Frequent guest blogger Carl Smith writes today about a case in which he and I seek to argue that equitable tolling applies to the time frame for filing innocent spouse cases in Tax Court. If you happen to have an innocent spouse or Collection Due Process case dismissed recently for lack of jurisdiction where the taxpayer had good reason for missing the time frame within which to file, please let us know. Keith
I know that some of you think I only care about equitable tolling in the Tax Code. I don’t. But, it is one of the few areas of tax procedure where the courts created the problem and so are the ones who should fix it. In United States v. Brockamp, the Supreme Court held that the section 6511 periods in which to file tax refund claims are not subject to the judicial doctrine of equitable tolling. Through enactment of section 6511(h) (tolling the statute of limitations in cases of financial disability), Congress overruled Brockamp for the limited circumstances involved therein.
Since then, the government has consistently argued that Brockamp requires that there be no equitable tolling anywhere in the Tax Code.
As to time periods in which to file certain recent-jurisdiction Tax Court petitions (but not the original section 6213(a) deficiency jurisdiction time period), Keith and I would like to ask the Tax Court to reconsider and overrule its precedents on jurisdiction and equitable tolling. This is to inform you that Keith and I have just done so — as new pro bono counsel of record — in a stand-alone innocent spouse case brought in Tax Court under section 6015(e), Matuszak v. Commissioner, Docket No. 471-15. A copy of the December 29, 2015 order of dismissal entered by Judge Marvel in the case is here. A link to our January 22, 2016 memorandum of law in support of a motion to vacate that order is found in two parts here and here. Keith and I argue that the 90-day period at section 6015(e)(1)(A) in which to file a stand-alone innocent spouse petition is not jurisdictional and is subject to equitable tolling. And we ask the Tax Court to reconsider and overrule its contrary precedent as to this particular time period in Pollock v. Commissioner because the reasoning of Pollock has been undermined by five subsequent Supreme Court opinions: Holland v. Florida; Henderson v. Shinseki; Gonzalez v. Thaler: Sebelius v. Auburn Regional Med. Cntr.; and United States v. Wong. (Another opinion issued on January 25, 2016, by the Supreme Court, Musacchio v. United States,also undermines Pollock.)
Last year, as an amicus, I helped obtain a ruling from the Ninth Circuit in the case of Volpicelli v. United States that, under current Supreme Court case law, the 9-month period in section 6532(c) in which to file a wrongful levy suit in district court is not jurisdictional and is subject to equitable tolling. The government vigorously disagrees with that opinion, but decided not to ask the Supreme Court to review it (despite a split with older opinions from other Circuits). See posts on Volpicelli here and here.
In recent posts here and here, PT made you aware that in November, Keith and I, on behalf of the Harvard Federal Tax Clinic, filed an amicus memorandum of law in the Tax Court case of Guralnik v. Commissioner, in which we make the argument that the 30-day period in section 6330(d)(1) in which to file a Collection Due Process (CDP) petition in the Tax Court is not jurisdictional and is subject to equitable tolling. For those interested, as an update, here is a link to the IRS’ January 6, 2016 response to our memorandum. Suffice it to say that the IRS argues that we grossly exaggerate the impact of the recent non-tax Supreme Court opinions on these topics. But, that’s what the government unsuccessfully argued in Volpicelli, too.
I have been using the Tax Court’s order search function to read all recent orders of the Tax Court citing either section 6015 or 6330. From doing that reading, and ordering copies of documents from the Tax Court in cases suggesting that the taxpayers might have had an equitable tolling argument for a late filing, I have located a small number of cases that might be used as test cases. When the order issued in Matuszak on December 29, 2015, this seemed like a promising test case.
Matuszak Facts
Craig Matuszak had a successful career going in the telecommunications business. But, things went off the rails when his employer accused him and other employees of theft. The theft was accomplished by making the employer pay third-party invoices for work never done and pocketing the money sent to pay those invoices. The alleged conduct happened in 2007 and 2008, years in which Craig and his wife Linda filed joint returns that, of course, did not report any money that Craig stole as income.
