Source: https://procedurallytaxing.com/author/carltonsmith/
Timestamp: 2019-04-19 08:46:35+00:00

Document:
This is the second part of a two-part post on innocent spouse legislative changes proposed to be made in the Taxpayer First Act of 2019.
This part of the post discusses the bill’s proposed change that would override an existing IRS regulation that provides for a 2-year limit for filing a request for innocent spouse relief under section 6015(f). Of course, the IRS has long ago abandoned enforcing that regulation limit and has issued proposed regulations that follow the proposed statutory amendment. So, this provision is essentially unnecessary, unless you don’t trust the IRS to stick with the position that it has now maintained since 2011.
This part of the post also details three other proposed changes to the innocent spouse section that Nina Olson has previously sought, but that, sadly, are not included in the bill.
For a spouse to elect relief under subsection (b) or (c), the statute requires that an election be made no later than 2 years after the IRS commences collection activities. Subsection (f) equitable relief applies only if relief is not available under the other 2 subsections, but the subsection (f) contains no provision for a date by which relief under it must be requested.
In a 2002 regulation (Reg. sec. 1.6015-5(b)(1)), the IRS provided that a request for subsection (f) relief must be made no later than the same 2-year deadline applicable to elections for relief under subsections (b) or (c).
In Additional Legislative Recommendation #1 of her 2006 Annual Report to Congress, at Vol. I, pp. 540-541, Nina Olson first recommend that Congress amend subsection (f) to provide that a taxpayer may request relief thereunder at any time that the collection statute of limitations is open.
Then, in Lantz v. Commissioner, 132 T.C. 131 (2009) (en banc), the Tax Court held that Congress had deliberately spoken by its silence in not providing for a statute of limitations for requesting relief under subsection (f), and, therefore, the regulation was invalid.
The IRS appealed Lantz and similar Tax Court rulings that followed it to various Circuits. Three Circuits promptly disagreed with the Tax Court and held that the regulation was valid. Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010); Mannella v. Commissioner, 631 F.3d 115 (3d Cir. 2011); Jones v. Commissioner, 642 F.3d 459 (4th Cir. 2011).
Information provided to Congress by Ms. Olson in early 2011 provoked letters from Congress to the Commissioner in April 2011 asking the IRS to withdraw its regulation under subsection (f) as not in accordance with Congressional intent.
An abatement of any penalty or addition to tax pursuant to section 6404(f) and this section shall be allowed only if the request for abatement described in paragraph (d) of this section is submitted within the period allowed for collection of such penalty or addition to tax, or, if the penalty or addition to tax has been paid, the period allowed for claiming a credit or refund of such penalty or addition to tax.
I suggested that such section 6404(f) regulation could be modified for a replacement section 6015(f) regulation. To my embarrassment, minutes later, in a speech she gave to the whole Tax Section, she thanked me for “solving” the Service’s Lantz regulation repeal concern.
Individuals may request equitable relief under section 6015(f) after the date of this notice without regard to when the first collection activity was taken. Requests must be filed within the period of limitation on collection in section 6502 or, for any credit or refund of tax, within the period of limitation in section 6511.
In 2013, the IRS issued proposed regulations that would incorporate the filing deadlines set out in Notice 2011-70. REG-132251-11, 2013-2 C.B. 191. However, those proposed regulations have not yet been finalized.
(B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment.
Make the subsection (e) filing deadline nonjurisdictional and subject to equitable exceptions. NTA 2017 Annual Report to Congress, Legislative Recommendation #3, at Vol. I, pp. 283-292. This change would result in the overruling of three recent opinions where employees of the IRS accidentally misled taxpayers into filing late by telling the taxpayers the wrong date for the 90th day. In the cases (where the Harvard clinic was counsel for the taxpayers), the taxpayers argued that the subsection (e) filing deadline is not jurisdictional and is subject to estoppel and equitable tolling. The appeals courts all held that the filing deadline is jurisdictional, so cannot be subject to equitable exceptions. Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017); and Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018).
Clarify that section 6015 relief can be raised in district court and Court of Federal Claims refund suits brought by taxpayers. NTA 2018 Annual Report to Congress, Legislative Recommendation #4, at Vol. I, pp. 387-391. This change would overrule the district court magistrate’s opinion in Chandler v. United States, 2018 U.S. Dist. LEXIS 174482 (N.D. Tex. 2018), adopted by district court at 2018 U.S. Dist. LEXIS 173880 (N.D. Tex. 2018), which held that district courts lack jurisdiction to consider section 6015 relief in tax refund suits.
