# Reply Brief — United States v. Dalm > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0510%3A7 ## Record - **Collection:** Supreme Court brief - **Document type:** Reply Brief - **Published:** January 1, 1990 - **Citation:** 494 U.S. 596 ## Text STATES OF AMERICA, PETITIONER Vv Frances L. Daim ON WRIT OF CERTIORARI 10 |THE UNITED STATES COURT OF APPEALS POR THE SIXTH CIRCUIT TABLE OF AUTHORITIES | Page Cases: Brigham v. United States, 470 F.2d 571 (Ct. Cl. 1973), cert. denied, 414 U.S. 831 (1973) ........ 7 Bull v. United States, 295 U.S. 247 (1935) ........ 2,7,8 Commissioner v. Gooch Milling & Elevator Co., enn 06 00900 609060000 08 6 Elbert v. Johnson, 164 F.2d 421 (2d Cir. 1947) .... 3, 6, 7 Ellard v. United States, 228 Ct. Cl. 815 (1981) .... 7 Evans Trust v. United States, 462 F.2d 521 (Ct. ee eee ccc cccececeeceses 7 O’Brien v. United States, 766 F.2d 1038 (7th Cir. APE eh eek eeSGb66000060seeecsers 5,7, 8,9 Rothensies v. Electric Storage Battery Co., 329 EE 2 William v. Neely, 134 F. 1 (8th Cir. 1904) ........ S Statutes: Revenue Act of 1924, ch. 234, 43 Stat. 253: CE re 2-3 on od posceeeuessces 2-3 I 2-3 en ne cccncencseeeseess 2-3 § 308(b), 43 Stat. 308-309 ................. 2-3 Ee 2-3 TD «cccccscccccecceseses 2-3 EEE 2-3 Revenue Act of 1926, ch. 27, 44 Stat. 9: EEE 3 §$§ 1001-1003, 44 Stat. 109-110 ............. 3 Internal Revenue Code of 1939 § 322(a) (26 U.S.C. SPE PEMEPRER Ee Sbececcecccesccccecces 6 _ - A te es u In the Supreme Court of the Anited States OCTOBER TERM, 1989 i z Statutes — Continued: Internal Revenue Code of 1954 (26 U.S.C.): OS GRBR-ERES .cccccccccecceeseseseeeeneen 2,9 ° OB GBEE 2. cccccccccccccccccccccceseseesean 5 No. 88-1951 DGREE occcccccccccccececaseusee 5 DGBBE ccccccccccccceecoeseseneeenene 1,4, 5 UNITED STATES OF AMERICA, PETITIONER GREER... ccccccoccceecesseaueneeee 5 . OO SS 3,7 i. Miscellaneous: FRANCES L. DALM Andrews, Modern-Day Equitable Recoupment and ~ _ Hi. —_= ON WRIT OF CERTIORARI of Limitation in Federal Tax Controversies, 28 TO THE UNITED STATES COURT OF APPEALS Asie. L.. Rev. GB GED .. 0 ccccccocenuebeen Indeed, to allow respondent to maintain an untimely suit in the district court after litigating her income tax deficiency in the Tax Court would give respondent “two bites at tl: apple” of reducing her liability on the “single transaction” or taxable event that she asserts is at issue. To the contrary, Congress determined in 1926 to limit tax- payers to one forum of their choice. 5 by the government make it clear that the payments were erroneous. To the contrary, Section 6511 of the Internal Revenue Code states simply that the limitations period on filing a claim for refund runs “3 years from the time the return was filed or 2 years from the time the tax was paid,” whichever period expires later. Consistently with the plain language, a tax is “paid” under the Code when the Com- missioner receives a check in payment of the tax (unless the check is subsequently dishonored). See I.R.C. §§ 6151, 6311. Common sense does not support the notion that no pay- ment of gift tax occurs when a tax so labeled is paid on an item that does not warrant it; rather, a gift tax has simply been paid erroneously. Payment of an income tax in this case did not “render{} the original payments improper” (Resp. Br. 7)—to the extent they were improper, they were improper and refundable from the time the original gift tax payments were made. Payment of the second tax sim- ply made evident the improper nature of the first tax. Even at that time, a remedy is readily at hand—a claim of equitable recoupment could properly have been raised in the context of a suit for refund of the second tax (a course respondent did not follow). A contrary holding —that an erroneous tax has not been paid until it has been determined whether the payment was erroneous— would eviscerate the statute of limitations, which by its very nature is intended to bar untimely tax re- fund claims without consideration of the question whether * A taxpayer can also file a protective claim for refund or obtain an extension of the limitations period from the IRS if there is reason to believe that there will be a determination after the expiration of the limitations period that will bear on his or her right to refund. See M. Sahzman, /RS Practice and Procedure § 11.08(3| (1981); 1.R.C. § 651 1(c); O’Brien v. United States, 766 F.2d 1038, 1041 n.3 (7th Cir. 1985). 