Error: Bad annotation destination
United States Court of Appeals for the Federal Circuit
06-5055
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
Alan I. Horowitz, Miller & Chevalier, Chartered, of Washington, DC, argued for
plaintiff-appellant. With him on the brief were Thomas D. Johnston and Laurie A.
Barber.
Ellen Page Delsole, Attorney, Tax Division, United States Department of Justice,
of Washington, DC, argued for defendant-appellee. With her on the brief were Eileen J.
O’Connor, Assistant Attorney General, Richard T. Morrison, Deputy Assistant Attorney
General, and Richard Farber, Attorney.
Appealed from: United States Court of Federal Claims
Senior Judge John P. Wiese
United States Court of Appeals for the Federal Circuit
06-5055
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
___________________________
DECIDED: November 13, 2006
___________________________
Before MICHEL, Chief Judge, DYK and PROST, Circuit Judges.
DYK, Circuit Judge.
This is the second time this case has come before this court. This case involves
a claim for interest netting under § 6621(d) of the Internal Revenue Code. 26 U.S.C. §
6621(d) (2000). The Federal National Mortgage Association (“FNMA”) asserts that it is
entitled to a refund of interest paid by the taxpayer to the Internal Revenue Service
(“IRS”) based on the theory that mutual indebtedness of the taxpayer and the IRS for
different tax years should be netted against each other with the result that the taxpayer
was not liable for interest. The government defends on the ground that the interest
netting provision is inapplicable.
When this case was previously before this court we held that, to qualify for
interest netting, the taxpayer must demonstrate that the statute of limitations was open
with respect to both overpayments and underpayments on the date that § 6621(d)
became effective (July 22, 1998). Fed. Nat’l Mortgage Ass’n v. United States, 379 F.3d
1303, 1311 (Fed. Cir. 2004). We remanded “only for a factual determination regarding
whether the statute of limitations for the 1983 underpayment year was closed on July
22, 1998.” Id.
On remand, the Court of Federal Claims granted summary judgment in favor of
the United States because it found that the statute of limitations for FNMA’s 1983 tax
year had expired before July 22, 1998. Fed. Nat’l Mortgage Ass’n v. United States, 69
Fed. Cl. 89, 95 (2005). Because we agree that the statute of limitations for FNMA’s
1983 tax year expired before July 22, 1998, we affirm.
BACKGROUND
Section 6621 of the Internal Revenue Code generally requires taxpayers to pay a
higher interest rate on tax underpayments than it requires the IRS to pay to taxpayers
on overpayments. See 26 U.S.C. § 6621(a)(1)(B), (c)(1) (2000). In 1998 Congress
amended § 6621 as part of the Restructuring and Reform Act of 1998, Pub. L. No. 105-
206, 112, to require interest netting. 26 U.S.C. § 6621(d). Under § 6621(d), a zero-net
interest rate applies when there are underpayments and overpayments by the same
taxpayer for overlapping tax periods. In addition to applying prospectively from July 22,
1998, an uncodified “special rule” governs interest netting for tax years before 1998 and
provides that interest netting is only available if the statutes of limitations remain open.
In other words, it is “[s]ubject to any applicable statute of limitation not having expired
[by July 22, 1998] with regard to either a tax underpayment or a tax overpayment.” Pub.
06-5055 2
L. No. 105-206, § 3301(c)(2), 112 Stat. 685, 741 (1998), amended by Pub. L. No. 105-
277, § 4002(d), 112 Stat. 2681, 2681-906-07 (1998).
In 1990 and 1992, respectively, FNMA made tax and interest payments to the
IRS to satisfy deficiencies for tax years 1983 and 1986, paying interest at the
underpayment rate. In 1994, pursuant to a Tax Court decision, the IRS refunded nearly
$309 million in overpayment tax and interest for tax years 1974 and 1975, paying
interest at the overpayment rate. See Fed. Nat’l Mortgage Ass’n v. Comm’r, 100 T.C.
541 (1993). On December 29, 1999, after the 1998 amendment to § 6621, FNMA filed
an administrative claim with the IRS for application of the zero-net interest rate and
identified overlapping periods of overpayment for 1974 and 1975 and periods of
underpayment for 1983 and 1986. On June 7, 2000, the IRS denied the request
reasoning that “the statute of limitations for refund must be open on July 22, 1998 on
both the overpayment and underpayment periods. The statutes for tax periods
December 31, 1983 and December 31, 1986 [have] expired.”
