Schaeffler et al v. United States of America
MEMORANDUM OPINION AND ORDER: The Government's 28 Motion to Dismiss for lack of subject matter jurisdiction is GRANTED. (Ordered by Chief Judge Barbara M.G. Lynn on 4/25/2017) (sss)
UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS
GEORG F.W. SCHAEFFLER and
UNITED STATES OF AMERICA,
Case No. 3:15-CV-4090-M
MEMORANDUM OPINION AND ORDER
Before the Court is the Motion to Dismiss of the Defendant United States [ECF No. 28].
For the reasons stated below, the Motion is GRANTED.
On December 30, 2015, Plaintiffs Georg F.W. Schaeffler and Bernadette Schaeffler filed
this action for the refund of federal income taxes paid by Plaintiffs for the taxable year ending
December 31, 2002, and for related statutory interest for an alleged overpayment. Compl. ¶ 1.
[ECF No. 1]. Plaintiffs were previously married, and filed a joint income tax return for the 2002
tax year on or about October 15, 2003. Id. ¶ 5, 10. On April 10, 2013, Plaintiffs filed a claim
with the IRS for the 2002 tax year, requesting a refund of $5,170,760. Id. ¶ 12. Broadly
speaking, Plaintiffs allege they are entitled to a refund on account of a redetermination by
German authorities of Georg Schaeffler’s German tax liability, which Plaintiffs claim results in
additional foreign tax credits available for use on Plaintiffs’ 2002 federal income tax return and
for carry forward of additional minimum tax credits. Id. ¶ 11.
On August 5, 2016, the parties filed their Joint Report Regarding Contents of Scheduling
Order, in which the Defendant asserted that the Court lacks subject matter jurisdiction because
Plaintiffs filed their claim for refund outside the applicable statute of limitations. ECF No. 22 at
3–4. On August 15, 2016, the Court directed the parties to address the threshold issue of subject
matter jurisdiction [ECF No. 23], and on September 9, 2016, Defendant filed its Motion to
Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1).
a. SUBJECT MATTER JURISDICTION
Motions filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure challenge the
subject matter jurisdiction of the district court to hear a case. Fed. R. Civ. P. 12(b)(1). Federal
subject matter jurisdiction is limited; federal courts may entertain only those cases involving a
question of federal law or those where parties are of diverse citizenship. See 28 U.S.C. §§ 1331,
1332. They “must presume that a suit lies outside this limited jurisdiction, and the burden of
establishing federal jurisdiction rests on the party seeking the federal forum.” Howery v. Allstate
Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). Federal courts have original jurisdiction over claims
when a complaint states claims arising under federal law. Id. § 1331; Ky. Fried Chicken Corp. v.
Diversified Packaging Corp., 549 F.2d 368, 392 (5th Cir. 1977).
Lack of subject matter jurisdiction may be found based on any one of three
considerations: (1) the complaint alone; (2) the complaint supplemented by undisputed facts
evidenced in the record; or (3) the complaint supplemented by undisputed facts, plus the court's
resolution of disputed facts. Barrera–Montenegro v. United States, 74 F.3d 657, 659 (5th Cir.
1996). A motion to dismiss based on the complaint alone presents a “facial attack” that requires
the court to decide whether the allegations in the complaint, presumed to be true, sufficiently
state a basis for subject matter jurisdiction. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th
Cir. 1998); Rodriguez v. Tex. Comm’n on the Arts, 992 F. Supp. 876, 878 (N.D. Tex. 1998)
(citation omitted). Facial attacks are usually made early in the proceedings. Paterson, 644 F.2d
at 523. However, if the Defendant supports the motion with evidence, then the attack is
“factual,” and “no presumptive truthfulness attaches to plaintiff's allegations, and the existence of
disputed material facts will not preclude the trial court from evaluating for itself the merits of
jurisdictional claims.” Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981) (en banc). A
factual attack may occur at any stage of the proceedings. Menchaca v. Chrysler Credit Corp.,
613 F.2d 507, 511 (5th Cir. 1980). Regardless of the nature of the attack, the party asserting
federal jurisdiction continually carries the burden of proof to show it exists. Ramming v. United
States, 281 F.3d 158, 161 (5th Cir. 2001).
b. TAXPAYER REFUND CLAIMS
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). In 28
U.S.C. § 1346(a)(1), the United States has consented to be sued for taxes improperly assessed or
collected, but only if the plaintiff complies with the jurisdictional requirements set forth in 26
U.S.C. § 7422.
