HINCK v. UNITED STATES
The Internal Revenue Service (IRS) assessed over $20,000 in interest fees for outstanding taxes against John and Pamela Hinck. The Hincks claimed that the interest accrued because of IRS delays and errors. Section 6404(e)(1) of the Internal Revenue Code authorizes the abatement of interest fees that are caused by IRS delays. The IRS rejected the Hincks' interest abatement claim in 2000. In 2003, the United States Court of Federal Claims determined that it had no jurisdiction to hear the case because Section 6404(h) of the Internal Revenue Code granted the United States Tax Court jurisdiction over interest abatement disputes.
The Hincks appealed to the United States Court of Appeals for the Federal Circuit, arguing that the Tucker Act granted subject matter jurisdiction to the Federal Claims Court. The Federal Circuit held that Section 6404(h) grants the Tax Court exclusive jurisdiction over interest abatement disputes. The U.S. Court of Appeals for the Fifth Circuit had previously ruled to the contrary.
Does Section 6404(h) of the Internal Revenue Code grant the United States Tax Court exclusive jurisdiction to review interest abatement claims made against the Internal Revenue Service?
Legal provision: Internal Revenue Code
Yes. Chief Justice John G. Roberts Jr. wrote for a unanimous court that Section 6404(e)(1) requires that claims challenging a refusal to abate (i.e. forgive) interest be brought exclusively in Tax Court. The Court reasoned that its ruling was consistent with the principle that when Congress enacts a detailed, specific judicial remedy (such as 6404(e)(1)) where there was no remedy before, the new remedy will be regarded as exclusive. The Court insisted on reading the statute as a unified whole, so that all of the procedures outlined by Congress for interest abatement claims applied exclusively to the forum (U.S. Tax Court) that Congress mentioned in the same statute. To do otherwise would be to "disaggregat[e] a statute Congress plainly envisioned as a package deal."
Argument of Thomas E. Redding
Chief Justice Roberts: We'll hear argument next in case 06-376, Hinck vs. United States.
Mr. Redding: Mr. Chief Justice, and may it please the Court:
The Federal Circuit's opinion is simply wrong.
Enactment of Section 6404(h) did not repeal district court and Court of Federal Claims refund jurisdiction over interest by the Internal Revenue Service.
Both circuits have found that there was pre-existing jurisdiction prior to the enactment of Section 6406(h).
Nothing in Section 6404(h) expressly repeals that jurisdiction, and there are many instances in the code where Congress when it does intend to expressly limit jurisdiction, will state that in the enabling statute.
Reference to the tax court, specific reference to the tax court in 6404(h) was mandated unnecessary by Section 7442 and the nature of the tax court.
The tax court is only given jurisdiction over those matters where it is specifically set out in the tax code.
And the established framework of pay and sue jurisdiction in the district courts and prepayment jurisdiction in the tax court is a well established framework for tax litigation.
That has been accepted and enunciated by this Court as far back as the Flora opinions.
It's a well established pattern of duality of jurisdiction in the two forums.
Chief Justice Roberts: But not with respect to abatement of interest in particular.
Mr. Redding: Not with respect to abatement of interest, Your Honor, but as a general basis.
The availability of a prepayment forum that was originally enacted to be complementary to the ability to pay and sue in order to protect smaller taxpayers, and avoid the hardships faced by having to pay in full before having access to refund jurisdiction, and in fact perhaps to avoid bankruptcy.
That is completely consistent with the way this section is enacted.
Section 6404(h) even includes the limitation that only taxpayers with a net worth below $2 million or corporations below $7 million have prepayment access to the tax court.
And abatement by itself is generally a prepayment remedy.
Justice Ginsburg: That's a... on that point, Mr. Redding, it seems odd that given this tripartite system, Congress would want only the tax court to be restricted in the people who could claim the abatement, the net worth test applicable in the tax court on your theory, if there is authority in the claims court and in the district courts, they're not limited to the net worth restrictions.
Mr. Redding: That is correct, Your Honor, but I do believe that it is consistent with the intent of the formation of the tax court to provide a prepayment forum to especially avoid hardship and the potential even of bankruptcy.
It's very consistent with that pattern to say that the larger taxpayer can afford to pay the tax and sue, whereas the smaller taxpayer may be in greater need of a prepayment forum.
It's also consistent with imposing the very short limitation period for bringing an action in the tax court, because there the government has a very vested interest in being able to proceed with collection of the tax.
Chief Justice Roberts: But why would you not want some... a larger taxpayer to be able to proceed in the tax court if you can also proceed in the claims court?
Mr. Redding: Your Honor, I can't speak to Congress's reasoning behind that but I can understand the logic behind saying we're going to create a special prepayment remedy that allows the smaller taxpayer an expedited means of resolving these issues without having to first pay it and sue, whereas the larger taxpayer is not put into a hardship position, is not inconvenienced as bad by having to follow the old well established procedures of pay and sue.
And I will note that 6404(h) does not apply only to 6404(e)(1), which is the subsection we're coming under.
6404(h) applies to all of the abatement grounds under Section 6404.
And if we were to repeal jurisdiction in the district court and the Court of Federal Claims over all of those provisions, then we would be completely taking away a remedy that has been there all along to the larger taxpayers.
But to create a new remedy that is consistent with the pattern that allows a small taxpayer access to a prepayment forum, I think is completely consistent with the entire history of this court.
This court meaning the tax court.
And its purpose.
In evaluating two statutes that appear to either conflict or overlap, I think it is, in reviewing whatever doctrine you call it, whatever canon you call it of interpretation, it appears to me that what this Court has always done is to look to see if the two statutes can be harmonized rather than seeing if one supersedes the other.
And here considering the extension of prepayment jurisdiction to the tax court merely an additional form of prepayment jurisdiction being granted to the tax court is completely consistent with the long-standing pattern of pay and sue jurisdiction in the district courts, prepayment jurisdiction in the tax court--
Chief Justice Roberts: But you have no basis for an abatement of interest action apart from 6404(h), correct?
That is the only place you get the actual cause of action to sue for abatement of interest?
Mr. Redding: --Abatement as a prepayment remedy, yes, Your Honor.
Once the IRS has failed to abate the interest and you make payment then you have the normal refund, refund provisions available.
Chief Justice Roberts: But what would you cite to, in response to the prior cases that said you had no cause of action for abasement of interest?
