Sapir v. United States

IN THE UNITED STATES COURT OF FEDERAL CLAIMS
______________________________________
)
ALEX SAPIR, )
as Preliminary Executor of the )
ESTATE OF TAMIR SAPIR, )
)
Plaintiff, ) No. 20-670T
)
v. ) Filed: July 21, 2021
)
THE UNITED STATES, )
)
Defendant. )
______________________________________ )

OPINION AND ORDER

Plaintiff Alex Sapir, in his capacity as Preliminary Executor of the Estate of Tamir Sapir,

seeks a refund of alleged fiduciary income tax overpayments to the Internal Revenue Service

(“IRS”) and overpayment interest for two fiscal years. Before the Court is Plaintiff’s Motion for

Judgment on the Pleadings under Rule 12(c) of the Rules of the United States Court of Federal

Claims (“RCFC”). For the reasons discussed below, genuine disputes regarding material facts

remain at issue. Consequently, the Motion is DENIED.

I. BACKGROUND

A. Factual History

Mr. Tamir Sapir, a U.S. citizen and resident of New York, died on September 24, 2014.

Pl.’s Compl., ECF No. 1 ¶ 5. Plaintiff, the decedent’s son, is acting on behalf of the Estate and

was appointed Preliminary Executor on December 18, 2014 by the Surrogate’s Court of the State

of New York for New York County. Id. Plaintiff alleges the he filed income tax returns on behalf

of the Estate as required by law for fiscal years ending on July 31, 2015 and July 31, 2016

(hereinafter “FYE 15” and “FYE 16,” respectively). Id. ¶¶ 2, 4. He further alleges that, at the time
the Complaint was filed, the IRS had neither acknowledged the refund claims contained in those

returns nor communicated agreement or disagreement with the amount of the claims. Id. ¶ 2.

Plaintiff claims that the necessary six-month periods for filing this action have expired. Id. ¶ 3;

see id. ¶ 10 (citing 26 U.S.C. § 6532(a)). He seeks in this action to recover the refunds claimed in

FYE 15 and FYE 16, plus interest. Id. ¶ 4.

Plaintiff’s refund claims are based on purported overpayments claimed in amended tax

returns for each fiscal year at issue. By way of background, on November 16, 2015, Plaintiff

requested an extension of time to file the Estate’s initial Form 1041 income tax return and shortly

thereafter made a tax payment of $21 million on behalf of the Estate. Id. ¶ 11. The initial tax

return, filed in April 2016, showed no tax due and directed the IRS to apply the $21 million

overpayment to the Estate’s FYE 16 estimated tax account. Id. ¶ 12. Plaintiff, however, filed an

amended Form 1041 for FYE 15 on November 15, 2016. Id. ¶ 13. This return showed a corrected

tax due of approximately $6.4 million and directed the IRS to apply the corrected overpayment of

approximately $14.6 million to the Estate’s FYE 16 estimated tax account. Id. Plaintiff filed a

second amended return for FYE 15 on April 12, 2019. Id. at ¶ 14. This return showed corrected

tax due of approximately $2.8 million, directed the IRS to continue to apply the overpayment of

approximately $14.6 million to the Estate’s FYE 16 estimated tax account, and directed the

remaining overpayment of approximately $3.6 million to be refunded. Id. Plaintiff alleges that

the IRS has not paid the requested FYE 15 refund nor provided Plaintiff with any objection to such

payment. Id. ¶ 15.

After filing the Estate’s initial Form 1041 for FYE 16 in November 2016, Plaintiff made a

payment of $50.2 million to the IRS on behalf of the Estate, consisting of an approximately $48.6

million tax payment and a $1.6 million late penalty and interest payment. Id. ¶¶ 16–17. Plaintiff

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filed an amended Form 1041 for FYE 16 on April 12, 2019. Id. ¶ 18. The amended return showed

corrected tax due of approximately $41 million, the FYE 15 overpayment of approximately $14.6

million, and a balance due of approximately $26.4 million. Id. Plaintiff claims that page one of

the amended return “erroneously failed to show the tax payment of [$48.6 million],” although it

was reflected on another page of the return. Id. ¶¶ 18–19. On May 1, 2020, Plaintiff filed a second

amended Form 1041 for FYE 16, which showed the allegedly omitted payment and corresponding

refund claim of $22.2 million for FYE 16. Id. ¶ 20. Plaintiff alleges the IRS has not paid the

requested FYE 16 refund nor provided Plaintiff with any objection to such payment. Id. ¶ 21.

