The Harvard Tax Clinic is litigating the issue of the Tax Court’s jurisdiction to hear cases filed late. The Tax Court has soundly rejected our arguments that it has jurisdiction to hear Collection Due Process (CDP), discussed here, and Innocent Spouse (IS) cases, discussed here, filed after the respective 30 and 90 day periods following the issuance of the determination letters to the taxpayers. Not only has the Tax Court rejected our arguments, but the 2nd and 3rd Circuits have agreed with the Tax Court with respect to the IS statute. We expect to argue about the CDP statute in the 4th and 9th Circuits later this fall.
In the CDP cases, the issue concerns situations in which the taxpayers filed one day late relying on the language of the determination letter explaining to them the time within which they needed to file a Tax Court petition. In each case, the taxpayer filed on the 31st day and in each case, in responding to the motion to dismiss filed by the IRS, the taxpayer explained why they felt their petition was timely. In the Cunningham case cited below, Chief Judge Marvel described Ms. Cunningham’s interpretation of the notice as novel, and so it may seem to lawyers trained to read the type of language used in the determination letter, but after eight cases in a little over two years, the novelty has worn off and it has become clear that the language is misleading people on a regular basis. (One of the eight cases involves a pro se petitioner who is a lawyer. So, it is not only lay people who have found the language confusing.)
We blogged about this problem in a post on March 24, 2016, at a time when only three pro se taxpayers had been misled since mid-2015. See here http://procedurallytaxing.com/cdp-notice-of-determination-sentence-causing-late-pro-se-petitions/. In effect, this is an update post because five more pro se taxpayers have been misled since our last post. We have never gone back to look for orders before mid-2015 in which similar dismissals may have happened, so the figure of eight pro se taxpayers misled may actually severely understate the problem that has existed since, probably, 2006 or 2007, when the notice of determination was redrafted to include the confusing language for the first time.
Whether or not the Tax Court has jurisdiction to hear a case filed late because of the misleading notice, the notice itself needs to be changed now in order to avoid the continuation of a bad situation.
I wrote about the third letter in the collection notice stream that the IRS has been sending for the past 18-24 months that misstates the law. The good news with respect to that letter is that I am told that the IRS agreed to change the letter to remove the language that misstates the law and that tells the taxpayer that the IRS can levy upon their property when it cannot levy upon their property. Based on the information provided to me, the new, improved third letter in the notice stream will go out starting in January of 2018. Until then, taxpayers will continue to receive the incorrect letter; however, I am encouraged that the IRS is changing the letter in response to concerns about its accuracy. I know that changing letters is a slow process at the IRS because of the procedures it has for approving letters and getting them into mass mailings, though I wish it were not so slow when a letter is actually wrong. Because I have not seen the new, improved third letter in the notice stream, I cannot say how improved it is.
Based on the ability of the IRS to listen and adapt regarding the wrong letter it was using in the notice stream, I am hoping that it will also change the letter that it uses in sending a taxpayer a notice of determination. Carl Smith has been tracking Tax Court orders over the past few years. He has found eight cases in which the language of the notice of determination letter has misled the taxpayer into filing Tax Court petition on the wrong day:
Order dated June 26, 2015, in Duggan v. Commissioner, Tax Court Docket No. 4100-15L, on appeal, Ninth Circuit Docket No. 15-73819;
Order dated December 7, 2016, in Cunningham v. Commissioner, Tax Court Docket No. 14090-16L, on appeal, Fourth Circuit Docket No. 17-1433;
Order dated March 4, 2016, in Pottgen v. Commissioner, Tax Court Docket No. 1410-15L;
Order dated January 14, 2016, in Swanson v. Commissioner, Tax Court Docket No. 14406-15S (The Swanson case order does not discuss any argument that the language of the notice of determination misled the taxpayer. But, Carl Smith went down to the Tax Court and looked at Swanson’s opposition to the motion, wherein Swanson attached the notice of determination and quadruple-underlined the words “day after” in the sentence that is misleading all these pro se people, including Swanson. It is because of the language of that sentence that he argued his filing was timely — an argument rejected in the order);
Order dated April 20, 2017, in Wallaesa v. Commissioner, Tax Court Docket No. 1179-17L;
Order dated May 31, 2017, in Saporito v. Commissioner, Tax Court Docket No. 8471-17L;
Order dated May 31, 2017, in Integrated Event Management, Inc. v. Commissioner, Tax Court Docket No. 27674-16SL;
Order dated September 26, 2017, in Protter v. Commissioner, Tax Court Docket No. 22975-15SL.
We could provide good advice to these individuals that waiting until the last day to file your Tax Court petition is not a good idea. It is a good practice to send the petition at least a week before the last day to file in order to provide some cushion, though we understand that this may not always be possible, given the short deadline in CDP (30-days) and the fact that taxpayers do not receive the notice of determination until several days after the IRS mails it. Despite this nice advice that could have saved these petitioners, we all know that filing on the last day is normal for many pro se petitioners as well as many lawyers. There should not be a question about what is the last day. The notice should make that clear.