Mr. Redding: Actually Your Honor I don't believe that's what the cases said.
They said you had no cause of action that could be pursued under 6404(e)(1) but even the seminal cases, Horton... or Selman and Horton Homes compared a Section 6404(e)(1) action to a Section 6404(e)(2) action and basically said you could have brought a refund claim.
If you qualified under (e)(2) there would have been no impediment to bringing that as a refund action because there was a clearly established standard.
The (e)(2) provision is a must standard.
Now, under 6404(h) if it is exclusive over abatement jurisdiction, then any taxpayer who would have had access to the courts, for example for an (e)(2) abatement case, unless they are a small taxpayer they will be completely denied any remedy whatsoever.
Justice Scalia: Where is (e)(2)?
Is it produced in these materials.
I got (e)(1); I don't have (e)(2).
I don't really like talking about a section I don't have in front of me.
Mr. Redding: I believe all of 6404 was in the appendix but I don't have it in front of me.
It's... it's immediate, in the code section--
it's immediately below (e)(1).
Justice Scalia: Ah.
Mr. Redding: But I mean... I'm sorry, Your Honor.
That doesn't help you--
--where it is in the materials.
Justice Scalia: That's one thing about this case I'm sure about.
Mr. Redding: I apologize, Your Honor, but I do not have that.
It is in the appendix to the petition, the entire code section is set out.
Justice Kennedy: Is that the one that says interest abated with respect to erroneous refund check?
Or am I reading wrong?
Mr. Redding: Yes, Sir, it is.
Chief Justice Roberts: But the one I'm looking at just has (e)(1).
Did you have a page number?
Justice Souter: At page 42 of the appendix, all... all there is is a subsection 1.
Justice Scalia: That's right.
Mr. Redding: Well, Your Honor, I have the code section in front of me now but I still do not have the reference in the appendix.
I apologize but I simply don't have it, Your Honor.
Justice Ginsburg: Can I go back to something you just said, that I thought you said that the people would have no remedy if the tax court... were the only forum for abatement claims?
And it would be the exclusive forum but nobody... it wouldn't deny access to anyone.
Mr. Redding: Your Honor--
Justice Ginsburg: Abatement claim, if you read this as the Government does, is one place where you go, and the tax court but everyone who has an abatement claim could go there.
So who's being cut out?
Mr. Redding: --Well no, Your Honor, everyone cannot go there.
You can only go there if you're a taxpayer, an individual taxpayer with a net worth of less than $2 million.
Justice Ginsburg: Oh, yes.
And I had asked you before well doesn't it seem, it seems strange that Congress would want to limit the authority of the, of the court where most people go and have no limit for the wealthier taxpayers.
Mr. Redding: Your Honor, again, my, my view of that is the Congress intended to limit the special relief of prepayment jurisdiction to the smaller taxpayers.
But the availability of a pay and sue remedy was already in existence and continues in existence and those wealthier taxpayers generally can afford to pay the liability in full and sue.
A prepayment forum which delays the collection of the tax to the Government, you know, the Government has a special interest there in restricting access to that relief so that it can proceed with collection.
And again, it just makes logical sense that as to a larger taxpayer the ability to pay and sue should be a sufficient remedy.
Justice Ginsburg: I thought Congress was operating on the assumption that no court could hear an abatement claim?
Mr. Redding: --Your Honor, that comes largely from the legislative history, the House Committee report addressing interestingly, subsection (h).
And subsection (h) since it applies only to prepayment abatement claims specifically, I think then you, then that legislative history makes sense.
Because in that same page in the legislative history--
Justice Ginsburg: Well, give me a decision of the claims court or a district court that said courts have authority to abate the interest before Congress enacted this legislation?
Mr. Redding: --I don't believe there is a specific case out there that I can cite to you where it has happened.
It is, it is reflected in both Horton Homes and Selman that that availability existed with respect to (e)(2) to--
Justice Kennedy: Is it fair to say that Congress acted on the assumption that there was no right to the abatement with, and to the payment unless it enacted the statutes?
Mr. Redding: --Your Honor, I don't believe so.
Again, because that legislative history that's referred to is restricted, the House Committee report is restricted only to the subsection creating the tax court prepayment jurisdiction.
It is not relevant to the rest of the amendments to Section 6404.
And I note that in doing so Congress also did not make the restriction on the $2 million/$7 million net worth relative to the rights being granted under the other provisions of 6404.
Justice Scalia: It's easy to see why the only cases you have relate to (e)(2) rather than (e)(1).
(E)(2) which we don't have in the materials, but I have gotten a copy of it.
And (e)(1) says that the Secretary "may" abate the assessment of all or any part.
And those cases that denied it said this is discretionary; he doesn't have to.
(E)(2) on the other hand, interest abated with respect to erroneous refund check, says the Secretary "shall" abate the assessment.
So really, (e)(2) doesn't... doesn't do you any good at all with respect to whether there was a cause of action before--
(h) was adopted.
Mr. Redding: Well... Your Honor, I respectfully disagree because 6404(h) applies to (e)(2) as much as it does to (e)(1).
And any taxpayer that would have met the net worth requirements or whether or not they met the net worth requirements that are now in H, could have brought a refund suit under (e)(2) previously.
Chief Justice Roberts: Well, sure.
But... but that's just saying, if... you used to have the entitlement under (e)(2) and you're saying well, you could bring cases under (e)(2).
But 6404(h) allows you to bring cases under (e)(1).
It would follow a fortiori that you could bring them for (e)(2) as well, but that doesn't prove that you could prove them under (e)(1) in the claims court or the district court.
Mr. Redding: No it does not, Your Honor.
What I'm trying to address is the intent to repeal the pre-existing jurisdiction, again because 6404(h) does not apply just to (e)(1), where the might be a question about whether or not they could have brought the case previously, although jurisdiction existed.
Clearly they could have brought their case under (e)(2).
Justice Scalia: I see.
What you're say is that cases that used to be bringable under (e)(2) would now be bringable only under (h) which would in effect be an implicit repeal of (e)(2).
Mr. Redding: Of (e)(2)--
Justice Scalia: At least as far as suits elsewhere than in the tax court.
Mr. Redding: --That's correct.
And additionally limit it solely to the small taxpayer.
The larger taxpayer who had a prior remedy would have none.
