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Justices rule against IRS in taxpayer suit over deadlines

Justice Amy Coney Barrett penned the unanimous opinion that found the IRS's argument against equitable tolling "misses the mark.”

WASHINGTON (CN) — In a unanimous ruling on Thursday morning, the Supreme Court found that a principle allowing courts to excuse missed deadlines can be used for certain federal income tax time limits.

The 11-page opinion was authored by Justice Amy Coney Barrett, who wrote that the deadline in question, “like most others, can be equitably tolled in appropriate cases.”

The case centers on how the commissioner of internal revenue makes decisions around U.S. Tax Court review determinations related to “collection due process hearings.” One way the IRS can do this is by filing a lien on the taxpayer’s property or seizing it by levy. 

Collection due process hearings were meant to provide a procedural safeguard to taxpayers before the IRS deprives them of their property. If the IRS finds that a taxpayer owes a tax debt and fails to pay it on time, then the government automatically receives a lien on their property and can collect that debt by levy. However, before it can do that, the agency must give notice to the taxpayer and advise them of their right to a hearing. 

If the taxpayer gets a hearing before the IRS Office of Appeals, then the agency will issue a determination. Within 30 days of that determination, the taxpayer can petition the Tax Court for review. The IRS cannot carry out the levy until all appeals are exhausted. 

Boechler P.C., a small North Dakota law firm, received notice from the IRS over discrepancies in its 2012 tax filings leading to a $19,250 penalty. The IRS notified Boechler of its intent to levy its property to collect the penalty so Boechler asked for a collection due process hearing. 

However, problems arose when the IRS attempted to mail the law firm its determination. The notice of determination was mailed on July 28, 2017, and it was not delivered until July 31. Following the agency’s deadline rules, the firm would have had until Aug. 28 to file its petition for review with the Tax Court. Boechler mailed its petition one day late.

Writing for the Supreme Court's majority, Barrett said Thursday that the IRS 'misses the mark" in its argument that if equitable tolling is available, the agency will not know whether it can start collection actions after the deadline in question passes. Equitable tolling is a principle that allows courts to use their discretion in excusing missed deadlines.

“The commissioner acknowledges that the deadline is already subject to tolling provisions found elsewhere in the Tax Code—for example, tolling is available to taxpayers located in a combat zone or disaster area,” she wrote. “But he says that the IRS can easily account for these contingencies because it continuously monitors whether any taxpayer is in a combat zone or disaster area. Tolling the deadline outside these circumstances, the commissioner insists, would create much more uncertainty.”

Barrett said the court was not convinced “that the possibility of equitable tolling for the relatively small number of petitions at issue in this case will appreciably add to the uncertainty already present in the process."

“To take the most obvious example, petitions for review are considered filed when mailed. The 30-day deadline thus may come and go before a petition ‘filed’ within that time comes to the IRS’s attention,” Barrett explained. “Presumably, the IRS does not monitor when petitions for review are mailed. So it is not as if the IRS can confidently rush to seize property on day 31 anyway.”

She noted that the high court took no stance on whether Boechler was entitled to equitable tolling and that this must be determined on remand to the Eighth Circuit.

The IRS had previously moved to dismiss the case for lack of jurisdiction because Boechler missed the filing deadline. Boechler claimed the deadline was not jurisdictional and asked for an evidentiary hearing to establish that it had the right to equitable tolling. The Tax Court sided with the agency and dismissed the case. 

On appeal, the St. Louis-based Eighth Circuit affirmed and held that the 30-day deadline to file a petition for review in the Tax Court is a jurisdictional time limit that deprives the Tax Court of authority to equitably toll the filing deadline. The firm claims that ruling was wrong and created a circuit split between the Ninth and D.C. Circuits. 

Boechler’s attorney Melissa Sherry of Latham & Watkins applauded the Supreme Curt’s ruling.

“We are thrilled with the court’s unanimous decision, which fully vindicates our client’s position that the Tax Court filing deadline is not jurisdictional and is subject to equitable tolling,” Sherry said. “We are especially gratified that all taxpayers, and especially low-income and pro se taxpayers, will now be given a fair opportunity to have their day in court.”

A representative from the Department of Justice, which represented the IRS in this case, did not immediately respond to a request for comment on the ruling Thursday.

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