## United States Court of Appeals for the Federal Circuit

03-5173

PACIFIC GAS & ELECTRIC COMPANY and PG & E CORPORATION,

Plaintiffs-Appellants,

v.

UNITED STATES, Defendant-Appellee.

Craig Martin Buchsbaum , Pacific Gas and Electric Company, of San Francisco, California, argued for plaintiffs-appellants. Andrea R. Tebbets , Attorney, Tax Division, Appel late Section, United States Department of Justice, of Washington, DC, argued for def endant-appellee. With her on the brief were Eileen J. O’Connor , Assistant Attorney General and Richard Farber , Attorney. Appealed from: United States Court of Federal Claims Judge Emily C. Hewitt

## United States Court of Appeals for the Federal Circuit

03-5173 PACIFIC GAS AND ELECT R IC COMPANY and PG&E CORPORATION, Plaintiffs- A ppellants,

v. UNITED S T ATE S , Defendant-Appellee.

_______________________ DECIDED: August 10, 2005

_______________________ Before MICHEL, Chief Judge , ∗ ARCHER, Senior Circuit Judge , and BRYSON, Circuit Judge

. ARCHER, Senior Circuit Judge

. Pacific Gas and Elec tric Company and PG &E Corpor ation (collectively “PGE”) appeal the United States Court of Federal Claims’ judgm ent that the Internal Revenu e Service (“IRS” or “Service”) properly offset st atutory interest that was erroneously pai d to PGE (“erroneous int e rest”) with respect to t he tax year 1982, against a later refund of tax and interest determined to be due PGE for the same tax year. Pac. Gas & Elec. Co. v. United States , 55 F ed. Cl. 271 (2003) (“PGE I ”). Because the I R S made this offset after the statute of limitations under 26 U. S.C. § 6532(b) would have pre c luded the
governmen t from filing suit to recover the erroneous int e rest, we reverse.

∗ Chief Judge Paul R. Michel as sumed the position of Chief Judge on December 25, 2004.I This case involves statutory interest e rroneously paid to PGE for tax year 1982. PGE timely filed its 1982 tax return. PGE t hereafter filed claims for refund for 1982 and the IRS m ade other adjustments with respect to that year, whic h are not necessary to detail. Suffice it to say that in August 1988, the IRS det ermined th at PGE had overpaid its 1982 tax. In deter mining the statutory interest under 26 U.S.C. § 6611 to be paid to PGE on this overpayment, the IRS made errors in its calculation resulting in too much interest being paid to PGE. 1
PGE thereafter filed additional refund claim s for tax and interest for the tax year 1982 primarily to c l aim certai n statutorily author ized carryback adjustments from tax year 1984. In reviewing those refund claims, the IRS discovered the interest computation errors it had previously made in the August 1988 r e fund and determined that it had erroneously overpai d PGE $3,370,535 in statutory interest. The IRS then used the amount of this erroneous interest prev iously paid to PGE in 1988 to offset and reduce the tax and int e rest for the tax y ear 1982 that it refunded to PGE in 1992. PGE filed suit in the Cour t of Federal Claims, conten ding it was entitled to the additional amount of $5,037,109 in connection with the 1992 refund. 2 PGE argued that the IRS was not permi tted to offset such er roneous int e rest against its allowable refund

1 The erroneous interes t calculation re sulted primarily from the treatment of one installment payment on June 20, 1983, of tax for 1982, in the amount of $63,000,000. In the interest computations, the IRS ass u med the due date of the return, March 15, 1983, should comm ence the running of int e rest, whereas the correct date was when the installment payment was made. The IRS also double- counted the interest due on a small portion of the overpaid tax 2 The offset, while made in 1992, was effective bac k to the date the erroneous interest was paid in August 1988. Thus, PGE cl aims this lar ger amount because additional interest under section 6611(b)(2) woul d hav e accrued on its refund that was paid in 1992.

