Company Argues Tax Court Petition Was Timely

ORGANIC CANNABIS FOUNDATION, LLC, D.B.A. ORGANICANN HEALTH CENTER,
Petitioner-Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

On Appeal from the United States Tax Court
Tax Ct. No. 10593-15
The Honorable Cary Douglas Pugh

BRIEF OF APPELLANT

Douglas L. Youmans (Cal. Bar No. 96255)
Matthew D. Carlson (Cal. Bar No. 261092)
WAGNER KIRKMAN BLAINE KLOMPARENS & YOUMANS, LLP
10640 Mather Blvd., Suite 200
Mather, California 95655
Telephone: (916) 920-5286
Facsimile: (916) 920-8608
dyoumans@wkblaw.com
mcarlson@wkblaw.com

Attorneys for Petitioner-Appellant

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TABLE OF CONTENTS

TABLE OF CONTENTS

TABLE OF AUTHORITIES

JURISDICTIONAL STATEMENT

STATEMENT OF ISSUES PRESENTED FOR REVIEW

STATEMENT OF THE CASE

SUMMARY OF ARGUMENT

ARGUMENT

CONCLUSION

STATEMENT OF RELATED CASES

CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases

American Air Filter Co. v. Commissioner, 81 T.C. 709, 719-720 (1983)

Baccei v. United States, 632 F.3d 1140 (9th Cir. 2011)

Bowles v. Russell, 551 U.S. 205 (2007)

Brown v. United States, 329 F.3d 664, 671 (9th Cir. 2003)

Clodfelter v. Commissioner, 527 F.2d 754 (9th Cir. 1975) cert. denied, 425 U.S. 979 (1976)

Cunningham v. Commissioner, No. 17-1433 (Jan. 18, 2018)

Dees v. Commissioner, 148 T.C. No. 1 at *18 (Feb. 2, 2017)

Dempsey v. Pacific Bell Co., 789 F.2d 1451 (9th Cir. 1986)

Doe v. Busby, 661 F.3d 1001, 1015 (9th Cir.2011)

Duggan v. Commissioner, No. 15-73819 (Jan. 12, 2018)

Erhard v. Commissioner, 87 F.3d 273 (9th Cir. 1996)

Foreman v. Davis, 371 U.S. 178, 182 (1962)

Gaw v. Commissioner, 45 F.3d 461 (D.C. Cir. 1995)

Gibbs v. Legrand, 767 F.3d 879, 891-893 (9th Cir. 2014)

Gorospe v. Comm'r, 451 F.3d 966, 968 (9th Cir. 2006)

Guralnik v. Commissioner, 146 T.C. 230, 245 (2016)

Healy v. Commissioner, 351 F.2d 602 (9th Cir. 1965)

Holland v. Florida, 560 U.S. 631, 653 2010)

John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008)

Kontrick v. Ryan, 540 U.S. 443, 455 (2004)

Kramer v. Commissioner, 89 T.C. 1081, 1084-1085 (1987)

Krupski v. Costa Crociere, 560 U.S. 538, 550 (2010)

Kuykendal v. Commissioner, 129 T.C. 77, 81 (2007)

Kwai Fun Wong, 135 S.Ct. at 1632

Lippolis v. Commissioner, 143 T.C. 393, 397 (2014)

Loyd v. Commissioner, T.C. Memo. 1984-172

Matuzak v. Commissioner, 862 F.3d 192 (2d Cir. 2017)

McKay v. Commissioner, 886 F.2d 1237 (9th Cir. 1989)

McPartlin v. Commissioner, 653 F.2d 1185, 1192 (7th Cir. 1981)

Menominee Indian Tribe of Wis. v. United States, 136 S.Ct. 750, 755 (2016)

Morgan v. Commissioner, 23 Fed. Appx. 813 (9th Cir. 2001)

Moyer v. Commissioner, T.C. Memo. 2016-236 at *1

Mulvania v. Commissioner, 769 F.2d 1376, 1379-81 (9th Cir. 1985)

Pollack v. Commissioner, 132 T.C. 21, 25-26 (2009)

Powell v. Commissioner, 958 F.2d 53, 57 (4th Cir. 1992)

Prudential Oil & Minerals Co. v. Hamlin, 261 F.2d 626, 627 (10th Cir. 1958)

Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 173-174 (2010)

Ricciuti v. Voltare Tubes, Inc., 277 F.2d 809, 814 (2d Cir. 1960)

Roszkos v. Commissioner, 850 F.2d 514, 517 (9th Cir. 1988)

Rudin v. Myles, 781 F.3d 1043, 1055 (9th Cir. 2014)

Sawyer v. Sonoma County, 719 F.2d 1001, 1008 (9th Cir. 1983)

Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145, 153 (2013)

Shotgun Delivery, Inc. v. United States, 269 F.3d 969, 973 (9th Cir. 2001)

Sosa v. Alvarez-Machain, 542 U. S. 692, 711, n. 9 (2004)

Strauss v. Douglas Aircraft Co., 454 F.2d 1152, 1155-1158 (2d Cir. 1968)

Suzy's Zoo v. Commissioner, 273 F.3d 875, 878 (9th Cir. 2001)

Telephone & Data Sys. v. Amcell F Atl. City, 20 F.3d 501, 502 (D.C. Cir. 1994)

Tilden v. Commissioner, 846 F.3d 882 (2017)

Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017)

Traxler v. Commissioner, 61 T.C. 97, 100 (1973)

U.S. v. Kwai Fun Wong, 135 S.Ct. 1625, 1632 (2015)

Union Nat. Bank v. Lamb, 337 U.S. 38, 41 (1949)

Union National Bank v. Lamb, 337 U.S. 38, 40-41 (1949)

United Mine Workers v. Dole, 870 F.2d 662, 665 n.2 (D.C. Cir. 1989)

United States Leather v. H & W P'ship, 60 F.3d 222, 225-226 (5th Cir. 1995)

United States. v. Kwai Fun Wong, 135 S.Ct. 1625, 1632 (2015)

Vance v. Whirlpool Corp., 707 F.2d 483, 489-90 (4th Cir. 1983)

Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015)

Volvo Trucks of N. Am., Inc. v. United States, 367 F.3d 204, 210 (4th Cir. 2004)

Whistleblower 11332-13W v. Commissioner, 142 T.C. 396, 400 (2014)

Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (aff'd 162 F.2d 513 (10th Cir. 1947)

Zivkovic v. S. California Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002)

Statutes

I.R.C. § 6213(a)

I.R.C. § 6015(e)(1)(A)

I.R.C. § 6212(b)

I.R.C. § 6212(b)(1)

I.R.C. § 6213(a)

I.R.C. § 6214(a)

I.R.C. § 6330(d)

I.R.C. § 6512(b)(1)

I.R.C. § 6532(c)

I.R.C. § 7422

I.R.C. § 7442

I.R.C. § 7482(a)(1)

I.R.C. § 7483

I.R.C. § 7502

I.R.C. § 7502(a)

I.R.C. § 7502(f)

I.R.C. § 7623(b)(5)

I.R.C. §§ 6330(d) and 6015(e)(1)(A)

I.R.C. § 6212(b)(1)

I.R.C. § 7502(f)(2)

Internal Revenue Code (Title 26)

Other Authorities

6 Wright, Miller & Kane, Federal Practice and Procedure § 1488 (3d ed. 2016)

H.R. Rep. No. 104-506 at (1996)

Pub. L. 100-647, § 6243(a)

Rules

FRCP 6(a)(3)

U.S. Tax Ct. R. 1(b)

Regulations and Administrative Materials

IRS Notice 2004-83

IRS Notice 2015-38

IRS Notice 97-26

Revenue Procedure 97-17

Treas. Reg. § 301.7502-1(b)(1)(iii)

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JURISDICTIONAL STATEMENT

Organic Cannabis Foundation, LLC (“appellant”) sent a petition to the Tax Court by FedEx on April 21, 2015. ER88. FedEx attempted delivery on April 22, 2015, but because the Tax Court was inaccessible to FedEx that day, FedEx was unable to deliver the petition until April 23, 2015 — the day after the 90-day filing deadline. I.R.C. § 6213(a)¹; ER88. Appellant contends that the petition was timely, and that equitable tolling is available to appellant, under these circumstances.

