Porter v. US

• Decision Date: 26 March 1996
• Docket Number: Civ. A. No. 2:95cv1127.
• Citation: 919 F. Supp. 927
• Parties: Donald L. PORTER and Leora L. Porter, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

919 F. Supp. 927

Donald L. PORTER and Leora L. Porter, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. No. 2:95cv1127.

United States District Court, E.D. Virginia, Norfolk Division.

March 26, 1996.

COPYRIGHT MATERIAL OMITTED

Steven Jay Harwood, McGuire, Woods, Battle & Boothe, Norfolk, VA, for plaintiffs.

Gregory D. Stefan, United States Attorney's Office, Norfolk, VA, Beverly A. Moses, U.S. Department of Justice, Tax Division, Washington, DC, for defendant.

OPINION AND ORDER

DOUMAR, District Judge.

This matter is before the Court upon the United States' motion to dismiss for lack of jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). For the reasons set out below, the motion is GRANTED in part and DENIED in part.

I. Facts

On or about April 15, 1988, Plaintiffs filed an Internal Revenue Service (I.R.S.) Form 4868, an "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return," and remitted $15,000.00, an amount which plaintiffs estimated at that time would be their income tax liability for 1987, less amounts already paid or withheld. On or about March 1, 1993, plaintiffs filed a joint federal income tax return for the calendar year of 1987 reflecting a balance due of $2866.00. The return for 1987 reported income and deductions based upon plaintiffs' belief that a corporation in which plaintiffs had an ownership interest had properly elected to be treated as a subchapter S corporation.

On or about March 1, 1994, the I.R.S. notified plaintiffs that this corporation had not properly elected to be a subchapter S corporation, and as a result, returns filed by plaintiffs were adjusted, including the 1987 return. The result of this adjustment was that an overpayment of approximately $12,767.00 for the year 1987 had occurred. On or about March 1, 1994, plaintiffs requested a refund from the I.R.S., but the refund was denied because of the application of the statute of limitations. Plaintiffs then filed this action in federal court.

II. Motion to Dismiss

The government has moved to dismiss this action for lack of subject matter jurisdiction. When considering a motion to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), the court should consider "whether plaintiffs' allegations, standing alone and taken as true plead jurisdiction and a meritorious cause of action." Dickey v. Greene, 729 F.2d 957, 958 (4th Cir.1984). Once the existence of subject matter jurisdiction is challenged, the burden of establishing its existence always rests upon the party asserting jurisdiction. Richmond, Fredericksburg & Potomac R.R. Co. (RF & P R.R.) v. United States, 945 F.2d 765, 768 (4th Cir.1991), cert. denied, 503 U.S. 984, 112 S.Ct. 1667, 118 L.Ed.2d 388 (1992). The court should regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment. Id. (citing Adams v. Bain, 697 F.2d 1213, 1216 (4th Cir.1982)).

Based on the dispositive nature of a Rule 12(b)(1) motion challenging the underlying subject matter jurisdiction of the action, the court must ensure that the record has been fully developed before deciding the motion. Adams, 697 F.2d at 1220; E.E.O.C. v. Alford, 142 F.R.D. 283, 286 (E.D.Va.1992). This Court must apply the standard applicable to a motion for summary judgment, under which the nonmoving party must set forth specific facts beyond the pleadings to show that a genuine issue of material fact exists. RF & P R.R., 945 F.2d at 768.

III. 26 U.S.C. § 6511

A. § 6511(a)

First, a brief and generalized review of federal court jurisdiction over tax refund cases is appropriate. A taxpayer has the right under 28 U.S.C. § 1346(a)(1) to file suit to recover any internal revenue tax alleged to have been erroneously or illegally collected or assessed. Webb v. United States, 66 F.3d 691, 693 (4th Cir.1995). This provision incorporates the limits set out in 26 U.S.C. § 6511. A taxpayer has two choices of forum under the tax code when claiming a refund. If the taxpayer has been given a notice of deficiency by the I.R.S. and desires to bring a claim for a refund or credit associated with that claimed deficiency, the suit is brought in Tax Court, and jurisdiction is granted in 26 U.S.C. § 6512(a) and (b)(1). Lundy v. Commissioner, 45 F.3d 856, 859 (4th Cir.1995), rev'd on other grounds, ___ U.S. ___, 116 S.Ct. 647, 133 L.Ed.2d 611 (1996). If, however, the taxpayer has paid the tax and chooses to make a petition for a credit or refund of that overpayment where no relevant deficiency notice has been sent, the taxpayer may file in federal district court. This case concerns the latter, obviously, and jurisdiction here is determined by looking at 26 U.S.C. § 6511.

