You may remember from my last post that for the Swiss (I know them so well, being married to one for almost 4 decades), punctuality is not merely a nicety, or a bonbon in the huge dessert buffet of life. Punctuality is highly valued and de rigueur. So it is with the US tax rules when time is specified for taking a particular action (such as filing a Tax Court petition). Miss it and you may be completely out of luck.
But now, we have a new development in the Third Circuit. A taxpayer victory over time!
Tax Court Petition Filed Late?
My earlier blog post detailed the Tax Court case of Antawn Jamal Sanders who, in response to an IRS Notice of Deficiency, filed his Tax Court petition just 11 seconds late. Mr. Sanders’ petition was summarily rejected. The Tax Court dismissed his petition for “lack of jurisdiction” explaining that the court’s jurisdiction depends upon the issuance of a valid notice of deficiency and the timely filing of a petition, citing in particular, Internal Revenue Code Section 6213(a) and that the statute could not be equitably tolled. Jurisdictional requirements mark the bounds of a “‘court’s adjudicatory authority.’” Boechler, P.C. v. Comm’r, 142 S. Ct. 1493, 1497(2022) (quoting Kontrick v. Ryan, 540 U.S. 443, 455 (2004)) and equitable tolling cannot be applied.
“Jurisdictional” Time Limits and Equitable Tolling
Let me explain the concept of tolling a bit more. When a time deadline is “jurisdictional”, it is not subject to equitable tolling. Tolling stops the running of the time period. Courts have the authority to provide “equitable” remedies in situations when it would be unjust or unfair not to provide relief to a party as appropriate. When a court grants equitable tolling relief, the failure to meet the deadline is excused and the individual is permitted to proceed as if the time to meet the deadline had not lapsed.
As a result of the Tax Court’s decision in Sanders, the taxpayer lost the opportunity to have his case heard in Tax Court, potentially costing him substantial sums of money.
We now have a break-through case whether timely filing of a Tax Court petition is a jurisdictional matter, or instead, one that can be subject to equitable tolling relief.
Culp v. Commissioner – Taxpayer Victory
In Culp v. Commissioner, No. 22-1789, (July 19, 2023) the Third Circuit held that the time period imposed under IRC Section 6213(a) for filing a Tax Court petition for redetermination of a deficiency is not jurisdictional and, as such, it is subject to equitable tolling. The Third Circuit reasoned that Congress did not clearly state that Section 6213(a)’s deadline is jurisdictional. Non-jurisdictional time limits are presumed to be subject to equitable tolling, thus relaxing strict compliance with the filing rule.
The Culp couple each received almost USD9,000 to settle a lawsuit. On their 2015 tax return, they reported their payments as “Other income,” “PRIZES, AWARDS”. In 2017 the IRS proposed to increase their taxes owed for 2015, giving the couple 30 days to respond and stating it would send a notice of deficiency if they failed to respond. The Culps did not respond. The IRS mailed a notice of deficiency, informing the couple of their right to file a petition in the Tax Court within 90 days. In May 2018, the IRS sent the Culps another letter stating they owed a far smaller amount in taxes, penalties, and interest, than the amount IRS had previously assessed. The couple again failed to respond. The IRS levied on their property and collected from their Social Security payments and 2018 tax refund. The couple filed a petition in Tax Court. This petition was dismissed for lack of jurisdiction since they failed to timely file it. The Third Circuit reversed on grounds that Congress did not clearly state that section 6213(a)’s deadline is jurisdictional and that equitable tolling may apply. In reaching this conclusion, the court looked carefully at the statute itself.
Below provides some relevant examples of the Third Circuit’s analysis.
“[t]here is no ‘clear tie between the deadline and the jurisdictional grant.’ [citation omitted] The most pertinent part of §6213(a) provides that ‘[w]ithin 90 days . . . after the notice of deficiency . . . is mailed…the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency.’ Nothing in that language links the deadline to the Court’s jurisdiction. Yet, elsewhere in §6213(a), Congress specified that ‘[t]he Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition.’ 26 U.S.C. §6213(a). So Congress knew how to limit the scope of the Tax Court’s jurisdiction. It expressly constrained the Tax Court from issuing injunctions or ordering refunds when a petition is untimely. But it did not similarly limit the Tax Court’s power to review untimely redetermination petitions.” (Culp at p. 10).
“The statutory context also suggests that Congress did not intend §6213(a)’s filing limit to be unbending. The deadline is targeted at the taxpayer, not the Tax Court. See Boechler, 142 S. Ct. at 1500 (holding that a time limit directed at the taxpayer supports equitable tolling). Moreover,’[t]he presumption favoring equitable tolling is stronger when the limitations period is short…’” (Culp at p. 14)
Americans Overseas – Where do they Appeal?
Tax Court cases are appealed to the Federal Circuit Court of Appeals for the state in which the taxpayer resides at the time of filing the Tax Court petition. For example, if a taxpayer resided in New York, the appeal would be heard by the 2nd Circuit Court of Appeals.
Where would an American abroad file an appeal from a Tax Court decision? Per IRC Section 7701(a)(39) US citizens or residents residing outside United States are treated as residing in the District of Columbia for purposes of determining jurisdiction of courts, or enforcement of a summons. This means appealing to the DC Court of Appeals.
The holding in Culp is binding only if the Tax Court case is appealable to the Third Circuit (which covers the areas of Pennsylvania, New Jersey, Delaware, and the US Virgin Islands). This means Culp will not necessarily help the American overseas unless the DC Court of Appeals decided to followed it. I think Courts of Appeals confronting this question in the future will look to Culp and I believe there is a strong chance that at least some courts would adopt its holding.
Posted October 26, 2023
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