Court Opinion

ID: 1036024
Source: CourtListenerOpinion
Date Created: 2013-08-01 00:02:21.418192+00
Date Added: 2024-06-11T09:32:21.625342
License: Public Domain

In the United States Court of Fedecal Claitns

No. l3-3T
(Filed July 31, 2013)*
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RALEIGH W. HALL & MARGARET E. *
HALL., PRO SE * Tax Refund;
* Net Operating Losses;
Plaintiffs, * 26 U.S.C. § 172;
* Mitigation Provisions of
v. * 26 U.S.C. §§ 1311-1315;
* Circumstance of
THE UNITED STATES, * Adjustment, 26 U.S.C.
* § 1312
Defendant. *

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Raleigh W. Hall and Margaret E. Hall, pro se, Jamaica, New York.

David Raymond House, Department of Justice, with whom was David I.
Pincus, Mary A. Abate and Assistant Attorney General Kathryn M. Keneally, for
Defendant.

OPINION & ORDER
Futey, Judge.

This case is before the Court on defendant’s motion to dismiss for lack of
subject matterjurisdiction, filed March 20, 2013. Plaintiffs responded on May 15,
2013 with a cross-motion for summary judgment, and defendant responded on
June 6, 2013. Plaintiffs filed their reply on July 8, 2013. Defendant’s motion
seeks dismissal of plaintiffs’ complaint on statute of limitations grounds, and
plaintiffs seek summary judgment in their favor.

This case is a pro se tax case, directly related to Hall v. Um`ted States, 99
Fed. Cl. 617 (2011), in which plaintiffs filed amended returns and sought to apply
several years of net operating losses ("NOLs")l forward en masse to their taxable
income in 2003. Arguing that taxpayers must follow the precise rules of the
internal Revenue Code’s (“I.R.C.") § 172 (2012) when deducting NOLs by

*This case was originally filed July l2, 2013 and reissued this date for publication at the request
of the Govemment.

' Net operating losses are generally defined by the Code as the excess of deductions over gross
income. I.R.C. § 172.

applying such losses first as a carryback unless a timely waiver is elected, the
Government moved for summary judgment. Hall, 99 Fed. Cl. at 619-20. The
Court granted the Government’s motion on August 9, 2011, entering judgment on
the same day, and dismissing the complaint Id. at 622.

Plaintiffs filed new claims for refunds for taxable years l992, l995, and
1997 on October 7, 201 l, and when those were denied, brought this complaint on
january 2, 20l3. Compl. 3. Plaintiffs maintain that they are entitled to refunds by
invoking sections 1311-1314 of the Intemal Revenue Code, which under certain
circumstances lift the bar of the statute of limitations on either an assessment by
the Commissioner, or a claim for refund to the taxpayer Id.

I. Background

Mr. Raleigh Hall and wife, Margaret Hall are individual taxpayers and
sole shareholders of R.W. Hall General Contractors, Inc., an S corporationz
organized under the laws of New York. Compl. 1 .

In Hall v. Unz'ted States, 99 Fed. Cl. 617 (2011), plaintiffs sought to apply
several years of accumulated NOLs forward to taxable year 2003. 'l`hey had
suffered losses in taxable years 1988, 1989, 1990, 1991, 1996, and 200l, and
reported taxable income in 1992, 1993, 1995, 1997, 1998, 2000, and 2003. Hall,
99 Fed. Cl. at 619. In April 2007, they filed amended tax returns for 1988, l989,
1990, 1991, 1993, l996, and 2001, and sought to reduce their 2003 taxable
income by applying $721,344 in NOLs generated since 1988 directly toward 2003
taxable income, resulting in a refund. Id. The IRS denied the claim on March 19,
2010, and plaintiffs filed suit in this Court on May l1, 2010. Ia'. In its opinion on
the Govemrnent’s motion for summary judgment, the Court discussed the NOL
deduction, and the Code’s mandatory operation of NOL carrybacks and
ca:rryovers, which requires an NOL to be carried back first to each of the two
taxable years preceding the year of the loss, and only then as a carryover to each
of the twenty taxable years following the year of the loss. Id. at 620 (citing I.R.C.
§ 172(b)(l)(A)). The NOL must be carried back to the earliest taxable year
possible, and any remaining portion not absorbed by the income in that year may
be carried forward. Id. at 620-21 (citing I.R.C. § l72(b)(2)). The Court also noted
that the Code provides a taxpayer with the option to waive the carryback period,
and rather apply NOLs forward to subsequent years.} Id. at 621 (citing

