United States v. Dalm, No. 88-1951

• Court: United States Supreme Court
• Writing for the Court: KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN, O'CONNOR, and SCALIA, JJ., joined. STEVENS
• Citation: 110 S.Ct. 1361,108 L.Ed.2d 548,494 U.S. 596
• Parties: UNITED STATES, Petitioner v. Frances L. DALM
• Docket Number: No. 88-1951
• Decision Date: 20 March 1990

494 U.S. 596 110 S.Ct. 1361 108 L.Ed.2d 548 UNITED STATES, Petitioner

v.

Frances L. DALM.

No. 88-1951. Argued Jan. 10, 1990. Decided March 20, 1990. Rehearing Denied May 14, 1990.

See 495 U.S. 941, 110 S.Ct. 2195.

Syllabus

In 1975, respondent Dalm was appointed administratrix of her deceased former employer's estate. In 1976 and 1977, she received payments from the decedent's brother, who wanted her to share in the estate because of her years of service to the decedent. In December 1976, a federal gift tax return was filed, and the gift tax was paid, for that year's payment to Dalm. The Internal Revenue Service (IRS) then assessed penalties and interest with respect to the 1976 transfer, which were paid in March 1977. No gift tax return was filed for the 1977 payment. After auditing Dalm's 1976 and 1977 income tax returns, the IRS asserted deficiencies upon determining that she should have reported the payments from the brother as income to her as administratrix. Arguing that the payments were gifts, she petitioned the Tax Court for a redetermination of the deficiencies but made no claim for a credit or recoupment of the gift tax paid. The parties settled the case, agreeing to a stipulated decision that Dalm owed lesser income tax deficiencies than those asserted for both tax years. In November 1984, she filed an administrative claim for refund of the gift tax, interest, and penalties paid with respect to the 1976 transfer, even though 26 U.S.C. § 6511(a) required that any refund claim be filed within three years of when the return was filed. When the IRS failed to act on the claim, she filed a District Court action for a refund of "overpaid gift tax," alleging that the court had jurisdiction under 28 U.S.C. § 1346(a)(1). The court dismissed the suit for lack of jurisdiction in light of § 6511(a), rejecting her contention that the suit was timely under the doctrine of equitable recoupment set forth in Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421. The Court of Appeals reversed, finding that her claim satisfied all of the doctrine's requirements. Held: The District Court lacked jurisdiction over Dalm's refund suit. Pp. 601-611.

(a) Title 28 U.S.C. § 1346(a)(1)'s provision of broad district court jurisdiction over civil tax refund suits must be read in conformity with other statutory provisions conditioning the right to bring such a suit, including 26 U.S.C. § 7422(a), which requires the prior filing of an administrative refund claim, and § 6511(a), which provides the applicable statute of limitations for filing such a claim. Since Dalm failed to file her

Page 597

claim within the specified time limits, the District Court was barred from entertaining her suit. Pp. 601-602.

(b) The statute of limitations long since having run, the doctrine of equitable recoupment does not support Dalm's suit. Bull must be distinguished on the ground that, there, equitable recoupment of estate tax was sought in an action for refund of income tax, over which the court had undisputed jurisdiction, and the only issue was whether the court, in the interests of equity, could adjust the income tax owed to take account of an estate tax paid in error but which the petitioner could not recover in a separate, time-barred refund action. Here, Dalm does not seek to invoke equitable recoupment in determining her income tax liability; she has already litigated that liability in the Tax Court without raising an equitable recoupment claim, and is foreclosed from litigating it now. She seeks to invoke equitable recoupment only in a separate action for refund of gift tax, an action for which there is no statutory authorization by reason of the statute of limitations bar. Bull and Stone v. White, 301 U.S. 532, 57 S.Ct. 851, 81 L.Ed. 1265 stand only for the proposition that a party litigating a tax claim in a timely proceeding may, in that proceeding, seek recoupment of a related, and inconsistent, but now time-barred tax claim relating to the same transaction. They do not allow equitable recoupment to be the sole basis for jurisdiction. Pp. 602-608.

(c) Since Dalm failed to comply with the applicable statute of limitations, the Government is immune from suit under settled principles of sovereign immunity. See, e.g., United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224, 2229, 90 L.Ed.2d 841. Because Dalm's action does not come within any of the statutory exceptions to the limitations period prescribed by §§ 7422 and 6511(a), allowing her to maintain this suit would effectively override Congress' judgment as to when equity requires an exception. Both the IRS and a court which has jurisdiction over a timely suit for refund may still consider an equitable recoupment claim for an earlier tax paid under an inconsistent theory on the same transaction. Pp. 608-610.

