Petition for Writ of Certiorari — Miller v. United States

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No | 8 € FEB 2 § to99

ert

In The

Supreme Court of the United States

October Term, 1997

A. EUGENE MILLER,

Petitioner,

UNITED STATES OF AMERICA,

Respondent.

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Fourth Circuit

PETITION FOR A WRIT OF CERTIORARI

Davip W. BrRrown*

NorMAN G. KNOPF

Knorr & BROWN

1050 Seventeenth Street, N.W.

Suite 1200

Washington, D.C. 20036

Telephone: (202) 785-8200

Attorneys for Petitioner

*Attorney of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

1. Whether the two-year limitation period in 26

U.S.C. § 6532(a)(1) is triggered by a purportedly final

notice of disallowance issued by the Internal Revenue

Service when:

(a) The otherwise adequate notice fails to dis-

close any consideration or rejection of one of two grounds

for refund fully presented in the underlying tax refund

claim;

(b) The Service presents no evidence that the

ground was considered on the merits before the notice

was issued; and

ported disallowance, the Service for the first time con-

siders one of the refund grounds on the merits?

2. Whether a taxpayer, faced with a Service claim

that his tax refund suit is untimely filed under 26 U.S.C.

§ 6532(a)(i), may invoke the Service’s failure to follow its

own internal rules and procedures for handling tax

refund claims as relevant to a jurisdictional fact issue; i.e.,

whether a refund ground presented was actually consid-

ered on the merits, either before the purported notice of

disallowance was issued, or for the first time during the

two-year period immediately prior to commencement of

the tax refund suit?

TABLE OF CONTENTS

Page

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STATUTORY PROVISIONS INVOLVED............. 2

STATEIINT COP Tie Rion hws hike ch oans gence 2

Mr. Miller’s Tax Refund Claim................... 3

Service Response to Mr. Miller .................. 5

Mr. Miller Seeks a Merits-Based Decision on His

CIA 0. kin on cess <6 saa ee ce ee 6

Procuodiigs Babee acai i555 ccse ayes iets 8

REASONS FOR GRANTING THE PETITION ....... 9

ne rere re Tere re 9

I. THE DECISION BELOW THREATENS THE

VITALLY IMPORTANT SCHEME OF FEDERAL

TAX COLLECTION, REFUND AND REFUND

LITIGATION BY NULLIFYING THE TAX-

PAYER’S RIGHT TO MERITS-BASED CONSID-

ERATION BY THE SERVICE OF PROPERLY

PRESENTED REFUND CLAIMS............... 11

Il. THE COURT SHOULD RESOLVE THE CON-

FLICT BETWEEN THE DECISION IN THIS

CASE AND THE DECISIONS OF OTHER FED-

ERAL COURTS THAT RECOGNIZE THAT

MERITS-BASED SERVICE CONSIDERATION

OF A GROUND FOR A REFUND CLAIM IS

ESSENTiAL TO TRIGGER THE TWO-YEAR

LIMITATIONS PERIOD IN 26 U.S.C. § 6532(a)(1)

iii

TABLE OF CONTENTS - Continued

Page

If. THE COURT SHOULD RESOLVE A CIRCUIT

COURT CONFLICT ON THE EVIDENTIARY

RELEVANCE OF A SERVICE FAILURE TO FOL-

LOW ITS OWN INTERNAL RULES AND PRO-

CEDURES IN PROCESSING TAX REFUND

E08 668 o oy os vas dcak oaks voc kk, 19

TABLE OF AUTHORITIES

- Page

CASES:

A. G. Reeves Steel Constr. Co. v. Weiss, 119 F.2d 472

(6th Cir.), cert. denied, 314 U.S. 677 (1941)......... 12

Bartley v. United States, 123 F.3d 466 (7th Cir. 1997) .... 12

Beardsley v. United States, 126 F. Supp. 775 (D.

SA PR ewes Wedils snr bisancade nes theo e wed. ss 23

Block-Southland Sportswear Co. v. United States, 73-2

U.S.T.C. J 9552 (4th Cir. 1973), aff’g per curiam

FOPk Beate SE PEO CPs EPFE) ovecacscesass 17

Charlson Realty Co. v. United States, 384 F.2d 434

Bike Sle PUES cede randuwasaewhcseudenarhtudadeceve 18

Clinton Trust Co. v. United States, 52 F. Supp. 671

Ps Mit Esch esreusecaenay Coke degnaeSeeeaas sens 19

Commissioner v. Lane-Wells Co., 321 U.S. 219 (1944) .... 14

Dalton v. United States, 800 F.2d 1316 (4th Cir.

1986), cert. denied, 481 U.S. 1024 (1987)............ 18

DuPont Glore Forgan, Inc. v. AT&T, 428 F. Supp.

1297 (S.D.N.Y. 1977), aff'd, 578 F.2d 1367 (2d

Cir.), cert. denied, 439 U.S. 970 (1978)...... iSeuewar 14

First Alabama Bank, N.A. v. United States, 981 F.2d

pee Fes Le Re. See rays it 2, 24, 22, 23

Gerrard v. Campbell, 81 F. Supp. 752 (N.D. Ill. 1949) .... 14

Jones v. United States, 26 Cl. Ct. 424 (1992).......... 18

L&H Co. v. United States, 963 F.2d 949 (7th Cir.

PEN Cw idcs RA SAS Rees BAS aS Nee ee wees 6 18

Miller v. United States, 80 AFTR 2d ¥ 97-9074,

UNIO FU Dy TUE oo ici odo ke Sieg Fe cansadseae 16

7 hm Se we ah Pea

o ee ee

TABLE OF AUTHORITIES - Continued

Page

Morton v. Ruiz, 415 U.S. 199 SUAS indie tsb cis Se 22

Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320

aes cnits nap Resins SOTTO eT pte) © ee 23

Schmitt v. Kavanagh, 91 F. Supp. 659 (E.D. Mich.

WOOP R Sn as be dey s0KEU ee eed et ee pel ee. ee 17

Smith v. United States, 478 F.2d 398 (Sth Cir. 1973) ..15, 16

Southeast Bank of Orlando v. United States, 676 F.2d

Oe ee Sec Gsabe Nor erie ee ce 23

Union Commerce Bank v. United States, 463 F. Supp.

842 (N.D. Ohio 1978), aff'd, 638 F.2d 963 (6th Cir.

SPAS AR k's eR GRE VETER TS ETE Tee, 17

United States v. Brockamp, ___ U.S. __,, 117 S. Ct.

METS ins (Kibet nie nin isda ¥e Gia due ease ks 13

United States v. Arthur Young & Co., 465 U.S. 805

TNE Ds sad brates Caiecis 5 Gaius panei claal des 14

W. A. Schemmer Limestone Quarry, Inc. v. United

States, 240 F. Supp. 356 (S.D. Ia. SP ois 18

STATUTES:

Federal:

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TABLE OF AUTHORITIES - Continued

Page

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BO CFDEs, BS ts 007 ese eews tea pee exiee vane cube 3

Te Wa. B Bh cakc des cuckonkelesccuerevesanes 3

REGULATIONS:

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Treas. Reg. § SOLGGGS-ALOM 1D). ssc ccscecsavvcsscvecdy AO

RULEs:

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Rule 12(b)(1), Fed. R. Civil Procedure.............. 3, 8

Rule 12(b)(6), Fed. R. Civil Procedure................ 8

re ne aos,

PETITION FOR A WRIT OF CERTIORARI

Petitioner prays that a writ of certiorari issue to

review the judgment and opinion of the United States

Court of Appeals for the Fourth Circuit in A. Eugene

Miller v. United States of America, No. 96-2787, decided on

July 11, 1997. Petitioner seeks review of that court’s incor-

rect interpretation and application of the limitations

period for commencement of federal tax refund litigation

in federal district court, as set forth in 26 U.S.C.

§ 6532(a)(1).

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Fourth Circuit is an unpublished per curiam opinion,

reprinted in the Appendix at App. 1. The unreported

decision of Senior United States District Judge Walter E.

Black, Jr., District of Maryland, was a bench decision

issued on November 8, 1996. A transcription of that deci-

sion is reprinted in the Appendix at App. 25.

JURISDICTION

The judgment of the United States Court of Appeals

was entered when petitioner’s timely filed petition for

rehearing was denied on November 24, 1997. App. 16.

This Court has jurisdiction to review the judgment of the

Court of Appeals under 28 U.S.C. § 1254.

STATUTORY PROVISIONS INVOLVED

Title 26, United States Code

Sec. 6532. Periods of limitation on suits.

(a) Suit by taxpayers for refund.

(1) General rule. No suit or proceeding

under section 7422(a) for the recovery of

any internal revenue tax, penalty, or other

sum, shall be begun before the expiration

of 6 months from the date of filing the

claim required under such section unless

the Secretary renders a decision thereon

within that time, nor after the expiration of _

2 years from the date of mailing by certified

mail or registered mail by the Secretary to

the taxpayer of a notice of the disallowance

of the part of the claim to which the suit or

proceeding relates.

* * +

(4) Reconsideration after mailing of

notice. Any consideration, reconsideration,

or action by the Secretary with respect to

such claim following the mailing of a notice

by certified mail or registered mail of disal-

lowance shall not operate to extend the

period within which suit may be begun.

STATEMENT OF THE CASE

The questions presented arise out of personal federal

income tax refund litigation initiated by petitioner, A.

Eugene Miller, on March 8, 1996 in the United States

District Court for the District of Maryland, pursuant to

iri eet ~~

ee ee ena

§ 7422(a) of the Internal Revenue Code, 26 U.S.C. 7422(a),

and 28 U.S.C. § 1346(a)(1). The action was dismissed on

the government’s Rule 12(b)(1) motion to dismiss for lack

of subject matter jurisdiction, on account of petitioner’s

asserted failure to comply with the two-year limitation

period set forth in 26 U.S.C. § 6532(a)(1). The final order

of dismissal, dated November 8, 1996, App. 34, was

timely appealed to the Fourth Circuit pursuant to 28

U.S.C. § 1291.

The facts supporting the government's jurisdictional

motion consisted of its undisputed showing that Mr. Mil-

ler was sent, by certified mail, a document purporting to

be a notice of disallowance of his timely filed tax refund

claim for 1990 federal income taxes, on January 13, 1992,

i.e., more than two years before suit was filed. App. 35. In

Opposition, Mr. Miller submitted a detailed declaration,

which was also uncontested. The questions presented

relate to the proper interpretation and application of the

§ 6532(a)(1) limitations period in light of the undisputed

events preceding and following issuance of the purported

disallowance. These historical events, central to a proper

resolution of the issues, are summarized below.

Mr. Miller’s Tax Refund Claim

In early 1990, shortly after retiring, Mr. Miller

requested and received a lump-sum distribution of his

retirement fund, a tax-sheltered annuity (TSA). The

amount, $168,028.40, was a sum far larger than his annual

taxable income. He requested the distribution with the

intent of rolling over most of this sum into an IRA, but

first consulted the relevant IRS publications and forms

for other options that might allow him more flexibility,

short of declaring the entire sum to be 1990 income. As

fate would have it, the one year in which the IRS publica-

tions and forms were misleading and wrong on this ques-

tion was in 1990 (for preparing 1989 returns). As a result

of this Service misfeasance, Mr. Miller changed his plans

and did not execute a rollover of his retirement funds

within 60 days. He instead decided to pay taxes on the

distribution using income-averaging methods applicable

to an extensive array of retirement plan distributions,

having been led by the Service publications and forms to

believe these methods were also applicable to TSA distri-

butions. Mr. Miller even paid estimated taxes for the rest

of 1990 on this basis.

Then, in early 1991, Mr. Miller’s TSA plan adminis-

trator informed him that income-averaging was not avail-

able for TSA distributions. Ironically, the plan

administrator referred Mr. Miller to the same Service

publications he had relied upon, only by then a corrected

version had been published (for preparing 1990 returns).

