Source: https://procedurallytaxing.com/tag/carlton-smith/
Timestamp: 2019-04-18 23:04:15+00:00

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In a post from September I alerted PT readers that two of the cases in which Joe DiRuzzo had again raised the issue of the constitutionality of the President’s removal power over Tax Court judges were set for oral argument before the Ninth Circuit. The constitutional separation of powers issue was decided against the taxpayers in both Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), and Battat v. Commissioner, 148 T.C. No. 2 (2017) – though, on different reasoning as to which Branch of government in which the Tax Court is located, if any.
Well, the Ninth Circuit panel removed both of Joe’s cases from the oral argument calendar, and it just issued two unpublished opinions. In both of the opinions, the Ninth Circuit avoided addressing the constitutional question.
Because Crim has not presented any evidence that the IRS filed a notice of a federal tax lien or a final intent to levy against him, that he requested a collection due process hearing with the IRS Office of Appeals, that he attended an Office of Appeals collection due process hearing, or that the Office of Appeals made any “determination” addressing a disputed lien or levy, the Tax Court lacked jurisdiction over Crim’s petition under 26 U.S.C. § 6320 and § 6330. Any argument that Craig v. Commissioner, 119 T.C. 252 (2002), commands a different result has been forfeited. See Christian Legal Soc’y Chapter of Univ. of Cal. v. Wu, 626 F.3d 483, 487-88 (9th Cir. 2010). Crim also forfeited the arguments raised for the first time in his reply brief that the Administrative Procedures Act, 5 U.S.C. § 706(1), and the All Writs Act, 28 U.S.C. § 1651, provide jurisdiction here. The failure to find jurisdiction on these grounds was not plain error. . . .
Given that the Tax Court lacked jurisdiction over Crim’s petition, we decline to exercise our “discretionary jurisdiction” over the recusal motion. See Gruver v. Lesman Fisheries Inc., 489 F.3d 978, 981 n.4 (9th Cir. 2007).
To get the constitutional issue adjudicated, it looks like Joe or somebody else will have to appeal any Tax Court ruling on the constitutional issue after a final decision is entered in a Tax Court case over which the court clearly had jurisdiction.
PT readers are no doubt aware of Altera v. Commissioner, 145 T.C. 91 (2015). In the case, the Tax Court invalidated a regulation under § 482 concerning the inclusion of stock option compensation in related-party cost-sharing arrangements. The two Tax Court dockets involved in the case were under the Tax Court’s deficiency jurisdiction in 2012. In those cases, Altera sought to invalidate a 2003 regulation both under the Chevron standard (i.e., not reasonable) and under the Administrative Procedure Act (APA). The Tax Court invalidated the regulation under both theories. The Tax Court found APA violations including the IRS’ (1) failure to respond to significant comments submitted by taxpayers and (2) in light of the administrative record showing otherwise, the IRS’ failure to support its belief that unrelated parties entering into cost sharing arrangement would allocate stock-based compensation costs.
As we blogged here, on July 24, 2018, the Ninth Circuit issued an opinion upholding the regulation. But that opinion was later withdrawn because one of the judges in the majority had died before the opinion was issued. After a new judge was assigned to rehear the case, the parties were invited to (and did) submit supplemental briefs. (Four supplemental amicus briefs were also submitted.) On the day all of these supplemental briefs were submitted, September 28, 2018, the Ninth Circuit panel issued an order inviting further briefing from the parties by October 9 on an issue that had never before been argued in the case. The case is set for reargument before the new Ninth Circuit panel on October 16.
The parties should be prepared to discuss at oral argument the question as to whether the six-year statute of limitations applicable to procedural challenges under the Administrative Procedure Act, 28 U.S.C. § 2401(a), applies to this case and, if it does, what the implications are for this appeal. Perez-Guzman v. Lynch, 835 F.3d 1066, 1077-79 (9th Cir. 2016), cert. denied, 138 S. Ct. 737 (2018).
