Martin v. U.S.

• Decision Date: 11 January 1988
• Docket Number: Nos. 86-1790,86-2576,s. 86-1790
• Citation: 833 F.2d 655
• Parties: -6037, 87-2 USTC P 13,742 Lee MARTIN, Executor of the Estate of Esther S. Martin and Trustee of the Esther S. Martin Living Trust, Plaintiff-Appellant, v. The UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 655

833 F.2d 655

60 A.F.T.R.2d 87-6037, 87-2 USTC P 13,742

Lee MARTIN, Executor of the Estate of Esther S. Martin and Trustee of the Esther S. Martin Living Trust Plaintiff-Appellant, v. The UNITED STATES of America, Defendant-Appellee.

Nos. 86-1790, 86-2576.

United States Court of Appeals Seventh Circuit.

Argued Jan. 6, 1987.

Decided Nov. 9, 1987.

Rehearing and Rehearing En Banc Denied Jan. 11, 1988.

Appellant's App., Ex. G-37 (emphasis supplied).

Thereafter, the Office of Appeals of the IRS reviewed the estate's protest of the proposed deficiency. Between September, 1983, and May, 1984, the parties discussed the question whether the marital deduction claimed by the estate should be reduced by the estate tax liability (and interest on the tax liability). Eventually, on May 10, 1984, the estate signed a form titled "Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of an Acceptance of Overassessment" (Form 890-AD) agreeing to an additional assessment of $22,971.87. This form provided, inter alia:

If this offer is accepted by or on behalf of the Commissioner, the case will not be reopened in the absence of fraud, malfeasance, concealment, or misrepresentation of material fact, or an important mistake in mathematical calculation; and no claim for refund or credit will be filed or prosecuted other than for the overassessment shown above.

Appellant's App., Ex. J-1.

In addition, the estate appended a proviso to the form that stated:

Taxpayer reserves the right to file a claim for refund relative to the following items:

....

Schedule M. (Marital Deduction). The legal effect of the wording of decedent's Will, and more specifically, item IV of decedent's 1978 living trust, required the trustee to pay "all inheritance and estate tax," a mechanical calculation based upon the date of death values resulted [sic] in an interrelated computation thereby reducing the marital deduction to the extent of the Federal estate tax. Taxpayer reserves the right to file a claim for refund on this item based upon a computation of the marital deduction consisting of a value equal to one-half of the adjusted gross estate. It is further agreed that any and all administration expenses shall be includible on Schedule J of the estate tax return and are deductible from the gross estate, but that taxpayer shall not take any of these deductions for Federal income tax purposes.

Appellant's App., Ex. J-2.

The estate paid the $22,971.87 deficiency on March 12, 1985. On March 21, 1985, the estate filed this lawsuit seeking a refund of $40,133.65 plus interest, and recovery of $36,000 in attorney's fees and expenses.

The estate alleged in its complaint that the Form 890-AD "constituted and substituted for a claim for refund for the overpayment of tax attributable to the grounds specified therein." Record 1 at 3. The government filed a motion to dismiss under Federal Rule of Civil Procedure 12(b) for lack of subject matter jurisdiction based on the estate's alleged failure to file a claim for refund as required by section 7422(a) of the Internal Revenue Code of 1954 (26 U.S.C.). The district court granted the government's motion to dismiss, noting that "[n]othing in the record would warrant a conclusion that Mr. Martin ever filed a claim for refund that would trigger an administrative review of the assessment of the tax in question, or that the Internal Revenue Service undertook such a review." Record 18 at 5. After the estate's motion for reconsideration was denied, this appeal followed.

On December 19, 1985, while the present lawsuit was pending in the district court, the estate filed a formal Form 843 "Claim for Refund" with the IRS in the amount of $43,815.18. In July, 1986, the IRS sent the estate a "Statutory Notification of Claim Disallowance" denying the formal claim for refund. The IRS stated its reasons for the disallowance:

The issues raised in the claim were considered during the years 1983 and 1984 by both the Examination Division and the Appeals Office and were found to be not valid. The [taxpayer] has presented no new facts or law which would require the government to alter its earlier positions. The Examination Division and Appeals Office reports earlier issued to the taxpayer explain in detail why the issues raised in this claim are not valid and the claim must be denied.

Appellant's Supplemental Brief, App., Ex. B (Supp.).

