IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-21051
YOUR INSURANCE NEEDS AGENCY INC.,
Plaintiff-Appellant,
versus
UNITED STATES OF AMERICA,
Defendant-Appellee.
DAVID BRUCE EARL,
Plaintiff-Appellant,
versus
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeal from the United States District Court
For the Southern District of Texas
December 4, 2001
Before REAVLEY, HIGGINBOTHAM, and PARKER, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
David Bruce Earl and Your Insurance Needs Agency, Inc. appeal
from a grant of summary judgment to the Government on their claims
for refunds of over $77,000 in tax overpayments in 1991, 1992,
1993, and 1994, inclusive, brought under 26 U.S.C. § 7422(a). We
affirm.
I.
In 1991, Earl, the sole officer and shareholder of Your
Insurance, hired David Shand, a certified public accountant, to
prepare and file Your Insurance's and his own federal tax returns.
Pursuant to Earl's instructions and authorization, Shand prepared
and submitted individual income tax returns for Earl for tax years
1991, 1992, and 1993, and payroll tax returns for Your Insurance
for six quarters in 1992, 1993, and 1994.
Unbeknownst to Earl, when preparing the taxpayers' returns for
each tax year in question, Shand overstated the taxpayers' tax
liability on their returns and then either had Earl sign the
returns or signed the returns himself with Earl's permission.
Shand then produced copies of the returns for Earl, who paid the
overstated tax liability as represented to him by Shand. Finally,
Shand altered the signed returns to reflect a lesser, correct tax
liability and inserted Shand's own office address as the address on
the returns. The Internal Revenue Service authorized the
Department of the Treasury to issue checks to Earl and Your
Insurance for the refunds claimed, and the Treasury then issued and
mailed these checks to the address—Shand's—on the returns. Shand
received the checks, forged Earl's signature, and negotiated the
refund checks, keeping the proceeds himself. According to IRS
records, the last refund check to Earl was issued in late May 1994,
2
and the last refund check to Your Insurance was issued in late
November 1994.
The IRS eventually discovered this scheme, which Shand
perpetrated on many of his clients, but prosecuted and convicted
Shand in 1996 for another, unrelated tax fraud scheme. Earl first
learned of Shand's conduct and the existence of the refund checks
in late 1994, when he was informed of Shand's fraud by Mike Harris,
an investigator with the Criminal Investigation Division of the
IRS.
Two years later, on February 5, 1997, Earl and Your Insurance
requested that the IRS issue replacement checks. The IRS refused
on November 26, 1997, stating that the IRS sent the refunds, in
good faith, to the address shown on the returns and that Earl and
Your Insurance should have sought replacement checks from the
Financial Management System, the division within the Department of
the Treasury that handles stolen Treasury checks. The IRS further
indicated that the Financial Management System would not authorize
the IRS to reissue the checks.
On February 25, 1999, Earl and Your Insurance filed separate
suits against the United States to recover the tax overpayments.
The two cases were ordered consolidated on September 14, 1999, and
the parties filed cross-motions for summary judgment. On August
21, 2000, a Magistrate Judge granted summary judgment for the
Government in both cases and entered final judgment. The
3
Magistrate Judge denied a Motion to Alter and Amend the Judgment on
September 20, 2000. This appeal followed.
II.
We review a grant of summary judgment de novo, applying the
same standard as the district court.1 We may affirm a summary
judgment on any ground raised by the movant below and supported by
the record, even if it is not the ground relied on by the district
court.2 Additionally, "[w]e exercise plenary, de novo review of a
district court's assumption of subject matter jurisdiction."3
A.
The Secretary of the Treasury is required, under 26 U.S.C. §
6402(a), to issue refunds to taxpayers for overpayments of tax
liabilities. 26 U.S.C. § 6511(a) sets a period of limitations for
a taxpayer to file a claim for a refund, requiring that a refund
claim "be filed by the taxpayer within 3 years from the time the
return was filed or 2 years from the time the tax was paid,
whichever of such periods expires the later, or if no return was
1
Holtzclaw v. DSC Communications Corp., 255 F.3d 254, 257
(5th Cir. 2001).
2
Id. at 258.
3
Local 1351 Int'l Longshoremens Ass'n v. Sea-Land Serv.
Inc., 214 F.3d 566, 569 (5th Cir. 2000), cert. denied sub nom., SL
Serv., Inc. v. Office & Prof'l Employees Int'l Union, 531 U.S. 1076
(2001).
