Monday, September 23, 2019

Pfizer Suit for Overpayment Interest Transferred to CFC for Tucker Act Jurisdiction (9/12/19; 9/25/19)

I write today on the recent decision in Pfizer, Inc. v. United States, 939 F.3d 173 (2d Cir. 2019), herePfizer involves overpayment interest, normally one of the more boring issues in the tax law.  It also involves some arcane rules, and finally involves taxpayer forum shopping, one of the arts of the tax litigator's trade (perhaps not exciting but certainly important).

I start with some basic background.  Section 6611(a), here, says unequivocally that "Interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax."  There is no question that a taxpayer with an overpayment is entitled to interest on the overpayment -- at least generally (that qualifier "generally" suggests exceptions that play prominently in this blog entry).

Other rules that come in play are:

1.  § 6611(b)(2) says that interest is due from the date of the overpayment "to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer."  This is called the "back-off" period and, as stated may be less than 30 days.  Most importantly, if the refund check is not accepted by the taxpayer upon tender, overpayment interest no longer accrues beyond the back-up date.  [JAT note:  This back-off period did not seem to apply in Pfizer, and I include it as a step to get to the applicable section discuss in paragraph 2.]

2.  § 6611(e)(1) says that no overpayment interest may be paid if the refund is made within 45 days of the due date (determined without regard to extensions), or, if later, the actual filed date of the return reporting the overpayment.

Pfizer filed a timely (on extension) 2008 return on 9/11/09 reporting a net overpayment of $499,528,499 (after application of an amount to its next year estimated tax).  The IRS prepared six checks for the overpayment aggregating to that amount.  The IRS apparently mailed the overpayment refund checks on or around October 19, 2009 (well within § 6611(e)(1)'s 45 day interest-free period from the date of filing, so the checks would have aggregated $499,528,499 without any overpayment interest), but the checks were never delivered to Pfizer.  Pfizer started contacting the IRS about the overpayment refund in December and continued thereafter, with the IRS canceling the checks and then depositing the amount of the overpayment refund claim ($499,528,499) directly into Pfizer's account on March 19, 2010 just over one year from the original overpayment (the due date of the return without extensions).

The interest on the period from the normal due date (March 15, 2009) to Pfizer's actual receipt of the overpayment funds was substantial ($8,298,048, even with the reduced rate for corporate overpayments), so Pfizer wanted to pursue the matter.  It did so by filing a claim for the overpayment interest "three years after receiving the refund."  (I note in the comments below some issues about how overpayment interest claims are made, but the Pfizer Second Circuit opinions do not address that issue, so I move on here; suffice it to say that, somehow, Pfizer made the claim for overpayment interest.  I will say that, at least potentially relevant to the concurring opinion, there is no explanation as to why Pfizer waited so long to present the formal claim, although the IRS apparently told Pfizer that the statute of limitations on the claim for overpayment interest was six years rather than the two year period for refund claims.)  The IRS denied the claim for overpayment interest based on the issuance of the overpayment checks in October 2009, which checks were apparently lost in the mail before delivery to Pfizer.  Pfizer then filed the suit for the overpayment interest.

There is no question that Pfizer could have filed the suit in the Court of Federal Claims (CFC) under Tucker Act jurisdiction.  (More on this later.)  Instead, Pfizer filed in the district court for SDNY.  The reason for that was to obtain favorable precedent in the Second Circuit, Doolin v. United States, 918 F.2d 15 (2d Cir. 1990), here, that held that a refund check not delivered to the taxpayer had not been tendered and thus did not suspend overpayment interest under § 6611(b)(2) (which stops interest after the refund check is tendered to the taxpayer whether or not the refund check is cashed by the taxpayer).  While Pfizer involved § 6611(e)(1), the same types of considerations as the Court invoked in Doolin would seemingly apply.  The CFC had no such favorable precedent, but also had no unfavorable precedent.  Still, if the taxpayer could find appropriate jurisdiction in the district court, then it had seemingly a winner under DoolinPfizer is thus a classic example of taxpayer forum shopping.
As mentioned, the suit could be filed in the CFC under Tucker Act jurisdiction.  28 USC § 1491(a)(1), here.  For a Tucker Act-type claim, there is concurrent jurisdiction CFC and district court jurisdiction but, under the Little Tucker Act, 28 USC § 1346(a)(2), here, the district court has jurisdiction only if the claim does not exceed $10,000.  So, district court jurisdiction in Pfizer could only obtain based on refund suit jurisdiction in 28 USC § 1346(a)(1).  Pfizer tried to shoehorn the overpayment interest claim into refund jurisdiction.

