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What’s Wrong With The Tax Court Hallmark Opinion: Part 2

Posted on Dec. 7, 2022

This is the second of a multipart post discussing the recent Tax Court opinion in Hallmark Research Collective v. Commissioner, 159 T.C. No. 6 (11/29/22).

In this post, I will discuss the legislative history undergirding the argument over which provision provides the Tax Court’s deficiency jurisdiction and point out things that the Hallmark opinion oddly decided not to discuss about this legislative history, even though the taxpayer presented this information to the court.

The Hallmark opinion (slip opinion at pp. 11-18) takes the position that the jurisdictional grant to the Tax Court to redetermine deficiencies first appeared in the second sentence of Revenue Act of 1924 section 274(a) – the original predecessor of the first sentence of IRC 6213(a). At slip opinion pp. 38-40, the court explicitly rejects the argument that IRC 6214(a) is the source of the Tax Court’s deficiency jurisdiction. I disagree.

Section 274(a) of the Revenue Act of 1924 did two things: It provided for the IRS to mail notices of deficiency concerning income taxes (what is currently IRC 6212). And it stated, in its second sentence: “Within sixty days after such notice is mailed the taxpayer may file an appeal with the Board of Tax Appeals established by section 900.” Section 274 sets out what we would today call the deficiency procedures applicable to income taxes. But, nowhere in § 274 can one find the word “jurisdiction”. There are similarly-phrased sentences providing 60-day filing deadlines in the Board at Revenue Act of 1924 §§ 279(b) (for notices regarding claims for abatement of income tax jeopardy assessments), 308(a) (for notices of estate tax deficiency), and 312(b) (for notices regarding claims for abatement of estate tax jeopardy assessments).

Congress did not think that the sentences in §§ 274(a), 279(b), 308(a), and 312(b) were sufficient to give the Board of Tax Appeals the power to hear cases, so at § 900(e) of the Revenue Act of 1924, Congress wrote: “The Board and its divisions shall hear and determine appeals filed under Section 274, 279, 308, and 312.” Thus, I would argue that Congress implicitly gave the Board the power – i.e., jurisdiction – to decide cases at § 900(e), not at §§ 274(a), 279(b), 308(a), and 312(b).

In Estate of Young v. Commissioner, 81 T.C. 879, 884 (1983), Judge Dawson, writing for the en banc court, wrote: “The origin of this Court lies in the Revenue Act of 1924, which established the Board of Tax Appeals. . . . The act gave the Board jurisdiction to redetermine deficiencies determined by the Commissioner in a statutory notice. Sec. 900(e), Revenue Act of 1924.”; some citations omitted). So, you would think that Judge Dawson agrees with me.

However, the Hallmark opinion (slip opinion at pp. 39-40) includes an expanded quote from Young that retains the above quote, but also quotes from Young: “We think that the jurisdiction conferred by section 6214(a) is merely complementary to the jurisdiction conferred by section 6213.” Id.  I disagree with this statement in Young.

In 1926, Congress decided to make the Board more court-like, including providing for direct appeals to Courts of Appeals. One of the changes in the Revenue Act of 1926 was to explicitly, for the first time, use the word “jurisdiction” with respect to the Board.  Section 1001 of the Revenue Act of 1926 amended Title IX of the Revenue Act of 1924 to include, at a new § 904, the following: “The Board and its divisions shall have such jurisdiction as is conferred on them by Title II and Title III of the Revenue Act of 1926 or by subsequent laws.” Title II is headed “Income Tax”, and the procedures for income tax deficiencies and claims for abatement of jeopardy assessments relating to income taxes are found therein.  Title III is headed “Estate Tax”, and the procedures for estate tax deficiencies and claims for abatement of jeopardy assessments relating to estate taxes are found therein.

Thus, unlike § 900(e) of the Revenue Act of 1924, § 904 (as enacted by § 1001) of the Revenue Act of 1926 did not give the Board jurisdiction to redetermine deficiencies, but it also did not pin the Board’s jurisdiction to only §§ 274(a) and 308(a) of the Revenue Act of 1926 (the provisions that set out the filing deadlines). Section 904 referred to the entire second and third titles of the Revenue Act of 1926 as the sources of the Board’s jurisdiction, which included new provisions under the income and estate taxes that, for the first time, referred to the Board’s “jurisdiction”.  Current IRC 7442 is similar to § 904 of the Revenue Act of 1926 (no jurisdictional grant), not § 900(e) of the Revenue Act of 1924 (granting jurisdiction).

In Title II of the Revenue Act of 1926, among the income tax deficiency procedures, Congress enacted three new provisions that explicitly use the word “jurisdiction” in connection with the Board, but Congress did not alter to include the word “jurisdiction” the second sentence of § 274(a) of the Revenue Act of 1924 that provides the Board income tax deficiency petition filing deadline. Congress in 1926 also did not alter to include the word “jurisdiction” the filing deadline sentence in § 308(a) of the Revenue Act of 1924 that provides the Board estate tax deficiency petition filing deadline.

Section 274(e) of the Revenue Act of 1926 provided, for the first time:

The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any penalty, additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing.

(Emphasis added). IRC 6214(a) is the successor to this provision and a similar new one at Revenue Act of 1926 § 308(e) for deficiencies in estate tax.

