941 F.2d 1060 (10th Cir. 1991), 90-6200, Selman v. United States

Docket Nº:90-6200.
Citation:941 F.2d 1060
Party Name:Robert E. SELMAN and Pauline Selman, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
Case Date:August 05, 1991
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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941 F.2d 1060 (10th Cir. 1991)

Robert E. SELMAN and Pauline Selman, Plaintiffs-Appellants,


UNITED STATES of America, Defendant-Appellee.

No. 90-6200.

United States Court of Appeals, Tenth Circuit

August 5, 1991

Timothy M. Larason (John F. Fischer, II with him on the brief), Andrews, Davis, Legg, Bixler, Milsten & Murrah, Oklahoma City, Okl., for plaintiffs-appellants.

Francis M. Allegra, Counselor to the Asst. Atty. Gen., Washington, D.C. (Shirley D. Peterson, Gary R. Allen, Richard Farber, David A. Hubbert, U.S. Dept. of Justice, Tax Div., Washington, D.C. and Timothy D. Leonard, U.S. Atty., Oklahoma City, Okl., on the brief) for defendant-appellee.

Before LOGAN, Circuit Judge, BRIGHT, Senior Circuit Judge [*], and BALDOCK, Circuit Judge.

BRIGHT, Senior Circuit Judge.

Robert E. Selman and Pauline Selman (taxpayers) appeal the dismissal of their suit for a refund of interest from the Internal Revenue Service (IRS). The district court ruled that it lacked subject matter jurisdiction and that, even if it had jurisdiction, the abatement of interest was committed solely to the discretion of the IRS and not subject to judicial review. Taxpayers dispute both rulings. We affirm on the ground that the IRS's refusal to abate interest is not subject to judicial review.


In 1984, the IRS began an audit of taxpayers' 1981 and 1982 tax returns. The IRS concluded the audit in 1985 and assessed substantial tax deficiencies. Taxpayers responded by filing a protest to the proposed adjustments with the IRS.

Taxpayers and the IRS reached a tentative settlement agreement on May 19, 1987. The Associate Chief of Appeals accepted the agreement on behalf of the Commissioner of the IRS on August 27, 1987. Pursuant to the settlement, the IRS assessed a deficiency in income tax against the taxpayers for both tax years. The IRS also assessed interest charges for the period of the deficiency pursuant to § 6601 of the Internal Revenue Code.

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On October 20, 1987, before paying the assessed interest for either year, taxpayers filed a request with the IRS to abate a portion of the assessed interest pursuant to 26 U.S.C. (I.R.C.) § 6404(e)(1) (1988), 1 arguing that the IRS caused the accumulation of at least a portion of the interest due to its own errors or delays. The IRS refused to abate any interest. Over the next two years, taxpayers paid both the assessed income tax and the interest.

On July 25, 1989, taxpayers filed a claim with the IRS for a refund of a portion of the interest paid for the 1981 tax deficiency, again relying upon I.R.C. § 6404(e)(1). Taxpayers filed a similar refund claim for their 1982 interest charges on September 25, 1989.

After the IRS denied their claims, taxpayers commenced this suit in district court on December 29, 1989, seeking a refund of the interest they maintained should have been abated by the IRS. Taxpayers premised subject matter jurisdiction upon 28 U.S.C. § 1346(a)(1) (1988). 2

The IRS moved to dismiss the complaint on the grounds that the court lacked subject matter jurisdiction and that the issue was not reviewable. The district court granted the motion. Selman v. United States, 733 F.Supp. 1444 (W.D.Okla.1990). The district court agreed with the IRS that taxpayers' cause of action did not fall within its subject matter jurisdiction to review tax cases. Alternatively, the district court ruled that even if it had subject matter jurisdiction, the decision to abate interest was committed to agency discretion and therefore not subject to judicial review.

Taxpayers appeal. We conclude that the district court had jurisdiction to entertain this suit, but nonetheless affirm on the basis of the district court's alternate holding.


A. Subject Matter Jurisdiction

Taxpayers premised subject matter jurisdiction of the district court upon 28 U.S.C. § 1346(a)(1) (1988). 3 According to the taxpayers, section 1346(a)(1) grants subject matter jurisdiction to the district court to consider a claim for refund of interest paid on federal income taxes when the IRS charged excessive interest due to its abuse of discretion in refusing to abate interest under I.R.C. § 6404(e)(1).

