In the United States Court of Federal Claims
No. 13-1026T
(Filed: February 22, 2016)
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PETER B. MCALLISTER and
JENNIFER C. MCALLISTER, Tax refund; motion for
summary judgment;
carryba ck o f n et
Plaintiffs, operating loss; 26
U.S.C. § 172(b)(1)(H);
v. financial disability; 26
U.S.C. § 6511(h)
THE UNITED STATES,
Defendant.
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James S. DelSordo, Manassas, VA, for plaintiffs.
Matthew Douglas Lucey, Department of Justice, Tax Division, Court
of Federal Claims Section, with whom were Caroline D. Ciraolo, Acting
Assistant Attorney General, David I. Pincus, Chief, Court of Federal Claims
Section, and G. Robson Stewart, Assistant Chief, Court of Federal Claims
Section, for defendant.
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OPINION
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BRUGGINK, Judge.
This a suit for refund of federal income tax. Plaintiffs Peter B.
McAllister and Jennifer C. McAllister (“the McAllisters” or “plaintiffs”) seek
a refund of $175,013 for the 2005 tax year resulting from an attempted
carryback of a net operating loss (“NOL”) from the 2009 tax year. Pending is
defendant’s motion to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the
Rules of the Court of Federal Claims (“RCFC”), or, in the alternative, its
motion for summary judgment pursuant to RCFC 56. The motion is fully
briefed. Oral argument was held on February 17, 2016. For the reasons stated
below, we deny defendant’s motion to dismiss for lack of jurisdiction, we deny
as moot defendant’s motion to dismiss pursuant to RCFC 12(b)(6), and we
grant defendant’s motion for summary judgment.
BACKGROUND1
The McAllisters are a married couple who jointly own several real
estate development, construction, and management businesses. During the
2009 tax period, several of these businesses endured financial reversals which
resulted in net operating losses.
The American Recovery and Reinvestment Act of 2009 (“ARRA”), 26
U.S.C. § 172(b)(1)(H), permitted small business owners to carry back
operating losses in 2009 for up to five years, three years more than otherwise
would have been permissible. See 26 U.S.C. § 172(b)(1)(A) (2012) (providing
the general rule that a net operating loss may be carried back two years prior
to the year of the loss). In plaintiffs’ case, this would have allowed the
McAllisters to carry back the 2009 NOLs to the 2005 tax year, resulting in a
reduction in their 2009 liability of $175,013. The Act provided, however, that
“[a]ny election under this subparagraph shall be made . . . by the due date
(including extension of time) for filing the taxpayer’s return for the taxable
year of the net operating loss [i.e., 2009, not 2005].” American Recovery and
Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115, repealed by Tax
Increase Prevention Act of 2014, Pub. L. No. 113-295, § 221, 128 Stat. 4010,
4041. Therefore, the McAllisters’ election had to be made by the due date for
filing their 2009 return, which initially was April 15, 2010 but was
subsequently extended to October 15, 2010. See 26 U.S.C. § 6072 (2012)
(imposing an April 15 due date for all tax returns); § 6081 (allowing
“reasonable” extensions of time of up to six months).
Plaintiffs filed their Form 1040X amended tax return for the tax year
2005 on January 24, 2011. Def.’s App. 1. The purpose of the amended return
was to carry back plaintiffs’ 2009 NOL to 2005 pursuant to the ARRA. On
March 10, 2011, the Internal Revenue Service (“IRS”) sent plaintiffs a letter
1
Defendant attached to its dispositive motion numerous exhibits. Because we
considered them in our ruling, we proceed under RCFC 56, not RCFC
12(b)(6).
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with respect to their 2005 tax year informing them that their attempt to carry
back 2009 losses to 2005 could not be processed because they had not yet filed
their 2009 tax return, which also meant they had not made an Election to
Extend the Carryback Years by the due date for filing the 2009 return as
required by section 172(b)(1)(H). According to the letter, this election needed
to have been received by October 15, 2010, plaintiffs’ extended due date for
filing their 2009 return. The IRS stated that the 2009 carryback therefore could
only be carried back the normal two years, to 2007, not the four years plaintiffs
sought pursuant to section 172(b)(1)(H).
Plaintiffs’ 2009 Form 1040 tax return was filed later, on October 12,
2011, after the October 15, 2010 due date. Id. at 6. This return included the
election, under section 172(b)(1)(H), to carry back the NOL four years. Id. at
17. The IRS sent plaintiffs a notice of disallowance for the carryback on
December 30, 2011, which informed plaintiffs that the claim could not be
allowed because the election to carryback the NOL was not made by the due
date for filing the 2009 return as required by section 172(b)(1)(H). Id. at 19.
Plaintiffs appealed this decision to the IRS on January 16, 2013. This
appeal was denied on September 20, 2013. Plaintiffs subsequently filed in this
court, claiming that their carryback election was timely made because,
plaintiffs were financially disabled during the period of 2009 through 2010,
which they contend allows a tolling for filing their 2009 return within the
terms of 26 U.S.C. § 6511(h).