The timely filing of a refund claim with the IRS is a jurisdictional prerequisite to suit in a
federal district court. 26 U.S.C. § 7422(a) (“No 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 Secretary . . . .”). Section 6511 of the Internal Revenue Code (the “Tax
Code”) contains two separate provisions for determining timeliness of a refund claim. Id.
§ 6511; Comm’r v. Lundy, 516 U.S. 235, 239–40 (1996). Under § 6511(a), a claim for a tax
refund “shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years
from the time the tax was paid,” whichever is later. Section 6511(b) defines two “look-back”
periods. First, if the claim is filed “within 3 years from the time the return was filed,” then the
taxpayer is entitled to a refund of “the portion of the tax paid within the 3 years immediately
preceding the filing of the claim.” 26 U.S.C. § 6511(b)(2)(A) (incorporating by reference
§ 6511(a)). Second, if the claim is not filed within that 3-year period, then the taxpayer is
entitled to a refund of only that “portion of the tax paid during the 2 years immediately preceding
the filing of the claim.” Id. § 6511(b)(2)(B) (incorporating by reference § 6511(a)). Section
6511(3)(A) provides a special 10-year limitations period for refund claims relating to foreign tax
credits. Id. § 6511(3).
c. FOREIGN TAX CREDITS, ALTERNATIVE MINIMUM TAX, AND
MINIMUM TAX CREDITS
The purpose of the Internal Revenue Code’s foreign tax credit provisions is to reduce
international double taxation. Compaq Comput. Corp. & Subsidiaries v. Comm’r, 277 F.3d 778,
786 (5th Cir. 2001). Section 901 of the Tax Code generally provides a foreign tax credit for the
amount of creditable foreign taxes paid or accrued. 26 U.S.C. § 901.
Alternative minimum tax (AMT) is separate from, and in addition, to regular income tax.
26 U.S.C. § 55(a); Merlo v. Comm’r, 492 F.3d 618, 620 (5th Cir. 2007). The AMT was enacted
to “ensure that high-income taxpayers cannot avoid significant tax liability through the use of
exclusions, deductions, and credits.” Merlo, 492 F.3d at 620. AMT is applied to an expanded
income base known as alternative minimum taxable income, which is calculated by eliminating
tax relief given to the taxpayer under the regular income tax regime. § 55(b)(2); Merlo, 492 F.3d
at 620. If a taxpayer’s tentative minimum tax—calculated by imposing AMT rates on the
alternative minimum taxable income—is more than the regular income tax, the taxpayer pays the
difference as AMT. § 55(a).
Importantly, a taxpayer who pays AMT is entitled to use some or all of that amount as a
credit against regular income tax, referred to as the “minimum tax credit.” § 53(a). The
minimum tax credit for a given taxable year is limited to the excess of the taxpayer’s regular tax
liability, reduced by the sum of certain allowed credits, over the taxpayer’s tentative minimum
tax liability for that year. § 53(c). The minimum tax credit can be applied to reduce regular
income tax—and is considered used up, or “absorbed”—to the extent that regular income tax
exceeds the tentative minimum tax for that year. Unabsorbed minimum tax credits can be
carried forward indefinitely to future tax years; if a taxpayer does not use all of the credit in one
year, the credit may be aggregated with other credits carried forward and used to reduce tax
liabilities in the future.1
PLAINTIFFS’ REFUND CLAIM
Plaintiffs seek a refund of $5,170,760 for taxes paid for the 2002 tax year. Compl. ¶ 17.
Plaintiffs’ amended tax returns filed for the 2001 and 2002 tax years form the basis of their
refund claim. Id. ¶ 16.
a. PLAINTIFFS’ THIRD AMENDED 2001 RETURN
Plaintiffs filed their joint 2001 income tax return on Form 1040 on October 15, 2002.
Def. App. at 1 [ECF No. 28-1 at 1]. On or about April 7, 2012, Plaintiffs filed their third
amended income tax return for the 2001 tax year. Id. at 2, 77; Compl. ¶ 16. Plaintiffs allege that
based on the figures in their original tax return filed for 2001, they were not subject to AMT.
