UNITED STATES v. BROCKAMP
Stanley B. McGill, whose estate is administrated by Marion Brockamp, paid the Internal Revenue Service money he did not owe. McGill, or his representative, submitted an administrative refund claim several years past the end of the applicable filing period set forth in the Internal Revenue Code of 1986. McGill asked the court to extend the statutory period for an "equitable" reason, namely that he had a mental disability that caused the delay. Although such a reason is not mentioned in the Internal Revenue Code, the Court of Appeals read the statute as if it contained an implied "equitable tolling" exception, which the court found justified, and therefore permitted the actions to proceed.
May courts toll, for nonstatutory reasons, the statutory time limitations for filing tax refund claims set forth in the Internal Revenue Code of 1986?
Legal provision: Internal Revenue Code
No. In a unanimous decision authored by Justice Stephen G. Breyer, the Court ruled that Congress did not intend the "equitable tolling" doctrine to apply to the Internal Revenue Code of 1986's time limitations for filing tax refund claims. Justice Breyer wrote that allowing such exceptions to the filing deadline "could create serious administrative problems by forcing the IRS to respond to, and perhaps litigate, large numbers of late claims."
Argument of Lawrence G. Wallace
Chief Justice Rehnquist: We'll hear argument next in Number 95-1225, United States v. Marian Brockamp.
Mr. Wallace: Mr. Chief Justice, and may it please the Court:
In these companion cases a divided panel of the court of appeals held that equitable tolling may be applied to enlarge or suspend the statutory periods that limit the time for filings and the amount of recovery that may be had on tax refund claims.
As we recount in our brief, recent decisions of the First, Fourth, Tenth, and Eleventh Circuits have held to the contrary.
Our submission is that those four circuits reach a result that is required by the text of the interrelated statutory provisions that govern here, and I would like to turn to the statutory text now, which is set out at pages 2 to 4 of the Government's brief.
And we start with the last of the provisions that set out section 7422(a) of the Internal Revenue Code, which the term before last in United States v. Williams this Court referred to as a provision that requires administrative exhaustion.
Unknown Speaker: This is found on page 4?
Mr. Wallace: On page 4 of the Government's brief, in the gray covers, and it says that no suit or proceeding shall be maintained in any courts, skipping down, until... for a refund, until a claim for refund or credit has been duly filed with the Secretary according to the provisions of law in that regard.
And the controlling provisions in our view are those set forth on the preceding two pages, the various provisions of section 6511 of the Internal Revenue Code, and... and that section starts off in subsection (a) with a statement of a period of limitation on filing a refund claim with the Internal Revenue Service.
For present purposes, since a tax return is required for an income tax, the claim must be filed within 3 years from the time the return was filed, or 2 years from the time the tax was paid.
Unknown Speaker: May I ask what might be an irrelevant question on that point, but would help with my understanding of the statute?
Apparently, in their brief on page 18 it did say as first enacted it said it's within 3 years from the time the return was required to be filed, and when you read the statute... the same thing came up I think last year, you know, in a different case.
Mr. Wallace: Yes.
Unknown Speaker: And I've never been able to understand the statute for that reason.
Mr. Wallace: In the Mundy case.
Unknown Speaker: And it left those words, was required, out, and then it seems as if you could file a return like, 82 years later, and 82 years later, now, it's not too late, and they start the statute running, but the grab-back only goes back 2 or 3 years.
Now, what was--
--Why don't you get these things amended for us, Mr. Wallace, so they can make some sense?
Mr. Wallace: Well, that's not part of the duties that I have--
Unknown Speaker: --but the Government is looking into the possibility of statutory amendment.
The question is, the tolls--
--Well, didn't... wasn't there a provision offered for amending this very section?
Mr. Wallace: There hasn't actually been a provision offered.
There was an announcement that a provision was being prepared--
Unknown Speaker: Oh.
Mr. Wallace: --for offering, but it still has not been offered.
Unknown Speaker: Is it still being prepared, though?
Mr. Wallace: Well, there are... it's under study.
I'm not privy to the discussions.
There are inherent difficulties in addressing this question because of the massive number of returns that are filed every year, difficulties that we've referred to in this--
Unknown Speaker: Was it just an accident they left out the words, were required, or was required, or is some purpose going on that I can't understand?
Mr. Wallace: --Well, we don't really have an answer to that.
There was, so far as I am aware, no explanation of why this change occurred in the text.
This is a question that in the Mundy case last term the Court found no occasion to reach, and it seldom makes a difference, because it can make a difference only if the... in a 1-year period, because either you can... you can go back 3 years from when the return was filed to see... to ask for refunds of taxes paid during those 3 years, or else 2 years after the tax was paid, and usually with a really late-filed return no taxes were paid within the 3 years or the 2 years, and it makes no difference, as it makes no difference in either of the cases before us.
In any event, let me proceed now to the next provision, and for our purposes the more important provision, subsection (b), which appears on page 3 of the Government's brief, and it starts off with a subsection (1), which states quite unequivocally the consequences if the claim is not filed within the prescribed period.
No credit or refund shall be allowed.
Now, that... it's hard to see that that provision has much purpose other than to emphasize the strictness of the filing requirements and, as we point out on page 20 of our brief, this point is reemphasized in another provision of the code, section 6514(a)(1), which states that any credit or refund which the Service actually gives on a claim that is filed after the expiration of the statutory periods of limitation is "erroneous" and "considered void".