In support of the allegations in the Complaint, Plaintiff incorporated by reference and

attached as exhibits copies of the relevant tax returns for FYE 15 and FYE 16.

B. Procedural History

Plaintiff filed his Complaint in this Court on June 6, 2020. See generally ECF No. 1. On

December 12, 2020, Defendant filed its Answer. See Def.’s Answer, ECF No. 13. On January 28,

2021, Plaintiff moved for judgment on the pleadings, claiming that Defendant had failed to deny

any materials facts demonstrating the Estate’s entitlement to relief. Pl.’s Mot. for J. on the

Pleadings at 1, ECF No. 19. The parties requested that the Court defer entering a discovery

schedule in this matter until resolution of Plaintiff’s Motion. See Joint Prelim. Status Report at 6–

7, ECF No. 17.

II. LEGAL STANDARD

Under RCFC 12(c), judgment on the pleadings is appropriate when “there are no material

facts in dispute and the plaintiff is entitled to judgment as a matter of law.” New Zealand Lamb

Co. v. United States, 40 F.3d 377, 380 (Fed. Cir. 1994). When considering a motion for judgment

on the pleadings, courts must construe the pleadings in the light most favorable to the nonmovant

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and “ignore any assertions that amount to legal conclusions.” J.M. Huber Corp. v. United States,

27 Fed. Cl. 659, 661 (1993); Ameriserv Trust & Fin. Servs. Co. v. United States, 125 Fed. Cl. 733,

741 (2016) (“Ameriserv Trust”). If issues of material fact are unresolved in the pleadings, a motion

for judgment on the pleadings cannot be granted. J.M. Huber Corp., 27 Fed. Cl. at 662 (citing

Halliday v. United States, 7 Cl. Ct. 315, 321 (1985)). “A fact is material if it could ‘affect the

outcome of the suit under the governing law.’” Jacqueline R. Sims, LLC v. United States, 600 F.

App’x 760, 764 (Fed. Cir. 2015) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48

(1986)).

III. DISCUSSION

A. Burden of Proof in Tax Refund Cases

In a tax refund case, the plaintiff bears the burden of establishing, by a preponderance of

the evidence, that it has “overpaid its taxes for the year in question and in the exact amount of the

refund sought.” Wells Fargo & Co. v. United States, 91 Fed. Cl. 35, 75 (2010), aff’d, 641 F.3d

1319 (Fed. Cir. 2011) (collecting cases); Ebert v. United States, 66 Fed. Cl. 287, 291 (2005). The

Court conducts a de novo review and must independently decide whether the plaintiff is owed a

refund. Gingerich v. United States, 77 Fed. Cl. 231, 240 (2007); D’Avanzo v. United States, 54

Fed. Cl. 183, 186 (2002). Thus, the “ultimate question presented for decision”—whether the

plaintiff, in fact, overpaid its tax—“involves a redetermination of the entire tax liability.” Lewis

v. Reynolds, 284 U.S. 281, 283 (1932). “[I]t is incumbent upon the claimant to show that the

United States has money damages which belong to [it].” Id.

B. Defendant’s Answer Sufficiently Disputes Material Facts.

Plaintiff argues that Defendant did not adequately deny the allegations in the Comp laint

regarding the content of the Estate’s tax returns and, therefore, the allegations regarding its tax

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overpayments for FYE 15 and FYE 16 are admitted. See ECF No. 19 at 5–7 (asserting that

Defendant has not denied any material fact, “despite denying (in a conclusory fashion) that the

Estate is entitled to any relief,” id. at 6). As Plaintiff sees it, the attached returns establish that “the

Estate is entitled to refunds totaling [$3.6 million for FYE 15], and [$22.2 million for FYE 16],

plus interest.” Id. at 6. In response, Defendant claims that it admits only that Plaintiff filed certain

returns and made certain payments, but “[n]owhere did the United States make any admissions

regarding the content of those returns.” Def.’s Resp. to Mot. for J. on the Pleadings at 7, ECF No.

20 (emphasis in original). The Court finds that Defendant’s Answer sufficiently disputes material

issues of fact.

