Our frequent guest blogger Carl Smith returns to the important topic of equitable tolling and how this week’s Supreme Court’s granting of cert in two non-tax cases may have significance for tax procedure. Les
In a post this past May called Supreme Court’s Likely Review Of Rulings Equitably Tolling FTCA Claims May Impact Tax Refund I noted that the Ninth Circuit last year had decided two cases involving the Federal Tort Claims Act that allowed the equitable tolling of that Act’s separate time periods in which to file administrative claims and bring district court suits. June v. U.S., 2013 U.S. App. LEXIS 25657 (9th Cir. 2013) (administrative claims) (Sup. Ct. Docket No. 13-1075), and Wong v. Beebe, 732 F.3d 1030 (9th Cir. 2013) (en banc) (suits) (Sup. Ct. Docket No. 13-1074). I also noted in detail the striking parallels between the procedures under the FTCA for filing administrative claims and bringing district court suits and those for filing tax refund administrative claims and bringing district court tax refund suits. The Solicitor General requested that the Supreme Court grant cert. in both Ninth Circuit cases to resolve Circuit splits concerning whether the FTCA time deadlines were jurisdictional or otherwise could not be equitably tolled. On the last day of its current Term, the Supreme Court just granted cert. in both cases.
The Supreme Court’s forthcoming ruling, next Term, in June on whether the FTCA period in which to file an administrative claim can be equitably tolled should have no effect on the similar tax refund administrative claim deadlines in section 6511(a), since the Supreme Court held in U.S. v. Brockamp, 519 U.S. 347 (1997), that the section 6511(a) periods may not be equitably tolled. But, the Supreme Court has never had a case involving whether the 2-year period at section 6532(a) in which to file a tax refund suit after claim disallowance can be equitably tolled. So, the Court’s ruling in Wong on whether the 6-month period after claim disallowance in which to file an FTCA suit in district court can be equitably tolled may have a huge impact on future rulings on whether the section 6532(a) period may be equitably tolled.
There is currently a long-standing split among the Circuits on whether the section 6532(a) period can be equitably tolled. Without being exhaustive on all the Circuits, the Federal Circuit has held the period is jurisdictional and can’t be tolled; RHI Holdings v. U.S., 142 F.3d 1459 (Fed. Cir. 1998); while the Second Circuit has held that the period can be tolled. Miller v. U.S., 500 F.2d 1007, 1010-1011 (2d Cir. 1974). Circuit Court opinions involving the section 6532(a) time period, though, predate case law from the Supreme Court over the last decade that has substantially reduced the number of “jurisdictional” time periods that can never be tolled and increased the number of non-tax, non-jurisdictional time periods that the Supreme Court has held can be equitably tolled under the presumption in favor of equitable tolling of non-jurisdictional time periods established by Irwin v. Dept. of Veterans Affairs, 498 U.S. 89 (1990). It was the recent Supreme Court case law that the Ninth Circuit cited in its 2013 FTCA rulings. See, e.g., Henderson v. Shinseki, 131 S. Ct. 1197 (2011), rev’g 589 F.3d 1201 (Fed. Cir. 2009) (en banc), where the Supreme Court reversed the Federal Circuit’s holding that a time period in which a veteran had to file a suit in an Article I veteran’s court was a non-tollable “jurisdictional” time limit. In Henderson, the Supreme Court, before finding the time limit non-jurisdictional, wrote:
Among the types of rules that should not be described as jurisdictional are what we have called “claim-processing rules.” These are rules that seek to promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times. Filing deadlines, such as the 120-day filing deadline at issue here, are quintessential claim-processing rules. Accordingly, if we were simply to apply the strict definition of jurisdiction that we have recommended in our recent cases [i.e., limiting the word generally to subject-matter or personal jurisdiction], we would reverse the decision of the Federal Circuit, and this opinion could end at this point. Unfortunately, the question before us is not quite that simple because Congress is free to attach the conditions that go with the jurisdictional label to a rule that we would prefer to call a claim-processing rule. The question here, therefore, is whether Congress mandated that the 120-day deadline be “jurisdictional.” In Arbaugh [v. Y & H Corp., 540 U.S. 500, 515-516 (2006)], we applied a “readily administrable bright line” rule for deciding such questions. Under Arbaugh, we look to see if there is any “clear” indication that Congress wanted the rule to be “jurisdictional.” [Henderson v. Shinseki, 131 U.S. at 1203]
In Henderson, the placement of the jurisdictional grant in a different section of the U.S. Code from the filing time limit was held a strong indication that Congress did not want the time limit to be jurisdictional. Of course, the jurisdictional grant for district court tax refund suits at 28 U.S.C. section 1346(a)(1) is also separate from the time limit at IRC section 6532(a).
