Court Opinion

ID: 6320768
Source: CourtListenerOpinion
Date Created: 2022-03-07 17:01:20.732843+00
Date Added: 2024-06-11T09:02:31.696387
License: Public Domain

Case: 20-2061   Document: 66     Page: 1   Filed: 03/07/2022

   United States Court of Appeals
       for the Federal Circuit
                 ______________________

   ALI M. TAHA, ON BEHALF OF HIS DECEASED
      BROTHER AND HIS BROTHER'S WIFE,
                 Plaintiff-Appellant

                            v.

                   UNITED STATES,
                   Defendant-Appellee
                 ______________________

                       2020-2061
                 ______________________

     Appeal from the United States Court of Federal Claims
 in No. 1:17-cv-01174-CFL, Senior Judge Charles F. Lettow.
                   ______________________

                 Decided: March 7, 2022
                 ______________________

     KARA ROLLINS, New Civil Liberties Alliance, Washing-
 ton, DC, argued for plaintiff-appellant. Also represented
 by RICHARD ABBOTT SAMP.

     MATTHEW STEVEN JOHNSHOY, Tax Division, United
 States Department of Justice, Washington, DC, argued for
 defendant-appellee.   Also represented by DAVID A.
 HUBBERT, JOAN I. OPPENHEIMER.
                 ______________________

    Before PROST, REYNA, and HUGHES, Circuit Judges.
Case: 20-2061    Document: 66     Page: 2    Filed: 03/07/2022

 2                                                TAHA   v. US

 REYNA, Circuit Judge.
      Appellant Ali M. Taha 1 appeals a decision by the
 United States Court of Federal Claims, dismissing his law-
 suit seeking refunds for taxes paid for the 2003 tax year.
 This is the second time we entertain this action on appeal.
 Previously, we remanded to the Court of Federal Claims
 for resolution of a factual issue on whether Appellant filed
 a timely refund claim for the 2003 tax year. The Court of
 Federal Claims held a trial on remand and dismissed the
 action for lack of subject-matter jurisdiction on grounds
 that Appellant failed to establish that a 2003 refund claim
 was filed. The Court of Federal Claims further determined
 that even if a 2003 tax refund claim were filed in Novem-
 ber 2007, as Appellant alleges, the filing would have been
 untimely. We affirm.
                         BACKGROUND
      From 2002 to 2004, Mohamad Taha was a 10% share-
 holder of Atek Construction, Inc. (“Atek”) but had no direct
 role in its operations. J.A. 199, 305–08, 317–19. Mohamad
 reportedly earned shareholder income of $85,010 in 2002
 and $77,813 in 2003. J.A. 150, 581–82. He filed 2002 and
 2003 tax returns with the Internal Revenue Service (“IRS”)
 on April 3, 2003, and April 14, 2004, respectively, paying
 the taxes due on the full amount of reported shareholder
 income for each year. J.A. 581–82. He did not file a return
 for the 2004 tax year by the due date because he allegedly
 had no income to report. See J.A. 589–90.
    Appellant claims that Mohamad did not receive the full
 amount of reported shareholder income on which he paid

     1   Ali Taha brings this appeal on behalf of his de-
 ceased brother, Mohamad Taha, and Mohamad’s wife, Sa-
 naa Yassin. Mohamad passed away in 2007. For
 simplicity, we respectfully refer to the three family mem-
 bers by their given names where specificity is required.
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 TAHA   v. US                                               3

