What are the implications when the Internal Revenue Service (IRS) erroneously states the filing deadline for a petition in the Tax Court to contest a notice of deficiency? In a situation where this error significantly favored the taxpayer, the Tax Court determined that the taxpayer was entitled to rely on the date specified in the initial notice, despite the IRS issuing a corrected notice the following day. (Dodson v. Commissioner, 162 TC No. 1)

The Notices the IRS Mailed

The IRS issued the original notice of deficiency to the taxpayers on October 7, 2021, concerning their 2017 tax return. The Tax Court details this notice as follows:

On October 7, 2021, respondent mailed the first notice to petitioners for their 2017 taxable year. Tracking information for two copies of the first notice reflects the delivery of both copies in Alamogordo, New Mexico, on October 12, 2021, by the U.S. Postal Service (USPS). The first notice bears a stamped date specifying December 5, 2022, as the last day to file a petition. Petitioners filed their Petition on March 3, 2022. The Petition attached a copy of the first notice and no other notice of deficiency.

However, upon recognizing the error, the IRS, a day later, dispatched a corrected notice of deficiency to the taxpayers. The Tax Court opinion further elaborates on the circumstances pertaining to this subsequent notice.

Respondent has also produced the second notice, which he mailed to petitioners on October 8, 2021, and which purports to be a corrected version of the first notice. The second notice bears a stamped date specifying January 6, 2022, as the last day to file a petition. The second notice is accompanied by a cover sheet stating: “PREVIOUS NOTICE SENT WITH INCORRECT DATE. CORRECTED NOTICE WITH CORRECT DATES.” The second notice does not differ from the first notice in any other material respect.

The taxpayers contend that they did not receive this subsequent notice. The Tax Court observes that, in contrast to the original notice, the tracking information provided by the IRS fails to indicate delivery of the document to the taxpayers.

Petitioners state that they did not receive the second notice. Petitioners have produced tracking information for two copies of the second notice reflecting the departure of the notice copies from USPS’s El Paso, Texas, distribution center on October 13, 2021, without any indication that USPS ever delivered them to petitioners.

The opinion states that the taxpayers submitted their petition considerably before the due date indicated on the original notice of deficiency. However, this submission occurred significantly beyond the standard 90-day period following the issuance of either notice.

Petitioners filed their Petition in this case on March 3, 2022, which is 147 days after respondent mailed the first notice and 146 days after respondent mailed the second notice.

So the question facing the Court is whether the taxpayers had timely filed their petition in these circumstances.

The Law

The Tax Court begins by noting that they are a court of limited jurisdiction, and so must make their own determination of whether they have jurisdiction in this case:

Our jurisdiction in a case for the redetermination of a deficiency depends on the issuance of a valid notice of deficiency to the taxpayer and the timely filing of a petition by the taxpayer. See Monge v. Commissioner, 93 T.C. 22, 27 (1989); Normac, Inc. v. Commissioner, 90 T.C. 142, 147 (1988); see also Sanders v. Commissioner, No. 15143-22, 161 T.C. (Nov. 2, 2023); Hallmark Rsch. Collective v. Commissioner, 159 T.C. 126 (2022). Generally, the petition must be filed within 90 days after the notice is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day). See Sanders v. Commissioner, No. 25868-22, 160 T.C., slip op. at 5 (June 20, 2023). This filing deadline is jurisdictional, and equitable tolling does not apply. See Hallmark Rsch. Collective, 159 T.C. at 166–67.

The concluding sentence reiterates that the Tax Court has not adopted the Third Circuit’s stance on equitable tolling being applicable to this deadline, as established in Culp v. Commissioner of Internal Revenue, No. 22-1789 (3d Cir. July 19, 2023). The opinion highlights that any appeals in this case would fall under the jurisdiction of the Tenth Circuit Court of Appeals. Consequently, the Tax Court will not apply the precedent set in the Culp decision, given that the Tenth Circuit has yet to endorse the Third Circuit’s position.

