Beall v. United States

United States Court of Appeals
Fifth Circuit
F I L E D
Revised July 14, 2003
June 27, 2003
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk

No. 01-41471

RAYMOND W. BEALL; HAZEL A. BEALL,

Plaintiffs-Appellants,

versus

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of Texas

Before GARWOOD, JONES and STEWART, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiffs-appellants Raymond W. Beall and Hazel A. Beall (the

Bealls) appeal the dismissal, for want of subject matter

jurisdiction, of their claim for a refund of the interest on income

taxes paid to the defendant-appellee, the United States. Because

we conclude, for the reasons set forth below, that the district

court did possess jurisdiction to hear the Bealls’ complaint, we
reverse the judgment of the district court and remand.

Background

On March 31, 1997, the Bealls entered into a settlement

agreement with the Internal Revenue Service (IRS) to resolve

certain tax deficiencies arising from the Bealls’ 1984 tax return

and subsequent claim for refund.1 Following that settlement, the

IRS assessed additional income taxes, as well as interest on those

taxes, against the Bealls. After satisfying their outstanding tax

liability, the Bealls, on December 22, 1997, filed a claim for

refund of the tax and interest charged against them.

The IRS denied the Bealls’ claim for refund, and on April 22,

1999, the Bealls filed a supplemental claim for refund in which

they claimed both that the interest on their assessed tax liability

should have been netted against other years under 26 U.S.C. §

6221(d), and that a portion of that interest should have been

abated under 26 U.S.C. § 6404(e)(1). Based on those refund claims,

the Bealls then commenced the present suit in federal district

court on March 28, 2000.

1
The Bealls’ tax dispute with the IRS centered around
Raymond Beall’s investment, in the early 1980s, in two
agricultural partnerships. Based on losses reported by those
partnerships, the Bealls claimed a tax loss for 1984 of $208,353,
and filed an application for a tax refund in 1985 on which they
carried back a portion of losses incurred by the partnerships
from 1981 to 1984. The IRS eventually examined the partnerships’
1984 returns, and in 1991, issued proposed adjustments to the
partnerships’ income tax returns. It is the Bealls’ income-tax
liability resulting from those adjustments that formed the basis
of the present dispute.

2
 The district court granted the Government’s motion to dismiss,

concluding, among other things, that it lacked subject matter

jurisdiction to hear a challenge to the denial of a request for

interest abatement under section 6404(e)(1) of the Internal Revenue

Code.2 The Bealls now appeal the dismissal only of that part of

their claim for refund based on 26 U.S.C. § 6404(e)(1).

Discussion

“We review a district court’s grant of a motion to dismiss for

lack of subject-matter jurisdiction de novo, using the same

standards as those employed by the lower court.” John Corp. v.

City of Houston, 214 F.3d 573, 576 (5th Cir. 2000); Rodriguez v.

Texas Comm’n on the Arts, 199 F.3d 279, 280 (5th Cir. 2000). We

accept as true the Bealls’ uncontroverted factual allegations, “and

will affirm the dismissal if ‘the court lacks the statutory or

constitutional power to adjudicate the case.’” Id. (quoting Nowak

v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.

1996)).

A. Sovereign Immunity

As a threshold matter, we first address the Government’s

position that Congress has not waived sovereign immunity so as to

2
The district court also dismissed, for want of subject
matter jurisdiction, the Bealls § 6221(d) interest-netting claim.
The court had previously dismissed, as untimely, that portion of
the Bealls’ complaint that relied on their December 12, 1997,
claim for a refund. The Bealls did not appeal either of these
rulings, and they are not, therefore, now before us.

3
permit a plaintiff to sue in federal district court for a refund of

unabated interest. See F.D.I.C. v. Meyer, 114 S.Ct. 996, 1000

(1994) (“Sovereign immunity is jurisdictional in nature. . . .

Therefore, we must first decide whether . . . immunity has been

waived.”). Without such a waiver, there can be no jurisdiction

over the Bealls’ refund claim in either the district court or in

this court. Id.; United States v. Mottaz, 106 S.Ct. 2224, 2229

(1986) (“When the United States consents to be sued, the terms of

its waiver of sovereign immunity define the extent of the court’s

jurisdiction.”); Moore v. Dept. of Agric. on Behalf of Farmers

Home Admin., 55 F.3d 991, 993 (5th Cir. 1995).

