CFC Holds that Math Error Notices Reducing Refund Claims Are Not Notices of Claim Disallowance for Purposes of SOL to Bring Suit

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In a case brought by a pro se taxpayer in the Court of Federal Claims (CFC), Hale v. United States, 2019 U.S. Claims LEXIS 502 (May 14, 2019), the CFC held, among other interesting things, that math error notices that reduced refunds sought on original tax returns were not formal notices of claim disallowance as to the reductions for purposes of the 2-year statute of limitations for bringing refund suits at section 6532(a). The suit was thus timely for years for which such math error notices were sent, though was dismissed for failure to state a claim under CFC Rule 12(b)(6) because the taxpayer didn’t articulate a reason for why the math error notices were wrong.

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In a nutshell, the court describes the case as follows:

In this tax refund case, pro se Plaintiff Annice Hale claims that she is entitled to a refund of taxes for the tax years 2012 through 2017 because the government improperly adjusted downward the refunds claimed in her returns for each of those tax years. Ms. Hale’s complaint, liberally construed, also alleges civil rights and tort claims against the government in connection with these tax-related government actions. The government has moved to dismiss Ms. Hale’s complaint under Rules 12(b)(1) and 12(b)(6) of the Rules of the Court of Federal Claims (“RCFC”).

As discussed below, the Court lacks subject-matter jurisdiction over Ms. Hale’s civil rights and tort claims, part of her 2012 tax refund claim, and her 2014 refund claim. Moreover, Ms. Hale has failed to state a claim with respect to tax years 2013, 2015, 2016, and 2017, as well as the portion of her claim for tax year 2012 over which the Court has jurisdiction. As to these remaining claims Ms. Hale’s allegations, taken as true, do not establish any claim upon which relief can be granted.

I will discuss the years separately, for the most part. It appears that all of the claims were made on original tax returns that were timely filed.

2014

The 2014 year was perhaps the easiest year for the court. In that year, the IRS sent a notification of claim disallowance as to part of the claim on September, 9, 2015. Under section 6532(a), a notification of claim disallowance triggers a 2-year period in which a taxpayer must bring suit on the refund claim. Ms. Hale, however, waited over 3 years to bring suit. Thus her case was untimely. Following other CFC case law, which relies on Federal Circuit precedent, the court held that it lacked jurisdiction under CFC Rule 12(b)(1) because the deadline in section 6532(a) is jurisdictional.

I agree with the court that the case as regards 2014 should be dismissed for untimely filing, but under CFC Rule 12(b)(6) (failure to state a claim on which relief could be granted), not 12(b)(1) (lack of jurisdiction). In a comment to a Bob Probasco post on the refund case of Pfizer v. United States, 2d Cir. Docket No. 17-2307 (which has still not yet been decided by the Second Circuit, despite oral argument having happened on February 13, 2018), I pointed out that Keith and I have filed an amicus brief on behalf of the Harvard clinic arguing that the section 6532(a) deadline is not jurisdictional and is subject to estoppel under recent Supreme Court case law making most filing deadlines now nonjurisdictional. Our amicus brief criticizes the Federal Circuit authority, which was decided before the recent Supreme Court case law making filing deadlines only rarely now jurisdictional.

2012

Ms. Hale was a low-income taxpayer who had no income tax liability in 2012, but who reported self-employment tax of $1,192. On her original 2012 return, she sought a refund of $2,977 based on subtracting that tax liability from an earned income tax credit (EITC) of $3,169 and an American Opportunity Credit of $1,000. The IRS, apparently, did not send her a math error notice, but in processing the return, it reduced the EITC by $100 because, presumably, Ms. Hale simply misread the EITC table. That left a potential refund of $2,877, but the IRS had been informed by FEMA that the taxpayer owed FEMA $2,119. The IRS sent that amount to FEMA and issued a refund check for the balance, $758. The court does not explain it, but apparently, Ms. Hale also sent several more amended returns seeking from the IRS the balance of the original refund amount that had not previously been paid to her. The last of those amended returns was filed on June 15, 2015, and the court mysteriously treats it as the refund claim underlying the suit for purposes of timely bringing suit.

The CFC first noted that section 6402(d)(1)(A) authorizes offsets to other government agencies like FEMA, and section 6402(g) also provides that “[n]o court of the United States shall have jurisdiction to hear any action, whether legal or equitable, brought to restrain or review a reduction authorized by subsection (c), (d), (e), or (f).” Thus, it lacked jurisdiction to consider the reduction. However, the CFC also noted that it has broad jurisdiction under the Tucker Act, 28 U.S.C. section 1491(a)(1), which permits the CFC to hear “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.” While a claim against FEMA might be heard by the CFC as an illegal exaction case, the CFC held that, since Ms. Hale’s pleadings did not even mention FEMA, the CFC had no jurisdiction to consider a suit against FEMA. Besides, documents in the record of the refund suit indicated that Ms. Hale later got the funds back from FEMA through a separate, internal FEMA proceeding.

