JO Johnson, Inc. v. United States, 308-72.

• Decision Date: 13 April 1973
• Docket Number: No. 308-72.,308-72.
• Citation: 476 F.2d 1337
• Parties: J. O. JOHNSON, INC. v. The UNITED STATES.
• Court: U.S. Claims Court

476 F.2d 1337 (1973)

J. O. JOHNSON, INC. v. The UNITED STATES.

No. 308-72.

United States Court of Claims.

April 13, 1973.

Robert A. Schnur, Milwaukee, Wis., attorney of record, for plaintiff; Michael, Best & Friedrich, Milwaukee, Wis., of counsel.

Kenneth R. Boiarsky, Washington D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant; Gilbert E. Andrews, Jr., Washington, D. C., of counsel.

Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.

ON DEFENDANT'S MOTION TO DISMISS

BENNETT, Judge.

Defendant has moved to dismiss count II of the petition on the grounds that plaintiff has failed to state a claim upon which relief may be granted. The question is whether plaintiff's claim for the recovery of sums paid in satisfaction of an accumulated earnings tax is barred by plaintiff's failure to file a timely claim for refund. Specifically, this motion concerns the issue of the applicability of section 6511(a) Limitations on Credit or Refund of the Internal Revenue Code (IRC) to a claim by a corporate taxpayer for the refund of an overpayment of accumulated earnings taxes. While the precise issue involved was not handled in the body of the opinion in Alexander Proudfoot Co. v. United States, 454 F.2d 1379, 197 Ct.Cl. 219 (1972), the matter was disposed of in footnote 7 of that opinion. The plaintiff now wishes the court to reconsider the conclusion it reached in that footnote. The facts are as follows:

On June 15, 1965, the plaintiff filed a corporate tax return for the fiscal year ending March 31, 1965. On October 9, 1967, the IRS District Director notified the plaintiff that certain deficiencies had been proposed with respect to the 1965 return, including an accumulated earnings tax deficiency (IRC § 531 et seq.). A formal notice of deficiency was sent to the taxpayer on February 28, 1969, which included a deficiency of $22,628.34 in accumulated earnings taxes. By September 24, 1969, the plaintiff made the last payment on the amount owed which included $5,409.97 in interest computed from June 15, 1965, the date the original return was filed.

On September 13, 1970, the taxpayer filed a claim for refund of the $5,409.97 paid in interest, which claim was finally disallowed by the IRS on October 29, 1971. Thereafter on November 29, 1971, the plaintiff filed a separate claim for refund of the principal of the accumulated earnings tax paid. This latter claim has never been formally acted upon by the IRS. In the petition to the court, the taxpayer's count I seeks a refund of the interest paid on the accumulated earnings tax, and is not presently at issue.¹ Count II seeks refund of the tax itself and is the subject of the defendant's motion to dismiss the petition.

The defendant contends that section 7422(a) of the IRC of 1954² requires the filing of a refund claim before a plaintiff can maintain a suit to recover the amount sought. The procedure for filing such a refund claim is controlled in pertinent part by section 6511(a) of the 1954 Code which reads as follows:

Sec. 6511. Limitations on credit or refund.

(a) Period of limitation on filing claim.—Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid. Emphasis added.

Regardless of whether the 2- or the 3-year period is applied to these facts, this plaintiff's filing of the claim for refund of the principal tax on November 29, 1971, was too late. As a result, the claim for refund was ineffective, requiring the dismissal of the suit under the requirements of section 7422(a). The plaintiff's principal defense to the Government's motion is the assertion that the accumulated earnings tax is not a tax "in respect of which * * * the taxpayer is required to file a return," making section 6511(a) inapplicable. Therefore, the time limitation that should govern this suit is the general 6-year statute of limitations (28 U.S.C. § 2401), with which the plaintiff has complied.