03-5173 2of tax and interest in 1992 bec ause it was done after the ex piration of the statute of limitations for filing s u it to recover an erroneous refund under 26 U.S.C. § 7405. 26 U.S.C. §§ 7405, 6532(b). T he government argued that its use of the offset w a s permissible. Both parties moved for summary judgment. The Court of Federal Claims held that the IRS’s offset action in 1992 was pr oper. PGE I , 55 Fed. Cl. at 277. Alth ough recognizing that a suit under 26 U.S.C. § 7405 for the amount of the erroneously paid interest would have been time-barred, the court said “there is no provision in the [Internal Rev enue] Code forbidding the administrative remedy the Service c hose here.” Id. at 276. The court was not persuaded by PGE’s efforts to distingu ish prec edent the court found controlling. Specifica lly , the court explained: The most clearly app licable precedents, Lewis , Dysart , and Fis her , all contemplate the allo wance of an offset by t he governm ent when, as here, the same tax, taxpay er, and tax year ar e at issue. Pl aintiff has attempted to distinguish the facts of this case from Lewis and F i s her

. . . . T h e most important fact for the court is that this case involves the same tax, with the same taxpayer, for the same tax year . As the Court of Appeals for the Federal Cir cuit stated in Fis her , " Lewis and Dysart together stand for the proposition that the government may offset against a tax refund c l aim any additional amounts the taxpayer owes with respect to the tax shown on the return, even though the statute of limitations would bar assess ing the additional amount owed." 80 F.3d at 1579 . Here, plaintiff received an amount in overpayment with respect to tax year 1982. By requesting another refund in 1992 with respect to tax year 1982, plaintiff opened the door to the Service's offsetting the 1988 ov erpayment amount. Therefore, the Service's action in 1992 was legal. Id. at 277. The court further determined that the offset was im plemented correctly. PGE now appeals the issues of whether the offset was permissible and, if it was, whether the IRS implement ed it pr operly. We ha ve jurisdiction under 28 U.S.C. § 1295(a)(3).

03-5173 3II “We review the Court of Federal Clai ms’ grant of summa ry judgment without deference.” Agwiak v. United States , 347 F.3d 1375, 1377 (Fed. Cir. 2003).
III We must determine whether the IRS was ent itled to offset the erroneous int e rest paid to PG E in 1988 against am ounts due and owing PGE on a subsequent refund relating to t he same tax year when the gover nment could not have ma intained a suit for such erroneous inter e st due to the expirati on of the statute of limitations. See 26 U.S.C. §§ 7405, 6532(b). Surprisingly , this issue appears be one of first impression. 3 PGE argues that when a taxpayer rece ives an erroneous refund of statutory interest it is not a tax liab ility but an ordi nar y debt obligation to the government. Thus, such erroneous interest mistakenly paid ca nnot be as sessed or collected by the IRS in the same manner as a tax liability. PGE contends that it must be reco vered, if at all,

3 Both parties agree that the general st atutory offset prov ision, 26 U.S.C. § 6402(a), does not apply to this case. Secti on 6402( a) provides “[i]n the case of any overpayment, the Sec r etary, wit hin the applicable period of limitations, may c r edit the amount of such overpayment, including an y interest allowed t hereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall . . . refund any balanc e to such person.” 26 U.S.C. § 6402(a). Internal documents from the IR S indic a te that it has long been the Service’s position that unless it can asses s the amount to be offset, it may not use its statutory right of offset under 26 U.S.C. § 6402. In Chief Counsel Adv i c e 20014033, the Chief Counsel of the IRS stated “unless the Service can assess the amount erroneous ly refunded ( a s in the c a se of a rebate refund), the Service ma y not use its statutory right of offset under I.R.C. § 6402 to recover the erroneous refund.” IR S CCA 200014033 * 9 (2000); see also IRS GCM 36263 (1975) (stating “[t]he erroneous payment of $900 cannot be recovered by assessment and o ffset under Code § 6402 or other tax collection procedures, since there is no tax liability”). This may explain why both parties agree that 26 U.S.C. § 6402(a) is inapplic able to the present case, that is, because the erroneous interest at issue here is not assessable.

