Tax Court has jurisdiction to hear taxpayers’ case

A notice of deficiency was held valid by the Tax Court under the last sentence of Sec. 6213(a), because the filing deadline for the taxpayers’ petition was specifically stated on the face of the notice, negating the IRS’s subsequent attempt to “unilaterally” rescind it by sending a second notice a day later.

Facts: The IRS mailed the taxpayers, Douglas and Rebecca Dodson, the first of two notices of deficiency on Oct. 7, 2021, for their 2017 tax year. Tracking information showed that two copies of this first notice were delivered by the U.S. Postal Service (USPS) to the taxpayers in New Mexico on Oct. 12, 2021. The notice specified that the taxpayers had until Dec. 5, 2022, to file their petition with the Tax Court.

However, the next day, Oct. 8, 2021, the IRS sent the taxpayers a second notice of deficiency. A cover sheet to the second notice stated, “Previous notice sent with incorrect date. Corrected notice with correct dates.” The second notice provided that the last date to file their petition was Jan. 6, 2022, not Dec. 5, 2022. Otherwise, it did not differ “in any other material respect” except that certain pages appeared to be in a “different order in the second notice in comparison to the first notice.” Tracking information from the USPS indicated that two copies of the second notice left the USPS’s distribution center in El Paso, Texas, on Oct. 13, 2021, but there was no proof that the notice was delivered to the taxpayers.

The taxpayers filed a petition with the Tax Court on March 3, 2022. When filing their petition, they attached only the first copy of the notice of deficiency, not the second one mailed by the IRS, which the taxpayers claimed they never received.

The IRS filed a motion to dismiss the taxpayers’ petition as untimely, arguing that the Tax Court lacked jurisdiction because the petition was filed more than 90 days after the mailing date of the first notice of deficiency.

Issues: The Tax Court may exercise jurisdiction only “to the extent expressly provided by statute” (Naftel, 85 T.C. 527 (1985)). The court’s jurisdiction depends on the issuance of a valid notice of deficiency and a timely filed petition for redetermination (Monge, 93 T.C. 22 (1989)). A taxpayer’s petition generally must be filed within 90 days after the notice is mailed, not counting “Saturday, Sunday, or a legal holiday in the District of Columbia” (Sec. 6213(a); Sanders, 160 T. C. No. 16 (2023)). The filing deadline is jurisdictional; “equitable tolling does not apply” (Hallmark Research Collective, 159 T.C. 126 (2022)).

The last sentence of Sec. 6213(a) provides: “Any petition filed with the Tax Court on or before the last date specified for filing such petition by the Secretary in the notice of deficiency shall be treated as timely filed.” Sec. 6213 was enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA), P.L. 105-206, which in act Section 3463(a) also provides that the IRS “shall include on each notice of deficiency under [IRC] section 6212 … the last day on which the taxpayer may file a petition with the Tax Court.”

The IRS, with the consent of the taxpayer, may rescind a notice of deficiency (Sec. 6212(d)). A rescinded notice “shall not be treated as a notice of deficiency” under Sec. 6213(a). Therefore, the taxpayer cannot file a petition with the Tax Court relying on such a rescinded notice (Sec. 6212(d)). To rescind a notice, there must be a properly executed Form 8626, Agreement to Rescind Notice of Deficiency, or a document pursuant to Rev. Proc. 98-54, Section 5.06, that reflects an agreement between the IRS and the taxpayer that the notice of deficiency is rescinded pursuant to Sec. 6212(d) (Rev. Proc. 98-54, §5.07; see also Hagy, “Procedure for Obtaining Rescission of 90-Day Letters,” 48 The Tax Adviser 286 (April 2017)).

The Tax Court found that the first notice to the Dodsons “unambiguously” determined a deficiency and was thereby valid because a “reasonable taxpayer” could infer that a deficiency had been assessed against them (Dees, 148 T.C. 1, 6 (2017)). The record also disclosed that the taxpayers did not acquiesce to rescinding the first notice, “let alone in a form complying with Rev. Proc. 98-54,” the court stated.

