Another Aftershock from Pfizer

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Guest blogger Bob Probasco brings us a brief update on overpayment interest litigation. Christine

I have been writing here over the last year or so about concerning the issue of whether district courts have jurisdiction under 28 U.S.C. § 1346(a)(1) over standalone suits for additional interest on refunds under Section 6611. If so, there is no limit on the amount of the taxpayer’s claim. If instead jurisdiction over these suits falls under § 1346(a)(2), the “little” Tucker Act, it is limited to claims of $10,000 or less. As a result, taxpayers with significant claims would be forced to litigate in the Court of Federal Claims. The government believes these significant claims for overpayment interest should be litigated in the CFC. Some taxpayer prefers district court, often to either benefit from a favorable precedent in the applicable circuit court or to avoid an unfavorable precedent in the Federal Circuit.

Before September of this year, only one Circuit Court of Appeals had decided this issue. In E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005), the court concluded that § 1346(a)(1) does grant jurisdiction for district courts over standalone suits for overpayment interest. Although the government (and several tax practitioners) disagree with the Scripps case, that was the majority consensus. See Bank of America Corp. v. United States, 2019 U.S. Dist. LEXIS 109238 (W.D.N.C. 2019) (collecting cases), which I discussed here. But then on September 16th this year, in Pfizer v. United States, 939 F.3d 173 (2d Cir. 2019), the court held that § 1346(a)(1) does not cover these suits. I discussed that decision here.

The Pfizer decision by the Second Circuit was a significant milestone, creating a circuit split. Pfizer also is having an impact on other courts considering the issue. In that October blog post, I mentioned that, three weeks after the Second Circuit’s decision in Pfizer, a district court followed Pfizer and decided that it did not have jurisdiction for an overpayment interest suit under § 1346(a)(1). That case was Estate of Culver v. United States, 2019 U.S. Dist. LEXIS 173235 (D. Colo. 2019), which resulted in a transfer to the Court of Federal Claims. Now the Southern District of Florida has ruled on the issue as well, in the Paresky case.

When I last discussed the Paresky case, the magistrate judge had issued her report and recommendation on August 30, 2019, concluding that § 1346(a)(1) does provide district court jurisdiction for that suit. The Second Circuit’s decision in Pfizer came out on September 16, 2019. And on October 21, 2019, the district court judge in the Paresky case issued her order, rejecting the magistrate judge’s recommendation and following Pfizer.


The Paresky case was originally filed in the Court of Federal Claims, which found it lacked jurisdiction because the complaint was filed too late and transferred the case to the SDF. So, instead of transferring the case as in Estate of Culver, the SDF dismissed it. The Pareskys have no forum remaining and are out of luck unless they successfully appeal the decision.

The statute states that district courts have jurisdiction of:

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.

Litigants sometimes argue over the meaning of “recovery” – is that limited to something that has been collected and the taxpayer seeks to get back? (If so, overpayment interest would not qualify, but courts have relied on alternative definitions.) But most of the argument concerns how overpayment interest might fit into one of the three categories in the statute – (1) tax erroneously or illegally assessed or collected; (2) any penalty collected without authority; or (3) any sum that was excessive or wrongfully collected. Overpayment interest is neither tax nor penalty; it is simply an amount owed by the government for its use of the taxpayer’s money.

Scripps concluded that “any sum” could include overpayment interest and that the sum was “excessive” because the government retained more of the taxpayer’s money than it should have by refunding the overpayment with no, or insufficient, interest. It supported that conclusion in part by a brief reference in Flora v. United States, 362 U.S. 145 (1960), stating that “any sum” could encompass interest. The district court in Pfizer and the magistrate judge in Paresky agreed with Scripps.

The Second Circuit disagreed with that analysis in Pfizer, calling the Scripps interpretation of “any sum alleged to have been excessive” a strained reading, and concluding that the reference in Flora was properly understood to concern deficiency interest rather than overpayment interest. (The two types of interest are treated very differently.) The district court judges in both Estate of Culver and Paresky found that more persuasive than Scripps.

As I mentioned in a previous post, most large dollar interest cases (both underpayment interest and overpayment interest), at least through 2014, were filed in the CFC rather than district court. That may have changed, as a body of precedent built up in the Federal Circuit and taxpayers tried to avoid it (as in Bank of America) or just preferred precedents in other circuits (as in Pfizer). The government is still vigorously arguing that § 1346(a)(1) does not cover standalone suits for standalone suits for additional overpayment interest. As anticipated, when the government filed its opening brief in its appeal of the Bank of America case to the Federal Circuit on November 4th, it mentioned Pfizer, Paresky, and Estate of Culver frequently.

Before Pfizer, there was an overwhelming majority consensus on this issue. But the number of cases that directly addressed it was relatively small. Sometimes an overwhelming majority can melt away quickly after just one circuit court reaches an opposite conclusion. It will be interesting to see over the next year or two if that occurs with this issue. There may be several opportunities. The Pareskys can appeal this latest ruling to the Eleventh Circuit; the Bank of America case is currently on appeal to the Federal Circuit; the Estate of Culver case might wind up in the Federal Circuit as well; and Pfizer could try to challenge the Second Circuit’s decision in the Supreme Court.


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