Another Jurisdictional Issue in Pfizer

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Today we welcome Bob Probasco in his first guest appearance on Procedurally Taxing. Bob directs the Low-Income Taxpayer Clinic at Texas A&M University School of Law in Fort Worth. He has had a long and varied career in the tax world, having moved from accounting to tax law and most recently to teaching. In this post Bob describes the pending dispute over which forum a taxpayer can use to sue for overpayment interest. Christine

Carl Smith blogged earlier this year about the Pfizer case. The attention on Procedurally Taxing, and the amicus briefs filed by Carl and Keith in several cases, focused on an issue that could affect a large number of tax controversies: whether filing deadlines are “claim-processing” rather than “jurisdictional” rules and therefore can be equitably tolled. It’s an interesting and very important issue.

But there’s also a smaller issue Carl alluded to briefly, in an area with which some readers may not be familiar, that hasn’t received as much attention. The issue arises in lawsuits seeking overpayment interest under section 6611. The procedural differences might be of interest while we’re waiting for Second Circuit’s decision in Pfizer.

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Underpayment interest under section 6601, owed by taxpayers to the government on taxes and penalties that have not yet been paid, is explicitly treated as equivalent to the underlying tax for most purposes by section 6601(e)(1). (The exception is that underpayment interest is not subject to deficiency procedures.) Treating underpayment interest as equivalent to tax makes sense – assessment of additional tax will often result in assessment of underpayment interest and an abatement of tax will often result in abatement of previously assessed underpayment interest. But overpayment interest under section 6611 has no provision equivalent to section 6601(e)(1) and additional overpayment interest is “allowed” and paid rather than assessed.

If a taxpayer does not receive the overpayment interest to which it is entitled, how can the taxpayer challenge the IRS in court? If the tax overpayment was determined as part of a Tax Court case, the taxpayer can seek the court’s review of an erroneous determination of associated interest under Rule 261. But if the underlying tax overpayment was claimed on the original return (as in Pfizer) or a refund claim that is resolved administratively rather than in court, how does the taxpayer seek judicial review of an erroneous determination of overpayment interest?

Pfizer filed its suit under the jurisdiction (concurrent to district courts and the Court of Federal Claims) to hear tax refund suits, 28 U.S.C. § 1346(a)(1). But it’s not at all clear that provision applies to a stand-alone claim for additional overpayment interest. The jurisdictional provision applies to

Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.

With an action for additional overpayment interest, there was no assessment or collection – simply a failure to “allow” and pay.

The Sixth Circuit, in E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005), concluded that courts do have jurisdiction under § 1346(a)(1) to hear a stand-alone claim for overpayment interest. It looked to the last part of the provision: “any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.” You may be wondering how the court concluded that a failure to allow and pay interest equates to overpayment interest that is “excessive” or “wrongfully collected.” The answer: “If the Government does not compensate the taxpayer for the time-value of the tax overpayment, the Government has retained more money than it is due, i.e., an ‘excessive sum.’”

I’ve never found Scripps very convincing, and to the best of my knowledge no other Circuit has reached the same conclusion. The government disagrees with Scripps and continues to challenge efforts to bring stand-alone claims for overpayment interest under § 1346(a)(1). That doesn’t mean taxpayers are without recourse, of course. Suit can be brought under the Tucker Act, which provides jurisdiction to both district courts and the Court of Federal Claims for

any claim against the United States . . . founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.

Even better, the six-year statute of limitations under 28 U.S.C. §§ 2401 or 2501 applies to Tucker Act suits and there is no requirement to file a refund claim first.

So why didn’t Pfizer just claim jurisdiction under the Tucker Act, to avoid any question about jurisdiction? As you might expect, this was probably a case of forum shopping. The Tucker Act jurisdiction for the Court of Federal Claims, at 28 U.S.C. § 1491(a)(1), is not limited as to the amount of the claim. Pfizer wanted to bring suit in district court instead, where the Tucker Act jurisdiction (sometimes referred to as the “little Tucker Act”), at 28 U.S.C. § 1346(a)(2), adds a limitation: “not exceeding $10,000 in amount.” (Judges in the Court of Federal Claims have more experience with claims against the federal government than typical district court judges; the jurisdictional provisions funnel most large and complex disputes there instead of to district court.) But Pfizer was seeking more than $8 million. If there is any way to do that in district court, it would have to be § 1346(a)(1).

