Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-06200/USCOURTS-ca10-90-06200-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 

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{ 

PUBLISH 

FILED 

United States Court of Appeals 

Tenth Circuit 

UNITED STATES COURT OF APPEALS AUG 5 1991 

ROBERT L. HOECKER 

Clerk 

TENTH CIRCUIT 

ROBERT E. SELMAN and PAULINE ) 

SELMAN, ) 

) 

Plaintiffs-Appellants,) 

) 

vs. ) 

). 

UNITED STATES OF AMERICA, ) 

) 

Defendant-Appellee. ) 

No. 90-6200 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.c.·No. CIV-89-2270-A) 

Timothy M. Larason (John F. Fischer, II with him on the brief), 

Andrews, Davis, Legg, Bixler, Milsten & Murrah, Oklahoma City, 

Oklahoma, for Plaintiffs-Appellants. 

Francis M. Allegra, Counselor to the Assistant Attorney General, 

Washington, D.C. (Shirley D. Peterson, Gary R. Allen, Richard 

Farber, David A. Hubbert, United States Department of Justice, Tax 

Division, Washington, D.C. and Timothy D. Leonard, United States 

Attorney, Oklahoma city, Oklahoma, on the brief) for DefendantAppellee. 

' . . * Before LOGAN, circuit Judge, BRIGHT, Senior Circuit Judge , and 

BALDOCK, Circuit Judge. 

BRIGHT, Senior Circuit Judge. 

Robert E. Selman and Pauline Selman (taxpayers) appeal the 

dismissal of their suit for a refund of interest from the Internal 

*Honorable Myron H. Bright, United States Senior.Circuit Judge for 

the Eighth Circuit Court of Appeals, sitting by designation. 

Appellate Case: 90-6200 Document: 01019648782 Date Filed: 08/05/1991 Page: 1 
Revenue Service (IRS). The district court ruled that it lacked 

subject matter jurisdiction and that, even if it'had jurisdiction, 

the abatement of interest was committed solely to the discretion 

of the IRS and not subject to judicial review. Taxpayers dispute 

both rulings. We affirm on the ground that the IRS's refusal to 

abate interest is not subject to judicial review. 

I. 

In 1984, the IRS began an audit of taxpayers' 1981 and 1982 

tax returns . The IRS concluded the audit in 1985 and assessed 

substantial tax deficiencies. Taxpayers responded by filing a 

protest to the proposed adjustments with the IRS. 

Taxpayers and the IRS reached a tentative settlement agreement 

on May 19, 1987. The Associate Chief of Appeals accepted the 

agreement on behalf of the Commissioner of the IRS on August 27, 

1987. Pursuant to the settlement, the IRS assessed a deficiency 

in income tax against the taxpayers for both tax years. The IRS 

also assessed interest charges for the period of the deficiency 

pursuant to § 6601 of the Internal Revenue Code. 

on October 2a~ 1987, before paying the assessed interest for 

either year, taxpayers filed a request with the IRS to abate a 

portion of the assessed interest pursuant to 26 u.s.c. (I.R.C.} 

§ 6404(e) (1) (1988}, 1 arguing that the IRS caused the accumulation 

Congress authorized the Secretary of the Treasury to abate 

interest due to IRS errors or delays as follows: 

(e) Assessments of Interest Attributable to Errors and 

Delays by Internal Revenue Service 

(1) In general 

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of at least a portion of the interest due to its own errors or 

delays. The IRS refused to abate any interest. over the next two 

years, taxpayers paid both the assessed income tax and the 

interest. 

On July 25, 1989, taxpayers filed a claim with the IRS for a 

refund of a portion of · the interest paid for the 1981 tax 

deficiency, again relying upon I.R.C. § 6404(e) (1). Taxpayers 

filed a similar refund claim for their 1982 interest charges on 

September 25, 1989. 

After the IRS denied their claims, taxpayers commenced this 

suit in district court on December 29, 1989, seeking a refund of 

the interest they maintained should have been abated by the IRS. 

In the case of any assessment of interest on--

(A) any deficiency attributable in whole 

or in part to any error or delay by an officer 

or employee of the InternaL Ravenua Sei:vice 

(acting in his official capacity) in 

performing a ministerial act, 

the Secretary may abate the assessment of all or any part 

of such interest for any period. For purposes of the 

preceding sentence, an error or delay shall be taken into 

account only if no significant aspect of such error or 

delay can be attributed to the taxpayer involved, and 

after the Internal Revenue Service has contacted the 

taxpayer in writing with respect to such deficiency or 

payment. 

I.R.C. § 6404 (e) (1). 

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Taxpayers premised subject matter jurisdiction upon 28 u.s.c. 

