A recent order in the case of Englemann v. Commissioner, Dk. No. 10528-20 shows the role Tax Court judges play in reviewing settlements. This case was brought to my attention by the ever observant Bob Kamman who laments the loss of the designated order practice of the Tax Court where we might have seen this order and might have gotten some further insight into what happened here.
The taxpayer and the IRS have reached a settlement regarding the amount of the deficiency. Ordinarily when that happens a grateful Tax Court receives the decision document signed by the parties and the judge assigned to the case, or the Chief Judge if no specific judge is assigned, signs the decision document thus ending the case. This seems like a routine way to resolve a case. Everyone agrees and everyone goes home happy (well maybe not exactly happy but satisfied with the outcome’s correctness.)
Here, the Tax Court rejects the settlement between the parties. The brief order from the Chief Judge states:
On April 27, 2021, the Court received from the parties in the above-docketed matter a Proposed Stipulated Decision purporting to resolve this litigation. However, review shows that the decision provides for a deficiency amount in excess of that set forth in the underlying notice of deficiency for the 2016 taxable year. Conversely, an increased deficiency does not appear to have been pled or otherwise stipulated in the record herein.
The premises considered, and for cause, it is
ORDERED that the Proposed Stipulated Decision, filed April 27, 2021, is hereby deemed stricken from the Court’s record in this case.
This may seem to the parties as a harsh rebuke but it is part of the Court’s role in a case. I am unsure if the order here qualifies as a “bounce” but Chief Counsel’s Office used to keep records of the number of bounces an office received – bounces being documents rejected by the court because something was wrong. Having a high bounce rate was not a good thing.
We don’t know why the taxpayer has agreed to a deficiency in an amount greater than the liability listed in the notice of deficiency. One assumes that the taxpayer could agree to a greater amount for many good reasons but the Tax Court will not allow this to happen until the parties, or presumably the IRS, files a formal motion with the Court seeking an increased deficiency in an amount equal to or greater than the amount in the stipulated decision and the Tax Court decides that it is okay for the IRS to seek an increased deficiency. This seems like a bit of overkill given that the parties have already signaled their agreement to the amount but this is the way the Tax Court plays it. Here, the Court appears to serve the role of officious policeman but most petitioners are pro se and perhaps the Court wants to make sure that the IRS is not taking petitioner for a ride and the action here keeps the signature of the judge in line with the governing statute.
The first sentence of section 6214(a) provides:
Jurisdiction as to increase of deficiency, additional amounts, or additions to the tax
Except as provided by section 7463, the Tax Court shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any additional amount, or any addition to the tax should be assessed, if claim therefor is asserted by the Secretary at or before the hearing or a rehearing.
While it may seem harsh to police the case in this way, the court is right in policing the settlement as a jurisdictional issue in the absence of a motion by the IRS to amend its answer and seek a larger deficiency.
The Tax Court has also policed a settlement where the court thought that the petition was filed late, but the IRS hadn’t mentioned the late filing. One case where that happened was Williams v. Commissioner, Docket No. 24954-17 (dated Jan. 26, 2018) In Williams, the IRS responded to the order by filing a motion to dismiss, which the Tax Court granted.
The Tax Court plays a similar role in many cases in which the IRS does not act but the Court decides on its own what must occur. The most common occurrence of the Court acting in this manner exists in cases in which the Court polices its jurisdiction. In briefs filed regarding the litigation over the jurisdictional nature of the statutes providing entry into the Tax Court, the Tax Clinic at the Legal Services Center at Harvard has commented on the role the Tax Court plays in deficiency cases and whether this is how we want to use judicial resources. In the amicus brief supporting the recently failed cert petition in the case of Northern California Small Business Assistants, Inc. v. Commissioner, cert denied May 6, 2021, the clinic wrote:
The Tax Court Needlessly Expends Considerable Judicial Resources Each Month Incorrectly Policing the Filing Deadline as a Jurisdictional Issue.