Unsure of his options, and sure only that paying the full

tax otherwise due was better than risking the penalties

and interest associated with a deficiency assessment, Mr.

Miller paid taxes on April 15, 1991 on the basis that the

entire distribution was ordinary income in 1990.

In November 1991, Mr. Miller submitted a properly

verified tax refund request to the Philadelphia Service Cen-

ter, the required place to file his refund claim. The request

identified two mutually exclusive grounds for the refund,

both premised on an IRA rollover: (1) a rollover was still

timely because there was no enforceable TSA rollover period

precluding it at that point; or (2) even if there were an

applicable rollover period that he had missed, it could and

should be extended in his case under Service regulations for

extension of time periods, i.e., Treas. Reg. § 1-9100-1 (1970).

Each ground for relief was set out with sufficient detailed

facts to apprise the Service of its exact basis, as required by

Treas. Reg. § 301.6402-2(b)(1). Mr. Miller also made very

clear that he was in no way contesting his TSA distribution’s

lack of eligibility to use income-averaging (also known as

Form 4972, special treatment). Rather, he was simply looking

for a way to be made whole for his reasonable reliance on

erroneous and misleading IRS publications and forms.

Service Response to Mr. Miller

The Service’s response to Mr. Miller was the pur-

ported notice of disallowance of January 13, 1992, sent to

him by the Philadelphia Service Center. App. 35. This

notice is the sole basis for the government’s claim that

this suit is untimely. As the Court of Appeals observed,

the notice was unambiguous in certain respects: it cor-

rectly identified the tax year, the type of tax, and the

amount of refund claimed. App. 4. The letter also

included what the court described as “a brief explanation

of the reasons for disallowance.” Id. This statement, how-

ever, simply glosses over the question of whether there is

any rational nexus between the refund grounds presented

and the stated “reasons for disallowance.”

That question, however, tied to the record and partic-

ular facts of this case, is central to the jurisdictional issue.

The “brief explanation” consisted of the following:

We have disallowed the claim because your dis-

tribution does not qualify for the Form 4972, |

special treatment. Since the money you contrib-

uted to your TSA, was not taxable when the

contributions were made to your TSA. Also, a

rollover from a TSA to an IRA must be made

within the 60 day period.

App. 35 (emphasis added). In the courts below, the gov-

ernment offered no extrinsic evidence to support its argu-

ment that this cryptic “explanation” reflected merits-

based consideration of Mr. Miller’s grounds for refund.

To the contrary, the government rested its untimeliness

claim entirely on the face of the notice, even though it

was effectively obliged to concede: (1) that the first sen-

tence purported to disallow the refund on a ground not

presented; (2) that the second “sentence” was not a sen-

tence at all, but perhaps at best an inadvertently discon-

nected dependent clause of the first, irrelevant sentence;

and (3) that the third sentence was not responsive to Mr.

Miller’s second ground for refund (that the 60-day period

could and should be extended in his case).

Mr. Miller Seeks a Merits-Based Decision on His Claim

Following issuance of the purported disallowance,

Mr. Miller patiently and exhaustively pursued efforts to

get his refund claim before those persons in the Service

with the ability to understand his claim and the authority

to act on it. He was first referred to the Baltimore District

Office. Following a 1993 meeting with Baltimore IRS staff,

he was afforded an internal administrative appeal, even

though normally appeals are to precede disallowances.

By 1994, the Washington Appeals Office had denied his

appeal on the first refund ground, and had advised him

to present the second refund ground to the National

Office for consideration. By this time, of course, the two-

year limitations period that the government now asserts

began running on January 13, 1992, had already expired.

Mr. Miller was finally able to obtain a conference

with officials in the Employee Plans Division of the

National Office in December 1994. This resulted in the

submission in January 1995 of his request for an exten-

sion of the IRA rollover period in another form, as sug-

gested by the National Office, complete with detailed

documentation of his timely journey from one Service

office to another to that point. The Director of the

Employee Plans Division responded to Mr. Miller by

letter of April 25, 1995. App. 37. In contrast to the Ser-

vice’s January 13, 1992 letter, this letter expressly

addressed the grounds articulated in Mr. Miller’s refund

request, rejecting them on the merits. Id. The letter, sent

more than fifteen months after the second anniversary of

the Service’s January 13, 1992 letter, did not claim that

Mr. Miller’s request was untimely. In fact, the letter con-

tained no hint of or reference to any pre-existing statute

of limitations problem, and to that point, apart from the

boilerplate right-to-sue language in the purported notice

of disallowance, App. 35, no one in the Service involved

in Mr. Miller’s case had ever intimated in any way that a

two-year “clock” on his claim was ticking or had run out.

Mr. Miller disagreed with the Employee Plans Divi-

sion’s conclusions on the merits and sought reconsidera-

tion within the Service. A meeting was held with the

Assistant Commissioner for Employee Plans and Exempt

Organizations. Thereafter, by letter of November 2, 1995,

the Assistant Commissioner denied Mr. Miller any relief.

In this letter, for the first time, the Service, expressly

relying on advice of Service counsel, claimed that under

section 6532 of the Code it had no legal authority to grant

or deny the request and that such authority had effec-

tively lapsed on January 13, 1994, at the end of the two-

year period following issuance of its January 13, 1992

letter. App. 41-42. After a brief and inconsequential foi-

low-up meeting with the Assistant Commissioner’s staff,

Mr. Miller concluded that his long effort to obtain admin-

istrative, ~ake-whole relief from the Service’s misfea-

sance wi**s.t resorting to litigation was at an end. Mr.

Miller decided to initiate this action, which began on

March 8, 1996, App. 18, i.e., well within two years of the

April 25, 1995 letter in which his second ground for relief

was first considered on the merits and rejected.

Proceedings Below

The district court heard oral argument on the govern-

ment’s two motions to dismiss: for lack of subject matter

jurisdiction and for failure to state a claim upon which

relief could be granted. The court declined to rule on the

Rule 12(b)(6) motion, but granted the Rule 12(b)(1)

motion in a bench ruling following oral argument. App.

33. On appeal, petitioner briefed both the incorrectness of

the jurisdictional ruling and the government’s undecided

Ruie 12(b)(6) claim. The government did not defend its

Rule 12(b)(6) claim in its answering brief. Petitioner had

requested oral argument and the government had

acknowledged that while it was not essential it might be

helpful to the court. Nevertheless, the Fourth Circuit

notified the parties that there would be no oral argument.

The Fourth Circuit issued a per curiam decision. App.

1. Petitioner timely filed a petition for rehearing, request-

ing that the case be placed on the oral argument calendar

so that the parties could more fully address the court's

evident misconceptions about: (1) when the Service first

addressed the merits of Mr. Miller’s second ground for

refund and (2) the relevance to the limitations issue of the

evidence of the Service’s multiple failures in Mr. Miller’s

case to follow its own internal procedures for handling

tax refund claims. App. 6. The rehearing request was

summarily denied. App. 16.

REASONS FOR GRANTING THE PETITION

Introduction

Absent review by this Court, taxpayers may be

forced to bring their tax refund claims to federal court

before the Service is obliged to consider them on the

merits. This is because the Fourth Circuit has uncritically

accepted the government’s remarkable and indefensible

arguments regarding its responsibility in relation to tax

refund claims. Section 6532(a) is a critical component of a

statutory scheme that first requires taxpayers to obtain

administrative resolution of tax refund claims within the

Service before the aid of the federal judiciary may be

invoked. Under the decision of the Fourth Circuit in this

case, however, an administrative decision on the merits is

unnecessary to trigger the running of the § 6532(a)(1)

limitations period. Thus, notwithstanding the statutory

presentment obligation, the Service is free to shift all or

as much as it sees fit of its vast responsibility for resolu-

tion of refund requests to the courts by issuing pro forma

notices of disallowance, i.e., “disallowances” that are all

form and no substance. Of the multitude of taxpayers

annually who are denied refunds, only those with the

wherewithal, persistence and inclination to sue before

obtaining a rational explanation of the denial of their

refunds will ever be able to ensure that their refund

requests were rejected on the merits. For all the rest, their

right to a decision on the merits will be entirely at the

mercy of an agency that claimed, in this case, that it owes

taxpayers no explanation whatsoever of the actions it

takes on their refund requests.

Of course, the freedom of the Service to act in such

an arbitrary and oppressive manner was never envi-

sioned by Congress in enacting § 6532 and its related

provisions. The Service’s extreme position should there-

fore be repudiated by this Court now, before other federal

courts — which have generally understood that in this

area form does not triumph over substance — are similarly

infected by the Service’s views.

The questions presented are important not just

because of the number of taxpayers potentially affected,

but also because short-term gains to the Service from

oppressing taxpayers with pro forma notices of disai-

lowance are not the end of the story. Rather, our volun-

tary system of self-assessment and reporting of taxes is

critically dependent on the maintenance of good will and

good faith dealings between the taxpayer and the tax

collector. This is a delicate balance that, at this writing,

Congress is entertaining grave concern the Service has

already upset in other ways; it easily could be further

upset absent corrective action by this Court on this

important aspect of tax law administration. In short, as is

presented in more detail below, the petition should be

granted because it meets the criteria of both Rules 10(c)

and 10(a) of this Court, and is not an effort to have this

Court correct either errorieous factual findings or a mis-

application of a properly stated rule of law.

I. THE DECISION BELOW THREATENS THE

VITALLY IMPORTANT SCHEME OF FEDERAL

TAX COLLECTION, REFUND AND REFUND LITI-

GATION BY NULLIFYING THE TAXPAYER’S

RIGHT TO MERITS-BASED CONSIDERATION BY

THE SERVICE OF PROPERLY PRESENTED

REFUND CLAIMS

The decision in this case represents a stark and

unwarranted departure from what Congress had in mind

in enacting detailed, prescriptive limitations periods in

connection with tax refund claims. Congress’ intent was

to force taxpayers to timely present, and for the Service to

consider on the merits, whatever bases the taxpayer had

for seeking the refund. Code sections 6511 and 7422(a)

could not be clearer about this. Only after compliance

with § 6511’s requirement to timely present his refund

claim to the Service is the taxpayer entitled under

§ 7422(a) to seek the aid of busy federal district courts

with tax refund litigation, and, under § 6532(a)(1), the

taxpayer must do so promptly, i.e., within two years of

receipt of a disallowance on the particular ground pre-

sented. The statutory purpose is to ensure that the IRS

has adequate notice of the legal and factual bases of the

refund claim, so as to permit review and determination

and the correction by the Service of any errors, prior to

litigation. See Bartley v. United States, 123 F.3d 466, 468 n.3

(7th Cir. 1997).

Inherent in this statutory scheme is Congress’ expec-

tation of merits-based disallowances. Thus, unless these

requirements are a meaningless charade, the Service's

consideration on the merits of a refund claim properly

presented to it is the key to the effectiveness of a notice of

its disallowance. If this is not apparent from the literal

text of § 6532(a)(1), it is only because Congress saw no

need to state the obvious: the word “disallowance”

implies a rational nexus between request and denial.! As

a matter of internal policy it seems the Service agrees

with this; its internal procedures for handling refund

claims are in complete accord.? Congress would therefore

be shocked at the Service’s claim below that, because

1 This was clear even under the predecessor provisions to

§ 6532. See A. G. Reeves Steel Constr. Co. v. Weiss, 119 F.2d 472, 476

(6th Cir.), cert. denied, 314 U.S. 677 (1941) (purpose of the Code’s

limitations provisions is to avoid “vexations and expensive

litigation and to afford an opportunity to the Treasury to

consider the taxpayer’s claims and make refund if taxes have

been erroneously collected”).

