Horton Homes, Inc. v. U.S.

• Decision Date: 23 July 1991
• Docket Number: No. 90-8225,90-8225
• Parties: -5334, 60 USLW 2087, 91-2 USTC P 50,370 HORTON HOMES, INC., N.D. Horton, Jr., Jacqueline P. Horton, N.D. Horton, Sr. and Maude Horton, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 548

936 F.2d 548

68 A.F.T.R.2d 91-5334, 60 USLW 2087, 91-2

USTC P 50,370

HORTON HOMES, INC., N.D. Horton, Jr., Jacqueline P. Horton, N.D. Horton, Sr. and Maude Horton, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 90-8225.

United States Court of Appeals, Eleventh Circuit.

July 23, 1991.

David D. Aughtry, George L. Murphy, Jr., Chamberlain, Hrdlicka, White, Johnson & Williams, Atlanta, Ga., Shelly Cashion, Chamberlain, Hrdlicka, White, Johnson & Williams, Houston, Tex., for plaintiffs-appellants.

Frank L. Butler, Asst. U.S. Atty., Macon, Ga., Gary E. Allen, Lead Counsel, Chief, Francis M. Allegra, Brian C. Griffin, Ann B. Durney, Jonathan S. Cohen, Appellate Section, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellant.

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

Before TJOFLAT, Chief Judge, CLARK, Circuit Judge, and KAUFMAN ^*, Senior District Judge.

FRANK A. KAUFMAN, Senior District Judge:

This appeal raises questions concerning the abatement of interest by the Internal Revenue Service (IRS) on income tax deficiencies. Prior to 1986, the IRS did not "generally have the authority to abate interest charges where the additional interest has been caused by IRS errors and delays." ¹

Effective January 1, 1986, the Congress enacted what is now 26 U.S.C. Sec. 6404(e)(1). That statute, in relevant part, provides:

(e) Assessments of interest attributable to errors and delays by Internal Revenue Service.--

(1) In general.--In the case of any assessment of interest on--

(A) Any deficiency attributable in whole or in part to any error or delay by an officer or employee of the Internal Revenue Service (acting in his official capacity) in performing a ministerial act, or

....

the Secretary may abate the assessment of all or any part of such interest for any period. For purposes of the preceding sentence, an error or delay shall be taken into account only if no significant aspect of such error or delay can be attributed to the taxpayer involved, and after the Internal Revenue Service has contacted the taxpayer in writing with respect to such deficiency or payment.

(Emphasis supplied).

I.

In this case, the IRS executed an agreement on March 12, 1987 (the agreement) with plaintiffs-appellants (the Hortons) ² pursuant to which the Hortons agreed to pay certain tax deficiencies claimed by the IRS, plus interest thereon. ³ In the agreement the Hortons "consent[ed] to the assessment and collection of the following deficiencies with interest as provided by law." Prior to executing the agreement, the Hortons asked the IRS to abate the assessment of all or part of the interest on the basis that the IRS had been responsible for certain delays which prevented the agreement from having earlier been finalized. Seemingly, the IRS never formally responded at any time to that interest abatement request, although, according to the Hortons, an IRS official, before March 12, 1987, orally advised counsel for Hortons that "office politics" prevented the IRS from admitting that it had behaved unreasonably in causing the alleged delay. In any event, the IRS did not act under section 6404(e)(1) to abate any of the interest.

On August 31, 1988, the Hortons filed the first of three tax refund cases in the United States District Court for the Middle District of Georgia. Those cases were subsequently consolidated into the within litigation, in which the government filed motions to dismiss, contending that the district court lacked subject matter jurisdiction but that even if such subject matter jurisdiction existed, the Hortons were not entitled to any relief as a matter of law. Inter alia, the government asserted that the Hortons were estopped from seeking the refund of interest on the grounds that the agreement expressly called for the payment of specific amounts not only of tax but also of interest. The Hortons sought discovery but were not permitted to engage in any discovery before the district court granted the government's motion to dismiss, concluding that it had no subject matter jurisdiction, and that even if subject matter jurisdiction were present, it lacked authority to review the determination of the IRS not to abate interest. Horton Homes, Inc. v. United States, 727 F.Supp. 1450 (M.D.Ga.1990). After judgment was entered for the government, the Hortons filed the within appeal. We affirm, though for reasons somewhat different than those expressed by the district court.

