Another Aftershock from Pfizer

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.

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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.

 

Overpayment Interest – Is the Tide Turning?, Part One

Today Bob Probasco returns with further updates on overpayment interest litigation, in a two-part post. We are grateful to Bob for following the issue closely and sharing his observations with us. Christine

In August, I wrote about the Bank of America case (here and here), and provided updates on the status of the Pfizer and Paresky cases, all of which addressed the question of district court jurisdiction for taxpayer suits seeking interest payable to them by the government on tax refunds.  Recently we’ve had developments in all three cases, plus one new case.  This post will cover Paresky and Pfizer.  Part Two will move on to Bank of America, speculation concerning where this issue may head next, and some general observations about jurisdiction and policy considerations.

Setting the stage

There are two district court jurisdictional statutes at issue in these cases. This first is 28 U.S.C. § 1346(a)(1). It has no dollar limitation. That’s the statute we rely on when filing tax refund suits in district court, so I usually refer to it as “tax refund jurisdiction.” However, some taxpayers argue that this provision also covers suits for overpayment interest, although technically those are not refund suits.  The government strongly opposes that interpretation and we’ve seen a lot of litigation over the issue recently.

The second is § 1346(a)(2), which provides jurisdiction for any other claim against the United States “founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department . . . .” This is commonly referred to as “Tucker Act jurisdiction” and for district courts is limited to claims of $10,000 or less. The comparable jurisdictional statute for the Court of Federal Claims, § 1491(a)(1), has no such dollar limitation.  Practitioners often refer to § 1346(a)(2) as the “little” Tucker Act.

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There are also two different statutes of limitation potentially applicable. The general federal statute of limitations, § 2401 (for district courts or § 2501 for the Court of Federal Claims), requires that complaints be filed within six years after the right of action first accrues. In the Code, section 6532(a)(1) requires the taxpayer to file a refund suit no later than two years after the claim is disallowed.

A preliminary decision in Paresky

In the interest of space, I’ll just refer you back to the earlier blog post for the factual background on Paresky.  The taxpayers originally filed in the Court of Federal Claims (CFC).  That court concluded that it did not have jurisdiction over the suit because the applicable six-year statute of limitations in § 2501 began running in 2010 and had expired.  The Pareskys had previously requested that the court transfer the suit to the Southern District of Florida (SDF), in response to the government’s motion to dismiss, and the CFC agreed.  That would allow the Pareskys to try to persuade the SDF that § 1346(a)(1) covers claims for overpayment interest and that the two-year statute of limitations in section 6532(a)(1) applies.

After the transfer, the government quickly filed a motion to dismiss for lack of jurisdiction, arguing that § 1346(a)(1) did not apply and that the Pareskys’ claim exceeded the $10,000 limit for jurisdiction under the “little” Tucker Act.  On August 30, 2019, the magistrate judge issued her report and recommendation.  The report agreed with the Pareskys that § 1346(a)(1) covers claims for overpayment interest but also agreed with the government that taxpayers have to file an administrative refund claim within the time limitations set forth in the Code.  They had done so timely for the 2007 tax year but not for the earlier years.  The Pareskys argued for equitable estoppel based on the directions they had received from IRS personnel, but the judge was not convinced.  She concluded that equitable estoppel for the timely refund claim requirement is not available, based on the decision in United States v. Brockamp, 519 U.S. 347 (1997).  Technically, Brockamp involved an equitable tolling claim but the judge quoted a statement in the decision that suggested application to any equitable doctrines.

This is still a preliminary decision, not yet adopted by the district court judge in the case.  Both parties filed objections (on different grounds) to the report and recommendation on September 10, 2019; both parties filed a response to the other side’s objections on September 19, 2019; and the government then filed a reply on October 7th.  We’re still waiting to hear from the district court judge.  That decision may be complicated by the development in our next case.

A new decision in Pfizer

The IRS mailed refund checks to Pfizer within the 45-day safe harbor of section 6611(e).  The checks were never received, and the IRS eventually direct deposited a replacement approximately a year later, without overpayment interest.  The IRS takes the position that when the original refund check is issued timely but never received, the replacement refund still falls within section 6611(e).  (Some exceptions to this position are set forth in I.R.M 20.2.4.7.3.) Pfizer filed suit in the Southern District of New York (SDNY), asserting jurisdiction under § 1346(a)(1) to take advantage of the favorable Doolin v. United States, 918 F.2d 15 (2d Cir. 1990) precedent on the issue of interest on replacement refund checks. The government filed a motion to dismiss for lack of jurisdiction, arguing that district courts only have jurisdiction for standalone suits for overpayment interest under the “little” Tucker Act but the amount at issue exceeded the $10,000 limit. The court agreed with Pfizer and denied that motion to dismiss.  The court granted a second motion to dismiss, because the refund statute of limitations under section 6532(a)(1) had expired before suit was filed.  Pfizer argued that the general six-year statute of limitations in § 2401 applied.  But the court agreed with the government regarding the statute of limitations and dismissed the case.

In the first motion to dismiss, Pfizer requested that the case be transferred to the Court of Federal Claims (CFC) if the motion to dismiss were granted.  That was denied when the SDNY ruled that it had jurisdiction under § 1346(a)(1).  In the second motion to dismiss, Pfizer did not make the same request for transfer.  The government also did not recommend transfer.  But on appeal, Pfizer asked that the Second Circuit, if it affirmed the decision by the SDNY, transfer the case.  That would allow the case to proceed, as suit was filed within the six-year general statute of limitations for Tucker Act claims, although the Second Circuit precedent Pfizer wanted to rely on would not be binding in the CFC.  

