Source: https://casetext.com/case/sorenson-v-secretary-of-treasury-of-us
Timestamp: 2019-05-20 10:47:20
Document Index: 764315003

Matched Legal Cases: ['§ 652', '§ 6305', '§ 6532', '§ 301', '§ 6532', '§ 602', '§ 452', '§ 652', '§ 6305', '§ 664', '§ 6402', '§ 6402', '§ 6401', '§ 6401', '§ 6402', '§ 2331', '§ 2331', '§ 3507', '§ 6305']

Sorenson v. Secretary of Treasury of U.S, 752 F.2d 1433 | Casetext
Sorenson v. Secretary of Treasury of U.S.
752 F.2d 1433 (9th Cir. 1985)
Sorensonv.Secretary of Treasury of U.S.
United States Court of Appeals, Ninth CircuitFeb 5, 1985
Argued and Submitted February 10, 1984.
Before WRIGHT and HUG, Circuit Judges, and EAST, District Judge.
A number of issues were resolved in the district court and are not contested on appeal. We refer to the thorough and carefully written opinion of the district court concerning these issues. See Sorenson v. Secretary of the Treasury of the United States, 557 F. Supp. 729 (W.D.Wash. 1982). Our focus in this appeal is only on those issues now raised by the parties.
There is an older system of collection, under which the Secretary of the Department of Health, Education, and Welfare is authorized, upon the request of a state, to certify to the Secretary of the Treasury the amount of any child support obligation assigned to that state. See 42 U.S.C. § 652(b). Parents are required, as a condition of eligibility for welfare, to assign their rights to support payments to the state, and the support obligation thereby becomes a debt owed by the obligated parent to the state. The Secretary of the Treasury is then required to assess and collect the amount certified "in the same manner and with the same powers, and . . . subject to the same limitations as if such amount were a tax. . . ." 26 U.S.C. § 6305(a). This method is hereafter referred to as the "assessment" method of collection.
[n]o court of the United States . . . shall have jurisdiction of any action, whether legal or equitable, brought to restrain or review the assessment and collection of amounts by the Secretary under subsection (a), nor shall any such assessment and collection be subject to review by the Secretary in any proceeding.
The "assessment" and "intercept" methods of collection are similar in purpose but not in operation. The very acts upon which section 6305(a) pivots — assessment and collection — have no part in the "intercept" method; and it is precisely these pivotal actions that section 6305(b) shields from federal judicial interference. See Marcello v. Regan, 574 F. Supp. 586, 592-94 (D.R.I. 1983). Further, although section 6305(a) was slightly amended in 1981 by the same act of Congress that created the new "intercept" program, Congress did not amend section 6305(b) to refer to the new program. On the contrary, the legislative history of the tax intercept statutes makes only fleeting reference to the "assessment" method, stating merely that the intercept program "amplifies" the Secretary's already existing authority under section 6305(a). H.R.Con.Rep. No. 208, 97th Cong., 1st Sess. 35, reprinted in 1981 U.S. Code Cong. Ad. News 396, 1010, 1347. This reference is no support for the Secretary's contention. The limitation on jurisdiction created by section 6305(b) refers only to "assessment and collection of amounts by the Secretary under subsection (a)" and not to the transfer under section 6402(c) of funds already collected and owed to the taxpayer as a refund.
The Secretary contends that the doctrine of sovereign immunity bars Sorenson's individual refund action on the grounds that she failed to meet the procedural requirements of 26 U.S.C. § 6532(a)(1) and 7422(a) (1982). The latter section of the Tax Code provides that no suit may be maintained for the recovery of any internal revenue tax until a claim for a refund has been duly filed with the IRS. The former section prohibits the courts from entertaining any refund suit filed before the expiration of six months from the date the claim for refund is filed, unless the Secretary renders a decision on the claim within that time. Any refund suit instituted prior to the filing of a claim for refund, or after the claim has been filed but prior to the time specified by section 6532, is outside the scope of the Government's consent to be sued and is barred by sovereign immunity. See, e.g., United States v. Freedman, 444 F.2d 1387, 1388 (9th Cir.), cert. denied, 404 U.S. 992, 92 S.Ct. 538, 30 L.Ed.2d 544 (1971).
