Lead Opinion
The question on the merits is whether money remitted to the Internal Revenue Service (the Service) constituted a “deposit” or a “payment” of taxes. If a deposit, the taxpayer is entitled to recover it; if a payment, the taxpayer can recover the money only after it files a claim with the Service for the return of an “overpayment.” The Court of Federal Claims held that it had jurisdiction over this suit for recovery of the remitted money and that the remittance was a deposit, which the taxpayer was entitled to recover. We affirm both rulings.
I.
In computing its taxable income for 1987, the appellee New York Life Insurance Company (N.Y.Life or the Cоmpany) used a negative recomputed differential earnings rate (negative rate). Under section 809(a) of the Internal Revenue Code (the Code), 26 U.S.C. § 809(a) (1994), the “differential earnings amount” is the amount by which mutual life insurance companies must reduce the deductions for dividends to policy holders authorized by section 808 of the Code. The differential earnings amount is determined by multiplying the differential earnings rate by the life insurance company’s equity base. Id.; see American Mut. Life Ins. Co. v. United States,
During the review period, NYLife executed an extension of time for assessing the 1987 tax to September 30, 1994, which also extended the time for аssessing the 1984 proposed deficiency resulting from the elimination of the loss carried back to that year. See 26 U.S.C. § 6501(h) (1994). In November, 1993, NYLife and the Service reached a tentative settlement for both 1984 and 1987 (and for two other years), under which the Company would pay the deficiency but retain the right to prosecute a refund claim.
On December 17, 1993, NYLife sent the Service three checks “in payment of additional income tax and interest accrued thereon for the tax years” 1984, 1986 and 1987. The check for 1984 was for $31,912,823, of which NYLife requested that $19,374,668 be allocated to additional tax and the balance of $12,-538,155 to interest on that additional tax. The Company stated that the pоrtion of the payment representing the additional tax “is based on a tentative settlement” with the Service.
In March and May, 1994, NYLife submitted to the Service executed forms waiving restrictions on assessment for the years the proposed settlement covered, and stating the terms of the settlement. In those forms the Company “reserve[d] the right to timely file claims for refund or credit or to prosecute timely filed claims for the years 1984, 1986, 1987 and 1988” on specified grounds, including that it was “entitled to the allowance for 1984 of a net operating loss carryback ... attributable to a net operating loss which arises in 1987.” The forms’ cover letters stated: “[T]he Company reserves the right to claim a refund of tax with respect to two issues, the negative recomputed DER----”
Although the Service timely assessed deficiencies for at least NYLife’s 1987 taxes, it never assessed any deficiency for 1984. On September 30, 1994, the statute of limitations on making that assessment expired.
NYLife’s complaint in the Court of Federal Claims, filed October 31, 1994, sought recovery of the $31,912,823 it had remitted to the Service to cover the asserted tax deficiency (plus interest) for 1984, resulting from the Service’s disallowance of the 1987 negative rate. On cross-motions for summary judgment, the court denied the government’s motion, granted the plaintiffs motion and entered judgment for the plaintiff of $31,912,-823 with no interest.
The court held that under Cohen v. United, States,
II.
A. NYLife invoked the jurisdiction of the Court оf Federal Claims under the Tucker Act, 28 U.S.C. § 1491, which gives that court
jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.
28 U.S.C. § 1491(a)(1) (1994).
“The Tucker Act, of course, is itself only a jurisdictional statute; it does not cre
But it is not every claim involving or invoking the Constitution, a federal statute, or a regulation which is cognizable here. The claim must, of course, be for money. Within that sphere, the non-contractual claims we consider under Section 1491 can be divided into two somewhat overlapping classes — those in which the plaintiff has paid money over to the Government, directly or in effect, and seeks return of all or part of that sum; and those demands in which money has not been paid but the plaintiff asserts that he is nevertheless entitled to a payment from the treasury. In the first group (where money or property has been paid or taken), the claim must assert that the value sued for was improperly paid, exacted, or taken from the clаimant in contravention of the Constitution, a statute, or a regulation.
Id.
The court further stated that “[mjonetary claims which cannot be brought within these limits are beyond this court’s jurisdiction, even though they may intimately involve the Constitution, an Act of Congress, or an executive regulation.” Id. at 1008 (footnote omitted).
In Testan, the Supreme Court apparently approved the Court of Claims’ assertion of its jurisdiction over claims seeking return of money paid to the government. In holding that the Court of Claims did not have jurisdiction over a suit by federal civil service employees seeking reclassification of their positions to a higher grade and back pay for the differential in pay between the two grades, the Court pointed out that because the employees
do not rest their claims upon a contract [or] seek the return of money paid by them to the Government [i]t follows that the asserted entitlement to money damages depends on whether any federal statute “can fairly be interpreted as mandating compensation by the Federal Government for the damage sustained.”