The government argued that if the Second Circuit concluded that § 1346(a)(1) applies to suits for overpayment interest but affirmed the SDNY because of the statute of limitations issue, it should not transfer the case because it was not timely when originally filed in the SDNY.  This struck me as over-reaching.  The CFC does not apply the Code statute of limitations to these cases and under the CFC’s jurisdictional statute (more discussion below), it would have been timely filed.   The argument that transfer would not be in the interests of justice because Pfizer had successfully resisted transfer under the first motion of dismiss might carry more weight.  In any event, the government said that it would not oppose transfer if the Second Circuit concluded that § 1346(a)(1) does not apply to suits for overpayment interest.  That is the result the government was hoping for.

On September 16, 2019, the Second Circuit ruled – and the government got exactly what it was hoping for.  The court disagreed completely with the analysis by the district court and in E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005).  The text in § 1346(a)(1) that those decisions relied on – “a sum alleged to have been excessive or in any manner wrongfully collected” – did not apply to suits for overpayment interest.  Read in harmony with the rest of the statute, that would “plainly refer to amounts the taxpayer has previously paid to the government and which the taxpayer now seeks to recover.”  Further, “any sum alleged to have been excessive or in any manner wrongfully collected” is written in present-perfect tense, indicating that “excessive” or “wrongfully collected” occurred in the past, that is, an assessment previously paid by the taxpayer.  Finally, dicta in Flora v. United States, 362 U.S. 145 (1960), stating that “any sum” would encompass interest, was clearly referring to underpayment interest based on the context.  The Second Circuit therefore transferred the case to the CFC.

Judge Lohier filed a concurrence to point out that if the district court had jurisdiction under § 1346(a)(1), it would have been subject to the Code statute of limitations and Pfizer would have lost anyway.  He rejected Pfizer’s attempt to disassociate § 1346(a)(1) and section 7422 of the Code.  Keith and Carl had filed an amicus brief arguing that even if the filing deadline in section 6532(a) applies, it is not jurisdictional and is subject to estoppel or equitable tolling arguments.  The judge rejected equitable tolling in a footnote due to the lack of an “extraordinary circumstance” but did not mention estoppel.  But it’s a footnote in a concurrence, so this is still an open question.

I found the statutory interpretation in this decision much more persuasive than that in Scripps, although the statute may be sufficiently ambiguous that other courts could reasonably disagree.  In any event, this is a significant milestone.  Before Pfizer, Scripps was the only other Circuit Court decision to have directly ruled on this issue.  (Sunoco, Inc. v. Commissioner, 663 F.3d 181, 190 (3d Cir. 2011) suggested the same interpretation, but that was dicta.)

What effect will this have on other cases?  On October 7th, in Estate of Culver v. United States, the district court for the District of Colorado also adopted the reasoning of the Second Circuit and transferred that case to the CFC.  Even district court decisions disagreeing with Scripps have been rare, so this may also be a sign that the tide is turning.  As with Bank of America, an immediate appeal of that order would go to the Federal Circuit.

As one might expect, the government quickly brought the Pfizer decision (on September 18th) and the Culver decision (October 7th) to the attention of the SDF in the Paresky case.  If the district court judge is influenced by Pfizer and rejects the magistrate judge’s report and recommendation, the Pareskys may have to appeal to the Eleventh Circuit and hope that court agrees with Scripps

It will be a while before we see what effect, if any, Pfizer has in the Bank of America case, where there has also been a new development.  I’ll turn to that in Part Two.

Another Court Rules on Jurisdiction for Overpayment Interest Suits – Part Two

Today Bob Probasco continues his update on overpayment interest suits. Part One can be found here Christine

And now Bank of America

Bank of America filed its case in the Western District of North Carolina (WDNC). As noted above, Pfizer chose its forum to take advantage of a favorable Second Circuit precedent; Bank of America likely chose the WDNC to avoid an unfavorable precedent. Approximately $141 million of the $163 million at issue involves interest netting and, as the government pointed out, Bank of America currently has another interest netting case pending in the CFC. 

The case in the WDNC likely raises the “same taxpayer” issue (see discussion here and here). It involved overpayments and underpayments for tax years ranging from 1987 to 2009, for six different entities that ultimately merged into a seventh, the plaintiff. Federal Circuit precedent, from Wells Fargo & Co. v. United States, 827 F.3d 1026 (Fed. Cir. 2016), allows separate companies that merge to be considered the “same taxpayer.” But it also applies a “temporal requirement” that the two entities must be the “same” for the entire period of overlap between the overpayment and the underpayment. Effectively, this means that the latest of the two tax years with balances to be netted must be after the date of the merger. Based on information in the complaint, most of the amount at issue appears to be precluded by the holding in Wells Fargo. Bank of America’s case in the CFC, on the other hand, did not have a Wells Fargo problem. Settlement negotiations began almost immediately and are ongoing.

Bank of America had a strong incentive to file the current case in the WDNC. As I stated before, in my second post on interest netting, I think Wells Fargo was an overly narrow construction of the statute. But the CFC is bound by that precedent, while the WDNC might reach a different conclusion. Unfortunately, the amounts at issue exceeded the limitation on Tucker Act jurisdiction by a district court. Thus, Bank of America had to argue that the case fell under “tax refund jurisdiction” and the government promptly filed a motion to dismiss for lack of jurisdiction, arguing that claims for additional overpayment interest are only cognizable under Tucker Act jurisdiction. A magistrate judge reviewed the motion to dismiss and concluded that “tax refund jurisdiction” encompasses claims for additional overpayment interest. In Bank of America Corp. v. United States, 2019 U.S. Dist. LEXIS 109238, the district court judge agreed and adopted the magistrate judge’s Memorandum and Recommendation.

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The court found the interpretation of § 1346(a)(1) in E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005) persuasive. The statute provides concurrent jurisdiction for district courts and the CFC over actions for the recovery of “any sum alleged to have been excessive . . . under the internal-revenue laws.” The Scripps court concluded that a claim for overpayment interest fit that part of the statute. The “sum” at issue is not the amount of overpayment interest at issue; it is the total balance the United States retained, the net of tax liability, penalties, underpayment interest, and overpayment interest.

