Taha v. United States ( 2018 )

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
MOHAMAD E. TAHA, DECEASED, SANAA M.
YASSIN, HIS WIFE,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2018-1879
______________________
Appeal from the United States Court of Federal
Claims in No. 1:17-cv-01174-CFL, Judge Charles F.
Lettow.
______________________
Decided: December 14, 2018
______________________
SANAA M. YASSIN, Bradenton, FL, pro se.
JENNIFER MARIE RUBIN, Tax Division, United States
Department of Justice, Washington, DC, for defendant-
appellee. Also represented by MICHAEL J. HAUNGS,
RICHARD E. ZUCKERMAN.
______________________
Before REYNA, TARANTO, and HUGHES, Circuit Judges.
2 TAHA v. UNITED STATES
PER CURIAM.
Plaintiffs-Appellants pro se, Mohamad E. Taha (de-
ceased) and Sanaa M. Yassin, with the assistance of Mr.
Ali Taha, appeal the decision of the United States Court
of Federal Claims dismissing their income tax refund
claims for lack of subject-matter jurisdiction. For the
reasons discussed below, we affirm-in-part, vacate-in-
part, and remand.
BACKGROUND
Appellants seek a refund of $14,177 for federal income
taxes paid for the 2002 and 2003 tax years, plus interest
and legal costs. Between 2002 and 2004, Mr. M. Taha
was a 10% shareholder of Atek Construction, Inc.
(“Atek”), a California S Corporation, but had no direct role
in its operations. Mr. M. Taha earned shareholder income
of $85,010 in 2002 and $77,813 in 2003. Appellants assert
that Mr. M. Taha received only $20,000 of that income
from Atek during those years. Mr. M. Taha passed away
in 2007.
Appellants filed their 2002 and 2003 tax returns with
the Internal Revenue Service (“IRS”) on April 3, 2003 and
April 14, 2004, respectively, paying the tax due on the full
amount of the reported shareholder income for each year.
Both returns reported Mr. M. Taha’s shareholder income
from Atek as his only income. Appellants did not file a
tax return for the 2004 tax year by the due date because
they allege they had no income to report.
Atek ceased operations in 2004 due to financial diffi-
culties, and was dissolved in 2006. Appellants contend
that at this time it became clear that Atek would not pay
the remainder of Mr. M. Taha’s shareholder income for
2002 and 2003. Appellants sought a refund from the IRS
of the alleged overpayment of taxes on that income by
filing amended tax returns and deducting the unpaid
income as bad debt. Appellants filed an amended 2002
TAHA v. UNITED STATES 3
tax return (the “2002 claim”) in November 2007. 1 Appel-
lants alleged in their complaint that they also filed an
amended 2003 tax return (the “2003 claim”). Both
amended returns were dated November 9, 2007. IRS
records reflect the filing of the 2002 claim, and make no
mention of the 2003 claim.
The IRS first disallowed the 2002 claim on December
20, 2007. It is undisputed that this notice of disallowance
only discussed the 2002 claim, not the 2003 claim. The
record before us does not indicate that the IRS disallowed
the 2003 claim in any other communication. Appellants
appealed the disallowance of the 2002 claim to the IRS on
January 21, 2008. The IRS denied the appeal on October
29, 2009.
Appellants next attempted to obtain a refund by filing
an amended 2004 tax return on November 1, 2009 (the
“2004 claim”). 2 In the 2004 claim, Appellants again
deducted the unpaid shareholder income as bad debt. The
IRS first disallowed the 2004 claim on November 28,
2012. Appellants also appealed this disallowance to the
IRS, and continued pressing their 2004 claim with the
IRS until April 2017.
On May 10, 2017, after exhausting their options with
the IRS, Appellants filed a tax refund suit in the U.S.
District Court for the Middle District of Florida. By this
time, Mr. M. Taha was deceased, and Ms. Yassin no
1 The Court of Federal Claims noted discrepancies
in filing dates between Appellants’ contentions and IRS
records. The exact filing dates have no bearing on the
resolution of the jurisdictional question.
