Estate Of Michael Orlando v. The United States
| Decision Date | 26 August 2010 |
| Docket Number | No. 09-702T,09-702T |
| Parties | ESTATE of MICHAEL ORLANDO,Plaintiff, v. THE UNITED STATES,Defendant. |
| Court | U.S. Claims Court |
James O. Druker, Garden City, NY, for plaintiff. Paula Schwartz Frome, Garden City, NY, of counsel.
Christopher S. Dove, U.S. Department of Justice, Washington, DC, with whom were John J. DiCicco, Acting Assistant Attorney General, and Steven I. Frahm, Chief, Court of Federal Claims Section for defendant.
OPINION ON MOTION TO DISMISS
This case involves the April 5, 2005 Internal Revenue Service ("IRS") assessment of the penalty provided by 26 U.S.C. § 6672 (1998) ("Section 6672")1 against "Michael Orlando, deceased." The plaintiff in this case is the Estate of Michael Orlando ("the plaintiff" or "Mr. Orlando's estate"). The complaint seeks recovery of the penalty imposed on Michael Orlando as a responsible party because he served as the president of a company that failed to pay employment taxes. Pending before the court is the motion of the defendant, the United States ("the defendant" or "the government"), to dismiss the complaint pursuant to Rule 12(b)(1) of the Rules of the United States Court of Federal Claims for lack of subject matter jurisdiction.
The government has moved to dismiss the complaint on the grounds that it is barred by the two-year statute of limitations contained in subsection (a)(1) of 26 U.S.C. § 6532 (2005) ("Section 6532") because the lawsuit was not filed within two years after the IRS disallowed plaintiff's claim for recovery of the penalty. 26 U.S.C. §6532(a)(1) (2005) ("Section 6532(a)(1)") states:
For the reasons that follow, the government's motion is GRANTED.
The following background facts are taken from the pleadings and are, for the purposes of a motion to dismiss, taken as true. United Pac. Ins. Co. v. United States, 464 F.3d 1325, 1327-28 (Fed. Cir. 2006)
In 2001, Mr. Orlando served as the president of Ultimate Display Industries, Inc. ("the company"). The company filed for Chapter 11 bankruptcy protection on June 4, 2001. The defendant filed a priority claim for the employment taxes that gave rise to the Section 6672 penalty in this case. Thereafter, the proceeding was converted to a liquidation proceeding under Chapter 7 of the Bankruptcy Code and control of the company was transferred to the Creditor's Committee. Mr. Orlando died on September 5, 2002. On September 12, 2003, the Creditor's Committee filed an objection to the proof of claim filed by the defendant for those taxes. The plaintiff claims that the defendant failed to respond to that objection in a timely fashion, resulting in the defendant being barred from collecting its priority claim. (See Compl. ¶ 27.)
On April 7, 2005, the defendant, pursuant to Section 6772, assessed a penalty of $376,074.72 against "Michael Orlando, deceased" stemming from unpaid employment taxes for the second quarter of 2001 and the second, third, and fourth quarters of 2002. On June 24, 2005, the defendant abated the penalties for the fourth quarter of 2002 on the basis that Mr. Orlando had passed away before the start of that quarter. The remaining penalty was $255,497.49. On March 15, 2006, the plaintiff paid the IRS a total of $150.00, which represented $50.00 for each of the three quarters at issue. On the same day, the plaintiff filed a claim with the IRS for a refund of this amount. The claim was disallowed on April 12, 2006 by a letter sent certified mail. The letter stated:
If you wish to bring suit or proceedings for recovery of any tax, penalties, and other monies that were paid, and for which this notice of disallowance is issued, you may do so by filing suit with the United States District Court having jurisdiction, or the United States Court of Federal Claims. The law permits you to do so within two years of the mailing date of this letter.
