Thursday, February 3, 2022

The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]


With today’s article, I conclude my journey through the big developments of 2021 that didn’t make my “Top 10” list.  In Part 7 today, I look at two cases that are presently before the U.S. Supreme Court.  One case involves a state’s right to take tort recoveries from Medicaid beneficiaries.  The other case addresses whether courts can excuse a missed statutory income tax filing deadline.  Both of these issues are important – one for Medicaid planning, and asset protection strategies; the other case might be critical for determining when principles of fairness might apply when an income tax deadline is missed.   

The conclusion of the “Almost Top Ten” of 2021 – it’s the topic of today’s post.

State Medicaid Recovery

Gallardo v. Marstiller, 963 F.3d 1167 (11th Cir. 2020), cert. granted sub nom., Gallardo v. Dudek, 141 S. Ct. 2884 (2021)


Planning for long-term health care needs is a recommended part of estate planning for many people.  This is particularly true for farm and ranch (and other small) businesses where the desire is to transition the business into subsequent generations of the family.  Without a plan in place, spending $100,000 annually on a long-term care bill could cause a business succession plan or family estate planning goals to not be met as desired.  Medicaid planning is part of long-term care planning. 

Medicaid is the joint federal/state program that is the primary public assistance available to help pay for long-term care – if the beneficiary has little to no “available” assets.  In addition, once a state provides Medicaid benefits to a beneficiary, the state can seek reimbursement (“recovery”) from the beneficiary’s estate upon death to a certain extent for benefits paid during life.  That is designed to protect, at least in part, the taxpaying public.  A state may also obtain reimbursement from third parties for Medicaid expenses paid to injured beneficiaries.  But, to what extent?  That’s the issue that is presently before the U.S. Supreme Court.

In Gallardo, the plaintiff was severely injured in 2008 after being hit by a pickup truck when she got off a school bus.  She still remains in a persistent vegetative state.  The state (Florida) Medicaid program (e.g., Florida taxpayers) paid $862,688.77 for her medical care.  Her parents sued the truck driver and the school district which resulted in a settlement of $800,000.  Of that amount, $35,367.52 was designated as being for past medical expenses.  None of it was designated as being for future medical expenses.  The state Medicaid agency neither participated in or agreed to the settlement terms, but 42 U.S.C. §1396k(a)(1)(A) requires the state Medicaid program to be reimbursed from any third party because Medicaid is to be a “payor of last resort” for medically necessary goods and services provided to a recipient.  Indeed, state law provides for a superior lien with respect to third-party benefits regardless of whether the Medicaid beneficiary has been made whole or other creditors have been paid.  Fla. Stat. §409.910(1).  But, the state’s recovery is not to be in excess of the amount of medical assistance paid by Medicaid.  42 U.S.C. §1396a(a)(25)(H).  Under Florida’s formula, in the event of a beneficiary’s tort recovery, the state gets 50 percent of the recovery (after fees and costs) up to the total amount provided in medical assistance by Medicaid.  Thus, the state asserted a lien for $862,688.77 on the tort action and any future settlement – even though the settlement specified that $35,367.52 was for past medical expenses.  During an administrative hearing, the state claimed entitlement to the amounts it paid to the beneficiary from the portion of the settlement representing compensation for the plaintiff’s future medical expenses.  The plaintiff sued for a declaration that, under federal law, the state couldn’t be reimbursed from any part of the settlement other than that representing compensation for past medical expenses - $35,367.52.  The trial court granted the plaintiff’s motion for summary judgment, finding that state law was preempted by federal law.   The state Medicaid agency appealed. 

Note:  During the pendency of the appeal, the Florida Supreme Court held in a different case that state federal law authorizes the state to be reimbursed out of personal injury settlements only from the portion representing past medical expenses.  Giraldo v. Agency for Health Care Administration, 248 So. 3d 53 (Fla. 2018). 

The appellate court reversed, determining that federal law does not preempt state law permitting a state Medicaid agency to seek reimbursement from portions of a settlement that represent all future medical care (as well as past), and that the parties’ allocation to past and future medical care didn’t bind the state agency.  This was particularly the case, the appellate court noted, because the parties to the settlement did not seek the state Medicaid agency’s input on the settlement allocation.  Indeed, the appellate court determined that federal Medicaid law merely bars a state from attaching its lien against any part of a settlement that is not designated as payments for medical care (to the extent of Medicaid benefits provided).  The appellate court also upheld the state’s reimbursement formula. 


The U.S. Supreme Court agreed to hear the case, and oral argument was held in early January of 2022.  It will be interesting to see how the Court decides the case.  Certainly, however the Court decides will potentially “tee-up” the issue for state legislatures to address how their respective state Medicaid recovery statutes are worded and what policy is desired when third-party payments to Medicaid beneficiaries are involved.