03-5173 4only by suit for an erroneous refund under 26 U.S.C § 7405 or by means otherwise afforded to the government fo r collection of debts (e.g. , through a common-law right of offset, provided that t he right is exercis ed within the period of limitations applic able to suits brought under 26 U.S.C. § 7405). PG E also ass e rts that there is no s t atutory or regulatory basis for extending the Supreme Court’s de cision in Lewis v. Reynolds , 284 U.S. 281 (1932), and its progeny to non-tax liabilities. The gov ernment responds s i mply that under Lewis v. Reynolds and its progeny the taxpay er’s 1992 c l aim for refund of its 1982 ov erpayment reopened its e n tire 1982 liability to redetermination by the IRS. As su ch, it argues that the remedy of offset was available to the IRS.
A Lewis v. Reynolds was an income tax refund suit in which, in response to the refund claimed, the Commissio ner of Internal Revenue determined that a deduction taken on the return, which was previously allowed, had been improperly taken. In determining the amount of the refund, the im proper deduction was disallowed by the Commissioner. The limitations period for assessing an additi onal tax to reflect the disallowance of the deduction had pass ed when the Commissioner ac ted. The Supreme Court agreed wit h the Court of Appeals ’ conclusion that the relev a nt statutory provisions “clearly limit refunds to overpay m ents. It follows that the ultimate question presented for decision, upon a claim for refund, is whether the ta xpayer has overpaid his tax [an d t]his inv o lves a redet erminati on of the entir e tax liab ilit y.” Id. at 283 (quoting Lewis v. Reynolds , 48 F.2d 515, 516 (10th Cir. 1931) (emphasis added)). Affirming the

03-5173 5Commissioner’s action , the Court stated: While the statutes authorizing ref unds do not specifically empo wer the Commissioner to reaudit a return whenever repayment is c l aimed, authority therefor is nec essarily implied. An overpayment must appear before refund is authorized. Although t he statute of limitations may hav e barred the assessment and co llection of any additi onal sum, it does not obliterate the right of the Unit ed States to retain payments already received when they do not exceed t he amount which might have been properly assessed and demanded

. 284 U.S. at 283 (emphases added). Thus, t he Court simply applied the statutory provisions dealing wit h refunds 4 which require that an over payment must be shown by the taxpay er before a refund c an be authorized. Accordingl y, where the taxpay er has filed a c l aim for a tax refund, the IRS ma y offset against th e refund claim a tax deficiency for the same tax year that pr eviously had n o t been as sessed, ev en though

4 The refund statutes at issue in Lewis v. Reynolds read as follows: (a) Where there has been an overpayment of any inc o me, war-profits, or excess-profits tax imposed by this Act (Feb. 26, 1926), the Act entitled “An Act to provide revenue, equalize dutie s, and encourage the ind u stries of the United States, and for other purposes,” appr oved August 5, 1909, the Act entitled “An Act to reduce tariff duties and to provide revenue for the Government, and for other pur poses,” approved Oc tober 3, 1913, the Revenue Act of 1916, the Revenue Act of 1917, the Reve nue Act of 1918, the Revenue Act of 1921, or the Revenu e Act of 1924, or any such Act as amended, the amount of such overpayment shall, exc ept as provided in subdiv i sion (d), be credited against any income, war-profits, or excessprofits tax or installm ent thereof then due from the taxpayer, and any balanc e of such exces s shall be ref unded im mediately to the taxpayer. 26 U.S.C. § 284(a) (1 926) (emphasis added). (a) Authorization. Where there has been an overpayment of any tax imposed by this title, the amount of such overpayment s hall be credited against any income, war-profi ts, or excess- profits tax or installment thereof then due from the taxpayer, and any balance shall be r e funded immediately to the taxpayer. 26 U.S.C. § 322(a) (1 928) (emphasis added).

03-5173 6the assessment of such tax is barred by t he expir a tion of the applic able period of limitations. Otherwis e, a refund might be made when there was not, in fact, an “overpayment,” an event that would be inc o nsistent with the statute. See supra at n.4,
3. This defense of “lack of overpaymen t,” permitting the government to offset a refund claim with a tax defic ie ncy for the same tax year owed by the same taxpay er, was further explored by our predecessor court in Dysart v. United States , 340 F.2d 624 (Ct. Cl. 1965). In this case, the taxpayer s ought a refund of an erroneously assessed and collect ed penalty for the tax year 1954. The gover nment conceded that the penalty was collect ed in error but claimed an offset in view of a tax defic i ency that exceeded the penalty, despite the fact that the statute of limit ations barred the assessment of the tax deficiency. 5 The court ruled that “the tax pena lty is an addition to the tax,
26 U.S.C. § 294 (1952), and as such is cons idered as part of the income tax for the
tax a ble year. See Rev.Rul 56—492; 1956—2 Cum.Bul. 949.” Id. at 626 n.1. Another iss ue before the court was “whether in a suit for refund where both the taxpayers’ claim and t he government’s setoff concern the same tax for the same year by the same taxpay ers, the right of the go vernment to assert such a defense is an unconditional right . . . or whether . . . such a right is subject to the court’s discretion after evaluating the ‘equities ’ inv o lv ed in each particular case.” Id. at 606. 6 The court