§ 1346(a) (1) (1988) •

2 

The IRS moved to dismiss the complaint on the grounds that the 

court lacked subject matter jurisdiction and that the issue was not 

reviewable. The district court granted the motion. Selman v. 

United States, 733 F. Supp. 1444 (W.D. Okla. 1990). The district 

court agreed with the IRS that taxpayers' cause of action did not 

fall within its subject matter jurisdiction to review tax cases. 

Alternatively, the district court ruled that even if it had subject 

matter jurisdiction, the decision to abate interest was committed 

to agency discretion and therefore not subject to judicial review. 

Taxpayers appeal. We conclude that the district court had 

jurisdiction to entertain this suit, but nonetheless affirm on the 

basis of the district court's alternate holding. 

II. 

A. subject Matter Jurisdiction 

Taxpayers premised subject matter jurisdiction of the district 

court upon 28 u.s.c. § 1346(a) (1) (1988) .

3 According to the 

2 

3 

28 u.s.c. § 1346(a) (1) (1988) reads as follows: 

(a) The district courts shall have original 

jurisdiction . . • of: 

(1) Any civil action against the United 

States for the recovery of any internal-revenue 

tax alleged to have been erroneously or 

illegally assessed or collected, or any penalty 

claimed to have been collected without 

authority or any sum alleged to have been 

excessive or in any manner wrongfully collected 

under the internal-revenue laws. 

For text of statute, see supra note 2. 

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taxpayers, section 1346(a) (1) grants subject matter jurisdiction 

to the district court to consider a claim for refund of interest 

paid on federal income taxes when the IRS charged excessive 

interest due to its abuse of discretion in refusing to abate 

interest under I.R.C. § 6404{e) (1). 

The district court ruled that it lacked subject matter 

jurisdiction, noting that taxpayers did not argue that the IRS had 

illegally or erroneously collected the underlying tax, but rather 

that the IRS had abused its discretion in refusing to abate a 

portion of the assessed interest. 733 F. Supp. at 1445. The 

district court described taxpayers' argument as an attempt to 

equate abuse of discretion with illegal or erroneous actions and 

thus avoid the clear meaning of section 1346{a) {1). Id. 

The district court's analysis appears to overlook the 

statute's grant of jurisdiction over cases involving "any sum 

alleged to have been excessive . . under the internal-revenue 

laws." 28 u.s.c. § 1346{a) {l). In Flora v. United States, 362 

U.S. 145, 149 {1959), the Supreme Court recognized that section 

1346(a}(l) should be read in the disjunctive: 

But we believe that the statute more readily lends itself 

to the disjunctive reading which is suggested by the 

connective "or." That is, "any sum," instead of being 

related to "any internal-revenue tax" and "any penalty," 

may refer to amounts which are neither taxes nor 

penalties. Under this interpretation, the function of 

the phrase is to permit suit for recovery of items which 

might not be designated as either "taxes" or "penalties" 

by Congress or the courts. One obvious example of such 

a "sum" is interest. 

Id. Thus, a complaint failing to allege that the IRS erroneously 

or illegally assessed or collected a tax does not automatically 

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fall outside of the district court's jurisdiction. The district 

court also has jurisdiction over claims based upon allegedly 

excessive sums. Consequently, the district court's determination 

that abuse of discretion does not amount to an illegal or erroneous 

act, 4 733 F. Supp. at 1445, did not resolve the inquiry. 

After reviewing section 1346(a) (1) in its entirety, we 

conclude that taxpayers' cause of action, alleging that they paid 

excessive interest charges because the IRS abused its discretion 

in refusing to abate interest pursuant to I.R.C. § 6404 (e) (1), 

falls within the district court's jurisdiction to decide cases 

regarding "any sum alleged to have been excessive • • . under the 

internal-revenue laws," 28 u.s.c. § 1346(a) (1), and therefore the 

district court had subject matter jurisdiction. 5 

B. Judicial Review of 

6404 (e) (1). 

Determinations under Section 

Taxpayers rely on the Administrative Procedure Act (APA), 5 

u. s. c. §§ 501-706 ( 1988) (amended 1990) , to establish judicial 

review of the IRS 1 s refusal to abate interest. They argue that the 

APA's judicial review chapter, 5 U.S.C. §§ 701-706, directs a court 

4 In light of our holding, we need not address the validity of 

the district court's conclusion that abuse of discretion cannot 

amount to an illegal or erroneous action. 

