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Federal Circuit, Coronavirus Could Open New Jurisdiction Avenues

Posted on May 8, 2020

A recent federal circuit decision and pandemic-related horror stories could spur other courts or Congress to address the dispute about whether tax litigation filing deadlines are jurisdictional.

The unavailability of doctrines like equitable tolling and waiver can lead to harsh results when a taxpayer misses a deadline to file a refund suit or Tax Court petition by just one day. Even with the recent deadline extensions, practitioners hope for more deadline relief.

If a filing deadline is part of a court’s subject matter jurisdiction, it can’t be equitably tolled for things like extremely unclear IRS communications. The government also can’t waive the timeliness issue, even if it isn’t raised until years into the litigation.

And if a filing deadline is jurisdictional, the court is obligated to police its jurisdiction and raise the issue itself, according to Carlton Smith, former director of the tax clinic at the Benjamin N. Cardozo School of Law.

Not only has the IRS recently exercised its authority under section 7508A to extend a wide variety of deadlines — including tax litigation deadlines — because of the coronavirus pandemic, but another circuit court has weighed in on the issue.

Frivolity and Dicta

On April 29 the Federal Circuit affirmed the Court of Federal Claims' dismissal of Sharon M. Walby’s tax refund suit.

Walby argued that she was a Michigan citizen and not a U.S. citizen. Not only were her claims frivolous, but some were untimely, according to both courts.

However, the Federal Circuit disagreed with the lower court about how to dismiss the untimely claims. The lower court followed many other trial and appellate courts in describing the timeliness issue as one of subject matter jurisdiction.

But the Federal Circuit took the opportunity to highlight the Supreme Court’s recent trend of calling filing deadlines mere claims processing rules and not jurisdictional requirements. The Supreme Court has said that exceptions to the new general rule involve clear statements in the relevant statutes.

The Federal Circuit didn’t think that sections 6511 and 7422(a), the provisions at issue in Walby, satisfied that clear statement requirement. Walby’s claims were still properly dismissed as untimely, the appellate court concluded.

Smith told Tax Notes that despite the limitations of the Federal Circuit’s decision, he regards Walby as a win for a position he has been actively litigating. (Smith was not involved in the case as Walby represented herself.)

The opinion is notable because the Federal Circuit raised the issue of whether the deadlines were jurisdictional on its own, without prompting by the parties, Smith said. So even though the Federal Circuit is the one appellate court with no jurisdiction over Tax Court appeals and the relevant discussion is dicta, it still sends a strong signal, he said.

T. Keith Fogg, director of the Harvard Law School Federal Tax Clinic and a practitioner litigating whether court filing deadlines are jurisdictional, agreed that the Walby discussion is a welcome development. “The more and more courts dealing with tax issues that pull in all the Supreme Court cases to talk about jurisdictionality, the better we think things are,” he said.

Fogg said that even though the Federal Circuit never hears Tax Court appeals, its discussion will be persuasive — even if not binding — precedent and that persuasive value could be increased because both courts are organized under Article I of the Constitution, rather than Article III.

Elizabeth Maresca, a clinical professor at Fordham University School of Law, said that Walby, along with the D.C. Circuit’s opinion in Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019), can be used to balance contrary holdings by other appellate courts. Later courts addressing whether tax litigation filing deadlines are jurisdictional won’t be weighing taxpayer arguments against seemingly one-sided precedent, but rather an apparent split of judicial opinion, she said. “It opens up the door a little bit for new cases,” she said.

Observing Inequity

The efforts Fogg and Smith have made to convince courts that tax litigation filing deadlines aren’t jurisdictional and are thus susceptible to equitable tolling have occasionally hit a wall when a court didn't bother with the jurisdiction issue but said the taxpayer wouldn’t satisfy the high bar for tolling even if available. The Fourth Circuit, in Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018), reached that conclusion just a couple years ago.

However, the general and IRS-specific difficulties posed by the coronavirus pandemic could create some situations in which equitable tolling might be highly appealing.

Smith said that hospitalization with COVID-19 presents an obvious situation for equitable tolling if the various filing relief measures from both the IRS and the Tax Court don’t apply.

Fogg said there are a variety of ways the pandemic could interfere with attempts to comply with court filing deadlines through little or no fault of the taxpayers. For example, each year a few taxpayers send their petitions to the IRS rather than to the Tax Court, he said. If sent well before the deadline, those petitions could find their way to the Tax Court in time, but the pandemic has slowed, if not stopped, the IRS’s handling of incoming mail, he said.

Another example cited by Fogg involved a taxpayer sending the petition to the New York courthouse where the Tax Court sits when it visits the area, rather than to its D.C. headquarters. When it’s difficult to get answers from the government — perhaps because the IRS isn't answering its phones — taxpayers are more likely to be confused and “weird things happen,” he said.

“Government shutdowns can create more equitable tolling opportunities — there are more opportunities for people to screw up trying to get to court,” Fogg said.

Maresca said the pandemic could exacerbate mail issues in other ways that might make for strong equitable tolling arguments. For example, many students are social distancing away from their official mailing addresses, she said. And people may be afraid to enter post offices to send petitions via certified mail, she said.

Another potential mail issue could arise if a taxpayer has all IRS mail sent to a representative with a power of attorney and that person gets sick, Maresca said.

Stopping Inequities From Abounding

Fogg said the IRS has a habit of conceding a substantive issue when he has a good procedural case to make.

Smith questioned the ability of the IRS to concede deficiencies to avoid equitable tolling issues because the Tax Court is tasked with policing its own subject matter jurisdiction, regardless of what the IRS does. A Tax Court judge may have to raise the issue even if the parties have submitted a stipulated decision, he said.

The IRS and the Tax Court have already taken measures to address potential difficulties of meeting initial court filing deadlines during the pandemic, and some of those measures have an indeterminate end date. That could include section 7508A(d), which provides a mandatory 60-day extension of an emergency declaration for deadlines like the time for filing a Tax Court petition.

Fogg said he doesn’t expect the IRS to interpret section 7508A(d) too expansively because the relief provided by the new subsection is too broad and could lead to a multiyear suspension of all return filing deadlines.

A separate legislative fix, spurred by stories of pandemic inequities and declaring tax litigation filing deadlines to be non-jurisdictional, would be a better idea, Smith said.

Maresca said collection due process court review filing deadlines should receive particular attention. That process was meant to protect taxpayers and make the IRS more “user-friendly,” she said, pointing to legislative history around the enactment of section 6330. A strict filing deadline not subject to doctrines like equitable tolling or waiver because it’s jurisdictional isn’t compatible with that intent, she said.

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