Tax Notes logo

IRS Succeeds in Jurisdictional Argument – With a Twist

Posted on Nov. 4, 2021

For years the IRS has argued against the application of the Supreme Court’s jurisprudence regarding time periods for filing cases.  It has consistently taken the position that time periods for filing are jurisdictional in order to keep taxpayers to whom it gave the wrong dates for filing, who never received notices, who were misled by the language of its notices or had other reasons for missing a filing deadline that it was too bad they experienced these problems but the jurisdictional nature of time periods for filing required that they not receive the opportunity to go to court.  The IRS is poised to make this argument again before the Supreme Court this term in the Boechler case discussed here.

The IRS is consistent in its arguments regarding jurisdiction and time periods except when it’s not.  United States v. Solomon, No. 9:20-cv-92236 (S.D. Fla. Oct. 27, 2021) puts the shoe on the other foot.  The IRS wins the case adopting the arguments made by taxpayers against the jurisdictional nature of time frames.  How convenient.

The case is an enforcement suit brought by the by the IRS seeking a judgment for non-willful FBAR penalties.  The taxpayer moved for partial summary judgment arguing that a portion of the penalties for which the IRS sought judgment were time barred.  Normally, there is a 6-year statute of limitations (SOL) for assessing FBAR penalties. The IRS has a form by which a taxpayer can waive the SOL for an assessment of FBAR penalties.  Two of these forms were signed by the taxpayer in this case, serially.  The taxpayer argued that the SOL for some years shown on the forms had expired before she signed the extensions, so some of the assessments shown on the forms were time-barred.  Of course, under IRC 6501(c)(4), an extension is valid only if the extension is signed before the SOL expired.  FBARs are not governed by 6501’s SOL.

The IRS argued successfully that the FBAR SOL is not jurisdictional, but a claim-processing rule subject to waiver and that there is no requirement that such a waiver be signed before the expiration of the SOL.  The court finds “Solomon clearly and unambiguously waived any statute of limitations defense by consenting to an extension of the time provided to assess civil penalties under 31 U.S.C. § 5321.”  By winning this argument, the IRS could continue to pursue the penalties that would otherwise be barred.

The Government responds that the statute of limitation in 31 U.S.C. § 5321(b)(1) is a non-jurisdictional defense that can be waived, even after it expires, and that Solomon did so here — signing a consent form that explicitly and unambiguously consented to extending the time to assess applicable penalties for FBAR violations until December 31, 2018.

The Court agrees with the Government that the applicable statute of limitations, 31 U.S.C. §5321, is a waivable defense that can be waived even after it has expired. The key inquiry in determining if a limitations period can be waived is “whether it limits courts’ subject matter jurisdiction — in which case its time bar is not waivable — or is instead a non-jurisdictional claim-processing rule — in which case waiver is permissible.” Sec., U.S. Dept. of Lab. v. Preston, 873 F.3d 877, 881 (11th Cir. 2017) (citing In re Pugh, 158 F.3d 530, 543 (11th Cir. 1998)).

It is clear from the face of the limitations period in Section 5321(b)(1) — which does not refer to the Court’s jurisdiction in any respect — that it operates merely as an affirmative defense, not as a limit or condition on the Court’s jurisdiction. See 31 U.S.C. § 5321(b)(1) (“The Secretary of the Treasury may assess a civil penalty under subsection (a) at any time before the end of the 6-year period beginning on the date of the transaction with respect to which the penalty is assessed.”). Because 31 U.S.C. § 5321 is not jurisdictional, the limitations period for assessing FBAR penalties may be waived by the parties, even for claims that have expired. See United States v. Hitachi Am., Ltd., 172 F.3d 1319, 1334 (Fed. Cir. 1999) (“[I]f [a statute] is not jurisdictional, then as merely an affirmative defense, the statute of limitations can be waived by the parties even for claims that have expired.” (citing authorities)); United States v. Schwarzbaum, 18-CV-81147, 2019 WL 3997132, at *4 (S.D. Fla. Aug. 23, 2019) (finding limitations period for assessing FBAR penalties under 31 U.S.C. § 5321 could be properly extended by agreement).

The court goes on in the opinion to find that on the merits the penalty is appropriately asserted. The taxpayer promptly appealed to the 11th Circuit.

Just because this court finds that this statute did not create a jurisdictional bar does not mean that no statute creates such a bar. The Supreme Court cases provide an exception to the general rule if the statute makes a clear statement regarding jurisdiction. It’s interesting that the IRS finds every provision in the Internal Revenue Code provides a clear statement even though in the cases decided by the Supreme Court since 2004 no statute it has reviewed provides a clear statement. It’s nice to see that the IRS has found a statute that does not provide a clear statement.

Unrelated to the Solomon case but related to this issue, the Tax Court for the first time acknowledged that not every provision in the Internal Revenue Code setting up a time to file in the Tax Court is jurisdictional.  In an opinion written on the same day as the Solomon case, Insinga v. Commissioner, 157 T.C. No. 8 (October 27, 2021) the Court stated in footnote 6:

In a deficiency case under section 6213(a), not only the filing but also the timeliness of a petition are jurisdictional prerequisites. In a whistleblower case under section 7623(b), the U.S. Court of Appeals for the D.C. Circuit has held that timeliness is not a jurisdictional prerequisite. See Myers v. Commissioner, 928 F.3d 1025, 1036 (D.C. Cir. 2019) (“[section] 7623(b)(4) does not contain a ‘clear statement’ that timely filing is a jurisdictional prerequisite to the Tax Court’s hearing the whistleblower’s case”), rev’g and remanding 148 T.C. 438 (2017).

We may write later on the substance of the Insigna case which is also important from a procedural perspective but mention this concession by the Tax Court based on the Myers decision two years ago.  Of course the footnote is at odds with the Tax Court’s rule on this issue as discussed here.

We will undoubtedly be writing much more on jurisdiction as the Supreme Court takes up the Boechler case.  Perhaps the IRS has changed its mind and will concede the Boechler case before the oral argument.  It’s nice to see the IRS taking advantage of the Supreme Court’s jurisprudence on jurisdiction.

Copy RID