Opinion ID: 165210
Heading Depth: 3
Heading Rank: 3

Heading: The United States’ Direct Appeal

Text: The United States argues, among other things, that the district court erred in denying its motion to amend because an award of interest is mandated by 26 U.S.C. § 6602 and the court had no discretion to deny such award. We agree. Under 26 U.S.C. § 7405, the United States may bring a civil action to recover an erroneous tax refund. Further, “[a]ny portion of an internal revenue tax . . . which has been erroneously refunded, and which is recoverable by suit pursuant to [26 U.S.C.] section 7405, shall bear interest at the underpayment rate established under [26 U.S.C.] section 6621 from the date of the payment of the refund.” Id. § 6602. The “[u]nderpayment rate” is the sum of the “Federal shortterm rate” plus three percentage points. Id. § 6621(a)(2). The basis of the district court’s refusal to award prejudgment interest to the United States was the United States’ failure to provide the district court with the “applicable Federal short-term rate or the total interest rate upon which [the] United States’ calculations [were] based.” Aplt. App. at 68. The court therefore determined it had “no basis upon which to evaluate the accuracy of the amount of interest sought by the United States” and that it could not, therefore, make an award of interest. Id. When the government subsequently presented the district -8- court more specific interest calculations in its motion to amend, the court denied the motion, observing that “[m]otions under 59(e) must either clearly establish a manifest error of law or must present newly discovered evidence.” Id. at 113 (quoting United States ex rel. Noyes v. Kimberly Constr., Inc. , 43 Fed. Appx. 283, 287 (10th Cir. July 25, 2002) (unpublished)). The district court, treating the more specific calculations as evidence that could have and should have been presented prior to judgment, then refused to consider them. Id. at 114. An erroneous refund recoverable by suit “ shall bear interest at the underpayment rate established under section 6621 . . . .” 26 U.S.C. § 6602 (emphasis added). While “in general, the award of prejudgment interest in a case under federal law is a matter left to the sound discretion of the trial court[,]” Purcell v. United States , 1 F.3d 932, 942-43 (9th Cir. 1993) (quotation omitted), “[i]t is clear . . . that this general rule may be trumped by the command of a federal statute.” Id. at 943. In Purcell , the Ninth Circuit considered whether the government was entitled to an award of prejudgment interest under the portion of 26 U.S.C. § 6601(e)(2)(A) that, at the time, read: “[i]nterest shall be imposed . . . in respect of any assessable penalty . . . only if such assessable penalty . . . is not paid within 10 days from the date of notice and demand therefor, and only . . . for the period from the date of the notice and demand to the date of payment.” -9- Purcell , 1 F.3d at 943 (alteration in original). The Ninth Circuit held that the district court: was faced with a binding statutory directive to allow interest to the government as of the time notice and demand was made upon Purcell. The court was not required–indeed, was not permitted–to exercise its discretion regarding the award of interest. All that was required was to establish the date of notice and demand. Id. In this case, the district court mistakenly treated the question of the amount of interest as a factual question that the government had the burden of proving, stating “[p]roviding an interest calculation sufficient to meet a burden of proof is not unlike ‘showing your work’ in fifth grade arithmetic.” Aplt. App. at 68. This was error because, here, prejudgment interest is mandated by statute and the amount owed is a matter of law, not evidence. See United States v. Schroeder , 900 F.2d 1144, 1150 n.5 (7th Cir. 1990) (interpreting the mandatory interest provision of 26 U.S.C. § 6601(e)(2) and noting that the amount of interest “is not something the government must prove at trial”); see also United States v. Boyce , 148 F. Supp. 2d 1069, 1090 (S.D. Cal. 2001) (“Because interest on assessments and penalties are [sic] mandatory under the Internal Revenue Code, the Court finds that the significance of [the I.R.S. employee’s] declaration [as to amount of interest owed] was only to allow the Court to render judgment in a specific dollar -10- amount and does not open the door to discovery on the amount of interest the [taxpayers] owe.”). Therefore, once the court determined that an erroneous refund had been made and that recovery by the government was proper, it was required by statute to award prejudgment interest on such amount and it was a manifest error of law not to do so. Consequently, the district court abused its discretion in not granting the United States’ motion to amend and amending its judgment to correct this error. Cf. United States v. Faulkner , 119 F.R.D. 390, 390-91 (N.D. Ill. 1988) (holding, in the context of a Fed. R. Civ. P. 60(a) motion asking the district court to correct its clerical mistake of omitting statutorily mandated prejudgment interest: “When a statute mandates and defines an award of interest, the omission of such interest from a judgment order is exactly the sort of mistake that Rule 60(a) was designed to correct . . . .”). Here, the United States’ motion to amend included the specific interest rates the district court felt should have been included in the government’s initial briefs and such calculations could have been used by the court in amending its judgment to make a specific interest award.