PALA, Inc. Employees Profit Sharing Plan & Trust Agreement v. United States

              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT



                           No. 99-31037




     PALA, INC. EMPLOYEES PROFIT SHARING PLAN AND TRUST AGREEMENT,

                                          Plaintiff-Appellant,

                              versus

     UNITED STATES OF AMERICA,

                                          Defendant-Appellee.




          Appeal from the United States District Court
              for the Middle District of Louisiana


                        November 29, 2000

Before JOLLY, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:



     This case requires us to examine the nuances of the "informal

claim" doctrine. Plaintiff-Appellant filed suit, requesting a tax

refund from the Internal Revenue Service. Although it never made a

formal refund claim to the IRS, Plaintiff-Appellant asserts that it

filed a timely "informal claim." The district court dismissed for

lack of subject matter jurisdiction, concluding that no timely

claim was filed. Upon denial of its motion for reconsideration,
Plaintiff-Appellant       asks   this    Court     to     overturn   the   district

court's judgment of dismissal. We decline this invitation.



                                         I

      In 1975 PALA, Inc. established an Employees Profit Sharing

Plan and Trust, for which PALA served as trustee. The IRS sent PALA

favorable determination letters, which stated that the Plan was

qualified as a tax-exempt profit sharing plan. In 1983 PALA decided

to terminate the Plan and received a favorable termination letter

from the IRS. All of the Plan's assets were distributed except

those belonging to Jose Ricardo Tarajano, PALA's president.                     His

assets consisted of PALA stock. Tarajano sought to place the stock

in   an   IRA   account   but    could       not   find    a   willing     financial

institution. PALA lacked sufficient funds to redeem Tarajano's

stock and his assets remained in the Plan. Applying Revenue Ruling

89-87,1 the IRS consequently determined that the Plan had not been

terminated. On May 18, 1992, PALA redeemed Tarajano's stock and

distributed the balance to him.

      On June 1, 1992, PALA filed an additional request for an IRS

determination that the Plan was terminated. The IRS responded on

April 3, 1993, by sending a proposed adverse determination letter

      1
       1989-2 C.B. 81. In its ruling, rendered on July 3, 1989, the
IRS stated that a plan would not be considered terminated if assets
remained in the plan's trust. It also noted that, if a plan's
assets were not distributed as soon as administratively feasible,
the plan would have to continue to meet the qualifications of
I.R.C. § 401(a) to retain its qualified status. See id.

                                         2
to PALA. In its letter, the IRS indicated that, for the plan year

ending May 31, 1988, and all years thereafter, the Plan was not

qualified as a tax exempt plan under I.R.C. § 401. The IRS asserted

that the Plan continued in existence and that no new employees had

been admitted to participate.2 The IRS concluded that the Plan was

not terminated and that it was therefore not tax exempt for the

years 1988 through 1991.

     PALA filed Form 1041 fiduciary income tax returns for the

1988-1991 period and attached a request for waiver of penalties

because the disqualification was retroactive.3 PALA appealed the

IRS's proposed disqualification of the Plan's tax exempt status. In

a letter to the IRS dated May 4, 1993, PALA argued that the IRS

could not retroactively disqualify the Plan more than three years

from the timely filing of a Form 5500 with attached Schedule P.4

PALA argued that, because the proposed adverse determination letter

was dated April 8, 1993, the IRS could not retroactively disqualify

the Plan for any plan year prior to the plan year beginning June 1,

1989. Moreover, PALA also argued in its letter that the proposed

disqualification was erroneous for all years. In the wake of this

     2
       The IRS apparently based its decision on, inter alia, the
requirements articulated in 26 U.S.C.A. § 401(a)(26), 410(b)(1)
(1998 & Supp. 2000).
     3
         PALA paid the taxes on April 14, 1993.
     4
       PALA timely filed an informational return, Form 5500-EZ
(Annual Return of One Participant (Owners and their Spouses)
Pension Benefit Plan), as well as a Schedule P (Annual Return of
Fiduciary of Employee Benefit Trust).

