Ukp Holdings, Inc. v. United States

• Decision Date: 06 April 2018
• Docket Number: 15 CV 6431 (RJD) (RLM)
• Parties: UKP HOLDINGS, INC., Plaintiff, v. UNITED STATES OF AMERICA, Defendant.
• Court: U.S. District Court — Eastern District of New York

UKP HOLDINGS, INC., Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

15 CV 6431 (RJD) (RLM)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

April 6, 2018

MEMORANDUM & ORDER

DEARIE, District Judge

Plaintiff UKP Holdings, Inc. (UKP), an investment holding company, seeks a tax refund of $3,237,075 on its 2005 taxes, based on its attempt to carry back its 2008 capital losses to a prior tax year. UKP and the Government filed cross-motions for summary judgment. See Plaintiff Mem. in Supp. of Mot. for Summ. J. ("Plaintiff Mem.") (ECF No. 31); Gov't Mem. in Supp. of Mot. for Summ. J. ("Gov't Mem.") (ECF No. 35-1). The parties agree that UKP failed to timely file a formal tax refund claim. See 26 U.S.C. § 7422(a) (formal claim typically a jurisdictional requirement). They disagree as to whether UKP filed a valid informal refund claim. See United States v. Kales, 314 U.S. 186, 194 (1941). UKP asserts that the Form 1139 ("Corporation Application for Tentative Refund") that it submitted to the Internal Revenue Service (IRS), coupled with communications with IRS personnel, all of which requested a carryback of UKP's 2008 losses back to 2007, constitute a valid informal refund claim. The Government asserts that UKP's interactions with the IRS do not amount to a valid informal refund claim, because UKP failed to request a refund for the proper tax year, 2005. See 26 U.S.C. § 6551(D)(2)(a). We agree with the Government that UKP failed to file a valid informal refund claim and that we therefore lack subject matter jurisdiction. The Government's motion for summary judgment is granted. UKP's cross-motion is denied.

BACKGROUND

The facts underlying this case are almost entirely agreed upon by the parties. Nevertheless, because of the highly technical nature of the tax regulations and timeliness requirements at issue, we outline the relevant chronology here.

On February 17, 2010, UKP filed a federal income tax return on Form 1120 for 2007 and 2008. UKP Rule 56.1 Stmt. ("UKP 56.1"), ECF No. 30, ¶ 2; Galler Aff. ¶ 5, Ex. 2. It reported $11,302,855 in capital losses for 2008. UKP 56.1 ¶ 2. UKP simultaneously filed a Form 1139 ("Corporate Application for a Tentative Refund") indicating that it sought to carry its 2008 losses back to 2007. Id. ¶¶ 2, 6, 7. But UKP made a critical mistake: though it was required by statute to carry its losses back to the 2005 tax year, it requested to carry them back to 2007. See UKP 56.1 ¶ 7; see also 26 U.S.C. § 1212(a)(1)(A), (C) (a net capital loss shall be carried back to "each of the 3 taxable years preceding the loss year," and entire loss for any tax year "shall be carried to the earliest of the taxable years to which any such loss may be carried"). UKP also failed to file its Form 1139 within one year of the close of the relevant loss year, 2008, as is required by 26 U.S.C. § 6411(a). See UKP 56.1 ¶ 2.

On March 18, 2010, the IRS returned UKP's Form 1139. UKP 56.1 ¶ 8. The IRS explained that it could not review the form until UKP's 2007 and 2008 tax returns were processed. UKP 56.1 ¶ 8; Galler Aff. ¶ 6, Ex. 3. Though the IRS did not identify any error in UKP's tentative carryback request (i.e. that it was untimely and reflected a carryback of 2008 losses to the wrong year), the IRS directed UKP to refile its application in four to six weeks. UKP 56.1 ¶ 8; Galler Aff. Ex. 3. UKP failed to refile its refund application. UKP 56.1 ¶ 9;Galler Aff. ¶ 6. From November to May 2011, Linda Galler, UKP's attorney, and IRS Revenue Officer Michael S. Martin, the officer assigned to collect UKP's taxes, engaged in a series of communications, including:

• (1) A November 9, 2010 phone call, discussing Ms. Galler's role as UKP's attorney and that she needed to obtain a Power of Attorney Form. UKP 56.1 ¶¶ 12-13; Galler Aff. ¶ 8.

