Vancanagan v. U. S.

• Decision Date: 17 October 2000
• Citation: 231 F.3d 1349
• Parties: (Fed. Cir. 2000) WILLIAM K. VANCANAGAN, in his capacity as personal representative of the Estate of FORD BOVEY, and SHARON BOVEY, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee. 99-5040 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1349

231 F.3d 1349 (Fed. Cir. 2000)

WILLIAM K. VANCANAGAN, in his capacity as personal representative of the Estate of FORD BOVEY, and SHARON BOVEY, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.

99-5040

United States Court of Appeals for the Federal Circuit

DECIDED: OCTOBER 17, 2000

Appealed from: United States Court of Federal Claims

Judge Robert H. Hodges, Jr. William K. VanCanagan, Datsopoulos, MacDonald & Lind, of Missoula, Montana, for plaintiffs-appellants. Of counsel was Edward A. Murphy.

Annette M. Wietecha, Attorney, Tax Division, Appellate Section, Department of Justice, of Washington, DC, for defendant-appellee. With her on the brief were Loretta C. Argrett, Assistant Attorney General; and Gilbert S. Rothenberg, Attorney.

Before LOURIE, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and DYK, Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

This appeal challenges a decision of the United States Court of Federal Claims that when the appellants filed an application for an automatic extension of time to file their federal income tax return, the money they remitted to the Internal Revenue Service ("IRS") with their application was a "payment" of their expected tax liability and not a "deposit" to cover such liability. The effect of that ruling was to invalidate as untimely their claim that they had overpaid their taxes. The court therefore dismissed their refund suit. We affirm.

I

A. On April 15, 1990, Mr. and Mrs. Bovey filed with the IRS an application for an automatic four-month extension to file their 1989 federal income tax return. The application, filed on IRS Form 4868, showed their "[t]otal tax liability" as $182,586, their 1989 estimated tax payments as $32,586 and the "BALANCE DUE" as $150,000. Id. The form stated: "In order to get this extension, you MUST pay in full the balance due with this form." Id. The Boveys remitted $150,000 to the IRS with the extension application.

The Boveys filed an application for an additional two-month extension to October 15, 1990, which the IRS granted. The Boveys filed their 1989 return on October 18, 1994, more than four years after the extended due date.

They followed the same practice in filing their returns for 1990, 1991, and 1993: they sought four-month automatic extensions, made a remittance with the application covering the estimated tax, and then obtained a two-month extension. They filed their 1993 return on October 17, 1994, which was the extended date for that return. The next day they filed their 1990 and 1991 returns on October 18, 1994, three and two years, respectively, after the extended due date.

B. In their 1989 return the Boveys reported a tax due of $105,700, a penalty for underpayment of estimated taxes of $3,579, the "[a]mount paid with Form 4868 (extension request)" of $150,000, and the "amount overpaid" as $73,434, which they requested be applied to their 1990 tax.

In their returns for 1990 and 1991, they also reported an overpayment of taxes. The Boveys reported a balance due of $83,213 in their 1993 return and did not file an administrative claim for refund for 1993.

The IRS disallowed the claimed overpayment of $73,434 for 1989 because they had filed their return more than three years after its due date, which made it untimely. The effect of that disallowance, which prevented the application of the claimed 1989 overpayment to the 1990 tax liability, also eliminated the claimed overpayments for that year and for 1991. The Boveys allege that disallowance also caused them to overpay their 1993 tax.

C. The Boveys then filed the present refund suit in the Court of Federal Claims. (During this appeal Mr. Bovey died and his personal representative was substituted as a plaintiff-appellant. For clarity and ease of presentation, we shall refer to the plaintiffs-appellants as "the Boveys"). The complaint explained their delay in filing their returns as follows: "as a result of the inability to locate documentation substantiating the Plaintiffs deductible expenses incurred in connection with several out of state business operations, the tax returns could not be accurately completed and the tax liability could not be ascertained. Accordingly, pending the receipt of critical information, the tax return could neither be prepared nor filed." They contended that the $150,000 remittance in April 1990 was a "deposit" and that "[c]ontrary to Plaintiffs' intention at the time of making the April 15, 1990 deposit of $150,000.00, the IRS has treated Plaintiffs' April 15, 1990 remittance as a payment if [sic] tax, not as a deposit." "As a result, the IRS regards a refund of any portion of that remittance as barred by the statute of limitations on refunds under 26 U.S.C. Section 6511."