2 An S Corporation is a small business corporation for which an election has been made under
section l362(a) for the taxable year. I.R.C. § l36l(a)(l).

3 For example, if` a taxpayer sustained a NOL in 1995, the amount would first be carried back and
applied to the earliest year possible, l993. If` after applying the NOL to taxable income for that
year any portion remained unabsorbed, this would next be applied to l994. Any leftover amount
could then be applied each year f`orward, for up to twenty years, starting with taxable year !996. It`
the taxpayer in this example elected to waive the carryback period - which the taxpayer would
have to do by April 15, 1996 the NOL would first be applied to taxable year l996. l.R.C. § ]72.

2

§ l72(b)(3)). A taxpayer must affinnatively elect to take this waiver, which "shall
be made by the due date (including extensions of time) for filing the taxpayer’s
retum for the taxable year of the net operating loss for which the election is to be
in effect." Id. (citing § 172(b)(3)). Once elected, the waiver is irrevocable. Ia'. The
Court found that the rules for allocating NOLs must be strictly foilowed, and
since plaintiffs did not timely elect to waive the carryback periods for the NOLs
they suffered from 1988 to 2001, they could not retroactively do so. Ia'. Rather,
any waiver was required to have been made "by the due date" of each relevant
taxable year. Id. Finally, the Court dismissed plaintiffs’ argument that § 172
discriminates in favor of large, wealthier taxpayers, and that waivers generally
should not be required. Id. at 622.

Plaintiffs’ current complaint seeks refunds for tax years 1992, 1995, and
1997, for a total of $237,813. Compl. 1. The Halls assert that they paid $808,942
in taxes for those years, through a combination of payroll withholdings and
payments made with respective returns, and the Intemal Revenue Service ("IRS")
wrongfully denied their claims for refunds. Id. at 2. Plaintiffs state that claims for
refund were filed with the Intemal Revenue Service Center on October 7, 2011.
Ia'. at 3. The IRS notices of disallowance state the claims were received October
14, 2011. Compl. Ex. B.

For taxable year 1992, plaintiffs filed their original return on August 16,
1993 and made a subsequent payment on October 4, 1993. Def.’s Ex. 1. Plaintiffs
sought to amend their return to carry over NOLs from 1988, 1989, 1990, and
1991. Compl. Ex. A.

For taxable year 1995, plaintiffs filed their retum October 21, 1996 and
made a subsequent payment January 23, 1997. Def.’s Ex. 2. Plaintiffs sought to
carry over NOLs from 1992 and 1993, and carry back NOLs from l996. Compl.
Ex. A.

For taxable year 1997, plaintiffs filed their retum on April 15, 1998 with a
payment. Plaintiffs sought to apply a carryback loss from 200l. Compl. Ex. A.

The IRS denied all of plaintiffs’ claims in formal letters dated November
l1, 201 1. Compl. Ex. B. Their appeals were also denied, in letters dated
December l, 2012. Compl. Ex. C. In the current case, plaintiffs claim they are
entitled refunds based on § 172 of the Intemal Revenue Code, pursuant to a
decision having been rendered by this Court in Hall v. Um`ted States, 99 Fed. Cl.
617 (2011), and that "these claims were filed under Sections 1311, 1312, 1313 &
1314 of the Intemal Revenue Code." Compl. 3.

II. Discussion

Defendant seeks to dismiss the complaint for lack of jurisdiction pursuant
to RCFC l2(b)(l).

