Estate of Hunt v. United States

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

ESTATE OF HUGH S. HUNT; ANN 
HERERRA, Administrator,
Plaintiffs-Appellees,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant,
and  No. 02-1896

WILSON C. MCCARTHY, IRS Revenue
Agent; THEODORE E. SHAUGHNESSY;
C. RANDALL; JOHN DOE; RICHARD
ROE; DAVID POE; OTHER UNKNOWN
NAMED INTERNAL REVENUE AGENTS,
Defendants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
J. Frederick Motz, District Judge.
(CA-94-3553-JFM)

Submitted: May 18, 2004

Decided: June 30, 2004

Before WILKINS, Chief Circuit Judge, WILLIAMS, Circuit Judge,
and David R. HANSEN, Senior Circuit Judge of the
United States Court of Appeals for the Eighth Circuit,
sitting by designation.

Reversed and remanded with instructions by unpublished per curiam
opinion.
2 ESTATE OF HUNT v. UNITED STATES
COUNSEL

Thomas M. DiBiagio, United States Attorney, Baltimore, Maryland;
Eileen J. O’Connor, Assistant Attorney General, Jonathan S. Cohen,
Robert J. Branman, Tax Division, UNITED STATES DEPART-
MENT OF JUSTICE, Washington, D.C., for Appellant. Anthony J.
Rollins, John P. Tyler, JACKSON & TYLER, L.L.P., Atlanta, Geor-
gia; Hugh S. Hunt, Atlanta, Georgia, for Appellees.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

OPINION

PER CURIAM:

The Government appeals from the district court’s grant of sum-
mary judgment in favor of Hugh S. Hunt1 on his claim for interest on
a 1982 tax refund. Although Hunt is not entitled to interest under the
applicable statute, the district court held that the Internal Revenue
Service (IRS) was equitably estopped from denying payment of inter-
est on the 1982 refund. As discussed below, a claimant may not use
equitable estoppel to require the Government to make payments out
of the Federal Treasury that are not authorized by statute. Office of
Pers. Mgmt. v. Richmond, 496 U.S. 414 (1990) (Richmond). Accord-
ingly, we reverse the grant of summary judgment and remand with
instructions to enter summary judgment for the Government.

I.

On August 20, 1991, the IRS issued notices of income tax deficien-
cies to Hunt for the tax years 1983 and 1985. In November of that
year, Hunt challenged these deficiencies in the United States Tax
1
Since the district court entered judgment in this case, Mr. Hunt has
died, and his estate has been substituted as a party.
 ESTATE OF HUNT v. UNITED STATES 3
Court. Immediately prior to trial in the Tax Court, the parties settled
the lawsuit. As part of the settlement, the IRS conceded that Hunt had
properly reported a $1.5 million net operating loss for tax year 1985
(the 1985 NOL). During settlement negotiations, Hunt indicated that
he intended to carryback the 1985 NOL to offset his tax liability for
1982. Specifically, Hunt proposed that the following language be
included in the settlement: "Petitioner’s 1985 NOL . . . shall be
allowed to be carried back to the 1982 tax year to eliminate all 1982
income tax liability of Petitioner for 1982." (J.A. at 42 (Hunt’s draft
of settlement language).) On December 1, 1993, the IRS attorney
involved in the settlement negotiations provided Hunt with a calcula-
tion prepared by a Revenue Agent that reflected a net refund for 1982
of $57,571 based on the carryback of the 1985 NOL. This calculation
did not mention or calculate interest.