Missed Tax Deadline

Boechler, P.C. v. Commissioner, 967 F.3d 760 (8th Cir. 2000), cert. granted, 142 S. Ct. 55 (2021)


In 2015, the IRS notified the plaintiff (a law firm) about the failure to file employee tax withholding forms.  The plaintiff didn’t respond, and the IRS imposed a 10 percent intentional disregard penalty of $19,250.  The plaintiff challenged the penalty in a Collection Due Process (CDP) hearing, which resulted in the penalty being imposed, with interest.  On July 28, 2017, the IRS Office of Appeals mailed its CDP hearing determination to sustain the proposed levy on the plaintiff’s property to collect the penalty plus interest.  That plaintiff received the notice on July 31, 2017, which informed the plaintiff that the deadline for submitting a petition for another CDP hearing was 30 days from the date of determination – August 28, 2017.  As an alternative, the plaintiff could petition the Tax Court to review the determination of the IRS Office of Appeals.  But, again, the statutory time frame for seeking Tax Court review involved filing a petition with the Tax Court within 30 days of the determination.  I.R.C. §6330(d)(1).  The plaintiff filed its petition with the Tax Court on August 29, 2017 – one day late.  Accordingly, the IRS moved to dismiss the plaintiff’s petition on the grounds that the Tax Court lacked jurisdiction.  The plaintiff, however, claimed that the statute was not jurisdictional (even though the statute says “(and the Tax Court shall have jurisdiction with respect to such matter).”  Instead, the plaintiff claimed that the filing deadline was subject to “equitable tolling” and that the 30-day deadline should be computed from the date the notice was received.  The Tax Court disagreed with the plaintiff and issued an order dismissing the case for lack of jurisdiction – I.R.C. §6330(d)(1) was jurisdictional. 

Note: When equitable tolling is applied, a court has the discretion to ignore a statue of limitations and allow a claim if the plaintiff did not or could not discover the “injury” until after the expiration of the limitations period, despite due diligence on the plaintiff’s part.   

Appellate Decision

The plaintiff appealed.  The appellate court pointed out that a statutory time limit is generally jurisdictional when the Congress clearly states that it is and noted that the Ninth Circuit had recently held that the statute was jurisdictional.  Duggan v. Comr., 879 F.3d 1029 (9th Cir. 2018).  The appellate court went on to state that the “statutory text of §6330(d)(1) is a rare instance where Congress clearly expressed its intent to make the filing deadline jurisdictional.”   On the plaintiff’s claim that pegging the 30-day timeframe to the date of determination was a Due Process or Equal Protection violation, the appellate court disagreed.  The appellate court, on this issue, noted that the plaintiff bore the burden to establish that the filing deadline is arbitrary and irrational.  Ultimately, the appellate court determined that the IRS had a rational basis for starting the clock on the 30-day timeframe from the date of determination because it streamlines and simplifies enforcement of the tax code.  Measuring the 30 days from the date of receipt, the appellate court pointed out, would cause the IRS to be unable to levy at the statutory uniform time and, using the determination date as the measuring stick safeguards against a taxpayer refusing to accept delivery of the notice as well as supports efficient tax enforcement.   

U.S. Supreme Court

The U.S. Supreme Court, on September 30, 2021, agreed to hear the case. Both the plaintiff and the IRS are focused on test for equitable tolling set forth in United States v. Kwai Fun Wong, 575 U.S. 402 (2015).  That case involved 28 U.S.C. §2401(b), a statute that establishes the timeframe for bring a tort claim against the United States.  There a slim 5-4 majority held that a rebuttable presumption of equitable tolling applied.  The presumption can be rebutted if the statute shows that the Congress “plainly” gave the time limits “jurisdictional consequences.”  In that instance, time limits would be jurisdictional and not subject to equitable tolling.   

The beef comes down to how to read the statute.  The statute at issue, I.R.C. §6330(d)(1) states in full:


The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).”

The IRS asserts that “such matter” refers to the petition that has been filed with the Tax Court that meets the 30-day deadline.  This is the view that the appellate court adopted as did the Ninth Circuit in Duggan.  However, the plaintiff claims that “such matter” refers to “such determination” and, in turn, “determination under this section” with no additional jurisdictional requirement involving timely filing.  According to this view, the Tax Court’s jurisdiction is not limited to IRS determinations for which a petition is filed with the Tax Court within 30 days.  As such, equitable tolling can apply.  Indeed, this is the view that the D.C. Circuit utilized in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019) in a case involving a whistleblower tax statute that is similarly worded. 


It will be interesting to see how the Court interprets the statute.  Clearly, based on the facts, equitable tolling should not apply.  The plaintiff negligently didn’t respond to the notice, negligently missed the filing deadline and then came up with a creative argument to try to bail itself out of a bad result created by that negligence.  No colorable argument can be made that the plaintiff was confused about the deadline.  Clearly, if the Court allows for equitable tolling in this case, given the facts of the case, there will be an increase in cases that argue for equitable tolling to be applied. 

However, the Congress did create an unclear antecedent in the statue.  Maybe that’s not as bad as a dangling participle, but the poor drafting has landed a case in the Supreme Court’s lap. 

This concludes my journey through the “Almost Top 10” of 2021.  Now back to “regular programming.”

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