United States Court of Appeals,
Eleventh Circuit.
No. 94-6606.
MUTUAL ASSURANCE, INC., Plaintiff-Appellee,
v.
UNITED STATES of America, Defendant-Appellant.
July 3, 1995.
Appeal from the United States District Court for the Northern
District of Alabama. (No. CV 93-H-952-S), James Hughes Hancock,
Judge.
Before HATCHETT and EDMONDSON, Circuit Judges, and GIBSON*, Senior
Circuit Judge.
HATCHETT, Circuit Judge:
In this tax refund case, we affirm the district court's ruling
that the appellee's, Mutual Assurance, Inc., amendment to a timely
filed administrative claim for refund could serve as the
jurisdictional basis for maintaining this action.
FACTS
Mutual Assurance, Inc. (Mutual Assurance), the appellee, an
Alabama corporation whose principal place of business is located in
Birmingham, Alabama, is a property and casualty insurance company
specializing in medical malpractice insurance. The Internal
Revenue Code allows Mutual Assurance to determine its taxable
income through deductions, including its "losses incurred,"
including unpaid loss reserves, from its gross revenues. In 1986,
Congress enacted section 846 of the Internal Revenue Code, 26
U.S.C. § 846, which required insurance companies such as Mutual
*
Honorable John R. Gibson, Senior U.S. Circuit Judge for the
Eighth Circuit, sitting by designation.
Assurance to discount to present value their unpaid loss reserves
attributable to current as well as prior tax years.
In response to problems that arose in the industry, the
Internal Revenue Service (IRS) subsequently promulgated Revenue
Procedure 91-21 that provided certain insurers the opportunity to
elect to use a special schedule of discount factors (the Composite
Schedule P factors) to determine their unpaid loss reserves. In
the case of Mutual Assurance, the election led to a larger loss
reserve, a larger deduction, and a lower tax liability. The relief
set forth in Revenue Procedure 91-21 was available for all years
for which the statute of limitations on filing refund claims were
still open.
Mutual Assurance reports its income taxes on the basis of a
calendar year, and the earliest open year was 1987. Mutual
Assurance filed its 1987 tax return on September 10, 1988. Section
6511(a) of the Internal Revenue Code (26 U.S.C.) requires a
taxpayer to file an administrative claim for refund with the IRS
within three years from the time the taxpayer files the return or
two years from the time the tax is paid, whichever period expires
later. Therefore, Mutual Assurance had until September 10, 1991,
to file a claim for a refund of its 1987 taxes. On April 5, 1991,
Mutual Assurance filed claims for refund for its 1987, 1988, and
1989 tax years using Revenue Procedure 91-21 as the basis for the
refunds claimed. The amount claimed for 1987 was $495,728. On May
14, 1991, the IRS allowed Mutual Assurance's claim for the 1987 tax
year and refunded to the company $495,728. On September 19, 1991,
nine days after the expiration of the three-year period for seeking
refunds for tax year 1987, the IRS conducted a field examination of
Mutual Assurance's claims and discovered a miscalculation of the
company's unpaid loss reserves for the 1987, 1988, and 1989 tax
years. This miscalculation caused Mutual Assurance to understate
the amount of its overpayment in the original claim for a refund
for tax year 1987 by $489,601. As a result, in addition to the
money already refunded, Mutual Assurance overpaid $489,601.
On September 26, 1991, Mutual Assurance filed an informal
claim for refund for each of the three years. The IRS allowed the
claims for refund for 1988 and 1989, including the additional
amounts claimed in the informal claim of September 26, 1991. The
IRS disallowed Mutual Assurance's claim for the additional $489,601
as a result of the 1987 overpayment. On April 23, 1993, Mutual
Assurance filed a formal claim for refund for tax year 1987
requesting a refund of $489,601. In letters dated April 29, 1993,
and May 6, 1993, the IRS notified Mutual Assurance that it was
disallowing both the company's informal and formal claim for an
additional refund for tax year 1987 due to Mutual Assurance's
failure to timely file an administrative refund claim pursuant to
I.R.C. § 6511(a). Mutual Assurance instituted this action on May
12, 1993.