FNMA then filed a refund action pursuant to 28 U.S.C. § 2411 (2000) in the
United States Court of Federal Claims. Fed. Nat’l Mortgage Ass’n v. United States, 56
Fed. Cl. 228 (2003). FNMA argued that the special rule only requires an open statute
of limitations for either the overpayment tax period or the underpayment tax period, but
does not require that the statutes of limitations remain open for both. The Court of
Federal Claims agreed and granted summary judgment in favor of FNMA. Id. at 239.
On appeal, we reversed because the Court of Federal Claims lacked “jurisdiction to
grant relief” under § 6621 and held that the special rule for § 6621 does not apply
unless the taxpayer demonstrates that the statute of limitations was open for both the
06-5055 3
overpayment and underpayment years. Fed. Nat’l Mortgage Ass’n, 379 F.3d at 1311;
see also Computervision Corp. v. United States, 445 F.3d 1355, 1373-74 (Fed. Cir.
2006) (reaffirming our decision in Federal Nat’l Mortgage Ass’n). Because the parties
had stipulated that the statute of limitations was open for the overpayment tax years
1974 and 1975 and the statute of limitations was closed for the underpayment tax year
1986, thus barring an interest netting claim on the basis of the 1986 tax year, we
remanded “only for a factual determination regarding whether the statute of limitations
for the 1983 underpayment year was closed on July 22, 1998.” Fed. Nat’l Mortgage
Ass’n, 379 F.3d at 1311.
In view of the limited nature of our remand, we confine our discussion of the
background facts to tax year 1983 and to the question of “whether the statute of
limitations for the 1983 underpayment year was closed on July 22, 1998.” Id. FNMA
filed its federal income tax return for the 1983 tax year on or before September 15,
1984. After the IRS audited the 1983 return, it entered into a series of Form 872
(Consent to Extend the Time to Assess Tax) agreements with FNMA that extended the
statute of limitations for assessment of tax until March 15, 1989. In November 1988, the
parties executed a Form 872-A (Special Consent to Extend the Time to Assess Tax),
which extended the statute of limitations for assessment until the occurrence of certain
specified events. The first paragraph of Form 872-A provided that the limitations period
for assessment remains open until the 90th day after: (a) the IRS “receives Form 872-
T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, from the
taxpayer”; (b) the IRS mails the taxpayer a Form 872-T; or (c) the IRS “mails a notice of
deficiency to the taxpayer[].” The second paragraph of Form 872-A provided: “This
06-5055 4
agreement ends on the earlier of the above expiration date or the assessment date of
an increase in the above tax or the overassessment date of a decrease in the above tax
that reflects the final determination of tax and the final administrative appeals
consideration.” Under § 6511(c), the Form 872-A agreement also extended the
deadline for FNMA to file a refund claim until six months after the “expiration of the
period within which an assessment may be made pursuant to the [Form 872-A]
agreement.” 26 U.S.C. § 6511(c)(1); see also Form 872-A, ¶ 4 (“The taxpayer(s) may
file a claim for credit or refund and the Service may credit or refund the tax within 6 (six)
months after this agreement ends.”).
On December 14, 1990, the parties executed a Form 870-AD (Offer of Waiver of
Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of
Overassessment) settlement agreement in which FNMA consented to a proposed
deficiency of $59,493,854 in tax and $66,698,615 in interest for tax year 1983. FNMA
paid the deficiency on December 31, 1990. In the Form 870-AD, FNMA reserved “the
right to timely file claims for refund or credit or prosecute timely filed claims solely on”
three grounds, each of which related to a Tax Court proceeding concerning other
taxable years. In essence, the parties agreed in the first reservation that if the Tax
Court proceeding was ultimately resolved favorably to the taxpayer, the IRS would allow
a refund for the tax year 1983. The applicable condition stated: “If the decision of the
Tax Court upholding the taxpayer’s position regarding the concurrent mortgage sale
issue becomes final under I.R.C. Section 7481, gross income for 1983 does not include
the purchase discount amortization of $172,467.” After the execution of Form 870-AD,
the IRS sent FNMA a letter stating that it had “closed this case on the basis agreed
06-5055 5
upon and [was] sending the case file to the service center.” Along with the letter, the
IRS enclosed an executed Closing Agreement (Form 906) that recited the terms of the
settlement.