DISCUSSION
Defendant argues that plaintiffs are barred from carrying back the net
operating loss from 2009 to 2005 because the election to carry back was made
on a late-filed 2009 tax return. It contends that the financial disability
exception of section 6511(h) does not apply to the special provision under
which plaintiffs attempt to carry back their loss. Rather, section 6511(h)
explicitly applies only to toll the limitations periods specified in subsections
(a), (b), and (c) of section 6511, none of which apply to plaintiffs’ return.
Plaintiffs contend that the tolling provided by section 6511(h) applies
to the special provision under which plaintiffs attempt to carry back their loss,
and that they were financially disabled because they were “unable to manage
[their] financial affairs by reason of a medically determinable physical or
mental impairment” during 2009 and 2010. § 6511(h). As support for their
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claim of financial disability, plaintiffs had initially detailed their alleged
financial disability in an attachment to their 1040X amended return for the year
2005. Def.’s App. 3. The attachment explained that Mr. McAllister handles the
operations of their businesses, while Mrs. McAllister handles the accounting,
bookkeeping, and finances. Id. It further noted that during 2009 and 2010,
taxpayers “were not able to attend to their respective functions” because Mr.
McAllister suffered from recurring eye illness and other conditions throughout
those years, and Mrs. McAllister suffered from debilitating symptoms which
were eventually diagnosed as a tumor of the neck. Id.
Plaintiffs argue in the alternative that their election actually was timely
because their amended 2005 tax return, which sought to take advantage of the
special carryback provision of 172(b)(1)(H), was timely.
This court has subject matter jurisdiction over claims for the “recovery
of any internal-revenue tax alleged to have been erroneously or illegally
assessed or collected.” 28 U.S.C. § 1346(a)(1) (2012). As a prerequisite to
maintaining a claim in this court, plaintiffs must have filed a timely claim for
refund with the Internal Revenue Service. 26 U.S.C. § 7422(a) (2012). A
claim for refund is ordinarily timely if it is filed within three years of the date
of the filing of the tax return or within two years of the date of the payment of
the tax. Id. § 6511(a). If the basis for a refund is an NOL carryback (as it was
here), the time period for filing the refund claim is three years from the due
date for the return for the taxable year in which the NOL arose. Id. § 6511(d).
As defendant points out, there are two separate time periods at play: the
period of limitations for filing a refund claim under section 6511, and the time
within which the NOL carryback election must be made. Defendant contends
that the period of limitations for filing a refund claim under 6511 is irrelevant
to the dispute. Rather, the election for the NOL carryback provided in section
172(b)(1)(H) is clearly spelled out in the statute as being the time period for
filing a timely return for the year in which the loss is incurred, i.e., 2009.
Section 6511(h) does not operate to remedy this failure, as it only applies to
subsections (a) through (c) of section 6511. We agree.
We have jurisdiction over the 2005 refund claim because it was timely
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filed.2 The real question is whether plaintiffs are entitled to carry back the
2009 NOL, which in turn, depends on whether the election was timely made.
The carryback provision of section 172(b)(1)(H) provides that in order
to take advantage of the carryback, the election “shall be made in such manner
as may be prescribed by the Secretary, and shall be made by the due date
(including extension of time) for filing the taxpayer’s return for the taxable
year of the net operating loss.” Id. § 172(b)(1)(H). Revenue Procedure 2009-52
restates that the due date is the time for filing the tax return for the taxable year
of the NOL. See Rev. Proc. 2009-52, 2009-49 I.R.B. 744. In plaintiffs’ case,
the due date for filing their 2009 tax return was October 15, 2010.
Accordingly, the due date for electing the NOL carryback was this same date.
Their 2009 tax return, however, including the election to carryback, was filed
a year later, and was therefore untimely.
Plaintiffs cannot rely on the tolling provision of section 6511(h). This
subsection provides that “the running of the periods specified in subsections
(a), (b), and (c) shall be suspended during any period of such individual’s life
that such individual is financially disabled.” § 6511(h). We decline to extend
the tolling provisions beyond what Congress clearly specified. Therefore,
contrary to plaintiffs’ argument, it cannot be applied to section 172(b)(1)(H).
As a result, it is unnecessary to determine whether plaintiffs met the
requirements of section 6511(h). Accordingly, we deny defendant’s motion to
dismiss for lack of jurisdiction and its motion to dismiss pursuant to RCFC
12(b)(6). However, its motion for summary judgment is granted. The clerk is
directed to enter judgment for the governmment. No costs.
s/Eric G. Bruggink
2
As we stated earlier, this court has jurisdiction over a timely filed refund
claim. Id. § 7422(a). Where the basis for a refund is an NOL carryback, the
time period for filing the refund claim is three years from the due date for the
return for the taxable year in which the NOL arose. Id. § 6511(d)(2)(A).
Plaintiffs’ 2009 tax return was due by October 15, 2010. Their claim for a
refund was filed in January of 2011, which is less than three years later.
Neither party disputes this. As a result, there is no jurisdictional defect which
bars plaintiffs’ claim.
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Eric G. Bruggink
Judge
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