Compl. ¶ 16. The revisions made in the third 2001 amended return are summarized in the
1 Mertens Law of Fed. Income Tax’n § 2A:137 (2017).
following table. The revisions made to “LINE 7, Column B” refer to the net change made to
credits claimed in Plaintiffs’ 2001 tax return:
Summary of Revisions – LINE 7, Column B [Third Amended 2001 Return]
A. Decrease in Foreign Tax Credit Carryover to 2001 – Fourth
2000 Amended Return
B. Increase in Eligible Foreign Tax Credit for 2001
C. Reduction in Minimum Tax Credit for 2001
Def. App. at 0021.
The changes made in the third amended 2001 return reflected additional German tax paid
by Plaintiffs in 2001, which increased their eligible foreign tax credits and resulted in the
Plaintiffs being subject to AMT in the amount of $2,474,851 for the 2001 tax year. Def. App. at
19, 21, 25, 34–35, 77. Plaintiffs allege that these changes did not alter their tax liability for 2001,
because the increase in AMT was offset by an increase in the amount of foreign tax credit
claimed. Id. at 21. Thus, Plaintiffs experienced no net change in tax payable or refundable as a
result of their third amended 2001 return. Id.
For this litigation, the significance of Plaintiffs’ third amended 2001 return was their
being subject to AMT in the amount of $2,474,851, which was then eligible to be carried
forward to future years as a minimum tax credit against future tax liabilities. Additionally, the
foreign tax credits claimed by Plaintiffs in their third amended 2001 return offset minimum tax
credits that had been previously absorbed in 2001, thus increasing the total amount of minimum
tax credit carryforward from prior years to $4,288,674. Thus, combining the revised minimum
tax credit carryforward from prior years with the 2001 AMT eligible to be carried forward as a
minimum tax credit, Plaintiffs reported a total of $6,763,525 in minimum tax credit carried
forward to 2002:
Reported 2001 Minimum Tax Credit
Carryforward from Prior Years
Reported 2001 Alternative Minimum Tax
Reported Minimum Tax Credit Carried to 2002
Def. App. at 0021, 77.
b. SECOND AMENDED 2002 RETURN
On or about April 22, 2013, Plaintiffs filed their second amended return for the 2002 tax
year (“second amended 2002 return”). Def. App. at 0006; Compl. ¶ 12. Plaintiffs alleged three
changes to foreign tax liabilities, which they claim altered their eligible foreign tax credit.
Plaintiffs further applied the $6,763,525 minimum tax credit calculated as a result of the
amendments made in the third amended 2001 tax return. Plaintiffs allege that these amendments
resulted in a net overpayment of $5,170,760. The amendments made in the second amended
2002 return are summarized in the following table:
Summary of Second Amended 2002 Return Revisions
Increase in Eligible Foreign Tax Credit related to
Increase in Eligible Foreign Tax Credit –
German Personal Income Tax
Reduction in Eligible Foreign Tax Credit for 2002 –
Increase in Minimum Tax Credit for 2002
Compl. ¶ 17; Def. App. at 77.
Plaintiffs seek a refund of $5,170,760, which they allege is the result of a net
overpayment of tax in 2002. The Government responds that Plaintiffs’ refund claim is
The Complaint identifies Schaeffler Immobilien as a German entity that Mr. Schaeffler used to conduct foreign
rental activity. Compl. ¶ 13.
jurisdictionally barred by the applicable statute of limitations under the Tax Code, and that
accordingly, the Court lacks subject matter jurisdiction.
The facts in this case are not in dispute.3 Undisputed evidence presented by the
Government shows that the Plaintiffs filed their original 2002 tax return on October 15, 2003,
and paid the tax assessed the same day. Def. App. at 0005 [ECF No. 28-1 at 5]. The statute of
limitations under § 6511 began to run, therefore, on October 15, 2003. See Chaney v. United
States, 45 Fed. Cl. 309 (Fed. Cl. 1999) (calculating the limitations period for filing a refund
claim from the filing of the original return); see also United States v. Brockamp, 519 U.S. 347,
354 (1997) (“Congress did not intend the ‘equitable tolling’ doctrine to apply to § 6511’s time
limitations.”); Zellerbach Paper Co. v. United States, 293 U.S. 172, 180 (1934) (“[A]n
amendment or supplement to a return already upon the files . . . does not toll a limitation which
has once begun to run.”). The Complaint alleges that Plaintiffs filed their refund claim for the
2002 tax year on or about April 10, 2013. Compl. ¶ 12.
