Corporation Doesn't Qualify for Equitable Tolling of 90-Day Deadline to File Petition

(Parker Tax Publishing May 2025)

The Tax Court held that the 90-day deadline in Code Sec. 7436 for filing a Tax Court petition is subject to equitable tolling because (1) there is nothing in the text of the statute that rebuts the presumption that equitable tolling applies; (2) the statute does not expressly prohibit equitable tolling; and (3) the wording of the statute is not "unusually emphatic," "highly detailed," or "technical," criteria set forth by the Supreme Court in U.S. v. Brockamp, 519 U.S. 347 (1997). However, because the taxpayer did not take all reasonable steps to ensure the timeliness of its petition to the Tax Court, its late-filed petition did not warrant equitable tolling. Belagio Fine Jewelry, Inc. v. Comm'r, 164 T.C. No. 7 (2025).

Background

Belagio Fine Jewelry, Inc. (Belagio) did not file quarterly employment tax returns during 2016 and 2017. Following an audit, the IRS issued a notice of employment tax determination under Code Sec. 7436, wherein it found that Belagio had an employee during the periods at issue. The IRS determined employment tax deficiencies, additions to tax for failing to timely file under Code Sec. 6651(a)(1) and failing to timely pay under Code Sec. 6651(a)(2), as well as penalties for failing to deposit taxes under Code Sec. 6656. The notice stated that the Code Sec. 7436(b)(2) 90-day deadline for filing a petition with the Tax Court was November 22, 2021.

Code Sec. 7436(a) provides that a taxpayer may petition the Tax Court for review after the IRS either issues a notice of employment tax determination or makes a determination regarding a taxpayer's employment tax liability without issuing a notice. Code Sec. 7436(b)(2) generally provides that no proceeding may be initiated with respect to such determination unless a petition is filed within 90 days of the IRS assessment.

The staff of Belagio's attorney mailed a petition for redetermination of employment status to the Tax Court via FedEx Express Saver on November 18, 2021. The attorney subsequently represented that he would not have used FedEx Express Saver but instead would have used FedEx Priority Overnight. The petition arrived at the Tax Court on November 23, 2021. The IRS filed a motion to dismiss for lack of jurisdiction on the grounds that the petition was filed after the 90-day deadline prescribed by Code Sec. 7436(b)(2). In Belagio Fine Jewelry, Inc. v. Comm'r, 162 T.C. 243 (2024), the Tax Court held that, because Congress did not clearly state that the 90-day deadline in Code Sec. 7436(b)(2) is jurisdictional, it was not deprived of jurisdiction in the case. However, the court reserved judgment on whether the 90-day deadline was subject to equitable tolling until the issue was properly raised in a motion.

Equitable tolling effectively extends an otherwise discrete limitations period set by Congress. As noted by the Supreme Court in Boechler, P.C. v. Comm'r, 2022 PTC 112 (S. Ct. 2022), the doctrine of equitable tolling is a background principle against which Congress drafts limitations periods and, because Congress does not alter this feature lightly, nonjurisdictional deadlines are presumptively subject to equitable tolling. However, this presumption can be rebutted if equitable tolling is inconsistent with the text of the statute or the statutory scheme.

To be entitled to equitable tolling, the Supreme Court, in Menominee Indian Tribe of Wis. v. U.S., 577 U.S. 250 (2016), held that a taxpayer must establish (1) that it pursued its rights diligently, and (2) that extraordinary circumstances outside of its control prevented it from filing on time. In U.S. v. Brockamp, 519 U.S. 347 (1997), the Supreme Court held that the period in which to file a refund lawsuit under Code Sec. 6511 was not subject to equitable tolling because that provision set forth the time limit in "unusually emphatic form" and in a "highly detailed technical manner, that, linguistically speaking, cannot easily be read as containing implicit exceptions." Code Sec. 6511, the Court noted, reiterated the deadline multiple times in both procedural and substantive terms that affected the taxpayers' refund amounts according to their compliance with the deadline and also included six highly detailed exceptions based on the underlying subject matter, which did not include equitable tolling.

The IRS filed a motion to dismiss in which it argued that the 90-day deadline in Code Sec. 7436 was not subject to equitable tolling and, alternatively, that equitable tolling was not warranted in Belagio's situation. As support, the IRS pointed to Code Sec. 7436(d)(1)'s restrictions on assessment and collection that are tied to the 90-day deadline as an indication that Congress did not intend equitable tolling to apply. Belagio objected, arguing that the IRS was seeking to relitigate the question of whether Belagio's case may be dismissed for failure to timely file. With respect to its argument that it was eligible for equitable tolling, Belagio alleged that its attorney or the attorney's legal staff were negligent in mailing the petition using a nondesignated private delivery service.

Analysis

The Tax Court agreed with Belagio that the 90-day deadline in Code Sec. 7436 is subject to equitable tolling but concluded that the circumstances surrounding Belagio's late-filed petition did not warrant equitable tolling.

With respect to the application of equitable tolling, the court cited the Supreme Court's decision in Boechler P.C. in concluding that (1) nothing in the text of Code Sec. 7436 rebuts the presumption that equitable tolling applies, and (2) Code Sec. 7436 does not expressly prohibit equitable tolling. Additionally, the wording in Code Sec. 7436 did not strike the Tax Court as "unusually emphatic," "highly detailed," or "technical" as the Supreme Court had outlined in its Brockamp decision. While Code Sec. 7436 uses emphatic wording - i.e., "no proceeding may be initiated" - it did not strike the Tax Court as unusually emphatic.

The court then turned to the IRS's argument regarding Code Sec. 7436(d)(1)'s restrictions on assessment and explained that while Code Sec. 7436(d)(1) prevents the IRS from assessing, collecting, or taking other specified administrative actions until the 90-day deadline has expired, those restrictions relate to the procedural steps the IRS can use in collecting a deficiency, not to a taxpayer's substantive rights. There is nothing inconsistent, the court said, with permitting equitable tolling in the taxpayer's case and allowing the IRS to proceed with assessment and collection after the 90-day deadline has expired.

Next, using the two-prong test established in Menominee Indian Tribe of Wisconsin, the Tax Court addressed whether equitable tolling was appropriate in Belagio's case and concluded that it was not. The court found that the first prong of the test, which requires that a taxpayer take all reasonable steps to ensure the timeliness of its petition, including engaging with its attorney to ensure a petition is timely filed, was not met because there was no indication that Belagio followed up with its attorney to ensure the attorney timely filed the petition. While noting that a failure to satisfy the first prong of the test was sufficient for it to deny Belagio's equitable tolling claim, the court went on to address the second prong of the test, which the court said is met only where the "circumstances that caused a litigant's delay are both extraordinary and beyond its control." The court concluded that Belagio did not meet this test either. It is well established, the court said, that a client generally bears the risk of his attorney's negligence, and simple negligence on an attorney's behalf does not warrant equitable tolling. The court also noted that courts have consistently held that a failure to properly mail a petition is garden variety negligence that does not warrant equitable tolling.

For a discussion of IRS notices to taxpayers relating to employment tax determinations, see Parker Tax ¶210,115.

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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