Foreman v. U.S., 92-5143

• Decision Date: 19 July 1995
• Docket Number: No. 92-5143,92-5143
• Citation: 60 F.3d 1559
• Parties: -5548, 95-2 USTC P 50,386 Reuel J. FOREMAN and Evelyn M. Foreman, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1559

60 F.3d 1559

76 A.F.T.R.2d 95-5548, 95-2 USTC P 50,386

Reuel J. FOREMAN and Evelyn M. Foreman, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.

No. 92-5143.

United States Court of Appeals,

Federal Circuit.

July 19, 1995.

Rehearing Denied Sept. 15, 1995.

H. Stewart Dunn, Jr., Ivins, Phillips & Barker, Washington, DC, argued for plaintiffs-appellants.

Teresa Milton, Atty., Dept. of Justice, Washington, DC, argued for defendant-appellee. With her on the brief were Michael L. Paup, Acting Asst. Atty. Gen. and Gary R. Allen, Atty., of counsel was Kevin M. Brown.

Before NIES, Circuit Judge, SMITH, Senior Circuit Judge and MAYER, Circuit Judge.

Opinion for the court filed by Senior Circuit Judge EDWARD S. SMITH. Dissenting opinion filed by Circuit Judge Mayer.

EDWARD S. SMITH, Senior Circuit Judge.

Reuel J. Foreman ¹ appeals the judgment of the United States Court of Federal Claims ² dismissing his claim for refund of an overpayment of federal individual income tax. Foreman v. United States, 26 Cl.Ct. 553 (1992). That court dismissed Foreman's claim for lack of subject matter jurisdiction because it found that the statute under which Foreman sought a refund had been implicitly repealed.

We hold that the United States Court of Federal Claims did have subject matter jurisdiction to hear Foreman's claim. However, we agree with the Court of Federal Claims that the statute on which Foreman's claim for refund is based has been repealed, and therefore we affirm the dismissal of his claim on that ground.

Background

Reuel Foreman filed suit in the United States Court of Federal Claims seeking a refund of taxes he allegedly overpaid for the taxable calendar year 1982. Foreman claimed that section 11(c) of the Revenue Act of 1962, the "grandfather clause", created an unlimited exclusion for foreign earned income to which there existed a right on March 12, 1962, and that income he received in 1982 as reimbursement for moving expenses qualified for the exclusion.

Foreman was hired to work as an accountant by the Arabian American Oil Company ("Aramco") in 1952. He worked for Aramco in Saudi Arabia continuously for 30 years until his retirement in 1982. Beginning before March 12, 1962 the Aramco Industrial Relations Manual (Manual) contained a provision providing for the reimbursement of moving expenses for certain employees upon termination. ³ When Foreman retired in 1982 he and his wife moved to England and Aramco reimbursed them $40,232 for their moving expenses. Foreman included this amount as income on his 1982 tax return. In 1983 Foreman filed an amended return and sought refund of $19,647. Foreman's request was based on the grandfather clause, on the Treasury regulations promulgated under Sec. 911 of the Internal Revenue Code of 1954 implementing the grandfather clause, and on the United States Tax Court's decision in the Hills and Voss cases. ⁴

The I.R.S. allowed a refund of $1,721 but rejected the bulk of Foreman's request and disallowed a refund of $17,926. ⁵ Foreman then brought suit in the Court of Federal Claims seeking refund of the $17,926 tax paid incident to the moving expenses reimbursement.

The Court of Federal Claims held that the statute upon which Foreman based his claim, section 11(c) of the Revenue Act of 1962, had been implicitly repealed by the Foreign Earned Income Act of 1978. Because the court found that its jurisdiction depended upon the repealed statute, the court dismissed Foreman's claim for lack of subject matter jurisdiction. This appeal followed.

Subject Matter Jurisdiction

The Federal Circuit exercises full and independent review of questions of law. Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757, 762, 9 U.S.P.Q.2d 1417, 1421 (Fed.Cir.1988), cert. denied, 493 U.S. 814, 110 S.Ct. 62, 107 L.Ed.2d 30 (1989). Dismissal of a claim for lack of subject matter jurisdiction is a question of law subject to full and independent review. Booth v. United States, 990 F.2d 617, 619 (Fed.Cir.1993).

The Court of Federal Claims dismissed Foreman's claim on the ground that because the statute which supported his claim had been implicitly repealed, the court no longer had a valid basis for exercising subject matter jurisdiction. The court cited Hendrix v. United States, 219 U.S. 79, 81, 31 S.Ct. 193, 194, 55 L.Ed. 102 (1911), overruled on other grounds by Funk v. United States, 290 U.S. 371, 54 S.Ct. 212, 78 L.Ed. 369 (1933) for the proposition that when "the jurisdiction of a cause depends upon a statute, the repeal of the statute takes away the jurisdiction, and causes pending at the time fall, unless saved by provision of the statute." This proposition is not incorrect, it is simply inapplicable to the facts of this case.

