Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 2106 Brian Barnett Duff, Judge.
Before POSNER, Chief Judge, and HARLINGTON WOOD, JR. and RIPPLE, Circuit Judges.
The district court dismissed this suit for a refund of federal income tax because the taxpayer had failed to file a timely claim with the Internal Revenue Service. See 930 F. Supp. 1273 (N.D. Ill. 1996). The taxpayer contends that it filed an "informal claim" that under Treasury regulations and judicial precedent satisfies the requirement that the taxpayer file a timely claim for a refund as a prerequisite to suing for the refund, 26 U.S.C. secs. 6511(a), 7422(a), provided that the informal claim is perfected by the later filing of a formal one. Resolution of the appeal requires us to consider the scope of the "informal claim" doctrine.
The plaintiffs, affiliated insurance companies that file a joint return and that the parties refer to as "BCS," entered into a contract with another insurance company in 1981. The contract granted to BCS, for three years, certain rights in the other company's insurance policies in exchange for "ceding commissions," on which see Colonial American Life Ins. Co. v. Commissioner, 491 U.S. 244, 246-47 (1989). Actually there were several contracts, and one ceded rights for five rather than three years, but these details are not material to our analysis.
BCS deducted the commissions in their entirety on its 1981 return. An IRS agent named Peterson audited the return and told BCS it would have to spread the deduction over the three-year life of the contract. The audit was conducted shortly before September 16, 1985, which was the date on which BCS, having received an extension of time within which to file its return for 1984, filed it. The return claimed no deduction for the commissions because BCS considered itself entitled to deduct them in full on its 1981 return.
Peterson completed the audit and gave BCS a copy of the audit report (dated September 26, 1985) that he had made for his superiors, repeating what he had told the company. BCS appealed to the IRS's appeals office. In a "report transmittal" to the appeals office that BCS was not shown, Peterson stated that because BCS's contract with the other insurer had terminated in 1984, "any costs not previously amortized would be allowable as a current deduction," that is, in 1984.
When the case landed in the appeals office, the appeals officer assigned to the case and representatives of BCS began discussing the possibility of settling the dispute. Settlement negotiations dragged on for years. Not until March of 1988 did a settlement become final. The settlement was generally favorable to BCS, permitting it to deduct 70 percent of the commissions on its 1981 return. But 70 percent is not 100 percent; the settlement required that the other 30 percent be spread over the life of the contract, implying that a portion of the commissions could be deducted only in 1984. But in its 1984 return, as we said, BCS claimed no deduction for them. None of the settlement documents, though they include a claim by BCS for a refund relating to an earlier year (1982), contains a claim for a refund for 1984, and none of the IRS agents involved in the settlement negotiations advised BCS's representatives that it was entitled to a refund for 1984. Not until June 20, 1989, some fifteen months after the settlement had become final -- and almost four years after BCS had filed its 1984 return -- did BCS file a claim for a refund of the more than $800,000 in federal income tax that it would not have paid on that return had it deducted in 1984 the portion of the commissions allocable to that year under the settlement. While acknowledging BCS's legal entitlement to the deduction, the IRS rejected the refund claim as untimely, and this suit ensued.
The Internal Revenue Code provides that no suit for a tax refund may be maintained until a claim for a refund has been filed with the IRS in accordance with the applicable Treasury regulations. 26 U.S.C. sec. 7422(a). The Code further provides that the claim must be filed (with an immaterial exception) no later than three years after the filing of the return pursuant to which the taxes were paid that the taxpayer is trying to get back. 26 U.S.C. sec. 6511(a). A Treasury regulation requires that the claim set forth its grounds "in detail," along with "facts sufficient to apprise the [IRS] of the [claim's] exact basis," and that "the statement of the grounds and facts . . . be verified." 26 C.F.R. sec. 301.6402-2(b)(1). The regulation goes on to provide that "a claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund." Despite this last sentence the courts have, with the IRS's reluctant acquiescence, occasionally allowed a "claim" that does not satisfy all the requirements of the regulation to arrest the running of the three-year period. Commissioner v. Lundy, 116 S. Ct. 647, 655 (1996); United States v. Kales, 314 U.S. 186, 194 (1941); United States v. Commercial National Bank, 874 F.2d 1165, 1170-71 (7th Cir. 1989); Martin v. United States, 833 F.2d 655, 659 (7th Cir. 1987); United States v. Forma, 42 F.3d 759, 766-67 (2d Cir. 1994); Beckwith Realty, Inc. v. United States, 896 F.2d 860, 863-64 (4th Cir. 1990); 4 Boris I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts para. 112.5.2, pp. 112-99 to 112-100 (2d ed. 1992); Michael I. Saltzman, IRS Practice and Procedure para. 11.08 (2d student ed. 1991). It is on this "informal claim" doctrine that BCS pitches its appeal.