2 Appellants filed their initial 2004 tax return on
October 5, 2011, after they filed their amended 2004
return, because the IRS would not accept the amended
return until an initial return was filed.
4 TAHA v. UNITED STATES
longer resided in the United States. Because none of the
Appellants resided in its judicial district, the district court
found that it lacked jurisdiction under 28 U.S.C.
§ 1402(a)(1), and transferred the case to the Court of
Federal Claims (“Claims Court”). The transfer complaint
was filed with the Claims Court on September 18, 2017.
On January 30, 2018, the government moved to dis-
miss the complaint for lack of jurisdiction under Federal
Rule of Civil Procedure 12(b)(1). The government argued
that the Claims Court lacked jurisdiction because Appel-
lants did not file their tax refund claims with the IRS
within the applicable three-year limitation period. Appel-
lants countered that their tax refund claims were timely
filed because they relate to deductions of unpaid business
debt, and are therefore subject to a limitations period
longer than three years.
On April 10, 2018, the Claims Court granted the gov-
ernment’s motion. The Claims Court combined all three
of Appellants’ tax refund claims in its analysis, and
concluded that even if Appellants timely filed their tax
refund claims with the IRS, it lacked jurisdiction over
those claims because Appellants did not initiate their suit
within two years from the date the IRS first mailed
notices of disallowance for each claim, as required by
26 U.S.C. § 6532(a)(1).
On April 19, 2018, the government filed a motion, ask-
ing the Claims Court to clarify when the two-year statu-
tory limitation period began to run with respect to the
2003 claim. The Claims Court granted the government’s
motion the same day, and although it questioned whether
the 2003 claim was filed, the Claims Court determined
that it need not resolve that issue.
This appeal followed. We have jurisdiction pursuant
to 28 U.S.C. § 1295(a)(3).
TAHA v. UNITED STATES 5
DISCUSSION
We review decisions of the Court of Federal Claims to
dismiss for lack of subject-matter jurisdiction de novo, and
its underlying factual findings for clear error. See Fer-
reiro v. United States, 350 F.3d 1318, 1324 (Fed. Cir.
2003) (citations omitted). As plaintiffs, Appellants must
establish jurisdiction by a preponderance of the evidence.
Estes Express Lines v. United States, 739 F.3d 689, 692
(Fed. Cir. 2014). In deciding a motion to dismiss for lack
of subject-matter jurisdiction, the court assumes all
uncontroverted factual allegations in the complaint to be
true and draws all reasonable inferences in the plaintiffs’
favor. Henke v. United States, 60 F.3d 795, 797 (Fed. Cir.
1995).
The trial court must make sufficient factual findings
on the material issues to allow this court to have a basis
for meaningful review. Nutrition 21 v. United States, 930
F.2d 867, 869 (Fed. Cir. 1991). “[A]ppellate courts may
not make findings of fact in the first instance.” Oracle
Am., Inc. v. Google Inc., 750 F.3d 1339, 1373 (Fed. Cir.
2014); see also Golden Bridge Tech., Inc. v. Nokia, Inc.,
527 F.3d 1318, 1323 (Fed. Cir. 2008) (“Appellate courts
review district court judgments; we do not find facts.”).
Where there exists a factual dispute with respect to the
truth of jurisdictional allegations, the trial court must
resolve that dispute, and is permitted to look beyond the
pleadings to do so. See Cedars-Sinai Med. Ctr. v. Wat-
kins, 11 F.3d 1573, 1583–84 (Fed. Cir. 1993).
The doctrine of sovereign immunity bars suit against
the United States unless it has expressly consented to be
sued. United States v. Mitchell, 445 U.S. 535, 538 (1980).
The United States has consented to be sued for taxes
improperly assessed or collected, 28 U.S.C. § 1346(a)(1),
but only if the plaintiff complies with two additional
jurisdictional requirements set forth in 26 U.S.C. §§ 7422and 6532.