Pursuant to the parties’ settlement, a decision was filed in the Tax
Court on December 20, 1993, holding that Hunt had an overpayment
for tax year 1983 and no deficiency for tax year 1985. The Tax Court
decision did not mention the 1982 tax year at all and did not incorpo-
rate Hunt’s draft settlement language.2 After the Tax Court decision
was entered, the IRS sent Hunt a check for the 1983 overpayment,
which he received on January 15, 1994. Hunt contacted the IRS to
find out why he had not received the refund for the 1982 tax year and
was advised to file an amended return for 1982 to claim the NOL car-
ryback. On March 12, 1994, Hunt filed an amended tax return for
1982 claiming a refund for 1982 based on carrying back the 1985
NOL. The IRS paid the refund on March 28, 1994. The IRS did not
pay Hunt any interest related to the 1982 refund. Hunt made further
inquiries with the IRS to determine why his refund was not the
2
We note that because Hunt did not receive a notice of deficiency with
respect to the 1982 tax year, the Tax Court did not have jurisdiction over
that tax year. See 26 U.S.C.A. § 6213(a) (West 2000) ("The Tax Court
shall have no jurisdiction to enjoin any action or proceeding or order any
refund under this subsection unless a timely petition for a redetermina-
tion of the deficiency has been filed and then only in respect of the defi-
ciency that is the subject of such petition."); Abrams v. C.I.R., 787 F.2d
939, 941 (4th Cir. 1986) ("The United States Tax Court is a court of lim-
ited jurisdiction. 26 U.S.C. § 7442. A notice of deficiency is a prerequi-
site of tax court jurisdiction.").
4 ESTATE OF HUNT v. UNITED STATES
amount that he expected it to be. On April 1, 1994, three months after
the settlement was finalized, the Revenue Agent prepared another
computation for Hunt to try to resolve Hunt’s concerns. This compu-
tation included a calculation of interest on the 1982 refund of approxi-
mately $55,000.

The IRS refused to pay interest on the 1982 refund because, under
the Internal Revenue Code (I.R.C.), no interest is due on a refund
claim like Hunt’s if the refund is paid within 45 days, and Hunt’s
claim was paid well within 45 days. See 26 U.S.C.A. § 6611(e) (West
2002).

Hunt then filed a complaint in the United States District Court for
the District of Maryland seeking, among other things, interest on the
1982 refund. All of the other issues that Hunt raised in his complaint
have been resolved, and the interest on the 1982 refund is the only
issue in this appeal.

The district court entered summary judgment for Hunt, holding that
the IRS was equitably estopped from denying him payment of interest
on the 1982 refund. According to the district court, Hunt made it clear
that he believed that he would receive interest on the 1982 refund, and
the IRS finalized the settlement for the 1983 and 1985 tax years with
full knowledge of Hunt’s belief. The court held, "Hunt’s reasonable
reliance on the fact that he would be paid interest on the 1982 refund,
the IRS’s knowledge of that reliance, and its intentional finalization
of the Tax Court case provide a classic case for the intervention of a
court of equity." (J.A. at 238.) The district court found that although
Duvall, Bryant, and others who participated in Hunt’s settlement
negotiations gave him erroneous advice, they all acted in subjective
good faith.

II.

"We review the entry of summary judgment in favor of Appellees
de novo." Peters v. Jenney, 327 F.3d 307, 314 (4th Cir. 2003). Sum-
mary judgment is appropriate only "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any mate-
rial fact." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
 ESTATE OF HUNT v. UNITED STATES 5
322 (1986). The Government argues that the district court erred in
applying equitable estoppel because the Appropriations Clause of the
Constitution prevents the payment of public funds in a manner not
authorized by Congress. See Richmond, 496 U.S. at 430.

In Richmond, the Court held that a claimant may not use equitable
estoppel to require the Government to make payments out of the Fed-
eral Treasury that are not authorized by statute. The petitioner in
Richmond was a retired Navy employee who was receiving a disabil-
ity annuity. He sought advice from a federal employee about how
much money he could earn without jeopardizing his disability annuity
and received erroneous oral and written advice concerning that
amount. Relying on that advice, he earned more than the maximum
allowable salary and lost his disability annuity for six months under
the disability annuity statute.

The Supreme Court held that despite the erroneous oral and written
advice, equitable estoppel could not lie against the Government to
require payment of the disability annuity in contravention of statute
because requiring payment in those circumstances would violate the
Appropriations Clause. The Appropriations Clause provides that: "No
Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law." U.S. Const. Art. I, § 9, cl. 7. "The
whole history and practice with respect to claims against the United
States reveals the impossibility of an estoppel claim for money in vio-
lation of a statute." Id. at 430. "The rationale of the Appropriations
Clause is that if individual hardships are to be remedied by payment
of Government funds, it must be at the instance of Congress." Id. at
434.

