Your Insurance Needs Agency Inc. v. United States

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-21051

YOUR INSURANCE NEEDS AGENCY INC.,

Plaintiff-Appellant,

versus

UNITED STATES OF AMERICA,

Defendant-Appellee.

DAVID BRUCE EARL,

Plaintiff-Appellant,

versus

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court
For the Southern District of Texas

December 4, 2001

Before REAVLEY, HIGGINBOTHAM, and PARKER, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

David Bruce Earl and Your Insurance Needs Agency, Inc. appeal

from a grant of summary judgment to the Government on their claims

for refunds of over $77,000 in tax overpayments in 1991, 1992,
1993, and 1994, inclusive, brought under 26 U.S.C. § 7422(a). We

affirm.

I.

In 1991, Earl, the sole officer and shareholder of Your

Insurance, hired David Shand, a certified public accountant, to

prepare and file Your Insurance's and his own federal tax returns.

Pursuant to Earl's instructions and authorization, Shand prepared

and submitted individual income tax returns for Earl for tax years

1991, 1992, and 1993, and payroll tax returns for Your Insurance

for six quarters in 1992, 1993, and 1994.

Unbeknownst to Earl, when preparing the taxpayers' returns for

each tax year in question, Shand overstated the taxpayers' tax

liability on their returns and then either had Earl sign the

returns or signed the returns himself with Earl's permission.

Shand then produced copies of the returns for Earl, who paid the

overstated tax liability as represented to him by Shand. Finally,

Shand altered the signed returns to reflect a lesser, correct tax

liability and inserted Shand's own office address as the address on

the returns. The Internal Revenue Service authorized the

Department of the Treasury to issue checks to Earl and Your

Insurance for the refunds claimed, and the Treasury then issued and

mailed these checks to the address—Shand's—on the returns. Shand

received the checks, forged Earl's signature, and negotiated the

refund checks, keeping the proceeds himself. According to IRS

records, the last refund check to Earl was issued in late May 1994,

2
and the last refund check to Your Insurance was issued in late

November 1994.

The IRS eventually discovered this scheme, which Shand

perpetrated on many of his clients, but prosecuted and convicted

Shand in 1996 for another, unrelated tax fraud scheme. Earl first

learned of Shand's conduct and the existence of the refund checks

in late 1994, when he was informed of Shand's fraud by Mike Harris,

an investigator with the Criminal Investigation Division of the

IRS.

Two years later, on February 5, 1997, Earl and Your Insurance

requested that the IRS issue replacement checks. The IRS refused

on November 26, 1997, stating that the IRS sent the refunds, in

good faith, to the address shown on the returns and that Earl and

Your Insurance should have sought replacement checks from the

Financial Management System, the division within the Department of

the Treasury that handles stolen Treasury checks. The IRS further

indicated that the Financial Management System would not authorize

the IRS to reissue the checks.

On February 25, 1999, Earl and Your Insurance filed separate

suits against the United States to recover the tax overpayments.

The two cases were ordered consolidated on September 14, 1999, and

the parties filed cross-motions for summary judgment. On August

21, 2000, a Magistrate Judge granted summary judgment for the

Government in both cases and entered final judgment. The

3
Magistrate Judge denied a Motion to Alter and Amend the Judgment on

September 20, 2000. This appeal followed.

II.

We review a grant of summary judgment de novo, applying the

same standard as the district court.1 We may affirm a summary

judgment on any ground raised by the movant below and supported by

the record, even if it is not the ground relied on by the district

court.2 Additionally, "[w]e exercise plenary, de novo review of a

district court's assumption of subject matter jurisdiction."3

A.

The Secretary of the Treasury is required, under 26 U.S.C. §

6402(a), to issue refunds to taxpayers for overpayments of tax

liabilities. 26 U.S.C. § 6511(a) sets a period of limitations for

a taxpayer to file a claim for a refund, requiring that a refund

claim "be filed by the taxpayer 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

1
Holtzclaw v. DSC Communications Corp., 255 F.3d 254, 257
(5th Cir. 2001).
2
Id. at 258.
3
Local 1351 Int'l Longshoremens Ass'n v. Sea-Land Serv.
Inc., 214 F.3d 566, 569 (5th Cir. 2000), cert. denied sub nom., SL
Serv., Inc. v. Office & Prof'l Employees Int'l Union, 531 U.S. 1076
(2001).