It is unfortunate that these more urgent fixes to the statute have been ignored. I wonder, though, if the reason that these additional proposals have been ignored is that they are opposed by the IRS, but the changes proposed for the Taxpayer First Act of 2019 have not been so opposed (because, really, not changing current IRS practice)? It would be unfortunate if the Congress is giving the IRS veto power over good ideas to amend section 6015.
Sometimes, Congress drives me batty. Its latest silliness is proposing to resolve legislatively two formerly-contested issues under the section 6015 innocent spouse provisions in the taxpayer-favorable ways that the courts and the IRS already had settled those issues many years ago.
Section 1203 of the new Taxpayer First Act of 2019, as introduced in both houses, proposes to modify section 6015 in two ways: (1) It would codify judicial holdings that reviews of IRS determinations of equitable relief under subsection (f) are de novo as to scope and standard, and (2) It would amend subsection (f) to codify the IRS notice from 2011 that allows essentially unlimited time to request relief — effectively overruling the 2-year limit for requesting such relief contained in Reg. Sec. 1.6015-1(b)(5). These are proposals that Nina Olson had long ago sought in prior annual reports to Congress (in 2011 and 2006, respectively). The House bill, H.R. 1957, was marked up in the Ways & Means Committee on April 2. The Senate bill, S. 928, has been introduced by Senator Grassley, the Chair of the Finance Committee, but has not yet been marked up.
Sadly, however, the Taxpayer First Act of 2019 will not also amend section 6015, as Nina Olson has also asked in her annual reports, (1) to make the subsection (e) filing deadline nonjurisdictional and subject to equitable exceptions and (2) to clarify that section 6015 relief can be raised in district court collection suits brought by the DOJ and in district court and Court of Federal Claims refund suits brought by taxpayers. The latter changes would actually modify current case law.
In this first of a two-part post, I will only discuss the scope and standard of review modification.
I apologize to older PT readers who vividly recall the battles described below, but since many of the events happened a decade ago, younger PT readers may be unaware of the battles and the number of en banc Tax Court opinions that formed parts of those battles. Below is my own description of the background, but you can also find the Joint Committee on Taxation’s description of the background at “Description of H.R. 1957, The ‘Taxpayer First Act of 2019’”, JCX-15-19 (Apr. 1, 2019).
Shortly after the section 6015 innocent spouse provision was enacted in 1998, the courts wrestled with the issue of what is the standard of judicial review under the equitable relief subsection, (f). While the courts and the IRS readily agreed that the standard of judicial review of determinations under subsections (b) and (c) is de novo, the courts decided that the standard of judicial review of determinations under subsection (f) is abuse of discretion. See, e.g., Cheshire v. Commissioner, 282 F.3d 326, 338 (5th Cir. 2002) (in which section 6015(b), (c), and (f) relief were raised as defenses in a Tax Court deficiency proceeding brought under section 6123(a)).
There was also litigation over whether the Tax Court, in a stand-alone innocent spouse proceeding brought under section 6015(e), had jurisdiction to rule on subsection (f) relief and, if so, was the court limited to reviewing the administrative record, or did it do a trial de novo in which any relevant evidence could be introduced?
In Ewing v. Commissioner, 118 T.C. 494, 498-507 (2002) (en banc), the Tax Court held that it had jurisdiction to decide subsection (f) relief in a proceeding involving relief sought from an underpayment brought under subsection (e). In a later opinion in the case, the Tax Court also held that the scope of such a proceeding under (f) was the same as that under subsections (b) and (c) — a trial de novo as to evidence — even though the standard of review under subsection (f) was abuse of discretion. 122 T.C. 32 (2004) (en banc).
Ewing was vacated by the Ninth Circuit because that court held that the Tax Court lacked jurisdiction to make subsection (f) determinations in subsection (e) stand-alone proceedings. 439 F.3d 1009 (9th Cir. 2006). Almost immediately thereafter, the Eighth Circuit agreed with the Ninth Circuit; Bartman v. Commissioner, 446 F.3d 785 (8th Cir. 2006); and the Tax Court reversed course on the jurisdictional question and decided to follow those appellate rulings. Billings v. Commissioner, 127 T.C. 7 (2006) (en banc).
In response, in December 2006, Congress amended subsection (e) to explicitly give the Tax Court jurisdiction to consider subsection (f) relief in stand-alone proceedings.
Thereafter, in Porter v. Commissioner (Porter I), 130 T.C. 115 (2008) (en banc), the Tax Court again held that relief under subsection (f) in a proceeding under subsection (e) was to be determined after a trial de novo as to evidence. And, the following year, in Porter v. Commissioner (Porter II), 132 T.C. 203 (2009) (en banc), the Tax Court held that, when Congress amended the statute in 2006, Congress also intended that henceforward the standard of judicial review under subsection (f) — whether in subsection (e) or deficiency proceedings — should be de novo.