Many taxpayers might be affected by a ruling that the Tax Court’s deficiency jurisdiction filing deadline is not jurisdictional (whether or not the filing deadline is also subject to equitable tolling). In the fiscal year ended September 30, 2018, taxpayers filed 24,463 Tax Court petitions. IRS Data Book, 2018 at 62 (Table 27), available at www.irs.gov. These petitions were under about 20 different jurisdictions of the Tax Court. The Tax Court’s position is that the filing deadline of any petition in the Tax Court, under any of its jurisdictions, is a jurisdictional issue for the court. Tax Court Rule 13(c) (“In all cases, the jurisdiction of the Court also depends on the timely filing of a petition.”). (Parenthetically, the D.C. Circuit, which hears all appeals of Tax Court whistleblower actions under § 7623(b)(4), has overruled the Tax Court and held that the filing deadline for such an action is not jurisdictional and is subject to equitable tolling under current Supreme Court authority. Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019).)
Three jurisdictions of the Tax Court comprise the vast bulk of its petitions (deficiency, CDP, and innocent spouse), but it has long been the case that deficiency petitions make up the overwhelming majority of all petitions filed. Harold Dubroff & Brant Hellwig, “The United States Tax Court: An Historical Analysis” (2d Ed. 2014) at 909 (Appendix B). The Dubroff & Hellwig book is the semi-official history of the Tax Court, available at a link on the “History” page of the court’s website. “Over 75 percent of the petitioners who file with the Court are self-represented (pro se).” U.S. Tax Court Congressional Budget Justification Fiscal Year 2021 (Feb. 10, 2020) at 22, also available at a link on that “History” page.
Because the Tax Court does not publish statistics breaking down filings under each of its jurisdictions, and because that court also does not separately identify in statistics cases dismissed for lack of jurisdiction, in order to get a sense of how many cases in the court each year might be affected by a ruling on whether the deficiency petition filing deadline is jurisdictional, the Center reviewed, using the Tax Court’s DAWSON online system (available on the Tax Court’s website), 1% of a randomly-chosen sample of dockets filed during the fiscal year ended September 30, 2018. The year ended September 30, 2018 was chosen simply to allow likely enough time for jurisdictional issues to be raised and disposed of in all cases. The 245 dockets reviewed were numbers 10001-18 through 10245-18 (as to which petitions were filed between May 21 and 24, 2018, inclusive). Of those 245 dockets, 24 were not deficiency cases.3 Of the remaining 221 dockets that comprised deficiency cases, 38 (17% – i.e., 38/221) were dismissed for lack of jurisdiction. However, there were multiple grounds for the 38 dismissals for lack of jurisdiction:
| Number of Cases | Dismissal Reason |
| 25 | Failure to pay filing fee |
| 10 | Late filing |
| 1 | Failure to file proper amended petition |
| 1 | No original signature on petition |
| 1 | Tax paid before notice of deficiency issued |
In only one of the 10 dockets where the case was dismissed for late filing was there any suggestion of facts which might give rise to equitable tolling. In Lavery v. Commissioner, Docket No. 10026-18 (order dated Jul. 18, 2018), it appears that there may have been a timely filing in the wrong forum (i.e., a timely mailing to the IRS, instead of the Tax Court).
This review shows that floodgates would not open if equitable tolling were allowed to excuse the late filing of a modest number of deficiency petitions each year.
The greater practical effect of a ruling that the Tax Court’s deficiency suit filing deadline is not jurisdictional would be to benefit taxpayers where the IRS attorneys in the case either had omitted to notice the possible late filing of a petition or had deliberately decided not to argue that a petition was late and so forfeited or sought to waive the late filing argument. As this Court has noted, “[t]he expiration of a ‘jurisdictional’ deadline prevents the court from permitting or taking the action to which the statute attached the deadline. The prohibition is absolute. The parties cannot waive it, nor can a court extend that deadline for equitable reasons.” Dolan v. United States, 560 U.S. 605, 610 (2010) (citation omitted). In contrast, if a filing deadline is not jurisdictional, it is subject to forfeiture and waiver (whether or not it is subject to equitable tolling or estoppel).
