Opposition Brief — Miller v. United States

No. 97-1384 =

In the Supreme Court of the United States

OCTOBER TERM, 1997

A. EUGENE MILLER, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

SETH P. WAXMAN

Solicitor General

LORETTA C. ARGRETT

Assistant Attorney General

RICHARD FARBER

PAULA K. SPECK

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether the notice of administrative claim disal-

lowance transmitted to petitioner commenced the

running of the statute of limitations on petitioner’s

judicial refund suit.

(I)

TABLE OF CONTENTS

Page

REE “a l

_ SESE a ee 1

I 2

NTE ne a 3

NII diiachoretoedbneesctehscalitilsddccdeniccectisiewusndessoseereciess ce 6

NE - sdassitemveaiilinihcatnapieisliveekiseseesossncoophadegoidc. ccs, 12

TABLE OF AUTHORITIES

Cases:

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

73-1 U.S. Tax Cas. (CCH) 4 9230 (E.D.N.C. Nov.

24, 1972), aff'd, 480 F.2d 921 (4th Cir. 1973) ........... 9, 10

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

ERPS SSRIS Rel elec 10

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

I 11

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

I 11

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

go, LENE SESS ESTER Ser EN OHI ROTTED 10

Miller v. Insurance Inst. for Highway Safety and

the Prudential Ins. Co., No. 92-943-A (E.D. Va.

I ia a 5

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

I a 10

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

LSE EES SSCS TS le Oe ne ee S

Soriano v. United States, 352 U.S. 270 (1957) ........ 8

Union Commerce Bank v. United States, 638

F.2d 962 (6th Cir. 1981), aff’g 463 F. Supp. 842

I in 10

United States v. Dalm, 494 U.S. 596 (1990) ............ 8

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

States, 240 F. Supp. 356 (S.D. Iowa 1964) ............... 10

IV

Statutes: Page

Employee Retirement Income Security Act of 1974,

BP SEs eee UNE sa casscntisececsariteavivchicintoessidasecats 5

Internal Revenue Code (26 U.S.C.):

MEE <b cxiice coco sensakuadashdabhiesacsubaticed ends cs leeaaualehdd Ec

Miscellaneous:

M. Saltzman, JRS Practice and Procedure (2d ed.

BED inc cicdissatiddcieatnccssdvrasaabecisnibiners sal saeeaaden i)

In the Supreme Court of the Gnited States

OCTOBER TERM, 1997

No. 97-1384

A. EUGENE MILLER, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-5) is

unpublished, but the decision is noted at 117 F.3d 1414

(Table). The opinion of the district court (Pet. App.

25-33) is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

July 11, 1997. The petition for rehearing was denied

on November 24, 1997 (Pet. App. 16). The petition for

certiorari was filed on February 23, 1998 (a Monday). ~—

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

(1)

STATUTE INVOLVED

Section 6532 of the Internal Revenue Code, 26

U.S.C. 6532, provides in relevant part:

(a) Suits by taxpayers for refund.—

(1) General rule.—No suit or proceeding un-

der section 7422(a) for the recovery of any inter-

nal 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 sec-

tion 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.

(2) Extension of time.—The 2-year period pre-

scribed in paragraph (1) shall be extended for such

period as may be agreed upon in writing between

the taxpayer and the Secretary.

(3) Waiver of notice of disallowance.—If any

person files a written waiver of the requirement

that he be mailed a notice of disallowance, the 2-

year period prescribed in paragraph (1) shall begin

on the date such waiver is filed.

(4) Reconsideration after mailing of notice.—

Any consideration, reconsideration, or action by

the Secretary with respect to such claim follow-

ing the mailing of a notice by certified mail or

registered mail of disallowance shall not operate

to extend the period within which suit may be

begun.

an Sn ee

STATEMENT

1, In February 1990, shortly after retiring from a

nonprofit association, petitioner received a check for

$168,028.47 as a lump-sum distribution of a tax shel-

tered annuity (TSA) set up for him by his employer.

After consulting Internal Revenue Service publica-

tions, petitioner erroneously concluded that his TSA

distribution was eligible for ten-year income averag-

ing.’ Accordingly, petitioner elected not to roll over

his TSA distribution into an IRA and decided to re-

port and pay the estimated tax for 1990 that would

have been due under the ten-year averaging method

(Pet. App. 20).