In Perez-Guzman, the Ninth Circuit had held that procedural challenges to regulatory authority (unlike Chevron substantive challenges) must be raised in a court suit within the 6-year catch-all federal statute of limitations at 28 U.S.C. § 2401(a). Since the Altera deficiency cases had been brought more than six years after the pertinent regulation was adopted, the Ninth Circuit was, in effect, wondering whether all APA arguments in the case were time barred.
It is the Commissioner’s position that any pre-enforcement challenge to the regulations at issue here – including a purely procedural challenge under the APA, cf. Perez-Guzman, 835 F.3d at 1077-79 – would have been barred by the Anti-Injunction Act. See 26 U.S.C. (“I.R.C.” or “Code”) § 7421(a) (stating that, “[e]xcept as provided in” various Code sections (the most significant of which, I.R.C. § 6213(a), allows the pre-payment filing of a Tax Court petition in response to a statutory notice of deficiency), “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person”) . . . . Thus, Altera properly asserted its challenge to the regulations in two Tax Court actions contesting notices of deficiency that reflected the enforcement of the regulations against it. See Redhouse v. Commissioner, 728 F.2d 1249, 1253 (9th Cir. 1984).
If Altera’s procedural APA challenge to the regulations were nonetheless subject to the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) (which would have started running on the date of issuance of the final regulation, see Perez-Guzman, 835 F.3d at 1077), then Altera would have had to pay the tax and file a refund claim within the six-year window – thereby forfeiting the opportunity to contest the enforcement of the regulations against it in the pre-payment forum of the Tax Court – in order to comply with that time limit. Because the Commissioner has never expressed the view that the six-year statute of limitations applies to a procedural APA challenge to a tax regulation in the context of a Tax Court deficiency proceeding, and because the IRS issued the notices of deficiency in this case outside the six-year APA window, it would have been unfair to argue below that Altera’s procedural APA claims are time-barred. And, given this Court’s holding that the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) is not jurisdictional, Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 770 (9th Cir. 1997), the Commissioner waived any defense under that provision by not raising it in the Tax Court.
In sum, it is the Commissioner’s position that the six-year statute of limitations that is generally applicable to procedural challenges to regulations under the APA, see 28 U.S.C. § 2401(a), does not apply to this case.
Some people wonder why I litigate so much over whether or not filing deadlines are jurisdictional. The Altera case demonstrates again why this can often be a critical issue, since only nonjurisdictional filing deadlines are subject to waiver, forfeiture, estoppel, and equitable tolling.
The petition in this case was filed on July 13, 2018. Among other things, in his petition petitioner seeks review of (1) a purported notice of deficiency dated June 18, 2018, allegedly issued for his taxable years 2005, and 2007 through 2014, and (2) a purported notice of determination concerning collection action dated June 18, 2018, allegedly issued with respect to his taxable years 2005, and 2007 through 2014.
On September 6, 2018, respondent filed a Motion To Dismiss on Grounds of Mootness stating that respondent, subsequent to the filing of the petition, has notified the Secretary of State that respondent has reversed respondent’s certification of petitioner as an individual owing serous delinquent tax debt for 2005, and 2007 through 2014.
Answer respondent acknowledges that a Notice CP508C, notice of your seriously delinquent tax debt was issued to the State Department, was issued with respect to 2005, and 2007 through 2014, but respondent denies that any notice of deficiency for 2005, and 2007 through 2014, and/or notice of determination under I.R.C. section 6320 or 6330 for 2005, and 2007 through 2014, was issued to petitioner.
ORDERED that, on or before October 1, 2018, respondent shall file an appropriate jurisdictional motion as to so much of this case relating to the notice of deficiency for 2005, and 2007 through 2014, and the notice of determination under I.R.C. section 6320 or 6330 for 2005, and 2007 through 2014. The Court will hold in abeyance respondent’s September 6, 2018, motion to dismiss on grounds of mootness.
