 12:05 pm on July 19th.  The IRS moved to dismiss.

Judge Buch held that because the petition was received by Awesome Dawson at 12:05 on July 19th East Coast time, the Tax Court lacked jurisdiction to hear the merits of the case (if any).

Judge Buch says Rule 122 is a hard cut-off.  He reasons by analogy to Rule 6(a)(4) of the Federal Rules of Civil Procedure (FRCP).  That provision defines the term “last day” as it is used in the FRCP.  It says that that “last day ends: (A) for electronic filing, at midnight in the court's time zone; and (B) for filing by other means, when the clerk's office is scheduled to close.”

Judge Buch notes that federal courts have read that language in the FRCP as a hard cut-off, citing mainly to Justice v. Town of Cicero, 682 F.3d 662 (7th Cir. 2012).  There, a party who had twice filed suit and twice lost on the merits had filed a motion for the trial court to reconsider.  He submitted his motion at 4 a.m. on the day after the deadline.  It does not appear he lived in a different time zone.  Still, the district court judge allowed the filing and then ruled against him on the merits for yet a third time.  On appeal Judge Easterbrook said the trial judge did not have the power to extend the filing deadline because FRCP 6(a)(4) was a hard cut-off.  Easterbrook writes: “Electronic filing systems do extend the number of hours available for filing. Instead of having until the clerk's office closes, litigants have until 11:59 PM. But e-filing does not increase the number of days available for filing.” Id. at 664.  [FWIW, I note that this guy had multiple bites at judicial review.  Notice that the Nutts, and almost every other taxpayer seeking Tax Court review, are just trying for their first bite.]

Judge Buch takes Easterbrook's idea and runs with it, writing: “The electronic filing system stands in the Clerk’s place; it follows that if the “last day” has ended where the Clerk’s office is standing, the last day for electronic filing has ended as well.” Op. at 5.  Thus, “The Nutts’ Petition was untimely because it was filed in Washington, D.C., after the last day for filing prescribed by section 6213(a). The period within which to file a petition cannot be extended by the Court....” Id.

This is not the first time the Tax Court has taken this position.  Professor Keith Fogg has an excellent post about what he calls East Coast Bias over at Procedurally Taxing.  However, this is the first precedential opinion the Court has issued, although I note this is not a reviewed opinion.

Comment: It Doesn’t Have To Be This Way: Finding the Right Balance
Judge Buch did not have the benefit of a presentation from the taxpayers and so did not explain his decision in any more detail.  Particularly confusing to me is his reliance on an FRCP to define a term in the Tax Court rules.  The FRCP does not control Tax Court procedure and federal courts are simply not the same type of court as the Tax Court.  Also confusing to me is the circularity of his assertion that because the electronic filing system “stands in the Clerk’s place; it follows that if the “last day” has ended where the Clerk’s office is standing, the last day for electronic filing has ended as well.  That sentence assumes its conclusion.  Awesome Dawson does not “stand” anywhere.  It’s just electrons.  It does not sleep.  It never goes home.  It has no home, no physical presence.  Is Judge Buch seriously suggesting that the last day ends where-ever the physical machines that run the Awesome Dawson software are located?  They might be in the Tax Court’s buildings.  But they might also be in Romania or the People's Republic of California.  Who knows where Awesome Dawson really "stands"?

It’s not that Judge Buch’s reading is wrong; it’s just that the reading is not foreordained or constrained by the text of Rule 22.

Let’s see what an alternative reading of Rule 22 might look like.  The alternative reading would read the rule as a Safe Harbor.

Rule 22 gives the rule for when an electronic document will be considered “filed” on the last day.  It says that a document is received by 12:59 a.m. East Coast time on the last day will be deemed to have been filed that day.  Thus, for example, if a taxpayer living in Halifax (1 hour ahead) or Bermuda (1 hour ahead) is facing a June 1st deadline and submits their petition at 12:30 a.m. on June 2nd their time, Rule 22 will deem the document to have been filed June 1st because Awesome Dawson will put a cover sheet on it that reads 11:30 p.m, June 1st. That is reading Rule 22 as a safe-harbor rule.