Justice Breyer: It seems to apply just to abuse of discretion.
Mr. Redding: I'm sorry, Your Honor?
Justice Breyer: : Doesn't the new statute just apply to abuse of discretion?
Mr. Redding: No, Your Honor, it does not.
It creates the standard under which the tax court may review any interest abatement claim under Section--
Justice Breyer: It says you have jurisdiction to determine whether it's an abusive discretion.
Maybe I'm reading the wrong place.
Mr. Redding: --Yes, Your Honor, that is the standard it applies to.
Justice Breyer: --Right.
Well that standard doesn't apply to the (e)(2).
It has nothing to do with it; (e)(2) says if it's a refund, abate, if not, not.
It's not a question of abuse of discretion or not.
Mr. Redding: Well I think it's the standard on which they are to review the Government's action.
And I believe I cannot cite the case but there are cases that hold that a violation of law is a per se abuse of discretion.
There are also other subsections... subsections under 6404 which are made provisions in other 6404 subsections, which are must provisions.
There are about five different subsections under 6404 that provide for interest abatement.
Again, I come back to the long-established pattern of having prepayment jurisdiction in the tax court and postpayment refund jurisdiction in the district courts and Court of Federal Claims.
It's a well established system, and adding a new prepayment form of relief into the tax court in no way should be implied to be a repeal of the long established refund... pay and sue refund jurisdiction that normally exists.
Chief Justice Roberts: But if you went into the district court and claimed that the failure to abate interest was an abuse of discretion, what would you rely on for the... for the cause of action?
Mr. Redding: If the failure to abate interest was an abuse of discretion under (e)(1) you would rely on (e)(1) for the cause of action.
The right is created by the other subsections of (h) of 6404.
Chief Justice Roberts: I thought the prior cases consistently, consistently said that there was no judicial review because it was 6404(h)(1) that there was a cause of action for abuse of discretion?
Mr. Redding: Yes, Your Honor, but I believe what they actually said is that there was jurisdiction to hear it but there was not a justiciable standard that could be applied with regard to (e)(1).
However, once Congress came in and says to the tax court you're going to apply this standard, there is a standard of review.
That now indicates Congress did not intend it to be solely discretionary, and that the district court or Court of Federal Claims would look to the general common law; it would look to precedents, such as the APAA abuse of discretion standard is consistently used throughout the court systems in--
Chief Justice Roberts: So you want to look at 6404(h)(1) saying now we have a standard, but you don't want the other stuff that goes along with 6404(h)(1), which is it's in the tax court; you got to have less than ten million, blah, blah, blah?
Mr. Redding: --That is correct, Your Honor.
The abuse of discretion standard is a common law standard which has been carried over into... into this statute.
But to create a--
Justice Ginsburg: And it didn't exist before this statute?
I mean, the lower courts as I understand it said, routinely, yes, you can have jurisdiction, but have you no claim for relief because there is no, no law to apply.
This is a totally discretionary matter of the Commissioner's grace.
So Congress perhaps didn't grasp the subtle distinction between no jurisdiction, and you can walk in the door but you go out the next door, because there is no justiciable claim.
And it provided peculiarly in the tax court for relief that was not available anyplace before?
Mr. Redding: --I understand and that's basically the Fifth Circuit's view, Your Honor.
I do not agree with that view.
I think that the Congress was merely expanding the existing structure of prepayment jurisdiction for the tax court--
Justice Ginsburg: The Fifth Circuit... I thought the Fifth Circuit went your way.
Mr. Redding: --Pardon?
Justice Ginsburg: I thought the Fifth Circuit went your way.
Mr. Redding: It did, Your Honor.
The Federal Circuit analyzed it as you have.
I do not believe that that is the correct analysis.
I think the Fifth Circuit has this one right.
What you have is a grant of jurisdiction to the United States Tax Court for a prepayment forum of relief which is consistent with the existing pattern, and in no other instance where that has been done has there been an implied repeal.
Justice Scalia: Mr.... Mr. Redding, let me come back to the phantom (e)(2) which we have finally traced down.
Mr. Redding: I apologize, Your Honor.
Justice Scalia: I am not sure that (h) would impliedly repeal (e)(2), because (e)(2) is mandatory.
There isn't any question under (e)(2) whether there has been an abuse of discretion.
There is no discretion.
It is mandatory to the extent that the Administrative Procedure Act would govern (e)(2), it would be for a violation of law not for abuse of discretion.
So when (h) says the tax court shall have jurisdiction to determine whether the Secretary's failure to abate interest was an abuse of discretion, I would take that to apply only to (e)(1), which says the Secretary may abate and not to (e)(2) which says the Secretary shall abate.
There is no question of... of discretion in (e)(2) at all.
Mr. Redding: I understand that argument, Your Honor.
Justice Scalia: It was a pretty good argument, I thought.
Mr. Redding: --I agree, Your Honor.
I would note to the Court, though, that 6404(d) is also a may-abate provision which is in the code.
6404(a) is also a permissive abatement provision, and those provisions would clearly be covered by it.
I, when it says it may, may review a failure to abate interest under 6404, I read that as encompassing all of 6404 and creating their standard for review.
I do not review that as a new standard that applies.
Justice Scalia: What about those other sections, (c) and (d), which say the Secretary is authorized?
Have there been cases which, which said that you could sue for, for his failure to make use of that?
Mr. Redding: Your Honor, I've been able to find no case--
Justice Scalia: It's the same as with (e)?
Mr. Redding: --Yes Your Honor.
Justice Scalia: As with (e)(1).
Mr. Redding: Yes, Your Honor.
There's no clearly history of cases.
I would also submit, Your Honor, that because of the established pattern of pay and sue versus prepayment jurisdiction and the necessity to make a specific reference to the tax court in any grant of jurisdiction in the tax code in order to enable the tax court to have jurisdiction, that if this is the ruling of this Court with regard to 6404(h), it is going to raise a question every time prepayment jurisdiction is extended to the tax court over any matter as to whether that somehow now becomes exclusive of the conventional pay and sue remedy.
Chief Justice Roberts: Of course, there's a fundamental difference on this particular question between pay and sue and sue--
Mr. Redding: Prepay.
Chief Justice Roberts: --prepay, because if you... in the district court if you're paying and suing you're not really subject to the accrual of interest, right?
