Nullum tempus occurrit regi, sometimes shortened to nullum tempus, is an old principle of common law. The phrase means time will not run against the king, and the point is that he is not subject to statutes of limitations like the rest of us. While we lack a king, the principle remains alive in U.S. law, surfacing recently in a penalty case against a return preparer. Armstrong v. United States, No. 18-CV-06532-LHK, 2019 U.S. Dist. LEXIS 103604 (N.D. Cal. June 20, 2019).

A large number of taxpayers rely upon certified public accountants and other return preparers to assist them in complying with their tax obligations. As a consequence, the federal government takes a keen interest in their activities, regulating their conduct through a grab bag of potential penalties:

  • Return preparers can be penalized for filing a return that understates tax because of an unreasonable position asserted on the return, I.R.C. § 6694(a).
  • Return preparers can be penalized for filing a return that understates tax due to willful or reckless conduct, I.R.C. § 6694(b).
  • Return preparers can be penalized if they don’t provide the taxpayer a copy of the return, or they forget to sign it, or forget to list their identification number, or fail to keep sufficient records, I.R.C. § 6695(a)-(d).
  • Return preparers can be penalized if they promote abusive tax shelters, I.R.C. § 6700.
  • Return preparers can be penalized if they aid and abet the submission of documents that understate tax liability, I.R.C. § 6701.
  • Return preparers can be penalized if they disclose return information without client authorization, I.R.C. § 6713.

And that is just the civil penalties; return preparers can also face criminal charges, or they may face civil injunction actions to curb practices that the government contends are improper or abusive.

Holly A. Armstrong is a certified public accountant; the government decided that she was engaged in certain abusive practices as part of her return preparation practice, and assessed her with penalties under section 6701 of the Internal Revenue Code, which provides as follows:

(a) Imposition of penalty
Any person-
(1) who aids or assists in, procures, or advises with respect to, the preparation or presentation of any portion of a return, affidavit, claim, or other document,
(2) who knows (or has reason to believe) that such portion will be used in connection with any material matter arising under the internal revenue laws, and
(3) who knows that such portion (if so used) would result in an understatement of the liability for tax of another person,
shall pay a penalty with respect to each such document in the amount determined under subsection (b).

I.R.C. § 6701(a).

Holly was marketing two tax “plans” to clients; one, which was known as the “Income Stabilization Plan,” involved the installment sale of compensation to be earned in the future, while the other purported to permit the deferral of income from the disposition of property through a so-called “Private Annuity Program.” Armstrong, 2019 U.S. Dist. LEXIS 103604 at *2. Although the two plans were apparently popular with Holly’s clients, the IRS was not amused. It assessed Holly with $337,000 in penalties under section 6701 in October of 2013. Id.

But there was a catch: The relevant tax years were 1999 to 2003, raising the question whether the government waited too long. Consequently, Holly sought a refund of what she paid, and then filed suit when that refund claim was denied. One of Holly’s arguments was that the government waited too long to impose the penalties. Id. at *6.

Holly’s argument sounds plausible at first. In federal tax cases, the government is generally subject to two statutes of limitations:

  • Section 6501(a) of the Code gives the government three years to assess tax following the filing of a return, subject to certain exceptions; and
  • Section 6502(a) of the Code generally gives the government ten years to collect from the date of assessment.

Holly’s seemingly plausible argument that the government acted too late ran into a barrier: Some courts have held that section 6701 penalties are not subject to any assessment limitations period. Lamb v. United States, 977 F.2d 1296, 1297 (8th Cir. 1992); Mullikin v. United States, 952 F.2d 920, 928 (6th Cir. 1991); see also Nat’l Mining Ass’n v. United States Dep’t of Interior, 177 F.3d 1, 8 (D.C. Cir. 1999) (citing Mullikin in dicta). Given the case law, the government challenged Holly’s statute of limitations argument by motion and won.

Holly and her lawyers acknowledged that there was no provision in the Code that expressly imposed a limit on when the government can issue a penalty assessment under section 6701. Armstrong, 2019 U.S. Dist. LEXIS 103604 at *7. Instead, Holly relied upon a catch-all statute of limitations:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.

28 U.S.C. § 2462.

Holly and her lawyers faced an uphill fight: As the district court explained, the Ninth Circuit had endorsed Mullikin (although in a case that did not involve a limitations issue), every other district court in the Ninth Circuit had held that there was no assessment limitations period under section 6701, and there was apparently no contrary authority. 2019 U.S. Dist. LEXIS 103604 at *10. The district court then explained the reasons why the “catch-all” provision from title 28 did not apply, noting that the provision only applied “to an ‘action, suit, or proceeding.’” Id. at *11. That language implied an adversarial process that was completely absent from the penalty assessment under section 6701. Id. at *11-*12. In response, Holly and her lawyers relied upon a D.C. Circuit case involving the EPA, 3M Co. v. Browner, 17 F.3d 1453 (D.C. Cir. 1994), but the district court distinguished that case because the EPA’s procedure was more akin to civil litigation. Armstrong, 2019 U.S. Dist. LEXIS 103604 at *12-*14.

Since there was no applicable limitations period, the district court essentially applied nullum tempus: “Under United States Supreme Court precedents, it is ‘well settled that the United States is not subject to statutes of limitations in enforcing its rights unless Congress explicitly provides otherwise.’” Id. at *14 (quoting Agbanc, Ltd. v. United States, 707 F. Supp. 423, 426 (D. Ariz. Nov. 16, 1988)).

Armstrong is a little jarring: The idea that there is no limitation on the time to assess a penalty is counter-intuitive. But it isn’t unprecedented, as section 6501 of the Code includes provisions that create an open-ended assessment limitations period, including provisions where a taxpayer files “a false or fraudulent return with the intent to evade tax,” or where there is “a willful attempt in any manner to defeat or evade tax imposed by this title (other than tax imposed by subtitle A or B).” I.R.C. § 6501(c)(1), (2).

Consequently, this looks like a case where a seemingly anomalous result is probably correct on the law.

  •  
  •  
  •  
  •  
  •  
  •