II.

28 U.S.C. Sec. 1346 provides in relevant part:

(a) The district court shall have original jurisdiction, concurrent with the United States Claims Court, of:

(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws....

26 U.S.C. Sec. 6601(e)(1) states that "[a]ny reference" in Title 26 U.S.C. "to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax."

Accordingly, subject matter jurisdiction is present in this Court in this appeal with respect to the refund of interest as sought by the Hortons. See Trustees of Bulkeley School v. United States, 628 F.Supp. 802, 803 (D.Conn.1986); see also Perkins v. Commissioner, 92 T.C. 749, 752-53 (1989). ⁴

III.

The Administrative Procedure Act (APA), 5 U.S.C. Sec. 701 et seq., provides the framework for determining when a court may review a decision of an agency. Section 702 states, in pertinent part:

A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.

However, section 701(a) states that the APA does not apply "to the extent that ... (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law."

The first exception set forth in section 701(a) "applies when Congress has expressed an intent to preclude judicial review," Heckler v. Chaney, 470 U.S. 821, 830, 105 S.Ct. 1649, 1655, 84 L.Ed.2d 714 (1985), and requires " 'clear and convincing evidence' of a contrary legislative intent [to] ... restrict access to judicial review." Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507, 1511, 18 L.Ed.2d 681 (1967), quoting from Rusk v. Cort, 369 U.S. 367, 380, 82 S.Ct. 787, 794-95, 7 L.Ed.2d 809 (1962). ⁵ "Whether and to what extent a particular statute precludes judicial review is determined not only from its express language, but also from the structure of the statutory scheme, its objectives, its legislative history, and the nature of the administrative action involved." Block v. Community Nutrition Institute, 467 U.S. 340, 345, 104 S.Ct. 2450, 2453-54, 81 L.Ed.2d 270 (1984).

In this instance, the legislative history of section 6404(e)(1) is instructive. The various committee reports, as well as the explanation of the staff of the Joint Congressional Committee on Taxation, ⁶ includes the comments that "authority should be available for the IRS to abate the interest independent of the underlying tax liability when errors or delays with respect to ministerial acts have occurred," ⁷ and that "where an IRS official acting in his official capacity fails to perform a ministerial act," then the proposed legislation "gives the IRS the authority to abate interest but does not mandate that it do so," with one exception. ⁸ The same reports also state that

[t]he committee does not intend that this provision be used routinely to avoid payment of interest; rather it intends that the provision be utilized in instances where failure to abate interest would be widely perceived as grossly unfair.... The provision applies only to failures to perform ministerial acts that occur after the taxpayer has been contacted by the IRS.... The committee intends that the term "ministerial act" be limited to nondiscretionary acts where all of the preliminary prerequisites, such as conferencing and review by supervisors, have taken place. Thus, a ministerial act is a procedural action, not a decision in a substantive area of tax law.

Id. at 844-45 (emphases supplied). The reports go on to say that "the IRS can issue regulations determining what constitutes a reasonable time for performing various ministerial acts called for by the Code." Parenthetically, it is to be noted that the IRS regulations which have been issued to date with regard to section 6404(e)(1) do not indicate what constitutes a "reasonable time" for the performance of a ministerial act.

Section 6404(e)(1) contains the words "the Secretary may abate the assessment of all or any part of such interest for any period" (emphasis supplied), whereas section 6404(e)(2), which deals with interest abatement with respect to erroneous refund checks, provides that "[t]he Secretary shall abate the assessment of all interest on any erroneous refund" (emphasis supplied). In that latter regard, the committee reports state the expectation of Congress that "the IRS exercise this authority to abate interest in instances in which it issues an erroneous refund check." Report of the Committee on Ways and Means of the House of Representatives on H.R.Rep. 3838, 99th Cong., 1st Sess. 844, 845 (1985).

The use of the word "may" in section 6404(e)(1) and of the word "shall" in section 6404(e)(2) does not necessarily mean that Congress intended entirely to exclude judicial review of the exercise by the IRS of its authority pursuant to (e)(1). There are many instances in the tax laws in which judicial review of the exercise by the IRS of discretion pursuant to statutory tax provisions containing the word "may" or similar words has been held available under the APA. ⁹ But, in this case, the statutory...