On July 25, 2017, the Tax Court held that the notice of deficiency was valid despite having been mailed to the incorrect address, and dismissed appellant's case for lack of jurisdiction on the ground that appellant failed to timely file a petition.

ER89-92. On October 16, 2017, appellant timely filed a notice of appeal pursuant to I.R.C. § 7483. ER94.

This Court has jurisdiction under I.R.C. § 7482(a)(1). Appellant's principal place of business is California, and thus venue is proper in this Court. I.R.C. § 7482(b)(1)(B).

STATEMENT OF ISSUES PRESENTED FOR REVIEW

STATEMENT OF THE CASE

The IRS failed to send the notice of deficiency to appellant's last known address in contravention of I.R.C. § 6212(b)(1), delaying delivery to appellant. ER88. The notice of deficiency proposed deficiencies and penalties in excess of $1.3 million for appellant's tax years 2010 and 2011. ER88. The notice of deficiency was dated January 22, 2015, and identified April 22, 2015, as the last to file a petition in the Tax Court. ER88.

On April 21, 2015, appellant sent its petition to the Tax Court by FedEx overnight delivery. ER88. Appellant selected the FedEx next-business-day delivery option guaranteeing the earliest possible delivery, which FedEx marketed under the name “FedEx First Overnight.” ER72, 83-84. When FedEx attempted to deliver the petition to the Tax Court on April 22, 2015, FedEx could not access the Tax Court due to “some plausible reason like construction, or some sort of police action (perhaps the [FedEx] representative said the access was blocked off because of a safety threat).” ER89. FedEx successfully delivered the petition on April 23, 2015, the day after the 90-day filing period expired. ER88.

On July 29, 2016, more than one year and three months after the petition was filed, the IRS moved to dismiss appellant's case on the ground that the petition was not timely filed. ER87. Appellant also moved to dismiss the case, but on the ground that the notice of deficiency was invalid because the IRS sent the notice of deficiency to the wrong address in contravention of I.R.C. § 6212(b)(1). ER87. The Tax Court denied appellant's motion, finding that the notice of deficiency was valid despite having been mailed to the wrong address. ER90-91. The Tax Court granted the IRS motion, and dismissed appellant's case for lack of jurisdiction. Appellant timely filed a notice of appeal. ER91.

SUMMARY OF ARGUMENT

Appellant's petition was timely because the Tax Court was “inaccessible” to appellant on April 22, 2015. In the absence of more statute-specific provisions, Courts refer to Rule 6(a)³ of the Federal Rules of Civil Procedure when interpreting statutory time periods. Union National Bank v. Lamb, 337 U.S. 38, 40-41 (1949). The cases interpreting Rule 6(a)(3) have construed it liberally, and have extended deadlines in a lenient fashion where access to the court for filing is in some way restricted. United States Leather v. H & W P'ship, 60 F.3d 222, 225-226 (5th Cir. 1995); Prudential Oil & Minerals Co. v. Hamlin, 261 F.2d 626, 627 (10th Cir. 1958); Telephone & Data Sys. v. Amcell F Atl. City, 20 F.3d 501, 502 (D.C. Cir. 1994). Because FedEx was unable to access the Tax Court clerk's office on April 22, 2015, ER88, 91, this Court should hold that Rule 6(a)(3) extends the filing deadline to April 23, 2015, and reverse the Tax Court on this ground alone. If the Court finds in favor of appellant on this issue, it need not reach the remaining issues.

The statutory “mailbox rule” set forth in I.R.C. § 7502, dictates that appellant's petition was timely filed. The mailbox rule provides that a Tax Court petition that is received late is treated as having been timely filed so long as it is postmarked on or before expiration of the 90-day filing period. I.R.C. § 7502(a). Taxpayers can accomplish timely filings under the mailbox rule using “private delivery services,” and I.R.C. § 7502(f) authorizes the IRS to designate “acceptable” delivery services (provided they meet certain criteria). At the time the petition was mailed, the IRS had designated two FedEx Overnight delivery options as acceptable: FedEx “Priority” Overnight and FedEx “Standard” Overnight. IRS Notice 2004-83. Appellant mailed the petition using FedEx “First” Overnight, the FedEx delivery option guaranteeing the earliest possible overnight delivery, which option the IRS officially designated as an acceptable private delivery “service” less than two weeks after the petition was filed. ER83, 88; IRS Notice 2015-38. FedEx “First” Overnight is substantially identical to the other two approved FedEx next-business-day options, but with the added feature of the earliest guaranteed delivery time. ER75-76, 84. In the sense that all three of these “overnight” delivery options were offered by FedEx, using the same FedEx delivery procedures, FedEx First Overnight does not constitute a distinct “service” requiring formal designation for purposes of I.R.C. § 7502.

Assuming, arguendo, that appellant's use of the FedEx delivery option guaranteeing the earliest possible delivery of all FedEx overnight delivery options (no later than the earlier of the earliest delivery under the other two FedEx overnight delivery options which the IRS had previously approved as “designated delivery services”) does not constitute literal compliance with I.R.C. § 7502, and the IRS guidance issued with respect thereto, by sending the petition using FedEx First Overnight, appellant substantially complied with the substantive requirements of I.R.C. § 7502(f) and IRS guidance pertinent to the filing of petitions with the Tax Court. See, e.g., Baccei v. United States, 632 F.3d 1140 (9th Cir. 2011) (describing the substantial compliance doctrine).

Under these circumstances, equitable tolling should be applied to permit the petition to be filed on April 23, 2015. The Supreme Court's current approach to distinguishing jurisdictional limits from case-processing rules holds that statutory deadlines are presumptively nonjurisdictional and subject to equitable tolling unless Congress has made a clear statement that the deadline is jurisdictional. United States v. Kwai Fun Wong, 135 S.Ct. 1625 (2015). The language of I.R.C. § 6213(a) and its statutory context do not clearly grant jurisdiction to the Tax Court. Equitable tolling should apply because appellant mailed the petition through a next-business-day option guaranteeing the earliest FedEx delivery possible (such that Appellant had a reasonable expectation that the petition would be timely delivered); the Tax Court was inaccessible to the FedEx driver when delivery was attempted on April 22, 2015; the IRS delayed raising the timely filing issue so long that FedEx had purged data relevant to the attempted delivery; and the IRS mailed the notice of deficiency to the wrong address (resulting in a delayed delivery to appellant). ER87-91.

Finally, because the IRS failed to send the notice of deficiency to appellant's last known address in contravention of I.R.C. § 6212(b)(1), ER88, the Court should find that the notice of deficiency is invalid.

