Alexander Proudfoot Company v. United States

• Decision Date: 18 February 1972
• Docket Number: No. 268-70.,268-70.
• Citation: 454 F.2d 1379
• Parties: ALEXANDER PROUDFOOT COMPANY, a corporation v. The UNITED STATES.
• Court: U.S. Claims Court

454 F.2d 1379 (1972)

ALEXANDER PROUDFOOT COMPANY, a corporation v. The UNITED STATES.

No. 268-70.

United States Court of Claims.

February 18, 1972.

John B. Jones, Jr., Washington, D. C., attorney of record, for plaintiff. Covington & Burling, Richard A. Brady and John D. Hushon, Washington, D. C., of counsel.

Frances M. Foltz, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Philip R. Miller, and Joseph Kovner, Washington, D. C., of counsel.

Before COWEN, Chief Judge, LARAMORE and DURFEE, Senior Judges, and DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

On Plaintiff's Motion And Defendant's Cross-Motion for Summary Judgment.

DAVIS, Judge.

Standing squarely on Motor Fuel Carriers, Inc. v. United States, 420 F.2d 702, 190 Ct.Cl. 385 (1970), plaintiff Alexander Proudfoot Company sues for refund of the pre-notice interest it paid on deficiencies in accumulated earnings tax for each of the eight years 1960 through 1967. With respect to the first six years (1960-1965), the Government's threshold defense is that no timely claims for refund were filed and therefore this refund suit is wholly precluded, whatever its merits might otherwise be. For 1966 and 1967, on the other hand, it is admitted that informal but adequate refund claims were presented, and the only defense is that we should overrule Motor Fuel Carriers. It is unnecessary to detail the facts and figures which are set forth in the cross-motions for summary judgment. The Government agrees that for each year taxpayer paid, very shortly after notice and demand, the amounts of accumulated earnings tax set out in the respective deficiency notices, together with interest from the return due date for the particular year. On its side, the taxpayer admits that, prior to beginning this action, it filed no refund claims (relating to the six years 1960-1965) for the interest for which it now sues.¹ These simple facts are enough for our decision.

I

The initial question, for 1960-1965, is whether taxpayer's right to bring this refund suit is controlled by the special sections of the Internal Revenue Code on tax refund claims and actions, or whether it is governed by the general provisions regulating the institution of suits against the Government in this court (including the over-all six-year statute of limitations, 28 U.S.C. § 2501). If the former apply, plaintiff's suit is concededly barred since it is common ground that, if the special tax requirements are applicable, they dominate and exclude the general pre-conditions for suit against the United States. See United States v. A. S. Kreider Co., 313 U.S. 443, 61 S.Ct. 1007, 85 L.Ed. 1447 (1941).

Defendant's chief argument for use of the Revenue Code's special mechanism proceeds through a step-by-step invocation of related sections of the Code dealing with refund claims and litigation. Section 7422(a), 26 U.S.C. § 7422(a), forbids, in all-inclusive words, any suit "for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected," until a proper refund or credit claim has been filed.² Section 6511, in turn, first requires that claims "for credit or refund of an overpayment of any tax imposed by this title the Internal Revenue Code, in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid"³; and, second, bars any credit or refund unless such a claim is timely presented.

Next, the Government asserts that plaintiff's suit for refund of the pre-notice interest collected fails under both of these mandatory prerequisites. An administrative refund claim was required, it is said, because the Revenue Code compels this interest to be treated under § 6511, supra, as part of a "tax imposed by this title." (the Revenue Code). The interest was assessed and collected by the Service under Section 6601(a):

If any amount of tax imposed by this title (whether required to be shown on a return, or to be paid by stamp or by some other method) is not paid on or before the last date prescribed for payment, interest on such amount at the rate of 6 percent per annum shall be paid for the period from such last date to the date paid.

