Opinion
Cause No. IP99-1204-C-T/G
May 22, 2002
ENTRY ON UNITED STATES' MEMORANDUM OF LAW ADDRESSING SUBJECT MATTER JURISDICTION AND STIPULATED FACTS
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion to be sufficiently novel or instructive to justify commercial publication of the Entry or the subsequent citation of it in other proceedings.
Defendant, United States, seeks a dismissal of this action based on lack of subject matter jurisdiction. Plaintiff opposes the Motion. This court now GRANTS Defendant's Motion.
I. Factual and Procedural Background
The facts, as stipulated by the parties, are as follows. On approximately March 6, 1993, Dorothy Leggitt filed her 1040 United States Individual Income Tax Return for 1992.
At the time, Leggitt was ninety years old. In her 1040, Leggitt reported the sale of certain bonds. However, she failed to offset the gains by the tax bases in the bonds and overpaid her federal income taxes for the year 1992 by $56,282. She paid this liability in full on May 21, 1993.
On approximately March 30, 1994, Leggitt filed her 1040 for 1993. Again, she reported the sale of bonds and stock without taking into the account the bases of those assets. This resulted in an overpayment for 1993 of $77,278, which she paid in full on June 29, 1994. On her 1994 1040, Leggitt reported a capital loss carry-over of $1,459, which was the result of the incorrect calculations on the 1992 and 1993 returns. The error on the 1994 return resulted in an underpayment of $406 in federal income tax.
On September 1, 1995, Daniel Leggitt was appointed guardian of Dorothy Leggitt and NBD Bank was appointed guardian of the Estate of Dorothy Leggitt. On September 10, 1995, Leggitt died and Old National Trust was appointed the executor of her estate.
On approximately June 20, 1997, the Defendant received amended 1040s for Leggitt for 1992, 1993, and 1994. Included in the amended 1992 and 1993 returns were requests for refunds of the amounts overpaid and in the 1994 return was the $406 that Leggitt had underpaid.
The IRS denied the 1992 refund claim on August 13, 1997, and the 1993 refund claim a day later. Upon receipt of the amended 1994 return, the IRS assessed interest of $88.81, which the Plaintiff promptly paid. Plaintiff appealed the denials of the refunds and, by letter dated September 25, 1998, the appeals were denied. This lawsuit then followed.
Defendant seeks to have the lawsuit dismissed for lack of subject matter jurisdiction because the claims for refunds were not initiated within the applicable statute of limitations and therefore, the United States has not waived its sovereign immunity. Plaintiff opposes the Motion. This court now rules as follows.
II. Standard The Government argues that this court lacks subject matter jurisdiction to decide this case and moves to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1). Federal courts are courts of limited jurisdiction, owing their power to decide cases to Article III of the United States Constitution and those statutes, properly enacted by Congress, which vest subject matter jurisdiction in the courts to decide certain matters.
Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). Simply put, unless some statute authorizes this court to decide this matter, and that statute comports with Article III of the Constitution, this court lacks jurisdiction to affect the dispute. Palmore v. United States, 411 U.S. 389, 400-02 (1973).
In deciding a motion to dismiss based upon Federal Rule of Civil Procedure 12(b)(1), a court should liberally construe the complaint and is not bound to accept as true allegations of jurisdiction where a party properly raises factual questions of subject matter jurisdiction. The court may look beyond the jurisdictional allegations to examine any evidence submitted to determine if subject matter jurisdiction in fact exists. Roman v. United States Postal Serv., 821 F.2d 382, 385 (7th Cir. 1987).
Consideration of materials outside the pleadings when ruling on a 12(b)(1) motion does not require the court to treat the motion as one for summary judgment because the Federal Rules of Civil Procedure do not direct it. In Crawford v. United States, 796 F.2d 924, 928 (7th Cir. 1986), the court noted that "[t]he omission . . . of a provision for converting a Rule 12(b)(1) motion into a summary judgment motion . . . was not an oversight." Instead, the district court is entitled to receive appropriate evidentiary submissions-"any rational mode of inquiry will do." Id. at 929.
The party seeking to invoke a district court's jurisdiction bears the burden of establishing the basis for exercising such jurisdiction. Kontos v. United States Dep't of Labor, 826 F.2d 573, 576 (7th Cir. 1987). It is presumed that a federal court lacks jurisdiction until it has been demonstrated that jurisdiction over the subject matter exists.
Oliver v. Trunkline Gas Co., 789 F.2d 341 (5th Cir. 1986). When the party moving for dismissal under Rule 12(b)(1) challenges the factual basis for jurisdiction, the nonmoving party (i.e., the plaintiff) must submit affidavits and other relevant evidence to resolve the factual disputes regarding the court's jurisdiction. Kontos, 826 F.2d at 576.
III. Discussion
Defendant claims that Plaintiff has not met the jurisdictional prerequisite for maintaining a suit in this court. Specifically, Defendant claims that the United States does not waive its sovereign immunity if a timely claim for a refund has not been filed. Section 7422(a) of the Internal Revenue Code provides that no suits for refunds shall be filed until a claim for the refund has been filed with the Secretary. The claim for a refund must be filed "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. . . ." 26 U.S.C. § 6511(a). In this case, Leggitt's 1993 tax return was filed on March 30, 1994. However, if a return is filed before the due date, the date for measuring the statute of limitations is the date the tax return is due to be filed. 26 U.S.C. § 6513(a). Therefore, the claim for a refund must have been filed by April 15, 1997, in order to comply with the statute of limitations. It was not filed until June 20.