ARGUMENT

Conclusions of law, including Tax Court interpretations of the Internal Revenue Code, are reviewed de novo. Suzy's Zoo v. Commissioner, 273 F.3d 875, 878 (9th Cir. 2001). Mixed questions of fact and law are reviewed de novo. Zivkovic v. S. California Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). The Court reviews de novo the Tax Court's dismissal for lack of jurisdiction. Gorospe v. Comm'r, 451 F.3d 966, 968 (9th Cir. 2006).

Below, we discuss why the petition was timely under Rule 6(a)(3) and I.R.C. § 7502, why equitable tolling should apply and permit the petition to have been filed one day late; and why, alternatively, the Tax Court lacked jurisdiction because the notice of deficiency is invalid. The Tax Court addressed most of these issues in the order of dismissal, including findings concerning Rule 6(a)(3), the qualification of FedEx First Overnight under I.R.C. § 7502, and the Tax Court's inability to extend the deadline on equitable grounds. ER91. Though it did not appear in the order of dismissal, appellant raised the remaining issues, substantial compliance with administrative procedures published under I.R.C. § 7502 and waiver,⁴ in its objection to the IRS motion to dismiss. ER71, 77.

I. The Petition Was Timely Filed

Within 90 days after a notice of deficiency is mailed, a taxpayer may file a petition in Tax Court for a redetermination of the notice of deficiency. I.R.C. § 6213(a). In Part I.A, we discuss why the petition was timely, even though received on the 91st day, because the Tax Court was “inaccessible” to appellant on the 90th day within the meaning of Rule 6(a)(3). In Part I.B, we discuss why the petition was timely pursuant to the statutory mailbox rule because FedEx First Overnight is not a distinct “service” requiring approval under IRS Notice 2004-83); and why appellant otherwise substantially complied with IRS guidelines when it sent the petition via FedEx First Overnight.

A. FRCP 6(a)(3) Extends the Statutory Filing Deadline Because the Tax Court Clerk's Office was “Inaccessible” To Appellant on the Last Day for Filing

The Tax Court Rules of Practice and Procedure do not address how time should be computed when the Tax Court Clerk's Office is inaccessible. Guralnik v. Commissioner, 146 T.C. 230, 245 (2016). The Tax Court Rules of Practice and Procedure provide that, where there is no applicable Tax Court rule of procedure, the Tax Court may prescribe the procedure giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand. U.S. Tax Ct. R. 1(b). The Tax Court has held that Rule 6(a)(3) is suitably adaptable to specify the principle for computing time where the Tax Court Clerk's Office is inaccessible. Guralnik, 146 T.C. at 252.

Courts rely upon the Federal Rules of Civil Procedure to interpret a statutory time period in the absence of any more statute-specific provisions or indication that Congress did not intend the rules to apply. Union National Bank v. Lamb, 337 U.S. 38, 40-41 (1949); United Mine Workers v. Dole, 870 F.2d 662, 665 n.2 (D.C. Cir. 1989). Rule 6 applies even where the statute is jurisdictional. In re Swine Flu Immunization Products Liability Litigation, 880 F.2d 1439, 1445 (D.C. Cir. 1989).

Rule 6(a)(3) provides that “[u]nless the court orders otherwise, if the clerk's office is inaccessible . . . on the last day for filing under Rule 6(a)(1), then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday . . .” Previously Rule 6(a)(3) referenced “weather or other conditions” as grounds for inaccessibility, but that language was removed in 2009, to emphasize a more liberal construction of inaccessibility:

The text of the rule no longer refers to “weather or other conditions” as the reason for the inaccessibility of the clerk's office. The reference to “weather” was deleted from the text to underscore that inaccessibility can occur for reasons unrelated to weather, such as an outage of the electronic filing system. Weather can still be a reason for inaccessibility of the clerk's office. The rule does not attempt to define inaccessibility. Rather, the concept will continue to develop through caselaw. . . .

Notes of Advisory Committee on the 2009 Amendments to Rule 6(a)(3) (emphasis supplied).

In the order of dismissal, the Tax Court held that appellant's case is distinguishable from Guralnik, which extended the last day for filing due to a snow day, because the Clerk's office in appellant's case was not “inaccessible due to closure for the entire day.” ER91. This reading is not persuasive and is not supported by case law. Under the Tax Court's strict construction of Rule 6, even a closure for most of the day would not be sufficient to extend a deadline. The text of Rule 6(a)(3) does not require that a clerk's office be inaccessible for the “entire last day.” Rather, it simply requires inaccessibility “on the last day.” (Emphasis supplied.) Because the Tax Court Clerk's office was inaccessible to appellant when FedEx unsuccessfully attempted delivery “on the last day for filing,” ER88-89, the time for filing should be extended to the first accessible day. ⁵

Cases construing Rule 6(a)(3) support a broad interpretation of inaccessibility. Rule 6(a)(3) excludes any day on which the court is either officially closed or inaccessible as a practical matter. United States Leather v. H & W P'ship, 60 F.3d 222, 225-226 (5th Cir. 1995) (rejecting strict construction of Rule 6(a) and finding that a deadline was extended where, although the district court was open, the litigant in another city was unable to reach the court due to an ice storm). In Prudential Oil & Minerals Co. v. Hamlin, 261 F.2d 626, 627 (10th Cir. 1958), the Tenth Circuit held that where a clerk's office was technically open on a state holiday because it was “locked and unattended” and federal employees had been excused from work through administrative directive, the court excluded that day under Rule 6(a). In Telephone & Data Sys. v. Amcell F Atl. City, 20 F.3d 501, 502 (D.C. Cir. 1994), the court held that a clerk's office was “inaccessible” despite the fact that it was physically possible to file papers in the court's 24-hour drop box. Unites States Leather, Prudential Oil and Telephone & Data each support a liberal application of Rule 6(a)(3), recognizing that even partial restrictions on court filings can or should extend the last day for filing.

Appellant's position is consistent with the “considerations of liberality and leniency which find expression in Rule 6(a).” Telephone & Data Sys. v. Amcell F Atl. City, 20 F.3d 501, 502 (D.C. Cir. 1994), citing Union Nat. Bank v. Lamb, 337 U.S. 38, 41 (1949); Prudential Oil & Minerals Co. v. Hamlin, 261 F.2d 626, 627 (10th Cir. 1958) (noting that Rule 6(a) should be “liberally and realistically construed”). Further, the general preference expressed in the Federal Rules of Civil Procedure is for resolving disputes on their merits. Krupski v. Costa Crociere, 560 U.S. 538, 550 (2010).

Nothing in the Advisory Committee notes indicates that Rule 6(a)(3) is to be limited to situations where a court is not accessible for the entire day. For example, in the Note to Subdivision(a)(3):

When determining the last day of a filing period stated in days or a longer unit of time, a day on which the clerk's office is not accessible because of the weather or another reason is treated like a Saturday, Sunday, or legal holiday.

* * *

Subdivision (a)(3)'s extensions apply “[u]nless the court orders otherwise.” In some circumstances, the court might not wish a period of inaccessibility to trigger a full 24-hour extension; in those instances, the court can specify a briefer extension.

Note to Subdivision(a)(3), Notes of Advisory Committee on the 2009 Amendments to Rule 6(a)(3).

The Advisory Committee notes are consistent with a liberal and lenient construction of Rule 6(a)(3), as courts may tailor deadline extensions liberally based upon the circumstances pursuant to Rule 6(a)(3), such as granting extensions of less than 24 hours.

