Western Co. of North America v. U.S.

• Decision Date: 24 March 2003
• Docket Number: No. 02-5128.,02-5128.
• Citation: 323 F.3d 1024
• Parties: The WESTERN COMPANY OF NORTH AMERICA, Plaintiff-Appellant. v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

323 F.3d 1024

The WESTERN COMPANY OF NORTH AMERICA, Plaintiff-Appellant. v. UNITED STATES, Defendant-Appellee.

No. 02-5128.

United States Court of Appeals, Federal Circuit.

March 24, 2003.

COPYRIGHT MATERIAL OMITTED

Daniel L. Penner, of Ft. Worth, Texas, argued for plaintiff-appellant.

Charles Bricken, Attorney, Tax Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Eileen J. O'Connor, Assistant Attorney General; and Richard Farber, Attorney.

Before MICHEL, RADER, and PROST, Circuit Judges.

RADER, Circuit Judge.

The United States Court of Federal Claims held that the "one-claim rule" in 26 U.S.C. §§ 6427 and 34 barred Western Company of North America's (Western) first claim for tax credits. The trial court also dismissed Western's second claim for refund of a wrongfully imposed tax penalty because Western failed to file a formal administrative claim. Western Co. of N. Am. v. United States, 52 Fed. Cl. 51 (2002). Because the "one-claim rule" of § 6427(i) applies to tax credits under § 34, but does not preclude the timely filing of amendments to perfect an otherwise proper and timely claim, this court reverses the judgment of the Court of Federal Claims with respect to Western's first claim. This court also finds that the Court of Federal Claims has jurisdiction to hear Western's second claim seeking recovery of the erroneous penalty imposed by the Internal Revenue Service (IRS). Accordingly, the case is remanded.

I.

Section 4091 of the Internal Revenue Code, 26 U.S.C. § 4091 (2000), requires producers and importers of diesel fuel to pay a tax on any sale of that fuel. Producers pass these taxes on to the consumer in the price of the fuel. Some uses of diesel fuel, such as for farming, are exempt from taxation. These tax exempt uses qualify the purchaser of diesel fuel to recover those fuel taxes in the form of a refund under 26 U.S.C. § 6427(l) or in the form of a tax credit under 26 U.S.C. § 34(a).

For the taxable years 1993 and 1994, Western claimed credits for diesel fuel taxes under §§ 6427 and 34 — $45,637 for 1993 and $84,392 for 1994. Later, Western discovered additional diesel fuel purchases that qualified under § 6427 as "nontaxable uses" and filed amendments to its original tax returns. These first amendments claimed an additional credit of $224,918 for 1993 and $189,817 for 1994. The IRS allowed these amendments and paid the refund. The Government now argues that it allowed these claims by mistake, but concedes the statute of limitations bars their recovery.

Later Western discovered still more tax exempt purchases and sought to amend its returns a second time. Thus, in September 1997, Western sought an additional $304,719 for tax year 1993 and an additional $377,018 for tax year 1994. In February 1999, the IRS denied these last two amended claims. The IRS based its denial of Western's claims on a purported violation of the "one-claim rule" in § 6427(i):

(i) Time for Filing Claims; Period Covered.

(1) General Rule. — Except as provided in paragraphs (2), (3), and (4), not more than one claim may be filed under subsection (a), (b), (c), (d), (g), (h), (l), or (q) by any person with respect to fuel used... during his taxable year, and no claim shall be allowed under this paragraph with respect to fuel used ... during any taxable year unless filed by the purchaser not later than the time prescribed by law for filing a claim for credit or refund of overpayment of income tax for such taxable year.

26 U.S.C. § 6427(i)(1) (1988 & Supp. IV 1992).¹

In its second amended tax return for 1993, Western also reported a change in taxable income on its Form 1120X in the amount of $310,938. During the processing of this amended return, the IRS miscoded this amount as a failure-to-file return (FTF) penalty under 26 U.S.C. § 6651(f). Consequently, on January 14, 1998, Western received a final notice of intent to levy on its assets to recover unpaid taxes. This notice did not explain the basis for the levy. Moreover, Western had not received any prior notice of assessment for the alleged unpaid tax. Shortly thereafter, Mark Cox contacted the IRS for Western and requested an explanation of the basis for the levy amount. The IRS told Mr. Cox that the amount was a fraud penalty. The IRS record of this inquiry further noted that Western "requests more info on fraud penalty 240 — 310,938.00." The IRS promised to send the requested explanation of the mistaken fraud allegation.