The Bealls premised subject matter jurisdiction in the

district court upon 28 U.S.C. § 1346. Section 1346(a)(1) provides

for original jurisdiction in the district courts over claims “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.” 28 U.S.C. § 1346. We have stated,

however, that section 1346, standing alone, is insufficient to

waive sovereign immunity. “Section 1346 is a general jurisdiction

statute that does not constitute a separate waiver of sovereign

immunity.” Schanbaum v. United States, 32 F.3d 180, 182 (5th Cir.

1994).

4
 The Bealls’ complaint, however, references, among other

provisions, section 7422 of the Internal Revenue Code. In language

that mirrors section 1346, section 7422 provides for a civil action

for refund of certain wrongfully collected taxes.3 And although

section 1346 does not waive sovereign immunity by itself, when

coupled with a claim brought under section 7422, section 1346 does

provide the necessary waiver of immunity. See United States v.

Michel, 50 S.Ct. 284, 285 (1931); Schanbaum, 32 F.3d at 182

(“Section 1346 operates in conjunction with 26 U.S.C. § 7422 to

provide a waiver of sovereign immunity in tax refund suits . . .

when the taxpayer has fully paid the tax and filed an

administrative claim for a refund.”).

The Bealls have fully paid the tax and interest at issue, and

have filed a claim for a refund with the IRS. If their claim for

a refund of unabated interest under 26 U.S.C. § 6404(e)(1),

therefore, is cognizable under section 7422, then sovereign

immunity presents no bar to the exercise of subject matter

jurisdiction.

3
Section 7422 provides for the recovery of “any internal
revenue tax alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected.” 26 U.S.C. §
7422(a).
Section 7422's reference to “any internal revenue tax” also
encompasses interest assessed on an owed tax. See 26 U.S.C. §
6601(e)(1) (providing that “[a]ny reference” in the Internal
Revenue Code “to any tax imposed by this title shall be deemed
also to refer to interest imposed by this section on such tax”).

5
 The Government’s claim of immunity thus requires us to address

the compass of section 7422 with an eye to determining whether it

can accommodate the Bealls’ interest abatement claim. According to

the Government it cannot, and a claim for abatement of interest,

therefore, cannot be brought as a claim for a refund under section

7422. The language of the statute, however, is not susceptible to

so limited a construction, and we decline to give it such.

Section 7422 permits a claim for a refund not only for

“erroneously or illegally assessed” taxes, but also for “any sum

alleged to have been excessive or in any manner wrongfully

collected.” 26 U.S.C. § 7422. Whether the Bealls’ abatement claim

is cognizable under section 7422, thus requires the resolution of

two questions: (1) whether the phrase “any sum,” includes unabated

interest charged on income taxes owed; and if so, (2) whether the

phrase “excessive or . . . wrongfully collected” includes a sum of

interest that the IRS has refused to abate in accordance with 26

U.S.C. § 6404.4 We answer both questions in the affirmative, and

4
Section 6404, as amended by the Taxpayer Bill of Rights
II, see Pub. L. No. 104–168, § 301(a), 110 Stat. 1452 (1996),
permits the Secretary of the Treasury to abate interest charged
against a taxpayer, and provides in relevant part

“(e) Abatement of interest attributable to unreasonable
errors and delays by Internal Revenue Service.—
(1) In general.—In the case of any assessment of
interest on—
(A) any deficiency attributable in whole or
in part to any unreasonable error or delay by an
officer or employee of the Internal Revenue
Service (acting in his official city) in
performing a ministerial or managerial act, or . .

6
conclude, therefore, that a claim for a refund of unabated interest

is cognizable under section 7422 and is not barred by sovereign

immunity.

The Supreme Court has long since indicated that the phrase

“any sum” likely encompasses a claim for interest. Thus in

construing identical language in section 1346, the Court noted that

“‘any sum,’ instead of being related to ‘any internal-revenue tax’

and ‘any penalty,’ may refer to amounts which are neither taxes nor

penalties,” and that “[o]ne obvious example of such a ‘sum’ is

interest.” See Flora v. United States, 80 S.Ct. 630, 633 (1960).

A claim for abatement of interest, however, differs from the

prototypical claim for refund of taxes and interest under section

7422. The archetypal refund claim is a claim that the taxpayer

never owed the underlying tax. See United States v. Williams, 115

S.Ct. 1611, 1616 (1995) (noting that section 1346(a)(1) displaced

the common-law remedy of assumpsit for money had and received, a

remedy that afforded relief to taxpayers who “had paid money they

did not owe—typically as a result of fraud, duress, or mistake”);

see, e.g., Your Insurance Needs Agency, Inc. v. United States, 274

F.3d 1001 (5th Cir. 2001) (addressing a refund claim for tax

overpayments). A claim for the refund of interest that the

.
The Secretary may abate the assessment of all or any
part of such interest for any period.” 26 U.S.C. §
6404(e)(1) (2002).