2 The standard Service procedure for denial of a refund

claim such as petitioner’s is set forth in First Alabama Bank, N.A.

v. United States, 981 F.2d 1226, 1227 n. 1 (11th Cir. 1993). A more

complete description of the IRS income tax refund claim

processing standards and procedures, in relation to what

occurred or failed to occur in Mr. Miller’s case, was provided to

the lower courts in the form of an appendix which summarized w

pertinent parts of the Internal Revenue Manual and attached

relevant pages. None of this was disputed by the government.

The summary is included in the appendix to this petition. App.

43.

SO eee

there is no requirement in the Code to provide any expla-

nation to the taxpayer of its actions, a pro forma denial is

an adequate limitations trigger. Such a standard leaves

the Service free to deny claims for undisclosed, arbitrary

and capricious reasons, nullifying a taxpayer’s right to a

merits-based resolution at the Service.

As noted above, tax refund litigation is thoroughly

straight-jacketed by statutory procedural requirements

tied to full and timely presentation of claims to the Ser-

vice before resort to the courts may be had. These are

rigid, demanding requirements for the taxpayer. But that

very inflexibility places a corresponding burden on the

Service for decisions on the merits when a claim is fully

and properly presented under the detailed requirements

of Treas. Reg. § 301.6402-2(b)(1). Only last term this Court

rejected a liberalized approach to the limitations period

for filing refund claims with the Service, set forth in

§ 6511, even under compelling equitable circumstances.

The Court noted that because the Service issues more

than 90 million refunds a year, an equitable tolling excep-

tion to § 6511 “could create serious administrative prob-

lems.” United States v. Brockamp, __ U.S. __, 117 S. Ct.

844, 852 (1997). By the same token, it is not hard to

imagine a serious judicial backlog if the Service were free

to issue pro forma disallowances, forcing taxpayers to

choose between abject surrender and filing in the district

court. Even worse, however, would be the unfair burden

on taxpayers who would just give up without a judicial

resolution of the merits of their claim.

In § 6532(a)(1), Congress also precluded taxpayers

from going to federal court with refund claims, in the

wake of Service inaction, for a period of six months after

filing. Congress’ intent in enacting this waiting period

was to give the Service ample time under § 6511 to

consider a claim on the merits before it is obliged to

defend itself in court. See DuPont Glore Forgan, Inc. v.

AT&T, 428 F. Supp. 1297, 1301 (S.D.N.Y. 1977), aff'd, 578

F.2d 1367 (2d Cir.), cert. denied, 439 U.S. 970 (1978); Ger-

rard v. Campbell, 81 F. Supp. 752, 754 (N.D. Ill. 1949).

Congress did not on the one hand give the Service

explicit breathing space for consideration of mandatory

submissions under § 6511 and render the time period

irrelevant on the other hand by giving the Service the

freedom to categorically reject refund claims without

regard to their merit.

Section 6532(a)(1) is an important component of a

federal tax collection system that relies heavily for its

workability on individual taxpayers for accurate self-

assessment and reporting. See United States v. Arthur

Young & Co., 465 U.S. 805, 815 (1984); Commissioner v.

Lane-Wells Co., 321 U.S. 219, 223 (1944). Under this sys-

tem, a taxpayer on his own volition may underassess and

underpay the amount due, but does so at his peril. Due to

the accrual of penalties and interest, taxpayers generally

are well advised to pay first and seek refund later, which

is exactly how Mr. Miller proceeded. A critical ingredient

to the workability of this kind of voluntary “pay-first-

then-adjudicate” system is taxpayer confidence that, after

payment, the internal administrative system will produce

fair and reasonable adjudication of claims of overpay-

ment, not pro forma denials. Absent such confidence, all

the incentives are in the wrong direction.

In short, the decision in this case, triggering the two-

year limitations period in § 6532(a)(1) with the issuance

of a pro forma notice of disallowance by the Service,

cannot withstand scrutiny under the Code, and this Court

should take this occasion to safeguard taxpayers’ critical

right to merits-based disallowances. At the urging of the

government, the Fourth Circuit placed principal reliance

on dicta in Smith v. United States, 478 F.2d 398 (5th Cir.

1973) App. 4. But the Smith court established no rule that

pro forma notices are sufficient. The dicta in Smith that a

notice is adequate if all it contains is correct information

on the taxpayer, tax year, type of tax and amount of

refund claimed, 478 F.2d at 399, must be viewed in light

of the particularly frivolous taxpayer claim in that case

that the notices were “vague and indefinite.” Id. There is

simply no comparison between the trivial claimed defect

in the Smith notices and the problems with Mr. Miller’s

notice. Even more fundamentally, unlike this case, Smith

did not involve a claim that the notice failed to address

the merits of the grounds presented for the refund.

Finally, Smith does not purport to question other cases

that have recognized the Service's obligation to address

all grounds for refund fully and properly presented in a

refund claim in order to trigger the statute. See part IL,

infra. The Fourth Circuit did not consider any of these

limitations on the scope of the dicta in Smith in its deci-

sion, which simply parrots the government’s untenable

and extreme argument.

The evident misunderstanding in the lower courts

about what Service actions constitute a § 6532(a)(1) lim-

itations trigger makes clear the need for clarification by

this Court on this critical component to taxpayers’ rights

to full and fair processing of tax refund claims by the

Service. Indeed, not even the fact that the Fourth

Circuit’s decision is unpublished will diminish its signifi-

cance for future cases if this Court does not intervene.

The United States is the only defendant in tax refund

litigation, and the result here can only encourage it to

assert the defensibility of unresponsive, pro forma notices

of disallowance in future cases. And with this case

extending greatly the dicta in Smith v. United States, supra,

the United States has ample basis under Fourth Circuit

Rule 36(c) to cite this case as precedent. Finally, the

United States’ potential adversaries in future tax refund

litigation are also likely to give undue weight to the

decision below at a critical moment. Tax practitioners

researching the threshold jurisdictional issue under

§ 6532(a)(1) normally rely on specialized reports that

publish all federal tax decisions, including those denomi-

nated “unpublished” by the originating court. These

reports are not always careful to note court-imposed con-

straints on a decision’s precedential value; in petitioner’s

case, at least one such report is devoid of any indication

that the Fourth Circuit considers the decision

unpublished. Miller v. United States, 80 AFTR 2d

{ 97-5074, published July 31, 1997.

II. THE COURT SHOULD RESOLVE THE CONFLICT

BETWEEN THE DECISION IN THIS CASE AND

THE DECISIONS OF OTHER FEDERAL COURTS

THAT RECOGNIZE THAT MERITS-BASED SER-

VICE CONSIDERATION OF A GROUND FOR A

REFUND CLAIM IS ESSENTIAL TO TRIGGER

THE TWO-YEAR LIMITATIONS PERIOD IN 26

U.S.C. § 6532(a)(1)

Part I explains why this-Court should give plenary

consideration to Question 1, strictly on an analysis of the

Fourth Circuit’s decision in light of the undisputed

record, the relevant Code provisions, and the authority

relied upon by that court. Left out of the lower court’s

decision is any discussion of the many federal court

decisions relied upon below by petitioner that are irrec-

oncilable with the approach taken in this case. Resolving

the express or implied conflict between this case and

those authorities provides an additional basis for this

Court to accept Question 1 for review.

Upon full briefing, petitioner will demonstrate that

the decision below is a departure from a line of federal

court decisions - circuit and district courts and the Court

of Federal Claims - which establish the following objec-

tive and straightforward test for the effectiveness of a

notice of disallowance: one way or another, the notice

must on its face reflect that consideration of the grounds

properly presented by the taxpayer did take place in

issuing it; otherwise, it is not an effective trigger for

§ 6532(a)(1) purposes unless by extrinsic evidence the

Service can demonstrate that it did actually consider and

reject all properly presented grounds. See, e.g., Block-

Southland Sportswear Co. v. United States, 73-2 U.S.T.C.

YT 9552 (4th Cir. 1973), aff’g per curiam 73-1 U.S.T.C.

{ 9230, (E.D.N.C. 1972) (prerequisites of § 6532(a)(1) are

not met when neither the Service’s “letter nor the

attached Revenue Agent's report contained any language

indicating that plaintiff’s claim was ever considered. . . .

"); Union Commerce Bank v. United States, 463 F. Supp. 842,

843-44 (N.D. Ohio 1978), aff'd, 638 F.2d 963 (6th Cir. 1981)

(notice of disallowance held effective because the tax-

payer’s claim “was fully considered by the Secretary and

disallowed on its merits.”); Schmitt v. Kavanagh, 91 F.

Supp. 659, 663 (E.D. Mich. 1959) (Service letter stating

that the taxpayer’s refund claim was rejected in its

entirety held insufficient to trigger the statutory limita-

tions period when the underlying facts demonstrated that

the Commissioner “has given no consideration whatever

to the plaintiff’s claim.”).

That a decision on the merits is necessary to trigger

the statute is also clear from the numerous cases estab-

lishing that the two-year period from rejection of a first

claim is expanded when a second timely claim is filed

alleging different grounds or theories of recovery.? E.g.,

L&H Co. v. United States, 963 F.2d 949, 951 (7th Cir. 1992);

Charlson Realty Co. v. United States, 384 F.2d 434, 439-40

(Ct. Cl. 1967); W. A. Schemmer Limestone Quarry, Inc. v.

United States, 240 F. Supp. 356, 358 (S.D. Ia. 1964). These

cases reflect the logical corollary to the rule that a claim is

not disallowed until all the grounds presented are

3 To be distinguished are cases where there is a decision on

the merits and the taxpayer seeks further consideration on the

same grounds, whether on the same or additional facts. In these

situations, Congress has prescribed that the first decision on the

merits triggers the statute. § 6532(a)(4). E.g., Jones v. United

States, 26 Cl. Ct. 424, 425 (1992); W. A. Schemmer Limestone

Quarry, Inc. v. United States, 240 F. Supp. 356, 359 (S.D. Ia. 1964)

(distinguishing between new information on an old ground and

“information amounting to new grounds.”). See Dalton v. United

States, 800 F.2d 1316, 1319 (4th Cir. 1986), cert. denied, 481 U.S.

1024 (1987). Mr. Miller’s claim is plainly not in this mold, a point

he made clear below. Nevertheless, the government relied on

§ 6532(a)(4) and the Fourth Circuit, in turn, cited to the

provision in its decision, App. 4, without comment on Mr.

Miller’s claim that § 6532(a)(4) does not mean that a § 6532(a)(1)

disallowance is sufficient even though not based on the merits

of the claim.

expressly disallowed. E.g., Clinton Trust Co. v. United

States, 52 F. Supp. 671, 679 (Ct. Cl. 1943). Mr. Miller’s

diligent and timely pursuit of the second ground for his

refund claim should certainly not leave him in a worse

position than if he had filed separate, seriatim refund

claims for each of the grounds he asserted, which he was

entitled to do. The decision below has the unintended

implication of discouraging taxpayers from including all

grounds in their first refund claim.

III. THE COURT SHOULD RESOLVE A CIRCUIT

COURT CONFLICT ON THE EVIDENTIARY REL-

EVANCE OF A SERVICE FAILURE TO FOLLOW

ITS OWN INTERNAL RULES AND PRO-

CEDURES IN PROCESSING TAX REFUND

CLAIMS

If the Court grants certiorari on Question 1, it should

also grant certiorari on Question 2. This case represents a

clear conflict in approach between the Fourth and Elev-

enth Circuits on the question of the relevance — to the

factual record underlying a § 6532(a)(1) limitations issue

~ of the Service’s failure to follow its own internal rules

and procedures in processing a tax refund claim. Here,

neither the facts nor the procedures were in dispute, yet

the Fourth Circuit ignored both to issue a decision that

cannot be reconciled with the approach taken in First

Alabama Bank, N.A. v. United States, 981 F.2d 1226, 1230 n.5

(11th Cir. 1993).