                                  3
letter and discussions at an appellate conference, the IRS refunded

the tax paid for the plan years ending May 31, 1988 and 1989.

     On November 19, 1996, the IRS issued its final determination

letter, concluding that the Plan was disqualified because it failed

to meet the requirements of I.R.C. § 401 for the plan years

beginning after May 31, 1990, and for all subsequent years. PALA

then sought a refund of taxes paid for 1990 and 1991. It sent a

letter to the IRS on January 23, 1997, entitled, "Second Request

for Refund," in which it "reiterate[d] its prior request for refund

for all taxes, interest and penalties paid for the years ending May

31, 1988; May 31, 1989; May 31, 1990; and May 31, 1991, plus

interest thereon." On March 18, 1997, PALA sent a "Follow Up

Letter" making the same request. The IRS granted a partial refund

on April 28, 1997, refunding only the 1990 tax.

     PALA filed suit for a refund of $64,004 for the year ending

May 31, 1991. The district court dismissed for lack of subject

matter jurisdiction, asserting that PALA did not file a timely

administrative claim for refund of the 1991 tax. The court denied

PALA's motion for new trial, which the court treated as a motion

for reconsideration. PALA appeals the dismissal of its claim.5

                                II




     5
       PALA also asks this Court to supplement the record on
appeal. Our disposition of this case renders it unnecessary for us
to decide these motions.

                                4
     In adopting 28 U.S.C. § 1346(a)(1), Congress waived sovereign

immunity for purposes of civil actions against the United States

"for the recovery of any internal-revenue tax alleged to have been

erroneously     or    illegally   assessed     or   collected."6   Congress

conditioned this waiver on the filing of refund claims within the

appropriate statute of limitations.7 According to the Internal

Revenue Code, a       claim for a tax refund must be presented "within

3 years from the time the return was filed or 2 years from the time

the tax was paid, whichever of such periods expires the later, or

if no return was filed by the taxpayer, within 2 years from the

time the tax was paid."8 In this case, the three-year period of

limitations began to run as of December 31, 1992, the due date for

PALA's Form 5500 with attached Schedule P for fiscal year ending

May 31, 1992. Because PALA's return is deemed filed on December 31,

1992,    PALA   had   until   December   31,   1995,   to   file   a   timely




     6
         28 U.S.C.A. § 1346(a) (Supp. 2000).
     7
      See United States v. Mottaz, 476 U.S. 834, 841 (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.").
     8
       26 U.S.C.A. § 6511(a) (Supp. 2000). Reading this provision
together with 26 U.S.C. § 7422(a) and 28 U.S.C.A. § 1346(a)(1), the
Supreme Court has concluded that, "unless a claim for refund of a
tax has been filed within the time limits imposed by § 6511(a), a
suit for refund, regardless of whether the tax is alleged to have
been 'erroneously,' 'illegally,' or 'wrongfully collected,' §§
1346(a)(1), 7422(a), may not be maintained in any court." United
States v. Dalm, 494 U.S. 596, 602 (1990).

