Lesson From The Tax Court: The Boundary Waters Of Equity

Every birthday gives me the opportunity to appreciate the luck I've had in my life.  Last week was my 63rd.  I fondly remembered my summers at  Camp Chippewa, a wonderful summer camp just outside of Bemidji, MN.  One focus of that camp was canoe trips, including trips exploring the Boundary Waters in upper MN and lower Canada.  Those 1-2 week trips were amazing adventures.  Long before cell phones and GPS, we were cut off from any easy access to population centers.  Only if you were careful with your maps would you even know whether you were in the U.S. or in Canada!  And yes, I will connect that up with Today’s Lesson.

These particular reminiscences were sparked by my reading William H. Evenhouse and Nelle L. Evenhouse v. Commissioner, T.C. Memo. 2023-113 (Sept. 7, 2023) (Judge Lauber), because we learn there how the Tax Court interprets §6213 generously to allow certain lucky taxpayers up to 150 days to petition for review of a Notice of Deficiency (NOD).  While the particular taxpayers in this case were not able to get the extra time, the case gives us a good lesson in how the Tax Court decides when a taxpayer gets the 150-day period rather than the usual 90-day period to petition for review of an NOD.  In my mind, it’s a lesson in equity.  That could be very useful if and when taxpayers are able to start arguing for equitable tolling of the usual 90 day period.

Details below the fold.

Law:  What Triggers the 150-Day Period
Like other federal courts, the Tax Court is very cautious about not overstepping its Congressionally-given bounds.  However, the Tax Court also strives to allow taxpayers their day in Court.  These two impulses—the caution to stay within the statutory grants of power and the drive to decide cases on the merits—create a tension when the Court is confronted with a timing  rule giving taxpayers a certain amount of time to petition the Court.  When so confronted, the Tax Court struggles to do the right thing.  But what is the right thing, anyway, when there is this tension?

The Court sometimes resolves the tension by “cheating.”  That is, while proclaiming its fidelity to Congressional command, the Court will give a wink to the statutory text if there are facts it believes brings a case within the relevant time period.

Section 6213 is a great example of how the Tax Court does this.  Despite the recent misgivings of the Third Circuit in Culp v. Commissioner,  No. 22-1789 (Mar. 7, 2023), the Tax Court sticks to the traditional view that the limitations periods in §6213 are jurisdictional.  They are Congressionally-given bounds on the Court’s power.  For example, in today’s case Judge Lauber makes the usual recitation that “This Court...may exercise jurisdiction only to the extent expressly authorized by Congress.” Op. at 2 (emphasis supplied).

Alert readers will notice my use of the plural to describe §6213: limitation periods.  We normally think that taxpayers only have 90 days to petition the Tax Court for review of an NOD.  However, §6213 also gives taxpayers 150 days if the NOD was “addressed to a person outside the United States.”  You can think of this 150-day period as an extension of time—a tolling if you will.

Despite Judge Lauber’s claim that the Court will exercise jurisdiction only to the extent “expressly authorized” by Congress, the Tax Court has long adopted a most un-expressly authorized facts-and-circumstances test to apply the more generous 150-day period in §6213.

It starts with the 1949 case of Hamilton v. Commissioner, 13 T.C. 747 (1949).  There, the IRS had mailed the NOD to the taxpayer’s undisputed last known address, in New York City.  But the taxpayer had been living in Paris for the three years before, even though she had filed returns listing the New York address.  She filed her petition 149 days after the day the IRS mailed the NOD.

The government argued for a strict, bright-line, interpretation of §6213(a).  Under such a reading, the question would be only whether the NOD was addressed to a location outside the U.S. or not. Again, taxpayers would get the 150 days only if the NOD was sent to an address outside the U.S.  Since Ms. Hamilton’s NOD was addressed to a location within the United States and, further, that location was the proper last known address of the taxpayer, the 90 day period applied.