Testan,
In the present case, NYLife sought “the return of money paid by [it] to the Government” in connection with a tentative settlement of the government’s claim that it owed additional taxes for 1984. The Company contended that its use of the negative rate for 1987 was permissible under section 809 оf the Internal Revenue Code, and that the government’s disallowance of the 1984 carryback loss was improper. In the language of East-port, NYLife’s claim in the Court of Federal Claims “assert[ed] that the value sued for [the amount remitted] was improperly paid [or] exacted ... in contravention of ... a statute [namely, 26 U.S.C. 809].” “The claim is based on the allegedly erroneous interpretation of a statute by the agency.” Aerolineas Argentinas v. United States,
The Code does not deal with deposits of taxes or provide procedures for their making or recovery. The conceрt of a “deposit” of taxes, which is not a payment, stems from the Supreme Court’s decision in Rosenman v. United States,
the true nature of an arrangement such as this [is] to treat it as an estimated deposit and not as a payment which, if in excess of what should properly have been exacted, entitled the taxpayer to interest as the return on the use that the Government has had of moneys that should not have been exacted.
Id. at 663,
Since that time the courts consistently have recognized that a remittal of money against an assessed or likely tax liability may, depending upon the circumstances, constitute either a payment or a deposit of taxes and that, if the latter, the taxpayer is entitled to its return. See, e.g., Moran v. United States,
Here, as shown above, NYLife sought the return of money it had remitted to the Service, pursuant to a tentative settlement with the Service, of the Company’s tax liability under section 809 of the Code. In the suit NYLife necessarily contended that the money was “improperly paid [or] exacted ... in contravention of ... a statute,” Eastport,
The dissent denigrates the statements in Eastport on which we rely by repeatedly calling them dicta. However one describes them, they were not something casually tossed off, but were an integral and important part of the Court of Claims’ attempt in that case to summarize and restate the established principles governing its Tucker Act jurisdiction. The court’s jurisdictional discussion in Eastport was intended to provide the standards and guidelines that the Court of Claims followed. As such, even though some aspects of the analysis may be charactеrized as dictum rather than holding, it is appropriate to follow and apply the stated principles in determining the jurisdiction of the Court of Federal Claims under the Tucker Act. Courts frequently and properly cite and rely upon dicta that correctly set forth governing or relevant legal principles.
The dissent argues that sovereign immunity precludes the Court of Federal Claims from entertaining NYLife’s suit. The dissent states that the “United States, as sovereign, is immune from suit unless it expressly waives its immunity”; that in 28 U.S.C. § 1346, discussed below, Congress has “provided a clear remedy to recover taxes paid without legal basis”; and that because there is no statute expressly waiving sovereign immunity for a suit to recover money deposited to cover an asserted tax deficiency, sovereign immunity bars this suit.
In the Tucker Act Congress gave the Court of Federal Claims “jurisdiction to render judgment upon any claim against the United States” within the categories there specified. In authorizing that court to enter judgment against the United States, Congress waived sovereign immunity for those “claims” that the statute enables the court to entertain. See United States v. Mitchell,
B. The government contends, however, that NYLife’s failure to file with it a claim for refund of the amount remitted barred the Court of Federal Claims from exercising its jurisdiction to adjudicate NYLife’s claims for recovery of the remittance. It relies upon section 7422(a) of the Code, which provides:
§ 7422. Civil actions for tax refund (a) No suit 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 fоr refund or credit has been duly filed with the Secretary____
26 U.S.C. § 7422 (1994).
In Schenley Import Corp. v. United States,
The Court of Claims rejected the government’s contention. It stated:
We do not think that the funds here in question fit the language of the statute. They were money deposited with the Government for its security to create a fund out of which taxes could be paid as they came due. The taxes were paid out of it and the Government owed the rest of it to the plaintiffs, not as an excess collection of taxes or penalties, but as money not required to pay the plaintiffs’ taxes____
Schenley,
In light of our holding in part III, below, that the money NYLife remitted to the Service was a deposit and not a payment of taxes, the deposit was made to cover “a payment ... of taxes expected to accrue in the future,” upon assessment, and was not “a payment of taxes ‘erroneously or illegally assessed, or collected.’ ” As the government recognized in its brief, since “the administrative claim required by I.R.C. § 6511(a) is a claim for an ‘overpayment,’ and that recovery is limited by I.R.C. § 6511(b)(2) to amounts ‘paid’ within specified periods prior to the claim, a refund suit is necessarily predicated on the existence of a tax ‘payment.’” Accordingly, the requirement in section 7422(a) that no suit for “recovery of any internal revenue tax” “shall be maintained” until a refund claim has been filed, does not apply to the suit brought by NYLife since it was not a suit for the return of a tax payment.