Mr. Redding: No, Your Honor, that is not correct.
Chief Justice Roberts: If I owe the IRS, 1,000 dollars and they send me a bill and I paid the 1,000 dollars, they've got the money, I don't.
So I don't owe interest on that, do I?
Mr. Redding: Your Honor, may I reflect it back to the facts in this case.
The time period with respect to which abatement is requested occurs many years before the IRS ever sent the taxpayer a bill.
The errors and delays complained of in this case occurred during the course of the partnership level examination and proceedings.
The taxpayer at that time doesn't even have a notice of what the adjustments are going to be, let alone what his tax liability is.
In a partnership case, the partnership level determinations are made at the partnership level.
The Government then, without any further notice to the taxpayer, is free to make the computation of the taxpayer's liability and send him a bill.
During the pendency of the proceedings at the partnership level, there is virtually no way to tell, except as to what the outside maximum liability might be if the Government prevails, what your liability is going to be.
Chief Justice Roberts: The initial bill includes the interest?
Mr. Redding: --Absolutely, Your Honor, that's being asked to be relieved of in this case.
Chief Justice Roberts: But still, in the tax court situation it's still accruing?
Mr. Redding: Well, yes.
It's accruing during the course of the tax court proceeding.
And again, even there for an individual if the time period involved was prior to the assessment the pay, the being able to pay it and cut off the interest really wouldn't make sense.
Basically, Your Honor, I believe that, I believe that this case really rests on what I think the Fifth Circuit summarized quite well when it says that it makes more sense in this case to simply believe the Congress, quote, "simply intended"...
"simply chose to extend concurrent jurisdiction to the tax court over a certain class of claims. "
And that's all it really has done here.
It has implemented and expanded the conventional jurisdiction of the tax court as a prepayment forum before you do have to pay the liability to resolve a dispute with the Internal Revenue Service.
There is no reason, I don't believe, to see this as a major departure from the existing structure of pay and sue jurisdiction versus prepayment jurisdiction.
This is just a well established plan that's been in the code for many, many years.
Mr. Chief Justice, if the Court has no other questions I would reserve my remaining time for rebuttal.
Argument of Jonathan L. Marcus
Chief Justice Roberts: Thank you, Mr. Redding.
Mr. Marcus: Thank you, Mr. Chief Justice, and may it please the Court:
The court of appeals correctly held that the tax court has exclusive jurisdiction over actions challenging interest abatement determinations under Section 6404(e)(1).
The language, structure and history of the interest abatement review statute supports the court of appeals' decision as to principles of sovereign immunity.
Under Petitioner's theory the specific restrictions on the remedy that Congress created may be avoided by the simple expedient of filing a challenge in another forum.
Nothing in the interest abatement review statute or this Court's precedent permits that result.
The place to start is the language of the interest abatement review statute.
Section 6404(h) provides the tax court shall have jurisdiction over an interest abatement action brought by taxpayers who meet the net worth limitations set out in another part of the code and who file their claim within 180 days of the Secretary's mailing of a final determination not to abate interest.
Justice Kennedy: If, if the history of this issue had been such that before the enactment of this section the courts of appeals were divided or the courts were divided as to whether or not there was jurisdiction in the Court of Claims and in the district court, would your position be different?
Mr. Marcus: No, our position would be the same.
We would first look to the statutory language of Section 6404(e)(1) and that provision provides that the Secretary may abate interest when there is an error or delay committed by an IRS employee in the performance of a ministerial act, and that "may" language contrasts with other provisions that have mandatory language that requires the Secretary to abate.
In addition, if you look at the nature of the--
Justice Kennedy: So it's, so it's only (h) that gives any court any jurisdiction at all?
Mr. Marcus: --That's correct.
Justice Kennedy: Even though in our hypothetical world some courts of general jurisdiction thought that they did have jurisdiction?
Mr. Marcus: That's correct, Justice Kennedy.
Up until 1986 the IRS didn't even have ability to abate in these circumstances.
Justice Scalia: Did (h) apply to (e)(2) as well as to (e)(1)?
Does it apply only to discretionary abatement provisions?
Mr. Marcus: No, it's our position it applies only to discretionary abatement determinations by the Secretary.
The language... typically when abuse of discretion standard is imposed, it presupposes that the decision being reviewed involves an exercise of discretion.
Justice Scalia: So what happens with (e)(2)?
You use the pay and sue provisions?
Mr. Marcus: Yes, you could use it, although it typically comes up when the Government has filed an action to recover an erroneous refund.
It's usually raised as a defense.
But you could bring it that way.
Justice Kennedy: Well, isn't it an abuse... isn't it an abuse of discretion for the Secretary to fail to do what the statute tells him he absolutely must?
Mr. Marcus: I think as a technical matter, Justice Kennedy, that's correct.
But I don't think that's the natural way to read the statute, and when the Congress imposed that abuse of discretion standard it assumed that the decisions that were being... that were subject to review involved the exercise of a discretion.
Justice Scalia: I don't, I don't even think it's technically correct.
How is it an abuse of discretion?
He has no discretion.
He must do it.
How could you say he has abused his discretion?
Mr. Marcus: Well I think some cases... there is some case law that has said that when there is an error of law committed by a lower court that can constitute an abuse of discretion.
But in our view again it's not the natural reading of the standard that Congress put in.
And also, if you look at the legislative history, Justice Kennedy, you'll see that Congress was focused on the absence of a judicial remedy with respect to determinations by the Secretary that involved an exercise in discretion.
Chief Justice Roberts: But what the cases said prior to 6404(h) when they asked for interest abatement was not that we don't have jurisdiction to consider that claim.
They would just say there's no standard to apply, so it's committed to agency discretion by law.
Then all of a sudden 6404(h) comes along and gives you a standard, so that removes that objection.
What's wrong with that?
Mr. Marcus: I think that's... with respect, I think the Fifth Circuit's reasoning is too clever by half.
The Fifth Circuit basically extracted one piece of Section 6404(h)'s integrated whole and held that there now is a refund cause of action that's not subject to the specific restrictions.
Chief Justice Roberts: Well, that's because of the way that Congress enacted the language.
It doesn't say that the tax court and only the tax court shall have jurisdiction.
It says the tax court shall have jurisdiction.