The Court should find that the statutory deadline was extended by operation of Rule 6(a)(3). The uncontroverted evidence establishes that the FedEx representative attempted to physically deliver the petition on April 22, 2015, but was unable to do so due to “some plausible reason like construction, or some sort of police action (perhaps the [FedEx] representative said the access was blocked off because of a safety threat).” ER89. While this evidence is less than precise as to the exact nature of the inaccessibility to the Tax Court, undisputed allegations are to be construed in a manner favorable to the taxpayer. Whistleblower 11332-13W v. Commissioner, 142 T.C. 396, 400 (2014). Appellant was unable to retrieve additional information from FedEx regarding the unsuccessfully attempted delivery because the IRS waited more than one year and three months after the petition was filed to move to dismiss the case, ER85-87, 97, further reason to construe these facts in appellant's favor. For purposes of deciding the motion to dismiss, it should be found that FedEx was unable to access the Tax Court on the deadline.

Because the Tax Court Clerk's Office was “inaccessible” to appellant on April 22, 2015, the last day for filing, Rule 6(a) operates to extend the deadline to the next business day. ER88-89. As the petition was filed on April 23, 2015, the petition was timely filed (the next business day) and the Tax Court has jurisdiction to determine the merits of the proposed $1.3 million worth of deficiencies and penalties. ER97.

B. The Petition Was Timely Pursuant to the Statutory Mailbox Rule

Where the Tax Court receives a petition after the 90th day, a statutory mailbox rule allows timely filing to be accomplished by reference to the postmark date. I.R.C. § 7502. The mailbox rule applies where a petition is sent by U.S. Mail or through a “designated delivery service.”⁶ I.R.C. § 7502(a), (f); Treas. Reg. § 301.7502-1(b)(1)(iii).

The term “designated delivery service” means “any delivery service provided by a trade or business if such service is designated by the Secretary.” I.R.C. § 7502(f)(2). The IRS may designate a delivery service if the IRS determines that the service is available to the general public; it is at least as timely and reliable on a regular basis as the United States mail; it records or prints on the shipping label the date on which such item was given to such trade or business for delivery, and it meets such other criteria as the Secretary may prescribe. I.R.C. § 7502(f)(2). The IRS has prescribed procedures under I.R.C. § 7502 through a Revenue Procedure and several IRS Notices. Revenue Procedure 97-17 sets forth procedures under which a trade or business can apply to be a designated delivery service. Since 1997, the IRS has also published seven lists of “designated delivery services.”

From 2004 until 2015, the IRS did not update its list of designated delivery services. Guralnik v. Commissioner, 146 T.C. 230, 240 (2016). At the time the petition was mailed on April 21, 2015, IRS Notice 2004-83 had been in effect for just over ten years, and it included two FedEx next-business-day delivery options: (1) FedEx Priority Overnight; and (2) FedEx Standard Overnight. Less than two weeks after the petition was filed, the IRS published IRS Notice 2015-38, an updated list, which added FedEx First Overnight and several other delivery options to its list of approved “services.”

Appellant sent the petition by FedEx First Overnight, which comes with the earliest guaranteed delivery of the FedEx overnight delivery options described in IRS Notice 2015-38. This satisfied I.R.C. § 7502. However, in the event the Court determines that appellant's use of the FedEx First Overnight option does not literally satisfy implementing IRS guidance (e.g., IRS Notice 2004-83 and 2015-38), appellant, nonetheless, substantially complied with such guidance.

1. FedEx First Overnight Is Not a Distinct “Delivery Service” Requiring Formal IRS Designation for Purposes of I.R.C. § 7502

FedEx has been a designated delivery service since 1997. IRS Notice 97-26. IRS Notice 2004-83 specifically approved FedEx's two next-business-day delivery options available at the time (FedEx First Overnight did not exist in 2004 when the IRS published its IRS Notice 2004-83). Guralnik v. Commissioner, 146 T.C. 230, 240 (2016). The question is whether the FedEx First Overnight delivery option, which became available after IRS Notice 2004-83 was published, is a distinct “delivery service” requiring official designation under I.R.C. § 7502(f), or whether its designation was already approved under IRS Notice 2004-83.

The Tax Court held that appellant may not rely on the timely-mailing rule in I.R.C. § 7502(a) because appellant sent the petition using FedEx First Overnight, a FedEx overnight delivery option that was not specifically listed in IRS Notice 2004-83. However, FedEx First Overnight is substantially identical to the other IRS-approved FedEx next-business-day delivery options described in IRS Notice 2004-83, it simply offers the earliest FedEx guaranteed overnight delivery. The Tax Court's application of I.R.C. § 7502(a) exalts form over substance. See, e.g., Brown v. United States, 329 F.3d 664, 671 (9th Cir. 2003) (describing the general tax concept that substance should prevail over form). The added premium feature of the earliest guaranteed overnight delivery, though offered under the brand name “FedEx First Overnight,” is not materially distinguishable from other optional features available through other IRS-approved FedEx overnight delivery options (such as “collect-on-delivery,” insurance, “hold at location,” various signature requirements (e.g., adult signature), prescheduled delivery times, Saturday delivery, added delivery attempts, and other features that a customer may select).⁷ ER82-84. Neither the Internal Revenue Code nor IRS Notice 2004-83 requires formal designation where additional features are offered through IRS-approved services.

So, while FedEx may have chosen to offer an approved next-business-day delivery option with enhanced delivery features (such as Saturday delivery or early delivery) under a distinct brand name for marketing purposes, IRS Notice 2004-83 and other IRS published procedures do not revoke the designation of an approved “service” that offers additional features. Had FedEx simply kept the “Priority Overnight” or “Standard Overnight” branding, but allowed customers to “check a box” selecting the earliest guaranteed delivery time with an added fee, nothing in the Internal Revenue Code or IRS Notice 2004-83 suggest that the official designation would have been impacted. The fact that FedEx improved its overnight delivery procedures to the extent it felt it could market a next-business-day delivery option under a slightly different brand name should not cause FedEx First Overnight to be treated differently than the other IRS-approved FedEx next-business-day delivery “services” (FedEx “Priority Overnight” and FedEx “Standard Overnight”).

Moreover, the IRS published formal guidance approving FedEx First Overnight less than two weeks after the petition was filed, so there is but little doubt that, on the date that the petition was mailed, FedEx First Overnight met all of the requirements of I.R.C. § 7502(f).⁸ IRS Notice 2015-38.

The Court should find that FedEx First Overnight delivery option is not a distinct “service” within the meaning of I.R.C. § 7502(f), such that it did not require specific designation under IRS Notice 2004-83. Rather, it was but an improved version of the FedEx next-business-day options the IRS had previously approved.

2. Appellant Substantially Complied With IRS Notice 2004-83

Substantial compliance is an equitable doctrine designed to avoid hardship in cases where a party has done all that can be reasonably expected. Sawyer v. Sonoma County, 719 F.2d 1001, 1008 (9th Cir. 1983). Substantial compliance with regulatory requirements may suffice when such requirements are procedural and when the essential statutory purposes have been fulfilled. Shotgun Delivery, Inc. v. United States, 269 F.3d 969, 973 (9th Cir. 2001). A taxpayer may be relieved of perfect compliance with a regulatory requirement when the taxpayer has made a good faith effort at compliance or has a good excuse for noncompliance, and either (1) the regulatory requirement is not essential to the tax collection scheme but rather is an unimportant or relatively ancillary requirement or (2) the regulatory provision is so confusingly written that it is reasonably subject to conflicting interpretations.” Volvo Trucks of N. Am., Inc. v. United States, 367 F.3d 204, 210 (4th Cir. 2004).