A pro se complaint is to be liberally construed, and plaintiffs’ filings
"must be held to ‘less stringent standards than formal pleadings drafted by
lawyers[.]"’ Estelle v. Gamble, 429 U.S. 97, 106 (l976) (quoting Haines v.
Kerner, 404 U.S. 5l9, 520-21 (1972)); Durr v. Nicholsorz, 400 F.3d 1375, 1380
(Fed. Cir. 2005). While leniency will be extended, pro se plaintiffs are not entitled
to relaxation vis-a-vis the jurisdiction requirement. See Kelley v. Sec 'y, U.S. Dep't
of Labor, 812 F.2d 1378, 1380 (Fed. Cir. 1987) ("[L]eniency with respect to mere
formalities should be extended to a pro se party . . . [however] a court may not
similarly take a liberal view of th[e] jurisdictional requirement and set a different
rule for pro se litigants only."); Demes v. United States, 52 Fed. Cl. 365, 372 n.9
(2002) (‘joro se status does not relieve plaintiffs of their jurisdictional burden").
Before proceeding to the mcrits, a court must satisfy itself that it has jurisdiction
over a matter. PIN/NIP, Inc. v. Platte Chem. Co., 304 F.3d 1235, 1241 (Fed. Cir.
2002). Once the court’s subject matter jurisdiction is put into question, it is
"incumbent upon [the plaintift] to come forward with evidence establishing the
court’s jurisdiction . . . by a preponderance of the evidence." Reynolds v. Army
and/fir Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988).

Because it is a sovereign, the United States is only subject to suit to the
extent it has consented to be sued. See United States v. Testan, 424 U.S. 392, 399
(1976). Congress has provided such consent with regard to refund of federal tax
payments. 28 U.S.C. § 1346(a)(1) (2012); Nasharr v. United States, 105 Fed. Cl.
114, 118 (20l2). Accordingly, the Court of Federal Claims and the district courts
have original, concurrent jurisdiction with respect to "[a]ny civil action against
the United States for the recovery of any intemal-revenue tax alleged to have been
erroneously or illegally assessed or collected . . . under the intemal-revenue
laws[.]" 28 U.S.C. § 1346(a)(1); Roberts v. United States, 242 F.3d 1065, 1067
(Fed. Cir. 2001).

This waiver of sovereign immunity is construed narrowly in the context of
tax refund suits, and "jurisdiction of the Court of Federal Claims is limited by the
Intemal Revenue Code, including 26 U.S.C. § 7422." Waltner v. United States,
679 F.3d 1329, 1332 (Fed. Cir. 2012).The court's jurisdiction is thus subject to the
administrative refund scheme that Congress established in the Code. See United
States v. Clinn»vood Elkhorn Min. Co., 553 U.S. 1, 4 (2008) ("The Intemal
Revenue Code specifies that before [bringing an action for a tax refund], the
taxpayer must comply with the tax refund scheme established in the Code.")
(citing United States v. Dalm, 494 U.S. 596, 609~10 (1990)). This includes
compliance with the statutorily prescribed timing requirement for filing a refund
claim. Dalm, 494 U.S. at 609-10; Mc/ldams v. United States, 07-164T, 2008 WL
654271, at *2 (Fed. Cl. Feb. 1, 2008).

Section 7422(a) of the Intemal Revenue Code states:

[n]o suit or proceeding shall be maintained in any court for the
recovery of [1] any intemal revenue tax alleged to have been
erroneously or illegally assessed or collected, or [2] of any
penalty claimed to have been collected without authority, or [3]
of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with [the IRS].

I.R.C. § 7422(a). 'l`hus to maintain jurisdiction, a party seeking to recover any
intemal-revenue tax, penalty, or sum from the United States must timely pursue
and exhaust its administrative remedies pursuant to the IRS’s regulations prior to
filing a complaint in federal court. Strategic Hous. Fin. Corp. of Travis Cnty. v.
United States, 608 F.3d 1317, 1324 (Fed. Cir. 2010).

