U.S. v. Domino Sugar Corp., 02-6287.

• Decision Date: 10 November 2003
• Docket Number: No. 02-6287.,02-6287.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. DOMINO SUGAR CORPORATION, Defendant, Tate & Lyle North American Sugars Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

349 F.3d 84

UNITED STATES of America, Plaintiff-Appellee, v. DOMINO SUGAR CORPORATION, Defendant, Tate & Lyle North American Sugars Inc., Defendant-Appellant.

No. 02-6287.

United States Court of Appeals, Second Circuit.

Argued: September 16, 2003.

Decided: November 10, 2003.

HENRY B. MILLER, Burt, Maner, Miller & Staples (Jonathan E. Jackel, of counsel), Washington, DC, for Defendant-Appellant.

SHEILA M. GOWAN, Assistant United States Attorney for the Southern District of New York (James B. Comey, United States Attorney, Sara L. Shudofsky, Assistant

United States Attorney, of counsel), New York, NY, for Plaintiff-Appellee.

Before: LEVAL and SACK, Circuit Judges, and KORMAN, District Judge.^*

SACK, Circuit Judge.

This appeal stems from the efforts of the Internal Revenue Service ("IRS") to recover interest it mistakenly paid on a company's deposit in the nature of a cash bond at the time the IRS returned the cash bond to the company. The government eventually brought suit against the company to recover the interest. The only issue on appeal is whether the government's action was timely. We conclude that it was. We therefore affirm the judgment of the district court ordering the company to return the interest to the government.

BACKGROUND

Although the facts underlying this lawsuit are complicated and were contested vigorously in the district court, see United States v. Tate & Lyle N. Am. Sugars, Inc., 228 F.Supp.2d 308 (S.D.N.Y.2002) ("Tate & Lyle"), the facts relevant to the issue on appeal are relatively simple and largely undisputed. We rehearse them only insofar as we think necessary to explain our resolution of this appeal.

In 1988, Refined Sugars Incorporated ("RSI") acquired and merged into Amstar Sugar Corporation ("Amstar"). On August 16, 1989, Amstar became an affiliated company of Tate & Lyle, Inc. ("TLI"). On June 15, 1990, Amstar filed a federal income tax return for a period ending August 16, 1989 (the "8908 return").

In August 1990, the IRS determined that Amstar had deducted an RSI net operating loss on the 8908 return in the amount of $18,009,489.00 and that TLI had made the same deduction on one of its tax returns. The deduction for the same loss obviously could not be taken twice. Amstar officials thought that the double deduction would likely result in a tax deficiency for Amstar of more than $6 million with respect to the period covered by the return.

On December 13, 1990, Amstar's treasurer signed a notice of proposed adjustment issued by the IRS for the 8908 return. An affiliate of TLI remitted to the IRS, as what the district court later determined to be a deposit in the nature of a cash bond, a check in the amount of $6,497,710.00 to account for the likely tax deficiency plus accrued interest.

In or about September 1993, the IRS determined that, in fact, Amstar had overpaid its taxes for the period covered by the 8908 return, and had overpaid by an amount that exceeded the deficiency anticipated on account of the duplicated deduction. Amstar was therefore entitled to have its overpayment refunded and also to have its cash bond returned. On September 28, 1993, in connection with the 8908 return, the IRS issued a refund check payable to Amstar for $8,240,206.34. The amount included (1) a refund for the overpayment (minus other Amstar tax liabilities), (2) interest on the overpayment, (3) the $6,497,710.00 cash bond of December 1990, and (4) $1,526,100.60 in interest on the cash bond.

Some two years later, in September 1995, an IRS employee discovered that the IRS had paid interest on the returned $6,497,710.00. He viewed the remittance in that amount (as the district court later agreed) as a cash bond, and concluded that the payment of interest was therefore improper because cash bonds do not earn interest. The IRS therefore informed Amstar of what the IRS considered to be a mistake and demanded return of the interest. The company refused.

On December 10, 1997, the government brought suit against Amstar's successor corporation, Tate & Lyle North American Sugars Inc. ("Tate & Lyle"),¹ seeking to recover the $1,526,100.60 interest. The district court (Richard M. Berman, Judge) denied Tate & Lyle's motion to dismiss the lawsuit, United States v. Domino Sugar Corp., 210 F.Supp.2d 219, 219 (S.D.N.Y. 1999), and then its motion for summary judgment, United States v. Tate & Lyle N. Am. Sugars Inc., 162 F.Supp.2d 236, 245 (S.D.N.Y.2001).