 taxes. Instead, he received only $20,000 from Atek before
 the company was taken over and shut down by bonding in-
 surance companies in 2004. See J.A. 96, 122, 150, 1187. In
 2007, Mohamad (with Appellant’s help) sought a refund for
 overpaid taxes by filing amended tax returns and deduct-
 ing the unpaid income as bad debt. J.A. 202, 263–64.
     The parties dispute whether Taha filed an amended
 tax return (i.e., tax refund claim) for the 2003 tax year.
 They agree that the IRS received amended tax returns for
 the 2002 and 2004 tax years and disallowed both refund
 claims. Appellant alleges that an amended 2003 tax return
 was also mailed to the IRS around the same time the
 amended 2002 tax return was mailed. J.A. 202, 212–13,
 264–65. The IRS maintains that it never received an
 amended tax return for the 2003 tax year and, conse-
 quently, there is no record of the IRS disallowing the 2003
 refund claim. See J.A. 983–85.
                    PROCEDURAL HISTORY
     In May 2017, Appellant filed the underlying action in
 the U.S. District Court for the Middle District of Florida
 seeking a refund of taxes paid by Mohamad for the 2002
 and 2003 tax years, based on tax refund claims from 2002,
 2003, and 2004. See Taha v. United States, 137 Fed. Cl.
 462, 464–65 (2018). In September 2017, the case was
 transferred to the United States Court of Federal Claims.
 Id. at 463. In April 2018, the Court of Federal Claims dis-
 missed the action for lack of subject-matter jurisdiction.
 Id. at 469.
     In December 2018, we affirmed the judgment of the
 Court of Federal Claims to dismiss the causes of action
 based on the 2002 and 2004 refund claims. Taha v. United
 States, 757 F. App’x 947, 951–52 (Fed. Cir. 2018). We va-
 cated the dismissal of the action as to the 2003 refund claim
 and remanded to the Court of Federal Claims to resolve
 three factual questions: (1) whether Appellants filed a 2003
 claim, and, if so, (2) whether the 2003 claim was timely,
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 4                                                TAHA   v. US

 and (3) whether the IRS disallowed the 2003 claim. Id.
 at 952.
      On remand, Appellant proffered circumstantial evi-
 dence to show that he had filed a 2003 refund claim in No-
 vember 2007. Taha v. United States, 148 Fed. Cl. 37, 42
 (2020). Appellant relied on the common-law mailbox rule,
 which provides that evidence of proper mailing, even testi-
 monial or circumstantial evidence, can create a rebuttable
 presumption that a document was mailed, and that the
 mailed document was delivered in the time it would ordi-
 narily take to arrive. See id. at 42–43; Phila. Marine Trade
 Ass’n-Int’l Longshoremen’s Ass’n Pension Fund v. Comm’r
 of Internal Revenue Serv., 523 F.3d 140, 147 (3d Cir. 2008)
 (citing Rosenthal v. Walker, 111 U.S. 185, 193 (1884); Hag-
 ner v. United States, 285 U.S. 427, 430 (1932)). Appellant
 further maintained that, apart from the common law-mail-
 box rule, a November 2007 filing would have been timely
 because it was submitted within the seven-year deadline
 for seeking a refund for bad business debt, pursuant to IRC
 §§ 6511(d)(1) and 166. Taha, 148 Fed. Cl. at 44.
     The Court of Federal Claims determined that Appel-
 lant’s reliance on the common-law mailbox rule to establish
 proof of mailing was misplaced. Id. at 42–44. The Court of
 Federal Claims determined that IRC § 7502, as interpreted
 by Treasury Regulation § 301.7502–1(e)(2)(i), displaced the
 common-law mailbox rule for determining IRS filing dates.
 On that basis, the Court of Federal Claims found that Ap-
 pellant could not avail himself of the common-law mailbox
 rule to satisfy the burden of showing that a 2003 tax refund
 claim was filed in November 2007.
      The Court of Federal Claims alternatively concluded
 that dismissal of Taha’s action was appropriate because
 even if Appellant filed a tax refund claim in Novem-
 ber 2007, he failed to show that the tax refund claim was
 filed within the three-year limitations period set by IRC
 § 6511. Id. at 44–45. In addition, the Court of Federal
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 TAHA   v. US                                               5