The district court in Pfizer followed Scripps and ruled for the taxpayer in a preliminary motion to dismiss based on whether jurisdiction was proper under § 1346(a)(1). But Pfizer’s suit was filed beyond the two-year limit of section 6532 and the court granted the government’s second motion to dismiss because the suit was not filed timely. On appeal, the government is challenging the first ruling and the taxpayer is challenging the second ruling.

In addition to the argument based on equitable tolling, the taxpayer is also making a second argument: no refund claim was required at all, and therefore section 6532 doesn’t apply. That seems odd when suit was brought under the jurisdictional provision we think of as governing refund suits, Section 7422, which requires a refund claim be filed first for any suit

for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected.

The language is almost identical to that in § 1346(a)(1) but the taxpayer argues the two provisions should not be interpreted the same way.

The Sixth Circuit agreed, in Scripps. The taxpayer had filed a refund claim timely but the court addressed section 7422 anyway. The government had cited a case suggesting a link between section 7422 and § 1346(a)(1). If so, since section 7422 and related provisions apply most naturally to refunds of “tax,” arguably § 1346(a)(1) also should be limited to “tax.” Certainly some requirements associated with section 7422, such as the “look-back” provision in section 6511(b)(2) and the Flora rule, would seem nonsensical for a stand-alone claim for overpayment interest. But the Sixth Circuit simply distinguished these two provisions that use virtually identical language:

. . . the two provisions serve different functions and thus have their own independent meanings. . . . Thus, even though a claim for statutory interest on an overpayment of tax might not fall within the scope of § 7422(a), this does not prevent statutory interest from being included with the ‘‘any sum’’ clause of § 1346(a)(1).

Will the Second Circuit rule for the taxpayer by following Scripps and also by concluding that the section 6532 statute of limitations either doesn’t apply or can be equitably tolled? If so, with two Circuits now giving an expansive reading to § 1346(a)(1), will more taxpayers be likely to file these claims – and other, non-tax claims – in district court instead of the Court of Federal Claims?

Or will the Second Circuit rule for the government? Will it conclude that Pfizer was “in the right place but it must have been the wrong time” (agreeing with Scripps that jurisdiction is proper in district court under § 1346(a)(1) but dismissing the suit as not filed timely) and/or “in the wrong place but it must have been the right time” (timely filing for a suit under the Tucker Act, but plaintiff didn’t claim that as jurisdiction and also needed to be in the Court of Federal Claims)? Pfizer might wind up in the Court of Federal Claims after all.

Comments

  1. Carl Smith says:

    Bob,

    You speculated that the reason that Pfizer did not file in the Court of Federal Claims (which clearly has jurisdiction under the Tucker Act and would apply the 6-year SOL of 28 USC sec. 2501 — making the suit timely) was because of forum shopping. This is rather explicit in the Pfizer briefs. Pfizer figured that, at worst, the SDNY would find that it did not have jurisdiction, so it would transfer the case over to the Court of Federal Claims under 28 USC sec. 1631 (allowing transfers to an appropriate court with jurisdiction if the filing court lacked jurisdiction). So, why did Pfizer want to be in the Second Circuit? To take advantage of a case that is almost on all fours and that resulted in an award of overpayment interest to the taxpayer, Doolin v. United States, 918 F.2d 15 (2d Cir. 1990). Footnote 5 on page 16 of Pfizer’s opening brief states: “This Court’s decision in Doolin is outcome determinative of the merits of Pfizer’s claim in this case.”