The procedures and actions employed by the Service

in handling Mr. Miller’s refund claim case were a marked

departure from the norm - clear internal IRS procedures

and standards that require a careful and complete assess-

ment of the merits before a final decision is issued. App.

43-44. The Service had a full six months from November

21, 1991 to consider Mr. Miller’s refund request before he

could commence suit. 26 U.S.C. § 6532(a)(1). Despite the

complex legal and factual questions presented, the Ser-

vice responded in less than two months. The applicable

procedure was for the IRS to issue a preliminary notice of

disallowance, i.e., a “30-day letter” advising Mr. Miller

that he had a brief period in which to commence an

administrative appeal. Accompanying the letter should

have been a copy of an examiner’s report containing a

documented, informative statement of reasons for the

disallowance, applying “the law in a reasonable, practical

manner.” App. 43. The Service inexplicably skipped prep-

aration of any such report and hence, any window of

opportunity to contest it pre-decision. Instead, the Service

quickly issued a decision purporting to be a final notice

of disallowance. The Service proffered no extrinsic evi-

dence to contradict this apparent rush to judgment.

Recognizing that he had gotten an unintelligible,

unresponsive answer from the Philadelphia Service Cen-

ter, Mr. Miller requested National Office involvement in

his case as early as May 1, 1992. It took more than two

additional years to get the National Office involved,

whereas the standard procedure is that the National

Office is to be consulted on unusual or complex refund

questions before a final decision, and denial of a taxpayer

request for such a referral is to be in writing, stating the

reasons therefor. App. 44. The Service never proffered

any explanation for not referring Mr. Miller’s claim

directly to the National Office, apparently the only Ser-

vice Office with authority to rule on the second ground

for his refund claim.

nr eee

As previously noted, the Service ultimately provided

Mr. Miller an administrative appeal in the Washington,

D.C. Appeals Office. In the normal course, however, such

appeals are to precede a statutory notice of disallowance,

not follow it by two years or more. See First Alabama

Bank, N.A. v. United States, supra, 981 F.2d at 1227 n.1;

App. 43-44. As Mr. Miller’s claim was bounced from

office-to-office within the Service from late January 1992

until long after the second anniversary of the issuance of

the purported notice of disallowance, no one in the Ser-

vice with whom Mr. Miller dealt intimated Orally or in

writing that the two-year period for bringing suit was

running or had run. In fact, under the Service’s lack-of-

authority theory advanced for the first time on November

2, 1995, App. 41 - almost 22 months after the clock had

ostensibly run out - all of the letters, meetings and dis-

cussions with various Offices during that 22 months were

a nullity that should never have taken place at all.

In the lower courts, petitioner discussed these events

in light of generally applicable processing procedures to

provide context to his claim that prior to April 1995, there

had been no genuine disallowance of his second ground

for refund. The government mischaracterized this as a

claim that petitioner sought to invoke procedural or sub-

stantive rights from internal IRS procedures. This straw-

man restatement of his claim was thereafter repeated by

the Fourth Circuit in its decision. App. 5. This misap-

prehension of petitioner’s claim was one of two grounds

for relief set forth in the petition for rehearing. App. 7,

12-14.

Petitioner’s reference to the internal processing of his

refund request was grounded in First Alabama Bank, N.A.

v. United States, supra, which held that a taxpayer in a

refund suit may invoke the Service’s failure to follow its

own rules and procedures as evidence “that what in fact

transpired was not” what the Service claimed it to be. 981

F.2d at 1230 n.5. The legal standard applied in First Ala-

bama was whether there is any

reasonable confusion on the part of the tax

payer as to the effect of the original . . . notice[ ]

of disallowance.

Id. First Alabama itself drew a distinction between the

evidentiary value of departures from the normal mode of

processing and the principle that the Service’s “intra-

agency operating procedures [are] not judicially enforce-

able against the agency [and] do not delineate substantive

rights of individuals.” Id. The Fourth Circuit’s adoption

of the government’s argument and its rejection of peti-

tioner’s rehearing petition lead inescapably to the conclu-

sion that the Fourth Circuit’s handling of this issue is in

conflict with the treatment it would have been afforded in

the Eleventh Circuit.4

The government also characterized petitioner’s refer-

ence to the historical record as an improper attempt to

interject equitable tolling principles to defeat the limita-

tions period. This was another misrepresentation of Mr.

4 The Eleventh Circuit also noted that courts may force

agencies to follow even internal procedures where the rights of

individuals might otherwise be affected. 981 F.2d at 1230 n.5

(citing Morton v. Ruiz, 415 U.S. 199, 235 (1974)). The Fourth

Circuit’s decision in this case does not even acknowledge this

limit to its refusal to allow peiitioner to delineate the Service’s

acts and omissions in his case.

Miller’s position uncritically accepted by the Fourth Cir-

cuit. App. 4. In fact, Mr. Miller consistently relied upon

the “reasonable confusion” standard of First Alabama, a

case in which the Eleventh Circuit expressly rejected the

taxpayer’s equitable tolling argument even as it consid-

ered and ruled upon what it regarded as the distinct, fact-

based claim of whether the purportedly final notice of

disallowance was in fact final. 981 F.2d 1228-30.5 If, as

petitioner demonstrated factually, there was no genuine

disallowance until April 1995, no “tolling” is necessary,

equitable or otherwise.

The question presented by the conflict between this

case and the foregoing authorities is set forth above as

petition Question 2. This is an important corollary to

question 1, in that it presents a closely related issue

where the Service is similarly seeking to exalt form over

substance. Taxpayers must be able to employ a normal

arsenal of fact-based argument in relevant context to

penetrate formalistic responses. Otherwise, a taxpayer-

favorable resolution of Question 1 might prove to be a

hollow victory.

>In the same vein, other courts have conducted

straightforward factual assessments of the course of dealing

between the taxpayer and the Service to resolve limitations

questions in the taxpayer’s favor without resort to equitable

tolling principles. E.g., Ohio Nat'l Life Ins. Co. v. United States,

922 F.2d 320, 326 (6th Cir. 1990); Southeast Bank of Orlando v.

United States, 676 F.2d 660, 664 (Ct. Cl. 1982); Beardsley v. United

States, 126 F. Supp. 775 (D. Conn. 1954).

CONCLUSION

Tie Court should grant the writ of certiorari to settle

two important federal questions relating to the meaning

and operation of 26 U.S.C. § 6532(a)(1) that it heretofore

has not addressed and to resolve the conflicts that the

decision below creates with the decisions of other federal

courts, including circuit courts, district courts and the

Court of Federal Claims, on these questions.

Respectfully submitted,

Davip W. Brown*

NorMAN G. KNopF

Knorr & BROWN

1050 Seventeenth Street, N.W.

Suite 1200

Washington, D.C. 20036

Telephone: (202) 785-8200

Attorneys for Petitioner

* Counsel of Record

INDEX TO THE APPENDIX

Page

Opinion of the U.S. Court of Appeals for the

Fourth Circuit affirming dismissal (July 11,

a ES SE Ay ae eee eee App. 1

Appellant’s Petition for Rehearing (August 20,

oo, SE SEES CE reer ne eee App. 6

Order of the Fourth Circuit denying Petition for

Rehearing (November 24, 1997).............. App. 16

Mandate of the Fourth Circuit (December 2,

NE SSO ee eee App. 17

Complaint, U.S. District Court for the District of

Maryland (March 8, 1996) ................... App. 18

Bench Decision of U.S. District Judge Walter E.

Black, Jr. (November 8, 1996)................ App. 25

Final Judgment of the U.S. District Court (Novem-

TEE ee pee ae a eee ae ee App. 34

Internal Revenue Service Letter to A. Eugene Mil-

og. en een ae App. 35

Internal Revenue Service Letter to David W.

ne App. 37

Internal Revenue Service Letter to David W.

Brown (November 2, 1995) ................. App. 41

Plaintiff's district court Appendix A to Opposition

to Motion to Dismiss —- Standard IRS Income Tax

Refund Claim Processing Standards and Pro-

Ng Gai se hepa os 415 644i deve xed vee kok App.

App. 1

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

A. EuGENE MILLER

Plaintiff-Appellant,

No. 96-2787

UNiteD STATES OF AMERICA.

Defendant-Appellee.

Nee ee eee eee ee ee”

Appeal from the United States District Court

for the District of Maryland, at Baltimore.

Walter E. Black, Jr., Senior District Judge.

(CA-96-716-B)

Submitted: June 30, 1997

Decided: July 11, 1997

Before MURNAGHAN and HAMILTON,

Circuit Judges, and PHILLIPS,

Senior Circuit Judge.

Affirmed by unpublished per curiam opinion.

COUNSEL

David W. Brown, Norman G. Knopf, KNOPF & BROWN,

Washington, D.C., for Appellant, Loretta C. Argrett,

Assistant Attorney General, Richard Farber, Paula K.

Speck, Lynne A. Battaglia, United States Attorney, Tax

Division, UNITED STATES DEPARTMENT OF JUSTICE,

Washington, D.C., for Appellee.

App. 2

Unpublished opinions are not binding precedent in this

circuit. See Local Rule 36(c).

OPINION

PER CURIAM:

Miller appeals from the district court’s order dismiss-

ing his tax refund suit for lack of subject matter jurisdic-

tion because he failed to file his suit within the two-year

statute of limitations provided by I.R.C. § 6532(a).* We

affirm.

In February 1990, Miller received a lump-sum distri-

bution from his tax sheltered annuity (TSA) in the

amount of $168,028.40. He did not roll over any part of

the distribution into an Individual Retirement Account

(IRA). See I.R.C. § 403(a). In April 1991, after learning that

the distribution did not qualify for ten-year averaging,

Miller paid the income taxes due for 1990 on the entire

distribution. In November 1991, Miller filed an amended

1990 income tax return (Form 1040X) along with a six-

page letter requesting a refund of the taxes paid so that

he could roll over the distribution to his IRA.

The Director of the IRS’s Philadelphia Service Center

sent Miller a certified letter, dated January 13, 1992, noti-

fying him that his claim was disallowed and stating, “If

you want to bring suit to recover tax, penalties, or other

amounts, you may do so by filing with the United States

* All section references are to the Internal Revenue Code as

amended and in effect for the tax year at issue.

App. 3

District Court. ... The law permits you to do this within

two years from the mailing date of this letter.” Miller

wrote back to the IRS reiterating his contention that he

should be allowed to roll over the distribution and

requested a meeting with IRS officials. The IRS wrote

back to Miller on February 21, 1992, inviting him to call

the Philadelphia office or the local IRS office if he had

any further questions, and reminding Miller that, “As

stated in our previous letter, you may bring suit in a

United States District Court or a United States Claims

Court.” Miller and the IRS continued a series of letter

exchanges throughout 1992 and 1993, along with a letter

ruling request filed by Miller’s attorney in January 1995.

The IRS responded to the letter ruling request with a

letter dated April 25, 1995, stating that the 60-day roll-

over period did apply to Miller’s TSA distribution (see

I.R.C. §§ 402(a)(5)(C), 403(a)(4)(B)); that the IRS had no

statutory discretion to extend the 60-day time period; and

that Miller’s TSA distribution was not eligible for ten-

year averaging.

After another meeting with IRS officials, the Assis-

tant Commissioner for Employee Plans and Exempt Orga-

nizations sent Miller’s attorney a letter dated November

2, 1995, stating: “Counsel advises that I have no legal

authority to grant or deny your claim after the expiration

of a two year period following the notice of disallowance

(See section 6532 of the Internal Revenue Code).” Miller

filed a suit for refund of taxes on March 8, 1996. The

district court dismissed the suit for lack of subject matter

jurisdiction under I.R.C. § 6532(a) because it was not filed

within two years of the notice of disallowance. Miller

appeals.