So read, the rule simply would not apply to a taxpayer who submits a petition on the last day in their time zone.  Say you had the same taxpayer with the same June 1st deadline but the taxpayer lives in California and submits their petition at 10:00 p.m. on their last day.  Here Tax Court Rule 22 simply would not be needed because for those taxpayers, their “last day” has not ended.  The key move is determining when the 90th day (the relevant “last day”) has ended and then asking whether the taxpayer has acted to file their petition before that day ends.

Read as a safe harbor, Rule 22 would expand the "last day" for taxpayers living east of the Washington D.C. time zone but would not shorten the "last day" for taxpayers living west.

So which is the better reading?  Well, the Tax Court has traditionally approached interpreting its jurisdictional statutes by carefully balancing the need for taxpayers—especially the large number of unrepresented taxpayers—to have access to Judicial review and the need for the Court to obey the constrains imposed by Congress. As Judge Lauber explained in Bongam, supra, “this Court and the Courts of Appeals have given our jurisdictional provisions a broad, practical construction rather than a narrow, technical one. When a statutory provision is capable of two interpretations, we are inclined to adopt a construction which will permit us to retain jurisdiction without doing violence to the statutory language.” 146 T.C. at 55 (citations and internal quotes omitted).

Here, the statutory constraint imposed by Congress is §6213’s rule that a Petition must be filed on or before the 90th day after the later of the NOD’s mailing date or the date given in the NOD itself.

Nothing in the statute says how the Tax Court is to determine when that 90th day ends.

So it’s really up to the Tax Court to figure out how to count the relevant periods.  That includes deciding when the relevant period starts and when it ends.  The Tax Court has repeatedly asserted its power to do just that as I explain in  Equitable Doctrines and Jurisdictional Time Periods, Part 2.  There, I show how the Tax Court uses equity when possible to decide what date to start the 90 day period.  For example, it usually uses the postmark date on an NOD, but it sometimes uses the date appearing on the NOD, and sometimes uses the date the taxpayer actually receives the NOD even if later than both the first two dates.

The Tax Court’s consistent reasoning in all these cases is to adhere to the statute but also “to avoid frustrating the statutory provisions designed to afford taxpayers an opportunity to prepayment review of the Commissioner’s deficiency determination.”  Lundy v. Commissioner T.C. Memo 1997-14-172.

I think the Court could well take the same approach for determining the end date of the 90 day period.  Since (1) there is no statutory definition of “last day,” and (2) FRCP 6(a)(4) is NOT a Tax Court rule, and (3) the Court has the power to create a common law counting rule (aka mailbox rule), the Court could well take the same approach here as it did in Guralnik v. Commissioner, 146 T.C. 230 (2016) where it decided not to count as “last day” a day where the Tax Court Clerk’s office was inaccessible.  That idea is now found in Tax Court Rule 25(a)(2) but in 2016 the Court had to just ... well ... make it up!  In explaining it’s holding the Court there emphasized that “such rules of procedure do nothing more than provide the court and the parties with a means of determining the beginning and end of a statute of limitations prescribed elsewhere in the law.” Id. at ___.  Yes, there are different considerations in interpreting Tax Court Rule 22 but there should still be a balancing.  IMHO reading Tax Court Rule 22 as a safe harbor increases fairness with very little, if any, loss of administrability.

Bottom Line: You should always act in plenty of time and never let a deadline bite you in the behind; but if you are in the unfortunate position where hours count, Rule 22(d) tells you that the ONLY hours that count are the East Coast hours in Washington D.C.  That's our lesson for today.

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Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law, located in flyover country where the time is always 1 hour behind Washington D.C. and does not move fast.  He invites readers to return each Monday (or Tuesday if Monday is a federal holiday) to TaxProf Blog for another Lesson From The Tax Court.