And, in Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013), the Ninth Circuit both (1) agreed with the Eleventh Circuit in Neal and the Tax Court in Porter I and held that the scope of review of determinations under subsection (f) was now de novo and (2) agreed with the Tax Court in Porter II that the standard of review was also de novo.
In 2011, Nina Olson asked Congress to amend section 6015 to codify the rulings in Porter I and II. NTA 2011Annual Report to Congress, Legislative Recommendation #4, at Vol. I, pp. 533-536.
In 2013, the IRS announced that it would no longer contest the rulings in Porter I and II. Notice CC-2013-011, Litigating Cases that Involve Claims for Relief from Joint and Several Liability Under Section 6015 (June 7, 2013).
However, just “to eliminate any ambiguity and preclude future changes in the IRS’s litigating position”, Nina Olson has continued to call for a legislative codification of the Porter I and II rulings — most recently in her Purple Book accompanying her 2018 Annual Report to Congress, pp. 91-92.
(B) any additional newly discovered or previously unavailable evidence.
The National Taxpayer Advocate’s 2018 annual report to Congress seeks legislation to address two refund suit issues that have been extensively discussed on PT: (1) legislation clarifying that a tax refund suit in district court or the Court of Federal Claims may consider innocent spouse relief under § 6015, and (2) legislation repealing or substantially modifying the refund suit full payment rule established by Flora v. United States, 362 U.S. 145 (1960).
Since 2007, the NTA has been alerting Congress to numerous district court holdings that the Tax Court has exclusive jurisdiction to make rulings concerning § 6015 relief, such that § 6015 relief may not be considered by the district courts as a defense in government-brought suits for collection under § 7402 or § 7403. NTA 2007 Annual Report to Congress, Vol. I, p. 631; NTA 2008 Annual Report to Congress, Vol. I, p. 525; NTA 2009 Annual Report to Congress, Vol. I , pp. 494-495; NTA 2010 Annual Report to Congress, Vol. I, pp. 504-505; NTA 2012 Annual Report to Congress, Vol. I., pp. 648, 652; NTA 2015 Annual Report to Congress, Vol. I, pp. 532-536. For a partial listing of many such district court rulings, see Keith’s post here, which links to a 2015 opinion in United States v. Stein. Footnote 1 in Stein cites most cases so holding decided up to 2015. Keith also did a post on this issue in 2018, when another district court held to the same effect. The 2018 post can be found here. Interestingly, no appellate court has been forced to face this issue, so the issue is still one of first impression there. Keith and I have been looking for a test case to bring, but the two district court cases that we have considered to date were not good candidates (for reasons I won’t get into here).
As the National Taxpayer Advocate has pointed out, these district court decisions are inconsistent with the statutory language of IRC § 6015, which does not give the Tax Court exclusive jurisdiction to determine innocent spouse claims, but rather confers Tax Court jurisdiction “in addition to any other remedy provided by law.” Nothing in IRC § 6015 prevents a district court from determining, in a collection suit, whether innocent spouse relief is available. . . . Moreover, the refusal to allow a taxpayer to raise IRC § 6015 as a defense in a collection suit may create hardship because a taxpayer may be left without a forum in which to raise IRC § 6015 as a defense before losing her home to foreclosure by the IRS.
NTA 2013 Annual Report to Congress, Vol. I, pp. 416-417.
The NTA has also repeatedly asked that, if the courts do not correct their rulings, Congress adopt legislation that would make it even more clear that § 6015 relief is available as a defense in a district court collection suit. NTA 2007 Annual Report to Congress, Vol. I, pp. 549-550; NTA 2009 Annual Report to Congress, Vol. I, pp. 378-380; NTA 2010 Annual Report to Congress, Vol. I, p. 378-382; NTA 2017 Annual Report to Congress, Purple Book, p. 53.
The NTA collected her most important legislative recommendations (both those from the current year and those from prior years) into a Purple Book that accompanied her 2017 annual report to Congress. In the Purple Book accompanying her 2018 report, she repeats this legislative recommendation here as number 53 of her 58 collected legislative proposals.
But, she also discusses, in the main body of her 2018 report, 10 new legislative proposals, one of which is to clarify that district courts and the Court of Federal Claims also have jurisdiction to consider § 6015 relief in tax refund suits. This clarification is necessary, since the DOJ has been arguing, in two recent refund suits, that the district courts lacked jurisdiction to rule on § 6015 relief because only the Tax Court has jurisdiction to rule on § 6015 relief – citing the DOJ victories in the collection suits.
