Court Opinion

ID: 1009178
Source: CourtListenerOpinion
Date Created: 2013-07-04 19:51:57.299467+00
Date Added: 2024-06-11T09:16:20.831211
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA,              
                 Plaintiff-Appellee,
                 v.
CRYSTAL FOSTER; ROBERT FOSTER,
            Defendants-Appellants,
                and                              No. 02-1086
REBECCA CARPENTER; PAMELA MIFFIN;
1ST ADVANTAGE FEDERAL CREDIT
UNION; WACHOVIA BANK, N.A.;
MERCEDES-BENZ CREDIT
CORPORATION,
                      Defendants.
                                       
           Appeal from the United States District Court
         for the Eastern District of Virginia, at Richmond.
            Richard L. Williams, Senior District Judge.
                          (CA-01-783-3)
                      Argued: October 31, 2002
                      Decided: December 3, 2002
       Before WILKINSON, Chief Judge, and LUTTIG and
                   MOTZ, Circuit Judges.

Affirmed by unpublished per curiam opinion.

                             COUNSEL
ARGUED: David Lassiter, Jr., JEFFERSON & LASSITER, Rich-
mond, Virginia, for Appellants. Gretchen M. Wolfinger, Tax Divi-
2                      UNITED STATES v. FOSTER
sion, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee. ON BRIEF: Eileen J. O’Connor, Assistant Attor-
ney General, Gilbert S. Rothenberg, Paul J. McNulty, United States
Attorney, Tax Division, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                              OPINION

PER CURIAM:

   The Internal Revenue Service ("IRS") issued Crystal Foster a size-
able refund in the year 2001. Shortly thereafter, the IRS concluded
that the refund was erroneous and brought suit in federal district court
to recover the refunded amount. The district court held that the refund
was in error and ordered Crystal Foster, and others who it found had
received portions of the refund from Crystal, to return the funds.
Crystal, and her father Robert, appealed. Finding no error in the rul-
ings of the district court, we affirm.

                                   I.

   The testimony and evidence at the preliminary injunction hearing
and at the bench trial established the following. Around July of 2001,
Crystal Foster filed her income tax return for tax year 2000. Crystal’s
tax return reflected total income of $3429. On her return, Crystal also
claimed that a $500,000 tax payment had been made on her behalf as
described on her Form 2439. Her Form 2439 showed $500,000 in
undistributed long-term capital gains from a registered investment
company (RIC) or real estate investment company trust (REIT),
although the RIC/REIT was not identified on the form. J.A. 140.
Crystal’s return stated that the $500,000 should be refunded to her.

  The IRS sent a letter to Crystal requesting the name of the
RIC/REIT. The letter was returned to the IRS with a notation on the
                        UNITED STATES v. FOSTER                         3
bottom identifying the RIC as "US Department of Treasury, Black
Capital Investments." J.A. 137. Subsequently, on October 29, 2001,
the IRS issued a United States Treasury check to Crystal in the
amount of the requested refund of $500,000, plus $7534.95 in inter-
est. Crystal received the check and proceeded to disburse portions of
it to several others, including $100,000 to her father Robert Foster.

   Upon further investigation, the IRS realized that "Black Capital
Investments" did not exist under the auspices of the United States
Treasury, or otherwise. Neither had any RIC or REIT withheld
$500,000 and paid that amount to the IRS on behalf of Crystal. Real-
izing its mistake, on November 20, 2001, the United States filed a
complaint in federal district court seeking recovery of the funds from
both Crystal and Robert, among others. The United States obtained a
preliminary injunction to prevent the Fosters from dissipating the pro-
ceeds of the refund. The Fosters filed a motion to dismiss for lack of
jurisdiction, which the district court denied. The district court also
denied the Fosters’ motion for recusal. After a bench trial, the district
court entered judgment in favor of the United States and ordered that
the funds be returned. The Fosters appealed.

                                   II.

   On appeal, the Fosters argue that the district court erred in denying
their motion to dismiss. Though the Fosters never specified the fed-
eral rule on which they were relying, their motion to dismiss was
apparently one for lack of subject matter jurisdiction. We review de
novo the denial of a motion to dismiss under Rule 12(b)(1). See Pur-
year v. County of Roanoke, 214 F.3d 514, 517 (4th Cir. 2000).

   The Fosters moved to dismiss on the ground that the United States
failed to send them a notice of deficiency before commencing suit.
This failure allegedly deprived the Fosters of the opportunity to chal-
lenge the assessment in Tax Court. The United States argues that it
had a choice of mechanisms by which to recover the erroneous
refund; it could either bring suit in district court pursuant to 26 U.S.C.
§ 7405, as it did here, or it could issue a notice of deficiency and pur-
sue administrative collection procedures.