• (2) A letter dated January 29, 2011 from the IRS, notifying UKP of a tax lien and requesting payment of taxes for 2007 and 2008. UKP 56.1 ¶ 14; Galler Aff. ¶ 9.

• (3) A March 4, 2011 phone call, Officer Martin's notes from which state that the IRS returned UKP's refund application and that UKP had "to wait so many weeks after the original returns are processed to file" its refund request. UKP 56.1 ¶¶ 16-17; Cooper Decl. Ex. D, USA 0016-17. Officer Martin's notes reflect some discussion about a 2008 carryback to the 2007 tax year. UKP 56.1 ¶¶ 16-17; Cooper Decl. Ex. D at 45 (Officer Martin "requested to have th[e] information [Ms. Galler conveyed] sent to my office...to [determine] whether these statements are correct."). Officer Martin also explained that Ms. Galler "stated that UKP intended that the 2008 capital losses be carried back to 2007." Martin Decl., ECF No. 35-3, ¶ 2.

• (4) A letter dated March 10, 2011 from Ms. Galler to Officer Martin, attaching UKP's Form 1139 and reiterating UKP's intent to carry back its 2008 losses to 2007. UKP 56.1 ¶¶ 18-19; Plaintiff Mem., ECF No. 31, at 18; Galler Aff. ¶ 11, Ex. 4; and

• (5) An early May 2011 conversation in which Officer Martin told Ms. Galler that he would submit UKP's Form 1139 to the IRS for processing. UKP 56.1 ¶ 21; Galler Aff. ¶ 15; see also Martin Decl. ECF No. 35-3, ¶ 2 (Officer Martin and Ms. Galler discussed "the holding off of filing amended returns" to give the IRS time to process its Form 1139."). Officer Martin also said that there would likely be an audit by the Congressional Joint Committee on Taxation "- a long process that could not be accelerated." UKP 56.1 ¶ 21; Galler Aff. ¶¶ 12-13.

UKP claims that in Ms. Galler's early May 2011 conversation with Officer Martin, Officer Martin informed Ms. Galler that UKP's Form 1139 "would effectuate the carryback of UKP's 2008 losses...[and] that UKP did not need to file amended returns." See UKP 56.1 ¶ 21; Galler Aff. ¶¶ 12-13; Plaintiff Mem. in Opp'n to Gov't Mot. for Summ. J. ("Plaintiff Mem. in Opp'n"), ECF No. 37, at 5. The Government disputes this assertion, and there is no such notation in Officer Martin's file. See Gov't Response to UKP 56.1, ECF No. 35-5, ¶ 21; see alsoMartin Decl., ECF No. 35-3, ¶ 2 ("At no time did I...ever promise any UKP representative that the...[carryback to 2007] would be allowed).