The court then entered into a controversial discussion that it need not have done, since it is clear that, as to the 2012 claim (and all other claims), suit was brought within 6 years and 6 months after the claim was filed.

Some district courts have held that, in addition to the statute of limitation of section 6532(a), suits for refund must also satisfy the statute of limitation set out as a catchall at 28 U.S.C. section 2401(a). Section 2401(a) requires suits to be brought within 6 years of the time that they first could have been brought. Since a refund suit can be brought as soon as 6 months after the claim is filed if there has not earlier been a notification of claim disallowance, those courts held that a taxpayer has only 6 years and 6 months from the date of the refund claim to bring a refund suit where the IRS has never sent out a notification of claim disallowance. There is a parallel 6-year catchall statute of limitations under 28 U.S.C. section 2501 that applies to the CFC. In footnote 5 of its opinion in Hale, the CFC wrote:

The Court observes that in United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1 (2008), the Supreme Court suggested—but did not hold—that in the absence of another, more specific limitations period, tax refund cases are subject to the federal “outside limit” six-year statute of limitations provided in 28 U.S.C. §2401(a). Id. at 8. (quoting United States v. A.S. Kreider Co., 313 U.S. 443, 447 (1941). The Supreme Court thus implied that the Court of Claims was incorrect in its 1955 holding that the six-year general statute of limitations never applies in tax refund cases. See Detroit Trust Co. v. United States, 130 F. Supp. 815, 131Ct. Cl. 223, 226-28 (1955) (finding that six-year statute of limitations did not bar action based in part on refund claim filed in 1917 and disallowed in 1951, where suit was filed within two years of 1951 disallowance); Wagenet v. United States, No. 08-142, 2009 U.S. Dist. LEXIS 115547, 2009 WL 4895363, at *2 (C.D. Cal. Sept. 14, 2009) (applying the six-year statute of limitations set forth in 28 U.S.C. §2401(a) because where “no notice of disallowance was mailed . . . Section 6532(a)(1) does not apply”). Ms. Hale filed suit within six years of her claims for refund. With respect to her $100 EIC claim for tax year 2012, Ms. Hale’s complaint is timely because her last amended return (in other words, her claim for refund) for 2012 was filed on June 15, 2015 and her complaint was filed on October 11, 2018.

However, as Bob Probasco has noted in another prior post, the IRS takes the position that Detroit Trust was correctly decided. Chief Counsel Notice 2012-012. I am surprised to see the CFC needlessly disregarding precedent of the Court of Claims (the forerunner to the Federal Circuit, which would have to follow Detroit Trust or formally overrule it). For an excellent law review article that has convinced me that Detroit Trust is wrong, see Adam R.F. Gustafson (the son of Tax Court Judge Gustafson), “An ‘Outside Limit’ for Refund Suits: The Case Against the Tax Exception to the Six-Year Bar on Claims Against the Government”, 90 Or. L. Rev. 191 (2011).

As to the extra $100 of the refund sought that had not been sent to FEMA, the CFC in Hale ruled that Ms. Hale’s pleadings made no mention of why the IRS was wrong on the EITC adjustment, so she had failed to state a claim on which relief could be granted.

2013, 2015, 2016, and 2017

The court next inquired whether the refund claims and refund suit were timely as to the claims for the years 2013, 2015, 2016, and 2017. It noted that the refund claims were timely made, since they appeared on the original returns – i.e., within 3 years after the returns were filed under section 6511(a). Under section 6532(a), Ms. Hale was thus entitled to bring suit on the reduced claims any time after 6 months, unless the IRS sent her a notification of claim disallowance. In the latter case, the Ms. Hale would have had to bring suit within 2 years thereafter. The court found that the IRS had “sent Ms. Hale ‘math error notices’ using form letter 474C for tax years 2013 and 2017, a 288C letter requesting more information for tax year 2015, and a 12C letter requesting more information for tax year 2016.” Citing no case law as authority, the CFC held that none of these notices or letters constituted a notification of claim disallowance for purposes of section 6532(a), writing:

Internal guidance from the IRS suggests that—among other criteria—a notice of disallowance must inform the taxpayer of her “right to file suit” and of the “period in which suit may be filed.” Chief Counsel Advisory, IRS CCA 200203002 (Jan. 18, 2002). Notices informing taxpayers that the IRS needs more information to process a claim, along with math error notices or similar correspondence, typically fail to adequately notify taxpayers of a final adverse action or of their right to file suit within two years. Id.Form of Notice of Disallowance of a Refund Claim—Refund Suits, Fed. Tax Coordinator ¶ T-9022 (2d ed. 2019) (discussing “dual purposes” of informing taxpayer of final disallowance and of the right to sue along with applicable statute of limitations).

