Opinion ID: 780311
Heading Depth: 2
Heading Rank: 2

Heading: Informal Refund Claim

Text: 21 Having concluded that the district court had jurisdiction over this case, we turn to the issue of whether the Kaffenbergers timely filed refund claims related to 1989 at the administrative level. The government argues that the Kaffenbergers are not entitled to any refunds related to 1989 because they failed to bring their administrative refund claims within three years and six months of the date on which the taxes were paid, as required by the Internal Revenue Code. See I.R.C. § 6511(b)(2)(A) (limiting the amount of recovery on a refund claim to the amount of tax paid within three years, plus applicable extensions, prior to the refund claim). The Kaffenbergers concede that the 1989 Form 1040 return filed on July 24, 1994, and the 1989 Form 1040X amended return filed on September 26, 1995, were untimely, as they sought a refund of taxes paid on April 15, 1990. The Kaffenbergers argued to the jury, apparently successfully, that they had made an informal claim for refund when they designated that $26,700 of a prior credit be applied to their 1990 tax liability on the Form 4868 Automatic Extension Request, filed on April 15, 1991, well within three years and six months of April 15, 1990. On appeal, the government argues that there is no evidence to support the jury's finding that the Kaffenbergers made an informal claim for refund. 22 The government argued in its motion for judgment as a matter of law that the facts did not support a finding of an informal claim, but did not renew the argument in its posttrial motions. We therefore review this issue for plain error to prevent a miscarriage of justice. See Cross v. Cleaver, 142 F.3d 1059, 1070 (8th Cir.1998). Plain error in a civil suit is an error that is obvious, or ... otherwise seriously affect[s] the fairness, integrity, or public reputation of judicial proceedings. Champagne v. United States, 40 F.3d 946, 947 (8th Cir.1994) (internal quotations omitted) (first alteration in original). An obvious error is an error that is clear under current law. United States v. Caldwell, 97 F.3d 1063, 1069 (8th Cir. 1996). Ultimately, we must determine whether the district court plainly erred in accepting the jury's determination that the facts and circumstances of the case satisfied the requirements of the informal claim doctrine. 23 Treasury regulations specify what is required of a taxpayer to file a valid claim for refund or credit of taxes previously paid. See 26 C.F.R. § 301.6402-2(b)(1); § 301.6402-3(a). Although the regulation states that a claim that fails to comply with the requirements will not be considered as a claim for refund, § 301.6402-2(b)(1), the Supreme Court has endorsed informal claims filed within the statutory period that have technical deficiencies, as long as a valid refund claim is subsequently made after the period has run. See United States v. Kales, 314 U.S. 186, 194, 62 S.Ct. 214, 86 L.Ed. 132 (1941) (holding that a letter of protest sent by the taxpayer to the collector and Commissioner was a valid informal claim for refund). In essence, an informal claim that puts the IRS on notice that a claim is being made tolls the statute of limitations until the deficiencies are corrected in a subsequent refund claim. See United States v. Comm'l Nat'l Bank of Peoria, 874 F.2d 1165, 1170-76 (7th Cir.1989) (finding an informal claim where the tax issues surrounding the refund claim were involved in litigation and the taxpayers' attorney wrote a letter to the IRS within the statutory time frame stating his disagreements with the IRS's calculations). Generally, an informal claim is sufficient if it is filed within the statutory period, puts the IRS on notice that the taxpayer believes erroneous tax has been assessed, and describes the tax and year with sufficient particularity to allow the IRS to undertake an investigation. PALA, Inc. Employees Profit Sharing Plan and Trust Agreement v. United States, 234 F.3d 873, 877 (5th Cir.2000). The sufficiency of an informal claim depends on the individual facts of each case, with a view towards determining whether under those facts the Commissioner knew, or should have known, that a claim was being made. Id. (internal quotations omitted). Failure to specify the year does not necessarily defeat the informal claim if other facts suffice to put the IRS on notice of the specific refund sought. See id. at 878 (The fact that PALA's letter does not specifically mention the year 1991 is irrelevant....); Am. Radiator & Stand. Sanitary Corp. v. United States, 162 Ct.Cl. 106, 318 F.2d 915, 921 (1963) ([P]laintiff was not required, for this informal claim for refunds all of one type, to match particular amounts to particular years, or to point out that this claim related only to 1942, 1943, and 1945 (not to 1944, 1946 or 1947). (quoting Kales, 314 U.S. at 194, 62 S.Ct. 214) (internal footnotes omitted)). An informal claim which is partially informative may be treated as valid even though `too general' or suffering from a `lack of specificity' — at least where those defects have been remedied by a formal claim filed after the lapse of the statutory period but before the rejection of the informal request. Id. 24 At a bare minimum, the