Court Holds that Untimely Refund Claim by Amended Return Stating a Different Legal Basis Does Not Relate Back to Timely Refund Claim by Amended Return (2/20/24)

In American Guardian Holdings, Inc. v. United States (N.D. Ill. Case 23 C 1482 Memo Op. & Order 2/7/24), GS here and CL here, the district court held that that it had no jurisdiction over an untimely refund claim (by untimely amended return, Form 1120X) requesting a refund in the same amount as a prior timely refund claim (by timely amended return, Form 1120X) but stating a different legal basis than the timely refund claim. In the untimely refund claim, the taxpayer asked the court to “discard” the timely filed amended return. (The latter fact was not relevant to the holding.)

For clarity, the taxpayer filed the following documents: the original return; a timely refund claim  (by Form 1120X) seeking most of the tax paid; a timely refund claim (by Form 1120X) seeking all of the tax paid; and an untimely third amended return (by Form 1120X) seeking all of the tax paid. For analysis of the issue of whether the court had jurisdiction over the untimely amended return, the court compared the untimely third amended return to the timely second amended return. The issue was whether the claim in the untimely third amended return was a clarification of the claim made in the timely second amended return or stated a different basis.  I simplified in the original paragraph by mentioning only a timely filed refund claim and a subsequent untimely filed refund claim.

I discuss the general issue in the most recent edition of the Federal Tax Procedure (Practitioner Edition p. 236; Student Edition (without footnote p. 165)) as follows:

(d) Germaneness Doctrine.

          The germaneness doctrine may apply where the taxpayer:

          (1) files a formal claim within the limitations period making a specific claim; and (2) after the limitations period but, while the IRS still has jurisdiction over the claim, files a formal amendment raising a new legal theory -- not specifically raised in the original claim -- that is “germane” to the original claim, that is, it depends upon facts that the IRS examined or should have examined within the statutory period while determining the merits of the original claim. Unlike the waiver doctrine, the inquiry here is not whether the particular legal theory for recovery has been considered by the IRS during the limitations period but whether the underlying facts supporting that legal theory were discovered or should have been discovered by the IRS in considering the original claim during the limitations period. n1049

n1049  Computervision Corp. v. United States, 445 F.3d 1355, 1370 (Fed. Cir. 2006) (citing  Bemis Brothers Bag Co. v. United States, 289 U.S. 28, 53 S. Ct. 454 (1933) and United States v. Andrews, 302 U.S. 517, 524 (1938).  In Computervision, the Federal Circuit rejected the holding of two other courts that the more specific formal claim could be filed after the IRS has completed consideration of the inadequate original claim by granting the original claim, by denying the original claim, or by the taxpayer having filed a suit for refund without IRS formal action on the claim. The cases rejected in Computervision are:   Mutual Assurance Inc. v. United States, 56 F.3d 1353 (11th Cir. 1995); St. Joseph's Lead Co. v. United States, 299 F.2d 348 (2d Cir. 1962).

 In American Guardian, the Court discusses the germaneness doctrine as follows:

[T]he Supreme Court's decision in Andrews—cited in Parker Hannifin—controls. Although the amended claim in Andrews was (unlike here) for a different amount than the original claim, it was also (as in this case) premised on a different basis. The Court focused on the latter point in deciding that the second, untimely, claim could not be considered as an amendment of the first, timely claim: "a claim which demands relief upon one asserted fact situation, and asks an investigation of the elements appropriate to the requested relief, cannot be amended to discard that basis and invoke action requiring examination of other matters not germane to the first claim." Andrews, 302 U.S. at 524.

          This principle from Andrews, in the Court's view, governs here: AGH's third amended claim sought a refund on a basis that was not "germane" to its earlier claim. To put it in the terms of Parker Hannifin, the third amended return did not "clarify" the second amended return or "make it more specific." Rather, it completely changed the basis for the refund claim. The Court also notes that the third amended return cannot fairly be considered responsive to the IRS's October 2019 letter, which sought correction (or clarification) of why figures in AGH's second amended return differed from the corresponding figures in its original return. The third amended return did not do that but instead sought a refund based on a completely different accounting method, albeit in the same amount that AGH had previously claimed.

          Because the current lawsuit is based on the third amended return, and because the claim in that return was not filed within the three-year period mandated by 26 U.S.C. § 6511(a), that provision's prerequisite of a timely claim for refund was not satisfied. The Court therefore dismisses the case for lack of subject matter jurisdiction and need not reach the question of the timeliness of the lawsuit, which was the alternative basis cited by the government in support of dismissal.

JAT Comments:

1. I encourage tax procedure fans to read American Guardian. It is a very good presentation of the issues.

2, I am adding American Guardian to the footnote in the working draft for the 2024 Practitioner Edition will should be “published” on SSRN in early August.