That’s a bit abstract; here’s a simple illustration. Say that the taxpayer originally paid $5,000,000 but the IRS eventually determined that the correct tax liability was only $4,500,000 and refunded $500,000. The sum retained by the government is $4,500,000; it received $5,000,000 but then refunded $500,000. But if the government should have paid (but did not) $80,000 of overpayment interest, it should have only retained $4,420,000, the net of $5,000,000 originally received and $580,000 (tax refund plus overpayment interest) paid back to the taxpayer. The sum actually retained ($4,500,000) is “excessive,” more than the proper amount of $4,420,000. I think this is a somewhat strained reading of the statute, but it persuaded the Scripps court and the district court in Bank of America.

The opinion also noted that most courts that have considered the issue have held that claims of additional overpayment interest fall within “tax refund jurisdiction.” Strictly speaking, that may be true, but it fails to address a couple of limitations on that statement. First, only one Circuit Court (the Sixth), and few district courts outside the Sixth Circuit, have directly addressed the issue. Historically, most claims for overpayment interest have been filed in the CFC rather than district court. It’s not at all clear that other Circuit Courts would reach the same conclusion. For example, although technically dicta, in Sunoco, Inc. v. Commissioner, 663 F.3d 181, 190 (3d Cir. 2011) the Third Circuit stated that actions for overpayment interest in district court fall under § 1346(a)(2) rather than § 1346(a)(1).

Second, the CFC (which handles most interest cases) generally won’t have disputes as to which jurisdictional statute applies, for structural reasons. District court jurisdiction is split between § 1346(a)(1), for tax refund actions, and § 1346(a)(2), for Tucker Act claims, because there is a dollar limitation for the latter. The CFC has no such dollar limitation and only has one relevant jurisdictional statute, § 1491(a)(1), which is similar to the language of § 1346(a)(2). When a case includes both underpayment interest and overpayment interest (most interest netting cases do), some practitioners may specify both § 1346(a)(1) – under Chapter 85 of Title 28, governing district court jurisdiction, but referencing the CFC – and § 1491 for jurisdiction, just in case. But the CFC may not address the jurisdictional statute at all in those cases. When it does, it often refers to jurisdiction for both tax refunds and overpayment interest as arising under the Tucker Act, i.e., § 1491; only the underlying cause of action and statute of limitations are different. That was the only jurisdictional basis that Paresky mentioned and there are many other examples.

The government also relied on similar language in § 1346(a)(1) and Code section 7422(a). Here’s § 1346(a)(1), with the relevant language italicized:

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

And here’s Code section 7422(a), which states requirements for refund suits, also with the relevant language italicized:

No suit or proceeding shall be maintained in any court 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, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.

The government argued that: (a) it is well-established actions for overpayment interest are not refund suits; (b) § 1346(a)(1)’s language is virtually identical to that in section 7422; (c) therefore, § 1346(a)(1) is limited to refund suits, just as section 7422 is; and (d) therefore, district courts only have jurisdiction over actions for overpayment interest under § 1346(a)(2), which is limited to $10,000.

Bank of America circumvented this conclusion by arguing that § 1346(a)(1) includes both refund suits and “non-refund” suits, such as those for overpayment interest. There are very minor differences in the language of the two statutes, but the court identified one significant difference that convinced it to agree with Bank of America’s argument. Section 7422(a) includes a qualifying header: “No suit prior to filing claim for refund.” And § 1346(a)(1) has no header. I’m not sure how much should be read into that; Chapter 85 of Title 28 appears to have no headers or titles at the paragraph level, and few at the subsection level, as opposed to the section level.

These issues might be reviewed by the Fourth Circuit on appeal at some point, but not soon. The WDNC’s opinion just denied the motion to dismiss; now the parties will need to proceed to the merits of the case. The case has more complex facts and legal issues (including the “same taxpayer” issue) than Bank of America’s CFC case, so a final determination might take a long time.

Conclusion

Now we have three recent cases that addressed the issue but with somewhat inconsistent results. Pfizer and Bank of America concluded that district courts’ “tax refund jurisdiction” encompasses claims for overpayment interest. Paresky did not address the jurisdictional statute, because the case was originally filed in the CFC, but may now with the post-transfer motion before the SDF. The CFC and Federal Circuit might view the issue differently than Pfizer and Bank of America did, but their jurisdictional statute doesn’t differentiate as the district court jurisdictional statute does and they will never rule on the district court statute.

Pfizer concluded that the Code statute of limitations applies. Paresky concluded that the general federal 6-year statute of limitations applies, but that may change in the SDF. Bank of America didn’t directly address the statute of limitations, as the government did not assert untimely filing as a basis for the motion to dismiss, but the court certainly suggested that it would not apply the Code statute of limitations.

These issues potentially could be addressed on appeal by three different Circuits – the Second (Pfizer), the Eleventh (Paresky), and the Fourth (Bank of America). So far, only the Sixth Circuit has ruled on whether district court jurisdiction for these cases fits under § 1346(a)(1). It will be interesting to see if a circuit split develops that would give the government an opportunity to overturn Scripps. And we might even see a decision in Bank of America that would create a circuit split on the “same taxpayer” issue and allow taxpayers an opportunity to overturn that part of the Wells Fargo result.

Another Court Rules on Jurisdiction for Overpayment Interest Suits – Part One

We welcome back guest blogger Bob Probasco of Texas A&M University School of Law for an update on taxpayer suits to recover overpayment interest. Today, Part One sets the stage and recaps the status of the ongoing Pfizer and Paresky cases. Christine

Last year, I wrote about the Pfizer and Paresky cases, which involved questions about jurisdiction and statutes of limitations for taxpayer suits seeking interest payable to them by the government for overpayments. Recently, the District Court for the Western District of North Carolina issued its opinion in Bank of America Corp. v. United States, 2019 U.S. Dist. LEXIS 109238 (W.D.N.C. June 30, 2019) addressing the issue.