In early 1991, petitioner learned from his former

plan administrator that he could not use ten-year

' Petitioner incorrectly characterizes these publications as

“misleading and wrong” (Pet. 4). The record before the dis-

trict court showed only that the publications described some

types of distributions that were eligible for income averaging

without specifically mentioning that TSA distributions were

not eligible. Pet. App. 39. The applicable provisions of the

Code and regulations, however, clearly reflected that TSA

distributions were not eligible for income averaging (ibid.).

Petitioner evidently reached his incorrect contrary conclusion

without reading these statutes or regulations and without

consulting a tax professional (id. at 39-40).

averaging for his TSA distribution. Petitioner paid

the taxes due on the entire TSA distribution and

then, after consulting with legal counsel, filed an

administrative refund claim with the IRS, together

with a six-page letter explaining the claim. In this

letter, petitioner stated that he had erroneously

believed the TSA distribution to be eligible for ten-

year income averaging and that he otherwise would

have rolled the TSA into an IRA. He requested per-

mission from the IRS to now make such a rollover

retroactively. He claimed that the applicable statute

and regulations did not set a deadline for a rollover

from a TSA to an IRA or that, if they did, the IRS had

discretion to waive the deadline and should do so in

his case (Pet. App. 21).

In response to his claim for refund, the IRS Phila-

delphia Service Center sent petitioner a formal notice

of claim disallowance on January 13, 1992. That no-

tice stated that “[t]his letter is your legal notice that

your claim is disallowed” (Pet. App. 35). The notice

further informed petitioner of his right to sue for a

refund and of the two-year statute of limitations for

filing suit (7bid.):

If you want to bring suit to recover tax, penalties,

or other amounts, you may do so by filing with the

United States District Court having jurisdiction

or the United States Claims Court. The law per-

mits you to do this within two years from the

mailing date of this letter.

The notice also contained the following brief explana-

tion for the disallowance of petitioner’s claim (ibid.):

We have disallowed the claim because your distri-

bution 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.

From January 1992 to March 1996, petitioner and

his counsel communicated with various IRS officials

in Philadelphia, Baltimore and Washington, D.C., in

an effort to persuade the IRS to reconsider its Janu-

ary 18, 1992, notice of disallowance.’ Early in this

process, on February 21, 1992, the IRS sent petitioner

a letter making reference to its prior notice of claim

disallowance and reminding him of his right to sue.

Petitioner received additional letters from the IRS

offices that he contacted that repeated the IRS’s

position that the time period for a TSA rollover could

not be extended beyond the 60 days provided in the

statute. None of these letters stated or in any way

implied that the IRS was withdrawing its January

1992 notice of claim disallowance or that it was

agreeing to an extension of the limitations period. On

November 2, 1995, in the last letter sent to petitioner

before the filing of this suit, the IRS informed

petitioner that it would not allow his refund claim for

the additional reason that the two-year limitations

period for a refund suit had expired (Pet. App. 42).

2 Petitioner filed a suit against his former employer and the

plan administrator in the United States Court for the Eastern

District of Virginia, seeking damages for an asserted breach of

fiduciary duty under the Employee Retirement Income Secu-

rity Act of 1974, 29 U.S.C. 1001 et seq., for failing to advise him

that his TSA distribution was not eligible for income averaging.

The district court dismissed that suit in 1992. Miller v. Insur-

ance Inst. for Highway Safety and the Prudential Ins. Co., No.

92-943-A (E.D. Va.).

————————

2. Petitioner filed the complaint initiating this

refund suit on March 8, 1996, more than four years

after the IRS mailed the notice of disallowance of his

administrative refund claim. The district court

granted the government’s motion to dismiss the suit

as untimely (Pet. App. 25-33). The court of appeals

affirmed with a per curiam opinion (id. at 1-5).

The court of appeals pointed out that compliance

with the unambiguous two-year limitations period in

the statute is a condition of the government’s waiver

of sovereign immunity for tax refund suits (Pet. App.

4). The court noted (7bid.) that 26 U.S.C. 6532(a)(4)

expressly provides that reconsideration by the IRS of

a disallowed claim will not toll the running of the two-

year period for filing suit. The court added that

petitioner could have sought an extension of the two-

year period from the IRS under 26 U.S.C. 6532(a)(2)

but failed to do so (Pet. App. 4). The court explained

that the notice of disallowance plainly satisfied the

requirements of the statute because it was unambigu-

ous in informing petitioner that his claim had been

disallowed and included a brief explanation of the

reasons for the disallowance of petitioner’s claim

(ibid.).

ARGUMENT

The decision >f the court of appeals is correct and

does net conflict with any decision of this Court or

any other court of appeals. Further review is there-

fore not warranted.