Here, none of the correspondence in the record pertaining to tax years 2013, 2015, 2016, and 2017 meets these criteria for effective notices of disallowance. They do not inform Ms. Hale of her right to sue or of the applicable two-year limitations period.

After concluding that it had jurisdiction, the CFC then dismissed the suit for each of these years for failure to state a claim: For 2013, Ms. Hale had apparently already been sent two refund checks exceeding her original claim. For the other years, the IRS had either reduced credits that she claimed or subtracted from her claimed refunds the self-employment tax that would apply based on the Schedules C or C-EZ that she filed with the returns. She made no allegations showing the IRS was wrong to make these adjustments.

Civil Rights and Tort Claims

Finally, the CFC also discussed certain civil rights and tort claims contained in Ms. Hale’s complaint, finding that the Tucker Act did not authorize it to consider such claims. Interestingly, although the CFC (on PACER.gov) will not allow me to see her complaint or response to the DOJ motion, it appears Ms. Hale’s claims, in part, relied on the Taxpayer Bill of Rights (not sure if the IRS version or the statutory version). I am not sure that the CFC was aware of this, since it made no mention of the Taxpayer Bill of Rights in its opinion – an opportunity wasted, but perhaps better, since I would think that a pro se person could not make a serious argument for the application of the Taxpayer Bill of Rights in court. The CFC wrote:

As noted, the government has construed Ms. Hale’s assertions concerning violations of certain alleged rights as civil rights and tortious damages claims. The Court concurs with this interpretation of Ms. Hale’s references to alleged violations of her “Right to a Fair and Just Tax System,” “Right to Quality Tax Service,” “Right to Pay no more than the Correct Amount of Tax,” “Right to be Informed,” and “Right to Finality,” as well as her allegations that the government’s actions have damaged her credit history and caused her “financial disparity.” Compl. at 4; see also Pl. Resp. Mem. (“Pl.’s Resp.”) at 99, Docket No. 13.

The Court finds that it lacks subject-matter jurisdiction over these claims. The Tucker Act serves as a waiver of sovereign immunity and a jurisdictional grant, but it does not create a substantive cause of action.

(citations omitted).

Here’s a link to Keith’s recent PT post on the Tax Court’s opinion in Moya v. Commissioner, 152 T.C. No. 11 (Apr. 17, 2019), in which it held that the IRS version of the Taxpayer Bill of Rights does not give a taxpayer any additional procedural rights in the Tax Court.

Carlton Smith About Carlton Smith

Carlton M. Smith worked (as an associate and partner) at Roberts & Holland LLP in Manhattan from 1983-1999. From 2003 to 2013, he was the Director of the Cardozo School of Law tax clinic. In his retirement, he volunteers with the tax clinic at Harvard, where he will be Acting Director from January to June 2019.

Comments

  1. Norman Diamond says

    “The court then entered into a controversial discussion that it need not have done, since it is clear that, as to the 2012 claim (and all other claims), suit was brought within 6 years and 6 months after the claim was filed.”

    The court had its reason, which you observe later:

    “However, as Bob Probasco has noted in another prior post, the IRS takes the position that Detroit Trust was correctly decided. Chief Counsel Notice 2012-012.”

    I can only guess that Tax Court might pay attention to an IRS Chief Counsel notice, but other courts would not. The DOJ gets to decide for themselves if they want a court to ignore an IRS position.

    “I am surprised to see the CFC needlessly disregarding precedent of the Court of Claims (the forerunner to the Federal Circuit, which would have to follow Detroit Trust or formally overrule it).”

    No the Federal Circuit would neither have to follow or formally overrule it. The Federal Circuit could simply ignore it, as they did when ignoring an earlier Federal Circuit ruling.

    “[28 U.S.C.] Section 2401(a) requires suits to be brought within 6 years of the time that they first could have been brought.”

    There are extensions for people outside the US and disabled people. If a disability is cured then the extension expires 3 years after the disability is cured. We can only guess what will happen if someone outside the US visits the US for a week and returns to their normal residence before discovering that they had a cause of action.

    “Finally, the CFC also discussed certain civil rights and tort claims contained in Ms. Hale’s complaint, finding that the Tucker Act did not authorize it to consider such claims. […] it appears Ms. Hale’s claims, in part, relied on the Taxpayer Bill of Rights (not sure if the IRS version or the statutory version).”

    Neither version of the TBOR extends jurisdiction beyond the Tucker Acts. Tort claims are explicitly limited to District Courts.

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