Beall v. United States ( 2003 )

United States Court of Appeals
Fifth Circuit
F I L E D
Revised July 14, 2003
June 27, 2003
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 01-41471
RAYMOND W. BEALL; HAZEL A. BEALL,
Plaintiffs-Appellants,
versus
UNITED STATES OF AMERICA,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Texas
Before GARWOOD, JONES and STEWART, Circuit Judges.
GARWOOD, Circuit Judge:
Plaintiffs-appellants Raymond W. Beall and Hazel A. Beall (the
Bealls) appeal the dismissal, for want of subject matter
jurisdiction, of their claim for a refund of the interest on income
taxes paid to the defendant-appellee, the United States. Because
we conclude, for the reasons set forth below, that the district
court did possess jurisdiction to hear the Bealls’ complaint, we
reverse the judgment of the district court and remand.
Background
On March 31, 1997, the Bealls entered into a settlement
agreement with the Internal Revenue Service (IRS) to resolve
certain tax deficiencies arising from the Bealls’ 1984 tax return
and subsequent claim for refund.1 Following that settlement, the
IRS assessed additional income taxes, as well as interest on those
taxes, against the Bealls. After satisfying their outstanding tax
liability, the Bealls, on December 22, 1997, filed a claim for
refund of the tax and interest charged against them.
The IRS denied the Bealls’ claim for refund, and on April 22,
1999, the Bealls filed a supplemental claim for refund in which
they claimed both that the interest on their assessed tax liability
should have been netted against other years under 26 U.S.C. §
6221(d), and that a portion of that interest should have been
abated under 26 U.S.C. § 6404(e)(1). Based on those refund claims,
the Bealls then commenced the present suit in federal district
court on March 28, 2000.
1
The Bealls’ tax dispute with the IRS centered around
Raymond Beall’s investment, in the early 1980s, in two
agricultural partnerships. Based on losses reported by those
partnerships, the Bealls claimed a tax loss for 1984 of $208,353,
and filed an application for a tax refund in 1985 on which they
carried back a portion of losses incurred by the partnerships
from 1981 to 1984. The IRS eventually examined the partnerships’
1984 returns, and in 1991, issued proposed adjustments to the
partnerships’ income tax returns. It is the Bealls’ income-tax
liability resulting from those adjustments that formed the basis
of the present dispute.
2
The district court granted the Government’s motion to dismiss,
concluding, among other things, that it lacked subject matter
jurisdiction to hear a challenge to the denial of a request for
interest abatement under section 6404(e)(1) of the Internal Revenue
Code.2 The Bealls now appeal the dismissal only of that part of
their claim for refund based on 26 U.S.C. § 6404(e)(1).
Discussion
“We review a district court’s grant of a motion to dismiss for
lack of subject-matter jurisdiction de novo, using the same
standards as those employed by the lower court.” John Corp. v.
City of Houston, 214 F.3d 573, 576 (5th Cir. 2000); Rodriguez v.
Texas Comm’n on the Arts, 199 F.3d 279, 280 (5th Cir. 2000). We
accept as true the Bealls’ uncontroverted factual allegations, “and
will affirm the dismissal if ‘the court lacks the statutory or
constitutional power to adjudicate the case.’” Id. (quoting Nowak
v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.
1996)).
A. Sovereign Immunity
As a threshold matter, we first address the Government’s
position that Congress has not waived sovereign immunity so as to
2
The district court also dismissed, for want of subject
matter jurisdiction, the Bealls § 6221(d) interest-netting claim.
The court had previously dismissed, as untimely, that portion of
the Bealls’ complaint that relied on their December 12, 1997,
claim for a refund. The Bealls did not appeal either of these
rulings, and they are not, therefore, now before us.
3
permit a plaintiff to sue in federal district court for a refund of
unabated interest. See F.D.I.C. v. Meyer, 114 S.Ct. 996, 1000
(1994) (“Sovereign immunity is jurisdictional in nature. . . .
Therefore, we must first decide whether . . . immunity has been
waived.”). Without such a waiver, there can be no jurisdiction
over the Bealls’ refund claim in either the district court or in
this court. Id.; United States v. Mottaz, 106 S.Ct. 2224, 2229
(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.”); Moore v. Dept. of Agric. on Behalf of Farmers
Home Admin., 55 F.3d 991, 993 (5th Cir. 1995).