Setting the stage

There are two district court jurisdictional statutes at issue in these cases. This first is 28 U.S.C. § 1346(a)(1). It has no dollar limitation. That’s the statute we rely on when filing tax refund suits, so I will refer to it as “tax refund jurisdiction.” But I will keep that term in quotes; taxpayers sometimes argue successfully that this covers suits for overpayment interest, although technically those are not refund suits.

The second is § 1346(a)(2), which provides jurisdiction for any claim against the United States “founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department . . . .” This is commonly referred to as “Tucker Act jurisdiction” and for district courts is limited to claims of $10,000 or less. The comparable jurisdictional statute for the Court of Federal Claims, § 1491(a)(1), has no such limitation.

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There are also two different statutes of limitation potentially applicable. The general federal statute of limitations, § 2401 (for district courts or § 2501 for the Court of Federal Claims), requires that complaints be filed within six years after the right of action first accrues. In the Code, section 6532(a)(1) requires the taxpayer to file a refund suit no later than two years after the claim is disallowed.

As a result of all this, not to mention different precedents in different circuits, taxpayers who file suits for overpayment interest may sometimes want to file in district court and other times prefer the Court of Federal Claims. The government’s position is that these claims fit under Tucker Act jurisdiction only, not “tax refund jurisdiction.” And the government may disagree about whether the taxpayer’s preferred venue is available. There may also be a secondary dispute, concerning which statute of limitations applies and whether the suit was filed timely.

Brief recap and current status of Pfizer

The underlying issue in the Pfizer case was straightforward: whether overpayment interest is due when the IRS mails a refund check within the 45-day safe harbor of section 6611(e) but the check is not received by the taxpayer and must be replaced. Pfizer filed suit in the Southern District of New York (SDNY), asserting “tax refund jurisdiction,” to take advantage of a favorable precedent in the Second Circuit. Tucker Act jurisdiction would be available in the SDNY, but is limited to $10,000, and therefore inadequate for this case. The government filed a motion to dismiss for lack of jurisdiction, asserting that standalone suits for overpayment interest do not fall within the scope of “tax refund jurisdiction.” The court agreed with Pfizer and denied that motion to dismiss.

But the government filed a second motion to dismiss for lack of jurisdiction, arguing that the refund statute of limitations in the Code had expired and the suit was not filed timely. Pfizer argued that the general six-year statute of limitations in § 2401 applied even though Pfizer was relying on “tax refund jurisdiction” rather than Tucker Act jurisdiction. The court disagreed with Pfizer, applied the two-year statute of limitations from the Code, and granted the government’s motion to dismiss the case.

The case is currently on appeal. Pfizer asked the court, if it affirms the decision below, to transfer the case to the Court of Federal Claims (CFC). That would allow the case to proceed, as suit was filed within the six-year general statute of limitations for Tucker Act claims, although the Second Circuit precedent Pfizer wanted to rely on would not be binding in the CFC. Keith and Carl filed an amicus brief arguing that even if the filing deadline in section 6532(a) applies, it is not jurisdictional and is subject to estoppel or equitable tolling arguments. At oral arguments on February 13, 2018, the Second Circuit panel asked the parties whether it could assume without deciding that claims for overpayment interest fell within the terms of § 1346(a)(1) and proceed to the statute of limitations issue. Roughly 18 months later, we’re still waiting for an answer.

Brief recap and current status of Paresky

The Pareskys have been trying to resolve these tax issues since 2009, first to claim substantial losses that generated refunds and then to get interest on the refunded amounts. It has been a very long, complicated struggle and makes you wonder what would have happened if they hadn’t been represented by very competent tax advisors. In the course of the attempted resolution, the IRS advised them to file a refund claim and, when the claim was denied in 2015, advised that they had two years to file suit. Relying on those statements, the Pareskys filed suit in 2017 in the CFC. The government filed a motion to dismiss, arguing that the six-year statute of limitations applied and had expired in 2016. The plaintiffs argued that the two-year statute of limitations applied; alternatively, they argued that that the six-year statute of limitations didn’t start in 2010, as the government asserted, or was suspended due to government misconduct.

The first step in the court’s decision was relatively easy, because there are numerous precedents in the Federal Circuit that the six-year statute of limitations applies to claims for overpayment interest. It took more effort to analyze when the claims accrued. The normal documentary evidence was not available because it had been destroyed in the normal course of business, during the very long period this dispute had lasted. The court was left with “complicated factual issues” that it resolved in the government’s favor. Finally, the court concluded that the taxpayers had not met the burden of proof to apply the accrual suspension rule. But the CFC denied as moot the government’s motion to dismiss because it granted the taxpayers’ motion to transfer the case to the District Court for the Southern District of Florida (SDF). That would allow the Pareskys to try to persuade the SDF that “tax refund jurisdiction” covers claims for overpayment interest and that the Code statute of limitations applies.

In Pfizer, the taxpayer appealed to the Second Circuit and the question of whether to transfer to another jurisdiction if that was unsuccessful was deferred. In Paresky, the case was transferred immediately rather than giving the plaintiffs an opportunity to convince the appellate court to rule in their favor on the jurisdictional issue. I don’t know if the plaintiffs’ desires were a deciding factor in that difference between the two cases. But Pfizer clearly wanted to remain in the SDNY if possible, while the Pareskys seemed caught by surprise at the jurisdictional challenge, given the advice they received from the IRS, and were open to immediate transfer. They filed a motion to transfer very soon after the government’s motion to dismiss.

In the SDF case, the Pareskys filed an amended complaint, asserting jurisdiction under §§ 1346 and 1491. (This phrasing provides for alternative theories, as “§ 1346” does not distinguish between “tax refund jurisdiction,” § 1346(a)(1), and Tucker Act jurisdiction, § 1346(a)(2). But § 1491 does not apply in district court.) The government quickly filed a motion to dismiss for lack of jurisdiction, and the parties repeated their arguments over which statute of limitations applied. The parties’ submissions on the motion to dismiss were completed on February 26, 2019. We’re still waiting for the district court’s decision, and possibly an appeal to the Eleventh Circuit.