And it's interesting that in the implementing regulation for that provision, section 6514, the Service, after tracking the language of the statute, then has a cross-reference to the provisions authorized in suit by the Government to recover erroneous refunds.
But the next subsection seems to us to be what I might refer to as the clincher, the most dispositive obstacle to the respondents and the Ninth Circuit's position in this case, and that is subsection (2) of subsection (b), which is captioned, Limit on the amount of credit or refund that can be given, and I cannot emphasize too strongly that these caps on the disbursement that can be made from the Federal Treasury have their own express limitation.
While there is a cross-reference to the claims limitation period for purpose of separating categories of claims, there is no cross-reference to the claims limitation for purpose of defining the cap itself.
It says in subsection (A), for example, the amount of credit or refund shall not exceed the portion of the tax paid within a period defined right in this provision equal to 3 years plus the period of any extension of time for filing the return, and in subsection (B) it's the same thing, that the amount of credit or refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim.
These are substantive limitations on disbursements from the Treasury that are authorized.
Unknown Speaker: Mr. Wallace, can I ask you a general... assume we agree with every... all of your arguments, and that it's too late to file a claim and the taxpayer, or this person, he's not really a taxpayer, I guess, has no right to get the money back, is there anything in the code that would allow the Internal Revenue Service when presented with facts as extreme as they are in this case to say, we're not entitled to this $7,000, we want to give it back?
Is there anything that allows the Government to give back money they know they're not entitled to?
Mr. Wallace: There is not, Justice Stevens.
The Government can decide not to oppose a private bill in Congress--
Unknown Speaker: I understand, yes.
Mr. Wallace: --if the facts warrant it, which might more--
Unknown Speaker: Which they probably would in this case, yes.
Mr. Wallace: --Well, it depends on which case you're talking about.
Unknown Speaker: In one of these cases--
Mr. Wallace: We have two cases here.
Unknown Speaker: --Yes.
Mr. Wallace: And I'll get into the facts a little bit more.
Perhaps the Webb case, which is being held on petition from the Fourth Circuit, is one where there is more clearly been a finding in the State courts in related litigation about precisely what happened, so that there is less room for questioning the factual accuracy of a look back at the date, that about what someone's--
Unknown Speaker: No, I'm just assuming a case where you really didn't dispute the facts, but you still would have no authority to give the money back?
Mr. Wallace: --Well, looking right now at the provision which seems to preclude authority in the IRS--
Unknown Speaker: It only speaks in terms of claims.
It speaks in terms of claims.
I'm assuming a fact situation in which there's no "claim" within the meaning of the statute.
Mr. Wallace: --Well--
Unknown Speaker: Just a discovery that we've got $7,000 that obviously doesn't belong to us.
Mr. Wallace: --That, if we turn to the top of page 4, that is subsection (C) of the same provision, limited no claim filed, and that says that you still have to meet the time limits of subsections (A) and (B).
It's very hard to see how the Service would feel authorized to make a disbursement of Treasury funds--
Unknown Speaker: Mr. Wallace--
Mr. Wallace: --in this situation.
Unknown Speaker: --may I ask, if this was not a problem that was noticed by the administration, at least there was a press release at the very time that your cert petition was filed.
Mr. Wallace: That is correct.
Unknown Speaker: In which I believe the President announced that the law must be followed, but this is a very hard situation for people to be in, that they overpaid and they can't get it back, so wasn't it proposed that there be a study of what legislative solution there might be to help people out in this bind?
Mr. Wallace: And that is under study--
Unknown Speaker: Where?
Mr. Wallace: --just in the Treasury Department.
Unknown Speaker: Well, would you recommend... assuming the facts are as the petitioner states, or as the respondent states them in Brockamp, the case of the elderly man, would you recommend that a private bill be passed?
Mr. Wallace: Well, I can't... would I personally--
Unknown Speaker: Would the Justice Department?
Mr. Wallace: --Well, I can't say that we've faced up to that.
What... all we have--
Unknown Speaker: Because I've noticed you've had two of these bills in 34 years--
Mr. Wallace: --There have been rather few.
Unknown Speaker: --so apparently you're pretty tough on these.
Mr. Wallace: There have been rather few, but these are not instigated by us, after all.
They're instigated by the taxpayers if they can get a congressional sponsor.
Unknown Speaker: Well, I just wonder what--
--Well, surely the Justice Department would recommend a private bill in this case, wouldn't it?
Mr. Wallace: Well--
Unknown Speaker: Well, can you speak for the Department?
Mr. Wallace: --We don't know the facts.
We only know what the administrator's affidavit, the daughter's affidavit said 4 years after... more than 4-1/2 years after--
Unknown Speaker: Well, assume everything's correct--
Mr. Wallace: --after the events occurred here.
It's... there wasn't any contemporaneous finding about whether this man had the capacity or not.
The receipt by the IRS was not an unusual one.
Oftentimes elderly taxpayers have capital gains or other sudden increases in income, and there was no explanation for it.
The check merely accompanied an extension of time request.
Obviously, the family was in a better position to be monitoring his financial affairs than the Internal Revenue Service was, and could have looked into his bank accounts if they thought at the time that there was lack of capacity.