The notice of determination creating this confusion states: “If you want to dispute this determination in court, you must file a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.” (Emphasis added). That is not the statutory language. The statute provides: “The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).” § 6330(d)(1) (emphasis added). Prior to a 2006 amendment of § 6330(d)(1) (an amendment which centralized all CDP review only in the Tax Court), the notice of determination more closely tracked the statutory language, stating: “If you want to dispute this determination in court, you must file a petition with the United States Tax Court for a redetermination within 30 days from the date of this letter.” See Jones v. Commissioner, T.C. Memo. 2003-29 at *3 (language from notice issued in 2001; emphasis added).
The IRS apparently chose to write a sentence in the current version of the notice that conflates the words of the statute with elements of Tax Court Rule 25(a)(1) (discussing how to count days) and Reg. § 301.6330-1(f)(1) (“The taxpayer may appeal such determinations made by Appeals within the 30-day period commencing the day after the date of the Notice of Determination to the Tax Court.”). However, the IRS failed to alert taxpayers as to the rules it was summarizing or where taxpayers could find examples of how the 30-day rule operated (including omitting any discussion of weekend days). It has become clear that this language is misleading to many pro se taxpayers. Indeed, it is because pro se taxpayers have difficulty understanding how to count days that, in 1998, Congress specifically required the IRS to place a last date to file on notices of deficiency and amended § 6213(a) to provide that taxpayers can rely on any incorrect dates shown. § 3463, Pub. L. 105-206. (Unfortunately, Congress forgot to write the same sentences requiring showing the last date to file on the new notices of determination issued under §§ 6330(d)(1) and 6015(e)(1) that were adopted in the same statute.)
The National Taxpayer Advocate has written about problems with the innocent spouse notice before:
[Example and footnotes omitted]
Even though the IRS’s relief determination under IRC § 6015 is subject to judicial review, the IRS is not required to provide and does not provide taxpayers with the last date to petition the U.S. Tax Court in the final determination letters it issues to them in connection with requests for innocent spouse relief. In contrast, IRS deficiency determinations are similarly subject to judicial review, but Congress has directed the IRS to assist taxpayers by providing them with the last date to petition the Tax Court in notices of deficiency. Providing such assistance is important because it may be difficult for some taxpayers to determine the deadline for filing a petition in Tax Court without professional assistance, assistance which many taxpayers who need relief may be unable to afford. Sixty-five percent of the taxpayers who request innocent spouse relief make less than $30,000 per year. Thus, it may be even more helpful for the IRS to include the last date to petition the Tax Court in innocent spouse determination letters than to include it in notices of deficiency.
Perhaps one reason the IRS does not include the last date to petition the Tax Court in its notice of determination letters is that if the IRS enters a date beyond the requisite period and the taxpayer relies on it, then the taxpayer could miss the filing deadline. In contrast, if the IRS enters a date beyond the requisite period for filing a Tax Court petition in a notice of deficiency, then a taxpayer will not be harmed as long as he or she files the petition on or before the date contained in the notice of deficiency because IRC § 6213 (a) provides that a taxpayer may petition the Tax Court any time on or before the date specified in the notice.
Require the IRS to include the last date to petition the Tax Court in any final determination letter the IRS issues in connection with an election or request for innocent spouse relief in a manner similar to that provided by IRC § 6213 (a). Provide that a taxpayer may petition the Tax Court within 90 days of the date of the determination or by the date specified in the letter, whichever is later.
I understand that the NTA will have something about the CDP notice problem in her next annual report.
The filing deadline language in the notice of determination for CDP cases is also inconsistent with the filing deadline language for other similar IRS-issued notices that constitute “tickets” to the Tax Court. Notices of deficiency issued under § 6212 have long stated: “If you want to contest this deficiency in court before making any payment, you have 90 days from the above date of this letter (150 days if addressed to you outside of the United States) to file a petition with the United States Tax Court for a redetermination of the deficiency.” See Erickson v. Commissioner, T.C. Memo 1991-97 at *21 (language from 1988 notice; emphasis added); Rochelle v. Commissioner, 116 T.C. 356, 357 (2001) (same, except for addition of the word “mailing” before “date” in language from 1999 notice). Notices of determination for Tax Court review of innocent spouse relief claims under § 6015(e)(1) state: “You can contest our determination by filing a petition with the United States Tax Court. You have 90 days from the date of this letter to file your petition.” See Barnes v. Commissioner, 130 T.C. 248, 250 (2008) (language from 2001 notice; emphasis added).
The IRS should change the language in the notice of determination now. Undoubtedly, this will not stop late petitions. It should, however, greatly decrease the number of late petitions caused by confusing language. The language of the CDP notice now provides the date by which the taxpayer must make their CDP request. It is hard to object to that type of clarity.