Tax Court Memo Opinion Denying Refund under § 6512 Offers Excellent Examination Question for Tax Procedure Class (12/13/24)

In Applegarth v. Commissioner, T.C. Memo. 2024-107, GS here and T.C. Dkt Sheet here at entry # 68, the Court decided that although Applegarth overpaid his tax liabilities for the years, the Tax Court could not order the refund under its authority for ordering refunds, § 6512, because applicable time limits were not met and there is no equitable tolling for these time limits. These are familiar issues in tax procedure, with varying results depending upon the particular time limits involved. Readers of this blog and fans of tax procedure already know the issues involved, although the results may vary. More importantly, from my perspective as an old tax procedure professor, the case presents the classic type of case that would frame the examinations I liked to give tax procedure students. I will address the teaching “lessons” at the end of the blog entry, but first I will go through the facts and resolution of the issues as presented in the case.

The facts are simple, at least relatively so for tax procedure cases. I copy and paste the FINDINGS OF FACT section (Slip Op. 3-4, footnote omitted): 

          Applegarth resided in Florida when he filed the Petitions in these cases.

          On April 15, 2015, the IRS granted Applegarth an extension to file his 2014 income tax return until October 15, 2015.

          On April 15, 2016, the IRS granted Applegarth an extension to file his 2015 income tax return until October 15, 2016.

          Over several years, beginning in 2014, Applegarth made payments towards his 2014 and 2015 tax obligations. He made all the payments either on or before the extended filing deadlines for the respective tax years.

          On June 24, 2019, Applegarth filed his 2014 tax return.

          On November 21, 2019, the IRS mailed the Notice of Deficiency to Applegarth.

          In March 2022 Applegarth sent an unsigned 2015 Form 1040, U.S. Individual Income Tax Return, to IRS counsel.

[*4]

Timeline of Events — 2014 Tax Year

Date	Description
Apr. 15, 2014	Applegarth made a payment of $49,000 for the 2014 tax year.
Apr. 19, 2014	Applegarth made a payment of $4,500 for the 2014 tax year.
Jan. 17, 2015	Applegarth made a payment of $19,500 for the 2014 tax year.
Oct. 15, 2015	Extended deadline for Applegarth to file 2014 tax return.
June 24, 2019	Applegarth filed his 2014 tax return alleging an overpayment for the year.
Nov. 21, 2019	IRS issued Notice of Deficiency for tax years 2014 and 2015.
Feb. 18, 2020	Applegarth timely filed Petition with Tax Court.

FTPB Update 04 - District Court Litigation Types (10/22/19)

I am doing the Updates differently, principally because I have learned how to do footnote links in the blog entry itself.  Accordingly, I have determined that printing the Updates as blog entries rather than separate pdfs will make it more useful to most readers.  I have created a page (to the right), titled FTPB Cumulative Update List with Links, here, that collects all updates in the context of the Table of Contents.

Caveat:  (i) Students using the Student Edition should ignore the footnotes here (just as I do not provide footnotes in the Student Edition; and (ii) the footnote number begin with 1 here rather than the footnote numbers in the text being revised.

Section Affected	Edition page numbers
Ch. 12.  Litigation    II.  Choices of Courts       B.  District Courts  2. Types of Tax Litigation In District Courts Replace the entire section (I highlight in red the revised wording)	Practitioner Ed. pp. 621-622 Student Ed. pp. 429-430

                        2.         Types of Tax Litigation In District Courts.

            District courts are courts of limited jurisdiction, meaning they can only hear cases authorized by the United States Constitution or federal statutes.  District courts have original jurisdiction for any case arising under federal statutes, the Constitution, or treaties,¹ and are specifically conferred jurisdiction for tax refund suits against the United States.  28 U.S.C. § 1346(a)(1) and § 7422(a).  Historical note: Prior to 1966, refund suits could also be brought against the Collector based on illegal exactions without invoking § 1346(a)(1) which was subject to some limitations in earlier periods;² hence a number of leading tax cases from the pre-1966 period are refund suits brought against the Collector. E.g., Lewis v. Reynolds, 284 U.S. 281 (1932).³

            I also note prominently the collection suit.⁴  The Government may bring a collection suit in the district court to reduce an assessment to judgment and to obtain judicial remedies with respect to the tax liability.  If the taxpayer has not by that time judicially contested the underlying tax liability, he or she can do so in that collection suit. ⁵ Sometimes a collection suit is combined with a refund suit.  The classic case is the so-called divisible tax case–best exemplified by the fairly common trust fund recovery penalty under § 6672.  As I  note elsewhere (pp.  ff.), this penalty is usually litigated by a refund suit.  The putative responsible person will pay a small amount to meet the jurisdictional prerequisite that there be a payment which could be refunded.  In the resulting refund suit, the Government will typically file a counterclaim for the balance of the amount that has been assessed.  That counterclaim is a collection suit that could have otherwise been brought independently by the Government to obtain a judgment for the unpaid tax.  The Government will pursue the matter as a counterclaim in order to get the putative responsible person's liability for all quarters concluded in one litigation.