Kaffenbergers' informal claim had to contain a written component within the statute of limitations, and must have been followed by a formal claim that remedied any defects in the informal claim. The Form 4868 Automatic Extension Request, which reflected other payments and credits of $26,700 and which was filed on April 15, 1991, satisfies the written component. Further, Form 4868 contained the Kaffenbergers' signatures and declarations under penalties of perjury that the information was correct. Cf. Tobin v. Tomlinson, 310 F.2d 648, 651 (5th Cir.1962) (holding that letter did not constitute informal claim because it was not verified to be under penalty of perjury), cert. denied, 375 U.S. 929, 84 S.Ct. 327, 11 L.Ed.2d 262 (1963). There is no dispute that the 1989 Form 1040, which was filed on July 29, 1994, and requested a refund of $38,309, and the 1989 Form 1040X, which was filed on September 26, 1995, and requested a refund of an additional $3,286, made formal claims for refund, albeit untimely ones. These forms satisfy the minimum requirements for an informal refund claim. Whether the remaining facts and circumstances satisfy the informal claim doctrine is highly fact intensive. See Comm'l Nat'l Bank, 874 F.2d at 1170. No hard and fast rules can be applied because it is a combination of facts and circumstances which must ultimately determine whether or not an informal claim constituting notice to the Commissioner has been made. Necessarily each case must be decided on its own peculiar set of facts.... Newton v. United States, 143 Ct.Cl. 293, 163 F.Supp. 614, 619 (1958) (rejecting Commissioner's application of guiding principles distilled from prior cases). In making this factual inquiry, it is important to note that the written component within the statutory period-Form 4868 in this case-need not contain all of the information necessary to put the IRS on notice that a refund was being sought. The written component should not be given a crabbed or literal reading, ignoring all the surrounding circumstances which give it body and content. The focus is on the claim as a whole, not merely the written component. Estate of Hale v. United States, 876 F.2d 1258, 1262 (6th Cir.1989) (internal quotations omitted). 25 Shortly after filing Form 1040 for the 1988 tax period, directing that a $26,794 overpayment be applied to 1989, the Kaffenbergers received a notice dated April 15, 1991, that they were entitled to a refund of $26,770. Evidence introduced at trial revealed that that type of notice normally is not sent when a refund is to be applied to the following year's tax liability. The Kaffenbergers filed Form 4868 the same day, notifying the IRS that they wanted $26,700 of other payments or credits to be applied to their 1990 liability. The IRS also had Form 4868 for 1989 on file, with which the Kaffenbergers had paid $35,000 for estimated payments toward their 1989 tax liability. Thus, at the time the IRS received Form 4868 for 1990 in April 1991, the IRS knew that the Kaffenbergers were entitled to a refund of $26,770, that the Kaffenbergers had requested that the refund from 1988 be applied to their 1989 liability, that the Kaffenbergers had paid $35,000 in estimated payments toward their 1989 liability, that the IRS had recently sent the Kaffenbergers a notice of refund for the same $26,770 the Kaffenbergers had asked to be applied to their 1989 liability, and that the Kaffenbergers had requested $26,700 from other payments and credits be applied to their 1990 liability. 26 The government argues that the Kaffenbergers' failure to include the $26,700 amount on the line for 1989 overpayments allowed as a credit on the Form 4868 contradicts the Kaffenbergers' assertion that they were claiming a refund from 1989. The jury apparently did not buy that argument, however. We believe that the jury's implicit finding that there is no inconsistency is supported by the evidence, particularly in light of the fact that as of April 15, 1991, the Kaffenbergers had not filed their 1989 Form 1040, so that the exact amount of the overpayment for 1989 was unknown at that time. 27 In these unique factual circumstances, we cannot say that any error by the district court in entering judgment based on the jury's special verdict was obvious. See Gustin v. United States Internal Rev. Serv., 876 F.2d 485, 488 (5th Cir.1989) ([T]here are no hard and fast rules for evaluating the sufficiency of an informal claim, and each case must be decided on its own particular set of facts....). We believe these facts were sufficient to put the IRS on notice, as of April 1991, that the Kaffenbergers were claiming a refund of $26,700 and that the information held by the IRS described the refund sought with sufficient particularity to allow the IRS to investigate the claim. These facts are not so different from other factual scenarios in which courts have found an informal claim that we could say that the jury's verdict was plainly erroneous. See, e.g., Penn Mut. Indemn. Co. v. Comm'r, 277 F.2d 16, 18-19 (3d Cir.1960) (holding that a letter attached to a return protesting the constitutionality of the tax and refusing to pay the tax shown due on the return was an informal claim); Cumberland Portland Cement Co. v. United States, 122 Ct.Cl. 580, 104 F.Supp. 1010, 1013-14 (1952) (finding an informal claim where Commissioner notified taxpayer of overassessment and informed taxpayer of need to file Form 843 to protect itself against the running of the statute of limitations, where taxpayer sent letter asking that a prompt settlement be made in this matter of overassessment with its signed Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, but did not timely file Form 843, as instructed by the Commissioner); Night Hawk Leasing Co. v. United States, 84 Ct.Cl. 596, 18 F.Supp. 938, 941 (1937) (finding that notation on the back of a check stating This check is accepted as paid under protest pending final decision of the higher courts was a valid informal claim). Because we affirm the jury's determination that the Kaffenbergers made a sufficient informal claim for refund within the statute of limitations, they are entitled to a refund of $26,700 from 1989. C. Abatement of 1990 Tax Liability & Refund of 1994 Through 1996 Overpayments Applied to 1990 Liability 28 The district court ordered the government to abate the 1990 tax assessment, to refund $17,778, which the court characterized as a refund of overpayments from 1994, 1995, and 1996 together with interest through January 31, 2001, and to pay post-judgment interest at a rate of 4.83% to the Kaffenbergers. ( See Appellant's Add. at 7.) The government argues that the district court lacked jurisdiction to order a refund of the 1994 through 1996 overpayments and to order the abatement of the 1990 liability. For reasons discussed below, we agree with the government. The government does not explain the effect of the district court's lack of jurisdiction, however. Given the complexity of this case, both factually and legally, we begin our analysis by summarizing the facts of the case in light of our holding thus far. 29 The Kaffenbergers claimed a total overpayment of their 1989 tax liability of $41,595 ($38,309 claimed on their 1989 Form 1040, filed on July 28, 1994, and $3,286 claimed on their 1989 Form 1040X, filed on September 26, 1995) and made a timely informal claim for refund of $26,700 of that overpayment. The Kaffenbergers concede that their recovery is limited to the $26,700 claimed pursuant to their informal claim, (Appellees' Br. at 18 n. 6 & 31-32), and the district court's judgment reflected the limited amount. The IRS assessed the Kaffenbergers' tax liability for 1990 at $36,329 before imposition of interest and penalties and before application of any payments or credits. The Kaffenbergers paid an additional $12,161 against their 1990 tax liability on July 28, 1994, as part of the audit, which the IRS applied against the 1990 liability. The IRS also applied $17,256 worth of overpayments from 1994 through 1996 against the 1990 liability. 30 Following the jury's verdict, the district court asked the parties to submit calculations for a proposed judgment. The district court noted in its order that the parties submitted widely divergent calculations and that the Kaffenbergers' calculations best reflect[ed] the jury's special verdict. (Appellant's Add. at 7; Mar. 9, 2001, Order.) The Kaffenbergers submitted a detailed calculation, which netted the $26,700 refund from 1989 against the 1990 liability as of April 15, 1991, and reflected the July 1994 payment of $12,161 as well as the 1994 through 1996 overpayments of $17,256 applied by the IRS to the remaining 1990 liability. The calculation also accounted for penalties and interest. The Kaffenbergers' calculation showed that they had overpaid their tax liability by $17,778, including interest through January 31, 2001. ( See Appellees' App. at 121-26.) The government's proposed judgment, on the other hand, limited recovery to a refund of $3,286, which is the amount that the Kaffenbergers claimed on the amended Form 1040X for 1989, plus interest from April 15, 1990, leaving the 1990 tax liability as assessed by the IRS still owing. In reaching this determination, the government argued that the district court lacked jurisdiction over the $38,309 refund claimed on the original 1989 Form 1040 filed on July 24, 1994, because the Kaffenbergers did not file suit within two years of receiving the IRS's notice of disallowance related to that refund claim, an argument the district court, and now we, rejected. (United States' Br. Regarding Computation of Judgment, Dist. Ct. Docket Entry 52.) 31 At this point, we think it important to delineate what about the judgment the government does not appeal. The government does not appeal the fact that the district court netted the 1989 refund against the 1990 tax liability and took into consideration the subsequent payments that the IRS applied against the 1990 liability. 4 Nor does the government appeal the accuracy of the Kaffenbergers' calculations, which resulted in the conclusion that they had overpaid their tax liability, including penalties and interest, by $17,778, when the $26,700 refund was taken into consideration. Rather, the government argues only that the district court lacked jurisdiction to order that the 1990 tax liability be abated in full and that the district court lacked jurisdiction to order a refund of the 1994 through 1996 overpayments that were applied against the 1990 liability. Thus, our review is limited to those issues.
