Leon S. Malachinski v. Commissioner of Internal Revenue

POSNER, Circuit Judge,

concurring in part and dissenting in part.

I agree with the majority’s analysis and disposition of the taxpayer’s first ground of appeal and with its conclusion anent the second ground that the remittance to the IRS was a deposit and not a payment of taxes. I also agree that the Tax Court’s determination that it was a deposit should not be reviewed “de novo,” that is, without deference to the Tax Court’s view of the matter, though I think we could say a bit more on that subject. But I disagree with the majority’s holding that the Tax Court lacked jurisdiction to apply the taxpayer’s deposit toward his tax deficiency — and let me begin with this issue.

The majority points out that the Tax Court’s jurisdiction is limited to the resolution of disputes over deficiencies, 26 U.S.C. §§ 6213 (a), 6214-that is, underpayments — but that its power to resolve such disputes includes the power to determine whether a taxpayer is entitled to a refund of payments made in excess of a deficiency, 26 U.S.C. § 6512 (b), that is, to a refund of an overpayment. So far, so good. But when a taxpayer makes a deposit against a possible liability, so that there is only a potential deficiency, the majority holds that the Tax Court has no jurisdiction to apply the deposit against the deficiency even if the court later determines, as it did in this case, that, yes, there is a deficiency against which the deposit could be credited to reduce the taxpayer’s net deficiency. The consequence of my colleagues’ position is that any time the IRS refuses to acknowledge that a taxpayer against whom it has assessed a deficiency had made a deposit against that deficiency, the taxpayer must, if he wishes to challenge both the deficiency and the refusal to credit his deposit against it, file two separate suits: one in the Tax Court to litigate his deficiency and a second in a federal district court or the U.S. Court of Federal Claims ( 28 U.S.C. §§ 1346 (a)(2), 1491(a)(1); see Tosello v. United States, 210 F.3d 1125, 1128 (9th Cir.2000)) to force the IRS to return his deposit. See Rosenman v. United States, 323 U.S. 658 , 65 S.Ct. 536 , 89 L.Ed. 535 (1945); Ertman v. United States, 165 F.3d 204, 206 (2d Cir.1999); New York Life Ins. Co. v. United States, 118 F.3d 1553, 1555-58 (Fed.Cir.1997).

Nothing compels so inefficient a procedure for litigating disputes over deposits against potential deficiencies. The motive for a taxpayer’s depositing money with the IRS is his realization that there is a potential tax deficiency (in other words, that he may have underpaid his taxes) coupled with a desire to stop interest and penalties from accruing. See VanCanagan v. United States, 231 F.3d 1349, 1353 (Fed.Cir.2000); Callaway v. Commissioner, 231 F.3d 106 , 113 n. 11 (2d Cir.2000); IRS Rev. Proc. 84-58 § 5.01, 1984- 2 C.B. 501 , § 5.01. Should a deficiency eventually be assessed, the deposit is then used to pay it off. See id. §§ 4.02(2), (3); Michael I. Saltzman, IRS Practice and Procedure § 6.02[3][a][ii], p. 6-15 (2d ed.1991). In determining a taxpayer’s net deficiency, therefore, the Tax Court, as a matter of elementary judicial economy, ought to be able to determine -the status of a deposit. That has been the court’s steady practice, see, e.g., Hays v. Commissioner, T.C. Memo 1996-18 , 1996 WL 20554 (U.S. Tax Court Jan. 22, 1996), from which it unaccountably departed in this case with an unelaborated citation to an irrelevant case, Savage v. Commissioner, 112 T.C. 46 , 1999 WL 71571 (1999). The power for which I am arguing is entirely consistent with the limitation of the Tax Court’s jurisdiction to *511 disputes over deficiencies (and overpay-ments in connection therewith), with the case law, and with common sense.

The question is not whether the Tax Court has “jurisdiction over a deposit.” It has jurisdiction to determine the amount of deficiencies. This can be done only by taking the amount of taxes owed and subtracting any payments toward them. No one would say that the Tax Court has “jurisdiction over a tax payment”; it just uses the payment to compute the amount owed, and if there are disputes about how much has been paid the Tax Court must resolve them. The same is true if the remittance is not a payment of tax but instead a deposit against a potential tax liability.