4
filed by the taxpayer, within 2 years from the time the tax was
paid."4
A suit for a refund is allowed by statute, but must be
preceded by a claim filed with the Secretary of the Treasury,
pursuant to 26 U.S.C. § 7422(a).5 A claim for refund must be filed
in accordance with regulations issued by the Secretary of the
Treasury.6 A civil action for a refund must be brought against the
United States.7 Jurisdiction lies in the district courts in tax
suits under 28 U.S.C. § 1340:
The district courts shall have original jurisdiction of
any civil action arising under any Act of Congress
providing for internal revenue, or revenue from imports
or tonnage except matters within the jurisdiction of the
Court of International Trade.
4
See also 26 U.S.C. § 6511(b)(1) ("Filing of claim within
prescribed period.—No credit or refund shall be allowed or made
after the expiration of the period of limitation prescribed in
subsection (a) for the filing of a claim for credit or refund,
unless a claim for credit or refund is filed by the taxpayer within
such period.").
5
See also United States v. Williams, 514 U.S. 527, 533
(1995); 26 C.F.R. § 301.6402-2(a)(1) (2001) ("Requirement that
claim be filed. (1) Credits or refunds of overpayments may not be
allowed or made after the expiration of the statutory period of
limitation properly applicable unless, before the expiration of
such period, a claim therefor has been filed by the taxpayer.
Furthermore, under section 7422, a civil action for refund may not
be instituted unless a claim has been filed within the properly
applicable period of limitation.").
6
See 26 U.S.C. § 7422(a); see also, e.g., 26 C.F.R.
§ 301.6402-2(a)(2) (2001) (providing for place to file a refund
claim); id. § 301.6402-2(b)(1) (2001) (requiring that a claim set
forth grounds for the credit or refund sought).
7
See 26 U.S.C. § 7422(f)(1).
5
Jurisdiction also lies in the district courts, concurrent with the
United States Court of Federal Claims, for suits against the United
States, under 28 U.S.C. § 1346(a)(1):
Any civil action against the United States for the
recovery of any internal-revenue tax alleged to have been
erroneously or illegally assessed or collected, or any
penalty claimed to have been collected without authority
or any sum alleged to have been excessive or in any
manner wrongfully collected under the internal-revenue
laws.
Other claims against the United States for over $10,000, however,
must be brought in the Court of Federal Claims.8
A special scheme is also established by statute for lost or
stolen and subsequently forged and paid checks issued by the
Treasury. Under 31 U.S.C. § 3343(b):
The Secretary of the Treasury shall pay from the Fund to
a payee or special endorsee of a check drawn on the
Treasury or a depositary designated by the Secretary the
amount of the check without interest if in the
determination of the Secretary the payee or special
endorse establishes that—
(1) the check was lost or stolen without the fault of the
payee or a holder that is a special endorsee and whose
endorsement is necessary for further negotiation;
(2) the check was negotiated later and paid by the
Secretary or a depositary on a forged endorsement of the
payee's or special endorsee's name; and
(3) the payee or special endorsee has not participated in
any part of the proceeds of the negotiation or payment.9
8
See 28 U.S.C. § 1346(a)(2); see also id. § 1491(a)
(providing for the jurisdiction of the Court of Federal Claims).
9
(footnote omitted); see also 31 C.F.R. § 235.1 (2001)
("This part governs the issuance of settlement checks for checks
drawn on designated depositaries of the United States by
accountable officers of the United States, that have been
negotiated and paid on a forged or unauthorized indorsement."); id.
6
There is, however, a one-year limit on presentment of claims for
replacement of forged checks: "Any claim on account of a Treasury
check shall be barred unless it is presented to the agency that
authorized the issuance of such check within 1 year after the date
of issuance of the check or the effective date of this subsection,
whichever is later."10 Yet the same statutory section directs that
"[n]othing in this subsection affects the underlying obligation of
the United States, or any agency thereof, for which a Treasury
check was issued."11 The Secretary also has a statutory remedy
against the depositary bank that paid a Treasury check on a forged
§ 235.3 (2001) (requiring the issuance of a replacement check upon
receipt of "a claim by a payee or special indorsee on a check
determined to have been paid on a forged indorsement under
conditions satisfying the provisions set forth in 31 U.S.C. 3343");
id. § 245.1 (2001) ("This part governs the issuance of replacement
checks for checks drawn on the United States Treasury, when (a) The
original check has been lost, stolen, destroyed or mutilated or
defaced to such an extent that it is rendered non-negotiable; (b)
The original check has been negotiated and paid on a forged or
unauthorized indorsement . . . .").
