UNITED STATES v. WILLIAMS
Legal provision: Internal Revenue Code
Argument of Kent L. Jones
Chief Justice Rehnquist: We'll hear argument next in Number 94-395, United States v. Lori Williams.
Mr. Jones: Mr. Chief Justice, and may it please the Court:
A person whose property has become entangled in Government efforts to collect taxes owed by someone else has a broad variety of remedies.
The nontaxpayer may challenge the Government collection action in a wrongful levy, a quiet title, or a foreclosure proceeding, and may obtain a release of the Federal lien if they want to make an immediate sale by providing substitute collateral from the proceeds of the sale.
Historically, however, nontaxpayers have not been permitted simply to pay the tax and sue for a refund.
The collateral litigation of tax obligations by nontaxpayers would present a quagmire of problems that the courts and Congress have not traditionally sanctioned.
In this case, however, the Ninth Circuit held that a nontaxpayer whose property became subject to a lien that arose from someone else's obligations may simply pay the tax, even though she admittedly didn't owe it, and sue for a refund.
Unknown Speaker: Mr. Jones, do you concede that the lien was improper because at the time notice of it was given the person who allegedly had incurred the tax liability was not the owner of the property?
Mr. Jones: No, Justice Ginsburg, we don't concede that.
Indeed, the facts reflect that the lien would have been valid as against the nontaxpayer because she took the property from her husband without qualifying as a purchaser.
She took the property from her husband without paying what the statute requires, full and adequate consideration in money or money's worth.
Unknown Speaker: I thought that was conceded, or that was the premise of the decision below, was it not?
Mr. Jones: Not... not quite.
Unknown Speaker: The... it did--
Mr. Jones: Neither court, if I--
Unknown Speaker: --Just as a matter of chronology, is it not so that the notice of lien was filed some weeks after the property was transferred?
Mr. Jones: --After the transfer, and our point with respect to that is that the notice of lien is not needed to be valid as against a person who took the property without qualifying as a purchaser, under 6323 of the code.
The respondent in this case--
Unknown Speaker: But you say you don't have to litigate that issue?
Mr. Jones: --That issue hasn't been reached by either of the courts below, because this issue... the case has been decided solely on jurisdictional grounds.
The court of... the district court found no jurisdiction because she wasn't a taxpayer and couldn't sue under the statute.
The court of appeals found jurisdiction and ordered the case remanded for consideration of the merits of our lien.
We brought the case to this Court solely on the jurisdictional issue.
If the Court thinks there's no jurisdiction, that's the end of the case.
If the Court thinks there is jurisdiction, it should be remanded for that type of issue that you've just described to be discussed.
Unknown Speaker: Well, Mr. Jones, 1346 confers jurisdiction on the district courts.
Mr. Jones: Yes.
Unknown Speaker: But traditionally, in cases like Testan, we've said that simply conferring jurisdiction is not enough.
There must be a grant of some sort of cause of action--
Mr. Jones: Right.
Unknown Speaker: --to waive sovereign immunity.
Where do we find that?
Mr. Jones: The short answer to that question is that the waiver of immunity for a claim that would fall within 1346(a)(1) is in section 7422(f) of the Internal Revenue Code.
Unknown Speaker: But that appears just to be a statute of limitations.
Mr. Jones: No, sir, 7422(f)--
Unknown Speaker: (f).
Mr. Jones: --is a statute that says that a claim of the type permitted by 7422(a)... this is very complicated.
I just want to say that at the outset.
7422(f) says that a claim of the type permitted by 7422(a) must be brought against the United States rather than the district director, who used to be the collector.
If you will recall, at common law these tax refund suits could not be brought against the United States.
They were brought against the collector.
Unknown Speaker: That's what made Mr. Helvering famous.
Mr. Jones: I believe that's correct.
"I would like to cite the Helvering case. "
used to be an easy answer to a tax question.
But let me focus, if I may, on exactly the rationale of the court below and why we think it's wrong.
The court said that the simple language of 1346(a)(1) says that a suit may be brought against the United States for the recovery of any tax illegally or erroneously assessed or collected.
The court said the plain language says that if you're alleging that the tax is illegally assessed or erroneously collected, you can proceed.
The central premise of that analysis is that it is appropriate to view 1346(a)(1) in complete isolation from any other provision of the code, and this Court has twice rejected that very contention in the Flora case and again most recently in United States v. Dalm.
Unknown Speaker: Mr. Jones, would you go back in time with me before there were those later provisions?
As I understand it, 1346(a) has been with us since, what, 1911?
Mr. Jones: 1921.
Unknown Speaker: And the other provisions, the subsequent--
Mr. Jones: The provision that this Court held in Dalm modifies 1346(a)(1) is 1724(a) of the Internal Revenue Code.
1724(a) of the Internal Revenue Code was enacted in 1878.
Its language was the model from which 1346(a)(1) was drawn when jurisdiction was first provided for suits against the United States.
Before jurisdiction was provided for suits against the United States for tax refunds, 7422(a) of the code had already been in existence for almost 50 years.
Unknown Speaker: --But the language of 1346(a) and 7422 are matching, and neither or those use the word "taxpayer".
Mr. Jones: No, they--
Unknown Speaker: So the critical statute you're relying on is not either one of those.
Mr. Jones: --It is, in fact, 7422(a).
7244(a) says that any claim for refund must first be filed with the Secretary of the Treasury before it may be maintained in any court.
In Dalm, the Court concluded that's a jurisdictional limit.
That's an express limit on the jurisdiction that coexists with 1346... you have to read these together... and the Court further said in Dalm that to decide what that meant you have to file the claim for refund with the Secretary of the Treasury.
You have to go to 6511 of the code.
6511 of the Code requires that the administrative refund claim be filed by the taxpayer.
Unknown Speaker: What year did that come in?
Mr. Jones: I can't say.
Unknown Speaker: It was after 1346(a)?
