The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge
This matter comes before the Court on Plaintiff United States' Motion for Summary Judgment (d/e 13) (Government Motion) and Defendants Randal J. Peterson and Valera L. Peterson's Motion for Summary Judgment (d/e 14) (Peterson Motion). The Government brought this action to recover erroneously paid refunds from the Petersons' 1997 and 2002 joint income tax returns, pursuant to 26 U.S.C. § 7405. For the reasons set forth below, the Motions are allowed in part and denied in part.
The Petersons are married and filed joint income tax returns in 1997 and 2002. The Petersons reported in their 1997 tax return that they had an adjusted gross income of $785,823.00 and a total tax liability of $297,090.00. The Petersons paid this tax liability with estimated tax payments. The Petersons reported in their 2002 tax return that they had an adjusted gross income of $828,716.00 and a total tax liability of $320,342.00. They paid this tax liability with a combination of withholding and estimated tax payments. Stipulation of Facts (d/e 12), ¶¶ 1, 2.
On April 8, 2006, the Petersons filed amended tax returns for 2002 and 1997. The 2002 amended return claimed a net decrease in income of $1,219,206.00 resulting in a negative gross income of $390,490.00. The Petersons made the following statement in the return:
This return is intended to claim as an ordinary business loss all monies expended by the taxpayer in capital contributions, legal fees, loan guarantees and other expenditures. The taxpayer acknowledges that some of these expenses may be in the nature of a capital loss, but given the lack of reporting from the pass-thru entities, has elected to protect his interests by asserting the maximum claim in the absence of complete facts.
Id. ¶ 3. The Petersons claimed a refund of $281,559.00. The Petersons' 1997 amended return claimed a refund of tax in the amount of $148,765.00 based on the carry back of the net operating loss from 2002 in the amount of $364,728.00. Id. ¶ 3, 4.
The Internal Revenue Service (IRS) issued checks on July 17, 2006, to the Petersons for income tax refunds for 1997 and 2002. The checks were dated July 14, 2006. The 1997 refund check was for $148,765.00, representing tax principal only. The 2002 refund check was for $334,979.21, representing $281,559.00 in tax and $53,420.21 in interest. The Petersons negotiated both checks. The 1997 refund check cleared the Federal Reserve on July 21, 2006. The 2002 refund check cleared the Federal Reserve on July 25, 2006. The Government filed this action on July 25, 2008. Id. ¶ 5-7, 10.
The Petersons actually incurred ordinary business losses of $605,961.78 in 2002, rather than $1,219,206.00. If the $605,961.78 was applied as deductions to the Petersons' 2002 income tax liability, then the Petersons' corrected income tax liability for 2002 would be $81,355.00. Interest on the overpayment from April 15, 2003, to July 17, 2006, would be $45,345.34. Under this computation, $50,646.87 of the 2002 refund was erroneous. Id. ¶¶ 8, 10.
Under this computation, there was no excess loss to carry back to 1997 tax year. The parties, however, stipulate:
Shortly before this suit was filed, the two-year statutory period of limitations in 26 U.S.C. § 6532(b) expired with respect to the commencement of an action to recover, as an erroneous refund, the refund that was issued to the defendants for the year 1997. (This stipulation shall not be construed to waive the United States' contention that the erroneous refund for 1997 may be offest against the refund that was claimed by the Petersons for the year 2002, so that a portion of the 2002 refund that was made to the Peterson may be considered erroneous under the doctrine of recoupment and may be recovered for that reason.)
Id. ¶ 9. The Government further makes no claim that the Petersons committed any fraud in filing the amended returns in 2006 or claiming therein the refunds for 1997 and 2002. Complaint (d/e 1); United States' Motion for Summary Judgment (d/e 13), at 5.
Both parties move for summary judgment. At summary judgment, the moving party must present evidence that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The Court must consider the evidence presented in the light most favorable to the non-moving party. Any doubt as to the existence of a genuine issue for trial must be resolved against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Once the movant has met its burden, the non-moving must present evidence to show that issues of fact remain with respect to an issue essential to its case, and on ...