5 In reaching its decision, the district court relied, in large 

part, on Horton Homes, Inc. v. United States, 727 F. Supp. 1450, 

1455 (M.D. Ga. 1990), aff'd in part, F.2d , 1991 WL 

117777 (11th Cir. July 23, 1991). That case decided precisely the 

same issues as presented by this appeal. Like the district court's 

analysis in this case, however, Horton Homes' analysis of subject 

matter jurisdiction fails to address the plain language of 28 

U.S.C. § 1346(a) (1) (1988) and therefore fails to withstand 

scrutiny. See Horton Homes, 727 F. Supp. at 1453. Moreover, the 

Eleventh Circuit agrees. See Horton Homes, F.2d at 

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' . 

to review agency action under the circumstances of this case. 6 

However, taxpayers overlook a preliminary step: whether the APA 

applies at all. See 5 u.s.c. § 701(a). "[B]efore any review at 

all may be had, a party must first clear the hurdle of § 701(a) (of 

the APA]." Heckler v. Chaney, 470 U.S. 821, 828 (1985). 

Section 701(a) limits application of the entire APA as 

follows: 

This chapter applies, according to the provisions 

thereof, except to the extent that--

( 1} statutes preclude judicial review; or 

(2) agency action is committed to agency 

discretion by law. 

5 u.s.c. § 701(a). Therefore, before a court engages in review 

under the other sections, it must determine whether a statute 

precludes review or the matter is committed to agency discretion. 

6 Specifically, taxpayers rely on two provisions--

5 u.s.c. § 704 (1988}: 

Agency action made reviewable by statute and final 

agency action for which there is no other adequate remedy 

in a court are subject to judicial review(;] 

and 5 U.S.C. & 706 (1988i: 

The reviewing court shall--

(2) hold unlawful and set aside agency action, 

findings, and conclusions found to be--

(A} arbitrary, capricious, an abuse of 

discretion, or otherwise not in accordance with law; 

(C} in excess of statutory jurisdiction, 

authority, or limitations, or short of statutory 

right . . . • 

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The Supreme Court has explained the distinction between 

§§ 70l(a) (1) and (a) (2): subsection (a)(l) concerns expressed 

Congressional intent to prohibit judicial review; subsection (a) (2) 

applies where the statute provides no law to apply. Webster v. 

Doe, 486 U.S. 592, 599 (1987). 

We begin our analysis of this issue by examining the language 

of section 6404(e) (1) . 7 The statutory language does not expressly 

preclude judicial review. Furthermore, the parties have not 

directed us to, nor have we found, any other statutes precluding 

review of this issue. Thus, the first exception does not apply and 

we will focus on the second exception to judicial review contained 

in section 701(a) (2) -- whether the action is "committed to agency 

discretion by law." 

Generally, this exception is triggered "in those rare 

instances where •statutes are drawn in such broad terms that in a 

given case there is no law to apply. '" Citizens to Preserve 

Overton Park, Inc. v. Volpe, 401 U.S. 402, 410 (1971) (quoting s. 

Rep. No. 752, 79th Cong., ist Sess. 26 (1945)). The Supreme Court 

has elaborated on this exception as follows: 

7 

(E]ven where Congress has not affirmatively precluded 

review, review is not to be had if the statute is drawn 

so that a court would have no meaningful standard against 

which to judge the agency's exercise of discretion. In 

such a case, the statute ("law") can be taken to have 

"committed" the decisionmaking to the agency's judgment 

absolutely. This construction avoids conflict with the 

"abuse of discretion" standard of review in § 706--if no 

judicially manageable standards are available for judging 

how and when an agency should exercise its discretion, 

For text of statute, see supra note 1. 

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then it is impossible to evaluate agency action for 

"abuse of discretion." 

Heckler, 470 U.S. at 830. 

such is the case here. The language of the statute fails to 

provide a court with any substantive standards by which to review 

the agency's action. Accord Horton Homes, Inc. v. United States, 

727 F. supp. 1450, 1455 (M.D. Ga. 1990), aff'd in part, F. 2d 

__ , 1991 WL 117777 {11th Cir. July 23, 1991) (holding failure to 

abate interest not subject to judicial review); Brahms v. United 

states, 18 Cl. ct. 471, 476 (1989). Although the statute 

authorizes the Secretary8 to abate interest attributable to certain 

IRS errors or delays, it neither indicates that such authority 

should be used universally nor provides any basis for 

distinguishing between the instances in which abatement should and 

should not be granted. 

Taxpayers contend that language found in the leg is la ti ve 

history supplies the court with a standard by which to review the 

Secretary's determination. Specifically, taxpayers rely on a 

statement in the Congressional committee reports that~ "the 

provision be utilized in instances where failure to abate interest 

would be widely perceived as grossly unfair." H.R. Rep. No. 426, 

99th Cong., 1st Sess., pt. 17, at 844 (1986); s. Rep. No. 313, 99th 

Cong., 2d Sess. 208 (1986). 

We reject taxpayers' contention. Such an amorphous statement 

as "widely perceived as grossly unfair" hardly provides a reviewing 

court with substantive standards by which to evaluate agency 

8 Although the Secretary has delegated this authority to the 

IRS, to simplify the discussion, we will refer to the decisionmaker 

as the Secretary. No dispute exists regarding the propriety of the 

Secretary's delegation of this authority to the IRS. 