Keith had blogged here when a district court last year in Chandler v. United States had held that it lacked jurisdiction to consider § 6015 relief in a refund suit. The NTA cites Chandler as the reason provoking her recommendation here.
On March 12, the DOJ in the Hockin case will file its reply to the amicus memorandum and the taxpayer’s original and supplemental responses. On April 25, 2019, John MacMorris-Adix, a student in the Low-Income Taxpayer Clinic at Lewis & Clark Law School in Portland, Oregon, will argue the Hockin motion on behalf of the taxpayer before a magistrate in the United States District Court for the District of Oregon..
Chandler was never appealed, but a loss on the same issue in Hockin is likely to be appealed by the taxpayer to the Ninth Circuit.
The Supreme Court in Flora held that in order for district courts and the Court of Federal Claims to have jurisdiction in a tax refund suit, the taxpayer must have paid the disputed tax in full. In Flora, the IRS had sent a notice of deficiency proposing an increase in income taxes. Rather than petitioning the Tax Court, the taxpayer paid part of the deficiency, filed a refund claim, and later brought a refund suit on that claim in the district court. Part of the rationale of the Supreme Court in so holding in Flora was that the taxpayer could have fought the deficiency, prepayment, in the Tax Court, so should not be heard to complain about the full payment rule. And, in a later Supreme Court case, the Solicitor General told the Court that the DOJ’s position was that the Flora full payment rule only applied when the taxpayer forwent filing a permissible Tax Court deficiency suit.
Les and I did a two-part post last year here and here on the Second Circuit’s Larson opinion from last April. In Larson, a tax shelter promoter had been assessed (jointly with other promoters) a penalty under § 6707 of about $160 million. The other promoters paid about $100 million of the penalty, and Larson paid $1 million and contended that he could not pay the balance. Larson brought a refund suit, and the court held that, even in the case of this assessable penalty, where no Tax Court prepayment suit was ever possible, Flora applies to require full payment before a refund suit may be maintained.
Keith is currently working on a law review article on the unfairness of the full-payment rule. The Harvard clinic had also submitted an amicus brief in Larson that argued the full payment rule should not apply to refund suits involving assessable penalties. Long ago, I had published an article, “Let the Poor Sue for Refund Without Full Payment”, 125 Tax Notes 131 (Oct. 5, 2009), in which I proposed that the full payment rule not apply where the taxpayer had already paid a part of the disputed liability and the taxpayer was current on an installment agreement to pay the rest or was in currently not collectible status. In April 2018, the Harvard clinic also submitted comments to Congress on the “Taxpayer First Act.” A link to the complete comments can be found within a blog post that Keith did on the proposed act here. One of the comments proposed that the Tax Court be given jurisdiction to review assessable penalties prepayment.
Amend 28 U.S.C. § 1346(a)(1) to clarify that full payment of a disputed amount is only a prerequisite for jurisdiction by district courts and the U.S. Court of Federal Claims if the taxpayer has received a notice of deficiency. If enacted, taxpayers who are subject to assessable penalties would not need to pay them in full before filing suit in a district court or the Court of Federal Claims.
Amend 28 U.S.C. § 1346(a)(1) to clarify that a taxpayer is treated as having fully paid a disputed amount for purposes of the full payment rule at the earlier of when the taxpayer has paid some of it (including by offset) and either (a) the IRS has classified the account as currently not collectible due to economic hardship, or (b) the taxpayer has entered into an agreement to pay the liability in installments. If enacted, taxpayers who cannot afford to pay would have the same access to judicial review as those who can (e., the option to file suit in a district court or the U.S. Court of Federal Claims).
Amend IRC § 6214 to authorize the U.S. Tax Court to review liabilities where the taxpayer has not received a notice of deficiency (g., assessable penalties) in a manner that parallels the deficiency process. In addition, allow the IRS to assess and collect liabilities only after any such review is complete or the period for filing a Tax Court petition has expired. Alternatively, Congress could expand the Tax Court’s jurisdiction to review liabilities in connection with CDP appeals when the taxpayer has not received a notice of deficiency. These changes would authorize review of assessable penalties by the Tax Court even if the taxpayer had an opportunity for an administrative appeal.