That conclusion accords with the purpose underlying the requirement of filing a refund claim, which “is to advise the appropriate officials of the demands or claims intended to be asserted, so as to insure an orderly ad
III.
On the merits, Cohen controls this case. There, on substantially identical facts, this court held that a similar remittal of funds was a deposit and not a payment.
In Cohen, following receipt of a ninety-day letter in which the Service proposed to disallow a deduction that the Cohens had taken on their federal income tax and impose a deficiency, and after the Cohens had filed a petition in the United States Tax Court contesting the deficiency, the Cohens sent the Service a check “in partial payment of the proposed deficiency,” which divided the payment between the “tax deficiency and interest thereon.”' Cohen,
The Cohens filed with the Service a claim for refund of the amount remitted. After the Service failed to act on the claim for six months, the Cohens filed suit in the United States Claims Court for the money. That court granted summary judgment for the Cohens and this court affirmed.
Noting that the Cohens consistently had protested the proposed deficiency and that “the assessment was not made within the clear boundaries of time imposed by law or openly agreed to by the parties,” the court held that “the consequences are that the transfer of funds was a deposit as a matter of law, whether for purposes of refund, imposition of interest, or otherwise.” Id. at 209. The first sentence of the “Conclusion” of the opinion was as follows:
The remittance made by the Cohens, under protest, after a notice of deficiency but in clear circumstancеs of contest prior to expiration of the period for assessment, was a deposit as a matter of law.
Id.
The significant operational facts in the present case relating to whether NYLife’s remittance was a deposit or a payment are indistinguishable from those in Cohen. Here, as in Cohen, (1) the taxpayer received a letter from the Service proposing to assess a deficiency, (2) the taxpayer remitted money to the Service which it described as a “payment” of additional tax and which allocated the money between tax deficiency and interest thereon, (3) the taxpayer had protested the proposed deficiency and, in mаking the remittance, had reserved the right to seek recovery of the additional tax and (4) the Service failed timely to assess the additional tax deficiency. This case comes squarely within the ruling of Cohen that “[t]he remittance [it] made ... under protest, after a notice of deficiency but in clear circumstances of contest prior to expiration of the period of assessment, was a deposit as a matter of law.” Id.
The government points to the statement in Cohen that in Charles Leich & Co. v. United States,
Finally, the government suggests that if Cohen requires the conclusion that NYLife’s remittance was a deposit, this court should revisit Cohen and modify or overrule it. It recognizes that to do so would require in banc action. The govеrnment did not seek rehearing in banc in Cohen, and it gives no reason why such step would be more appropriate now that it would have been then. There is no showing that the question is of sufficient importance to warrant in bane reconsideration of this recent decision, and the panel sees no occasion to recommend to the full court that it take that action.
The government states that the Court of Federal Claims’ decision is vulnerable because it permitted NYLife to recover its remittance without consideration of the merits of the negative rate issue (which underlay the increased liability). It contends that this result is contrary to “a basic principlе of tax law — i.e., that a taxpayer cannot recover taxes collected within the period of assessment unless the taxpayer establishes that the United States was not entitled to the money.” That argument, however, could be made in every case in which recovery of a deposit of taxes is sought and the time for assessment has expired, since the essence of a deposit is that the taxpayer is entitled to recover it without regard to the merits of the underlying tax claim. The government can avoid this situation by making a timely assessment of the tax deficiency, which would assure it the right to litigate the merits of the deficiency-
CONCLUSION
The judgment of the Court of Federal Claims granting summary judgment for the plaintiff is
AFFIRMED.
Dissenting Opinion
dissenting.
The Tucker Act does not permit this court to address this case without sending New York Life Insurance Company back to bring a proper tax refund action. Repeatedly the Supreme Court has clarified that this court may not imply a waiver of sovereign immunity. United States v. Mitchell,
I.
The Internal Revenue Service (IRS) notified New York Life of a 1984 tax liability. After protracted negotiations with the IRS, New York Life agreed to a settlement in late 1993. In a November 1993 letter memorializing the settlement, New York Life agreed that “[t]he Company will pay the tax with respect to this adjustment and reserve the right to prosecute a refund claim therefor.” (Emphasis supplied.) In accordance with this agreement, New York Life freely and voluntarily paid nearly $32 million in December 1993. The letter accompanying the money referred to this transaction six times as a “payment” of taxes. According to the taxpayer’s instructions, the IRS credited part of the payment to interest, which New York Life later deducted. New York Life no doubt made this payment because it knew that the United States had statutorily waived sovеreign immunity for tax refund suits, 26 U.S.C. § 7422, in the Court of Federal Claims, 28 U.S.C. § 1346(a)(1). Indeed in 1995, the taxpayer filed an administrative claim in preparation for a tax refund suit.