A. Plaintiffs’ Claims Are Barred by the Statute of Limitations

"Statutes of limitations are an indispensable element of practical tax
administration, and both hardships to taxpayers and losses of revenue may and do
result from their application in the field of taxation." Olin Marhieson Chem. Corp.
v. United States, 265 F.2d 293, 296 (7th Cir. 1959). The purpose of a statute of
limitations is to protect against stale claims, United States v. Memphis Cotton Oil
Co., 288 U.S. 62, 71 (1933), and the limitations provisions of the Code "introduce
. . . finality principles that horizontally limit, to a prescribed set of years, the
ability of taxpayers and government alike to modify the computation of income."
Schortmann v. United Sz‘ates, 92 Fed. Cl. l54, 155 (2010).

The typical statute of limitations for filing a tax refund claim is three years
from the time the retum was filed or two years from the time the tax was paid,
whichever of such periods expires the later. I.R.C. § 651 l(a). Where a taxpayer
does not file a refund claim within the period defined in § 651 l(a), the court must
find that it lacks jurisdiction. Clinrwood, 553 U.S. at 8-9. In the context of net
operating loss or capital loss carrybacks, however, Congress enacted a special
provision, § 651 1(d)(2)(A), stating that the claim for refund must be filed within
three years of the date on which the retum was due to be filed (including
extensions) "for the taxable year of the net operating loss . . . which results in
such carryback[.]" I.R.C. § 65ll(d)(2)(A)', Electrolux Hola’ings, Inc. v. United
States, 491 F.3d 1327, 1329-30 (Fed. Cir. 2007); Glenwood Cooperatz've, Inc. v.
United States, 32 Fed. Cl. 568, 571 (l995) ("[The statutory reference] refers to . . .
when the loss was actually incurred, not to some later or earlier tax year to which
the loss might be carried forward or back."), aj”’d, 73 F.3d 344, 345 (Fed. Cir.
1996).

In their request for a refund for the most recent year, 1997, plaintiffs seek
to carryback NOLs incurred in 2001. Pursuant to § 651l(d)(2)(A), a claim for
refund for these NOLs must be filed within three years of the date on which the
retum was due to be filed for the taxable year of the NOL. As plaintiffs’ tax retum
for 2001 was due April 15, 2002,4 the Govemment is correct that the claim for
refund must have been filed by April 15, 2005. Plaintiffs filed their claims on
October 7, 2011 - over six years past the applicable statute of limitations.
Similarly, for the 1996 carryback to be applied to 1995 - three years from the
retum due date of April 15, 1997 - would place the closing of the limitations
period at April 15, 2000.

For claims seeking to carry over NOLs from 1992 and 1993 to the 1995
taxable year, the general time constraints of § 651 l(a) apply, requiring refund
claims within three years of the filing of the return - in plaintiffs’ case, by
October 21, l999. Likewise, the loss carryovers plaintiffs seek to apply to taxable
year 1992 require the claims to have been made by August 16, 1996 - three years
from the date plaintiffs filed their 1992 tax return. The October 2011 claims for
refund fall far outside the statutory limits permitted by the Code, and deprive this
Court of jurisdiction. See Dalm, 494 U.S. at 609-10. Such periods are established
to cut off rights, justifiable or not, that might otherwise be asserted and they must
be strictly adhered to by the judiciary. See Rosenman v. United States, 323 U.S.
658, 661 (1945). "Remedies for resulting inequities are to be provided by
Congress, not the courts." Kavanagh v. Noble, 332 U.S. 535, 539 (1947).