The Bealls premised subject matter jurisdiction in the
district court upon 28 U.S.C. § 1346. Section 1346(a)(1) provides
for original jurisdiction in the district courts over claims “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.” 28 U.S.C. § 1346. We have stated,
however, that section 1346, standing alone, is insufficient to
waive sovereign immunity. “Section 1346 is a general jurisdiction
statute that does not constitute a separate waiver of sovereign
immunity.” Schanbaum v. United States, 32 F.3d 180, 182 (5th Cir.
1994).
4
The Bealls’ complaint, however, references, among other
provisions, section 7422 of the Internal Revenue Code. In language
that mirrors section 1346, section 7422 provides for a civil action
for refund of certain wrongfully collected taxes.3 And although
section 1346 does not waive sovereign immunity by itself, when
coupled with a claim brought under section 7422, section 1346 does
provide the necessary waiver of immunity. See United States v.
Michel, 50 S.Ct. 284, 285 (1931); Schanbaum, 32 F.3d at 182(“Section 1346 operates in conjunction with 26 U.S.C. § 7422 to
provide a waiver of sovereign immunity in tax refund suits . . .
when the taxpayer has fully paid the tax and filed an
administrative claim for a refund.”).
The Bealls have fully paid the tax and interest at issue, and
have filed a claim for a refund with the IRS. If their claim for
a refund of unabated interest under 26 U.S.C. § 6404(e)(1),
therefore, is cognizable under section 7422, then sovereign
immunity presents no bar to the exercise of subject matter
jurisdiction.
3
Section 7422 provides for the recovery of “any internal
revenue tax alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected.” 26 U.S.C. §
7422(a).
Section 7422's reference to “any internal revenue tax” also
encompasses interest assessed on an owed tax. See 26 U.S.C. §
6601(e)(1) (providing that “[a]ny reference” in the Internal
Revenue Code “to any tax imposed by this title shall be deemed
also to refer to interest imposed by this section on such tax”).
5
The Government’s claim of immunity thus requires us to address
the compass of section 7422 with an eye to determining whether it
can accommodate the Bealls’ interest abatement claim. According to
the Government it cannot, and a claim for abatement of interest,
therefore, cannot be brought as a claim for a refund under section
7422. The language of the statute, however, is not susceptible to
so limited a construction, and we decline to give it such.
Section 7422 permits a claim for a refund not only for
“erroneously or illegally assessed” taxes, but also for “any sum
alleged to have been excessive or in any manner wrongfully
collected.” 26 U.S.C. § 7422. Whether the Bealls’ abatement claim
is cognizable under section 7422, thus requires the resolution of
two questions: (1) whether the phrase “any sum,” includes unabated
interest charged on income taxes owed; and if so, (2) whether the
phrase “excessive or . . . wrongfully collected” includes a sum of
interest that the IRS has refused to abate in accordance with 26
U.S.C. § 6404.4 We answer both questions in the affirmative, and
4
Section 6404, as amended by the Taxpayer Bill of Rights
II, see Pub. L. No. 104–168, § 301(a), 110 Stat. 1452 (1996),
permits the Secretary of the Treasury to abate interest charged
against a taxpayer, and provides in relevant part
“(e) Abatement of interest attributable to unreasonable
errors and delays by Internal Revenue Service.—
(1) In general.—In the case of any assessment of
interest on—
(A) any deficiency attributable in whole or
in part to any unreasonable error or delay by an
officer or employee of the Internal Revenue
Service (acting in his official city) in
performing a ministerial or managerial act, or . .
6
conclude, therefore, that a claim for a refund of unabated interest
is cognizable under section 7422 and is not barred by sovereign
immunity.
The Supreme Court has long since indicated that the phrase
“any sum” likely encompasses a claim for interest. Thus in
construing identical language in section 1346, the Court noted that
“‘any sum,’ instead of being related to ‘any internal-revenue tax’
and ‘any penalty,’ may refer to amounts which are neither taxes nor
penalties,” and that “[o]ne obvious example of such a ‘sum’ is
interest.” See Flora v. United States, 80 S.Ct. 630, 633 (1960).
A claim for abatement of interest, however, differs from the
prototypical claim for refund of taxes and interest under section
7422. The archetypal refund claim is a claim that the taxpayer
never owed the underlying tax. See United States v. Williams, 115
S.Ct. 1611, 1616 (1995) (noting that section 1346(a)(1) displaced
the common-law remedy of assumpsit for money had and received, a
remedy that afforded relief to taxpayers who “had paid money they
did not owe—typically as a result of fraud, duress, or mistake”);
see, e.g., Your Insurance Needs Agency, Inc. v. United States, 274
F.3d 1001 (5th Cir. 2001) (addressing a refund claim for tax
overpayments). A claim for the refund of interest that the
.