6 the taxes sought to be refunded were properly imposed. And, if respondent were correct, the mitigation provisions enacted by Congress would be superfluous, as no limita- tions period would bar correction of inconsistent tax treat- ment of income. In a further attempt to support her claim that the instant suit is timely, respondent argues (Resp. Br. 9) that the government “has waived any sovereign immunity by bring- ing an action [i.e., by asserting income tax deficiencies for 1976 and 1977] against the Dalms,” and has thereby “opened itself up to claims of recoupment against that deficiency.” To be sure, Congress has waived sovereign immunity and provided taxpayers with remedies when tax deficiencies are asserted against them. Respondent chogse to take advantage of this waiver by proceeding in the Tax Court (instead of in a district court or the Claims Court following payment of the tax) to challenge the imposition of income tax deficiencies against her. But, as we have ex- plained (pp. 3-4, supra), respondent’s choice of the Tax Court forum precluded her from claiming equitable re- coupment against the income tax deficiency.° > Respondent errs in relying (Resp. Br. 7-8) on Elbert v. Johnson, 164 F.2d 421 (2d Cir. 1947); indeed, the holding in that case accords with our position. The taxpayers there sought to recover a prior gift tax payment by invoking equitable recoupment in a Tax Court pro- ceeding concerning income tax liability arising out of the same trans- action. The Tax Court determined that it lacked jurisdiction to grant equitable recoupment. 164 F.2d at 423; see Commissioner v. Gooch Milling & Elevator Co., 320 U.S. 418 (1943). The taxpayers then sought to raise the recoupment claim by filing an income tax refund action. The district court dismissed for lack of jurisdiction; the court of appeals affirmed. Assuming that the taxpayers could have raised an equitable recoupment claim if they had filed suit without resorting first to the Tax Court (Elbert, 164 F.2d at 423), the court held their re- fund suit barred by Section 322(a) of the 1939 Code, 26 U.S.C. (1952), the provision which at the time prohibited a refund action with respect t) \) ) 7 3. In Bull, this Court observed that the defense of equitable recoupment is never barred by a statute of limitations “so long as the main action itself is timely.” 295 U.S. at 262. Respondent contends (Resp. Br. 16-17) that the “main action” for this purpose is the government’s assertion of an income-tax deficiency. Because her suit “follow(s} a timely assertion of a deficiency on the part of the government,” respondent argues that it is not an “in- dependent action” within the meaning of cases holding that the doctrine of equitable recoupment cannot provide an independent basis for jurisdiction over an otherwise time-barred suit. Resp. Br. 13-16.° Respondent’s argument fundamentally misconceives how the doctrine of equitable recoupment operates. As we explain in our opening brief (Br. 18-19), the “main action” is an action over which the court properly has jurisdiction (which requires, inter alia, that it be brought upon a timely claim). A time-barred claim may be asserted in the main action as a defense or offset against the timely claim under the doctrine of equitable recoupment, provided that the untimely claim arises from the same transaction as the to a tax that was the subject of a prior Tax Court proceeding. (Th:-. provision is currently codified at 1.R.C. § 6512(a).) Respondent cites a passage that is dictum within a concurring opin- ion. Resp. Br. 8 (citing Elbert, 164 F.2d at 425). The concurrence, while right in result, is incorrectly premised on the assumption that equitable recoupment can “toll” the limitations period for challenging a previously paid tax, independent of timely litigation over a subse- quently paid tax. To the contrary, this Court stated in Bull that incon- sistent treatment of a particular transaction “cannot avail to toll the statute of limitations.” 295 U.S. at 259. * O'Brien v. United States, 766 F.2d 1038, 1048-1051 (7th Cir. 1985); Ellard v. United States, 228 Ct. Ci. 815 (1981); Brigham v. United States, 470 F.2d $71, $77 (Ct. Cl. 1973), cert. denied, 414 U.S. 831 (1973); Evans Trust v. United Siates, 462 F.2d $21, $26 (Ct. Cl. 1972). timely claim.’ Thus, under the rationale of Bull, a defi- ciency asserted by the government may provide the basis for a “main action” if the deficiency is actually assessed and either the taxpayer fails to pay i and the government brings a timely collection action thereon, or the taxpayer pays the deficiency, files a timely claim for refund, and then brings a timely refund suit. See Bull, 295 U.S. at 260-262. In either of these events, the pending refund or collection suit would be the “main action” within the meaning of Bull, and the taxpayer could seek to “recoup” an appropriately related, time-barred refund claim against the tax liability asserted by the government —as a defense in the pending action challenging the government’s defi- ciency determination. On the other hand, as we have explained (U.S. Br. 28), the existence of a timely asserted deficiency claim is neither a necessary nor a sufficient element of an equitable recoupment claim. Respondent thus overlooks the premise of statements she quotes which note that equitable recoup- ment “permits a taxpayer to recoup an erroneously paid tax * * * against a timely and correctly asserted deficiency by the government.” Resp. Br. 16 (quoting O’Brien v. United States, 766 F.2d 1038, 1049 (7th Cir. 1985)). The point of such statements is that equitable recoupment can be invoked when there is a claim that is still being or can properly be litigated—such as a deficiency that is still “open” against which a time-barred overpayment can be ’ All of the cases invoked by respondent (see Resp. Br. 17 n.1) that were cited in Su// make the same point that equitable recoupment is in the nature of a defense. Hence, a recoupment claim does not resurrect an untimely independent refund claim, rather, it reduces a presently | owed debt. See Williams v. Neely, 134 F. 1, 5 (6th Cir. 1904) (“Recoupment is the keeping back of something that is due because there is an equitable reason for holding i.”). 