They're now saying, 4-1/2 years later, that there was lack of capacity at a time when it's difficult to prove it, and this kind of claim can be made in many cases.
I might, as a matter of fact, since we're into the facts, talk a little bit about the facts in the Scott case, where there was actually a bench trial, and--
Unknown Speaker: --Mr. Wallace, may I ask before you do if you can just clarify for me what would be within the universe of possible responses beside a private bill?
I suppose what the administration was looking for was not a private bill, but something maybe akin to the mitigation rules.
Mr. Wallace: --There could be something of that sort.
It could be temporally limited.
They could expand the time perious upon a showing of certain kinds of incapacity, but they could expand them for only a limited time, because each year you expand it you're adding another 200 million tax returns that possibly could be reopened at a time when there's talk about downsizing the Internal Revenue Service, and at a time when there are budget constraints.
And in order for legislation of this kind to be adopted, Congress needs help in preparing a revenue impact assessment of it, rather hard to do, since we don't know easily how to estimate how many additional out of time refund claims might be stimulated once there were a provision that allowed consideration of the individual circumstances of taxpayers.
The Service has estimated that it now turns down about 250,000 refund claims a year in whole, without examining whether the refund was warranted or not because they're out of time, but most tax counsel who wouldn't file an out-of-time refund claim today on behalf of a client, might... that figure might increase a great deal.
So another possible legislative response to this would be simply to increase the limitations periods in the hope that more situations such as the alleged situation of Mr. McGill would be caught without having to examine the individual circumstances of individual taxpayers, just to give their guardians or relatives more time in which to ferret out examples of this kind, which would be much less administratively burden... there are all kinds of possibilities, but to date nothing has been proposed by the administration to the Congress, nor am I... we'll of course inform the Court if any action is taken either on the Hill or by the administration.
In the meantime, it must be recognized that the press release that was issued was issued on the premise that the existing law bars such claims, as we think these caps on the refund do, and there's no point in saying that the claim can be allowed for a longer period if you can't get any payment as a result of filing the claim.
So read as a whole, the provision is inconsistent with equitable tolling, as the Court concluded the applicable provisions in the Lampf case were, and I do want to emphasize that with respect to an express cap on disbursements from the Treasury there is no more fitting example of where the traditional rules about waivers of sovereign immunity should be applied.
When Congress has explicitly capped the disbursement that is authorized to be made, that cannot be enlarged beyond what the language requires.
As the Court has said about waivers of sovereign immunity, a court is not in a position to enlarge it on equitable grounds.
It's quite different from just a statute of limitations on the filing of the claim itself.
Unknown Speaker: As far as the equity is concerned, do you need to go... say anything more than the Court did in its decision in the Dalm case?
Mr. Wallace: Well, the Dalm case really addresses everything that's at issue here.
What was asked for in Dalm, an expansion of the doctrine of equitable recoupment, was an equitable claim very similar to a tolling claim, and some would refer to it as a tolling claim.
It's a form of claim for avoidance of the limitations period that isn't as precisely defined a deferral of the limitations period as the ordinary tolling claim, but it's very similar, and we think the Dalm decision does have a controlling analysis here, and in particular its holding that these provisions concerning tax refund suits must be read in conformity with one another and with all the cross-referencing that's involved here.
Let me just talk very briefly about the facts of the Scott case to show what kind of thing we're concerned with here, and in Scott we proceeded all the way to a bench trial with findings, and some of those findings which are set forth on pages 44a and 45a of the appendix to our petition are rather telling here.
For one thing--
Unknown Speaker: But the only case we have before us is the Brockamp case, Mr. Wallace.
Mr. Wallace: --No, what... we have both of them together, Mr. Chief Justice.
They were decided as companion cases and we petitioned in the two cases.
Unknown Speaker: I see.
Mr. Wallace: The court of appeals decided to put the Brockamp case forward--
Unknown Speaker: Go ahead.
Go ahead, then.
Mr. Wallace: --as one where perhaps the Service's problems were not quite as apparent as they would be in the Scott case from our standpoint.
The companion case in Scott involved his 1984 tax liability.
What the Service knew was that he himself, even though the claim now is incapacity because of alcoholism, he himself had filed in January of 1985 his estimated tax return and payment.
His father had done that with his prior installments of estimated tax for 1984.
And then through the bench trial proceedings we were able to find out some facts which we... which the district court has listed on page 44a and 45a, that in 1984 Scott executed a partnership agreement to operate a retail wine shop.
In 1985, he entered into an agreement dissolving the partnership so that he could operate the shop on his own.
During the time he operated, he filed his State sales tax, and he obtained an attorney to represent him on driving under the influence charges in '87 and '88.
He opened and closed his retail business every day and paid his utilities and rent.
So even on the basis of what we were able to learn through a trial there was considerable doubt.
The district court itself said without the expert testimony in this case, and I'm reading from finding 21, the court might otherwise find the United States' argument somewhat persuasive.
Of course, expert testimony is something that doesn't occur until the trial itself.
Unknown Speaker: What was the expert testimony about?
Mr. Wallace: It was about how alcoholism can be incapacitating, but... and there were two doctors, one for the Government and one for the defense, but obviously the Service would have to be very wary, the more a claim of incapacity seems specific only to the capacity to comply with the Internal Revenue laws and leaves the person able to comply with many other laws.