 Claims concluded that the money at issue was not “busi-
 ness debt” and, thereby, Taha was not entitled to a longer,
 seven-year limitations period. Id.
     Because filing a timely refund claim is a prerequisite
 for bringing a refund action, the Court of Federal Claims
 on remand dismissed the action for lack of subject-matter
 jurisdiction. Id. Appellant challenges the dismissal on re-
 mand.      We have jurisdiction pursuant to 28 U.S.C.
 § 1295(a)(3).
                    STANDARD OF REVIEW
     We review the Court of Federal Claims’ legal conclu-
 sions de novo and its factual findings for clear error. Ca-
 sitas Mun. Water Dist. v. United States, 708 F.3d 1340,
 1351 (Fed. Cir. 2013) (citing Est. of Hage v. United States,
 687 F.3d 1281, 1285 (Fed. Cir. 2012)). Whether a docu-
 ment was actually mailed on a given date is a question of
 fact. See Rosenthal, 111 U.S. at 193–94. The ultimate con-
 clusion of whether the Court of Federal Claims properly
 dismissed an action for lack of jurisdiction is a question of
 law, which we review de novo. Walby v. United States,
 957 F.3d 1295, 1298 (Fed. Cir. 2020).
                         DISCUSSION
     Appellant argues that the Court of Federal Claims
 erred with respect to both of its alternative rulings. First,
 Appellant contends that the Court of Federal Claims erred
 when it rejected testimonial evidence that a tax refund
 claim was filed in November 2007 on grounds that the com-
 mon-law mailbox rule did not apply in this case. Appellant
 argues that the Court of Federal Claims should have ac-
 cepted his evidence of filing because IRC § 7502 does not
 displace the common-law mailbox rule. He also maintains
 that a November 2007 filing date would have been timely
 because it falls within the seven-year extension applicable
 to tax refund claims involving bad business debt. We first
 address Appellant’s bad debt argument.
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 6                                                  TAHA   v. US

     A taxpayer can bring a tax refund action against the
 government only after filing a timely refund claim with the
 IRS. 26 U.S.C. § 7422(a); United States v. Clintwood
 Elkhorn Min. Co., 553 U.S. 1, 4–5 (2008). To be considered
 timely, a refund claim must ordinarily be filed “within 3
 years from the time the return was filed or 2 years from the
 time the tax was paid,” whichever is longer. 26 U.S.C.
 § 6511(a). It is undisputed that the 2003 refund claim was
 not filed within the general three-year deadline for filing
 set forth in § 6511(a). Mohamad filed his 2003 tax return
 on April 14, 2004, and Appellant alleges that the 2003 re-
 fund claim was filed on November 29, 2007, more than
 three years after the tax return was filed and more than
 two years after the tax was paid. See Taha, 137 Fed. Cl.
 at 464.
     There are exceptions to the general three-year rule.
 IRC § 6511(d)(1)(A) provides two instances in which a
 seven-year limitations period may apply:
     If the claim for credit or refund relates to an over-
     payment of tax . . . on account of--
       (A) The deductibility by the taxpayer,
           [1] under section 166 or section 832(c),
           of a debt as a debt which became worth-
           less, or, [2] under section 165(g), of a
           loss from worthlessness of a security, . . .
     in lieu of the 3-year period of limitation prescribed
     in [§ 6511(a)], the period shall be 7 years from the
     date prescribed by law for filing the return for the
     year with respect to which the claim is made.
 26 U.S.C. § 6511(d)(1) (emphases added). This provision
 extends the time for filing a refund claim from three years
 to seven years from the date the tax return was due:
 (1) where the refund relates to “bad debt” that became
 worthless and therefore subject to deduction under
 IRC § 166 or IRC § 832(c) (often referred to as the “bad
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 TAHA   v. US                                                7

