What You Need to Know
- Key takeaway #1Until last year, when a taxpayer filed a petition late with the Tax Court in either a deficiency or collection due process (CDP) case, the Tax Court would dismiss the case for lack of jurisdiction. However, in 2022, the Supreme Court in Boechler v. Commissioner ruled that CDP cases filed late with the Tax Court should not be summarily dismissed, and instead the Tax Court should consider whether the taxpayer may be eligible for equitable tolling if the taxpayer could demonstrate good cause for filing late.
- Key takeaway #2After Boechler was released, the Tax Court in Hallmark v. Commissioner, held that the rationale for Boechler did not apply to deficiency cases and, as such, petitions for deficiency cases filed after the deadline would continue to be dismissed for lack of jurisdiction.
- Key takeaway #3On July 19, 2023, the 3rd Circuit in Culp v. Commissioner, adopted the rationale from Boechler and held that for petitions in deficiency cases filed after the deadline the Tax Court should not dismiss for lack of jurisdiction but, rather, should consider whether the taxpayer was eligible for equitable tolling.
In the middle of the night, in many students’ dreams, they have nightmares that they turned in a school paper late and received a failing grade. Until recently, taxpayers who filed Tax Court petitions late sealed their fate—late petitions were routinely dismissed for lack of jurisdiction.
The Tax Court generally hears two types of cases: deficiency cases and collection due process (CDP) cases. In deficiency cases, the taxpayer generally is seeking Tax Court review of the IRS’s determination that the taxpayer owes more in taxes. Deficiency cases must be filed, under IRC § 6213(a), within 90 days after the IRS sends a determination to the taxpayer (150 days if living outside the United States).
In CDP cases, the taxpayer’s liability is not in dispute, and the taxpayer is seeking Tax Court review of the IRS’s determination on how the taxpayer should pay the bill (e.g., lump sum payment, monthly installments, deferred payment due to inability to pay). CDP cases must be filed, under IRC § 6330(d), within 30 days after the IRS sends a determination to the taxpayer.
Until last year, when a taxpayer filed a petition late with the Tax Court in either a deficiency or CDP case, the Tax Court would dismiss the case for lack of jurisdiction. However, in 2022, the Supreme Court in Boechler v. Commissioner ruled that CDP cases filed late with the Tax Court should not be summarily dismissed, and instead the Tax Court should consider whether the taxpayer may be eligible for equitable tolling if the taxpayer could demonstrate good cause for filing late.
The Tax Court dismissed the Boechler case for lack of jurisdiction because the petition was filed one day late. The ruling was consistent with the Tax Court’s longstanding treatment of petition deadlines as a jurisdictional matter, whereby the Tax Court consistently held it only had jurisdiction if the taxpayer filed by the statutory deadline.
On appeal, the Supreme Court disagreed with the Tax Court’s view that the 30-day timeline for CDP cases was jurisdictional. The Supreme Court extended the rule from Arbaugh v. Y & H Corp that procedural matters are not treated as jurisdictional, unless Congress has “clearly stated” that a specific procedural matter is jurisdictional. The Supreme Court stated that, based on the specific language of the statute governing CDP hearing petitions, the deadline was a procedural rule, not a jurisdictional limit. As such, the Tax Court could toll the limit and consider a petition that was filed late for good cause.
After Boechler, taxpayers in deficiency cases quickly asserted that the Tax Court should consider whether they were eligible for equitable tolling for their late filings. The Tax Court did not agree. In Hallmark v. Commissioner, the Tax Court rejected the petitioner’s argument that Boechler’s holding should apply deficiency cases and maintained that the 90-day timeframe for deficiency cases was jurisdictional. The Hallmark decision was not appealed.
In Culp v. Commissioner, the Tax Court dismissed the taxpayers’ deficiency case for lack of jurisdiction, and the taxpayer appealed the order of dismissal to the Third Circuit. The Third Circuit agreed with Culp and reversed the Tax Court’s order of dismissal. The Third Circuit relied on Boechler, stating “[i]f the § 6330(d)(1) deadline in Boechler fell short of being jurisdictional, § 6213(a)’s limit must as well.” The Third Circuit further held that nothing in the statutory language links the deadline to the court’s jurisdiction. The Third Circuit concluded that the Tax Court could consider equitable tolling in deficiency cases, just as the Supreme Court held for CDP cases in Boechler.
The Third Circuit’s opinion creates an interesting dichotomy at the Tax Court. Under the Tax Court’s Golsen rule, the Tax Court follows the Circuit Court precedent where a pending case would be appealed. Cases involving late filings in deficiency cases that would be appealed in the Third Circuit, therefore, will follow Culp and allow for consideration of equitable tolling. For cases that would be appealed to other circuits, the Tax Court currently does not have Circuit Court precedent and could follow either Hallmark or Culp. The result is that Tax Court may treat taxpayers differently depending upon in which Circuit they live.
Are Late Tax Court Petition Filers Out of The Woods Yet?
Tax professionals and taxpayers alike will continue to watch how this saga unfolds. The Third Circuit’s opinion has opened the door for others taxpayers to request that their late-filed petitions be considered for equitable tolling.
Regardless of the outcome, and despite the fact that these rulings may allow for certain taxpayers to proceed with late-filed petitions in certain circumstances, taxpayers should continue to be pay close attention to filing deadlines and engage professional help to ensure they file before the deadline.
For further information, please contact:
Carina C. Federico, Partner, Crowell & Moring
cfederico@crowell.com