Interest Computation and Something Else

Guest blogger Bob Probasco returns with a lesson on tax overpayments, taking us through a helpful comparison between overpayment rules and those applicable to wrongful liens and levies. It isn’t always simple to properly characterize a claim. Christine

At the end of June, the IRS released CCA 201926001, addressing a question regarding computation of overpayment interest. The fact pattern was a bit out of the ordinary, so I understand why a field attorney might want clarification. The answer that the interest specialist reached seems reasonable as a practical matter. However, there are some complications and issues that the CCA didn’t address or even acknowledge. The interest computation discussion in the CCA was fairly straightforward and might not warrant discussion here by itself; I found the other questions more intriguing.

The interest computations

The issue was stated as: “Whether interest is allowable on the refund of a remittance made by a non-liable spouse that the Service incorrectly applied to the liable spouse’s tax liability?” You can probably anticipate the fact pattern.

  • Husband and Wife 1, who divorced in Year 7, had joint tax liabilities for multiple earlier years.
  • Husband married Wife 2 in Year 9, when the joint tax liabilities of Husband and Wife 1 were still outstanding.
  • Husband and Wife 2 bought real property in Year 11.
  • The Service filed a Notice of Federal Tax Lien with respect to Husband’s joint tax liability, which attached to the real property that Husband and Wife 2 had purchased.
  • Husband and Wife 2 wanted to sell the property, so they sought a certificate of discharge of the lien, in return for payment equal to the value of the government’s interest in the property. They sold the property in Year 13.

So far, so good. But the IRS’s Conditional Commitment to Discharge (Letter 403) overstated the amount to be paid, as almost the full amount of the sales proceeds rather than only Husband’s half-interest. Alas, no one noticed and corrected the error in time, so the title company sent the full amount of the sale proceeds to the IRS. The IRS received and applied the proceeds against the joint tax liabilities for Years 1 and 2 of Husband and Wife 1, sometime after April 15th of Year 13.

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Later in Year 13, Wife 2 realized that her half-interest in the sale proceeds had been applied to tax balances for which she was not liable, and she filed a claim for refund. On the same date she filed the refund claim, she also filed a request for assistance with the Taxpayer Advocate Service.

The IRS agreed that Wife 2 was entitled to get the money back and prepared to issue a refund in Year 14. But before the IRS issued the refund, it determined that Husband and Wife 2 also had unpaid joint tax liabilities, for Years 12 and 13. So the IRS credited some of Wife 2’s money to those balances. As we all know, when a taxpayer makes an overpayment of her tax liability, the IRS has the authority under Section 6402(a) to offset it against any other outstanding tax liability, e.g., for another year, and only refund the amount (if any) left over. There apparently was still a remaining amount to be repaid to Wife 2, which had not yet been refunded.

Now we get to the advice provided in the CCA: how much overpayment interest should the IRS pay to Wife 2 on that money applied to Years 12 and 13, or refunded? That was a fairly straight-forward analysis. Because Wife 2 had no liability for Years 1 and 2, to which the sales proceeds were applied, she had an overpayment. Interest on an overpayment is allowable under Section 6611. Interest begins on the date of the overpayment, regardless of whether the overpayment is credited to another liability or refunded. Here, that was the date that the proceeds from the sale of the real property were received and applied to Husband and Wife 1’s tax liabilities, sometime after April 15th of Year 13.

For the portion of the overpayment that was credited to Husband and Wife 2’s liability for Year 12, interest stops on the due date of that return, or April 15th of Year 13. Because the date of the overpayment was after that date, there would be no overpayment interest on the amount applied to the liability for Year 12. But there would be overpayment interest on the amount applied to the liability for Year 13, for the period from the date of the overpayment to April 15th of Year 14. For the remainder of the overpayment, to be refunded to Wife 2, interest runs from the date of the overpayment to a date no more than 30 days before the date of the refund check.

Pretty straight-forward and you may be wondering why a CCA was needed. Or you may have noticed that the issue as stated wasn’t how to determine the amount of allowable interest, but whether interest was allowable. And perhaps you raised the same question I did:

Did Wife 2’s share of the sale proceeds, improperly applied to Husband and Wife 1’s joint tax liabilities, really result in an “overpayment”?

Overpayment or something else?

First things first. Why might it be important to know whether the amount at issue is classified as an overpayment? Three important Code sections that apply to overpayments come to mind. The person making the overpayment can bring suit to compel the IRS to refund it, with a particular statute of limitations and a requirement to first exhaust administrative remedies. The IRS can, instead of refunding the overpayment, credit all or a portion against outstanding tax liabilities for other periods by the same person. With certain exceptions, the government pays interest to the person who made the overpayment when refunding or crediting it.

The Code doesn’t expressly define what an overpayment is. Generally, it’s considered to arise when a taxpayer pays more than the correct amount of the tax liability. But Wife 2 falls into a category that is sometimes referred to as “persons other than taxpayers” or “third parties” – that is, persons who make payments (voluntarily or involuntarily) of other persons’ tax liabilities. In at least some circumstances, those payments are not treated the same way as overpayments for purposes of judicial review, offset, or interest.

If the IRS had levied against the sales proceeds, that would be a wrongful levy. Judicial review is available, either before or after property has been surrendered or sold and without the requirement to exhaust administrative remedies, through a suit in district court (Section 7426(a)(1)). Wrongful levy suits have to be brought within two years of the levy, but if the third party makes an administrative claim under Section 6343(b), the period is extended to the earlier of 12 months after the administrative claim was filed or six months from the date of disallowance. A wrongful levy suit, rather than a refund suit, is the exclusive judicial remedy. Sections 6343 and 7426 refer to the return of property or payment of a judgment, rather than refund of an overpayment. Sections 6343(c) and 7426(g) are specific interest provisions, separate from Section 6611 but applying the overpayment rate from Section 6621.