7
taxpayer argues should have been abated, on the other hand, is not

a claim to recover money that was paid but never owed, but is a

claim that interest, otherwise legitimately assessed, could have

been less had the IRS not unreasonably delayed in the performance

of a ministerial or managerial task. See 26 U.S.C. § 6404(e)(1).

That a claim for abatement of interest is not identical to an

action in assumpsit or a refund claim challenging the validity of

the underlying tax, however, does not necessarily establish that an

abatement claim cannot be prosecuted under section 7422. Section

7422 is a statutory remedy, and is not confined to the limits of

its common-law ancestor. See, e.g., Flora, 80 S.Ct. at 635 (noting

that since 1862, an action for refund ceased to be regarded as a

common-law action, “but rather as a statutory remedy which ‘in its

nature [was] a remedy against the Government”) (quoting Curtis’s

Adm’x v. Fiedler, 67 U.S. (2 Black) 461, 479 (1862)). It is the

language of section 7422 that must control, language that in

referring broadly to “any sum,” would by its terms appear to

accommodate a claim for the abatement of interest.

Finally, we note that our decision in Paretto v. Usry, 295

F.2d 499 (5th Cir. 1961), supports the conclusion that section 7422

may accommodate a claim for the refund of unabated interest. In

Paretto, a taxpayer who had been penalized for failing to withhold

excise taxes on behalf of his customers, brought an action, citing

section 6404, for the abatement of assessed taxes and penalties.

8
Id. at 499. Although we affirmed the dismissal of the taxpayer’s

action for equitable relief, we noted that the taxpayer’s

appropriate course of action would have been to pay the taxes and

penalties, and then to challenge the tax through the normal “pay

and sue” provisions of section 7422. Id. at 501–02. We read

Paretto, therefore, as supporting the proposition that a cause of

action under section 7422 encompasses a claim for abatement of

interest under section 6404(e)(1). See also Magnone v. United

States, 733 F.Supp. 613 (S.D.N.Y. 1989) (indicating that a claim

under 6404(e)(1) could have proceeded as a claim for a refund under

section 7422, had the plaintiffs complied with the payment

requirements of that section). Accordingly, we decline to restrict

section 7422 as the Government suggests, and instead find that the

phrase “any sum,” thus unmoored from its common-law origins, is

copious enough to encompass a claim for refund of unabated

interest.

Having answered the first question—whether the phrase “any

sum” includes unabated interest charged on income taxes owed—in the

affirmative, we now turn to the second, and conclude that the

phrase “excessive or . . . wrongfully collected” includes interest

charges that the IRS abused its discretion in refusing to abate

pursuant to 26 U.S.C. § 6404(e)(1).

As we did above, in interpreting a statute, we look first to

its plain language. See Moore v. Cain, 298 F.3d 361, 366 (5th Cir.

9
2002). Excessive is defined as “exceeding the usual, proper, or

normal.” WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 792 (1961) (emphasis

added). See also 5 OXFORD ENGLISH DICTIONARY 501 (2d ed. 1999)

(“Exceeding what is right, proportionate, or desirable; immoderate,

inordinate, extravagant.”).5 The question thus becomes whether the

denial of a request for abatement of interest, where that denial

amounts to an abuse of discretion, is either not proper, or results

in the collection of a sum of interest that so exceeds the usual or

normal as to be considered excessive.

An abuse of discretion necessarily occurs where an act can

only be described as clearly improper. See, e.g., United States v.

O’Neill, 709 F.2d 361, 372 n.11 (5th Cir. 1983) (equating an

improper decision with an abuse of discretion). Thus, where a

refusal to abate interest amounts to an abuse of discretion, we may

conclude that that refusal is improper, and the improperly unabated

interest therefore excessive. In other words, any time that the

Secretary should commit an abuse of discretion in denying a request

for an abatement, the Secretary has assessed an improper, and

therefore an excessive sum. Thus we also answer in the affirmative

our second question—whether the phrase “excessive or . . .

wrongfully collected” includes a sum of interest that the IRS has

5
The Supreme Court has applied an identical definition of
the term “excessive” in the context of the Excessive Fines
Clause. See United States v. Bajakajian, 118 S.Ct. 2028,
2036–2037 (1998) (“Excessive means surpassing the usual, the
proper, or a normal measure of proportion.”).

10
improperly refused to abate in accordance with 26 U.S.C. § 6404.

