I am somewhat remiss in not writing sooner about the Supreme Court’s decision in Boechler, P.C. v. Commissioner, 142 S.Ct. 1493 (April 21, 2022).  It may be the most significant procedural tax case in recent years, addressing whether time deadlines in the Internal Revenue Code (in this case the deadline for filing a collection due process (CDP) petition) are jurisdictional.  To get to the punchline, the deadline for filing a CDP petition is not jurisdictional.  Keith Fogg at Procedurally Taxing, posted a series of informative blogs about Boechler and its potential ramifications in the weeks following issuance of the Supreme Court’s opinion.  You may want to read his take on the opinion.  I’ll give you my take.

 The facts in this case are simple.  Boechler, P.C., is a Fargo, North Dakota law firm. The IRS assessed an intentional disregard penalty against Boechler.  Subsequently, the IRS issued a CDP levy notice.  Boechler made a timely request for a hearing with the Office of Appeals.  Appeals issued a determination sustaining the IRS’s proposed levy action.   Boechler had 30 days within which to petition the Tax Court for review of the determination.  It filed its petition one day late.  The Tax Court dismissed the petition for lack of jurisdiction and the Eighth Circuit affirmed.  967 F.3d 760 (2020).  This deepened a circuit split over the question of whether the CDP statute’s deadline for petitioning the Tax Court was jurisdictional.  Compare Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018) (deadline is jurisdictional) with Myers v. Commissioner, 928 F.3d 1025 (D.C. Cir. 2019) (deadline is not jurisdictional).  The Supreme Court granted certiorari to resolve the circuit split.

Deadlines to sue the United States are viewed as a condition to the waiver of sovereign immunity.  As such, courts have traditionally held such waivers to be jurisdictional.  As a result, if a suit against the United States or a federal agency was filed late, the court had no jurisdiction and the case had to be dismissed.  This began to change with the Supreme Court’s decision in Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990), where the Court held that (i) there was a rebuttable presumption that deadlines to sue the government can be equitably tolled, (ii) the deadline for bringing suit against the Department was subject to equitable tolling, (iii) that equitable relief, such as equitable tolling, was only applied sparingly, and (iv) the petitioner did not fall within the narrow category of cases where equitable tolling applied.

Beginning in the early 2000s, the Court began addressing the question of whether deadlines in a host of statutes for suing the Government were jurisdictional.  If they were, equitable tolling, waiver, and similar concepts would not apply.  The Court fashioned a rule that statutory deadlines are presumptively not jurisdictional and are subject to equitable tolling unless Congress has made a clear statement that the deadline is jurisdictional.   United States v. Kwai Fun Wong, 575 U.S. 402, 409 (2015).  Absent such a clear statement, courts are to treat the deadline as not jurisdictional.  Sibelius v. Auburn Re’l Med. Center, 568 U.S. 145, 153 (2012).

It was against the backdrop of this line of cases that the Supreme Court considered whether the 30-day deadline for filing a CDP petition is jurisdictional and, if it is, whether it is subject to equitable tolling.  If the deadline was jurisdictional, it could not be waived, it could be raised at any time, including by the court sua sponte, and was not subject to equitable exceptions.  A procedural requirement is treated as jurisdictional “only if Congress ‘clearly states’ that it is.”  A clear statement does not require the use of magic words.  Instead, the courts are to apply traditional rules of statutory construction to determine whether a filing deadline or other procedural requirement is jurisdictional.  The statutory language in question, IRC sec. 6330(d)(1), reads:

The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).

The narrow question was to what did the parenthetical phrase apply?  Did “such matter” refer to the phrase “petition the Tax Court for review of such determination,” as Boechler argued, or did it refer to the entire portion preceding the parenthetical, as the Commissioner argued.  The Court stated that the statutory language did not clearly mandate the jurisdictional meaning, since there was no obvious antecedent for the phrase “such matter.”  The phrase “such matter” could refer to more than just “petition” or the entire portion of the sentence preceding the parenthetical.  It could refer to Appeals’ determination or the list of “matters” that can be considered in a CDP hearing, neither of which would make the filing deadline jurisdictional.  The Court pointed out that other sections of the Code, such as sec. 6404(g)(1) (interest abatement) and sec. 6015(e) (innocent spouse relief), clearly tie the Tax Court’s jurisdiction to the taxpayer meeting a filing deadline.  This was not the case here.