The Secretary may abate the assessment of all or any
part of such interest for any period.” 26 U.S.C. §
6404(e)(1) (2002).
7
taxpayer argues should have been abated, on the other hand, is not
a claim to recover money that was paid but never owed, but is a
claim that interest, otherwise legitimately assessed, could have
been less had the IRS not unreasonably delayed in the performance
of a ministerial or managerial task. See 26 U.S.C. § 6404(e)(1).
That a claim for abatement of interest is not identical to an
action in assumpsit or a refund claim challenging the validity of
the underlying tax, however, does not necessarily establish that an
abatement claim cannot be prosecuted under section 7422. Section
7422 is a statutory remedy, and is not confined to the limits of
its common-law ancestor. See, e.g., Flora, 80 S.Ct. at 635 (noting
that since 1862, an action for refund ceased to be regarded as a
common-law action, “but rather as a statutory remedy which ‘in its
nature [was] a remedy against the Government”) (quoting Curtis’s
Adm’x v. Fiedler, 67 U.S. (2 Black) 461, 479 (1862)). It is the
language of section 7422 that must control, language that in
referring broadly to “any sum,” would by its terms appear to
accommodate a claim for the abatement of interest.
Finally, we note that our decision in Paretto v. Usry, 295
F.2d 499 (5th Cir. 1961), supports the conclusion that section 7422
may accommodate a claim for the refund of unabated interest. In
Paretto, a taxpayer who had been penalized for failing to withhold
excise taxes on behalf of his customers, brought an action, citing
section 6404, for the abatement of assessed taxes and penalties.
8
Id. at 499. Although we affirmed the dismissal of the taxpayer’s
action for equitable relief, we noted that the taxpayer’s
appropriate course of action would have been to pay the taxes and
penalties, and then to challenge the tax through the normal “pay
and sue” provisions of section 7422. Id. at 501–02. We read
Paretto, therefore, as supporting the proposition that a cause of
action under section 7422 encompasses a claim for abatement of
interest under section 6404(e)(1). See also Magnone v. United
States, 733 F.Supp. 613 (S.D.N.Y. 1989) (indicating that a claim
under 6404(e)(1) could have proceeded as a claim for a refund under
section 7422, had the plaintiffs complied with the payment
requirements of that section). Accordingly, we decline to restrict
section 7422 as the Government suggests, and instead find that the
phrase “any sum,” thus unmoored from its common-law origins, is
copious enough to encompass a claim for refund of unabated
interest.
Having answered the first question—whether the phrase “any
sum” includes unabated interest charged on income taxes owed—in the
affirmative, we now turn to the second, and conclude that the
phrase “excessive or . . . wrongfully collected” includes interest
charges that the IRS abused its discretion in refusing to abate
pursuant to 26 U.S.C. § 6404(e)(1).
As we did above, in interpreting a statute, we look first to
its plain language. See Moore v. Cain, 298 F.3d 361, 366 (5th Cir.
9
2002). Excessive is defined as “exceeding the usual, proper, or
normal.” WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 792 (1961) (emphasis
added). See also 5 OXFORD ENGLISH DICTIONARY 501 (2d ed. 1999)
(“Exceeding what is right, proportionate, or desirable; immoderate,
inordinate, extravagant.”).5 The question thus becomes whether the
denial of a request for abatement of interest, where that denial
amounts to an abuse of discretion, is either not proper, or results
in the collection of a sum of interest that so exceeds the usual or
normal as to be considered excessive.
An abuse of discretion necessarily occurs where an act can
only be described as clearly improper. See, e.g., United States v.
O’Neill, 709 F.2d 361, 372 n.11 (5th Cir. 1983) (equating an
improper decision with an abuse of discretion). Thus, where a
refusal to abate interest amounts to an abuse of discretion, we may
conclude that that refusal is improper, and the improperly unabated
interest therefore excessive. In other words, any time that the
Secretary should commit an abuse of discretion in denying a request
for an abatement, the Secretary has assessed an improper, and
therefore an excessive sum. Thus we also answer in the affirmative
our second question—whether the phrase “excessive or . . .
wrongfully collected” includes a sum of interest that the IRS has
5
The Supreme Court has applied an identical definition of
the term “excessive” in the context of the Excessive Fines
Clause. See United States v. Bajakajian, 118 S.Ct. 2028,
2036–2037 (1998) (“Excessive means surpassing the usual, the
proper, or a normal measure of proportion.”).
10
improperly refused to abate in accordance with 26 U.S.C. § 6404.
