Opinion
Civil Action No. 02-1644-A
March 7, 2003
MEMORANDUM OPINION
This case is before the Court on Defendants' Motion to Dismiss the Complaint for lack of subject matter jurisdiction and failure to state a claim on which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6).
I. Background
Beginning August 1, 1993, Robert L. Young ("Plaintiff" or "Young") received a military severance compensation ("severance pay") of $52,040.70 per year in taxable income. Plaintiff reported such pay on his tax return for 1993, and paid $14,722.00 in federal income tax. In January of 1994, Young filed for military disability compensation ("disability pay"), which was granted. Disability pay is tax-free. Because, however, a party cannot receive both severance pay and disability pay, Plaintiff opted for the disability pay. Accordingly, Plaintiff was required to reimburse the Department of Veterans Affairs the pre-tax severance pay he was awarded.
On November 7, 2000, Young received a letter from the Department of Veterans Affairs, re-categorizing Young's 1993 military severance compensation to military disability compensation. It apparently was at this time that Plaintiff realized that he was required to repay the Department of Veterans Affairs the pre-tax value of his severance. Young then filed an Amended U.S. Individual Income Tax Return for 1993 on December 18, 2000, seeking return of $14,772.00 in taxes paid on the military severance compensation in that year. On February 21, 2001, the Internal Revenue Service (IRS) disallowed the Amended Return as time-barred. Young appealed the decision, which was upheld by the IRS Appeals Office. Plaintiff now brings this action seeking return of the excess income tax allegedly paid in 1993, plus interest.
On February 6, 2003, the United States filed a Motion to Dismiss Plaintiff's Complaint for lack of subject matter jurisdiction and failure to state a claim on which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6). That motion is now before this Court. Plaintiff neither filed a response to Defendants' motion, nor did he appear for oral argument.
II. Standard of Review
Pursuant to Rule 12(b)(1), a claim may be dismissed for lack of subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1) Where subject matter jurisdiction is challenged, the factual allegations are assumed true.See Virginia v. United States, 926 F. Supp. 537, 540 (E.D. Va. 1995). If, however, "the motion challenges the actual existence of the Court's subject matter jurisdiction. . . . the Court may 'look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.'" Id. (citing Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993); Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982); Ocean Breeze Festival Park, Inc. v. Reich, 853 F. Supp. 906, 911 (E.D. Va. 1994)). The burden of proving subject matter jurisdiction is on the plaintiff. McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (1936).
A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of the complaint see Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994), and should be denied unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." De Sole v. United States, 947 F.2d 1169, 1177 (4th Cir. 1991) (citations omitted); see also Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In passing on a motion to dismiss, "the material allegations of the complaint are taken as admitted" and "the complaint is to be liberally construed in favor of plaintiff." Jenkins v. McKeithen, 395 U.S. 411, 421 (1969) (citations omitted). In addition, a motion to dismiss must be assessed in light of Rule 8's liberal pleading standards, which require only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8.
III. Analysis
Defendant asserts that this Court does not have subject matter jurisdiction over Plaintiff's claim because Plaintiff's claim was not timely filed with the Department of the Treasury. 26 U.S.C. § 7422 allows for the filing of a civil action for a tax refund, provided that
[n]o suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until 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.26 U.S.C. § 7422(a).
26 U.S.C. § 6511, which sets forth the limitations period for receiving tax credits or refunds, provides in pertinent part that a "[c]laim 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." 26 U.S.C. § 6511(a). Furthermore, "[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." 26 U.S.C. § 6511(b)(1). It was under this section that the IRS rejected Plaintiff's claim for a refund of his 1993 taxes. See April 17, 2001 Letter from IRS to Young (Compl. Ex. 2). Accordingly, Defendants argue that Plaintiff's claim is barred, and, accordingly, should be dismissed.
Plaintiff paid and filed his 1993 taxes on April 15, 1994. See October 22, 2002 Letter from Joyce to Plaintiff (Compl. Ex. 7). Accordingly, Plaintiff's claim for a refund was required to be filed by April 15, 1997. Plaintiff did not submit his Amended tax return for 1993 until December 18, 2000. (Compl. Ex. 1.)
Plaintiff has not filed an opposition to Defendants motion, but asserts in his Complaint that he was not able to file his refund claim until December 18, 2000, because of the delay by the Department of Veterans Affairs in re-categorizing the 1993 payments from severance pay to disability pay. Essentially, Plaintiff argues that the limitations period should be equitably tolled because of Defendants' actions.
Any suit against the Government requires a waiver of sovereign immunity, and the terms of the waiver define the court's jurisdiction to entertain the suit. See United States v. Dalm, 494 U.S. 596, 608 (1990) (citations omitted). One such condition on the terms of the Government's waiver of immunity is a statute of limitations. See United States v. Mottaz, 476 U.S. 834, 841 (1986). Although statutes of limitations should not be construed unduly restrictively, courts must be careful not to interpret such limitations to 'extend the waiver beyond that which Congress intended.'" See Block v. North Dakota, 461 U.S. 273, 287 (1983) (quoting United States v. Kubrick, 444 U.S. 111, 117-18 (1979)). In the tax context, the limitations period of 26 U.S.C. § 6511, coupled with the restraints on suits for refunds in 26 U.S.C. § 7422(a), serve as a restriction on the Government's consent to be sued. Dalm, 494 U.S. at 609-10. "That a taxpayer does not learn until after the limitations period has run that a tax was paid in error, and that he or she has a ground upon which to claim a refund, does not operate to lift the statutory bar." Id. at 609 n. 7. Accordingly, this Court does not have jurisdiction over suits filed outside the limitations period of 26 U.S.C. § 6511(a). See Webb v. United States, 850 F. Supp. 489, 490 (E.D. Va. 1994).
