A federal court's authority to hear a case is often referred to legally as "subject-matter jurisdiction," or simply "jurisdiction." In a federal tax case, numerous courts have jurisdiction to hear and determine the merits of a tax dispute between the IRS and a taxpayer. These courts include the United States district courts, the United States Court of Federal Claims, and the United States Tax Court. Although various considerations come into play in choosing the proper court venue to file a tax case (many, strategic), a deciding factor is often whether the taxpayer has the means to make full payment of the proposed taxes. Generally, only the Tax Court has jurisdiction to hear a federal income tax dispute without first requiring the full payment of any proposed taxes.
But taxpayers who wish to avail themselves of the Tax Court's pre-payment forum must do so within strict filing deadlines. For income tax cases, the filing deadline is computed based on the date the IRS issues a notice of deficiency (i.e., a letter from the IRS to the taxpayer that informs the taxpayer of the agency's determination that additional taxes are owed for a tax year). As a general matter, taxpayers who receive a notice of deficiency have 90 days after the notice's issuance date to file a petition with the Tax Court. If the 90-day deadline is missed, the taxpayer must resort to other options to challenge the IRS' determination that additional taxes are owed.
Of course, as with any imposed deadlines, people are going to miss them. And the 90-day deadline is no different. For example, in Nutt v. Comm'r, 160 T.C. No. 10 (May 2, 2023), the Tax Court dismissed a case for lack of subject-matter jurisdiction where the taxpayer had electronically filed a petition five minutes late in the time zone where the court was located (Washington, D.C.). It did not matter that the petition was filed timely in the time zone where the taxpayer was located (Alabama). In Sanders v. Comm'r, 160 T.C. No. 16 (June 20, 2023), the Tax Court similarly dismissed a case for lack of subject-matter jurisdiction where the taxpayer electronically filed the petition a mere eleven seconds late.
Nutt and Sanders demonstrate the strict filing requirements imposed on taxpayers and the catastrophic consequences that may ensue, even for relatively minor mistakes regarding the 90-day jurisdictional bar. But what, if any, consequences are there if the IRS causes the error?
The court's recent decision in Dodson v. Comm'r, 162 T.C. No. 1 (Jan. 3, 2024) suggests that the consequence of an error goes both ways. In that case, the IRS issued a notice of deficiency, dated October 7, 2021. Based on this date, the taxpayers should have had until January 5, 2022, to file a petition with the Tax Court. However, the notice erroneously advised the taxpayers that they could file a timely petition with the court on or before December 5, 2022.
After the notice of deficiency was issued, the IRS caught on to the mistake rather quickly and issued a second notice, dated October 8, 2021. The second notice was substantially the same as the first notice, but correctly informed the taxpayers that based on the October 8, 2021, issuance date, the taxpayers had until January 6, 2022, to file a petition. The second notice was also accompanied with a cover letter that stated: "PREVIOUS NOTICE SENT WITH INCORRECT DATE. CORRECTED NOTICE WITH CORRECT DATES."
The taxpayers filed their petition with the Tax Court on March 3, 2022. Because the filing date was outside the 90-day jurisdictional window for both notices of deficiency, the IRS moved to dismiss the petition for lack of subject-matter jurisdiction. In response, the taxpayers contended that a provision added to the Code through the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206 (RRA), extended the 90-day deadline to the date that was erroneously suggested in the first notice of deficiency, i.e., December 5, 2022.
The Tax Court agreed with the taxpayers and denied the IRS' motion to dismiss. The court reasoned that the applicable statutory provision in section 6213(a) of the Code, as added by the RRA, specifically stated: "Any petition filed with the Tax Court on or before the last date specified for filing such petition by the [IRS] in the notice of deficiency shall be treated as timely filed." Because the first notice suggested a filing deadline of December 5, 2022, the court held that that the petition filed on March 3, 2022, was timely. Another seemingly important consideration noted by the court was the taxpayers' contention that they never received the second notice of deficiency, a point that was also supported by USPS mailing records.
The recent decisions in Nutt, Sanders, and Dodson collectively show that deadlines matter. To avoid the unfortunate consequences that occurred in Nutt and Sanders, taxpayers should try to file their petitions with the Tax Court as quickly as practically possible after receipt of the notice of deficiency. Indeed, even in Dodson, the fight between the taxpayers and the IRS could have been avoided had the petition been filed relatively quickly after receipt of the notice.
Originally published by Forbes.
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