Mr. Jones: I doubt that, but I can't say.
The requirement of an administrative refund claim has existed since 1878.
Unknown Speaker: Not the requirement of an administrative refund claim, but the time limit that refers to the taxpayer.
The language in 7422 of the code and 1346 mesh.
They're the same, and they don't refer to any taxpayer.
Mr. Jones: That's absolutely right, but 74... our point is that 7422(a) requires that there be a refund claim filed in accordance with law.
Not just a refund claim, a refund claim filed with the Secretary in accordance with law, and I'm making the same point that the Court made in deciding the Dalm case, that you have to then go to 6511 to see what that means.
Unknown Speaker: But I don't think 6511 provides what you say it provides, because 6511 it seems to me doesn't provide anything more than the fact that a claim for credit or refund of a tax with respect to which the taxpayer is required to file a return shall be filed by the taxpayer within certain periods.
It doesn't seem to address the question of a refund which is claimed by someone who was not required to file a return as a taxpayer in the first place.
Mr. Jones: Actually, I believe that the language of 6511 would apply whether or not a return is required to be filed.
The taxpayer is required to file the administrative refund claim within 3 years, I believe, of payment... no, I've got that backwards.
Unknown Speaker: Well, it applies whether or not a return was filed.
Mr. Jones: Right.
Unknown Speaker: But isn't it conditioned upon the requirement of filing by the taxpayer when the taxpayer is the claimant?
Mr. Jones: Is--
Unknown Speaker: I mean, isn't that what the text says?
"claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within. "
There seems to be a condition that limits the application of this to refunds by a taxpayer who was required to file a return, and it doesn't seem to speak to the situation we've got here.
Mr. Jones: --I'm sorry, I don't believe that's correct, because if you read on, at page 3 of our brief we quote this provision.
Unknown Speaker: Yes.
Mr. Jones: And the last clause of that sentence says,
"or if no return was filed by the taxpayer. "
Unknown Speaker: If no return was filed by the taxpayer--
Mr. Jones: And that--
Unknown Speaker: --but here, her claim is, I am not a taxpayer within the meaning of the statute, because I was never required to file a return as to the taxes you are ultimately collecting.
Mr. Jones: --Well, she can't qualify as a taxpayer under the code.
However, you parse the last clause, and I just respectfully disagree in terms of how that language parses.
The way it has always been understood... and when I say always, except for the Martin case and this case... is that a taxpayer must make the administrative refund claim, and that only... and the term 7701 of the code to mean the person subject to the tax.
It is a--
Unknown Speaker: Mr. Jones, always understood, that's hardly universal.
There's one well... widely used Verna and Kafka Litigation of Federal Tax Controversies that states... this is from the 1986 issue... that a third party who pays the taxes of another under duress may recover the amount paid even if the taxpayer owes the deficiency, and in determining whether payment has been made under duress, the courts have examined the coercive circumstances that prompted the payment and the lack of alternatives available to the payor.
That's a widely used manual.
It's certainly not authoritative, because it doesn't come from the Government, but how can you say it was generally understood that in light of a statement like this?
Mr. Jones: --I would respectfully disagree with that treatise's description of the law.
Unknown Speaker: You may very well disagree with it, but you can't say until this case, it was generally understood that.
Mr. Jones: --I think I--
Unknown Speaker: You can say it was debatable.
Mr. Jones: --Well, whether it was debatable or not, the way we understand the cases is as follows.
Every case that has actually addressed the question of whether a nontaxpayer may bring a refund suit has said no.
There are two lines of authority that follow along that same principle.
One line of authority is the Parsons v. Anglim type case, where the person who paid the tax did so under what the Court said was a reasonable assumption, or a reasonable belief that the Government was taking the position she was the taxpayer.
Obviously, a person can come in the court and say, well, I paid the tax because you claimed it was due from me, but I don't think I owe it.
I'm not really the taxpayer.
I don't owe this tax.
That's one line of authority.
The other line of authority are the kinds of cases like Stewart v. Chinese Chamber of Commerce, which is cited in the Phillips decision in the Second Circuit, and in that case the court says a nontaxpayer cannot bring a refund suit, but what they can do... and this may relate to the point that you just raised, Justice Ginsburg... what they can do is that before 1966 they could sue the collector, the district director, to recover property that the district director had taken to pay someone else's taxes.
Now, in the First National Bank of Amlinton case, which we cite in our brief simply as the First National Bank case, it's the Third Circuit case, the Court explains the limit on that branch, if you will, of authority to recover property, and that is that once the Government has sold the property and the money has been deposited in the Government's Treasury, that avenue of jurisdiction doesn't exist, because then it would be a suit against the United States for a refund.
So I don't have the treatise that was in front of you.
It wasn't briefed, and I'm not able at this moment to adequately--
Unknown Speaker: I just brought it up because of your statement that until this case it was generally understood, and I think it's not generally understood.
Mr. Jones: --I think that it... I would go so far as to say I submit that it is perfectly accurate to say that other than the two lines of decisions that I just described, every court that has addressed this subject has said, other than Martin and the current decision, has said that the... a nontaxpayer may not sue for a refund.
Unknown Speaker: What has been the basis of those courts' position?
Mr. Jones: There have been a variety of bases.
The Federal Court of Claims in the Economy Plumbing & Heating case applied the reasoning that I have described, which is... and the Court's reasoning in Dalm, which is, you have to read these statutes together.
As this Court said in Flora, in making the very point that you could not read 1346(a)(1) in isolation, and I'll quote the Court: we are not here concerned with a single sentence in an isolated statute, but with a jurisdictional provision which is a keystone of a carefully articulated and quite complicated structure of tax laws.
Unknown Speaker: Okay, but where in that complicated structure do they derive the principle that a nontaxpayer can't sue?
Mr. Jones: I'll track the reasoning.
1346(a)(1) permits jurisdiction for suits challenging taxes.
