Federal Circuit Holds that Refund Suit for Overpayment Interest is in the Federal Circuit.(7/4/20; 7/6/20)

In Bank of America v. United States, ___ F.3d ___ (Fed. Cir. 7/2/20), here,  the Federal Circuit rejected the District Court for the Western District of North Carolina’s claim of jurisdiction over the taxpayer’s claim for refund of overpayment interest.  OK, you might ask, what was the trajectory from the W.D. N.C. to the Federal Circuit?  There is a story there but I am not going to dive into it.  Those wanting to know my previous ruminations on that trajectory can read the opinion and might review:  Pfizer Suit for Overpayment Interest Transferred to CFC for Tucker Act Jurisdiction (Federal Tax Procedure Blog 9/12/19; 9/25/19), here.  Added 7/6/20 12:00 pm:  For an excellent discussion on the merits, see Bob Probasco, The Tide Keeps Going Out, Carrying Overpayment Interest Suits Away from District Courts (Procedurally Taxing Blog 7/6/20), here.

Just to summarize the holding, the Court of Appeals for the Federal Circuit held that jurisdiction was properly in the Court of Federal Claims at the trial level rather that some taxpayer preferred forum choice of the district court in North Carolina (to avoid unfavorable precedent in the Federal Circuit).  In many cases involving tax issues, forum choices work in the favor of the taxpayer, but not this one.  The opinion is short, so I recommend that readers actually read it and even savor it.

I do note for those who are fans of the litigation and appeals process, the opinion does offer some lessons about what not to do.  Most importantly, what not to do is to irritate the Court of Appeals (or, really, any court for that matter).  I infer that Counsel for Bank of America did not avoid irritating the Court of Appeals.  A key excerpt is:

[*6]
Thus, the District Court concluded, with minimal additional analysis, that it had jurisdiction over the Merrill Lynch overpayment interest claims, including those exceeding $10,000. See id. at *4. n3
   n3 Although asked repeatedly to explain the lack of analysis in the District Court’s Order, counsel for Bank of America failed to provide any explanation. See Oral Arg. at 18:43–21:05, http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2019-2357.mp3.

Appellate advocacy 101 which I learned while with DOJ Tax Appellate Section back in the old days was to answer the Court’s questions even when the answer may not be good for the client (in my case then, the United States/IRS).

Also, I just note briefly the Court’s excursion into legislative history.  Consider the Court’s introduction into that subject at p. 11 n6 (a footnote to the heading dealing with legislative history) which, in effect, pays homage to the notion that legislative history may not be relevant where the statutory text is not ambiguous.  Who knows what ambiguous means and, in any event, why would any rational court reject relevant and potentially persuasive legislative history as to either ambiguity or what the statutory text means?  But courts nowadays are driven by ideology rather than the persuasiveness for what statutory text means, so the courts have to make a passing and generally negative reference to legislative history.  Shame on them.

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.