5 The asserted tax deficiency was used only to reduce the taxpayer’s refund to zero. 6 In reaching the answer to th is question, the c ourt discu ssed the differences between s e toff and the doctrine of equitable recoupm ent (a doct r ine which requires a single transaction be at issue and involv es attempts to offs et tax liability from one year against that for anothe r year or where attempts are made to s e t off the tax liability of one taxpayer agains t that of a second taxpay er).

03-5173 7held that the Supreme Court’ s language in Lewis v. Reynolds laid down an “unqualified rule that ‘an overpay ment must appear before refund is authoriz ed,’” 340 F

. 2d at 629 (quoting Lewis v. Reynolds , 284 U.S. at 283), and that t here was nothing to suggest “limiting the defense of lack of overpayment where the refund claim and the setoff relate to the sam e tax, for t he same y ear, payable by the s a me taxpayer,” id. at 629. The court further commented that when determini ng wheth e r there was an overpayment, a taxpayer’s “entire tax liab ility under the particular tax return was open for redetermination.” Id. at 628 (emphasis added). The Dys a rt case, therefore, reiterated the ne cessity of an ov erpayment before a refund can be authoriz ed and held that a court may not look to the equities of a case to deny the defense of lack of overpayment to the governm ent. Contrary to the government’s assertion, Dysart did not open the door wider than Lewis v. Reynolds already had for the IRS to offset a refund. At most, it simply clarified that setoff applied to the refund claim for a tax penalty improp erly collected, becaus e a tax penalty is an addition to tax and should be consider ed part of the ta x liability. Our holding in F i sher v. United States , 80 F.3d 1576 (F ed. Cir. 1996), involv ed a refund claim against which the gov ernment offset deficiency in terest owed b y the same taxpayer for the same tax y ear. Our analy s is charact e rized the teachings of Lewis v

. Reyno l ds and Dysart as permitting the government to o ffset against a tax refund claim any tax owed for that year: “Lew is and Dys a rt together stand for the proposit ion that the government may offset against a tax refund claim any additional amounts the taxpayer owes with respect to the tax shown on the return , even though the statute of l i mitation s would bar assessing t he additi onal amount owed.” Id. at 1579 (emphasis added). We

03-5173 8also emphasized the necessity of the exis tence of an overpayment before a refund could be authorized. Id. at 1579 (noting that in Dysart our predecessor court stated “the essential principle that a taxpayer suing fo r a refund of tax for a particular year mus t show that, in actuality, he overpaid that tax”). The crux of our decision in Fis h er , however, involved the question of whether deficiency interest should be treated any differ ently than the tax deficiency in Lewis v. Reyno l ds or the tax penalty in Dysart . Looking t o the Rev enue Co de and our predecess o r court, we held that “for the purpos es of offset, interest should [not] be treated any differently than other co mponent s of tax lia b ility.” Fischer , 80 F.3d at 1580;

see 26 U.S.C. § 6601(e) (1994) (stating that interest on tax underpayments “shall be assessed, collected, and paid in the same m anner as taxes” and that any reference “to any tax im posed by t h is title shall be deemed also t o refer to interest imposed by this section on such tax”); Alexander Proudfoot Co. v. Unit ed States , 454 F.2d 1379, 1382 (Ct. Cl. 1972) (stating “[t]he Code’s des ign for such interest is to assimilate it to the tax itself . . . . For a long time, deficiency intere st has been so c l osely braided to princip a l that it has been deem ed an integral part of the tax”). The common thread in these cases is that the refund statute re quires that there be an actual overpayment of tax to support a refund. There cannot be such an overpayment without taking into account any addit i onal amount of assessable tax, interest, or penalty owed by the taxpayer even though such an amount could not be assessed and collected because of the runni ng of the statute of limitations.