In order to avoid further wasteful use of judicial and party resources dealing with jurisdictional issues, I would hope and expect that the Tax Court would adopt a new Form 2 as soon as possible that contains a box to check for passport actions. Until the Tax Court does so, however, I would advise practitioners representing taxpayers in passport actions not to use Form 2, but to draft custom petitions.
On March 28, 2016, the Tax Court adopted interim rules (which were also issued as proposed rules) dealing with passport actions at Title XXXIV of its Rules of Practice and Procedure (Rules 350 to 354). They can be found on the Tax Court’s website under “Press Releases” for that date. Interim Rule 351(b) specifies the contents of a passport action petition and directs that such petition be captioned: “Petition for Certification or Failure to Reverse Certification Action Under Code Section 7345(e)”. Oddly, while the Tax Court also modified Form 2 at the same time that it proposed and adopted these passport action rules, the new Form 2 did not contain a box to check for passport actions. Nor do the instructions to Form 2 mention passport actions.
How Do Section 6511(b)’s Payment Limitations Apply When a Late-Filed Original Return Perfects a Prior Informal Refund Claim?
I don’t usually do posts on opinions where an interesting issue is presented, but the court didn’t reach the issue, and I don’t know how the issue should come out. But, when I mentioned the issue in this post to Les, and asked whether Saltzman & Book answered the issue, and Les told me that the book did not and that he thought the issue was “fascinating,” I decided: Why not do a post?
The potential issue is presented in Voulgaris v. United States, 2018 U.S. Dist. LEXIS 150724 (E.D. Mich. Sep. 5, 2018), a refund suit that was dismissed for lack of jurisdiction because the administrative claim, although timely made under section 6511(a), was limited by section 6511(b) to zero because the taxpayer had not made any tax payments in the 3-year period looking back from the date the claim was made through the filing of a late original return.
The court does not discuss the informal claim doctrine, which was not raised by the taxpayer’s counsel or mentioned in the government’s motion to dismiss. However, taken from the government’s summary of the facts, the court includes in its opinion facts demonstrating that the taxpayer had made an informal claim long before that claim was perfected by the filing of a late original return showing the overpayment. The Supreme Court held in United States v. Kales, 314 U.S. 186 (1941), that where an informal claim is later perfected, the perfected claim is treated as made on the date of the informal claim for purposes of what is today section 6511(a). But, Kales doesn’t answer the question of what is the limit under section 6511(b) of the amount of the claim when a claim is deemed timely filed under the informal claim doctrine. Section 6511(b) says that if a claim is filed within three years after the filing of the original return (one of the alternative requirements of subsection (a)), then the claim is limited to the amount of any tax paid in the 3-year period prior to the filing of the claim (plus the period of any extension to file the original return). Section 6511(b), though, also provides that if a taxpayer is relying on the 2-years-after-payment rule of subsection (a) to make a refund claim timely, then the section 6511(b) amount limit is to the taxes paid in the 2-year period prior to filing the claim. In Kales, whether the lookback period was two years or three years from the filing of the claim, the amount was not limited because the amount of the tax in dispute had been paid on the very day the informal claim was filed.
If the taxpayer in Voulgaris had raised the informal claim doctrine, should the court have used the 2-year or 3-year lookback rules from the date of the informal claim for purposes of applying the tax payment amount rules of 6511(b)? Is the late-filed return treated as filed on the date of the informal claim so that the 3-year lookback rule applies from the informal claim date? If so, the refund amount sought was paid within that lookback period. However, if the 2-year lookback rule applied, the refund claim would be limited to zero.
Here are the facts of Voulgaris, which involves a refund claim for overpaid 2003 income taxes. The taxpayer, a foreigner, was a grad student during 2001 at the University of Michigan. While studying, he set up a bank account in the U.S, in which he kept a fair amount of money. In 2003, I am not sure if he was in the U.S. (probably not, from the court’s finding that he went back to Europe after 2001), but he bought and sold stocks through a (probably U.S-based) Scottrade account. He did not file a timely U.S. 2003 income tax return.