Thereafter, the IRS sent Western a 197-page record of accounts, which included two pages containing four numbers that, when added together, totaled the amount sought by the IRS as a fraud penalty. That total amount, including interest accrued, was $408,173.82. Meanwhile, the IRS owed Western $400,721.02 as a highway use tax refund. In a letter dated April 13, 1998, the IRS notified Western that it would withhold that refund to offset Western's alleged tax liabilities. That letter did not refer to the fraud penalty, but only to the amount of offset. In September 1998, Mr. Cox and other Western representatives met with the IRS's William Cappleman to discuss the disallowed claims for diesel fuel taxes. According to Mr. Cox's affidavit, he informed Mr. Cappleman about the alleged fraud penalty, and Mr. Cappleman stated he would look into the matter. Mr. Cappleman, on the other hand, has no recollection of any discussion of a fraud penalty in that meeting.

Mr. Cox continued to request information from the IRS about the fraud penalty and the IRS's withholding of Western's tax refund as an offset. Finally, the IRS responded that Western would receive a copy of the original notice of assessment by April 30, 2001. Western still has not received that notice or any other documented information to this date. Western first learned that the alleged penalty was an FTF penalty resulting from the mistaken coding of Western's amended 1993 tax return at a status conference in this case in the trial court. The IRS, as a result of its own research, acknowledged it had made an error and that the FTF penalty was erroneous. However, the IRS refused to refund the $400,721.02 withheld to offset the erroneous penalty because the limitations period for Western to file a formal administrative claim for a refund had already expired.

Western brought this action to recover the diesel fuel tax credits it claimed in its second amended tax returns for the tax years 1993 and 1994, totaling $304,719 and $377,018. Western also seeks refund of the $400,721.02 withheld in satisfaction of the admittedly erroneous FTF penalty. The Government filed a motion to dismiss Western's first claim under Ct. Fed. Cl. R. 12(b)(4), because the one-claim rule found in § 6427(i) barred Western's claims for diesel fuel tax credits. The Government also sought to dismiss Western's second claim for recovery of the erroneous FTF penalty under Ct. Fed. Cl. R. 12(b)(1) as barred by the substantial variance doctrine of 26 U.S.C. § 7422(a).

The Court of Federal Claims, departing from its previous holding in Schlumberger Technology Corp. & Subsidiaries v. United States, 47 Fed. Cl. 298, 303 (2000), held that the one-claim rule in § 6427(i) applies to claims for credit filed under § 34(a). Accordingly, the court below granted the Government's motion to dismiss those claims. The court below also found that § 7422(a), which requires the filing of an administrative claim with the IRS before a party may seek to recover wrongful penalties in court, was a jurisdictional bar to recovery of the FTF penalty in this action. Western timely appealed both decisions. This court has exclusive jurisdiction over appeals from final decisions of the Court of Federal Claims under 28 U.S.C. § 1295(a)(3).

II.

This court reviews "de novo whether the Court of Federal Claims possessed jurisdiction and whether the Court of Federal Claims properly dismissed for failure to state a claim upon which relief can be granted, as both are questions of law." First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279, 1286-87 (Fed.Cir.1999) (quoting Wheeler v. United States, 11 F.3d 156, 158 (Fed.Cir. 1993)). In reviewing judgments of the Court of Federal Claims, this court reviews conclusions of law, such as statutory interpretation, without deference. Mass. Bay Transp. Auth. v. United States, 254 F.3d 1367, 1372 (Fed.Cir.2001); Kane v. United States, 43 F.3d 1446, 1448 (Fed.Cir. 1994).

"One Claim" Rule

"[T]he starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980).

In Schlumberger, the Court of Federal Claims held that the one-claim limitation found in § 6427(i) did not apply to claims for tax credits under § 34(a), because the substantive grant of authority to issue tax credits for the overpayment of diesel fuel taxes is not found in § 6427, but rather in § 34. Schlumberger, 47 Fed. Cl. at 298. The plaintiff-taxpayer in that case alternatively argued that, even if the one-claim rule applied, it would not bar an amendment to a timely filed claim. However, "because the court agree[d] with [the] plaintiff's primary contention — that the so-called `one-claim' rule contained in I.R.C. § 6427(i)(1) does not act as a bar to a claim for credit under I.R.C. § 34," it did not decide the alternative argument raised at that time.

In this case, the Court of Federal Claims came to the opposite conclusion. In essence, the court found that the substantive grant of authority to issue tax credits for overpaid diesel fuel taxes is found in § 6427(l), which, as in effect in 1994, states:

(l) Nontaxable Uses of Diesel Fuel and Aviation Fuel Taxed Under Section 4091. —

(1) In general. — Except as provided in subsectio...