That is a, in many respects a preferred forum and they're saying you can bring it there as well, but it doesn't take away the jurisdiction that the prior courts had recognized.
Mr. Marcus: Well, I think you need to look at what the state of the law was when Congress enacted this provision and think about what Congress would have wanted to do.
If Congress would have wanted to reverse those decisions that had said there's no cause, no refund cause of action for interest abatement, they could have easily referenced the refund statute and said there is a refund action available.
They also could have specified that the Court of Federal Claims or the district courts can exercise jurisdiction over interest abatement issues.
Chief Justice Roberts: Don't you think it's kind of strange, though, if you have the interest abatement is available only for a particular category of taxpayer and not others?
Mr. Marcus: No.
Chief Justice Roberts: If you have a net worth of two million and one dollar you can't get any interest abatement, but if it's $2 million you can.
Mr. Marcus: I don't think, I don't think it's anomalous.
I think if you consider the concept of interest under the tax code, the way it works under the tax code is interest accrues on an unpaid tax liability from the time the tax is due until the time the tax is paid.
So the amount of underpayment is the amount of taxpayer is borrowing from the Government.
The interest that accrues on that underpayment is not a penalty; it's just a charge basically for the time value of money.
Chief Justice Roberts: Right, but you abate it in some cases, but you don't abate it in the others.
Mr. Marcus: Right.
But I think, I think the idea was that Congress was concerned that some taxpayers, taxpayers that fall within the net worth limitations, might be in positions where they are less positioned to pay the full tax liability up front.
Chief Justice Roberts: That's what I thought, too.
But then your friend explained that in the initial bill is where the interest is contained in a lot of these cases and in this case in particular.
So it's not as if you have the opportunity to pay it in advance to stop the accrual of interest.
Just you get the bill and you find out, you know, you owe a 1,000 dollars and 300 of it is interest.
Mr. Marcus: I don't think that's correct, Your Honor.
The way this is... the interest that's abatable is, a taxpayer is in full control of whether that interest runs or not.
If the taxpayer pays his full tax liability on time, interest doesn't accrue, so there's no interest to abate.
Justice Scalia: But he doesn't even know what his tax liability is, especially in a partnership situation.
Mr. Marcus: Well, the taxpayer--
Justice Scalia: He makes the partnership calculation, it goes to the IRS, and then they figure out what the tax is.
And meanwhile, you know, the interest is running.
Mr. Marcus: Well, Justice Scalia, first of all, the taxpayer is in the best position to know what the tax liability is.
If a taxpayer is going to make certain investments, they should understand what the tax consequences are.
Justice Scalia: This is quite a different argument.
You're saying, you know, he should have paid the full tax in the first place, not he could have paid the interest that he knew was accruing.
Mr. Marcus: Right.
But he could have prevented that, the abatable interest, from accruing.
This abatable interest doesn't accrue until the taxpayer receives notice from the IRS that there is a problem with the return.
So the... in other words, that first period from the time the underpayment is made until the IRS notifies the taxpayer, that, that interest is not subject to abatement.
That automatically accrues and there is no remedy.
Congress has created no remedy for that period, and there's just a period, there's a provision in section--
Justice Scalia: Excuse me.
I didn't understand that.
Say that again?
There's no abatement for the interest that accrues until you're notified of what the--
Mr. Marcus: --Until you're notified, until the IRS notifies you that they are looking further at your return.
They might not at that point tell you precisely how much you owe, but you're on notice that the IRS is looking into your return further and that you can at that point make a payment or put down a deposit that doesn't compromise your ability as a taxpayer to go into the tax court, but it does stop the accrual of abatable interest.
Justice Souter: But you don't know how much to pay, do you?
I mean, when they send you the notice they don't send a notice that says, we're looking into this and we think you're going to end up owing $5,000, do they?
They don't give you a figure.
Mr. Marcus: Again, they don't necessarily tell you exactly how much you owe, but it's the taxpayers'--
Justice Souter: Do they name a figure at all--
Mr. Marcus: --They sometimes do.
Justice Souter: --when they give you the initial notice?
Mr. Marcus: They sometimes do, and then at 18 months, at 18 months under subsection (g), under 18 months under a provision that was acted in 1998, the IRS has to at 18 months tell you how much you owe; otherwise, the interest cannot continue to accrue after that 18-month period.
But you should... but it is the taxpayer's responsibility to know what their tax liability is.
Justice Souter: That's true.
But you can make that argument.
That argument, if you accepted it, would be an argument for having no amendment to subsection (h) at all.
Mr. Marcus: Right, but that's the idea.
Until 18... until 1986 there was no authority at all for the Secretary to abate, and then Congress gave the Secretary that authority as a matter of grace in 1986, to extend this relief to forgive the accrual of interest.
I mean, after this is money--
Justice Souter: And the question is, why is the grace confined to some taxpayers and not to others?
Mr. Marcus: --The short answer is because Congress has said that, said that, and the Congress decided to impose the net worth limitation.
Justice Souter: They've said it if we accept your view of the exclusivity of the amendment to (h).
Mr. Marcus: Right.
And typically when Congress imposes restrictions on a remedy this Court reads that, reads that as an intentional--
Justice Breyer: Yeah, but is there any other instance in the law?
I suppose there probably is, but what surprised me about that is this: Imagine we have two citizens and they are identical in every respect in terms of their claim, they each believe the government owes them $50,000.
They each have identically strong claims.
And Congress passes a law and says one of you can come into court and the other can't.
Now suppose it said the poor person can't come into court.
Do you think there wouldn't be a constitutional problem there?
Remember, they have the same claim for the same amount, with the same precise strength of their argument.
But we say rich people can go in, and we'd say why did you do that?
We say poor people don't have as much stake in society.
They don't have... now suppose you heard such an argument.
How long would it take you to feel there's a constitutional problem?
Mr. Marcus: --Well, I think there has to be a rational basis for--
Justice Breyer: No.
The rational basis is that the poor person doesn't have the stake in society that a rich one does.
Mr. Marcus: --Well, I--
Justice Souter: It's worthless.
Now I guess, if you can't keep the poor person out for such a reason then you can't keep the rich person out for that reason.
So you tell me what the rationale is in keeping the rich person out any more than the poor person.
They have the same claim, same amount, same cause.
The cause, by the way, was that some bureaucrat in the IRS forgot to send a notice so nobody knew what was happening.