                                     5
administrative claim for refund.9 The Code requires that a claim

for   refund    be   made   on   an   amended   version   of    the   otherwise

appropriate return—in this case, Form 1041.10 The timely filing of

such a claim is a jurisdictional prerequisite to a refund suit.11

      PALA argues that, although it never filed a 1041 refund claim

within the limitations period, it presented a timely "informal

claim." While its theoretical underpinnings remain shrouded in some

obscurity,12     the   informal       claim   doctrine    has   received   the

endorsement of the Supreme Court.13 According to this doctrine, an

informal claim is sufficient if it is filed within the statutory

period, puts the IRS on notice that the taxpayer believes an

erroneous tax has been assessed, and describes the tax and year



      9
       See 26 U.S.C.A. § 6511(a), § 6513(a) (Supp. 2000). PALA
filed the form early, on August 25, 1992. However, the due date
for the form is the relevant date for section 6511 purposes. See 26
U.S.C. § 6513(a). Because PALA paid the tax on April 14, 1993, the
two-year period would expire on April 14, 1995. Thus, the filing
due date for PALA's Form 5500 with attached Schedule P actually
triggers the statute of limitations, as the limitations period
would expire approximately six months later than if the period were
calculated from the payment of the tax. See 26 U.S.C. § 6511(a).
      10
       See 26 C.F.R. § 301.6402-3(a)(4) (2000); see also 26 C.F.R.
§ 301.6402-2(b)(1) (2000).
      11
        See Dalm, 494 U.S. at 601-02, 609-10; Gustin v. United
States, 876 F.2d 485, 488 (5th Cir. 1989).
      12
       For an excellent discussion of the theoretical difficulties
associated with the informal claim doctrine, see BCS Fin. Corp. v.
United States, 118 F.3d 522,     524-27 (7th Cir. 1997) (Posner,
C.J.).
      13
           See United States v. Kales, 314 U.S. 186, 194 (1941).

                                         6
with sufficient particularity to allow the IRS to undertake an

investigation.14       Although     an    informal     claim   may   include      oral

communications, it must have a written component.15 There are no

"hard and       fast   rules"     for    determining    the    sufficiency     of    an

informal claim, and each case must be decided on its own facts

"'with a view towards determining whether under those facts the

Commissioner knew, or should have known, that a claim was being

made.'"16 However, it is not enough that the IRS merely "has

information somewhere in its possession from which it might deduce

that the taxpayer is entitled to a refund."17

       PALA points to five potential sources of an informal claim:

(1) PALA's May 4, 1993 letter; (2) the IRS's November 8, 1993,

letter to PALA; (3) the IRS's November 19, 1996 letter; (4) the

IRS's       April   28,    1997     letter;      and    (5)    unspecified        oral

communications         between    PALA     and   IRS    agents.      None    of     the



       14
        See Kales, 314 U.S. at 194-95; Gustin, 876 F.2d at 488;
Bauer v. United States, 594 F.2d 44, 46 (5th Cir. 1979); American
Radiator & Standard Sanitary Corp. v. United States, 318 F.2d 915,
920 (Ct. Cl. 1963); Michael I. Saltzmann, IRS Practice & Procedure
¶ 11.08[2] (2000).
       15
       See Gustin, 876 F.2d at 488. As the Court of Claims has
stated, the informal claim must provide "clear and explicit"
notice. Missouri Pacific R.R. Co. v. United States, 558 F.2d 596,
598 (Ct. Cl. 1977); see Bauer, 594 F.2d at 46.
       16
       See Gustin, 876 F.2d at 488-89, quoting Newton v. United
States, 163 F. Supp. 614, 619 (Ct. Cl. 1958).
       17
            Gustin, 876 F.2d at 489; see American Radiator, 318 F.2d at
920.

                                           7
communications from the IRS to PALA indicate even indirectly that

the IRS was aware of a claim for the 1991 tax that was filed within

the statutory period.18 The portion of PALA's May 4, 1993 letter

that addresses the limited retroactive application of the proposed

ruling only extended to the years up to and including 1990. As that

portion of the letter did not specifically address the 1991 tax

period, it did not provide the IRS with notice sufficient to

constitute an informal claim for that period.19

     The second portion of the May 4, 1993, letter initially

provided the IRS with the requisite notice. That section of the

letter contained an objection to the basis for the proposed adverse

determination itself. The letter requested that "the entire adverse

determination be withdrawn," thereby objecting to the tax levied on

all of the years targeted by the proposed adverse determination -

including 1991. Indeed, the IRS's proposed adverse determination

letter, which was dated April 8, 1993, attempted to disqualify the

Plan for all plan years "ending May 31, 1988 and subsequent years"