Having determined that the phrase “any sum” includes a sum of
unabated interest, and that the phrase “excessive . . . or
wrongfully collected” includes the denial of a request for
abatement where that denial amounts to an abuse of discretion, we
conclude that an interest abatement claim is cognizable under
section 7422, and that sovereign immunity over such claim is waived
by operation of sections 7422 and 1346. We therefore join our
sister circuits in holding that a “taxpayer[’s] cause of action,
alleging that [he] paid excessive interest charges because the IRS
abused its discretion in refusing to abate interest pursuant to
I.R.C. § 6404(e)(1), falls within the district court’s jurisdiction
to decide cases regarding ‘any sum alleged to have been excessive
. . . under the internal-revenue laws.’” Selman v. United States,
941 F.2d 1060, 1062 (10th Cir. 1991); accord Argabright v. United
States, 35 F.3d 472 (9th Cir. 1994) (declining to review an
interest abatement claim, but exercising subject matter
jurisdiction over that claim); Horton Homes, 936 F.2d 548, 550
(11th Cir. 1991) (same).
B. Review of Section 6404(e)(1) Denials
That the district court possessed the power to hear the
Bealls’ claim, however, merely begins our inquiry; it does not
establish whether the denial of the Bealls’ request for abatement
of interest is subject to judicial review.
11
Under the Administrative Procedure Act (APA), final agency
decisions are generally susceptible to judicial review. Section
701(a) of the APA, however, proscribes review in two narrow
situations, namely where “(1) statutes preclude judicial review; or
(2) agency action is committed to agency discretion by law.” 5
U.S.C. § 701(a)(1), (2). Based on these limitations, each circuit
to address the issue prior to 1996 determined that the decision to
grant an abatement under section 6404(e)(1) was not subject to
judicial review. See Argabright, 35 F.3d at 476; Selman, 941 F.2d
at 1064; Horton Homes, 936 F.2d at 554.
Proceeding from section 701 of the APA, those circuits
concluded that the permissive language of section 6404(e)(1), as
well as the absence in that section of any substantive standards by
which a court might review an agency action, precluded judicial
review. See Argabright, 35 F.3d at 475–476 (citing Horton Homes
and Selman). In further support of this position, each circuit
also examined the legislative history of section 6404, noting the
absence of any substantive standards for review in the legislative
history, as well as language in the House and Senate reports noting
that section 6404(e)(1) “gives the IRS the authority to abate
interest but does not mandate that it do so.” Id. at 476.
Accordingly, all three ultimately agreed that “the language,
structure and legislative history of I.R.C. § 6404(e)(1)
indicate[d] that Congress meant to commit the abatement of interest
12
to the Secretary’s discretion,” and that section 701(a)(2) barred
judicial review. Selman, 941 F.2d at 1064.6
Congress, however, has since amended section 6404. As part of
the passage in 1996 of the Taxpayer Bill of Rights II, see Pub. L.
No. 104–168, 110 Stat. 1452 (codified as amended in scattered
sections of 26 U.S.C.), Congress approved a number of amendments to
section 6404 that are relevant to our analysis of the present case.
First, with respect to section 6404(e)(1), Congress added
“unreasonable” to modify the words “error or delay,” and added “or
managerial act,” where before only “ministerial act” had appeared.
See id. at § 301(a)(2). The current version of section 6404(e)(1),
therefore, now provides:
“(e) Abatement of interest attributable to unreasonable
errors and delays by Internal Revenue Service.—
(1) In general.—In the case of any assessment of
interest on—
(A) any deficiency attributable in whole
or in part to any unreasonable error or
delay by an officer or employee of the
Internal Revenue Service (acting in his
official capacity) in performing a
ministerial or managerial act, . . .
The Secretary may abate the assessment of all
or any part of such interest for any period.”
26 U.S.C. § 6404(e)(1) (2002).
6
Of the three opinions, only one, Horton Homes, concluded
that review of the abatement decision was prohibited by §
701(a)(1) as well as § 701(a)(2). See Horton Homes, 936 F.2d at551–552. The Selman court found that the language of §
6404(e)(1) did not expressly preclude judicial review, see
Selman, 941 F.2d at 1063, and the Argabright court, having found
review precluded by § 701(a)(2), did not address the
applicability of § 701(a)(1).
13
Second, Congress provided for review in the Tax Court of the
Secretary’s decision to deny a request for the abatement of
interest. See Pub. L. No. 104–168, § 302, 110 Stat. 1457–1458
(1996). Thus, the current section 6404(h)7 provides, in part, that
“The Tax Court shall have jurisdiction over any action
brought by a taxpayer who meets the requirements referred
to in section 7430(c)(4)(A)(ii) to determine whether the
Secretary’s failure to abate interest under this section
was an abuse of discretion, and may order an abatement,
if such action is brought within 180 days after the date
of the mailing of the Secretary’s final determination not
to abate such interest.” 28 U.S.C. § 6404(h).