Section 274(g) of the Revenue Act of 1926 provided, for the first time:

The Board in redetermining a deficiency in respect of any taxable year shall consider such facts with relation to the taxes for other taxable years as may be necessary correctly to redetermine the amount of such deficiency, but in doing so shall have no jurisdiction to determine whether or not the tax for any other taxable year has been overpaid or underpaid.

(Emphasis added). The first sentence of IRC 6214(b) is the successor to this provision.

Section 284(e) of the Revenue Act of 1926 provided, for the first time, in part:

If the Board finds that there is no deficiency and further finds that the taxpayer has made an overpayment of tax in respect of the taxable year in respect of which the Commissioner determined the deficiency, the Board shall have jurisdiction to determine the amount of such overpayment, and such amount shall, when the decision of the Board becomes final, be credited or refunded to the taxpayer. . . .

(Emphasis added). The first sentence of IRC 6512(b)(1) is the successor to this provision and a similar new one at Revenue Act of 1926 § 319(c) for overpayments of estate tax.

The second sentences of §§ 274(a) and 308(a) of the Revenue Act of 1926 differ from the second sentences of §§ 274(a) and 308(a) of the Revenue Act of 1924 in that the 1926 sentences newly exclude Sundays from ending the deficiency petition filing deadline. However, at the same time when Congress saw the need to write the word “jurisdiction” into multiple other provisions of the Revenue Act of 1926 in connection with the Board (see also, e.g., section 283) when redrafting the sentences providing for the Board’s deficiency petition filing deadlines, Congress did not insert the word “jurisdiction” or otherwise modify the sentences to speak to the power of the Board. That seems a highly unlikely accident if Congress wanted to clarify the Board’s main deficiency jurisdiction. It is often said that “[w]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16,23 (1983) (cleaned up).   Congress knowns how to provide jurisdictional grants and appears not to have done so in drafting §§ 274(a) and 308(a) of the Revenue Act of 1926 and their successors, including current IRC 6213(a).

Hallmark conceded that probably the main reason for the enactment of §§ 274(e) and 308(e) of the Revenue Act of 1926 (the predecessors of IRC 6214(a)) was to expand the Board’s “jurisdiction” to cover increased deficiencies and penalties, but pointed out that new statutory language often serves multiple purposes, and some of those purposes are considered too technical to merit discussion in Committee reports. The way those 1926 provisions are written, their first 13 words also literally provide the Tax Court jurisdiction to redetermine the deficiency to an amount lower than shown in the notice because claims for that deficiency are, automatically, asserted before the hearing – i.e., they are asserted in the notice and/or the answer. The next phrase in those statutes is “even if the amount so redetermined is greater than the amount of the deficiency”. “Even if” is an idiom that confirms the preceding words. The Collins Dictionary states: “You use even if or even though to indicate that a particular fact does not make the rest of your statement untrue: ‘Cynthia is not ashamed of what she does, even if she ends up doing something wrong.’”

“Even if” is similar to “whether or not”, and, interestingly, at least one 1926 Committee report uses the phrase “whether or not” in describing the portion of § 274(e) granting the Board “jurisdiction . . . to determine whether any penalty, additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing.” The Senate Finance Committee Report states:

It sometime occurs that after the deficiency letter has been-sent out fraud or negligence is for the first time discovered by the commissioner. In order to avoid the necessity of sending out a second notice to the taxpayer in such cases and other similar cases, it is provided in section 274(e) that the board shall have jurisdiction upon the appeal form the original deficiency letter to determine whether any penalty, additional amount, or addition to the tax should be assessed whether or not the commissioner has asserted such claim in the deficiency letter or in his pleadings.

S. Rep. 52, 69th Cong., 1st Sess. (1926) at 27-28, 1939-1 C.B. (pt. 2) 332  (emphasis added). Note that there is no statement in this sentence “that it is provided in” § 274(a) (setting out the filing deadline) that the Board has jurisdiction to determine these items set out in the notice of deficiency. I think the quoted sentence confirms Congress’ understanding that § 274(e) is the jurisdictional grant for the Board to determine these items, both those set out in notices of deficiency and in pleadings.

The Committee Reports accompanying the Revenue Act of 1926 contain no discussions of (1) why the word “jurisdiction” is, for the first time, used in that act in connection with the Board, (2) why §§ 274(a) and 308(a), although amended, were not amended to include the word “jurisdiction”, or (3) the modification of § 900(e) of the Revenue Act of 1924 from granting the Board the power to hold hearings to § 904 of the Revenue Act of 1926 (locating the “jurisdiction” of the Board in earlier provisions of the Revenue Act of 1926). H. Rep. 69-1 at 10-11, 17-21; S. Rep. 69-52 at 25-28, 34-38, 1939-1 C.B. (pt. 2) 332; H. Rep. (Conf.) 69-356 at 39-40, 53-55, 1939-1 C.B. (pt. 2) 361.

The Hallmark opinion never addressed why, when Congress in 1926 amended §§ 274(a) and 308(a), Congress never included the word “jurisdiction”, but in 1926 Congress enacted three provisions giving the Board “jurisdiction”. Nor did the Tax Court in Hallmark mention any of the opinions of Tax Court judges over the years (the ones quoted in part 1 of this post) that, contrary to Young, stated that IRC 6124(a) is the basis of the Tax Court’s deficiency jurisdiction.  I think the Hallmark opinion, in failing to discuss this and merely citing Young, did the public a disservice.

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