Reading on this provision, subsection (f) (1) of § 6601 then declares that "interest prescribed under this section § 6601 on any tax * * * shall be assessed, collected, and paid in the same manner as taxes," and also that "any reference in this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax." The defendant's argument is that, according to these provisions, the pre-notice interest assessed on and collected from taxpayer (together with the principal of the accumulated earnings tax) is so-called "deficiency" interest— interest on the amount of tax which is said to be unpaid—which is dealt with by the Code as a constituent part of the tax itself.⁴ The conclusion, on this view, is that a refund claim must be timely filed for such interest if it has been paid, and that without that claim a refund suit does not lie, just as in the case of an action for return of the principal (United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 272, 51 S.Ct. 376, 75 L.Ed. 1025 (1931)) or a penalty (Ertle v. United States, 93 F.Supp. 619, 118 Ct.Cl. 57 (1950)).

If one accepts its premises, this chain-of-reasoning cannot be faulted, but plaintiff's response is to reject the basic proposition that § 6511 applies here, and to affirm that the only governing limitations period is the six years prescribed by 28 U.S.C. §§ 2401 and 2501.⁵ Admittedly, the special prerequisites established by the Revenue Code control recovery of the interest sued for only insofar as that interest is placed by the Code under § 6511 (therefore falling automatically under § 7422(a)⁶). Taxpayer's point is that § 6511 does not in terms speak of interest but only of an "overpayment of any tax" and that the alleged deficiency interest claimed in this case does not come under § 6601, on which the Government relies to insert the interest into § 6511. The reason given is that § 6601(f) (1), supra, which equates interest to a "tax imposed by this title", refers only "to interest imposed by this section § 6601 on such principal tax", and Motor Fuel Carriers, Inc. has now held that the pre-notice interest sued for was not lawfully imposed under any part of § 6601. In the same vein, plaintiff indicates that § 6601(f) (1) also provides that "interest prescribed under this section § 6601 on any tax * * * shall be assessed, collected, and paid in the same manner as taxes" (emphasis added). The contention is that this critical statutory language in § 6601(f) (1)—"interest imposed by this section on such tax" and "interest prescribed under this section on any tax"—necessarily confine the subsection to interest rightly or properly or lawfully imposed by the Revenue Service under § 6601, leaving uncovered all interest imposed in fact, but erroneously, by the Service under the section.⁷ It follows, according to this argument, that plaintiff's suit, falling wholly outside the special framework for tax refund litigation, is a simple action against the United States for debt or non-tortious liquidated damages, money owed to the company by the United States, falling under the general provisions of the Tucker Act, 28 U.S.C. § 1491,⁸ and as such meeting the ordinary requirement of 28 U.S.C. §§ 2401 and 2501, supra, note 5, that it be brought within six years.

We think that taxpayer's reading of § 6601(f) (1), though textually possible, is the less acceptable construction because it runs against the grain of the statutory pattern for recovery of deficiency interest assessed and collected on a principal amount of tax thought by the Service to be owing. The Code's design for such interest is to assimilate it to the tax itself, so that the taxpayer who pays both (as he ordinarily would under Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960)) can and should proceed to seek to recover both together through one proceeding. For a long time, deficiency interest has been so closely braided to principal that it has been deemed an integral part of the tax. That is plainly a major purpose of § 6601(f) (1), supra, which follows many predecessors with the same aim. The hair is to go with the hide.

On this basis, plaintiff correctly admits that, if a taxpayer after assessment and payment of a deficiency on income tax (plus deficiency interest), sues for refund of the tax (including the interest), the interest demand would be as much governed by § 6511 as the claim for the tax itself, and could not be separated out from the requirement of a proper and timely administrative claim.⁹ But if such a claimant is correct as to the principal of his tax, the deficiency interest he paid would not have been lawfully or rightly or properly imposed under § 6601, and § 6601(f) (1) could only apply in that situation (as plaintiff concedes it must) by interpreting "interest imposed by this section on such tax" and "interest prescribed under this section on any tax" as meaning deficiency interest in fact imposed on the tax by the Internal Revenue Service under § 6601, though erroneously so.

We see no adequate reason why that reading should be adopted for § 6601(f) (1) where the taxpayer challenges the underlying tax (and the validity of the deficiency interest depends entirely on the lawfulness of that tax), but not where, as here, the claimant...