The statutory landscape in which we address the Bealls’ claim
for interest abatement is thus substantially different from the one
facing the Horton Homes, Selman, and Argabright courts. And
though, were we to address today the same issue that faced those
courts, we would most likely, and for the same reasons, conclude
that judicial review of the Secretary’s decision to deny an
abatement request is barred, our decision now must be guided
instead by the above 1996 amendments.8 We cannot merely adopt the
7
Section 6404(h) has not been substantively amended since
its passage in 1996. Its designation, however, has changed
twice. The current § 6404(h) was initially designated § 6404(g).
It was redesignated 6404(i) by the IRS Restructuring and Reform
Act of 1998. Thus, from 1998 until 2002, it appeared in the
United States Code as 26 U.S.C. § 6404(i). In 2002, Public Law
Number 107–134, § 112(d)(1) repealed the former subsection (h)
and designated then subsection 6404(i) as subsection (h), the
designation it currently holds.
8
The Bealls attack, in a number of places in their brief,
the soundness of the decisions in Horton Homes, Selman, and
Argabright that the denial of a request for abatement before 1996
was, in fact, wholly discretionary and unreviewable. This
14
reasoning of the Horton Homes line of cases, but must construe, as
a matter of first impression, the effect of the 1996 changes to
section 6404.
Having reviewed those changes, we find that in amending
section 6404, Congress clearly expressed its intent that the
decision to abate interest no longer rest entirely within the
Secretary’s discretion. See Miller v. Commissioner of Internal
Revenue, 310 F.3d 640, 643 (9th Cir. 2002) (recognizing that
“Argabright’s holding that judicial review is not available for IRS
decisions pursuant to § 6404(e)(1) . . . has been undermined by
subsequent legislation and, to that extent, is no longer good
law.”). We need look no further for support for this conclusion
than the simple addition of section 6404(h) granting jurisdiction
to the Tax Court to review that decision. Indeed, the vesting of
jurisdiction in the Tax Court to review interest abatement
challenges can be given no meaning other than that the abatement
decision is no longer committed solely to agency discretion.
question, however, is now not before us. Moreover, that issue
apparently was resolved contrary to the Bealls’ position by our
unpublished opinion in Maloney v. United States, 95-2 U.S.T.C. ¶
50,441 (No. 94-30609, 5th Cir. July 13, 1995), in which we
affirmed without statement of reasons the district court’s
unpublished decision in Maloney v. United States, 94-2 U.S.T.C. ¶
50,484 (civil No. 94-0602, E.D. La. Sept. 6, 1994). Although our
opinion there does not so reflect, the district court’s opinion
in Maloney relied on Horton Homes and Selman and held “the Court
is without authority to review plaintiff’s claim that the IRS
should have abated the assessment of interest under 28 U.S.C. §
6404(e)(1).” Unpublished opinions issued before January 1, 1996,
are precedent. Fifth Cir. Rule 47.5.3.
15
Accordingly, we cannot say that either section 701(a)(2) of the
APA, or the absence of manageable standards of review generally,
any longer precludes judicial review of the denial of a request for
the abatement of interest.9
C. Exclusive Jurisdiction in the Tax Court
Having concluded that the decision to abate interest no longer
rests entirely with the Secretary, the question remains whether
review of that decision is limited to the Tax Court, or whether
review is also available in federal district court. Thus, although
both parties concede, as they must, that review of the Secretary’s
decision is now available in the Tax Court, the Government
9
Although we hold that Congress has indicated that the
decision to abate interest is no longer committed entirely to
agency discretion, and that judicial review of that decision is
no longer barred by § 701(a)(2) of the APA, because we also hold
that a claim for a refund of unabated interest is cognizable
under I.R.C. § 7422, see supra Part II(A), we note that our
discussion of § 701(a)(2) should not be read as sanctioning the
use of the APA as a vehicle for bringing a challenge to a
decision of the Secretary under § 6404(e)(1). “Congress did not
intend the general grant of review in the APA to duplicate
existing procedures for review of agency action.” Bowen v.
Massachusetts, 108 S.Ct. 2722, 2736 (1988). And review under the
APA is accordingly available only where “there is no other
adequate remedy in a court.” 5 U.S.C. § 704; see Poirier v.