I came back out of retirement to become the acting director of the Harvard Federal Tax Clinic for the first six months of this year, while Keith is on sabbatical. One of the depressing things I just discovered is that the IRS is still ignoring the method for computing innocent spouse relief in underpayment cases under section 6015(f) that the Tax Court adopted (at least for some cases) in Pullins v. Commissioner, 136 T.C. 432 (2011). In a nutshell, the IRS computers take the joint tax return liability as reported and allocate it between the spouses based on each’s relative proportion of total reported taxable income. But, in Pullins, the court said that, at least in that case, relief should be to eliminate all tax except that which would be paid by the requesting spouse had she filed a married filing separately return.
I dealt with this issue when I was the director of a tax clinic at Cardozo School of Law some years ago, and every time I saw the allocation the IRS had done of the spouse’s taxes for purposes of underpayments cases, I had to ask the IRS to recompute the relief consistently with Pullins. The IRS always did so at my request, increasing the amount of relief. But, I shouldn’t have had to ask. And I wondered about all the thousands of pro se requesting spouses out there who were seeking (f) relief in underpayment cases. They would never have known to challenge the IRS computations of their relief the way I knew to make the challenge.
Last week, I consulted with a taxpayer who had reached a resolution of a Tax Court section 6015(f) underpayment case and who asked me to look at the IRS settlement computations. Once again, the computations ignored Pullins. The amount by which the taxpayer was being cheated was $300. However, after I pointed this out to her, she decided not to make a fuss about this – not wanting to possibly jeopardize the settlement that she had already achieved on the major issue of getting relief at all.
But, I want to alert everyone to what is going on, and I hope the National Taxpayer Advocate will look into this matter. After all, it is now almost 8 years since Pullins rejected the way the IRS computers are programmed to calculate section 6015(f) relief in underpayment cases.
The goal of the innocent spouse provisions (at least where there has been no abuse) is to relieve a requesting spouse only of the tax on the nonrequesting spouse’s income, not the tax on the requesting spouse’s income. But, implementing this goal can be tricky.
If the tax as to which innocent spouse relief is sought is a “deficiency” – i.e., attributable to an audit adjustment increasing reported tax (a situation involving an “understatement”) – then relief may be available to the taxpayer under section 6015(b), (c), or (f). Congress provided rules for calculating relief under section 6015(c) that provide, as a general rule, that “[t]he portion of any deficiency on a joint return allocated to an individual shall be the amount which bears the same ratio to such deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under paragraph (3) bears to the net amount of all items taken into account in computing the deficiency.” Section 6015(d)(1). In a simple example, if the deficiency were $30,000, and the underlying adjustments to income were $80,000 of unreported income of the husband and $20,000 of unreported income of the wife, and the wife requested section 6015(c) relief, she could be relieved, at most, of 80% of the $30,000 deficiency – or $24,000.
The IRS uses this allocation system for subsection (c) relief also when computing relief from deficiencies under subsections (b) and (f). And I take no issue with the IRS doing so.
If liability is attributable to both the RS [requesting spouse] and NRS [nonrequesting spouse], equitable relief will only be considered for the portion attributable to the NRS.
. . . . Underpayments of tax are allocated based on each spouse’s pro rata share of the joint taxable income.
For purposes of determining how much of an underpayment is attributable to each spouse, the EITC and ACTC is allocated to each spouse in proportion to the spouse’s share of the adjusted gross income.
Imagine a case where the total tax shown on the joint return was $6,400 and the return only showed two items of income: $80,000 of wages of the husband and $20,000 of wages of the wife. After standard deductions for a married filing jointly return and two personal exemptions, assume that the taxable income is $58,000. Imagine that the balance unpaid on that return is currently $4,000. How much the requesting spouse should be relieved of under (f) is determined, in part, by how much of the total $6,400 of tax the requesting spouse already paid – either through income tax withholding, estimated tax payments, and payments made after the IRS commenced collection. Under the Manual provision, though, the IRS would also say that the $6,400 of total tax should be allocated to the spouses 80% to the husband and 20% to the wife because that is their relative shares of the taxable income reported. So, the wife would be allocated $1,280 of the reported joint tax liability of $6,400.
Pullins presented a similar fact pattern – i.e., the wife sought relief, and the wife’s income was relatively small compared to the total reported joint taxable income. Judge Gustafson, though, rejected the method the IRS used to determine section 6015(f) relief in that underpayment case. Instead, he noticed that, had the wife filed a return as married filing separately, she would have had less tax. That is because, by adding her income to her husband’s to file a joint return, both spouses got taxed at a high bracket. But, her income alone would have been taxed at a low bracket if she had filed married filing separately. In my example in the previous paragraph, the wife could have filed a married filing separately return showing only $20,000 of gross income. Taking a combined standard deduction and personal exemption of, say, $11,000, the wife’s taxable income would have been only $9,000. All of that $9,000 would be subjected only to the 10% tax bracket, so the tax she would have paid would have been about $900 – $380 less than her proportionate share of the joint liability.