 business debt” exception); or (2) where the refund relates
 to a “loss from worthlessness of a security” that is subject
 to deduction under IRC § 165(g).
      IRC § 6511(d)(2) also provides an extended filing pe-
 riod for a refund claim that “relates to an overpayment at-
 tributable to a net operating loss carryback or a capital loss
 carryback.” 26 U.S.C. § 6511(d)(2)(A). Under this provi-
 sion, the deadline for filing a refund claim becomes “that
 period which ends 3 years after the time prescribed by law
 for filing the return (including extensions thereof) for the
 taxable year of the net operating loss or net capital loss
 which results in such carryback.” Id. This means that a
 refund claim based on a capital loss carryback must be filed
 within three years of the deadline for filing a tax return for
 that year, instead of three years from the date on which the
 return was actually filed as normally required under
 § 6511(a).
     Appellant argues that the 2003 refund claim should be
 deemed timely under any of the three exceptions identified
 above. We disagree. As discussed below, none of these ex-
 ceptions—for bad business debt, worthlessness of a secu-
 rity, or capital loss carryback—apply in this instance.
                               I
      Appellant argues that the 2003 refund claim should be
 measured against a seven-year deadline from the time the
 return was filed, pursuant to IRC § 6511(d)(1), on a theory
 that the claimed refund constitutes “business bad debt”
 that became worthless and therefore deductible under IRC
 § 166(a). See Taha, 148 Fed. Cl. at 44. The Court of Fed-
 eral Claims correctly rejected that theory because Appel-
 lant failed to show “that the money at issue is debt and that
 it is specifically business debt.” Id. at 45.
     To satisfy the requirements of § 166(a) to deduct taxes,
 a claimant must first show that the money at issue consti-
 tutes “bona fide debt.” Cenex, Inc. v. United States,
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 8                                                   TAHA   v. US

 156 F.3d 1377, 1381 (Fed. Cir. 1998). “A bona fide debt is
 a debt which arises from a debtor-creditor relationship
 based upon a valid and enforceable obligation to pay a fixed
 or determinable sum of money.” Id. (quoting Treas. Reg.
 § 1.166–1(c)). Notably, “[c]ontributions to capital do not
 qualify as bona fide debt.” Id. (citing Adelson v. United
 States, 737 F.2d 1569, 1571 (Fed. Cir. 1984)). Here, Mo-
 hamad’s role as a passive investor belies his claim to a
 “bona fide debt” as there is no showing that the tax refund
 claim is for monies related to a debtor-creditor relation-
 ship, or a valid obligation to receive a fixed sum of money.
      Similarly, § 166(a) applies only to business debts. See
 26 U.S.C. § 166(d)(1). To take advantage of § 166(a), the
 taxpayer must show “involve[ment] in the activity with
 continuity and regularity[,] and that the taxpayer’s pri-
 mary purpose for engaging in the activity [is] for income or
 profit.”    Comm’r of Internal Revenue v. Groetzinger,
 480 U.S. 23, 35 (1987). When an activity’s only income,
 profit, or gain “is that of an investor, the taxpayer has not
 satisfied his burden of demonstrating that he is engaged in
 a trade or business.” Whipple v. Comm’r of Internal Reve-
 nue, 373 U.S. 193, 202 (1963) (“[I]nvesting is not a trade or
 business[,] and the return to the taxpayer, though substan-
 tially the product of his services, legally arises not from his
 own trade or business but from that of the corporation.”).
 Here, Mohamad’s reported income was that of an investor
 and not that of a trade or business. There is no showing
 that Mohamad was regularly and continually active in the
 course of Atek’s business.
     Mohamad’s earned capital does not constitute bad
 business debt. 2 See Cenex, 156 F.3d at 1381. Indeed, Mo-
 hamad’s earnings as an entirely passive investor could not

     2    Appellant appears to concede this point on appeal.
 Appellant’s Br. 44 (“Owning shares of stock in a corpora-
 tion is ownership of a ‘capital asset.’”).
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 TAHA   v. US                                                9