App. 4

A taxpayer must bring a suit for a refund within two

years from the mailing date of the notice of disallowance

of a refund claim. I.R.C. § 6532(a)(1). Except in limited

circumstances not present here, compliance with the time

provisions of § 6532(a) are jurisdictional. See Webb v.

United States, 66 F.3d 691 (4th Cir.1995) (equitable tolling

principles do not apply to tax refund suits), cert. denied,

___:;U.S. __, 65 U.S.L.W. 3584 (U.S. Feb. 24, 1997) (No.

95-1360). Once the IRS mails a notice of disallowance,

“any consideration, reconsideration, or action by the Sec-

retary” with respect to the taxpayer’s claim for a refund

does not toll the running of the two-year statute of limita-

tions. I.R.C. § 6532(a)(4). Rather, an extension of the lim-

itations period must be agreed to in writing between the

taxpayer and the IRS. I.R.C. § 6532(a)(2). It is undisputed

that Miller never entered into a written agreement with

the IRS to extend the two-year period.

Miller maintains, first, that the January 13, 1992, let-

ter was insufficient to trigger the limitations period

because it did not properly address each of the arguments

in his refund claim. Our review of the record discloses

that this claim is without merit. The notice sent to Miller

was unambiguous in informing him of the Commis-

sioner’s disallowance of his refund claim — the tax year,

type of tax, and amount of refund claimed were all identi-

fied, and the letter included a brief explanation of the

reasons for disallowance. See Smith v. United States, 478

F.2d 398, 399 (5th Cir. 1973) (“So long as the taxpayer

receives adequate notice of the Commissioner’s disal-

lowance, no particular form of notice is necessary to start

the running of the period of limitations.”).

App. 5

Next, Miller claims that the Commissioner’s failure

to send him a “Thirty-Day Letter,” as recommended by

the Internal Revenue Manual, rendered his notice of dis-

allowance ineffective. However, it is well-settled that

Internal Revenue Manual provisions do not confer pro-

cedural or substantive rights upon taxpayers. See United

States v. Caceres, 440 U.S. 741, 752-53 (1979); Smith v.

United States, 478 F.2d at 400. Therefore, this claim fails as

well.

Accordingly, we affirm the district court’s order dis-

missing Miller’s suit. We dispense with oral argument

because the facts and legal contentions are adequately

presented in the materials before the court and argument

would not aid the decisional process.

AFFIRMED

App. 6

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DOCKET NO. 96-2787

A. EUGENE MILLER,

Plaintiff/ Appellant,

UNITED STATES OF AMERICA,

Defendant/ Appellee.

PETITION FOR REHEARING

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

David W. Brown

Norman G. Knopf

Knopf & Brown

1200 Seventeenth Street, N.W.

Suite 1200

Washington, D.C. 20036

(202) 785-8200

Counsel for Appellant

App. 7

INTRODUCTION

Appellant, A. Eugene Miller, through undersigned

counsel, respectfully petitions the Court for rehearing of

the above-captioned appeal pursuant to Rule 40 of the

Federal Rules of Appellate Procedure. In counsel’s judg-

ment, the Court’s unpublished per curiam opinion of July

11, 1997 overlooks material factual or legal matters. Spec-

ifically:

1. Contrary to the Court’s assessment of the facts,

Decision at 4, the notice of disallowance sent to Mr. Miller

did not contain an explanation of the reasons for disal-

lowance of Mr. Miller’s tax refund claim. Two indepen-

dent, mutually exclusive grounds for the refund were

presented, and the notice plainly fails even to mention,

let alone address, the second of these.

2. The Court states that Mr. “Miller claims that the

Commissioner’s failure to send him a ‘Thirty-Day letter’

as recommended by the Internal Revenue Manual, ren-

dered his notice of disallowance ineffective.” Decision at

4. Mr. Miller has made no such claim. The Court has

mistakenly reiterated the Government’s mischaracteriza-

tion of his claim and has therefore failed to come to grips

with his real claim - that the entire course of dealings

between Mr. Miller and the Internal Revenue Service

(“IRS” or “Service”) raises triable issues of jurisdictional

fact.

ARGUMENT

The Court has elected to dispense with oral argument

and dispose of this case in a brief, per curiam opinion.

App. 8

Appellant had requested oral argument and the Govern-

ment had acknowledged that while it did not consider it

“essential,” it “might be helpful to the Court.” Gov. Br.

33. Oral argument would certainly have allowed counsel

for appellant to highlight the factual and legal miscon-

ceptions that animate the Court’s decision, which draw

directly upon the Government's bald mischaracterization

of the record and of Mr. Miller’s claims.

I. THE COURT HAS MISTAKENLY CONCLUDED

THAT THE NOTICE OF DISALLOWANCE

ADDRESSES BOTH OF MR. MILLER’S GROUNDS

FOR A TAX REFUND

The Court rejects as “without merit” the claim that

the letter sent to Mr. Miller “was insufficient to trigger

the limitations period because it did not properly address

each of the arguments in his refund claim.” Decision at 3.

According to the Court, this is the correct result because,

in addition to correctly identifying the tax and refund

amounts, “the letter included a brief explanation of the

reasons for disallowance.” Id. at 4.

This assessment is factually incorrect and, as a result,

legally erroneous. The “explanatory” part of the notice

reads as follows:

We have disallowed the claim because your dis-

tribution does not qualify for the Form 4972,

special treatment. Since the money you contrib-

uted to your TSA, was not taxable when the

contributions were made to your TSA. Also, a

rollover from a TSA to an IRA must be made

within the 60 day period.

App. 9

(JA 90) (emphasis added). The language employed in this

paragraph is plainly and unambiguously directed at

explicitly rejecting Mr. Miller’s refund claim on a ground

he never presented, i.e., entitlement to use ten-year aver-

aging (Form 4972). App. Br. 23; Reply Br. 19-20. Given

this obvious mistake by the Service, one would expect the

Court to give no credence to this “explanatiom” in deter-

mining whether Mr. Miller’s grounds have been subject

to “disallowance,” as that term is to be understood in 26

U.S.C. § 6532(a)(1). But the Court’s decision does not

even acknowledge that the facts squarely present an

obvious dichotomy between claim and response.

Ignoring the prospect that the “disallowance” as a

whole is defective, the Government attempted to justify

the explanation on the basis of the third sentence as if it

existed in isolation from the rest of the paragraph. But

even under this overly indulgent approach, the “explana-

tion” still squarely presents a fact-dependent “disal-

lowance” issue that the Court’s decision fails to

acknowledge, let alone come to grips with. Mr. Miller’s

refund grounds were: (1) no rollover period exists

because there is no regulation prescribing one; and (2)

even if a rollover period exists, it is not statutory and may

be extended at the discretion of the Commissioner in a

appropriate case, and his is such a case. Reply Br. 20. The

district court, though it reached the wrong legal conclu-

sion about the significance of the omission, clearly under-

stood that the “Also” sentence in the notice was not

responsive to Mr. Miller’s claims, and Government trial

counsel did not dispute this assessment. App. Br. 9.

The Court’s failure to acknowledge and deal with the

obvious defects in the “explanation” trivializes a case

App. 10

squarely presenting the issue of what constitutes the

essential elements of a notice that merits treatment as a

“disallowance” as Congress employed that term. Mr. Mil-

ler has never asserted that for a purported “disal-

lowance” to be effective for limitations purposes, it must

“fully discuss” the taxpayer’s grounds; that is one of the

numerous Government straw-man mischaracterizations

of his claims. Rather, his claim is that the notice must, one

way or another reflect on its face that consideration of the

grounds presented did take place in issuing it. Reply Br.

8, 10-11. If the “disallowance” fails this simple test, it is

unworthy of recognition as such under § 6532(a)(1) unless

the Service can establish actual consideration and rejec-

tion of the ground, apart from the omission in the notice.

Reply Br. 17-18. In this case, the Service is conspicuously

silent on whether the merits were resolved in issuing the

notice, raising, at a minimum, triable issues of jurisdic-

tional fact. Id. at 21-23.

The Court’s opinion does not deal with this simple

and straightforward standard for evaluating a disal-

lowance. Instead the court cites Smith v. United States, 478

F.2d 398, 399 (5th Cir. 1973), a case relied upon heavily by

the Government. Decision at 4. But the cited dicta in

Smith is unhelpful in deciding this case because Smith

involved a disallowance with only a trivial asserted

defect, not the sort of fundamental, facially obvious mis-

match between ground-for-claim and ground-for-disal-

lowance present here. App. Br. 32-33. But regardless of

how indulgent a standard the Court applies to purported

disallowances, nothing can alter the fact that the “disal-

lowance” in this case is completely silent on the request

App. 11

for a discretionary extension of the rollover period — Mr.

Miller’s second ground for refund.

If this defect in the notice were overlooked, the IRS

could routinely reject multiple-ground refund claims on

the basis of any one ground presented, and ignore the

other grounds. Such an outcome would be inconsistent

with the many cases that have established that the two-

year period from rejection of a first claim is expanded

when a second timely claim is filed alleging a different

ground for recovery. App. Br. 31. Mr. Miller cannot be

deemed worse off, having filed, simultaneously with his

first ground, a second ground that is just as unconsidered

and unrejected as if he had elected to file it instead long

after the notice issued (which, in this case, he could have

done well within the two-year period).

If the Court concludes, as it should, that at a mini-

mum there are triable issues of jurisdictional fact regard-

ing disallowance of the second ground for relief, it would

also be justified in concluding that there are triable issues

on the first ground as well. Mr. Miller acknowledges,

however, that his case is more compellingly clear on the

second ground, because, by being extraordinarily indul-

gent of ambiguous notices, the Court could conceivably

conclude that the tagalong third sentence can be viewed

as at least indirectly rejecting Mr. Miller’s first ground,

i.e., that there is no rollover period specified by regula-

tion. But this only highlights the glaring omission of any

rejection of the second ground, i.e., the discretionary roll-

over extension, which the Government lamely tries to

explain with post hoc rationalization. Gov. Br. 17. The

—

App. 12

Government's preference for excuses over facts is under-

standable: subsequent events revealed that the office issu-

ing the “disallowance” (the Philadelphia Service Center)

had neither the expertise nor the authority to act on the

extension request; it was finally handled at the National

Office. App. Br. 12-16.

In the final analysis, the merits of Mr. Miller’s tax

refund claim, as pursued on appeal, implicate the second

ground for relief only, not the first ground. App. Br.

42-49. Hence, notwithstanding Mr. Miller’s belief that the

first ground for relief was not considered and rejected in

the purported disallowance, part I of this petition for

rehearing is directed solely at the Court’s most clear-cut

factual error regarding the purported “disallowance;” i.e.,

its statement that the purported “disallowance” con-

tained an explanation of reasons that the Court appar-

ently believes was inclusive of both grounds for the

refund claim. The record actually discloses (or, equiva-

lently, raises triable issues of jurisdictional fact) that Mr.

Miller’s request for a discretionary extension of the roll-

over period was not considered and was not made the

subject of a legally cognizable “disallowance” in January

1992; such a notice did not issue until April 1995. The

Court should therefore grant rehearing on the question of

the inadequacy of the notice as a limitations trigger.

II. THE COURT HAS MISAPPREHENDED MR. MIL-

LER’S CLAIM REGARDING OTHER SERVICE

ACTS OR OMISSIONS

The Court has also misapprehended Mr. Miller’s

claim as it related to matters outside the limited purview

App. 13

of the notice of disallowance and the events leading to its

issuance. Relying on further mischaracterization by the

Government, Gov. Br. 30-31, the Court states that Mr.

Miller claims that the Service’s failure to send him a

“Thirty-Day Letter, as recommended by the Internal Rev-

enue Manual, rendered his notice of disallowance ineffec-

tive.” Decision at 4. The Court will find no such claim in

Mr. Miller’s Brief. Nothing Mr. Miller has said at any

point is in conflict with the Court’s observation that the

Internal Revenue Manual does not confer procedural or

substantive rights on taxpayers. Id.