The question thus becomes whether payment of interest on Hunt’s
1982 refund claim would violate a statute; if so, then equitable estop-
pel cannot lie against the Government. I.R.C. § 6611(a) provides the
rules for calculating interest on overpayments and explains that, in
general, "[i]nterest shall be allowed and paid upon any overpayment."
Under I.R.C. § 6611(b), interest is generally due from the date of
overpayment. Under I.R.C. § 6611(f)(1), an overpayment due to the
carryback of a net operating loss is "deemed not to have been made
prior to the filing date for the taxable year in which such net operating
loss . . . arises." In this case, the net operating loss arose in 1985 and
6 ESTATE OF HUNT v. UNITED STATES
the filing date for that taxable year was April 15, 1986. Thus, Hunt’s
overpayment is deemed not to have been made prior to April 15,
1986.

Although Hunt’s overpayment is deemed not to have been made
prior to April 15, 1986, this does not mean that interest began to
accrue on April 15, 1986. I.R.C. § 6611(f)(4)(B) provides for coordi-
nation with I.R.C. § 6611(e), which provides that if the IRS pays a
refund within 45 days after a return is filed, no interest is due. For the
purpose of calculating interest under I.R.C. § 6611(f)(4)(B), an over-
payment due to an NOL carryback is treated as an overpayment for
the loss year, and the return for the loss year is treated as filed when
the claim for such overpayment is filed. Accordingly, pursuant to
I.R.C. § 6611(f)(4)(B), for purposes of calculating interest, Hunt’s
1982 overpayment is treated as an overpayment for 1985 (the loss
year), and the 1985 return is treated as filed when the refund claim
for the 1982 overpayment was filed (in this case, March 12, 1994).
Thus, because Hunt’s refund was paid on March 28, 1994, within 45
days of March 12, 1994, no interest on Hunt’s refund claim is allowed
under I.R.C. § 6611(e).

Hunt does not dispute this application of I.R.C. § 6611. Instead, he
argues that payment of interest on his 1982 overpayment would not
violate a statute because "Congress specifically authorized the pay-
ment of funds to taxpayers in settlement of claims with the IRS,"
(Appellee’s Br. at 8), and thus, "the Secretary, and through delegation
his subordinates, can settle any matter even if the settlement is clearly
not in the favor of the IRS and appears to be outside the laws set forth
by Congress." (Appellee’s Br. at 5.) Although it is true that the IRS
can settle claims with taxpayers pursuant to I.R.C. § 7121, the settle-
ment entered by the Tax Court covered only tax years 1983 and 1985
— the years for which there were notices of deficiency issued. More-
over, as the district court correctly recognized, (J.A. at 236-37), settle-
ment agreements under § 7121 must be in writing. See I.R.C. § 7121
("The Secretary is authorized to enter into an agreement in writing
with any person relating to the liability of such person . . . ." (empha-
sis added)). Because Hunt has not shown that there was any written
settlement agreement related to tax year 1982, he cannot rely on
I.R.C. § 7121 to support the payment of interest in violation of a stat-
ute.
 ESTATE OF HUNT v. UNITED STATES 7
Accordingly, payment of interest to Hunt would violate a statute,
specifically I.R.C. § 6611(e), which provides that "no interest shall be
allowed" on overpayments refunded within 45 days after a return is
filed. Because Hunt seeks payment of money in violation of a statute,
equitable estoppel cannot lie against the Government. Richmond, 496
U.S. at 430; see also Grooms v. Office of Pers. Mmgt., 154 F.3d 181,
185 (4th Cir. 1998) (holding that because equitable estoppel cannot
require the government to pay out benefits not authorized by Con-
gress, "the government employees’ method of handling Grooms’
affairs is immaterial to the determination of whether Grooms’ cancel-
lation was effective"); Miller v. United States, 949 F.2d 708 (4th Cir.
1991) ("[I]t is clear that neither the government, nor a government
agency such as the IRS, can be equitably estopped from asserting its
legal rights because of the actions of an agent."). The district court
thus erred in granting summary judgment to Hunt based on equitable
estoppel.

III.

Because the facts are undisputed and the Government is entitled to
judgment as a matter of law, we reverse the grant of summary judg-
ment and remand with instructions to enter summary judgment for the
Government.

REVERSED AND REMANDED WITH INSTRUCTIONS