Courts have developed factors to determine whether substantial compliance is permitted: whether the taxpayer's failure to comply fully defeats the purpose of the statute; whether the taxpayer attempts to benefit from hindsight by adopting a position inconsistent with his original action or omission; whether the IRS is prejudiced by the untimely election; and whether the sanction imposed on the taxpayer for the failure is excessive and out of proportion to the default. American Air Filter Co. v. Commissioner, 81 T.C. 709, 719-720 (1983).

Further, where a statute is capable of multiple interpretations, the Tax Court generally adopts a construction that will permit the court to retain jurisdiction without doing violence to the statutory language. Traxler v. Commissioner, 61 T.C. 97, 100 (1973); Loyd v. Commissioner, T.C. Memo. 1984-172; Pollack v. Commissioner, 132 T.C. 21, 25-26 (2009).

In this case, the essential statutory purpose of I.R.C. § 7502(f) was fulfilled. The statute permits taxpayers to utilize private delivery companies “which meet the U.S. Postal Service's ability to deliver documents quickly and securely.” H.R. Rep. No. 104-506 at (1996). FedEx First Overnight undoubtedly meets the U.S. Postal Service's ability to “deliver documents quickly and securely,” as the same FedEx company (the same “trade or business”) uses the same equipment and follows the same procedures as the FedEx Priority Overnight and FedEx Standard Overnight delivery options the IRS approved as “designated delivery services” in IRS Notice 2004-83 (FedEx First Overnight is simply an “improved” version of the FedEx overnight delivery options previously approved as it guarantees the earliest possible overnight delivery FedEx offers), and the IRS would not have otherwise issued official approval of it (FedEx First Overnight) as a “designated delivery service” in IRS Notice 2015-38 if it did not meet those standards.

Appellant made a good faith effort to timely file by mailing the petition through the FedEx next-business day delivery option with the earliest guaranteed delivery. FedEx First Overnight delivery was first offered after IRS Notice 2004-83 was published, and neither I.R.C. § 7502(f), IRS Notice 2004-83, nor any of the IRS Notices preceding IRS Notice 2004-83 prohibits a designated delivery service from offering delivery features or options with their approved “services.” Moreover, less than two weeks after the Tax Court received the petition, the IRS formally issued IRS Notice 2015-38, officially designating FedEx First Overnight as a “designated delivery service,” the timing of which announcement offers compelling evidence that appellant substantially complied with IRS guidance.

There is no evidence that appellant will benefit from hindsight, that appellant is adopting an inconsistent position with prior positions, or that the IRS will be prejudiced by a finding that appellant substantially complied. American Air Filter Co. v. Commissioner, 81 T.C. 709, 719-720 (1983). Finally, the dismissal of appellant's case has resulted in an assessment in excess of $1.3 million worth of tax, penalties and interest, which is excessive and out of proportion with the purported default. Id.

The Court should hold that appellant substantially complied with IRS Notice 2004-83.

II. The 90-Day Period Described in I.R.C. § 6213(a) is Not Jurisdictional

Because the Tax Court's subject matter is statutorily granted, the relevant sections of the Internal Revenue Code determine the court's jurisdictional reach. Gorospe v. Comm'r, 451 F.3d 966, 968 (9th Cir. 2006). I.R.C. § 7442 provides that the Tax Court and its divisions shall have jurisdiction as is conferred on them by the Internal Revenue Code (Title 26). I.R.C. § 6213(a) does not “confer” jurisdiction on the Tax Court as required by I.R.C. § 7422.

With respect to the redetermination of income tax deficiencies and overpayments, such jurisdiction is granted in two sections. For income tax deficiencies, I.R.C. § 6214(a) confers upon the Tax Court “jurisdiction to redetermine the correct amount of a deficiency.” Dees v. Commissioner, 148 T.C. No. 1 at *18 (Feb. 2, 2017) (Ashford, J., concurring in the result only) (“Section 6214(a) establishes our deficiency jurisdiction”.); Moyer v. Commissioner, T.C. Memo. 2016-236 at *1 (“Moyer timely filed a petition under section 6213(a) for redetermination of the deficiency and the penalties. We have jurisdiction under section 6214(a).”). Where a taxpayer has overpaid tax, I.R.C. § 6512(b)(1) confers “jurisdiction to determine the amount of such overpayment.” Neither of these sections refer to the 90-day deadline or to I.R.C. § 6213(a). Zipes v. TWA, 455 U.S. 385, 393-394 (1982) (90-day filing requirement held not to be jurisdictional where the provision granting jurisdiction to the district courts “contains no reference to the timely-filing requirement”).

The Ninth Circuit has previously held that the 90-day deadline set forth in I.R.C. § 6213(a) is jurisdictional and not subject to equitable tolling. Healy v. Commissioner, 351 F.2d 602 (9th Cir. 1965); Morgan v. Commissioner, 23 Fed. Appx. 813 (9th Cir. 2001). However, in recent years, the Supreme Court has endeavored to “bring some discipline” to the use of the term “jurisdictional.” Gonzalez v. Thaler, 565 U.S. 134, 141 (2012). Under the Supreme Court's current approach, beginning in 2004, filing deadlines are almost never jurisdictional. Kontrick v. Ryan, 540 U.S. 443, 455 (2004).

The Government must clear a high bar to establish that a statute of limitations is jurisdictional. United States. v. Kwai Fun Wong, 135 S.Ct. 1625, 1632 (2015). The Supreme Court's recent cases have adopted a “bright line” rule treating time restrictions as nonjurisdictional in character unless Congress has clearly stated that the rule is jurisdictional. Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145, 153 (2013); Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015); Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428 (2011). Congress must clearly state that a threshold limitation on a statute's scope shall count as jurisdictional. Gonzalez v. Thaler, 565 U.S. 134, 141 (2012). Absent such a clear statement, courts should treat the time restriction as nonjurisdictional. Auburn Reg'l Med. Ctr., 568 U.S. at 153. While Congress is not required to “incant magic words,” traditional tools of statutory construction must plainly show that Congress imbued a procedural bar with jurisdictional consequences. Kwai Fun Wong, 135 S.Ct. at 1632.

There is simply no clear statement indicating that I.R.C. § 6213(a)⁹ is intended to grant jurisdiction to the Tax Court, as opposed to being a mere statute of limitations or claim-processing rule. I.R.C. § 6213(a) is entitled “Restrictions applicable to deficiencies; petition to Tax Court,” and does not speak to the power of the Tax Court in any of its five sentences. The first sentence provides that a taxpayer “may” file a petition during the 90-day period following the issuance of a notice of deficiency. See Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145, 154 (2013) (finding that use of the word “may” was “less jurisdictional” than another statute which used the word “shall”).