Against this my colleagues make two points. The first is that a deposit cannot be an overpayment because, “for there to be an overpayment, the taxpayer first must have made a payment.” That isn’t true as a matter of ordinary usage, and my colleagues’ opinion gives no reason why it should be interpreted this way. If you make a deposit on the purchase of a lamp, not knowing the price, and the price turns out to be less than the deposit, the seller will refund the difference — you’ve “overpaid.” The second point made by my colleagues relates to 26 U.S.C. § 6512 (4)(b), which forbids the Tax Court “to restrain or review any credit or reduction made by the Secretary [of the Treasury, i.e., the IRS] under section 6402.” Section 6402(a) authorizes the IRS to credit an overpayment of taxes for one tax year against a deficiency in the taxes paid by the taxpayer in another tax year, and so is inapplicable to this case because the deposit (overpayment) was not made on account of a different year from the year for which the deficiency was assessed; the deposit was against taxes assessed for that year. It is not surprising that the government didn’t even bother to cite section 6402 in its original brief, or for that matter section 6512(4)(b). What is more, as is apparent from a comparison of section 6512(4)(b) with sections 6402(b) and (c), and from the legislative history of section 6512(4)(b), see S.Rep. No. 33, 105th Cong., 1st Sess. 302-03 (1997); H.R.Rep. No. 48, 105th Cong., 1st Sess. 637-38 (1997), the section was enacted in order to prevent the Tax Court from second-guessing the IRS’s determination to reduce a refund by the amount of child-support payments or payments due on government loans. It has nothing to do with deposits.

Turning now to the proper standard of appellate review of a finding that a remittance was a deposit rather than a payment of taxes, I agree, as I said at the outset, that it should be the clearly-erroneous standard and not the de novo (no deference) standard of Moran v. United States, 63 F.3d 663, 666 (7th Cir.1995). It is worth noting that the court adopted that position in Moran without elaboration and without explanation beyond a bare citation to a case that says something entirely different and completely irrelevant, which is that review of summary judgment is de novo. Hefti v. IRS, 8 F.3d 1169, 1171 (7th Cir.1993). Moran was also a summary judgment case, and it is possible that the reference in it to review de novo was intended to say nothing more than what Hefti had (correctly) said, though the specific language of Moran is against this interpretation: “All these contentions essentially hinge on one issue: whether the remittances made by the Morans in 1985 and 1986 were payments of tax or deposits that the IRS converted into payments in September, 1991. We review the district court’s decision on this legal question de novo.” However all this may be, the Sixth Circuit, in a case decided after Moran , reached the opposite conclusion, Gabelman v. Commissioner, 86 F.3d 609, 611 (6th *512 Cir.1996), and so we have a circuit split, which behooves us to revisit Moran . See United States v. Carlos-Colmenares, 253 F.3d 276, 277-78 (7th Cir.2001).

The usual significance of the distinction between the payment of taxes and a deposit against a potential deficiency is, as in Moran itself, 63 F.3d at 666-67, 670 ; Ertman v. United States, supra, 165 F.3d at 206 ; and Blatt v. United States, 34 F.3d 252, 253-54 (4th Cir.1994), that to get back an overpayment of taxes you must file a refund suit, and there are limitations (including how much time one has to sue), see 26 U.S.C. § 6511 , that are not applicable to claims for the return (or crediting) of deposits. So the question of classification is significant even if, as I believe, my colleagues are wrong to think it has jurisdictional significance in this case.