That was the cause.
And the reason it didn't get abated is because a different bureaucrat got mixed up, okay?
Mr. Marcus: --Keep in mind, this is... what you're talking about is, this is interest that's running on money that the taxpayer is borrowing from the Government.
This is money that the Government is legally entitled to as of the date it was originally due.
Justice Breyer: Yeah.
Mr. Marcus: And so this is money that the taxpayer is borrowing.
A large net, high net worth taxpayer can invest that money elsewhere and may well even make out even better.
Justice Breyer: But at the end of the day, the claim happens to be interest worth $5,000.
The IRS abused its discretion under the statute in failing to write a check for $5,000 to both.
What we do is we allow one of them to bring a lawsuit to get the 5,000, and we say to the other one, you can't bring the lawsuit to get the 5,000.
Now my question is, what's the basis for that distinction?
Mr. Marcus: And the rational basis is that Congress believed that taxpayers of a high net worth, there would be no hardship, but... in them not having a cause of action.
Justice Breyer: Why would there be no hardship?
Mr. Marcus: Because they can use the money, invest the money.
Justice Breyer: And so can a poor person.
Mr. Marcus: Well, but they're not as well positioned as the wealthy taxpayer, so--
Justice Scalia: --The next thing you know, they will enact a progressive income tax.
Justice Breyer: By the way, this has nothing to do with the progressive income tax.
What I have not seen anywhere is the use of wealth, totally different from the dollar value of a claim, to shut the courthouse door.
I'm just saying, is there such a case anywhere, and if there is no such case, then I'd say I wonder about this assumption.
The assumption that the reason that you cannot keep the courthouse door open to everyone is because what?
Mr. Marcus: --Well, first of all, there are other examples.
Justice Breyer: What.
Mr. Marcus: --This is derived from, ultimately derived from the Equal Access to Justice Act, there are attorneys' fees provisions, but also assistance to taxpayers, and those net worth limitations apply to--
Justice Breyer: We know, attorneys' fees you give to poor people more than to rich people.
That makes sense.
That has nothing to do with having a formal rule saying you cannot enter the courthouse.
Justice Scalia: Is there a you cannot enter the courthouse provision here, or is it... as I understand your case, it is that it remains discretionary with the Secretary with respect to people who have more money, but it is not discretionary with respect to people who have less money.
Mr. Marcus: --That's correct.
Justice Breyer: I don't understand.
Justice Scalia: So one has a cause of--
action and the other doesn't have a cause of action.
And the difference you're making between the two is you're permitting the Secretary to waive the interest with respect to the rich.
You're requiring him to do it with respect to the poor.
Isn't that the difference?
Mr. Marcus: That's correct.
There is an--
administrative claim that--
Justice Breyer: Wait.
That might be the answer.
Justice Kennedy: The poor do not have the--
incentive or even the ability to defer paying a tax, where the people that have large bank accounts may, and investments, may well profit by just paying the interest to the Government.
Mr. Marcus: --That's exactly right.
And Justice Breyer, if you want, if you--
Justice Breyer: Wait.
There are two separate things.
I want to understand this.
In other words, the Secretary does not have the power to abate the interest in respect to the rich person?
Mr. Marcus: --No.
He does have the authority.
Justice Breyer: Oh.
Justice Scalia: But it's permissive, not mandatory.
Mr. Marcus: Yeah, the Secretary has the authority to waive interest.
Justice Scalia: But he doesn't have--
Justice Breyer: He can do it... in the first case with the rich person, he can abuse his discretion.
Mr. Marcus: With respect to taxpayers who meet the net worth limitations.
Justice Breyer: In other words, in the one case Congress has passed a law saying with a poor person you cannot abuse your discretion, but with a rich person you can abuse your discretion.
That's what the--
underlying substantive statute says.
Mr. Marcus: And there's another--
Justice Scalia: --Wait a minute.
They are not really saying that.
They're saying it's totally within your discretion.
You can't possibly abuse your discretion when you have total discretion.
They're just saying, you know, do it if you want to do it.
Mr. Marcus: --That's right.
It's a matter of administrative grace for the Federal taxpayers who are--
Justice Souter: No.
The standard of discretion is the same for the poor and the rich, isn't it?
The only difference is that the poor can get into court and the rich cannot.
Mr. Marcus: --They have an enforceable right.
Justice Souter: So it's a question of remedy, not standing.
Mr. Marcus: Right.
There's a judicial remedy in one case and only an administrative remedy in the other.
Justice Alito: Is that the poverty line?
Mr. Marcus: And there's another provision in the tax... I'm sorry, Justice Alito.
Justice Alito: Is the net worth of $2 million the poverty line now?
Mr. Marcus: Not that I'm aware of.
Justice Alito: So what is... so what's the rationale?
This isn't treating the rich and the poor differently, is it?
Mr. Marcus: It's treating exceedingly high net worth individuals and corporations differently from everyone else.
Justice Alito: Someone with a net worth of $1.5 million couldn't invest the money in the interim?
Mr. Marcus: They could.
Congress chose to draw the line where it used this provision that was already in place under the Equal Access to Justice Act.
It referred to that provision--
Justice Ginsburg: This was for purposes of attorneys' fees?
Mr. Marcus: --Right, the provision that applies to attorneys' fees.
Congress has also imposed this provision in a burden shifting provision in the tax code, Section 7491.
If the Court wants to get a better idea of what Congress's concern for what it called the average taxpayer, or the smaller taxpayers, it can look at the legislative history.
There was a hearing in March of 1995 that's cited on page 98 of the supplemental appendix to the cert petition, and that was the Court of Federal Claims decision.
It's footnote 19.
It refers to a hearing in March 1995.
And if you read through that, you can see where that concern for the... for average taxpayers and lower net worth taxpayers came from.
Nothing in Section 6404(h) gives rise to an inference that Congress intended to establish additional remedies in the district court and Court of Federal Claims.
To the contrary, this Court has consistently applied the rule that when Congress creates a specific remedy, it intends that remedy to be exclusive.
That rule is fully applicable here.
Otherwise, the specific restrictions Congress imposed on the remedy could be defeated by bringing the claim in a different forum.
Justice Ginsburg: Wouldn't it have been simpler if Congress just said the tax court shall have exclusive jurisdiction, instead of just saying jurisdiction?