The Tax Court turns to the last sentence of IRC §6213(a) which reads “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.”

The Court observes that the date indicated on the initial notice sent to the taxpayer precedes the date on which the taxpayer filed their petition.

The Petition in this case attached the first notice. The first notice unambiguously determines a deficiency against petitioners and is therefore valid. See Dees v. Commissioner, 148 T.C. 1, 6 (2017) (“[I]f the notice is sufficient to inform a reasonable taxpayer that the Commissioner has determined a deficiency, our inquiry [as to the notice's validity] ends there; the notice is valid.”). Petitioners filed their Petition before December 5, 2022, the last day specified in the first notice for filing a petition in this Court. This is sufficient to comply with the last sentence of section 6213(a), which in the words of the Tenth Circuit means that “if a notice indicates a petition date that is more than 90 days after the date of mailing, that date controls.” Smith v. Commissioner, 275 F.3d at 916.

However, consideration must also be given to the second notice, which was dispatched a day later. In this context, the Tax Court references Internal Revenue Code (IRC) §6212(d), Revenue Procedure 98-54, and Form 8626, stating:

The record discloses no consent by petitioners to a rescission of the first notice in any manner, let alone in a form complying with Rev. Proc. 98-54. Absent a rescission with petitioners’ consent, the first notice continued to “be treated as a notice of deficiency for purposes of . . . section 6213(a),” see §6212(d), including for purposes of the last sentence of section 6213(a). Accordingly, respondent's issuance of the second notice without petitioners’ consent did not have the effect of rescinding the first notice, either in whole or in part. See Hanashiro v. Commissioner, T.C. Memo. 1999-78, slip op. at 10 (“The rescission of a notice of deficiency requires mutual consent by the Commissioner and the taxpayer, and such mutual consent must be objectively apparent.”); Slattery v. Commissioner, T.C. Memo. 1995-274, 69 T.C.M. (CCH) 2953, 2956 (“Clearly, the statute requires mutual consent by the Secretary and the taxpayer to effect a rescission of a notice of deficiency. We know of no authority deeming a notice of deficiency rescinded in absence of a formal rescission.” (Footnote omitted.)). As soon as respondent mailed the first notice to petitioners on October 7, 2021, respondent could no longer unilaterally rescind the first notice.

The restriction on nonconsensual rescissions found in section 6212(d), unlike the restriction on further deficiency letters found in section 6212(c), is not limited to situations where the Secretary determines an additional deficiency of income tax (or certain other taxes) for the same taxable year. Our straightforward conclusion, derived from the plain text of sections 6213(a) and 6212(d), is that we are required to treat the Petition as timely filed. Accordingly, we will do so. This is not a case where a taxpayer petitions us for redetermination of a deficiency in a notice that purports to correct a prior notice of deficiency, a circumstance for which we express no view on the application of the last sentence of section 6213(a).”

The Tax Court dismissed several arguments presented by the IRS, referencing prior instances where the deadline for filing a petition was not included in notices issued by the IRS. Additionally, the Court rejected the notion that the discrepancy constituted an 'obvious error' that the taxpayer should have identified:

Respondent repeatedly characterizes the petition filing date on the first notice as an “obvious mistake,” but this characterization is misleading. As recognized by the Tenth Circuit, a taxpayer may timely file a deficiency petition by meeting the requirements of the first sentence of section 6213(a) or, alternatively, the last sentence of section 6213(a). See Smith v. Commissioner, 275 F.3d at 916 (“[I]f a notice indicates a petition date that is more than 90 days after the date of mailing, that date controls.”). Here, the petition filing date on the first notice had independent legal effect, and petitioners were permitted to rely on it regardless of whether they retained counsel and regardless of whether prejudice would result from applying another deadline. Respondent’s position in this case attempts to create uncertainty about the meaning of the last sentence of section 6213(a) where there is none.