499 F.3d 1324 (Fed. Cir. 2007), 2007-5017, LaRosa's Intern. Fuel Co., Inc. v. United States

Docket Nº:2007-5017.
Citation:499 F.3d 1324
Party Name:LAROSA'S INTERNATIONAL FUEL CO., INC. and Joseph LaRosa, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.
Case Date:September 18, 2007
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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499 F.3d 1324 (Fed. Cir. 2007)

LAROSA'S INTERNATIONAL FUEL CO., INC. and Joseph LaRosa, Plaintiffs-Appellants,

v.

UNITED STATES, Defendant-Appellee.

No. 2007-5017.

United States Court of Appeals, Federal Circuit.

Sept. 18, 2007

Appeal from: United States Court of Federal Claims Judge Thomas C. Wheeler.

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Thomas F. DeCaro, Jr., DeCaro & Howell, P.C., of Upper Marlboro, MD, argued for plaintiffs-appellants.

Ellen Page DelSole, Attorney, Tax Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief was Eileen J. O'Connor, Assistant Attorney General.

Before RADER, SCHALL, and LINN, Circuit Judges.

SCHALL, Circuit Judge.

LaRosa's International Fuel Co., Inc., ("LaRosa Fuel") and Joseph LaRosa (together, "taxpayers") appeal the final judgment of the United States Court of Federal Claims dismissing their consolidated tax refund suits. LaRosa's Int'l Fuel Co. v. United States, Nos. 97-834T, 97-835T (Oct. 30, 2006). In their suits, taxpayers sought to recover interest they paid on unpaid taxes for the period while funds belonging to them were subject to Internal Revenue Service ("IRS") levies and were held in an escrow account established by taxpayers and the IRS. On April 3, 2003, the court granted summary judgment in favor of the United States on taxpayers' refund claims. LaRosa's Int'l Fuel Co. v. United States, 56 Fed. Cl. 102, 104 (Apr. 3, 2003) (LaRosa I). The court did so after holding that taxpayers were not entitled to recover the interest they had paid because the levies and the placement of their funds in escrow did not constitute the payment of their unpaid taxes, so as to stop the accrual of underpayment interest under section 6601(a) of the Internal Revenue Code ("I.R.C." or "Code"), 26 U.S.C. Subsequently, on October 27, 2006, the court granted summary judgment in favor of taxpayers on the government's counterclaim for additional interest on unpaid taxes. LaRosa's Int'l Fuel Co. v. United States, 73 Fed. Cl. 625, 626-27 (Oct. 27, 2006) (LaRosa II). Shortly thereafter, the

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court entered final judgment dismissing taxpayers' complaints. Because we find no error in the decision of the Court of Federal Claims in LaRosa I, we affirm.1

BACKGROUND

I.

LaRosa Fuel is a Maryland corporation that supplies coal to utility companies. Joseph LaRosa is a shareholder of the corporation; his brother, Dominick LaRosa, is the president. On December 3, 1985, the IRS made jeopardy assessments against taxpayers and Dominick LaRosa, totaling $21,208,383 in taxes, penalties, and interest for the tax years 1981 through 1983. Of that amount, almost $12 million was assessed against LaRosa Fuel, almost $800,000 was assessed against Joseph LaRosa, LaRosa I, 56 Fed.Cl. at 103, and almost $8.5 million was assessed against Dominick LaRosa. From December 3, 1985 to December 11, 1985, pursuant to I.R.C. § 6331, the IRS served levy notices on financial institutions holding liquid assets and other property of taxpayers and Dominick LaRosa.

In December of 1985, $169,955 was remitted to the IRS, which was applied to the assessment against Joseph LaRosa. In December of 1985 and January of 1986, a further $114,098 was remitted to the IRS, which was applied to the assessment against LaRosa Fuel. On January 16, 1986, taxpayers and Dominick LaRosa entered into an escrow agreement with the IRS. Pursuant to the agreement, the liquid assets of taxpayers and Dominick LaRosa were placed in an escrow account pending final resolution of their tax liabilities. LaRosa I, 56 Fed. Cl. at 103.

Following the execution of the escrow agreement, the IRS issued notices of deficiencies to taxpayers and Dominick LaRosa, reflecting the tax liabilities that were the subject of the jeopardy assessments. In response, taxpayers and Dominick LaRosa filed petitions in the United States Tax Court contesting the deficiency determinations. LaRosa's Int'l Fuel Co. v. Comm'r, No. 6173-86 (T.C.); LaRosa v. Comm'r, No. 6172-86 (T.C.). Subsequently, in March of 1991, taxpayers and Dominick LaRosa resolved the Tax Court litigation by settling their tax liabilities--including taxes, penalties, and underpayment interest--in three stipulated decisions. Pertinent to this case, the stipulated decision in LaRosa Fuel's case determined that it was liable for deficiencies and additions to taxes totaling $316,324, while the stipulated decision in Joseph LaRosa's case determined that he was liable for deficiencies and additions to taxes totaling $2,331,566. Taxpayers and Dominick LaRosa paid the stipulated amounts out of funds separate from those in the escrow account. The three stipulations expressly reserved for taxpayers and Dominick LaRosa the right "to pursue an action in the appropriate federal court with respect to the interest claimed to be due by the IRS on the respective deficiencies." LaRosa II, 73 Fed.Cl. at 626. Shortly thereafter, the levies and escrowed funds were released.

II.

In April of 1993, exercising their reserved rights, taxpayers and Dominick LaRosa filed claims with the IRS for the refund of interest. Id. at 627. In their claims, they asserted that they had made excessive interest payments on their former tax liabilities because the IRS had assessed interest after the levies and while their assets remained in escrow. LaRosa I, 56 Fed. Cl. at 103.

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After the IRS denied the claims, taxpayers filed suit in the Court of Federal Claims seeking a refund of interest payments. 2 In their suits, they argued that from December of 1985 (when the IRS made jeopardy assessments and serviced levy notices), the IRS had actual or constructive possession of their assets. Id. In view of that possession, taxpayers contended, the IRS should have credited the full value of the assets against their tax assessments, which would have stopped the accrual of underpayment interest against them under I.R.C. § 6601(a) . Id. Therefore, taxpayers sought a refund of the underpayment interest the government had charged them and which they had paid as part of the stipulated Tax Court settlement. Id. at 103-04.

In due course, after stipulating to the pertinent facts, the parties cross-moved for summary judgment on the issue of underpayment interest. Id. at 104. In their motion, taxpayers urged that the seizure of their assets by levy and the subsequent placement of their...

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