TEFRA petition filing deadline is jurisdictional

The Tax Court held that the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) deadline under Sec. 6226(b) for filing a petition for readjustment of partnership items after the issuance of a notice of final partnership administrative adjustment (FPAA) was jurisdictional and could not be equitably tolled.

Background

North Wall Holdings LLC is an Alabama limited liability company that is treated as a partnership for federal income tax purposes and for the 2017 tax year was subject to the now–repealed TEFRA unified audit and litigation procedures. One of North Wall’s partners was Schuler Investments LLC, which was a notice partner of the partnership for the 2017 tax year.

On May 6, 2021, the IRS mailed North Wall’s tax matters partner (TMP) an FPAA disallowing a claimed noncash charitable contribution deduction of $45,800,000 for 2017 and determining the applicability of penalties. On June 1, 2021, the IRS mailed copies of the FPAA to North Wall’s notice partners, including Schuler.

Under Sec. 6226(a) (before the repeal of TEFRA), within 90 days after the day on which an FPAA was mailed to the TMP, the TMP could file a petition for a readjustment of the partnership items for the tax year with the Tax Court, the district court for the district of the partnership’s principal place of business, or the Court of Federal Claims. Under Sec. 6226(b) (before the repeal of TEFRA), if the TMP did not file a petition for readjustment of partnership items with respect to an FPAA, a notice partner could, within 60 days after the close of the 90–day period, file a petition for a readjustment of the partnership items with those same courts (i.e., the notice partner could file a petition within 150 days of the mailing of the FPAA to the partnership).

North Wall’s TMP did not file a petition with any court for a readjustment of the partnership items for the FPAA the IRS mailed on May 6, 2021, within 90 days of the IRS’s mailing of the FPAA or at any other time. Schuler, in its capacity as a North Wall notice partner, filed such a petition in the Tax Court on Oct. 21, 2021. The filing date was 168 days after the FPAA was mailed to the TMP. Schuler’s Tax Court petition, nonetheless, alleged that it was timely filed within the 150–day Sec. 6226(b) TEFRA petition deadline.

In Tax Court, the IRS filed a motion to dismiss for lack of jurisdiction, claiming that Schuler’s petition was filed untimely. Schuler objected to the motion, contending that the Sec. 6226(b) TEFRA petition deadline is not jurisdictional.

Tax Court’s decision

The Tax Court held that the Sec. 6226(b) TEFRA deadline for filing a petition for a readjustment of partnership items is jurisdictional and that equitable tolling did not apply to hold the filing period open. Thus, it further held that Schuler’s petition was untimely and granted the IRS’s motion to dismiss the case.

Jurisdictional rules versus nonjurisdictional claims–processing rules: As the Tax Court explained,if a federal court’s subject matter jurisdiction depends on the timely filing of a complaint or petition (i.e., it is jurisdictional), “a litigant’s failure to comply with the bar deprives a court of all authority to hear a case” (quoting Wong, 575 U.S. 402, 408—09 (2015)). Cases that are not filed before the expiration of a jurisdictional deadline must be dismissed for lack of jurisdiction (Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006)).

Claims–processing rules, on the other hand, are those that “seek to promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times” (Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 435 (2011)). The failure to meet a claims–processing rule “do[es] not deprive a court of authority to hear a case” (Wong, 575 U.S. at 410). Filing deadlines “ordinarily are not jurisdictional” (Sebelius v. Auburn Regional Medical Center, 568 U.S. 145, 154 (2013)). Deadlines that are claims–processing rules are subject to the rebuttable presumption that they may be equitably tolled, based on the facts of a case (Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95—96 (1990)).

Clear–statement rule: The Tax Court found, citing Arbaugh, that for a filing deadline to be jurisdictional, Congress must clearly state that it is jurisdictional and that absent such a clear statement, courts should treat filing deadlines as nonjurisdictional claims–processing rules. While specific words are not required in the statute for a deadline to be jurisdictional, the “traditional tools of statutory construction must plainly show that Congress imbued a procedural bar with jurisdictional consequences” (Wong, 575 U.S. at 410). The Tax Court, citing Musacchio, 577 U.S. 237 (2016), held that in determining whether a deadline is jurisdictional under the clear–statement rule, courts must consider the text, context, and relevant historical treatment of the provision at issue.

Application of the clear–statement rule: Applying the clear–statement rule, the Tax Court considered the text, context, and relevant historical treatment of Sec. 6226(b). The court found that the text of Sec. 6226(b) placed the TEFRA petition deadline in the heart of the statute’s jurisdictional grant. Also, because the surrounding TEFRA provisions become unworkable if the TEFRA petition deadline is not jurisdictional, the broader context indicated to the court that the petition deadline is jurisdictional. Finally, the court found that 40 years of court decisions and congressional amendments have consistently treated the TEFRA petition deadline as jurisdictional. Accordingly, it held that the deadline was jurisdictional.

Equitable tolling

Citing Arellano v. McDonough, 143 S. Ct. 543 (2023), and Brockamp, 510 U.S. 347 (1997), the Tax Court found that the presumption in favor of equitable tolling is rebutted if there is good reason to believe that Congress did not intend for equitable tolling to apply. The court held that, regardless of whether it found that the Sec. 6226(b) TEFRA petition deadline was jurisdictional, the complex TEFRA statutory scheme and the disruptive consequences that would result if equitable tolling of the TEFRA petition deadline was permitted indicated that Congress did not intend for equitable tolling to apply to the deadline.

Statutory exceptions to the deadline: In Arellano and Brockamp, the Supreme Court found that one of the reasons that the deadlines in those cases were not subject to equitable tolling was that they were subject to specific statutory exceptions. Like the deadlines in those two cases, the TEFRA petition deadline was subject to several specific exceptions, including ones for bankrupt partners, partners that had not received timely notice, and partners that filed premature petitions. The Tax Court found that the existence of these exceptions to the TEFRA petition deadline weighed in favor of equitable tolling not applying to it.

Administrative problems caused by equitable tolling: The Tax Court further found, as the Supreme Court had determined with respect to the deadline at issue in Arellano, that equitable tolling of the Sec. 6226(b) TEFRA petition deadline would be “incongruent with the statutory scheme.” According to the court, allowing equitable tolling of the TEFRA petition deadline would create serious administrative problems, which would be magnified because TEFRA proceedings “affect multiple parties, ranging from two to thousands.”

Administrative problems the court pointed to included the nullification of “Congress’s finely tuned” TEFRA coordination provisions, the divestment of another court’s jurisdiction by an untimely petition in the Tax Court, and rendering unworkable the process of assessment and collection of deficiencies resulting from a TEFRA proceeding. The court also highlighted the opportunity for gamesmanship that equitable tolling would make possible in TEFRA proceedings, noting that a partnership with thousands of partners would only need to seek out one partner whose circumstances merited equitable tolling for all partners, deserving or not, to receive its benefits.

Reflections

If Schuler appeals the case to the Eleventh Circuit (where an appeal would presumably lie) and that court holds that equitable tolling applies to the Sec. 6226(b) TEFRA petition deadline, Schuler may ultimately have difficulty establishing that it is entitled to equitable tolling. As Judge Christian N. Weiler of the Tax Court pointed out in his concurring opinion in the case, Schuler “presented no evidence — and is utterly silent — as to why it would be eligible for such relief in the case.”

North Wall Holdings, LLC, 165 T.C. No. 9 (2025)

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.