B. No Circumstance of Adjustment Exists to implicate the Mitigation
Provisions

In their complaint and motion for summary judgment, plaintiffs suggest
that their claims for refunds were filed under I.R.C. §§ 1311, 1312, 1313, and
1314, which mitigate operation of the statute of limitations. Pl.’s Mot. for Summ.
J. 2. Sections 1311-1315 are commonly referred to as the “mitigation sections"
and when applicable, work to reopen a taxable year closed by the statute of
limitations. See Benenson v. United States, 385 F.2d 26, 29-30 (2d Cir. 1967)',
Glart v. United States, 470 F.2d 596, 598 (Ct. Cl. 1972). In specified
circumstances, the mitigation provisions provide "certain rules for the correction
of the effect of an erroneous treatment of an item in a taxable year which is closed
by the statute of limitations . . . in cases where . . . it has been determined that
there was an erroneous treatment of such item in the closed year." Treas. Reg.
§ 1.l3ll(a)-1. For example, "if the taxpayer claims that a deduction should be
allowed for a particular year and it is ultimately determined that the deduction
was not allowable in that year, then the taxpayer may take the deduction in the
proper year if that year was not closed at the time the taxpayer first claimed a
deduction." Ia'. The statute aims to "produce the effect of attributing income or

4 “[R]etums made on the basis of the calendar year shall be filed on or before the 15"' day of April
following the close of the calendar year . . .  I.R.C. § 6072.
6

deductions to the right year and the right taxpayer" and when a detennination
demonstrates a prior inconsistent position was erroneous, the disputed item upon
the prior year’s tax is recomputed to ascertain the amount of the adjustment, to
produce the same result as if the error had never been committed. Note, Sections
1311-15 of the Intemal Revenue Code: Some Problems in Administration, 72
Harv. L. Rev. 1536, 1538 (1959) (quoting S. Rep. No. 75-1567, at 50 (1938)).

"While these mitigation provisions are remedial and should be given a
liberal interpretation, the party invoking them has the burden of showing that
mitigation is permitted." Elmes v. Comm’r & United States Vt`rgin Islands, 2011-
106, 2012 WL 4462658, at *6 (D.V.I. Sept. 27, 2012) (citing Koss v. United
States, 69 F.3d 705, 709 (3d Cir. 2005)); Longt'otti v. United States, 819 F.2d 65,
68 (4"° Cir. 1987) ("[The mitigation provisions] do not [] constitute general
equitable exceptions to statutory limitations periods, and the party seeking to
invoke them bears the burden of demonstrating that their requirements have been
satisfied."). The statute also does "not purport to relieve against all inequities
occasioned by the statute of limitations[,]" United States v. Rushlight, 291 F.2d
508, 514 (9th Cir. l961), and its provisions must be strictly construed, Schwartz v.
United States, 67 F.3d 838, 840 (9th Cir. 1995); Comm’r v. Estate of Goldsrein,
340 F.2d 24, 27 (2d Cir. 1965).

In order for the mitigation provisions to apply, plaintiffs must meet three
threshold requirements: (1) there must be "a determination" as defined by I.R.C.
§ 13l3(a)(l)-(4); (2) the detennination must fall within one of the "circumstances
of adjustment" described in 26 U.S.C. § 1312(1)-(7); and (3) depending on which
circumstance of adjustment is found, either an inconsistent position must have
been maintained by the party against whom the mitigation will operate, 26 U.S.C.
§ 131 l(b)(l), or the correction of the error must not have been barred at the time
the party for whom mitigation will operate first maintained its position, 26 U.S.C.
§ 131l(b)(2). I.R.C. § 131 l(a); Haas v. United States, 107 Fed. Cl. l, 6 (2012);
Last v. United States, 37 Fed. Cl. l, 7-8 (1996) (citing Longiottz', 819 F.2d at 68).

A "deterrnination” is defined as "a decision by the Tax Court or a
judgment, decree, or other order by any court of competentjurisdiction, which has
become final.” I.R.C. § 13 l3(a)(1); Olin Matht'eson Chem. Corp., 265 F.2d at 297
(district court’s final judgment that taxpayer’s loss was a long tenn capital loss
was a "determination" for mitigation provisions). Here, plaintiffs maintain the
decision of this Court in Hall, 99 Fed. Cl. 617, is such a determination. Final
judgments of courts sitting in competent jurisdiction fit the definition of
"determination." In Hall, jurisdiction was proper pursuant to § l346(a)(1).
Therefore, plaintiffs meet this requirement.