The Tax Court rejected the government’s interpretation.  It interpreted the statutory text to mean that if the person was outside the U.S. at the time the NOD was mailed, then that person got the 150 period.  It based this interpretation on the legislative history of the statute, finding that the purpose of the 150-day period was to protect those taxpayers who were outside the United States “on some settled business and residential basis, and not on a temporary basis.”  Id. at 753.

Under the Tax Court’s 1949 interpretation, therefore, the facts were important. If the taxpayer was out of the country on some settled business, then the 150 day period would apply.  But if the taxpayer was physically outside the U.S. on the relevant date “because of a recreational or short business trip” the that taxpayer would have only 90 days.  Id.

Over time, the Tax Court loosened up what facts would trigger the 150 day period.  It ceased to matter where the taxpayer actually was when the NOD was issued. For example, in Lewy v. Commissioner, 68 T.C. 779 (1977), the Tax Court allowed the 150 day period even though the taxpayer was in the United States when the NOD was mailed.  That was because the taxpayer mostly lived in France and just happened to be at his New York office when the NOD was mailed to his last known address in New York.  So the Tax Court labeled the taxpayer’s presence in the U.S. as “ephemeral.”

The Tax Court has basically settled on a rule that the 150-day period applies when a taxpayer’s circumstances results in significant delay in receipt of the notice of deficiency.  It now acceptes recreational or short trips as reasons to give taxpayers the extension to 150 days.  I personally like this approach but it’s a decidedly awkward position for the Tax Court to take when it keeps protesting that the 150-day time period is magically “jurisdictional” and the Court cannot mess around with it.

Currently the Court looks to see whether (1) the taxpayer was outside the United States for some period around the time the NOD was mailed and (2) whether such absence resulted in enough of a delay in the taxpayer’s ability to meet the 90 day period that the Tax Court feels justifies using the 150 period.  The Tax Court has freely admitted that this is not a strict reading of the statute. “Although a literal reading of the statute suggests that the 150-day rule applies to notices which are addressed to locations outside of the United States, we have interpreted this phrase to mean that the taxpayer to whom the notice is addressed must have been located abroad.” Levy, supra, 76 T.C. at 230.

Notice how the Court’s interpretation results in it picking and choosing what facts count in deciding whether a taxpayer has 90 or 150 days to file a petition.  It has, in effect, abandoned the statutory language in favor of a court-created “significant delay” test.  And reasonable minds might differ on which facts count in any particular case.

For example, compare Malekzad v. Commissioner, 76 T.C.963 (1981), with Levy v. Commissioner, 76 T.C. 228 (1981).  In Levy, the taxpayers left the U.S. for a 4-day trip to Jamaica on the same day the IRS mailed the NOD.  The Tax Court decided that their 4-day absence earned them the 150 day period.  But in Malekzad, the Tax Court refused to allow the 150 day period for a taxpayer who was physically outside the United States on the day the NOD was mailed but was back two days later.  The Malekzad Court acknowledged the result in Levy but said “the holding in the Levy case should not be extended to cover the facts of the present case.”  And that would be because ...?

... because the Court’s exercise in picking and choosing the jurisdictional facts is an exercise in equity.  The facts the Court looks for are those that convince the Court it would be unfair to limit the taxpayer to the 90 day period.  In various other limitation period contexts, the Court repeatedly emphasizes that “in determining whether we have jurisdiction over a given matter, this Court and The Courts of Appeals have given our jurisdictional provisions a broad, practical construction rather than a narrow, technical one.”  That’s from Judge Lauber in Weiss v. Commissioner, 147 T.C. 179 (2016).  While it’s a CDP case, he cites to Lewy for that proposition.  And it is the approach the Court generally takes with all the limitation periods.  For the gritty details, see Bryan Camp, Equitable Principles and Jurisdictional Time Periods, Part 2, 159 Tax Notes Fed.l 1581 (June 11, 2018).

In its laudable determination to promote equity, however, the Tax Court’s approach to the 90 or 150 day question allows shiny attractive facts to unhook its determination from the statutory language.  Again, I am all for that, but let’s at least be honest about what the Tax Court is doing: it’s applying equitable principles rather than statutory language to choose the relevant time period.  So why it continues to cling to the notion that §6213 is jurisdictional is a mystery to me.