1. Petitioner’s principal argument is that the

January 1992 notice of claim disallowance was not suf-

ficient to start the running of the Section 6532 limita-

tions period for filing a refund suit because it did not

expressly reflect that the IRS had considered all of

the grounds for refund contained in petitioner’s re-

fund claim (Pet. 10). That contention is both factually

and legally incorrect.

a. The argument is factually in error because, as

the court of appeals noted, the notice “included a brief

explanation of the reasons for [the] disallowance”

(Pet. App. 4). After clearly advising petitioner that

his claim for refund was “disallowed,” the notice ex-

plained that it was disallowed because the TSA did not

qualify for the “Form 4972 [ ] special treatment” for

income averaging and because “a rollover from a TSA

to an IRA must be made within the 60 day period”

(Pet. App. 35). The notice thus expressly responded

to the contentions of petitioner’s refund claim that no

60-day requirement for rollover of a TSA applied and

that, if one applied, the IRS should exercise discre-

tion to excuse it in his case. See page 4, supra. As

the court of appeals explained, this succinct and clear

denial of the refund claim was “adequate notice” to

commence the running of the statute of limitations

(Pet. App. 4, 35-36). Indeed, the notice was not merely

“adequate” it was crystal clear—for it expressly ad-

vised petitioner (who was by then represented by

counsel) that the period within which a refund suit

could be brought was “two years from the mailing

date of this letter” (id. at 35 (emphasis added)).

b. Even if it were assumed that the explanation in

the January 1992 notice for the disallowance of peti-

tioner’s claim was incomplete, that would not affect

the efficacy of the notice. The right to maintain a

refund suit under 26 U.S.C. 7422 is expressly condi-

tioned on the taxpayer’s compliance with 26 U.S.C.

6532(a).2 The two-year limitations period for filing

a refund suit provided in 26 U.S.C. 6532(a) commences

upon the mailing of a notice of disallowance. 26

U.S.C. 6532(a)(1). There is no requirement in the

Internal Revenue Code or in the regulations that the

notice of disallowance contain any explanation what-

ever of the reasons for disallowance. As long as the

notice that the refund claim has been disallowed

properly identifies the tax for which a refund is

sought and clearly advises the taxpayer that the

claim for a refund of that tax has been disallowed, it is

effective to trigger the running of the two-year limi-

tations period. See, e.g., Smith v. United States, 478

F.2d 398, 399-400 (5th Cir. 1973).

A taxpayer’s right to bring a refund suit is not

conditioned upon receiving any particular form of

denial of its claim for refund. Indeed, a taxpayer may

file a refund suit if the IRS has not even acted on the

claim for refund if six months has passed from the

date the claim was filed. 26 U.S.C. 6532(a)(1). Tax-

payer refund suits are therefore frequently filed be-

fore the IRS has taken any action whatever on the

claim for refund.‘

The obvious purpose of the notice of disallowance is

to advise the taxpayer formally that the IRS has

disallowed his claim for refund and that, conse-

3 The Court has emphasized that these conditions on the

waiver of sovereign immunity must be strictly construed in

favor of the United States. United States v. Dalm, 494 U.S.

596, 608 (1990); Soriano v. United States, 352 U.S. 270, 276

(1957).

4 Petitioner is thus clearly wrong in asserting (Pet. 12-13)

that Congress intended that the IRS would always pass on the

merits of a taxpayer’s refund claim before the claim became

the subject of a refund suit.

quently, he must bring suit within two years if he

wishes to continue to pursue his claim. The notice of

disallowance sent to petitioner in January 1992 could

not have been clearer in informing petitioner that his

claim for refund had been disallowed, for it states

(Pet. App. 35):

This letter is your legal notice that your claim is

disallowed. We cannot allow your claim(s) for re-

fund or credit for the period(s) shown above.

The notice also expressly advised petitioner of his

right to sue and of the fact that he was required to

sue “within two years from the mailing date of this

letter” (ibid.). The notice was therefore effective to

trigger the running of the two-year limitations

period. Because petitioner’s refund suit was filed four

years after the notice of claim disallowance was

mailed to him, the courts below correctly concluded

that it is barred by the statute of limitations.

ec. The cases on which petitioner seeks to rely

(Pet. 16-19) are inapposite. In Block-Southland

Sportswear, Co. v. United States, 73-1 U.S. Tax

Cas. (CCH) J 9230 (E.D.N.C. Nov. 24, 1972), aff’d per

curiam, 480 F.2d 921 (4th Cir. 1973), the taxpayer

argued that preliminary audit analysis from the

Service—known as a “thirty-day letter”’—consti-

tuted a notice of disallowance of a refund claim and

that the taxpayer should therefore be permitted to file

° A “thirty-day letter” is prepared by an IRS examiner. It

contains the preliminary results of the examination of a con-

tested return and conveys an invitation to the taxpayer either

to accept the results of the examination or (i) provide addi-

tional information to the Service or (ii) request a conference

with the Service to discuss the examination. See M. Saltzman,

IRS Practice and Procedure ¥ 8.08 (2d ed. 1991).

