Flight Attendants Against UAL Offset (FAAUO) v. C.I.R.

• Decision Date: 10 March 1999
• Docket Number: Nos. 97-3151,97-3335,s. 97-3151
• Parties: -485, 99-1 USTC P 50,198, 22 Employee Benefits Cas. 2378 FLIGHT ATTENDANTS AGAINST UAL OFFSET (FAAUO) and United Air Lines, Inc., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 572

165 F.3d 572

83 A.F.T.R.2d 99-485, 99-1 USTC P 50,198,

22 Employee Benefits Cas. 2378

FLIGHT ATTENDANTS AGAINST UAL OFFSET (FAAUO) and United Air Lines, Inc., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Nos. 97-3151, 97-3335.

United States Court of Appeals Seventh Circuit.

Argued Nov. 9, 1998.

Decided Jan. 15, 1999.

Rehearing Denied March 10, 1999.

Michael S. Gordon (argued), Washington, DC, for Petitioner-Appellant in No. 97-3151.

Gary R. Allen, Gilbert S. Rothenberg, Ellen P. DelSole (argued), Sally J. Schornstheimer, Dept. of Justice, Tax Div., Washington, DC, for Respondent-Appellee in No. 97-3151.

Kim M. Boylan, Mayer, Brown & Platt, Washington, DC, Thomas C. Durham, Mayer, Brown & Platt, Chicago, IL, for Petitioner-Appellant in No. 97-3335.

Gary R. Allen, Dept. of Justice, Tax Div., Washington, DC, for Respondent-Appellee in No. 97-3335.

Before POSNER, Chief Judge, and CUDAHY and COFFEY, Circuit Judges.

POSNER, Chief Judge.

The plaintiff, an association of flight attendants employed by United Air Lines, filed suit in the Tax Court under 26 U.S.C. § 7476 seeking a declaration that the Internal Revenue Service had erred in determining that the conversion of United's retirement savings plan for flight attendants to a 401(k) plan had no tax consequences. The association wanted the plan terminated rather than converted and the plan's assets distributed to the flight attendants, and it believed that this would happen if the new plan was denied the favorable tax status that the original plan had enjoyed.

The suit had to be filed "before the ninety-first day after the day after such notice is mailed." 26 U.S.C. § 7476(b)(5); Rule of Practice and Procedure of U.S. Tax Court 25(a). The notice was mailed to the association on August 23, 1996; the day after was August 24; the ninety-first day after August 24 was Saturday, November 23; the last day for filing the suit was therefore Friday, November 22, 1996. The association did not file until the following Monday, November 25. The Tax Court dismissed the suit as untimely. It also dismissed, as moot, United's motion to dismiss the suit on the ground that United was a necessary party and the association had failed to join it. Both the association and United appeal. The association invokes the doctrine of equitable tolling to justify its untimely filing. The government asserts that the doctrine has no application to tax cases, and alternatively that the association has failed to make a case for equitable tolling.

We must consider first whether the association has standing to litigate over the IRS's grant of favorable tax status to United. Ordinarily a person does not have standing to complain about someone else's receipt of a tax benefit. Allen v. Wright, 468 U.S. 737, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984). The injury is too attenuated for the dispute to reach the level of a real "case" or "controversy" in the sense that the Supreme Court has impressed on these terms found in Article III, section 2 of the Constitution. This case is different, however--is a real "case"--because the members of the association are participants in the retirement savings plan that was the subject of the IRS's ruling. They could certainly have challenged a denial of favorable tax treatment for the plan; it would have been an injury to them; the Internal Revenue Code and its implementing regulations make clear their right to seek declaratory relief. 26 U.S.C. § 7476(b)(1); 26 C.F.R. § 1.7476-1(b)(1); Self-Insurance Institute v. Korioth, 993 F.2d 479, 484 (5th Cir.1993). It might seem that they would have no interest in challenging the grant of such treatment. But they do, because denial, while unfavorable to them in one sense, would have been favorable in another. It would have precipitated termination of the plan, because it would have required the participants to pay taxes on United's contributions to the plan and forbidden United to deduct those contributions from its taxable income, see 26 U.S.C. §§ 401, 402(b), 404(a)(5), 501, and these tax consequences would have been fatal to the plan's viability. See generally John D. Colombo, "Paying for Sins of the Master: An Analysis of the Tax Effects of Pension Plan Disqualification and a Proposal for Reform," 34 Arizona Law Review 53 (1992). The plan provided that upon termination its assets would be distributed to the participants. Thus a successful challenge to the IRS's ruling would have initiated a sequence of actions the result of which would have been to put money in the pockets of the association's members. The total value of their benefits would have been less because of the loss of favorable tax treatment, but they prefer a bird in the hand to two birds in the bush; for them, continued favorable tax treatment is a harm.