Let's abbreviate it that way.
7422 says that in such a suit you can't--
Unknown Speaker: 7422(a)?
Mr. Jones: --Of the Internal Revenue Code, yes.
Unknown Speaker: Yes.
Mr. Jones: It says that such a suit may not be maintained until a claim has first been filed with the Secretary of the Treasury in accordance with law.
Unknown Speaker: So far we have no limitation to taxpayers, either in 1346 or 7422.
Mr. Jones: And like in Dalm, we go on to 6511, and 6511 says that this claim that has to be filed before you can proceed with a case under 1346--
Unknown Speaker: But again, the statute doesn't limit that to taxpayers.
Mr. Jones: --Yes, it does.
Unknown Speaker: You think 6511 does?
Mr. Jones: In 6511(a), it says that the claim shall be filed by the taxpayer within a period of years from the time of the payment of the tax to the filing of the return, or if there was no return--
Unknown Speaker: Well, that's the statute of limitations section.
Mr. Jones: --Yes.
Unknown Speaker: Now, did this taxpayer file an administrative claim for refund first?
I thought she did.
Mr. Jones: She filed an administrative claim for refund, but she is not the person who is the taxpayer.
Unknown Speaker: But she was in effect compelled by the Government to do something because the lien had been slapped on the house and she was trying to sell it, and there is a degree of Government compulsion.
It's not like the volunteer that you've been concerned about in your brief.
This is someone who had a lot of pressure put on her to dispose of this thing.
Mr. Jones: The statutory structure that I've described wasn't the result of historical happenstance.
Congress has long been aware that nontaxpayers cannot sue for a refund under these provisions, and instead of providing jurisdiction for nontaxpayers to sue for a refund, they provided a wholly separate set of remedies directly addressed to the problems that nontaxpayers face.
Two of those remedies are particularly relevant to this case.
Section 7426... well, let me start with the second one, because it more directly addresses your concern.
In section 6325 of the code, Congress provided that a person like respondent, whose property is subject to a lien arising from someone else's taxes, doesn't have to pay the tax to remove the lien.
Unknown Speaker: All right, except that's a discretionary thing with the IRS, and here she's got an escrow that's going to close in a week, and is there any indication in the world that the IRS would have given her this?
They didn't come to her and say, look, you can do this, and we'll offer to let you put it in escrow.
They didn't tell her that.
Mr. Jones: Might I first state there's absolutely nothing in the record one way or the other about the conversations that did or did not occur between the Service and the respondent on this subject, and I would encourage--
Unknown Speaker: Well, can you tell us whether in general it is the practice of the Government to notify people in this situation who don't owe the tax but whose property is going to be subject to a foreclosure sale if they can't sell it, is it... just like the Social Security Office gives people notice of the death benefits that they're entitled to, does the IRS advise people in these situations?
Mr. Jones: --Let me divide your question from the foreclosure to this sale situation.
In a foreclosure situation is when a suit is brought and everyone is going to know then that the validity of the liens is going to be adjudicated in that fashion.
The problem that Justice O'Connor was addressing was, well, what if someone wants to make a sale of their property?
I don't know how to answer that question any better than to say that Congress anticipated that concern and made an express provision for it.
Unknown Speaker: But my question to you is, if she's trying to avoid... she wants to sell the property so she'll avoid a foreclosure.
This statute that you tell us fits our situation, I asked if the IRS has a practice of telling taxpayers that's their remedy.
It's certainly phrased in highly discretionary terms.
There's nothing that requires the Government... it says the Government may do this if it wants to.
Mr. Jones: Well, it doesn't quite... well, I mean, you could understand it to mean that, but what it says is that he may in his discretion enter into... the Commissioner may in her discretion enter into these--
Unknown Speaker: Can you think of a more discretionary way of saying, in the director's discretion, the district director may in his discretion?
Mr. Jones: --I don't think that anyone doubts that the Commissioner will exercise her discretion to enter into these agreements.
The discretionary aspect of it is what exactly the agreement needs to contain.
Unknown Speaker: Is that based on your knowledge of what's done in the field?
The district directors--
Mr. Jones: --Yes.
Unknown Speaker: --regularly exercise their discretion to make these agreements?
Mr. Jones: Well, there's nothing on that in this record.
I want to be frank about that.
Unknown Speaker: And the point is, isn't it, that you don't really care, under your reading of the statute?
They can act with total arbitrariness and there's still no remedy.
Mr. Jones: No, sir, I wouldn't say that.
Unknown Speaker: Well--
Mr. Jones: There's no refund remedy, that's right.
Unknown Speaker: --There's no... section 3225(b)(3) doesn't help if the Government acts with total arbitrariness.
Mr. Jones: I would say that it does, because if someone... if the Commissioner arbitrarily abused her discretion in refusing to provide a substitute collateral agreement, I suppose that that would help that there would be some basis--
Unknown Speaker: And there would have been jurisdiction in this case?
Mr. Jones: --Well--
Unknown Speaker: You're not saying that.
Mr. Jones: --There wouldn't be in this case, Justice Stevens--
Unknown Speaker: Well, that's what I'm talking about.
Mr. Jones: --because in this case she sued for a refund.
She didn't follow that path, so what would or wouldn't have happened if she followed that path is something we don't know.
Unknown Speaker: Yes, but the statute does not read that the Commissioner shall, unless there is in her judgment reason not to do so, enter into such an agreement.
It doesn't say that.
It just says, she may if she wishes.
Mr. Jones: Well, it says it... she may in her discretion.
Unknown Speaker: --Yes.
Mr. Jones: And how a court would decide whether discretion had been abused in a particular situation is frankly a little bit far removed from the question we--
Unknown Speaker: Hasn't that language--
--That's the point.
Mr. Jones: --Which is, whether there's jurisdiction for a refund suit for a person who didn't do that.
Unknown Speaker: It's not that it's far removed, it's... at least in my mind.