The estate then filed in the district court a motion under Federal Rule of Civil Procedure 60(b) for relief from judgment by reason of the "newly discovered evidence" contained in the statement accompanying the proposed claim disallowance. Alternatively, the motion sought to have the "Statutory Notification" included in the record on appeal in this case. The district court denied the motion, finding the document submitted by the estate to be "a late attempt to create jurisdiction in the courts while the suit pends." Appellant's Supplemental Brief, App., Ex. A (Supp.). The estate's request to have the record on appeal supplemented was also denied. The estate's appeal of the denial of this motion has been consolidated with its appeal of the refund suit.

II.

A timely, sufficient claim for refund is a jurisdictional prerequisite to a refund suit. E.g., United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 272, 51 S.Ct. 376, 377, 75 L.Ed. 1025 (1931); Armstrong v. United States, 681 F.2d 774, 775, 231 Ct.Cl. 52, 53 (1982). With respect to federal taxes, the United States has consented to be sued under the conditions set forth in section 7422 of the Internal Revenue Code, which provides in pertinent part:

(a) No suit prior to filing claim for refund.--No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected ... until a claim for refund or credit has been duly filed with the Secretary.

26 U.S.C.A. Sec. 7422(a) (West Supp.1987). The procedure for filing a formal claim for refund pursuant to section 7422 is set out in the Treasury Regulations:

(b) Grounds set forth in claim.--(1) No refund or credit will be allowed after the expiration of the statutory period of limitation applicable to the filing of a claim therefor except upon one or more of the grounds set forth in a claim filed before the expiration of such period. The claims must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. The statement of grounds and facts must be verified by a written declaration that it is made under the penalties of perjury. A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund or credit.

Treas.Reg. Sec. 301.6404-2 (1986).

It is undisputed that no formal claim for refund was made here until the estate filed a Form 843 with the IRS in December, 1985, while this case was pending in the district court. The estate claims that it

filed this Form 843 statutory Claim for Refund as a back-up procedure in the event this Court dismissed this action (which it did): Because a dismissal of the action for want of subject matter jurisdiction would not be "with prejudice," plaintiff would, in any event, be allowed to refile an action after filing a claim for refund, with respect to those portions of the refund claim which remain within the statutory period of limitations.

Appellant's Supplemental Brief at 1 n.*.

Essentially, the estate argues that the September letter, either alone or in conjunction with other information presented to the Commissioner, constituted an informal claim for refund. Informal claims not in compliance with the Treasury Regulations have been held to be sufficient if they satisfy certain requirements of clarity and specificity. See Bauer v. United States, 594 F.2d 44, 46 (5th Cir.1979). Alternatively, the estate argues that the Form 890-AD, which was executed by way of settlement after extended negotiations between the estate and the Office of Appeals, constituted a claim for refund either independently or in connection with a prior claim. In support of this latter contention the estate relies on Revenue Ruling 68-65, which provides that a Form 890-AD "on which a taxpayer has agreed to an overassessment of ... tax determined by the Service will ... be considered a valid claim for credit or refund of any overpayment of tax attributable to the overassessment." Rev.Rul. 68-65, 1968-1 C.B. 555.

We cannot accept the estate's contention that the Form 890-AD constituted a claim for refund. The estate did not agree on Form 890-AD to an "overassessment" of tax, which would result in a decrease in taxes. Rather, it agreed to a "deficiency," an increase in taxes, which the estate paid on March 12, 1985. This distinction is spelled out plainly on the Form 890-AD. Had the IRS and the estate agreed to an overassessment, the estate would have become entitled to a refund. In such a situation, the function of an 890-AD agreement as a claim for refund is clear. See Bauer, 594 F.2d at 46-47. Here, however, where the estate agreed to a deficiency, we think Revenue Ruling 68-65 has no application. The estate apparently believed that the deficiency assessed against it was unfair and, thus, an "overassessment." While we are not without sympathy for the estate's confusion in this regard, we believe that the estate is constrained by the clear terms of the agreement which it signed.

Nor do we believe that the proviso attached by the estate to the Form 890-AD was a sufficient informal claim for refund. In this proviso, the estate expressly preserved the right to file a future refund claim. The proviso language is inconsistent with an interpretation that the document itself constituted such a claim or that there was a prior filing by way of the September letter. ¹

The status of the 37-page September letter is more...