The IRS did not formally assess the 1984 tax within the time limits. New York Life immediately brought a claim in the Court of Federal Claims for recovery of its “deposit” without seeking a refund of taxes. Before determining whether New York Life made a payment or a deposit, however, this court must first establish jurisdiction to reach the
II.
The United States, as sovereign, is immune from suit unless it expressly waives its immunity. Library of Congress v. Shaw,
The Tucker Act, however, standing alone does not waive sovereign immunity for a suit against the United States. Mitchell,
III.
Desperate to find some path into the Court of Federal Claims without an express waiver of sovereign immunity, New York Life reaches for the “illegal exaction” dicta from East-port Steamship Carp. v. United States,
Although never expressed, the apparent reasoning of the Court of Claims in 1967 was that the United States Code would not create a statutory or regulatory regime without providing a remedy for recovery of money exacted under an illegal application оf those laws or regulations. The most elemental problem with the illegal exaction dicta and its unspecified reasoning is that a waiver of sovereign immunity “cannot be implied but must be unequivocally expressed.” King,
In this case, however, this court need not struggle to find a waiver of sovereign immunity for the illegal exaction notion because the United States Code has already provided a clear remedy to recover taxes paid without legal basis. Indeed 28 U.S.C. § 1346 expressly waives sovereign immunity and provides jurisdiction fоr recovery of funds paid as taxes. With a remedy in place, New York Life has a legal recourse to recover funds, even if “improperly paid, exacted, or taken” and cannot argue that fairness compels this
Even if judicial fiat could waive the immunity of the United States, the Eastport illegal exaction dicta would not suffice because it is not even a court order, judgment, or holding. The holding of Eastport rests on familiar sovereign immunity principles. Eastport stands for the proposition, since many times repeated by the Supreme Court, see, e.g., Mitchell,
Thus, the rule in Eastport differs drastically from its illegal exaction dicta. Similarly, the Supreme Court in Testan, citing East-port, referred to the Eastport dicta, but held that the Tucker Act does not operate to waive sovereign immunity.
The individual claimants in this action premised jurisdiction in the Court of Claims upon the Tucker Act---- The Tucker Act is “only a jurisdictional statute; it does not create any substantive right enforceable against the United States____”
The individual claimants, therefore, must look beyond the jurisdictional statute for a waiver of sovereign immunity with respect to their claims.
In one sense, this court’s opinion could have stopped after saying: “The Code does not deal with deposits of taxes or provide procedures for their making or recovery.” If the United States Code has not waived sovereign immunity for recovery of deposits as this passage seems to concede, where is the waiver? New York Life thinks the waiver is in the Tucker Act standing alone, but the rule in Mitchell, as applied by both Eastport and Testan, requires a money-mandating statute in addition to the Tucker Act. Where is that waiving statute?
In another sense, this court’s statement abоve that the Code provides no procedures for recovery of money paid as taxes cannot be correct. Even New York Life has taken steps to institute a tax refund action under 28 U.S.C. § 1346. These facts illustrate the stark contradictions in New York Life’s contentions. It acknowledges that the United States has waived immunity in supplying a procedure for recovery of money paid as taxes. Yet it refuses in this action to pursue that proper legal course.
On still another level, New York Life has not shown that it even fits within the illegal exaction dicta of Eastport. As noted before, to fit within this dicta, a claimant “must assert that the value sued for was improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation.”
IV.
This dissent recognizes the reasons that New York Life seeks to escape the strictures of sovereign immunity. Fairness and equity cry out for a taxpayer to recover its money if a later determination shows no taxes were due at the time of payment. The noble objective of fairness cannot trump, however, the legal processes for achieving that fairness. The United States Code has established a due legal process to provide fairness to New York Life and other taxpayers. Under that process, a taxpayer can indeed recover overpayments or unnecessary payments by filing an administrative tax refund claim, see 26 U.S.C. § 6511, and a tax refund suit at the Court of Federal Claims, if necessary. Indeed New York Life has followed that procedure and has pending a claim which has followed the proper legal course to recover any funds it paid without owing.
In other words, New York Life is already guaranteed everything it expressly bargained for and agreed to in its settlement with the IRS — a right to file a tax refund suit under statutes that properly waive sovereign immunity to suit in the Court of Federal Claims. Meantime New York Life should not presume to ignore the doctrines of sovereign immunity, which form the basis of jurisdiction under the Tucker Act. For this suit, New York Life has yet to answer the question: where is the waiver?
Notes
. See, e.g., Crocker v. United States,