Of course, the IRS had not levied Wife 2’s property. The IRS merely required payment in return for a discharge of the lien, allowing Husband and Wife 2 to sell the real property. The situation was very similar to that in United States v. Williams, 514 U.S. 527 (1995), where the plaintiff was coerced to authorize payment from the sale proceeds in order to convey clear title. She later submitted a refund claim and, when it was denied, filed a refund suit. The Court concluded that the amount the plaintiff sought to recover was an overpayment and that she could do so by a refund suit. This holding was based largely on the fact that there was no other feasible judicial remedy.

But in the Internal Revenue Service Restructuring & Reform Act of 1998, Congress enacted Sections 6325(b)(4) and 7426(a)(4) to address the problem noted in Williams. The owner of the property can deposit money equal to the amount determined by the IRS as the value of the government’s interest in the property (or furnish an acceptable bond) and the IRS “shall” – instead of “may” as in Section 6325(b)(3) – discharge the lien. The IRS “shall” refund the deposit, with interest at the overpayment rate of Section 6621, to the extent that it determines either that the value of the government’s interest was lower than previously determined or that it can satisfy the outstanding liability from other property. And just in case the IRS doesn’t agree or is slow to respond, the owner of the property can file suit in district court, to re-determine the amount of the government’s interest in the property, within 120 days after the certificate of discharge is issued. The IRS has concluded that this is the judicial remedy for an allegedly wrongful lien; a refund suit, as in Williams, is no longer an option. Most courts that have considered the issue have agreed with the IRS; Munaco v. United States, 522 F.3d 651 (6th Cir. 2008) is a good example and cites others.

How do the above provisions related to wrongful levies and wrongful liens line up against the three key aspects of how the Code treats overpayments?

Judicial review

There is a much shorter period of time to file suit for wrongful levy or wrongful lien, than the statute of limitations for a refund suit, which arguably can stay open indefinitely if the refund claim is never disallowed. A refund suit is not available for wrongful levies and liens. It certainly makes sense to require action by the third party promptly. Once the IRS collects from the third party, collection actions against the person who is actually liable for the tax may cease. A challenge by the third party does not toll the statute of limitations for collection and if the collection from the third party is held invalid, the IRS will want to go back to the liable party.

However, in the fact pattern of the CCA, the shorter statute of limitations for a wrongful lien suit might not have been a constraint. Wife 2 did file Form 911, Request for Taxpayer Advocate Service Assistance. In addition to the salutary effect on IRS personnel of the possibility of a Taxpayer Assistance Order, under Section 7811(d) the request itself suspends any relevant statute of limitations pending any relief that TAS might order. This was recently addressed in a wrongful levy case, Rothkamm v. United States, 802 F.3d 699 (5th Cir. 2015). (Note, however, that tolling under section 7811(d) is not automatically tracked by the IRS, and the National Taxpayer Advocate has recommended repealing the provision.)

Offset against other tax liabilities

For wrongful levies, Section 6343 refers to the return of property, rather than refund of an overpayment, and does not mention offset against other tax liabilities. For wrongful liens, Section 6325(b)(4) refers to the refund of a “deposit” and again does not mention offset against other tax liabilities. (The term “deposit” is explicitly distinguished from the term “payment” in other contexts; the former must be returned, regardless of the statute of limitations for refunds, on request without requiring proof of an overpayment.) And Section 7426 refers to payment of judgements, again without any mention of crediting the judgement amount against other tax liabilities. None of these provisions references Section 6402(a). A definitive court ruling would be nice but even without it I think the best interpretation of the statutory framework is that there is no right to unilaterally offset recoveries from a wrongful levy or lien against other liabilities the taxpayer may have.

Not allowing the IRS to offset these remedies for wrongful levies or liens against a third party also makes sense. The existence of an overpayment by the party liable for the tax does not imply any error or wrongful action by the IRS; a wrongful levy or lien does. Further, offset could be abused by the IRS to avoid the consequences of such error or wrongful action as well as procedural safeguards for collection actions in those other years.

An example, albeit extreme, of such abuse in a different context is described in Kabbaby v. Richardson, 520 F.2d 334 (5th Cir. 1975). Local police arrested the plaintiff and found cocaine, a substantial amount of cash, and assorted weapons and pieces of jewelry in his car. The police notified the IRS, which issued a termination assessment and seized the property. The IRS later abated the assessment, presumably because of previous court decisions invaliding such assessments when the IRS did not issue a subsequent notice of deficiency. But the IRS refused to return the property because it was an “overpayment” and could be credited to the plaintiff’s unsatisfied tax liabilities for other years. The court rejected that argument. The termination assessment without appropriate factual foundation was an abuse of authority. Allowing the IRS to keep the property would give the IRS an advantage and defeat procedural safeguards. Some other courts have disagreed; these are not always sympathetic plaintiffs.

Interest

Interest is payable on recovery of a wrongful levy or deposit to challenge a wrongful lien, as well as on a judgement resulting from judicial review in district court. However, Sections 6325, 6343, and 7426 contain separate interest provisions – with references to the overpayment interest rate in Section 6621 – rather than simply stating that Section 6611 applies. The amounts may be the same but other interest provisions, such as “restricted interest” and interest netting, may not apply to interest paid pursuant to Sections 6325, 6343, and 7426.

Based on these differences in judicial review, authority to offset, and interest, I think there’s a very strong case that Wife 2’s share of the sale proceeds, paid by mutual mistake in order to discharge the lien, was not an overpayment.

If this was not an overpayment, what effect does that have?