Plaintiff does not appear to contest these calculations, but instead argues that either the statute of limitations should be equitably tolled or the mitigation provisions of the Internal Revenue Code should apply. As to the equitable tolling, Plaintiff acknowledges that United States v. Brockamp, 519 U.S. 347 (1997), determined that equitable tolling does not apply to avoid the consequences of a statute of limitations as set forth in 26 U.S.C. § 6511. Plaintiff then goes on to note that Congress amended § 6511 to suspend the running of a statute of limitations period if the taxpayer is unable to manage financial affairs due to disability. There appears to be little debate that Leggitt was in poor mental health during the relevant periods. However, the amendment was effective January 1, 1998, after the times at question in this suit. The Plaintiff then argues that the equities are with the Plaintiff and this court should therefore grant Plaintiff the refunds. Unfortunately, this is simply not a sufficient reason to overlook the clear dictates of Congress as set out in the Internal Revenue Code.
Plaintiff also argues that the mitigation provisions of the Internal Revenue Code, 26 U.S.C. § 1311-14, apply to allow the refunds in this case. Section 1311 provides:
General Rule.-If a determination (as defined in section 1313) is described in one or more of the paragraphs of section 1312 and, on the date of the determination, correction of the effect of the error referred to in the applicable paragraph of section 1312 is prevented by the operation of any law or rule of law, other than this part and other than section 7122 (relating to compromises), then the effect of the error shall be corrected by an adjustment made in the amount and in the manner specified in section 1314.
The Seventh Circuit has noted that the party who attempts to invoke the mitigation provisions has the burden of proving that:
1. An error occurred in a taxable year which cannot otherwise be corrected by operation of law; 2. there was a determination for another year with respect to the item giving rise to the error; 3. the determination was within one of the categories enumerated in I.R.C. § 1312 as a circumstance of a deduction; and 4. the party who prevailed in the determination maintained a position that was adopted there and that was inconsistent with the erroneous treatment.
Fruit of the Loom, Inc. v. Comm'r of Internal Revenue, 72 F.3d 1338, 1341-42 (7th Cir. 1996) (citations omitted). Although the provisions must be given "a liberal and remedial construction," O'Brien v. United States, 766 F.2d 1038, 1042 (7th Cir. 1985), "Congress did not intend to provide relief in all situations in which just claims are precluded by the statute of limitations and has recognized the need for limitations statutes despite the harsh results they sometimes cause to taxpayers and the government alike," Fruit of the Loom, 72 F.3d at 1341 (citations and internal quotations omitted).
Defendant claims that the mitigation provisions do not apply because there is no determination as that term is defined in § 1313. Section 1313 defines "determination" as:
(1) a decision by the Tax Court or a judgment, decree, or other order by any court of competent jurisdiction, which has become final;
(2) a closing agreement made under section 7121;
(3) a final disposition by the Secretary of a claim for refund.
. . . .
(4) under regulations prescribed by the Secretary, an agreement for purposes of this part, signed by the Secretary and by any person, relating to the liability of such person (or the person for whom he acts) in respect of a tax under this subtitle for any taxable period.
In this case, the Plaintiff has failed to plead or show a determination. The disallowance of the 1992 and 1993 refund claims is not a determination as used in the Code because the determination must be for "another year," other than the one in which the taxpayer (or I.R.S.) is claiming an error. This leaves the acceptance of the 1994 late payment and the assessment of interest. However, the acceptance of the 1994 late payment and assessment of interest did not address the errors in 1992 and 1993 and therefore, was not a determination.
In support for the contention that the 1992 and 1993 returns can constitute "a determination for another year," Plaintiff relies on Milburn v. United States, 947 F. Supp. 1015, 1018 (W.D.Tex. 1996). However, as Defendant correctly notes, there were at least two other actions which could have been determinations in that case. In any event, Milburn is a district court case from another district, which severely limits its precedential value.
Defendant relies on Kelley v. United States, No. 97 C 3104, 1998 WL 325219 (N.D.Ill. June 10, 1998), for the proposition that the government's inaction cannot constitute a determination. Plaintiff contests the use of this case because it involved different facts and informal refund claims. However, these differences do not negate the underlying principle on the determination issue.
This case is similar to Fruit of the Loom, in which the tax court concluded that a district court order and Third Circuit opinions were not "determinations" because they did not address the specific issue in question. 72 F.3d at 1342. The Seventh Circuit upheld the tax court's decision and noted with approval the tax court's conclusion "that a `determination' must involve a substantive decision on the merits, which establishes that the inconsistent position in the closed year is erroneous." Id. at 1345. In this case, the Secretary would have had to make a determination about the 1992 and 1993 income overstatements. Instead, the I.R.S. accepted the 1994 amended return (which was not barred by any statute of limitations) and assessed interest based on the taxpayer's restatement of loss carry-overs. An implied determination is simply insufficient. Id. This is in no way "a determination for another year with respect to the item giving rise to the error."
As the Seventh Circuit, "[t]o admit the contrary could allow the mitigation provisions to be used as a general tool for equity beyond their statutory constraints, a result [the Seventh Circuit] ha[s] committed against in the past and do so here as well." Id. (citations omitted).
IV. Conclusion For the foregoing reasons, Defendant's Motion to Dismiss is GRANTED. An order of dismissal for lack of subject matter jurisdiction will be entered in accordance with this entry.