PROCEDURAL HISTORY
On July 16, 1993, the government filed a motion to dismiss the
complaint for lack of subject matter jurisdiction. The government
relied on I.R.C. § 7422 that bars an action for recovery of federal
taxes unless a claim for refund has been duly filed. The
government then invoked I.R.C. § 6511's three-year period for
filing a refund claim and argued that because the only claim filed
within the three-year period the IRS allowed, no timely claim could
serve as the basis for this action for refund. For that reason,
the government argued, the district court lacked jurisdiction over
this lawsuit.
In an order dated October 4, 1993, the district court denied
the government's motion. The court ruled that Mutual Assurance's
original refund claim for tax year 1987, filed on April 5, 1991,
provided a sufficient jurisdictional basis for the refund lawsuit
for the $489,601. In rejecting the assertion that Mutual
Assurance's right to a refund of taxes is limited to the amount in
its claim for refund, the court concluded that once a taxpayer
files a claim for refund, the IRS is required to compute the
correct tax. The court therefore concluded that Mutual Assurance's
April 5, 1991 claim for refund was a sufficient basis to allow it
to recover the entire amount of its overpayment. Alternatively,
the district court found that Mutual Assurance's informal claim for
refund of September 26, 1991, should be viewed as an amendment of,
and should relate back to, its timely April 5, 1991 claim even
though Mutual Assurance's earlier claim had already been allowed in
full. The court reasoned that Mutual Assurance's amendment
altering the amount of recovery was based on the same grounds as
the original claim.
Because the government's sole defense to the relief sought by
Mutual Assurance was stated in its motion to dismiss, the parties
stipulated to the entry of final judgment in Mutual Assurance's
favor. Pursuant to that stipulation, the district court entered
judgment on May 11, 1994. The government appeals.
CONTENTIONS
The government contends that once it allowed Mutual
Assurance's April 5, 1991 request for a $495,728 refund for tax
year 1987, that claim was rendered moot; and nothing more was
pending before the IRS with respect to tax year 1987. Therefore,
at the time the statute of limitations expired on September 10,
1991, an administrative refund claim that could serve as the
jurisdictional basis for a refund suit did not exist. The
government also argues that the district court's alternative
holding is contrary to a long line of cases holding that once a
refund claim has been satisfied, it can no longer be amended.
Mutual Assurance argues that the district court's judgment
should be affirmed because its April 5, 1991 refund claim provided
the IRS with sufficient notice to grant relief in the correct
amount. Mutual Assurance also argues, alternatively, that it was
entitled to amend the original claim to state the correct amount.
ISSUE
The sole issue raised on this appeal is whether Mutual
Assurance's April 5, 1993 timely filed refund claim for the 1987
tax year may be amended after the expiration of the statute of
limitations because the amount the government refunded was less
than the full amount of the overpayment.
DISCUSSION
The subject matter jurisdiction of the district court is a
question of law subject to de novo review. United States v. Perez,
956 F.2d 1098 (11th Cir.1992). Under well-settled principles of
sovereign immunity, the United States is immune from suit unless it
consents to be sued. United States v. Dalm, 494 U.S. 596, 608, 110
S.Ct. 1361, 1368, 108 L.Ed.2d 548 (1990). Moreover, "[t]he terms
of [the United States's] consent to be sued in any court define
that court's jurisdiction to entertain the suit." United States v.
Sherwood, 312 U.S. 584, 586-87, 61 S.Ct. 767, 769, 85 L.Ed. 1058
(1941). A statute of limitations requiring that a suit against the
government be brought within a certain period of time is one of
those terms. Dalm, 494 U.S. at 608, 110 S.Ct. at 1368.