The remaining sentences in I.R.C. § 6213(a) do nothing to “connect” this 90-day filing period to the jurisdictional grant contained in I.R.C. § 6214(a). Gonzalez v. Thaler, 565 U.S. 134, 145 (2012) (refusing to find that a statute was jurisdictional even where the section requiring a certificate of appealability contained a cross-reference to the section granting jurisdiction). The second sentence states that the IRS may not assess or collect a deficiency unless a notice of deficiency has been mailed to the taxpayer, and the IRS may not assess or collect a deficiency during the 90-day filing period or while a Tax Court proceeding is pending. The third sentence allows a taxpayer to bring a proceeding to enjoin improper assessment or collection of a deficiency. The fourth sentence clarifies that the Tax Court lacks jurisdiction to enjoin a proceeding or order a refund unless a petition is timely filed. Finally, the fifth sentence provides that any petition filed with the Tax Court on or before the last day specified for filing by the IRS in the notice of deficiency shall be treated as timely filed. None of this language even suggests, let alone clearly dictates that Congress intended the 90-day filing period to be jurisdictional.

The text of I.R.C. § 6213(a) 90-day filing period speaks only to timeliness, not to the Tax Court's power. U.S. v. Kwai Fun Wong, 135 S.Ct. 1625, 1632 (2015). The Tax Court is specifically granted jurisdiction in I.R.C. § 6214(a), and that section fails to mention either the 90-day deadline or I.R.C. § 6213(a). Only the fourth sentence of I.R.C. § 6213(a) uses the word “jurisdiction,” and that reference is in the context of clarifying the court's lack of jurisdiction regarding certain injunctions or refund matters which are not at issue in this case. Further, in the fourth sentence, which was added in 1988 as part of the Taxpayer Bill of Rights, Congress prospectively amended I.R.C. § 6213(a) to: (1) specify that the Tax Court can be one of the proper courts with injunctive powers, and (2) add the fourth sentence of the subsection.¹⁰ Pub. L. 100-647, § 6243(a). Since the Tax Court's authority to enjoin the IRS was added long after the first sentence of I.R.C. § 6213(a) and its predecessors were drafted, it should have no impact on the interpretation of the opening sentence of I.R.C. § 6213(a), which on its face appears to be no more than a mere statute of limitations.

In Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015), this Court held that there was no clear jurisdictional statement in I.R.C. § 6532(c). In Volpicelli, the Court found that the nine month¹¹ limitations period for bringing wrongful levy actions was not jurisdictional and was subject to equitable tolling. Id. The Court noted that Congress signaled the non-jurisdictional nature of I.R.C. § 6532(c) by placing it in one section and enacting a separate jurisdiction-conferring provision in another, much like I.R.C. § 6213(a). Id. at 1044.

Recently, in Duggan v. Commissioner, No. 15-73819 (Jan. 12, 2018), this Court held that the 30-day deadline set forth in I.R.C. § 6330(d)¹² was jurisdictional. The Court reasoned that the I.R.C. § 6330(d) “filing deadline is given in the same breath as the grant of jurisdiction.” Id., Slip. Op. at 9-10. The Court cited Kwai Fun Wong for the proposition that, where a deadline is contained in a separate section from the grant of jurisdiction, that “structural divide” indicates that a failure to meet the deadline does not divest the court of power to hear the case. Duggan, Slip. Op. at 7; Henderson v. Shinseki, 562 U.S. 428, 436-441 (2011) (holding filing deadline nonjurisdictional where jurisdiction was conferred by separate statutory provision). Lippolis v. Commissioner, 143 T.C. 393, 397 (2014) (holding amount-in-controversy requirement of I.R.C. § 7623(b)(5) nonjurisdictional where jurisdiction was conferred by separate statutory provision). The provision at issue in Duggan, I.R.C. § 6330(d), is simply not comparable to the provision at issue in this case, I.R.C. § 6213(a).

Similarly, in Matuzak v. Commissioner, 862 F.3d 192 (2d Cir. 2017), the Second Circuit held that the 90-day deadline to file a petition pursuant to I.R.C. § 6015(e)(1)(A)¹³ was jurisdictional. As with the judicial appeal provision at issue in Duggan, I.R.C. § 6015(e)(1)(A) contains a virtually identical jurisdictional grant in a parenthetical following a reference to the deadline indicating that “the Tax Court shall have jurisdiction.”

The jurisdictional grants found in I.R.C. §§ 6330(d) and 6015(e)(1)(A) are not present in I.R.C. § 6213(a). As a general rule, Congress' use of certain language in one part of a statute and different language in another part can indicate that different meanings were intended. Sosa v. Alvarez-Machain, 542 U. S. 692, 711, n. 9 (2004). Accordingly, Congress would have spoken in clearer terms if it intended I.R.C. § 6213(a) to have jurisdictional force, and could have included a brief parenthetical following the 90-day filing period stating that “(and the Tax Court shall have jurisdiction).” Gonzalez v. Thaler, 565 U.S. 134, 143 (2012).

Finally, the recent Seventh Circuit opinion in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), misapplies Supreme Court rulings in its holding that I.R.C. § 6213(a) contains a clear statement concerning jurisdiction and in its stare decisis exception. In Tilden, the court noted that one sentence in I.R.C. § 6213(a) uses the word “jurisdiction,” but never explains how the injunction power jurisdiction limitation added in the first sentence in 1988, ¹⁴ relates to the filing period. Id. However, in Gonzalez and Auburn, the Supreme Court instructed lower courts not to treat time periods adjacent to jurisdictional provisions as jurisdictional, absent a “clear statement.” Gonzalez v. Thaler, 565 U.S. 134, 146-147 (2012); Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145, 155 (2013).

Tilden also gives stare decisis status to opinions holding the I.R.C. § 6213(a) time period jurisdictional, 846 F.3d at 886-887, despite the fact that all of the opinions that the court relied on were from Circuit courts, not the Supreme Court. The Supreme Court has never ruled on whether any Tax Court filing period is jurisdictional. In Bowles v. Russell, 551 U.S. 205 (2007), and John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008), the Supreme Court also recognized a stare decisis exception to its current rules making claims-processing rules generally nonjurisdictional — but only where a long line of Supreme Court case law, spanning over 100 years, held the particular time limits jurisdictional. The stare decisis exception is inapplicable to opinions of Circuit courts. See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 173-174 (2010) (Ginsburg, J, concurring, joined by Stevens and Breyer, JJ.) (“[I]n Bowles and John R. Sand & Gravel Co. . . . we relied on longstanding decisions of this Court typing the relevant prescriptions 'jurisdictional.' Amicus cites well over 200 opinions that characterize § 411(a) as jurisdictional, but not one is from this Court. . . .”; emphasis in original; citations omitted). Tilden is not persuasive and should not be followed by this Court.

In summary, I.R.C. § 6213(a) is presumptively nonjurisdictional, and its language and statutory context simply do not provide the clear Congressional statement that would be required to overcome that presumption.

III. Because I.R.C. § 6213(a) is Nonjurisdictional, Equitable Tolling and Waiver Defenses Are Both Applicable

A. Equitable Tolling Extends the Filing Deadline to April 23, 2015

The purpose of equitable tolling is to soften the harsh impact of technical rules which might otherwise prevent a good faith litigant from having his or her day in court. Rudin v. Myles, 781 F.3d 1043, 1055 (9th Cir. 2014). Federal courts employ equitable tolling when a litigant can establish (1) that the litigant has been pursuing their rights diligently, and (2) that some extraordinary circumstance stood in the way and prevented timely filing. Menominee Indian Tribe of Wis. v. United States, 136 S.Ct. 750, 755 (2016); Gibbs v. Legrand, 767 F.3d 879, 891-893 (9th Cir. 2014). The standard of diligence required of a petitioner seeking equitable tolling is “reasonable,” not “maximum feasible” care. Holland v. Florida, 560 U.S. 631, 653 2010). Reasonable diligence does not require an overzealous or extreme pursuit of any and every avenue of relief, but rather it requires the effort that a reasonable person might be expected to deliver under his or her particular circumstances. Doe v. Busby, 661 F.3d 1001, 1015 (9th Cir.2011).

