Overpayment Interest – Is the Tide Turning?, Part One

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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.

Comments

  1. For those curious about the Harvard clinic’s amicus brief in Pfizer, I give a bit more detail.

    As Bob says, in the case, the first issue was whether the district court had jurisdiction at all under 1346(a)(1). The 2d Cir. said “no” and transferred the case. The 6th Cir. opinion in Scripps is what Pfizer unsuccessfully asked the 2d Cir. to adopt on this point.

    If the district court had jurisdiction under 12346(a)(1), the second issue would be which statute of limitations applied, the 6-year one of 28 usc 2401(a) or the 2-year one of IRC sec. 6532(a). Factually, Pfizer had filed late under the 2-year statute, but timely under the 6-year statute. No court of appeals had ever ruled on this second issue, but one district court had held that, even if section 1346(a)(1) applied to give jurisdiction, there is no necessary tie to section 6532(a) in all suits under that section. That district court opinion applied the 6-year SOL. Pfizer asked for the district court in its case (and later the 2d Cir.) to hold that the 6-year SOL applied.

    At the Harvard clinic’s belated suggestion (made only after we read the initial rulings of the district court going against Pfizer), Pfizer also argued, in a motion for reconsideration, that, even if the 2-year SOL applied, the government should be estopped from relying on section 6532(a) because Pfizer had received a letter from Appeals denying its claim stating that Pfizer had 6 years to bring suit in the district court under section 2401(a) or the CFC under section 2501. I had pointed out to Pfizer’s lawyers that there exists a 2d Cir. opinion holding that the 6532(a) period is subject to estoppel, Miller v. U.S., 500 F.2d 1007 (2d Cir. 1974), which is still binding precedent in the 2d Cir. I had also pointed out that a number of other Circuits have held that the section 6532(a) SOL is jurisdictional. Jurisdictional deadlines are never subject to equitable exceptions. And, in another case, the Fed. Cir., citing Brockamp (a Supreme Court equitable tolling case), had ruled that the section 6532(a) filing deadline is also not subject to estoppel.

    As PT readers know, Keith and I have been arguing that nearly all judicial filing deadlines in tax are no longer jurisdictional under recent Supreme Court case law. All prior rulings of courts of appeals (including the Fed. Cir.) holding section 6532(a)’s filing deadline jurisdictional and not subject to estoppel predate the 2004 Supreme Court case law narrowing the use of the word “jurisdictional” generally to exclude filing deadlines. We think no one of those cases is good law anymore.

    The Pfizer district court held that the proper SOL in the case was section 6532(a)’s 2-year limit, and the district court refused to consider the estoppel argument, saying that Pfizer raised the argument too late (in a motion for reconsideration).

    When the Pfizer case got to the 2d Cir., the Harvard clinic filed a brief pointing out the 2d Cir. opinion in Miller and argued that that opinion not only binds the 2d Cir., but that, implicit in its holding is that the section 6532(a) SOL is not jurisdictional. We argued that Miller is consistent with the current Supreme Court case law making judicial filing deadlines rarely jurisdictional.

    Because the 2d Cir. in Pfizer held that section 1346(a)(1) did not authorize the district court’s jurisdiction in the case, the 2d Cir. opinion doesn’t discuss the issues about which SOL applied if the district court did have jurisdiction.

    But, Judge Lohier’s concurrence addressed the question. Judge Lohier said that the 2-year SOL of section 6532(a) would have applied if the district court had had jurisdiction under section 1346(a)(1), but Pfizer should be happy that the court lacked jurisdiction because, if it did have jurisdiction, then Pfizer would lose “on the merits” because section 6532(a) is not subject to equitable tolling, and Pfizer had not filed within 2 years. After a loss on the merits, Pfizer could not go to the CFC and relitigate the same claim.

    I am both happy and unhappy at what Judge Lohier wrote. On the bright side, he seems to have agreed with the Harvard clinic’s brief’s argument that the filing deadline is not jurisdictional because a loss on jurisdictional grounds would not be one “on the merits”. But, on the other hand, I am disappointed that Judge Lohier did not mention the controlling Miller case holding that the section 6532(a) filing deadline is subject to estoppel. Why Judge Lohier mentioned the different doctrine of equitable tolling is a mystery to me. While it is true that in Brockamp, the Supreme Court (trying to be funny) said that, after all, tax law is ordinarily not subject to equitable exceptions (a statement regarding tax procedure that was demonstrably false when made in Brockamp in 1997 and is more false today — think of equitable recoupment and the Rodgers opinion giving district judges instructions to apply equity in foreclosure sales of jointly-owned property when only one spouse is liable for unpaid tax), Brockamp never held that estoppel could not apply to the section 6511 refund claim filing deadline, only that the judicial doctrine of equitable tolling couldn’t because of the many other statutory exceptions already in section 6511. I had expected that, more likely, Judge Lohier would avoid this estoppel issue the way the district court did, by holding that Pfizer had merely raised the estoppel issue too late (even though I don’t feel Pfizer raised it too late).

    Still, at least the Harvard brief helped avoid a ruling or a statement in a concurring or dissenting opinion that the section 6532(a) filing deadline is jurisdictional. That alone justifies to me that filing of the amicus brief.

    Bob slightly misstates what we argued in our amicus brief. We only argued that the filing deadline is not jurisdictional. Although we mentioned Miller and suggested we also felt that the deadline is subject to both estoppel and equitable tolling, we left it to Pfizer to make those arguments in its brief, if it wanted to.

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