The Tax Court’s decision concerning the first reserved issue became final in 1994
and was favorable to the taxpayer. On June 6, 1994, FNMA filed an amended 1983 tax
return seeking a refund of $79,335. On May 1, 1995, the IRS sent FNMA a check for
$223,187.82, reflecting the full refund amount plus interest accrued since 1983.
On remand, in a careful opinion the Court of Federal Claims found that, following
the Forms 872-A and 870-AD, the only issue left open was the possibility of securing a
refund for the 1983 tax year. Fed. Nat’l Mortgage Ass’n, 69 Fed. Cl. at 93. The court
rejected FNMA’s argument that Form 872-A “restricts termination of the extension to
specific, identifiable events” because the second paragraph of Form 872-A “looks
beyond the clear notice concept of paragraph one and requires instead an assessment
of the parties’ conduct.” Id. at 94. The court noted that the language of the Form 870-
AD and the taxpayer’s limited reservations “express[] a mutual commitment to accept []
the final determination of plaintiff’s 1983 income tax liability” in accordance with the
specifications of the reservations. Id. Thus, the court concluded that “the issuance of a
refund check in the claimed amount corresponds to the final determination and appeals
consideration for plaintiff’s 1983 taxable year and, accordingly, brings to a close, 90
days after the date of refund, the period for the assessment of tax as contemplated by
Form 872-A.” Id. at 93-94. Accordingly, the court granted summary judgment in favor
of the government. Id. at 95. FNMA timely appealed. We have jurisdiction pursuant to
28 U.S.C. § 1295(a)(3) (2000).
06-5055 6
DISCUSSION
I
FNMA first argues that this court should reconsider its decision in Fed. Nat’l
Mortgage Ass’n v. United States, 379 F.3d 1303 (Fed. Cir. 2004) (“FNMA I”), that the
special rule requires an open statute of limitations for both the overpayment and
underpayment tax periods. In FNMA I, this court held that the zero-netting provision is
jurisdictional and a waiver of sovereign immunity because “the disputed language in the
special rule does not . . . merely relate to the rate of interest the government must pay.
Rather, it discriminates between those claims for overpaid interest Congress has
authorized and those it has not. . . . [T]herefore, it is a waiver of sovereign immunity,
and, moreover, one expressly made conditional.” Id. at 1310. As “the language at
issue [in the special rule] is ambiguous,” we strictly construed the special rule in favor of
the government to require that FNMA demonstrate that the statute of limitations was
open for both the overpayment and the underpayment tax years. Id. at 1311.
In Computervision Corp., 445 F.3d at 1373, we reaffirmed that “[i]n FNMA, we
interpreted [the special rule’s] language to require that the statute of limitations must be
open with respect to both the underpayment and the overpayment.” Because the
statute of limitations was closed for both of Computervision’s tax years, we held that
Computervision’s “claim for interest netting fails to satisfy the requirements for
retroactive application of the statute.” Id. at 1374. In a Supplemental Opinion on
Petition for Rehearing, we again held that “under our decision in FNMA, both the
overpayment and underpayment limitations period must remain open on July 22, 1998,
06-5055 7
in order for the interest netting statute to apply retroactively.” Computervision Corp. v.
United States, -- F.3d --, 2006 WL 2505690, at *2 (Fed. Cir. Aug. 30, 2006).
“A panel of this court is bound by prior precedential decisions unless and until
overturned en banc.” Sacco v. Dep’t of Justice, 317 F.3d 1384, 1386 (Fed. Cir. 2003).
Nonetheless, FNMA argues that we must reconsider FNMA I in light of the Supreme
Court’s intervening decision in Arbaugh v. Y & H Corp., 126 S. Ct. 1235 (2006), and our
intervening en banc decision in Fisher v. United States, 402 F.3d 1167 (Fed. Cir. 2005)
(en banc in relevant part). FNMA argues that, under Arbaugh and Fisher, the special
rule is not jurisdictional and, therefore, we should not adhere to our supposedly flawed
analysis in FNMA I. We do not read Arbaugh or Fisher to warrant reconsidering FNMA
I. In FNMA I, we characterized the special rule as “jurisdictional,” holding that it
represented a waiver of sovereign immunity that must be strictly construed. FNMA
urges that the special rule is not jurisdictional, relying on Arbaugh and Fisher as setting
forth new standards for determining when a statutory provision is jurisdictional. These
cases are not pertinent because they do not address whether, in cases against the
government, limitations periods are jurisdictional or whether they must be strictly
construed. The Supreme Court in Arbaugh held that the provision of Title VII that limits
the term “employer” to those having “fifteen or more employees” was not jurisdictional.