In Dempsey v. Pacific Bell Co., 789 F.2d 1451 (9th Cir. 1986), in determining whether statutory limitations may be equitably tolled, this Court directed the district court to consider such factors as the lack of clear precedent in the circuit regarding the issue, and the absence of prejudice to the defendant. Id. at 1453 (the “lack of clear precedent in this circuit regarding the jurisdictional requirements pertaining to” plaintiff's age discrimination claim against a private employer may serve as an equitable factor justifying tolling of the statute of limitations); see also Vance v. Whirlpool Corp., 707 F.2d 483, 489-90 (4th Cir. 1983) (plaintiff permitted to refile his complaint because there was no clear precedent on the issue and there was no demonstration of prejudice to defendant; statute of limitations effectively tolled).

Recently in Cunningham v. Commissioner, No. 17-1433 (Jan. 18, 2018), the Fourth Circuit held that a taxpayer's misreading of the deadline on the IRS levy notice did not justify the application of equitable tolling. Appellant's case is distinguishable as appellant mailed the petition the day before the deadline using the FedEx delivery option with the earliest guaranteed delivery available, ER83-84, which FedEx delivery option the IRS approved less than two weeks after the petition was filed. ER97; IRS Notice 2015-38. Meanwhile, in contravention of I.R.C. § 6212(b)(1), the IRS failed to send the notice of deficiency to appellant's last known address, delaying delivery until February 3, 2015, an ostensibly much more significant procedural error in the sense that it has prejudiced appellant by virtue of the fact that appellant's petition was not received by the Tax Court for filing until the morning after appellant's 90-day filing period had expired.

The court should find that the 90-day statutory deadline is equitably tolled through April 23, 2015. In contravention of I.R.C. § 6212(b)(1), the IRS did not send the notice of deficiency to appellant's last known address, delaying delivery until February 3, 2015. ER88. Petitioner mailed the petition to the Tax Court before the deadline using the premiere FedEx overnight delivery option available, ER83-84, thus giving rise to a reasonable expectation that FedEx would deliver the petition before expiration of the filing period (making the rules of I.R.C. § 7502 irrelevant). The IRS added FedEx First Overnight to its list of approved designated delivery “services” less than two weeks after the petition was filed. ER97; IRS Notice 2015-38. The IRS delayed filing its motion to dismiss until more than a year and three months after the petition was filed. ER97-98. That delay prejudiced appellant because FedEx had purged its delivery data related to its attempted delivery of the petition to the Tax Court. ER85-86. The unavailability of that data is material here because it hindered appellant's ability to obtain evidence surrounding the attempted deliveries, which goes to whether the delivery deadline should be extended pursuant to Rule 6(a)(3). ER85-86.

The above reflects a good faith attempt to timely file a Tax Court petition.

B. The IRS has Waived Its Statute of Limitations Defense

The IRS waived the timeliness argument by failing to raise it until more than one year and three months after the petition was filed. ER97-98.

In the Tax Court, statute of limitations defenses are special matter, required to be pleaded. U.S. Tax Ct. R. 39. Tax Court Rule 41(a) on amended pleadings is based on Rule 15(a)¹⁵ and provides, in part:

If the pleading is one to which no responsive pleading is permitted and the case has not been placed on a trial calendar, then a party may so amend it at any time within 30 days after it is served. Otherwise a party may amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires.

In this case, the IRS did not amend its answer as of right within 30 days after filing it, ER97-98, so the only way for the IRS to be allowed to amend its answer to raise a statute of limitations defense is with the appellant's consent (which appellant will not give) or by leave of the Tax Court. Even if the motion to dismiss were treated as a motion to amend the answer in the case, it was made at such time in the case that granting it would result in extreme prejudice to appellant.

The Tax Court looks to cases under Rule 15(a) for guidance in its interpretation of Tax Court Rule 41(a). Kramer v. Commissioner, 89 T.C. 1081, 1084-1085 (1987). Under Rule 15(a), undue delay and undue prejudice are factors militating against the granting of a motion for leave to amend a pleading. Foreman v. Davis, 371 U.S. 178, 182 (1962). In this case, there is undue delay because, when it received the petition, the IRS had all the facts to be able to allege noncompliance with the filing deadline in IRC § 6213(a). ER1-43. As to undue prejudice in raising a statute of limitations defense:

[a]s a general rule, the risk of substantial prejudice increases with the passage of time. For example, courts have denied motions to amend raising defenses that would result in eliminating the claim in the suit when the motion was made near the end of the applicable limitations period and plaintiff, for all practical purposes, would have no opportunity to refile the case before the statute had run.

6 Wright, Miller & Kane, Federal Practice and Procedure § 1488 (3d ed. 2016) (footnotes omitted). In a footnote attached to the second sentence quoted above, the treatise cited as support Strauss v. Douglas Aircraft Co., 454 F.2d 1152, 1155-1158 (2d Cir. 1968), and Ricciuti v. Voltare Tubes, Inc., 277 F.2d 809, 814 (2d Cir. 1960). Those opinions constitute ample authority for this Court to conclude that, if Judge Pugh had granted a motion to amend the IRS answer to allege a statute of limitations defense on the date the IRS filed its motion to dismiss, this Court would have had to reverse her ruling as an abuse of her discretion. That being the case, this Court should not remand this case to the Tax Court to allow it to exercise such discretion concerning a possible amendment and should instead hold that, if the filing deadline in I.R.C. § 6213(a) is a nonjurisdictional statute of limitation, the IRS waited too long to raise noncompliance, so any remand should simply proceed to decide the proposed deficiencies and penalties on the merits.

IV. The Notice of Deficiency Is Invalid

There is a split in the Circuit Courts of Appeal on what happens, in terms of Tax Court jurisdiction, when the taxpayer actually receives an improperly addressed notice of deficiency before the 90-day period to petition has expired. The holding in the majority of circuits is that, if an improperly addressed notice of deficiency is actually received with enough time to file a petition (without prejudice), the taxpayer has the normal statutory time limit to file a petition, and the notice of deficiency is valid. See Kuykendal v. Commissioner, 129 T.C. 77, 81 (2007). However, the Fourth, Seventh and D.C. Circuits have held the deadline for filing the petition is tolled until 90 days following actual receipt of an improperly addressed notice of deficiency. Powell v. Commissioner, 958 F.2d 53, 57 (4th Cir. 1992); McPartlin v. Commissioner, 653 F.2d 1185, 1192 (7th Cir. 1981); Gaw v. Commissioner, 45 F.3d 461 (D.C. Cir. 1995).

Assuming, arguendo, a petition arrives at the clerk's office the day after the 90th day following the taxpayer's actual receipt of an improperly addressed notice of deficiency (i.e., the petition is ostensibly not timely filed), then a question arises with respect to whether the improperly addressed notice of deficiency is still valid. This becomes an issue at this point because this Court, in published opinions, has never made a sweeping declaration that a certain time frame, or particular number of days, is the deciding factor in determining whether a taxpayer was prejudiced by an improperly addressed notice of deficiency. Instead, unless the failure to timely file was not in good faith, every published opinion of this Court considering the validity of an improperly addressed notice of deficiency following the filing of a Tax Court petition has held that the notice of deficiency was valid only when the taxpayer suffered no prejudice by timely filing a petition. See Mulvania v. Commissioner, 769 F.2d 1376, 1379-81 (9th Cir. 1985); Roszkos v. Commissioner, 850 F.2d 514, 517 (9th Cir. 1988).