Having determined that the phrase “any sum” includes a sum of

unabated interest, and that the phrase “excessive . . . or

wrongfully collected” includes the denial of a request for

abatement where that denial amounts to an abuse of discretion, we

conclude that an interest abatement claim is cognizable under

section 7422, and that sovereign immunity over such claim is waived

by operation of sections 7422 and 1346. We therefore join our

sister circuits in holding that a “taxpayer[’s] cause of action,

alleging that [he] paid excessive interest charges because the IRS

abused its discretion in refusing to abate interest pursuant to

I.R.C. § 6404(e)(1), falls within the district court’s jurisdiction

to decide cases regarding ‘any sum alleged to have been excessive

. . . under the internal-revenue laws.’” Selman v. United States,

941 F.2d 1060, 1062 (10th Cir. 1991); accord Argabright v. United

States, 35 F.3d 472 (9th Cir. 1994) (declining to review an

interest abatement claim, but exercising subject matter

jurisdiction over that claim); Horton Homes, 936 F.2d 548, 550

(11th Cir. 1991) (same).

B. Review of Section 6404(e)(1) Denials

That the district court possessed the power to hear the

Bealls’ claim, however, merely begins our inquiry; it does not

establish whether the denial of the Bealls’ request for abatement

of interest is subject to judicial review.

11
 Under the Administrative Procedure Act (APA), final agency

decisions are generally susceptible to judicial review. Section

701(a) of the APA, however, proscribes review in two narrow

situations, namely where “(1) statutes preclude judicial review; or

(2) agency action is committed to agency discretion by law.” 5

U.S.C. § 701(a)(1), (2). Based on these limitations, each circuit

to address the issue prior to 1996 determined that the decision to

grant an abatement under section 6404(e)(1) was not subject to

judicial review. See Argabright, 35 F.3d at 476; Selman, 941 F.2d

at 1064; Horton Homes, 936 F.2d at 554.

Proceeding from section 701 of the APA, those circuits

concluded that the permissive language of section 6404(e)(1), as

well as the absence in that section of any substantive standards by

which a court might review an agency action, precluded judicial

review. See Argabright, 35 F.3d at 475–476 (citing Horton Homes

and Selman). In further support of this position, each circuit

also examined the legislative history of section 6404, noting the

absence of any substantive standards for review in the legislative

history, as well as language in the House and Senate reports noting

that section 6404(e)(1) “gives the IRS the authority to abate

interest but does not mandate that it do so.” Id. at 476.

Accordingly, all three ultimately agreed that “the language,

structure and legislative history of I.R.C. § 6404(e)(1)

indicate[d] that Congress meant to commit the abatement of interest

12
to the Secretary’s discretion,” and that section 701(a)(2) barred

judicial review. Selman, 941 F.2d at 1064.6

Congress, however, has since amended section 6404. As part of

the passage in 1996 of the Taxpayer Bill of Rights II, see Pub. L.

No. 104–168, 110 Stat. 1452 (codified as amended in scattered

sections of 26 U.S.C.), Congress approved a number of amendments to

section 6404 that are relevant to our analysis of the present case.

First, with respect to section 6404(e)(1), Congress added

“unreasonable” to modify the words “error or delay,” and added “or

managerial act,” where before only “ministerial act” had appeared.

See id. at § 301(a)(2). The current version of section 6404(e)(1),

therefore, now provides:

“(e) Abatement of interest attributable to unreasonable
errors and delays by Internal Revenue Service.—
(1) In general.—In the case of any assessment of
interest on—
(A) any deficiency attributable in whole
or in part to any unreasonable error or
delay by an officer or employee of the
Internal Revenue Service (acting in his
official capacity) in performing a
ministerial or managerial act, . . .
The Secretary may abate the assessment of all
or any part of such interest for any period.”
26 U.S.C. § 6404(e)(1) (2002).

6
Of the three opinions, only one, Horton Homes, concluded
that review of the abatement decision was prohibited by §
701(a)(1) as well as § 701(a)(2). See Horton Homes, 936 F.2d at
551–552. The Selman court found that the language of §
6404(e)(1) did not expressly preclude judicial review, see
Selman, 941 F.2d at 1063, and the Argabright court, having found
review precluded by § 701(a)(2), did not address the
applicability of § 701(a)(1).

13
Second, Congress provided for review in the Tax Court of the

Secretary’s decision to deny a request for the abatement of

interest. See Pub. L. No. 104–168, § 302, 110 Stat. 1457–1458

(1996). Thus, the current section 6404(h)7 provides, in part, that

“The Tax Court shall have jurisdiction over any action
brought by a taxpayer who meets the requirements referred
to in section 7430(c)(4)(A)(ii) to determine whether the
Secretary’s failure to abate interest under this section
was an abuse of discretion, and may order an abatement,
if such action is brought within 180 days after the date
of the mailing of the Secretary’s final determination not
to abate such interest.” 28 U.S.C. § 6404(h).

