Begner v. U.S.

• Decision Date: 12 August 2005
• Docket Number: No. 04-12976.,04-12976.
• Citation: 428 F.3d 998
• Parties: Alan I. BEGNER, Cory Begner, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 998

428 F.3d 998

Alan I. BEGNER, Cory Begner, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 04-12976.

United States Court of Appeals, Eleventh Circuit.

August 12, 2005.

As Corrected September 2, 2005.

Vivian D. Hoard, Marietta, GA, for the Begners.

Charles Bricken, Deborah K. Snyder, U.S. Dept. of Justice, App. Tax Div., Washington, DC, Amy Levin Weil, U.S. Atty., Mary Christine Roemer, Atlanta, GA, for U.S.

Appeal from the United States District Court for the Northern District of Georgia.

Before EDMONDSON, Chief Judge, and TJOFLAT and KRAVITCH, Circuit Judges.

TJOFLAT, Circuit Judge:

This case is about two taxpayers' Offer in Compromise (OIC), which is a contract between a taxpayer and the Internal Revenue Service in which the IRS agrees to accept an amount different from what the taxpayer owes in taxes. Specifically, the case is about whether the OIC permits the taxpayers to deduct amounts that they paid under a separate agreement that they had with the IRS. The taxpayers deducted the amount. The IRS objected, on the grounds that the deduction violated the terms of the OIC. The district court agreed with the IRS and granted the IRS's motion for summary judgment. We also agree with the IRS, and thus affirm.

To explain our reasoning, we divide this opinion in three parts. In Part I, we detail the facts. In part II, we apply the law — both jurisdictional and contract law — to these facts. In part III, we briefly conclude.

I.

The taxpayers are Alan Begner and his wife, Cory Begner. They owed three types of back taxes: (1) employment taxes from 1984-1990; (2) unemployment taxes from 1983-1991; and (3) income taxes from 1984-1987.

The Begners could not pay these back taxes and did not want to file for bankruptcy, so they each sought an OIC by submitting Form 656 to the IRS under 26 U.S.C. § 7122.¹ Alan sought a release from liability by offering to pay $100,000; Cory, $30,000. Item 2 on Form 656 was for the Begners' social security numbers. Item 5 was for the amounts the Begners offered to pay. A prior version of Form 656, however, required the Begners to list the amounts that they were offering to pay in item 2. This lurking discrepancy — one version of Form 656 requiring social security numbers in item 2, another requiring the amount offered — created the dispute between the Begners and the IRS.

To release the Begners from their tax liability, the IRS wanted more than just the OIC: as a form of additional consideration, the IRS required the Begners to sign a Collateral Agreements.² The Agreement required that in addition to the $100,000 and $30,000, the Begners would "pay out of annual income for the years 1997 to 2001" in the following amounts:

(a) Nothing on the first $144,000.00 of annual income[;]

(b) 30% of annual income more than $144,000.00 and not more than $154,000.00[;]

(c) 50% of annual income more than $154,001.00 and not more than $164,000.00[; and]

(d) 70% of annual income more than $164,001.00[.]

The Begners agreed. The lurking discrepancy in the Begners' OIC resulted from the Collateral Agreement's definition of "annual income":

[T]he term annual income . . . means adjusted gross income as defined in section 62 of the Internal Revenue Code (except losses from sales or exchanges of property shall not be allowed), plus all nontaxable income and profits or gains from any source whatsoever (including the fair market value of gifts, bequests, devises and inheritances), minus (a) the Federal income tax paid for the year for which annual income is being computed, and (b) any payment made under the terms of the offer in compromise (Form 656), as shown in item 2, for the year in which such payment is made.

(Emphasis added). To put it simply, the Collateral Agreement referred to "any payment made under" the OIC "as shown in item 2," but the Begners' item 2 was their social security numbers. This was a mistake, but one that no one noticed at the time the Begners signed the Collateral Agreement.

For the next few years, the Begners paid amounts that they thought were required by their Collateral Agreement. The district court described these years:

In tax year 1997, plaintiffs reported on their income tax return an adjusted gross income (AGI) of $225,764.00, and paid income tax of $56,628.00. Under the collateral agreement, plaintiffs reported their "annual income" as $169,136.00 (adjusted gross income minus income tax paid). This calculation resulted in a collateral agreement payment of $11,595.00.

For tax year 1998, plaintiffs reported on their income tax return an AGI of $278,622.00, and paid income tax of $70,534.00. Under the collateral agreement, plaintiffs reported their "annual income" as $196,493.00. Plaintiffs reached this amount by deducting from their AGI income tax paid ($70,534.00) and the collateral agreement payment made the previous year ($11,595.00). This calculation led to a collateral agreement payment of $30,745.00.