On August 8, 2012, Craig was charged in federal district court both with wire fraud and filing a false 2007 income tax return in violation of section 7602(2). The date the information was filed, Craig pled guilty, since he and his criminal lawyer had negotiated the exact amount of the tax deficiencies for 2007 and 2008 with the federal government in advance. Under the plea deal, Craig and Linda forfeited the primary residence that they had been building in 2007 and 2008 (and completed in 2009) and two automobiles. The primary residence was their only house and major asset. Since January 2014, Craig has been incarcerated, and he is not expected to be released until 2017 at the earliest. If you have access to PACER you can find out more about his case at United States v. Craig Matuszak, N.D.N.Y., Docket No. 1:12-cr-359.
On August 28, 2012, Craig brought a Form 4549 for 2007 and 2008 to Linda, and told her that she needed to sign the form for his plea deal to go through and that she would not be liable for the tax deficiencies shown thereon ($333,964 for 2007 and $105,055 for 2008) beyond the forfeited assets. Late in 2009, Craig had told Linda that he was under criminal investigation for something he did at work, but he minimized the investigation and did not even let Linda go to his plea entry hearing. So, in August 2012, she was rather shocked to hear that, essentially, the Matuszaks would lose all their assets because of the plea and owe additional unpaid taxes. She was not aware at that date that Craig had ever received any unreported income. Even today, she doesn’t know what happened with the money Craig now concedes that he took from his employer. But, taking her husband’s assurances that she would not be liable for anything more, Linda signed the Form 4549, and the IRS assessed the taxes shown thereon and sent both spouses bills seeking payment.
After Craig was incarcerated and Linda was reduced to renting a place to live in, she filed a Form 8857 covering the 2007 and 2008 liabilities. With no fuss, CCISO granted Linda complete section 6015 relief for 2008. (Since 2001, Linda has been disabled, and her sole source of income has been Social Security disability.) But, there was a problem with 2007.
Prior Deficiency Case
In 2010, the IRS had begun a routine audit of some unreimbursed employee business expense deductions claimed by Craig on the Schedule A of the 2007 joint return. In September 2010, the IRS sent a notice of deficiency disallowing most of the deductions and asserting a deficiency of $9,260. Linda had asked Craig if this IRS audit had anything to do with the criminal investigation that was going on. Craig (probably correctly) said, “no”.
Acting pro se, Craig and Linda jointly prepared and filed a Tax Court petition contesting the notice. At this point, Craig was still employed (by a different employer) and the Matuszaks were fairly well off, so Linda had no reason to think that, even if the deductions were wrong, the couple couldn’t afford to pay them. As a result, the petition (given Docket No. 27407-10) did not include a request for section 6015 relief.
When the IRS attorney who was about to prepare the answer in the case searched a database, she discovered a criminal investigation regarding Craig that included the year 2007. So, rather than file an answer, she successfully moved the Tax Court to stay all proceedings in the deficiency case pending resolution of the criminal proceedings. Nothing happened in the deficiency case – other than periodic reports filed by the IRS attorney – until the IRS attorney prepared and sent to the Matuszaks a stipulated decision that showed the $333,964 deficiency for 2007 that appeared in the Form 4549 that both spouses had already signed. Linda co-signed the stipulated decision, again on Craig’s assurances that she wouldn’t owe the tax shown thereon.
During the entire deficiency case, Linda never spoke to the IRS attorney – even failing to respond to voicemail messages from the attorney asking Linda’s position on IRS motions and the status reports prepared by the IRS attorney. Linda was afraid of messing up Craig’s criminal case if she said something wrong to the IRS attorney in the deficiency case.
Current Innocent Spouse Case
CCISO denied Linda’s request for section 6015 relief for 2007 simply on the grounds of res judicata – that Linda could have, but did not, raise section 6015 relief in the deficiency case. CCISO ruled that Linda was not entitled to the statutory exception to res judicata found at section 6015(g)(2) because, it said, Linda had “participated meaningfully” in the deficiency case.
