Two Recent Circuit Level Decisions Appear to Dispute View That the Refund Claim Filing Requirement is Jurisdictional (Part 2)

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This is part two of a two-part post on jurisdiction issues arising from the filing of a claim for refund and the subsequent litigation.  The prior post focused on the case of Morton v. United States and this post will focus on Brown v. United States.  Carl Smith contributed to the commentary in this post.

The Brown case is part of a group of refund suits brought in the Court of Federal Claims involving US citizens living abroad seeking a refund based on the foreign earned income exclusion.  Their refund claims were prepared and signed by John Castro who held a power of attorney but not one that authorized the signing of a return.  The IRS disallowed the refund claims citing to a closing agreement that foreclosed their right to claim the credit but not to any procedural defect.  The Federal Circuit notes that “neither party seems to dispute that the Browns claim was properly before the Claims Court if it was ‘duly filed.’”

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The IRS moved to dismiss the suit for lack of jurisdiction because the Browns did not sign the claim which prevented it from meeting the duly filed test.  The Browns responded that even if they did not properly sign the claims the IRS waived that requirement by processing the claims.  Additionally, they argued:

signature and verification requirements are regulatory conditions, which the Supreme Court has deemed waivable, instead of unwaivable statutory conditions.

The Claims Court dismissed the case for lack of jurisdiction pursuant to Rules of Court of Federal Claims (RCFC) 12(b)(1).  The Federal Circuit reversed this holding, finding that the procedural defect in the claim did not create a jurisdictional barrier to the suit; however, it determined that the defect caused the claim to fail the duly filed requirement, making the Claims Court’s decision harmless error since the case could be dismissed under RCFC 12(b)(6) for failure to state a claim.  The Tax Clinic at the Legal Services Center of Harvard filed an amicus brief in this case arguing that the court had jurisdiction based on relevant Supreme Court precedent.

The Federal Circuit distinguished the facts here from those in United States v. Dalm, 494 U.S. 596 (1990), and distinguished its own prior precedent.  It concluded that the duly filed requirement in IRC 7422(a) serves as a claims processing rule rather than a jurisdictional requirement.  This is an important concession by the Federal Circuit which could assist claim filers across the country because anyone filing a refund suit can choose Claims Court.

The Federal Circuit still upholds the dismissal of the Browns’ case because of the lack of their signature.  The court spends the remainder of the opinion explaining why and addressing the Browns’ argument that the IRS waived the duly filed argument by processing the claim.  The court finds:

Because the taxpayer signature and verification requirements derive from statute, the IRS cannot waive those requirements. See Angelus Milling, 325 U.S. at 296. Therefore, the IRS had no authority to accept the Browns’ improperly executed refund claims.

Whatever other requirements may exist to render a return “duly filed” we cannot say. We deal here only with the facts presented to us, relating to a return that is both unsigned by the taxpayers and not accompanied by a power of attorney.

The court finds in the alternative that even if the signature requirement is only a regulatory provision that the IRS could waive, under the applicable Supreme Court case, Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945) (the seminal case for informal claims), the Browns cannot show that the IRS knew that the claim forms did not bear their signature at the time it processed the claim.

What Next

The Federal Circuit’s attempt to distinguish Dalm and its own case law on 7422(a), but then citing Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016), blogged here, arguably doesn’t work.  In Gillespie, the taxpayer filed a timely refund claim, but the claim was a tax protestor one which reported all zeros.  The district court held that this form was not a valid claim because it was frivolous, but the requirement to file a predicate claim was not jurisdictional to a refund suit.  The 7th Cir. in affirming the district court – but, without deciding the jurisdictional issue (because the court said it was unnecessary) – suggested that Dalm and 7th Cir. precedent holding the filing requirement jurisdictional are no longer good law.  In Gillespie, the 7th Cir. wrote:

The Gillespies do not respond to the government’s renewed argument that § 7422(a) is jurisdictional, though we note that the Supreme Court’s most recent discussion of § 7422(a) does not describe it in this manner, see United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5, 11-12 (2008). And other recent decisions by the Court construe similar prerequisites as claims-processing rules rather than jurisdictional requirements, see, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632-33 (2015) (concluding that administrative exhaustion requirement of Federal Tort Claims Act is not jurisdictional); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (concluding that Copyright Act’s registration requirement is not jurisdictional); Arbaugh v. Y & H Corp., 546 U.S. 500, 504 (2006) (concluding that statutory minimum of 50 workers for employer to be subject to Title VII of the Civil Rights Act of 1964 is not jurisdictional). These developments may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional. See, e.g., United States v. Dalm, 494 U.S. 596, 601-02 (1990); Greene-Thapedi v. United States, 549 F.3d 530, 532-33 (7th Cir. 2008); Nick’s Cigarette City, Inc. v. United States, 531 F.3d 516, 520-21 (7th Cir. 2008).

Although the amicus brief prominently featured the Federal Circuit’s opinion in Walby v. United States, 957 F.3d 1295 (2020), the Brown opinion makes no mention of Walby, which was blogged here.  In Walby, the taxpayer filed a proper refund claim, but it was late. The Court of Federal Claims dismissed the case for lack of jurisdiction.  In dicta, the Fed. Cir. panel made no distinction between its prior precedent holding the requirements to timely file predicate refund claims as jurisdictional to a refund suit, but head on called for the reconsideration of that precedent in light of the Supreme Court opinion in Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014).  Note that, in holding the duly filed requirement of IRC 7422(a) non-jurisdictional, the Brown panel only cited Lexmark (a case involving statutory standing defects), without citing Supreme Court opinions like the 2019 opinion in Fort Bend County v. Davis, 139 S. Ct. 1843 (2019) (blogged here).  Fort Bend held that the failure to comply with the statutory requirement to file a predicate claim with the EEOC before bringing a district court discrimination suit was not jurisdictional and was subject to forfeiture when the failure was not raised by the defendant in the district court case soon enough. The Walby panel wrote, in part:

There is one aspect of the court’s conclusion regarding this claim, however, that warrants additional examination. The Claims Court concluded that, because Walby’s 2014 administrative refund claim was untimely, pursuant to 26 U.S.C. § 7422(a), it lacked subject matter jurisdiction over that claim. Although this conclusion is correct under our existing case law, see, e.g., Stephens v. United States, 884 F.3d 1151, 1156 (Fed. Cir. 2018), it may be time to reexamine that case law in light of the Supreme Court’s clarification that so-called “statutory standing” defects—i.e., whether a party can sue under a given statute—do not implicate a court’s subject matter jurisdiction. Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 n.4, 134 S. Ct. 1377, 188 L. Ed. 2d 392 (2014); see also Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1235 (Fed. Cir. 2019) (recognizing that, following Lexmark, it is incorrect to classify “so-called” statutory-standing defects as jurisdictional).

The Walby court went on to discuss recent Supreme Court case law on jurisdiction and cited Gillespie, as well.  So, it’s hard to understand why the Brown panel decided not to simply overrule the Federal Circuit’s prior precedent and instead attempted to just distinguish that precedent and Dalm. 

Conclusion

Since the decision in Brown, additional decisions have come down regarding the issue of refund jurisdiction.  We will be posting on these decisions in the coming days.  The cases signal a shift as recent Supreme Court precedent comes into play but do not suggest a consensus which may lead ultimately to another Supreme Court decision addressing the issue of jurisdiction in tax cases.

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