Geoffrey Willson v. Commissioner of IRS , 805 F.3d 316 ( 2015 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 24, 2015 Decided November 6, 2015
No. 14–1109
GEOFFREY KENNETH WILLSON,
APPELLANT
v.
COMMISSIONER OF INTERNAL REVENUE SERVICE,
APPELLEE
On Appeal from the Order of
the United States Tax Court
Geoffrey K. Willson, pro se, argued the cause and filed
briefs for the appellant.
Clint A. Carpenter, Attorney, United States Department of
Justice, argued the cause for the appellee. Tamara W.
Ashford, Acting Assistant Attorney General, Michael J.
Haungs and John A. Nolet, Attorneys, were on brief. Kenneth
W. Rosenberg, Attorney, entered an appearance.
Before: HENDERSON, KAVANAUGH and PILLARD, Circuit
Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
2
KAREN LECRAFT HENDERSON, Circuit Judge: Due to a
clerical error by the Internal Revenue Service (IRS), Geoffrey
Willson received his 2006 income tax refund twice. When the
IRS sought to recover the erroneous refund by levy, Willson
challenged the collection efforts first in an IRS administrative
proceeding, then in the tax court. At the tax court stage, the
IRS changed course; it conceded the levy was an improper
collection method, zeroed out Willson’s disputed tax liability
and moved to dismiss the case as moot. Willson, however,
objected to dismissal. He had paid $5,100 to the IRS during
the course of the administrative proceedings and, in his view,
he is entitled to a return of these funds. He maintains that this
continuing controversy precludes dismissal on mootness
grounds. The tax court rejected this contention and so do we.
For the following reasons, we affirm the tax court’s dismissal
of Willson’s case as moot.
I.
Breathing life into the adage that no good deed goes
unpunished, Willson’s tax troubles began when he overpaid
his 2004 federal income taxes by more than $28,000. Rather
than seek a refund of the overpayment, Willson elected on his
2004 tax return to apply the credit forward to cover his future
tax liability. The 2004 overpayment credit more than covered
Willson’s 2005 tax liability so that, when it came time for
Willson to file his 2006 tax return, a total overpayment credit
of $13,193.55 remained. On his 2006 return, Willson
reported a $0.00 tax liability and an additional $30.00 tax
credit, leaving a $13,223.55 overpayment credit at his disposal.
Willson again forwent a refund and elected to apply the entire
overpayment credit to his 2007 taxes.
When he filed his 2007 tax return, Willson took a different
approach to the overpayment credit from the one he had
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followed the previous three years. Instead of continuing to
apply the full amount ($13,223.55) forward to 2008, he
requested that the IRS refund him $10,000. The remainder
was to be applied to any liabilities for both 2007 and future
years.
Unfortunately, the IRS bungled Willson’s 2006 and 2007
requests. First, when it processed Willson’s 2006 return, it
did not carry the overpayment credit forward to 2007 as
Willson requested; rather, it sent Willson a $13,223.55 refund
check. This should have zeroed out the overpayment credit,
leaving Willson liable for his 2007 taxes. But when the IRS
processed the 2007 return, it again counted the $13,223.55
credit. In accordance with Willson’s request, it applied the
credit against his 2007 taxes and then directly deposited the
$10,000 refund Willson requested, plus an additional $600 tax
relief credit and interest in the amount of $85.48. Willson
thus received from the IRS both a $13,223.55 check and a
$10,685.48 direct deposit.
Eventually realizing its mistake, the IRS moved to correct
it. It entered an overpayment credit reversal on Willson’s
2006 tax account, effectively creating a new 2006 tax liability
of $13,193.55, and in March 2011 sent Willson final notice that
it intended to levy on his property to recover the amount of the
new liability in full. In response, Willson requested a
Collection Due Process (CDP) hearing to challenge the
proposed levy before a neutral IRS hearing officer. The IRS
Appeals Office obliged, holding a hearing over the ensuing
months via telephone and exchange of written correspondence.
While Willson’s CDP hearing progressed, the plot
thickened. First, the IRS processed Willson’s 2009 tax return.
The return reported a total overpayment credit (continuing
from 2007 and 2008) of $2,206.55. On March 30, 2010, the
4
IRS had also received from Willson a $100 payment that it
applied toward his 2009 taxes. The IRS thus credited Willson
with $2,306.55 in total overpayments for the 2009 tax year.