    By way of background, the facts of Pfizer are that, on September 11, 2009 (pursuant to an extension of the filing deadline), Pfizer concededly timely filed its 2008 income tax return, showing an overpayment of about $770 million. Pfizer asked that $500 million be refunded to it and the balance be applied to 2009 as an estimated tax payment. The IRS says that its records show that on October 19, 2009, it scheduled six checks to be paid to Pfizer that, cumulatively, totaled $500 million. (Apparently, the IRS couldn’t, at that time, cut checks exceeding $99 million — necessitating five $99 million checks plus one for about $5 million). These checks would rightfully contain no overpayment interest, since under 6611(e)(1), no interest is payable if the refund is made within 45 days of the filing of the return. October 19 was fewer than 45 days after the return was filed on September 11, 2009.

    But, Pfizer never got any such checks, and none was ever cashed. Months later, Pfizer asked the IRS what had become of the $500 million. After investigating, the IRS found that it had never mailed the checks, and so it voided them and electronically transferred the roughly $500 million to Pfizer on March 19, 2010. The IRS added no interest to the $500 million. Pfizer is suing for $8 million of overpayment interest that accrued on the $500 million from September 11, 2009 to March 19, 2010 — arguing that the 6611(e)(1) 45-day rule does not apply. I am not sure, but I think the IRS is simply taking the position that replacement checks don’t carry interest and that section 6611(e)(1)’s 45-day rule still precludes payment of overpayment interest.

    In Doolin, the facts were pretty similar. There, an estate had sent $50,000 to the IRS as an estimated tax payment toward estate taxes prior to filing the required return. When the attorney for the estate filed the return, the return showed zero tax, and so the estate asked for a refund of the $50,000. But, the estate never got the $50,000 before it filed a suit in the district court for the NDNY in 1989. During the district court suit, the IRS took the position that it had mailed a check to the estate in March 1986 in the amount of $53,361 — a check that was never received. The extra $3,361 was for overpayment interest for the period before the check was issued. The reason why the check was not received may have been at least in part attributable to the IRS sending the check to the law firm in an envelope addressed to the estate and an executor, but not including the name of the law firm.

    Note that suit in Doolin was clearly proper (at least initially) under 1346(a)(1) because the suit was for collected tax plus associated interest — typical of many suits under 1346(a)(1). During the course of the suit, the IRS tendered a check to the estate in the amount of $53,361, but the estate at that point sought interest on this amount from March 1986 until the check was tendered — over three years later. The IRS argued that it had tendered the initial check in March 1986 by giving it to the post office and that the IRS should not have to pay interest because the post office may have mishandled delivery of the check. The district court held that there had been no proper tender of the check in 1986, so additional overpayment interest was owed.

    In the Second Circuit opinion in Doolin, there is no discussion of the jurisdictional basis of the suit once it had become a suit merely for overpayment interest. And I am not certain that the district court would not have had jurisdiction even under the Little Tucker Act of 1346(a)(2), since it may be that the additional interest still being sought after the check was actually received in 1990 was under the $10,000 threshold of the Little Tucker Act.

    In any case, the Second Circuit opinion in Doolin does not discuss any jurisdictional issue about what kind of suit is involved and merely affirms the district court’s holding that the estate was due additional interest because the IRS had not properly tendered the refund check.

    Doolin is by far the most factually-close case to Pfizer, and there is apparently no case like Doolin that has come before the Federal Circuit on which Pfizer could rely. Thus, although, the Federal Circuit and Court of Federal Claims may find Doolin persuasive, those courts are not bound to follow Doolin, as a district court in the second Circuit would have to.

    Pfizer filed its SDNY suit about three years after its claim for overpayment interest was disallowed. That’s not a problem if the SOL is the 6-year SOL of 28 USC sec. 2401(a). After its claim was disallowed but before it went to court, Pfizer went to Appeals. Appeals denied the claim, as well. And, in its letter of August 4, 2014, rejecting the claim, Appeals wrote: “You previously received a certified letter from the examination division disallowing your claim. It was dated May 20, 2013. The six year period for filing suit under 28 USC Sections 2401 and 2501 applies to your claim.” But, the DOJ argues in Pfizer that section 2401(a) applies to suits for overpayment interest only if the interest sought is under $10,000 because district court overpayment interest suits are only allowed under the Little Tucker Act. Thus, the Appeals Office letter was incorrect as to section 2401(a), since Pfizer’s case involves far more than $10,000.

