U.S. v. Ryals

• Decision Date: 12 March 2007
• Docket Number: No. 06-12308.,06-12308.
• Citation: 480 F.3d 1101
• Parties: UNITED STATES of America, Plaintiff Counter-Defendant-Appellee, v. Jack Carl RYALS, Defendant Counter-Claimant Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

480 F.3d 1101

UNITED STATES of America, Plaintiff Counter-Defendant-Appellee, v. Jack Carl RYALS, Defendant Counter-Claimant Appellant.

No. 06-12308.

United States Court of Appeals, Eleventh Circuit.

March 12, 2007.

Keith Howard Johnson, Johnson & Johnson, P.A., Jacksonville, FL, for Ryals.

Deborah K. Snyder, Bruce R. Ellisen, Frank Phillip Cihlar, U.S. Dept. of Justice, App. Tax Div., Washington, DC, E. Bryan Wilson, U.S. Atty., Tallahassee, FL, for U.S.

Appeal from the United States District Court for the Northern District of Florida.

Before ANDERSON and MARCUS, Circuit Judges, and ALTONAGA,^* District Judge.

PER CURIAM:

Jack Carl Ryals ("Mr. Ryals") appeals the district court's grant of summary judgment in favor of the United States of America (the "Government") on its complaint, and the court's dismissal of certain counts, and summary judgment on other counts, of Mr. Ryals' counterclaim. The Government filed suit against Mr. Ryals seeking to reduce certain tax assessments to judgment. Mr. Ryals filed a ten-count counterclaim for tax refunds.

The lower court granted the Government's motion for summary judgment, dismissed counts one through eight of the counterclaim on the basis that it did not have subject matter jurisdiction to entertain them, and granted summary judgment for the Government on counts nine and ten (the remaining counts) of the counterclaim. Mr. Ryals argues that summary judgment was improvidently granted because the applicable statute of limitations had expired prior to the Government's suit. Mr. Ryals also asserts that the lower court erred when it dismissed the counterclaim, finding (1) that Mr. Ryals did not follow the proper administrative claim procedure as a prerequisite to his first eight claims, and (2) as to the final two counts of the counterclaim, that Mr. Ryals had not shown he had overpaid any tax and was not entitled to exemption from levy. Finding no error in the lower court's decision, we AFFIRM.

I. BACKGROUND

Mr. Ryals failed to pay his federal income taxes for the 1977 and 1978 tax years. In 1989, the United States Tax Court entered a decision¹ finding that Mr. Ryals was liable for deficiencies in income tax and statutory additions for the 1977 and 1978 tax years. In June of 1989, notices of the assessment and demand for payment were issued to Mr. Ryals. The total amount of deficiencies, statutory additions and interest assessed was $526,465.

Despite the notices of the assessment and demand for payment, Mr. Ryals did not pay the federal income tax assessed for 1977 and 1978. By March 31, 2003, he owed the sum of $1,678,065 for these two tax years.

Between the notices of the assessment and March 31, 2003, Mr. Ryals, who had previously been convicted of a criminal tax offense, submitted two offers in compromise to the Internal Revenue Service ("IRS"). The first offer in compromise was presented on August 18, 1997, and related to the 1977 and 1978 tax years. The offer in compromise was presented on a form that provided that the statute of limitations on an assessment would be suspended during the period that the offer was pending and for one year thereafter. By letter dated July 17, 1998, Mr. Ryals appealed an initial rejection of the offer, but on January 7, 2000, he faxed and mailed a withdrawal of the offer, requesting that the IRS re-commence the running of the tax collection statute expiration date. Notwithstanding the January 7, 2000 communication, the offer was finally rejected on January 25, 2000.

On June 14, 2000, Mr. Ryals submitted a second offer in compromise that also related to the 1977 and 1978 federal income tax liabilities assessed. He appealed an initial rejection of that second offer by letter dated July 11, 2001. The second offer was finally rejected on March 12, 2002.

Each offer in compromise was submitted to the IRS on Form 656. Subsection (m) of Form 656 contains the following pertinent language: "The offer is pending starting with the date an authorized IRS official signs this form and accepts my/our waiver of the statutory period of limitation. The offer remains pending until an authorized IRS official accepts, rejects, returns or acknowledges withdrawal of the offer in writing." (Doc. 33, Exs. A & C) (emphasis added).² Furthermore, subsection (n) provides that "[t]he waiver and suspension of any statutory periods of limitation for assessment . . . . continue[s] to apply: . . . while the offer is pending . . . [and] for one additional year. . . ." (Id.). An authorized IRS official signed each of the forms submitted.