The United States has waived its sovereign immunity in order
to allow taxpayers to file actions seeking tax refunds: "The
district courts shall have original jurisdiction ... of [a]ny civil
action against the United States for the recovery of any
internal-revenue tax alleged to have been erroneously or illegally
assessed or collected...." 28 U.S.C. § 1346(a)(1). Section 7422
of the Internal Revenue Code (26 U.S.C.) provides, however, that a
suit for a refund of federal taxes may be maintained only if an
administrative claim for refund has been "duly filed."1 Courts
have consistently held that a taxpayer's filing of an
administrative refund claim with the IRS in accordance with the
relevant provisions of the Internal Revenue Code is a
1
Section 7422 provides, in relevant part:
(a) .... No suit or proceeding shall be maintained in
any court for the recovery of any internal revenue tax
alleged to have been erroneously or illegally assessed
or collected ... until a claim for refund or credit has
been duly filed with the Secretary, according to the
provisions of law in that regard, and the regulations
of the Secretary established in pursuance thereof.
I.R.C. § 7422(a).
jurisdictional prerequisite to the maintenance of a tax refund
suit. E.g., Dalm, 494 U.S. at 602, 110 S.Ct. at 1365; Charter Co.
v. United States, 971 F.2d 1576, 1579 (11th Cir.1992). Section
6511(a) of the Internal Revenue Code (26 U.S.C.) requires a
taxpayer to file an administrative claim for refund with the IRS
"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." I.R.C. § 6511(a). A taxpayer who
fails to file an administrative claim for refund within the period
set forth in I.R.C. § 6511(a) is barred from filing a refund suit
in the district courts. Dalm, 494 U.S. at 609-10, 110 S.Ct. at
1368-69; Vintilla v. United States, 931 F.2d 1444, 1446, reh'g
denied, 942 F.2d 798 (11th Cir.1991).
The government argues that once it satisfied Mutual
Assurance's timely filed, April 5, 1991 refund claim for tax year
1987 and paid the amount requested, Mutual Assurance no longer had
an administrative refund claim for tax year 1987 pending before the
IRS. Therefore, when Mutual Assurance filed an amended claim for
refund on September 26, 1991, beyond the three-year period for
filing refund claims for tax year 1987, no refund claim existed
that could be amended. The government finds support for this
proposition in a line of cases holding that an accepted claim is no
longer in existence and is, therefore, not a basis for filing an
amended claim. E.g., Edwards v. Malley, 109 F.2d 640, 645 (1st
Cir.1940); New York Trust Co. v. United States, 87 F.2d 889, 891
(2d Cir.), cert. denied, 301 U.S. 704, 57 S.Ct. 937, 81 L.Ed. 1359
(1937). We disagree.
In Bemis Brothers Bag Co. v. United States, 289 U.S. 28, 53
S.Ct. 454, 77 L.Ed. 1011 (1933), the taxpayer's timely filed claim
for refund raised three grounds for relief and set forth facts and
arguments in support of each basis for the claim. The IRS denied
the claim after rejecting only one of the three grounds the
taxpayer presented. After the statute of limitations for filing
refund claims had expired, the taxpayer filed an amended claim that
asserted no new theories for relief, but merely requested that the
IRS consider in the alternative the grounds for relief stated in
its timely filed claim. The IRS reconsidered the taxpayer's claim,
agreed that an overpayment had occurred, but refused to allow the
claim on the ground that the statute of limitations had run. The
Supreme Court, however, held that the taxpayer could amend its
prior claim for refund.
In allowing the amendment, the Court reasoned that the
taxpayer had not set forth a new theory of recovery; rather, the
taxpayer was merely "asking the Commissioner take action upon
discoveries already in the making or perhaps already made." Bemis
Brothers, 289 U.S. at 35, 53 S.Ct. at 457. Bemis Brothers compels
us to reject the government's argument that once it paid Mutual
Assurance the requested amount of the refund, the claim ceased to
exist. In Bemis Brothers, the Court expressly rejected the prayer
for relief test as a basis for determining the limits of
permissible amendments: "the suitor shall have the relief
appropriate to the facts that he has pleaded, whether he has prayed
for it or not." Bemis Brothers, 289 U.S. at 34, 53 S.Ct. at 456.