10
31 U.S.C. § 3702(c)(1); see also 31 C.F.R. § 245.3(a)
(2001) ("Any claim on account of a Treasury check must be presented
to the agency that authorized the issuance of such check within one
year after the date of issuance of the check or within one year
after October 1, 1989, whichever is later.").
11
31 U.S.C. § 3702(c)(2); see also 31 C.F.R. § 245.3(c)
(2001) ("Nothing in this subsection affects the underlying
obligation of the United States, or any agency thereof, for which
a Treasury check was issued.").
7
indorsement, subject to the statute of limitations provided in 31
U.S.C. § 3712(a)(1).12
Finally, the Secretary of the Treasury has also issued
regulations governing the mailing of refund checks. 26 C.F.R.
§ 301.6402-2(f)(1) (2001) provides:
Mailing of refund check. (1) Checks in payment of claims
allowed will be drawn in the names of the persons
entitled to the money and, except as provided in
subparagraph (2) of this paragraph (f), the checks may be
sent direct to the claimant or to such person in care of
an attorney or agent who has filed a power of attorney
specifically authorizing him to receive such checks.
B.
The Government argues here, as it did in the district court,
that this suit is a claim for replacement checks under 31 U.S.C. §
3343(b), dressed up as refund claims in order to avoid the
statutory jurisdictional and limitations bars to a claim under
section 3343(b) against the Check Forgery Insurance Fund. The
Government urges that we reverse and remand with instructions that
the district court dismiss the consolidated suit for lack of
subject-matter jurisdiction.
12
See 31 U.S.C. § 3712(a)-(b); see also 31 U.S.C. §
3343(g)(2) (providing that the Check Forgery Insurance Fund does
not relieve "a transferee or party on a check after the forgery
from liability—(A) on the express or implied warranty of prior
endorsements of the transferee or party; or (B) to refund amounts
to the Secretary"); Clearfield Trust Co. v. United States, 318 U.S.
363, 366 (1943) ("The rights and duties of the United States on
commercial paper which it issues are governed by federal rather
than local law."); United States v. First Nat'l Bank of Atlanta,
441 F.2d 906, 908 (5th Cir. 1971) (same).
8
The response is that, pursuant to 31 U.S.C. § 3702(c)(2), a
refund suit under 26 U.S.C. § 7422(a) may be brought even after a
claim for a replacement check under section 3343(b) has become
untimely under 31 U.S.C. § 3702(c)(1). Yet, for this contention to
prevail, there must be an existing "underlying obligation of the
United States, or any agency thereof, for which a Treasury check
was issued."13 The Government counters that no refund is owing, at
all events, because the Treasury issued checks in the proper
amounts to Earl and Your Insurance at the address provided on the
face of their respective returns and the Government thereby
fulfilled its underlying obligation to these taxpayers.
We will assume, without deciding, that the district court
properly exercised jurisdiction over the taxpayers' claims pursuant
to 28 U.S.C. § 1346(a)(1). We choose this course because, in light
of 31 U.S.C. § 3702(c)(2), we have no choice but to evaluate the
merits of the putative refund suit under 26 U.S.C. § 7422(a) before
we may recharacterize it as properly stating only claims for
replacement checks under 31 U.S.C. § 3343(b).
Moreover, even if the district court could have subject-matter
jurisdiction over a section 3343(b) claim for replacement checks
totaling more than $10,000, in spite of the language of 28 U.S.C.
§ 1346(a)(2), there is no serious dispute that the statutory
requirement that a claim for replacement checks be presented to the
13
31 U.S.C. § 3702(c)(2).
9
IRS "within 1 year after the date of issuance of the check" would
bar any claim by the taxpayers for replacement refund checks under
the Check Forgery Insurance Fund.14 Even if equitable tolling
applies to the one-year period prescribed by 31 U.S.C. §
3702(c)(1), there was no request for replacement checks within one
year of the taxpayers' learning in late 1994 of Shand's negotiation
of their refund checks on forged indorsements.
