D.C. Circuit Holds Equitable Tolling May Apply to Time Limit in Whistleblower Case (7/4/19)

In Myers v. Commissioner, ___ F.3d ___, 2019 U.S. App. LEXIS 19757 (D.C. Cir. 2019), here, the Court applied the jurisdictional/nonjurisdictional distinction to determine that the time period in § 7623(b)(4) to petition the Tax Court with respect to an IRS whistleblower determination is nonjurisdictional, thus allowing the potential for equitable tolling of the time period.  The Court of Appeals remanded the case to the Tax Court to determine whether equitable tolling applied.  (See also Carlton Smith (Guest Blogger), D.C. Circuit Holds Tax Court Whistleblower Award Filing Deadline Not Jurisdictional and Subject to Equitable tolling (Procedurally Taxing 7/3/19), here.

Based on Myers, I have just revised the section of my tax Federal Tax Procedure book working draft and offer it here.  (I remind readers that the next updated version of the book will by in early August.)  Here is the revised discussion of equitable tolling (without footnotes, although I do offer the text and footnotes in a pdf available here, but do caution readers that the quote has been "cleaned up" which I note in the footnote in the pdf version):

VII. Smoothing the Harsh Effects of Statutes of Limitation.

* * * *

C.  General Equitable Principles (Herein of Jurisdictional/Nonjurisdictional).

The Code’s time limits (often called statutes of limitations) are classified for some purposes as either jurisdictional or nonjurisdictional.  This issue is presented for time limits throughout federal law, including applications of time limit in the Code. In the tax context, this distinction has been in issue most importantly where there are time limits for a taxpayer to obtain court review of IRS action (such as the 90-day period to petition for redetermination of a notice of deficiency or the periods for filing claims or suits for refund).  The question is how rigid the time limits are.  If the time limits are rigid time limits that must be met without exception, they are called jurisdictional because failure to meet the time limit will deprive a court of “jurisdiction” to consider the dispute between the taxpayer and the IRS.  By contrast, if a time limit is nonjurisdictional, it may not be quite so rigid, and may permit relief by way of “tolling” or suspending the time limit in certain cases.  Ultimately, the question the distinction is based upon the court’s interpretation of the time limit (both the text and the context) as evidencing Congress’s choice that the time limit to be rigid or, alternatively, to permit some tolling or suspension of the time limit based on traditional equitable considerations.

In a tax case in 2019, The D.C. Circuit explained:

The Supreme Court in recent years has pressed a stricter distinction between truly jurisdictional rules, which govern a court's adjudicatory authority, and nonjurisdictional claim-processing rules, which do not.  Key to our present decision, the Court has made plain that most time bars are nonjurisdictional; they are quintessential claim-processing rules which seek to promote the orderly progress of litigation, but do not deprive a court of authority to hear a case.  Therefore, although the Congress is free to attach the jurisdictional label to a rule that we would prefer to call a claim-processing rule, we treat a time bar as jurisdictional only if Congress has clearly stated as much.  The Supreme Court has explained that this clear statement requirement is satisfied only if the statute expressly refers to subject-matter jurisdiction or speaks in jurisdictional terms. It is not enough, for instance, that a statute uses mandatory language.

The issue of jurisdictional/nonjurisdictional as to when the Code’s time limits must be met or might be tolled or suspended based on equitable considerations is not fully fleshed out.  As noted in the quote above, the Supreme Court “in recent years” began pressing a stricter distinction; that process of pressing the distinction generally has resulted in many time limits throughout the law to be nonjurisdictional so that rigid compliance is not required.  As with much of federal law, most of the time limits in the Code were adopted at a time before the jurisdictional/nonjurisdictional distinction became prominent, so Congress did not make its “intent” clear as to whether the time limit is to be rigid or not.  The courts thus have to consider closely the text and context, the statutory language and its context in the tax system involving millions of taxpayers where, at least in some cases, not imposing rigid time limits could impose its own inequities and impose unacceptable administrative burdens on the IRS.

I will give an example in the context of the 90 day period during which a taxpayer may petition the Tax Court for redetermination of a deficiency determined by the Tax Court. The context for that time limit involves the following: (i) the IRS must assess additional tax within a time limit, generally 3-years which, generally is rigid subject to specific statutory exceptions; (ii) the taxpayer may file a petition within 90-days for redetermination with the Tax Court; (iii) the IRS may not assess the tax during that 90-day period or, if the taxpayer files a petition, during the period the case is pending (at least at the Tax Court level); (iv) during the period the IRS is prohibited from assessing plus 60 days, the statute of limitations on assessment is suspended; and (v) if the IRS is not notified by the Tax Court of filing during the permitted 90-day time frame, the IRS then proceeds to assess the tax during the relevant assessment statute of limitations (subject to the suspension just mentioned).  Given the number of taxpayers involved annually in this process, Congress has made clear that the 90-day time period is important for orderly administration.  For example, the Code merely requires that the IRS send the notice of deficiency to the taxpayer’s last known address, not that the taxpayer actually receive the notice; if the taxpayer does not receive the notice, then obviously the taxpayer has no practical ability to file a petition.  For these and other contextual reasons, although Congress did not say that the 90-day period is jurisdictional, the Tax Court and the courts of appeals treat it as jurisdictional and insist on strict compliance with the 90-day time limit.