Linda took her disallowance to Appeals, which upheld the CCISO ruling and issued a notice of determination denying relief on October 7, 2014. Linda was concerned that she timely file a Tax Court petition, so she spoke twice to the Appeals Officer (AO) about the final date by which the petition needed to be mailed to the Tax Court. Linda has contemporaneous notes in three places regarding the two phone conversations she had with the AO that seem to corroborate Linda’s story that the AO told Linda the final date to file was January 7, 2015. In fact, the final date was January 5, 2015. Linda thought she mailed her petition a day early when she mailed it out on January 6, 2015. But, in fact, she mailed her petition a day late.
You may be wondering why Linda did not go to a tax clinic to get help with filing, since, of course, at that point, she could not afford to hire an attorney. Well, Linda lives far upstate in New York, not near any New York City clinic. And the closest clinic, in Albany, could not help her, since its intake procedures prohibited taking cases involving more than $50,000 of tax. Linda went to her local library to research her case. Linda’s research and frequent migraine headaches were among the reasons why she took so long to file the petition.
After Linda filed the section 6015(e) petition, the IRS attorney filed an answer and then went out on maternity leave. A second IRS attorney who was assigned the case after it was noticed for trial before Judge Marvel (on February 1, 2016 in New York City) noticed the late filing issue. Because jurisdictional issues can be raised at any time (unlike statute of limitation issues, which should be raised in the answer), the second IRS attorney then moved to dismiss the case for lack of jurisdiction.
On December 29, 2015, Judge Marvel dismissed the petition, pointing out that Tax Court precedent is that its filing dates in that court cannot be extended. While sympathetic, Judge Marvel said there was nothing that she could do if Linda was misled by the AO into filing a day late.
Keith and I read the order and decided to contact Linda and offer our services, pro bono, to try to get the Tax Court to overturn its precedent that the section 6015(e)(1)(A) 90-day period in which to file a Tax Court innocent spouse petition is jurisdictional and not subject to equitable tolling. We have asked the court to rule that the time period is not jurisdictional, but is merely a period of limitations subject to equitable tolling in the right circumstances. We have also asked the court to take back jurisdiction in the case and then invite the IRS, if it chooses, to file a motion for leave to amend its answer to plead non-compliance with the period of limitations. Under Rule 39, both the statute of limitations and estoppel are special issues that must be set forth in a party’s pleadings. If the IRS does plead the statute of limitations, Linda, in turn, will plead estoppel as a result of the AO’s statements as to the filing date – estoppel being one of the usual grounds giving rise to equitable tolling.
Frankly, an example in the proposed section 6015 regulations seems to exactly cover Linda’s case on the res judicata issue, so that if the Tax Court takes back jurisdiction and the IRS does not raise (or raises, but loses) the statute of limitations issue, I would expect the IRS to concede the case on the merits. Example 5 of Proposed Reg. 1.6015-1(e)(4) (proposed on November 20, 2015) states:
“In March 2014, the IRS issued a notice of deficiency to H and W determining a deficiency on H and W’s joint income tax return for tax year 2011. H and W timely filed a pro se petition in the United States Tax Court for redetermination of the deficiency. W signed the petition, but otherwise, H handled the entire litigation, from discussing the case with the IRS Chief Counsel attorney to agreeing to a settlement of the case. Relief under section 6015 was never raised. W signed the decision document that H had agreed to with the IRS Chief Counsel attorney. If W were to later file a claim requesting relief under section 6015, W’s claim would not be barred by res judicata. Considering these facts and circumstances, W’s involvement in the prior court proceeding regarding the deficiency did not rise to the level of meaningful participation. [REG-134219-08, 2015-49 I.R.B. 842, 851]”
If this proposed regulation had been on the books when CCISO reviewed Linda’s Form 8857, I don’t believe that CCISO would have even asserted that Linda’s limited participation in the deficiency case caused res judicata to apply to her request for innocent spouse relief.
In a future post in March, Keith and I will report on another CDP case (i.e., beyond Guralnik) in which we will hopefully be arguing as amicus – this time in a pending pro se Ninth Circuit appeal – that the 30-day period in section 6330(d)(1) in which to file a CDP petition in the Tax Court is not jurisdictional and is subject to equitable tolling. Stay tuned.