United States Court of Appeals
Fifth Circuit
F I L E D
REVISED FEBRUARY 10, 2005
January 26, 2005
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
_______________________
NO. 04-10470
_______________________
JOHN DOE 1 and JOHN DOE 2,
Plaintiff-Appellants,
versus
UNITED STATES OF AMERICA,
Intervenor Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas
Before GARWOOD, JONES, and PRADO, Circuit Judges.
By EDITH H. JONES:
This appeal challenges the district court’s jurisdiction
to apply equitable tolling to the statute of limitations of
Internal Revenue Code § 6501, 26 U.S.C. § 6501 (hereafter
“I.R.C.”). Because we conclude that equitable tolling may not be
used to extend this provision’s three-year period, we REVERSE the
district court.
Background
In September 2000, the Internal Revenue Service (“IRS”)
published Notice 2000-44,1 which requires organizers and promoters
of certain tax shelters to maintain lists of participants and to
provide those lists to the IRS upon request. The Notice also
states that these shelter transactions are potentially abusive. In
December 2000, John Doe I and John Doe II2 (collectively
“taxpayers”) purchased one of these Short Option Strategy (“SOS”)
shelters from KPMG to reduce their federal income tax liabilities
for 2000 and 2001.
In 2001, the IRS investigated KPMG’s compliance with the
registration requirements imposed by Notice 2000-44. As part of
the inquiry, the IRS propounded summonses that demanded the names
of clients to whom KMPG had sold certain tax shelters, as well as
other documentation relating to the transactions. In all, KPMG
received twenty-five summonses. In July 2002, the IRS brought an
action in the United States District Court for the District of
Columbia to enforce nine of the summonses sent to KPMG.3 In
December 2002, the district court ordered KPMG to comply with the
summonses and reveal the requested names and transactional
1
The IRS issued the notice pursuant to I.R.C. § 6112(b)(2).
2
The district court eventually removed the seal on the case. John Doe
I is actually Keith Tucker and John Doe II is Robert Hechler.
3
See United States v. KPMG, LLP, 237 F. Supp. 2d 35, 36 (D.D.C. 2002);
316 F. Supp. 2d 30 (D.D.C. 2004). The IRS did not seek enforcement of the Notice
2000-44 summonses in this suit because KPMG had assured the IRS that it had
complied in full with the applicable summons.
2
information to a special master in charge of the case. The
remainder of the case was held in abeyance pending the special
master’s report.
In August 2003, KPMG first informed the IRS and the
taxpayers that the taxpayers’ 2000 SOS transaction was responsive
to one of the summonses (a summons not involved in the D.C.
litigation). This revelation was contrary to KPMG’s previous
representations to the IRS. KPMG then turned over information
about the SOS transactions to the IRS but omitted the taxpayer
names from the documents. The taxpayers notified KPMG that they
wished to invoke the “tax-practitioner privilege” under I.R.C. (26
U.S.C.) § 75254 and instructed KPMG not to take any action that
would waive their privilege. KPMG promised the taxpayers that
while it would not reveal any information before September 8, 2003,
the firm could not entirely refuse to comply with the summonses now
that KPMG was aware that the SOS transaction was responsive.
On September 9, 2003, Doe I and Doe II filed the instant
suit in federal court against KPMG, seeking declaratory and
injunctive relief to prevent KPMG from disclosing their identities
to the IRS in response to the summonses. KPMG promptly agreed to
the taxpayers’ Stipulation and Agreed Order preventing KPMG from
4
I.R.C. § 7525 applies “to a communication between a taxpayer and any
federally authorized tax practitioner to the extent the communication would be
considered a privileged communication if it were between a taxpayer and an
attorney.”
3
disclosing their identities or any relevant documents until the
court should enter a final judgment on the merits.5
As of September 8, the IRS learned that KPMG had not
fully complied with the Notice 2000-44 summonses.6 Further, the
instant litigation informed the IRS that taxpayers whose identities
were not yet known had used these tax shelters. As the litigation
continued, the IRS became concerned that the three-year statute of
limitations to assess additional taxes would expire while the
lawsuit was pending. On March 19, 2004, the IRS requested the
taxpayers to sign a consent agreement extending the statute of
limitations during litigation. The taxpayers refused. The IRS
then filed an emergency motion to intervene under Federal Rule of
Civil Procedure 24(a) to protect its interests and the public fisc.