Commissioner, 299 F.Supp. 465, 466 (La. 1969) (denying relief
under the APA where taxpayers had an adequate remedy under the
I.R.C.); see also Town of Sanford v. United States, 140 F.3d 20,
23–24 (1st Cir. 1998) (denying relief under the APA for the
recovery of taxes lost when the United States obtained a
forfeiture judgment against a local taxpayer where the plaintiff
town had the available remedy of moving to reopen a forfeiture
decree); New York City’s Employee Ret. Sys. v. Securities and
Exchange Commission, 45 F.3d 7, 14 (1995) (refusing to entertain
a claim for relief under the APA where the plaintiffs had an
available alternative remedy under Rule 14a-8).
16
maintains that the grant of jurisdiction in section 6404(h) to the
Tax Court is exclusive, and that the district court is, therefore,
without power to hear a claim under section 6404(e)(1). We do not
agree.
Unlike our conclusion that the Secretary’s abatement decision
is no longer discretionary, determining whether Congress intended
for the jurisdictional grant in section 6404(h) to be exclusive
requires us to delve further into the legislative history of
section 6404 than merely noting the simple fact of section
6404(h)’s enactment.
The House report accompanying the 1996 Taxpayer Bill of Rights
indicates that Congress was aware of the Horton Homes line of
cases. In describing the pre-1996 state of the law governing the
review of interest abatement denials, the report notes that
“[f]ederal courts generally do not have the jurisdiction to review
the IRS’s failure to abate interest.” See H.R. REP. NO. 104–506, at
28 (1996). From this statement, the Government argues that because
Congress was aware that federal courts would not review the
Secretary’s decision under section 6404(e)(1), the decision to
grant jurisdiction only to the Tax Court must mean that Congress
chose not to extend jurisdiction to the district courts.10
10
The Government is not alone in advancing this position.
Rather, at least three district courts, in addition to the court
below, have been persuaded by identical reasoning. See Kraemer
v. United States, 89 A.F.T.R.2d 2002-1796 (S.D. Tex. 2002)
(“Congress first acknowledged the district courts’ powerlessness
17
There are, however, a number of problems with the Government’s
argument. First, it ignores the basis for the decisions in the
Horton Homes line of cases. Those decisions denied review not
because the district courts lacked subject matter jurisdiction over
the taxpayers’ claims,11 but because the then extant version of
section 6404(e)(1) committed the decision to abate interest to
agency discretion. See Argabright, 35 F.3d at 476; Selman, 941
F.2d at 1064; Horton Homes, 936 F.2d at 554. In other words, the
federal district courts have always possessed jurisdiction over
challenges brought to section 6404(e)(1) denials, they simply
determined that the taxpayers had no substantive right whatever to
a favorable exercise of the Secretary’s discretion (at least absent
unfavorable exercise on an unconstitutional basis, Horton Homes at
to review abatement decisions and then granted the Tax Court,
alone, that jurisdictional power. This is the only plausible
reading of 26 U.S.C. § 6404[h].”); Davies v. United States, 124
F.Supp.2d 717, 720 (D. Me. 2000) (“Congress, in enacting section
[6404(h)], was well aware of, and intended to leave undisturbed,
the Argabright line of cases—i.e., that it expected that federal
district courts would not undertake [review of interest abatement
claims].”); Henderson v. United States, 95 F.Supp.2d 995 (E.D.
Wis. 2000).
11
The Government’s entire jurisdictional argument on this
point, therefore, is constructed on a false premise, namely that
the Horton Homes, Selman, and Argabright courts did not have
subject matter jurisdiction over interest abatement claims. In
so doing, the Government merely compounds the committee report’s
misuse of the term “jurisdiction.” See, e.g., Steel Co. v.
Citizens for a Better Environment, 118 S.Ct. 1003, 1010 (1998)
(“‘Jurisdiction,’ it has been observed, ‘is a word of many, too
many, meanings.’”) (quoting United States v. Vanness, 85 F.3d
661, 663 n.2 (D.C. Cir. 1996)).
18
554). As we concluded above, however, in amending section
6404(e)(1) and in enacting section 6404(h), Congress indicated that
such is no longer the case, and thereby removed any impediment to
district court review of section 6404(e)(1) claims.
Not only did Congress remove the barrier to district court
review recognized in the Horton Homes cases,12 but Congress nowhere
stated in the 1996 amendments that the district courts did not have
jurisdiction to review interest abatement denials. On the
contrary, the House committee report clearly states that “[n]o
inference is intended as to whether under present law any court has
jurisdiction to review IRS’s failure to abate interest.” See H.R.
