Tax Court Invalidates Regulation on Disaster-Related Postponements of Filing Deadlines

(Parker Tax Publishing April 2024)

The Tax Court held that Code Sec. 7508A(d), which provides for a mandatory 60-day extension of certain tax-related deadlines by reason of a federally declared disaster, is self-executing and automatically postpones all of the acts referenced by Code Sec. 7508A(a), including the filing of a Tax Court petition for the redetermination of a deficiency. The court further held that Reg. Sec. 301.7508A-1(g)(1) and (2) is invalid to the extent it limits the non-pension-related time-sensitive acts that are postponed for the mandatory 60-day postponement period to the acts determined to be postponed by IRS's exercise of authority under Code Sec. 7508A(a). Abdo v. Comm'r, 162 T.C. No. 7 (2024).

Background

The IRS issued Mohamed Abdo and Fardowsa Farah a notice of deficiency dated December 2, 2019. The 90th day after December 2, 2019, was Sunday, March 1, 2020. The notice of deficiency specified the following day, March 2, 2020, as the last day to file a petition with the Tax Court. Abdo and Farah mailed their petition to the court on March 17, 2020. Between March 19 and July 9, 2020, the Tax Court did not receive mail because of the court's closure in response to the COVID-19 pandemic. On July 10, 2020, the court received and filed the Abdo's and Farah's petition.

On March 13, 2020, the President of the United States declared a nationwide emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), as a result of the COVID-19 pandemic (Nationwide Emergency Declaration). The President also approved major disaster declarations for each of the 50 states. On March 31, 2020, Pete Gaynor, the administrator of the Federal Emergency Management Agency (FEMA), at the direction of the President, declared the State of Ohio a major disaster area (Ohio Disaster Declaration). As with each other state disaster declaration, the Ohio Disaster Declaration identified the pandemic conditions warranting the declaration as "beginning on January 20, 2020, and continuing."

The IRS subsequently issued a series of notices in which the stated purpose was to provide relief under Code Sec. 7508A pursuant to the Nationwide Emergency Declaration. Code Sec. 7508A generally gives the IRS the discretion to postpone certain tax-related deadlines for up to one year for those taxpayers it determines to be affected by a federally declared disaster. Included in this series of IRS notices was Notice 2023-20, which was issued on April 11, 2020. Among other specified deadline extensions, Notice 2023-20 extended the deadline for filing a Tax Court petition to July 15, 2020, for taxpayers who had a petition due to be filed on or after April 1, 2020, and before July 15, 2020. Notice 2020-23 specified, however, that it did not provide relief for the period for filing a petition if that period expired before April 1, 2020.

The IRS filed a motion to dismiss Adbo's and Farah's Tax Court petition on the ground that it was not filed within the time prescribed in Code Sec. 6213(a) or Code Sec. 7502. Code Sec. 6213(a) generally provides that a taxpayer may file a petition with the Tax Court for a redetermination of a deficiency within 90 days after the notice of deficiency is mailed. Code Sec. 7502 generally allows a timely mailed petition to be treated as timely filed.

Adbo and Farah responded that Code Sec. 7508A(d) operated in conjunction with the Ohio Disaster Declaration to extend the deadline to file their petition. Code Sec. 7508A(d)(1) provides that, in the case of any "qualified taxpayer," the period beginning on the earliest incident date specified in the declaration to which the relevant disaster area relates and ending on the date which is 60 days after the latest incident date so specified "shall be disregarded in the same manner as a period specified under [Code Sec. 7508A(a)]." Code Sec. 7508A(d)(2)(A) defines a "qualified taxpayer" to include an individual whose principal residence is located in a disaster area. Code Sec. 7508A(d)(3), by cross-reference to Code Sec. 165(i)(5)(A) and (B), defines a disaster area as an area determined by the President to warrant federal assistance under the Stafford Act.

On January 13, 2021, the IRS issued proposed regulations with respect to Code Sec. 7508A(d). On February 12, 2021, the IRS replied to Abdo's and Farah's objection, disputing that Code Sec. 7508A(d) applied in this case. On June 11, 2021, the IRS issued final regulations under Code Sec. 7508A(d) in T.D. 9950. The final regulations were made effective with respect to disasters declared on or after December 21, 2019. Reg. Sec. 301.7508A-1(g) of the final regulations provides that under Code Sec. 7508A(d), qualified taxpayers (as defined in Code Sec. 7508A(d)(2)) are entitled to a mandatory 60-day postponement period during which the time to perform those time-sensitive acts is disregarded in the same manner as under Code Sec. 7508A(a). The regulation further provides that "the time-sensitive acts that are postponed for the mandatory 60-day postponement period are the acts determined to be postponed by the Secretary's exercise of authority under section 7508A(a) or (b)."

Abdo and Farah argued that Congress clearly intended Code Sec. 7508A(d) to operate in mandatory and automatic manner and gives no discretion to the IRS. Therefore, they argued that the IRS's interpretation of Code Sec. 7508A(d) in Reg. Sec. 301.7508A-1(g) is impermissible under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In Chevron, the Supreme Court set forth a two-step test for determining whether a regulation is a valid construction of a statute. First, a court must ask whether Congress has directly spoken to the precise question at issue. If the statute is silent or ambiguous on the point, the court must determine whether the agency's answer is based on a permissible construction of the statute. According to Abdo and Farah, the IRS's interpretation failed under step 1 of Chevron.