With respect to the requirement of section 7422(a) that a claim for a refund or credit be filed with the IRS, tax regulations provide that "[a] properly executed . . . income tax return (on 1040X . . .) . . . shall constitute a claim for refund or credit . . . ." 26 C.F.R. § 301.6402-3(a)(5). Sorenson filed such a return in February of 1982. Further, on April 14, 1982, her counsel mailed a letter to the IRS that reiterated her claim that she was entitled to a refund and credit. Since even "an informal claim which fairly gives notice of a taxpayer's intention to press for a refund of taxes is sufficient to satisfy the statutory requirement," Standard Lime and Cement Co. v. United States, 329 F.2d 939, 943, 165 Ct.Cl. 180 (1964); Rosengarten v. United States, 181 F. Supp. 275 (Ct.Cl.), cert. denied, 364 U.S. 822, 81 S.Ct. 60, 5 L.Ed.2d 53 (1960), the letter, as well as the filing of Form 1040X, satisfied the claim requirement of section 7422(a).
The provision of section 6532 that a taxpayer may not file a refund action in the courts "before the expiration of 6 months from the date of filing the claim . . . unless the Secretary . . . renders a decision thereon within that time . . .," 26 U.S.C. § 6532(a)(1), presents a more difficult question. Sorenson's uncontroverted complaint alleges that on April 12, 1982, an IRS representative told her that her refund and credit were being held to satisfy the State of Washington's claim against her husband. Further, on April 22, 1982, the same day that Sorenson filed her complaint in this suit, the Secretary sent her notice that "we have kept all or part of your overpayment" and that the "amount we kept has been paid to the State of Washington." Sorenson contends that either of these communications constituted adequate evidence that the Secretary had rendered an adverse decision on her claim and that she was thereafter entitled to filed suit for a refund. The IRS argues that these exchanges do not constitute notice, that the Secretary had not rendered a decision by April 22, 1982, and that a formal notice of disallowance was not sent to petitioner until June 28, 1982, over two months after she filed suit.
The Social Security Act requires that, as a condition of eligibility to receive aid to families with dependent children, the applicant or recipient must assign to the state any rights to support from any other person which have accrued at that time. See 42 U.S.C. § 602(a)(26) (1982). Congress enacted the Social Services Amendments of 1974, which amended the Social Security Act and the Internal Revenue Code so as to provide a mechanism to assist the state in collecting these support obligations. Under this statute, the state can certify the amount of a child support obligation that has been assigned to the state and the Secretary of the Treasury will then proceed to assess and collect the obligation for the state in the same manner (with some exceptions) as federal taxes. Social Services Amendments, Pub.L. No. 93-647 §§ 452(b) and 101(b)(1) (1975), 88 Stat. 2337, 2352 and 2358 ( 42 U.S.C. § 652(b) and 26 U.S.C. § 6305). This procedure does not, however, authorize the Secretary to withhold and transfer to the state any funds held as refunds of federal taxes paid and due to the parent owing the child support. In order to remedy this deficiency, Congress enacted additional amendments to the Social Security Act and the Internal Revenue Code as a part of the Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub.L. No. 97-35, 95 Stat. 357, 860-63 (1981). These amendments, which establish such a procedure, are the statutes here in issue. Section 2331(a) of OBRA amended the Social Security Act by adding a new section, 464(a), codified as 42 U.S.C. § 664. Section 2331(c) amended the Internal Revenue Code by amending 26 U.S.C. § 6402(a) and adding a new section, 26 U.S.C. § 6402(c). The specific provisions of these sections of OBRA are:
Sec. 464.(a) Upon receiving notice from a State agency administering a plan approved under this part that a named individual owes past-due support which has been assigned to such State pursuant to section 402(a)(26), the Secretary of the Treasury shall determine whether any amounts, as refunds of Federal taxes paid, are payable to such individual (regardless of whether such individual filed a tax return as a married or unmarried individual). If the Secretary of the Treasury finds that any such amount is payable, he shall withhold from such funds an amount equal to the past-due support, and pay such amount to the State agency (together with notice of the individual's home address) for distribution in accordance with section 457(b)(3). (Emphasis added.)