The Second Circuit rejected Pfizer's claim of refund jurisdiction under 28 USC § 1346(a)(1), basically on the ground that overpayment interest, not having been paid by the taxpayer, cannot be refunded (i.e., it was not a tax erroneously and illegally assessed or collected and was not a penalty, nor was it a sum unlawfully collected).

Therefore, exclusive jurisdiction was in the CFC under the Tucker Act.  The Second Circuit vacated the district court opinion and transferred the case to the CFC under 28 U.S.C. § 1631, here.

So, Pfizer has not lost the case.  It may still persuade the CFC to adopt a Doolin-type rule.  But, Pfizer does not have the virtual guarantee of prevailing that Doolin offered.

Judge Lohier, in a concurring opinion, reasoned that, if Pfizer had been successful in prosecuting the case as a refund suit, it would have run aground of the two-year statute for filing suit, concluding:  "even if the District Court had jurisdiction in this case, Pfizer cannot have it both ways by exploiting the jurisdiction of the district court under § 1346(a)(1) without meeting the two-year statute of limitations applicable to that provision."  (There was the issue presented and not decided where, if refund jurisdiction were available, the two-year claim for refund statute of limitations would be deemed not jurisdictional and thus might be subject to equitable or estoppel type tolling; that's a large issue and, although present in some of the arguments, was not decided because of the holding that there was no refund jurisdiction.)

JAT comments:

1.  I think, as I understand the law, the Second Circuit is correct in its holdings that (i) refund jurisdiction does not apply and (ii) exclusive jurisdiction is in the CFC.

1a.  Addendum 9/25/19:  In Paresky v. United States (S.D. Fla No. 18-23569 8/30/19) ("Paresky II"),  the Magistrate Judge in her Report and recommendations, here held that the overpayment claims could could proceed under 28 USC § 1346(a)(1) (the statute normally covering tax refunds) after having been dismissed in the CFC for lack of jurisdiction under the Tucker Act, 28 USC § 1491(a)(1).  The Pareskys' CFC case ("Paresky I") is Paresky  v. United States, 2018 U.S. Claims LEXIS 966 (2018), here, holding that the Pareskys allegation of jurisdiction under the Tucker Act failed because the six-year statute of limitations had expired but declining to determine whether the Pareskys claim could proceed as a refund claim under 28 USC § 1346(a)(1).  Pfizer was decided before the Paresky II report and recommendation and is in conflict with the reasoning of Paresky II.  I presume that the Government will appeal Paresky II to the Eleventh Circuit.  (Readers wanting to dig into the nuance of the case might read the opinion in Paresky I to see why the CFC, which clearly has jurisdiction over refund suits (if the Paresky claim was a refund suit), did not decide that issue rather than transferring to the S.D. Fla. district court.)

2.  IRM (03-05-2015), Non-Receipt of Refund Check, says that, if it can be determined that the non-receipt of the refund check is the fault of a Government agency, "additional interest is allowed to the new refund schedule date (less the applicable back-off period)."  (Remember that the back-off period is the § 6611(b)(2) up to 30 day period discussed above).  This IRM provision post-dated the facts in Pfizer; I am not sure what the applicable administrative rules were in the Pfizer year.  But, this provision seemingly, if applicable might allow the Pfizer interest if it could establish that the failure to deliver the original checks was the "fault of a Government agency."  Perhaps that issue is addressed in the parties' briefs, but I have not read those briefs.  If I have time to read the briefs, I will supplement this paragraph.

3.  One issue that I thought  of was how overpayment interest is actually claimed.  The standard X forms (in Pfizer, the 1120X, Amended U.S. Corporation Income Tax Return, which may claim refunds of overpaid tax does not fit for overpayment interest.  I am told that, for that reason, taxpayers often make overpayment interest claims on Form 843, Claim for Refund and Request for Abatement, but that doesn't fit either because there is nothing to "refund" and there has been no assessment to abate.  I suspect that, being a Tucker Act-type claim, there is no specific form for making the claim and the formal making of a claim may not even be required.  I haven't tried to chase that down any further, so if any readers know the answer, please make a comment or email me at