REP. NO. 104–506, at 28 (1996).13
Viewed against a proper reading of the Horton Homes cases,
therefore, the Government’s argument essentially becomes a claim
12
There can be no question but that the IRS’s denial of a
request for the abatement of interest is now reviewable. See
Taylor v. Commissioner, 113 TC 206 (1999) (reviewing the denial
of a request for an abatement); Lee v. Commissioner, 113 TC 145
(1999) (same). See also Miller, 310 F.3d at 643.
13
The Government would have us read this language as an
expression of Congress’s intent to leave pre-1996 case law in
effect. The more natural reading of the committee’s statement,
however, takes it simply at face value: that Congress intended to
make no statement regarding the existence of jurisdiction in the
district courts or the applicability under the new law of the
Horton Homes line of cases. Moreover, if Congress did intend to
leave pre-1996 case law in effect, such a reading would not
advance, but would actually undermine the Government’s position,
i.e., it would follow from the fact that the district courts did
have jurisdiction over § 6404 claims before 1996, that the
district courts would continue to have jurisdiction over those
claims after 1996.
19
that Congress, in granting jurisdiction to the Tax Court to review
interest abatement denials, impliedly repealed the district court’s
existing jurisdiction to review the same. Repeals by implication,
however, are disfavored. See Traynor v. Turnage, 108 S.Ct. 1372,
1381 (1988); Jackson v. Stinnett, 102 F.3d 132, 135 (5th Cir. 1996)
(“It is hornbook law that ‘repeals by implication are not
favored.’”) (quoting Crawford Fitting Co. v. J.T. Gibbons, Inc.,
107 S.Ct. 2494, 2497 (1987)). And there is nothing in the grant of
jurisdiction to the Tax Court in section 6404(h) that would
preclude review in federal district court. Moreover, as observed
above, the House report clearly noted that Congress’s grant of
jurisdiction was not to be read as a statement regarding the
existence vel non of jurisdiction in the district courts.14 Indeed,
14
We realize that our conclusion that the Taxpayer Bill of
Rights II was not intended to preclude the exercise of district
court jurisdiction to hear abatement claims is undermined
somewhat by certain material reprinted in the Congressional
Record at the request of Senator Bryan, a co-sponsor of the bill
in the Senate that ultimately became the Taxpayer Bill of Rights
II. That material includes the following explanation of §
6404(h):
“[Taxpayer Bill of Rights II] will provide that
for qualified small taxpayers, as defined in section
7430(c)(4)(A)(ii), the Secretary must abate or refund
interest when the IRS has made an unreasonable error or
delay. This will allow courts to review the IRS
determination on the abatement of interest issue for
small taxpayers. For nonqualified ‘larger’ taxpayers,
courts will still not be allowed to review the IRS
determination on the interest abatement issue . . . .”
141 CONG. REC. S1370–1371 (1995) (material appended to
statement of Sen. Bryan).
This isolated statement, however, does not alter our
conclusion that the 1996 amendments to § 6404 do not deprive the
20
rather than reading the grant of jurisdiction to the Tax Court as
implying the absence of jurisdiction in the district court, the
more natural interpretation of section 6404(h) is that Congress
simply chose to extend concurrent jurisdiction to the Tax Court
over a certain class of claims.15
We also find persuasive the Bealls’ argument that reading the
grant of jurisdiction to the Tax Court as exclusive of jurisdiction
district courts of jurisdiction to hear challenges to the IRS’s
failure to abate interest. First, Senator Bryan’s statement is
contradicted by remarks made on the same day by a fellow co-
sponsor of the bill in the Senate. In the same portion of the
Congressional Record, Senator Pryor noted that the Taxpayer Bill
of Rights II will both “require the IRS to abate interest when it
has made an unreasonable error or delay, and enable the courts
the power to review the interest abatement determination.” 141
CONG. REC. S1369 (1995) (statement of Sen. Pryor)(emphasis added).
Second, the House report, see supra text accompanying note 14,
which unlike Senator Bryan’s 1995 statement was prepared in 1996
at the time the bill was enacted into law, expressly declined to
make any statement regarding the availability of review of the
abatement issue in the district court. See H.R. REP. NO. 104–506,
at 28 (1996) (warning that “[n]o inference is intended as to
whether under present law any court has jurisdiction to review
IRS’s failure to abate interest.”). And third, and most
important, the language of § 6404(h) nowhere indicates that
district court review of the abatement issue is not available,
nor is there any indication that the grant of jurisdiction to the
Tax Court is in any way inconsistent with the availability of
district court review.