Sec. 464(c) Section 6402 of the Internal Revenue Code of 1954 is amended —
(1) by striking out in subsection (a) thereof "shall refund" and inserting in lieu thereof "shall, subject to subsection (c), refund"; and
(2) by adding at the end thereof the following new subsection: "(c) OFFSET OF PAST-DUE SUPPORT AGAINST OVERPAYMENTS. — The amount of any overpayment to be refunded to the person making the overpayment shall be reduced by the amount of any past-due support (as defined in section 464(c) of the Social Security Act) owed by that person of which the Secretary has been notified by a State in accordance with section 464 of the Social Security Act. The Secretary shall remit the amount by which the overpayment is so reduced to the State to which such support has been assigned and notify the person making the overpayment that so much of the overpayment as was necessary to satisfy his obligation for past-due support has been paid to the State. This subsection shall be applied to an overpayment prior to its being credited to a person's future liability for an internal revenue tax." (Emphasis added.)
Looking first at the wording of section 2331(a), it is important to note that it does not provide, as Sorenson contends, that only tax refunds being held by the Secretary can be retained and transferred. Rather, section 2331(a) provides that "any" amounts payable " as" refunds of federal taxes paid may be retained and transferred. This language does include the earned income credit because it is payable " as a refund of Federal taxes paid." The mechanism used for the refund of Federal taxes paid is the method by which the earned income credit is paid. This language of section 2331(a) supports the construction urged by the Secretary, not by Sorenson.
We next turn to the construction of section 2331(c). The language of this section is best understood when placed in the context of the pertinent Internal Revenue Code provisions, 26 U.S.C. § 6401 and 6402, which provide in relevant part:
§ 6401 Amounts treated as overpayments
(b) Excessive credits. — If the amount allowable as credits under sections 31 (relating to tax withheld on wages) and 39 (relating to certain uses of gasoline, special fuels, and lubricating oil), and 43 (relating to earned income credit) exceeds the tax imposed by subtitle A (reduced by the credits allowable under subpart A of part IV of subchapter A of chapter 1, other than the credits allowable under sections 31, 39, and 43), the amount of such excess shall be considered an overpayment. . . .
(c) Rule where no tax liability. — An amount paid as tax shall not be considered not to constitute an overpayment solely by reason of the fact that there was no tax liability in respect of which such amount was paid.
§ 6402. Authority to make credits or refunds (a) General rule. — In the case of any overpayment, the Secretary or his delegate, within the applicable period of limitations, may credit the amount of such overpayment, including any interest allowed thereon, against any liability in respect of any internal revenue tax on the part of the person who made the overpayment and shall, subject to subsection (c), refund any balance to such person.
(b) Credits against estimated tax. — The Secretary is authorized to prescribe regulations providing for the crediting against the estimated income tax for any taxable year of the amount determined by the taxpayer or the Secretary to be an overpayment of the income tax for a preceding taxable year.
(c) Offset of past-due support against overpayments. — The amount of any overpayment to be refunded to the person making the overpayment shall be reduced by the amount of any past-due support (as defined in section 464(c) of the Social Security Act) owed by that person of which the Secretary has been notified by a State in accordance with section 464 of the Social Security Act. The Secretary shall remit the amount by which the overpayment is so reduced to the State to which such support has been assigned and notify the person making the overpayment that so much of the overpayment as was necessary to satisfy his obligation for past-due support has been paid to the State. This subsection shall be applied to an overpayment prior to its being credited to a person's future liability for an internal revenue tax. (Emphasis added.)