The statutory landscape in which we address the Bealls’ claim

for interest abatement is thus substantially different from the one

facing the Horton Homes, Selman, and Argabright courts. And

though, were we to address today the same issue that faced those

courts, we would most likely, and for the same reasons, conclude

that judicial review of the Secretary’s decision to deny an

abatement request is barred, our decision now must be guided

instead by the above 1996 amendments.8 We cannot merely adopt the

7
Section 6404(h) has not been substantively amended since
its passage in 1996. Its designation, however, has changed
twice. The current § 6404(h) was initially designated § 6404(g).
It was redesignated 6404(i) by the IRS Restructuring and Reform
Act of 1998. Thus, from 1998 until 2002, it appeared in the
United States Code as 26 U.S.C. § 6404(i). In 2002, Public Law
Number 107–134, § 112(d)(1) repealed the former subsection (h)
and designated then subsection 6404(i) as subsection (h), the
designation it currently holds.
8
The Bealls attack, in a number of places in their brief,
the soundness of the decisions in Horton Homes, Selman, and
Argabright that the denial of a request for abatement before 1996
was, in fact, wholly discretionary and unreviewable. This

14
reasoning of the Horton Homes line of cases, but must construe, as

a matter of first impression, the effect of the 1996 changes to

section 6404.

Having reviewed those changes, we find that in amending

section 6404, Congress clearly expressed its intent that the

decision to abate interest no longer rest entirely within the

Secretary’s discretion. See Miller v. Commissioner of Internal

Revenue, 310 F.3d 640, 643 (9th Cir. 2002) (recognizing that

“Argabright’s holding that judicial review is not available for IRS

decisions pursuant to § 6404(e)(1) . . . has been undermined by

subsequent legislation and, to that extent, is no longer good

law.”). We need look no further for support for this conclusion

than the simple addition of section 6404(h) granting jurisdiction

to the Tax Court to review that decision. Indeed, the vesting of

jurisdiction in the Tax Court to review interest abatement

challenges can be given no meaning other than that the abatement

decision is no longer committed solely to agency discretion.

question, however, is now not before us. Moreover, that issue
apparently was resolved contrary to the Bealls’ position by our
unpublished opinion in Maloney v. United States, 95-2 U.S.T.C. ¶
50,441 (No. 94-30609, 5th Cir. July 13, 1995), in which we
affirmed without statement of reasons the district court’s
unpublished decision in Maloney v. United States, 94-2 U.S.T.C. ¶
50,484 (civil No. 94-0602, E.D. La. Sept. 6, 1994). Although our
opinion there does not so reflect, the district court’s opinion
in Maloney relied on Horton Homes and Selman and held “the Court
is without authority to review plaintiff’s claim that the IRS
should have abated the assessment of interest under 28 U.S.C. §
6404(e)(1).” Unpublished opinions issued before January 1, 1996,
are precedent. Fifth Cir. Rule 47.5.3.

15
Accordingly, we cannot say that either section 701(a)(2) of the

APA, or the absence of manageable standards of review generally,

any longer precludes judicial review of the denial of a request for

the abatement of interest.9

C. Exclusive Jurisdiction in the Tax Court

Having concluded that the decision to abate interest no longer

rests entirely with the Secretary, the question remains whether

review of that decision is limited to the Tax Court, or whether

review is also available in federal district court. Thus, although

both parties concede, as they must, that review of the Secretary’s

decision is now available in the Tax Court, the Government

9
Although we hold that Congress has indicated that the
decision to abate interest is no longer committed entirely to
agency discretion, and that judicial review of that decision is
no longer barred by § 701(a)(2) of the APA, because we also hold
that a claim for a refund of unabated interest is cognizable
under I.R.C. § 7422, see supra Part II(A), we note that our
discussion of § 701(a)(2) should not be read as sanctioning the
use of the APA as a vehicle for bringing a challenge to a
decision of the Secretary under § 6404(e)(1). “Congress did not
intend the general grant of review in the APA to duplicate
existing procedures for review of agency action.” Bowen v.
Massachusetts, 108 S.Ct. 2722, 2736 (1988). And review under the
APA is accordingly available only where “there is no other
adequate remedy in a court.” 5 U.S.C. § 704; see Poirier v.
Commissioner, 299 F.Supp. 465, 466 (La. 1969) (denying relief
under the APA where taxpayers had an adequate remedy under the
I.R.C.); see also Town of Sanford v. United States, 140 F.3d 20,
23–24 (1st Cir. 1998) (denying relief under the APA for the
recovery of taxes lost when the United States obtained a
forfeiture judgment against a local taxpayer where the plaintiff
town had the available remedy of moving to reopen a forfeiture
decree); New York City’s Employee Ret. Sys. v. Securities and
Exchange Commission, 45 F.3d 7, 14 (1995) (refusing to entertain
a claim for relief under the APA where the plaintiffs had an
available alternative remedy under Rule 14a-8).