The real focus of this problem is the language in section 6511(a) which states: "* * * or if no return was filed by the taxpayer the claim for refund must be filed, within 2 years from the time the tax was paid." Both sides recognize that the accumulated earnings tax is not self-assessing in nature and is only levied after the return has been filed and an administrative determination has been made that the accumulation is in excess of the amount required for the reasonable needs of the business ( §§ 533, 537). See, Motor Fuel Carriers, Inc. v. United States, 420 F.2d 702, 705, 190 Ct.Cl. 385, 390 (1970). To this extent, the accumulated earnings tax is not the type of tax that is reported on the return, which the plaintiff contends is the only type of tax covered by 6511(a). Plaintiff interprets the clause above to apply only to taxes for which a return is required, but in which no return was in fact filed. Since there is no place on the return in which to account for the accumulated earnings tax, no return was required with respect to this tax and the 2-year time limit applicable to taxes for which a return is required but not filed does not apply to the accumulated earnings tax. The defendant would read the language of the clause quite literally to include any tax for which no return is actually filed whether required or not. Such a reading would, of course, include a subsequent assessment of an accumulated earnings tax. This was the interpretation given 6511(a) by this court in footnote 7 of the opinion in Alexander Proudfoot:

* * * § 6511(a) was obviously intended to cover all taxes, whether or not a return is required, and its wording can easily carry that understanding since it expressly provides for the case where "no return was filed by the taxpayer." 454 F.2d at 1382, n. 7, 197 Ct.Cl. at 225, n. 7.

The plaintiff has presented an impressive array of arguments to undercut the footnote holding in Alexander Proudfoot and to otherwise seek to avoid the application of section 6511(a) to the count II claim for refund. These arguments will be detailed individually, but it should first be noted that a reversal of the footnote holding would likewise erode to some extent the basis for that over-all decision. In Alexander Proudfoot the plaintiff sought only the refund of the pre-notice deficiency interest paid with respect to an accumulated earnings tax assessment. Following the decision by this court in Motor Fuel Carriers, Inc., supra, it was clear that pre-notice deficiency interest could not be lawfully claimed by the IRS with respect to the accumulated earnings tax. The court included the claim for refund of the deficiency interest within the operation of section 6511(a) and found the claim to have been filed too late to be effective. This conclusion was reached in part because the "interest demand would be as much governed by § 6511 as the claim for the tax itself, and could not be separated out from the requirement of a proper and timely administrative claim." 454 F.2d at 1382, 197 Ct.Cl. at 226. "The hair goes with the hide." This, of course, presumes that the tax (here the accumulated earnings tax) is within section 6511(a) which is precisely the proposition being challenged by the present plaintiff.

Plaintiff first goes through a thorough grammatical exercise to indicate that its reading of section 6511(a) is proper and reasonable. This, of course, does not mean that the defendant's reading is ipso facto unreasonable. It simply becomes a choice of what is most reasonable. Plaintiff urges that the language in S.Rep. No. 1622, 83d Cong., 2d Sess. (3 U.S.Code Cong. & Admin. News, p. 5235 (1954)), emphasizes that section 6511(a) was to apply only to those taxes "in respect of which a taxpayer is required to file a return." This is nothing more than a restatement of the wording in the section itself and seems to add nothing to the problem of assigning a given meaning to the section. Plaintiff next argues that, at most, the language in section 6511(a) is ambiguous and the language should be interpreted in favor of the taxpayer since the Government's construction would result in an extension of the meaning of the statute, which would run contrary to the normal judicial trend to read tax statutes narrowly and strictly. While it seems that plaintiff's point is well taken, it is likewise clear that other factors come into play when any court must interpret a tax statute, for example, consistency and harmony with other related sections. In this case as the defendant points out, and as the court pointed out in Alexander Proudfoot, 454 F.2d at 1384, 197 Ct.Cl. at 229, the plaintiff's reading of section 6511(a) to exclude those taxes assessed by the IRS after the return is filed but not part of the return itself, would render section 7422(a) almost meaningless with respect to this group of assessments. Section 7422(a) makes the filing of a claim for refund or credit a condition precedent to the maintenance of any suit for the recovery of any wrongfully assessed tax, penalty, or "of any sum alleged to have been excessive or in any manner wrongfully collected." Emphasis added. Clearly section 7422(a), with its all-inclusive "any sum" term, would...