In determining whether an IRS collection action was filed timely, the Third Circuit held that the periods during which the running of the statute of limitation on collection was tolled included the period between the time an appellate court issued a mandate in the taxpayer’s case and the Supreme Court denied his petition for a writ of certiorari.
Background
Charles Weiss did not pay any federal income tax from 1986 through 1991. In October 1994, however, Weiss late-filed his tax returns for those years. He reported a liability of $299,202 on the returns, and later that month the IRS assessed the amount due against him for each of those years.
By doing so, under Sec. 6502(a)(1), the IRS triggered the 10-year statute-oflimitation period for collecting the unpaid taxes through a court proceeding or a levy. The limitation period was tolled three times between 1994 and 2009 by Weiss’s subsequent bankruptcies. This resulted in a new expiration date for the statute of limitation on collecting the taxes: July 21, 2009.
On or about Feb. 13, 2009, the IRS mailed Weiss a Final Notice — Notice of Intent to Levy and Notice of Your Right to a Hearing, which informed Weiss that the IRS intended to levy his unpaid taxes for the years 1986 to 1991 and that he had an opportunity to request a Collection Due Process (CDP) hearing. The notice, although expressing an intent to levy Weiss’s property, was not sufficient to make a levy, and, thus, the statute of limitation continued to run.
In response, Weiss timely requested a CDP hearing. Per Sec. 6330(e)(1), his request suspended the statute of limitation for the period during which the hearing “and appeals therein” were “pending.” On the date of Weiss’s request, at least 129 days remained in the limitation period.
IRS Appeals ruled against Weiss in the CDP hearing. Weiss then sought a review of the CDP hearing determination by the Tax Court, but after five years of litigation, the Tax Court affirmed the determination (Weiss, 147 T. C. 179 (2016)). Undaunted, Weiss appealed the Tax Court’s decision to the D.C. Circuit. The D.C. Circuit affirmed the Tax Court and turned down his petition for a rehearing or a rehearing en banc (Weiss, No. 16-1407 (D. C. Cir. 5/22/18)). The district court entered a mandate on Aug. 23, 2018, at which point at least 129 days still remained on the original 10-year statute of limitation. Weiss filed a petition for a writ of certiorari with the Supreme Court 62 days later, on Oct. 24, 2018. Forty days after that, the Court denied his petition.
At this point, the IRS could have proceeded to levy Weiss’s property, but instead, it initiated a collection action in district court. It filed a complaint on Feb. 5, 2019, seeking to collect Weiss’s delinquent taxes plus accrued interest, which then totaled $773,899.84.
In district court, Weiss claimed that the IRS’s action was not timely, claiming that the running of the limitation period was not tolled under Sec. 6330(e)(1) from when the D.C. Circuit issued its mandate through the time the Supreme Court denied his petition for a writ of certiorari. Sec. 6330(e)(1) states:
if a hearing is requested … the levy actions which are the subject of the requested hearing and the running of any period of limitations under section 6502 (relating to collection after assessment) … shall be suspended for the period during which such hearing, and appeals therein, are pending. In no event shall any such period expire before the 90th day after the day on which there is a final determination in such hearing.
Weiss argued that (1) the phrase “appeals therein” did not include petitions for writs of certiorari; (2) a denial of a petition for a writ of certiorari was not a “final determination” in a CDP hearing for purposes of Sec. 6330(e)(1); and (3) the IRS’s collection action was not timely. The IRS argued the opposite. The parties both moved for summary judgment on these issues.
The district court held for the IRS. Weiss appealed the district court’s decision to the Third Circuit.
The Third Circuit’s decision
The Third Circuit affirmed the district court’s holding that the IRS’s collection action was timely. It found, based on a plain-language meaning of the terms “appeals therein” and “pending” in Sec. 6330(e)(1), that the running of the limitation period was tolled during the time (1) between the D.C. Circuit’s mandate and the filing of Weiss’s Supreme Court petition and (2) between the filing of the petition and its denial.
Interpretation of statutory language: The Third Circuit, citing Supreme Court and Third Circuit precedent, stated that words of statutes should be given their ordinary, common meaning. Furthermore, the words should be given their contemporary meaning at the time the statute was adopted.
Appeals therein: To interpret the phrase “appeals therein,” the Third Circuit analyzed the dictionary meaning (in 1998, when Sec. 6330(e)(1) was enacted) of each of the component words of the phrase separately. It found both words had two possible meanings.
Regarding “appeals,” the court found that one common meaning, in a general sense, was to “[r]esort to a superior (i.e. appellate) court to review the decision of an inferior (i.e. trial) court” (Black’s Law Dictionary (6th ed. 1990)), and that, under this meaning, “appeal” could mean both appeals and petitions. A second, narrower meaning, the court found, was “a method of seeking review of an order that is distinct from other such methods, such as a petition.” The court noted that under that narrower meaning, appeals tend to be provided as of right, while petitions more frequently depend on the discretion of the reviewing body.
Regarding “therein,” the court found that its ordinary, common meaning could be either “in that place” or “in that matter.” Under the first meaning, in context, the phrase “appeals therein” would refer to appeals pending in the same place as the CDP hearing, which would be within the IRS, not in a federal court. Under the second, the phrase “appeals therein” in context would refer to appeals of a CDP hearing determination.
With the terms “appeals” and “therein” each having two meanings, the Third Circuit observed that there are four possible combinations for the meaning of the phrase “appeals therein.” However, it further observed that three of those combinations would render the expression “appeals therein” meaningless because they refer to processes that do not exist, such as administrative appeals of CDP hearings within the IRS. This, the court found, would nullify the phrase’s effect, in contravention of the canon against superfluity. On the other hand, the court determined that the fourth combination, “appeals” in the general sense and “therein” as “in such matter,” “produces a reasonable outcome that is consistent with multiple canons of construction.” Using those meanings for “appeals” and “therein,” the court concluded that the phrase applies to any appeals and petitions seeking review of a CDP hearing, including a petition for a writ of certiorari.
Pending: The Third Circuit considered two possible ordinary, common meanings for “pending.” The first meaning was “begun but not yet completed” (Black’s Law Dictionary (6th ed. 1990)). With that meaning for “pending,” the hearing and the “appeals therein” would be pending until the agency resolved the hearing or a court decided the appeal, but after resolution, neither the hearing nor an “appeal therein” would remain pending. In the context of Sec. 6330(e)(1), tolling would occur while the hearing was active, but it would cease for the interval between resolution of the initial hearing and the filing of an appeal, or for the period between when an appeal was resolved and the filing of any allowable successive appeal.
Alternatively, the court found that in 1998 the term “pending” had the ordinary, common meaning of “awaiting an occurrence of conclusion of an action,” such that it described “a period of continuance or indeterminacy” (Black’s Law Dictionary (6th ed. 1990)). Under that meaning, a hearing or an appeal therein would be pending after its resolution for the period while the ruling remained indeterminate due to the possibility of an impending or imminent appeal. Thus, tolling under Sec. 6330(e)(1) would be continuous from the starting date of the hearing through the date on which the possibility of future appellate review expired.
The Third Circuit found that only the second definition worked for purposes of Sec. 6330(e)(1). The tolling clause in Sec. 6330(e)(1) identifies a singular “period” of suspension, but the first definition of “pending” would involve several distinct periods of piecemeal tolling. In the court’s view, if Congress had intended to account for such intermittent tolling, it could have used the word “periods.” Therefore, Congress intended that the second meaning apply and that “pending” in Sec. 6330(e) (1) describes a continuous period that includes not only the hearing and “appeals therein” but also any intervening periods of indeterminate length during which an appeal or petition could be filed.
Application of Sec. 6330(e)(1) using these meanings: Applying Sec. 6330 with these meanings for “appeals therein” and “pending,” the Third Circuit held that the action was filed timely. The court found that at least 129 days remained in the statute-of-limitation period when the D.C. Circuit issued its mandate and that, under the applicable meanings of “appeals therein” and “pending,” the limitation period was not reduced either by the time that Weiss took to file his petition for a writ of certiorari (62 days) or by the time that the Supreme Court took to deny the petition (40 days). Thus, the court concluded that the government had 129 days after the Supreme Court’s denial of Weiss’s petition to commence this action, and it did so within 64 days, which left at least 65 days of the 10-year limitation period to spare.
Reflections
This case vividly illustrates how long a determined taxpayer can string out the collection of a tax debt. The earliest tax liability at issue in the case was from 1986; the IRS assessment occurred in 1994. On top of the approximately five years that collection was barred because he was engaged in bankruptcy proceedings, Weiss, through his series of administrative and judicial appeals, avoided collection of tax that he admitted on returns that he owed for another 23 years.
Weiss, No. 21-1592 (3d Cir. 11/2/22)
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
