U.S. v. Domino Sugar Corp.

• Decision Date: 14 September 1999
• Docket Number: No. 97 Civ. 9113 RMB.,97 Civ. 9113 RMB.
• Citation: 210 F.Supp.2d 219
• Parties: UNITED STATES of America, Plaintiff, v. DOMINO SUGAR CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

210 F.Supp.2d 219

UNITED STATES of America, Plaintiff, v. DOMINO SUGAR CORPORATION, Defendant.

No. 97 Civ. 9113 RMB.

United States District Court, S.D. New York.

September 14, 1999.

DECISION AND ORDER

BERMAN, District Judge.

Plaintiff, the United States of America ("Government"), filed this action on or about December 10, 1997 to recover a $1,526,100.60 interest payment it erroneously made to defendant, Domino Sugar Corporation ("Domino"),¹ on or about September 24, 1993. Domino seeks to dismiss the complaint, pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ.P.") 12(b)(6), asserting that the Government's claim for recovery was made too late and is, therefore, barred by the (two year) statute of limitations set forth in 26 U.S.C. § 6532(b).

For the reasons set forth below, Domino's motion to dismiss is denied.

Background

The following facts, which are set forth in the Government's complaint, are taken to be true for the purposes of this motion. In 1990, the Internal Revenue Service ("IRS") audited Domino for the tax period ended August 16, 1989. (Compl. ¶ 16). Among other things, the IRS reviewed Domino's August 1989 tax return and proposed an adjustment relating to an $18,009,489.00 net operating loss carryforwards that Domino claimed as a deduction on its return. (Compl.¶ 17). In December 1990, Domino agreed in writing to the IRS' proposed adjustment. (Compl.¶ 18).

On December 14, 1990, Domino sent the IRS a letter concerning the proposed adjustment and enclosing a remittance of $6,497,710.00 ("December 1990 remittance"). (Compl.¶ 19). In its letter, Domino stated that the remittance was for an (anticipated) deficiency in tax, plus interest resulting from the IRS' adjustment.² (Compl.¶ 20). Domino's letter also stated that "[w]e respectfully request that this deposit be identified as a cash bond in your records." (Compl.¶ 22)(emphasis added). Pursuant to Revenue Procedure 84-58, 1984-2 C.B. 501, § 5.04, Domino's remittance had the effect of stopping interest from accruing on any tax deficiency assessment. (Compl.¶ 21).

On December 14, 1990, in accordance with Domino's instructions, the IRS prepared a Payment Posting Voucher, which identified the remittance as a "cash bond" and indicated that a Form 316(c), which advises that the IRS will accept the remittance as a cash bond, should be sent to Domino. (Compl.¶ 23). In the final Payment Posting Voucher, however, the IRS coded the remittance as a "subsequent payment." (Compl.¶ 24).

In September 1993, at the conclusion of its audit, the IRS determined that, as a result of other adjustments in Domino's favor, Domino's correct tax liability for the period at issue was less than the amount originally shown in Domino's tax return and, consequently, also less than the approximately $10 million tax payment that Domino had made when it filed its return. (Compl.¶ 25). The IRS concluded that Domino had overpaid its taxes by $173,336.00. (Compl.¶¶ 25, 28). In calculating Domino's correct tax liability (and overpayment), the IRS did not take into account Domino's December 1990 remittance. (Compl.¶ 26).

On September 24, 1993, the IRS sent Domino $8,240,206.34 including: (i) the $173,336.00 refund (minus $7,956.61 which was credited to other tax liabilities owed by Domino), together with interest in the amount of $51,016.35; and (ii) the December 1990 remittance (i.e., $6,497,710.00) together with interest thereon in the amount (at issue here) of $1,526,100.60. (Compl.¶¶ 30-31).

Revenue Procedure 84-58, 1984-2, C.B. 501, § 5.04 provides that a taxpayer who makes a deposit payment to the IRS in the nature of a cash bond is not entitled to receive interest on the deposit in the event that the IRS returns the cash bond to the taxpayer.³ (Compl.¶ 32). The $1,526,100.60 interest payment that the IRS made to Domino on the December 1990 remittance was a mistake, i.e., the result of a processing error. (Compl.¶ 33).

On February 21, 1996, the IRS sent Domino a letter requesting the return of the $1,526,100.60 interest payment. (Compl.¶ 35). By letter dated March 14, 1996, Domino advised the IRS that it would not return the $1,526,100.60.⁴ (Compl.¶ 36). The Government filed this action on or about December 10, 1997.