Rather than refunding this amount or applying it to the next tax
year, the IRS applied the overpayment to partially offset
Willson’s newly created 2006 liability. Then, Willson
apparently realized for the first time that he had in fact received
a double refund. On May 24, 2011, Willson sent a letter to an
IRS representative acknowledging that he had received more
than he was due. He believed the overpayment was “in the
region of about $10,000.00” and enclosed a $5,000 check with
the letter, stating that the payment was “not as payment for the
2006 demands which are clearly errors but as an immediately
affordable amount to begin returning an overpayment made
entirely as an IRS error.” Ltr. from Geoffrey K. Willson to
Joy Wannamaker, IRS Case Advocate 2 (May 24, 2011). He
also offered to pay another $6,000 over three years.
Largely ignoring Willson’s proposed compromise, on July
6, 2012, the IRS Appeals Office issued its final “Notice of
Determination” sustaining the proposed levy action. As of
that date, approximately $6,000 remained subject to levy—the
balance of the 2006 assessment ($13,193.55), less the amount
the IRS had already “recovered” from Willson ($7,306.55,
consisting of Willson’s $5,000 payment and the $2,306.55
offset from Willson’s 2009 tax return).
Willson appealed the IRS determination to the tax court.
There, the IRS conceded that under relevant law it was not
permitted to collect Willson’s erroneous refund by creating a
new 2006 assessment; rather, its only options to recover the
refund were to (1) pursue an erroneous refund suit under 26
U.S.C. § 7405, for which the two-year statute of limitations
had already expired; (2) accept voluntary repayment from
Willson or (3) exercise its common-law right to offset a debt
5
owed to the government with a debt owed to the taxpayer so
long as it did so within two years of the date of the refund.
Because it had created the 2006 assessment improperly, the
IRS abated the assessment, leaving a zero dollar balance on
Willson’s 2006 tax account. It also determined that it was
time barred from using its set-off power to retain the
overpayment Willson reported on his 2009 tax return
($2,206.55) and refunded that amount to Willson. Because
neither an unpaid liability nor a pending levy action remained
for the tax court to review, the IRS moved to dismiss the case
as moot.
Willson, appearing pro se, objected to dismissal.
Although the IRS refunded the portion of the 2009
overpayment set off ($2,206.55) sent more than two years after
the date of the erroneous refund, the IRS did not refund the
$100 tax payment Willson sent in March 2010—within two
years of the erroneous refund. Furthermore, the IRS retained
the $5,000 repayment it claimed Willson had sent voluntarily
in May 2011. Willson argued that the tax court had the power
to order repayment of funds collected on a wrongful
assessment; he therefore demanded repayment of the $5,100
the IRS retained and filed a motion on the pleadings to that
effect. The tax court rejected his arguments and, over
Willson’s continuing objection, dismissed the case as moot.
Willson timely appealed; our review is de novo. See Gaughf
Props., L.P. v. Comm’r, 738 F.3d 415, 420 (D.C. Cir. 2013).
II.
If an actual case or controversy ceases to exist during the
course of tax court proceedings, the tax court must dismiss the
case as moot. Byers v. Comm’r, 740 F.3d 668, 679 (D.C. Cir.
2014) (because “there was no actual case in controversy[,] . . .
[t]here was no appropriate course of action for the Tax Court to
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take but to dismiss as moot the dispute”). Furthermore,
because the tax court possesses only “limited jurisdiction,”
Comm’r v. McCoy, 484 U.S. 3, 7 (1987) (per curiam), and may
exercise it “only to the extent expressly authorized by
Congress,” Greene-Thapedi v. Comm’r, 126 T.C. 1, 6 (2006),
the controversy must also fall within the court’s statutory grant
of jurisdiction. Thus, if a case raises a question within the
jurisdictional purview of the tax court, and that question is
subsequently resolved, the case is moot notwithstanding the
existence of other live controversies between the taxpayer and
the IRS that do not fall within the tax court’s jurisdiction. See,
e.g., Byers, 740 F.3d at 679 (affirming tax court’s dismissal of
claims for particular tax year as moot after rejecting taxpayer’s
argument that tax year “remained relevant to resolving the
case’s outcome”); Chocallo v. Comm’r, T.C.M. (RIA)
2004-152, 2004 WL 1435478, at *2–3 (2004) (dismissing case
as moot after IRS abated taxpayer’s liability notwithstanding
taxpayer’s claims for damages and request that IRS employees
who handled her case be criminally prosecuted).
At issue here is the tax court’s jurisdictional grant under
26 U.S.C. § 6330(d)(1). Section 6330 grants a taxpayer
certain notice and hearing rights before his property becomes
subject to levy; specifically, the IRS must provide the taxpayer
thirty days’ notice of the proposed levy action and of his right
to request a CDP hearing before a neutral IRS appeals officer.
Id. § 6330(a)–(b). During the CDP hearing, the taxpayer
“may raise . . . any relevant issue relating to the unpaid tax or
the proposed levy” and may challenge his “underlying tax
liability” if he did not receive statutory notice of deficiency or
“otherwise have an opportunity to dispute such tax liability.”
