United States of America, has filed a Federal Tax Lien which
continues to encumber their real property, and title to that
property cannot be quieted until the 1989 assessment is
Before the Court are Cross-Motions for Summary Judgment on
Count II of the United States' Counterclaim. In Count II, the
United States seeks to reduce the 1989 assessment to judgment.
Conversely, Plaintiffs seek an order by the Court directing
the IRS to either apply certain overpayments made by
Plaintiffs to offset their liability for the 1989 assessment
or to issue a refund for the amounts overpaid.
The Court has jurisdiction over the United States'
Counterclaim pursuant to 28 U.S.C. § 1346(c) and 26 U.S.C. § 7402(a).
The United States contends, however, that the Court
does not have jurisdiction under the Code either to order the
IRS to apply the overpayments made by Plaintiffs to their 1989
assessment or to maintain Plaintiffs' suit for a refund.
After review of the Code, the case law, and the pleadings,
the Court finds that it has jurisdiction over only one of
Plaintiffs' claims, namely, that Plaintiffs' November 19, 1991
payment should be refunded. For the reasons which follow, the
Court finds that although Plaintiffs are entitled to a refund
of their November 19, 1991 payment, the 1989 assessment should
be reduced to judgment. Thus, the United States' Motion for
Summary Judgment is granted in part and denied in part, and
Plaintiffs' Motion for Summary Judgment is granted in part and
denied in part.*fn2
On August 13, 1993, this Court granted summary judgment in
favor of Plaintiffs, holding that Plaintiffs satisfied their
1984 tax liability by payment in 1987. The Court also granted
Plaintiffs' Motion to Dismiss Count I of the United States'
Counterclaim, but denied their Motion to Dismiss Count II,
which alleged that Plaintiffs remained liable for a 1989 tax
assessment. The Court then ordered Plaintiffs to answer Count
II. The facts relevant to the Court's August 13, 1993 decision
are also relevant here and are as follows.
On October 18, 1985, Plaintiffs filed their income tax
return for 1984. On November 25, 1985, the IRS made an
assessment totalling $22,593.20 for taxes owed by Plaintiffs
in 1984. On August 6, 1987, Plaintiffs paid to the IRS the sum
of $27,999.93, representing full payment of all tax, interest,
and penalties then due. The IRS, however, mistakenly credited
the August 6, 1987 payment twice to Plaintiffs' account for
1984, creating what appeared to be an overpayment and
generating a refund of $28,925.39 ($27,999.93 plus $925.46 in
accrued interest), which was sent to Plaintiffs by check dated
January 1, 1988, from the United States Treasury. Sometime
later in 1988, the IRS discovered its error and demanded
repayment of the refunded amount plus accrued interest,
After discovery of its error, the IRS did not make a new
assessment for 1984, but rather claimed that the original
assessment for 1984 remained outstanding. The United States
apparently formed this belief because the amount originally
paid by Plaintiffs was erroneously refunded, leaving the
government without an actual payment for 1984. Meanwhile,
Plaintiffs made the following payments which the IRS applied
to the 1984 assessment:
Date Amount Reason
April 15, 1988 $840.00 1987 income tax
April 3, 1989 $5,000.00 Payment by Plaintiffs
April 15, 1989 $1,117.00 1988 income tax
November 19, 1991 $5,850.00 Rent payment seized
---------- from Inness Farm R & R
On or about November 15, 1991, Plaintiffs filed an amended
income tax return ["ATR1"] for taxable year 1984 which claimed
a refund for the amounts overpaid in 1988 and 1989,*fn3
excluding the November 19, 1991 payment. On or about November
8, 1993, Plaintiffs filed a second amended tax return
["ATR2"], claiming a refund for amounts overpaid on the 1984
assessment which included the November 19, 1991 payment.*fn4
For Plaintiffs, the relevance of these overpayments is
directly related to the 1989 tax assessment made against them
on November 12, 1990.
On November 12, 1990, the IRS made an assessment of
$9,438.00 for taxes owed by Plaintiffs in tax year 1989.
Plaintiffs received notice of the assessment and a demand for
payment but failed to pay the entire amount due. The parties
have stipulated that according to IRS records, there remains
an unpaid balance in the amount of $7,395.60 for 1989 taxes,
plus statutory interest from the date of assessment.
