Beall v. U.S., 01-41471.

• Decision Date: 27 June 2003
• Docket Number: No. 01-41471.,01-41471.
• Citation: 336 F.3d 419
• Parties: Raymond W. BEALL; Hazel A. Beall, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

336 F.3d 419

Raymond W. BEALL; Hazel A. Beall, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 01-41471.

United States Court of Appeals, Fifth Circuit.

June 27, 2003.

Thomas E. Redding (argued), Sallie W. Gladney, Teresa Jean Womack, Redding & Associates, Houston, TX, for Plaintiffs-Appellants.

Marion Elizabeth Erickson, David English Carmack (argued), U.S. Dept. of Justice, Tax Div., Washington, DC, for Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before GARWOOD, JONES and STEWART, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiffs-appellants Raymond W. Beall and Hazel A. Beall (the Bealls) appeal the dismissal, for want of subject matter jurisdiction, of their claim for a refund of the interest on income taxes paid to the defendant-appellee, the United States. Because we conclude, for the reasons set forth below, that the district court did possess jurisdiction to hear the Bealls' complaint, we reverse the judgment of the district court and remand.

Background

On March 31, 1997, the Bealls entered into a settlement agreement with the Internal Revenue Service (IRS) to resolve certain tax deficiencies arising from the Bealls' 1984 tax return and subsequent claim for refund.¹ Following that settlement the IRS assessed additional income taxes, as well as interest on those taxes, against the Bealls. After satisfying their outstanding tax liability, the Bealls, on December 22, 1997, filed a claim for refund of the tax and interest charged against them.

The IRS denied the Bealls' claim for refund, and on April 22, 1999, the Bealls filed a supplemental claim for refund in which they claimed both that the interest on their assessed tax liability should have been netted against other years under 26 U.S.C. § 6221(d), and that a portion of that interest should have been abated under 26 U.S.C. § 6404(e)(1). Based on those refund claims, the Bealls then commenced the present suit in federal district court on March 28, 2000.

The district court granted the Government's motion to dismiss, concluding, among other things, that it lacked subject matter jurisdiction to hear a challenge to the denial of a request for interest abatement under section 6404(e)(1) of the Internal Revenue Code.² The Bealls now appeal the dismissal only of that part of their claim for refund based on 26 U.S.C. § 6404(e)(1).

Discussion

"We review a district court's grant of a motion to dismiss for lack of subject-matter jurisdiction de novo, using the same standards as those employed by the lower court." John Corp. v. City of Houston, 214 F.3d 573, 576 (5th Cir.2000); Rodriguez v. Texas Comm'n on the Arts, 199 F.3d 279, 280 (5th Cir.2000). We accept as true the Bealls' uncontroverted factual allegations, "and will affirm the dismissal if `the court lacks the statutory or constitutional power to adjudicate the case.'" Id. (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.1996)).

A. Sovereign Immunity

As a threshold matter, we first address the Government's position that Congress has not waived sovereign immunity so as to permit a plaintiff to sue in federal district court for a refund of unabated interest. See F.D.I.C. v. Meyer, 510 U.S. 471, 114 S.Ct. 996, 1000, 127 L.Ed.2d 308 (1994) ("Sovereign immunity is jurisdictional in nature.... Therefore, we must first decide whether ... immunity has been waived."). Without such a waiver, there can be no jurisdiction over the Bealls' refund claim in either the district court or in this court. Id.; United States v. Mottaz, 476 U.S. 834, 106 S.Ct. 2224, 2229, 90 L.Ed.2d 841 (1986) ("When the United States consents to be sued, the terms of its waiver of sovereign immunity define the extent of the court's jurisdiction."); Moore v. Dept. of Agric. on Behalf of Farmers Home Admin., 55 F.3d 991, 993 (5th Cir.1995).

The Bealls premised subject matter jurisdiction in the district court upon 28 U.S.C. § 1346. Section 1346(a)(1) provides for original jurisdiction in the district courts over claims "for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws." 28 U.S.C. § 1346. We have stated, however, that section 1346, standing alone, is insufficient to waive sovereign immunity. "Section 1346 is a general jurisdiction statute that does not constitute a separate waiver of sovereign immunity." Shanbaum v. United States, 32 F.3d 180, 182 (5th Cir.1994).