126 S. Ct. at 1238-39; see also 42 U.S.C. § 2000e(b) (2000). Likewise, our en banc
decision in Fisher addressed the standard for determining whether a statute is “money
mandating,” thus conferring jurisdiction under the Tucker Act, but did not consider
limitations. See Fisher, 402 F.3d at 1173.
06-5055 8
The decision in FNMA I that the statute of limitations is jurisdictional and must be
strictly construed applies a well established principle supported by a long line of
Supreme Court cases. The Supreme Court has repeatedly stated that “[u]nder settled
principles of sovereign immunity, ‘the United States, as sovereign, is immune from suit,
save as it consents to be sued . . . and the terms of its consent to be sued in any court
define that court’s jurisdiction to entertain the suit.’” United States v. Dalm, 494 U.S.
596, 608 (1990) (quoting United States v. Testan, 424 U.S. 392, 399 (1976)); sea also
United States v. Sherwood, 312 U.S. 584, 586 (1941). The Supreme Court in Dalm
concluded further that “[a] statute of limitations requiring that a suit against the
Government be brought within a certain time period is one of those terms” that defines
the court’s jurisdiction. Dalm, 494 U.S. at 608; see also United States v. Mottaz, 476
U.S. 834, 841 (1986) (“In particular, when waiver legislation contains a statute of
limitations, the limitations provision constitutes a condition on the waiver of sovereign
immunity.” (internal quotation omitted)). Thus, the Supreme Court has consistently held
that statutes of limitations must be strictly construed in favor of the government. See
e.g., Dalm, 494 U.S. at 608; Badaracco v. Comm’r, 464 U.S. 386, 391 (1984)
(“Statute[s] of limitations . . . must receive a strict construction in favor of the
Government.” (internal quotation omitted)); E. I. Dupont de Nemours & Co. v. Davis,
264 U.S. 456, 462 (1924) (“Statutes of limitation sought to be applied to bar rights of the
government, must receive a strict construction in favor of the government.”). The
special rule is a statute of limitations and must be strictly construed. We see no reason
to reconsider either FNMA I or our decision reaffirming it in Computervision, even if we
had authority to do so.
06-5055 9
II
The more difficult question concerns FNMA’s argument that the statute of
limitations for the 1983 tax year had not run by July 22, 1998. Our decisions in FNMA I
and Computervision did not explore at length the question of when a statute of
limitations for a particular year will have “expired,” though we held in Computervision
that the filing of a refund suit did not extend the limitations period as required by the
statute. Computervision Corp., 445 F.3d at 1374; Computervision Corp., -- F.3d --,
2006 WL 2505690 at *2. We assume without deciding that if the statute of limitations
remains open by agreement for any relevant purpose (other than claims of fraud or
misrepresentation), no matter how limited, the statute will not have expired within the
meaning of the special rule. The parties appear to agree that the limitations period for
additional deficiency assessments or refunds for the 1983 tax year would have expired
long before 1998 were it not for extensions of time. The sole issue therefore is whether
those extension agreements kept the limitations period open until 1998 for further
deficiency assessments or refunds.
FNMA filed its federal income tax return for 1983 on or before September 15,
1984. As noted above, the IRS entered into a series of Form 872 agreements with
FNMA to extend the statute of limitations for assessment until March 15, 1989. In
November 1988 the parties executed a Form 872-A agreement extending the limitations
period for assessment until certain events occurred.
The history of Form 872-A manifests concern over the need for clarity in
terminating waivers of statutes of limitations. The IRS began using Form 872-A in 1971,
but at that time the agreement could only be terminated when the IRS mailed a
06-5055 10
“notification of termination of Appeals office consideration” or upon “receipt by Appeals
of notification by the taxpayer of election to terminate the agreement.” See I.R.S. Field
Serv. Advice WTA-N-254063-96, 1997 FSA LEXIS 213 at *14. In 1979, to address
problems interpreting the “notification of termination” requirement, the IRS modified the
first paragraph of 872-A to “provide that notification of intent to terminate the indefinite
extension was to be made on a specific document, Form 872-T.” Id. at *15n.5. The
same year, the language of the second paragraph was added to Form 872-A to address
a Government Accounting Office recommendation that the IRS add a statement that
“the waiver period will end on the agreed date or after assessment, whichever comes
first.” Id. at *14.