I think that Judge Gustafson declined to set down a general rule for all underpayment cases under section 6015(f) because he might want to adopt the IRS system of allocating the reported joint tax in proportion to relative taxable income when the requesting spouse was a person with much higher gross income than the nonrequesting spouse. Also, there is the problem of the earned income tax credit. If that credit applies for a married couple, it is only available if they file married filing jointly. The nonrequesting spouse could not get any earned income tax credit with married filing separately status. Section 32(d).
The case on which I was recently consulted was one like Pullins, where the requesting spouse had relatively small income compared to her husband’s and her income would have been taxed at a much lower rate had she filed a married filing separately return. The return also involved no earned income tax credit. Over the years, I have probably seen a half-dozen of this kind of case. All presented this fact pattern. My suspicion is that this is the typical innocent spouse case because, in my experience, the requesting spouse is usually the low earner in the family.
After almost 8 years since the issuance of Pullins, I think it high time that the IRS modify its Manual provision to reflect the Pullins system for calculating section 6015(f) relief in underpayment cases. The IRS can adopt exceptions to deal with (1) the unusual situation of tax on a married filing separately return basis exceeding the allocation of the joint return tax in proportion to relative taxable income and (2) earned income tax credit returns. I like the idea of allocating that credit between the spouses, though I would modify the allocation to be based on relative shares of the total earned income, not adjusted gross income. After all, the tables for the earned income tax credit are computed with respect to combined earned income.
Is the Requirement to File a Refund Claim Before Bringing Suit Waivable?
On January 11, 2019, the Supreme Court granted certiorari in a case that may indirectly impact whether the requirement to file with the IRS an administrative refund claim before bringing a tax refund suit is jurisdictional, Davis v. Fort Bend County, Texas, 893 F.3d 300 (5th Cir. 2018).
Section 7422(a) requires that a taxpayer bringing a suit for refund first file with the IRS an administrative claim for refund. In United States v. Dalm, 494 U.S. 596, 601-602, 608 (1990), the Supreme Court stated that both the filing of an administrative claim and the timely filing of such claim were jurisdictional requirements of a refund suit. Jurisdictional requirements cannot be waived by the parties or forfeited if a party fails to timely object.
Dalm was decided before the Supreme Court changed its thinking on what conditions of suits are jurisdictional. Since 2004, the case law (which we have discussed in many previous posts) is that “claims processing rules” are generally no longer jurisdictional. There are only two exceptions to this rule. First, Congress can make a claims processing rule jurisdictional by making a clear statement in the statute to that effect. Second, if there is a long line of Supreme Court cases holding the claims processing rule jurisdictional, then the Court will stick to that interpretation under stare decisis.
Dalm was the first and only Supreme Court opinion calling the requirement to file a predicate administrative refund claim jurisdictional, so it seems unlikely that the stare decisis exception would apply. And, section 7422(a) does not contain the word “jurisdiction” or appear to speak in jurisdictional terms. Rather, the jurisdictional grant for refund suits is located elsewhere – at 28 U.S.C. sec. 1346(a)(1). The Supreme Court has held that the separation of a claims processing rule from a jurisdictional grant is evidence that Congress did not intend a claims processing rule to be jurisdictional.
The Gillespies do not respond to the government’s renewed argument that § 7422(a) is jurisdictional, though we note that the Supreme Court’s most recent discussion of § 7422(a) does not describe it in this manner, see United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5, 11-12 (2008). And other recent decisions by the Court construe similar prerequisites as claims-processing rules rather than jurisdictional requirements, see, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632-33 (2015) (concluding that administrative exhaustion requirement of Federal Tort Claims Act is not jurisdictional); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (concluding that Copyright Act’s registration requirement is not jurisdictional); Arbaugh v. Y & H Corp., 546 U.S. 500, 504 (2006) (concluding that statutory minimum of 50 workers for employer to be subject to Title VII of Civil Rights Act of 1964 is not jurisdictional). These developments may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional. See, e.g., United States v. Dalm, 494 U.S. 596, 601-02 (1990); Greene-Thapedi v. United States, 549 F.3d 530, 532-33 (7th Cir. 2008); Nick’s Cigarette City, Inc. v. United States, 531 F.3d 516, 520-21 (7th Cir. 2008).
Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016).
Title VII of the Civil Rights Act provides for private causes of action arising out of employment discrimination and gives federal courts subject matter jurisdiction to resolve such disputes. See 42 U.S.C. § 2000e-5(f). Before seeking judicial relief, however, Title VII plaintiffs are required to exhaust their administrative remedies by filing a charge of discrimination with the Equal Employment Opportunity Commission within 180 days of the alleged discrimination. 42 U.S.C. § 2000e-5(e)(1).
