Allstate Ins. Co. v. United States, 380-73.

• Decision Date: 23 February 1977
• Docket Number: No. 380-73.,380-73.
• Citation: 550 F.2d 629
• Parties: ALLSTATE INSURANCE COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

550 F.2d 629

ALLSTATE INSURANCE COMPANY v. The UNITED STATES.

No. 380-73.

United States Court of Claims.

February 23, 1977.

William A. Cromartie, Chicago, Ill., attorney of record for plaintiff. Patrick A. Heffernan and Glen H. Kanwit, Chicago, Ill., of counsel.

Charles E. Auslander, Jr., Washington, D.C., attorney of record for defendant, with whom was Acting Asst. Atty. Gen. Myron C. Baum, Donald H. Olson and Robert Watkins, Washington, D.C., of counsel.

Before SKELTON, KUNZIG and BENNETT, Judges.

KUNZIG, Judge.

The plaintiff, Allstate Insurance Company (Allstate), seeks to recover overpayments of Federal income taxes and interest for the taxable year ending December 31, 1969. The parties have stipulated that as a substantive matter, Allstate is entitled to all but $2,810.71 of the claimed refunds. However, defendant relies on Section 6511(b)(2) of the Internal Revenue Code of 1954 in contending that $127,907.18 of the refund is technically barred by the statute of limitations.¹ For the reasons hereafter described, we hold the plaintiff not barred as to any part of the contested amount. Plaintiff's motion for summary judgment is granted, and defendant's motion for partial summary judgment is denied.

Allstate's 1969 tax saga began on September 15, 1970 when, pursuant to an extension, it filed its 1969 corporate income tax return showing a total tax due of $10,538,901.34. Having previously paid the Internal Revenue Service (IRS) $10,902,000.00, Allstate claimed a $363,098.66 refund, which it subsequently received.

In March 1973, the IRS asserted against Allstate a deficiency for 1969 of $1,579,444.64 ($1,321,712.33 plus interest of $257,732.31). The alleged deficiency was paid by Allstate on July 30, 1973. Allstate filed a claim for refund ("first claim") on September 7, 1973, for the amount of $1,594,422.22. This claim included amounts alleged due from not only the payment of the deficiency, but for other amounts arising from issues other than those raised in the deficiency. The first claim was filed within three years of Allstate's 1969 filing (September 15, 1970). Within a week, on September 13, 1973, the IRS disallowed Allstate's first claim in full.

On October 10, 1973, Allstate commenced this Court of Claims action by filing a petition based entirely on the first claim.

Eight and one-half months later, on June 21, 1974, Allstate filed an additional refund claim with the IRS ("second claim"). The second claim asserted a new ground for recovery (additional investment credit unclaimed on its 1969 return of $112,929.60). Importantly for this case, Allstate also repeated, in their entirety, the grounds constituting the first claim which, of course, was already before this court. The second claim aggregated $1,707,351.82 ($1,594,422.22 plus $112,929.60 from the new ground in the second claim). As will also become important for this case, the second claim was filed more than three years after Allstate's 1969 tax return was filed, but within two years of its July 30, 1973 payment of the deficiency to IRS.

On June 28, 1974, the IRS disallowed Allstate's second claim. Allstate responded by amending its petition in this court to incorporate the new portion of the second claim, bringing its total prayer for judgment to $1,707,351.82.

Defendant has conceded that except for the sum of $2,810.71,² Allstate is substantively entitled to a refund of the amounts sought in both the first and second claims. However, defendant asserts that Allstate's second claim was not filed within three years of plaintiff's filing of its 1969 tax return and that during the two years preceding the filing of the second claim, Allstate paid only $1,579,444.64 in income taxes. Citing Section 6511(b)(2)(B) of the Internal Revenue Code, defendant argues that Allstate's total recovery is limited by the $1,579,444.64 ceiling. The relevant portion of Internal Revenue Code § 6511 for purposes of this case is hereafter set forth. It is important to note that subsection (a) prescribes time limitations for filing refund claims whereas subsection (b)(2) prescribes amount limitations.