Finally, on May 18, 2011, Officer Martin submitted UKP's Form 1139 to the IRS for processing using Form 3870 ("Request for Adjustment"). UKP 56.1 ¶¶ 23-27; see also Martin Decl., ECF No. 35-3, ¶¶ 2-3. He attached his correspondence with Ms. Galler. UKP 56.1 ¶¶ 25-27; Martin Decl. ¶ 3. UKP explains that Officer Martin "filed the Form 1139 to carry back losses to the wrong year...[and that in] complete disregard of the Internal Revenue Manual ("IRM") procedure" he failed to advise Ms. Galler that UKP's Form 1139 was filed after the statutory deadline. Plaintiff Mem. in Opp'n, ECF No. 37, at 6. Almost two years passed before UKP received a response from the IRS as to its Form 1139. UKP 56.1 ¶¶ 35-38; Galler Aff. ¶ 16. In the meantime, on February 4, 2013, the IRS sent UKP a notice of its intent to levy taxes owed for 2011. UKP 56.1 ¶ 39; Galler Aff. ¶ 18, Ex. 6. UKP's accountant, Amber Williams, responded that UKP had not paid its 2011 taxes because it expected a refund from its 2008 losses that it could eventually apply to its 2011 taxes. UKP 56.1 ¶¶ 40-42; Galler Aff. ¶ 19, Ex. 7). In response, in a March 8, 2013 letter, the IRS notified UKP that its request for a tentative refund for 2007 was denied. UKP 56.1 ¶¶ 41-43; Galler Aff. ¶ 19, Ex. 7. The denial was based on two errors related to UKP's Form 1139: (1) it was filed on February 17, 2010, more than a year after the close of the loss year, 2008, in violation of 26 U.S.C. § 6411(a) and (2) it requested a carryback of 2008 losses to 2007, inconsistent with 26 U.S.C. § 1212(a)(1), which requires that such losses first be carried back "to the earliest of the taxable years to which such loss may be carried"—in this case, three years, to 2005. See UKP 56.1 ¶¶ 44-46; Gov't 56.1 ¶¶ 12-13.¹ At that time, the IRS directed UKP to file amended returns for 2005 through 2008 to "protect [its]interests." UKP 56.1 ¶ 46; Galler Aff. Ex. 7. UKP did not, and offers no explanation for its failure to do so. UKP alleges that on May 2, 2013, Ms. Galler was informed by IRS Revenue Officer Theresa Henkin that UKP's 2008 carryback claim was denied on July 27, 2011. UKP 56.1 ¶ 47; Galler Aff. ¶ 21. The Government disputes this, proffering a statement from Officer Henkin that as of July 27, 2011, UKP's Form 1139 was merely being processed. Gov't Resp. to UKP 56.1, ECF No. 35-4, ¶ 35; ECF No. 35-5, Ex. 1 (Decl. of Teresa Henkin) ¶¶ 10-11 (Henkin's official notes "indicate that [she] had a conversation with Ms. Galler on May 2, 2013, but...only that [she] advised her to [] pay the outstanding balances and wait for [UKP's] claim to be resolved or file a new claim after full payment is made."); UKP 56.1 ¶ 36, Galler Aff. ¶ 24, Ex. 8.

On July 2, 2013, Ms. Galler discussed UKP's refund request with IRS Appeals Settlement Officer Marilyn Matthews, who informed her that UKP's accounts for 2007 and 2008 were "closed" and put in "non-collectible status." UKP 56.1 ¶¶ 49-50; Galler Aff. ¶ 26. Officer Matthews advised Ms. Galler to contact the IRS Taxpayer Advocate Service to pay UKP's 2011 taxes and file amended returns for all years affected by the refund request. UKP 56.1 ¶ 51; Galler Aff. ¶ 26. UKP filed Form 1120X ("Amended Corporate Income Tax Return") for 2005 through 2011 on August 27, 2013. UKP 56.1 ¶ 52; Galler Aff. ¶ 27. The statute of limitations on UKP's refund claim for 2005, based on its loss carryback from 2008, had long since expired on September 15, 2012.² See 26 U.S.C. § 6551(d)(2)(A).

On November 27, 2013, the IRS rejected UKP's request as untimely. UKP 56.1 ¶ 55; Galler Aff. ¶ 32, Ex. 11. UKP's formal protest of this rejection was denied by the IRS on June 1,2015. UKP 56.1 ¶¶ 56-57. UKP asserts that it was not notified of the denial of its appeal until September 15, 2015. UKP 56.1 ¶ 57; Galler Aff. ¶ 34, Ex. 13. This suit...