The earliest reported opinion where this Court held that an improperly addressed notice of deficiency can be valid appears to be in Clodfelter v. Commissioner, 527 F.2d 754 (9th Cir. 1975) cert. denied, 425 U.S. 979 (1976). In that case, following the filing of a Tax Court petition within 90 days of mailing, the taxpayer argued that the statute of limitations for assessment had expired because the notice of deficiency, which he claimed was invalid, did not suspend the assessment limitations period. In deciding whether a notice of deficiency can only be valid if it is mailed to the taxpayer's last known address, the Court held:

We conclude . . . that if mailing results in actual notice without prejudicial delay (as clearly was the case here), it meets the conditions of [I.R.C.] § 6212(a) no matter to what address the notice successfully was sent.

Clodfelter 527 F,2d at 757 (emphasis added).

The Clodfelter opinion is significant, and distinguishable from this case, because the “no prejudice” finding there was a direct result of the fact the taxpayer had filed a petition (presumably before the ninetieth day following the mailing of the notice of deficiency).

In at least one later opinion, Roszkos v. Commissioner, 850 F.2d 514, 517 (9th Cir. 1988), this Court went on to reinforce its position that an improperly addressed notice of deficiency actually received results in no prejudice only when an otherwise timely petition was filed. In addressing whether an incorrectly addressed notice of deficiency terminates a Form 872-A open ended waiver of the statute of limitations, this Court in Roszkos said:

We held that a misaddressed notice of deficiency, which is returned to the IRS undelivered is 'null and void.' The only exception to this scenario that we noted is if the taxpayer acknowledges notice by timely petitioning the Tax Court for a redetermination of deficiency, thereby rendering harmless the IRS' error in mailing. Id. at 1379-81. (Emphasis added.)

Id.

Subsequent reported opinions support the position that there is no prejudice to the taxpayer only when a petition is timely filed following the actual receipt of an improperly addressed notice of deficiency. In the case of Erhard v. Commissioner, 87 F.3d 273 (9th Cir. 1996), the taxpayer knowingly (in bad faith) filed an untimely Tax Court petition over one year following the actual receipt of the allegedly improperly addressed notice of deficiency. The taxpayer then moved to dismiss the Tax Court case, claiming the notice of deficiency was invalid, alleging it had not been sent to her last known address. However, in Erhard, the taxpayer's failure to timely file a Tax Court petition was intentional. She had actually received the notice of deficiency, discussed it with her attorney, and then refused delivery having never opened the letter.

In this case, there can be no dispute that appellant was not acting in bad faith following receipt of the notice of deficiency. Despite being hampered by the improperly addressed notice of deficiency, appellant's counsel's employee, on April 21, 2015, actually deposited an envelope containing the petition with FedEx for overnight delivery to the Tax Court. Once the envelope was in its custody, FedEx could have delivered it to the Court on April 22, 2015, had the Tax Court Clerk's office been accessible when delivery was attempted. And if the envelope had been delivered April 22, 2015, there would be no question that the petition was timely. Thus, under Ninth Circuit precedent, the improper address would have been harmless error because appellant would have timely filed a Tax Court petition.

However, as the Tax Court was inaccessible when FedEx attempted delivery on April 22, 2015, and the petition was not actually delivered to the Tax Court clerk's office until 7:35 AM, April 23, 2015, the IRS is now forced to argue, inconsistently, that (i) appellant must suffer prejudice by being deprived of its prepayment Tax Court forum while simultaneously arguing (ii) the IRS' failure to properly address the notice of deficiency resulted in “no prejudice” to appellant.

The holding in McKay v. Commissioner, 886 F.2d 1237 (9th Cir. 1989), involving a petition filed eight years after the mailing date on the notice of deficiency, similarly does not support an argument that there is a de facto “grace period” for non-prejudicial actual delivery. In McKay, the taxpayer claimed, unlike appellant, that he never received the notice of deficiency. The IRS could not prove the notice of deficiency was mailed to the last known address because, as the IRS explained, records of mailing and receipt were destroyed after five years. The Tax Court then relied on the testimony of the taxpayer's attorney, that he received the notice of deficiency and it was his practice to personally deliver notices of deficiency to clients. The Tax Court went on to cite Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (aff'd 162 F.2d 513 (10th Cir. 1947), and noted the taxpayer chose not to testify at his trial, resulting in a presumption that the taxpayer's claim of non-delivery could not be substantiated. Further undermining the taxpayer's claim of non-delivery was the fact that a copy of the eight year old notice of deficiency was attached to the petition when it was filed. McKay, 886 F.2d at 1238.

Mulvania v. Commissioner, 769 F.2d 1376 (9th Cir. 1985), does not definitively say an improperly addressed notice of deficiency that is actually delivered with enough time to file a petition is all that is required to make an notice of deficiency valid. In fact, in frequently cited language, the Mulvania Court said:

First, a notice of deficiency actually, physically received by a taxpayer is valid under § 6212(a) if it is received in sufficient time to permit the taxpayer, without prejudice, to file a petition in the Tax Court even though the notice is erroneously addressed.

Id. (Citations omitted, emphasis added).

While the language is similar to Clodfelter, the above language dropped the parenthetical “as clearly was the case here” following “without prejudice.” Thus, the language above does not define what “without prejudice” means. It is in the last two paragraphs of the opinion in Mulvania that make abundantly clear that this Court has held there is no prejudice to the taxpayer when the timely filing of a Tax Court petition moots the harshness of the clerical error giving rise to the improper addressing of the notice of deficiency:

We conclude that, where a notice of deficiency has been misaddressed to the taxpayer or sent only to an advisor who is merely authorized to receive a copy of such a notice, actual notice is necessary but not sufficient to make the notice valid. The IRS is not forgiven for its clerical errors or for mailing notice to the wrong party unless the taxpayer, through his own actions, renders the Commissioner's errors harmless. In this case, the notice of deficiency became null and void when it was returned to the IRS undelivered. Regardless of the coincidence by which Mulvania later came to know of its existence, the taxpayer's actual knowledge did not transform the void notice into a valid one.

Had Mulvania timely petitioned the Tax Court for a redetermination of deficiency, the IRS error might have fallen into the line of harmless error cases where the taxpayer suffered no ill effects for the Commissioner's inadvertence. Such is not the case here.

Id., 769 F.2d at 1380-81 (emphasis added).

Given the language in Mulvania cited above, it appears this Court has chosen not to follow the Tax Court's “30-day rule.” Rather, it takes a much less forgiving approach to IRS carelessness. If appellant did not unilaterally cure the IRS' mailing address defect by timely filing its Petition, then the case must be dismissed on the grounds that the improperly addressed notice of deficiency is invalid.

CONCLUSION

For the reasons stated above, the appellant respectfully requests that the Court vacate the order of dismissal and remand to the Tax Court with instructions to restore the case to the Tax Court's docket.

Dated: February 7, 2018

Matthew D. Carlson
Counsel for Appellant
Wagner Kirkman Blain Klomparens & Youmans, LLP
10460 Mather Boulevard, Suite 200
Mather, CA 95655
Telephone: (916) 920-5286
Facsimile: (916) 920-8608
mcarlson@wkblaw.com