Paul L. Caron

Monday, October 2, 2023

Lesson From The Tax Court: Equitable Tolling During Government Shutdown?

Camp (2021)Like winter, a shutdown is coming.  And last week, the Tax Court issued a really important reviewed decision about equitable tolling of CDP hearings.  The two are connected because the Tax Court lesson may become very useful for taxpayers faced with an inaccessible IRS during periods of government shutdown

For those of us having a hard time keeping track, this Wikipedia entry gives a useful history of federal government shutdowns.  Going in reverse chronological order, it appears that top three were: (1) during the Trump administration—one at the start of 2018 and then also a long 35-day shutdown from the end of 2018 into 2019; (2) during the Obama administration—16 days in 2013; and (3) during the Clinton administration—21 days in in 1995–1996.  We may well be on the way to another one when the 45-day Continuing Resolution passed yesterday expires.

Last week's opinion in Organic Cannabis Foundation v. Commissioner, 161 T.C. No. 4 (Judge Goeke), may help taxpayers who must deal with a closed IRS during the next shutdown.  In that case, fourteen of the sitting Tax Court judges interpreted §6320 to permit equitable tolling of the 30-day period that taxpayers have to request a CDP hearing after the IRS files a Notice of Federal Tax Lien (NFTL).  Three judges thought that interpretation squarely conflicted with the applicable Treasury Regulation and wanted to hear arguments on the validity of the regulation.  The Court’s reasoning applies as much to §6330 CDP hearings as well, making it even more consequential.

What makes this a really useful decision is the idea that a government shutdown might indeed qualify taxpayers for equitable tolling.  Details below the fold.

A federal government shutdown affects different parts of the government differently.

As to courts, some remain open, others close.  I explained in Lesson From The Shutdown: Court Budgets, TaxProf Blog (Jan. 22, 2019).  At this time, the Tax Court website proudly proclaims that it “will open for business as usual on Monday, October 2, 2023, and we expect to continue normal operations indefinitely. All scheduled trial sessions will proceed as scheduled. The November 8, 2023, nonattorney exam will proceed as scheduled, including all associated deadlines.”  I assume that is because it can pull money from its fees.  Well, now it does not have to, thanks to the 45-day Continuing Resolution.

As to the IRS, offices staffed by humans may very well NOT be open for business during the next shutdown.  The IRS cannot pull money from fees.  If the IRS is closed, then there will be no office open to receive a request for a CDP hearing.

And yet just because the IRS is closed does not mean the IRS computers are turned off!  As I never tire of explaining, most of the collection work is done by computers in the Automated Collection System (ACS).  See e.g. Lesson From The Tax Court: Using CDP To Stop The Collection Train, TaxProf Blog (October 15, 2018).  Thus, during the first Trump administration shutdown, CDP notices relating to the filing of NFTLs continued, albeit at a slower pace.  See The Effect Of A Government Shutdown On The IRS: Not What You Think, TaxProf Blog (Jan. 19, 2019).

Today’s lesson is about one of those §6320 CDP Notices, the one relating to NFTLs.

Section 6320(a)(2) permits the IRS to file a NFTL without first telling the taxpayer, but then requires it to send the taxpayer a CDP notice within 5 business days after the filing.  The taxpayer then has 30 days to request a CDP hearing.  The 30 day period starts on the day after the 5-day period.  Id.

If the taxpayer timely requests a CDP hearing the Office of Appeals will issue a decision document called a “Notice of Determination.”  Yup, that’s “NOD.”  Cute!  And like the Notice of Deficiency NOD, the CDP NOD is a ticket to the Tax Court.  See Treas. Reg. 301.6320-1(b)(2), Q&A-B3 (“Following the hearing, Appeals will issue a Notice of Determination, and the taxpayer is entitled to seek judicial review of that Notice of Determination.”).

If the taxpayer’s request for a CDP hearing is untimely, however, they can still get a hearing.  It’s called an Equivalent Hearing and the Office of Appeals will issue a decision document called “Decision Letter.”  But that is not a ticket to the Tax Court.  The taxpayer may not obtain Tax Court review of that decision.  Treas. Reg. 301.6320-1(h).

Facts and Holding
The taxpayer here, Organic Cannabis Foundation, had unpaid taxes for 2010, 2011, and 2018 tax years.  The IRS sought to collect, and filed NFTLs.

The IRS sent the taxpayer an NFTL CDP Notice for the 2010 and 2011 years on April 16, 2019 and the taxpayer timely requested as CDP hearing.  The IRS also sent the taxpayer an NFTL CDP Notice for the 2018 tax year on March 15, 2021.  The taxpayer requested a CDP hearing on the 31st day.

One day late.

The IRS treated the 2018 CDP request as a request for an Equivalent Hearing.  It combined that hearing with the CDP hearings for 2010 and 2011, but issued different decision documents: a Notice of Determination (NOD) for the two CDP hearings and a Decision Letter for the Equivalent hearing.

The taxpayer petitioned the Tax Court to review both the CDP determinations and to treat the Decision Letter as a Notice of Determination by applying equitable tolling to its one-day-late CDP hearing request.  The government argued that equitable tolling could not apply to the 30-day period.

The Tax Court held that the 30-day period in §6220(a)(2) was subject to equitable tolling.  There are some really good reasons supporting that holding and there are also some really good reasons why the deadline should not be subject to equitable tolling.  But that’s all grist for someone else’s mill.  Here I just want to consider what this decision means for taxpayer who get caught up in a government shutdown.