The administrative finding of... in such a case would not be one where the Service could easily decide that it was an appropriate occasion for tolling.
These are very difficult matters to handle.
They're not the kind of green eyeshade investigations of a tax return that Service personnel are ordinarily engaged in, nor are the facts easily assembled.
We're dealing here with a very difficult administrative question, and one that both the administration and Congress may give appropriate consideration to, but they obviously have to tread with caution, considering the magnitude of the task that is assigned to the Service.
If I may, I'd like to reserve the balance of my time.
Unknown Speaker: Very well, Mr. Wallace.
Mr. Klueger, we'll hear from you.
Argument of Robert F. Klueger
Mr. Klueger: Mr. Chief Justice, and may it please the Court:
The Government would have us believe that where a disabled taxpayer erroneously overpays his taxes and later, through some miracle, determines that he has overpaid and then seeks his redress, the Government would have us believe that Congress intended that that disabled taxpayer should have no redress, even in a case such as this, the Brockamp case, where the erroneous overpayment was a direct result of the taxpayer's disability.
Unknown Speaker: Well, he has redress for 3 years.
I mean, there's just a time limit on it, right?
Mr. Klueger: He has no redress because he was disabled throughout the statutory period.
That is the facts of this case.
He would certainly have the direct... a redress if he were like the rest of us, a competent taxpayer.
But throughout the statutory period in 6511, he was disabled.
Only through some miracle his daughter discovered the overpayment following the taxpayer's death, and the Government would have us believe that in this circumstance not only is there an unfairness, but that I think the unfairness is perhaps beside the point.
Unknown Speaker: Why should we be tugged by the equities here, and undoubtedly these are hard cases, tugged more by these equities than the Court was in the Dalm case, which was also a very sympathetic situation?
Mr. Klueger: --I am not ask... specifically, Your Honor, I am not asking the Court to be tugged by the equities.
I am specifically saying, the point being that Congress did not intend, could not intend that this be the result.
Unknown Speaker: Well, we have a rather elaborate Internal Revenue Code where presumably Congress has revealed its intent in the sections that are dealt with in the briefs.
Mr. Klueger: Yes, that is true.
I believe that Congress' intent is revealed, albeit darkly, in section 6511 itself, in the structure of section 6511.
It is best, I think, to turn to the operation of this statute.
This is a statute of limitations which is not unique but rare, in that the clock that starts the statute of limitations may only begin to run but for some predicate act that is performed by the taxpayer, whether it is the filing of the return or, in the case of Mr. McGill, cutting a check.
Until one of those acts eventuates, the clock never starts to run.
Now, it doesn't seem to be that much of an intellectual stretch to assume that if this is a statute of limitations that can only begin to run but for the taxpayer's act, that the taxpayer's act not be the result of his fantasies or his delusions, but be the act of a rational, competent taxpayer, and if I might, to illustrate this point, a... because the counsel for the Government has discussed the possibility of holding hundreds of millions of tax returns open perhaps indefinitely if equitable tolling applies.
This section 6511(a), I submit, contemplates that.
If we have someone who does not perform any of these two predicate acts, let us assume he didn't in 1962, and let 30 years go by without paying his tax and without filing his return, and then one day he walks in and files his return and pays the tax, and then a year later figures that he overpaid and files a refund claim, that is a perfectly timely refund claim under anyone's interpretation of 6511.
Even though the Government will have had to wait 31 years for the return and the check, even though the litigation to follow, all the facts and circumstances that underlay the tax, occurred 31 years ago, that is the way section 6511 operates.
Unknown Speaker: Would you explain how your interpretation of 6511 apply to the particular facts of your case so as to allow your client to prevail?
Mr. Klueger: My client--
Unknown Speaker: Yes.
You say 6511 you say is the key.
Mr. Klueger: --Well, the point I'm making is that the question that I was addressing in answer to Justice Ginsburg's question is what is there in this statute that leads me to believe that equitable tolling, that this is the type of statute in which equitable tolling might apply, and my answer is that the way that 6511 operates, the statute of limitations, which is what 6511 (a) is, it is a statute of limitations, it can only begin to run after the taxpayer acts.
Unknown Speaker: So would you apply this to the facts of your case?
Mr. Klueger: In our specific case, the statute of limitations on the underlying tax never began to run against Stanley McGill throughout his entire life.
The Government would have us believe that the statute of limitations on refund claims per 6511 ran out, even though the underlying period of limitations against the Commissioner to assess a tax never began.
We submit that--
Unknown Speaker: Well, I guess the Government takes the position that the money that was paid was payment of the tax.
Mr. Klueger: --The Government--
Unknown Speaker: Isn't that the position the Government takes?
Mr. Klueger: --If the Government had been--
Unknown Speaker: A payment was made.
Mr. Klueger: --Yes.
Unknown Speaker: By the taxpayer.
Mr. Klueger: --If the Government was consistent in that position, the Government would have assessed the tax.
In direct answer to your question, Your Honor, I don't believe that that is the position the Government takes.
Unknown Speaker: Well, didn't they put the check in an overpayment fund?
Mr. Klueger: That's correct.
They in fact did not assess... I don't think that fact is necessarily relevant to the question--
Unknown Speaker: But you still have a statute that says no matter what it was--
Mr. Klueger: --I'm sorry?