Since the members of the association had Article III standing, so did the association. Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 343, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977); North Shore Gas Co. v. EPA, 930 F.2d 1239, 1243 (7th Cir.1991); Self-Insurance Institute v. Korioth, 993 F.2d 479, 484. But the statute under which the association sued authorizes only employees to sue, which may be why throughout the administrative proceedings in this case the IRS communicated directly with the association's president (who is an employee of United) rather than with the association as such. By the time the case had reached the Tax Court, everyone had forgotten that there might be an issue of the association's right to sue, although it is mentioned in a footnote in the government's brief in this court. The footnote points out that the government may not be sued without statutory authorization, Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct. 2092, 135 L.Ed.2d 486 (1996); United States v. Nordic Village, Inc., 503 U.S. 30, 33-34, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992); United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 85 L.Ed. 1058 (1941); Gibson v. Brown, 137 F.3d 992, 997-98 (7th Cir.1998), here lacking. But it makes no practical difference whether the association is the proper party plaintiff, or its president. She is a participant in the plan and so has standing to seek declaratory relief against the IRS's ruling on the plan's tax status. We can thus treat this as a suit by her rather than by the association without consequence. So let us move on to the issue of the timeliness of the suit.

The doctrine of equitable tolling permits a prospective plaintiff to delay filing suit beyond the statute of limitations if despite due diligence on his part he cannot obtain the information he needs in order to determine, in time to sue within the deadline, whether he has a claim on which a suit can be founded. A closely related doctrine, equitable estoppel, allows delay in suing when the defendant, in this case the IRS, has taken steps to prevent the plaintiff from suing in time. (On both doctrines, see, e.g., Wolin v. Smith Barney Inc., 83 F.3d 847, 852 (7th Cir.1996); Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450-53 (7th Cir.1990); Currier v. Radio Free Europe/Radio Liberty, Inc., 159 F.3d 1363, 1367 (D.C.Cir.1998).) This case has a whiff of equitable estoppel because, as we are about to see, the basis of the claim of equitable tolling is the IRS's failure to give the association information that the association claims it needed in order to sue. Yet the association does not mention that doctrine, and so any reliance on it is waived; in any event, as will soon become apparent, the facts no more show equitable estoppel than they show equitable tolling.

United asked for a ruling from the IRS on the tax status of its new plan late in 1995. On August 14 of the following year, the association asked the IRS for copies of all comments or other correspondence that had been submitted to the IRS in connection with United's request. Nine days later the IRS mailed to the association's president a notice of a final determination (dated the previous day) that the new plan did qualify for continued favorable tax treatment. It was this mailing that set the period for the association to challenge the determination running, and the period expired as we said on November 22. The IRS had not replied to the association's request for comments. On the contrary, on November 15 the IRS had notified the association's president that it had forwarded her request to the appropriate office for consideration. She should have known that it was unlikely, to say the least, that a response would be forthcoming in time for the association to prepare a pleading due a week later. And in fact the IRS did not reply until February of the following year, when it told the association that it had received no comments apart from those submitted by the association itself. Despite not having received any comments, the association filed its suit three days (only one business day) after the November 22 deadline expired.

When asked at oral argument how, if the comments (or at least a denial that there were any comments) were essential to its being able to file suit, the association was able to file suit before it received either the comments or the denial, the association's lawyer said that the petition for declaratory relief that he filed on November 25, 1996, was "unreal," that it was really a request for additional time for filing the "real" petition. But if it was "unreal," then the Tax Court was right to dismiss it irrespective of any deadline considerations, and the association should have filed the "real" petition after it learned in February of 1997 that there were no comments. Because the association has never filed what it considers a "real" petition, we cannot gauge what difference it would make to a challenger's ability to file a petition to have in hand either the comments or a denial that there were comments. Probably very little. The "unreal" petition asked the Tax Court to...