The Court acknowledged that the Commissioner’s interpretation was plausible, but this was not enough to make the filing deadline clearly jurisdictional.  “To satisfy the clear statement rule, the jurisdictional condition must be just that: clear.”  The Commissioner’s interpretation was not “clear.”  It was not enough that the jurisdictional grant and the filing deadline appear in the same sentence.  Proximity of the grant of jurisdiction and the filing deadline is not enough because “the important feature is the one that is missing here: a clear tie between the deadline and the jurisdictional grant.”

The Commissioner pointed to sec. 6330(e)(1), which gives the Tax Court jurisdiction to enjoin a levy or other collection proceeding only if “a timely petition has been filed under subsection (d)(1).”  According to the Court, this provision may make the Commissioner’s argument better, but his “interpretation must be not only better, but clear.”  Again, it was not clear that sec. 6330(d)(1)’s filing deadline was jurisdictional.

The Commissioner’s final and “weakest” argument was that when sec. 6330 was enacted, lower courts had consistently interpreted the analogous deficiency petition provisions of sec. 6213(a) as jurisdictional.  The problems with this argument were that (i) the cases all predated the Supreme Court’s campaign “to bring discipline” to use of the term “jurisdictional” and (ii) none were Supreme Court cases.

Nonjurisdictional limitations are presumptively subject to equitable tolling and there was nothing that would rebut the presumption that the filing deadline of sec. 6330(d)(1) was subject to equitable tolling.  Sec. 6330 was easily distinguishable from the deadline for filing a refund claim under sec. 6511, which the Court in United States v. Brockamp, 514 U.S. 347 (1997), held was not subject to equitable tolling.  Sec. 6511 repeated the deadline for filing refund claims several times and contained a detailed list of six exceptions to the filing deadline.  This indicated that there were no implied exceptions.  Sec. 6330, on the other hand, contained only one statutory exception and played a far more limited role in the tax assessment and collection process.

The Court remanded the case for further proceedings, i.e., to determine whether equitable tolling applied in Boechler’s case.

The Court’s discussion of sec. 6213(a) raises the question whether the 90 (or 150) day deadline for filing a petition to redetermine a deficiency is jurisdictional.  Prior to Boechler, the Tax Court and all Courts of Appeal that considered the issue, held that it was jurisdictional.  Most recently, the Ninth Circuit in Organic Cannabis Foundation, LLC v. Commissioner, 962 F.3d 1082, rehearing den. 2020 U.S. App. LEXIS 27583 (2020), rejected the argument that under the Supreme Court’s recent line of cases on filing deadlines the deadline for filing a Tax Court petition was not jurisdictional.  I believe this decision was wrong.

The language of sec. 6213(a) does not contain a “clear statement” that the deadline is jurisdictional.  There are five sentences in that subsection.  The first sentence provides that a taxpayer “may” file a petition during the 90-day period following the issuance of a notice of deficiency.  The second sentence states that the IRS may not assess or collect a deficiency unless a notice of deficiency has been mailed to the taxpayer, and the IRS may not assess or collect a deficiency during the 90-day filing period or while a Tax Court proceeding is pending. The third sentence states a taxpayer may sue to enjoin improper assessment or collection of a deficiency. The fourth sentence states the Tax Court lacks jurisdiction to enjoin a proceeding or order a refund unless a petition is timely filed. Finally, the fifth sentence states any petition filed with the Tax Court on or before the last day specified for filing by the IRS in the notice of deficiency shall be treated as timely filed. 

The provision granting the Tax Court jurisdiction over a petition challenging a notice of deficiency is in sec. 6214(a), which states:

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.

This section does not tie the Tax Court’s jurisdiction to a timely filed petition.  Nor does the fourth sentence of sec. 6213(a) make the filing of a petition within 90-days of the notice of deficiency jurisdictional.  If the court holds that the deadline was equitably tolled, or that the Commissioner waived the defense that the petition was untimely, it is timely and the Tax Court would have jurisdiction to enjoin collection or order a refund.