RCFC 8(b) provides that, in responding to a pleading, a party must admit or deny

allegations asserted against it. RCFC 8(b)(1)(B). “A denial must fairly respond to the substance

of the allegation.” RCFC 8(b)(2). Where an allegation requires a responsive pleading and is not

denied, the allegation is deemed admitted. RCFC 8(b)(6).

Here, Plaintiff is correct that Defendant specifically admits some allegations, including that

Plaintiff filed the returns referred to in and attached to the Complaint and paid certain amounts

identified in the Complaint and attached returns, and that the IRS has not issued the claimed

refunds. See ECF No. 13 ¶¶ 11–21. For allegations that characterized the content of the attached

returns, Defendant refers to the referenced documents for a full expression of their content, see,

e.g., id. ¶ 11, with one exception related to the Estate’s original FYE 16 return, see id. ¶ 16. As

Plaintiff notes in his Reply, some district courts have found that “the documents speak for

themselves”-type response is insufficient under the counterpart rule of the Federal Rules of Civil

Procedure. See Pl.’s Reply in Support of Mot. for J. on the Pleadings at 6–7, ECF No. 21.

Reasonable minds may disagree, but in this Court’s view, because such a response is not a denial,

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it is deemed an admission that the documents “contain the information that they appear to contain.”

Khepera-Bey v. Santander Consumer USA, Inc., No. WDQ-11-1269, 2012 WL 1965444, at *5 (D.

Md. May 30, 2012). The allegations in the Complaint did not require a response that admitted or

denied that the information contained in the attached returns was, in fact, accurate and Defendant’s

responses did not admit as much. See, e.g., ECF No. 1 ¶ 12 (“The return showed no tax due and

directed the IRS to apply the $21 million overpayment to Plaintiff’s [FYE 16] estimated tax

account. See Ex. 5 at p. 1.”)); see also ECF No. 20 at 7–8 (arguing that Defendant’s responses are

not statements concerning “the truthfulness” of the content of the documents attached to the

Complaint).

That the attached tax returns may say what the Complaint purports them to say does not

necessarily establish Plaintiff’s burden of demonstrating entitlement to the refunds he claims. This

is because “[a] tax refund suit is a de novo proceeding, in which the plaintiff bears the burden of

proof, including both the burden of going forward and the burden of persuasion.” Gingerich, 77

Fed. Cl. at 240. Therefore, by filing this suit, Plaintiff has put at issue the correctness of the

Estate’s refund claims, as reported in the attached returns. See Sara Lee Corp. & Subsidiaries v.

United States, 29 Fed. Cl. 330, 337 (1993). That issue must be resolved by the Court. See ECF

No. 13 at 1 (denying all allegations not specifically admitted); see also id. ¶¶ 1, 4, 22 (denying that

Plaintiff is entitled to relief). 1 Based on the pleadings, genuine issues of material fact regarding

Plaintiff’s refund requests and entitlement to relief remain in dispute.

1 On March 8, 2021, Defendant sought leave to file a sur-reply, arguing that Plaintiff raised
new arguments in his Reply regarding the burden of proof, nature of the responses in Defendant’s
Answer, and pleading standards. Def.’s Mot. to File Sur-Reply at 1, ECF No. 22. The Court
agrees with Plaintiff that the Reply appropriately addressed arguments made in Defendant’s
opposition. See Pl.’s Resp. to Gov’t’s Mot. for Leave to File Sur-Reply at 3, ECF No. 23. The
Court further finds that a sur-reply is not necessary to the Court’s understanding of the parties’
positions. Accordingly, Defendant’s motion is denied.
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 C. Defendant’s Answer Sufficiently Pleads a Defense.

Plaintiff alleges that Defendant’s offset defense cannot preclude judgment on the pleadings

because it does not quantify “any additional liability of the Estate” and does not specifically assert

that the Estate is liable for additional tax. ECF No. 19 at 8 (citing Mahoney v. Unites States, 223

Ct. Cl. 713, 718–19 (1980), as modified on denial of rehr’g, 224 Ct. Cl. 668 (1980) (per curiam)).

Defendant responds that it is not asserting a counterclaim, and thus it need not plead detailed facts

supporting its offset defense. ECF No. 20 at 9–10. The Court finds Plaintiff’s argument

unpersuasive.

First, Plaintiff’s reliance on Mahoney is misplaced. The issue presented in Mahoney was

one of discovery abuse. Mahoney, 223 Ct. Cl. at 715. There, the Government amended its answer

one year after it initially responded to the plaintiff’s complaint, asserting certain offset defenses.

