Frequent guest blogger Carl Smith discusses an important recent decision holding that the time to file a refund suit is not a jurisdictional time frame. In the case discussed by Carl, the facts allowed the taxpayer to successfully argue for an extended time period within which to file based on equitable tolling. Keith
PT readers know that Keith and I – through the Harvard clinic – have been arguing in a lot of cases that judicial filing deadlines in the tax area are no longer jurisdictional and are subject to equitable tolling under recent non-tax Supreme Court case law limiting the use of the term “jurisdictional” and expanding the use of equitable tolling. So far, we have lost on Tax Court innocent spouse and Collection Due Process filing deadlines; appellate cases on Tax Court deficiency and whistleblower awards jurisdiction deadlines are pending.
But, while I was still running a tax clinic at Cardozo School of Law, as an amicus, I helped persuade the Ninth Circuit to hold that the then-9-month filing deadline at section 6532(c) to bring a district court wrongful levy suit is not jurisdictional and is subject to equitable tolling. Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015). Relying both on the recent Supreme Court non-tax case law and Volpicelli, a district court has just held that the 2-year deadline at section 6532(a) to bring a district court or Court of Federal Claims tax refund suit is not jurisdictional and is subject to equitable tolling. Wagner v. United States, E.D. Wash. Docket No. 2:18-CV-76 (Nov. 16, 2018).
In Wagner, a couple filed a 2012 joint income tax return showing an overpayment of $1,364,363 and asked that $500,000 of the overpayment be refunded and the rest be applied as a credit to 2013 estimated taxes. I quote the remainder of the brief facts from the opinion:
In November, 2014, the IRS sent a letter disallowing some of the refund. . . .
Specifically, the IRS indicated it was allowing only $839,999 of the claim, and disallowing the remainder because “we are unable able to verify the total amount of your withholding based on information provided by the Social Security Administration.” Id. The amount of the disallowed claim was $524,364.
Plaintiffs replied by letter on December 5, 2014, indicating they were requesting a formal Appeal to the findings and also requesting an oral hearing. . . . They also provided additional information regarding the requested refund.
Nothing happened until May, 2016 when the IRS sent another letter, this time stating it was disallowing the entire $1,364,363 refund claim. . . .Specifically, the letter stated:
This letter is your notice that we’ve partially disallowed your claim for credit for the period shown above. We allowed only $.00 of the claim. Id.
The letter also indicated that Plaintiffs were now going to owe interest and penalties. Although it did not explicitly say so in the letter, the determination of the $.00 allowance of the claim meant the IRS was also disallowing $839,999 of the refund claim that it has previously allowed as indicated in the November, 2014 letter. Because of this, Plaintiffs were now being assessed an outstanding liability of $859,557.84. As a result, the IRS took $335,871 from the 2014 refund and applied it to the 2012 tax liability since this amount had come from Plaintiffs’ request to forward the remainder of the 2012 refund claim to the next year’s tax bill.
In early 2018, the taxpayers filed suit seeking a refund of $839,999 – i.e., only part of the original overpayment shown on the return. The DOJ moved to dismiss the suit for lack of jurisdiction as untimely, arguing that the 2-year period in section 6532(a) to bring such a suit commenced when the IRS sent its first letter in November 2014.
The district court ruled in the alternative. It held that the filing deadline for the refund suit commenced in May 2016, when the second IRS letter was issued. In the alternative, because of the confusing nature of the IRS correspondence, if the filing deadline actually started in November 2014, the filing deadline was tolled because of “equitable considerations” generated by this confusing correspondence, “including the fact that Plaintiffs were informed that $839,999 of the requested refund claim was not going to be allowed less than 6 months before the statute of limitations expired . . . .”
Before applying the alternative holding of equitable tolling, the court examined whether the filing deadline was jurisdictional under recent non-tax Supreme Court case law summarized in United States v. Wong, 135 S. Ct. 1625 (2015) (finding the filing deadlines for Federal Court Claims Act suits in 28 U.S.C. § 2401(b) nonjurisdictional and subject to equitable tolling). In Wong, the Court held that filing deadlines are normally nonjurisdictional claims processing rules. Congress could, though, make such deadlines jurisdictional through a “clear statement” in the statute, but “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.” Id. at 1632.
