In depth

Taxpayer, Charles Weiss, did not pay his federal income taxes for a six-year period from 1986 through 1991. In 1994, the taxpayer late-filed his tax returns for those years, self-reporting a liability of USD 299,202. The IRS made tax assessments against him for each of those years. This started a ten-year limitations period for collecting the unpaid taxes through a court proceeding or a levy, a legal seizure of property or a right to property.

The statute of limitations was tolled for several increments of time due to the series of events. Initially, the taxpayer requested an administrative hearing, which began tolling the limitations period. Other events that tolled the statute of limitations included, among others, the taxpayer’s bankruptcies (these proceedings occurred several times during the period), the Tax Court proceedings, and the proceedings before the D.C. Circuit. Finally, the taxpayer filed a petition for a writ of certiorari before the US Supreme Court.

After the US Supreme Court denied the taxpayer’s petition for writ of certiorari, the IRS began the process of collecting the unpaid taxes through a levy and mailed a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing letter to the taxpayer in February 2009. The taxpayer appealed by requesting a hearing before the IRS Independent Office of Appeals. The IRS Independent Office of Appeals ruled against him. In subsequent years, the Tax Court affirmed the ruling of the Independent Office of Appeals; the D.C. Circuit affirmed the ruling of the Tax Court; finally, the Supreme Court denied the petition for a writ of certiorari.

In February 2019, the federal government initiated a collection action in the District Court to collect the due taxes from the taxpayer. The amount of delinquent taxes with interest had increased to USD 773,899.84.

The issue before the District Court was the timeliness of the government’s collection action. The taxpayer and the government disagreed on the meaning of the two terms in the tolling provision of section 6330(e)(1): first, whether the phrase “appeals therein” includes petitions for writs of certiorari, and, second, whether a denial of a petition for a writ of certiorari constitutes a “final determination” in a Collection Due Process hearing.

Statutory Background

In every tax collection case, the taxpayer should verify that: (1) the statute of limitations on assessment was open when the underlying assessment was made; and (2) the statute of limitations on collection is still open. See sections 6501 and 6502.

The statute of limitations on collection generally begins to run on the date of assessment. From that date, the IRS has ten years to levy or commence a proceeding in court to collect the assessed liability.

Under section 6503(a), however, the running of the statute of limitations of collection may be suspended by a variety of circumstances that usually correspond to periods during which the IRS is prevented from assessing or collecting. One of the ways to extend the collection statute of limitations is by filing a collection due process hearing or appeal. This results in suspension of the collection action for the period during which such hearing, and appeals therein, are pending. Any time remaining on the statute of limitations when it is suspended is tacked on to the end of the suspension period for the purpose of ascertaining the expiration date of the statute of limitations on assessment.

Court's observations and findings

The court determined that the case had no questions of facts and turned on questions of law. The court reasoned that if the statute of limitations on collection is tolled for either the time between the District Court mandate and taxpayer’s petition, or the time from taxpayer’s filing of that petition to its denial, then the government’s filing would be timely. But if both of those time increments associated with taxpayer’s petition fail to suspend the statute of limitations, the government’s filing would be too late.

The court ruled that the timing associated with the petition tolls the statute of limitation, which rendered the government’s filing timely. To interpret the phase “appeals therein” required an analysis of its two component words, each of which is capable of multiple meanings.

The court focused on the definitions of two relevant terms - “appeals therein” and “pending.” These terms were not defined under the statute. Therefore, the court suggested to look at the meaning of these terms in light of their “ordinary meaning.”

Interpretation of "Appeal Therein" 

The court claimed that the term “appeal” had two common meanings. In a general sense, it could mean a “resort to a superior court to review the decision of an inferior court.” Under that general meaning, the term “appeal” would include both appeals and petitions - those filed in court and those filed administratively. But as evidenced by a number of federal statutes and court rules, the term “appeal” could have a narrower meaning such as a method of seeking review of an order that is distinct from other such methods, such as a petition. More narrowly, appeals are typically initiated in the court that issued the order, while petitions are often commenced through a filing with the reviewing body.

The court continued with analyzing the word “therein”, ordinary meaning of which was “in that place.” In context, under that meaning, the phrase “appeals therein” would refer to appeals pending in the same place as the collection due process (CDP) hearing, which would be within the IRS, not in a federal court. But under the other definition, “therein” could mean “in such matter.” Under that meaning, the phrase “appeals therein” in context would refer to appeals of a CDP hearing determination.

The court decided that the phrase “appeals therein” refers to any appeals or petitions from a CDP hearing. That understanding accounts for the entire judicial review process, including petitions for certiorari which may be filed with the Supreme Court.

Though, in some statutes the term “appeal” gets a narrow meaning, the court indicated that the tolling statute contains no suggestion that the term “appeals” should be interpreted that way. Thus, the court concluded that this general interpretation of the phrase “appeals therein” removes any uncertainty and therefore applies to any appeals and petitions seeking review of a CDP hearing, including a petition for a writ of certiorari.

Interpretation of "Pending"

The court then turned to clarify the term “pending.” Section 6330(e)(1) suspends the statute of limitations “for the period during which such hearing, and appeals therein, are pending.” In this context, the court reasoned, the term “pending” functions as a predicate adjective, modifying “such hearing, and appeals therein.”

At the time section 6330(e)(1) was enacted, the term “pending” had two common ordinary meanings. Under one definition, “pending” could mean “begun, but not yet completed.” With that meaning for “pending”, the hearing and the “appeals therein” would be pending until the agency resolved the hearing or a court decided the appeal, but after resolution, neither the hearing nor an “appeal therein” would remain pending. The court concluded that in the context of section 6330(e)(1), that would result in intermittent tolling being suspended for potentially several distinct periods. Tolling would occur while the hearing was active, but it would cease for the interval between resolution of the initial hearing and the filing of an appeal. Similarly, the statute of limitations would be suspended while the “appeals therein” were active, but the tolling would stop for the time between resolution of an appeal and the filing of any successive appeal permitted by law.

Therefore the court recognized another common ordinary meaning of “pending” as more appropriate. That meaning was “awaiting an occurrence of conclusion of an action,” such that it described “a period of continuance or indeterminacy.” Under that definition, a hearing or an appeal would be continuous and would be pending after its resolution for the period while the ruling remained indeterminate due to the possibility of an impending or imminent appeal.

The court reasoned that by using the singular term, “period,” the statute allows only the second meaning of “pending”, such that it describes a continuous period inclusive of not only the hearing and “appeals therein” but also any intervening periods of indeterminacy during which an appeal or petition could be filed.

Accordingly, the court rendered the action as timely because the statute of limitations was tolled for the time associated with taxpayer’s petition for a writ of certiorari. In addition, the period was not reduced either by the time that the taxpayer took to file his petition for a writ of certiorari or by the time that the Supreme Court took to deny the petition. Thus, the government had sufficient time after the Supreme Court’s denial of taxpayer’s petition to commence the action, and it did so within the permitted time.