On April 19, 2006, the plaintiff filed a letter of appeal with the defendant. The plaintiff filed supplemental letters on May 18, 2007 and June 28, 2007. On October 25, 2007, the appeal was denied in a letter sent certified mail. This letter stated:
If you wish to bring suit or proceedings for the recovery of any tax, penalties or other moneys for which this disallowance notice is issued, you may do so by filing such a suit with the United States District Court having jurisdiction, or with the United States Court of Federal Claims. The law permits you to do this within 2 years from the mailing date of this letter.
The plaintiff filed suit in this court on October 21, 2009, which was within two years of the mailing date of the October 2007 letter but more than two years after the mailing date of the April 2006 letter.4
The focus of the dispute at this stage is whether the plaintiff's claim is barred by the two-year statute of limitations contained in Section 6532(a)(1). The government claims that this court does not have jurisdiction because the two-year statute of limitations began to run on the mailing date of the first letter denying the claim on April 12, 2006. Because the plaintiff did not file the instant suit until October 2009, argues the government, the suit was filed out-of-time and must be dismissed. In response, the plaintiff asserts that the October 2007 letter denying the plaintiff's appeal to the IRS (which was sent within two years of the April 2006 letter) extended the time for filing suit to October 2009. The plaintiff asserts that the second letter serves as an "agreement" by the IRS to extend the statute of limitations. Such agreements are allowed under 26 U.S.C. § 6532(a)(2) (2005) ("Section 6532(a)(2)"), which states, "The 2-year period... shall be extended for suchperiod as may be agreed upon in writing between the taxpayer and the Secretary."
The government responds that the October 2007 letter met neither the statutory nor the regulatory requirements for an agreement to extend the time for filing suit. Therefore, argues the government, the time for filing suit expired in April 2008, and the case must be dismissed. The government further argues that regardless of any confusion that the second letter caused, there is no equitable exception to the statute of limitations.
The plaintiff bears the burden of establishing subject matter jurisdiction, Alder Terrace, Inc. v. United States, 161 F.3d 1372, 1377 (Fed. Cir. 1998) (citing McNutt v. Gen. Motors, 298 U.S. 178, 189 (1936)), and must do so by a preponderance of the evidence, Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988). When considering a motion to dismiss for lack of subject matter jurisdiction, the court will accept the complaint's undisputed allegations as true and construe the complaint in a manner favorable to the plaintiff. United Pac. Ins. Co., 464 F.3d at 1327-28. Subject matter jurisdiction may not be waived or forfeited; when a court concludes that it lacks jurisdiction, the complaint must be dismissed. See John R. Sand & Gravel Co. v. United States, 457 F.3d 1345, 1354 (Fed. Cir. 2006), aff'd, 552 U.S. 130 (2008).
I. The April 2006 Letter Was the Notice of Disallowance and the October 2008 Letter Did Not Meet the Requirements of an Agreement under Section 6532(a)(2) or Its Implementing Regulation so as to Extend the 2-year Filing Deadline.
Before discussing the parties' arguments, the court deems it useful to discuss the operation of the statute of limitations contained in Section 6532(a)(1) and its application to the instant case. As explained above, Section 6532(a)(1) gives the taxpayer two years from the mailing date of a notice of disallowance to file suit. See Section 6532(a)(1). In this case, the April 2006 letter was the notice of disallowance of the plaintiff's claim. This letter correctly stated, "The law permits you to [file suit] within two years of the mailing date of this letter." (April 2006 letter.) The October 2007 letter, which notified the plaintiff that its appeal had been denied, contained the statement, "The law permits you to [file suit] within 2 years from the mailing date of this letter." (October 2007 letter (emphasis added).) This October 2007 representation by the IRS Appeals Office was, however, legally incorrect. The two-year period runs from the date the notice of disallowance is sent and, by statute, it is not tolled by any administrative appeals. See 26 U.S.C. § 6532(a)(4) (2005) ("Section 6532(a)(4)") ("Any consideration,...
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