If the default 3-year limitations period under § 6511(a) applies, Plaintiffs’ refund claim is
clearly barred. The first issue to be resolved, therefore, is whether Plaintiffs’ claim falls within
the foreign tax credit exception under § 6511(d)(3)(A), which provides for a 10-year statute of
limitations. The dispute primarily concerns the meaning of the phrase “attributable to”: the
longer limitations period is available only if the refund claim “relates to an overpayment
attributable to any taxes paid or accrued to any foreign country” eligible for a foreign tax credit.
26 U.S.C. § 6511(d)(3)(A) (emphasis added).
In its Motion to Dismiss, the Government makes numerous factual allegations supported by evidence it attaches to
its Motion, namely certified IRS records, Plaintiffs’ sworn answers to interrogatories, and copies of Plaintiffs’
signed tax returns and amendments. In their Response, Plaintiffs do not dispute the facts alleged by the Government
nor introduce any facts to the contrary. Therefore, in resolving this jurisdictional dispute, the Court considers the
Complaint supplemented by undisputed facts evidenced in the record. See Barrera–Montenegro, 74 F.3d at 659.
The Government argues that Plaintiffs’ second amended 2002 return resulted in a net
reduction in their eligible foreign tax credit, which, standing alone, would have resulted in an
underpayment for 2002, rather than an overpayment. “[B]ut for the increased minimum tax
credit,” the Government maintains, Plaintiffs “would have owed additional tax for 2002 as the
result of a reduction in their 2002 German tax liabilities that reduced their allowable foreign tax
credits in that year.” ECF No. 28 at 18. Therefore, the Government argues, Plaintiffs’ claimed
overpayment in 2002 is not the result of amendments to their 2002 foreign tax credits, and thus is
not “attributable to any taxes paid or accrued to any foreign country” so as to fall under the 10year limitations period of § 6511(d)(3)(A). Instead, the alleged overpayments in 2002 were the
result of an increased minimum tax credit for 2002, which is subject to the default 3-year statute
of limitations provided for in § 6511(a), and is therefore barred. Plaintiffs respond that the
clause “attributable to” should be read broadly so as to encompass Plaintiffs’ increased minimum
tax credit carryforward from 2001. The issue presented is whether the phrase “attributable to” in
§ 6511(d)(3)(a) is broad enough to encompass a net overpayment due to an adjusted minimum
tax credit, in an amended return that also adjusted foreign tax credits that, standing alone, would
have resulted in an underpayment.
In Electrolux Holdings, Inc. v. United States, 491 F.3d 1327 (Fed. Cir. 2007), the Federal
Circuit considered the meaning of “attributable to” in § 6511(d)(2)(A), which provides a special
limitations period for refunds for overpayments “attributable to a net operating loss carryback4 or
a capital loss carryback.” In Electrolux, the plaintiff sought a refund for an overpayment in 1995
A “carryback” is an “income-tax deduction ([especially] for a net operating loss) that cannot be taken entirely in a
given period but may be taken in an earlier period ([usually] the previous three years).” Black’s Law Dictionary
(10th ed. 2014).
which was caused by a capital loss carryover5 to 1995 that had resulted from a net capital loss in
1994. 491 F.3d at 1331. Under the default three-year statute of limitations, plaintiff’s refund
claim for 1995 was barred, and thus the plaintiff sought to apply the special limitations period in
§ 6511(d)(2)(A) for refunds attributable to a capital loss carryback. Id. The plaintiff argued that
although the capital loss carryover to 1995 was a cause of the overpayment, there was an
additional cause—a carryback to 1993 of the 1994 capital loss—and that the 1995 overpayment
could be traced to the carryback to 1993. Id. The controlling section of the Tax Code requires a
taxpayer to carry a capital loss back before carrying any remaining amount forward as a
carryover, and thus the plaintiff contended “that both the existence and the amount of the 1995
carryover could only have been determined by reference to the earlier carrybacks.” Id. In other
words, the Electrolux plaintiff argued that although the carryover of capital loss in 1994 was the
cause of the 1995 overpayment, the amount of the capital loss in 1994 eligible to be carried
forward was, in turn, caused by a carryback in 1993, and therefore the plaintiff should be able to
take advantage of a special limitations period that is “attributable to . . . a capital loss carryback.”