15
Section 6404(h) only grants the Tax Court jurisdiction
over a limited class of claims. The claimant must bring an
action within 180 days after the mailing of notice of the
Secretary’s decision not to abate interest, and the claimant must
be an individual taxpayer whose net worth does not exceed
$2,000,000 at the time the action is filed, or a business,
corporation, or partnership of less than 500 employees, whose net
worth does not exceed $7,000,000 at the time the action is filed.
See 26 U.S.C. §§ 6404(h); 7430(c)(4)(A)(ii).
21
in the federal district courts, would be inconsistent with the
general structure of the Internal Revenue Code and the
jurisdictional limitations of the Tax Court.
Though the federal district courts have jurisdiction generally
over suits for the refund of taxes, see 28 U.S.C. § 1346, that
jurisdiction is available only where the taxpayer first pays the
entire amount of the disputed tax. See Flora v. United States, 80
S.Ct. 630, 646–647 (1960). The Board of Tax Appeals, the
predecessor of the Tax Court, on the other hand, was established by
Congress to relieve taxpayers of the burdens of pre-payment and to
permit them to obtain a determination of their tax liability before
paying any deficiency. Id. at 637, 638.16 Accordingly, the Tax
Court, as a statutory court of limited jurisdiction, possesses
“only such power to adjudicate controversies as is conferred upon
it by the Internal Revenue Code.” Continental Equities, Inc. v.
Commissioner, 551 F.2d 74, 79 (5th Cir. 1977). “It does not have
the authority to order that a refund be given, or to review the
Commissioner’s denial of a refund claim.” Id. And a specific
grant of jurisdiction, such as section 6404(h), is thus necessary
for the Tax Court to exercise any jurisdiction.
The same is not true of the district court’s refund
jurisdiction. Having removed the impediment to district court
16
The Board of Tax Appeals was thus a particular help to
those “small” taxpayers who would be less likely to be able to
make prepayment of their IRS determined tax liability.
22
review identified in Horton Homes by indicating that the IRS’s
decisions on requested interest abatement were not merely matters
of administrative grace and that denials were subject to
substantive challenge, it was not necessary for Congress to provide
for a specific grant of jurisdiction to hear abatement denials. To
read a grant of jurisdiction to the Tax Court to hear an interest
abatement claim, as exclusive would be to read too much into
section 6404(h).
Finally, we note that to deny district court jurisdiction to
hear claims under section 6404(e)(1) would result in two anomalies.
First, only certain taxpayers, namely those who meet the net worth
requirements found in section 6404(h), would be able to seek
judicial review of the IRS’s failure to abate interest. Those
taxpayers whose net worth exceeds the limits found in section
6404(h), would be left entirely without recourse. Second, denying
district courts the power to hear claims under section 6404(e)(1)
would force certain plaintiffs to split their abatement claims from
their refund claims, and force them to seek relief in two courts.
Thus, a plaintiff who chose to pay his tax liability first and sue
in district court under 28 U.S.C. § 1346, would not be able to
bring, at the same time, a challenge to the IRS’s failure to abate
interest already collected. Instead, that taxpayer would have to
sever his interest abatement claim from his refund claim and pursue
the abatement claim separately in the Tax Court. Such splitting of
23
claims is generally considered undesirable, see, e.g., In re Super
Van, Inc., 92 F.3d 366, 371 (5th Cir. 1996) (discussing rule
against claim-splitting), and we cannot conclude, absent some
indication to the contrary, that Congress would have intended such
a result.
For these reasons, we cannot conclude that the grant of
jurisdiction to the Tax Court in section 6404(h) was meant to
preclude the exercise of district court jurisdiction over interest
abatement claims.
D. Ministerial or Managerial Act
Finally, the Government argues that even if the district court
erred in dismissing the Bealls’ complaint for lack of subject
matter jurisdiction, dismissal was nevertheless warranted as the
interest at issue did not accrue as a result of any IRS error or
delay in performing a ministerial act.
The district court, however, dismissed the Bealls’ complaint
without addressing this issue. And because we conclude that this
issue is best addressed in the first instance in the district
court, we decline to address it here.
Conclusion
After examining the legislative history of 6404(e)(1) and (h),
we cannot conclude that Congress meant for the Tax Court’s
jurisdiction to hear section 6404(e)(1) claims to be exclusive.
Nor can we conclude that sovereign immunity operates to bar relief
24
in the district courts for a claim for the abatement of interest
brought under section 7422.
For these reasons, we find that the district court did have
jurisdiction to hear the Bealls’ claim for interest abatement. We
accordingly REVERSE the judgment of the district court, and REMAND
for proceedings consistent with this opinion.
REVERSED and REMANDED.
25