6 TAHA v. UNITED STATES
First, § 7422 of the Internal Revenue Code (“IRC”)
provides that “[n]o suit or proceeding shall be maintained
in any court for the recovery of any internal revenue
tax . . . until a claim for refund or credit has been duly
filed with the [IRS].” United States v. Clintwood Elkhorn
Min. Co., 553 U.S. 1, 4–5 (2008) (quoting 26 U.S.C.
§ 7422(a)) (second alteration in original). To be duly filed,
a taxpayer must ordinarily file a refund claim with the
IRS “within 3 years from the time the return was filed or
2 years from the time the tax was paid,” whichever occurs
later. 26 U.S.C. § 6511(a). For refund claims relating to
certain types of designated overpayments, including
“business” bad debt, the period of limitation instead “shall
be 7 years from the date prescribed by law for filing the
return.” 26 U.S.C. § 6511(d)(1). Section 166(d) of the IRC
restricts “business” debt to debt that relates to the tax-
payer’s “trade or business.” 26 U.S.C. § 166(d)(2).
Whether bad debt should be characterized as “busi-
ness” or “nonbusiness” is a question of fact to be resolved
by the trial court. See Adelson v. United States, 737 F.2d
1569, 1574–75 (Fed. Cir. 1984); Hunsaker v. Comm’r, 615
F.2d 1253, 1256 n.4 (9th Cir. 1980) (citing United States v.
Generes, 405 U.S. 93 (1972)). Debts arising from mere
investments in a corporation do not rise to the level of
“business” debts. Whipple v. Comm’r, 373 U.S. 193, 202
(1963) (“[I]nvesting is not a trade or business and the
return to the taxpayer, though substantially the product
of his services, legally arises not from his own trade or
business but from that of the corporation.”).
Second, § 6532 establishes jurisdictional time limita-
tions on tax refund suits. A tax refund suit may not be
brought until six months after the filing of a tax refund
claim with the IRS, unless the IRS renders a decision
before the six-month period expires. 26 U.S.C.
§ 6532(a)(1). A tax refund suit must be brought within
two years from the date the IRS mails the first notice of
disallowance for a refund claim. Id. This two-year period
TAHA v. UNITED STATES 7
is not extended by any consideration, reconsideration, or
action by the IRS with respect to a refund claim following
the mailing of a notice of disallowance. Marcinkowsky v.
United States, 206 F.3d 1419, 1421 (Fed. Cir. 2000); see
also 26 U.S.C. § 6532(a)(4).
A. 2002 and 2004 Claims
Concerning the 2002 and 2004 claims, the Claims
Court correctly found that it lacked jurisdiction because
Appellants did not file their tax refund suit within the
statutorily-prescribed two-year period from the date the
IRS first mailed notices of disallowance for those claims.
Appellants concede that the IRS first disallowed the
2002 claim on December 20, 2007. This means that for
the court to have jurisdiction over the 2002 claim, Appel-
lants must have commenced their action by December 20,
2009. See 26 U.S.C. § 6532(a)(1). But Appellants did not
file their tax refund suit in the district court until May 10,
2017, almost ten years after the first disallowance for the
2002 claim. The Claims Court therefore lacks jurisdiction
over the 2002 claim.
Appellants concede that the IRS first disallowed the
2004 claim on November 28, 2012. Appellants had two
years from that date to bring their suit, 26 U.S.C.
§ 6532(a)(1), but did not do so until 2017, almost five
years later. The Claims Court therefore lacks jurisdiction
over the 2004 claim.
Appellants assert that they could not file their suit
until they exhausted all options for reconsideration by the
IRS, because until such time “[t]here was never an out-
right rejection by the IRS.” Appellants’ Reply Br. 25–27.
Appellants further contend that the IRS made its final
rejection on August 28, 2015, when it mailed the last
notice of disallowance with respect to the 2004 claim, and
as such, their suit is timely. But the relevant date that
triggers the two-year limitation period is the date of
8 TAHA v. UNITED STATES
mailing of the first notice of disallowance with respect to
any tax refund claim. Under § 6532(a)(4), any subsequent
“IRS reconsideration does not extend the time to file a
refund suit.” Marcinkowsky, 206 F.3d at 1422. Hence,
Appellants’ appeals to the IRS following the first notices
of disallowance for the 2002 and 2004 claims did not
extend the time to file the related actions.