16
maintains that the grant of jurisdiction in section 6404(h) to the

Tax Court is exclusive, and that the district court is, therefore,

without power to hear a claim under section 6404(e)(1). We do not

agree.

Unlike our conclusion that the Secretary’s abatement decision

is no longer discretionary, determining whether Congress intended

for the jurisdictional grant in section 6404(h) to be exclusive

requires us to delve further into the legislative history of

section 6404 than merely noting the simple fact of section

6404(h)’s enactment.

The House report accompanying the 1996 Taxpayer Bill of Rights

indicates that Congress was aware of the Horton Homes line of

cases. In describing the pre-1996 state of the law governing the

review of interest abatement denials, the report notes that

“[f]ederal courts generally do not have the jurisdiction to review

the IRS’s failure to abate interest.” See H.R. REP. NO. 104–506, at

28 (1996). From this statement, the Government argues that because

Congress was aware that federal courts would not review the

Secretary’s decision under section 6404(e)(1), the decision to

grant jurisdiction only to the Tax Court must mean that Congress

chose not to extend jurisdiction to the district courts.10

10
The Government is not alone in advancing this position.
Rather, at least three district courts, in addition to the court
below, have been persuaded by identical reasoning. See Kraemer
v. United States, 89 A.F.T.R.2d 2002-1796 (S.D. Tex. 2002)
(“Congress first acknowledged the district courts’ powerlessness

17
 There are, however, a number of problems with the Government’s

argument. First, it ignores the basis for the decisions in the

Horton Homes line of cases. Those decisions denied review not

because the district courts lacked subject matter jurisdiction over

the taxpayers’ claims,11 but because the then extant version of

section 6404(e)(1) committed the decision to abate interest to

agency discretion. See Argabright, 35 F.3d at 476; Selman, 941

F.2d at 1064; Horton Homes, 936 F.2d at 554. In other words, the

federal district courts have always possessed jurisdiction over

challenges brought to section 6404(e)(1) denials, they simply

determined that the taxpayers had no substantive right whatever to

a favorable exercise of the Secretary’s discretion (at least absent

unfavorable exercise on an unconstitutional basis, Horton Homes at

to review abatement decisions and then granted the Tax Court,
alone, that jurisdictional power. This is the only plausible
reading of 26 U.S.C. § 6404[h].”); Davies v. United States, 124
F.Supp.2d 717, 720 (D. Me. 2000) (“Congress, in enacting section
[6404(h)], was well aware of, and intended to leave undisturbed,
the Argabright line of cases—i.e., that it expected that federal
district courts would not undertake [review of interest abatement
claims].”); Henderson v. United States, 95 F.Supp.2d 995 (E.D.
Wis. 2000).
11
The Government’s entire jurisdictional argument on this
point, therefore, is constructed on a false premise, namely that
the Horton Homes, Selman, and Argabright courts did not have
subject matter jurisdiction over interest abatement claims. In
so doing, the Government merely compounds the committee report’s
misuse of the term “jurisdiction.” See, e.g., Steel Co. v.
Citizens for a Better Environment, 118 S.Ct. 1003, 1010 (1998)
(“‘Jurisdiction,’ it has been observed, ‘is a word of many, too
many, meanings.’”) (quoting United States v. Vanness, 85 F.3d
661, 663 n.2 (D.C. Cir. 1996)).

18
554). As we concluded above, however, in amending section

6404(e)(1) and in enacting section 6404(h), Congress indicated that

such is no longer the case, and thereby removed any impediment to

district court review of section 6404(e)(1) claims.

Not only did Congress remove the barrier to district court

review recognized in the Horton Homes cases,12 but Congress nowhere

stated in the 1996 amendments that the district courts did not have

jurisdiction to review interest abatement denials. On the

contrary, the House committee report clearly states that “[n]o

inference is intended as to whether under present law any court has

jurisdiction to review IRS’s failure to abate interest.” See H.R.