The IRS later sent a notice of deficiency for 2003 income taxes to the taxpayer at some address (probably in the U.S.) in which the IRS computed his tax based on gross sales proceeds of $77,000 reported on Forms 1099-Bs. The computation did not include any basis information.
Voulgaris never received the notice of deficiency, so, of course, he did not go to Tax Court and the deficiency was later assessed.
In 2009, the IRS issued a notice of intention to levy to Voulgaris, which he also did not receive. So, of course, he did not request a Collection Due Process hearing.
The IRS then levied on Voulgaris’ U.S. bank account, and on Feb. 24, 2010, the IRS received $28,000 from the bank. That amount apparently fully paid the liability.
On Feb. 10, 2013 (i.e., more than two years, but less than three years after the levy payment), the IRS received a letter from Voulgaris seeking a complete refund and including “Schedule D, Schedule D-1, and a Composite Substitute 1099 showing his Scottrade stock transactions,” but not an original Form 1040 for 2003. The Schedule D showed that, when basis information was included, Voulgaris’ 2003 stock transactions actually had resulted in a net capital loss of about $5,000. There is no mention in the opinion of Voulgaris having any other U.S.-source income in 2003.
The IRS responded to this letter by asking Voulgaris to file a complete Form 1040 for 2003. After much back and forth, on Aug. 19, 2015, the IRS finally received from Voulgaris a Form 1040, which it processed. The return sought a refund. But, the IRS denied the refund, and the taxpayer brought a timely suit.
The court correctly observes that the claim is timely under 6511(a) because made on the original return. Given that timely claim, the lookback period under 6511(b) was three years, not two, from the time the return was filed. Since the tax was paid on Feb. 24, 2010 – more than three years before the return was filed – the court holds that the amount of the claim must be limited to zero. But, is this right?
Wasn’t the Feb. 10, 2013 letter an informal claim that just later got perfected? The court does not discuss the informal claim doctrine, since Voulgaris’ lawyer did not argue that he had made an informal claim prior to the filing of the Form 1040. If the Feb. 10, 2013 letter in fact constituted an informal claim, that claim would come with a lookback period. Is the lookback period two years (in which case, the claim would be limited to zero) or three years (in which case the claim could encompass the entire amount paid by levy on Feb. 24, 2010)?
I have never run across this fact pattern and haven’t done research on it. I suspect that there is no case law on this informal claim issue because only in the last 20 years have all the courts come around to the idea that a late return showing an overpayment gets the 3-year lookback period under (b) because the claim shown on that return is timely under (a) (having been made within three years after the return was filed – indeed, on the same day). See Baral v. United States, 528 U.S. 431, 433 (2000) (in the case of a return filed more than three years after the due date, the IRS “did not dispute that Baral had timely filed the request under the relevant filing deadline – “within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later.’ § 6511(a)”); Omohundro v. United States, 300 F.3d 1065 (9th Cir. 2002) (overruling Miller v. United States, 38 F.3d 473 (9th Cir. 1994), which had held that the 2-year lookback period applied when a late original return was filed showing an overpayment); Rev. Rul. 76-511, 1976-2 C.B. 428.
Les tells me that Saltzman & Book does not address the issue of how the section 6511(b) amount limits apply when an informal claim is filed before a late original return showing an overpayment is filed. And he doesn’t know whether there is case law on this question, either. Both of us are inclined to think that, on these facts, the return is deemed filed on the date of the informal claim, so, logically, the 3-year lookback period from the date of the informal claim should apply. But, I would not bet my shirt on it. If any reader of PT has encountered authority on this issue, I would urge you to help us all out by citing pertinent authority in the comments section to this post.

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