4
filed by the taxpayer, within 2 years from the time the tax was

paid."4

A suit for a refund is allowed by statute, but must be

preceded by a claim filed with the Secretary of the Treasury,

pursuant to 26 U.S.C. § 7422(a).5 A claim for refund must be filed

in accordance with regulations issued by the Secretary of the

Treasury.6 A civil action for a refund must be brought against the

United States.7 Jurisdiction lies in the district courts in tax

suits under 28 U.S.C. § 1340:

The district courts shall have original jurisdiction of
any civil action arising under any Act of Congress
providing for internal revenue, or revenue from imports
or tonnage except matters within the jurisdiction of the
Court of International Trade.

4
See also 26 U.S.C. § 6511(b)(1) ("Filing of claim within
prescribed period.—No credit or refund shall be allowed or made
after the expiration of the period of limitation prescribed in
subsection (a) for the filing of a claim for credit or refund,
unless a claim for credit or refund is filed by the taxpayer within
such period.").
5
See also United States v. Williams, 514 U.S. 527, 533
(1995); 26 C.F.R. § 301.6402-2(a)(1) (2001) ("Requirement that
claim be filed. (1) Credits or refunds of overpayments may not be
allowed or made after the expiration of the statutory period of
limitation properly applicable unless, before the expiration of
such period, a claim therefor has been filed by the taxpayer.
Furthermore, under section 7422, a civil action for refund may not
be instituted unless a claim has been filed within the properly
applicable period of limitation.").
6
See 26 U.S.C. § 7422(a); see also, e.g., 26 C.F.R.
§ 301.6402-2(a)(2) (2001) (providing for place to file a refund
claim); id. § 301.6402-2(b)(1) (2001) (requiring that a claim set
forth grounds for the credit or refund sought).
7
See 26 U.S.C. § 7422(f)(1).

5
Jurisdiction also lies in the district courts, concurrent with the

United States Court of Federal Claims, for suits against the United

States, under 28 U.S.C. § 1346(a)(1):

Any civil action against the United States for the
recovery of any internal-revenue tax alleged to have been
erroneously or illegally assessed or collected, or any
penalty claimed to have been collected without authority
or any sum alleged to have been excessive or in any
manner wrongfully collected under the internal-revenue
laws.

Other claims against the United States for over $10,000, however,

must be brought in the Court of Federal Claims.8

A special scheme is also established by statute for lost or

stolen and subsequently forged and paid checks issued by the

Treasury. Under 31 U.S.C. § 3343(b):

The Secretary of the Treasury shall pay from the Fund to
a payee or special endorsee of a check drawn on the
Treasury or a depositary designated by the Secretary the
amount of the check without interest if in the
determination of the Secretary the payee or special
endorse establishes that—
(1) the check was lost or stolen without the fault of the
payee or a holder that is a special endorsee and whose
endorsement is necessary for further negotiation;
(2) the check was negotiated later and paid by the
Secretary or a depositary on a forged endorsement of the
payee's or special endorsee's name; and
(3) the payee or special endorsee has not participated in
any part of the proceeds of the negotiation or payment.9

8
See 28 U.S.C. § 1346(a)(2); see also id. § 1491(a)
(providing for the jurisdiction of the Court of Federal Claims).
9
(footnote omitted); see also 31 C.F.R. § 235.1 (2001)
("This part governs the issuance of settlement checks for checks
drawn on designated depositaries of the United States by
accountable officers of the United States, that have been
negotiated and paid on a forged or unauthorized indorsement."); id.

