Fremuth v. United States
129 Fed. Cl. 684
| Fed. Cl. | 2016Background
- Plaintiff Erica Fremuth, a Liechtenstein citizen and former U.S. resident, received monthly U.S. Social Security benefits from which the SSA withheld U.S. tax under I.R.C. §§ 871 and 1441.
- Fremuth sought refunds for withholding on Social Security payments dating back to 2000; she received a refund for 2008 and later sent letters (Jan. 30, 2013 and Mar. 29, 2013) asking for refunds for all years since 2000.
- The IRS denied her claim (notice mailed Jan. 21, 2014) and the IRS Appeals Office sustained the denial on Dec. 23, 2015, stating withholding equaled tax liability for nonresident aliens.
- Fremuth filed suit in the U.S. Court of Federal Claims on Jan. 27, 2016, seeking refunds for years 2000–2007 and 2009–2012.
- The government moved to dismiss under RCFC 12(b)(1) and 12(b)(6). The court found it lacked jurisdiction for 2000–2007 (claims untimely under I.R.C. § 6511) and for 2012 (suit filed more than two years after IRS mailed notice of disallowance under I.R.C. § 6532). The court retained jurisdiction only for 2009–2011 and dismissed those on the merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Fremuth filed a timely administrative refund claim for 2000–2007 under I.R.C. § 6511 (informal claim doctrine) | Her undated 2009 note and letters in 2013 put IRS on notice and constitute informal claims covering 2000–2007 | The undated 2009 note merely requested information; the 2013 letters were filed after the limitations period for 2007 and prior years had expired | Held: 2000–2007 claims untimely; no jurisdiction over those years |
| Whether the suit as to 2012 was timely under I.R.C. § 6532(a)(1) after IRS mailed notice of disallowance | Suit filed Jan. 27, 2016 is timely | IRS mailed disallowance Jan. 21, 2014; suit filed more than two years later | Held: 2012 claim untimely; no jurisdiction over 2012 |
| Whether court has jurisdiction over 2009–2011 claims | These claims are within jurisdiction because IRS has not mailed disallowance and administrative exhaustion occurred | Government concedes jurisdiction but argues merits fail because tax law imposed liability | Held: Court has jurisdiction over 2009–2011 but plaintiff fails to state a claim; dismissed with prejudice |
| Whether Fremuth plausibly alleges she was not liable for withholding on Social Security benefits (merits) | Her Social Security income is low; IRS previously refunded 2008 so similar relief is warranted for other years | Nonresident aliens are taxable on U.S. source Social Security (30% rule; 85% inclusion), deductions not allowed; prior 2008 refund, if erroneous, does not estop IRS | Held: Plaintiff’s theory is legally insufficient; nonresident taxation precludes refund—claims for 2009–2011 dismissed on the merits |
Key Cases Cited
- Steel Co. v. Citizens for a Better Env't, 523 U.S. 83 (threshold jurisdictional principle)
- United States v. Dalm, 494 U.S. 596 (statute of limitations for refund claims under I.R.C. § 6511)
- Computervision Corp. v. United States, 445 F.3d 1355 (informal claim doctrine standard)
- Kales v. Commissioner, 314 U.S. 186 (informal claim sufficiency can be amended post-period)
- Arbaugh v. Y & H Corp., 546 U.S. 500 (court's independent obligation to determine jurisdiction)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Iqbal v. Ashcroft, 556 U.S. 662 (pleading must permit reasonable inference of liability)
- Ontario Power Generation v. United States, 369 F.3d 1298 (Tucker Act jurisdiction for tax refunds)