Second Circuit: Jurisdictional Dismissals of Small Tax Cases Cannot Be Appealed

(Parker Tax Publishing April 2024)

The Second Circuit affirmed a Tax Court decision and held that, by its plain language, Code Sec. 7463(b) precludes appellate review of jurisdictional dismissals of small tax cases. The court found that the authority being relied upon by the taxpayer in his appeal to the Second Circuit was misplaced. Foley v. Comm'r, 2024 PTC 72 (2d Cir. 2024).

Background

In 2018, the IRS issued a notice of deficiency to Joseph Foley for taxes owed for 2014 and 2015. Under Code Sec. 6213(a), he had 90 days to file a petition in the Tax Court for redetermination of the deficiency. Foley filed a petition disputing the deficiency in 2022, 1,393 days after the deadline, asserting that he never received notice of the deficiency. His petition, filed on a standard form of the Tax Court, reflected an election to have his petition reviewed under small tax case procedures.

A taxpayer can elect to seek redetermination of a deficiency under the small tax case procedures in Code Sec. 7463 if the deficiency amount is under $50,000. This process is less formal, and taxpayers often receive a "speedier disposition." Underneath the checked box electing the small tax case process, the form includes a note indicating that a decision in a "small tax case" cannot be appealed to a Court of Appeals by either party.

Upon an IRS motion, the Tax Court dismissed Foley's petition for redetermination as untimely. In response to the dismissal of his petition, Foley moved to vacate or revise the decision, arguing that he never received the notice. The Tax Court denied his motion, asserting that it lacked authority to extend the petition deadline.

Foley appealed to the Second Circuit and the IRS moved to dismiss Foley's appeal, asserting that, under Code Sec. 7463(b), appellate courts lack jurisdiction to review small tax case decisions, including dismissals of cases. Code Sec. 7463(b) provides that a "decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court." Foley argued that the Tax Court's dismissal of his petition as untimely was not a "decision" for purposes of Code Sec. 7463. According to Foley, because the Tax Court dismissed his petition on jurisdictional grounds, rather than on the merits, Code Sec. 7463(b) was not an impediment to a review by the Second Circuit. In so arguing, he cited the Second Circuit's holding in Wapnick v. U.S, 112 F.3d 74 (2d Cir. 1997), a case in which the Second Circuit concluded that a non-reviewability provision similar to that in Code Sec. 7463(b) did not preclude a taxpayer from appealing a judgment dismissing the taxpayer's claim on jurisdictional grounds.

The question before the Second Circuit was whether Code Sec. 7463(b) precludes appellate review of jurisdictional dismissals of small tax cases.

Analysis

The Second Circuit granted the IRS's motion to dismiss. By its plain language, the court said, Code Sec. 7463(b) precludes appellate review and, the court added, the authority Foley was relying on to suggest otherwise was inapposite. The court began by noting that Code Sec. 7463(b) establishes that a "decision" under Code Sec. 7463 "shall not be reviewed in any other court and shall not be treated as a precedent for any other case." Contrary to Foley's assertions, the Second Circuit said that the Tax Court's dismissal of his petition as untimely was a "decision." Other Code provisions, the court observed, make clear that a "decision" of the Tax Court includes "a decision dismissing a proceeding for lack of jurisdiction." For example, the court cited Code Sec. 7459(c), which expressly describes a dismissal for lack of jurisdiction as a "decision." Thus, the court concluded, the term "decision" as it is used in the Code, including Code Sec. 7463(b), encompasses jurisdictional dismissals like that entered by the Tax Court in Foley's case.

With respect to Foley's reliance on its decision in Wapnick, the Second Circuit said that Wapnick was readily distinguishable. Wapnick, the court noted, sought district court review of an IRS jeopardy assessment against the taxpayer pursuant to Code Sec. 7429. In that case, a district court dismissed a taxpayer's claim on jurisdictional grounds, concluding that he had failed to exhaust his administrative remedies and his district court action was untimely. According to the Second Circuit, the issue in Wapnick was whether the Second Circuit had jurisdiction to entertain the appeal and it concluded that the statute's restriction on appellate review was limited to determinations "on the merits regarding the jeopardy assessment in question." Accordingly, the restriction on appellate review in Code Sec. 7429(f) is limited to rulings as to the reasonableness of the jeopardy assessment (i.e., the merits).

For a discussion of appeals to courts, see Parker Tax ¶263,500.

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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