We learn from this case just how important the facts and circumstances are to a determination of when the 150-day period applies.

Facts
On May 23, 2022, the IRS mailed an NOD to the Evenhouses.  It went to their home in Oakland.

On October 18, 2022, the Tax Court received a letter from the Evenhouses that the Court treated as a Petition for Redetermination.  That is 148 days after the NOD date.

In both the letter and in communications with the IRS, the Evenhouses asserted that their petition was timely because on the date the IRS mailed the NOD, they were traveling outside the U.S.  Therefore, they claimed that they should get the 150 day period, not the 90 day period.

However, the documents they attached appeared to show that they had left Istanbul on May 23, 2022, arriving in San Francisco the same day at 4:35 pm.  That is possible because Istanbul is 10 hours ahead of San Francisco, so even a 13.5 hour nonstop flight such as offered by Turkish Airlines would leave and arrive on the same day, but after a very long flight!  Their documents also showed their next overseas trip was not until some 10 months later.

Lesson 1: Jet Lag Does not Get You the 150 Days
Given the apparent fact that the Evenhouses got back to the U.S. on the same day the IRS mailed the NOD, it is really difficult to see what possible argument they had that their overseas travel resulted in significant delay in them receiving the NOD, even under the Tax Court’s very generous facts-and-circumstances test.  The best I can think of is they might claim ... jet lag!

After pointing out that they were in the U.S. both on the date the NOD was mailed and the date they received it, however, Judge Lauber sensibly finds that “their absence from the country did not delay their receipt of the notice of deficiency or otherwise adversely affect their ability to file a timely Tax Court petition.”  Op. at 4.

Lesson 2:  The Boundary Waters of Equity: Significant Delay
The Tax Court applies the 150-day period whenever a taxpayer can show that they were absent from the United States at what the Court considers a relevant time—such as the date on which the NOD was delivered to their last known address in the U.S. or maybe when it was mailed—and that such absence caused a significant delay to their ability to comply with the 90 day period.

Hokay!  So, thinking back to my childhood summer camp experience, what if a taxpayer was on a 14-day canoe trip in the boundary waters of Minnesota and Canada?  And what if, in the middle of the trip, an NOD was either mailed or delivered to the taxpayer’s last known address?

On the one hand, if all of the days were in Canada, then the Court would very likely say that the taxpayer had 150 days to file a Tax Court petition.  On the other hand, if all of the days were in the U.S., then under it’s current view that the §6213 periods are jurisdictional, the Tax Court would say “too bad, so sad.”  Finally, if some of the days were in both countries, I would bet that the Tax Court would go with its historical impulse to use equity to get to the merits of the dispute and focus on the days in Canada.

But camping in the wilderness for 14 days has the same effect on the taxpayer’s ability to respond to an NOD regardless of the ephemeral boundary in the waters between U.S. and Canada.  To me, that is the take-away from all of these §6213 cases about the application of the 150 day period.  The Court will look to see what facts show that the out-of-country taxpayer faced significant delay in responding to the NOD in the 90 day period.  The key fact is that the taxpayer must show some relevant absence from the U.S.  That is because of the wording of §6213.  But ...

But if and when the Tax Court shifts its thinking about the jurisdictional nature of §6213 (or is forced to shift), then I think these same cases provide some strong support for taxpayers seeking to equitably toll the 90 day period when their circumstances show some period of time during the 90 days where they were unable to respond to the NOD.  Now taxpayers would not be arguing for the 60 extra days given by Congress in §6213.  They would be arguing for the equitable number of days, given by Courts under the doctrine of equitable tolling.  As with the 150-day cases, however, the strongest facts would be when they can show delay in actual receipt of the NOD, such as being on a 14-day canoe trip in the Boundary Waters, whether on the MN side or the Canada side.

It’s a lesson worth putting in one’s pocket for potential future application.  Keep it dry. 

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law, which is far far away from the Boundary Waters.  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.

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