Unknown Speaker: --No matter what it was, the payment was, the statute addresses refund, and what you want is a refund, so whatever the character of the payment was, the Treasury has it, and you want it back, and so you are suing for a refund.
Mr. Klueger: That is correct.
Unknown Speaker: And this is a rather dense statute, is it not?
Mr. Klueger: This is a... Your Honor, if I might answer that question at perhaps a little bit of length, this is an extremely dense, dark statute.
Unknown Speaker: But it's part of a dense code that does have... does have some provisions for equitable litigation.
Mr. Klueger: Yes.
Unknown Speaker: And those provisions themselves are remarkably dense, so why would one, given the density of the code, given the density of the mitigation provisions, say, but the court, because in other areas there's equitable tolling, ought to apply it here as well?
Mr. Klueger: Your Honor, this is a dense, integrated regime of refund claims, that is true.
I feel, however, it is no less dense and integrated than title VII of the Civil Rights Act, which was the grounds for applying equitable tolling in the Irwin decision.
In the Irwin decision, we had a procedure for recouping... procedure for suing on a title VII case that is really very similar to what we have where... in the statutory regime for refund claims.
We had a situation where an individual goes to his particular agency under the Civil Rights Act.
If that claim is denied, he goes to the EEOC, at which point there is a 30-day letter that is sent to the individual.
If that is denied, he has the opportunity to sue in Federal court, a very similar statutory regime.
Unknown Speaker: It didn't have a substantive limitation, as this does, and how do you handle the substantive limitation here?
It's not a matter of just getting around it or ignoring it.
Mr. Klueger: No--
Unknown Speaker: You have to rewrite it.
Mr. Klueger: --No, I don't believe so, Your Honor.
Unknown Speaker: Tell me how your case comes in under (b)(2).
How do you qualify under (b)(2)?
Mr. Klueger: --The direct answer, Your Honor, the way we read (b)(2) is that it is not a substantive limitation.
To the extent that amounts are limited in (b)(2), it is as a function of the limitation in time.
There are plenty of substantive limitations that exist in the Internal Revenue Code.
This isn't one of them.
For example, the Internal Revenue Code says... provides a limitation on the credit you can get against the State taxes.
The code says, it's limited, $192,800.
That is a substantive limitation that is contained in the tax court... in the tax code, and no court can change it to $193,000.
That's not what we have here.
To the extent that it affects the limitation, it is a limitation that is a function of time, and that time in (b)(2) refers back to the time limitations in 6511(a).
Unknown Speaker: Fine, but how do you apply (b)(2)?
If it was filed by the taxpayer during the 3-year period prescribed in subsection (A), and it wasn't, right, so you're not in (b)(2)(A), right?
Mr. Klueger: We are not in (b)(2)(A).
There was no return filed.
Unknown Speaker: Okay.
So you must be in (b)(2)(B), limit where claim not filed within 3-year period.
If the claim was not filed within such 3-year period, the amount of the credit shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim.
Now, when was your claim filed?
Mr. Klueger: I'm sorry, Your Honor?
Unknown Speaker: When was your claim filed?
Mr. Klueger: The claim was filed... I can give you the exact date, Your Honor.
Unknown Speaker: It doesn't--
Mr. Klueger: The claim was filed in 1991.
Unknown Speaker: --There were no taxes paid during the 2 years immediately preceding--
Mr. Klueger: Oh, of course not.
Of course not.
Unknown Speaker: --So I don't understand what you do with (B), then.
Mr. Klueger: Well--
Unknown Speaker: --(b)(2)(B) says you get no money.
Mr. Klueger: --But the--
Unknown Speaker: And yet you say you ignore it.
Mr. Klueger: --I don't wish to ignore it.
I suggest that it is amenable to equitable tolling.
Unknown Speaker: You mean, you just read right into the very specific provisions of (b)(2)(B) some kind of equity principle?
Mr. Klueger: Oh, absolutely.
In the same way, we--
Unknown Speaker: Dalm, I mean, Dalm refused to do that in a similar situation.
Dalm was decided just about the same time as Irwin was, which suggests that perhaps you don't go into equitable tolling when you're dealing with something as complicated as the Internal Revenue Code.
Mr. Klueger: --Well, I believe that Dalm is distinguishable in that the issue of a taxpayer's disability did not arise, number 1, and Dalm limited the application of an equitable principle.
It didn't eliminate the amenability of the tax code to an equitable principle.
It limited it.
Quite frankly, in the Dalm case the litigant had the ability to litigate the second tax in the tax court and slept on her rights.
Unknown Speaker: But wasn't there some... some not entirely honorable conduct on the Government side in that case in tripping or trapping her?
Mr. Klueger: I don't believe so.
I... as I--
Unknown Speaker: Wasn't there some line in an opinion about how badly the Government had behaved?
Mr. Klueger: --In the Dalm case I don't recall that at all, Your Honor.
Unknown Speaker: But Mr. Klueger, that was in any event not the basis on which we decided the case.
We didn't decide there is no equity here.
We decided there is no equitable tolling here, equity or not.
Mr. Klueger: No, Your Honor.
The Dalm case was decided not on equitable tolling but on equitable recoupment, a different doctrine.
Unknown Speaker: The... okay.
Mr. Klueger: Equitable tolling did not come into that case at all.
Unknown Speaker: No equitable alteration of the terms of the code.