As noted above, Plaintiff's claim is outside the limitations period of § 6511(a), and therefore any claim for a refund is barred by Section 7422(a). Plaintiff asserts, however, that the statute of limitations should be equitably tolled because the delay in Plaintiff's claim for a refund was due to the delay by the Department of Veterans Affairs in recategorizing Plaintiff's 1993 income from severance pay to disability pay. The Supreme Court has had the opportunity to examine the issue of equitable tolling in tax cases, and, after reviewing the statute, concluded that the equitable tolling doctrine does not apply to the time limitations of 26 U.S.C. § 6511. United States v. Brockamp, 519 U.S. 347, 354 (1997); see also Webb v. United States, 66 F.3d 691, 702 (1995), aff'g 850 F. Supp. 489, 492-93 (E.D. Va. 1994), cert. denied, 519 U.S. 1148, 117 S.Ct. 1079, 137 L.Ed.2d 215 (1997). Accordingly, equitable tolling is not available to grant relief to a plaintiff whose claim is barred by the provisions of 26 U.S.C. § 6511(a) and 7422(a). Id. Therefore, because Plaintiff's claim is time-barred, this Court is without subject matter jurisdiction, and Defendants motion to dismiss will be granted.
The doctrine of equitable recoupment, which in some cases may operate to allow a time-barred claim for a refund to go forward is inapplicable in this case. Equitable recoupment allows a taxpayer to recoup past taxes paid on the same transaction where the Government sues the taxpayer for past taxes based on a theory inconsistent with that under which the taxpayer originally paid the taxes. Dalm, 494 U.S. at 610. In this case the Government has not brought any action for a tax deficiency. Although the Government is requiring Plaintiff to pay back the entirety of his 1993 severance pay, this is not a situation where the parties are debating the type of tax liability incurred in a certain transaction. Instead, Plaintiff simply seeks a refund of taxes he paid that he now claims were not required. Accordingly, the doctrine of equitable recoupment does not apply in this case.
Furthermore, even if Plaintiff's claim were not interpreted as a claim for an income tax refund (as is apparent from the Complaint), but rather as a request for the Court to adjust the amount Plaintiff is required to repay the Government, such a claim also fails. The regulatory language applicable to this case, which requires the United States to recoup the amount of severance compensation awarded when disability benefits are later awarded is clear: "[w]here payment of readjustment pay was made on or before September 30, 1996, VA will recoup from disability compensation an amount equal to the total amount of readjustment pay." 38 C.F.R. § 3.700(a)(2)(iii). This regulation is consistent with the applicable statute, which provides that "there shall be deducted from that disability compensation an amount equal to the total amount of separation pay, severance pay, and readjustment pay received, less the amount of Federal income tax withheld from such pay." 10 U.S.C. § 1174(h)(2). The language that instructs the VA to reduce the recoupment amount by the federal income tax withheld was added in 1996, and was not made retroactive by Congress. Pub.L. 104-201, § 653(b), 110 Stat. 2422, 2583 ("The amendments made by this section shall take effect on October 1, 1996, and shall apply to payments of separation pay, severance pay, or readjustment pay that are made after September 30, 1996."). Accordingly, because Plaintiff received the lump sum payment of $52,040.70 on August 1, 1993, the Government must recoup the entire pretax amount.
Courts have noted that allowing the Government to recoup the pretax amount seems unfair, but have held that they are bound by the clear Congressional intent. See Palm v. United States, 904 F. Supp. 1312, 1315 (M.D. Ala. 1995) (analyzing history of amendments to statutes outlining recoupment of separation pay); Sabonis v. Brown, 6 Vet. App. 426, 429-30 (Apr. 28, 1994). It is not clear that this Court would have the ability to adjust the amount to be recouped in any event. However, because the VA has acted in accordance with statute, the Court is clearly powerless to order an adjustment. Accordingly, Plaintiff's claim must be dismissed. Although the Court is sympathetic to Plaintiff's situation, legislative, not judicial, relief is the only avenue for redress.
IV. Conclusion
For the foregoing reasons, Defendants' motion to dismiss will be granted. An appropriate order will be entered.
ORDER
For the reasons stated in the accompanying Memorandum Opinion, it is hereby ORDERED that:
(1) Defendants' Motion to Dismiss is GRANTED;
(2) should Plaintiff wish to appeal, he shall file his notice of appeal within thirty (30) days of the date of entry of this Order; and
(3) the Clerk of the Court shall forward copies of this Order and the accompanying Memorandum Opinion to all counsel of record and Plaintiffpro se.