32 The government argues that the district court lacked jurisdiction to order the abatement of the Kaffenbergers' 1990 tax assessment. We agree. Full payment of a tax assessment is a prerequisite to suit in federal district court; taxpayers may bring prepayment suits only in United States Tax Court. Without full payment of the assessment, the district court lacks subject matter jurisdiction over the suit as it relates to the 1990 liability. See 28 U.S.C. § 1346(a)(1); Flora v. United States, 362 U.S. 145, 146, 158-63, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960). The Kaffenbergers did not pay the 1990 assessment in full prior to bringing this suit in district court. Their argument that the 1989 overpayment satisfied the 1990 liability is irrelevant to their obligation to pay the full amount of the 1990 assessment before filing suit related to that liability in district court. See Hutchinson v. United States, 677 F.2d 1322, 1326 (9th Cir.1982) ([Taxpayer's] mere claim that the 1973 liability was satisfied by a then-disputed credit from 1971 does not establish full satisfaction of the 1973 liability.). What this means is that the district court lacked authority to adjudicate the accuracy of the 1990 assessment. Without authority to determine the accuracy of the 1990 liability, the district court lacked authority to declare it abated. 33
34 The government also argues that the district court lacked the authority to order a refund of the 1994 through 1996 overpayments that were applied by the IRS to the unpaid 1990 tax liability. The government's argument is twofold: (1) the Kaffenbergers' failure to file an administrative claim related to 1990 precludes the district court from exercising jurisdiction related to subsequent credits applied to the 1990 tax liability; and (2) the Kaffenbergers' failure to pay the full assessment for the 1990 tax liability precludes them from bringing suit in district court for a refund of subsequent credits applied to the 1990 liability. We agree with the IRS's second position and therefore need not address the first. 35 Once the IRS applied the overpayments from 1994 through 1996 to the 1990 tax assessment, as the IRS had the discretion to do, see I.R.C. § 6402(a), those funds became credits against the 1990 tax liability. See I.R.C. § 7422(d) (The credit of an overpayment of any tax [i.e., 1994-1996] in satisfaction of any tax liability [i.e., 1990] shall, for the purpose of any suit for refund of such tax liability [i.e., 1990] so satisfied, be deemed to be a payment in respect of such tax liability [i.e., 1990] at the time such credit is allowed); Donahue v. United States, 33 Fed.Cl. 600, 605 (1995) (holding that application of an overpayment from 1988 to a tax liability for 1985 was deemed a payment against the 1985 liability on the date the IRS applied the 1988 overpayment to the 1985 liability for purposes of § 6511(a)); Republic Petroleum Corp. v. United States, 613 F.2d 518, 525 n. 19 (5th Cir.1980) ([T]axpayer's 1960 and 1962 credits are treated like any cash payment made by taxpayer to satisfy his deficiency for 1959, and he can recover a refund of them to the extent he overpaid his 1959 tax.  (emphasis added)). The Kaffenbergers' claim related to the 1994 through 1996 overpayments is based solely on their assertion that there is no 1990 liability against which to apply the overpayments. In other words, what they are seeking is an adjudication of their 1990 tax liability. As we have just held, the Kaffenbergers' failure to pay the full 1990 assessment prior to bringing this suit deprived the district court of jurisdiction over claims related to the 1990 assessment. Because the overpayments became credits against the 1990 tax liability when the IRS so applied them, we hold that the district court lacked jurisdiction to order a refund of the overpayments from 1994 through 1996 that were credited against the 1990 liability. 36 Having so held, we disagree with the district court's characterization of the $17,778 as a refund of the 1994 through 1996 overpayments. Upon closer examination, we believe that that amount reflects an order to refund the $26,700 overpayment from 1989. As made clear by the detailed calculations submitted by the Kaffenbergers, the $17,778 figure is the result of refunding the 1989 overpayment after taking into consideration the 1990 liability as assessed by the IRS and the payments applied to that liability by the IRS. The district court's inability to adjudicate the Kaffenbergers' 1990 liability and to declare the parties' rights related to that liability does not render the court incapable of recognizing the payments already applied by the IRS against the Kaffenbergers' 1990 liability. As noted, the government does not appeal the calculation netting the $26,700 overpayment from 1989 against the 1990 liability or the accuracy of the $17,778 amount. Faced with the parties' disparate calculations for judgment, we believe that the district court's ultimate conclusion was correct that the Kaffenbergers were entitled to a refund of $17,778 to carry into effect the jury's special verdict. 