Lesson: How Equitable Tolling Might Apply to a Shutdown
The question is this: if a taxpayer’s 30-day window to request a CDP hearing ends on a day when the government is shut down, how much additional time do they get to make the request once the government reopens?

One answer would be that taxpayers would have no additional time.  That is because the applicable regulations provide that “the rules and regulations under section 7502 and section 7503 will apply to determine the timeliness of the taxpayer's request for a CDP hearing....” Section 7502 is the timely-mailing-is-timely-filing rule.  Section 7503 is the weekend and holiday rule.  Government shutdowns are neither.

The Williams opinion makes it unlikely that the Tax Court will adopt this answer, however.  That is because the majority goes to great lengths to read the applicable regulations as not prohibiting equitable tolling.  So the most likely answer is that the Court will be willing to apply equitable tolling principles.  But how would that work?  What the heck are equitable tolling principles?

So here are a couple of points you should know about equitable tolling.

First, the idea of “tolling” means that the limitations period is suspended for the tolling period.  That is, it stops running and then starts running again when the tolling period ends, picking up where it left off.  Artis v. District of Columbia, 138 S.Ct. 594 (2018).  So this would not be like the Tax Court’s application of equity 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).  To take that approach would mean taxpayers whose 30-day clock ended at some point during a government shutdown would have to check every day to see if the government had reopened and then would need to act within a single day to be timely.  As I explain in  Equitable Doctrines and Jurisdictional Time Periods, Part 2, the Tax Court uses equity when possible “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.  You see that same strong move to equity in Williams.

Second, it is important to remember that equitable doctrines are not simply free-floating grants of power.  Equitable doctrines are linked to, and bounded by, a set of principles.  What distinguishes equitable principles from legal rules is that the application of equity is highly contingent on the facts before the court.  The great legal historian F. W. Maitland put it this way in his 1910 Lectures On Equity“I do not think that any one has expounded or ever will expound equity as a single, consistent system, an articulate body of law.  It is a collection of appendixes between which there is no very close connection.”  (p. 19)  And in this 1913 law review article, Professor Wesley Newcomb Hohfeld discussed the difficulty of teaching equity as a system of rules separate from legal rules.  I think it this way: equity fixes problems that legal rules cannot fix.

So when we talk about equitable tolling remember we are not talking about what “feels good” or “seems right.”  There are actually some basic principles courts will follow.

The most basic principles are these:  a person seeking equitable tolling gets it only if they convince the court that (1) they have been pursuing their rights diligently, and (2) that some extraordinary circumstance prevented them from timely filing. Menominee Indian Tribe of Wis. v. United States, 577 U.S. 250, 255 (2016).  Even then, a court can deny tolling if it would be unfair to the defendant.  See Baldwin County Welcome Center v. Brown, 466 U. S. 147, 152 (1984).

Courts take those principles seriously and do not grant equitable tolling easily.  A good example is Williams v. Perdue, 613 F.Supp.3d 437 (D.D.C. 2020).  There, Mr. Williams claimed his employer the Department of Agriculture took an illegal personnel action against him.  The relevant statute required him to first ask for relief from the Department’s Equal Employment Opportunity office.  If denied, the statute required him to file suit within 90 days in the federal District Court for the District of Columbia.  Well, Mr. Williams, proceeding pro se, filed within the 90 days but got understandably confused and filed in the local courts for Washington D.C., not the federal court.  The government later moved him to the federal court but then got the case dismissed because he had initially filed in the wrong court.

That dismissal came long after the 90 days.  Mr. Williams very quickly refiled (in the proper court) and now the government said he was time-barred.

Mr. Williams argued that the court should equitably toll the 90 days for the period that the government first removed, then dismissed, the first case.  And part of that delay was due to one of the Trump Administration federal government shut-downs.  But that did him no good because all of those delays happened after the 90 period had run.  Thus the court basically held that all the delays, including the ones outside his control like those caused by the prolonged federal government shutdown in January 2019...occurred months after Williams needed to file his case in federal court.”  Id. at 451 (Emphasis added).

Thus, taxpayers seeking equitable tolling must show that despite diligent efforts, some extraordinary circumstance prevented them from protecting their rights by timely filing their CDP request within 30 days.  See e.g.  Holland v. Florida, 560 U.S. 631 (2010).

The Argument For Tolling Based On Government Shutdown
I submit that a government shutdown is just just an extraordinary circumstance.  Any limitation period for taxpayers to file something with the IRS—including the 30 days to request a CDP hearing—should be tolled by all the days of a government shutdown.

But the reason is more than that a shutdown is beyond the taxpayer’s control.  It is simply unconscionable to enforce against taxpayers a statutory time limitation when Congress itself denied taxpayers the ability to protect their rights during all or part of that time period by forcing the closure of the IRS.  So while that’s more of an equitable estoppel argument, it’s based on the same idea: if Congress fails in its most basic duty to fund the government—causing it to close human-staffed offices—then that is precisely the kind of situation that forms one of the principles for equitable tolling.  Naturally, to obtain equitable tolling the taxpayer would need to show they attempted to act within the time period and the proof of that may be an actual mailing.  But the law does not require a useless act, so proof short of an actual attempt to file—such as proof that a filing package was timely prepared—should also suffice.

The main point here is that a government shutdown is an act of Congress just as much as the statutory limitations periods are acts of Congress.  And Congress should not be able to demand that a taxpayer act within a certain time period while at the same time denying the taxpayer the ability to act during all or part of that time period.  Equity should and, I believe, will prevent that result.

And today’s case allows taxpayers to make the argument.

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.  He invites readers to return each Monday, even if the federal government is shut down, to TaxProf Blog for another Lesson From The Tax Court.

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