Originally published on Forbes.com.
When you miss deadlines in tax matters, the consequences vary. Sometimes it is “no harm, no foul”, sometimes there is a mild financial penalty, sometimes there is a severe financial penalty. And then there is the Tax Court. If you miss the initial Tax Court deadline for filing a petition, that’s it. No Tax Court for you. The latest sad tale in that regard is the appeal of Phillip Duggan to the Ninth Circuit. There is an important lesson in this case, but I’ll give you the story first.
What’s It All About?
Because the Tax Court does not have electronic transparency like just about every other federal court and I’m a cheapskate, I can’t tell you exactly what it is all about. All we know from the decision is:
The IRS mailed to Duggan two Notices of Determination dated January 7, 2015, which proposed collection of unpaid income taxes for 2008, 2010, 2012, and 2013.
We could find out more if we looked at the petition, but if we don’t want to take a trip to Washington or wait a couple of weeks and then pay fifty cents a page, we’ll have to leave it at that. How much was involved, why it wasn’t paid and what specific collection action was proposed remain a mystery. Too bad, because sometimes the story behind the story is more intrinsically interesting.
What The Decision Is About?
In order to get his day in Tax Court, Mr. Duggan had to file his petition within thirty days of January 7, 2015. Mr. Duggan figured that January 8, 2015, was day zero. So he mailed his petition on February 7, 2015, which was Day 31 as they count the days in Tax Court. From there it gets pretty lawyerly.
The question is whether the deadline is “jurisdictional”. In the Tax Court decision that is being appealed, you will see the sentence “This Court is a court of limited jurisdiction”. A sentence like that is almost inevitable in decisions of this sort. The Ninth Circuit leads with “The Tax Court is an Article I court of “limited jurisdiction””. Nobody gets hauled before the Tax Court. It is optional and to exercise the option you need to follow the procedure. If you don’t, there is nothing that they can do for you.
Help From Harvard Not Enough
A lot of pro se litigants miss the deadlines. That led to an amicus brief by Linda Jean Matuszak. Ms. Matuszak was tripped up in a similar manner. The brief was prepared by Carlton Smith and Professor T. Keith Fogg, Director Harvard Federal Tax Clinic, which gives students at Harvard Law School the opportunity to do some tax litigation for the other 95%. They are making a push on the deadline issue. This is from their website:
In addition to representing local clients, the Clinic looks to comment on proposed rules and regulations impacting low income taxpayers, and it looks to litigate broadly on issues impacting this community. The Clinic is currently litigating whether the Tax Court has the ability to equitably toll the time frame for filing a Tax Court petition. It represents clients in the 2nd, 3rd, 4th and 10th Circuits that the Tax Court dismissed as untimely despite the fact that the taxpayers filed late based upon oral and written statements made by the IRS regarding the last day to file.
The amicus brief makes the argument that the IRS notice of determination misled Mr. Duggan as to the due date of the petition. The notice of determination issued by the IRS read:
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.
That is different than the statutory language and adds to the confusion about day counting.
The legal principle is that if the deadline is “jurisdictional”, it does not matter if the IRS told Mr. Duggan he had a year instead of 30 days, because the statute says that the Tax Court is not involved. If the deadline is not “jurisdictional”, then the concept of “equitable tolling” comes into play and the Tax Court can cut the taxpayer a break on the deadline, because he was misled.
The Ninth Circuit wasn’t buying it.
Accordingly, we hold that because the text of § 6630(d)(1) conditions the Tax Court’s jurisdiction on the timely filing of a petition for review, the thirty-day deadline in § 6330(d)(1) is jurisdictional. Duggan’s failure to meet this deadline divested the Tax Court of the power to hear his case and foreclosed any argument for equitable tolling.
There’s More
Professor Fogg sent me a copy of a Fourth Circuit decision that came down last week. Semyya Lanise Cunningham had pretty much the same fact pattern as Phillip Duggan, filing a day late from following what she thought were the IRS instructions. The Fourth Circuit didn’t touch the jurisdictional question. It decided the appeal on the basis that there was nothing misleading about the IRS notice and certainly nothing to suggest the IRS acted with negligence. The Harvard team was all over this case also.
The Lesson
If people would pay attention to Reilly’s Seventeenth Law of Tax Planning – Don’t cut your deadlines close and use the US Mail with proof of mailing, you wouldn’t have cases like this. When it says “within thirty days”, tell your self that it is twenty days and precisely how you count the days, stops mattering. You could even have transposed the digits on the letter you received thinking that January 12 was January 21 and you will still be timely. I ran that notion by Professor Fogg and here is his response:
I totally agree with your Seventeenth Law. I do not know why people think filing at the very last second is a good idea but it seems to be hardwired in many people – lots of lawyers included.
Other Coverage
Carlton Smith had something on Procedurally Taxing noting that Mr. Duggan was one of at least eight taxpayers misled by the IRS notice.
I’ve modified my seeming judgmental attitude of why people let things go to the wire a bit in the case of Ms. Cunningham. I listened to the oral arguments , where it was mentioned that because of certified mail it was already day 20, when Ms. Cunningham received the notice.