476 F.2d 1337 | Ct. Cl. | 1973
delivered the opinion of the court:
Defendant has moved to dismiss count II of the petition on the grounds that plaintiff has failed to state a claim upon which relief may be granted. The question is whether plaintiff’s claim for the recovery of sums paid in satisfaction of an accumulated earnings tax is barred 'by plaintiff’s failure to file a timely claim for refund. Specifically, this motion concerns the issue of the applicability of section 6511(a) [Limitations on Credit or Refund] of the Internal Revenue Code (IRC) to a claim by a corporate taxpayer for the refund of an overpayment of accumulated earnings taxes. While the precise issue involved was not handled in the body of the opinion in Alexander Proudfoot Co. v. United States, 197 Ct. Cl. 219, 454 F. 2d 1379 (1972), the matter was dis
On June 15,1965, the plaintiff filed a corporate tax return for the fiscal year ending March 31, 1965. On October 9, 1967, the IRS District Director notified the plaintiff that certain deficiencies had been proposed with respect to the 1965 return, including an accumulated earnings tax deficiency (IRC § 531 et sag.). A formal notice of deficiency was sent to the taxpayer on February 28, 1969, which included a deficiency of $22,628.34 in accumulated earnings taxes. By September 24, 1969, the plaintiff made the last payment on the amount owed which included $5,409.97 in interest computed from June 15, 1965, the date the original return was filed.
On September 13, 1970, the taxpayer filed a claim for refund of the $5,409.97 paid in interest, which claim was finally disallowed by the IRS on October 29, 1971. Thereafter on November 29, 1971, the plaintiff filed a separate claim for refund of the principal of the accumulated earnings tax paid. This latter claim has never been formally acted upon by the IRS. In the petition to the court, the taxpayer’s count I seeks a refund of the interest paid on the accumulated earnings tax, and is not presently at issue.
The defendant contends that section 7422(a) of the IRC of 1954
SEC. 6511. LIMITATIONS ON CREDIT OS REEUND.
(a) Period of Limitation on Filing Claim. — Claim 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. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid. [Emphasis added.]
Regardless of whether the 2- or the 3-year period is applied to these facts, this plaintiff’s filing of the claim for refund of the principal tax on November 29, 1971, was too late. As a result, the claim for refund was ineffective, requiring the dismissal of the suit under the requirements of section 7422(a). The plaintiff’s principal defense to the Government’s motion is the assertion that the accumulated earnings tax is not a tax “in respect of which * * * the taxpayer is required to file a return,” making section 6511(a) inapplicable. Therefore, the time limitation that should govern this suit is the general 6-year statute of limitations (28 U.S.C. § 2401), with which the plaintiff has complied.
The real focus of this problem is the language in section 6511 (a) which states: “* * * or if no return was filed by the taxpayer [the claim for refund must be filed], within 2 years from the time the tax was paid.” Both sides recognize that the accumulated earnings tax is not self-assessing in nature and is only levied after the return has been filed and an administrative determination has been made that the accumulation is in excess of the amount required for the reasonable needs of the business (§§ 533, 537). See, Motor Fuel Carriers, Inc. v. United States, 190 Ct. Cl. 385, 390, 420 F. 2d 702, 705 (1970). To this extent, the accumulated earnings tax is not the type of tax that is reported on the return, which the plaintiff contends is the only type of tax covered by 6511 (a). Plaintiff interprets the clause above to apply only to taxes
* * * § 6511(a) was obviously intended to cover all taxes, whether or not a return is required, and its wording can easily carry that understanding since it expressly provides for the case where “no return was filed by the taxpayer.” [197 Ct. Cl. at 225, n. 7; 454 F. 2d at 1382, n. 7.]
