Webb v. U.S.

Decision Date02 October 1995
Docket NumberNo. 94-1854,94-1854
Citation66 F.3d 691
Parties-6696, 64 USLW 2204, 95-2 USTC P 50,531, 95-2 USTC P 60,211 Clinton WEBB; Nationsbank of Virginia, N.A., formerly known as Sovran Bank, N.A., Co-executors of The Estate of Mary Morton Parsons, Deceased, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
CourtU.S. Court of Appeals — Fourth Circuit

ARGUED: Charles Frederick Witthoefft, Hirschler, Fleischer, Weinberg, Cox & Allen, Richmond, Virginia, for Appellants. Gilbert Steven Rothenberg, Tax Division, United States Department of Justice, Washington, DC, for Appellee. ON BRIEF: Everette G. Allen, Jr., John C. Ivins, Jr., Hirschler, Fleischer, Weinberg, Cox & Allen, Richmond, Virginia, for Appellants. Loretta C.

Argrett, Assistant Attorney General, Gary R. Allen, Bridget M. Rowan, Helen F. Fahey, United States Attorney, Tax Division, United States Department of Justice, Washington, DC, for Appellee.

Before RUSSELL and DIANA GRIBBON MOTZ, Circuit Judges, and FABER, United States District Judge for the Southern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge DIANA GRIBBON MOTZ wrote the majority opinion, in which Judge FABER joined. Judge RUSSELL wrote a dissenting opinion.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

The sole question presented in this case is whether certain provisions of the Internal Revenue Code governing tax refund claims are subject to equitable tolling. The district court held that they were not; we affirm, although on somewhat different grounds than those relied upon by the district court.

I.

Clinton Webb and Nationsbank of Virginia, N.A., f/k/a Sovran Bank, N.A. ("Nationsbank"), in their capacities as co-executors of the estate of Mary Morton Parsons, filed this action in the United States District Court for the Eastern District of Virginia seeking a refund of gift taxes, penalties, and interest that they assert were wrongfully paid on Parsons' behalf in October, 1980. For purposes of this appeal, we take the facts and circumstances alleged in the complaint as true. Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 325, 111 S.Ct. 1842, 1844-45, 114 L.Ed.2d 366 (1991); White v. United States, 53 F.3d 43, 44 (4th Cir.1995).

Parsons was a long-time resident of Richmond, Virginia. Born in 1902, she was the only child of one of the founders of a local life insurance company and thus enjoyed considerable wealth. Having only a limited understanding of financial matters, however, Parsons relied on others to manage her affairs. After Parsons' husband died, her sister-in-law, Lelia Parsons, moved into her residence in order to manage her personal affairs. Upon her sister-in-law's death in 1972, Parsons retained the services of Dr. Alvin Q. Jarrett, a social acquaintance, as both her personal physician and to oversee her personal and financial affairs. Jarrett in turn retained B. Roland Freasier, Jr. to serve as Parsons' personal legal counsel.

Through systematic physical and emotional abuse during the ensuing fourteen years, Jarrett and Freasier induced Parsons to relinquish to them total control over her day-to-day affairs. They persuaded her to move into virtual seclusion in Virginia Beach, Virginia, where they confined her to her bed under heavy sedation. They discharged most of Parsons' household staff and prevented her from receiving mail or telephone calls and from seeing visitors. They also induced her to grant to each of them powers-of-attorney, thus enabling them to manipulate her financial affairs for their own benefit.

As a result of their fraudulent activities, Jarrett and Freasier were able to divert a substantial portion of Parsons' assets to themselves and their families without Parsons' knowledge or consent. One such transaction involved the unauthorized transfer to Jarrett and Freasier of 930,568 shares of Parsons' stock. In connection with this transaction, Jarrett and Freasier filed a gift tax return on Parsons' behalf with the Internal Revenue Service ("IRS") on August 18, 1980, and in October, 1980 they paid to the IRS, out of Parsons' own funds, a gift tax in the amount of $4,324,822.54, together with certain penalties and interest. After a subsequent audit by the IRS, Jarrett and Freasier paid in excess of $7,000,000.00 in additional gift taxes, penalties, and interest in 1986 and 1987, again out of Parsons' own funds, bringing the total assessment against Parsons for these illicit stock transfers to $11,362,876.88.