(emphasis   added).20   The   fact       that   PALA’s   letter   does   not

     18
        The factual irrelevance of the IRS letters is apparent
despite the procedural posture of the case. We review the dismissal
of a complaint applying a de novo standard, accepting all well-
pleaded facts and drawing all reasonable inferences in favor of the
non-movant, PALA. See Price v. Pinnacle Brands, Inc., 138 F.3d 602,
605 (5th Cir. 1998).
     19
       See Rosengarten v. United States, 181 F. Supp. 275, 278-79
(Ct. Cl. 1960).
     20
       The May 4, 1993, letter from PALA specifically refers to the
scope of the proposed adverse determination, noting that it applies

                                     8
specifically mention the year 1991 is irrelevant; the IRS had ample

notice that the entire determination—and thus every year covered by

the determination—was the subject of a claim for refund.21 As this

Court has noted, "the writing should not be given a crabbed or

literal reading, ignoring all the surrounding circumstances which

give it body and content."22 Cases applying this doctrine have found

informal   claims   in   similar   and   arguably   less   compelling

circumstances.23 The May 4, 1993, letter is therefore consonant with




to "plan years beginning after May 31, 1987."
     21
        In American Radiator & Standard Sanitary Corp. v. United
States, 318 F.2d 915, 921 (Ct. Cl. 1963), the court stated that an
informal claim is present even where it is "partially informative"
and fails "to match particular amounts to particular years." Id. An
informal claim is therefore valid even though it is "'too general'
or suffering from a 'lack of specificity.'" Id., quoting United
States v. Kales, 314 U.S. 186, 194 (1941).
     22
       Gustin v. United States, 876 F.2d 485, 489 (5th Cir. 1989),
quoting American Radiator, 318 F.2d at 920.
     23
       See, e.g., Penn Mut. Indemn. Co. v. Comm'r, 277 F.2d 16, 18-
19 (3d Cir. 1960) (holding that a letter attached to a return
protesting the constitutionality of an imposed tax was an informal
claim); Newton v. United States, 163 F. Supp. 614, 619-20 (Ct. Cl.
1958) (finding that a written protest prior to or accompanying
payment of a tax constituted an informal claim); Cumberland
Portland Cement Co. v. United States, 104 F. Supp. 1010, 1013-14
(Ct. Cl. 1952) (finding an informal claim in a letter attached to
a waiver of restrictions on an assessment); Night Hawk Leasing Co.
v. United States, 18 F. Supp. 938 (Ct. Cl. 1937) (finding an
informal claim in a notation on the back of a check issued to pay
tax). But see Rosengarten, 181 F. Supp. at 278-79 (finding no
informal claim where claim filed for another year or different
period).

                                   9
the policy objective underlying the statute of limitations—i.e., to

provide the government with "protection against stale demands."24

       However, in a submission to the district court, PALA conceded

that, although it had initially disagreed with the grounds for the

disqualification, “the disqualification of the Plan in itself was

ultimately    not   opposed   by    PALA   and    is    not   a    part   of   this

proceeding. The dispute concerning the refund turns on how far back

the Plan could be retroactively disqualified.”25 Consequently, PALA

admits to abandoning its informal claim for refund of the 1991 tax.

Nothing in the record indicates that PALA resurrected its claim

within the statutory time frame.26

       Even if PALA had filed a timely informal claim, this claim was

not subsequently amended by a formal claim. Informal claims have

been    likened   to   pleadings,    for   which       technical     deficiencies

generally can be corrected by amendment so as to relate back to the




       24
        United States      v.   Brockamp,        519   U.S.   347,    353   (1997)
(citations omitted).
       25
        See Appellant’s Memorandum in Opposition to Motion to
Dismiss, at 2 & n.2. Counsel for PALA also conceded at oral
argument that the May 4, 1993, letter was insufficient - in and of
itself - to effect an informal claim.
       26
       PALA's abandonment of this argument renders it unnecessary
for us to decide whether the oral communications between PALA and
the IRS prove the existence of an informal claim for the 1991 tax.
We note that PALA does not argue that it offered timely oral
requests for refund of the 1991 tax; it contends only that oral
discussions encompassed the applicability of the retroactivity
argument to the 1990 tax.

