Opinion ID: 371173
Heading Depth: 2
Heading Rank: 1

Heading: jurisdiction

Text: 10 In Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960), the Supreme Court held that the district courts do not have jurisdiction to hear suits for refund of Federal taxes where the taxpayer has paid only part of the taxes assessed by the Commissioner for the year in question. The Court acknowledged that the language of the jurisdictional statute, 28 U.S.C. § 1346(a)(1), was not entirely clear on this matter. Id. at 148-51, 80 S.Ct. 630. The Court noted, however, that the prevalent practice was to require full payment of taxes before permitting a refund suit, and that the legislative history of the act establishing the Tax Court indicated that Congress believed full payment was a requisite to a refund suit. Id. at 158-63, 80 S.Ct. 630. 1 The Court also stated that there was a strong policy in favor of payment of disputed taxes pending litigation, and that the exception to this general rule must be strictly limited to cases brought before the Tax Court. Id. at 175-76, 80 S.Ct. 630. The Court noted finally that permitting a taxpayer to make partial payment and then sue for a refund of that partial payment as a practical matter would permit the taxpayer to obtain a declaratory judgment with respect to the rest of the taxes assessed, thus violating 28 U.S.C. § 2201, which prohibits declaratory judgments with respect to Federal taxes, as well as subverting the policy of requiring payment of disputed taxes pending litigation. Id. at 164-65, 80 S.Ct. 630. 11 The present case is conceptually distinguishable from Flora because the Shipleys paid all taxes assessed for the year for which the refund is claimed, either 1970 or 1971. It is the taxes for the year 1967 that have not been paid. 12 The tax problem arising from receipt of funds in one year and restoration of those funds in a succeeding year was discussed by the Supreme Court in United States v. Lewis, 340 U.S. 590, 592, 71 S.Ct. 522, 95 L.Ed. 560 (1951). There the Court held that under the provisions of the Internal Revenue Code then in effect, a taxpayer who received funds under a claim of right in one year and was forced to repay those funds in a later year could deduct the amount repaid in the later year, but could not reopen the return for the year of receipt. An inequity existed, however, in that a deduction in the year of restoration might not fully compensate the taxpayer, because he might have been in a higher tax bracket in the year of receipt. Section 1341 was enacted in response to Lewis and permits such a taxpayer to claim either a deduction or a credit equal to the tax overpaid in the year of receipt. 2 The statute makes the remedy available only in the year of restoration; it does not permit the taxpayer to reopen the return for the year the funds were received. 3 Thus, the refund the Shipleys are seeking is for 1970 or 1971, and the present case is unlike Flora because the Shipleys have paid the full amount of taxes assessed for those years. 13 More important, precluding the Shipleys from maintaining a refund suit in the district court would impede rather than further the policy stated in Flora that disputed taxes should be paid pending litigation. The Government does not contend that the Shipleys could not have brought an action in the Tax Court to contest the Commissioner's refusal to allow the § 1341 credit. See 26 U.S.C. §§ 6512(b)(1), 7442. To maintain such a suit, the Shipleys would have had to withhold payment of taxes legitimately due for the year of restoration. The Shipleys legitimately withheld payment of taxes due for 1967 in contesting in the Tax Court the assessment of taxes against the funds received from Capron. To require the Shipleys to go into the Tax Court to claim the § 1341 credit for 1970-71 would result in their not having paid the disputed taxes for either the year of receipt or the year of restoration. Such a result is clearly contrary to the policy set forth in Flora. Permitting the Shipleys to maintain a refund suit in the district court ensures that at least the taxes assessed for 1970 and 1971 will have been paid pending litigation. Thus we conclude that Flora does not deprive the district court of jurisdiction in this case. 14