The district court granted the motion and ordered the
parties to take all necessary steps to prevent the statute of
limitations from expiring. When the taxpayers persisted in their
refusal, the IRS sought an order to show cause why they should not
be held in contempt. The taxpayers asserted, and the district
court agreed, that consent to toll the statue of limitations must
be voluntary. See I.R.C. § 6501(a)(4). Nevertheless, the court
issued an order equitably tolling the statute of limitations based
5
Nevertheless, defendant KPMG argued that the taxpayers’ identities
were not protected by the tax-practitioner privilege.
6
The taxpayers filed on September 8 but then withdrew an emergency
motion to intervene and for protective order in the D.C. litigation.
4
on I.R.C. § 6503(a)(1) and other equitable principles. That
decision is the subject of the instant appeal.7
Discussion
Determinations of law are reviewed de novo. Gulf Marine
and Indus. Supplies, Inc. v. Golden Prince M/V, 230 F.3d 178, 179
(5th Cir. 2000). The district court’s decision to apply equitable
tolling is reviewed for abuse of discretion. Fierro v. Cockrell,
294 F.3d 674, 682 (5th Cir. 2002).
When interpreting a statute, we start with the plain
text, and read all parts of the statute together to produce a
harmonious whole. See, e.g., Administaff Companies, Inc. v. New
York Joint Bd., Shirt, & Leisurewear Div., 337 F.3d 454, 456 (5th
Cir. 2003). Section 6501(a) establishes a three-year statute of
limitations “after a return [is] filed” for the assessment of
federal income taxes. The statute then lists twenty-six specific
exceptions that toll the limitations period.8 The IRS can use
other tools to toll the statute as well. For example, if a
taxpayer’s identity is unknown to the IRS, the agency may serve a
“John Doe” summons pursuant to Section 7609(a), which then tolls
the statute pursuant to Section 6501. None of these provisions,
however, explicitly permits equitable tolling. Taxpayers thus
7
The court also rejected the taxpayers’ assertion of privilege under
§ 7525 and ordered the clerk to remove the seal from all documents relating to
the taxpayers’ names. The taxpayers do not appeal this aspect of the decision.
8
Tolling provisions are listed in subsections of § 6501, as well as
in additional provisions within I.R.C. § 6503.
5
assert that the district court lacked jurisdiction to apply
equitable tolling to Section 6501.
For other tax disputes, Congress has created exceptions
to a statute of limitations following litigation which determined
that the statute did not allow tolling. In United States v.
Brockamp, for example, the United States Supreme Court held that
I.R.C. § 6511, which establishes a three-year (or in some instances
two-year) period during which a taxpayer must request a refund for
overpayment of taxes, was not subject to equitable tolling. 519
U.S. 347, 117 S. Ct. 849, 136 L.Ed.2d 818 (1997). In that case,
the taxpayers suffered from mental disability throughout the
statutory period; however, in light of the plain statutory language
and existence of numerous tolling provisions, the Supreme Court
held that the statute was not subject to general equitable tolling
by courts. Id. at 352, 117 S. Ct. at 852; see
also id. (“[C]ongress did not intend courts to read other
unmentioned, open-ended ‘equitable’ exceptions into the statute
that it wrote.”). In 1998, Congress amended this law to permit
tolling when a taxpayer, like those in Brockamp, is prevented by a
disability from seeking a refund. Congress’s decision to specify
further exceptions to the statute of limitations — without adding
a general equitable tolling provision — further justifies the
Supreme Court’s reading of the statute in Brockamp. Because
Congress prefers to provide explicit tolling exceptions to the
limitations periods contained in federal tax law, by implication,
6
it does not intend courts to invoke equitable tolling to alter the
plain text of the statutes at issue.9
As it did following Brockamp, Congress recently amended
the statute at issue in this case. In Section 814 of the American
Jobs Creation Act of 2004, Congress extended the time for
assessment of taxes and penalties where the taxpayer fails to
include required information on a return or statement regarding a
listed transaction. Pub. L. No. 108-357, § 814, 118 Stat. 1418,
1421 (2004). Appellants acknowledge that the amendment is aimed at
future taxpayers who, as they did, attempt to shield their
identities from the IRS until the statute of limitations expires.
The dubious distinction of inspiring the passage of a law to
prevent others from following their lead10 does not, however,
detract from the strength of the taxpayers’ argument here. “Tax
law, after all, is not normally characterized by case-specific
exceptions reflecting individualized equities.” Brockamp, 519 U.S.
at 352, 117 S. Ct. at 852.
9
In fact, before the Seventh Circuit, the IRS took the position that,
pursuant to Brockamp, equitable tolling should not apply to any provision in the
Internal Revenue Code. See Flight Attendants UAL Offset (FAAUO) v. Comm’r, 165
F.3d 572, 577 (7th Cir. 1999).