03-5173 9B In the instant case, the amount used to offset the refund claim in 1992 was the erroneously calculated statutory interes t, a nonasses s able amount. The assessable quantities in Lewis v. Reynolds and its progeny (tax defici ency, deficiency interest, and tax penalty ) are a part of a taxpayer’s ta x liability, whereas no nassessable statutory interest is not. Thus, contrary to the government’s assertion, Lewis v. Reynolds and its
progeny ar e not direc t ly on poi nt with the c a se before us. We must, however, decide whether to extend this line of cases to cove r the situation at iss ue here. Because th e courts have distinguished components of ta x liability which ar e assessable amounts from statutory interest which is not a ta x liability component or assessable, we have found no convinc i ng reason the two quantities should be treated the s a me. We, therefore, decline to ex tend Lewis v. Reynolds and its progeny to reach the facts of this

case. The tax deficienc ies (including as sessable interest and penalties) asserted as an offset in Lewis v. Reynolds and its progeny are very differe nt from the offset at issue here and even treated differently by the Inte rnal Rev enue Code. Our case law notes the distinct ions. In Proudfoot , 454 F.2d 1379, for example, our predecessor court explained that statutory interest arises simply because the government had possession

03-5173 10of the taxpayer’s funds, whereas defici ency interest is additional money due t he
governmen t that arises from the taxp ayer’s tax liab ility: [T]he Revenue Code deals quite differently with statut ory interest payab le by the Government on overpay ments. Regulated by §§ 6611-6612, that form of interest is paid by the United Stat es, not as a refund of interest previously paid by the taxpayer on demand of the Service, but simply because the Government has had use of money found to belong to the tax payer. . . . Id. at 1384; see also Fisher , 80 F.3d at 1580 (“The Internal Revenue Code treats [deficiency] interest as an integral part of the liab ility itself. Thus, 26 U.S.C. § 6601(e ) (1994), provides that intere st on tax underpayments ‘s hall be ass e ssed, collected, and paid in the same manner as ta xes ’ and that any reference ‘to any tax imposed by this title shall be deemed also to re fer to interest imposed by th is section on such tax.’”). We are not the only court to treat tax m onies differently based on the nature or generation of the funds. See O’Bryant v. United States , 49 F.3d 340, 346 (7th Cir. 1995); Crocker First Nat’l Bank of S. F. v. United States , 137 F. Supp. 573, 574 (N.D. Cal. 1955) (explaining that a su it to recover an erroneous refund is not a suit “in respect of any liability in respect of any tax,” becaus e any tax liability was satisfied when the ta x was origin ally pa id). In O’Bryant , the taxpayers paid their ta x and interest liability in advance, which amounts were then asses s ed. The Service lat e r erroneously sent the taxpayers a refund check. Without reasse ssing the tax, the Serv ice then instituted collection activities and reco ver ed a portion of the err oneous refund. The taxpayers sued to quiet title and recover the monies t hey claimed were unlawfully taken by the government. The Seventh Cir c u it noted t hat the refund taxpayers received was a nonrebate refund. “Nonrebate r e funds are sent to the taxpayer not because the IRS determines that the tax paid is not owing bu t because of mistakes, typically clerical or

03-5173 11computer errors.” O’Bryant , 49 F.3d at 342. The cour t stated that there is a fundamental difference between tax payers’ liability for t a x and t heir obligation , if any, t o return a refund paid by mistake: [The gover nment’s proposed] approach would ov erlook the fundamenta l difference in character between t he money that the O'Bryants now possess (a refund caused by the IRS' error) and the money they or iginally owed the IRS (their tax li ability). The money the O' Bryants have now is not the money that the IRS' original assess ment c ontemplated, since that amount was already paid. Rather , it is a pay ment the IRS acc i dentally sent them. They owe it to the governm ent because they have been unjustly enriched by it, not because they have not paid their taxes. Id. at 346. The court held that because the m oney the taxpayer received was not a part of the taxpaying transaction, the Service could not recover the funds through postassessment procedures. Id. A tax defic iency, tax penal ty, and deficiency interest, the quantities permitted to offset the taxpayer’s claimed refunds in Lewis v. Reynolds and its progeny, are all component s of a taxpayer’s tax liability. See Dysart , 340 F.2d at 626 n.1 (“[T]he tax penalty . . . is considered as part of the in come tax for the taxa ble year.”); Proudfoot , 454 F.2d at 1382 (“[T]he Code’s design for such [deficiency] inte rest is to as similate it to the tax itself. . . . For a long time, defici ency interest has been so clos ely braided to principal that it has been d eemed an integral part of the tax.”). Therefore, these component s are taken into acc o unt in dete rmining whether an overpayment exists and permitting them to offset a claimed tax re fund is logical. There is no suggestion, however, that statutory interest is a part of, or even related to , a taxpayer’s tax liability. Indeed it c annot be, for in the c a se of statut ory interest mistakenly paid, the taxpayer has no underlying st atutory obligation under the tax code to pay the government. A s stated in O’Bryant , mistaken nonrebate refunds are owed to the government by reason