                                      10
original date of filing suit.27 Similarly, courts will excuse

"harmless noncompliance" with the formalities prescribed for refund

claims.28 However, the doctrine is predicated on an expectation that

these     formal   deficiencies   will    at   some   point    be    corrected.29

Moreover, if the IRS rejects the informal claim after the statutory

period has expired, the claim can not be amended.30

     PALA concedes that it did not file an amended 1041 return, as

required by Treasury Department regulations. Although it submitted

two letters to the IRS in 1997, which purported to be claims for

refund, PALA failed to comply with the basic requirement of filing

an amended 1041. In addition, the IRS arguably rejected PALA's

claim for a refund of the 1991 tax when it issued its final adverse

determination       letter   on   November      19,    1996.        The   adverse



     27
       See Fed. R. Civ. P. 15(c); United States v. Memphis Cotton
Oil Co., 288 U.S. 62, 72-73 (1933) (Cardozo, J.). However, while
the Supreme Court has embraced the pleadings analogy, it has also
cautioned that this analogy "is not to be so slavishly followed as
to ignore the necessities and realities of administrative
procedure." United States v. Andrews, 302 U.S. 517, 524 (1938).
     28
       BCS Fin. Corp. v. United States, 118 F.3d 522, 524 (7th Cir.
1997) (Posner, C.J.).
     29
        See United States v. Kales, 314 U.S. 186, 194 (1941);
Memphis Cotton Oil Co., 288 U.S. at 72-73; BCS Fin. Corp., 118 F.3d
at 524; American Radiator, 318 F.2d at 921-22; Tobin v. Tomlinson,
310 F.2d 648, 652 (5th Cir. 1962); Night Hawk Leasing Co., 18 F.
Supp. at 941-42; Hollie v. Comm'r, 73 T.C. 1198, 1216 (1980); Boris
I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates
and Gifts ¶ 112.5.2 (2000).
     30
       See Tobin, 310 F.2d at 652; Hollie, 73 T.C. at 1216; Bittker
& Lokken, supra, at ¶ 112.5.2.

                                     11
determination letter specifically rejected PALA's contention in its

May 4, 1993, letter that the disqualification was erroneous ab

initio. Consequently, no subsequent amendments could remedy the

formal inadequacies of PALA's claim.           This leaves waiver, an

alternate strand of the informal claim doctrine.



                                   III

     The Supreme Court has long recognized the power of the IRS to

waive     the   formal   requirements    established   by   the   Treasury

Department for refund claims.31 As the Court has noted, where the

Commissioner decides not to insist upon the formal requirements for

a refund, "it would be making an empty abstraction, and not a

practical safeguard, of a regulation to allow the Commissioner to

invoke technical objections after he has investigated the merits of

a claim and taken action upon it."32 However, "the courts should not

unduly help disobedient refund claimants to slip through . . . .

The showing should be unmistakable that the Commissioner has in

fact seen fit to dispense with his formal requirements and to

examine the merits of the claim."33 Although the Commissioner need




     31
       See Angelus Milling Co. v. Comm'r, 325 U.S. 293, 297-99
(1945); Kales, 314 U.S. at 196-97; see also Gustin v. United
States, 876 F.2d 485, 489 (5th Cir. 1989).
     32
          Angelus Milling Co., 325 U.S. at 297.
     33
          Id. at 297.

                                    12
not expressly state that he is waiving these requirements, the

implication of waiver should not be "tenuously argumentative."34

     PALA argues that, because the IRS issued a refund for the 1990

tax—thereby waiving the requirement that PALA file a formal refund

claim for that year—PALA can not be held to the formal claim

requirements for the 1991 tax. PALA argues that the 1990 and 1991

taxes were paid at the same time and that assessment of tax for

both years was time-barred when the IRS issued its final decision

in 1996. While the reason behind the decision to refund the 1990

tax is unclear,35 the waiver of tax for one time period does not

compel waiver for a different time period, however analogous.36

Because PALA never made a timely claim for the 1991 tax, the IRS

can not be deemed to have waived the formal claim requirements for

that period.