10

a refund suit before the six-month period provided in

26 U.S.C. 6532(a)(1) expired. The court concluded in

Block-Southland that such preliminary audit

correspondence does not constitute a notice of

disallowance. 73-1 U.S. Tax Cas. (CCH) at 80,419. In

the present case, however, the document mailed to

petitioner in January 1992 was plainly not a

preliminary thirty-day letter issued as part of an

audit examination (see note 5, supra). Instead, as the

courts below correctly held (Pet. App. 4, 32), it was a

formal notice of disallowance that advised petitioner

of the rejection of his refund claim.

The «ther cases cited by petitioner are similarly

irrelevant. In Union Commerce Bank v. United

States, 638 F.2d 962 (6th Cir. 1981), aff’g 463 F. Supp.

842 (N.D. Ohio 1978), a taxpayer claimed that the

notice of disallowance sent to it was invalid because

its refund claim had not been in compliance with

Treasury regulations. The Sixth Circuit held that

any defects in the refund claim did not affect the

validity of the notice of disallowance and that the

limitations period began with the mailing of that

notice. 638 F.2d at 963. In Schmitt v. Kavanagh, 91

F.. Supp. 659, 661-663 (E.D. Mich. 1950), the taxpayer’s

refund claim was intertwined with a pending Tax

Court case involving a related taxpayer, and the pur-

ported notice of disallowance stated on its face that

the IRS would not consider the claim until the Tax

Court case was resolved. Similarly, L & H Co. v.

United States, 963 F.2d 949, 951 (7th Cir. 1992);

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

439-440 (Ct. Cl. 1967); and W. A. Schemmer Lime-

stone Quarry, Inc. v. United States, 240 F. Supp. 356,

358 (S.D. Iowa 1964), do not support petitioner, be-

cause they hold only that a second timely filed refund

11

claim that asserts a new ground for a refund begins

the claim-disallowance process anew. Petitioner does

not allege that he filed a second refund claim assert-

ing new grounds. Finally, Clinton Trust Co. v.

United States, 52 F. Supp. 671, 679 (Ct. Cl. 1943), does

not stand, as petitioner asserts (Pet. 18-19), for the

proposition that a notice of disallowance must ex-

pressly disallow all of the grounds for refund.

Instead, Clinton held that, even when the IRS gives

an erroneous reason for disallowance, the notice of

disallowance is still effective to commence the run-

ning of the statute of limitations. 52 F. Supp. at 679.

2. Petitioner incorrectly asserts (Pet. 19-23) that

the decision in this case conflicts with the decision of

the Eleventh Circuit in First Alabama Bank v.

United States, 981 F.2d 1226, 1230 n.5 (1993). In First

Alabama, after the IRS had issued a notice of dis-

allowance of a refund claim, an IRS employee had

informed the taxpayers orally that the statute of

limitations was not running. The Service thereafter

issued a second notice of disallowance of the claim.

981 F.2d at 1227-1228. Notwithstanding the asserted

confusion resulting from this series of events, the

court of appeals concluded that there was insufficient

evidence that the first notice of disallowance had been

withdrawn and therefore upheld the dismissal of the

taxpayers’ suit as untimely. /d. at 1230.

The court suggested in First Alabama that, if

letters or other communications sent to a taxpayer

after the formal notice of disallowance cause the tax-

payer to be reasonably confused as to whether the

notice has been withdrawn, the two-year limitations

period for filing suit would not commence. 981 F.2d at

1230. In the present case, however, there were no

communications between petitioner and the IRS after

a

12

the notice of claim disallowance that provided any

basis for petitioner to conclude that the IRS had

withdrawn the notice of claim disallowance. The

contention that the decision in this case conflicts

with First Alabama is thus plainly incorrect.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

SETH P. WAXMAN

Solicitor General

LORETTA C. ARGRETT

Assistant Attorney General

RICHARD FARBER

PAULA K. SPECK

Attorneys

MARCH 1998