E.W. Scripps Co. and Subsidiaries v. U.S.

• Citation: 420 F.3d 589
• Decision Date: 19 August 2005
• Docket Number: No. 03-4438.,03-4438.
• Parties: THE E.W. SCRIPPS COMPANY AND SUBSIDIARIES, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

420 F.3d 589

THE E.W. SCRIPPS COMPANY AND SUBSIDIARIES, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

No. 03-4438.

United States Court of Appeals, Sixth Circuit.

Argued: November 2, 2004.

Decided and Filed: August 19, 2005.

ARGUED: Steven W. Parks, United States Department of Justice, Washington, D.C., for Appellant. Paul P. Eyre, Baker & Hostetler, Cleveland, Ohio, for Appellee. ON BRIEF: Steven W. Parks, Gilbert S. Rothenberg, United States Department of Justice, Washington, D.C., for Appellant. Paul P. Eyre, Thomas R. Lucchesi, Rebecca Lutzko, Baker & Hostetler, Cleveland, Ohio, James Orenstein, Baker & Hostetler, New York, New York, for Appellee.

Before: MOORE and GIBBONS, Circuit Judges; EDMUNDS, District Judge.^*

OPINION

MOORE, Circuit Judge.

In the underlying action, Plaintiff-Appellee The E.W. Scripps Company and Subsidiaries ("Scripps") seeks to recover interest payments from Defendant-Appellant United States of America ("the Government") based on Scripps's overpayment of tax. On appeal, the Government has not challenged the district court's determination that Scripps is entitled to statutory interest because the $3.5 million Scripps tendered to the Internal Revenue Service ("IRS") constituted a payment of tax rather than a cash bond. Instead, the Government has asserted only that the district court lacked subject matter jurisdiction over Scripps's suit and that the action should be transferred to the U.S. Court of Federal Claims. For the reasons set forth below, we conclude that the district court properly exercised subject matter jurisdiction over this suit, and thus we AFFIRM.

I. FACTUAL AND PROCEDURAL HISTORY

This case pertains to a federal income tax return filed by Scripps almost two decades ago. In 1986, Scripps calculated its federal-income-tax liability using a cash-basis accounting system. Two years later, in 1988, Scripps entered into an agreement with the IRS providing that Scripps would convert to an accrual accounting method and that it would recalculate its tax liability for tax years 1980 forward.

In 1990, Scripps decided to make a payment on its adjusted tax liability for tax years 1985 and 1986 so that interest would stop accruing on the outstanding liability, and so that Scripps could take a deduction on its 1990 tax return for the portion of the payment allocated to interest. In the fall of 1990, Scripps's Corporate Tax Director, Michael Carroll ("Carroll"), asked Sidney Saewitz ("Agent Saewitz"), an IRS agent assigned to audit Scripps, to calculate the amount of tax and interest Scripps owed for tax years 1985 and 1986. Agent Saewitz responded that the IRS would be unable to provide such information by the end of the 1990 tax year. Still wishing to make a tax payment in tax year 1990, Jerome Hackman ("Hackman"), a member of Scripps's corporate tax department, attempted to calculate the amount owed by Scripps for tax years 1985 and 1986, arriving at a figure of $9.7 million in additional tax and interest owed. Not wanting to remit a payment in excess of its actual liability, Scripps reduced its planned payment to $7 million. On December 31, 1990, Scripps delivered a $7 million check to the IRS care of Agent Saewitz. Scripps included with the check a cover letter addressed to Agent Saewitz stating that:

As we have discussed previously, The E.W. Scripps Company and subsidiaries desire to prepay and thereby stop the interest accumulation on the 1985-86 adjustments anticipated as a result of our previous settlement with the Internal Revenue Service, which changed our publishing affiliates' method of reporting from the cash method to the accrual method as of 1980.

Our check for $7,000,000 is being hand-delivered with this authorization letter by our Jerome P. Hackman to you today. . . .

Please have the duplicate copy of this letter date-stamped and given to Mr. Hackman as our evidence of the Internal Revenue Service's receipt of this payment.

Joint Appendix ("J.A.") at 309. The letter also explained that $3.5 million should be allocated to each tax year (i.e., $2 million to each tax year's adjusted tax liability and $1.5 million to interest accrued on each tax year's adjustment).

Agent Saewitz completed a Form 3244-A Payment Posting Voucher ("Voucher") in connection with the payment. In doing so, Agent Saewitz checked a box indicating that the payment was a "[c]ash bond." J.A. at 311 (Voucher). Hackman alerted Agent Saewitz to the fact that the cash bond box had been checked on the Voucher, despite Scripps's desire to have the $7 million treated as a payment of tax and interest. Agent Saewitz replied that he had been informed that the cash bond box had to be checked in order for the transaction to be processed, and he assured Hackman that the payment would be treated as a payment of tax and interest.

