First Alabama Bank, NA v. US, Civ. A. No. 89-0141-B

• Decision Date: 26 July 1991
• Docket Number: Civ. A. No. 89-0141-B,89-0142-B.
• Citation: 768 F. Supp. 1522
• Parties: FIRST ALABAMA BANK, N.A., etc., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Alabama

768 F. Supp. 1522

FIRST ALABAMA BANK, N.A., etc., Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. Nos. 89-0141-B, 89-0142-B.

United States District Court, S.D. Alabama, S.D.

June 5, 1991.

On Motion for New Trial July 26, 1991.

W. Dewitt Reams, Richard L. Reid, Mobile, Ala., for plaintiffs.

J.B. Sessions, U.S. Atty., Mobile, Ala., Carol Ide, Tax Div. Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM OPINION AND ORDER

BUTLER, District Judge.

This matter came before the Court for an evidentiary hearing on the defendant's motion to dismiss for lack of subject matter jurisdiction. These consolidated actions involve claims for recovery of federal estate taxes paid by the Estate of Bruce Cogle and for the recovery of federal estate and gift taxes paid by the Estate of Rosa Cogle. The government contends that because these actions were not timely filed they are barred by the statute of limitations and, therefore, this Court has no subject matter jurisdiction over these actions. For the reasons stated below, the Court finds that the actions are due to be dismissed for lack of subject matter jurisdiction.

FINDINGS OF FACT

Plaintiffs First Alabama Bank, N.A., Bruce A. Cogle, Jr., and Jane C. Hamilton, coexecutors of the Estates of Bruce A. Cogle, Sr. and Rosa L. Cogle, have brought these actions to recover federal estate and gift taxes and interest assessed and collected by the United States. On October 5, 1982, plaintiffs filed the Estate Tax Return of Bruce A. Cogle, Sr. On December 13, 1984, plaintiffs filed the Estate Tax Return for the estate of Rosa L. Cogle. On September 4, 1985, plaintiffs filed a Gift Tax Return on behalf of the estate of Rosa L. Cogle for the calendar year 1982.

All three of these returns were audited by the IRS. At issue in all three returns was whether certain gifts made by Mr. and Mrs. Cogle were completed prior to Mr. Cogle's death. In September of 1985, the IRS auditor, Irving Buchalter, informed Richard Reed, the plaintiffs' attorney, that the statutory period of assessment was about to expire as to the Estate of Bruce Cogle and, therefore, it would be necessary for the IRS to issue a statutory notice of deficiency (also known as a 90 day letter). Mr. Buchalter suggested that, although there were no such time constraints with respect to the Gift and Estate Tax Returns of Rosa Cogle, it would be best to keep all three returns together since they involved the same issues of law and fact. Reed agreed and, in order to keep the returns together, waived the right of administrative appeal at that stage as to Rosa Cogle's estate and gift tax returns.

On September 11, 1985, the IRS issued statutory notices of deficiency for the Estate of Bruce Cogle, the Estate of Rosa Cogle and the Gift Tax Return of Rosa Cogle. On or about December 5, 1985, the Estate of Bruce Cogle paid the assessed deficiency and filed a claim for refund. On or about December 3, 1985, the Estate of Rosa Cogle paid the assessed deficiencies for both the estate and gift returns and filed claims for refund.

Rather than reviewing the claims for refund, the IRS on January 16, 1986, denied the plaintiffs' claims by issuing a notice of disallowance as to each return. These notices informed plaintiffs that they had two years within which to file suit on their claims. According to Jim Duran, who at that time was a senior reviewer in the IRS quality assurance department, several factors led IRS to issue immediate notices of disallowance rather than to submit the claims for review. First, there had been previous waivers of appeal rights by these taxpayers. Second, the claims for refunds were accompanied by payments. Finally, the refund claims simply stated that the taxpayers disagreed with the determination but contained no specific information and no additional facts. Duran testified that these factors suggested to him to that the plaintiffs wanted to go immediately to district court and, consequently, he telephoned Reed to find out if this was indeed the taxpayers' intention. After Reed informed him that it was the taxpayers' intention to go to directly to district court, the IRS issued the notices of disallowance rather than reviewing the claims and issuing the customary thirty day letter.¹

After receiving the notices of disallowance, Reed contacted Duran to determine why the notices were sent rather than the customary thirty day letters. At that time Reed told Duran that the plaintiffs had not intended to forego their right to administrative appeal. Duran told Reed that plaintiffs could obtain administrative review by refiling their claims with the IRS. On March 20, 1986, plaintiffs refiled their claims. These claims remained under submission for some time. Reed became concerned that the statute of limitations had commenced to run on January 16, 1986, the date of the first notice of disallowance. In his affidavit Reed states, "At that point in time, I understood that absent some later action by the IRS contrary to that position that the statute of limitations began to run on January 16, 1986, they might well be justified in asserting that position and might very well be successful."

