Hamilton v. USA

Filing 81

ORDER that Plaintiffs Motion for Partial Summary Judgment Pursuant to Fed. R. Civ. P. 56 and D.C.COLO.LCivR 56.1 and Incorporated Memorandum of Law 78 , filed November 10, 2015, is denied, by Judge Robert E. Blackburn on 1/13/2016.(evana, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 13-cv-00051-REB-KMT
ROBERT S. HAMILTON,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.

ORDER DENYING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT PURSUANT TO FED. R. CIV. P. 56 AND D.C.COLO.LCIVR 56.1
Blackburn, J.
The matter before is Plaintiff’s Motion for Partial Summary Judgment
Pursuant to Fed. R. Civ. P. 56 and D.C.COLO.LCivR 56.1 and Incorporated
Memorandum of Law [#78],1 filed November 10, 2015. I deny the motion.
I. JURISDICTION
I have jurisdiction over this matter pursuant to 28 U.S.C. § 1346(a)(1) (civil action
against the United States for recovery of internal revenue tax alleged to have been
erroneously assessed or collected).
II. STANDARD OF REVIEW
Summary judgment is proper when there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a);

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“[#78]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s electronic case filing and management system (CM/ECF). I use this
convention throughout this order.

Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265
(1986). A dispute is “genuine” if the issue could be resolved in favor of either party.
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586,
106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Farthing v. City of Shawnee, 39 F.3d
1131, 1135 (10th Cir. 1994). A fact is “material” if it might reasonably affect the outcome
of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,
2510, 91 L.Ed.2d 202 (1986); Farthing, 39 F.3d at 1134.
A movant who bears the burden of proof on a claim or defense must submit
evidence to establish every essential element of that claim or defense. See In re
Ribozyme Pharmaceuticals, Inc. Securities Litigation, 209 F.Supp.2d 1106, 1111
(D. Colo. 2002). Once the motion has been properly supported, the burden shifts to the
nonmovant to show, by tendering depositions, affidavits, and other competent evidence,
that summary judgment is not proper. Concrete Works, Inc. v. City & County of
Denver, 36 F.3d 1513, 1518 (10th Cir. 1994), cert. denied, 115 S.Ct. 1315 (1995). All
the evidence must be viewed in the light most favorable to the party opposing the
motion. Simms v. Oklahoma ex rel. Department of Mental Health and Substance
Abuse Services, 165 F.3d 1321, 1326 (10th Cir.), cert. denied, 120 S.Ct. 53 (1999).
III. ANALYSIS
This is an action for refund of taxes allegedly overpaid by plaintiff. The suit
arises from plaintiff’s claim for charitable contribution deductions on his income tax

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returns for 2003, 2004, 2005, and 2006.2 Following an audit, plaintiff received a letter of
disallowance from the Internal Revenue Service (“IRS” or “the agency”) on January 8,
2009. Plaintiff requested administrative review of that determination.
Shortly before the matter was forwarded to the IRS Office of Appeals, the agency
requested an extension of the statute of limitations for assessment for tax years 2003
and 2004. Consequently, plaintiff and the agency executed a Form 872, entitled
“Consent To Extend the Time To Assess Tax” (the “Restricted Consent”), which
provides, in relevant part,
Robert S. Hamilton and the Commissioner of the Internal
Revenue consent and agree to the following:
....

(3) The amount of any deficiency assessment is to be limited
to that resulting from: . . . (b) any adjustments to charitable
contributions.
(Plf. Motion App., Exh. 4 at 1.) The case was not resolved as a result of the appeals
process, and the IRS ultimately issued a Notice of Deficiency on January 12, 2012,
disallowing the claimed charitable contribution deductions in their entirety.
Plaintiff paid the tax allegedly due under the Notice of Deficiency and filed
claims for refund, which were denied. This action followed.
By the instant motion, plaintiff seeks a determination that the IRS may not
redetermine the correct amount of tax for any items other than the charitable

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The deductions were related to three conservation easements across portions of ranch land in
Pueblo and Custer Counties. The easements were granted in 2003, 2004, and 2005. A charitable
contribution carryover from the previous year was claimed in 2006.

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contribution deductions that were the subject of the Notice of Deficiency. Having
reviewed the arguments made and authorities cited by the parties in their briefs, I find
and conclude that plaintiff’s motion is legally insupportable and consequently must be
denied.
As the IRS points out, plaintiff’s argument improperly conflates the standards
and procedures relevant to deficiency proceedings before the agency (and, potentially,
the Tax Court) with those that pertain to a refund action in federal district court. When
the IRS has issued a Notice of Deficiency, the taxpayer may challenge that
determination in the Tax Court, and he is not required to pay the purported deficiency
until the Tax Court determines the matter. See Guthrie v. Sawyer, 970 F.2d 733, 735
(10th Cir. 1992).3 By contrast, to bring an action seeking a refund in federal district
court, the taxpayer must pay the full amount of income tax assessed. See Flora v.
United States, 357 U.S. 63, 75, 78 S.Ct. 1079, 1086, 2 L.Ed.2d 1165 (1958), aff'd on
rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960); Ardalan v. United
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The process was explained by the Tenth Circuit in Guthrie:
The notice of deficiency begins the interaction between the taxpayer and
the IRS. Upon the determination that a tax deficiency exists, I.R.C.§
6212 (1988) authorizes the IRS to send a notice of the deficiency to the
taxpayer at his last known address. Under I.R.C.§ 6213, the taxpayer
ordinarily has ninety days after the mailing of the notice of deficiency to
file a petition in the Tax Court challenging the deficiency determination. If
the taxpayer goes to Tax Court, he may obtain a redetermination of
deficiency, which amount is not assessed or required to be paid until the
Tax Court decision has become final. See I.R.C.§§ 6213(a), 6215. The
notice of deficiency is thus the “ticket” to the Tax Court that allows the
taxpayer to challenge the tax assessment before paying it.
If the taxpayer does not go to Tax Court within ninety days, the IRS is
authorized to assess the deficiency against the taxpayer, who must pay
upon notice and demand. See I.R.C. § 6213(c).