Without the taxpayers’ express rescission of the first notice, that notice continued to be treated as a notice of deficiency for purposes of Sec. 6213(a). The issuance of the second notice without the taxpayers’ consent “did not have the effect of rescinding the first notice, either in whole or in part” (see Hanashiro, T.C. Memo. 1999-78). Therefore, once the IRS mailed the first notice on Oct. 7, 2021, the Service could not unilaterally rescind that notice. The court also did not apply Sec. 6212(c) to the taxpayers’ situation since the second notice “did not purport to determine any additional deficiency of income tax for the same taxable year” (Richardson, 76 T.C. 512 (1981)).

The IRS made several counterarguments from case law. In Smith, 114 T.C. 489 (2000), aff’d, 275 F.3d 912 (10th Cir. 2001), the IRS omitted the date in the notice of deficiency’s sections titled “Last Day to File a Petition With the United States Tax Court” and “Letter Date.” The IRS provided the missing date to the taxpayers’ counsel, and the taxpayers timely filed their petition within the 90-day filing deadline. Even though the notice of deficiency did not meet the requirement of RRA Section 3463(a), the taxpayers still received it prior to the expiration of the period of limitation and filed their petition in a timely manner (Smith, 114 T.C. at 490).

The court noted in Smith “that Congress did not specify what consequences should follow from the IRS’s failure to provide the last day for filing a petition in the notice of deficiency.”

The Tenth Circuit, in affirming the Tax Court’s decision in Smith, held that the notice of deficiency was valid since the taxpayers were not prejudiced by it. The court noted that the taxpayers received their notice of deficiency well in advance of the filing deadline, filed their petition in a timely manner, did not claim that any information in the notice impaired their ability to file their petition, and received assistance from the IRS in determining the last day to file their petition. The Tenth Circuit also quoted the Senate Finance Committee report on the RRA, which stated the committee belief “that taxpayers should receive assistance in determining the time period within which they must file a petition in the Tax Court and that taxpayers should be able to rely on the computation of that period by the IRS” (S. Rep’t No. 105-174 at 90 (1998)). The report went on to say that if a notice indicates a petition date that is more than 90 days after the date of mailing, that date controls under RRA Section 3463(b).

The IRS argued in Rochelle, 116 T.C. 356 (2001), aff’d per curiam, 293 F.3d 740 (5th Cir. 2022), that the notice of deficiency sent to that taxpayer, which did not specify the last day to file a petition, was valid because the taxpayer was not prejudiced. The court agreed with the IRS, even though the petition failed to state the filing deadline, since the notice clearly stated that the petition had to be filed within 90 days of the mailing of the notice, the necessity of filing a timely petition was emphasized in underscored type, and the taxpayer did not claim that his failure to timely file his petition was due to a miscalculation of the filing period. The court further stated that Sec. 6213(a) did not apply “[b]ecause the last date for filing a timely Tax Court petition was not specified by the deficiency notice” (Rochelle, 116 T.C. at 362).

Holding: Unlike in Smith and Rochelle, the notice of deficiency in this case expressly stated the last day [the taxpayers] could file a petition.” Smith dealt with the validity, not the timeliness, of the notice of deficiency, while in Rochelle, the date to file the petition was not stated in the notice. The court reasoned that the last sentence of Sec. 6213(a) expressly” provides the treatment of a petition filed pursuant to a notice of deficiency that specifies a petition filing date. The court further reasoned that it is not its place “to question Congress’s choice of means in this regard.”

The IRS’s argument, according to the court, would create uncertainty regarding the plain language of Sec. 6213(a), even if the day listed as the last date for filing a petition is an “obvious mistake.”

Therefore, since the taxpayers mailed their petition by the filing deadline specified in the first notice of deficiency, the court determined that it had jurisdiction to hear the case, since the second notice did not rescind the first one.

■ Dodson, 162 T.C. No. 1 (2024) .

— John McKinley, CPA, CGMA, J. D., LL.M., and Thomas Godwin, CPA, CGMA, Ph.D., are both professors of the practice in accounting and taxation in the SC Johnson College of Business at Cornell University in Ithaca, N.Y. To comment on this column, contact Paul Bonner, the JofA’s tax editor.