The IRS contended that Code Sec. 7508A(d) is ambiguous in that Congress did not address what specific time-sensitive acts are postponed and does not specify whether a taxpayer has an automatic, mandatory postponement period for filing a Tax Court petition. The IRS disagreed with Abdo's and Farah's reading that Code Sec. 7508A(d) requires every act that the IRS has discretion to postpone under Code Sec. 7508A(a) to be independently postponed for a mandatory period under Code Sec. 7508A(d), regardless of whether the IRS actually postponed any acts under Code Sec. 7508A(a). In addition, the IRS asserted that Code Sec. 7508A(d) is ambiguous because it does not address federally declared disasters without an incident date, such as the Nationwide Emergency Declaration.

Analysis

The Tax Court agreed with Abdo and Farah and held that Code Sec. 7508A(d) provides for an automatic and mandatory postponement period that incorporates all of the acts referenced by Code Sec. 7508A(a), including the filing of a Tax Court petition for the redetermination of a deficiency. The court further found that, as Ohio residents, Abdo and Farah were qualified taxpayers entitled to an automatic 60-day postponement period starting from January 1, 2020, the earliest incident date specified in the Ohio Disaster Declaration, to at least March 20, 2020, to file their petition. Since they mailed their petition on March 17, 2020, the court concluded that their petition was timely and the court had jurisdiction in this case.

The court found that, in the context of a federal disaster declaration containing an incident date, Code Sec. 7508A(d) is not reasonably susceptible of different interpretations with respect to whether a qualified taxpayer is automatically entitled to a mandatory extension to file a petition with the Tax Court. In the court's view, the mandatory language of subsection (d) stands in stark contrast to the discretionary language of subsection (a). Under the discretionary language of Code Sec. 7508A(a), the IRS may specify (1) whether a period is disregarded, (2) how long a period is disregarded, (3) for whom a period is disregarded, and (4) for what purposes a period is disregarded. However, the court found that the mandatory language of subsection (d) provides the IRS no discretion whatsoever regarding any of these four aspects of the extension. Instead, subsection (d) provides that, for a defined person, a defined period "shall be disregarded" in a defined manner.

Next, the court considered the question of whether Code Sec. 7508A(d) requires that the mandatory postponement period automatically extends the date for a filing a Tax Court petition by at least 60 days, as Abdo and Farah contended. The court noted that the "in the same manner" language in subsection (d)(1) could refer either to the specific time-sensitive acts which may be postponed by the operation of Code Sec. 7508A(a) or to the process by which the IRS grants a postponement under subsection (a). The court acknowledged that in other statutory contexts "in the same manner" means "to use the same methodology and procedures." The court further recognized that the phrase "in the same manner" has been interpreted by courts as ambiguous. Nevertheless, after considering the plain and literal language of Code Sec. 7508A(d), the specific context in which the language is used, and the broader context of the statute as a whole, the court concluded that the "in the same manner" language of Code Sec. 7508A(d) is not reasonably susceptible of being interpreted to refer to the process or procedure by which the IRS grants a postponement under subsection (a) or of demonstrating any ambiguity.

In the court's view, the plain and literal language of subsections (a) and (d) read together demonstrate that the deadlines for "any of the acts" described in Code Sec. 7508(a)(1) "may" be disregarded under Code Sec. 7508A(a) but that those deadlines "shall be disregarded" under Code Sec. 7508A(d). The court saw Code Sec. 7508A(d) as a near mirror image of Code Sec. 7508(a), which provides that, for a defined person, a defined period "shall be disregarded" in a defined manner. The court noted that this provision has been construed by the Tax Court (for example, in Stone v. Comm'r, 73 T.C. 617 (1980)) as requiring an extension of the time that includes a postponement of the period to file a petition with the Tax Court. The court read the language and context of Code Sec. 7508A(d) to lend itself just as readily to the same interpretation. In addition, the court said that it agreed with Abdo's and Farah's reasoning that postponement of any Code Sec. 7508(a)(1) act would not be "mandatory" if it needed to be triggered by a discretionary act of the IRS, who could use its discretion not to act at all.

The court rejected the IRS's argument that Code Sec. 7508A(d) is ambiguous because it does not address federally declared disasters without an incident date. The court noted that Abdo and Farah did not argue that they were entitled to a 60-day postponement with respect to the Nationwide Emergency Declaration, which did not specify an incident date. Instead, they focused on the Ohio Disaster Declaration, which determined that "that the emergency conditions in the State of Ohio resulting from the [COVID-19] pandemic beginning on January 20, 2020, and continuing, are of sufficient severity and magnitude to warrant a major disaster declaration under the [Stafford Act]." The court said that the precise question at issue in this case addressed the context of a federal disaster declaration containing an incident date, and the court concluded that Congress has directly spoken to that precise question.

The court concluded that Reg. Sec. 301.7508A-1(g), promulgated after the petition in this case was filed, could not change the result dictated by an unambiguous statute. The court therefore did not reach step 2 of the Chevron analysis. Reg. Sec. 301.7508A-1(g)(1) and (2) is invalid, the court held, to the extent that it limits the non-pension-related "time-sensitive acts that are postpone for the mandatory 60-day postponement period...[to] the acts determined to be postponed by the Secretary's exercise of authority under [Code Sec.] 7508A(a)."

For a discussion of the automatic postponement of certain acts by taxpayers affected by federally declared disasters, see Parker Tax ¶250,125.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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