Appellants point to the statement by the district court
that the Claims Court “has concurrent jurisdiction with
district courts” over their claims under 28 U.S.C.
§ 1346(a). Appellants’ Reply Br. 15. It is true that § 1346
confers concurrent jurisdiction over tax refund claims on
the Claims Court. But that is only the beginning of the
jurisdictional inquiry. A plaintiff must also meet the
additional requirements imposed by § 7422 (requiring
that taxpayers first file a refund claim with the IRS) and
§ 6532 (imposing a limitation period for filing tax refund
suits) before the Claims Court will have jurisdiction over
her tax refund claims. Appellants have not met these
requirements with respect to the 2002 and 2004 claims.
Because Appellants have not established that they
filed their suit within the two-year time period required
by § 6532(a)(1), the Claims Court correctly found that it
lacks jurisdiction over the 2002 and 2004 claims.
B. 2003 Claim
Whether the Claims Court has jurisdiction over the
2003 claim depends on three factual questions: (1) wheth-
er Appellants filed the 2003 claim, (2) whether the 2003
claim was timely, and (3) whether the IRS disallowed the
2003 claim. These issues were disputed before the Claims
Court and are material to the jurisdictional question. The
Claims Court erred when it declined as not necessary to
resolve these questions. Although the Claims Court
suggested that the answers did not matter, given 26
U.S.C. § 6511(a), (b), that suggestion is legally incorrect.
TAHA v. UNITED STATES 9
Starting with the first question, Appellants alleged in
their complaint that they filed the 2003 claim, and the
Claims Court found that the 2003 claim was dated No-
vember 9, 2007. The government disputed the filing of
the 2003 claim, arguing that IRS records do not show
receipt of the 2003 claim. The government renews this
argument on appeal, and asserts that “IRS records are
presumed to be true, accurate, and correct.” 3 Appellee’s
Br. 14 (internal quotation marks and citation omitted).
Although the Claims Court expressed doubt that the 2003
claim was filed, it declined to resolve the issue. This is a
material factual dispute that the Claims Court was re-
quired to resolve to allow this court to make a meaningful
review. Oracle, 750 F.3d at 1373 (“[W]here there are
material facts in dispute and those facts have not yet been
resolved by the trier of fact, appellate courts may not
make findings of fact in the first instance.”).
If the claim was filed, the Claims Court also erred in
not resolving the second question: whether Appellants’
2003 claim was timely filed. The timeliness of the 2003
claim in turn depends on whether it relates to “business”
bad debt, such that the longer limitation period applies. 4
Appellants alleged in the complaint (and continue to do so
on appeal) that their 2003 claim relates to “business” bad
debt, and was therefore timely filed within the applicable
seven year period under § 6511(d)(1). The government
counters that the 2003 claim relates only to “nonbusiness”
3 The mere fact that IRS records do not show re-
ceipt of the 2003 claim is not dispositive of this issue,
meaning that Appellants may be able to show that the
claim was timely mailed. See Jones v. United States, 226
F.2d 24, 27 (9th Cir. 1955).
4 It is undisputed that Appellants did not file the
2003 claim within the standard three-year limitation
period provided by § 6511(a).
10 TAHA v. UNITED STATES
bad debt because the relevant income was owed to Mr. M.
Taha solely in his capacity as a shareholder, and the loss
of such income cannot be classified as a “business” bad
debt under controlling law because it does not relate to
the taxpayer’s “trade or business.” See Whipple, 373 U.S.
at 202. As such, the government contends the applicable
period of limitation is three years under § 6511(a), and
the 2003 claim was therefore untimely.
The Claims Court found that Appellants’ documents
suggest that Atek could have been a family-run business,
which in turn could suggest that Mr. M. Taha’s unpaid
shareholder income could plausibly be classified as “busi-
ness” bad debt. The Claims Court, however, did not
resolve this factual issue. If the above three factual
issues are resolved in Appellants’ favor, then the Claims
Court would have jurisdiction over the 2003 claim. If it
found that the claim was filed, then the question of
whether the 2003 claim was timely filed as “business” bad
debt, therefore, presents a material factual dispute that
the Claims Court was required to resolve in the first
instance.