Mr. Klueger: Well--
Unknown Speaker: Not that there was no equity in the case.
I mean, that wasn't the basis for the decision.
Mr. Klueger: --Your Honor, after the Dalm decision, as I read it, I read that the Dalm decision limited this Court's prior decision in Bull but did not overrule it.
As I read the Dalm decision, we still have a doctrine of equitable recoupment, and the doctrine of equitable recoupment does allow the taxpayer to go and have a setoff against taxes where the period of limitations against that tax did run out.
Unknown Speaker: But why?
That is... if I can get... I mean, I'll help you, I think.
Maybe I won't.
You might not need my help.
But the language and complexity doesn't bother me.
It says, the claim for refund shall be filed 2 years from the time the tax was paid.
Two years, you say, means 2 years minus time when he's disabled.
That's what you're saying, right?
Two years not counting time when he was disabled.
Isn't that your argument?
If you don't want to take that argument, you don't have to, but I--
Mr. Klueger: I'm not so sure I understand your question.
Unknown Speaker: --I thought the tolling principle, you have a statute of limitation that says file within 3 years.
Tolling means file within 3 years not counting disability time.
Mr. Klueger: Correct, Your Honor.
Unknown Speaker: All right, and you want to read those words in (A) the same.
Mr. Klueger: Yes, Your Honor.
Unknown Speaker: And you want to read the words 2 years in (B) shall not exceed the portion of the tax paid during the 2 years immediately preceding to read, 2 years not counting disability time.
Isn't that what you're saying?
Mr. Klueger: That is correct.
Unknown Speaker: All right, but you started out saying the language is okay, and you started out saying the complexity doesn't matter.
It just happens that Congress said the same thing twice and not once, so I'm with you so far.
You said the Government wants us to read that language not to have tolling.
Mr. Klueger: Correct.
Unknown Speaker: And you're right, but their reason is that they think it would create a total nightmare, and therefore Congress couldn't have intended this and, indeed, it's the Internal Revenue Code, not noted for its charity perhaps, but not... and you know, it's the Government.
It's not two private people, and they don't have these green eyeshades when they try to investigate whether a person was drunk or not drunk, or disabled or not disabled, so it couldn't be that Congress intended that.
I thought you were going to address that argument when you started, and therefore I wanted to give you a chance to address it.
Mr. Klueger: We are certainly not saying, Your Honor, that a disabled taxpayer is exempt from the statutory provisions that are contained in 6511.
We only say that those statutory provisions be deferred until such time as the taxpayer, by whatever means, regains his competency.
Unknown Speaker: Yes, but what if he died.
In this case didn't he die without regaining the competency?
Mr. Klueger: That's correct.
Unknown Speaker: And how much... how many years... how long after his death was the claim filed?
Mr. Klueger: I... the claim was... he died in 1989, and I believe it was filed in 1991.
It was... the claim was timely filed.
Unknown Speaker: Within 2 years from his death?
Mr. Klueger: Your Honor, I apologize--
Unknown Speaker: Well, that's crucial, because you could not answer Justice Breyer's question yes, as you did, making a reading... reading (b)(2)(B) to say 2 years, you know, not including disability time.
You'd have to say not including disability time and also not including any time after death.
You'd have to say, right, at least his heirs have to do it within 2 years.
Mr. Klueger: --Oh, absolutely, Your Honor.
That is absolutely true.
Unknown Speaker: Well, you said he did it within 2 years here.
I thought you said you didn't know.
Mr. Klueger: His... I am confident that his competent heirs did file a timely claim.
Unknown Speaker: Within 2 years after his death?
Well, by what standard do you conclude it was timely?
I'm not sure I'm following you.
Mr. Klueger: My memory fails me as to the exact date, Your Honor, but I do recall, and I can represent to the Court that that was the case.
Unknown Speaker: But see, it could be within 2 years of the time that the heirs discovered that the money had been mistakenly paid.
Would that be enough?
I suppose that... I don't know why the death is the critical point.
It seems to me in most of these doctrines it's when the claimant discovers the cause of action, that if you say, he's... you know, there's an excusable failure to get the facts sooner, so I don't know why the death is critical.
It seems to me the--
--It's only critical because of the way Justice Breyer put the question.
You would have to say no, Justice Breyer, not just disability, but disability--
--or other excusable reason.
--Yes, anything else that justifies the failure to file.
Which makes it a little harder.
Which is lack of discovery.
It's getting to be a pretty long provision that we're writing here.
Well, that's right, but that's you're... I think that's your... I'm not sure, is your theory one of just disability, or is it inability to discover?
Mr. Klueger: No.
We believe that, consistent with a self-assessment type of tax regime, that the disability with respect to tolling should be that disability on the part of the taxpayer that inhibits the taxpayer from filing a return.
Unknown Speaker: --Yes, but why isn't the... if the heir, I mean, the administrator of the estate, or whoever it is, doesn't find the records for 2 or 3 years, the administrator was equally disabled.
It's not because of a mental disability.
It's just because she didn't have the facts.
I mean, I just am not sure that you've got a principle here unless you extend it beyond the period you're relying on.
Mr. Klueger: In fairness to the Government, I think that equitable tolling, the grounds on which the Court should apply equitable tolling, the disabilities that should qualify is a narrow one, because the Government does have a legitimate need to--
Unknown Speaker: But not so narrow that it wouldn't include at least alcoholics and people who are senile, right?