In 1995, the IRS determined that, even after recalculating Scripps's tax liability using an accrual accounting method, Scripps did not owe any additional tax for 1986 due to a large net operating loss. Scripps then sought return of the $3.5 million it had paid in 1990 that was attributable to the 1986 tax year, but the IRS informed Scripps that no refund could be made until the 1986 audit was closed because the $3.5 million was payment of tax, not a cash bond. Agent Saewitz, however, assured Carroll that the refund would include interest on the $3.5 million tax overpayment.

At some point between October 1995 and April 1996 (i.e., during the audit of tax year 1990), Agent Saewitz informed Scripps that the $7 million payment would be treated as a cash bond, that Scripps could not deduct the interest portion of the $7 million on its 1990 tax return, and that Scripps would not receive any interest on the overpayment. In September 1997, the IRS refunded to Scripps $3.5 million for its overpayment in tax year 1986. When the IRS closed its audit of the 1990 tax year in January 1998, the IRS permitted Scripps to deduct the $1.5 million interest portion of the $7 million payment on its 1990 return, despite its earlier indications that the interest deduction would be disallowed. Scripps then filed a claim with the IRS in September 1998 on the basis that it was entitled to interest on the $3.5 million paid to the IRS for tax year 1986 because it constituted an overpayment of tax.

The IRS denied the claim in November 2000, and Scripps filed suit in the U.S. District Court for the Southern District of Ohio in June 2001. The Government moved for dismissal of Scripps's action on the basis that 28 U.S.C. § 1346(a)(1) did not waive the Government's sovereign immunity with respect to taxpayer claims for interest on overpayments when the overpaid tax had already been refunded to the taxpayer via administrative (i.e., non-judicial) means. The district court denied the Government's motion to dismiss, concluding that statutory interest, "which represents the time value of the alleged erroneously collected funds, is an integral and inseparable part of the original overpayment," J.A. at 100 (D. Ct. Op. Denying Def.'s Mot. to Dismiss at 7), and thus falls within § 1346(a)(1)'s waiver of sovereign immunity for suits seeking recovery of an "internal-revenue tax alleged to have been erroneously or illegally assessed or collected." 28 U.S.C. § 1346(a)(1). The parties subsequently filed cross-motions for summary judgment, and the district court ruled that the $3.5 million should be characterized as an overpayment of tax for which Scripps was entitled to receive statutory interest, as opposed to a cash bond or deposit upon which the Government would not be required to pay interest. The district court entered judgment for Scripps in the amount of $2,782,936.28, the stipulated amount of statutory interest due. The Government now appeals the district court's entry of judgment in favor of Scripps, contending that the district court lacked subject matter jurisdiction over the action and that the action should be transferred to the U.S. Court of Federal Claims.

II. ANALYSIS

That district courts have subject matter jurisdiction over taxpayer suits for interest on tax overpayments at first blush appears so obvious that many courts have found no need to dwell on the question at any great length. See Doolin v. United States, 737 F.Supp. 732, 733-34 (N.D.N.Y.) ("Such consent [to suit by the federal government] is found, obviously, when Congress confers jurisdiction over a particular matter upon the district courts. In this regard, and without undue further elaboration, the court agrees . . . that a federal district court having subject matter jurisdiction over taxpayer refund suits by virtue of 28 U.S.C. § 1346(a)(1) also has subject matter jurisdiction over disputes, perhaps ancillary particularly where the underlying liability has been established and discharged, regarding the interest required by Congress to be paid on tax overpayments under 26 U.S.C. § 6611(a) and (b)(2)."), rev'd on other grounds, 918 F.2d 15 (2d Cir.1990); Phico Group, Inc. v. United States, 692 F.Supp. 437 (M.D.Pa.1988) (making no reference to subject matter jurisdiction); Gen. Motors Corp. v. United States, 389 F.Supp. 245, 246 (E.D.Mich.1975) (stating without further elaboration that "[t]his court has jurisdiction under 28 U.S.C. § 1346(a)"); Citadel Indus., Inc. v. United States, 314 F.Supp. 245 (S.D.N.Y.1970) (ruling on cross-motions for summary judgment without stating basis for exercising jurisdiction); Draper v. United States, 62-2 USTC P 9697, 10 A.F.T.R.2d 5446, 1962 U.S. Dist. LEXIS 4982, at *6, (E.D.Wash.1962) (summarily concluding that "[t]he Court has jurisdiction of this controversy and of the Plaintiffs hereto" based on 28 U.S.C. § 1346(a)(1)).

This ease in finding subject matter jurisdiction likely results from the fact that Congress has made quite clear that, as a general matter, taxpayers who are adjudged to have paid too much in taxes should be able to sue the federal Government and recover...