03-5173 12of unjust enrichment. O’Bryant , 49 F.3d at 346. Statutory interest is also distinguishable from the components of tax liability because of its nonassessable nature. Given that a nonasses s able quantity cannot be determined to be due and collectable, see West’s Tax Law Dictionary 67 (2004 ed .) (defining “assess” as “[t]he posting of tax, penalty, and interest that has been determined to be due and collectable” ) , it would be illogi cal to treat such a quantity as analogous to a taxpayer’s tax lia bility. The tax code provides an integrated and comprehens ive statutory scheme for assessing, collecting, and refund ing taxes, deficiency intere st, and pena lties. Lewis v. Reyno l ds and its progeny did not dist urb this framework; they merely applied the refund provision r equiring an overpay ment. Were we to hold that the IRS is correct in determining that an offset is permissible he re, we would be going outside of this welltailored statutory scheme. We, therefor e, decline to extend Lewis v. Reynolds to apply to statutory interest im properly paid to PGE. C The only c a se we have found that deals with erroneously refunded statutory interest is factually di stinguishable from the in stant c a se. In Crocker , 137 F. Supp. 573, 7 the government offset erroneously paid inte rest for tax year 1942 against a refund for tax year 1945. T h e court stated that “since it [is] obvious that t h e offset claimed b y the Commissioner must be the equi valent of a cause of acti on by the Government in a suit to recover the erroneous payment, the parties [do] not dispute that the time limitation for suit applie[d] equally to the offset.” Id. at 574. The offset in Cr ocker wa s

7 Of course, as a district court decis ion, this case is non-binding on us.

03-5173 13not made within two years afte r the payment of the err oneous interest on the 1942 refund. Another question bef ore the court was wh ether a wartime statute suspending certain time limitations relating to internal revenue operated to extend the time in whic h suit might have been brought to recover the interest paid on the 1942 refund and consequently the time in which the offset c ould be made. The cour t determined that the offset had not been timely made and enter ed judgment for the taxpayer. As can be seen, Crocker dealt with applying the offset to a refund claim for a different tax year, whereas in this the case the offset was applied to a claimed refund in the same tax y ear. Moreover, the court not ed that the government conceded that the statute of limitations pertain ing to when the United Stat es may sue to recover erroneous refunds of taxes or erroneous payments of i n terest on refunds applied, whereas in this case the government makes no such concessi on. While readily distinguishable on the facts, Crocker does equate the ability to offset e rroneously or mistakenly paid statutory interest with a cause of action by the gover nment to sue for an erroneous refund under § 7405. Like the c ourt’s determination in Crocker , we view the offs et claimed by the Service here as akin to a cause of action by the government in a suit to recover the erroneous interest. A s noted in Crocker , while there is no statute governing the time limit for when such an offset may be made, there is a stat ute expressly limiting when the government can sue to recover erroneous refunds under 26 U.S.C. § 7405. Id. at 574 (“There is no limitation statute specifically fixing the ti me within which suc h an offset may be made. There is, however , a statute, limiting to two years, the time within which the United States may sue to recover erroneous refunds of taxes or erroneous