The Bealls' complaint, however, references, among other provisions, section 7422 of the Internal Revenue Code. In language that mirrors section 1346, section 7422 provides for a civil action for refund of certain wrongfully collected taxes.³ And although section 1346 does not waive sovereign immunity by itself, when coupled with a claim brought under section 7422, section 1346 does provide the necessary waiver of immunity. See United States v. Michel, 282 U.S. 656, 51 S.Ct. 284, 285, 75 L.Ed. 598 (1931); Shanbaum, 32 F.3d at 182 ("Section 1346 operates in conjunction with 26 U.S.C. § 7422 to provide a waiver of sovereign immunity in tax refund suits... when the taxpayer has fully paid the tax and filed an administrative claim for a refund.").

The Bealls have fully paid the tax and interest at issue, and have filed a claim for a refund with the IRS. If their claim for a refund of unabated interest under 26 U.S.C. § 6404(e)(1), therefore, is cognizable under section 7422, then sovereign immunity presents no bar to the exercise of subject matter jurisdiction.

The Government's claim of immunity thus requires us to address the compass of section 7422 with an eye to determining whether it can accommodate the Bealls' interest abatement claim. According to the Government it cannot, and a claim for abatement of interest, therefore, cannot be brought as a claim for a refund under section 7422. The language of the statute, however, is not susceptible to so limited a construction, and we decline to give it such.

Section 7422 permits a claim for a refund not only for "erroneously or illegally assessed" taxes, but also for "any sum alleged to have been excessive or in any manner wrongfully collected." 26 U.S.C. § 7422. Whether the Bealls' abatement claim is cognizable under section 7422, thus requires the resolution of two questions: (1) whether the phrase "any sum," includes unabated interest charged on income taxes owed; and if so, (2) whether the phrase "excessive or ... wrongfully collected" includes a sum of interest that the IRS has refused to abate in accordance with 26 U.S.C. § 6404.⁴ We answer both questions in the affirmative, and conclude, therefore, that a claim for a refund of unabated interest is cognizable under section 7422 and is not barred by sovereign immunity.

The Supreme Court has long since indicated that the phrase "any sum" likely encompasses a claim for interest. Thus in construing identical language in section 1346, the Court noted that "`any sum,' instead of being related to `any internal-revenue tax' and `any penalty,' may refer to amounts which are neither taxes nor penalties," and that "[o]ne obvious example of such a `sum' is interest." See Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 633, 4 L.Ed.2d 623 (1960).

A claim for abatement of interest, however, differs from the prototypical claim for refund of taxes and interest under section 7422. The archetypal refund claim is a claim that the taxpayer never owed the underlying tax. See United States v. Williams, 514 U.S. 527, 115 S.Ct. 1611, 1616, 131 L.Ed.2d 608 (1995) (noting that section 1346(a)(1) displaced the common-law remedy of assumpsit for money had and received, a remedy that afforded relief to taxpayers who "had paid money they did not owe — typically as a result of fraud, duress, or mistake"); see, e.g., Your Insurance Needs Agency, Inc. v. United States, 274 F.3d 1001 (5th Cir.2001) (addressing a refund claim for tax overpayments). A claim for the refund of interest that the taxpayer argues should have been abated, on the other hand, is not a claim to recover money that was paid but never owed, but is a claim that interest, otherwise legitimately assessed, could have been less had the IRS not unreasonably delayed in the performance of a ministerial or managerial task. See 26 U.S.C. § 6404(e)(1).

That a claim for abatement of interest is not identical to an action in assumpsit or a refund claim challenging the validity of the underlying tax, however, does not necessarily establish that an abatement claim cannot be prosecuted under section 7422. Section 7422 is a statutory remedy, and is not confined to the limits of its common-law ancestor. See, e.g., Flora, 80 S.Ct. at 635 (noting that since 1862, an action for refund ceased to be regarded as a common-law action, "but rather as a statutory remedy which `in its nature [was] a remedy against the Government'") (quoting Curtis's Adm'x v. Fiedler, 67 U.S. (2 Black) 461, 479, 17 L.Ed. 273 (1862)). It is the language of section 7422 that must control, language that in referring broadly to "any sum," would by its terms appear to accommodate a claim for the abatement of interest.

Finally, we note that our decision in Poretto v. Usry, 295 F.2d 499 (5th Cir.1961), supports the conclusion that section 7422 may accommodate a claim for the refund of unabated interest. In Poretto, a taxpayer who had been penalized for failing to withhold excise taxes on behalf of his customers, brought an action, citing section 6404, for the abatement of assessed taxes and penalties. Id. at 499. Although we affirmed the dismissal of the taxpayer's action for equitable relief, we noted that the taxpayer's appropriate course of action would have been to pay the taxes and penalties, and then to challenge the...