What the Court’s decision does is mistakenly knock

down the Government straw-man rather than address Mr.

Miller’s actual claim. He clearly and unambiguously

relies on First Alabama Bank, N.A. v. United States, 981 F.2d

1226 (11th Cir. 1993), not to assert procedural or substan-

tive rights, but rather to invoke the Service’s failure to

follow its own rules and procedures as evidence “that

what in fact transpired was not” what the Service claimed

it to be. First Alabama, supra, 981 F.2d at 1230 n.5. App. Br.

38 & n.14. The legal standard to be applied is whether

there is any

reasonable confusion on the part of the taxpayer

as to the effect of the original . . . statutory

notices of disallowance.

981 F.2d at 1230 n.5.

Mr. Miller’s Opening Brief discusses this and similar

“reasonable confusion” cases and applies this standard

not to the thirty-day letter or any other event in isolation,

but to the entire course of dealing between him and the

Service, before and after issuance of the notice, to show

App. 14

that the purported notice of disallowance was not

regarded as such by him or the Service. App. Br. 33-42. In

such an evaluation, departures from the normal mode of

processing have obvious evidentiary value in determin-

ing what happened, wholly apart from the lack of any

taxpayer “rights” associated with processing norms. First

Alabama recognized this, and explicitly contrasts the evi-

dentiary rule with its complementary belief that the Ser-

vice’s “intra-agency operating procedures” are “not

judicially enforceable against the agency” and “do not

delineate substantive rights of individuals.” 981 F.2d at

1230 n.5.

This Court, of course, may not consider itself obliged

to follow First Alabama, to give any credence to process-

ing abnormalities in assessing the “reasonable confusion”

issue, Or even to accept the “reasonable confusion” stan-

dard. But by accepting at face value the Government's

flagrant mischaracterization of Mr. Miller’s claim, the

Court has avoided these issues in a way that simply

cannot withstand scrutiny. The Court should grant the

petition so that it may decide the claim Mr. Miller actu-

ally raised, not claims the Government would prefer to

answer.

CONCLUSION

For the foregoing reasons, appellant respectfully

requests that the Court grant the petition for rehearing. In

light of the record and the Government’s approach to this

case, Appellant believes that oral argument is more

essential than ever to a proper resolution of this case.

App. 15

Appellant accordingly requests that the Court, in grant-

ing the petition, schedule the case for oral argument.

Respectfully submitted,

/s/ David W. Brown

David W. Brown

Norman G. Knopf

KNOPF & BROWN

1050 Seventeenth Street,

N.W.

Suite 1200

Washington, D.C. 20036

August 20, 1997

App. 16

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FILED

November 24, 1997

No. 96-2787

CA-96-716-B

A. EUGENE MILLER

Plaintiff-Appellant

UNITED STATES OF AMERICA

Defendant-Appellee

ORDER

The appellant has filed a petition for rehearing.

The Court denies the petition for rehearing.

For the Court,

/s/ Patricia S. Connor

CLERK

App. 17

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FILED

December 2, 1997

No. 96-2787

CA-96-716-B

Miller v. US

MANDATE

The judgment of this Court dated 7/11/97 takes

effect today.

PATRICIA S. CONNOR

CLERK

App. 18

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

A. EUGENE MILLER

6433 Weems Avenue

Fairhaven, Maryland 20754, Civil Action

Plaintiff, No. B-96-716

Vv (Filed

; Mar. 8, 1996)

UNITED STATES OF AMERICA,

Defendant.

eee eee eee eee

COMPLAINT FOR REFUND OF INCOME TAXES

Plaintiff, A. Eugene Miller, by his counsel, Knopf &

Brown, alleges, upon knowledge, information and belief

as follows:

1. Plaintiff brings this action pursuant to § 7422 of

the Internal Revenue Code, 26 U.S.C. § 7422, for refund of

income taxes paid for calendar year 1990.

2. Plaintiff A. Eugene Miller is a citizen of the state

of Maryland, residing at 6433 Weems Avenue, Fairhaven,

Maryland 20754.

3. Defendant is the United States of America.

4. This Court has subject matter jurisdiction under

28 U.S.C. § 1346(a)(1). :

5. Venue is proper in this district under 28 U.S.C.

§ 1391(e)(3) in that plaintiff resides in this district.

6. Plaintiff retired in 1989 from the Insurance Insti-

tute for Highway Safety. As an Institute Vice-President

App. 19

for seventeen years, plaintiff participated in a tax-shel-

tered annuity (TSA), funded in significant part with his

own contributions over a period of many years.

7. Subsequent to retirement, plaintiff planned to roll

over all or most of his TSA into one or more of his

Individual Retirement Accounts (IRA’s). Accordingly,

plaintiff elected to receive a lump-sum distribution of the

entire amount in his TSA. Plaintiff received a check for

$168,028.47 in February 1990, from Prudential Asset Man-

agement Company, which administered his TSA. Pruden-

tial did not at that time advise plaintiff of any options for

postponing or reducing 1990 taxation on the distribution.

8. Prior to actually rolling over this total TSA distri-

bution, plaintiff, who had always prepared his own

income tax returns with little or no difficulty, first consul-

ted then-available Internal Revenue Service (IRS) forms

and publications relevant to a review of all available

options for disposition and taxation of his distribution.

Based upon this inquiry, plaintiff was led to the reason-

able and logical conclusion that his TSA distribution was

eligible for special ten-year averaging, using Form 4972.

9. Plaintiff’s conclusion was reasonable and logical.

Plaintiff did not find out until indirectly informed by

Prudential in January 1991 that the IRS information, on

which his decision was based, was wrong. Plaintiff had

relied upon then-current IRS Form 4972 and Publications

571 and 575 (1989 tax year versions), which later proved

to contain information that misstates the applicable tax

law. Indeed, any reasonable person, giving the same care-

ful perusal to these documents as did plaintiff, could only

App. 20

have reached the same reasonable conclusion that plain-

tiff reached.

10. The problem with the IRS documents relied

upon by plaintiff persisted for only the year in which

plaintiff consulted them. Had plaintiff, for example,

received his TSA distribution in either 1989 or 1991, and

made in either of those years the same inquiry into the

then-current versions of the same IRS form and publica-

tions, he would not have been led to believe that the use

of special ten-year averaging was applicable to his TSA

distribution.

11. Acting on the reasonable belief that he could use

Form 4972, plaintiff elected not to roll over all or any part

of his TSA distribution into one or more of his IRA’s in

1990. Accordingly, he paid estimated tax during 1990 that

would have been due under ten-year averaging. Plaintiff

concluded that although his total tax liability for 1990

would be higher this way than using IRA rollovers, he

preferred to pay more in exchange for the greater flex-

ibility he would have in use of the TSA distribution

funds.

12. In 1991, after being advised by Prudential that

he could not utilize special ten-year averaging, and

unsure of the continued availability of either this option

or the rollover option, plaintiff paid in full the remainder

of his 1990 income taxes on April 15, 1991 reporting and

paying taxes on, inter alia, the entire $168,028.47 TSA

distribution.

13. After exhaustive research as to his rights and in

consultation with counsel, on November 22, 1991, plain-

tiff submitted a 1040X to IRS for 1990 along with an

App. 21

explanatory letter. Plaintiff sought a tax reduction of

$35,894 for 1990, upon the condition that he roll over over

$108,528 of his TSA distribution. This request was based

on the alternative grounds that (a) the rollover was timely

because IRS had failed to promulgate a time period by

regulation for total TSA lump-sum distributions, citing 26

U.S.C. § 403(b)(8)(C), or (b) this was an appropriate case

for extension of the rollover period, pursuant to IRS

Regulation 1.9100.1. The letter extensively documented

the request and discussed the equitable and other criteria

that govern requests of the type governed by Regulation

1.9100.1.

14. On January 13, 1992, IRS sent plaintiff a letter

purporting to be a disallowance of his claim. The letter,

however, did not address the merits of either of the

grounds presented by plaintiff for the claim; instead, the

denial was based on the IRS’ erroneous belief that plain-

tiff was trying to rely on special ten-year averaging and

Form 4972. Plaintiff pointed out this error to IRS in a

responsive letter of January 27, 1992, to which another

non-responsive letter was sent by IRS on February 21,

1992.

15. Thereafter, in an effort to resolve this matter on

the merits with IRS without resort to litigation, plaintiff

diligently pursued his claims with the IRS through appeal

and other administrative mechanisms. During this pro-

cess, plaintiff also timely filed a revised 1040X for 1990 on

April 11, 1994, increasing the requested refund to $47,418,

based upon a proposed rollover of $149,078. IRS has

never responded to this revised 1040X.

App. 22

16. Plaintiff’s claim underlying his first 1040X

refund request relying on § 403(b)(8)(C) of the Code,

which did not specify an IRA rollover period for TSA

distributions, was denied for the first time by letter of

May 11, 1994 from the Washington Appeals Office of IRS.

This denial was legally erroneous.

17. Plaintiff’s claim underlying his first 1040X

refund request relying on Regulation 1.9100.1 was

bounced from office-to-office within IRS, starting with

the Philadelphia Service Center, then the Baltimore Dis-

trict Office, the Washington Appeals Office and finally

the National Office. At the Baltimore District and Wash-

ington Appeals Offices, plaintiff had face-to-face meet-

ings with IRS personnel who, while favorably disposed to

grant him relief, invariably referred the matter on to

other offices for further action. Even the National Office

characterized Mr. Miller as a “sympathetic taxpayer.”

Following a meeting with National Office staff on Decem-

ber 13, 1994, and pursuant to their suggestion, plaintiff's

claim was resubmitted in the form of a letter ruling

request to the Assistant Commissioner, Employee Plans

and Exempt Organizations, on January 11, 1995. The

request was denied by letter of April 25, 1995.

18. In the period trom April 25, 1995 to the present,

plaintiff has sought unsuccessfully to persuade the Assis-

tant Commissioner, Employee Plans and Exempt Organi-

zations, to reverse the decision issued on that date.

19. Plaintiff has overpaid his federal income taxes

for the year 1990 because IRS has erroneously refused to

allow him a refund conditioned upon IRA rollover on

either of the grounds set forth in his refund requests.

App. 23

20. The denial of plaintiff's first 1040X refund

request and defendant's failure to act on plaintiff’s sec-

ond 1040X refund request were erroneous and arbitrary,

in that the requests were conditioned upon rollovers that

either (a) were not untimely when requested because no

rollover period had been prescribed by regulation, as

required by § 403(b)(8)(C) of the Code; or (b) were allow-

able pursuant to Regulation 1-9100-1 and its successors,

because no rollover period is expressly prescribed by law

and because plaintiff otherwise demonstrated that he sat-

isfied all the criteria for relief under Regulation 1.9100-1.

21. Plaintiff has paid the disputed taxes in full and

on time.

22. Plaintiff has filed timely refund claims for the

disputed taxes. Plaintiff has initiated a timely refund suit

for the disputed taxes. Plaintiff is the sole owner of the

refund claims at issue, and has made no assignment of

such claims.

WHEREFORE, plaintiff respectfully requests that the

Court enter judgment against the defendant and:

(a) award plaintiff $47,418 plus interest or $35,894

plus interest;

(b) direct defendant to accept plaintiff’s second or

first claim for refund of 1990 taxes, conditioned

upon the IRA rollover described in such claim;

of this proceeding to plaintiff; and

(d) grant such other and further relief as may seem

just and proper to this Court.

App. 24

DEMAND FOR JURY TRIAL

Plaintiff demands a trial by jury of any issue triable

of right by a jury in this action.