It seems... a woman pays the tax her husband owes, and she has to do it, because she can't sell the property otherwise, in my imaginary case.
Now, that tax was unlawfully assessed.
There should be some way she could be able to get the money back, and one way to get the money back is, she brings a refund suit.
That would work.
And you tell us, no, there's this other way, but the trouble with the other way is, it gives the discretionary power to the district, and they write that right in the regs... this is discretionary.
So that's a problem with the other way.
Now, what happens bad to the law if we try the first way?
That is, suppose we read the word, refund suit, to apply to this situation, and you say yes, they have to file a claim, but nothing in 65... nothing in 6511(a) says that the husband or the wife of the taxpayer couldn't do it.
That's a statute of limitations provision.
So what would, bad, happen to the law if you read the refund thing the way your opponents want it?
Mr. Jones: That's... to us that's a very important question, because we think that this result, deviating from the language of the statutes and the cases, would produce incredibly bad results.
It's difficult to describe that with precision precisely because there is not a track record of cases allowing tax refund suits, collateral challenges to taxes by persons who aren't taxpayers.
Unknown Speaker: What if you just said the person who paid the money can file to get her money back?
Mr. Jones: --You would be permitting a collateral litigation of someone else's tax liability by the person who wasn't, by definition, obligated for it.
Unknown Speaker: Oh, no, no, no, she's not seeking to contest whether the husband owes the tax.
She's seeking to contest only the propriety of the lien on that property.
Mr. Jones: If you look at page 6, footnote 3, of respondent's brief, you'll see that they do contest the underlying assessments.
They have done so in the district court at page 8--
Unknown Speaker: Well, let's assume... let's assume that the only issue that she's bringing up is her issue, not his issue.
Could she... let's just say, she wants to ask for more.
Maybe she's not entitled to it.
But if all she wants to contest is the propriety of putting the lien on her property, nothing more, why can't she use 1346, the refund, 1722--
Mr. Jones: --I understand your point.
There isn't any easy way to differentiate to reach that result.
You can't very well say that the nontaxpayer can challenge an erroneous collection but can't challenge an unlawful assessment if you read the statute on its... without reading anything else, and I don't know what else you'd be reading to import that requirement in the 1346(a)(1).
Unknown Speaker: --Why not the simple... the simple point that the wrong that was done to her was that a lien was put on her property?
Mr. Jones: --Well, it wasn't... that's a question that hasn't been resolved.
Unknown Speaker: But that's her controversy with the Government.
Her husband has a... her ex-husband has a different controversy.
She wants to litigate her controversy.
Mr. Jones: --The problem... I take it we accept as taken that there's an enormous problem from allowing the collateral litigation of the liability itself.
Unknown Speaker: I don't accept that.
I don't see why it's so much more horrible if she's got two reasons for getting the money back, 1) that she was put upon, and 2) that the tax wasn't owed in the first place.
Why is that so horrible?
Mr. Jones: Okay.
We don't know how collateral estoppel and res judicata would apply then.
Would we have to bring suits against... would we have to win our tax cases two or three times?
Clever practitioners, of whom there's many, would be able to identify a host of issues here.
Let me explain one simple one.
It's just an example.
The statute of limitations.
What statute of limitations would apply to a refund suit by a nontaxpayer Section 6532--
Unknown Speaker: How about the precedent of this Court set in Lampf?
You look in the same statute for the closest analogy.
Here we've got a wonderful statute we can look at, 6511.
Mr. Jones: --6532 is the statute of limitations for a refund suit.
It... 6511 is for the refund claim.
6532 is for a... is divided into two parts.
The first part is suits for refund by taxpayers and it provides for a suit may be brought within 2 years from the time notice of disallowance of the claim is given to the taxpayer.
Section... the other half of 6532 is entitled, suits for refund by persons other than taxpayers, and it gives a 9-month statute of limitation for suits for wrongful levy by persons other than taxpayers.
There is no clear answer to which of these--
Unknown Speaker: There's no wrongful levy here when they never got to the point of making the levy.
They just put a notice--
Mr. Jones: --Yes.
Unknown Speaker: --They notified her of the lien.
Mr. Jones: There's no clear--
Unknown Speaker: --another statute that you haven't mentioned, and I wonder if you can tell us how that plays into it?
You said that there's... is there a basis for a claim... 6402 provides... gives authority to make a refund.
Mr. Jones: --Yes.
Unknown Speaker: And it doesn't use the word, taxpayer.
Mr. Jones: That's correct.
What it says--
Unknown Speaker: So she has a claim for a refund, and then here's a substantive provision that says, the Government can give somebody a refund--
Mr. Jones: --For an overpayment--
Unknown Speaker: --A refund to the person who made the overpayment.
Mr. Jones: --Right, and there was no overpayment in this case.
Unknown Speaker: Could you--
Mr. Jones: There would only be... but beyond that, even if there was a claim of an overpayment, it would only be maintained in court under 1346 if it had been first filed as an administrative claim by the taxpayer.
The taxpayer is defined to mean the person subject to the tax.
You cannot allow non--
Unknown Speaker: --But you get all that from 6511, and then the definition of taxpayer.
Mr. Jones: --And from 80 years of cases addressing this subject that have reached the same conclusion, and from the fact that congress relied on that conclusion in an action--
Unknown Speaker: Do you have a case like this one, where the person who is making the claim says, this was my property.
The Government came in and slapped a lien on it.
I had nothing to do with this tax, but I need to sell the property.
Do you have any case--
Mr. Jones: --Yes, Busse.
Unknown Speaker: --You keep saying... what is the closest case to this one?
Mr. Jones: The Seventh Circuit decision in Busse is just like this case.
Unknown Speaker: All right.
There are other circuit cases going the other way, are there not?
Mr. Jones: Only consistent with the two lines of authority I described earlier.
If I may... yes, sir.