As Keith Fogg pointed out in one of his blog posts, treating the filing deadline in sec. 6213(a) as not jurisdictional will not impose any additional work on either the Tax Court or IRS Counsel.  Currently if the Tax Court sua sponte raises the issue of whether a petition was timely, or if the Commissioner moves to dismiss because the petition was not timely, the taxpayer is given an opportunity to respond.  If the taxpayer establishes that the petition was filed timely, the petition will not be dismissed.  If the deadline is not jurisdictional, unless the taxpayer establishes that either (a) the petition was filed within the 90-day period or (b) grounds exist for tolling the deadline, the petition will be dismissed. 

The Tax Court will soon address whether sec. 6213(a)’s filing deadline is jurisdictional in Hallmark Research Collective v. Commissioner, Docket No. 21284-21, where on May 2, 2022, the taxpayer filed a motion to vacate an order dismissing its petition for lack of jurisdiction.  The Tax Court has ordered the Commissioner to respond to the motion by June 23, 2022, and the taxpayer to reply by July 22, 20122.  Judge Gustafson is assigned to rule on the motion.

Other provisions of the Code will be impacted by the Boechler decision.  The deadlines for filing suits for refund of tax under sec. 7422 and suits for wrongful levy under sec. 7426 are contained in sec. 6532, which does not mention jurisdiction and nothing in either sec. 7422 or 7426 refers to the period for filing suit contained in sec. 6532.  Other sections include sec. 6234 (judicial review of BBA partnership adjustments), former sec. 6226 (judicial review of TEFRA partnership adjustments), sec. 7428 (declaratory judgment action to determine status as a sec. 501(c)(3) organization), sec. 7429 (judicial review of jeopardy and termination assessments), sec. 7431 (action for illegal disclosure or return information), and sec. 7436 (proceeding to determine employment status).  Many of these sections do not have any language in them tying jurisdiction to the time for filing an action. 

Both IRS counsel and DOJ Tax Division attorneys have been trained to view the filing deadlines for judicial proceedings against the Government as jurisdictional.  If a plaintiff (in district court or Court of Federal Claims) or a petitioner in a Tax Court proceeding did not file the complaint or petition by the statutory due date, the attorney would file a motion to dismiss for lack of jurisdiction and the court would dismiss the case.  This could be done at any time during the case, even while an appeal was pending.  In United States v. Brockamp, 519 U.S. 347 (1997), the Court held that the time period for filing a claim for refund with the IRS was jurisdictional, based upon an analysis of the language of Code sec. 6511.  We can anticipate that the IRS in Tax Court and DOJ in district courts, the Court of Federal Claims and courts of appeal will argue that Boechler is inapplicable to cases brought under provisions of the Code other than sec. 6330.  Whether the courts will reject such arguments remains to be seen, but Boechler demonstrates that the Supreme Court is “not inclined to carve out an approach … good for tax law only.”  Mayo Foundation v. United States, 562 U.S. 44, 55 (2011).  Get used to it.

Robert S. Horwitz is a Principal at Hochman Salkin Toscher Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division.  He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending clients in criminal tax investigations and prosecutions. Additional information is available at www.taxlitigator.com.

Evan Davis represents a law firm in a cutting-edge dispute about whether communications with a lawyer for both legal advice and other reasons are protected by the attorney client privilege.  This is the second legal privilege case that Evan has handled in the trial court and on appeal in the Ninth Circuit, and the present case is being considered by the U.S. Supreme Court as there are now different tests applied in three judicial circuits. 

The U.S. Chamber of Commerce and legal groups recently weighed in to support Evan’s brief, and urged the U.S. Supreme Court to find Evan’s client’s (a tax law firm) communications are protected by attorney-client privilege and that the Ninth Circuit ruling to the contrary risks eroding the bedrock legal principle.

The Chamber of Commerce, the California Lawyers Association, and the Washington Legal Foundation, “told the justices in amicus briefs that they should wade into the dispute over the applicability of attorney-client privileges to client communications involving both legal and nonlegal advice.”

“Evan J. Davis of Hochman Salkin Toscher Perez PC, told Law360 on Wednesday that the amicus briefs effectively addressed the practical ramifications of the Ninth Circuit decision. He’s hopeful that the justices will take on the case, he added.”

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We are pleased to announce that Michel Stein along with William Abrams, Mark Pariser, and Michael Hacia will be speaking at the upcoming CalCPA Entertainment Industry Conference on “What Everyone Should Know About California Residency” on Tuesday, June 21, 2022, 8:35 a.m. – 9:35 a.m. (PST).