10
See, e.g., H.R. No. 108-548(1), at 267 (June 16, 2004) (“[S]ome
taxpayers and their advisors have been employing dilatory tactics and failing to
cooperate with the IRS in an attempt to avoid liability because of the expiration
of the statute of limitations.”).
7
The Government argues that I.R.C. § 7402(a),11 broadly
read, gives district courts implied authority to use equitable
tolling to enforce the revenue code. See United States v. First
Nat’l City Bank, 379 U.S. 378, 380, 85 S. Ct. 528, 529, 13 L.Ed.2d
365 (1965); United States v. Raymond, 228 F.3d 804 (7th Cir. 2000);
United States v. Ernst & Whinney, 735 F.2d 1296, 1300 (11th Cir.
1984). But the Government cites no authority in which a court
applied Section 7402(a) to Section 6501. Further, several of the
authorities cited by the Government stand only for the proposition
that district courts have jurisdiction to hear claims made by the
IRS in conjunction with its filings of intervention or
interpleader; the issue of equitable tolling played no role in
these holdings. See, e.g., United States v. Asay, 614 F.2d 655,
662 (9th Cir. 1980); Miller & Miller Auctioneers, Inc. v. G.W.
Murphy Indus., Inc., 472 F.2d 893, 895 (10th Cir. 1973). We are
unpersuaded that the general enabling language of Section 7402(a)
authorizes a court to inject an equitable tolling provision into a
detailed, highly specific provision (Section 6501).
11
The statute provides:
The district courts of the United States at the instance of the
United States shall have such jurisdiction to make and issue in
civil actions, writs and orders of injunction, and of ne exeat
republica, orders appointing receivers, and such other orders and
processes, and to render such judgments and decrees as may be
necessary or appropriate for the enforcement of the internal revenue
laws. The remedies hereby provided are in addition to and not
exclusive of any and all other remedies of the United States in such
courts or otherwise to enforce such laws.
8
The Government invokes additional broad principles to
contravene the plain language of Section 6501. We agree with the
Government that, as a general matter, the Internal Revenue Code is
to be interpreted broadly in the Government’s favor.
See Commissioner v. Schleier, 515 U.S. 323, 327-28, 115 S.Ct. 2159,
2162-63 (1995). We also agree that statutes diminishing sovereign
immunity should be read in the sovereign’s favor. See, e.g.,
Library of Congress v. Shaw, 478 U.S. 310, 106 S.Ct. 2957, 92
L.Ed.2d 250 (1986); Soriano v. United States, 352 U.S. 270, 77
S.Ct. 269, 1 L.Ed.2d 306 (1957). Further, there is some truth in
the Government’s effort to portray the taxpayers as having less
than clean hands in this litigation. None of these general
principles and complaints, however, can overcome the specific
intent of Congress as demonstrated by the precise language of
Section 6501.12 Even an unsympathetic litigant retains the
protection of the statute of limitations unless the Government can
toll the statute through one of the congressionally prescribed
methods.
At oral argument, the IRS attempted to stretch the above
issue to embody the district judge’s authority to control
proceedings in his own courtroom. We disagree. The district court
12
To support this contention, the IRS relies heavily on Young v. United
States, 535 U.S. 43, 122 S. Ct. 1036, 152 L.Ed.2d 79 (2002). This case, which
permitted a bankruptcy court to impose equitable tolling to an aspect of the
Bankruptcy Code, is inapposite. Bankruptcy courts are courts of equity by their
nature. Id. at 50, 122 S. Ct. at 1041. As discussed supra, Brockamp is more
persuasive and more relevant to the instant tax case.
9
had a panoply of tools available to control the proceedings.
Regardless, this argument is beside the point, in that it was the
Government’s obligation, not the court’s, to protect the
Government’s rights. The true nature of this dispute is whether
the district court had statutory authority to use equitable tolling
to overcome the statute of limitations. Our reading of the statute
answers that question in the negative.
Conclusion
The statute here at issue prohibits the imposition of
equitable tolling to prevent expiration of the statute of
limitations. The IRS is unable to rely on general equitable
principles to protect its right to collect taxes from citizens
where the statute does not allow equitable tolling. The IRS had
three years to pursue the taxpayers using congressionally approved
means. Congress can — and indeed has — remedied the problems posed
by the taxpayers’ tactics in this case. Since neither retroactive
application of the new law nor equitable tolling in the
Government’s favor is available, the judgment of the district court
is REVERSED.
10