Here the first paragraph of Form 872-A provided that the limitations period would
remain open until the 90th day after: (a) the IRS “receives Form 872-T, Notice of
Termination of Special Consent to Extend the Time to Assess Tax, from the taxpayer[]”;
(b) the IRS mails the taxpayer a Form 872-T; or (c) the IRS “mails a notice of deficiency”
to the taxpayer. The second paragraph of Form 872-A provided: “This agreement ends
on the earlier of the above expiration date or the assessment date of an increase in the
above tax or the overassessment date of a decrease in the above tax that reflects the
final determination of tax and the final administrative appeals consideration.”
The parties agree that the first paragraph of Form 872-A is inapplicable here;
neither party has sent a Form 872-T terminating the limitations period nor has the IRS
issued a notice of deficiency for 1983. The question is whether the conditions of the
second paragraph occurred such that the agreement terminated and the statute of
limitations expired thereafter.
06-5055 11
FNMA argues that courts have repeatedly held various forms of notice, other
than the specific Form 872-T, were insufficient to terminate the Form 872A agreement.
However, the cases on which the taxpayer relies in this respect all involve the first
paragraph of Form 872-A. FNMA relies particularly on the First Circuit’s decision in
Silverman v. Commissioner, 86 F.3d 260 (1st Cir. 1996). In Silverman, the taxpayers
entered into a Form 872-A agreement with the IRS. Thereafter, they entered into a
Form 906 “Closing Agreement” that bound them to the outcome of a Tax Court case
relating to a similar tax issue. The Form 906 authorized the IRS to assess a deficiency
within one year after the Tax Court decision became final. The Tax Court ruling
became final in 1991. Two years later, the taxpayers sent the IRS Forms 872-T. Ninety
days after receiving the Forms, the IRS sent the taxpayers deficiency notices for the
years in question. The taxpayers promptly initiated a Tax Court proceeding claiming
that the statute of limitations for assessing the deficiency terminated under the Closing
Agreement one year after the Tax Court decision became final. While the facts of
Silverman are analogous to this case, the First Circuit solely addressed the language in
the first paragraph of Form 872-A. The court stated that “[a] plain need for certainty
prompted [the] IRS to devise Form 872-T as the exclusive means, apart from mailing a
deficiency notice, for either the IRS or taxpayers to terminate a Form 872-A consent to
extend a limitation period.” Id. at 262. The court then held that Form 872-A was not
terminated when the taxpayers and IRS entered into the Closing Agreement. Id. In
reaching this decision, the First Circuit stated that “we adhere to the plain language of
Forms 872-A and 872-T . . . in holding that the Form 906 closing agreement did not
terminate these Form 872-A extensions.” Id. at 262; see also DeSantis v. United
06-5055 12
States, 783 F. Supp. 165, 169 (S.D.N.Y. 1992) (considering facts similar to Silverman
and addressing only the first paragraph of Form 872-A).
The Ninth Circuit cases on which FNMA relies are even less pertinent. They are
both factually distinguishable and also consider only the first paragraph of Form 872-A.
See Kernen v. Comm’r, 902 F.2d 17, 18 (9th Cir. 1990) (holding that the taxpayers’
execution of Form 872 - which extends the limitations period to a date certain - did not
end the indefinite limitations period under Form 872-A because Form 872 is not listed in
the first paragraph of Form 872-A); Kinsey v. Comm’r, 859 F.2d 1361, 1363 (9th Cir.
1988) (stating that “Form 872-A expressly provides for three ways in which consent can
be terminated” and holding that the taxpayer’s failure to respond to a “30-day letter”
“does not comply with any of them”). The Tax Court’s decisions cited by FNMA also
rest on a finding that the conditions of the first paragraph of Form 872-A were not met.