Obviously, the fair result is that Wife 2 can recover her share of the sale proceeds. But if the IRS had resisted, it’s not entirely clear whether Wife 2 was legally entitled to any relief at all. She apparently didn’t use the process set forth in Section 6343(b)(4). When she and Husband sought a certificate of discharge, she didn’t request a substitution of value as a deposit to be held by the IRS pending a determination whether the value of the government’s interest in the property included her half-share. If she had noticed the error in time, she might have done that or even obtained a revised Letter 403. It appears that she and Husband instead made a payment under Section 6343(b)(2), with a later refund claim. If Sections 6343(b)(4) and 7426(a)(4) really are the exclusive remedies for a wrongful lien, the IRS might have been able to push back successfully. Perhaps a court would decide that a refund claim and suit under Williams should still be available, but it seems unlikely.

Assuming that the IRS did the right thing and agreed that she should get her share of the sale proceeds back, though, could the IRS unilaterally offset part of that against her and Husband’s tax liabilities Year 12 and 13? I’m not aware of any case law specifically on point but for the reasons described above I think Section 6402(a) doesn’t apply to such amounts and the IRS has no authority to make such offsets unilaterally. Husband and Wife 2 may have consented to that offset, because they wanted to resolve the liabilities or didn’t want to force the IRS to jump through the procedural hoops for a levy, but the CCA doesn’t mention anything about that. Other taxpayers might not want to give up the cash.

What about interest computation with respect to the credits to Husband and Wife 2’s tax liabilities for Years 12 and 13? The CCA’s answer is reasonable but how can you evaluate whether it’s legally correct? Section 6325(b)(4)(B) doesn’t provide the answer because it also doesn’t provide for offset against other tax liabilities.

Conclusion

Tax law is not always clear – as Bayless Manning ponders in Hyperlexis and the Law of Conservation of Ambiguity: Thoughts on Section 385, 36 Tax Law. 9 (1982):

Consider the United States Constitution. The Constitution is open-ended, generalized and telescopic in character. What has it spawned? Pervasive ambiguity and unending litigation.

Contrast the extreme counter-model of law, the Internal Revenue Code and its festooned vines of regulations. The Code and regulations are particularized, elaborated and microscopic in character. What have they spawned? Pervasive ambiguity and unending litigation.

I might have reached the same answer as in the CCA. Sometimes a reasonable answer based on analogy is the best that can be achieved. The final result seems fair.

Sixth Circuit Follows Second on Overpayment Interest for Not-for-Profit Corps

In late April of this year, I wrote a post on the Second Circuit case, Maimondies, where the Court determined if a not-for-profit corporation that was exempt from income tax under Section 501(c)(3) was a “corporation” for overpayment and underpayment interest rates.  The same issue was decided by the Sixth Circuit in August in United States v. Detroit Medical Center.

The issue in Detroit Medical is that “corporations” under Section 6621(a)(1) receive interest at a lower rate  that non-corporations on overpayments of tax.  The not-for-profit corporation had an overpayment of employment taxes paid on medical residents (exact same issue as Maimondies) and believed it should receive interest at the non-corporate rate.  Detroit Medical’s argument is based on a blend of policy arguments and statutory construction.   The IRS disagreed, arguing a corporation is a corporation, profit or not.  Here is the issue as stated by the Court:

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Consider our task today. The question at hand sounds simple enough: Should a nonprofit corporation be treated like a for-profit corporation when it comes to the interest it receives on overpaid taxes? Now consider the question in the context of the Internal Revenue Code:

(a) General rule:

(1) Overpayment rate. The overpayment rate established under this section shall be the sum of—

(A) the Federal short-term rate determined under subsection (b), plus

(B) 3 percentage points (2 percentage points in the case of a corporation).

To the extent that an overpayment of tax by a corporation for any taxable period (as defined in subsection (c)(3), applied by substituting “overpayment” for “underpayment”) exceeds $10,000, subparagraph (B) shall be applied by substituting “0.5 percentage point” for “2 percentage points.”

(2) Underpayment rate. The underpayment rate established under this section shall be the sum of—

(A) the Federal short-term rate determined under subsection (b), plus

(B) 3 percentage points.

. . .

(c) Increase in underpayment rate for large corporate underpayments

(1) In general. For purposes of determining the amount of interest payable under section 6601 on any large corporate underpayment for periods after the applicable date, paragraph (2) of subsection (a) shall be applied by substituting “5 percentage points” for “3 percentage points”.

. . .

(3) Large corporate underpayment. For purposes of this subsection—

(A) In general The term “large corporate underpayment” means any underpayment of a tax by a C corporation for any taxable period if the amount of such underpayment for such period exceeds $100,000.

(B) Taxable period. For purposes of subparagraph (A), the term “taxable period” means— (i) in the case of any tax imposed by subtitle A, the taxable year, or (ii) in the case of any other tax, the period to which the underpayment relates.

What starts as a basic question gets less basic the more one reads. Yes, this is a tax case. Some complexities—different rules for overpayments and underpayments, different interest rates for different taxpayers, some exceptions to some rules—come with the territory. But the first sign that the author of this provision was not thinking of his readers appears in the parenthetical of the flush paragraph: “To the extent that an overpayment of tax by a corporation for any taxable period (as defined in subsection (c)(3), applied by substituting ‘overpayment’ for ‘underpayment’) exceeds $10,000, subparagraph (B) shall be applied by substituting ‘0.5 percentage point’ for ‘2 percentage points.’” The meaning of this exception turns on a cross reference to another subsection that applies to the opposite form of payment mentioned in the first subsection but only for “C corporation[s],” not “corporations” in general.

The Sixth takes a strict statutory construction look at the statute, first determining if the entity is a “corporation”, finding if the statute does not specifically define a term fully then Congress intends to adopt its customary meaning.  The Court found “corporation” generally includes not-for-profit corporations, looking to Chief Justice Marshall 1819 holding in Trustees of Dartmouth College v. Woodward.  The Second Circuit had cited to this case, and, not to be outdone, the Sixth Circuit decided to look even further back through legal history, citing to the 1612 holding in The Case of Sutton’s Hospital where the nonprofit was treated as a corporation.  And, to the writings of William Blackstone in 1753, who listed three general types of corporations, including charitable or “eleemosynary” as he termed them.  The Court then looks to various places in the Code where charitable entities are referred to as corporations, and various other everyday uses of the term.