37 To be clear, we do not pass on any other disputes that the IRS and the Kaffenbergers might have regarding the 1990 liability. Rather, we affirm the district court's judgment to the extent that it ordered the refund of the $26,700 overpayment from 1989 and calculated that this amount, when considered with the other payments applied to the 1990 liability by the IRS, resulted in an overpayment by the Kaffenbergers of $17,778. D. Attorney's Fees 38 The district court ordered the government to pay the Kaffenbergers' costs and attorney's fees, although the fee rate was reduced from the rate requested by the Kaffenbergers. The Internal Revenue Code authorizes an award of reasonable litigation costs to the prevailing party in a suit by or against the United States in connection with a tax refund. I.R.C. § 7430(a). A taxpayer is not considered a prevailing party, and is not entitled to litigation costs, if the government's position was substantially justified. § 7430(c)(4)(B). The position of the United States is substantially justified if it has a reasonable basis in both law and fact, a determination made on a case by case basis. The taxpayer bears the burden of proving that the government's litigation position was not substantially justified. United States v. Bisbee, 245 F.3d 1001, 1007 (8th Cir.2001) (internal citations omitted). We will reverse the district court's grant of costs and fees under I.R.C. § 7430 only if the district court abused its discretion. Id. 39 The district court found the government's position not substantially justified for the same reasons it had previously denied the government's motion for summary judgment and because the jury ultimately found in favor of the Kaffenbergers. (Appellant's Add. at 9-10.) Although a jury's verdict is relevant to whether the government's position is substantially justified, it is not determinative, especially where the jury's finding is based on the preponderance of the evidence, as in this case. See Wilfong v. United States, 991 F.2d 359, 367 (7th Cir.1993) (reversing an award of fees where the district court's only valid explanation of its award was the jury's verdict). Similarly, fact disputes that preclude summary judgment do not establish that the moving party's position is not substantially justified. 40 The Kaffenbergers assert that the IRS acted in bad faith by not accepting their factual claim that they made a valid informal refund claim, and that the IRS tried to keep them from going to trial. The IRS was not required to acquiesce in the taxpayers' claim that they made a valid informal claim. Our judicial system allows all litigants, including the IRS, to litigate their differences through trial if the parties cannot settle them. That does not make the IRS's position not substantially justified. The Kaffenbergers' equitable arguments do not address whether the IRS's position was substantially justified, which the Kaffenbergers must prove if they are to be awarded litigation costs. 41 Reviewing the record, we believe that the IRS's position was substantially justified and the district court abused its discretion in awarding litigation costs to the Kaffenbergers. Given the state in which the issue of the informal claim reached us on appeal, we reviewed the issue for plain error. The fact intensive nature of the informal claim doctrine led us to conclude that the jury's findings are supported under that standard of review. Factually, we believe that this was a close case and may border on the outer reaches of the informal claim doctrine. It was by no means clear that the Kaffenbergers made an informal claim sufficient to toll the statute of limitations until their formal claim was filed. See Comm'l Nat'l Bank, 874 F.2d at 1170 (characterizing the adequacy or sufficiency of an informal refund claim as primarily a question of fact). As such, we must conclude that the IRS's position that the Kaffenbergers had not made an informal claim for a refund was substantially justified. We reverse the district court's award of costs and fees to the Kaffenbergers.