03-5173 14payments of interest on refunds .” ). We see no reason why this statute of limitations should not apply equally to the offset in this case. Thus, we hold that the Service’s ability to of fset erroneously paid statutory in terest against a taxpayer’s refund claim in the same tax year is s ubject to the same stat ute of limitations that applies to s u its by the United States to recover erroneous refunds of taxes or erroneous payments of interest on refunds. See 26 U.S.C. §§ 6532(b), 7405. Recent dec isions internal to the I R S ar e not at odds with our determination today. Indeed, the Chief Counsel of the IR S expressly approved of the Crocker decision an d further explained “we are of t he opinion that as long as the Service is unable to assess nonrebate refunds, the Service may justifiably re ly on the common law right of offset to recover these non-tax debts. T he applicable statute of limitations for this remedy is the two or five 8 year period set forth in I.R.C. § 6532(b).” IR S CCA 200014033. 9 While no t

8 “[I]f the refund is induced by fraud or misrepresentation of material fact.” 26 U.S.C. § 6532(b). 9 This reasoning dovet ails with earlier IRS decisions. In a 1975 General Counsel Memorandum it is stated: Suppos e for instance, the taxpayer file s a return showing no tax liability and claims a refund of tax withheld of $100. The Service erroneous ly issues a c heck in the amount of $1000. T he erroneous payment of $900 cannot be recovered by assessment and offset under Code § 6402 or other tax c o llection pr ocedures , since there is no tax li ability. A c i vil suit to recover the refund under Code § 7405 is therefore the Servic e's sole remedy, except we believe it is proper in this in stance for the Service to exercis e a common law right of offs et by deducting the amount claimed under Code § 7405 from any refund due the taxpayer. Since the amount so claimed is not a tax liability and could never have been collec t ed under the tax recovery provisions of the Code, the procedural safeguar ds giv en to the taxpayer by those provisions will not be frustrated by use of common law offset in this situation. We therefore conclude that such offset may be here exercis ed within t he time limitations presc r ibed by Code § 6532(b).

03-5173 15bound by t he Service’s position, we simply note that our analys is has led us to the position es poused by the Service for at least the last th irty years. Indeed, Lewis v. Rey nolds is now over sev enty year s old. Congr ess and the IRS have had ample time to provide specific au thority that would ha ve broadly allowed the offset the government is seekin g in this case. Indeed, if it were intended to allow the government to recover mistaken payments of statutory interest (and other non-tax debts) by way of offset, and not merely tax liabilities used to determine whether ther e was an overpayment of tax, t he tax code or the r egulations could have so stated. In the present case the offset occurred after the two-year st atute of limitations had expired. As such, the Service’ s right to offset was time-barred. 10 Because we hold that the offset applied here was not available to the IR S, the issue of whether the IRS correctly implemented the offset is moot.
IRS GCM 36263 *10 (1975). We do not accord these internal documents Skidmore or any other type of deference. See Sk id more v. Swift & Co. , 323 U.S. 134 (1944); see als o IRS GCM 36263 *13 (stating “This document is not to be relied upon or otherwise cited a s precedent by taxpayers.”). We merely note that the Servic e has taken the position that offsets of nonassessable quantities against ta x refunds must be made within the statute of limitations set forth i n 26 U.S.C. § 6532(b). 10 The gover nment argues that t he doctrine of equitable recoupment supports the judgment below. T h e applicabilit y of the d o ctrine of equitable recoupment does not appear to have been raised below, and, in any event, it was not decided by the Court of Federal Claims. This doctrine is only available in very limited circ umstances. In this connection: Congress has chosen to incorporate the doctrine of “equitable recoupment” into our revenue laws by what is now commonly known as the mitigation provis ions of 1311-1315 of the Inte rnal Revenue Code of 1954. In so doing, Congress has enum erated a series of requirements which hav e to be met before thes e s e ctions become oper ative and recoupment allowed. It is signific ant that none of these requirements are based on equitable considerations. Dysart , 340 F.2d at 628.

03-5173 16IV Our decision today results in a windfall fo r the taxpayer. As the Seventh Circuit has noted in a similar situation, “although it may seem unjust t hat the IRS cannot recover its erroneous refund in this case, . . . we cannot base our resolution of the issue before us on the equities of a particular factual situation. . . . [T]here are many situation s in which permitting the IRS to re c o ver would be just as unfair as barring recovery here.” O’Bryant , 49 F.3d at 346-47. We hold t hat the offset applied to PGE’ s 1992 refund claim was time-barred. Accordingly, we reverse the trial court’s j udgment with respect to the offset and remand for further proceedings as necessary. No Costs.
REV E RS E D AND RE MANDE D

03-5173 17