The Federal Circuit has noted that “[t]he phrase ‘attributable to,’ though it appears in
many provisions of the Internal Revenue Code, is not defined anywhere in the Code and has no
special technical meaning under the tax laws,” and thus should be construed according to its
plain meaning. Electrolux, 491 F.3d at 1330 (citing Stanford v. Comm’r, 152 F.2d 450, 458 (5th
Cir. 1998)). The plain meaning of “attributable to” is understood to be “due to, caused by, or
generated by.” Id. at 1331; accord Candyce Martin 1999 Irrevocable Trust v. United States, 739
A “carryover” is an “income-tax deduction ([especially] for a net operating loss) that cannot be taken entirely in a
given period but may be taken in a later period ([usually] the next five years).” Black’s Law Dictionary (10th ed.
F.3d 1204 (9th Cir. 2014); Stanford, 152 F.2d at 458–59 (construing the phrase “attributable to
such activity” according to its plain meaning, “due to, caused by, or generated by” the activity);
see also Braunstein v. Comm’r, 374 U.S. 65, 70 (1963) (“If used in [its] ordinary meaning, ... the
phrase ‘attributable to’ merely confines consideration to that gain caused or generated by the
property in question.” (emphasis added)). With this in mind, the Federal Circuit concluded that
“it was the loss in 1994, not the carryback to 1993, that led to the carryover in 1995, and thus the
1995 overpayment.” Id. at 1332. Therefore, there was no “comparable direct cause and effect
relationship between Electrolux’s 1993 carryback and its 1995 overpayment,” and therefore, the
1995 overpayment was not attributable to the 1993 carryback, so the taxpayer could not take
advantage of the special limitations period. Id. at 1332–33.
The Fifth Circuit has also previously interpreted “attributable to” according to its plain
meaning: due to, caused by, or generated by. Stanford, 152 F.2d at 458–59. The Court finds
Electrolux instructive here in determining whether Plaintiffs’ 2002 overpayment is “attributable
to any taxes paid or accrued to any foreign country.” § 6511(d)(3)(a). In Electrolux, the Federal
Circuit noted that for the longer limitations period to apply, the “fact of the
overpayment . . . must be attributable to the carryback.” 491 F.3d at 1332. Here, by analogy, for
the ten-year limitations period to apply, the fact of the 2002 overpayment must be “caused by,
generated by, or due to” taxes paid or accrued to any foreign country.
In their second amended 2002 return, Plaintiffs made three adjustments to their foreign
tax credits relating to German tax liabilities; two were increases for their eligible foreign tax
credit relating to taxes paid in Germany, and one was for a reduction in foreign tax credit.
Together, these three adjustments resulted in a reduction in eligible foreign tax credits of
approximately $1.5 million. Standing alone, these three adjustments would have resulted in a net
underpayment for the 2002 tax year. Plaintiffs’ overpayment—and associated refund claim—is
a result of their increased minimum tax credit for 2002, carried forward from the third amended
2001 return. Accordingly, the Court concludes that the 2002 overpayment was not caused by,
generated by, or due to Plaintiffs’ adjustment of their 2002 foreign tax credits, and therefore,
Plaintiffs’ 2002 overpayment was not “attributable to any taxes paid or accrued to any foreign
country” in 2002, and the longer ten-year limitations period does not apply.
Plaintiffs argue that Electrolux’s holding regarding the meaning of “attributable to” has
been superseded by the Supreme Court’s decision in United States v. Woods, 134 S. Ct. 557
(2013). Plaintiffs maintain that Woods requires a broad construction of “attributable to,” such
that something could be attributable to more than one cause. In Woods, partnerships had been
formed allegedly to avoid taxes by artificially overstating the tax bases6 of the partnership
interests of the partners. Id. at 561–62. After auditing the partnerships’ tax returns, the IRS
found that the partnerships had “no business purpose other than tax avoidance,” and disregarded
them for tax purposes, disallowing the partnerships’ related paper losses. Id. at 561. Having
done that, “the IRS determined that the partners had ‘not established adjusted bases in their
respective partnership interests in an amount greater than zero,’ so that any resulting tax
underpayments would be subject to a 40–percent penalty for gross valuation misstatements.” Id.
at 562 (citations omitted).