The district court in Wagner also looked to Volpicelli – a Ninth Circuit opinion holding the then-9-month filing deadline in section 6532(c) to bring a district court wrongful levy suit nonjurisdictional and subject to equitable tolling. We blogged on Volpicelli numerous times in 2015: here, here, here, and here. Volpicelli had been decided a few months before Wong. The DOJ had asked for reconsideration of Volpicelli by the Ninth Circuit en banc, since Volpicelli disagreed with holdings of at least one other Circuit that were made prior to the 2004 change in the Supreme Court’s jurisprudence on jurisdiction. When the Ninth Circuit declined to hear the Volpicelli case en banc, and the Supreme Court shortly thereafter issued its opinion in Wong, apparently the Solicitor General lost interest in appealing Volpicelli to the Supreme Court, since it is hard to imagine the SG winning Volpicelli after losing Wong (where the statutory language appeared even more mandatory). In all the subsequent cases that Keith and I have been litigating, though, the DOJ always states that it still disagrees with Volpicelli.
The district court in Wagner concluded that Congress had done nothing special in section 6532(a) to make it jurisdictional and not subject to the usual presumption that filing deadlines are subject to equitable tolling. The district court wrote:
First, Congress’ separation of the filing deadline in § 6532(a) from the waiver of sovereign immunity found in 28 U.S.C. § 1346(a)(1), as well as the placement of § 6532 in the Tax Code under subtitle of the Internal Revenue Code labeled “Procedure and Administration, is a strong indication that the time bar is not jurisdictional. Second, [unlike section 6511 discussed in United States v. Brockamp, 519 U.S. 347 (1997),] the time limitation is purely procedural and has no substantive impact on the amount of recovery. It speaks only to a claim’s timeliness and not to a court’s power. Third, the recovery of a wrongfully withheld refund is akin to the traditional common law torts of conversion. Fourth, the deadline set forth in § 6532(a) is not cast in jurisdictional terms and the language/text used does not have any jurisdictional significance. Finally, the text does not define a federal court’s jurisdiction over tort claims generally, does not address its authority to hear untimely suits, or in any way limit its usual equitable powers.
Although the DOJ will be hopping mad about the Wagner ruling, the DOJ will not be able to appeal it to the Ninth Circuit until the district court determines the amount, if any, of the appropriate refund. So, stay tuned.
The holding in Wagner is entirely predictable, since an earlier district court in the Ninth Circuit had stated that, in light of Volpicelli, “it remains an open question” whether the filing deadline in section 6532(a) is subject to equitable tolling in an appropriate case”. Hessler v. United States, 2016 U.S. Dist. LEXIS 1210 (E.D. Cal. 2016). Accord Drake v. United States, 2011 U.S. Dist. LEXIS 22563 (D. AZ. 2011) (doubting but not deciding whether the filing deadline in § 6532(a) is still jurisdictional in light of recent Supreme Court case law)
Whether the section 6532(a) filing deadline is jurisdictional or subject to estoppel are two of the issues that are currently being litigated in the Second Circuit in Pfizer v. United States, Docket No. 17-2307. Oral argument was had in Pfizer on February 13, 2018, and an opinion could come out any day – though the court has alternative ways of deciding the case that might avoid addressing these issues. The Harvard clinic submitted an amicus brief in Pfizer arguing that the section 6532(a) filing deadline is not jurisdictional under recent non-tax Supreme Court case law. Our brief parallels the reasoning of the Wagner court. Here’s a link to our amicus brief. We have discussed Pfizer and its various issues in posts here, here, here, and here.
As we noted in our Pfizer brief, some Circuits have previously held the filing deadline in section 6532(a) to be jurisdictional. But they did so at a time before the Supreme Court in 2004 narrowed the use of the word “jurisdictional” generally to exclude filing deadlines and other “claims processing” rules. Compare Kaffenberger v. United States, 314 F.3d 944, 950-951 (8th Cir. 2003) (deadline jurisdictional); Marcinkowsky v. United States, 206 F.3d 1419, 1421-1422 (Fed. Cir. 2000) (same); RHI Holdings, Inc. v. United States, 142 F.3d 1459 (Fed. Cir. 1998) (same); with Miller v. United States, 500 F.2d 1007 (2d Cir. 1974) (deadline subject to estoppel). The Wagner opinion did not mention any of the pre-2004 Circuit court precedent, but decided the issue purely based on the recent Supreme Court case law that Volpicelli applied to section 6532(c) in 2015. Indeed, I think Wagner is the first opinion of any court to grapple, beyond speculation, with the impact of the recent Supreme Court case law on the nature of the section 6532(a) deadline. Certainly, no court of appeals has yet done so. Maybe the Second Circuit in Pfizer will be the first?