Motion to Dismiss Standard

In resolving a motion to dismiss, the Court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of plaintiff. See Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In other words, the burden upon the movant is substantial as the issue before the Court on a Rule 12(b)(6) motion "is not whether a plaintiff is likely to prevail ultimately, `but whether the claimant is entitled to offer evidence to support the claims. Indeed, it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test.'" Gant v. Wallingford Board of Education, 69 F.3d 669, 673 (2d Cir.1995)(quoting Weisman v. LeLandais, 532 F.2d 308, 311 (2d Cir.1976)(per curiam)). However, while "`the well-pleaded material allegations of the complaint are taken as admitted . . . conclusions of law or unwarranted deductions of fact are not admitted.'" First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir.1994), cert. denied, 513 U.S. 1079, 115 S.Ct. 728, 130 L.Ed.2d 632 (1995) (citations omitted).

Discussion

"The Government by appropriate action can recover can recover funds which its agents have wrongfully, erroneously, or illegally paid. `No statute is necessary to authorize the United States to sue in such a case. The right to sue is independent of statute.'" United States v. Wurts, 303 U.S. 414, 415, 58 S.Ct. 637, 82 L.Ed. 932 (1938) (citation omitted). The United States Supreme Court has ruled that "[o]rdinarily, recovery of Government funds, paid by mistake to one having no just right to keep the funds, is not barred by the passage of time." Id. at 416, 58 S.Ct. 637 (citation omitted). See also United States v. Hawk Contracting, Inc., 649 F.Supp. 1, 2 (W.D.Pa.1985)("[t]his rule is intended to preserve `the public's rights, revenues, and property from injury and loss' due to the negligence of agents of the government") (citation omitted). Moreover, "[t]he Government's right to recover funds, from a person who received them by mistake and without right, is not barred unless Congress has `clearly manifested its intention' to raise a statutory barrier." Wurts, 303 U.S. at 416, 58 S.Ct. 637 (citation omitted).

Against this backdrop of law and public policy, Domino argues that the Government is not (even) entitled to its day in court. That is, according to Domino, "[t]he only issue before the Court on this motion is whether the two-year limitation in 26 U.S.C. § 6532(b) on suits to recover erroneous tax refunds applies in this case." (Reply Br. at 1). The Court disagrees and believes it is appropriate to further develop the record. Section 6532(b) provides as follows:

(b) Suits by United States for recovery of erroneous f erroneous refunds. — Recovery of an erroneous refund by suit under section 7405⁵ shall be allowed only if such suit is begun within 2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact. Domino contends that § 6532(b) manifests Congressional intent to raise a statutory barrier to the Government's right to recover the funds at issue here. (Moving Br. at 3-5)(Reply Br. at 3-4).⁶ In the instant case, Domino contends that because the IRS sent Domino a payment on September 24, 1993, but did not commence litigation to recover (a portion of) that payment until December 1997, the Government has run afoul of the two year limitations period set forth in § 6532(b). (Moving Br. at 4-5).

The Government's position is that the two year limitations period in § 6532(b) does not apply here because Domino's December 1990 remittance to the IRS of $6,497,710.00 was a "deposit in the nature of a cash bond" rather than a "payment of tax." The Government argues that there are no statutory barriers to suits to recover interest mistakenly paid on cash bonds. (Opp. Br. at 8). "Since there is no statutory barrier precluding the Government from recovering the interest paid on Domino's remittance, the Government submits that, under the federal common law, and pursuant to 28 U.S.C. § 2415,⁷ this suit is timely." (Opp. Br. at 8-9).

As noted, § 6532(b) also provides a five year statute of limitations "if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact." Here, the Government's action is within the five year period, although it does not appear from the record whether this provision is being relied upon by the Government.

Domino asserts that whether its' December 1990 remittance was a "deposit in the nature of a cash bond" or a "payment of tax" is irrelevant. "The question under § 6532(b) and its companion jurisdictional statute, 26 U.S.C. § 7405, is not how the taxpayer gave the money to the I.R.S., but whether, when the I.R.S. returned the money to Domino, it made a tax refund within the meaning of the statute." (Reply Br. at 1).

The Court disagrees with Domino's assertion that the nature of Domino's December 1990 remittance is legally irrelevant. While the Court is not aware of cases directly on point with the instant matter, in cases where taxpayers have sought to recover remittances to the IRS, courts have drawn a distinction for statute of limitations purposes between a deposit/cash bond and a payment of tax. See, e.g., Ertman v. United States, ...