American College of Tax Counsel Files Brief Urging Appeals Court to Recognize Applicability of Statute of Limitations to Tax Penalty Assessments

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The American College of Tax Counsel, in an amicus brief filed with the Seventh Circuit Court of Appeals in the case of Groves v. U.S., urges the court to hold that an IRS assessment of tax penalty under 26 USC 6700 is subject to a five-year statute of limitations pursuant to the “catch-all” statute of limitations found in 28 USC 2462.

The American College of Tax Counsel announces the filing on September 14, 2018 of an amicus brief with the United States Court of Appeals for the Seventh Circuit in the case of Philip G. Groves v. United States of America (No. 17-2937). With this brief, the College asks the court to recognize the applicability of the catch-all statute of limitations to an IRS assessment of a tax penalty. Otherwise, the College argues, an advisor could remain exposed forever to potential liability for past conduct, regardless of how long ago it may have occurred.

Background of the Case

The Groves case is an appeal from a decision of the United States District Court for the Northern District of Illinois (Philip G. Groves v. United States of America, No. 16-cv-2485). In that case, the district court held that the catch-all statute of limitations provision in 28 U.S.C. § 2462 did not apply to an IRS assessment of a tax penalty under 26 U.S.C. § 6700, which authorizes the imposition of penalties for certain activity related to tax shelters. Section 2462, however, is a statute of limitations which applies by its express terms to any “action, suit or proceeding” that is commenced “for the enforcement of any…penalty.” Section 2462 further requires any such action to be commenced within five years from the date when the claim first accrued.

The plaintiff Groves had been assessed a penalty related to promotion of tax shelters. Groves argued that the five-year statute of limitations in 28 U.S.C. §2462 applied, barring the assessment of the Section 6700 penalty. The trial court, however, concluded that an IRS assessment of tax penalty is not an “action, suit or proceeding” covered by section 2462, and therefore the catch-all statute of limitations did not apply. Groves has appealed this decision to the Seventh Circuit, seeking reversal of the District Court decision.

American College of Tax Counsel Urges Appeals Court to Reverse Lower Court Opinion

The College maintains in its brief that the assessment of section 6700 penalties is an, “action, suit or proceeding,” and therefore meets the criteria for the application of the catch-all statute of limitations provided in 28 U.S.C § 2462. Explaining the legislative history of section 2462, the College points out that section 2462 had its genesis in the revenue laws. The brief also notes that Congress clearly has the ability to exempt certain statutes from section 2462 when it wants to, and has done so in the past, pointing to several anti-fraud provisions in the Internal Revenue Code that are expressly excepted from the application of section 2462. However, Congress made no such express exception for Code section 6700. According to Armando Gomez, a Regent of the College who is counsel of record on the brief, “the Supreme Court has made clear that Congress intended section 2462 as a broad, catch-all statute of limitations to ensure all persons – even wrongdoers – would have the protection and finality that a statute of limitations provides.” Failing to apply section 2462 to the case at hand, says Gomez, “frustrates the will of Congress and fails to provide certainty under the law by leaving decisions on whether to pursue these penalties long after the conduct at issue entirely at the discretion of the IRS.”

Applying the statute of limitations to tax penalties is important to the fair administration of justice, the College asserts. Statutes of limitation have been in use in American and English legal systems for nearly 400 years, and they promote the important aim of repose, the College noted. A statute of limitations provides security and stability by ending the possibility of litigation after the lapse of a reasonable period of time. Under the District Court’s view, the potential liability for the section 6700 penalty would exist for the advisor’s lifetime.

Another important goal served by statutes of limitations is the timely prosecution of cases while the evidence is still fresh. Evidence tends to deteriorate over time, as C. Wells Hall, Vice President of the College, points out. “Evidence is lost, memories fade and witnesses die or disappear. A statute of limitations ensures that evidence will be used, if at all, while it is still reliable and not after it has become stale.”

Finally, the College also points out that the United States Supreme Court in Mayo Foundation for Medical Education and Research v. United States, 562 U.S. 44 (2011) rejected the outdated doctrine of Tax Exceptionalism, which is the idea that tax laws are somehow special and should not be subject to the same generally applicable legal principles that apply to other areas of general administrative law. The rejection of Tax Exceptionalism confirms that general provisions of federal law, such as section 2462, necessarily apply to the tax code too.

About Amicus Briefs

An Amicus Curiae (“friend of the court”) or Amicus brief allows a person or organization with a strong interest in or important views on the subject matter of a case to file a brief explaining those views and urging the court to rule in a manner consistent with those views. Friend of the court briefs are often filed in cases of broad public interest and are filed with the permission of the court and usually, as in this instance, with the written consent of all the parties in the case.

About the American College of Tax Counsel

The American College of Tax Counsel is a nonprofit association of tax lawyers in private practice, in law school teaching positions, and in government, who are recognized for their excellence in tax practice and for their substantial contributions and commitment to the profession. One of the chief purposes of the College is to provide a mechanism for input by tax attorneys into the development of U.S. tax laws and policy. The College’s brief was submitted by the its governing Board of Regents, represented by attorneys Armando Gomez, Alan Swirski and Keith Neely of Skadden, Arps, Slate, Meagher & Flom LLP in Washington, D.C.

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Pamela Lyons

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