Tenth Circuit: Denial of Taxpayer's Motion to Dismiss by Tax Court Cannot Be Appealed

(Parker Tax Publishing June 2024)

The Tenth Circuit held that taxpayers who filed a motion to dismiss for lack of jurisdiction in the Tax Court on the grounds that a notice of deficiency was invalid could not appeal the Tax Court's denial of their motion to dismiss. The Tenth Circuit found that the denial of a motion to dismiss, even one based upon jurisdictional grounds, is not a final decision subject to immediate appellate review. Watson v. Comm'r, 2024 PTC 183 (10th Cir. 2024).

The IRS sent Michael and Tracey Watson, the Watson Family Insurance Company, and the Watson Insurance Company (i.e., the Watsons) notices of deficiency for multiple tax years. The Watsons filed petitions in the Tax Court and filed motions to dismiss for lack of jurisdiction arguing that the notices of deficiency were invalid. The Tax Court consolidated the cases and denied the motions to dismiss. The Watsons filed an interlocutory appeal in the Tenth Circuit, seeking immediate review of the Tax Court's denial.

Under Code Sec. 7482(a)(1), the circuit courts have jurisdiction to review the Tax Court's decisions "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." Generally, the circuit courts may review only the Tax Court's final decisions. In Luna-Garcia v. Holder, 777 F.3d 1182 (10th Cir. 2015), the Tenth Circuit held that a final decision "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment."

The Watsons argued that the Tenth Circuit had jurisdiction over their appeal because the Tax Court denied their potentially dispositive motions to dismiss. They also asserted that the Tenth Circuit had jurisdiction based on the collateral order doctrine. For the collateral order doctrine to apply, the order must (1) conclusively determine the disputed question, (2) resolve an important issue completely separate from the merits, and (3) be effectively unreviewable on appeal from a final judgment.

The Tenth Circuit dismissed the Watsons' appeal. The court found that in cases before the district courts, it is well established that the denial of a motion to dismiss - even one based upon jurisdictional grounds - is not a final decision subject to immediate appellate review. And because it reviews the Tax Court's decisions in the same circumstances in which it reviews decisions by the district courts, the Tenth Circuit concluded that the Tax Court's order denying the Watsons' motions to dismiss was not final. The Tenth Circuit also rejected the Watsons' argument that the collateral order doctrine applied. The court noted that the Supreme Court consistently has held (for example, in Van Cauwenberghe v. Biard, 486 U.S. 517 (1988)) that the denial of a claim of lack of jurisdiction is not an immediately appealable collateral order because the denial is effectively reviewable on appeal after the district court (or, in this instance, the Tax Court) enters a final judgment.

For a discussion of appealing final Tax Court decisions, see Parker Tax ¶263,510.

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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