For Whom is the Statute Tolled? An Overview of the Doctrine of Equitable Tolling in Tax Litigation

The statute of limitations is a concept in law that sets a deadline for taking legal action. It specifies a time limit within which a lawsuit be initiated. The same concept applies in disputes with the Internal Revenue Service (“IRS”). The Internal Revenue Code sets a specific deadline in which a taxpayer must petition the United States Tax Court if he or she disagrees with the IRS in regards to an audit determination or a collection action. The Internal Revenue Code also sets a specific time limit in which he or she may file an income tax refund case in either a United States district court or the United States Court of Federal Claims. What happens, however, when a person is injured by the actions of the IRS and is unable to assert his or her claim against the IRS timely in court? Addressing this possibility is the doctrine of equitable tolling. This article discusses how the doctrine of equitable tolling applies in tax litigation cases and how the doctrine may extend the running of the limitation period to file a petition in the Tax Court or a complaint in either a United States district court or Court of Federal Claims.

What is the Doctrine of Equitable Tolling?

The doctrine of equitable tolling is a legal principle that allows a court to extend a statute of limitations in certain circumstances to file a lawsuit, even if the deadline for filing a lawsuit has passed. Holmberg v. Armbrecht, 327 U.S. 392 (1946) held that the equitable tolling doctrine is read into every federal statute of limitations and the decision to apply the doctrine lies solely within sound discretion of the court. In Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990), the Supreme Court held that equitable tolling should apply against the United States as a defendant just as it does against a private defendant. However, Irwin was not a tax case.

In Brockamp v. United States, 116 S. 1875 (1996), it was argued that the statute of limitations for bringing a refund claim was extended by the doctrine of equitable tolling. The taxpayers contended that the legislative history of tax refund litigation supported a conclusion that Congress intended equitable tolling to apply to refund suits. The taxpayers claimed that equitable tolling should apply against the United States just as it does against a private defendant. According to the taxpayers’ argument, the structure of Section 6511 (Section 6511 sets the statute for filing claims for credits or refunds of tax payments with the IRS) is such that, if the limitations periods in Section 6511(a) are amenable to tolling, the refund periods in Section 6511(b) should be tolled for the same length of time. Pointing out that Section 6511(b) incorporates by reference the claim-filing periods of Section 6511(a), the taxpayers further asserted that the refund period of Section 6511(b) were not intended to be absolute bars but were intended to make the time period for filing a refund claim coextensive with the period that the IRS has to assess a tax against the taxpayer.

The Supreme Court held that Section 6511 set forth explicit exceptions to its basic time limits, and those very specific exceptions do not include “equitable tolling.” See IRC Section 6511(d). The Supreme Court found that the limitation periods for filing a tax refund claim were jurisdictional and consequently not subject to equitable tolling.

The Supreme Court Revives the Doctrine Equitable Tolling in Boechler

In 2022, the United States decided Boechler P.C. v. Commissioner, 596 U.S. (2022). Boechler involved if equitable tolling was available pursuant to the filing of a Tax Court petition requesting a redetermination of an IRS Notice of Determination in a Collection Due Process Hearing under Section 6330 of the Internal Revenue Code. In Boechler, the Tax Court petition was mailed one day late. The IRS argued Section 6330 is a jurisdictional statute. Meaning that unless a Tax Court petition is timely filed with the Court, the Tax Court does not have jurisdiction to hear the case. The Supreme Court disagreed and found that a statute of limitation period is a jurisdictional prerequisite only if Congress “clearly states” that it is. The clarity does not require use of specific words but rather the application of the traditional tools of statutory construction, and even if the construction advocated by the United States is better, that is not enough. To satisfy the clear-statement rule, the jurisdictional condition must be “clear.” And if it is not clear, it is a “claims processing rule,” the limitation period for which may be extended by equity tolling, unlike a period that is a jurisdictional prerequisite, which may not.

The Supreme Court found that Section 6330 did not contain specific terms that made it jurisdictional. Because the limitation period in Section 6330 was not jurisdictional, the Supreme Court held that the limitation period is subject to equitable tolling. While the issue in Boecher involved only Section 6330 of the Internal Revenue Court, the Supreme Court indicated that there is a rebuttable presumption in favor of equitable tolling to every non-jurisdictional statute. Thus, even though Boecher involved only the timely filing of a Tax Court petition in a Collection Due Process Hearing, by analogy, the doctrine of equitable tolling may also apply to cases involving refund litigation and the filing of Tax Court petitions in cases involving notices of deficiencies.

At least one circuit has expanded the doctrine of equitable tolling to a case outside of Section 6330 post Boechler. The Third Circuit Court of Appeals has applied the doctrine of equitable tolling to a late filed Tax Court petition contesting an IRS proposed deficiency. In Culp v. Commissioner, 75 F.4th 196 (3rd Cir. 2023), cert. Denied, U.S. 2004 WL 3089559 (June 24, 2024), the taxpayers filed their petitions years after the IRS properly sent a notice of tax deficiency. The court determined that there was no “clear tie between the deadline and the jurisdictional grant,” and thus concluded that the ninety-day filing period to contest a notice of deficiency was nonjurisdictional and could be considered for equitable tolling.

However, the doctrine of equitable tolling has its limitations. According to the Supreme Court in Boechler P.C. v. Commissioner, to be entitled to equitable tolling, a taxpayer must establish 1) that it pursued its rights diligently and 2) that extraordinary circumstances outside of its control prevented it from filing on time. See Menominee Indian Tribe of Wis. v. United States, 577 U.S. 250, 255 (2016). The first prong of the test requires that a litigant take all reasonable steps to ensure the timeliness of its petition, including engaging with its attorney to ensure a petition is timely filed. The litigant must show that it :exercised due diligence in pursuing its case. The second prong of the test “is met only where the circumstances that caused a litigant’s delay are both extraordinary and beyond its control.”

Anthony Diosdi is an  international tax attorney at Diosdi & Liu, LLP. Anthony focuses his practice on providing tax planning domestic and international tax planning for multinational companies, closely held businesses, and individuals. In addition to providing tax planning advice, Anthony Diosdi frequently represents taxpayers nationally in controversies before the Internal Revenue Service, United States Tax Court, United States Court of Federal Claims, Federal District Courts, and the Circuit Courts of Appeal. In addition, Anthony Diosdi has written numerous articles on international tax planning and frequently provides continuing educational programs to tax professionals. Anthony Diosdi is a member of the California and Florida bars. He can be reached at 415-318-3990 or adiosdi@sftaxcounsel.com.

This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.