Mr. Marcus: That might have made it simpler, Justice Ginsburg, but it accomplished the same result by imposing the specific restrictions that it did.
And again, it would have... there's another... there are two other provisions in the tax code where Congress... where the tax court effectively has... one of the provisions where the tax court has exclusive jurisdiction under Section 6330(d), where also it doesn't specify that... the Congress didn't specify the tax court has exclusive jurisdiction but it does.
And there's another case where there's an administrative determination, it doesn't go to the underlying substantive tax liability.
Chief Justice Roberts: The difference... the difference is that the district court, the claims court already has jurisdiction for pay and sue claims, if you pay the IRS you can sue to get a refund.
And so this isn't as if we're looking at something that says the tax court has jurisdiction and trying to use that as a wedge to get other jurisdiction.
There's already a grant of jurisdiction.
The problem was, there was no standard of review for these may abate claims, and all of a sudden we find in this provision there is a standard of review, it's abuse of discretion, and that fills the void.
Why can't they just use that?
Mr. Marcus: Well, again, Mr. Chief Justice, I don't think it was just a matter of not being a standard of review.
I think it was a matter of just being, of intent by Congress to have this just be a matter of administrative grace.
And again, if you contrast the language of the different--
Chief Justice Roberts: But I thought what you had argued before when people would try to seek this release was that there's no standard of review to hold the Secretary's exercise of discretion up against.
Mr. Marcus: --I think that was one of the reasons that the Government cited, but I think there was others as well.
Chief Justice Roberts: But one thing you never said was that there was no jurisdiction, because there is jurisdiction in the district court.
If you've paid money to the IRS and you want it back, you can bring a refund action.
Mr. Marcus: If you have a legal entitlement to it, and the point is you didn't have a legal entitlement to it before.
That's what the courts held, and Congress responded to that, not by saying you do have a legally entitlement to this through a refund action, which they easily could have said if they wanted to reject those prior decisions, but instead they created a limited remedy in the tax court.
I don't see how you can read that limited remedy in the tax court to give rise to a broader remedy that doesn't have those restrictions that Congress imposed on the tax court remedy.
So it should be... I think 6404(h) should be read as an integrated whole and you can't just extract one piece and then bring that over, as the Fifth Circuit said, to apply to a refund action.
I don't think that's the proper way to interpret the statute.
Justice Breyer: I now think maybe I don't agree on this point that there are different standards, because it does say in this abuse of discretion.
And indeed that's a normal administrative standard, and so as you read this you would think that the IRS does not have any legal power substantively to abuse its discretion in refusing to bring an abasement in refusing to bring an abatement... excuse me, to abate the interest.
So far do you agree?
Mr. Marcus: I'm sorry, Justice Breyer?
Justice Breyer: Once they make clear that the standard is abuse of discretion, it only makes clear what's there in the law anyway, that administrative authorities do not have the authority to abuse their discretion.
Now, sometimes we don't review that in the courts.
That doesn't make it legal.
It just means you can't catch them out in court.
Mr. Marcus: --Right.
Justice Breyer: So there's a standard that applies to everybody.
Then all that this does, to go back to it is it closes the courthouse door.
Now I want to know what your rationale was for doing that?
It had nothing to do with the standards that applied.
It has to have something to do with why one class of people by wealth are kept out of court.
I think if it were the other way around it wouldn't last for three seconds, and the only reason maybe I don't think about it as hard this way because I think, well, privilege is involved, etcetera.
But when you force me to think about it, I want to know what the reason so.
Mr. Marcus: Well, I don't think it's right to characterize it as the closing of the courthouse door.
Congress opened the courthouse door in a limited fashioning in 1996.
That's what happened.
There was no courthouse door opened in--
Justice Breyer: I'll accept that characterization.
Now you give me the reason why we've opened the courthouse door to individuals who are alike in every respect but for their net worth?
Now give me that, the same reason?
I always want to know what the specific reason is, the specific rationale and.
I'm not saying there isn't one.
I just want to know what it is.
Mr. Marcus: --Justice Breyer, I don't know if I can give you a better one than I gave before.
But it's that high net worth taxpayers are better positioned to pay their full tax liability up front and to handle the accumulation of interest in the event that there is some delay in the processing of their return.
Justice Kennedy: They're exactly alike but for their ability to earn interest in different ways.
Mr. Marcus: Yes.
Justice Scalia: And I would not concede, as you seem to have, that the consequence of (h) is simply to open the door.
I think the category of decisions that are committed to agency discretion by law within the meaning of the APA are agency decisions as to which the term "abuse of discretion" makes no sense.
There's no such thing.
It is totally committed to agency discretion.
It's only other decisions that are not committed to agency discretion by law where you... where the discretion can be abused.
If you look at it that way, it isn't a matter of closing the door to one category and opening it to another; it's a matter of different substantive laws applying to the two, to the two classes.
Anyway, I choose to look at it that way.
You can talk--
Mr. Marcus: That's a fine way of looking at it, Justice Scalia.
The other, the other anomaly the Fifth Circuit identified was the taxpayer, the taxpayer seeking a refund having to split off his claims.
This too is not a significant anomaly.
The vast majority of taxpayers seek redetermination of their tax liability in the tax court and those taxpayers must split their claims because the interest abatement claim doesn't ripen until the taxpayer's underlying liability has been assessed.
Moreover, the interest abatement question is distinct from the taxpayer's underlying liability.
Chief Justice Roberts: Can they bring it as additional claim after they get the final determination?
They start a whole separate action for interest abatement?
Mr. Marcus: That's... if they, if they, if they got relief on their refund claim, if they prevail on their refund claim there would be no need to do that.
The interest would automatically abate.
But if they were unsuccessful they could still pursue an interest abatement on the grounds that the IRS committed an error in delay in performing a material act.
Chief Justice Roberts: Is it part of the same proceeding or is it a separate proceeding?
Mr. Marcus: Well, it would be, it would be a proceeding that would follow the proceeding on the underlying liability.
Chief Justice Roberts: You're making the claim that it's no big deal that you have to go to the district court to get your refund and then go to the tax court to get the interest abatement, which does seem like a big deal to me.
And you say, well, in the tax court you have to do it separately, too, but it seems to me that if it is the same proceeding it is not much.