4.  One issue that I have addressed recently is the notion, expressed in many cases and in the Second Circuit Pfizer opinions (panel and concurring), that 28 USC § 1346 grants jurisdiction to the CFC.  Section 1346 says that jurisdiction under § 1346 is "concurrent with the United States Court of Federal Claims."  The Pfizer Court panel opinion says that the section "provides that the district courts and the Court of Federal Claims have concurrent jurisdiction over" refund suits.  The concurring opinion says that "the central provision in this case, 28 U.S.C. § 1346(a)(1), bestows on district courts and the Court of Federal Claims concurrent jurisdiction."  My understanding is that § 1346 does not bestow any jurisdiction to the CFC but merely recognizes via the word "concurrent" that CFC jurisdiction is found elsewhere.  I rely upon the esteemed and late Judge Fran Allegra of the CFC in Ferguson v. United States, 2014 U.S. Claims LEXIS 1068 (Fed. Cl. 2014), here:
fn 2 This court's jurisdiction over refund suits does not — NOT — derive from 28 U.S.C. § 1346(a)(1). See Roseman v. United States, 2013 WL 151716, at *1 n. 2 (Fed. Cl. Jan. 3, 2013). The latter provision provides jurisdiction only for district court tax refund suits. See Hinck, 64 Fed. Cl. at 74-76; see also New England Mut. Life Ins. Co. v. United States, 52 F.2d 1006, 1008 (Ct. Cl. 1931); M. Carr Ferguson, "Jurisdictional Problems in Tax Controversies," 48 Iowa L. Rev. 312, 346 n.175 (1962-1963) ("The jurisdiction of the Court of Claims in tax cases is conferred by 28 U.S.C. § 1491. . . . Although the Court of Claims is mentioned in 28 U.S.C. § 1346 . . ., it is only mentioned in passing by this younger statutory provision, reference being made to the jurisdiction already extended under the other sections."); see generally, Usibelli Coal Mine v. United States, 54 Fed. Cl. 373, 375-76 (2002), rev'd, on other grounds, 311 Fed. Appx. 350 (Fed. Cir. 2008).
5.  One other issue I learned of another interesting issue in discussing this case with Bob Probasco, here (who, on interest issues, is my teacher to the extent I have the capacity to learn, although he has no responsibility for my errors).  The issue is a procedure invoked by the Government in a related case where the district treated the claim for overpayment interest as a refund claim rather than a Tucker Act claim, thus rejecting the position now adopted by the Second Circuit in Pfizer.  See Bank of America v. United States, 124 AFTR 2d 2019-5003 (W.D. N.C. 7/1/19), CourtListener Dkt. 51 here  (with complete Courtlistener Docket Entries here) and Google Scholar here.  On 8/28/19, before the Second Circuit decision in Pfizer, the Government filed an appeal in Bank of America on the issue of whether the district court should have transferred the case to the Federal Circuit.  See Courtlistener Dkt. 52 Notice of Appeal here and Courtlistener Dkt. 55 Federal Circuit Notice of Docketing here.  Importantly, the appeal was taken to the Federal Circuit rather than the Court of Appeals for the Fourth Circuit which is the normal appellate venue for the district courts in North Carolina.  The authority for the appeal to the Federal Circuit is 28 U.S.C. §  1262(d)(4), here.  I can't further speak to that issue because I previously was not aware of the provision and have not researched it (and doubt that I will have the motivation to research it beyond reading the case when the Federal Circuit decides it).  I will say that, in my practice (a tax-oriented practice, with in its criminal sphere overlapping with white collar crime practice), I have never seen a matter decided in a district court appealed to a court other than the normal Court of Appeals for the geographical area in which the district court is located.  And, of course, I have no idea why that provision was not invoked in Pfizer to make the appeal to the Federal Circuit rather than to the Second Circuit.

6.  Finally, picking up the original theme of how unexciting interests issues are, I have to say that I was speaking from my perspective as a tax controversy lawyer.  I just can't imagine litigating to a generalist judge or jury an interest issue.  Consistent with this theme, I offer the following conclusion from Chapter 8 my Federal Tax Procedure books, here, dealing with Interest:
G.           Who Really Does This Type of Work?
        The procedures for calculating restricted interest, somewhat arcane in application, are beyond the scope of this work.  Interest calculations (including restricted interest calculations) are for the back room green eye shade guys, and not us lean and mean gregarious tax lawyers, so I recommend that my students pass this work on to guys with the skills and personality to see the calculations through.  In this regard, most major accounting firms and any number of boutiques do interest calculations for an appropriate fee, which often is a contingency fee. 
        However, as I noted above, for purposes of general tax practice, it is often sufficient to have a general ballpark number so that clients can understand the consequences of their decisions and the financial risks that might be involved.  In such cases, I use a Tax Interest program authored by Time Value Software.  The program is actually a pretty good interest calculator.  A number of return preparers with whom I work use the program, for example, to calculate interest that will be due on amended returns showing a tax due and in other contexts where a good interest calculator is required.  For my purposes as a tax controversy attorney, the program gives me a critical tool I need to help my clients make decisions and anticipate results.  And this would be true in both small and very large cases.
I think I will revise this section for the next editions (due in August 2020) to add an acknowledgment that some find more spice in the interest issue than I do.

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