When a statute of limitations establishes a deadline for filing a suit in court as distinct from an administrative claim, a technical defect in the pleading that commences the suit and by doing so arrests the running of the statute of limitations is unlikely to be fatal. A complaint afflicted with merely formal defects can ordinarily be amended to correct them with relation back to the date of the original filing of this suit. Fed. R. Civ. P. 15(c); Woods v. Indiana University-Purdue University, 996 F.2d 880, 884 (7th Cir. 1993); 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure sec. 1497, p. 74 (2d ed. 1990); cf. In re Wilkens, 731 F.2d 462, 464-65 (7th Cir. 1984) (per curiam). Neither the tax code nor the Treasury regulations make any similar provision for claims for a refund. One office of the judge-made informal-claim doctrine is to plug this gap by excusing harmless noncompliance with the formalities prescribed for refund claims by the Treasury regulation that we quoted. United States v. Memphis Cotton Oil Co., 288 U.S. 62, 66-70 (1933); United States v. Kales, supra, 314 U.S. at 194. Suppose that on the last day before the three years is up the taxpayer files a claim for a refund complete except for the omission of his signature. Two days later the taxpayer discovers and repairs the omission. It would be absurd rigorism even by the notably unforgiving standards of federal tax law (see, e.g., United States v. Brockamp, 117 S. Ct. 849, 852 (1997); but see Prussner v. United States, 896 F.2d 218 (7th Cir. 1990) (en banc)) to make the taxpayer's utterly harmless mistake a basis for forfeiting a claim conceded to be substantively valid.
But so construed the informal-claim doctrine cannot help BCS. For the company did not file within the statutory three-year period a claim for a refund that was deficient merely in one or two of the technical requirements imposed by the Treasury regulation. It filed nothing except a set of claims, incident to the settlement, that did not mention 1984. A reader of the settlement papers might well infer that BCS would be able to claim a refund for that year. But to claim a refund for 1981 is not to claim a refund for 1984, even if the logic underlying the 1981 claim would suggest to a person knowledgeable about tax law and the affairs of the taxpayer that the taxpayer would also have a claim for 1984. "[I]t is insufficient for a taxpayer to argue that the IRS possessed information from which it could deduce that the taxpayer is entitled to or desires a refund." Miller v. United States, 949 F.2d 708, 712 (4th Cir. 1991). Otherwise the three-year limitations period would be porous. A taxpayer who made one claim could ignore the limitations period with respect to any other claims that had a logical relation to that claim. Having in 1986 claimed a refund for a home office deduction that had been allowed for 1984, he could in 1997 file a claim for a similar refund for the years 1985 through 1987. "The Commissioner [of Internal Revenue] is not required to act as a detective and to search for clues as to whether the plaintiff might desire tax refunds for the years 1974, 1975, and 1976, solely because the plaintiff had filed claims for tax refunds for the years 1971, 1972, and 1973." VDO-Argo Instruments, Inc. v. United States, 3 Cl. Ct. 359, 362 (1983), aff'd without opinion, 738 F.2d 453 (Fed. Cir. 1984). See also Sun Chemical Corp. v. United States, 218 Ct. Cl. 702 (1978) (per curiam). Even a detective might have been baffled in BCS's case, because by claiming a refund for 1984 BCS would have been reopening its return for that year for the IRS to claim deficiencies, Saltzman, supra, para. 11.06, and who knew what skeletons lay in the 1984 closet? No one could have known from the settlement papers, although one would have suspected, that BCS was going to seek a refund for 1984.
But we cannot stop with these observations, for there is more to the informal-claim doctrine than forgiveness of purely technical defects. The doctrine is also one of waiver. What counts as a claim is specified not in the Code itself but in the Treasury regulation; and courts say that the Treasury, through its delegate the IRS, can waive the regulation. Tucker v. Alexander, 275 U.S. 228, 231 (1927); Saltzman, supra, para. 11.11.
This rationale is in considerable tension with the principle that while the executive branch can change an executive-branch regulation, it is bound by it until it is changed. United States v. Nixon, 418 U.S. 683, 696 (1974); 1 Kenneth Culp Davis & Richard J. Pierce, Jr., Administrative Law Treatise sec. 6.5 (3d ed. 1994). And the doctrine itself, insofar as it goes beyond the forgiveness of purely formal deficiencies in the claim, is in tension with the Supreme Court's recent decision that judge-made doctrines for tolling statutes of limitations applicable to claims by federal taxpayers, though made presumptively available in suits against the government by Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95-96 (1990); see also White v. Bentsen, 31 F.3d 474 (7th Cir. 1994), are inconsistent with the structure and policies of the tax code. United States v. Brockamp, supra, 117 S. Ct. at 852. Granted, the informalclaim doctrine does not toll a legislatively prescribed tax statute of limitations, or what is very similar, Doe v. Blue Cross & Blue Shield United, 112 F.3d 869, 876 (7th Cir. 1997); Thomason v. Aetna Life Ins. Co., 9 F.3d 645, 647-48 and n. 3 (7th Cir. 1993); Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341, 1347-48 (11th Cir. 1994), waive it. The statute of limitations for refund claims is three years. It can be waived (at least if it is done in writing) by the IRS, United States v. National Steel Corp., 75 F.3d 1146, 1149 (7th Cir. 1996); cf. 26 U.S.C. sec. 6532(a)(2), but not, we may assume in light of Brockamp, by misleading statements or conduct; that would be tolling, an extra-statutory defense to the statute of limitations. But that's not quite what is going on here. The question in an informal-claim case is when the "claim" was filed. The tax code does not say. Congress has left the question to be answered by the Treasury. Since ...