Mr. Marcus: It's not as inconvenient... well, it, it may be inconvenient but it's a necessary consequence of the exclusive review scheme the Congress set up.
And there is no reason... to take that policy concern and have that trump the statutory language and the regime that Congress clearly established.
Justice Ginsburg: And there is no linkage between the two, with, it's one thing to split a claim when they have common elements, but the interest abatement has nothing to do with the substantive underlying... substantive liability?
Mr. Marcus: That's correct, Justice Ginsburg.
It involves questions about administrative problems that might arise during the processing of the taxpayer's case.
A ministerial act, the failure to transfer a file when a taxpayer moves from one jurisdiction to another, or after, or notice of deficiency if the agent just delays in issuing the notice because he forgot about it and it just sat on his desk for a couple of days.
Those are the kinds of issues that, that come up in interest abatement actions.
If the Court has no further questions the court of appeals should be affirmed.
Rebuttal of Thomas E. Redding
Chief Justice Roberts: Thank you Mr. Marcus.
Mr. Redding, you have four minutes remaining.
Mr. Redding: If I may, there are a couple of brief points I would like to make.
In the legislative history of the 6404(h) it concludes with the statement that no inference should be made from that legislation as to other courts' jurisdiction.
I think that should be taken very seriously.
As to the claims court--
Justice Scalia: Who said that?
Mr. Redding: --That's in a House committee report, Your Honor.
As to claim splitting, it is actually a horrendous problem when you're talking especially about partnership-related cases.
I will note that there are several hundred cases below waiting the outcome of this case.
As in the Cramer and Weiner opinions that came out of the Fifth Circuit, the Court can note that there are claims for interest abatement, abatement not under 6404, but that interest was overcharged by applying the penalty rate of interest.
There is a refund claim for the penalty portion of the interest.
There is also a refund claim that the tax was assessed outside the statute of limitations; that's clearly a refund claim.
None of those claims would be encompassed under 6404(h).
These taxpayers would have had to have completely split their claims, asked for an interest abatement in the tax court for abuse of discretion on 6404(e)(1).
Justice Ginsburg: But the point that Mr. Marcus just made, that the issue is discrete on interest abatement, and it involves mishandling within the Internal Revenue processing, and it's not like other questions that have to do with the... with the intricacies of the Internal Revenue Code--
Mr. Redding: That's only relatively true to 6404(e)(1), Your Honor.
But I will note that under 6404(a), where cases are now coming out of the tax court for the first time, because it now has jurisdiction under (h), it provides authority for the Commissioner to abate interest where the IRS has erroneously or illegally assessed the tax liability after the statute of limitations runs or whether it's simply an erroneous assessment.
Those claims have nothing to do with discretion, and they are not really just ancillary to the tax liability; they arise out of the substantive challenge to the liability itself.
The Woodrall case that has come out, which is the, I think is the first of the 6404(a) cases, was an assertion that the interest had been charged after the tax had been paid.
Now that's not a discretionary abatement; that's an illegal assessment of interest and that's a 6404(h) claim now.
Previously it would have been strictly a refund claim under 16... under 1346.
I would also note that in terms of the being able to pay it to cut off the interest accrual, that in these cases, these cases that are before the Court, the F quality... the document the Government first sent out proposing adjustments to the partnership level, if you had computed the liability based on what the Government's position was, the ultimate tax liability including interest to any point in time would have been at least three times the amount that results from the tax court decision.
It's just ludicrous to say that the taxpayer should be expected to take whatever the Government's proposed adjustments are, compute what his maximum liability may be, and pay it in advance or post a bond in advance in order to cut off the interest accrual.
That argument just doesn't... in my mind does not fly, Your Honor.
This, this Court in Bob Jones University did address the pay and sue versus prepayment jurisdiction issue in terms of constitutionality and due process.
And, and basically said that as long as there is a pay and sue remedy available, the taxpayer has no due process rights to a prepayment remedy, but that the Court might have come down differently had there been no remedy available in terms of pay and sue.
I would also note that both the tax court, the district courts, the Court of Federal Claims and the appellate courts have long reviewed other discretionary acts within the tax code by the Commissioner where no standard is set forth on an abuse of discretion standard, such as the authorization of the Commissioner to abate certain penalties where the taxpayer has sought an independent appraisal on the overvaluation penalty under 6659.
Those cases have been reviewed for years by the tax court and by the district courts in refund cases on an abuse of discretion standard.
It is the Federal common law standard for reviewing an abuse of discretion.
The determinations in Horton and Selman Holmes are unique in holding that it's totally discretionary.
Thank you, Your Honor.
Chief Justice Roberts: Thank you, Counsel.
The case is submitted.
Argument of Chief Justice Roberts
Mr. Roberts: I have our opinion this morning in case 06-376 Hinck v. United States.
If you fail to pay your Federal Taxes when they are due, you will end up being liable not only for the taxes but for interest as well.
Occasionally though, you don’t find out that you should have paid taxes until some time has passed because of error or delays by the internal revenue service, in such cases the Tax Court says you can ask the IRS to abate the interest to forgive it in whole or in part.
Now, allowing tax payers to appeal to the kindness of the IRS worked out as you might expect.
In 1996 Congress passed the provision at issuing this case, Section 6404(h) of the tax code, which allows the tax payer to obtain judicial review of an IRS decision not to abate interest.
Section 6404(h) provides that the tax court has jurisdiction over such actions.
The Fifth Circuit reasoned that District Courts and the Court Of Federal Claims have jurisdiction as well because they have general jurisdiction over tax refund claims and Section 6404(h) makes it clear that this type of claim is subject to judicial review.
The federal circuit in this case disagreed ruling that interest abatement claims could be brought only in the Tax Court.
In an opinion filed with the Clerk today we agree with the Federal Circuit.
We have held that a precisely drawn detailed statute preempts more general remedies and Section 6404(h) does not simply say that interest abatement claims are subject to judicial review.
It specified where such claims shall be brought and adds other features to the new remedy, such as a 180 days statute of limitations and the net worth sealing for eligible plaintiffs.
You cannot isolate one element of the statute the provision allowing review and use it to circumvent the other limitations included in the same statute.
Congress plainly envisions Section 6404(h) as a package deal and one part of that package was the provision specifying that the Tax Court has jurisdiction over these actions.
We therefore affirm the judgment of the Court of Appeals, our opinion is unanimous.