In a recent Tax Court case, the Court determined that the 90-day deadline for filing a petition for redetermination of employment status is not jurisdictional and thus does not prevent the Court from hearing the case.[1] While an all-too-familiar statute pertaining to the jurisdiction of the Tax Court to hear a matter has generally been held to be jurisdictional, this case presents another instance of where a seemingly-jurisdictional rule may not be truly jurisdictional.[2]
This opinion relates to the government’s Motion to Dismiss for Lack of Jurisdiction and is not an ultimate disposition of the case. In other words, the taxpayer lives to fight another day.
Facts
This case relates to quarterly periods in 2016 and 2017 pertaining to employment tax returns. Specifically, the taxpayer did not file the required quarterly employment tax returns during the years 2016 and 2017, and following an audit, the IRS issued a notice of employment tax determination under IRC Section 7436, dated August 24, 2021. In that notice of determination, the IRS determined deficiencies for employment tax, additions to tax for failure to timely file[3] and failure to timely pay[4], and penalties for failure to make deposit of taxes.[5] The notice was not sent by certified or registered mail. The notice provided that the last day to file a petition with the Court was November 22, 2021 (90 days following the date of the notice).
On November 18, 2021, the taxpayer mailed its petition for redetermination of employment status to the Court via FedEx Express Saver. The petition arrived on November 23, 2021, a day after the deadline. On March 2, 2022, the government filed its Motion to Dismiss for Lack of Jurisdiction on the grounds that the petition was filed after the deadline prescribed by IRC Section 7436(b)(2). Subsequently, the taxpayer filed its objection to the government’s motion, arguing that the 90-day deadline for filing a petition for redetermination of employment status is not jurisdictional. On September 14, 2023, the government filed its First Supplement to Motion to Dismiss for Lack of Jurisdiction.
Discussion
Subtitle C subjects employers to employment taxes on wages paid to employees. Those taxes are imposed under the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and income tax withhold under IRC Section 3402. Employers are required to make periodic deposits of amounts withheld from employees’ wages and the employer’s share of FICA and FUTA taxes.[6] These taxes specifically apply in the context of employees and do not apply to payments made to independent contractors.[7]
IRC 7436 and the Jurisdictional Grant to the Tax Court
The specific statute at issue here is IRC Section 7436 (Proceedings for determination of employment status). Subsection (a) provides for the “Creation of Remedy,” providing that in the event of an actual controversy involving a determination by the Secretary regarding determination of employment status for subtitle C or lack of entitlement to the treatment under subsection (a) of Section 530 of the Revenue Act of 1978 with respect to an individual, then upon the filing of an “appropriate pleading,” the Tax Court is granted the right to determine (i.e. jurisdiction) whether the Secretary’s determination is correct and the proper amount of employment tax under the determination. In short, this provision allows an employer-taxpayer to challenge a determination made by the IRS.
The next provision at issue was IRC 7436(b)(2), pertaining to the time for filing an action. This provision states “If the Secretary sends by certified or registered mail notice to the petitioner of a determination by the Secretary described in subsection (a), no proceeding may be initiated under this section with respect to such determination unless the pleading is filed before the 91st day after the date of such mailing.”
Thus, a petition must be filed within 90 days after the notice of employment tax determination is mailed. The next part of the analysis pertains to the timely-mailed, timely-filed determination under IRC Section 7502(a).[8] However, the Court dispensed with this argument by the taxpayer, holding that the filing of the petition could not relate back to the date of mailing because IRC Section 7502(f), which provides for application of the mailbox rule to private delivery services “if such service is designated by the Secretary[,]” does not apply FedEx Express Saver.[9] Accordingly, the Court determined the petition filed untimely. However, that was not the end of the matter. The Court had yet to determine whether the 90-day deadline under IRC Section 7436 was jurisdictional.
Jurisdiction
A jurisdictional requirement sets the bounds of the “court’s adjudicatory authority.”[10] Specifically, where a federal court’s subject-matter jurisdiction (ability to hear and adjudicate the case) depends on a filing deadline, “a litigant’s failure to comply with the bar deprives the court of all authority to hear a case” and the court must enforce the deadline sua sponte and the deadline cannot be waived or tolled.
Alternatively, claim-processing rules direct the “’parties [to] take certain procedural steps at certain specified times’ without conditioning a court’s authority to hear the case on compliance with those steps.”[13] A major difference is that such deadlines in these rules do not deprive a court of the ability to hear a case.[14] A procedural requirement is treated as jurisdictional only if Congress “clearly states” that the deadline is jurisdictional.[15] “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.”[16]
An example of a jurisdictional deadlines is IRC Section 6213(a), providing generally for a 90-day period (150 days if the notice is addressed to outside of the United States) following the issuance of a notice of deficiency for certain taxes (ex. income, estate, and gift). However, unlike the statute at issue, IRC Section 6213(a) provides that “The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition.” This provision specifically limits the jurisdiction of the Tax Court whereas IRC Section 7436(a) creates the remedy (option to go to Tax Court) and limits the time for filing an action to 90 days following the sending of determination by certified or registered mail. Here, the redetermination was not sent by registered or certified mail. Therefore, the deadline did not apply to prevent the Tax Court from hearing the case.
You can compare provisions below:
| 6213(a) | 7436(b)(2) |
| The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for a redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition. | If the Secretary sends by certified or registered mail notice to the petitioner of a determination by the Secretary described in subsection (a), no proceeding may be initiated under this section with respect to such determination unless the pleading is filed before the 91st day after the date of such mailing. |
Conclusion
Ultimately, the Court identified what may have been a defect in the statute. Alternatively, the statute may have worked as intended. Either way, if the IRS wishes to avail itself of the 90-day deadline for petitioning the Court, it must send its determination by certified or registered mail. Otherwise, the deadline will not apply so as to prevent the taxpayer from petitioning for a redetermination. The Court noted that there was an equitable tolling argument but withheld passing judgment as to that issue until the parties raised the issue in an appropriate motion.
[1] Belagio Fine Jewelry, Inc., 162 TC No. 11 (6/25/2024).
[2] IRC Section 6213(a).
[3] IRC Section 6651(a)(1)
[4] IRC Section 6651(a)(2)
[5] IRC Section 6656
[6] See IRC Section 6302, 6157; Treas. Reg. Sections 31.6302-1, 31-6302(c)-3.
[7] See IRC Section 3121(a), 3401(a).
[8] See A. Parker Durham, Better Safe Than Sorry – The Strict Requirement to Timely File a Petition in Tax Court, Jan 10, 2024; See also Charles J. Allen, But I complied with the Mailbox Rule on my Refund Request… You Still Missed the SOL, Aug. 16, 2019; See also Joshua W. Sage, A Reminder in the Basics: Timely Mailing is Timely Filing, Jul 2, 2019; See also Joshua W. Sage, Postmark Rule 180 in Refund Case Ruling – Harrison, Feb. 19, 2020.
[9] See IRS Notice 2016-30.
[10] See Kontrick v. Ryan, 540 U.S. 443, 455 (2004).
[11] U.S. v. Wong, 575 U.S. 402, 408-09 (2015).
[12] For an example of a jurisdictional deadline, see IRC Section 6213 (Restrictions applicable to deficiencies; petition to Tax Court).
[13] Boechler, P.C. v. Comm’r, 142 S. Ct. 1493, 1497 (2022) (quoting Henderson v. Shinseki, 562 U.S. 428, 435 (2011)).
[14] Wong, 575 U.S. at 410.
[15] Arbaugh v. Y & H Corp., 546 U.S. 500, 515 (2006).
[16] Wong, 575 U.S. at 410.
