A Win for Taxpayers: Federal Circuit Court of Appeals Loosens Tax Court Jurisdictional Limitations

On July 19, 2023, the United States Court of Appeals for the Third Circuit released an opinion in the matter of Culp v. Commissioner of Internal Revenue (PDF). The ruling stated the 90-day filing period for Tax Court petitions is not a strict jurisdictional limit but rather is a claims-processing rule subject to equitable tolling. Translation: Taxpayers under “extreme circumstances” may have more time than the statutory 90 days to file a petition in the Tax Court after receiving a Notice of Deficiency (bill for taxes) from the Internal Revenue Service (IRS).

For tax controversy professionals, the Third Circuit Court’s decision is a seismic shift. Tax professionals have taken as gospel that a taxpayer had 90 days after receiving a Notice of Deficiency from the IRS to file a petition in the United States Tax Court and challenge the IRS determination without first paying the taxes.

Without going into the details of the Culp decision, the big take-away is that taxpayers now have the opportunity to seek extra time to file a Tax Court petition after receiving a Notice of Deficiency from the IRS, if the taxpayers can establish “extraordinary circumstances.” These circumstances can include an illness, death in the family, natural disaster or other unforeseen situation that causes the taxpayer to miss the 90-day filing requirement. Hope for some mercy from the Tax Court may not be lost.

For the time being, this decision only applies to taxpayers residing in the Third Circuit and will certainly be challenged by the IRS. Any late-filed petitions to the Tax Court will still be subject to motions to dismiss on jurisdictional grounds by the IRS until this matter is finally resolved at the United States Supreme Court level.

Other circuit courts of appeals have ruled in favor of the IRS on this matter. Thus we now have a split in the federal circuit courts which will almost certainly result in the Supreme Court taking up the issue. A 2022 Supreme Court decision in a somewhat related tax procedure case favored taxpayers. That 2022 decision may provide some additional hope that the Supreme Court will find that the 90-day filing requirement is merely an administrative process requirement rather than a strict jurisdictional requirement. Again, such a finding would give taxpayers the hope of some potential relief when they receive a Notice of Deficiency while in the middle of extraordinary circumstances that otherwise distract them from filing a Tax Court petition.

The Tax Group at Woods Rogers Vandeventer Black will follow developments in this matter closely and will report when the Supreme Court finally issues a decision resolving this matter.

Score one for the taxpayers!