Tax Court allows equitable tolling of deadline to review CDP hearing

In wake of the Supreme Court’s decision in Boechler, P.C., 142 S. Ct. 1493 (2022), regarding equitable tolling and the 30-day deadline for filing a Tax Court petition for review of a determination from a collection due process (CDP) hearing, the Tax Court held that equitable tolling applies to the 30-day deadline under Sec. 6320(a)(3)(B) to request a CDP hearing from the IRS Independent Office of Appeals (Appeals).

Background

Organic Cannabis Foundation LLC (Organic), a limited liability company taxed as a corporation, had unpaid tax for 2010, 2011, and 2018. The IRS issued notices of federal tax lien filings to Organic for all three years.

Organic timely requested a CDP hearing with Appeals during the 30-day period for requesting a hearing under Sec. 6320(a)(3)(B) (30-day period) for 2010 and 2011. However, Organic requested a hearing for 2018 after the 30-day period had expired. Appeals provided a CDP hearing for 2010 and 2011.

Appeals, having determined that Organic’s hearing request for 2018 was untimely, provided an equivalent hearing under Regs. Sec. 301.6320-1(i)(1). An equivalent hearing generally follows the same procedures as a CDP hearing, and Appeals considers the same issues in an equivalent hearing as it would have at a CDP hearing on the same matter. However, after an equivalent hearing, instead of issuing a notice of determination, Appeals issues a document called a decision letter about its conclusions to sustain or proceed with the collection action at issue. A decision letter contains all the information that must be included in a notice of determination. However, unlike with a notice of determination, a taxpayer cannot seek the Tax Court’s review of a decision letter.

As Appeals had held a CDP hearing only for 2010 and 2011, it issued a notice of determination that did not contain a determination for 2018. Organic, however, filed a Tax Court petition seeking the court’s review for all three years. After Organic’s petition was filed, Appeals issued a decision letter for 2018.

The IRS moved to dismiss the Tax Court petition as to the 2018 tax year for lack of jurisdiction because the Service had not made a determination the Tax Court could review under Sec. 6330(d)(1). Organic, pointing to the Supreme Court’s decision in Boechler, argued that the 30-day period for requesting a CDP hearing under Sec. 6320(a)(3)(B) should be equitably tolled with respect to 2018 and that Appeals should have made a determination for 2018 that the Tax Court could review. The IRS argued that the 30-day period is a fixed jurisdictional deadline that is not subject to equitable tolling.

The Tax Court’s decision

Overruling its previous decision in Kennedy, 116 T.C. 255 (2001), the Tax Court held that Appeals has authority under Sec. 6320 to hold hearings when a taxpayer files a request for a CDP hearing after the Sec. 6320(a)(3) (B) 30-day limitation period, the Sec. 6320 regulations do not preclude the application of the doctrine of equitable tolling, and the 30-day period is subject to equitable tolling where circumstances warrant it.

Is the Sec. 6320 deadline an administrative bar?

As the Tax Court explained, a filing deadline cannot be equitably tolled if it is “jurisdictional.” An administrative deadline is jurisdictional if it defines the agency’s authority to hold hearings for untimely requests. Thus, the court first was required to decide whether the deadline imposed an administrative bar on the IRS from holding hearings for untimely hearing requests.

According to the Supreme Court, for a filing deadline to be an administrative bar, Congress must clearly state that the deadline has that effect. The clear-statement rule is a “high bar,” and where a statutory filing deadline is subject to multiple plausible interpretations, it is difficult to make the case that the statute is clear.

After looking at Sec. 6320, the Tax Court found that a plausible interpretation of the provision was that Appeals’ authority is limited to timely requested CDP hearings. However, the court further found that, based on the Supreme Court’s decision in Boechler, “even the most plausible reading is not enough.” Applying this standard, the court concluded that the text of Sec. 6320 contains no clear statement requiring a taxpayer to comply with the 30-day deadline for Appeals to have authority to review a proposed collection action, so the 30-day period is not an administrative bar.

Is the 30-day deadline amenable to equitable tolling?

Having decided that the 30-day deadline for requesting a CDP hearing is not an administrative bar, the Tax Court was next required to decide whether it is amenable to equitable tolling.

The Supreme Court has adopted a rebuttable presumption that nonjurisdictional filing deadlines are subject to equitable tolling in suits against the government. To rebut the presumption, there must be an affirmative indication from Congress that it intended to preclude equitable tolling, or equitable tolling must be inconsistent with the text of the relevant statute. Courts look to a statute’s text, context, and purpose to determine whether Congress intended for equitable tolling to apply.

The Tax Court noted that in most cases it cited on equitable tolling, the court was analyzing equitable tolling in the context of determining whether and how, under the relevant statutory provisions, a court (as opposed to an administrative agency) might consider a case. The Tax Court acknowledged that additional considerations might well be relevant in deciding whether an agency must consider equitable tolling in administering its own deadline. However, the court concluded that in this case, involving the equitable tolling of the deadline for a CDP hearing, the circumstances were sufficiently analogous to apply case law involving whether equitable tolling applied to whether a court could hear a case. The court then applied this precedent in analyzing whether, under the terms of Sec. 6320, its legislative history, and the regulations under it, the deadline for filing a CDP hearing was amenable to equitable tolling.

The statute: The Tax Court first observed that Sec. 6320 was silent as to equitable tolling. As to whether equitable tolling was consistent with the terms of the statute, the court found that nothing in the statute indicated that the deadline was “absolute or inflexible” and that Sec. 6320(a)(3)(B) lacked emphatic terms, which suggests that equitable tolling is available. Thus, it was consistent with the terms of the statute.

