Sarmiento v. United States
108 A.F.T.R.2d (RIA) 6069
E.D.N.Y2011Background
- Plaintiffs German Sarmiento and Aura Montoya filed suit in the EDNY seeking $1,932 the IRS allegedly overpaid after an Offer-in-Compromise (OIC) was accepted in November 2007.
- The OIC agreements provided that the IRS would keep any refund for overpayments through the calendar year of acceptance as additional consideration for the compromise.
- Plaintiffs filed a joint 2007 Form 1040 showing a liability of $2,663 with credits totaling $3,695 (including $864 child tax credit and $2,831 EIC) and claimed a $1,032 refund plus a $900 ESR.
- Instead of paying the $1,932 refund, the IRS treated it as an overpayment and withheld it under the OIC terms.
- Question presented includes whether the $1,032 overpayment is recoverable and whether the ESR is recoverable, given the ESA 2008 provisions.
- The court grants in part and denies in part the IRS’s motion to dismiss, determining the ESR claim is viable while the overpayment claim is denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the $1,032 overpayment funds recoverable? | Sarmiento argues the OIC does not allow retention of 2007 overpayments. | IRS contends the OIC unambiguously permits keeping overpayments for the 2007 year as consideration. | Denied; overpayment is nonrecoverable under the OIC terms. |
| Is the ESR recoverable under the ESA 2008? | ESR should be treated as an advance refund/credit for 2008, not a retroactive 2007 overpayment. | ESR is an overpayment for 2007 that the IRS may keep under the OIC. | Granted; ESR may be recoverable as an advance refund/credit for 2008. |
Key Cases Cited
- Maniolos v. United States, 741 F.Supp.2d 555 (S.D.N.Y. 2010) (contracts with the Government governed by federal common law)
- United States v. Lane, 303 F.2d 1 (5th Cir.1962) (treats government contracts under federal common law)
- Up State Fed. Credit Union v. Walker, 198 F.3d 372 (2d Cir.1999) (contract interpretation under federal common law)
- Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82 (2d Cir.1998) (initial contract interpretation is a matter of law)
- In re Wooldridge, 393 B.R. 721 (Bankr.D. Idaho 2008) (ESA implications for rebates and refunds)
- In re Schwinn, 400 B.R. 295 (Bankr.D. Kan. 2009) (nature of ESA credits and refunds)
- In re Smith, 393 B.R. 205 (Bankr.S.D. Ind. 2008) (interpretation of ESA advance refunds)
- Hopkins v. Commissioner, 120 T.C. 451 (Tax Court 2003) (contractual ambiguity in government tax settlements)
- Andrews, 386 B.R. 871 (Bkrtcy. D. Utah 2008) (unforeseeable legislation and contract interpretation)