“A partner's tax basis in a partnership interest—called ‘outside basis’ to distinguish it from ‘inside basis,’ the
partnership's basis in its own assets—is tied to the value of any assets the partner contributed to acquire the interest.”
Woods, 134 S. Ct. at 561.
Under the Tax Code, taxpayers who underpay their taxes due to a valuation
misstatement7 may incur a 20% penalty, which applies to “the portion of any underpayment
which is attributable to . . . [a]ny substantial valuation misstatement under chapter 1,” or a 40%
penalty if the valuation misstatement is deemed gross. 26 U.S.C. § 6662(a), (b)(3), (h)(1)
(emphasis added); Woods, 134 S. Ct. at 565. In Woods, the taxpayer argued that any
underpayment of tax was attributable “not to the misstatements of outside basis, but rather to the
determination that the partnerships were shams,” and accordingly, the taxpayer argued that the
valuation misstatement penalty did not apply. 134 S. Ct. at 567. The Supreme Court rejected
this argument, noting that this was not “a case in which a valuation misstatement [was] a mere
side effect of a sham transaction”; instead, “the partners underpaid their taxes because they
overstated their outside basis, and they overstated their outside basis because the partnerships
were scams.” Id. at 567–68. The partners’ misstatements and the tax shelters’ lack of economic
substance were “inextricably intertwined,” so that “attributing the tax payment only to the
artificiality of the transaction and not to the basis overvaluation is making a false distinction.”
Id. Accordingly, the Supreme Court concluded that “any underpayment resulting from the . . .
tax shelter [was] attributable to the partners’ misrepresentation of outside basis (a valuation
misstatement).” Id. at 568.
Plaintiffs argue that Woods applies a broad interpretation of “attributable to,” such that
“the fundamental assumptions of Electrolux regarding this clause have been superseded.” Pls.
Resp. at 15 n.39, 18. This Court disagrees. Nothing in the Supreme Court’s analysis indicates
Under the version of the penalty statute in effect when the transactions at issue in Woods occurred, “there is a
substantial valuation misstatement under chapter 1 if . . . the value of any property (or the adjusted basis of any
property) claimed on any return of tax imposed by chapter 1 is 200 percent or more of the amount determined to be
the correct amount of such valuation or adjusted basis (as the case may be).” § 6662(e)(1)(A) (2000 ed.); Woods,
134 S. Ct. at 565.
that “attributable to” is to be used in any way other than its plain meaning. The Supreme Court’s
analysis of “attributable to” in Woods is consistent with the Federal Circuit’s discussion of the
term in Electrolux. Furthermore, the Supreme Court’s decision in United States v. Brockamp,
519 U.S. 347 (1997), counsels against a broad interpretation of “attributable to” in the context of
§ 6511. In Brockamp, the Supreme Court considered whether the statutory time limitations in
§ 6511 can be tolled for nonstatutory equitable reasons, and held that they cannot. 519 U.S. at
348. The Court noted that “Section 6511’s detail, its technical language, the iteration of the
limitations in both procedural and substantive forms, and the explicit listing of exceptions, taken
together, indicate to us that Congress did not intend courts to read other unmentioned, openended, ‘equitable’ exceptions into the statute.” Id. at 352.
In support of their contention that their refund claim is timely, Plaintiffs urge the Court to
follow the Seventh Circuit’s decision in First Chicago Corp. v. Commissioner, 742 F.2d 1102
(7th Cir. 1984), a case considered by the Federal Circuit in its discussion in Electrolux:
In First Chicago Corp. v. Commissioner, the taxpayer carried back a capital
loss and an investment credit from 1974 to the 1971 tax year, causing a reduction
in its 1971 income tax. The Commissioner later discovered a deficiency for the
1972 tax year because the taxpayer failed to adjust the minimum tax carryover for
1972 to account for the 1971 tax decrease. After the Commissioner issued a notice
of deficiency for 1972, the taxpayer filed an action in the United States Tax Court,
asserting that the statute of limitations for assessing a deficiency had expired.
The Commissioner argued that the 1972 tax year was still open under 26 U.S.C.
§ 6501(h) and (j), a special statute of limitations then in effect. According to those
provisions, the period for assessing a deficiency “attributable to” a capital loss
carryback or investment credit carryback was the same as the period within which
a deficiency for the year of the capital loss or investment credit could be imposed.