The court also pointed to other factors in support of equitable tolling. These included that the deadline was short and it was not directed at defining the taxpayer’s rights or Appeals’ authority to provide CDP hearings; instead, it defined a taxpayer’s hearing rights, the right to a hearing before an impartial Appeals officer. Overall, in the court’s view, the context and underlying policy of the CDP regime indicate congressional intent to allow equitable tolling of the 30-day period for requesting a hearing.

Legislative history: The Tax Court found that the conference report for the Internal Revenue Service Restructuring and Reform Act of 1998, P. L. 105-206 (H.R. Conf. Rep’t No. 105-599, 105th Cong., 2d Sess. At 266 (1998)), shows that Congress intended that taxpayers who were being levied, even if they did not timely request a CDP hearing, should have a right to a hearing equivalent to one if they later requested it. However, the Tax Court also found that the legislative history does not specify what an equivalent hearing should entail, only that the IRS did not have to suspend the levy process before the equivalent hearing is completed. The legislative history says nothing about a taxpayer’s right to seek judicial review when a hearing request is not made within the 30-day limitation period. Thus, the court determined that the legislative history did not change its conclusion regarding equitable tolling, as “[i]t does not clearly establish that Congress intended the 30-day period for requesting a CDP hearing to be a fixed deadline that is not amenable to equitable tolling.”

The regulations: The court considered three things in the regulations to determine whether they categorically preclude equitable tolling: their provisions for equivalent hearings, their other equitable considerations, and their allowance of the suspension of levy after an untimely hearing request.

The Tax Court observed that the regulations establish the procedures for equivalent hearings, and nothing in those procedures categorically precludes equitable tolling. Equivalent hearings can be viewed as an equitable exception to the 30-day period. However, citing Boechler, the Tax Court found that the existence of an express equitable exception to a filing deadline does not foreclose the application of the broader doctrine of equitable tolling.

In addition, the Tax Court found that the passages the IRS cited for support, which discussed various aspects of the 30-day filing deadline with respect to CDP hearings, were not irreconcilable with equitable tolling and did not preclude its application. Unlike statutes in other cases where courts had found equitable tolling was precluded (see, e.g., Sebelius v. Auburn Regional Medical Center, 568 U.S. 145 (2013)) none of the provisions in the regulations under Sec. 6320 specifically states that equitable tolling is unavailable. Moreover, as the court had already found, equitable tolling is consistent with the text of Sec. 6320 and it might be appropriate for reasons not addressed by the regulations.

The court further found that the other parts of the Sec. 6320 regulations allow for other equitable considerations and do not interpret the 30-day period as a fixed deadline. For example, the regulations allow taxpayers to perfect defective hearing requests after the 30-day period (Regs. Sec. 301.6320-1(c) (2), Q&A-C1(iii)), a clear example of equitable tolling. The court also found that the regulations allow late compliance with the express requirements of the statute, such as for the requirement to state in a hearing request the reason or reasons why the taxpayer disagrees with the collection action (Regs. Secs. 301.6320-1(c)(2), Q&A-C1(ii)(E) and (iii)). Thus, in the court’s view, the regulations incorporated equitable considerations while still allowing for exceptions to the 30-day deadline.

Finally, the Tax Court concluded that the regulations under Sec. 6320 deviate from the prompt collection that the IRS argued Sec. 6320 demands. The court pointed to Regs. Sec. 301.6320-1(i) (2), Q&A-I4, which allows Appeals to request that a collection action be suspended following an untimely hearing request on a case-by-case basis. Thus, the court reasoned that Appeals is already weighing individualized equities of untimely hearing request cases, and consequently, the regulations show that a deadline need not be binding when individual equities require otherwise.

Having reviewed these factors, the Tax Court determined equitable tolling furthers the basic statutory purposes of the CDP regime of due process, protection, and fairness to taxpayers. Thus, a categorical prohibition of equitable tolling of the filing deadline for Appeals’ review of collection actions would be contrary to congressional intent, and although the Supreme Court did not address the 30-day period for requesting a CDP hearing in Boechler, the Tax Court declined to apply a stricter standard to the administrative filing deadline. As to whether equitable tolling was warranted in Organic’s case, the court remanded the IRS’s collection action for 2018 to Appeals to determine whether equitable tolling should apply before it reviewed that question.

Reflections

As noted, the Tax Court overruled its holding in Kennedy, which it had decided before the Supreme Court handed down its decision in Boechler. In Kennedy, the Tax Court held that the 30-day period for requesting a CDP hearing is a fixed deadline that the IRS was not authorized to waive. The court further held that, where a taxpayer did not make a timely request for a CDP hearing, Appeals is not obligated to conduct an administrative hearing as contemplated in Sec. 6330(b) and found that an equivalent hearing was not a waiver of the 30-day filing deadline. Rather, the decision to grant the taxpayer an equivalent hearing in that case “simply reflects [the IRS’s] good faith effort to further a fundamental policy underlying section 6330; i.e., to provide a taxpayer with a final opportunity for administrative review before proceeding with enforced collection.”

Organic Cannabis Foundation, LLC, 161 T.C. No. 4 (2023)

Contributor

James A. Beavers, CPA, CGMA, J.D., LL.M., is The Tax Adviser’s tax technical content manager. For more information about this column, contact thetaxadviser@aicpa.org.