Unknown Speaker: Well, let me ask... I want to ask you a question before your time expires.
What about where the IRS simply mistakes the property that it has a right to lien?
It says, the lien is on lot 2 and it's really on lot 3.
What remedy does the owner of lot 2 have?
Mr. Jones: I didn't understand your hypothetical, and I think I may need to.
Lot 2 is--
Unknown Speaker: Lot 2 has no connection--
Mr. Jones: --No connection--
Unknown Speaker: --with the tax liability.
The IRS simply makes a mistake in the legal description.
Mr. Jones: --They can bring it to the IRS' attention, and the IRS would remove the lien.
Unknown Speaker: Well, but supposing you're going to have a particularly... a curmudgeon, who's the IRS--
Mr. Jones: Then they can bring... then they bring a quiet title action, or if that's... if they're in a big hurry, they make a substitute collateral agreement.
Unknown Speaker: That's 65... that's again the discretionary thing.
Mr. Jones: Well, it's discretionary in our view in the sense that Congress wants us to do it when we can work out provisions that make sense in the facts of the case.
Unknown Speaker: Is your answer--
Mr. Jones: I don't think that anyone has suggested that we've abused our discretion.
Unknown Speaker: --Mr. Jones, is your answer to the chief in the case of somebody who is no relation to the taxpayer at all, just a wrong lien on the wrong piece of property, that the only remedies are a quiet title suit... by the time that gets over the foreclosure has long since occurred... or this, within his discretion?
Are those the only two remedies?
Mr. Jones: No.
Unknown Speaker: What else?
Mr. Jones: Well, a foreclosure suit and a quiet title suit are wholly separate issues.
Foreclosure is when we--
Unknown Speaker: I'm not talking about a foreclosure suit.
I'm talking about somebody who wants to sell her property.
Mr. Jones: --They bring a quiet title suit, or they make a substitute collateral agreement if they're in a hurry.
Unknown Speaker: --And if the district director says, in my discretion, no, then what is there?
Mr. Jones: Well, then there--
Unknown Speaker: She's in a hurry.
Mr. Jones: --There's the same kind of a problem they would have with any private creditor who has a lien.
I mean, there's nothing unique about the Government's position in this case.
Unknown Speaker: All right, if I have to read--
Mr. Jones: Pardon me?
Unknown Speaker: --in your mind, the sanctity of the following proposition.
Person A should not be able to litigate the liability of taxpayer B.--
Mr. Jones: That's correct.
Unknown Speaker: --That's sacred.
Mr. Jones: That's sacrosanct.
Unknown Speaker: All right, but that is, in my mind, not a tax expert, what do I read?
What one thing can I read that will help me understand the sacredness of that principle?
Mr. Jones: Flora and Dalm.
Unknown Speaker: Flora?
Mr. Jones: This Court's opinions in Flora and Dalm.
Unknown Speaker: All right, fine.
Dalm was not your proudest moment, I don't think.
Thank you, Mr. Jones.
Argument of Philip Garrett Panitz
Mr. Panitz: Mr. Chief Justice, and may it please the Court:
The Government's argument in this case absolutely infuriates me.
First of all, they mistake the record.
Justice Ginsburg was correct in her statement with regard to the record, and I'll cite you to the specific parts of the record where the Government conceded factual issues in this case.
On page 24 on the Joint Appendix is a transcript from the district court where the judge of the district court asked both counsel, are there in this case any triable issues of fact?
Both counsel stipulated that there were not.
The judge ultimately decided the case as there were no triable issues of fact and that the sole question in this case was jurisdiction, and that is in the petitioner's petition for cert, page 9A of their appendix.
Unknown Speaker: Well, that by itself doesn't--
Mr. Panitz: That's absolutely correct.
Unknown Speaker: --tell us much of anything as to what might have been triable issues of fact.
Mr. Panitz: Well, in our complaint, we alleged certain facts, and then in their answer they denied these facts, and then the Government in their conclusions of law submitted to the Court, which is in the Joint Appendix, page 11, their number 12, which specifically states there are no longer any genuine issues of triable fact, which to me means that whatever the issues were in the case from the complaint to the answer no longer exist.
Unknown Speaker: Did this go up on a motion for summary judgment?
Mr. Panitz: The judge recharacterized it from a motion for summary judgment to a trial on stipulated facts, and... originally it was submitted as a motion for summary judgment, but he recharacterized it.
He said, there are no more facts to try here, so we're going to recharacterize as a trial on stipulated facts, and sole issue being jurisdiction.
Unknown Speaker: And so it was a trial on stipulated facts because the parties stipulated that there were no triable issues of fact?
Mr. Panitz: That's correct.
Unknown Speaker: That's quite remarkable.
Mr. Panitz: The Government in essence is arguing that it doesn't matter, because the Government's argument is that she's not the taxpayer, that she has no jurisdiction to sue, so whether or not their collection was erroneous or not is really irrelevant, according to their argument.
The Government makes this convoluted argument about the statutory scheme.
We are not arguing with the statutory scheme in this case.
We agree that the Internal Revenue Code provisions are pertinent and do apply, as this Court ruled in Dalm and also in Flora.
However, the Government blurs the statutory scheme in this case.
Rather than looking at each independent statute and seeing what the purpose was, both as a matter of law and as a matter of tax policy, they instead blur them all together and say, this prevents the petitioner in this case to sue, simply because 6511, which is a procedural statute of limitations, has the word 7422, which is the cause of action section, does not have the word "taxpayer" in it.
It requires that, as a matter of tax policy, the petitioner file an administrative claim with the Internal Revenue Service, which she did, and as a matter of tax policy there's justification for that.
Why file an action in district court, and incur additional litigation, if you could just ask the IRS for your money back, and if they agree with you and they review that and they realize they made an error--
Unknown Speaker: Are there any authorities indicating that the IRS has processed and paid administrative claims that are filed by persons other than the taxpayer?