The Circuit courts are badly split over whether the exhaustion of administrative remedies requirement in Title VII is jurisdictional or merely a nonjurisdictional claim processing rule subject to waiver, forfeiture, estoppel, and equitable tolling. By the count of the Fifth Circuit in Davis, three Circuits take the position that the administrative filing requirement is jurisdictional, while eight (including the Fifth Circuit in Davis) find it a waivable nonjurisdictional claims processing rule.
In holding that the exhaustion requirement was not jurisdictional, the Fifth Circuit in Davis relied heavily on the Arbaugh case (cited in the above quote from Gillespie). It wrote: “Title VII’s administrative exhaustion requirement is not expressed in jurisdictional terms in the statute, see 42 U.S.C. § 2000e-5, and just as in Arbaugh, there is nothing in the statute to suggest that Congress intended for this requirement to be jurisdictional.” Davis, 893 F.3d at 306.
But for the complicating existence of the Dalm opinion, it is hard to imagine that if the Supreme Court holds the Title VII administrative exhaustion requirement nonjurisdictional (as most Circuits have), that § 7422(a)’s tax refund claim filing requirement could still be held jurisdictional.
PT readers know that Keith and I – through the Harvard clinic – have been arguing in a lot of cases that judicial filing deadlines in the tax area are no longer jurisdictional and are subject to equitable tolling under recent non-tax Supreme Court case law limiting the use of the term “jurisdictional” and expanding the use of equitable tolling. So far, we have lost on Tax Court innocent spouse and Collection Due Process filing deadlines; appellate cases on Tax Court deficiency and whistleblower awards jurisdiction deadlines are pending.
But, while I was still running a tax clinic at Cardozo School of Law, as an amicus, I helped persuade the Ninth Circuit to hold that the then-9-month filing deadline at section 6532(c) to bring a district court wrongful levy suit is not jurisdictional and is subject to equitable tolling. Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015). Relying both on the recent Supreme Court non-tax case law and Volpicelli, a district court has just held that the 2-year deadline at section 6532(a) to bring a district court or Court of Federal Claims tax refund suit is not jurisdictional and is subject to equitable tolling. Wagner v. United States, E.D. Wash. Docket No. 2:18-CV-76 (Nov. 16, 2018).
In November, 2014, the IRS sent a letter disallowing some of the refund. . . .
Specifically, the IRS indicated it was allowing only $839,999 of the claim, and disallowing the remainder because “we are unable able to verify the total amount of your withholding based on information provided by the Social Security Administration.” Id. The amount of the disallowed claim was $524,364.
Plaintiffs replied by letter on December 5, 2014, indicating they were requesting a formal Appeal to the findings and also requesting an oral hearing. . . . They also provided additional information regarding the requested refund.
This letter is your notice that we’ve partially disallowed your claim for credit for the period shown above. We allowed only $.00 of the claim. Id.
The letter also indicated that Plaintiffs were now going to owe interest and penalties. Although it did not explicitly say so in the letter, the determination of the $.00 allowance of the claim meant the IRS was also disallowing $839,999 of the refund claim that it has previously allowed as indicated in the November, 2014 letter. Because of this, Plaintiffs were now being assessed an outstanding liability of $859,557.84. As a result, the IRS took $335,871 from the 2014 refund and applied it to the 2012 tax liability since this amount had come from Plaintiffs’ request to forward the remainder of the 2012 refund claim to the next year’s tax bill.
In early 2018, the taxpayers filed suit seeking a refund of $839,999 – i.e., only part of the original overpayment shown on the return. The DOJ moved to dismiss the suit for lack of jurisdiction as untimely, arguing that the 2-year period in section 6532(a) to bring such a suit commenced when the IRS sent its first letter in November 2014.
Before applying the alternative holding of equitable tolling, the court examined whether the filing deadline was jurisdictional under recent non-tax Supreme Court case law summarized in United States v. Wong, 135 S. Ct. 1625 (2015) (finding the filing deadlines for Federal Court Claims Act suits in 28 U.S.C. § 2401(b) nonjurisdictional and subject to equitable tolling). In Wong, the Court held that filing deadlines are normally nonjurisdictional claims processing rules. Congress could, though, make such deadlines jurisdictional through a “clear statement” in the statute, but “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.” Id. at 1632.