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action. See, e.g., Community Action of Laramie County, Inc. v. 

Bowen, 866 F.2d 347, 353 (10th cir. 1989) (stated provisions did 

not set "substantive priorities" for determining when Health and 

Human Services should revoke a grant) . Most troubling is the lack 

of guidance as to whose perception governs: widely perceived by 

whom? Furthermore, after reviewing the statement in context, we 

are convinced that Congress intended this statement as an 

admonition to the Secretary to use this authority sparingly, not 

as a substantive standard defining when to abate. 9 

Finally, taxpayers argue that our application of the "no law 

to apply" doctrine should be curtailed by the strong presumption 

favoring judicial review. 10 See, e.g., Abbott Laboratories v. 

Gardner, 387 U.S. 136, 141 (1967). According to taxpayers, this 

presumption can only be overcome by clear and convincing evidence 

of a contrary legislative intent. In the area of 

preclusion analysis, however, the Supreme Court has cautioned that 

"the 'clear and convincing evidence' standard is not a rigid 

evidentiary test but a useful reminder to courts that, where 

substantiaL doubt about the Congressional intent exists, the 

9 The entire sentence reads: "The committee does not intend 

that this provision be used routinely to avoid payment of interest; 

rather, it intends that the provision be utilized in instances 

where failure to abate interest would be widely perceived as 

grossly unfair." H.R. Rep. No. 426, 99th Cong., 1st Sess. 844 

(1986); s. Rep. No. 313, 99th Cong., 2d Sess. 208 (1986). 

10 Taxpayers also suggest that to the extent the Overton Park "no 

law to apply" doctrine, see Citizens to Preserve Overton Park, Inc. 

v. Volpe, 401 U.S. 402 (1971), prohibits review in this instance, 

it should not be followed. Suffice it to say that as a court of 

appeals we are bound to follow Supreme Court precedent. 

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general presumption favoring judicial review of administrative 

action is controlling." Block v. Community Nutrition Inst., 467 

U.S. 340, 351 ( 1983) . Thus, the standard is met and the 

presumption overcome, "whenever the congressional intent to 

preclude judicial review is 'fairly discernible in the statutory 

scheme.'" Id. (quoting Data Processing Serv. v. Camp, 397 U.S. 

150, 157 (1970)). 

We conclude that Congressional intent to preclude judicial 

review is "fairly discernible in the statutory scheme" of I.R.C. 

§ 6404(e). First, the plain language of section 6404(e) (1) 

suggests that the Secretary's determination is not subject to 

judicial review. The statute clearly speaks in permissive, not 

mandatory, language: "the Secretary may abate." I.R.C. 

§ 6404 (e) {1) (emphasis added). 

Second, section 6404{e), read in its entirety, demonstrates 

that Congress carefully distinguished between discretionary and 

mandatory authority to abate interest. In contrast to subsection 

(e) (1) 's permissive language, in subsection (e) (2), Congress 

directed that "(t]he Secretary shall abate the assessment of all 

interest on any erroneous refund under section 6602 until the date 

demand for repayment is made." I.R.C. § 6404 (e) (2) (emphasis 

added). The fact that Congress employed both permissive and 

mandatory language indicates that Congress intentionally sought to 

commit the former to the agency's discretion while controlling the 

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' . 

agency's action in the latter. 11 Accord Horton Homes, 727 F. Supp. 

at 1455; Brahms, 18 Cl. ct. at 475-76. 

Additionally, we note that the legislative history behind 

I.R.C. § 6404(e) further supports our conclusion. Both the House 

and Senate reports explain that 11 [t)he Act gives the IRS the 

authority to abate interest but does not mandate that it do so 

(except that the IRS must do so in cases of certain erroneous 

refunds ..• )" (emphasis added). H.R. Rep. No. 426, 99th Cong., 

1st Sess., pt. 17, at 844 (1986); s. Rep. No. 313, 99th Cong., 2d 

Sess. 208 (1986). This contrast clearly evinces Congress's intent 

to commit the abatement of interest pursuant to subsection (e) (1) 

to the discretion of the Secretary. 

We thus conclude that· the language, structure and legislative 

history of I.R.C. § 6404(e) (1) indicate that Congress meant to 

commit the abatement of interest to the Secretary's discretion and 

therefore, 5 u.s.c. § 70l(a) (2) precludes judicial review. 

III. 

Accordingly, we affirm the district court's dismissal on the 

ground that the refusa:L to abate interest is not subject to 

judicial review. 

IT IS SO ORDERED. 

11 we note that Congress enacted both subsections at the same 

time. See Pub. L. No. 99-514, § 1563(e), 100 Stat. 2762 (1986). 

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