Click Here for more information.

We are pleased to announce that Michel Stein along with Phillip Colasanto, Caroline Ciraolo, and Daniel Price will be speaking at the upcoming NYU 14th Annual Tax Controversy Forum on “Coming in From the Cold: The Future of Voluntary Disclosures” on Friday, June 24, 2022, 2:45 p.m. – 3:45 p.m. (EST).

For more than 70 years, the IRS has maintained a voluntary disclosure policy designed to encourage taxpayers to come in from the cold and self-report noncompliance. In 2018, the voluntary disclosure program was updated to provide new procedures. In its most recent annual report, the Taxpayer Advocate Service noted that the new procedures are substantially more onerous and uncertain than the old procedures, and may actually discourage taxpayers from stepping forward to self-disclose. This panel will discuss the latest voluntary disclosure developments, including the application of the updated program to cryptocurrency, and provide suggestions on how practitioners should advise their clients to make the best use of the new voluntary disclosure procedures. 

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We are pleased to announce that Sandra Brown will be speaking at the upcoming NACDL’s 2022 West Coast White Collar Conference seminar, “Only Two Things Are Certain and This Isn’t About Death: Defending Criminal Tax Cases” on Friday, June 17, 2022, 10:30 a.m. (PST) at the Kona Kai Resort & Spa, San Diego.

The panel will provide an introduction to criminal tax laws and procedures as well as discuss the various crimes “arising under” the tax laws, the unique regulations governing the investigation and prosecution of these crimes, and the federal agencies and components involved. Learn from a group of former distinguished, government tax prosecutors how criminal tax cases tend to originate, their typical life cycles, and the opportunities for advocacy by defense counsel along the way, the types of evidence the government tends to assemble, common defenses, and potential collateral consequences involved in such cases.

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We are pleased to announce that Robert Horwitz, Cory Stigile and Jonathan Kalinski will be speaking at the upcoming Strafford webinar, “Partnership Losses in Excess of Basis: Preparing for the IRS’ New Audit Campaign” on Wednesday, June 15, 2022, 10:00 a.m. – 11:50 a.m. (PST).

This webinar will prepare pass-through advisors to withstand IRS challenges to partners’ basis calculations. Our panel of federal tax experts will guide partners and tax professionals through the calculations necessary to determine a partner’s basis in a partnership, the IRS examination, and handling prior period capital account errors.

In February 2022, the IRS announced its latest partnership campaign would include audits of partners’ deductions of flow-through losses from partnerships. The Service believes that partners are deducting losses in excess of basis rather than suspending these losses when required. Although new, this action is not unanticipated. The IRS has heightened its ability to track partners’ capital by implementing requirements to report negative tax basis capital in 2019, all partners’ capital accounts beginning in 2020, and added disclosures for Section 704(c) built-in gains and losses. The IRS is using data analytics to identify partnerships that are most likely noncompliant.

Practitioners who have been scrambling to meet these added reporting requirements now must prepare to defend these positions and calculations reported. Determining a partner’s outside basis, including whether tax basis capital has been appropriately captured and a partners’ share of liabilities, is complicated. Recent reporting rules have led to the discovery of allocation errors.

Pass-through entity advisers need to prepare for upcoming examinations and know how to handle audits of pass-through entities.

Listen as our panel of IRS examination experts explains how to properly maintain and support partners’ basis in partnerships and how to defend these calculations when representing partners.

We are also pleased to announce that we will be able to offer a limited number of complimentary and reduced cost tickets for this program on a first come first serve basis. If you are interested in attending, please contact Sharon Tanaka at sht@taxlitigator.com. 

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We are pleased to announce that Edward Robbins, Jr., Sandra Brown and Michel Stein will be speaking at the upcoming Lorman webinar, “Currency Transaction Report: How to File and Common Errors” on Tuesday, June 14, 2022, 10:00 a.m. – 11:05 a.m. (PST).

This course will educate and assist United States persons who have the obligation to file any of the numerous currency transaction reports and the professionals who prepare and file these forms on behalf of their clients. The information contained in these forms assists law enforcement in its anti-money laundering efforts. When businesses and individuals comply with the reporting laws, they provide authorities with an audit trail to stop tax evasion, drug dealing, terrorist financing, and other criminal activities. The government is very serious about these currency transaction reports and has put in place serious civil and criminal penalties for noncompliance. This information is critical for persons involved in the preparation of these currency transaction reports so that they can be confident that their efforts comply with the law and that they and their employers will avoid sanctions for noncompliance.