For tax year 1999, plaintiff computed their "annual income" in a similar fashion. On their income tax return, plaintiffs reported an AGI of $272,629.00, and paid tax of $63,158.00. Plaintiffs calculated their "annual income" of $178,726.00 by subtracting from their AGI both the amount of income tax paid ($63,158.00) and the collateral agreement payment from the previous year ($30,745.00), resulting in a collateral agreement payment of $18,309.00.

Begner v. United States, No. Civ.A.1:02CV1702GET, 2004 WL 1386333, at *3 (N.D. Ga. Apr. 15, 2004). During these years, neither the Begners nor the IRS noticed the still-lurking discrepancy. The Begners also did not seem to notice Form 3439, which they signed for the years 1997-1999. Form 3439 explicitly stated that Collateral Agreement payments cannot be deducted.

After Cory sent the IRS a letter requesting hardship relief for an illness from which she suffered, the IRS discovered the discrepancy concerning item 2. In a letter to the Begners, the IRS wrote, "you cannot deduct payments made, in prior years, according to the Future Income Collateral Agreement, against Adjusted Gross Income." The IRS recomputed the Begners' liability to determine that they should have paid an additional $31,884.84. The IRS then wrote that the Begners were in default, and thus needed to pay the $31,844.84 if they wanted "to keep [their] Offers in force." The Begners acquiesced, paying the IRS $31,844.84.

The Begners then filed an action to recover the $31,844.84 (plus interest) under 28 U.S.C. §§ 1340 and 1346.³ The Begners and the IRS filed cross-motions for summary judgment. The district court rejected the IRS's argument that the court did not have jurisdiction. But it then granted the IRS's motion for summary judgment, holding that the Begners "incorrectly deducted their past collateral agreement payments from their AGI when computing their `annual income' under the term of their compromise with the IRS." Begner, 2004 WL 1386333 at *5. The Begners appealed.

II.

"[W]e review a district court's grant of a motion of summary judgment de novo." Cuvillier v. Rockdale County, 390 F.3d 1336, 1338 (11th Cir. 2004). All issues of material fact are resolved in favor of the non-moving party. Id.

There are two issues on appeal: (1) whether the district court had jurisdiction to hear the case, and (2) whether the terms of the Begners' OIC and Collateral Agreement permit them to deduct their previous year's Collateral Agreement payments. Like the district court, we answer the first question in the affirmative and the second question in the negative.

A.

There are two statutory players in determining jurisdiction in the instant case: the Tucker Act, 28 U.S.C. § 1491(a)(1) and the tax-refund statute, 28 U.S.C. § 1346(a)(1).

The IRS bases its argument on the Tucker Act, which provides that "[t]he United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded . . . upon any express or implied contract with the United States." 28 U.S.C. § 1491(a)(1). Under the Tucker Act, the Court of Federal Claims has exclusive jurisdiction for contracts in excess of $10,000. Friedman v. United States, 391 F.3d 1313, 1315 (11th Cir. 2004) (citing Mark Dunning Indus., Inc. v. Cheney, 934 F.2d 266, 269 (11th Cir. 1991)).⁴ The IRS argues that, under the Tucker Act, "the District Court lacked jurisdiction because this case involves a claim for more than $10,000 that is founded on a contract with the United States and therefore is within the exclusive jurisdiction of the Court of Federal Claims." The IRS requests that we remand this case to the district court for transfer under 28 U.S.C. § 1631 to the Court of Federal Claims.

Unlike the IRS's focus on the Tucker Act, the Begners focus on section 1346(a)(1), the tax-refund statute. The Begners rely on section 1346(a)(1) because without it, the United States, as a sovereign, could not be sued. F.D.I.C. v. Meyer, 510 U.S. 471, 475, 114 S.Ct. 996, 1000, 127 L.Ed.2d 308 (1994) ("Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit."). Under section 1346(a)(1), however, the United States explicitly waives sovereign immunity for cases falling within the statute's reach. Mutual Assurance, Inc. v. United States, 56 F.3d 1353, 1355 (11th Cir. 1995) (citing section 1346(a)(1) and stating that "[t]he United States has waived its sovereign immunity in order to allow taxpayers to file actions seeking tax refunds").

The jurisdiction issue is thus simple: are the Begners and the district court correct that this is a tax-refund case under section 1346(a)(1), or is it a contract case under the Tucker Act? If it's the former, we have jurisdiction; if it is the latter, we do not.

In addressing this issue, courts look past the form of the action and determine whether the claim is, "at its essence," a contract or a tax-refund case. Megapulse, Inc. v. Lewis, 672 F.2d 959, 968 (D.C. Cir....