Every month, the Tax Court dismisses multiple deficiency cases only because the filing deadline is currently treated as jurisdictional and so the Tax Court judges, sua sponte, police late filing. The court’s position that the filing deadline is jurisdictional necessitates that judges examine the files in every case for late filing – the judges not being able merely to rely on the IRS to raise all late filing issues. When a judge suspects that a petition in a particular case was filed late, but the IRS attorneys have made no argument to that effect, the judge issues an order to show cause why the case should not be dismissed for lack of jurisdiction. In November and December 2019 (typical recent pre-COVID-19 months), the Tax Court issued orders to show cause to dismiss deficiency petitions for untimely filing four and eight times, respectively.4 All 12 such taxpayers lost their chance to have their deficiencies litigated in the Tax Court only because the judges treated the filing deadline as jurisdictional. If, as the Center believes, the filing deadline is not jurisdictional, judges have been investing considerable resources over the years engaging in needless policing.
Judges do not merely police jurisdiction in the middle of a case, but also when a case settles. About once a month, some taxpayer and the IRS settle a case on the merits and submit to the Tax Court a proposed stipulated decision setting forth the amount of the deficiency, but the Tax Court judge refuses to sign the decision until the parties show cause why the case should not instead be dismissed for lack of jurisdiction on account of a late filing of the petition that the IRS had not noticed. (The decision in the Tax Court is analogous to the judgment in a district court case.) An example of a show cause order issued in this situation is that in Williams v. Commissioner, Docket No. 24954-17 (dated Jan. 26, 2018).
A further example of overuse of judicial resources is where the IRS agrees with the taxpayer that a petition was timely filed, but the Tax Court takes the time to conclude that the petition was not timely filed. For example, in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), rev’g T.C. Memo. 2015-188, the parties were initially in disagreement over whether a deficiency petition had been timely filed under the rules of § 7502. Section 7502 provides a timely-mailing-is-timely-filing rule applicable to Tax Court petitions. The initial dispute was about which provision of regulations under the Code section applied to the case. By the time the Tax Court wrote its opinion, however, the parties agreed that the petition was timely filed. However, the Tax Court disagreed and dismissed the petition for lack of jurisdiction as untimely. The Tax Court could not merely accept the IRS’ concession that the filing was timely because of the Tax Court’s position that the deficiency suit filing deadline is a jurisdictional issue.
In the Seventh Circuit, both parties again argued that the filing was timely. This led the judges at oral argument, sua sponte, to wonder whether they had to decide the § 7502 issue, since, if the filing deadline at § 6213(a) was not jurisdictional, the government was waiving any untimeliness argument, which was the government’s prerogative. The judges asked the attorneys for each side whether the filing deadline in § 6213(a) is jurisdictional under recent Supreme Court case law, but the attorneys did not know about such case law. Then, two of the judges gave their tentative views that the § 6213(a) filing deadline appeared not to be jurisdictional. See Marie Sapirie, “News Analysis: Will the Seventh Circuit Unsettle Tax Court Timing Rules?”, Tax Notes Today (Oct. 24, 2016) (“ ‘This appears to be a timing rule, but timing rules aren’t jurisdictional,’ [Judge] Easterbrook said. [Chief Judge] Wood observed that for at least the last decade, the Supreme Court has been telling courts not to ‘put everything in the jurisdictional box’ because many rules that may have previously been carelessly referred to as jurisdictional are really claims processing rules. ‘If it’s a claims processing rule, it’s just a fact. You can concede it. The world doesn’t come to an end, and the case goes on,’ Wood said.”). After the oral argument, the parties in Tilden submitted supplementary briefs on the issue of whether the § 6213(a) filing deadline is jurisdictional under current Supreme Court case law. The judges then changed their minds and, in their opinion, held the filing deadline jurisdictional and then proceeded to reverse the Tax Court on the § 7502 issue.
In sum, too much judicial time is being needlessly spent in policing late filing only because of the lower courts’ misunderstanding of how this Court’s presumption that filing deadlines are no longer jurisdictional applies to the deficiency filing deadline.
Of course, what the tax clinic describes as incorrect policing is not incorrect in the eyes of the Tax Court and other courts that have determined certain entry statutes to be jurisdictional in nature. Whether correct or incorrect, the Tax Court does look at documents in several settings to make sure those documents do what the Court thinks is allowed. When it views a document as going too far, it steps in even where the parties have not acted or have acted contrary to the “correct” action.