On February 2, 1987, Reed wrote a letter to Buchalter requesting action on the refiled claims and requesting assurances that the statute of limitations was not running. Shortly thereafter, Buchalter telephoned Reed and advised him that a response to the refiled claims was forthcoming. Buchalter also informed Reed that the statute of limitations was not running at the time.

On May 1, 1987, the IRS issued a thirty day letter for the Estate of Bruce Cogle. On July 14, 1987, the IRS issued thirty day letters for Rosa Cogle's Estate and for Rosa Cogle's gift tax return. Plaintiffs filed protests of the proposed disallowances. Plaintiffs were subsequently afforded administrative review and declined an offer to settle. On August 10, 1988, the IRS issued a second round of statutory notices of disallowances for all three returns. The instant actions were filed on February 24, 1989.

CONCLUSIONS OF LAW

Under the doctrine of sovereign immunity, an action may be maintained against the government only if the government consents to suit. Feres v. United States, 340 U.S. 135, 71 S.Ct. 153, 95 L.Ed. 152 (1950). The extent of the court's jurisdiction is defined by the terms of the government's consent to suit. Lehman v. Nakshian, 453 U.S. 156, 101 S.Ct. 2698, 69 L.Ed.2d 548 (1981). Thus, a plaintiff must comply with the terms of the government's consent to suit, including time limitations. United States v. Michel, 282 U.S. 656, 51 S.Ct. 284, 75 L.Ed. 598 (1931), Vintilla v. United States, 931 F.2d 1444 (11th Cir. 1991). The burden is on the plaintiff to prove the existence of subject matter jurisdiction. Thomson v. Gaskill, 315 U.S. 442, 62 S.Ct. 673, 86 L.Ed. 951 (1942).

A taxpayer's claim for refund is subject to the two year statute of limitations set forth in 26 U.S.C. § 6532(a).² According to that section the statute of limitations begins to run upon the mailing of the notice of claim disallowance. Any extension of the limitations period must be "agreed upon in writing between the taxpayer and the IRS." 26 U.S.C. § 6532(a)(2). Reconsideration of a claim following a notice of disallowance "shall not operate to extend the period within which suit may be begun." 26 U.S.C. § 6532(a)(4).

It is undisputed that plaintiffs failed to file this action within two years of the first notices of disallowance. It is also undisputed that there was no written agreement to extend the statute of limitations. However, plaintiffs contend that the statute of limitations did not begin to run until the time the second notices were mailed because the first notices were either issued in error or subsequently withdrawn. Alternatively, plaintiffs argue that the government is estopped by the actions of its agent from asserting the statute of limitations.

The vast majority of circuits have held that the issuance of a second notice of disallowance after reconsideration does not extend the statute of limitations.³ It is true, as plaintiffs point out, that a few courts have construed § 6532(a) flexibly in order to avoid injustice. See, e.g., Southeast Bank of Orlando v. United States, 230 Ct.Cl. 277, 676 F.2d 660 (1982) (holding that where a claimant "is understandably confused by a second notice of disallowance and acts reasonably" statute of limitations runs from second notice); Miller v. United States, 500 F.2d 1007 (2d Cir.1974) (holding that where notice of disallowance was mailed, even though plaintiff signed waiver of notice, statute of limitations ran from notice of disallowance rather than from waiver).

Plaintiffs rely primarily on Beardsley v. United States, 126 F.Supp. 775 (D.Conn. 1954), in which the court held that when "the notice had been sent after inadvertent omission of one usual step in the process of consideration, and where completion of consideration in regular course took more than two years from the time of the original notice, ... the IRS in effect withdrew the original notice by going back in the process to a stage prior to the time for giving notice, which stage had been omitted." Id. at 777 (emphasis added). The instant action is readily distinguishable from Beardsley and the other cases cited by plaintiffs. In those cases the courts fashioned a remedy to avoid an inequitable result. In Beardsley it was undisputed that the first notice was sent in error, because the IRS had failed to apprise the taxpayers of the examiner's report. Likewise, in Miller, taxpayers signed a waiver of disallowance which provided that the statute of limitations was two years from the date of the waiver, then the IRS erroneously mailed a notice of disallowance which stated that the statute of limitations ran from the date of the notice. In Southeast Bank the court found that the taxpayer was "understandably confused by a second notice of...