The IRS lost big in the U.S. Supreme Court today, where a unanimous decision authored by Justice Amy Coney Barrett rejected the agency’s argument that a taxpayer who filed an appeal one day late lost all ability to challenge a penalty. This ruling in Boechler v. Commissioner, No. 20-1472, marks the second big unanimous loss in a row for the IRS, which last year lost in CIC Services v. IRS, rejecting the IRS’s argument that taxpayers cannot challenge IRS failure to follow procedures in issuing regulations.
Though the IRS is a year behind in opening mail and makes serious errors of its own, it has no pity for taxpayers who make honest mistakes. When a North Dakota firm ignored a request for paperwork they had already sent, the IRS followed up with a $19,250 “intentional disregard” penalty and a notice to levy (seize the firm’s assets). After the IRS’s “independent” office of tax appeals predictably upheld the penalty, the taxpayer filed an appeal to the U.S. Tax Court, arguing both that there was no tax discrepancy and that the penalty was excessive.
As happens to many of us, Boechler missed the deadline and filed its appeal one day after the deadline. The IRS has since argued that “this tardiness extinguished Boechler’s opportunity to seek review,” to quote Justice Barrett.
Congress set up the U.S. Tax Court and a statute, 26 U.S.C. § 6330(d)(1) reads that a person “may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).” As Barrett notes, “All agree that the parenthetical grants the Tax Court jurisdiction over petitions for review… And all agree that the provision imposes a 30-day deadline to file those petitions. The question is whether the provision limits the Tax Court’s jurisdiction to petitions filed within that timeframe,” which itself turns on whether “such matter” refers to all petitions, only petitions filed by the deadline, the IRS’s determination, or something else.
The Court concluded that the statute is capable of “multiple plausible interpretations,” and therefore the IRS argument falls because the Court will only strip away jurisdiction from the Tax Court if Congress “clearly states” a desire to do so. The IRS’s main argument that the taxpayer is out of luck depends on the statute being clear, which it is not. The IRS’s secondary argument is that a clearer statute disallows injunctions unless the taxpayer has filed a timely appeal, but the Court said it is not illogical to allow late appeals but disallow injunctive relief in them. Finally, the IRS argues that Congress was aware of the same issue in another provision before enacting this provision. The Court rejected the notion that there was such a “long line of authority” here.
The Court further held that the IRS did not meet its burden to overcome the presumption in favor of equitable tolling, or the Tax Court being able to waive the deadline in certain circumstances. The Court observed that the statute does not prohibit it, that the Tax Code generally is protective of procedures that are often initiated by laypersons, and that the IRS’s arguments of the uncertainty the agency will face are unconvincing. Barrett warns that the agency should not believe it “can confidently rush to seize property on day 31 anyway.”
The section in particular tracks the brief NTUF’s Taxpayer Defense Center, joined by the National Federation of Independent Business, filed in the case, where we explained why the IRS was wrong in arguing that revenue collection would be appreciably disrupted if the IRS lost. We argued that tax law isn’t special and equitable relief should apply just as much in tax as anywhere else. Further, even if tax is special, that should mean taxpayers deserve more due process rights, not fewer, given the wide scope and enormous power of tax collecting authorities. “The door should not be closed on courts’ discretion when statutes do not prohibit it.”
The Court’s decision had no dissents or other opinions.
In recent years the IRS has been taking a much harsher, no-such-thing-as-an-honest-mistake enforcement attitude. This case is just one piece of that strategy, and that it results in a 9-to-0 loss in the Supreme Court should force some reflection on the IRS’s part as to their legal strategy.