During the offer in compromise process and thereafter, Mr. Ryals maintained that the revenue officer had improperly failed to allow him a statutory exemption amount under 26 U.S.C. § 6334(a)(9) because the officer was erroneously imputing tenants-by-the-entirety income to him. Thus, in May 2000, Mr. Ryals submitted Forms 1040-X, Amended United States Individual Income Tax Returns, seeking the refund of amounts he maintained had been improperly and unlawfully seized by the IRS and applied to his tax deficiencies from 1992 to 1999. Mr. Ryals and his wife had filed joint federal income tax returns for the tax years 1992 through 1999. While the Forms 1040-X that Mr. Ryals sent in May 2000 appear to have been received by the IRS, they were returned to Mr. Ryals because they included only Mr. Ryals' signature and Social Security number, not his wife's. The refund claims were returned to Mr. Ryals without processing by the IRS.

Mr. Ryals and his wife also filed joint federal income tax returns for the 2000 and 2001 tax years. In September 2002, Mr. Ryals filed a Form 1040-X (also missing his wife's signature) for the years 2000 and 2001, seeking a return of what he again maintained were illegally seized earnings. On April 28, 2003, he filed a second set of Forms 1040-X and included his wife's signature. On May 28, 2003, the IRS disallowed the claims in full.

The Government filed suit on May 20, 2003, seeking payment of the federal income taxes assessed by the Tax Court for the years 1977 and 1978. The sum requested was $1,678,065.01, plus fees and interest from March 31, 2003. Among the defenses raised by Mr. Ryals was a statute of limitations defense. He also presented a ten-count counterclaim seeking refund of taxes he maintained had been erroneously and illegally collected for the years 1992 to 2001. The total demand in the counterclaim was $166,250.00, plus interest and costs. Each count corresponded to a different tax year.

The district court entered judgment on December 8, 2005. This appeal was timely filed.

II. STANDARD OF REVIEW

The parties agree that each of the issues presented involves a question of law subject to de novo review. See Broughton v. Fla. Int'l Underwriters, Inc., 139 F.3d 861, 863 (11th Cir.1998). The construction of federal statutes, including statutes of limitations, is a question of law. See United States v. Gibson, 434 F.3d 1234 (11th Cir. 2006). Furthermore, an order granting summary judgment is reviewed de novo. See Dixon v. Burke County, 303 F.3d 1271, 1274 (11th Cir.2002).

III. ANALYSIS

A. Tolling of the Statute of Limitations by the Offers in Compromise

Mr. Ryals first asserts that the lower court erred in concluding that the complaint for collection after assessments was timely filed. The lower court's decision, and this Court's de novo review of that issue, depends on a detailed review of the facts presented as applied to several revisions in the applicable statutes. Before embarking on that review, it bears noting that statutes of limitations that bar the collection of taxes otherwise due and unpaid, as they are here, are strictly construed in favor of the Government. See Atl. Land & Improvement Co. v. United States, 790 F.2d 853, 858 (11th Cir.1986); see also Lucia v. United States, 474 F.2d 565, 570 (5th Cir.1973) ("[A] period of limitations runs against the collection of taxes only because the Government, through Congressional action, has consented to such a defense. Absent Government consent, no limitations defense exists.") (citations omitted).

When a taxpayer fails to pay assessed taxes after notice and demand, the Government may bring a suit to reduce the assessment to judgment. See 26 U.S.C. §§ 7401-7403. Under 26 U.S.C § 6502(a)(1),³ the Government has ten years from the date of an assessment to collect a federal tax liability by bringing suit.

Offers in compromise operate as one way to suspend the running of the ten-year statute of limitations. See 26 U.S.C. §§ 6331(k) and (i)(5). Offers in compromise contain a waiver of the limitations period in order to enable the Government to consider the offer without the prejudice resulting from a running of the limitations period against collection of the tax. See United States v. Ressler, 576 F.2d 650, 652 (5th Cir.1978) (citations omitted). "The running of the statutory period is suspended until the offer of compromise is terminated, withdrawn, or formally rejected." Id. (citation omitted). Furthermore, one additional year is added to the suspension period in accordance with the parties' agreement as contained in the Forms 656 used by the taxpayer and the IRS here.

An attempted withdrawal of an offer in compromise by the taxpayer, as Mr. Ryals attempted to effect with his 1997 offer, becomes effective only once an authorized IRS official "returns or acknowledges withdrawal of the offer in writing," as is stated in the Form 656 submitted. See also United States v. Donovan, 348 F.3d 509, 512 (6th Cir.2003) (offer ceases to be pending for purposes of statute of limitations when IRS officer, in writing, "accepts, rejects or acknowledges withdrawal of the offer"). While Mr. Ryals certainly communicated his withdrawal of the first offer in compromise, no written acknowledgment of the withdrawal by an IRS official was ever made.

Mr. Ryals' tax liabilities were assessed on June 22, 1989, and this event triggered the ten-year statute...