Because the period for assessing a deficiency in 1974 had not expired, the
Commissioner could still assess a deficiency for the 1972 tax year if it was
“attributable to” the carrybacks from 1974.
The Tax Court held that the 1972 deficiency was not attributable to the
carrybacks from 1974 to 1971 and [that] there was no basis for construing the
statute to include carryovers as well as carrybacks. First Chicago Corp. v. Comm’r,
80 T.C. 648, 652–55 (1983). Judge Whitaker dissented, explaining that the 1972
deficiency was “attributable to” the carrybacks from 1974 because it could be
“traced directly to” the carrybacks. Id. at 665 (Whitaker, J., dissenting). On appeal,
the Seventh Circuit reversed the Tax Court majority, adopting Judge Whitaker's
dissenting opinion as its own. First Chicago, 742 F.2d at 1103.
Electrolux, 491 F.3d at 1331–32.
In urging that this Court apply the principles of First Chicago to this case, Plaintiffs
argue that the minimum tax credit carryforward is an “‘automatic mechanical adjustment’
inseparably related to the 2002 foreign tax redeterminations.” Pls. Resp. at 17. “The 2002
foreign tax redeterminations altered the foreign tax credits and because foreign tax credits
directly impact the alternative minimum tax and minimum tax credit calculations, any change in
foreign tax credits demands a corresponding change in the alternative minimum tax and
minimum tax credit calculations.” Id.
The Court finds Plaintiffs’ reliance on First Chicago unpersuasive. Judge Whitaker
characterized the 1972 adjustment as “an automatic mechanical adjustment due directly to the
1971 carryback” while discussing whether the IRS could reach back into a closed tax year to
assess an additional deficiency stemming from a carryback. 80 T.C. at 664. There, the taxpayer
carried back to 1971 a loss incurred in 1974, which resulted in recalculated 1971 tax liabilities
and a resulting deficiency in 1972. Without the carryback to 1971, there would have been no
deficiency in 1972. Cf. Electrolux, 491 F.3d at 1332 (discussing First Chicago). Here, without
the minimum tax credit carryforward—not the foreign tax credit readjustments—there would
have been no overpayment for the 2002 tax year. The 2002 overpayment was thus not “an
automatic mechanical adjustment” due directly to the 2002 foreign tax credit readjustments;
although the amount of the total overpayment differed due to the net reduction in 2002 foreign
tax credit, the 2002 overpayment was not due directly to the readjustment in foreign tax credits. 8
In general, the Court finds that Plaintiffs’ use of the minimum tax credit carryforward is not
inseparably related to their foreign tax redeterminations in the second amended 2002 return;
while both the 2002 foreign tax redeterminations and the application of the minimum tax credit
carryforward are necessary to determine Plaintiffs’ correct tax liability for 2002, the 2002 foreign
tax redeterminations have at best an indirect impact on the amount or existence of the minimum
tax credit carryforward, which is determined by foreign tax credit and alternative minimum tax
paid in prior years. Following the adjustments made in Plaintiffs’ third amended 2001 return, the
minimum tax credit carryforward would have existed for application in the second amended
2002 return even if the Plaintiffs had made no adjustments to their 2002 foreign tax credits. That
the minimum tax credit carryforward and the foreign tax credit adjustments are both required to
determine Plaintiffs’ correct tax liability does not mean that both caused the 2002 overpayment.
Plaintiffs suggest that preventing them from claiming a refund for the 2002 overpayment
somehow requires them to miscalculate their taxes. Pls. Resp. at 19. However, there is no
limitations period on making adjustments to prior tax years to determine the correct liability in
an open year. Lewis v. Reynolds, 284 U.S. 281, 283 (1932). The limitations periods set forth in
§ 6511 impose a limit on when a taxpayer may seek a refund, not make amendments to correct
The Court finds, therefore, that because the 2002 overpayment was not attributable to
adjustments in foreign tax credit, the 10-year statute of limitations in § 6511(d)(3)(a) does not
Plaintiffs do not appear to argue that the minimum tax credit carryforward in 2002 is attributable to the foreign tax
redeterminations in the third amended 2001 return for purposes of the special limitations period—i.e., they do not
argue that the minimum tax credit carryforward can be traced to foreign tax redeterminations in 2001 as a basis for
invoking the special limitations period. It is unclear whether tracing of this sort is permitted in the Fifth Circuit.