Mr. Panitz: --No.
There's nothing in the record to reflect that, and they probably... and this is just my speculation... dismiss them as a matter of course, but we went through, and went through the process of filing this administrative--
Unknown Speaker: Dismiss the claims?
Mr. Panitz: --They dismiss the administrative claim for refund, and the reason they gave in this case--
Unknown Speaker: So the position of the IRS has been consistent that it will only honor refund claims when filed by the taxpayer?
Mr. Panitz: --That's their position, but we complied with the statutory scheme by filing the administrative claim, which was then denied, and we then proceeded to district court.
Unknown Speaker: Well, Mr. Panitz, as I understand the Government's reasoning, it's that 7422 says that no suit shall be maintained until you've filed for a refund, and 6511 says that the claim for credit on the... under the refund section must... shall be made by the taxpayer.
Now, what is your answer to that?
Mr. Panitz: Well, the Government's position with regard to 6511 makes that provision the Charles Atlas of all tax provisions, because it literally reaches across from title to title and injects 28.
Unknown Speaker: Well, but if it really is a keystone... I mean, if you have to do this in order to bring a suit for refund, and if to do it you have to be a taxpayer, perhaps that is its effect.
Mr. Panitz: But the actual language in 6511 is not limiting jurisdiction.
It is solely a statute of limitations.
Unknown Speaker: Yes, but 7422 says that must be complied with before you bring a suit for refund.
Mr. Panitz: No, actually, counsel misstated the purpose of 7422.
Section 7422 requires the administrative claim for refund to be filed with the Internal Revenue Service.
That is governed not under 6511, but under 6532(a), which says that the administrative claim for refund must be filed with the Internal Revenue Service, and that the Internal Revenue Service has 6 months to review your claim.
Unknown Speaker: It doesn't say, by the taxpayer?
Mr. Panitz: --It doesn't say, by the taxpayer, so there's no limitation there.
You know, over the years that I've been involved in this case, I've wondered why is the Government taking such a harsh position in this case, such an inequitable position, and after reading their brief for 4 years, I'm still not all that sure why they're taking this position, but I think--
Unknown Speaker: Well, nobody ever claimed the tax laws were equitable.
I mean, they're fairly strict.
Mr. Panitz: --They are fairly strict, but they should be fair.
They should be fair as a matter of tax policy.
I don't think when Congress enacts tax legislation that they're trying to be inequitable to people.
Unknown Speaker: Yes, but they argue that it is fair.
Their argument is, you didn't follow the right route.
They said, there's the sacred principle person A should not be able to litigate the tax liability of B, so if your client is concerned with B's tax liability, that should not be up to her.
If your client feels that they didn't assess the lien and do the procedural stuff properly, there is a perfectly good route.
You go to the IRS, you make a deal with them, you sell the property, you pay the proceeds into the fund, and you conduct your argument vis-a-vis the proceeds.
Now, there's a flaw in that route.
The flaw is the word "may" which in the regs have turned into "discretionary", but they say that flaw in practice is not important, while the other flaw of accepting your argument is very important, because if we accept your argument, A can litigate the underlying tax liability of B, and that violates the sacred principle.
So where we all are is, how sacred... or, at least where I am is, how sacred is this principle, what will happen... I'm spelling out because--
Mr. Panitz: Sure.
Unknown Speaker: --I want you to... yes, to reply to it.
Mr. Panitz: We're not arguing that she's going to go into court and litigate the liability of her ex-husband.
Unknown Speaker: But you asked for that.
Mr. Panitz: --We're--
Unknown Speaker: I gather.
Mr. Panitz: --No.
Unknown Speaker: But if we agree with you, it would happen.
It wouldn't happen if--
Mr. Panitz: We mentioned in a footnote as an irony that not only did she not owe the taxes, but her ex-husband didn't owe the taxes, either, but we're not saying that she was go into court and litigate his tax liability.
That's his problem, not hers.
Unknown Speaker: --But that doesn't matter, because even if you won't, the next person could.
Their problem is, once we take this route on the law, it's open to A's to litigate the tax liability of B's.
Mr. Panitz: No, I think this Court can limit its holding to simply whether or not the person that paid the taxes owed the taxes.
Unknown Speaker: Sure we could.
I mean, we could make up a whole new revenue code.
Where do you get that from the language?
Mr. Panitz: The language--
Unknown Speaker: The language of this thing either permits a suit or it doesn't permit a suit.
It doesn't say we're--
Mr. Panitz: --Exactly, and the language of the jurisdictional statute focuses on the language, erroneous collection.
Was there an erroneous collection as to Mrs. Williams?
Yes, there was.
Unknown Speaker: --Well, it doesn't say--
Mr. Panitz: She didn't owe the taxes.
Unknown Speaker: --as to Mrs. Williams.
It says, erroneous collection.
It could be erroneous--
Mr. Panitz: Any--
Unknown Speaker: --because they moved against the wrong person, it could be erroneous because the tax wasn't due.
Mr. Panitz: --Any sum alleged to have been excessive, or in any manner wrongfully collected under the Internal Revenue.
Unknown Speaker: Isn't it wrongfully collected if it wasn't owed?
Mr. Panitz: Yes, it is.
Unknown Speaker: Okay, so there you are.
You're in the soup, and anybody, even though your client may not have wanted it, somebody else can come in and try to litigate whether the tax was actually owed by her husband.
Mr. Panitz: Let's say that she litigates, and the district court rules that she didn't owe the taxes, and the taxes were erroneously collected as to her.
The Government then proceeds against the ex-husband.
Why shouldn't he have the right to go into court and litigate whether he owed the taxes or not?
Unknown Speaker: Well, of course he does.
The question is whether she does as well, and I'd like to get a clear answer from you on what it is exactly that she can contest.
You assert that she can contest the propriety of the lien on her property.
Mr. Panitz: Correct.
