DOJ and Another 3d Cir. Panel Muddy Waters as to Source of Tax Court’s Deficiency Jurisdiction
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On March 7, 2023, there was an oral argument before the Third Circuit in Culp v. Commissioner, 3d Cir. Docket No. 22-1789. Here’s a link to the audio. Culp presents the identical issues addressed in Hallmark v. Commissioner, 159 T.C. No. 6 (Nov. 29, 2022) – i.e., whether the deficiency petition filing deadline in the first sentence of I.R.C. § 6213(a) is jurisdictional or subject to equitable tolling. In December, I did an 8-part post on various things I thought the Tax Court got wrong in Hallmark.
In this post, I wanted to highlight a development in the Third Circuit (caused by the DOJ) in a precedential opinion issued yesterday, Skolnick v. Commissioner, 2023 U.S. App. LEXIS 5502 – i.e., a day after the Culp oral argument.
One fight in Culp (perhaps the key fight) is whether the first sentence of I.R.C. § 6213(a) contains a clear statement from Congress that the filing deadline therein is jurisdictional. The Supreme Court has said that filing deadlines are not jurisdictional unless there is a clear statement from Congress making them so. However, also, the Supreme Court “has often explained that Congress’s separation of a filing deadline from a jurisdictional grant indicates that the time bar is not jurisdictional.” United States v. Kwai Fun Wong, 575 U.S. 402, 411 (2015) (citations omitted).
In their briefs, the Culps (like the taxpayer in Hallmark) argued, in the alternative, that (1) if the Tax Court’s jurisdiction to hear deficiencies is in I.R.C. § 6213(a)’s first sentence, then there is no clear statement in the sentence making the filing deadline jurisdictional, and (2) I.R.C. § 6214(a), not I.R.C. § 6213(a), is the true source of the Tax Court jurisdiction to redetermine deficiencies, even those not greater than the deficiency set forth in the notice. Although the Culps need not win the I.R.C. § 6214(a) argument to win their case, certainly, if the jurisdictional grant is held to be in I.R.C. § 6214(a), then Congress has separated the filing deadline from the jurisdictional grant – triggering the Supreme Court’s instruction to treat the filing deadline as not jurisdictional.
For the detailed argument that I.R.C. § 6214(a) provides the basis of the Tax Court’s jurisdiction and the citation of several opinions by three sitting Tax Court judges who signed the Hallmark opinion who have previously stated that I.R.C. § 6214(a) is the source of the Tax Court’s deficiency jurisdiction, see my post on Hallmark here . Both the Hallmark opinion’s holding and the DOJ’s argument in Culp are that I.R.C. § 6214(a) is only the source of the Tax Court’s jurisdiction to redetermine deficiencies in excess of those set out in the notice, while I.R.C. § 6213(a) is the source of the Tax Court’s jurisdiction to redetermine deficiencies to numbers equal to or below those set out in the notice.
In Skolnick v. Commissioner, a hobby loss case, where the IRS was not arguing for an increased deficiency, a 3-judge panel yesterday wrote: “The Tax Court had jurisdiction under 26 U.S.C. §§ 6214 and 7442.” Id., slip op. at 9. The panel got that sentence from the first page of the DOJ’s Skolnick brief, which stated: “The Tax Court had jurisdiction pursuant to Sections 6214 and 7442 of the Internal Revenue Code of 1986 (26 U.S.C.) (I.R.C. or Code).” So much for DOJ consistency on what § 6214(a) does.
The Judges on the Third Circuit panel in Culp are Schwartz, Bibas, and Ambro. The parties had briefed Culp before Hallmark was decided. Shortly before the oral argument, the Culp panel asked for letters from the parties and amicus on the impact of the Hallmark opinion on the Culp case. Keith, Audrey Patten, and I are counsel for amicus, The Center for Taxpayer Rights.
After reading Hallmark and the letters, the panel was skeptical that the Tax Court got Hallmark right. Although judges can and do change their minds after oral argument, both I and others took the oral argument as a sign that the panel is now leaning toward holding that the deficiency petition deadline is not jurisdictional and is subject to equitable tolling. If they do so, this will set up a Circuit split that will take the issues of Tax Court petition deadlines back to the Supreme Court in 2024 or 2025. Last time, in Boechler v. Commissioner, 142 S. Ct. 1493 (2022), the Supreme Court held the Collection Due Process (CDP) petition deadline is not jurisdictional and is subject to equitable tolling. My guess is that it’s about 70% likely that the Supreme Court would come to the same conclusions as to the deficiency filing deadline if Culp went up on cert. Fasten your seatbelts.
The Third Circuit has made previous statements in precedential opinions that I.R.C. § 6213(a) is the source of the Tax Court’s deficiency jurisdiction. See, e.g., Sunoco Inc. v. Commissioner, 663 F.3d 181, 187 (3d Cir. 2011) (“The Tax Court’s principal basis for jurisdiction is I.R.C. § 6213(a), 26 U.S.C. § 6213(a). That section of the Tax Code gives the Tax Court jurisdiction to redetermine a ‘deficiency’. . . .”). Before Skolnick, the Culp panel might have felt bound by those statements, even though they were not based on briefing the issue as between I.R.C. § 6213(a) and I.R.C. § 6214(a), and whether or not either provision of the Code was the source of the Tax Court’s jurisdiction had no impact on how those cases would be decided. In Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 91 (1998), the Supreme Court stated that such statements should be considered “drive-by jurisdictional rulings”, entitled to no weight.
Both the statement in Sunoco and the statement in Skolnick are arguably drive-by jurisdictional rulings. However, even if they are not, they clearly now set up a precedential-opinion conflict within the Third Circuit as to the source of the Tax Court’s deficiency jurisdiction. So, the Culp panel is now free to look deeply into this issue and make its own ruling.
Further, Skolnick’s statement that I.R.C. § 6214(a) is the source of the Tax Court’s deficiency jurisdiction undermines any argument that I.R.C. § 6213(a)’s first sentence contains a clear statement that its filing deadline is jurisdictional.
That the Culp panel was concerned about this issue is evident from the following two questions asked by Judge Schwartz at the oral argument:
How is [the argument that 6214(a) gives the Tax Court jurisdiction to redetermine deficiencies] incorrect, when the specific language of 6214(a) says, quote, that the Tax Court shall have jurisdiction to redetermine the correct amount of the deficiency?
. . . . If it is not in 6214(a) — as Judge Ambro and I are asking you — where is it in 6213 that says that — that gives the Tax Court jurisdiction to review these deficiency notices?