REP. NO. 104–506, at 28 (1996).13

Viewed against a proper reading of the Horton Homes cases,

therefore, the Government’s argument essentially becomes a claim

12
There can be no question but that the IRS’s denial of a
request for the abatement of interest is now reviewable. See
Taylor v. Commissioner, 113 TC 206 (1999) (reviewing the denial
of a request for an abatement); Lee v. Commissioner, 113 TC 145
(1999) (same). See also Miller, 310 F.3d at 643.
13
The Government would have us read this language as an
expression of Congress’s intent to leave pre-1996 case law in
effect. The more natural reading of the committee’s statement,
however, takes it simply at face value: that Congress intended to
make no statement regarding the existence of jurisdiction in the
district courts or the applicability under the new law of the
Horton Homes line of cases. Moreover, if Congress did intend to
leave pre-1996 case law in effect, such a reading would not
advance, but would actually undermine the Government’s position,
i.e., it would follow from the fact that the district courts did
have jurisdiction over § 6404 claims before 1996, that the
district courts would continue to have jurisdiction over those
claims after 1996.

19
that Congress, in granting jurisdiction to the Tax Court to review

interest abatement denials, impliedly repealed the district court’s

existing jurisdiction to review the same. Repeals by implication,

however, are disfavored. See Traynor v. Turnage, 108 S.Ct. 1372,

1381 (1988); Jackson v. Stinnett, 102 F.3d 132, 135 (5th Cir. 1996)

(“It is hornbook law that ‘repeals by implication are not

favored.’”) (quoting Crawford Fitting Co. v. J.T. Gibbons, Inc.,

107 S.Ct. 2494, 2497 (1987)). And there is nothing in the grant of

jurisdiction to the Tax Court in section 6404(h) that would

preclude review in federal district court. Moreover, as observed

above, the House report clearly noted that Congress’s grant of

jurisdiction was not to be read as a statement regarding the

existence vel non of jurisdiction in the district courts.14 Indeed,

14
We realize that our conclusion that the Taxpayer Bill of
Rights II was not intended to preclude the exercise of district
court jurisdiction to hear abatement claims is undermined
somewhat by certain material reprinted in the Congressional
Record at the request of Senator Bryan, a co-sponsor of the bill
in the Senate that ultimately became the Taxpayer Bill of Rights
II. That material includes the following explanation of §
6404(h):
“[Taxpayer Bill of Rights II] will provide that
for qualified small taxpayers, as defined in section
7430(c)(4)(A)(ii), the Secretary must abate or refund
interest when the IRS has made an unreasonable error or
delay. This will allow courts to review the IRS
determination on the abatement of interest issue for
small taxpayers. For nonqualified ‘larger’ taxpayers,
courts will still not be allowed to review the IRS
determination on the interest abatement issue . . . .”
141 CONG. REC. S1370–1371 (1995) (material appended to
statement of Sen. Bryan).
This isolated statement, however, does not alter our
conclusion that the 1996 amendments to § 6404 do not deprive the

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rather than reading the grant of jurisdiction to the Tax Court as

implying the absence of jurisdiction in the district court, the

more natural interpretation of section 6404(h) is that Congress

simply chose to extend concurrent jurisdiction to the Tax Court

over a certain class of claims.15

We also find persuasive the Bealls’ argument that reading the

grant of jurisdiction to the Tax Court as exclusive of jurisdiction

district courts of jurisdiction to hear challenges to the IRS’s
failure to abate interest. First, Senator Bryan’s statement is
contradicted by remarks made on the same day by a fellow co-
sponsor of the bill in the Senate. In the same portion of the
Congressional Record, Senator Pryor noted that the Taxpayer Bill
of Rights II will both “require the IRS to abate interest when it
has made an unreasonable error or delay, and enable the courts
the power to review the interest abatement determination.” 141
CONG. REC. S1369 (1995) (statement of Sen. Pryor)(emphasis added).
Second, the House report, see supra text accompanying note 14,
which unlike Senator Bryan’s 1995 statement was prepared in 1996
at the time the bill was enacted into law, expressly declined to
make any statement regarding the availability of review of the
abatement issue in the district court. See H.R. REP. NO. 104–506,
at 28 (1996) (warning that “[n]o inference is intended as to
whether under present law any court has jurisdiction to review
IRS’s failure to abate interest.”). And third, and most
important, the language of § 6404(h) nowhere indicates that
district court review of the abatement issue is not available,
nor is there any indication that the grant of jurisdiction to the
Tax Court is in any way inconsistent with the availability of
district court review.
15
Section 6404(h) only grants the Tax Court jurisdiction
over a limited class of claims. The claimant must bring an
action within 180 days after the mailing of notice of the
Secretary’s decision not to abate interest, and the claimant must
be an individual taxpayer whose net worth does not exceed
$2,000,000 at the time the action is filed, or a business,
corporation, or partnership of less than 500 employees, whose net
worth does not exceed $7,000,000 at the time the action is filed.
See 26 U.S.C. §§ 6404(h); 7430(c)(4)(A)(ii).