Id. § 6330(c)(2)(A)–(B). At the conclusion of the CDP
hearing, the IRS appeals officer makes a “determination”
regarding the legitimacy of the proposed levy and, if relevant,
the amount and/or existence of the unpaid tax liability. See id.
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§ 6330(c)(3). Section 6330(d)(1) allows the taxpayer to seek
review of the IRS determination in the tax court. See id.
§ 6330(d)(1). Specifically, the taxpayer may appeal a
“determination [under section 6330] to the Tax Court (and the
Tax Court shall have jurisdiction with respect to such matter).”
Id.
Willson asserts that his case is well within the scope of this
jurisdictional grant. He argues that the $5,100 the IRS
collected was to satisfy what it now admits was an incorrectly
assessed “underlying tax liability,” see id. § 6330(c)(2)(B);
accordingly, he believes that the tax court has the power to
review that liability and to order the IRS to return those funds.
In his view, this live controversy precludes dismissal on
mootness grounds.
We disagree. The IRS retained the $5,100 not to satisfy a
tax liability but to recover an erroneous refund sent as a result
of a clerical error. 1 The debt created by such an erroneous
refund is not a tax liability. See, e.g., O’Bryant v. United
States, 49 F.3d 340, 347 (7th Cir. 1995) (“[E]rroneous refunds
and tax liabilities are simply not of the same ilk.”); Pac. Gas &
Elec. Co. v. United States, 417 F.3d 1375, 1383 (Fed. Cir.
2005) (refunds sent due to clerical error “are owed to the
government by reason of unjust enrichment” instead of
“statutory obligation under the tax code to pay the
government”). As for Willson’s “underlying tax liability,”
there is none. The IRS has entirely abated the 2006 liability it
improperly assessed, returned the $2,206.55 it collected in
satisfaction of that improper liability and abandoned its levy.
1
Willson himself was well aware of this. Indeed, he was
adamant that his $5,000 payment not be characterized as a tax
payment but as a return of an erroneous refund. See Ltr. from
Geoffrey K. Willson to Joy Wannamaker, supra, at 2.
8
We encountered a similar case in Byers, 740 F.3d 668.
There, a taxpayer sought tax court review of an IRS levy action
covering several tax years. Id. at 674. In tax court, the IRS
admitted that it had unlawfully entered an assessment for the
tax year 2003 due to its failure to provide the taxpayer adequate
notice of deficiency. Id. To correct its mistake, the IRS
abated the assessment and abandoned the levy action for 2003.
Id. As a result, the tax court granted the IRS’s motion to
dismiss the 2003 claim as moot. Id. We affirmed the
dismissal, reasoning that the absence of a pending levy meant
that no case or controversy remained as to the 2003 tax year.
See id. at 679.
The same reasoning applies here. No unpaid tax liability
remains on Willson’s 2006 tax account. The IRS no longer
seeks to levy on his property. This is, in fact, the very relief
Willson ostensibly sought when he requested a CDP hearing to
challenge the proposed levy in the first place. Willson has
received all the relief that section 6330 authorizes the tax court
to grant him; if he is entitled to any other relief—with regard to
the disputed $5,100 or otherwise—he must seek it in district
court or in the Court of Federal Claims. 2 See 28 U.S.C.
2
The same is true of Willson’s claims that the IRS violated his
constitutional rights, the Ex Post Facto Clause and the constitutional
principle of separation of powers in pursuing a levy against him;
because the tax court has granted him all the relief to which he is
entitled under section 6330, those claims likewise belong in district
court or in the Court of Federal Claims.
Willson also contends that the case is not moot because he
has a claim for costs and attorney’s fees, but a plaintiff’s attorney’s
fees claim cannot of its own accord keep alive any merits claim that
would otherwise be moot. See Lewis v. Cont’l Bank Corp., 494
U.S. 472, 480 (1990); accord Johansen v. United States, 506 F.3d
65, 70 (1st Cir. 2007).
9
§ 1346(a)(1) (granting federal district court and Court of
Federal Claims original jurisdiction over actions for “recovery
of any internal-revenue tax”); 26 U.S.C. § 7422 (setting out
procedure for taxpayer refund suits); id. § 7433(a)–(b)
(granting right to bring suit against government for damages if
IRS collection action is unlawful). “With no levy being
placed upon [Willson’s] property[,] . . . there was no actual
case in controversy regarding [his] appeal of such a levy
action.” See Byers, 740 F.3d at 679. Accordingly, “[t]here
was no appropriate course of action for the Tax Court to take
but to dismiss as moot” Willson’s case. See id.
For the foregoing reasons, the judgment of the tax court is
affirmed.
So ordered.