Now, consider the time limits on filing a claim for refund and then suing for refund.  In United States v. Brockamp, 519 U.S. 347 (1997), the taxpayers filed claims for refund beyond the normal statute of limitations for claims for refund.  The taxpayers' disabilities rendered them unable to file their claims within the times prescribed.  The issue was whether, under general equitable principles applicable with respect to some other types of claims against the Government, the statute of limitations could be equitably tolled by disability.  In an earlier case involving a nontax statute of limitations, the Court had held that statutes of limitation may be equitably tolled, framing the inquiry to be whether there was good reason to believe that Congress intended strict compliance with the statute of limitations. In Brockamp, the Court held that textually and in context § 6511 indicated a Congressional intent that there should be no equitable tolling.

After Brockamp, Congress provided for limited equitable tolling in § 6511(h) which now permits a suspension of the statute of limitations on claiming refunds during the period that an individual taxpayer is “financially disabled,” defined to mean the “individual is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”  The relief does not apply during any period that the individual spouse or any other person (e.g., a guardian) is authorized to handle the individual's affairs.  Further, the relief is not available if the taxpayer is distracted from his personal affairs while caring for someone who is disabled.

Brockamp dealt only with the refund statute of limitations in § 6511.  The Court found support for not permitting tolling in the detailed statutory scheme itself.  This reasoning did not foreclose the inquiry as to other time limitations in the Code where the time imperative may not be so clearly pronounced.

It is important to distinguish between a time period that is a true statute of limitations and a time period that is a jurisdictional prerequisite to the action.  A true statute of limitations merely bars judicial enforcement of a remedy that was available before the statute of limitations expired; the claim survives the bar of the statute of limitations but cannot be judicially enforced; and the bar of the statute of limitations “may be subject to waiver, forfeiture and equitable tolling.”  A time period that is a jurisdictional prerequisite to consideration of a claim requires timely action, and is not subject to waiver, forfeiture and equitable tolling; failure to timely bring the claim is fatal even if equitable considerations would support extending the period.  You may think the difference semantical, but one instance in which it might be important is where the defendant in an action was willing to or inadvertently did waive the bar of the statute of limitations (e.g., by not timely asserting it).  If the time period is a jurisdictional requirement, it cannot be waived.  More to the point of the application of Brockamp, a nonjurisdictional statute of limitations may avoid Brockamp’s rejection of equitable tolling.  That does not resolve the semantical issues to help you distinguish between the two, but it does tell you of the consequences depending upon how the issue is resolved.

This jurisdictional/nonjurisdictional issue usually arises in a context where the taxpayer seeks equitable relief via tolling of a time limit the taxpayer failed to meet.  But, equitable tolling is similarly available to the Government.  Young v. United States, 535 U.S. 43 (2002).involved the discharge of taxes in bankruptcy.  The general rule is that taxes for which the return was due within three years of the date the petition for bankruptcy is filed are given a priority in bankruptcy and, most importantly, are not discharged.  The taxpayers filed their 1992 income tax return on October 15, 1993, reporting a net tax liability due but did not pay the amount due.  On May 1, 1996, within the three year period, the taxpayers filed a Chapter 13 bankruptcy proceeding.  The filing of a bankruptcy proceeding stays the IRS’s collection actions, so after May 1, 1996, the IRS could not use its collection tools to try to collect the tax.  Chapter 13 is a reorganization provision for wage earners and requires the approval of a plan which must include provision for the tax due.  The taxpayers thereafter moved to dismiss the Chapter 13 proceeding and, on March 12, 1997, the day before the bankruptcy court entered its order of dismissal, the taxpayers filed for Chapter 7 liquidating bankruptcy.  Taxes may be discharged in a Chapter 7 proceeding.  The taxpayers urged that the 1992 tax liability was discharged in the Chapter 7 bankruptcy proceeding because it had been filed more than three years from date the return was due.  The IRS urged, on the other hand, that the three year period had been tolled during the pendency of the Chapter 13 proceeding and therefore that the three year period, as thus tolled, had not lapsed upon the filing of the Chapter 7 proceeding.  Taxpayers throughout the country were exploiting this “back-to-back” Chapter 13/Chapter 7 bankruptcy gambit to attempt to achieve discharge of their tax liabilities where a straight Chapter 7 proceeding could not have achieved it unless instituted after the three year period during which the IRS would have had unfettered power to collect.

The Courts of Appeals had reached conflicting conclusions.  Some read the statute literally and held for the taxpayers.  Some applied equitable tolling.  The Supreme Court resolved the conflicts in Young. A unanimous Supreme Court, speaking through Justice Scalia, accepted the IRS's argument that the three year period had tolled during the pendency of the Chapter 13 proceeding so that the hapless taxpayers in Young (for whom I feel no sympathy since they were clearly trying to game the system) were not discharged.

In the opinion, the Court said that the lookback period for dischargeability was a limitations period subject to “traditional equitable tolling principles.”  The Court cited as “hornbook law” that limitations periods are subject to equitable tolling unless such tolling is inconsistent with the statute.  The Court said that Congress enacted these limitations with the understanding that tolling might apply, and this reasoning would be particularly true in bankruptcy, itself an equitable court.  The taxpayers attempted to construct an argument, as the Government had in Brockamp, that the statute evidenced Congress’ intent not to allow equitable tolling, but the Court rejected the argument.

Can you articulate a principled distinction between Brockamp and Young?  In Brockamp, of course, the IRS–the party asserting the benefit of the statute–was not trying to game the system; it was simply responding to the statute.  In Young, although the Supreme Court said it was not necessary to look at the taxpayers’ intent in the back-to-back filings, it was clear that the taxpayers were gaming the system.

 As I discuss time limits in this book, I will note any case authority dealing with whether equitable factors affect the time limits.  But, for any time limits where there is no controlling authority, practitioners must look for equitable opportunities to avoid time periods that work against a taxpayer and must also consider the possibility that the same equitable opportunity may be available to the Government.