Mr. Klueger: --Your Honor, if it's an alcoholic, if it is someone who's senile, it should be, the standard should be, what was... was there a disability throughout the statutory period that inhibited the taxpayer from having--
Unknown Speaker: And then you'd have a trial in each case because--
Mr. Klueger: --Absolutely.
Unknown Speaker: --as we see in the case of an alcoholic, some of them can carry on a business and function all right, others can't function so well.
Mr. Klueger: That is absolutely correct.
Unknown Speaker: And somebody who's betwixt and between, say in the first stages of a debilitating disease, there'll be a great variety of... much room for trials, right?
Mr. Klueger: I don't think so, Your Honor, for this reason.
Mr. Wallace has raised the specter, and they certainly do on their brief, of hundreds of thousands, perhaps millions of tax returns that might remain open if this doctrine were permitted in this area.
We think that's an exaggeration, to say the least, for this reason.
We feel that since 1990, when this Court decided the Irwin case, that in fact the floodgates were opened, that--
Unknown Speaker: But did--
--Yes, but the numbers--
--get down so quickly?
I mean, they were very close in time, weren't they?
Mr. Klueger: --I'm sorry, Your Honor.
Unknown Speaker: The Dalm case and the Irwin case--
Mr. Klueger: Yes.
Unknown Speaker: --were within a year of each other.
Mr. Klueger: Yes, Your Honor.
Unknown Speaker: And so you think that there was such rethinking a light dawned in Irwin that led to a... to the Court in Dalm having seen the error of its ways, so if it... that case had come up and the opportunity for equitable tolling had presented itself, they would have been inconsistent with what they--
Mr. Klueger: I don't think that Dalm and Irwin are inconsistent with each other.
I think they don't have anything to do with each other.
They deal with different doctrines.
The Irwin decision dealt with equitable tolling.
The Dalm decision dealt with equitable recoupment, and did not--
Unknown Speaker: --Wasn't the--
--No, but there's another distinction that you can make.
You can take the position that Justice Scalia did and say, let's bring everything under the umbrella of equitable adjustment.
And then there are still distinctions between the cases, and the one is, title VII case was dealing with a situation in which the Government is often in the position of a private individual who normally gets the benefit of equitable tolling, whereas in the revenue situation, the Government is in a position peculiar unto itself, so those would be good reasons to say that there's no reason to think that the... that there would be a spillover of equitable considerations from a title VII case to a revenue case, and that seems to me to make more sense of the fact that these two cases came down in the same term, in which it would be very odd to think that one was being undercut by the other so soon.
Mr. Klueger: --Well, I don't think that one undercut another.
The Irwin decision did not mention the Dalm case, nor do I expect that it would, but any Irwin decision, from what I have read, the briefs in that case and the argument in that case did not mention Dalm.
I have to presume that--
Unknown Speaker: Dalm was decided after Irwin, wasn't it?
Mr. Klueger: --No, the--
Unknown Speaker: Irwin after, few months after, I think.
Mr. Klueger: --Correct.
I think the... I assume that the reason the Irwin decision does not mention Dalm or that the briefs in that decision don't mention Dalm, or that it... that Dalm was not argued in Irwin, was that the two cases just don't have anything to do with each other.
They're on different principles.
Unknown Speaker: The different principles being equitable tolling versus equitable--
Mr. Klueger: Equitable recoupment.
Unknown Speaker: --Yes.
Mr. Klueger: Exactly.
Unknown Speaker: But if we don't accept that distinction, doesn't the remaining distinction... in other words, if we generalize equity, then aren't you faced with the fact that the title VII considerations would not normally be applicable to a revenue case?
Mr. Klueger: Correct.
Your Honor, if this Court decides that Dalm applies in equitable tolling to the same extent it applies to equitable recoupment, I have a problem.
That certainly is true.
Unknown Speaker: In fact, isn't it true that in the Dalm case that was... at least some of us thought that the Government was guilty of inequitable conduct, and here you don't have any claim of inequitable conduct against the Government, do you, so in a sense the Government's case is perhaps stronger here than it was in Dalm.
Mr. Klueger: I don't... I will admit, Your Honor, I did not read the Dalm decision.
Unknown Speaker: You probably didn't read the dissent, then, I guess.
Mr. Klueger: Indeed I did, Your Honor, and I noted that the dissenter in that case indicated that this was a case that would have very narrow applicability.
I'm surprised that... I was surprised that the Government would seek to pump up Dalm into something that--
Unknown Speaker: Well, do you think the Government is bound by the dissent's view of the opinion in Dalm?
Mr. Klueger: --No, of course not.
Of course not.
My point is that Dalm should not apply, because it applies to a different doctrine.
Unknown Speaker: But I am correct, am I not, that you are not accusing the Government of inequitable conduct in this case?
Mr. Klueger: Oh, absolutely not, no.
In the brief time remaining--
Unknown Speaker: May I--
Mr. Klueger: --Of course.
Unknown Speaker: --I think that the... in the mitigation rules there is some element of the Government having taken an inconsistent position and it seems to be that you have to have that much.
Am I not right that the way the Government describes it in its brief the mitigation provisions apply to problems that exist when the party that asserts the statute of limitations, and the only one who would assert it would be the Government, had prior to the running of the statute taken a position inconsistent with its current position?