            In addition, the district courts have a potpourri of other jurisdiction, examples of which include jurisdiction to quash an IRS formal document request (“FDR”),⁶ to order more disclosure of a written determination,⁷ to consider petitions for readjustment of partnership adjustments,⁸ jurisdiction to approve a levy on a principal residence,⁹ general jurisdiction to enter orders and judgments necessary or appropriate for the internal revenue laws,¹⁰ jurisdiction over summons enforcement proceedings,¹¹ actions to enforce a lien and declare a sale,¹² certain injunctions against persons abusing the tax system,¹³ wrongful levy suits where a third party claims his or her property was levied upon to pay another taxpayer’s taxes,¹⁴ declaratory judgments for § 501(c)(3) organizations,¹⁵ review of jeopardy assessments and levies,¹⁶ and so on and on.¹⁷  I discuss some of these in other sections of this book.

            For purposes of this course in this section, please focus your attention on the refund suit jurisdiction and its collection suit counterpart.

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), here.  Pfizer 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 Doolin.  Pfizer is thus a classic example of taxpayer forum shopping.

Ford Wants Overpayment Interest While Its Remittance Was Held as a Deposit (12/6/13)

In Ford Motor Co. v. United States, 571 U.S. ____ (2013), here, the Supreme Court entered the following order on Ford's petition for certiorari (caption omitted):

PER CURIAM. 

When a taxpayer overpays his taxes, he is generally entitled to interest from the Government for the period between the payment and the ultimate refund. See 26 U.S.C. § 6611(a). That interest begins to run "from the date of overpayment." §§ 6611(b)(1), (b)(2). But the Code does not define "the date of overpayment." 

In this case, after the Internal Revenue Service advised Ford Motor Company that it had underpaid its taxes from 1983 until 1989, Ford remitted a series of deposits to the IRS totaling $875 million. Those deposits stopped the accrual of interest that Ford would otherwise owe once the audits were completed and the amount of its underpayment was finally determined. See § 6601; Rev. Proc. 84-58, 1984-2 Cum. Bull. 501. Later, Ford requested that the IRS treat the deposits as advance payments of the additional tax that Ford owed. Eventually the parties determined that Ford had overpaid its taxes in the relevant years, thereby entitling Ford to a return of the overpayment as well as interest. But the parties disagreed about when the interest began to run under 26 U.S.C. § 6611(b)(1). Ford argued that "the date of overpayment" was the date that it first remitted the deposits to the IRS. Ibid. The Government countered that the date of overpayment was the date that Ford requested that the IRS treat the remittances as payments of tax. The difference between the parties' competing interpretations of § 6611(b) is worth some $445 million. 

Ford sued the Government in Federal District Court, asserting jurisdiction under 28 U.S.C. § 1346(a)(1). The Government did not contest the court's jurisdiction. See Brief in Opposition 3, n. 3. The District Court accepted the Government's construction of § 6611(b) and granted its motion for judgment on the pleadings. A panel of the Court of Appeals for the Sixth Circuit affirmed, concluding that § 6611 is a waiver of sovereign immunity that must be construed strictly in favor of the Government. 508 Fed. Appx. 506 (2012). 

Ford sought certiorari, arguing that the Sixth Circuit was wrong to give § 6611 a strict construction. In Ford's view, it is 28 U. S.C. § 1346 -- not § 6611 -- that waives the Government's immunity from this suit, and § 6611(b) is a substantive provision that should not be construed strictly. See Gómez-Pérez v. Potter, 553 U.S. 474, 491 (2008); United States v. White Mountain Apache Tribe, 537 U.S. 465, 472-473 (2003). In its response to Ford's petition for certiorari, however, the Government contended for the first time that § 1346(a)(1) does not apply at all to this suit; it argues that the only basis for jurisdiction, and "the only general waiver of sovereign immunity that encompasses [Ford's] claim," is the Tucker Act, 28 U.S.C. § 1491(a). Brief in Opposition 3, n. 3. Although the Government acquiesced in jurisdiction in the lower courts, if the Government is now correct that the Tucker Act applies to this suit, jurisdiction over this case was proper only in the United States Court of Federal Claims. See § 1491(a). 