In my view, the recent Supreme Court case law has, as well, undermined nearly every other reason cited by the Federal Circuit in RHI Holdings (and other reasons cited in other cases in other courts who have not allowed equitable tolling) for the proposition that the 6532(a) time period can’t be tolled. And so I see no reason why the Irwin presumption in favor of tolling shouldn’t lead to section 6532(a)’s 2-year time period being subject to equitable tolling.
Quite fortuitously, on June 5, 2014, the Court of Federal Claims decided a case involving whether the section 6532(a) period to bring a tax refund suit is subject to equitable tolling. Palm v US., 2014 U.S. Claims LEXIS 500. Here are the facts and holding of Palm:
In 2009, the IRS issued a Letter 1153 to Mr. Palm proposing to assess against him section 6672 responsible person penalties for periods spanning all or parts of three calendar years with respect to a business that he co-owned. Mr. Palm ignored the letter (bad move), so the IRS then assessed the penalties against him and sent him a notice of intention to levy for the penalties. Mr. Palm tried to contest his liability for the penalties in a Collection Due Process proceeding, but the Settlement Officer rightly concluded that Mr. Palm was precluded from challenging the penalties in the CDP hearing because he had had a prior opportunity to go to Appeals under the Letter 1153. In response to the SO’s notice of determination, in May 2010, Mr. Palm timely petitioned the Tax Court. The Tax Court gave Mr. Palm a number of continuances to offer him an opportunity to try to get administrative review of the underlying penalties before the Tax Court ruled on whether levies could go forward. During those continuances, Mr. Palm apparently paid some amounts of the penalties for all but one quarter, and he filed Form 843 refund claims for return of the money paid in each quarter. On April 18, 2011, the IRS denied the refund claims.
Section 6532(a) provides that a refund suit must be brought within 2 years of a claim’s disallowance. It also provides that any reconsideration of the claim by the Appeals Office during the 2-year period does not extend the 2-year period. The IRS recited these rules in its April 18, 2011 claim denial letter. Mr. Palm then sought reconsideration in Appeals. That reconsideration was denied in a claim denial letter from an Appeals Officer dated November 29, 2011. Unfortunately, the denial letter again contained (erroneous) language telling Mr. Palm that he could file a refund suit within two years after the date of this letter — i.e., before November 29, 2013. On May 9, 2012, the IRS attorney in the Tax Court case sent a letter to Mr. Palm also erroneously telling him he could bring his refund suit within two years of the Appeals refund denial letter.
On May 17, 2013 (just over two years after the refund claim was first disallowed), Tax Court Judge Buch issued a bench opinion upholding the notice of determination. (See here for the opinion). Rather than appeal the CDP Tax Court case (which would have been futile) — and misled by the most recent two letters — on November 13, 2013, Mr. Palm, acting pro se, filed a refund suit in the Court of Federal Claims. That date was untimely if the two years is counted from the first refund denial letter, but timely if the IRS is estopped by the erroneous statements of both the IRS Appeals Officer and IRS lawyer in their letters.
In the Court of Federal Claims opinion, Judge Damich noted that he was bound by the holding of the Federal Circuit in RHI Holdings that the section 6532(a) 2-year period was “jurisdictional” and cannot be tolled for equitable reasons. But he expressed considerable unhappiness at the IRS’ misleading actions and noted that similar erroneous denial letters have been sent by Appeals Officers after reconsideration in other cases. He wrote:
The Court sympathizes with Plaintiff’s plight in this case, but it must follow the clear language of the statutes and the regulation. Nevertheless, the Court’s decision does not detract from the fact that Plaintiff was misled (albeit unintentionally) both by the boiler-plate language of the Second Notice and —worse— by the statement of Senior Attorney Zoss, who should have been more circumspect. Inexplicably, the IRS continues to use misleading language in its Notices of Disallowance after appeal, even after the Orlando case highlighted the problem some four years ago. If the IRS will not address this problem, perhaps it is time to bring this issue to the attention of the U.S. Congress.
While it may be time for the IRS and Taxpayer Advocate to address this situation at Appeals, that would not solve all problems (e.g., the IRS lawyer’s letter). The true solution for this and other equitable situations may be taking the Palm case or some similar case up the ladder of the courts to see if the Supreme Court will hold that, unlike the section 6511(a) period to file a tax refund administrative claim, the section 6532(a) period in which to file a tax refund lawsuit is subject to equitable tolling. Unfortunately, I am not sure that Mr. Palm has met all other jurisdictional requirements to bring the suit (i.e., involving payment) or has a good enough case on the merits that I would recommend investing further time and money in making his case a test case.