     PALA also argues that the IRS is estopped from refusing a

refund because it did not issue a final decision until 1996. Cases

applying the waiver doctrine in the refund context fail to clearly


     34
       Id. at   298. We note that the IRS can not waive   the statutory
time limits     for filing. However, the IRS can          waive formal
requirements    articulated in its own regulations.       See Missouri
Pacific R.R.    Co. v. United States, 558 F.2d 596,       599 (Ct. Cl.
1977).
     35
       The IRS claims on appeal that the 1990 refund was simply an
error committed by an IRS agent.
     36
       See Berman v. United States Treasury Dep't, 63 A.F.T.R.2d
89-538 (E.D.N.Y. 1988)("[A]pparent waiver of the statute of
limitations at the administrative level for the 1979 taxable year
does not constitute a waiver for subsequent taxable years.").

                                  13
differentiate between actual and constructive waiver. Moreover,

this blurred waiver doctrine noticeably shades into estoppel.37

Indeed, cases applying the waiver doctrine have used it on occasion

“to prevent the IRS agents from lulling taxpayers into missing the

three-year deadline.”38

     PALA attempts to align itself with such cases, arguing that,

by the time of the 1996 final determination letter, the IRS—under

PALA's retroactivity argument—could not collect taxes as far back

as 1991. PALA argues that, because the IRS delayed its final

decision for slightly more than three years, it prevented PALA from

asserting a refund claim for the 1991 tax within the statutory

period. PALA could not have known in 1993, when it paid the 1991

tax, that the IRS's then-unforeseeable delay would create grounds

for reimbursement. However, PALA could have filed a protective

claim for refund as early as 1994; this it failed to do.39 In fact,


     37
       See BCS Fin. Corp. v. United States, 118 F.3d 522, 526 (7th
Cir. 1997) (“Waiver . . . differs by only a hair’s breadth from
estoppel.”). We share the Seventh Circuit's concern that the
Supreme Court's decision in United States v. Brockamp, 519 U.S. 347
(1997), calls into question the continuing viability of the
waiver/estoppel strand of the informal claim doctrine. See id.
However, as the Supreme Court has not expressly overruled its cases
articulating the waiver doctrine, we refuse to infer such an
intention.
     38
        Id.; see United States v. Kales, 314 U.S. 186, 196-97
(1941); United States v. Memphis Cotton Oil Co., 288 U.S. 62, 70-71
(1933).
     39
        See BCS Fin. Corp., 118 F.3d at 526; United States v.
Commercial Nat'l Bank of Peoria, 874 F.2d 1165, 1170 (7th Cir.
1989); Swietlik v. United States, 779 F.2d 1306, 1307 (7th Cir.

                                14
PALA did not attempt to file even an informal refund claim for the

1991 tax until 1997. To the extent that PALA argues for an

equitable   tolling   of   the   statute   of   limitations,   controlling

Supreme Court precedent refutes its position.40

     As the district court was without subject matter jurisdiction,

we hereby AFFIRM its dismissal of PALA's claim.

     AFFIRMED.




1985); Newton v. United States, 163 F. Supp. 614, 619-20          (Ct. Cl.
1958); Saltzmann, supra, at § 11.08[3].
     40
       See United States v. Brockamp, 519 U.S. 347 (1997) (holding
that courts can not equitably toll the statute of limitations for
refund claims under section 6511 of the Internal Revenue Code); see
also Missouri Pacific R.R. Co. v. United States, 558 F.2d 596, 599
(Ct. Cl. 1977) ("The requirements imposed by Treasury regulations
must be distinguished from those imposed by statute; the former
requirements may be waived while the latter may not.").

                                    15


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