This case is similar to Bemis Brothers in that Mutual Assurance's
April 5, 1991 refund claim for tax year 1987 contained a defective
prayer for relief: it requested an overpayment refund in the
amount of $495,728 when the actual overpayment for that year was
$985,329. In addition, the amendment asserted the same ground for
relief as the original claim, the Composite Schedule P factors.
Therefore, "the claim as amended does not differ in matter of
substance from the claim as first presented." Bemis Brothers, 289
U.S. at 33, 53 S.Ct. at 456. Moreover, Internal Revenue Service
Revenue Ruling 81-87, provides that "in order to ascertain whether
there has been an overpayment of tax, adjustments that decrease the
tax must be considered as well as adjustments that increase the
tax." Rev.Rul. 81-87, 1981-1 C.B. 580. Rev.Rul. 81-87, therefore,
required the IRS to correctly compute the amount of Mutual
Assurance's 1987 overpayment. In Bemis Brothers, the Court noted
that where the basis of the taxpayer's claim for refund allows the
IRS to "learn[ ] ... that the assessment is erroneous in a
determinable amount. Justice will then require that it be changed
to that extent." We must allow the amendment because Mutual
Assurance's original claim for refund for tax year 1987 was based
on recomputing its unpaid loss reserves using the Composite
Schedule P factors. If the IRS had properly applied these discount
factors it would have arrived at the correct amount of Mutual
Assurance's overpayment.2
2
During oral argument, the government conceded that Mutual
Assurance's April 5, 1991 claim for refund provided it with a
sufficient basis for accurately computing the exact amount of the
1987 overpayment.
The government relies on a decision of the United States Court
of Claims in Union Pacific Railroad Co. v. United States, 389 F.2d
437 (1968), in which the court stated "[t]he disposition of a
taxpayer's refund claim by allowance of the amount requested in
full ... precludes an amendment asserting an additional amount
after the expiration of the statutory period for refund." 389 F.2d
at 447. We respectfully submit that this aspect of the decision in
Union Pacific Railroad Co. cannot be reconciled with the teachings
of Bemis Brothers. In any event, Union Pacific Railroad Co. is not
binding precedent in this circuit.
The government also cites Tobin v. Tomlinson, 310 F.2d 648
(5th Cir.1962), cert. denied, 375 U.S. 929, 84 S.Ct. 327, 11
3
L.Ed.2d 262 (1963), as support for its position. In Tobin,
however, the issue was whether a taxpayer's letter could be
considered an informal claim for a tax refund that could be
perfected through the filing of a formal refund claim outside the
statutory limitations period. Tobin, 310 F.2d at 650. The court
concluded that the letter did not comply with applicable
regulations; therefore, it could not serve as the basis for an
otherwise untimely amendment. Tobin, 310 F.2d at 651. Tobin,
therefore, is inapposite. Lastly, other circuits have held that
"[w]here the facts upon which the amendment is based would have
been ascertained by the commissioner in determining the merits of
the original claim, the amendment is proper." United States v.
3
Decisions of the United States Court of Appeals for the
Fifth Circuit handed down prior to the close of business on
September 30, 1981, are binding precedent on the Eleventh
Circuit. Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th
Cir.1981) (en banc ).
Ideal Basic Industries, Inc., 404 F.2d 122, 124 (10th Cir.1968)
(quoting Pink v. United States, 105 F.2d 183, 187 (2d Cir.1939)),
cert. denied, 395 U.S. 936, 89 S.Ct. 1997, 23 L.Ed.2d 451 (1969).
CONCLUSION
Accordingly, the judgment of the district court is affirmed.
AFFIRMED.