The issue for our determination, therefore, is whether the
refunds for tax overpayment, disbursed by timely-issued refund
checks mailed to the address shown on Earl's and Your Insurance's
tax returns, remain owing when the refund checks were stolen and
forged. We conclude that the Government does not owe refunds under
these facts and therefore the taxpayers' argument based on the
statutory language in 31 U.S.C. § 3702(c)(2), providing that the
availability of the Check Forgery Insurance Fund does not affect
the Government's "underlying obligation," is of no avail.
In reaching this conclusion, we find persuasive the holding of
the Tax Court in Abeson v. Commissioner that the IRS fulfilled its
obligation under its regulations by mailing refund checks to the
address listed on taxpayers' returns.15 Here, summary judgment was
14
See id. § 3702(c)(1).
15
59 T.C.M. (CCH) 391, 403 (1990), aff'd mem. sub nom.,
Rivera v. Comm'r, 959 F.2d 241 (9th Cir. 1992); see also 26 U.S.C.
§ 6402(a) ("In the case of any overpayment, the Secretary . . .
shall, subject to subsections (c), (d) and (e), refund any balance
to such person [who made the overpayment]."); 26 C.F.R. § 301.6402-
10
properly entered for the Government because the Government timely
issued refund checks and mailed them to the address on the returns,
the only address the IRS had available to it, a fact not disputed.
As such, the Government timely paid out the refunds, although Shand
stole and negotiated the refund checks on forged indorsements
before they were received.
The Government thus fulfilled its obligation to pay the
refunds owed. Nonetheless, the taxpayers still had available to
them a mechanism by which they could receive replacement checks for
the stolen and forged refund checks issued to them. Had the
Government thereby been required to pay refunds under 31 U.S.C. §
3343(b), the Government could have recovered the funds paid out by
the depositary bank on the stolen and forged refund checks, subject
to the statute of limitations provided in 31 U.S.C. § 3712(a)(1).16
However, the combination of the Government's failure to pursue this
remedy and the taxpayers' failure to file timely claims for
replacement checks does not revive the Government's obligation to
pay out refunds for the tax overpayments.
C.
2(f)(1) (2001) ("Mailing of refund check. (1) Checks in payment of
claims allowed will be drawn in the names of the persons entitled
to the money and, except as provided in subparagraph (2) of this
paragraph (f), the checks may be sent direct to the claimant . . .
.").
16
See 31 U.S.C. § 3712(a)-(b).
11
Our conclusion is not altered by our decision in United States
v. First National Bank of Atlanta.17 There, we faced a situation
in which government checks were issued to a government contractor
"in payment of supplies ordered and received by the United States
Air Force," but "these checks were endorsed, without authority, by
an employee of [the contractor], in [the contractor's] name, and
negotiated through the . . . third party defendant in this action,
and the proceeds therefrom were converted by the employee to his
own use."18 In an action by the government to recover the funds
from the bank which presented the checks to the Treasury for
payment on indorsements guaranteeing prior, forged indorsements, we
stated in dicta that "the government's obligation to pay [the
contractor] for the supplies it had received was not discharged by
the checks here in question," because the contractor "never
received the benefit of these checks, yet the government, as
drawee, paid them."19
This dicta does not change the fact that, here, the Government
was only required to timely issue refund checks to the address
listed on the returns. Nothing in 31 U.S.C. § 3712 requires the
Government to pursue its commercial paper remedy against a
depositary bank that has paid a Treasury check on a forged
17
441 F.2d 906 (5th Cir. 1971).
18
Id. at 907.
19
Id. at 911.
12
indorsement. Just as a taxpayer has, in an appropriate case, a
choice between seeking payment of an underlying obligation he is
still owed or seeking a replacement check,20 so, too, the Government
need not seek reimbursement from the depositary bank where the
taxpayers have not filed a timely claim for a replacement check and
the Government therefore has not been required to pay more than it
owed.
D.
We hold that, here, the Government fulfilled its obligation to
pay the taxpayers refunds by timely issuing refund checks to the
address provided on their returns. The taxpayers thereafter failed
to timely file claims for replacement checks within a year of
learning that their refund checks were stolen and negotiated on
forged indorsements by their accountant, much less within a year of
the refund checks' issuance. That failure does not obligate the
Government to refund tax overpayments where it has already once
taken all the steps required to issue refund checks. Summary
judgment for the Government was proper whether the claims are
characterized as seeking refunds for tax overpayments or
replacements for stolen and forged checks.
III.
The judgment of the district court is AFFIRMED.
20
See Naftel v. Comm'r, 85 T.C. 527, 534 (1985).
13