Unknown Speaker: You have a footnote that she, as well, can contest whether he ever owed the tax, and Justice Scalia pointed out that there's nothing in the statute, no language in the statute that would distinguish her contesting the lien on her property as distinguished from her contesting the amount of taxes her husband owes.
Mr. Panitz: I'm going to give you sort of an abstract analogy, but I'd like you to follow along just for a second.
There's a bridge that spans from San Francisco to Oakland called the Oakland Bay Bridge, and in the middle is... it's actually two bridges, because there's a span that goes to Angel Island, and then there's a span that goes on to Oakland.
The Government has to prove in this case, Number 1, if they're going to say that Lori Rabin Williams' property was liable for these taxes, they have to show why.
They have to show that her ex-husband owed the taxes, number 1, and that number 2, he still had some interest in this property, and then move that across the second span to her.
Our argument is, in this... the facts in this particular case, the second span of that bridge, they can't cross that at all, and the first span of the bridge, they can only cross that for about 25 percent, because in the facts of this case, he didn't even owe 75 percent of the taxes.
Unknown Speaker: It's not clear to me, what is it that she wants to contest if she goes into the district court?
You're saying that she is not going to contest the validity of the tax assessed against the husband?
Mr. Panitz: She's going to contest the validity of the tax lien that was placed on her property after she had been conveyed the property for adequate consideration and under the Internal Revenue Code that lien was in error.
It was based on that lien that the Government collected the taxes.
Unknown Speaker: Is the only way she can challenge that is by first paying the tax?
Mr. Panitz: By first paying... no.
She had three alternatives.
She could have filed an action for quiet title.
She could have put the money in the trust fund if the Government acquiesced in that.
Unknown Speaker: Would the quiet title have been adequate?
Mr. Panitz: Absolutely not, under the facts of this case, because of the way the lien arose.
She received the lien notice 7 days--
Unknown Speaker: Is what you're saying is that she'd lose on the merits?
Mr. Panitz: --No, she would not lose on the merits.
The facts... a lien is filed 7 days before escrow is closed.
That means that the quiet title option is not a viable alternative.
It does not mean that in other facts it may be a viable alternative.
The key focus, though, is that these remedies are not mutually exclusive.
Unknown Speaker: All right, so quiet title is one.
Substitute property, by putting the funds in escrow is another, but that's discretionary.
Mr. Panitz: Correct.
Unknown Speaker: Anything else?
Mr. Panitz: And she could file a claim for refund if she acquiesces in the payment of the taxes under duress--
Unknown Speaker: Although that's the issue that is before us.
Mr. Panitz: --That is the issue here.
Unknown Speaker: Mr. Panitz--
Mr. Panitz: Yes.
Unknown Speaker: --a moment ago you said that, I believe, 6532 could be relied on to file... for filing the claim, you didn't have to rely on 6511, and that 6532 didn't mention the word "taxpayer".
6632 does use the term, "taxpayer".
Mr. Panitz: 6532 is the statute that provides that the administrative claim filed with the Internal Revenue Service must be allowed to be considered for 6 months or--
Unknown Speaker: Yes, but it refers to the claim by the taxpayer.
Mr. Panitz: --I believe that's 6511, Your Honor.
Unknown Speaker: No.
Let me read you the last three or four lines of 6532.
It talks about 2 years from the date of mailing by certified letter by the Secretary to the taxpayer, so that your suggestion there's an alternate way of coming, you don't need to rely on 6511, which uses the term, "taxpayer", your section that you rely on also uses the term, "taxpayer".
Mr. Panitz: Well, I'm not relying on that section for jurisdiction.
Unknown Speaker: Okay--
Mr. Panitz: I'm using it as the statute of limitations as well.
Unknown Speaker: --Well, okay.
What is it that enables you to file a claim for refund, as section 7422 does, that doesn't require that the claim for refund be filed by the taxpayer?
Mr. Panitz: Well, the--
Unknown Speaker: Tell me what section.
Mr. Panitz: --Sure.
Unknown Speaker: Can you give me a number?
Mr. Panitz: Well, for example, the definitional section, 7701(a), as part of the preamble, specifically states, number 1, the definition of taxpayer shall only be used in this title, which means it doesn't apply in the jurisdictional sections, title 28, and it also states that the definitions in 7701 shall not be manifestly incompatible with the intent of the statutes.
Unknown Speaker: Well, so you say perhaps the word taxpayer should have a different definition than the person who paid the tax?
Mr. Panitz: Well, when the word is used in a statute of limitations--
Unknown Speaker: But that would seem... I mean, that doesn't seem terribly difficult to define taxpayer as the person who paid the tax.
Mr. Panitz: --That's the generic sense that the word is used, unless it's defined differently--
Unknown Speaker: That's your client.
Mr. Panitz: --as a term of art.
Unknown Speaker: That's your client.
Mr. Panitz: That's right.
Unknown Speaker: Your client has paid the tax.
It's the Government that's trying to say taxpayer means only the individual who assertedly owed the tax.
Mr. Panitz: And we make that point in our brief, that she paid the tax.
Unknown Speaker: So your client paid the tax?
Mr. Panitz: When the word is used in the generic sense--
Unknown Speaker: I asked you a question.
Mr. Panitz: --Sure.
Unknown Speaker: Did your client pay the tax?
Mr. Panitz: Absolutely.
The fear that I bring up that the Government has--
Unknown Speaker: You do concede that you can't just volunteer to pay somebody else's tax and then go litigate it.
Mr. Panitz: --There's a distinction between volunteering to pay somebody else's tax, and being in a position where you're coerced or persuaded to pay another person's tax.
There is a distinction.
The distinction, though, is that in the coerced or persuaded situation there's no possibility of the tax evasion or the floodgates argument that the Government is arguing in this case, because it's the Government that initiated the collection action.
Where's the scheme there?
The Government started the ball rolling.