As the majority points out, which animal — tax payment or deposit — a particular remittance is depends on “the facts and circumstances of an individual case,” including such facts as “the taxpayer’s intent upon making the remittance, how the IRS treats the remittance upon receipt, and when the tax liability is defined.” (This has been dubbed “the ‘facts and circumstances’ test.” Ertman v. United States, supra, 165 F.3d at 207 ; see also Gabelman v. Commissioner, supra, 86 F.3d at 613 .) When a legal conclusion is based on a kaleidoscope of factual determinations, appellate courts generally review it under the clearly-erroneous standard, recognizing that the trier of fact is in a better position than the appellate judges to weigh up the various facts and that the primary appellate role is to assure legal uniformity, an unattainable goal when the dispositive issue is case-specific. See, e.g., Buford v. United States, 532 U.S. 59 , 121 S.Ct. 1276 , 149 L.Ed.2d 197 (2001); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 401-04 , 110 S.Ct. 2447 , 110 L.Ed.2d 359 (1990); Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 711-14 , 106 S.Ct. 1527 , 89 L.Ed.2d 739 (1986); United States v. Hill, 196 F.3d 806, 808 (7th Cir.1999); Cook v. City of Chicago, 192 F.3d 693, 696-97 (7th Cir.1999); United States v. Frederick, 182 F.3d 496, 499-500 (7th Cir.1999); United States v. Rule Industries, Inc., 878 F.2d 535, 538, 541-42 (1st Cir.1989), and with reference to review of such determinations in tax cases, Williams v. Commissioner, 1 F.3d 502, 505 (7th Cir.1993), where we noted that because “a question about the proper application of a legal standard to the (real) facts ... requires a judgment based on the idiosyncratic facts of a particular case rather than the formulation of a general rule, it is one best confided to the first-line judicial officer subject to only light appellate review.” A ruling in this ease that Malachinski’s payment was a deposit has no precedential significance, because there will never be a case with the same facts. The rule that overpayments and deposits are treated differently in tax law is a genuine rule of law; the “rule” that Malachin-ski loses this case is not.

There is an analogy to a jury’s or a trial judge’s finding of negligence. Even if the facts are undisputed, the inference from them that the defendant was or was not negligent is drawn by the trier of fact and reviewed deferentially. The Supreme Court so held in McAllister v. United States, 348 U.S. 19 , 75 S.Ct. 6 , 99 L.Ed. 20 (1954); see 9A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2590, pp. 622-24 (2d ed.1995); see also Cooter & Gell v. Hartmarx Corp., supra, 496 U.S. at 402 ; Halek v. United States, 178 F.3d 481, 485 (7th Cir.1999); Mucha v. King, 792 F.2d 602, 605 (7th Cir.1986); Ogden v. Commissioner, 244 F.3d 970 (5th Cir.2001) (per curiam). The inference that Malachinski’s remittance was a deposit rather than a tax payment would likewise be for the Tax Court to *513 draw subject to light review by us even if the underlying facts — Malachinski’s intent, what the IRS did with his check, and so forth — were stipulated.

There are, it is true, exceptions to the principle that legal inferences from facts, or what are more commonly called rulings on “mixed questions of law and fact” or “ultimate questions of fact,” are to be reviewed for clear error. The exceptions have mainly to do with sensitive issues of constitutional law or jurisdiction, see, e.g., Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 , 121 S.Ct. 1678, 1685-86 , 149 L.Ed.2d 674 (2001); Ornelas v. United States, 517 U.S. 690, 696-99 , 116 S.Ct. 1657 , 134 L.Ed.2d 911 (1996), and so are inapplicable here. Cf. United States v. Frederick, supra, 182 F.3d at 499-500 ; Door Systems, Inc. v. Pro Line Door Systems, Inc., 126 F.3d 1028, 1031 (7th Cir.1997). Although there is a regrettable lack of uniformity in the practice of appellate courts, as pointed out in United States v. Frederick, supra, 182 F.3d at 503-04 (concurring opinion); see also Witkowski v. Welch, 173 F.3d 192 , 198 n. 7 (3d Cir.1999), this circuit has adhered to the principle quite steadily — see, e.g., besides the cases cited earlier, In re Rovell, 194 F.3d 867, 870-71 (7th Cir.1999); United States v. Frederick, supra, 182 F.3d at 499 ; and Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928, 933-36 (7th Cir.1989) (en banc)—and it is fully applicable to the present case.

The government has conceded that if the Tax Court did have jurisdiction to apply the taxpayer’s deposit to his deficiency, the case must be remanded. The IRS contends that it returned the deposit to the taxpayer, and if that is right then of course he is not entitled to credit it against his deficiency. But that is a factual question for the Tax Court to answer. I would therefore remand the case to the Tax Court.