    Another issue in Pfizer is, if the rules of section 7422(a) apply (which Pfizer argues they do not), then Pfizer had to file a refund claim before bringing suit. Then, the DOJ argues that, if section 7422(a) applies, the statute of limitations is 2 years from after formal notification of claim disallowance (not tolled by Appeals consideration) under section 6532(a). Pfizer clearly filed its suit beyond the 2-year period in section 6532(a).

    Pfizer argues that, even if the district court has jurisdiction under section 1346(a)(1) (not the Little Tucker Act), the statute of limitations that applies is the 6-year one under 28 USC sec. 2401(a). Pfizer also points to the Appeals letter, which Pfizer says should estop the government from arguing for the 2-year statute of limitations in section 6532(a) applying. Pfizer notes that the Second Circuit long ago held that the 6532(a) period is subject to estoppel. Miller v. United States, 500 F.2d 1007 (2d Cir. 1974).

    The district court in Pfizer held that it had jurisdiction under section 1346(a)(1), that the section 7422(a) claim filing requirement applies to overpayment interest, that the 2-year statute of limitation of section 6532(a) applies, and that Pfizer raised its estoppel claim too late (in a motion for reconsideration of an earlier district court ruling). Because the case was filed late, the court held that it lacked jurisdiction (but surprisingly, the court did not then order transfer of the case to the Court of Federal Claims).

    The amicus brief that Keith and I filed is to ask that the Second Circuit hold that the filing deadline in section 6532(a), if applicable, is not a jurisdictional issue under current Supreme Court case law. Thus, the district court should not have dismissed Pfizer’s case for lack of jurisdiction as untimely — whether or not Pfizer can argue for estoppel. We point out that the jurisdictional grant is not contained within section 6532(a) and, unlike section 6015(e) and 6330(d) (applicable to Tax Court innocent spouse and Collection Due Process suits), section 6532(a) does not even contain the word jurisdiction. Further, we point out that the Supreme Court has said that jurisdictional filing deadlines are not subject to estoppel or equitable tolling, so the Miller opinion (although it does not discuss whether the filing deadline is jurisdictional) implicitly supports a holding that the section 6532(a) filing deadline is not jurisdictional. But, prior to the recent (post-2003) Supreme Court case law making filing deadlines rarely jurisdictional, a number of Circuit courts (including the Federal Circuit) had held that the section 6532(a) filing deadline is jurisdictional. We argue that those opinions are outdated and should not be followed.

    Thus, the Pfizer case presents more than one issue that might result in a Circuit split leading to Supreme Court review:

    First, if the Second Circuit holds that the district court did not have jurisdiction under section 1346(a)(1), that will cause a Circuit split with the Sixth Circuit in Scripps (though I am not sure whether Pfizer will try to bring that split to the Supreme Court because, in this event, the Second Circuit will merely transfer the case to the Court of Federal Claims).

    Second, if section 6532(a) is held to be the applicable filing deadline and the Second Circuit holds that deadline not jurisdictional, that will disagree with several Circuit court opinions of other Circuits issued prior to 2003.

    The oral argument in Pfizer took place on Feb. 13, and I was there. I can’t tell from what was said how the judges will rule on any of these issues.

  2. Norman Diamond says:

    “Pfizer figured that, at worst, the SDNY would find that it did not have jurisdiction, so it would transfer the case over to the Court of Federal Claims under 28 USC sec. 1631 (allowing transfers to an appropriate court with jurisdiction if the filing court lacked jurisdiction).”