However, as Plaintiffs seek to invoke the jurisdiction of the Court, they carry the burden to prove jurisdiction.
Thomson v. Gaskill, 315 U.S. 442, 446 (1942). Because Plaintiffs have not raised this argument, the Court will not
apply. Even so, Plaintiffs maintain that the special lookback provisions of § 6511(a) mean that
their refund was still timely. Section 6511(a) provides that a claim for refund must be filed
“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.” § 6511(a). Plaintiffs’ refund claim for the 2002
overpayment was filed on or about April 10, 2013, within two years of the filing of Plaintiffs’
third amended 2001 return on or about April 7, 2012. Plaintiffs argue that their carryforward of
the credits from the third amended 2001 return constitutes “payment” of tax under the two-year
lookback rule, such that the claim for refund is timely. For support, Plaintiffs point to Dresser
Indus., Inc. v. United States, 73 F. Supp. 2d 682 (N.D. Tex. 1999) (Kaplan, M.J.) (consent case),
which considered whether the application of a foreign tax credit constituted a “payment” within
the meaning of § 6511(a):
“[A] tax is deemed to be paid . . . if an overpayment of one year is credited against
a deficiency of another year.” Kingston Products, Corp. v. United States, 177 Ct.
Cl. 471, 368 F.2d 281, 287 ([Ct. Cl.] 1966). Thus, the application of a credit is
treated in the same manner and has the same effect as a cash payment. Republic
Petroleum Corp. v. United States, 613 F.2d 518, 525 & n.19 (5th Cir. 1980).
The Court concludes that the application of a foreign tax credit constitutes a
“payment” of taxes.
73 F. Supp. 2d at 687.
This Court declines to follow Dresser in this case. Dresser involved the readjustment of
the taxpayer’s liabilities in 1983, which created a foreign tax credit carryback to 1981, allegedly
leading to the taxpayer’s subsequent refund claim for 1981. Id. at 687. The taxpayer in Dresser
paid its taxes for 1981 in 1993, and filed its 1981 refund claim in 1995, seeking to take
advantage of the § 6511(a) two-year lookback period. Id. For § 6511(a) purposes, the payment
of tax occurred in 1993; that the underlying basis for the refund claim was the application of
foreign tax credits appears to have been of no consequence to the two-year lookback period, and
whether the application of foreign tax credits to the 1981 tax year constituted a payment appears
to have been entirely irrelevant to the decision.
Furthermore, even assuming that the application of a foreign tax credit can constitute
payment for the purposes of § 6511(a), Plaintiffs argue that the calculation of the minimum tax
credit in the third amended 2001 return—not an adjustment to foreign tax credits—constitutes a
payment of tax eligible to be refunded in the second amended 2002 return. Unlike in Dresser,
where the taxpayer sought a refund of taxes it had paid in cash, Plaintiffs seek a refund on the
basis of a computational credit, the minimum tax credit, designed to reduce tax liability because
of AMT paid in prior years. Plaintiffs provide no authority to indicate that the calculation, or
even the claiming, of a minimum tax credit carryforward constitutes a payment for the purposes
of § 6511(a). Treating the computation and carryforward of the minimum tax credit on an
amended return as a “payment” would appear to circumvent the “unusually emphatic” time
limitations in § 6511, by permitting any refund claim based on a credit to be timely. Cf. United
States v. Brockamp, 519 U.S. 347, 350 (1997). As the United States has consented to be sued for
taxes improperly assessed or collected, but only if the jurisdictional requirements of § 6511 are
satisfied, the Court declines to expand the scope of § 6511 beyond that which is clearly
presented. See Lane v. Pena, 518 U.S. 187, 192 (1996) (“A waiver of the Federal Government's
sovereign immunity must be unequivocally expressed in statutory text, and will not be implied.
Moreover, a waiver of the Government's sovereign immunity will be strictly construed, in terms
of its scope, in favor of the sovereign.” (citations omitted)).
The Court concludes, therefore, that Plaintiffs’ refund claim for the 2002 overpayment
was not timely under § 6511, and therefore, their refund claim is barred.
For the foregoing reasons, the Government’s Motion to Dismiss for lack of subject matter
jurisdiction is GRANTED.
April 25, 2017.
BARBARA M. G. LYNN
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