§ 6511. Limitations on credit or refund

(a) Period of limitation on filing claim. — Claim for credit or refund of an overpayment of any tax imposed by this title 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. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid.

(b) Limitation on allowance of credits and refunds. —

(1) Filing of claim within prescribed period. — No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period.

(2) Limit on amount of credit or refund. —

(A) Limit where claim filed within 3-year period. — If the claim was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. If the tax was required to be paid by means of a stamp, the amount of the credit or refund shall not exceed the portion of the tax paid within the 3 years immediately preceding the filing of the claim.

(B) Limit where claim not filed within 3-year period. — If the claim was not filed within such 3-year period, the amount of the credit or refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim.

The major focal point of this dispute then is the characterization of the second claim. The Government desires us to view the second claim for statute of limitations purposes as one total claim of $1,707,351.82 without regard to the existence of a separate first claim. If we do so, the Government envisions the following results: The second claim having been filed outside of three years from the initial filing of the return, § 6511(b)(2)(B) would apply and would limit the recovery of Allstate to the amount of 1969 taxes actually paid within two years of the filing of the second claim. Had no 1969 taxes been paid during this two-year period, no recovery would be allowed. Since $1,579,444.64 in 1969 taxes was paid within the two-year period, that amount and no greater sum is recoverable. Since Allstate's second claim aggregated $1,707,351.82, $127,907.18 is time-barred.

Allstate, on the other hand, characterizes the second claim as constituting two separate claims — the first claim repeated, and the additional element of the second claim. Each of the two portions the second claim, says Allstate, has its own statute of limitations. The repeated first claim portion of the second claim comes within the three-year rule of § 6511(a) having been filed within three years from the filing of the original return. The additional element of the second claim, since filed outside the three-year limit of § 6511(a), is bound by the two-year limit expressed in the second half of § 6511(a). The upshot of Allstate's characterization is that none of the portion of the second claim representing the repeated first claim is time-barred, and therefore when considered within the rules of § 6511(b)(2)(A), no amount is "amount barred." Further, the additional element of the second claim amounts to $112,929.60,³ a sum far beneath the $1,579,444.64 ceiling (the amount of tax actually paid by Allstate in the two years preceding the second claim as per § 6511(b)(2)(B)) and is, therefore, entirely recoverable. I.e., the $112,929.60 is neither "time barred" nor "amount barred."

The opposing characterizations of the nature of the second claim can perhaps best be shown by diagram.

Area within box = events within three-year statute of limitations of § 6511(a).

A — First claim relates back to date of tax return filing (imputed to March 15, 1970 pursuant to extension granted by IRS).

B — Second claim relates back to payments made not more than two years prior to second claim.

C — First claim relates back to date of payment of assessed deficiency.

D — Second claim must relate back to date of original tax payment because deficiency assessment exhausted by first claim.

Beyond the Government's urging that we characterize Allstate's second claim as one claim for statute of limitations purposes, it argues additionally that the non-repetitive portion of the second claim is time-barred — that it is an amount which should have been claimed within three years of the filing of the original return. The Government contends that since this non-repetitive issue of the second claim was not an issue raised by the IRS on audit or a subject of the alleged deficiency imposed in March 1973, it cannot be raised once three years from the filing of the original tax return has passed. Essentially, the argument is that Allstate may not raise an issue in a refund claim that was not raised by the IRS in a deficiency assessment if the refund claim is filed more than three years from the filing of the original return.

Plaintiff, of course, argues the opposite position. The question of whether the non-repetitive portion of the claim is time-barred involves us in an analysis of § 6511(a). If it is in fact time-barred, we need not concern ourselves with the limitations on the amount of recovery depicted in § 6511(b)(2), as § 6511(b)(1) clearly states that no refund recovery is allowable after the expiration of the time allowed in § 6511(a...