In response to the government's motion to dismiss for lack of jurisdiction and for failure to state a claim upon which relief could be granted, the court held that the Bovey's remittances to the IRS "were 'payments' as a matter of law," and dismissed the complaint. The court stated:

[C]ases in which a remittance was found to be a "deposit" do not describe the situation here. In this case, plaintiffs submitted funds to IRS for normal yearly income taxes, without protest or contest. The payment was submitted along with their representation to the Government that it was their estimate of taxes due based on the information they had available. A request for extension does not change the amount of a taxpayer's liability or its due date; it merely allows extra time to file a return. Plaintiffs did not submit a letter with their payment reserving rights or asking that the payment be applied against amounts that they might owe. This was not a periodic "dumping" of payments on IRS, hoping to avoid penalties for unknown obligations. The IRS did not put these funds in a special non-interest bearing suspense account. We cannot say that they payments in 1989 were "disorderly or random."

II

A. Under 6511(a) of the Internal Revenue Code, 26 U.S.C. 6511(a), a "[c]laim for credit or refund of [a tax] overpayment" must be filed "within 3 years from the time the return was filed." Under Treas. Reg. 301.6402-3(a), the Bovey's 1989 return, filed in October 1994, was a "claim for credit or refund" under 6511. Since the return was also the Bovey's administrative claim for refund, the claim was timely because it was filed within three years of (actually, on the same date as) the filing of the return.

Section 6511(b)(2) of the Internal Revenue Code, however, imposes a "[l]imit on amount of credit or refund." Even if the claim is filed within the three years prescribed in subsection (a), the amount of the credit or refund cannot "exceed the portion of the tax paid" during the three years (plus any extensions for filing the return) "immediately preceding the filing of the claim." 26 U.S.C. 6511(b)(2). Since the Boveys received two extensions, totaling six months, for filing their returns, the amount of credit cannot exceed the amount of the tax they "paid" during the forty-two months before the filing of their 1989 return on October 17, 1994. During that period, they paid no portion of their 1989 tax.

The source of the Bovey's asserted overpayment of 1989 tax for which they seek a credit was the $150,000 they remitted to the IRS on April 15, 1990. Since that remittance, if it was a "payment" of taxes (as the Court of Federal Claims held), was made more than forty-two months before they filed their returns, Internal Revenue Code 6511(b)(2)(A) bars them from obtaining any credit or refund with respect to the alleged overpayment of 1989 taxes resulting from that remittance. Cf. Curry v. United States, 774 F.2d 852, 855 (7th Cir. 1985).

B. The Boveys contend, however, that their 1990 remittance was not a "payment" of estimated taxes but instead was a "deposit" to cover their anticipated tax liability, which they are entitled to recover without regard to the limitations 6511(b)(2)(A) imposes upon credit or refund of a tax "overpayment."

The Internal Revenue Code does not provide for deposits by taxpayers to meet their anticipated tax liabilities. That is a judicially-created concept that stems from the Supreme Court's decision in Rosenman v. United States, 323 U.S. 658 (1945). That was an estate tax case in which the estate delivered to the Collector of Internal Revenue a check "'for $120,000, as a payment on account of the Federal Estate tax . . . This payment is made under protest and duress, and solely for the purpose of avoiding penalties and interest, since it is contended by the executors that not all of this sum is legally or lawfully due.' This amount was placed by the Collector in a suspense account to the credit of the estate." Id. at 660 (alteration in original). The Court held that the $120,000 remittance was not the "payment" of the disputed estate tax. It stated:

The Government does not consider such advances of estimated taxes as tax payments. They are, as it were, payments in escrow. They are set aside, as we have noted, in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. Money in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due.

Id. at 662. The Court referred to "the true nature of an arrangement such as this to treat it as an estimated deposit and not as a payment." Id. at 663.

In Baral v. United States, 120 S. Ct. 1006, 1009 (2000), the Supreme Court held that under section 6513(b)(1) of the Internal Revenue Code, remittances of estimated income tax were "paid" on the due date for the taxpayer's income tax return. The Court made clear in Baral that it was not overruling Rosenman, and that its decision was based on its...