Respectfully submitted,

/s/ Norman G. Knopf

Norman G. Knopf

KNOPF & BROWN

1050 Seventeenth Street,

N.W.

Suite 1200

Washington, D.C. 20036

Telephone: (202) 785-8200

Attorneys for Plaintiff

March 8, 1996

App. 25

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

A. EUGENE MILLER,

Plaintiff,

UNITED STATES OF

AMERICA,

Defendant.

Case No. B-96-716

Baltimore, MD 21201

November 8, 1996

* 101 W. Lombard Street

* 10:30 a.m.

Se a a a ae ee a a a a a a a

TRANSCRIPT OF MOTIONS HEARING

BEFORE THE HONORABLE WALTER E. BLACK, JR.

UNITED STATES DISTRICT COURT JUDGE

APPEARANCES:

For the Plaintiff:

For the Defendant:

Audio Operator:

Transcription Service:

DAVID BROWN, ESQUIRE

1050 17th Street, N.W.

Suite 1200

Washington, DC 20036

JAMES J. WILKINSON, ESQUIRE

U.S. DEPARTMENT OF JUSTICE

P.O. Box 227

Trial Attorney-Tax Division

Washington, DC 20044

Cornel Lunkin

MONIQUE E. GIBSON

M.E.G. TYPING &

TRANSCRIPTION

Proceedings recorded by electronic sound recording,

transcript produced by transcription service.

App. 26

M.E.G. Typing & Transcription

2743 Singer Woods Drive

Abingdon, MD 21009

(410) 515-7036

[p. 65] THE CLERK: Please rise. This Honorable

Court now stands in recess.

(Recess.)

THE CLERK: Please rise. This Honorable Court

now resumes its session.

THE COURT: Counsel, I will rule on this matter

today by means of an informal oral opinion reserving the

right to edit that opinion if it is transcribed for any

reason.

Presently pending before the Court is Defendant

United States’ motion to dismiss Plaintiff’s complaint, it

is Paper 9 in the court file. In February 1990, plaintiff, A.

Eugene Miller, received a $168,028 distribution from a tax

sheltered annuity, a TSA. Rather than rolling this distri-

bution over into other investments, plaintiff consulted

IRS forms and publications that led him to believe he

could utilize a special 10 year averaging. In early [p. 66]

1991, Miller was informed that he could not utilize 10

year averaging. Subsequently on April 15, 1991, he paid

taxes on the entire distribution with the intent of seeking

a refund upon the condition that he rollover $108,528 of

the distribution.

On November 22, 1991, Miller submitted a claim for

refund to the IRS seeking a refund of income taxes for

calendar year 1990 in the amount of $35,894. The IRS

App. 27

issued a notice of disallowance of Miller’s claim on Janu-

ary 13, 1992. On March 6th - excuse me, on March 8, 1996,

Miller filed a complaint for refund of income taxes in this

court. Defendant, United States of America, filed the

present motion on July 22, 1996 and asserts that the

complaint must be dismissed pursuant to Rule 12(b)(1) of

the Federal Rules of Civil Procedure on the basis that the

complaint was filed more than two years after the issu-

ance of the notice of disallowance, and therefore is barred

by the two year of statute of limitations periods in 26

USC Section 6532(a).

In the alternative, defendant contends that the com-

plaint must be dismissed pursuant to Rule 12(b)(6) of the

Federal Rules of Civil Procedure because the Commis-

sioner of the IRS is without authority to permit a rollover

to be made at this time since plaintiff did not comply

with the 60 day rollover period prescribed by 26 United

States Code Section 403(b)(8)(c). Miller opposes the

motion on both grounds.

[p. 67] With respect to defendant's statute of limita-

tions defense, Miller contends that the notice of disal-

lowance was ineffective, and therefore did not trigger the

limitations period. Miller maintains that the notice was

ineffective for three reasons: One, because the IRS did not

send a 30 day letter before issuing the notice of disal-

lowance; two, because the IRS had not yet considered the

merits of plaintiff's two grounds for relief; and three,

because after the notice of disallowance was issued, Mil-

ler believed it was withdrawn for reconsideration.

Further, Miller asserts that at minimum, he has estab-

lished a disputed issue of fact as to jurisdiction that ought

App. 28

to be resolved by a jury. As to defendant’s rule 12(b)(6)

ground for dismissal, Miller asserts that the former Sec-

tion 403(b)(8)(c) does not expressly prescribe a rollover

period for tax sheltered annuities, and either that the 60

day rollover period does not apply or that the IRS Com-

missioner has discretion to allow the rollover pursuant to

the Treasury regulation 301.9100-1. In addition, Miller

asserts that it would be an abuse of this discretion for the

Commissioner to refuse to exercise his discretion in Mil-

ler’s favor by granting his refund.

Sovereign immunity principles dictate that, “The

United States as sovereign is immune from suit, save as it

consents to be sued. And the terms of its consent to be [p.

68] sued in any court define that Court’s jurisdiction to

entertain that suit.” I am quoting from United States v.

Teston, 424 US 392 at 399, 1976, which in turn is quoting

United States v. Sherwood, 312 US 584 at 586, 1941. Also

citing Webb v. United States, 66 F.3d 691 at 693, Fourth

Circuit, 1995.

“The statute of limitations requiring that a suit

against the Government be brought within a certain time

period constitutes a condition on the Government's

waiver of immunity.” United States v. Motez, 476 US 834 at

841, 1986. As such, the statute of limitations should be

“construed strictly in favor of the sovereign and not in

large beyond what the statutory language requires.” Quo-

ting from Webb at 693 which in turn is quoting from

Ruckleshouse VCR Club, 463 US 680 at 685, 1983.

Indeed, statutes of limitations are construed more

strictly in favor of the Government in tax cases than in

other cases, referring to Webb at 698 and 99, concluding

PORE Ne

App. 29

that a rebuttal presumption of equitable tolling which the

Supreme Court had applied in a Title VII suit against the

Government in Irwin v. Department of Veterans Affairs, 498

US 89, 1990, is not applicable in tax refund suits because

of the well established significance of statutes of limita-

tions in tax cases and the limited relevance of equitable

principles in such cases.

[p. 69] Miller filed his claim pursuant to the civil

actions for refund provisions of the Internal Revenue

Code, 26 United States Code, Section 7422. Section

6532(a)(1) of the Code contains a two year limitations

period. It requires a taxpayer suing for refund under

Section 7422(a) to bring suit within two years from the

date a notice of disallowance was mailed. This limitations

period cannot be easily breached. Quoting, “The tax-

payers’s inadvertence, neglect or application for recon-

sideration of an administrative disallowance will not toll

the statute. Moreover, the IRS’ reconsideration and affir-

mance of a disallowance will not suffice to extend the

time.” Quoting from Dalton v. United States, 800 F.2d 1316

at 1319, Fourth Circuit, 1986.

The Code itself provides that “any consideration,

reconsideration, or action by the IRS following the mail-

ing of a notice of disallowance shall not operate to extend

the period within which suit may be begun.” Quoting

from Section 6532(a)(4). “Nevertheless, the Government

may be precluded from relying on this limitations period

on equitable grounds under certain circumstances,” citing

Dalton again. “For example, equitable estoppel has been

applied against the Government when during the time

that the two year limitations period was already running,

the IRS incorrectly informed the taxpayer in writing that

App. 30

the [p. 70] taxpayer had two years from the mailing date

of a later disallowance notice in which to file suit.” See,

for example, Southeast Bank of Orlando v. United States, 676

F.2d 660 at 661, Court of Claims, 1982; and Heath v. United

States, 219 Court of Claims 582, 1979. Equitable estoppel

has also been implicated when a notice of disallowance

was issued after the taxpayer signed “waiver of notice of

disallowance,” in circumstances where the taxpayer’s

claim was not timely according to the date the waiver

was signed, but was timely according to the date the

notice was mailed. See, for example, Exchange and Savings

Bank of Berlin v. United States, 226 FSupp 556 at 58,

District of Maryland, 1964; Miller v. United States, 500 F.2d

1007 at 1008 and 1009, Second Circuit, 1974; and Ohio

National Life Insurance Company, 922 F.2d at 326 and 327.

Further, a Court has extended the limitations period

when am [sic] employee of the IRS toid the taxpayer to

ignore the notice of disallowance, Beardsley v. United

States, 126 FSupp 775 at 776, District of Connecticut,

1954.

In other cases, courts have found that the statute

does not run when the IRS refuses to consider a claim

that was filed prematurely. For example, when the cor-

rectness of the tax refund claim was dependent upon the

outcome of a tax court case that had not yet been tried;

Schmidt v. Cavanaugh, 91 F.Supp 659 at 661, Eastern Dis-

trict of [p. 71] Michigan, 1959, or when the notice does

not completely disallow the taxpayer’s claim. For exam-

ple, when the notice reserves part of plaintiff’s claim for

further consideration; Clinton Trust Company v. United

States, 52 F.Supp 671 at 679, Court of Claims, 1943, find-

ing that “where the Commissioner did not reserve any

—EE————— EE

MAGEE PIM HT

App. 31

question for further consideration but merely gave a bad

reason for the disallowance, the statute of limitations was

not tolled.”

In the present case, the notice of disallowance was

mailed on January 13, 1992, and it contained the follow-

ing language: “This letter is your legal notice that your

claim is disallowed. We have disallowed the claim

because your distribution does not qualify for the form

4972 special treatment since the money you contributed

to your TSA was not taxable when the contributions were

made to your TSA. Also, a rollover from a TSA to an IRA

must be made within the 60 day period.” And later, “If

you want to bring suit to recover tax, the law permits you

to do this within two years from the mailing date of this

letter.” In addition, the IRS sent a second letter on Febru-

ary 21, 1992 in which it reminded plaintiff of his option to

bring suit.

Because the notice of disallowance was issued more

than four years before Miller filed the present suit, the

Court must find that the statute has run unless one or

more of the equitable grounds cited above applies. Unfor-

tunately [p. 72] for plaintiff, nothing in the notice of

disallowance, in the subsequent letter, or in the facts of

this case, indicates that any ground for tolling the statute

of limitations exists here.

The IRS did not send Miller a second notice of

allowance, did not inform him orally to ignore the notice

of disallowance, and did not reserve part of plaintiff’s

claim for further consideration. Moreover, Miller never

signed a waiver of notice of disallowance and did not file

his claim with the IRS prematurely. Miller’s remaining

App. 32

grounds for finding the notice of disallowance ineffective

are also meritless.

The IRS’ failure to issue a 30 day letter does not

confer upon taxpayers procedural or a substantive right.

First Alabama Bank v. United States, 981 F.2d 1226 at 1230,

note five, Eleventh Circuit, 1993, finding that IRS operat-

ing procedures such as the 30 day rule that are contained

in the Internal Revenue manual, “Are a species of rule

that is not judicially enforceable against the agency.”

In addition, Miller has presented no issue of fact as to

defendant’s statute of limitations defense that would

require resolution by a trier of fact. The fact that the

specific grounds for his refund claim were not addressed

by the IRS in the notice of disallowance does not create

an issue of fact as to which the notice was ineffect [sic] —

whether [p. 73] the notice was ineffective.

“So long as a taxpayer receives adequate notice of the

Commissioner’s disallowance, no particular form of

notice is necessary to start the running of the period of

limitations.” Smith v. United States, 478 F.2d 398, at 399

and 400, Fifth Circuit, 1973, citing A.G. Reeves Steel Con-

struction Company v. Weiss, 119 F.2d 472, Sixth Circuit,

Cert Denied, 314 US 677, 1941. “Adequate notice consists

of a clear statement as to the tax year involved, the type

of tax, the exact amount of the refund sought, and the

disallowance,” citing Smith at 400.

The January 13, 1992 notice sent by the IRS to Miller

contained all of these elements. Moreover, the last sen-

tence of the relevant paragraph is responsive to the sub-

stance of the defendant's — of the plaintiff's claim.