Mr. Klueger: That is correct.
The Government has an inference from the existence of the mitigation provisions that these provisions should be exclusive, the only... that the mitigation provisions, which are statutory, are the only--
Unknown Speaker: Yes, but maybe what they're saying is that the Government... that Congress was so strict in allowing any mitigation at all, when the... so the notion that they meant it when they didn't say it is a little hard to accept.
Mr. Klueger: --I'm afraid I don't understand the thrust of your question.
The mitigation provisions are... is a statutory provision.
Unknown Speaker: Right.
Mr. Klueger: It was from my reading enacted because equitable recoupment, the cases were going all over the place, and so Congress felt that they should bring some order to this doctrine of equitable recoupment, and so they enacted the mitigation provisions.
They are very, very narrow provisions.
They arise in only the rarest circumstances.
But I think the existence of the mitigation provisions, the statutory mitigation provisions, proves one point, which is that if you have a statutory mitigation provision in the tax code it doesn't necessarily mean that you cannot have an equitable overlay, because we still do have an equitable overlay, and that equitable overlay is the doctrine of equitable recoupment, which exists side by side with the mitigation provisions of the tax code.
Unknown Speaker: If... wouldn't it totally eclipse what's in the code if you could just say, I don't want to deal with that dense stuff, it's so narrow and so technical.
Give me equitable tolling writ large.
Mr. Klueger: --No, Your Honor.
Equitable recoupment applies in a very, very narrow area.
It certainly is not limited to incompetent taxpayers.
You don't have your choice.
It's not like a cafeteria.
You don't get equitable recoupment or equitable tolling.
Equitable recoupment only can arise when two... when the taxpayer is called upon to pay two... to pay the same tax twice under different theories.
That's equitable recoupment.
Equitable tolling is a completely different doctrine.
It reminds me of what Mark Twain said about fires and fire flies.
They may sound alike, but just because they sound alike--
Unknown Speaker: Why should we be more responsive to getting back a tax paid once than a tax paid twice?
Mr. Klueger: --Again, Your Honor, two different doctrines here.
We are responsible--
Unknown Speaker: But you are making equity your plea, right?
Mr. Klueger: --That's correct.
Unknown Speaker: So--
Mr. Klueger: Yes, Your Honor, that's certainly correct.
Unknown Speaker: --So I'm thinking of different situations where one might be drawn by the equities of the situation, because even in administering a system of equity you have to have a rational basis.
Mr. Klueger: Yes, Your Honor.
The equities I submit are stronger in this case than they were, for example, in Dalm.
In Dalm, the... may I complete?
Unknown Speaker: Yes.
Finish your answer to Justice Ginsburg's--
Mr. Klueger: In Dalm, the taxpayer had the ability to litigate the case.
In our case, we never had the ability.
Thank you, Your Honor.
Unknown Speaker: --Thank you, Mr. Klueger.
Mr. Wallace, you have 5 minutes remaining.
Rebuttal of Lawrence G. Wallace
Mr. Wallace: Thank you, Mr. Chief Justice.
In Irwin, the Court recognized that waivers of sovereign immunity must be unequivocally expressed, and then said that once Congress had made such a waiver we think the rule of equitable tolling should be applicable to suits against the Government in the same way as to suits against private defendants, and that amounts to little, if any, broadening of the congressional waiver.
Those... that rationale applies to tolling of the limitations for filing suit, or for filing claims.
It really is not addressed to the obstacle here, which is a substantive limitation, a cap that Congress has imposed on the amount of the refund that's authorized to be disbursed from the Federal Treasury and, as I pointed out earlier, therefore it would require a broadening of a waiver of sovereign immunity beyond the express terms of the waiver to rule that a court may override this cap in the very sensitive area of disbursements from the Treasury, the area that is most related to the constitutional underpinnings of the doctrine of sovereign immunity itself, including the provision we have pointed to in the Constitution, in Article I, section 9, Clause 7, that no money shall be drawn from the Treasury but in consequence of appropriations made by law.
Now, it is the fact that in Webb the Fourth Circuit suggested some ways of reading the rebuttable presumption in Irwin more narrowly, and we have done the same thing in a pending petition and reply brief in a case called United States v. Fagin involving the Quiet Title Act, which we have suggested that the Court hold for the decision in this case.
But... and I think that these suggestions are well worthy of consideration, and the Court in Webb at the conclusion of its opinion pointed out some other areas involving other Federal statutes where various courts have held that the rebuttable presumption has been overcome even if the presumption of Irwin does apply, but in this particular case we're really beyond the area where it's just a limitation on the filing of the claim that's at issue.
If the Court has no further--
Unknown Speaker: Is a claim filed under this statute when the taxpayer just gives the notice to the Internal Revenue Service, or is a claim filed when there's a refund suit filed?
I think it's the former, is it not?
Mr. Wallace: --It--
Unknown Speaker: How do you file a claim for refund?
Mr. Wallace: --It's the claim to the Service.
There's a separate provision involving limitations on filing the suit, and that has to be within 2 years after the disallowance of the claim.
That is section 6532(a)(1) of title 26.
Unknown Speaker: Thank you.
Chief Justice Rehnquist: Thank you, Mr. Wallace.
The case is submitted.
Unknown Speaker: The Honorable Court is now adjurned until tomorrow at ten o'clock.