(d) The Court of Appeals' reasoning that recoupment should be permitted in this case because it effected, with respect to a single transaction, the recovery of a tax based upon a theory inconsistent with the theory upon which a later tax was paid mistakes the threshold requirement for such a suit. Although this Court's precedents allowing recoupment pertain to cases where a single transaction is subject to inconsistent taxation, the reason the statute of limitations is not a bar in those cases is that, unlike here, the court has uncontested jurisdiction to adjudicate one of the taxes in question and, therefore, the equitable power to examine and consider the entire transaction. See Rothensies v. Electric Storage Battery Co., 329 U.S. 296, 299, 67 S.Ct. 271, 272, 91 L.Ed. 296. Pp. 610-611.

867 F.2d 305 (CA 6 1989) reversed.

Page 598

KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN, O'CONNOR, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BRENNAN and MARSHALL, JJ., joined, post, p. 612.

Christine Desan Husson, for petitioner, pro hac vice, by special leave of Court.

Robert B. Pierce, Birmingham, Mich., for respondent.

Justice KENNEDY delivered the opinion of the Court.

Single transactions, it is well known, may be susceptible to different, and inconsistent, theories of taxation. In the case before us, the taxpayer treated moneys derived from her deceased employer's estate as a gift and paid gift tax on the transfer. Some years later, the Government contended that the money the taxpayer had received from the transaction was income. The taxpayer disagreed, and the Government's assertion of an income tax deficiency was the subject of proceedings in the United States Tax Court. The question presented is whether, the statute of limitations long since having run, the doctrine of equitable recoupment supports a separate suit for refund of the earlier paid gift tax after the taxpayer settled the Tax Court deficiency proceeding and agreed to pay income tax on the transaction. We hold that it does not.

I

The taxpayer, Frances Dalm, is the respondent here. Dalm was appointed administratix of the estate of Harold Schrier in May 1975, at the request of Schrier's surviving brother, Clarence. It appears Dalm had been the decedent's loyal secretary for many years and that Clarence wanted her to take charge of the affairs of the estate and receive some of the moneys that otherwise would belong to him.

Page 599

Dalm received fees from the estate, approved by the probate court, of $30,000 in 1976 and $7,000 in 1977. She also received from Clarence two payments, $180,000 in 1976 and $133,813 in 1977. Clarence and his wife filed a gift tax return in December 1976 reporting the $180,000 payment as a gift to Dalm, and in that same month Dalm paid the gift tax of $18,675. The Internal Revenue Service (IRS) later assessed an additional $1,587 in penalties and interest with respect to the transfer. The Schriers paid the penalties and interest in 1977, and were reimbursed by Dalm. But no gift tax return was filed with respect to the 1977 payment of $133,813.

After auditing Dalm's 1976 and 1977 income tax returns, the IRS determined that the payments from Clarence represented additional fees for Dalm's services as administratrix of the estate and should have been reported as income. The IRS asserted deficiencies in her income tax of $91,471 in 1976, and $70,639 in 1977, along with additions to the taxes under § 6653(a) of the Internal Revenue Code of 1954 (IRC), 26 U.S.C. § 6653(a) (1982 ed.).¹

Dalm petitioned the Tax Court for a redetermination of the asserted deficiencies, as was her right under § 6213(a). In her petition, she argued that the 1976 and 1977 payments from Clarence were gifts to carry out the wish of the decedent that she share in the estate. After two days of trial, Dalm and the IRS settled the case, with the parties agreeing to a stipulated decision that respondent owed income tax deficiencies of $10,416 for 1976 and $70,639 for 1977. No claim for a credit or recoupment of the gift tax paid by Dalm was raised in the Tax Court proceedings, although there is some dispute whether the gift tax was one of the factors considered in arriving at the terms of the settlement. See n. 2, infra.

Immediately after agreeing to the settlement, Dalm filed an administrative claim for refund of the $20,262 in gift tax, interest, and penalties paid with respect to the $180,000

Page 600

transfer in 1976. The claim was filed in November 1984, even though the IRC required Dalm to file any claim for a refund of the gift tax by December 1979. See § 6511(a). When the IRS failed to act upon her claim within six months, Dalm filed suit in the United States District Court for the Western District of Michigan, seeking what in her complaint she denominated a refund of "overpaid gift tax." Her complaint alleged that the District Court had jurisdiction under 28 U.S.C. § 1346(a)(1) (1982 ed.).

The Government moved to dismiss the suit for lack of jurisdiction and for summary judgment,...