The district court ruled that it lacked subject matter jurisdiction, noting that taxpayers did not argue that the IRS had illegally or erroneously collected the underlying tax, but rather that the IRS had abused its discretion in refusing to abate a portion of the assessed interest. 733 F.Supp. at 1445. The district court described taxpayers' argument as an attempt to equate abuse of discretion with illegal or erroneous actions and thus avoid the clear meaning of section 1346(a)(1). Id.

The district court's analysis appears to overlook the statute's grant of jurisdiction over cases involving "any sum alleged to

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have been excessive ... under the internal-revenue laws." 28 U.S.C. § 1346(a)(1). In Flora v. United States, 362 U.S. 145, 149, 80 S.Ct. 630, 632, 4 L.Ed.2d 623 (1959), the Supreme Court recognized that section 1346(a)(1) should be read in the disjunctive:

But we believe that the statute more readily lends itself to the disjunctive reading which is suggested by the connective "or." That is, "any sum," instead of being related to "any internal-revenue tax" and "any penalty," may refer to amounts which are neither taxes nor penalties. Under this interpretation, the function of the phrase is to permit suit for recovery of items which might not be designated as either "taxes" or "penalties" by Congress or the courts. One obvious example of such a "sum" is interest.

Id. Thus, a complaint failing to allege that the IRS erroneously or illegally assessed or collected a tax does not automatically fall outside of the district court's jurisdiction. The district court also has jurisdiction over claims based upon allegedly excessive sums. Consequently, the district court's determination that abuse of discretion does not amount to an illegal or erroneous act, 4 733 F.Supp. at 1445, did not resolve the inquiry.

After reviewing section 1346(a)(1) in its entirety, we conclude that taxpayers' cause of action, alleging that they paid excessive interest charges because the IRS abused its discretion in refusing to abate interest pursuant to I.R.C. § 6404(e)(1), falls within the district court's jurisdiction to decide cases regarding "any sum alleged to have been excessive ... under the internal-revenue laws," 28 U.S.C. § 1346(a)(1), and therefore the district court had subject matter jurisdiction. 5

B. Judicial Review of Determinations under Section 6404(e)(1)

Taxpayers rely on the Administrative Procedure Act (APA), 5 U.S.C. §§ 501-706 (1988) (amended 1990), to establish judicial review of the IRS's refusal to abate interest. They argue that the APA's judicial review chapter, 5 U.S.C. §§ 701-706, directs a court to review agency action under the circumstances of this case. 6 However, taxpayers overlook a preliminary step: whether the APA applies at all. See 5 U.S.C. § 701(a). "[B]efore any review at all may be had, a party must first clear the hurdle of § 701(a) [of the APA]." Heckler v. Chaney, 470 U.S. 821, 828, 105 S.Ct. 1649, 1654, 84 L.Ed.2d 714 (1985).

Section 701(a) limits application of the entire APA as follows:

This chapter applies, according to the provisions thereof, except to the extent that--

(1) statutes preclude judicial review; or

(2) agency action is committed to agency discretion by law.

5 U.S.C. § 701(a). Therefore, before a court engages in review under the other sections, it must determine whether a statute

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precludes review or the matter is committed to agency discretion. The Supreme Court has explained the distinction between §§ 701(a)(1) and (a)(2): subsection (a)(1) concerns expressed Congressional intent to prohibit judicial review; subsection (a)(2) applies where the statute provides no law to apply. Webster v. Doe, 486 U.S. 592, 599, 108 S.Ct. 2047, 2051-52, 100 L.Ed.2d 632 (1987).

We begin our analysis of this issue by examining the language of section 6404(e)(1). 7 The statutory language does not expressly preclude judicial review. Furthermore, the parties have not directed us to, nor have we found, any other statutes precluding review of this issue. Thus, the first exception does not apply and we will focus on the second exception to judicial review contained in section 701(a)(2)--whether the action is "committed to agency discretion by law."

Generally, this exception is triggered "in those rare instances where 'statutes are drawn in such broad terms that in a given case there is no law to apply.' " Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410, 91 S.Ct. 814, 821, 28 L.Ed.2d 136 (1971) (quoting S.Rep. No. 752, 79th Cong., 1st Sess. 26 (1945)). The Supreme Court has elaborated on this exception as follows:

[E]ven where Congress has not affirmatively...

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