We have run a number of posts involving refund suits where (1) the taxpayer’s representative signed the predicate refund claim on the taxpayer’s signature line, and (2) the Form 2848 power of attorney did not expressly authorize the representative to sign returns. This is part II of a two-part post on two recent cases presenting this fact pattern, decided one day apart, Dixon v. United States, 2023 U.S. App. LEXIS 11422 (Fed. Cir., May 10, 2023) (Dixon 3), and Cooper v. United States, 2023 U.S. Claims LEXIS (Ct. Cl., May 9, 2023). The DOJ’s motion to dismiss was successful in Dixon and unsuccessful in Cooper. So, it may be worthwhile to explain how the courts reached different rulings on such similar fact patterns. Today’s post discusses Cooper. You can find part I of this post here.
Cooper Facts
Mr. Cooper filed his 2014 income tax return late (in June 2016), even after having obtained a 6-month extension to file. Just before the extended due date, his CPA told Mr. Cooper that there would not be any late-filing penalty anyway, since a large payment made with the extension request had overpaid the taxes. In the end, the preparer was wrong that the taxes had been overpaid, and the IRS assessed about $95,000 in late-filing penalties as it processed the return.
Mr. Cooper paid the $95,000 and hired a tax attorney (who was not Mr. Castro of Dixon) to try to get the penalty refunded. The attorney had the taxpayer execute a Form 2848 in his favor, though, just like in the Brown and Dixon 1 cases in part I of this post, box 5a of the form authorizing the attorney to sign tax returns was not checked.
Refund claims for penalties are not made on amended returns (Forms1040X), but via Form 843 refund claims. The attorney prepared and filed a Form 843, signing the form both on the line for where the taxpayer should sign (under penalties of perjury) and where the preparer should sign.
The IRS denied the claim, and in 2019, Mr. Cooper brought a timely suit in the Court of Federal Claims under IRC § 6532(a).
After the parties filed the complaint and answer and completed discovery, in May 2022, the DOJ moved to dismiss the case under RCFC 12(b)(6) for failure to state a claim on which relief could be granted. The DOJ cited two reasons: (1) the Form 2848 had not been attached to the refund claim when the Form 843 was filed (as required), and (2) the attorney was not authorized by the Form 2848 to sign a Form 843 refund claim for the taxpayer.
The timing of the DOJ’s Cooper motion under RCFC 12(b)(6) is important, since it was filed a few months after the Federal Circuit issued its opinion in Brown v. United States, 22 F.4th 1008 (Fed. Cir. 2022) (on which Keith blogged here. In Brown, the Federal Circuit held that, under recent Supreme Court case law, certain requirements of a proper refund claim under IRC § 7422(a) are no longer jurisdictional to a refund suit, even though the predicate requirement to file a refund claim at all is still jurisdictional. Brown held that what it called the “duly filed” requirements of the statute (which the court said covered the IRC §§ 6061 and 6065 requirements for a taxpayer to sign a return and under penalties of perjury) are not jurisdictional, but nevertheless are still statutory, so cannot be waived. Thus, Brown dismissed the suit for failure to state a claim under RCFC 12(b)(6), not for lack of jurisdiction under RCFC 12(b)(1).
Before the CFC ruled on the DOJ’s motion in Cooper, in July 2022, the DOJ withdrew it and filed a new motion to dismiss, this one predicated on lack of jurisdiction under RCFC 12(b)(1). As the court wore in Cooper:
The motion raises the same grounds for dismissal—i.e., that Mr. Cooper’s refund claim was not “duly filed” due to his failure to comply with the signature verification requirements—but, contrary to its initial motion, the Government relies on circuit precedent preceding Brown to support a jurisdictional argument. Id. at 1, 12-15. The Government now contends that Brown is not binding because the Brown panel could not overrule prior panel decisions finding that § 7422(a) sets forth jurisdictional prerequisites to filing suit. Id. at 18-21.
Slip op. at 5.
The DOJ is obviously still smarting from the holding in Brown that the “duly filed” requirement in IRC § 7422(a) is no longer jurisdictional. That holding was prompted in part by the amicus brief that Keith and I filed in Brown on behalf of The Center for Taxpayer Rights in which we argued that no requirement of IRC § 7422(a) is jurisdictional anymore. That is, we argued that, even the requirement to file a refund claim at all before bringing suit is no longer jurisdictional. Since the DOJ won Brown (though not on the ground it wanted), it could not seek cert. It has apparently decided to keep making the argument rejected in Brown to the CFC, hoping that the jurisdictional question will be revisited in the Federal Circuit again soon.
Cooper Holding
The Cooper court rejected the DOJ argument that the 3-judge Brown panel had no authority to ignore prior Federal Circuit precedent, writing:
Although the Government takes issue with whether Lexmark [International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 (2014) (cited by the Brown panel)] expressly or implicitly overruled the Federal Circuit’s prior decisions on the jurisdictional nature of § 7422(a), this Court is not in a position to ignore Brown‘s conclusion that the two are irreconcilable. See ECF No. 25 at 23 n.23 (noting that Lexmark is not a tax case, nor a case involving the United States’ waiver of sovereign immunity). Moreover, the Federal Circuit has held that a panel is empowered to overrule a prior panel decision “without en banc action” based on intervening authority, even where such authority does not explicitly overrule the prior decision or address the precise issue.
Slip op. at 11 (citation omitted).
I am surprised that the DOJ tried to distinguish Lexmark in July 2022 as not being a tax case, since in April 2022, the Supreme Court applied its non-tax precedent restricting the use of the word “jurisdiction” to the Tax Court petition filing deadline in IRC § 6330(d)(1) in Boechler, P.C., v. Commissioner, 142 S. Ct. 1493.
The Cooper court could have stopped there, but it noted that
in a final footnote at the end of its reply the Government posits an alternative ground for dismissal. If it finds Brown controlling, the Government requests that the Court dismiss the Complaint with prejudice for failure to state a claim. Def.’s Reply at 18 n.7, ECF No. 27. Because the pleadings are closed, such request could be raised only by a motion for judgment on the pleadings under RCFC 12(c).
Slip op. at 12 (citation omitted).
The court decided to consider whether the DOJ was entitled to judgment on the pleadings.
The court held that a factual dispute over whether the Form 2848 was attached to the Form 843 when filed (as required) precluded granting judgment on the pleadings on that ground.
With respect to the ground of failure to properly sign and verify under penalties of perjury, the court looks closely at regulations under the refund claim provisions and the power of attorney provision, Form 843 instructions, and a Technical Advice Memorandum and concludes that, unlike in the case of a Form 1040X (which is a return), a Form 843 is not a return and can be signed by a representative on the line for the signature of the taxpayer, even if box 5a on Form 2848 does not authorize signing returns.
[T]the regulations do not require specific authorization for non-return refund claims. Compare Treas. Reg. § 1.6012-1(b)(3)(ii) with id. § 301.6402-2(e). If that is an inconsistent policy, it is incumbent on the IRS to amend its regulations and forms.
Slip op. at 25 n.6.
Further, the court finds that the language of the Form 2848 authorizing the IRS to deal with the representative provides enough authority for the representative to sign on behalf of the taxpayer. The court also rejects the DOJ argument that the Form 2848 was required to specifically list “late-filing penalties for 2014” to be valid. The court finds it enough that the 2014 income taxes were named on the Form 2848.
This being an interlocutory ruling, the DOJ cannot immediately appeal it to the Federal Circuit. It will be interesting to watch how this case progresses.