 qualify as business debt. See Whipple, 373 U.S. at 202. We
 therefore hold that Mohamad’s earned shareholder income
 does not constitute a bad business debt and, accordingly,
 Appellant is not entitled to the extended seven-year period
 provided under § 6511(d)(1) and § 166(a).
                               II
     Appellant raises two additional arguments for the first
 time on appeal. First, he contends that the 2003 refund
 claim is entitled to the seven-year filing period of
 § 6511(d)(1) as a “loss from worthlessness of a security”
 subject to deduction under § 165(g). Appellant’s Br. 43–45.
 Second, Appellant argues that the 2003 refund claim was
 timely in November 2007 because the refund at issue is
 based on a short-term capital loss suffered by Mohamad in
 2004. Appellant’s Br. 46–47; see 26 U.S.C. § 6511(d)(2)(A).
     Appellant acknowledges that these arguments were
 not raised before the Court of Federal Claims. Appellant’s
 Br. 47–48. We recognize that this court has the discretion,
 particularly in pro se cases, to accept new arguments pre-
 sented for the first time on appeal. See Erickson v. Pardus,
 551 U.S. 89, 94 (2007) (quoting Estelle v. Gamble, 429 U.S.
 97, 106 (1976)); see also In re Google Tech. Holdings LLC,
 980 F.3d 858, 863 (Fed. Cir. 2020) (“[T]he ultimate decision
 about whether to hear a claim when it was not raised be-
 fore . . . remains within the discretion of the appellate
 court.”). In that regard, we exercise our discretion to liber-
 ally construe Appellant’s arguments to the Court of Fed-
 eral Claims to find that Appellant did not forfeit his
 worthless-security theory asserted on appeal.
      We are not persuaded by Appellant’s new arguments.
 First, under Appellant’s worthless security theory, Mo-
 hamad’s unpaid shareholder earnings are treated as a cap-
 ital loss incurred on the last day of 2004, the year Atek
 ceased operations. See 26 U.S.C. §§ 165(g), 166(d)(1)(B);
 Treas. Reg. § 1.166–5. However, individual taxpayers like
 Mohamad may not carry capital losses backwards in time.
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 10                                                  TAHA   v. US

 See 26 U.S.C. § 1212(b); accord Merlo v. Comm’r of Internal
 Revenue, 492 F.3d 618, 623 (5th Cir. 2007) (“[E]ven though
 unrecognized capital losses may be carried forward to sub-
 sequent taxable years, they may not be carried back to
 prior taxable years.”); Snyder v. United States, 178 F.3d
 1312 (Table), 1999 WL 13385, at *1–2 (Fed. Cir. Jan. 8,
 1999) (affirming Court of Federal Claims’ dismissal of a re-
 fund action where taxpayers “were attempting to carry a
 capital loss back to a tax year (1987) prior to the year in
 which the loss allegedly occurred (1988), contrary to the
 provisions of [§ 1212(b)]”). Thus, as a non-corporate tax-
 payer, Mohamad cannot deduct his unpaid shareholder
 earnings from his 2003 taxes as a capital loss incurred in
 2004. See 26 U.S.C. § 1212(b). Appellant is therefore not
 entitled to the extended seven-year period provided under
 § 6511(d)(1) and § 165(g).
      Second, Appellant erroneously focuses on the deadline
 for filing a refund claim for the 2004 tax year, when the
 refund claim at issue is for the 2003 tax year. The applica-
 ble tax return deadline is therefore April 15, 2004, not
 April 15, 2005, as Appellant argues. As explained above,
 Mohamad as an individual taxpayer would not have been
 entitled to carry back a capital loss from 2004 to the 2003
 tax year. See 26 U.S.C. § 1212(b); see also United States v.
 Generes, 405 U.S. 93, 96 (1972) (“[I]f the obligation is a non-
 business debt, it is to be treated as a short-term capital loss
 subject to the restrictions imposed on such losses by
 [§] 166(d)(1)(B) and [§§] 1211 and 1212, and its use for car-
 ryback purposes is restricted by § 172(d)(4).”). Accordingly,
 § 6511(d)(2)(A) does not render Appellant’s 2003 refund
 claim timely. As such, we find Appellant’s new arguments
 to be without merit.
     Based on the foregoing, we conclude that Appellant's
 argument concerning the applicability of the common-law
 mailbox doctrine is futile. Even if we accept Appellant’s
 assertion of a November 2007 filing, Appellant does not
 qualify for any of the filing extensions on which he relies to
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 TAHA   v. US                                           11

 render his filing timely. We therefore do not address
 whether IRC § 7502 displaces the common-law mailbox
 rule for IRS filings. We have considered the remainder of
 Appellant’s arguments and find them unpersuasive. The
 judgment of the Court of Federal Claims is affirmed.
                       CONCLUSION
      We hold that Appellant failed to establish the timely
 filing of a 2003 refund claim, which is a prerequisite for
 bringing his tax refund action. 26 U.S.C. § 7422(a). The
 Court of Federal Claims properly dismissed this action.
                       AFFIRMED
                          COSTS
 No costs.