Sarmiento v. United States
2012 U.S. App. LEXIS 9117
2d Cir.2012Background
- Sarmiento and Montoya, married, self-employed, owed over $30,000 in unpaid taxes for multiple years prior to 2007.
- On November 14, 2007, they separately entered into Offer-in-Compromise agreements with the IRS to pay $1,000 each to settle the liability.
- Form 656 (OIC) includes a provision that as additional consideration the IRS will keep any refunds for 2007 or earlier years due to overpayment.
- In 2008, Congress enacted the Economic Stimulus Act (ESA), providing advance refunds/credits for 2007 taxes via § 6428(g).
- The 2007 tax returns claimed refundable credits (EITC and ACTC) and a 2007 refund; the IRS withheld $1,932 as additional consideration under the OIC.
- The district court initially held ESA refunds did not relate to 2007 under the OIC, prompting plaintiffs’ appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do OIC terms take their meaning from the Code or plain English? | Sarmiento argues plain English governs. | United States argues terms like 'refund' and 'overpayment' are Code‑driven. | Code meaning governs; terms take their meaning from the Internal Revenue Code. |
| Whether the ESA advance refunds for 2007 fall within the OIC's temporal limitation. | ESA refunds should be outside the 2007 scope as 2008 credits. | Advance refunds under ESA relate to 2007 and thus fall within the 2007 tax year. | ESA advance refunds relate to 2007 and are within the OIC temporal reach. |
| Whether the ESA payments are within the scope of 'any refund' waived by the OICs for 2007. | Plaintiffs could not have signed away rights to an ESA refund before it existed. | By contracting, plaintiffs waived 'any refund' for 2007. | ESA refunds are contractually within the scope of the OICs; plaintiffs implicitly waived those refunds for 2007. |
Key Cases Cited
- Sorenson v. Sec'y of Treasury, 475 U.S. 851 (Supreme Court, 1986) (EITC/ACTC treated as overpayments for refund purposes)
- Rucker v. Sec'y of Treasury, 751 F.2d 351 (Tenth Cir. 1984) (EITC refunds as overpayments; overpayment concept)
- In re Lambert, 283 B.R. 16 (Bankr. App. Panel 9th Cir. 2002) (interpretation of 'advance refunds' under stimulus act precedent)
- Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202 (2d Cir. 2002) (contract interpretation within insurance context; four-corners rule relevance)
- Bell v. Cendant Corp., 293 F.3d 563 (2d Cir. 2002) (broad arbitration/agency contract interpretation principles)
- Kerin v. U.S. Postal Serv., 116 F.3d 988 (2d Cir. 1997) (contracts interpreted with industry customs/usages)
- United States v. Lane, 303 F.2d 1 (5th Cir. 1962) (contractual nature of tax settlement agreements)
- United States v. Standard Rice Co., 323 U.S. 106 (Supreme Court 1944) (contractual terms informed by tax law definitions)