   The Fosters’ argument is wholly without merit. Section 7405
states, in relevant part:
4                      UNITED STATES v. FOSTER
    (a) Refunds after limitation period.—Any portion of a tax
    imposed by this title, refund of which is erroneously made,
    within the meaning of section 6514, may be recovered by
    civil action brought in the name of the United States.

    (b) Refunds otherwise erroneous.—Any portion of a tax
    imposed by this title which has been erroneously refunded
    (if such refund would not be considered as erroneous under
    section 6514) may be recovered by civil action brought in
    the name of the United States.

26 U.S.C. § 7405. On its face, the statute clearly allows for the collec-
tion of an erroneous refund in district court. The only restriction on
the ability of the United States to bring such a suit is the statute of
limitations provided by section 7405(d), which is generally two years.
See 26 U.S.C. § 6532(b). In Singleton v. United States, 128 F.3d 833
(4th Cir. 1997), we noted that the government can elect to collect in
district court an erroneous refund through section 7405, provided it
does so within the specified limitations period, or it can issue a notice
of deficiency and pursue administrative collection procedures. Id. at
837; see also O’Bryant v. United States, 49 F.3d 340, 342-43 (7th Cir.
1995) ("There are two ways in which the IRS can recover an errone-
ous payment to a taxpayer. It can either file suit under § 7405, the
erroneous refund suit provision, or pursue the post-assessment collec-
tion procedures . . . (§ 6303 notice and demand, followed by judicial
and/or administrative action)." (footnote omitted)); Rushlight Auto-
matic Sprinkler Co. v. United States, 294 F.2d 572, 573-74 (9th Cir.
1961) (examining the predecessor statute to section 7405 and con-
cluding that the government was entitled to maintain an action under
that statute for recovery of an erroneous refund without first following
the deficiency notice procedures). In this case, the United States opted
to proceed under section 7405, and thus no notice of deficiency was
required. Because the United States commenced suit well within the
two year limitations period, the district court had subject matter juris-
diction over the case.

                                  III.

  The Fosters also challenge the sufficiency of the evidence at trial.
In order for the United States to prevail in its section 7405 action
                        UNITED STATES v. FOSTER                          5
against Crystal Foster, it had to establish: 1) that a refund of a sum
certain was made, 2) that the recovery action was timely, and 3) that
Crystal Foster was not entitled to the refund. See, e.g., United States
v. Commercial Nat’l Bank of Peoria, 874 F.2d 1165, 1169 (7th Cir.
1989). In addition, the United States was obliged to show that Robert
was a transferee of Crystal in the amount of $100,000. This court may
only set aside the district court’s factual findings if they are clearly
erroneous. Fed. R. Civ. P. 52(a).

   The Fosters do not challenge the district court’s findings that the
refund suit was timely, that the refund was erroneous, and that Robert
Foster was a transferee of the alleged amount. They contend only that
there was insufficient admissible evidence on which the court could
find that Crystal received and cashed the refund check.

   The Fosters’ argument is once again without merit. The United
States showed that the IRS issued an erroneous refund to Crystal Fos-
ter. See, e.g., J.A. 117-18 ("Q: And is there anything in those exhibits
that shows that a refund was sent? A: Yes. In exhibit 2 there is an
indication on 10 A 2001 that a hold was reversed and refund issued
on 10/29/02 in the amount of $507,534.95. Q: Should that refund
have been issued? A: No."). The United States adduced circumstantial
evidence that Crystal Foster received and cashed the refund check.
See J.A. 120 ("Q: But do you know if Mrs. Foster actually physically
received a refund check from you? A: Refund was issued in her name,
and it was cashed."). In addition, Crystal Foster’s attorney, Mr. Las-
siter, admitted the she had received the money. At the preliminary
injunction hearing, Mr. Lassiter said that "she received the check for
$500,000." J.A. 30; see also J.A. 29 (Lassiter: "They got the check
and simply didn’t leave it in the bank to sit. . . ."). The United States’
case was essentially uncontroverted, as the Fosters chose not to put
on any probative evidence or witnesses at the preliminary injunction
hearing or at the bench trial. Given the evidence presented, it cannot
be said that the district court’s factual conclusions were clearly erro-
neous.*

   *The Fosters also appeal the district court’s denial of their motion for
recusal. The Fosters do not assert any extrajudicial source of bias, and
the remarks of the district court fall well short of displaying a "deep-
seated favoritism or antagonism that would make fair judgment impossi-
ble." Liteky v. United States, 510 U.S. 540, 555 (1994). We accordingly
affirm the district court’s denial of their motion.
6                       UNITED STATES v. FOSTER
    The judgment of the district court is affirmed.

                                                      AFFIRMED