Plaintiffs claim that the IRS should either issue them a
refund for the 1988 and 1989 overpayments or apply these
payments to their 1989 assessment to offset the amount
currently outstanding. With respect to Plaintiffs' refund
claim, the United States argues that the Court does not have
jurisdiction to maintain a suit for a refund, because the
claim was filed beyond the statute of limitations set forth in
26 U.S.C. § 6511.*fn5 The United States further asserts that
as sovereign, it is immune from suit on this issue, because
Plaintiffs have not met the jurisdictional prerequisites for
filing a refund claim under the Code, i.e., payment of the tax
and a timely claim. 26 U.S.C. § 7422(a). See also Magnone v.
United States, 902 F.2d 192-93 (2nd Cir. 1990); United States
v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 1368, 108 L.Ed.2d
548 (1989) (the United States as sovereign, is immune from suit
unless it consents to be sued). Regarding Plaintiffs' claim
that the United States should offset their liability for the
1989 assessment with the amounts overpaid and applied to the
1984 assessment, the United States asserts that the Court
cannot order this relief because the Internal Revenue Code
gives the Secretary statutory discretion to refuse such an
application. See 26 U.S.C. § 6402(a).
The two issues before the Court are: (1) whether the
overpayments made by Plaintiffs
should be refunded pursuant to 26 U.S.C. § 6511, and/or (2)
whether these payments should be used to offset Plaintiffs'
outstanding tax liability for 1989.
A. Plaintiffs Are Not Entitled To A Refund
For Overpayments Claimed On Their November
15, 1991 Return, But They Are Entitled To A
Refund For The November 19, 1991 Overpayment
Claimed On Their November 8, 1993
A claim for refund or credit is timely if it is made within
three years from the time the original tax return ["OTR"] was
filed, or within two years from the time the tax was paid.
26 U.S.C. § 6511. The Court will refer to this provision as the
In this case, the three/two rule operates to bar Plaintiffs
from recovering the three overpayments made in 1988 and 1989.
Plaintiffs filed their OTR for 1984 on October 18, 1985.
However, Plaintiffs did not file ATR1 requesting a refund of
the three 1988 and 1989 payments until November 15, 1991.
Thus, Plaintiffs are not entitled to a refund of the 1988 and
1989 payments, because they were claimed after the statute of
limitations under § 6511 (three/two rule) had run, i.e., six
years and one month after the OTR was filed (October 18, 1985
to November 15, 1991) and at least two years and seven months
after the latest of the disputed taxes were paid (April 15,
1989 to November 15, 1991). Thus, pursuant to the terms of §
6511, ATR2 was not filed in time to claim a refund for the
above mentioned payments. Thus, the Court has no jurisdiction
to order the IRS to refund these amounts to Plaintiffs. See
Magnone v. United States, 902 F.2d 192-93 (2nd Cir. 1990).
The November 19, 1991 payment presents a different issue.
The Court has jurisdiction to determine whether Plaintiff is
entitled to a refund of their November 19, 1991 payment,
because the claim was filed on November 8, 1993, within two
years of the date the tax was paid. See 26 U.S.C. § 7422(a).
Given the Court's August 13, 1993 ruling that Plaintiffs
satisfied the 1984 assessment with their August 6, 1987
payment, the Court finds that Plaintiffs' November 19, 1991
payment of $5,850.00 constitutes an overpayment which should be
refunded to Plaintiffs.
B. The Court May Not Order The IRS To
Apply Plaintiffs' Overpayments To Offset
Plaintiffs' 1989 Tax Liability.
Plaintiffs contend that the three overpayments made in 1988
and 1989, together with the November 19, 1991 payment, should
be applied to offset their 1989 tax liability. While they
concede that the IRS has discretion in its decision to apply
"overpayments from one year to an outstanding assessment in
another year," they assert that, "it would be an abuse of
discretion not to do so in this case." Plaintiffs Response to
United States' Motion for Summary Judgment at 3. Plaintiffs'
argument is meritless. The Court has no discretion to abuse
when the Internal Revenue Code does not give it the
jurisdiction to order the IRS to apply Plaintiffs'
overpayments to their 1989 liability. Title 26 U.S.C. § 6402(a)
states in relevant part: