Abdo could provide relief for other missed deadlines

Editor: Rochelle Hodes, J.D., LL.M.

The Tax Court held in Abdo, 162 T.C. No. 7 (2024), that a taxpayer’s petition filed during the early days of the COVID-19 pandemic was timely under Sec. 7508A(d). Analyzing the Sec. 7508A regulations under the now-overruled framework in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Tax Court held that Sec. 7508A(d) provides an unambiguous, self-executing, and mandatory 60-day postponement period for filing a petition with the Tax Court following a federally declared disaster and invalidated Regs. Secs. 301.7508A-1(g)(1) and (2) to the extent they were inconsistent with Sec. 7508A(d).

Although Chevron has been overruled by the Supreme Court in Loper Bright Enterprises v. Raimondo, No. 22-451 (U.S. 6/28/24), the fact that the Tax Court found the statute unambiguous and therefore did not defer to the agency’s interpretation likely means that the outcome of Abdo would be the same post-Loper. Accordingly, this item reviews Abdo and looks more closely at possible ramifications for other deadlines affected by disaster declarations.

Disaster relief under Sec. 7508A

Sec. 7508A provides the authority for the Treasury secretary or their delegate to provide relief to any taxpayer determined by the secretary to be affected by a federally declared disaster as defined by Sec. 165(i)(5)(A). Sec. 165(i)(5)(A) defines “federally declared disaster” to mean any disaster determined by the U. S. president to warrant government assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act).

Under Sec. 7508A(a), the secretary has discretion to specify a period of up to one year that may be disregarded in determining the following:

• Whether affected taxpayers performed any of the acts described in Sec. 7508(a) in a timely manner;
• The amount of any interest, penalties, or additions to tax; and
• The amount of any credit or refund.

Sec. 7508 requires postponement of time for performing certain acts by reason of service in a combat zone or contingency operation. Sec. 7508(a) lists 10 specific time-sensitive acts that may be postponed, including the time for filing a petition in Tax Court. Sec. 7508(a) also permits the secretary to postpone other acts required or permitted under the internal revenue laws that are not otherwise enumerated under Sec. 7508(a).

In response to concerns expressed by the AICPA (see letter, “Request for Permanent Tax Provisions Related to Disaster Relief” (Nov. 22, 2013)) and others that waiting for the federal government to declare a disaster and for the IRS to issue its disaster relief causes unnecessary uncertainty and anxiety for taxpayers who are in the midst of a disaster, Congress amended Sec. 7508A in 2019 to add a 60-day postponement period. Specifically, Sec. 7508A(d), as enacted and in effect when the petition was filed in Abdo, postpones the time to perform certain acts for qualified taxpayers beginning on the earliest incident date specified in the relevant disaster declaration and ending 60 days after the latest incident date specified. Under Sec. 7508A(d)(2), “qualified taxpayers” include individuals whose primary residence is in the disaster area or whose principal place of business or business records were located in the disaster area. Sec. 7508A(d) was effective for disasters declared after Dec. 20, 2019. Later, Sec. 7508A(d) was amended, effective for disasters declared after Nov. 15, 2021, to provide that the 60-day period starts to run on the later of the date of the declaration or the specified incident date.

On March 13, 2020, President Donald Trump declared a nationwide emergency as a result of the COVID-19 global pandemic and also approved major disaster declarations for each of the 50 states under the Stafford Act. Subsequently, each of the 50 statesf disaster declarations listed Jan. 20, 2020, as the beginning of the disaster and provided no end date. In response to the COVID-19 disaster declaration, the IRS exercised its authority under Sec. 7508A(a) and issued Notice 2020-23, postponing most tax-related deadlines, beginning on April 1, 2020, and ending July 15, 2020, including the deadline for filing a Tax Court petition, to July 15, 2020. The notice specifically did not provide relief to taxpayers whose filing deadline was after Jan. 20, 2020, but before April 1, 2020.

Facts of the case

The IRS issued the taxpayers in Abdo a notice of deficiency on Dec. 2, 2019. Under Sec. 6213(a) a taxpayer may file a petition with the Tax Court within 90 days after a notice of deficiency is mailed. The final date specified in the notice of deficiency on which to file a petition with the Tax Court was March 2, 2020. The taxpayers mailed their petition to the Tax Court on March 17, 2020.

Following the Tax Court’s reopening after its closure due to the COVID-19 pandemic, on Sept. 2, 2020, the IRS filed a motion to dismiss on the ground that the petition was not timely filed. The taxpayers responded that Sec. 7508A(d) operated to automatically postpone the deadline to file their petition until 60 days after Jan. 20, 2020, the first incident date listed in the COVID-19 disaster declaration for the state where they resided, and therefore their petition was timely filed.

In 2021, while the taxpayers’ case was in Tax Court, the IRS issued proposed and final regulations under Sec. 7508A(d) effective for disasters declared on or after Dec. 21, 2021 (REG-115057-20, 86 Fed. Reg. 2607 (Jan. 13, 2021); T.D. 9950, 86 Fed. Reg. 31146 (June 11, 2021)). Regs. Secs. 301. 7508A-1(g)(1) and (2) limit the time-sensitive acts that are postponed for 60 days to the acts postponed by the Treasury secretary’s exercise of authority under Sec. 7508A(a). Effectively, the regulations provide that the 60-day postponement under Sec. 7508A is not automatic but discretionary and requires action by the secretary before an act can be postponed.

The parties’ arguments and court’s analysis

In August 2023, the Tax Court ordered the parties to address the applicability of the final regulations. The IRS argued that Regs. Sec. 301.7508A-1(g) applied and that its interpretation that the 60-day postponement applied only to acts identified by the secretary was entitled to deference under Chevron. While the taxpayers agreed that Chevron provided the proper framework to review the regulations, they argued that Sec. 7508A(d) was unambiguous and provided them an automatic and mandatory 60-day postponement of time with respect to all acts described in Sec. 7508(a), including the time to file their petition, and that therefore the regulations were invalid. They also argued that even if the court found the statute to be ambiguous, the regulations ran counter to all reasonable constructions of Sec. 7508A(d) and, as such, were invalid.

Chevron articulated a two-step process for a court to review an agency’s interpretation of a statute. In step 1, the court determines whether Congress has directly addressed the question at issue. If Congress has unambiguously expressed its intent, the court applies traditional rules of statutory construction to determine whether the regulations are valid. If, instead, the statute is silent or ambiguous regarding the question at hand, the court determines whether the agency’s interpretation is a reasonable interpretation of the statute. The IRS argued that Sec. 7508A(d) was ambiguous for two reasons: one, that it does not identify the time-sensitive acts subject to it, and two, it does not specify its application to a federal disaster declaration without an incident date. The taxpayers argued that Sec. 7508A(d) is unambiguous and provides a self-executing postponement period for all tax-related acts included under Sec. 7508(a) by cross-reference to Sec. 7508A(a) and that no action by the Treasury secretary is required for the postponement to be operative.

In ruling for the taxpayers, the Tax Court held that Sec. 7508A(d) spoke directly to the question at issue and unambiguously provided for a mandatory postponement of 60 days to file a petition with the court. The court went on to invalidate Regs. Secs. 301.7508A-1(g)(1) and (2) to the extent that they limited the acts that are automatically postponed by Sec. 7508A(d).

Looking ahead, questions raised, and key takeaways

Congress updated Sec. 7508A(d) on Nov. 15, 2021, to clarify which acts the mandatory 60-day postponement applies to. It also clarified that the 60-day period begins to run on the incident date specified in the disaster declaration and ends on the later of 60 days after the incident date or the date of the disaster declaration.

This update should help avoid disputes related to disaster declarations arising after Nov. 15, 2021. However, the Tax Court’s ruling in Abdo that the previous version of Sec. 7508A(d) applies automatically to all acts listed in Sec. 7508(a) gives rise to other potential questions for disasters declared after Dec. 20, 2019, and on or before Nov. 15, 2021.

In addition, before Sec. 7508A(d) was amended in 2021, the 60-day period was a minimum disregarded period. The plain language of Sec. 7508A(d) calls for a period to be disregarded that begins on the earliest incident specified in a disaster declaration and ends “on the date which is 60 days after the latest incident date so specified.” The Tax Court noted this language in a footnote (Abdo, 162 T.C. at fn. 2). The taxpayers in Abdo did not require a period beyond 60 days following the beginning incident date in the disaster declaration to be successful in their argument, and the Tax Court noted that for simplicity purposes, it would refer to the postponement as lasting 60 days. It is unclear how this minimum postponement period applies if a date after the 60 days is relevant to the controversy.

In a different footnote (id. At fn. 8) the Tax Court noted that while the original state disaster declarations did not specify an end date, they were amended in 2023 and, in relevant part, provided that “the incident period for all COVID-19 major disaster declarations and the nationwide emergency declaration will close effective May 11, 2023.” Does this mean that May 11, 2023, is the “latest incident date so specified” under Sec. 7508A(d) and, therefore, in conjunction with the holding in Abdo, that the period automatically disregarded for the purposes of the acts described in Sec. 7508(a) is actually Jan. 20, 2020, through July 10, 2023 (60 days after May 11, 2023)? If so, more questions are raised, including:

• Were deadlines for filing income, estate, gift, employment, and excise tax returns and paying tax automatically postponed for returns and payments due between Jan. 20, 2020, and July 10, 2023, despite the fact that under Sec. 7508A(a), those deadlines were postponed only until July 15, 2020, in Notice 2020-23?
• Was the time for filing petitions with the Tax Court suspended during this period, thereby making the due date for all Tax Court petitions ordinarily due between Jan. 20, 2020, and July 10, 2023, sometime after July 10, 2023?
• Is the period between Jan. 20, 2020, and July 10, 2023, disregarded in determining the ordinary three-year period under Sec. 6511 to file a refund claim (see Silva and Hodes, “Lookback Period Fix Should Apply to All Disaster Relief,” 54-9 The Tax Adviser 15 (September 2023)).
• Is the period between Jan. 20, 2020, and July 10, 2023, disregarded in determining the two-year period under Sec. 6532 for taxpayers to file suit in federal court after a refund claim denial?
• Is the period between Jan. 20, 2020, and July 10, 2023, disregarded in determining the IRS’s three-year assessment period under Sec. 6501 and the 10-year collection period?

Potential opportunities

It is impossible to know whether other federal courts will follow the Tax Court’s ruling in Abdo. However, given this uncertainty and the potential application of the Tax Court’s holding to other deadlines, there may be opportunities for taxpayers to contest potentially missed deadlines. For instance, taxpayers subject to date-related penalties or who missed any refund claim deadlines between Jan. 20, 2020, and July 10, 2023, should consider whether the ruling in Abdo may provide them relief.

Editor notes

Rochelle Hodes, J.D., LL.M., is principal with Washington National Tax, Crowe LLP, in Washington, D.C.

For additional information about these items, contact Hodes at Rochelle.Hodes@crowe.com.

Contributors are members of or associated with Crowe LLP.