The plaintiff has presented an impressive array of arguments to undercut the footnote holding in Alexander Proud-foot and to otherwise seek to avoid the application of section 6511(a) to the count II claim for refund. These arguments will be detailed individually, but it should first be noted that a reversal of the footnote holding would likewise erode to some extent the basis for that over-all decision. In Alexander Proudfoot the plaintiff sought only the refund of the pre-notice deficiency interest paid with respect to an accumulated earnings tax assessment. Following the decision by this court in Motor Fuel Carriers, Inc., supra, it was clear that pre-notice deficiency interest could not be lawfully claimed by the IRS with respect to the accumulated earnings tax. The court included the claim for refund of the deficiency interest within the operation of section 6511(a) and found the claim to have been filed too late to be effective. This conclusion was reached in part because the “interest demand would be as much governed by § 6511 as the claim for the tax itself, and could not be separated out from the requirement of a proper and timely administrative claim.” 197 Ct. 01. at 226, 454 F. 2d at 1382. “The hair goes with the hide.” This, of course, presumes that the tax (here
Plaintiff first goes through a thorough grammatical exercise to indicate that its reading of section 6511(a) is proper and reasonable. This, of course, does not mean that the defendant’s reading is ipso facto unreasonable. It simply becomes a choice of what is most reasonable. Plaintiff urges that the language in s. rep. no. 1622, 83d cong., 2d sess. (3 u.s. cong. & adm. news 5235 (1954)), emphasizes that section 6511 (a) was to apply only to those taxes “in respect of which a taxpayer is required to file a return.” This is nothing more than a restatement of the wording in the section itself and seems to add nothing to the problem of assigning a given meaning to the section. Plaintiff next argues that, at most, the language in section 6511(a) is ambiguous and the language should ibe interpreted in favor of the taxpayer since the Government’s construction would result in an extension of the meaning of the statute, which would run contrary to the normal judicial trend to read tax statutes narrowly and strictly. While it seems that plaintiff’s point is well taken, it is likewise clear that other factors come into play when any court must interpret a tax statute, for example, consistency and 'harmony with other related sections. In this case as the defendant points out, and as the court pointed out in Alexander Proudfoot, 197 Ct. Cl. at 229, 454 P. 2d at 1384, the plaintiff’s reading of section 6511 (a) to exclude those taxes assessed by the INS after the return is filed but not part of the return itself, would render section 7422(a) almost meaningless with respect to this group of assessments. Section 7422(a) makes the filing of a claim for refund or credit a condition precedent to the maintenance of any suit for the recovery of any wrongfully assessed tax, penalty, or “of any svm alleged to have been excessive or in any manner wrongfully collected.” [Emphasis added.] Clearly section 7422(a), with its all-inclusive “any sum” term, would include the assessment for the accumulated earnings tax; yet, if this tax were outside the time limitations imposed by section 6511(a), the claim for refund and petition to this court could be filed anytime within 6 years
Additional support for this view may be found in the treatment of other additions to the tax in IRC section 6659. As the plaintiff correctly points out, section 6659 is not, by its own terms, applicable to section 531 et seq. (accumulated earnings tax) assessments. But, since Motor Fuel Carriers, sufra, this court has treated accumulated earnings tax assessments as additions to the tax. Those additions to the tax covered by section 6659 are to be “assessed, collected, and paid in the same manner as taxes,” while any reference to the word “tax” is to include additions to the tax. The general policy which would justify the treatment of these additions to the tax as though they were the tax itself would likewise cover the claim now before the court. There are as many reasons to apply the limitation period of section 6511(a) to section '531 et seq. taxes as there are to apply those limitations to taxes specifically enumerated on the return itself.
The taxpayer’s final arguments assume arguendo that section 6511(a) applies to this case. First, plaintiff urges that this claim was filed within 3 years of the return if the word “return” in this context is read to mean the document by which the Government notified the taxpayer of the deficiency. The plaintiff argues that such a definition is the most reasonable since the tax did not become due until that date (February 28,1969). While plaintiff’s argument on this point might make some sense in the abstract, there is no support for the position in the statute. It seems fairly clear that the word “return” as it is used in section 6511(a) refers to the income tax return, which in this case was filed by the taxpayer in 1965. There appears to be no sound reason for the court to define it otherwise. The plaintiff’s last argument urges that the filing of the claim for refund on September 13,1970, for the pre-notice deficiency interest served notice on the Government that the assessment of the principal was likewise being contested. This is a distortion of the “hair goes with the hide” analogy. The reverse is not necessarily true where, as
There is, finally, one further interpretation of the language of section '6511(a) which bears examination. The defendant argues that this section, covering all taxes “in respect of which” a return is filed, covers assessments for accumulated earnings taxes despite the fact that these taxes are not paid or reported as part of the return itself. The tax is assessed based on figures and statements that are part of the return and to this extent it is a tax “in respect of which” the taxpayer has filed a return. The plaintiff does not answer this argument, and it need not foe pursued one way or another since there is other language in section 6511(a), discussed sufra, which brings this taxpayer’s claim within that section.
For all of the above reasons the court grants the defendant’s motion to dismiss count II of the plaintiff’s petition for failure to state a claim upon which relief may be granted. The plaintiff has filed a motion for summary judgment with respect to count I of its petition, which motion is not presently before the court since it is now subject to a partial suspension of proceedings granted February 12,1973.
On February 12, 1973, the court allowed plaintiff's motion for a partial suspension of the proceeding with respect to count I in order to permit settlement discussions to continue.
“SEC. 7422. CIVIL ACTIONS FOR REFUND.
“(a) No Butt Prior to Filing Claim for Refund. — No 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 or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof.”
The Government argues that since section 7422(a) makes the filing oí a claim for refund a condition precedent to maintaining the suit, the taxpayer’s cause of action would not accrue and the 6-year statute of limitations would not begin to run until the claim for refund was filed. This would permit a taxpayer to delay the filing of suits with respect to this type of tax for many years.
See note 1, supra.
