Second Circuit lacks jurisdiction in small tax case

The Second Circuit held that it lacked jurisdiction to adjudicate an appeal of a “small tax case” originating from the Tax Court. In particular, the Second Circuit noted that the plain language in Sec. 7463(b) precludes its appellate review and that the prohibition applies to a “decision” on jurisdictional grounds.

Facts: In 2018, Joseph Foley received a notice of deficiency for the 2014 and 2015 tax years. Claiming that he never received the notice, Foley filed a petition disputing the deficiency in 2022 — significantly beyond the 90-day deadline under Sec. 6213(a) to petition the Tax Court. In his petition, he made the affirmative request to have his case be conducted under the small tax case procedures under Sec. 7463. The procedures are generally available to taxpayers whose deficiency in dispute or claimed overpayment is $50,000 or less per applicable year or period. They allow a “speedier disposition” and are designed to accommodate taxpayers representing themselves. However, decisions under the procedures are not precedential and cannot be reviewed by another court (Sec. 7463(b)).

The IRS moved, and the Tax Court agreed, that Foley’s petition was untimely, and the court dismissed his petition for redetermination of the deficiency. He then looked to vacate or revise the decision under Tax Court Rule 162, asserting he never received the notice. His motion was denied, with the Tax Court noting that it lacked the authority to extend the petition deadline.

Foley appealed to the Second Circuit, challenging the dismissal of his petition for redetermination and the denial of his motion to vacate. The IRS, citing Sec. 7463(b), moved to dismiss the appeal for lack of appellate jurisdiction.

Issues: The primary issue for the Second Circuit to resolve was whether Sec. 7463(b) precludes appellate review of jurisdictional dismissals of small tax cases. First, the court noted that “by its plain language, [Sec.] 7463(b) precludes our appellate review.” Sec. 7463(b) states, “A decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case.” The Second Circuit focused on the meaning of “decision” and concluded that a decision of the Tax Court includes “a decision dismissing a proceeding for lack of jurisdiction,” citing Sec. 7459(c). Ultimately, the court found that the meaning of “decision” as it is used in Sec. 7463(b) includes jurisdictional dismissals of small tax cases.

Citing Wapnick, 112 F.3d 74 (2d Cir. 1997), Foley argued that because his petition was dismissed for lack of jurisdiction instead of on the merits of the case, it was reviewable. The court was not persuaded by this argument, writing:

In contrast to the restriction on appellate review in Wapnick, the restriction at issue here, [Sec.] 7463(b), does apply to all “decisions,” including jurisdictional dismissals. Our holding in Wapnick that the restriction in [Sec.] 7429(f) does not bar appellate review of jurisdictional rulings by the district court in taxpayer challenges to jeopardy assessments does not support Foley’s argument that [Sec.] 7463(b)’s restriction on appellate review is limited to Tax Court merits determinations.

Sec. 7429 requires taxpayers to exhaust administrative remedies before seeking judicial review of a jeopardy assessment, the Second Circuit explained. “Jeopardy assessment” refers to procedures allowing an immediate assessment or collection of a deficiency that the IRS considers to be jeopardized by delay. In Wapnick, the Second Circuit held that the Sec. 7429 restriction on appellate review was limited to determinations “on the merits regarding the jeopardy assessment in question” (Wapnick, 112 F.3d at 74). But those determinations are limited to rulings concerning a jeopardy assessment’s reasonableness, the court stated. In contrast, the review prohibition in Sec. 7463(b) applies to all decisions, including dismissals for lack of jurisdiction, the Second Circuit added.

In a final attempt to persuade the court, Foley argued that because the Tax Court dismissed his case on jurisdictional grounds, it never became a small tax case and, therefore, was not constrained by Sec. 7463(b)’s prohibition on appellate review. The court was not persuaded by this argument either, noting that Foley initiated his petition with the Tax Court by electing to have his case treated as a small tax case. This election took effect immediately, and Foley never made any attempts to rescind it at any time. Thus, the court found that when the Tax Court dismissed Foley’s petition, it dismissed a case subject to small tax case procedures.

Holding: Ultimately, the Second Circuit held that it lacked jurisdiction to adjudicate Foley’s appeal of the dismissal of his petition for redetermination and the Tax Court’s denial of his motion to vacate the dismissal.

■ Foley, No. 23-1296 (2d Cir. 3/13/24)

— Matthew Geiszler, Ph.D., is a lecturer in accounting in the Brooks School of Public Policy, and John McKinley, CPA, CGMA, J.D., LL.M., is a professor of the practice in accounting and taxation in the SC Johnson College of Business, both at Cornell University in Ithaca, N.Y. To comment on this column, contact Paul Bonner, the JofA’s tax editor.