If the claim was timely filed, the Claims Court should
have also resolved the third and final question concerning
the 2003 claim: whether the IRS disallowed the 2003
claim. Appellants argue that the 2003 claim “was merely
ignored by the IRS.” Appellants’ Reply Br. 22. The
government disputes this allegation—without contesting
that Appellants presented the allegation to the Claims
Court—and asserts that the notice of disallowance for the
2002 claim applied equally to the 2003 claim. But the
Claims Court never decided whether the 2003 claim was
disallowed. If the 2003 claim was not disallowed, then
the two-year limitation period under § 6532(a)(1) did not
start running for the 2003 claim. This is a material
factual issue that the Claims Court was required to
resolve.
TAHA v. UNITED STATES 11
If Appellants timely filed the 2003 claim and the IRS
never disallowed it, then the Claims Court would have
jurisdiction. The Claims Court was thus bound to resolve
these factual issues. See Oracle, 750 F.3d at 1373; Nutri-
tion 21, 930 F.2d at 869. Because it declined to do so, we
are unable to meaningfully review its conclusion with
respect to the 2003 claim.
The absence of findings on the issues discussed above
is not harmless error. The Claims Court suggested that
resolution of the issues was unnecessary when it stated
that “if an amended return for 2003 was actually filed
with the IRS, but not acted upon, then 26 U.S.C. § 6511(a)
would constitute a bar, and 26 U.S.C. § 6511(b)(2)(B)
would limit the refund allowable.” S.Appx. 14. We disa-
gree.
Section 6511(d)(1) provides that if the claim for refund
relates to a deductible “bad debt” described in 26 U.S.C.
§ 166, the taxpayer has seven years to file. 26 U.S.C.
§ 6511(d)(1). The Claims Court wrote: “In short, and
given the status of the record before the court of the
pleading stage, plaintiffs may well have plausibly alleged
that the unrealized shareholder income fits within the
business bad debt provisions of Section 6511.” Taha v.
United States, 137 Fed. Cl. 462, 468 (2018).
If Appellants are entitled to the seven-year filing pe-
riod, then 26 U.S.C. § 6511(b)(2)(B) does not limit the
claim for refund in the way the Claims Court suggested.
The controlling provision of § 6511(d)(1) provides:
In the case of a claim described in this paragraph
the amount of the credit or refund may exceed the
portion of the tax paid within the period pre-
scribed in subsection (b)(2) or (c), whichever is ap-
plicable, to the extent of the amount of the
overpayment attributable to the deductibility of
items described in this paragraph.
12 TAHA v. UNITED STATES
Id. Under that language, in the case of a claim for refund
based on a business bad debt, the amount of the refund
may exceed that described in § 6511(b)(2) (the two-year
refund limit) for the amount of overpayment attributable
to the deductibility of the described claim (the bad busi-
ness debt). See id.
Because the record on the dismissal motion left a
genuine issue as to whether the debt was a business bad
debt described in 26 U.S.C. § 166, Taha, 137 Fed. Cl. at
468, the Claims Court could not properly invoke § 6511(a),
(b) to make unnecessary a resolution of the factual issues
as to the time of filing, and disallowance, of the 2003
claim.
CONCLUSION
We hold that the Claims Court lacks jurisdiction over
the 2002 and 2004 claims because Appellants did not
commence their action within two years of the IRS first
disallowing those claims. We therefore affirm the judg-
ment of the Claims Court with respect to the 2002 and
2004 claims. The Claims Court, however, erred by not
making sufficient factual findings concerning the 2003
claim for this court to meaningfully review its jurisdiction
determination. Accordingly, we vacate the judgment of
the Claims Court with respect to the 2003 claim, and
remand for further proceedings in accordance with this
opinion.
AFFIRMED-IN-PART, VACATED-IN-PART, AND
REMANDED
COSTS
No costs.