For the second requirement, plaintiffs cite two circumstances of
adjustment in their case, first § 1312(6), and later § 13 l2(3)(A). Compl. 2-3; Pl.’s

7

Mot for Summ. J. 2. Section 1312(6) authorizes the circumstances of adjustment
provided in § 1311 for:

(6) Correlative deductions and credits for certain related
corporations-The determination allows or disallows a deduction
(including a credit) in computing the taxable income (or, as the
case may be, net income, normal tax net income, or surtax net
income) of a corporation, and a correlative deduction or credit has
been erroneously allowed, omitted, or disallowed, as the case may
be, in respect of a related taxpayer described in section 1313(0)(7).

I.R.C. § 1312(6). In their subsequent pleadings,s plaintiffs suggest that
§ 1312(3)(A) should apply to their case as well, which provides a circumstance of
adjustment for "[d]ouble exclusion of an item of gross income" in which the
determination "requires the exclusion from gross income of an item which was
erroneously excluded or omitted from the gross income of the taxpayer for
another taxable year, or from the gross income of a related taxpayer[.]" l.R.C.
§ l3l2(3)(A). Neither of these is applicable to plaintiffs’ situation, and they do
not accurately characterize the Court’s determination in Hall, 99 Fed. Cl. 617,
which disallowed a deduction due to plaintiffs’ failure to follow the precise rules
of § 172.

Plaintiffs argue that the lRS’s - and later this Court’s - detennination
disallowing their NOL deductions "required the exclusion from gross income [of]
these same losses, which, by the error of omission, were already excluded from
[plaintiffs’] tax returns - therefore a double exclusion," Pl.’s Resp. to Def.’s
Reply 2, ECF No. 17. Simply put, plaintiffs are alleging that the NOLs themselves
were the excluded item. Id. at 3. The language of the Code does not support this
result. Gross income is "all income from whatever source derived" and the
illustrative list that follows includes only items that add wealth, not negative
elements such as deductions See I.R.C. § 6l(a); compare Schu»arlz, 67 F.3d at
840 (plaintiffs could not avail themselves of mitigation provisions because their
ordinary loss was not "an item erroneously included in gross income."), Gardiner
v. United States, 536 F.2d 903, 906 (10"‘ Cir. 1976) ("The meaning of an item of
gross income . . . is restricted to positive items and does not include negative
elements such as deductions [] the omission of which results in increased taxes.")

5 The Govemment submits that the doctrine of variance prohibits plaintiffs from changing the
circumstance of adjustment relied upon from § 1312(6) to § l3l2(3)(A), because it was not
originally raised in the claims for refund. Def`.’s Resp. to Pl.’s Mot. for Summ. J. 4-5. Asserting
that the "factual bases and legal theories as between the two are vastly different" this change in
provisions would take away the lRS’s notice as to the claim and specific facts upon which it is
predicated la'. at 5. Because the Court has decided to grant defendant’s motion on other grounds,
it declines to explore whether the lRS was not sufficiently apprised to respond to a different
circumstance of adjustment in § 1312 such that the doctrine of variance would bar plaintiffs’
argument

(emphasis in original), and Mt'lburn v. United Srates, 947 F. Supp. 1015, 1020
(W.D. Tex. 1996) (agreeing with defendant that "[i]n the absence of a special
definition of gross income under the mitigation provisions . . . [p]laintiffs’ failure
to include a deduction for interest paid . . . although affecting gross income, is not
an item of gross income." ) (emphasis in original), i»virh Kappel's Esrate v.
Comm’r, 615 F.2d 91, 93-97 (3d Cir. 1980) (cash surrender value of annuity
policies is an item to be included in gross income). Therefore plaintiffs’ case does
not fall under the circumstance of adjustment in § 13l2(3)(A). Nor does it
implicate correlative deductions for related corporations, which plaintiffs earlier
suggested under § 1312(6).

