I wrote a post in April asking what does IRC 7508A(d) do. The section seeks to provide an automatic extension of the time to perform certain tax actions so that taxpayers did not have to wait and worry during the early days after a disaster. It was added to the code in late 2019 with little fanfare. When added to the code, no one considered a disaster such as the current pandemic. Based on the language of IRC 7508A(d) and the language of the potential triggering events, the possibility exists of an extension of time to perform certain tax actions not contemplated by the writers of the new provision and not yet acknowledged by the IRS. In April the post simply speculated on what IRC 7508A(d) might mean. A jurisdictional fight in the Tax Court will now test the section.
The IRS Pronouncement
On November 18, 2020, the IRS announced interim guidance acknowledging the passage of 7508A(d) almost a year earlier. The announcement indicates a goal to place guidance in the IRM within the next two years. While it recognizes that the new statutory provision creates a mandatory 60-day period for relief from certain actions, it does not get specific about the application of 7508A(d) to any particular disaster. It makes no mention of how 7508A(d) might apply to the pandemic. Rather than answering questions regarding the IRS views of the applicability of the legislation, the guidance provides a heads up to IRS employees and leadership that the legislation occurred and must be addressed at some point.
The Tax Court Petition
In contrast to the high level acknowledgment of the existence of 7508A(d) in the interim guidance memo, on November 19, 2020 taxpayers who filed their petition late, under the ordinary definition of late, have filed a brief seeking to have the Tax Court acknowledge that the application of 7508A(d) renders their petition timely because of the extension provided when disaster, in this case the pandemic, strikes.
In the case of Lowe v. Commissioner, Dk. No. 4629-20, the petition was filed on March 9, 2020, the week the US seemed to recognize the threat of the pandemic and life as we previously knew it changed dramatically. Petitioner received a notice of deficiency dated December 2, 2019. The notice removed her self-employment income and as a consequence disallowed part of her earned income tax credit. Because of the potential benefits of the earned income tax credit, the IRS sometimes finds itself in the seemingly odd position of taking the stance that a taxpayer has not received earned income reported on a return since reporting earned income in certain situations can provide a net benefit due to the interplay of the credit and the applicable taxes.
Having received the notice of deficiency on December 2, 2019, Ms. Lowe had 90 days to file a Tax Court petition, which would have been Sunday, March 1, and because the 90th day fell on a Sunday, she had until Monday, March 2, to mail or deliver the petition to the Tax Court. Unfortunate for her but fortunately for blog writers and other followers of tax procedure, she mailed her petition on March 3, one day too late for the timely mailing provisions to protect her filing. The IRS duly filed a motion to dismiss the case for lack of jurisdiction. In response to that motion, Ms. Lowe stated that with young children at home and with the pandemic she was hesitant to meet with her tax preparer and to enter the post office to mail her petition.
The case is assigned to Judge Marshall who is one of two new judges sworn in late this summer. While new to the bench, Judge Marshall has plenty of experience at the Tax Court having served as Counsel to the Chief Judge prior to her appointment.
Prior to the passage of 7508A(d) Ms. Lowe’s concerns about the pandemic would not have assisted her because of the timing of her filing of the petition vis a vis the timing of the closure of the Tax Court clerk’s office and the timing of the IRS shutdown and issuance of postponements by the IRS and Treasury. While we have written several posts on the impact of closures caused by the pandemic, two posts, here and here, most closely relate to Ms. Lowe’s situation. These posts discuss the extended time to file Tax Court petitions. In the spring of 2020, two separate provisions assisted taxpayers with petitions sue. First, the clerk’s office of the Tax Court closed on March 19. This triggered the application of Guralnik. Second, the IRS used its discretion under IRC 7508A(a) on April 9, 2020, when it issued Notice 2020-23 exercising that power and stating that any Tax Court petition due between April 1, 2020 and July 15 2020 was due on July 15, 2020. Of course, both the Tax Court closure triggering Guralnik and the IRS announcement exercising its power under 7508A(a) come just a little bit too late to help Ms. Lowe and that’s where 7508A(d) potentially fills the gap.
Congress added 7508A(d) at the end of 2019 by putting it onto an appropriations bill. As discussed in our prior post on this subsection, it went unnoticed. The Congressional intent in passing 7508A(d) was to create a time period at the beginning of a disaster when taxpayers would receive relief without having to wait for the IRS pronunciation, wondering when relief might start and which obligations might be extended. Under subsection (d) the triggering event occurs automatically on the earliest incident date specified in the Stafford Act disaster declaration.
Ms. Lowe lives in New Jersey. President Trump declared the State of New Jersey a disaster area “beginning on January 20, 2020.” According to Ms. Lowe, triggered by this declaration residents of New Jersey get a 60-day extension to perform certain actions, including filing a petition in Tax Court. If she is correct about the operation of 7508A(d) in her situation, Ms. Lowe’s petition to the Tax Court changes from untimely to timely.