    How can it be determined which section applies? 28 USC section 1631 does allow transfering to Court of Federal Claims, but sections 1404 and 1406 do not. However, if the problem is jurisdictional rather than solely venue, then it seems that section 1631 definitely takes priority over sections 1404 and 1406 — which makes the 9th Circuit wrong in Topsnik v. US, No. 12-55533 (9th Cir. 2014, not for publication),
    https://scholar.google.co.jp/scholar_case?case=7685740149848382936&q=&hl=en&as_sdt=2003

  3. Norman Diamond says:

    I figured it out. 28 USC section 1406 used to have a clause which was moved in year 1982 to 28 USC section 1631. Section 1631 indeed applies when jurisdiction is a problem, and mandates a transfer to US Court of Federal Claims when it is in the interest of justice.

    28 USC section 1404 applies to the convenience of parties and witnesses not to jurisdiction. The ruling in Topsnik v. US, No. 12-55533 (9th Cir. 2014, not for publication) is unconscionable.

  4. Bob Probasco says:

    Carl,

    I was pretty sure I’d read in the district court briefs that Pfizer was forthright about wanting to be in the Second Circuit because of a favorable precedent there. But by the time I finally got around to writing this, I decided about going back to check on that, follow it through to the favorable precedent (Doolin), and provide additional background – I might not have finished before the Second Circuit ruled. Thanks for supplying the missing context.

    I thought your amicus brief on the equitable tolling issue was very persuasive. But it’s hard to tell how the court will decide. Of course, it may not even reach that issue. I saw from the letters filed after the hearing that Judge Lohier asked whether the court could assume jurisdiction under section 1346(a)(1) and jump straight to the statute of limitations question. Hard to know how much, if anything, to read into that.

    It appears that, for Pfizer to win, the court has to decide in its favor on the section 1346(a)(1) issue *and* either that 6532 doesn’t apply or that it can be and has been equitably tolled. For the government to win, the court has to decide in its favor on the section 1346(a)(1) issue *or* that 6532 applies and isn’t (can’t be?) equitably tolled.

    We may not get a decision on 1346(a)(1), if the court assumes jurisdiction but rules for the government on 6532 and equitable tolling.

    And we may not get a decision on equitable tolling, if the court rules for the government on 1346(a)(1) or for the taxpayer on 1346(a)(1) and the non-application of 6532.

    • Carl Smith says:

      Bob,

      My posted comment was not made as any criticism of what you included and decided not to include in your post. Your post would have gotten into way too much detail and been way too long if it went into Doolin (which even the briefs do not discuss in detail). But, I thought PT readers with an interest might like to hear the exact reasons why Pfizer wants to be in the Second Circuit. I hadn’t intended for my comment to be so long, but it ended up that way — probably the longest comment I have ever posted.

      I think your analysis of the possible outcomes of the Pfizer case is spot on. Because there are several avenues to decide this case without getting to whether section 6532(a)’s filing deadline is jurisdictional, there is a very good chance that the opinion in Pfizer will never address that issue. But, it was not a lot of work to do the amicus brief addressing that point, since it is based on research and writing mostly by Keith and me and by Harvard clinic students in other cases involving Tax Court filing deadlines. Students were also of great help in the Pfizer amicus brief in finding various pre-2004 Circuit court opinions from other Circuits that had generally called the section 6532(a) filing deadline jurisdictional.

      There is another case, which, if appealed, may more likely cause the Second Circuit to address whether the section 6532(a) filing deadline is jurisdictional. See a recent ruling denying a taxpayer’s motion for partial summary judgment, Rosner v. United States, 2018 U.S. Dist. LEXIS 116409 (SDNY 7/12/18), which will likely be the subject of a post by Keith soon.

      • Carl,

        I didn’t take it as criticism at all. I intended to look into the substantive issue more, after posting the blog, so I’m appreciative that you provided a good summary to give me a head start. For “tax interest nerds” – an exceptionally small group of which (unfortunately) I’m a member – this kind of issue is fascinating. I’m not sure I had run across Doolin before, so you’ve provided me with something fun to review when I have a moment. Sharing information is what PT – particularly the comments – is all about. 🙂

        I wish you luck with your and Keith’s continued efforts to persuade the courts that 6532(a)’s filing deadline is not jurisdictional. The treatment of it as jurisdictional is one of my pet peeves. I’m looking forward to Keith’s post on Rosner.

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