Finding the entity was clearly a “corporation”, the Court then looked to the hanging language and the reference to (c)(3).  There the Court held that the parenthetical modified only the taxable period, and not the remainder of the paragraph, so the c-corporation language did not modify (a)(1) to only apply to c-corporations.  The Sixth Circuit provides a lengthy discussion about why this is the correct statutory interpretation, which is similar to that in the Second Circuit holding.

The Court does note that this is a strange statutory design, to have the nonprofit receiving less interest than Warren Buffett, musing that perhaps Congress had not thought it through because nonprofits don’t pay income tax.

In the final paragraph, the Court does note that it is in agreement with the Second Circuit (the first reference to the case).  This is probably on appeal in other circuits at this point, as it appears there were a lot of nonprofit hospitals in the same position following Mayo.  As the Tax Court has previously held that the S-corporations were not subject to the lower rate based on the same provisions, there is at least some potential for another circuit to hold differently regarding not-for-profits, providing a split.  We shall see.

Ford v US: Supreme Court Weighs in on Lower Court Jurisdiction in Interest Disputes

Yesterday, the Supreme Court granted cert and remanded the case of Ford v US back to the Sixth Circuit.  The case on the merits involves the question as to when Ford is entitled to receive overpayment interest on about $875 million of deposits it made that it subsequently requested the IRS treat as advance payments.  Later, Ford and IRS both agreed that Ford overpaid its taxes and Ford received a refund of the overpaid amounts. IRS and Ford disagreed on when the payments should generate overpayment interest. I will briefly discuss the interesting jurisdictional issue that the Court raised, as it brings into question whether the case should have been brought originally in the Court of Federal Claims, and not a district court.

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Ford and the US disputed when the interest should have run on its overpayment under Section 6611(b)—Ford said the date should be when it first remitted its deposits; the US said interest ran only from when Ford requested that the deposits be treated as advance payments of tax.

The Sixth Circuit agreed with the government’s interpretation. One interesting part of the case is that the Sixth Circuit decided the case, in part, on the basis that Section 6611(b) was a waiver of sovereign immunity, and those waivers should be strictly construed.

In its cert petition, Ford argued that the Sixth Circuit impermissibly framed Section 6611(b) as the applicable provision waiving sovereign immunity. Instead, Ford argued 28 USC 1346(a)(1) was the provision waiving sovereign immunity; 6611(b) was a substantive provision that was entitled to no special governmental deference. The reason Ford believed this was important is that it opened the door to a construction of Section 6611(b) that was not tethered to the principle that provisions waiving sovereign immunity are to be construed strictly in favor of the government.

In its response to the cert petition, DOJ argued for the first time that 28 USC 1346 (giving concurrent jurisdiction to the court of federal claims and district courts) was not the correct statute conferring jurisdiction on the lower courts. I will repeat the government’s position below as set out in its response in opposition to the cert petition:

Petitioner asserts (Pet. 17 n.1) that Section 1346(a)(1) itself provides the requisite “express congressional consent to the award of interest separate from a general waiver of immunity to suit.” Shaw, 478 U.S. at 314. Section 1346(a)(1) grants jurisdiction to district courts (concurrent with the Court of Federal Claims) over “[a]ny civil action against the United States for the recovery of *                  *                  * any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.” 28 U.S.C. 1346(a)(1). That language does not literally encompass (and, a fortiori, does not unambiguously authorize) petitioner’s current suit. Petitioner does not seek to recoup any prior payment made to the government that was “excessive” or “wrongfully collected,” but instead seeks additional interest on an overpayment that has already been refunded.

As explained above, however, the term “sum” in Section 1346(a)(1) is modified by the phrase “excessive or in any manner wrongfully collected under the internal- revenue laws.” That phrase might encompass interest that the taxpayer has paid over to the IRS and seeks to recoup, as when the IRS assesses additional tax and interest, and the taxpayer pays the full assessment and then sues for a refund.

The interest that petitioner seeks here, however, was never in petitioner’s possession, and petitioner does not assert that it is either “excessive” or “wrongfully collected.” Thus, even apart from the fact that Section 1346(a)(1) does not specifically mention interest, the provision does not literally authorize petitioner’s current suit.

In a footnote (note 9), the government suggested the result that the Supreme Court took:

“[b] ecause binding Sixth Circuit precedent held that Section 1346(a)(1) vests district courts with jurisdiction over suits like this one, the government did not argue below that the district court lacked jurisdiction over this case….This Court, however, obviously would not be bound by that circuit precedent.”

Earlier, in its response (n. 3), DOJ stated that it believed the Tucker Act controlled. The Tucker Act is found at 28 U.S.C. 1491(a), and is a general statutory provision providing for waiver of sovereign immunity on certain claims, and which vests jurisdiction in the Court of Federal Claims.

Since the parties in the lower courts did not address whether the Tucker Act, and not 28 USC 1346, formed the basis for waiver of sovereign immunity, the Supreme Court remanded the case back to the Sixth Circuit. The Sixth Circuit will now directly consider the jurisdictional issue. In either case, I believe Ford is correct that conflating 6611(b) with either of the two provisions waiving sovereign immunity is an error, and the courts will likely consider the merits as to when interest is due apart from statutory construction principles tied to sovereign immunity.

As an aside, the possibility of Ford decreasing lower court diversity through funneling these types of cases exclusively to the Court of Federal Claims, rather than the myriad district courts, ties in nicely with Keith’s prior post on the Golsen rule. Jack Townsend too takes up the issue of specialized court review of tax cases, with an excellent post linking articles that have discussed the issue.

Later this week, we will post as to the merits of the parties’ claims on when overpayment interest was due to Ford.