The trial court erred in finding that its subject matter jurisdiction was dependent upon a repealed statute. The statute defining subject matter jurisdiction for the United States Court of Federal Claims is the Tucker Act, which provides, in pertinent part, "[t]he United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department...." 28 U.S.C. Sec. 1491(a) (1994). Foreman's claim was founded upon 26 U.S.C. Sec. 7422, which grants taxpayers the right to sue the United States for "recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected," provided that the taxpayer first files a claim for refund. 26 U.S.C. Sec. 7422 (1989). The Court of Federal Claims has concurrent jurisdiction with the district courts over "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected...." 28 U.S.C. Sec. 1346(a)(1) (1993).

Foreman's complaint fairly pleaded a claim for refund of allegedly illegally assessed income taxes. Because Foreman had the right to sue for refund of taxes erroneously paid under 26 U.S.C. Sec. 7422, and because the Court of Federal Claims has jurisdiction under 28 U.S.C. Secs. 1346 and 1491 to hear claims for refund of taxes, the Court of Federal Claims had subject matter jurisdiction over Foreman's claim even if his claim was without merit. The issue whether the grandfather clause which was the basis of Foreman's claim had been repealed was an issue that went to the merits of his claim, and did not affect the court's exercise of subject matter jurisdiction. The Court of Federal Claims erred in holding that it did not have subject matter jurisdiction. Law v. United States, 11 F.3d 1061, 1065 (Fed.Cir.1993) ("That [a] claim fails on the merits does not negate the jurisdiction.").

Exclusion of Foreign Earned Income

We begin the discussion of the merits of Foreman's claim with a brief review of the history of the treatment of foreign earned income. In 1926 Congress established an exemption from taxation for all foreign earned income of U.S. citizens who established foreign residency and sold U.S. products abroad. Revenue Act of 1926, Pub.L. No. 20, Sec. 213, 44 Stat. 26. In 1954 Congress amended and reenacted the unlimited exclusion as Sec. 911 of the Internal Revenue Code of 1954, Pub.L. No. 591, ch. 736, 68A Stat. 289.

In 1962 Congress placed a ceiling on the amount of foreign earned income which could be excluded from taxation. Revenue Act of 1962, Pub.L. No. 87-834, 76 Stat. 960. Section 11(a) of the 1962 Act replaced the old Sec. 911 of the 1954 Code with a new Sec. 911 which limited the foreign earned income exclusion to $20,000 or $35,000, depending on how much time the taxpayer had spent outside of the country.

Section 11(c), the "effective dates" provision of the 1962 Act, read as follows:

Effective Dates.--

(1) Amendment to section 911.--The amendment made by subsection (a) shall apply to taxable years ending after September 4, 1962, but only with respect to amounts--

. . . . .

(B) received after December 31, 1962, which are attributable to services performed on or before December 31, 1962, unless on March 12, 1962, there existed a right (whether forfeitable or nonforfeitable) to receive such amounts.

Revenue Act of 1962, Pub.L. No. 87-834, Sec. 11(c), 76 Stat. 960.

Section 11(c)(1)(B) allowed taxpayers to retain an unlimited exclusion for amounts received in years subsequent to 1962 if the taxpayer had a "right" to the income on March 12, 1962. This section thus operated as an exception to the dollar limitations on exclusions introduced by the 1962 Act, and has been called the grandfather clause of the 1962 Act. Foreman claims that this clause entitles him to exclude the moving expense reimbursement from his income because, under the Aramco Manual, he had a "right" to that reimbursement as of March 12, 1962.

In 1978, Congress again revised the taxation of United States citizens working abroad. This was accomplished through a complete overhaul of the Sec. 911 exclusion in the Foreign Earned Income Act of 1978, Pub.L. No. 95-615, 92 Stat. 3098. Indeed, the actual exclusion contained in Sec. 911 was narrowed to apply only to U.S. citizens who resided in a camp located in a hardship area. Section 913 was also added by the 1978 Act and created deductions for various "expenses of living abroad." Foreign Earned Income Act of 1978, Pub.L. No. 95-615, Sec. 203, 92 Stat. 3098, 3100. The effect of the total revision of Sec. 911 and the addition of Sec. 913 was to convert what would have been exclusions under the 1962 amendments for most U.S. citizens working abroad into exclusions for some citizens (those living in hardship areas) and deductions of certain foreign living costs for all other citizens working abroad. The 1978 Act did not mention the effective dates clause of the 1962 Act, section 11(c) above, nor were any of the words from that clause carried over into the new effective dates clause for the 1978 Act.

The Court of Federal...