This Court "is one of final review, 'not of first view.'" FCC v. Fox Television Stations, Inc., 556 U.S. 502, 529 (2009) (quoting Cutter v. Wilkinson, 544 U.S. 709, 718, n. 7 (2005)). The Sixth Circuit should have the first opportunity to consider the Government's new contention with respect to jurisdiction in this case. Depending on that court's answer, it may also consider what impact, if any, the jurisdictional determination has on the merits issues, especially whether or not § 6611 is a waiver of sovereign immunity that should be construed strictly. 

The petition for certiorari is granted, the judgment of the Sixth Circuit is vacated, and the case is remanded for further proceedings. 

It is so ordered.

Ah, the Flora Full Payment Rule Raises Its Ugly Head (1/16/13)

In Roseman v. United States, 2013 U.S. Claims LEXIS 2 (2013), here, a nonpublished opinion and order, the Court of Federal Claims (Judge Allegra) dismissed the taxpayer's trust fund recovery refund suit for failure to meet the prepayment requirement for refund suits.  This just applies the so-called Flora rule (see Flora v. United States, 362 U.S. 145, 150 (1960)) that a refund suit requires full payment, a rule that is mitigated in so-called divisible tax cases to require only the payment for one such divisible tax.  I explain this below, but first address the Rosenman opinion.

The body of the opinion is short, but a good reminder for practitioners and their clients:

Jurisdiction in this tax refund suit lies, if at all, under 28 U.S.C. § 1491(a)(1). n2 As a general rule, before bringing a refund suit, a taxpayer must, inter alia, pay his or her full tax liability. See Shore v. United States, 9 F.3d 1524, 1526 (Fed. Cir. 1993) (citing Flora v. United States, 362 U.S. 145, 150 (1960)); see also Ledford v. United States, 297 F.3d 1378, 1382 (Fed. Cir. 2002). This rule, however, does not apply to so-called divisible taxes, including the penalty under section 6672. Rather, "a taxpayer assessed under section 6672  need only pay the divisible amount of the penalty assessment attributable to a single individual's withholding before instituting a refund action." Boynton v. United States, 566 F.2d 50, 52 (9th Cir. 1977); see also Steele v. United States, 280 F.2d 89, 90-91 (8th Cir. 1960). n3 Courts have held that this requirement is satisfied where a plaintiff pays the penalty attributable to one employee's wages for one quarter. See, e.g., Ruth v. United States, 823 F.2d 1091, 1092 (7th Cir. 1987); USLIFE Title Ins. Co. of Dall. v. Harbison, 784 F.2d 1238, 1243 n.6 (5th Cir. 1986); Boynton, 566 F.2d at 52; Suhadolnik v. United States, 2011 WL 2173683, at *5 (C.D. Ill. June 2, 2011); Todd v. United States, 2009 WL 3152863, at *3-4 (S.D. Ga. Sept. 29, 2009); Lighthall v. Comm'r of Internal Revenue, 1990 WL 53127, at *2 (N.D. Ill. Apr. 12, 1990), aff'd, 948 F.2d 1292 (7th Cir. 1991). n4
   n2 It is worth repeating that jurisdiction for refund suits in this court is not provided by 28 U.S.C. § 1346. See Hinck v. United States, 64 Fed. C1. 71, 74-76 (2005), aff'd, 446 F.3d 1307 (Fed. Cir. 2006), aff'd, 550 U.S. 501 (2007).
   n3 "This relaxed requirement is based on the theory that section 6672 assessments represent  a cumulation of separable assessments for each employee from whom taxes were withheld." Boynton, 566 F.2d at 52.
   n4 Defendant argues that payment must be made for one employee for each of the periods involved. Given the facts presented, this court need not address this argument. 

Plaintiff's payment of $25 per quarter satisfies neither the Flora "full payment" rule nor the Boynton exception for divisible taxes. As confirmed by the tax records filed in this case, the penalties in question were imposed based on a finding that plaintiff was an employee of his corporation. The amount of employment tax owed with respect to plaintiff for any of the quarters at issue far exceeds the $25 payment amount. Accordingly, the jurisdictional prerequisite for bringing this refund action has not been satisfied. 

Based on the foregoing, the court GRANTS defendant's motion to dismiss under RCFC 12(b)(1). The Clerk is hereby ordered to dismiss the complaint.