Section 6402(c) provides that the amount of "any overpayment to be refunded to the person making the overpayment" shall be reduced by the amount of any past-due support owed, which is then remitted to the state. Sorenson contends that although the earned income credit is an "overpayment," it is only the type of overpayment that is " to be refunded to the person making the overpayment" that can be retained and transferred. This interpretation of the language does not comport with the remainder of the provisions of sections 6401 and 6402. This language in section 6402(c) is the same language used in section 6402(a). If we were to apply Sorenson's construction of the language to section 6402(a), the earned income credit would never be payable at all because no one ever technically made an overpayment. Obviously the person who is entitled to the payment in either section 6402(a) or (c) is the person considered to have made the overpayment. The reason for the awkwardness of the overpayment language is that a credit really is not an "overpayment," as the term is used in normal usage but, for the purposes of this statutory method of distribution, it is defined as an overpayment and treated as a refund of taxes that have been overpaid. Similarly, the person who receives any credit enumerated in section 6401(b) has not really overpaid it; yet, he or she is the person who is entitled to receive it and is thus considered to be the person who paid it.
It is significant to note that rather than providing any exclusionary language for the earned income credit, Congress provided in the statutory section amending the Social Security Act that the interception applied to "any" amounts payable as tax refunds, OBRA § 2331(a). Furthermore, in the section of the statute amending the Internal Revenue Code, Congress provided that the interception applied to "any" overpayments, OBRA § 2331(c).
Sorenson argues that the earned income credit should be treated differently because it was really designed by Congress as a grant to assist needy families, and that Congress did not intend that the intercept program apply to such a grant. The first problem we have with this argument is that Congress easily could have expressly exempted the earned income credit and did not do so. Secondly, Congress specifically provided in the statute that the intercept program applied to "any" amounts payable through the federal tax refund process. In the face of this rather clear statutory mandate, we conclude that we are not free to speculate that Congress intended otherwise.
Actually, it appears from the legislative history that although the earned income credit provides some assistance to needy families, it was not designed as a type of welfare grant, but as a work incentive program, by negating the disincentive of Social Security taxes. Social Security taxes apply to earnings received through wages or salaries, whereas they do not apply to funds received through other sources, such as social welfare programs. The purpose of the legislation was to remove the disincentive to work provided by the Social Security taxes that would have to be paid on wages or salaries. See S.Rep. No. 36, 94th Cong., 1st Sess, 12, reprinted in 1975 U.S. Code Cong. Ad. News, 54, 63-64, 83-84. It is also obvious from the manner in which the earned income credit operates that it was not a type of welfare grant. The wage earner is entitled to receive an income credit of ten percent of his or her earnings up to $5,000. Thus, a person who earns $5,000 would receive a $500 credit, whereas a person who earns $1,000, and would probably be in greater need, would receive only a $100 credit. The funds that the Secretary would be reaching are in reality more akin to a refund of Social Security taxes than to a type of welfare grant.
From a policy standpoint, it is also worth noting that these funds that the Secretary would be reaching are a lump sum, accumulated through the year, which the taxpayer could have received through his employer under 26 U.S.C. § 3507. This is quite similar to excess withholding taxes that the taxpayer has allowed to accumulate, which clearly can be intercepted. The policy considerations are quite different in intercepting such accumulated year end funds from the policy considerations in the garnishing of weekly wages that the employee is expecting to receive for current living expenses. In this latter instance, Congress has specifically provided for exemptions of certain amounts of wages and salaries from the assessment and collection process. See 26 U.S.C. § 6305(a) and 6334(d).
We are aware that the published opinions of several courts have reached conflicting conclusions on this issue. See Rucker v. United States, 751 F.2d 351 (10th Cir., 1984) (earned income credit could not be intercepted); Nelson v. Regan, 731 F.2d 105 (2d Cir.) cert. denied, ___ U.S. ___, 105 S.Ct. 175, 83 L.Ed.2d 110 (1984) (earned income credit could not be intercepted); Coughlin v. Regan, 584 F. Supp. 697 (D. Maine 1984) (earned income credit could be intercepted); Sorenson v. Secretary of the Treasury of the United States, 557 F. Supp. 729 (D.Wash. 1982) (earned income credit could be intercepted). We believe that the Nelson and Rucker opinions have misinterpreted the statute by overlooking the fact that the statute provides that the Secretary can intercept not only tax refunds, but any amounts payable as tax refunds. Furthermore, we believe these opinions overlook the context in which the implementing amendment to the Internal Revenue Code fits, and that the same "overpayment" language is used in the amendment as is used in the section providing for refunds of any withholding taxes or credits to the taxpayer.