Id. at 714. The Court found that the Government lacked any factual basis at the time of the

amendment, and instead relied only on counsel’s speculation, to plead offset. Id. at 715. It also

found that the Government’s subsequent discovery requests aimed at establishing the offset

defenses constituted an improper and excessive fishing-expedition akin to a reaudit. Id. at 719.

Mahoney thus stands for the proposition that the Government must possess “concrete and positive

evidence” before it initiates discovery into matters relevant only as to establish offsets. Id. at 718–

19 (citing Missouri Pac. R.R. Co. v. United States, 338 F.2d 668, 672 (Ct. Cl. 1964) (“Missouri

Pacific”)). Mahoney does not appear to establish a heightened pleading standard for an offset

defense in a tax refund case. Nor does Missouri Pacific, on which Mahoney singularly relied. See

Missouri Pac., 338 F.2d at 672 (holding that court should assess at the pre-trial stage, based on

the pleadings and materials provided by the Government, whether the Government’s setoff defense

is reasonable and adequate). Other courts have similarly interpreted the scope of Mahoney and

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Missouri Pacific. See Americold Corp. v. United States, 28 Fed. Cl. 747, 754 (1993) (permitting

amendment of answer to assert offset in tax refund case); Wells Fargo & Co. v. United States, 750

F. Supp. 2d 1049, 1051 (D. Minn. 2010) (affirming magistrate’s order denying motion to strike

offset defense for insufficient pleading).

The instant matter, unlike Mahoney and Missouri Pacific, does not present the same

circumstances. Plaintiff does not assert that Defendant unduly delayed in raising an offset defense,

nor could he since Defendant raised the defense in its responsive pleading. Discovery has not yet

commenced, per agreement of the parties, and thus there cannot yet be a claim of improper

discovery requests by Defendant. Moreover, this case is only at an early pleading, not advanced

pre-trial, stage. The Court is cognizant of the important discussion raised in Mahoney and Missouri

Pacific: the equitable right of the Government to assert offset should provide a “‘shield’ to prevent

the unjust enrichment of a taxpayer,” not a “‘sword’ [wielded to] contrary effect.” Mahoney, 223

Ct. Cl. at 715 (quoting Missouri Pac., 338 F.2d at 672). That principal, however, does not require

judgment on the pleadings based on the facts before the Court, and can be enforced, if necessary,

during the discovery and merits phases.

Second, as it concedes, the Federal Circuit has not addressed Plaintiff’s argument that an

“affirmative defense should be subject to the plausibility standard ” provided in Bell Atlantic v.

Twombly, 550 U.S. 544, 555 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). ECF No.

21 at 10; see ECF No. 19 at 4. Nor has Plaintiff cited a Court of Federal Claims decision adopting

such argument. Plaintiff relies on Ameriserv Trust; however, there the court specifically declined

to address whether Iqbal and Twombly appertain to affirmative defenses. 125 Fed. Cl. at 742 n.5.

Ameriserv Trust is also distinguishable because, unlike here, the defenses at issue did not concern

offset (as it was not a tax refund case) and were instead subject to the special pleading standards

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of RCFC 9. Id. at 746–47. Additionally, although Ameriserv Trust relied in part on a Federal

Circuit decision to hold that defenses must be pled in sufficient detail so as to give the opposing

party “notice” and “the chance to respond,” the underlying circuit decision addressed a different

issue. Id. at 742 (quoting Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369, 1376 (Fed.

Cir. 2005)). Ultra-Precision Mfg. involved a question of waiver of an affirmative defense that was

not raised at all in a responsive pleading, not a question of the required level of specificity for

pleading a defense. 411 F.3d at 1376 (applying Sixth Circuit case law to hold that the defendant

had not waived two affirmative defenses first raised in a second motion for summary judgment).

While other federal courts have split on the question, this Court finds persuasive the

decision in Wells Fargo & Co., which held that the requirement under Iqbal/Twombly that a

plaintiff must plead sufficient facts to state a plausible claim for relief is “inapplicable to pleading

of affirmative defenses by a defendant.” Wells Fargo & Co., 750 F. Supp. 2d at 1051. Similar to

the Federal Rules of Civil Procedure, this Court’s rules provide only that a party’s responsive

pleading “state in short and plain terms its defenses to each claim asserted against it.” RCFC

8(b)(1)(A); RCFC 8(b)(2) (requiring with respect to affirmative defenses that a responsive

pleading “affirmatively state” such defenses); see Wells Fargo & Co., 750 F. Supp. 2d at 1051.