After a bench trial, the district court found in favor of the government, ordering Tate & Lyle to return the erroneously paid interest to the IRS. Tate & Lyle, 228 F.Supp.2d at 326. The court first found, as noted above, that the December 1990 remittance was a deposit in the nature of a cash bond and not a payment of tax. Id. at 320-25. The court agreed with the government that a cash bond could be retrieved by the party paying it, but unlike a tax payment, not through the IRS's refund procedures. If a taxpayer requests a cash bond's return, the IRS will return it forthwith, but without interest. Id. at 320. The court therefore determined that the 1993 payment of $1,526,100.60 as interest on the cash bond was mistaken. Id.

The district court also concluded, on the sole issue before us on appeal, that the government's suit was timely. Id. at 325. Because the claim was one for unjust enrichment grounded in quasi-contract, the court agreed with the government that the six-year statute of limitations contained in 28 U.S.C. § 2415(a) applied. See id. at 325-26, 325 n. 10. Section 2415(a) states: "[E]very action for money damages brought by the United States or an officer or agency therefor which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues...." Under this statute, the government's action was timely. The court rejected Tate & Lyle's argument that the applicable statute of limitations was that set forth in 26 U.S.C. § 6532(b), which provides that "[r]ecovery of an erroneous refund by suit ... shall be allowed only if such suit is begun within 2 years after the making of such refund," and which would have barred the government's suit. Id.

Tate & Lyle appeals only the district court's determination that a six-year statute of limitations rather than a two-year statute of limitations applies to this action.

DISCUSSION

I. Standard of Review

Because the facts underlying this appeal are undisputed, the sole issue before us on appeal is a question of law: on those facts, what statute of limitations, if any, applies. We review questions of law de novo. Krizek v. Cigna Group Ins., 345 F.3d 91, 99 (2d Cir.2003).

II. Tax Payments and Cash Bonds

In 1945, the Supreme Court recognized the deposit in the nature of a cash bond as a distinct type of remittance by a taxpayer to the IRS. See Rosenman v. United States, 323 U.S. 658, 662-63, 65 S.Ct. 536, 89 L.Ed. 535 (1945). Such cash bonds

are set aside ... in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. Money in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due.

Id. at 662, 65 S.Ct. 536. The Court explained the reason for the use of cash bonds:

[T]he Government safeguards collection of the assessment of whatever amount tax officials may eventually find owing from a taxpayer, while the taxpayer in turn is saved the danger of penalties on an assessment made ... years after a fairly estimated return has been filed.

Id. at 663, 65 S.Ct. 536. The Rosenman Court therefore concluded that cash bonds are not tax payments. Id.

The Internal Revenue Code has no provisions addressing cash bonds. The IRS has, however, issued revenue procedures relating to them. Revenue Procedure 84-58, for example, provides that a remittance "that is designated by the taxpayer in writing as a deposit in the nature of a cash bond will be treated as such by the [Internal Revenue] Service." Rev. Proc. 84-58, § 4.02, ¶ 1, 1984-2 C.B. 501; see also id. § 4.01, ¶ 2 (same). A cash bond, like a tax payment, stops the running of interest on a tax liability, even one that has yet to be assessed, on the date the IRS receives it. Id. § 5.01.

A deposit in the nature of a cash bond "is not subject to a claim for credit or refund as an overpayment." Id. § 4.02, ¶ 1; see also Callaway v. Comm'r of Internal Revenue, 231 F.3d 106, 113 n. 11 (2d Cir.2000) (relying on Revenue Procedure 84-58). But a taxpayer may obtain a return of any part of the cash bond before the IRS assesses the tax simply by requesting it. Rev. Proc. 84-58, at § 4.02, ¶ 1; Callaway, 231 F.3d at 113 n. 11. When the IRS returns the amount of the cash bond, it is supposed to do so without interest.² Rev. Proc. 84-58, at § 5.04; Callaway, 231 F.3d at 113 n. 11.

The distinctions between tax payments and cash bonds can affect applicable limitations periods. For example, courts have decided that 26 U.S.C. § 6511, which establishes the limitation period in which taxpayers may file a refund claim, does not apply to a claim for return of a cash bond. See N.Y. Life Ins. Co. v. United States, 118 F.3d 1553, 1557-58 (Fed.Cir.1997) (determining that a refund suit under 26 U.S.C. § 6511(a) cannot be maintained to recover a cash bond), cert. denied, 523 U.S. 1094, 118 S.Ct. 1559, 140 L.Ed.2d 792 (1998); Finkelstein v. United States, 943 F.Supp. 425, 429 n. 16 (D.N.J.1996) (concluding that the statute of limitations in 26 U.S.C. § 6511 is inapplicable to a taxpayer's action to recover as a refund a remittance made to the IRS because the remittance was a cash bond, to which formal refund procedures do not apply); Crosby v. United States, 889 F.Supp. 148, 150 (D.Vt...