If, having paid the taxes, the taxpayer makes a petition in district court for a refund, a claim for a refund submitted to the I.R.S. must precede the petition on the district court. Commissioner v. Lundy, ___ U.S. ___, ___, 116 S.Ct. 647, 650, 133 L.Ed.2d 611 (1996). The jurisdiction of the district court under § 6511 depends upon whether a return was filed, when the claim was presented, and when the tax was paid. If a return for the appropriate year has been filed, the taxpayer's claim must be presented to the I.R.S. within three years of the filing of the return, or within two years of the payment of the tax sought to be refunded or credited, whichever is later. Id. at ___, 116 S.Ct. at 650-51. If no return is filed, the claim must be presented within two years of the payment of the tax sought to be refunded. 26 U.S.C. § 6511(a).

As with any complicated statutory scheme, an illustration is useful. Assume taxpayer had income withholdings for calendar year 1995 of $5000. Such is deemed "paid" on April 15, 1996, the last day of payment, regardless of any extension. 26 U.S.C. § 6513(a). If the taxpayer seeks a refund of these withholdings, a claim must be presented by April 15, 1998, or within three years of the filing of a return for 1995, regardless of when filed, whichever is later. Thus § 6511(a) is clearly a statute of limitations provision. Lundy, ___ U.S. at ___, 116 S.Ct. at 650-51.

In this case the sole ground for the government's motion is that plaintiffs' claim is barred by the applicable statute of limitations in 26 U.S.C. § 6511. As described above, that section provides, in relevant part, that a refund claim must 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." Id. § 6511(a). The government does not dispute the fact that plaintiffs filed their 1987 return in March of 1993, and therefore the claim for refund filed in March of 1994 falls within that statute. The government also does not appear to dispute the amount of the overpayment. However, the government maintains that the statutory limitation on the amount of any claim for refund bars the prosecution of this case, requiring dismissal for lack of jurisdiction.

B. § 6511(b)(2)(A)

The entire focus of the government's motion rests on § 6511(b). That section provides, in relevant part:

(b) Limitation on allowance of credits and refunds. (1) Filing of claim within prescribed period. No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period. (2) Limit on amount of credit or refund. (A) Limit where claim filed within 3-year period. If the claim was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return....

26 U.S.C. § 6511(b) (emphasis added). At issue in this case, then, is whether plaintiffs are entitled to sue for amounts claimed within the appropriate time period under § 6511(a), but paid outside of the time period prescribed in § 6511(b)(2)(A).

Section 6511(b)(2)(A) provides a "look-back" period to determine what "portion of" the tax paid may be included in the timelypresented claim. Lundy, ___ U.S. at ___, 116 S.Ct. at 651. For example, assume that taxpayer determines that his tax liability for 1995 is $30,000, and $5000 has been withheld from his wages. On April 15, 1996, taxpayer remits to the I.R.S. the difference of $25,000 along with his return for 1995. Subsequently taxpayer discovers an error and believes his tax liability for 1995 should have been only $20,000. Under § 6511(a), he must present a claim to the I.R.S. for the $10,000 before April 15, 1999, because a return was filed. The amount of taxpayer's claim is limited under § 6511(b)(2)(A) to the "portion of" the tax paid for 1995 no more than three years prior to the presentation of the claim. Thus in the example, if the claim is filed on April 14, 1999, all $10,000 may be claimed, as the withholdings are deemed paid on April 15, 1996, and the $5000 in tax was paid on April 15, 1996, both within three years preceding the presentation of the claim. Similarly, had taxpayer paid his tax or filed his return on January 1, 1996, the same amount may be claimed, as the early payment of the tax or early filing of the return is also deemed paid on the final day. 26 U.S.C. § 6513(a).

Complications arise, however, when extensions are granted or returns are filed late. The statute appears to provide that no matter how late a return is filed, if a claim is presented within three years of such date of filing, the timing of the claim satisfies § 6511(a). Webb, 66 F.3d at 700 (quoting Oropallo v. United States, 994 F.2d 25, 31 n. 7 (1st Cir.1993) (stating however that amounts claimed in relation to late...