In its motion to dismiss the IRS failed to mention 7508A and how it impacted the timeliness of the petition. Now that it has been brought to their attention, perhaps the IRS will withdraw its motion and agree with Ms. Lowe that the operation of 7508A(d) did extend her time to file her Tax Court petition. Of course, even if the IRS withdraws its motion in acknowledgment of the statute, the Tax Court will still want to make its own jurisdictional determination since the IRS cannot confer jurisdiction on the court by withdrawing its objection.
As discussed in our prior post, the situation presents an unusual application of the statute because no one anticipated a nationwide disaster at the time of writing the statute. The brief filed by the Villanova clinic does an excellent job of explaining the statute and why, in this circumstance, the Tax Court has jurisdiction over Ms. Lowe’s case. There is no room in this post to cover all of the arguments made in the brief explaining the operation of 7508A(d). I will briefly mention a few of the important concepts.
In deciding the scope of relief the covered area presents the first issue. The brief describes the use of this term in the statute:
Subsection (d) references the term “disaster area” twice: in defining who qualifies for the mandatory postponement, and in defining the length of the postponement period. The term “disaster area” is itself defined by reference to section 165(i) (5). Under that provision, a disaster area is an area “determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.”
There are two types of Stafford Act declarations, which the statutory language does not appear to distinguish: emergency declarations under Title V of the Stafford Act, and major disaster declarations under Title IV. (The ABA Tax Section noted some concern about this ambiguity in an April 3, 2020 comment letter.)
Sometimes an emergency declaration and a disaster declaration will both be issued. The two declarations may have the same incident date (e.g. these Hurricane Sally emergency and disaster declarations), but the Stafford Act does not require it. In the case of the Covid-19 pandemic, there is a national emergency declaration which does not contain an incident date, and there are major disaster declarations for each state and territory which contain the beginning incident date of January 20.
While the statute does not distinguish between the two types of Stafford declarations, it is helpful that the Stafford Act is specified. Various other declarations and proclamations relating to the pandemic have been issued in addition to the Stafford Act declarations.
Subsection 7508A(d) references a 60 day extension but the period can be long. Tom Greenaway discussed this aspect of the statute in an earlier post. The brief states:
The period to be disregarded begins “on the earliest incident date specified in the declaration to which the disaster area … relates” and ends on “the date which is 60 days after the latest incident date so specified.” Neither section 7508A nor section 165 provide a definition of “incident date” or “declaration”.
The period of postponement created by 7508A(d) is where the statute and the pandemic cause many to pause. While some disagreement might exist concerning the starting point for the extension period, the starting point is easy to identify compared to the end point in the case of a disaster such as a pandemic. FEMA often amends disaster declarations later to provide for a closing incident date. (E.g. see the first amendment to the disaster declaration for Hurricane Sally in Florida.) Currently, all of the covid-19 disaster declarations state that the disaster incident period is “beginning on January 20, 2020 and continuing.” Eventually these declarations will hopefully be amended to close the indecent period, but when this will happen is unknown. While we all hope that the coming vaccines will allow the pandemic to come to a relatively swift conclusion, not even Dr. Fauci knows exactly when the pandemic will end. By comparison a national emergency was declared on September 11, 2001 that is still in effect.
Six ways exist for a taxpayer to qualify as having a connection with the disaster area including individuals whose principal residence is located in the disaster area. This is a relatively detailed and straightforward part of subsection (d) and it does not seem likely to be disputed in this case.
Mandatory Postponement for Qualified Taxpayers
This is another tricky spot. The statute provides that for qualified taxpayers the postponement period “shall be disregarded in the same manner as a period specified under 7508A(a)”; however, 7508A(d) does not otherwise specify which time sensitive acts are postponed (other than for pensions) nor does it provide any more detail on the triggering of the postponement period.
Ms. Lowe argues that subsection (d) automatically postpones her petition deadline because it automatically postpones all of the time-sensitive acts listed under subsection (a)(1)-(3). This is a broad list and the government may balk at the postponing of so many obligations for a currently unknown length of time. However, the statute provides no means for a Court to pick and choose between the acts listed in subsection (a). Despite its seemingly broad impact, Ms. Lowe argues that subsection (d) means what it says and that Congress meant business in providing mandatory and automatic relief to taxpayers in disaster areas.
The brief goes into much more detail that a blog post can. This case will be interesting to watch because of the significant implications it has for others who may have filed late during the period after the disaster began and because of other time periods that might be impacted by 7508A(d). I understand there is at least one other case making these arguments regarding a petition that was otherwise filed late in early March 2020. We welcome comments and information about further cases to which the suspension may apply.