9 recouped.* Here, respondent has effectively barred herself from bringing a recoupment claim: after her petition in the Tax Court, there can be no “open” deficiency that she can continue to litigate. The Tax Court's determination of the deficiency is final, and respondent’s subsequent suit can only be an “independent action” on a time-barred claim.’ 4. Respondent misperceives the thrust of our argu- ment regarding the significance of the “mitigation provi- sions” of the Internal Revenue Code (I.R.C. §§ 1311- 1314). Our position is not that those provisions provide “the exclusive remedy when inconsistent positions of the * in particular, respondent errs in relying on O'Brien as supporting the notion that equitable recoupment can be invoked to confer jurisdiction over an independent suit following the entry of a Tax Court decision. See Resp. Br. 16-17 (quoting O'Brien, 766 F.2d at 1050). The court in O’Brien was positing only that the invocation of equitable recoupment “might have been correct * * * in the 1975 [Tax Court] proceeding which resolved the dispute over stock valuation for estate tax purposes” — though invocation of the doctrine clearly was not correct after that proceeding in an independent suit for an income tax refund based on the corrected stock valuation Correctly identify. ing the nature 0° equitable recoupment as a defense in a properly in- stituted suit, the O’Brien court simply declined to determine “whether the Tax Court currently possessed the equitable jurisdiction necessary to apply the equitable recoupment doctrine.” 766 F.2d at 1050 0.15 * Respondent notes that her gift tax refund claim was filed before the decision was entered in her Tax Court proceeding, arguing that her claim is thus one in recoupment that survives as long as the claim against which it may be asserted survives. Resp. Br. 17-18. Obviously, 80 long as the possibility remains that a court may obtain jurisdiction over a suit brought on the main claim, the possibility also remains th’ an appropriaicly related, though tume-barred, claim might then be asserted in that suit as a defunse against the main claim under the dow trine of equitable recoupment. It in no way follows, however, that the doctrine of equitable recoupment will support an independent action brought on a time-barred claim merely because that claim was filed while different proceedings on the main claim were sull pending 10 Internal Revenue Service subject a Taxpayer to double taxation.” Resp. Br. 18-19. Rather, it is that if, as respond- ent contends and the court below held, equitable recoup- ment permits a taxpayer to bring an independent action on a time-barred claim for a refund of taxes assertedly over- paid merely because of inconsistent treatment by the Com- missioner, it would have been pointless for Congress to have enacted the mitigation provisioas because such ac- tions could simply have been brought under the doctrine carefully crafted restrictions that Congress imposed upon the availability of relief under the mitigation provisions. '® Respondent further asserts (Resp. Br. 20) that “the Government seeks to use the statute of limitations in the precise manner dis- sppeeves of ty Congsem,” thas bs ty ‘eA SERRE taking inconsistent positions.” government, however, taken inconsistent positions as respondent suggests. The here inquiry into “all of [the] aspects” of the timely income tax controversy. Rather, while she labels her claim one of recoupment —i.e., one “in the nature of a defense” to the income tax deficiency — she raises it after final determina- tion of that deficiency. Such an action cannot be recon- ciled with the policy of repose effectuated by statutes of limitations. Further, respondent's stratagem would multiply litigation that could have been resolved in one suit. In any event, respondent’s policy-based plea cannot negate the clear statutory language enacted by Congress which bars suits for refund such as this one, filed long after the challenged taxes were paid. For the foregoing reasons, and those presented in our opening brief, the judgment of the court of appeals should be reversed. Respectfully submitted. KENNETH W. STARR Solicitor General JANUARY 1990 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0510%3A7. Public record. Not legal advice.