App. 33

For all the foregoing reasons, Miller’s claim for

refund is barred by the statute of limitations. The Court

is, therefore, without subject matter jurisdiction to con-

sider the merits of Miller’s claims.

Accordingly, the Court will grant defendant’s pend-

ing motion to dismiss. The Court further notes that the

plaintiff would be unlikely to succeed on the merits even

if his claims were not time barred as Section 403(b)(8)(c)

of Title 26 does appear to incorporate the 60 day rollover

period set forth in 26 USC Section 402(a)(5)(c).

[p. 74] Counsel, I will enter a formal order in confor-

mity with this informal oral opinion. Thank you all very

much.

THE CLERK: Please rise. This Honorable Court

now stands adjourned.

(Whereupon, the proceedings concluded at 2:45 p.m.)

App. 34

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

A. EUGENE MILLER

UNITED STATES OF

AMERICA

bE EE Ee oe ae oe ae oe oe a ae oe oe Oe oe a oe oe

CIVIL NO. B-96-716

ORDER

Presently pending before the Court is defendant

United States’ Motion to Dismiss Plaintiff's Complaint

(Paper 9). The issues raised by the motion have been

briefed and the Court has had the benefit of oral argu-

ment at a hearing held today.

In accordance with the Court’s oral opinion and rul-

ings rendered in open court at the conclusion of the

hearing, IT IS, this 8th day of November, 1996, by the

United States District Court for the District of Maryland,

ORDERED:

(1) That defendant United States’ Motion

to Dismiss Plaintiff's Complaint (Paper 9) BE,

and the same hereby IS, GRANTED;

(2) That plaintiff's Complaint BE, and the

same hereby IS, DISMISSED; and

(3) That the Clerk shall mail a copy of this

Order forthwith to counsel of record.

/s/ Walter E. Black, Jr.

Walter E. Black, Jr.

Senior Judge

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App. 37

Internal Revenue Service Department of the Treasury

Washington, DC 20224

David W. Brown, Esquire Person to Contact:

Knopf & Brown Lawrence W. Heben,

1050 17th Street, N.W. Esquire

#1200

Telephone Number:

Washington, D.C. 20036 202-622-7736

Refer Reply to:

CP:E:EP:T:3

Date: APR 25 1995

Dear Mr. Brown:

This is in response to your letter of January 11, 1995,

written on behalf of Mr. A. Eugene Miller, in which you

ask the Internal Revenue Service to either enter into a

closing agreement with Mr. Miller to settle tax issues

described in your letter, or, in the alternative, issue a

letter ruling permitting Mr. Miller to roll over into an

individual retirement arrangement (IRA) a distribution

he received in February, 1990, from his section 403(b) of

the Internal Revenue Code tax-sheltered annuity. For the

reasons described herein, the Service declines to enter

into the requested closing agreement or issue the

requested letter ruling.

Code section 403(b) sets forth rules governing the

qualification of annuities purchased by tax-exempt orga-

nizations, and the taxation of distributions received from

the annuities. With respect to distributions received prior

to January 1, 1993, Code section 403(b)(8)(A) provided the

general tax-deferred rollover rules with Code section

403(b)(8)(C) providing, in pertinent part, that rules simi-

lar to the rules of subparagraphs (B), (C), and (F)(i) of

App. 38

section 402(a)(5) shall apply for purposes of subpara-

graph (A). Code section 402(a)(5)(C) provided that a

transfer (of a distribution from a qualified retirement

plan into an eligible retirement plan, e.g. an IRA) must be

made within 60 days of receipt of the distribution. Thus,

pursuant to Code section 403(b)(8)(C), a distribution

received from a section 403(b) annuity prior to January 1,

1993, must have been rolled over into an IRA within 60

days of receipt.

As noted above, the time period within which a tax-

deferred rollover of a pre-January 1, 1993 distribution

must have been accomplished was expressly prescribed

by section 403(b)(8)(C) of the Internal Revenue Code, a

federal statute found at Title 26, United States Code.

Furthermore, the Code applicable to pre-January 1, 1993

distributions did not provide for any exceptions to the 60-

day rollover period that would be relevant to your case.

Therefore, we do not believe there is any basis for issuing

a private letter ruling permitting your client to roll over

his pre-January 1, 1993 Code section 403(b) annuity dis-

tribution.

With respect to the applicability of the forward aver-

aging method of taxation to the 1990 distribution received

by Mr. Miller from his Code section 403(b) annuity, Code

section 402(e)(1) provided that lump sum distributions

were -eligible for 5-year averaging tax treatment as long

as the conditions of Code section 402(e) were met.

Section. 1124(h)(3) of the Tax Reform Act of 1986

(TRA ’86) provides that individuals who attained age 50

before January 1, 1986, can elect to have their lump sum

distributions taxed in accordance with the 10-year

App. 39

averaging method of taxation as found in the Code prior

to the effective date of TRA ‘86 in lieu of electing 5-year

averaging treatment.

With respect to the eligibility of a 1990 distribution

for either 5-year and 10-year averaging, section

402(e)(4)(A) of the Code provided that such eligible dis-

tribution must have been either from a trust which forms

part of a plan qualified under section 401(a) and which is

exempt from tax under section 501 or from a plan

described in section 403(a). Thus, under section 402(e) of

the Code, distributions from section 403(b) annuities

were not eligible for averaging treatment.

Code section 403(b), as effective with respect to 1990

distributions, contained no provision providing that said

distributions would be eligible for either 5-year or 10-

year averaging.

With specific reference to Mr. Miller’s situation, the

instructions for the Form 4972, Tax on Lump Sum Distribu-

tions, used by him to claim 10-year averaging with

respect to his Code section 403(b) annuity distribution

indicated that a qualifying lump sum distribution must

have been from a qualified pension, profit-sharing, or

stock bonus plan. This conforms with former Code sec-

tion 402(e)(4) which required an eligible lump sum distri-

bution be from either a qualified Code section 401(a) plan

or a section 403(a) plan. As noted above, a Code section

403(b) annuity is not a qualified Code section 401(a) plan.

Additionally, it appears from your January 11, 1995

letter that Mr. Miller made no attempt to verify that his

distribution was eligible for averaging. He did not

consult either the Code or the Income Tax Regulations

App. 40

promulgated thereunder; he did not consult a representa-

tive of the Service or seek tax advice from either a quali-

fied tax attorney or another tax professional; and he did

not contact Prudential Asset Management Company,

which administered his section 403(b) annuity, to verify

that his distribution was eligible for averaging. This con-

tact could have disposed of the issue as Prudential did

advise Mr. Miller in January, 1991, that his distribution

was ineligible for either 5-year or 10-year averaging.

Thus, based on the foregoing, we do not believe that

it would be appropriate for the Service to either enter into

the desired closing agreement or issue the requested let-

ter ruling.

Please note that this letter does not constitute a letter

ruling and may not be relied upon as such with respect to

any specific transaction. If your client, Mr. Miller, wishes

| to receive a letter ruling, as was indicated in the Service’s

| May 6, 1994 letter to him, he must pay the appropriate

| user fee. However, note that any letter ruling issued to

| Mr. Miller will reach a conclusion that is consistent with

the law applicable to 1990 Code section 403(b) annuities

summarized herein.

If you have any questions with respect to this letter,

please feel free to contact Larry Heben of this Branch at

the number provided above.

Sincerely yours,

/s/ Evelyn A. Petschek

Evelyn A. Petschek

Director, Employee

Plans Division

i i

App. 41

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

NOV - 2 1995

(LOGO)

ASSISTANT COMMISSIONER

(EMPLOYEE PLANS AND

EXEMPT ORGANIZATIONS)

David W. Brown

Knopf & Brown

1050 Seventeenth St., N.W.

Suite 1200

Washington, D.C. 20036

Re: A. Eugene Miller

Dear Mr. Brown:

This letter responds to your request for our assis-

tance in the matter of Mr. Miller’s application for a

refund of his 1990 tax. As part of our consideration of this

matter we requested and reviewed the file related to Mr.

Miller’s Form 1040X, as well as materials from the Office

of Appeals generated in the processing of this case. We

have also reviewed the material you submitted in support

of your client’s request and the material previously sub-

mitted to the Employee Plans Division, an office that falls

within my jurisdiction. Finally, we requested assistance

from the Chief Counsel’s Office on issues related to your

client’s claim. I apologize for the delay in responding, but

all the above took time and the tax return file had to be

obtained from a Federal Records Center.

Unfortunately, I am unable to assist you on this mat-

ter as there is no justiciable claim outstanding. Counsel

App. 42

advises that I have no legal authority to grant or deny

your claim after the expiration of a two year period

following the notice of disallowance (See section 6532 of

the Internal Revenue Code). This result occurs without

regard to whether your client filed a second Form 1040X.

I regret that I cannot be of greater assistance.

Sincerely,

/s/ James J. McGovern

James J. McGovern

App. 43

APPENDIX A

Standard IRS Income Tax Refund Claim

Processing Standards and Procedures

Incomplete, invalid and untimely claims are dis-

posed of without detailed review by an examiner.

IRM § 4144.21.

Claims not immediately processed without examina-

tion are categorized for screening. IRM § 4144.23(1).

A preliminary examination is conducted to deter-

mine if the claim can be disposed of without further

action. IRM § 4512.1.

Claims not disposed of by preliminary examination

are assigned for regular examination. IRM § 4513.1.

The same policies and standards that govern merits-

based examination of returns govern refund claims.

IRS Policy P-4-75, IRM p. 1218-62; IRM § 4513.1(3),

(4).

Recognizing that a taxpayer may be awarded attor-

ney’s fees if the Service’s decision does not have a

reasonable basis in law and fact, IRM § 424(16).1,

strict adherence to IRM standards is required of

examiners. IRM § 424(16).2(3)(b). The examiner is

“charged with the duty of . . . try[ing] to find the

true meaning of the statutory provision and not to

adopt a strained construction in the belief that he is

‘protecting the revenue.’” He must apply and

administer “the law in a reasonable, practical man-

ner.” IRM § 424(16).2(3)(c). See IRM § 4412.11(1).

Examiners must be aware that “problems will often

arise because of unfamiliarity with the subject,”

Examiner Tax Audit Guidelines, § 225(1). IRM p.

4231-10, and that he “cannot perform adequately”

without such familiarity. Id. § 225(3).

10.

11.

12.

13.

App. 44

The examiner’s written report should be supported

by citations to relevant authorities so that it is

“informative from the taxpayer point of view and

reflect[s] credit on the examination as a professional

undertaking.” IRM § 424(14).1. See IRM § 4144.31(4).

If the taxpayer’s claim is disallowed in full, he is

furnished a copy of the examination report and pro-

vided a preliminary (30-day) letter advising of his

right to appeal. IRM § 4431(1); Exhibit 4430-1 (IRM

p. 4400-40.1). The reasons for the disallowance are to

be sent to the taxpayer. IRM § 4513.1(2).

A taxpayer response that he disagrees with the pre-

liminary letter will be treated as a protest and/or a

request for Appeals consideration of the decision.

IRM § 4433.1, § 4433.3, § 4441.

Appeals normally must be requested within 30 days

of the preliminary disallowance, but an extension

will be granted under reasonable circumstances,

such as when the issues are complex and require

considerable legal research. IRM § 4433.2.

When Appeals takes a case, its work is thereafter

coordinated with the other relevant Service Offices.

IRM § 4443.

When the issues are so unusual or complex as to

warrant consideration by the National Office, the

case may be referred there for technical advice.

Denial of a taxpayer request for such a referral must

be in writing, stating the reasons therefor. If the

taxpayer disagrees, the denial will be reviewed at

the Assistant Commissioner level. IRS Policy State-

ment P-4-82, IRM p. 1218-63.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.