Parsons eventually discovered the fraudulent transfers in the summer of 1987 and filed an action in state court to recover her lost assets. Upon recovering substantially all of the stock transferred to Jarrett and Freasier, Parsons filed a claim with the IRS on April 5, 1988 seeking a refund of the gift taxes, penalties, and interest paid in connection with the fraudulent transfers. Acknowledging that the taxes were wrongfully paid, the IRS refunded a total amount of $9,844,541.03, which included the taxes paid in 1986 and 1987, but declined to refund any amount paid more than two years prior to the filing of Parsons' refund claim, i.e., the $4,324,822.54 paid in 1980.

Webb and Nationsbank, as co-executors of Parsons' estate, brought this action seeking to recover the disallowed portion of Parsons' refund claim. Because the refund claim was concededly untimely under Sec. 6511 of the Internal Revenue Code of 1954, 26 U.S.C. Sec. 6511, the district court held that it lacked subject matter jurisdiction and so dismissed the action. The court determined that if Sec. 6511 could be equitably tolled, the complaint set forth facts that "would have established the applicability of equitable tolling to this case," but found equitable tolling was not permissible in tax cases. 850 F.Supp. 489, 493 (E.D.Va.1994). Relying on United States v. Dalm, 494 U.S. 596, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990), as "more instructive" than Irwin v. Department of Veterans Affairs, 498 U.S. 89, 111 S.Ct. 453, 112 L.Ed.2d 435 (1990), id. at 492, the court concluded that the tax laws were technical provisions that must be rigorously enforced.

II.

The United States, as sovereign, is immune from suit unless it waives that immunity. Library of Congress v. Shaw, 478 U.S. 310, 315, 106 S.Ct. 2957, 2961-62, 92 L.Ed.2d 250 (1986). A statute of limitations requiring that a suit against the government be brought within a certain time period constitutes a condition on the government's waiver of immunity, United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224, 2229, 90 L.Ed.2d 841 (1986), and as such should be "construed strictly in favor of the sovereign, and not enlarge[d] ... beyond what the [statutory] language requires." Ruckelshaus v. Sierra Club, 463 U.S. 680, 685, 103 S.Ct. 3274, 3278, 77 L.Ed.2d 938 (1983) (citations and internal quotations omitted); see also Block v. North Dakota, 461 U.S. 273, 287, 103 S.Ct. 1811, 1820, 75 L.Ed.2d 840 (1983) ("although we should not construe such a time-bar provision unduly restrictively, we must be careful not to interpret it in a manner that would 'extend the waiver beyond that which Congress intended' " (quoting United States v. Kubrick, 444 U.S. 111, 117-18, 100 S.Ct. 352, 357, 62 L.Ed.2d 259 (1979))).

With respect to suits against it for tax refunds, of course, the United States has to some extent waived its sovereign immunity. Section 1346(a)(1) of Title 28 of the United States Code gives federal district courts jurisdiction over suits against the United States "for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected." However, the general jurisdictional grant in Sec. 1346(a)(1) must be read to incorporate the requirements of 26 U.S.C. Secs. 7422(a) and 6511(a). United States v. Dalm, 494 U.S. 596, 601-02, 609, 110 S.Ct. 1361, 1364-65, 1368-69 (1990); see also United States v. Forma, 42 F.3d 759, 763 (2d Cir.1994) ("statutory provisions and court interpretations have placed a number of conditions on the explicit waiver of sovereign immunity instituted through 28 U.S.C. Sec. 1346(a)(1)"). Section 7422(a) provides that no suit for a tax refund may be maintained unless "a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof." Section 6511, in turn, constitutes one of these "provisions of law" governing refund claims.

Specifically, Sec. 6511(a) sets forth the applicable statute of limitations for claims for credits or refunds under the Internal Revenue Code. It provides in pertinent part:

Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.

Section 6511(b) then sets forth certain "[l]imitation[s] on allowance of credits and refunds," providing in subsection (b)(1) that:

[n]o credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period.

Finally, Sec. 6511(b)(2) sets forth certain "[l]imit[s] on amount of credit or refund" as follows:

(A) Limit where claim filed within 3-year period.

If the claim [for refund] was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return.

(B)...

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