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in the federal district courts, would be inconsistent with the

general structure of the Internal Revenue Code and the

jurisdictional limitations of the Tax Court.

Though the federal district courts have jurisdiction generally

over suits for the refund of taxes, see 28 U.S.C. § 1346, that

jurisdiction is available only where the taxpayer first pays the

entire amount of the disputed tax. See Flora v. United States, 80

S.Ct. 630, 646–647 (1960). The Board of Tax Appeals, the

predecessor of the Tax Court, on the other hand, was established by

Congress to relieve taxpayers of the burdens of pre-payment and to

permit them to obtain a determination of their tax liability before

paying any deficiency. Id. at 637, 638.16 Accordingly, the Tax

Court, as a statutory court of limited jurisdiction, possesses

“only such power to adjudicate controversies as is conferred upon

it by the Internal Revenue Code.” Continental Equities, Inc. v.

Commissioner, 551 F.2d 74, 79 (5th Cir. 1977). “It does not have

the authority to order that a refund be given, or to review the

Commissioner’s denial of a refund claim.” Id. And a specific

grant of jurisdiction, such as section 6404(h), is thus necessary

for the Tax Court to exercise any jurisdiction.

The same is not true of the district court’s refund

jurisdiction. Having removed the impediment to district court

16
The Board of Tax Appeals was thus a particular help to
those “small” taxpayers who would be less likely to be able to
make prepayment of their IRS determined tax liability.

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review identified in Horton Homes by indicating that the IRS’s

decisions on requested interest abatement were not merely matters

of administrative grace and that denials were subject to

substantive challenge, it was not necessary for Congress to provide

for a specific grant of jurisdiction to hear abatement denials. To

read a grant of jurisdiction to the Tax Court to hear an interest

abatement claim, as exclusive would be to read too much into

section 6404(h).

Finally, we note that to deny district court jurisdiction to

hear claims under section 6404(e)(1) would result in two anomalies.

First, only certain taxpayers, namely those who meet the net worth

requirements found in section 6404(h), would be able to seek

judicial review of the IRS’s failure to abate interest. Those

taxpayers whose net worth exceeds the limits found in section

6404(h), would be left entirely without recourse. Second, denying

district courts the power to hear claims under section 6404(e)(1)

would force certain plaintiffs to split their abatement claims from

their refund claims, and force them to seek relief in two courts.

Thus, a plaintiff who chose to pay his tax liability first and sue

in district court under 28 U.S.C. § 1346, would not be able to

bring, at the same time, a challenge to the IRS’s failure to abate

interest already collected. Instead, that taxpayer would have to

sever his interest abatement claim from his refund claim and pursue

the abatement claim separately in the Tax Court. Such splitting of

23
claims is generally considered undesirable, see, e.g., In re Super

Van, Inc., 92 F.3d 366, 371 (5th Cir. 1996) (discussing rule

against claim-splitting), and we cannot conclude, absent some

indication to the contrary, that Congress would have intended such

a result.

For these reasons, we cannot conclude that the grant of

jurisdiction to the Tax Court in section 6404(h) was meant to

preclude the exercise of district court jurisdiction over interest

abatement claims.

D. Ministerial or Managerial Act

Finally, the Government argues that even if the district court

erred in dismissing the Bealls’ complaint for lack of subject

matter jurisdiction, dismissal was nevertheless warranted as the

interest at issue did not accrue as a result of any IRS error or

delay in performing a ministerial act.

The district court, however, dismissed the Bealls’ complaint

without addressing this issue. And because we conclude that this

issue is best addressed in the first instance in the district

court, we decline to address it here.

Conclusion

After examining the legislative history of 6404(e)(1) and (h),

we cannot conclude that Congress meant for the Tax Court’s

jurisdiction to hear section 6404(e)(1) claims to be exclusive.

Nor can we conclude that sovereign immunity operates to bar relief

24
in the district courts for a claim for the abatement of interest

brought under section 7422.

For these reasons, we find that the district court did have

jurisdiction to hear the Bealls’ claim for interest abatement. We

accordingly REVERSE the judgment of the district court, and REMAND

for proceedings consistent with this opinion.

REVERSED and REMANDED.

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