In the pure, true volunteer situation... let's say a father pays the taxes of a son to help him out for altruistic reasons, and a year later discovers that the taxes were paid in error because, for example, there was something wrong on the son's return.
Why should not that father be allowed to proceed to court and prove that there was an error in collection here?
Now, the Government contends, well, there's possibilities of evasion here.
There's possibilities that there will be a slew of litigation on refund suits.
I'd like to take a moment--
Unknown Speaker: So you're not limiting your argument, then--
Mr. Panitz: --No.
Unknown Speaker: --to the coercion case?
Mr. Panitz: No, I'm not.
Unknown Speaker: So you disagree, as Mr. Kent did, with that manual that says you can pay someone else's tax in a situation of duress and then sue for a refund, but absent duress, if you're just a mere volunteer, you have no claim?
Mr. Panitz: The facts in this case obviously were the duress situation, and we absolutely say that there's no possibility for the Government's fears to come forward in that particular situation, but in the volunteer sense, and this Court doesn't necessarily have to go that far, but as a matter of tax policy, why not?
Why can't a person who in error paid tax, voluntarily even, why--
Unknown Speaker: Well, it seems to me we do have to go that far, under your interpretation of the statute.
Let me ask you one question before you get back to the Internal Revenue Code section.
What about a mechanic's lien?
Suppose that a person closes an escrow knowing that there's a mechanic's lien on the house, so that the mechanic's lien passes to the subsequent purchaser, can the purchaser challenge the mechanic's lien on the ground that the work was never performed?
Mr. Panitz: --I would assume so, under the facts of that hypothetical, that if the work was never performed, it would be a defense to a mechanic's lien, although I'm not an expert in mechanic's lien law, so I might be misspeaking.
Your honor, I would like, once again, to just take a moment to go into what the Government's concerns are, and to perhaps alleviate some of their fears.
In the situation that the Government cites in their brief, the possibility for tax evasion, you would have to have, in essence, two parties, on one hand a taxpayer, the person that owes the tax under their definition, and a friend... let's call him a coconspirator.
That coconspirator says to his taxpayer friend, I'm going to pay your taxes, we're going to wait for the statute of limitations to expire, I'm going to help you evade taxes, and then I'm going to file a refund suit.
That situation is somewhat preposterous in real life.
You're talking about a situation where a person's going to come out of pocket, using the numbers in this case, $40,000, on the hopes that they might get their money back if they file a refund claim, just to help their friend evade taxes because the statute of limitations is expiring.
Unknown Speaker: That's fanciful, but they're worried, I think, about another thing.
What statute of limitations would govern?
You'd have to either call your client a taxpayer, which would then give the words "taxpayer" different meanings in different sections of the code, which is worrying them, or alternatively you'd have to say, she's not a taxpayer, and then it would seem that no statute of limitations would govern.
We'd have to create one.
So that's one of the problems they've raised.
So how do you respond to that one?
Mr. Panitz: My response is on line with the courts that have ruled on this, and I cited a few in my brief, which were not authority to this Court, but I cited them just so that you could see how other judges have gone through the same analysis, which is that the word 6511 is used in its generic sense, that it's used as the person who pays the taxes.
It's not used as a term of art in that sense.
If Congress had wanted to use it as a term of art, why wouldn't they have just put it in the cause of action section, 7422?
Unknown Speaker: Don't we also assume that Congress wants some sort of a statute of limitations, and there is none on that reading.
How do we get the statute of limitations?
Do we do it the Lampf way?
Mr. Panitz: I agree, in essence with what the justice was just asking me, which is that it's construed in its generic sense in 6511, which makes 6511 the statute of limitations--
Unknown Speaker: I'm sorry, I misunderstood what you were saying.
Mr. Panitz: --If there are no further questions, Your Honor, I thank you for your time.
Chief Justice Rehnquist: Very well, Mr. Panitz.
The case is submitted.
Unknown Speaker: The honorable Court is now adjourned until Monday next at ten o'clock.
Argument of Speaker
Mr. Jones: The opinion of the court in number 94-395, United States against Williams will be announced by Justice Ginsburg.
Argument of Justice Ginsburg
Mr. Ginsburg: This is a case about internal-revenue service tax collection.
Lori Williams, a Californian, paid under protest federal taxes she did not owe.
The internal-revenue service had assessed these taxes against Jerrold Rabin, once but no longer Williams?s husband.
Williams paid the taxes to clear a federal tax lien on the home Rabin and Williams once co-owned a home transferred entirely to Williams as part of a property division proprietary to divorce.
Williams paid under protest so that she could proceed with the sale of her house, pursuant to a contract scheduled imminently to close.
She then sought a refund, asserting that the lien was invalid, when the internal-revenue service denied her refund claim, she brought suit in the Federal District Court in California.
In response to Williams?s suit, the government said, it did not matter whether the government had a right to her money.
Her plea could not be heard in court, the government insisted, because refund suits could be brought only by the person against whom the tax had been assessed here, Williams?s former husband.
The Trial Court accepted this argument but the United States Court of Appeals for the Ninth Circuit reversed.
We granted certiorari to resolve a defensive opinion among Federal Courts of Appeals on this question.
May a person not herself assessed, a tax who nevertheless pays it under protest, in order to remove a tax lien from her property to the government for a refund.
We read the key statute on refund actions, 28 U.S.C. Section 1346(a)(1) to allow Williams suit.
That statute speaks of suits to recover any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.
That language we hold covers people who pay taxes in the manner Lori Williams did.
The government relies on a chain of other statutory provisions to impose a limitation on tax refund suits that will leave Williams without a way to claim back her payment.
We do not think congress ordered the confinement of recent fund suits urged by the government.
Accordingly, we affirm the judgment of the Court of Appeals which allowed Lori Williams to maintain her refund suits.
Justice Scalia has filed a concurring opinion.
The Chief Justice has filed a dissenting opinion in which Justice Kennedy and Justice Thomas joined.