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We are pleased to announce that Steven Toscher, Michel Stein and Robert Horwitz will be speaking at the upcoming CalCPA webinar, “Understanding Opportunity Zones Tax Incentives under TCJA 2017 in the Face of New Congressional Oversight and the TIGTA Report” on Tuesday, June 7, 2022, 9:00 a.m. – 10:00 a.m. (PST).

Congress is considering changes to Qualified Opportunity Zones (QOZs); this program will examine the tax and operational issues to consider when advising your clients whether to invest in QOZs and how pending legislation may affect QOZs in the future

Learning Objectives

  • To inform participants about the tax and operational basics of QOZs so they can advise and assist clients in determining whether to invest in a QOZ 
  • How to defer gain
  • What can lead to the inclusion of gain and pending changes to QOZ provisions 

Major Subjects

  • What is a QOZ and how one is created
  • What is a Qualified Opportunity Fund (QOF) and how to invest in a QOF
  • Types of gain eligible for deferral, election of deferral and what triggers the inclusion of deferred gain
  • How proposed legislation could impact QOZs and QOFs

Click Here for more information.

We are pleased to announce that Steven Toscher and Michel Stein will be speaking at the upcoming CSTC San Francisco Bay Chapter webinar, “Cryptocurrency Tax Compliance: Tax Filing Requirements; Managing IRS Examinations” Wednesday, June 1, 2022, 6:00 p.m. – 8:00 p.m. (PST).

This course will provide tax counsel, accountants, and other advisers with a critical first look at recent IRS enforcement actions on taxpayer compliance and reporting obligations for cryptocurrency transactions. The panel will discuss the IRS position on the tax treatment of cryptocurrency, analyze IRS monitoring to increase compliance, consider criminal investigations and prosecutions for failing to report crypto transactions accurately. The panel will define proper reporting and tax treatment for “mining” and exchanging cryptocurrency along with tactics in managing IRS examinations and audits.

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We are pleased to announce that Dennis Perez, Sandra Brown, and Cory Stigile will be speaking at the upcoming Strafford webinar, “Navigating IRS Scrutiny of R&D Tax Credits: Qualified Research Activity, Expenses, Research Credit Claims Audits” on Wednesday, June 1, 2022, 10:00 a.m. – 11:30 a.m. (PST).

This CLE/CPE webinar will guide tax professionals and advisers on navigating IRS scrutiny and challenges to the R&D tax credit for small and large businesses and international taxpayers. The panel will discuss the recent IRS crackdown on documentation of research credit claims, managing IRS audits, qualified research activities (QRAs) and qualified research expenses (QREs), safe harbor for certain taxpayers, and techniques to assist in documenting and claiming R&D credits.

For many businesses, the R&D tax credit is one of its most significant tax benefits. When claiming the R&D credit, determining what constitutes a QRA and calculating QREs can be challenging.

The IRS has strict standards in examining R&D tax credit claims and has announced changes in documentation requirements for claims made concerning the credit for increasing research activities. In addition, the IRS recently issued procedural guidance now requiring taxpayers to submit specific pieces of information with any amended returns or administrative adjustment requests that claim an R&D credit.

Generally, Sec. 41 allows a credit for a percentage of a QRE that a taxpayer incurs engaging in research activities. The Code provides a four-part test to determine whether an activity can be considered a QRA. Expenditures, including wage expenses with sufficient nexus to the QRA, can be included in calculating the expenditure base. However, substantiating that an activity qualifies as a QRA can be complex, and tax professionals must know the standards and limits in utilizing this important and often overlooked credit.

Listen as our experienced panel discusses the recent IRS crackdown on documentation of research credit claims, managing IRS audits, QRAs and QREs, and techniques to assist in documenting and claiming R&D credits.

We are also pleased to announce that we will be able to offer a limited number of complimentary and reduced cost tickets for this program on a first come first serve basis. If you are interested in attending, please contact Sharon Tanaka at sht@taxlitigator.com. 

Click Here for more information.

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