6
There is, however, a one-year limit on presentment of claims for

replacement of forged checks: "Any claim on account of a Treasury

check shall be barred unless it is presented to the agency that

authorized the issuance of such check within 1 year after the date

of issuance of the check or the effective date of this subsection,

whichever is later."10 Yet the same statutory section directs that

"[n]othing in this subsection affects the underlying obligation of

the United States, or any agency thereof, for which a Treasury

check was issued."11 The Secretary also has a statutory remedy

against the depositary bank that paid a Treasury check on a forged

§ 235.3 (2001) (requiring the issuance of a replacement check upon
receipt of "a claim by a payee or special indorsee on a check
determined to have been paid on a forged indorsement under
conditions satisfying the provisions set forth in 31 U.S.C. 3343");
id. § 245.1 (2001) ("This part governs the issuance of replacement
checks for checks drawn on the United States Treasury, when (a) The
original check has been lost, stolen, destroyed or mutilated or
defaced to such an extent that it is rendered non-negotiable; (b)
The original check has been negotiated and paid on a forged or
unauthorized indorsement . . . .").
10
31 U.S.C. § 3702(c)(1); see also 31 C.F.R. § 245.3(a)
(2001) ("Any claim on account of a Treasury check must be presented
to the agency that authorized the issuance of such check within one
year after the date of issuance of the check or within one year
after October 1, 1989, whichever is later.").
11
31 U.S.C. § 3702(c)(2); see also 31 C.F.R. § 245.3(c)
(2001) ("Nothing in this subsection affects the underlying
obligation of the United States, or any agency thereof, for which
a Treasury check was issued.").

7
indorsement, subject to the statute of limitations provided in 31

U.S.C. § 3712(a)(1).12

Finally, the Secretary of the Treasury has also issued

regulations governing the mailing of refund checks. 26 C.F.R.

§ 301.6402-2(f)(1) (2001) provides:

Mailing of refund check. (1) Checks in payment of claims
allowed will be drawn in the names of the persons
entitled to the money and, except as provided in
subparagraph (2) of this paragraph (f), the checks may be
sent direct to the claimant or to such person in care of
an attorney or agent who has filed a power of attorney
specifically authorizing him to receive such checks.

B.

The Government argues here, as it did in the district court,

that this suit is a claim for replacement checks under 31 U.S.C. §

3343(b), dressed up as refund claims in order to avoid the

statutory jurisdictional and limitations bars to a claim under

section 3343(b) against the Check Forgery Insurance Fund. The

Government urges that we reverse and remand with instructions that

the district court dismiss the consolidated suit for lack of

subject-matter jurisdiction.

12
See 31 U.S.C. § 3712(a)-(b); see also 31 U.S.C. §
3343(g)(2) (providing that the Check Forgery Insurance Fund does
not relieve "a transferee or party on a check after the forgery
from liability—(A) on the express or implied warranty of prior
endorsements of the transferee or party; or (B) to refund amounts
to the Secretary"); Clearfield Trust Co. v. United States, 318 U.S.
363, 366 (1943) ("The rights and duties of the United States on
commercial paper which it issues are governed by federal rather
than local law."); United States v. First Nat'l Bank of Atlanta,
441 F.2d 906, 908 (5th Cir. 1971) (same).

8
 The response is that, pursuant to 31 U.S.C. § 3702(c)(2), a

refund suit under 26 U.S.C. § 7422(a) may be brought even after a

claim for a replacement check under section 3343(b) has become

untimely under 31 U.S.C. § 3702(c)(1). Yet, for this contention to

prevail, there must be an existing "underlying obligation of the

United States, or any agency thereof, for which a Treasury check

was issued."13 The Government counters that no refund is owing, at

all events, because the Treasury issued checks in the proper

amounts to Earl and Your Insurance at the address provided on the

face of their respective returns and the Government thereby

fulfilled its underlying obligation to these taxpayers.

We will assume, without deciding, that the district court

properly exercised jurisdiction over the taxpayers' claims pursuant

to 28 U.S.C. § 1346(a)(1). We choose this course because, in light

of 31 U.S.C. § 3702(c)(2), we have no choice but to evaluate the

merits of the putative refund suit under 26 U.S.C. § 7422(a) before

we may recharacterize it as properly stating only claims for

replacement checks under 31 U.S.C. § 3343(b).

Moreover, even if the district court could have subject-matter

jurisdiction over a section 3343(b) claim for replacement checks

totaling more than $10,000, in spite of the language of 28 U.S.C.

§ 1346(a)(2), there is no serious dispute that the statutory

requirement that a claim for replacement checks be presented to the

13
31 U.S.C. § 3702(c)(2).

9
IRS "within 1 year after the date of issuance of the check" would

bar any claim by the taxpayers for replacement refund checks under

the Check Forgery Insurance Fund.14 Even if equitable tolling

applies to the one-year period prescribed by 31 U.S.C. §

3702(c)(1), there was no request for replacement checks within one

year of the taxpayers' learning in late 1994 of Shand's negotiation

of their refund checks on forged indorsements.