See Grunwald v. Comm’r, 86 T.C. 85, 89 (1986) (“The relevant waiver for the years in
question which petitioners signed and which respondent accepted expressly and
explicitly sets out the three methods by which the period of limitations could be
terminated, and a letter of the type sent by the Appeals Officer was not one of these.”);
Duncan v. Comm’r, 56 T.C.M. (CCH) 1073 (1989) (holding that an improperly issued
notice of deficiency “cannot reasonably be considered a notice of deficiency for Form
872-A purposes”); Podell v. Comm’r, 52 T.C.M. (CCH) 1364 (1987) (holding that
execution of Form 872 did not terminate an earlier Form 872-A); Myers v. Comm’r, 52
T.C.M. (CCH) 841, *8 (1986) (“The letters from petitioners’ counsel are not Forms 872-T
and thus did not terminate petitioners’ consent to extend the period of assessment of
tax.”); see also Rev. Proc. 79-22, 1979-1 C.B. 563 (“With the exception of the mailing of
06-5055 13
a notice of deficiency, written notification by the Service to the taxpayer(s) of termination
of Service consideration can only be made using Form 872-T.”). Accordingly, this
authority is inapplicable here.
To the extent that the taxpayer suggests that Form 872-A was designed to
provide clear notice, and that the second paragraph should only apply where the
termination is clear, we agree. In this respect the issue is whether, under the second
paragraph of Form 872-A, there has been an “assessment date of an increase in . . . tax
or the overassessment date of a decrease in . . . tax that reflects the final determination
of tax and the final administrative appeals consideration.” That requires us to consider
the Form 870-AD settlement agreement executed by the parties on December 14, 1990.
The settlement was the result of an IRS audit of FNMA’s tax year 1983 and the
November 1988 issuance of a revenue agent’s report asserting that FNMA owed
additional tax. In the Form 870-AD settlement agreement signed thereafter, FNMA
consented to “the assessment and collection of the following deficiencies”: $59,493,854
of tax and $66,698,615 of interest. An unconditional Form 870-AD is plainly a “final
determination” within the meaning of Form 872-A. See Mobil Corp. v. United States, 52
Fed. Cl. 327, 339 (2002) (holding that a Form 872-A was terminated because there was
“a final determination of tax” where the parties executed an 870-AD agreement);
Lowenstein v. United States, 27 Fed. Cl. 38, 51 (1992) (holding that an unconditional
Form 870-AD agreement was “a final determination of tax” under Form 872-A). Here,
however, the Form 870-AD included reservations.
On the Form 870-AD, FNMA reserved “the right to timely file claims for refund or
credit or prosecute timely filed claims solely on” three grounds:
06-5055 14
(1) If the decision of the Tax Court upholding the taxpayer’s position
regarding the concurrent mortgage sale issue becomes final under
I.R.C. Section 7481, gross income for 1983 does not include the
purchase discount amortization of $172,467.
(2) If the decision of the Tax Court upholding the taxpayer’s position
regarding the concurrent mortgage sale issue is reversed by the
U.S. Supreme Court, gross income for 1983 does not include the
purchase discount amortization of $18,306,685.
(3) To the extent that the character, timing or amount of the hedging
losses in issue for 1984 and 1985 are in any respect affected by a
decision of the Tax Court that becomes final under I.R.C. Section
7481, the taxpayer is entitled to reflect the treatment of $8,746,914
of its hedging gains reported for 1983 on the same basis.1
FNMA argues that because of these reservations Form 870-AD was only a “partial
agreement” which did not terminate Form 872-A, because it left some issues open for
the 1983 tax year. FNMA points out that Form 872-A expressly provided that “[s]ome
assessments do not reflect a final determination and appeals consideration and therefore
will not terminate the agreement before the expiration date. Examples are assessments
of: (a) tax under a partial agreement.” While the Form 870-AD agreement was a “partial
1
We note that in addition to FNMA’s specifically reserved issues, Form
870-AD includes a number of other reservations:
If this offer is accepted for the Commissioner, the case shall not be
reopened in the absence of fraud, malfeasance, concealment or
misrepresentation of material fact, an important mistake in mathematical
calculation, deficiencies or overassessments resulting from adjustments
made under Subchapters C and D of Chapter 63 concerning the tax
treatment of partnership and subchapter S items determined at the
partnership and corporate level, or excessive tentative allowances of
carrybacks provided by law; and no claim for refund or credit shall be filed
or prosecuted for the year(s) stated above other than for amounts
attributed to carrybacks provided by law.
There is no contention that this language serves to keep the statute of limitations open
indefinitely under Form 872-A.
06-5055 15
2
agreement” and was not itself a “final determination,” we find that the Form 870-AD
agreement together with resolution of the reserved issues did constitute a final
determination under Form 872-A.
