Missed Tax Deadline & Equitable Tolling

Overview

Sometimes procedural requirements in tax law are not jurisdictional.  What that means is that the requirements just tell a taxpayer to take certain procedural steps at particular times.  The requirements don’t condition a court’s authority to hear the case on the taxpayer complying with those steps.  One of those procedural requirements is the 30-day timeframe to file a petition with the Tax Court that asks the Tax Court to review an IRS collection due process (CDP) determination.  Is that requirement one that must be satisfied to confer jurisdiction on the Tax Court or not. If not, the doctrine of “equitable tolling” will apply and the Tax Court may be able to hear the case even though the deadline wasn’t technically satisfied.  This issue reached the Supreme Court, and the Court has now decided the matter in a case involving a small law firm in North Dakota.

IRS CDP challenges and Tax Court review and the issue of equitable tolling – it’s the topic of today’s post.

Background

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 on the basis that I.R.C. §6330(d)(1) was jurisdictional.  Boechler, P.C. v. Comr., No. 18578-17 L (U.S. Tax Ct. Feb. 15, 2019).

Note:  When equitable tolling is applied, a court has the discretion to ignore a statute 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.   Boechler, P.C. v. Comr., 967 F.3d 760 (8th Cir. 2020).

U.S. Supreme Court

The U.S. Supreme Court, on September 30, 2021, agreed to hear the case. Boechler, P.C. v. Comr., cert. granted, 142 S. Ct. 55 (2021).  Both the plaintiff and the IRS focused on the 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 came down to how to read the statute.  The statute at issue, I.R.C. §6330(d)(1) states in full:

“(1) PETITION FOR REVIEW BY TAX COURT

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 asserted 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. 

The Supreme Court, in a unanimous opinion, agreed with the plaintiff’s interpretation of the statute.  Boechler v. Comr., No. 20-1472 (U.S. Sup. Ct. Apr. 21, 2022).  The Court expressed its disdain for the way the Congress crafted the statutory language, noting that “such matter” over which the Tax Court had jurisdiction has an unclear antecedent and that the statute, as a result, “does not clearly mandate the jurisdictional reading.”  The Court noted that the plaintiff’s reading had an “edge” under the last-antecedent rule – the correct antecedent is usually the closest reasonable one.  But the Court noted there were also other plausible ways to read “such matter.”  It could refer to “such determination” or it could refer to the list of matters that may be considered during the CDP hearing under I.R.C. §6330(c).  Neither of those readings ties the Tax Court’s jurisdiction to the filing deadline.  In addition, the Court found the IRS interpretation to be less than clear, and that the jurisdictional clarity in I.R.C. §6330(e)(1) pointed out the lack of jurisdictional clarity in I.R.C. §6330(d)(1).  There were also other tax provisions enacted about the same time as I.R.C. §6330(d)(1) that more clearly linked jurisdiction to a filing deadline.  See, e.g., I.R.C. §§6404(g)(1) and 6015(e)(1)(A).

According to the Court, because I.R.C. §6330(d)(1) was not jurisdictional, it was presumptively subject to equitable tolling.  See Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990).  The Court stated, “equitable tolling is a traditional feature of American jurisprudence and a background principle against which Congress drafts limitations periods…[even] outside the realm of Article III courts.” 

Conclusion

It's always a good idea to meet a tax deadline.  There's no questioning that.  Here, the plaintiff didn’t respond to the IRS notice, missed the filing deadline and then came up with a creative (but correct) argument to get itself out of a bad result.  There was no confusion about the deadline.  On the other hand, it’s nice to see the Supreme Court hold Congress’ feet to the fire.  A statute conferring jurisdiction must clearly do so, and the drafters didn’t do that in this case by creating an unclear antecedent.  Maybe that’s not as bad as a dangling participle, but the poor drafting landed a case in the Supreme Court’s lap and ultimately bailed out a small law firm in North Dakota.  Certainly, the IRS will continue to try to get late-filed Tax Court petitions dismissed for lack of jurisdiction, but Boechler provides another weapon for claiming that equitable tolling applies. 

Note:  The Supreme Court didn’t determine whether the plaintiff was entitled to equitable tolling.  That will be the issue on remand and will be determined based on the facts.