The issue for our determination, therefore, is whether the

refunds for tax overpayment, disbursed by timely-issued refund

checks mailed to the address shown on Earl's and Your Insurance's

tax returns, remain owing when the refund checks were stolen and

forged. We conclude that the Government does not owe refunds under

these facts and therefore the taxpayers' argument based on the

statutory language in 31 U.S.C. § 3702(c)(2), providing that the

availability of the Check Forgery Insurance Fund does not affect

the Government's "underlying obligation," is of no avail.

In reaching this conclusion, we find persuasive the holding of

the Tax Court in Abeson v. Commissioner that the IRS fulfilled its

obligation under its regulations by mailing refund checks to the

address listed on taxpayers' returns.15 Here, summary judgment was

14
See id. § 3702(c)(1).
15
59 T.C.M. (CCH) 391, 403 (1990), aff'd mem. sub nom.,
Rivera v. Comm'r, 959 F.2d 241 (9th Cir. 1992); see also 26 U.S.C.
§ 6402(a) ("In the case of any overpayment, the Secretary . . .
shall, subject to subsections (c), (d) and (e), refund any balance
to such person [who made the overpayment]."); 26 C.F.R. § 301.6402-

10
properly entered for the Government because the Government timely

issued refund checks and mailed them to the address on the returns,

the only address the IRS had available to it, a fact not disputed.

As such, the Government timely paid out the refunds, although Shand

stole and negotiated the refund checks on forged indorsements

before they were received.

The Government thus fulfilled its obligation to pay the

refunds owed. Nonetheless, the taxpayers still had available to

them a mechanism by which they could receive replacement checks for

the stolen and forged refund checks issued to them. Had the

Government thereby been required to pay refunds under 31 U.S.C. §

3343(b), the Government could have recovered the funds paid out by

the depositary bank on the stolen and forged refund checks, subject

to the statute of limitations provided in 31 U.S.C. § 3712(a)(1).16

However, the combination of the Government's failure to pursue this

remedy and the taxpayers' failure to file timely claims for

replacement checks does not revive the Government's obligation to

pay out refunds for the tax overpayments.

C.

2(f)(1) (2001) ("Mailing of refund check. (1) Checks in payment of
claims allowed will be drawn in the names of the persons entitled
to the money and, except as provided in subparagraph (2) of this
paragraph (f), the checks may be sent direct to the claimant . . .
.").
16
See 31 U.S.C. § 3712(a)-(b).

11
 Our conclusion is not altered by our decision in United States

v. First National Bank of Atlanta.17 There, we faced a situation

in which government checks were issued to a government contractor

"in payment of supplies ordered and received by the United States

Air Force," but "these checks were endorsed, without authority, by

an employee of [the contractor], in [the contractor's] name, and

negotiated through the . . . third party defendant in this action,

and the proceeds therefrom were converted by the employee to his

own use."18 In an action by the government to recover the funds

from the bank which presented the checks to the Treasury for

payment on indorsements guaranteeing prior, forged indorsements, we

stated in dicta that "the government's obligation to pay [the

contractor] for the supplies it had received was not discharged by

the checks here in question," because the contractor "never

received the benefit of these checks, yet the government, as

drawee, paid them."19

This dicta does not change the fact that, here, the Government

was only required to timely issue refund checks to the address

listed on the returns. Nothing in 31 U.S.C. § 3712 requires the

Government to pursue its commercial paper remedy against a

depositary bank that has paid a Treasury check on a forged

17
441 F.2d 906 (5th Cir. 1971).
18
Id. at 907.
19
Id. at 911.

12
indorsement. Just as a taxpayer has, in an appropriate case, a

choice between seeking payment of an underlying obligation he is

still owed or seeking a replacement check,20 so, too, the Government

need not seek reimbursement from the depositary bank where the

taxpayers have not filed a timely claim for a replacement check and

the Government therefore has not been required to pay more than it

owed.

D.

We hold that, here, the Government fulfilled its obligation to

pay the taxpayers refunds by timely issuing refund checks to the

address provided on their returns. The taxpayers thereafter failed

to timely file claims for replacement checks within a year of

learning that their refund checks were stolen and negotiated on

forged indorsements by their accountant, much less within a year of

the refund checks' issuance. That failure does not obligate the

Government to refund tax overpayments where it has already once

taken all the steps required to issue refund checks. Summary

judgment for the Government was proper whether the claims are

characterized as seeking refunds for tax overpayments or

replacements for stolen and forged checks.

III.

The judgment of the district court is AFFIRMED.

20
See Naftel v. Comm'r, 85 T.C. 527, 534 (1985).

13