Guthrie, 970 F.2d at 735.

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States, 748 F.2d 1411, 1413 (10th Cir. 1984).
This distinction is critical because it underscores the difference between what
occurs in the two proceedings. At the agency level, the IRS assesses the tax to be
paid. When the taxpayer seeks a refund, he perforce already has paid the
assessment. He thus must then establish that he has overpaid tax. In re Borgman,
698 F.3d 1255, 1260 (10th Cir. 2012); Dye v. United States, 121 F.3d 1399, 1407 (10th
Cir. 1997). Proof of that ultimate issue requires the taxpayer to demonstrate both that
the amount of tax assessed is incorrect and that the correct amount of tax owed is less
than the amount paid. Dye, 121 F.3d at 1408; Sprint Nextel Corp and Subsidiaries
v. United States, 779 F.Supp.2d 1184, 1185 (D. Kan. 2011).
Under the rule first announced in Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct.
145, 76 L.Ed. 293 (1932), the determination of the correct amount of tax owed must be
made by reference to the entire amount owed, regardless whether the statute of
limitations for assessment has expired:
[T]he ultimate question presented for decision, upon a claim
for refund, is whether the taxpayer has overpaid his tax.
This involves a redetermination of the entire tax liability.
While no new assessment can be made, after the bar of the
statute has fallen, the taxpayer, nevertheless, is not entitled
to a refund unless he has overpaid his tax. The action to
recover on a claim for refund is in the nature of an action for
money had and received and it is incumbent upon the
claimant to show that the United States has money which
belongs to him.
....
While the statutes authorizing refunds do not specifically
empower the Commissioner to reaudit a return whenever
repayment is claimed, authority therefor is necessarily
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implied. An overpayment must appear before refund is
authorized. Although the statute of limitations may have
barred the assessment and collection of any additional sum,
it does not obliterate the right of the United States to retain
payments already received when they do not exceed the
amount which might have been properly assessed and
demanded.
Id., 52 S.Ct. at 146 (citation and internal quotation marks omitted). In other words, the
agency is not required to refund any assessment for tax that was in fact owed. That
determination cannot be made in a vacuum – it must consider the entirety of the tax
liability.
Contrary to plaintiff’s argument, the presence of the Restricted Covenant in this
case does not alter or nullify the application of this well-established principle. Assuming
arguendo that the Restricted Covenant is (or should have the effect of) a contract,
plaintiff ignores the most fundamental tenet of contract interpretation – that a contract
must be interpreted according to its plain meaning. The Restricted Covenant purports
to restrict the IRS’s ability to make a “deficiency assessment.” The adjustments
contemplated by Lewis, by contrast, are not deficiency assessments, but merely
recalculations of the correct amount of tax due. The difference, which is not merely
semantic, was explained cogently by the Fourth Circuit in Estate of Michael ex rel.
Michael v. Lullo, 173 F.3d 503 (4th Cir. 1999):
[A]lthough the IRS [is] powerless to assess or collect
additional taxes at the time of the refund suit, it was
nevertheless permitted to recalculate those taxes in order to
determine whether the taxpayer had overpaid its tax burden
for the year in question.
....

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. . . . Lewis simply authorizes the IRS to “retain” tax
payments in the face of a refund suit if, based on its
calculations at the time of that suit, the IRS determines that
the taxpayer did not actually overpay its properly calculated
tax burden.
Id. at 508 (emphases in original).
Accordingly, there is no legal basis to prevent the IRS from invoking the rule of
Lewis v. Reynolds in this matter. Plaintiff’s remaining arguments are even less
compelling. The burden of proof properly rests with the taxpayer in this refund suit, see
Dye, 121 F.3d at 1408; Sprint Nextel Corp., 779 F.Supp.2d at 1185, and plaintiff’s lone
citation to the contrary is completely inapposite to the proposition for which he cites it.
Nor is there anything in the record before to indicate that plaintiff is entitled to the
extraordinary remedy of equitable estoppel as against an agency of the federal
government. See In re DePaolo, 45 F.3d 373, 377 (10th Cir. 1995). His motion
therefore must be denied.
THEREFORE, IT IS ORDERED that Plaintiff’s Motion for Partial Summary
Judgment Pursuant to Fed. R. Civ. P. 56 and D.C.COLO.LCivR 56.1 and
Incorporated Memorandum of Law [#78], filed November 10, 2015, is denied.
Dated January 13, 2016, at Denver, Colorado.
BY THE COURT:

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