The district court in Wagner also looked to Volpicelli – a Ninth Circuit opinion holding the then-9-month filing deadline in section 6532(c) to bring a district court wrongful levy suit nonjurisdictional and subject to equitable tolling. We blogged on Volpicelli numerous times in 2015: here, here, here, and here. Volpicelli had been decided a few months before Wong. The DOJ had asked for reconsideration of Volpicelli by the Ninth Circuit en banc, since Volpicelli disagreed with holdings of at least one other Circuit that were made prior to the 2004 change in the Supreme Court’s jurisprudence on jurisdiction. When the Ninth Circuit declined to hear the Volpicelli case en banc, and the Supreme Court shortly thereafter issued its opinion in Wong, apparently the Solicitor General lost interest in appealing Volpicelli to the Supreme Court, since it is hard to imagine the SG winning Volpicelli after losing Wong (where the statutory language appeared even more mandatory). In all the subsequent cases that Keith and I have been litigating, though, the DOJ always states that it still disagrees with Volpicelli.
First, Congress’ separation of the filing deadline in § 6532(a) from the waiver of sovereign immunity found in 28 U.S.C. § 1346(a)(1), as well as the placement of § 6532 in the Tax Code under subtitle of the Internal Revenue Code labeled “Procedure and Administration, is a strong indication that the time bar is not jurisdictional. Second, [unlike section 6511 discussed in United States v. Brockamp, 519 U.S. 347 (1997),] the time limitation is purely procedural and has no substantive impact on the amount of recovery. It speaks only to a claim’s timeliness and not to a court’s power. Third, the recovery of a wrongfully withheld refund is akin to the traditional common law torts of conversion. Fourth, the deadline set forth in § 6532(a) is not cast in jurisdictional terms and the language/text used does not have any jurisdictional significance. Finally, the text does not define a federal court’s jurisdiction over tort claims generally, does not address its authority to hear untimely suits, or in any way limit its usual equitable powers.
Although the DOJ will be hopping mad about the Wagner ruling, the DOJ will not be able to appeal it to the Ninth Circuit until the district court determines the amount, if any, of the appropriate refund. So, stay tuned.
Whether the section 6532(a) filing deadline is jurisdictional or subject to estoppel are two of the issues that are currently being litigated in the Second Circuit in Pfizer v. United States, Docket No. 17-2307. Oral argument was had in Pfizer on February 13, 2018, and an opinion could come out any day – though the court has alternative ways of deciding the case that might avoid addressing these issues. The Harvard clinic submitted an amicus brief in Pfizer arguing that the section 6532(a) filing deadline is not jurisdictional under recent non-tax Supreme Court case law. Our brief parallels the reasoning of the Wagner court. Here’s a link to our amicus brief. We have discussed Pfizer and its various issues in posts here, here, here, and here.
As we noted in our Pfizer brief, some Circuits have previously held the filing deadline in section 6532(a) to be jurisdictional. But they did so at a time before the Supreme Court in 2004 narrowed the use of the word “jurisdictional” generally to exclude filing deadlines and other “claims processing” rules. Compare Kaffenberger v. United States, 314 F.3d 944, 950-951 (8th Cir. 2003) (deadline jurisdictional); Marcinkowsky v. United States, 206 F.3d 1419, 1421-1422 (Fed. Cir. 2000) (same); RHI Holdings, Inc. v. United States, 142 F.3d 1459 (Fed. Cir. 1998) (same); with Miller v. United States, 500 F.2d 1007 (2d Cir. 1974) (deadline subject to estoppel). The Wagner opinion did not mention any of the pre-2004 Circuit court precedent, but decided the issue purely based on the recent Supreme Court case law that Volpicelli applied to section 6532(c) in 2015. Indeed, I think Wagner is the first opinion of any court to grapple, beyond speculation, with the impact of the recent Supreme Court case law on the nature of the section 6532(a) deadline. Certainly, no court of appeals has yet done so. Maybe the Second Circuit in Pfizer will be the first?

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 6015
 v. 
 § 6015
 § 6015
 § 7402
 § 7403
 v. 
 § 6015
 § 6015
 § 6015
 § 6015
 § 6015
 § 6015
 § 6015
 § 6015
 v. 
 § 6015
 § 6707
 § 1346
 § 1346
 § 6214
 v. 
 v. 
 v. 
 § 7422
 § 7422
 v. 
 v. 
 v. 
 v. 
 § 7422
 v. 
 v. 
 v. 
 v. 
 § 2000
 § 2000
 § 2000
 § 7422
 v. 
 v. 
 v. 
 § 2401
 § 6532
 § 1346
 § 6532
 v. 
 § 6532
 v. 
 v. 
 v. 
 v. 
 v.