FNMA does not contend that the second and third reservations serve to keep the
statute of limitations for 1983 open. The conditions of those reservations were never
triggered, and they expired before 1998. FNMA instead argues that the first reserved
issue kept the extension of the statute of limitations open for tax year 1983. Under the
first reserved condition, when FNMA signed the 870-AD settlement agreement, it
reserved the right to file a refund on the “concurrent mortgage sale issue” when a Tax
Court decision on that issue (concerning another tax year) became final. Once that
decision became final in 1994, under the reservation, FNMA could only file a refund
claim on the ground that “gross income for 1983 does not include the purchase discount
amortization of $172,467.” On June 6, 1994, FNMA filed an amended 1983 tax return
seeking a refund of $79,335 under the first reserved issue. As FNMA correctly urges,
under the Form 870-AD agreement the IRS could not dispute FNMA’s proposed
adjustment to gross income (since that adjustment had been specified in the Form 870-
AD reservation), but it could dispute the calculation of the refund amount. However, on
May 1, 1995, the IRS sent FNMA a check for $223,187.82, reflecting the full refund
amount plus interest. While the issuance of a refund check was not in and of itself a
2
See, e.g., Drummond Co. v. United States, No. CV 91-P-2575-S, 1992 WL
184216, at *4 (N.D. Ala. May 29, 1992) (holding that “Form 870-AD . . . did not end the
extension agreed to in Form 872-A” because the parties “had not arrived at an
agreement disposing of all issues”).
06-5055 16
“final determination,”3 we do not have here merely a refund check, but rather an
agreement in the Form 870-AD that was final except for specifically reserved issues.
The payment of the requested refund concluded FNMA’s rights under the plain
language of the Form 870-AD reservation because FNMA had then filed a “timely . . .
claim[]” for refund and had successfully “prosecute[d]” the claim by securing the refund.
Once the refund check issued, the IRS could not assess any additional tax under the
terms of Form 870-AD.4 Thus, once the conditions of the Form 870-AD reservation
were met, there was a “final determination” of all of the issues for tax year 1983 barring
any further assessment. FNMA’s 1983 tax year closed six months thereafter because
under § 6511(c) and the terms of Form 872-A taxpayers cannot file refund claims after
that date.
Even if the IRS could have claimed a return of the refund after the refund check
was issued on May 1, 1995, the limitations period for reclaiming an erroneous refund
expired before 1998. Code § 6532(b) provides that the IRS has two years after making
an erroneous refund to file a suit to recover the refund under § 7405.5 The IRS issued
3
Form 872-A excludes “assessments of tax . . . reported on amended
returns” from the events that constitute a “final determination of tax.” See also Burnet v.
Porter, 283 U.S. 230 (1931); Milleg v. Comm’r, 19 T.C. 395, 398 (1952) (“The allowance
of the refund was not a final determination.”).
4
The Court of Federal Claims stated that assessment could still be made
for ninety days after the refund check was issued. Fed. Nat’l Mortgage Ass’n, 69 Fed.
Cl. at 94. The government disputes this conclusion and argues that the ninety-day
provision for additional assessments only applies to the first paragraph of Form 872-A.
According to the government, the Form 872-A terminated on the date the refund check
was issued. However, we need not resolve this dispute here. Even if the ninety-day
provision applied, the statute of limitations for FNMA’s tax year 1983 expired long
before July 22, 1998.
5
Section 6532(b) provides:
06-5055 17
FNMA’s refund check on May 1, 1995, and § 6621(d) was enacted July 22, 1998. If the
two year statute of limitations applies, the IRS could not have filed an erroneous refund
suit on or after July 22, 1998.
CONCLUSION
For these reasons, the grant of summary judgment in favor of the government
was proper.
AFFIRMED.
COSTS
No costs.
Recovery of an erroneous refund by suit under section 7405 shall be
allowed only if such suit is begun within 2 years after the making of such
refund, except that such suit may be brought at any time within 5 years
from the making of the refund if it appears that any part of the refund was
induced by fraud or misrepresentation of a material fact.
Although the statute of limitations for fraud extends past July 22, 1998, as noted earlier,
we do not think that the fraud provision is sufficient to keep the statute of limitations
open for purposes of § 6621(d).
06-5055 18
Federal National Mortgage Association v. United States
Court: Court of Appeals for the Federal Circuit
Date filed: 2006-11-13
Citations: 469 F.3d 968
Copy CitationsCombined Opinion