Construing the pleadings in the light most favorable to plaintiffs, the only
circumstance of adjustment that could possibly apply to their situation would be
§ 1312(4), which refers to double disallowance of a deduction or credit.° Section
1312(4) pennits a circumstance of adjustment in a situation where "[t]he
detennination disallows a deduction or credit which should have been allowed to,
but was not allowed to, the taxpayer for another taxable year, or to a related
taxpayer." I.R.C. § 1312(4)', Treas. Reg. § l.l312-4(a); La.s't, 37 Fed. Cl. at 8. In
essence, plaintiffs’ argument would be that the decision of the Court to disallow
their deduction of the combined NOLs in 2003 was a "determination which
disallowed a deduction which should have been allowed to, but was not allowed
to, the taxpayer for another taxable year." See Kuehn v. United Stares, 480 F.2d
1319, 1322 (Ct. Cl. 1973). This position would contend that because the
deduction was disallowed in 2003, it should have been allowed for earlier years,
and that section 1312(4) allows an adjustment to be made to the prior years even
though closed at the time the 2003 deduction was disallowed. la'. 'l`his mitigation
of the statute of limitations - for a taxpayer who does not act to claim his NOLs -
is not the double tax situation that the mitigation provisions aim to resolve. See
Longiotti v. United States, 635 F. Supp. 840, 842 (M.D.N.C. 1986) ("While the
bar of the statute of limitations is harsh, the court cannot conclude that the
inability to carry back the NOLs operates as a double tax to engage the mitigation
provisions."), aff”d, Longiotti, 819 F.2d at 65. Therefore plaintiffs fail to establish
the second requirement of a circumstance of adjustment under § 13 l2.

Plaintiffs also do not meet the third requirement set out in
§ l3ll(b)(2)(B). As the Govemment submits, when the circumstance of
adjustment is described by section 1312(4), section 131 1(b)(2)(B) requires that, at
the time the taxpayer first maintains to the Service, in vvriting, that he is entitled to
the deduction that is ultimately denied, the deduction not be barred for the proper
year. I.R.C. § 131l(b)(2)(B); see Esterbrook Pen Co. v. United States, 6

6 The existence of a separate provision devoted to double disallowed deductions further supports
the Court’s conclusion supra that plaintiffs’ NOLs cannot be classified as exclusions to gross
income. See Kappel’s Estate, 615 F.2d at 97 ("Reading the several interrelated provisions . . .
gives to each an independent significance which is entirely consistent with the policies of
mitigation provisions.“).
9

A.F.T.R.Zd 5123 (D.N.J. 1960) ("[§ 1311(b)(2)(B)] is satisfied because plaintiff
had originally maintained on its 1952 retum that it was entitled to the deductions
in issue for that year, at which time a rehind for 1953 was not barred."). Section
1.13 1 l(b)(2)(b) of the regulations provides in relevant part, that the taxpayer will
be considered to have first maintained in writing before the Commissioner or the
Tax Court that he was entitled to such deduction or credit when he first formally
asserts his right to such deduction or credit as, for example, in a retum. Treas.
Reg. § l.l3l1(b)-2. Here, plaintiffs first maintained their position - that they
were entitled to the aggregated NOLs through a claim for refund in their 2003
return filed in April 2007, prior to this Court’s consideration in Hall, 99 Fed. Cl.
617. As of that date, refunds for taxable years 1992, 1995, and 1997 were already
time-barred. Plaintiffs therefore have not met all three requirements of the
mitigation provisions, and are not eligible to reopen the statute of limitations. See
I.R.C. § 131 l(b)(2)(B).

III. Conclusion
For these reasons, defendant’s motion to dismiss is GRANTED, and

plaintiffs’ motion for summary judgment is DENIED. The Clerk is directed to
dismiss the complaint with prejudice. No costs.

IT1s so oRDERED.   »°J 
l BoHDAN A. FUTEY

Judge