This requirement stands in contrast to the pleading standard applicable to claims for relief, which

requires a party to plead not only “a short and plain statement of the claim” but also the facts

“showing that the pleader is entitled to relief .” RCFC 8(a)(2). It is the heightened requirement to

show entitlement to relief—not contained in the rules applicable to defenses—upon which Iqbal

and Twombly were based. See Twombly, 550 U.S. at 555 (“[A] plaintiff’s obligation to provide

the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do .”); Iqbal, 556 U.S. at 679

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(“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of

misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to

relief.’”) (quoting FRCP 8(a)(2)); Wells Fargo & Co., 750 F. Supp. 2d at 1051.

The patent difference in pleading standards for claims and defenses reflects the uneven

positions of a plaintiff and a defendant at the pleadings stage. As the court in Wells Fargo & Co.

recognized, a plaintiff has months and often years to investigate a claim before filing a pleading in

federal court, whereas a defendant has 21 days (or 60 days if the defendant is the United States) to

serve an answer. 750 F. Supp. 2d at 1051. And it is often the case that a defendant may not have

access to the complete record of evidence underlying, or even a complete understanding of, a

plaintiff’s claims until the parties have conducted discovery.2 Here, as Defendant notes, the case

is still in its “nascent stages” and the parties have yet to engage in discovery made available under

the Court’s rules. ECF No. 20 at 9 (citing RCFC 26(b)(1)); see Estate of Rubenstein v. United

States, 94 Fed. Cl. 51, 53 (2010) (holding in a tax refund case that “the parties are entitled to

develop their respective cases . . . , including to avail themselves of all forms of discovery that are

permitted under the rules of the court”).

The entitlement requirement applicable to pleading claims for relief also serves a “practical

significance” that is not necessarily applicable to defenses. Twombly, 550 U.S. at 557. As

Twombly explained, the plausibility standard ensures that “a largely groundless claim” does not

2 Plaintiff argues that Defendant is not entitled to discovery here. See ECF No. 21 at 13–
14. That argument is premised on his claim that judgment on the pleadings is warranted, which
the Court has rejected. His reliance on Am. Airlines, Inc. v. United States, 551 F.3d 1294 (Fed.
Cir. 2008) is likewise unpersuasive. See ECF No. 21 at 14. In that case, the Federal Circuit upheld
an order precluding discovery related to damages in an illegal exaction case because prior audits
by the Government properly served as the basis for the damages calculation and where it had not
raised a counterclaim or setoff defense. Am. Airlines, 551 F.3d at 1307. Defendant timely raised
an offset defense here and, because the parties agreed to delay discovery, it is premature to address
whether any discovery potentially sought by Defendant related to such defense is impermissible.
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unnecessarily “take up the time of a number of other people” through costly and protracted

litigation, including discovery. Id. at 558 (citation omitted). That gatekeeping requirement serves

less of a function in the context of defenses: by the time an answer is filed in an action, the

plaintiff—not defendant—has firmly opened the gate. Of course, that is not to say that a defendant

is free to plead unsupported defenses or engage in fishing-expeditions during discovery in the

hopes of identifying defenses. Other (non-pleading) requirements, however, come into play to

ensure that a defendant does not use such bad-faith tactics. See RCFC 11; RCFC 26(b), (c);

Mahoney, 223 Ct. Cl. at 718. The Iqbal/Twombly plausibility standard is therefore “more fairly

imposed on plaintiffs.” Wells Fargo & Co., 750 F. Supp. 2d at 1051.

IV. CONCLUSION

For the reasons set forth above, genuine disputes of material fact remain to be resolved.

Accordingly, the Court DENIES Plaintiff’s Motion for Judgment on the Pleadings. It is further

ORDERED that Defendant’s Motion for Leave to File a Sur-Reply is DENIED. The parties shall

file a joint status report by no later than August 4, 2021 proposing a schedule for further

proceedings in this case.

SO ORDERED.

Dated: July 21, 2021 /s/ Kathryn C. Davis
KATHRYN C. DAVIS
Judge

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