United States v. Greene-Thapedi ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-3904
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
LLWELLYN GREENE-THAPEDI,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 9129—Wayne R. Andersen, Judge.
____________
ARGUED APRIL 12, 2004—DECIDED FEBRUARY 17, 2005
____________
Before WOOD, EVANS, and WILLIAMS, Circuit Judges.
WOOD, Circuit Judge. For three years running, Llwellyn
Greene-Thapedi failed to file her income tax returns in
time. After processing her multiple late returns, the In-
ternal Revenue Service (IRS) issued her a refund check in
the amount of $17,028. Later, it discovered that she was not
entitled to this check after all. After unsuccessful attempts
to recover the funds from Greene-Thapedi, the government
brought this lawsuit. The district court held that the
government filed its claim within the allowable time and
that it was entitled to recoup most of the refund it had
issued to Greene-Thapedi. We affirm.
2 No. 03-3904
I
In May 1999, Greene-Thapedi filed her tax returns for the
years 1996 and 1997. Two months later, she filed her 1998
return. The IRS was in the process of determining Greene-
Thapedi’s 1996 tax liability when it received the three
returns. Instead of processing the three returns in chrono-
logical order, the agency first processed the 1997 and 1998
returns, using its computerized system. Because it had
already started manual processing of the 1996 return,
internal procedures required the agency to complete the
1996 return manually. This meant that the 1996 return
took longer to complete than the computer-processed 1997
and 1998 returns. The confusion in this case arises because
the returns were not processed in chronological order.
Through a series of transactions which we describe below,
the IRS mistakenly credited Greene-Thapedi with two
refunds, each in the amount of $11,535, when she
was entitled to only one such refund. The 1997 return was
the first to be processed completely. It showed that Greene-
Thapedi owed approximately $30,000 in taxes. In addition
to this tax liability, the IRS assessed three penalties in
connection with the 1997 return: one for late filing, 26
U.S.C. § 6651(a)(1); one for failure to pay, 26 U.S.C.
§ 6651(a)(2); and one for failure to make esti-
mated payments, 26 U.S.C. § 6654. The penalties were
based on the amount by which her taxes were underpaid
and the length of time the underpayment persisted. Ini-
tially, these three penalties totaled $10,293.
The 1998 return was the second to be processed. It
showed an overpayment of tax in the amount of $12,973.
This amount was automatically applied against Greene-
Thapedi’s 1997 tax liability, consistently with IRS proce-
dure. In addition, the 1998 overpayment prompted the
IRS to abate some of the 1997 penalties. After the 1998
return was fully processed, much, but not all, of Greene-
No. 03-3904 3
Thapedi’s 1997 liabilities had been eliminated. When the
manual processing of Green-Thapedi’s 1996 return was
complete, the IRS discovered that she had also overpaid her
1996 tax by $11,535 and that some of this overpayment
could be applied to what was left of her 1997 liabilities.
This discovery resulted in yet another reduction in her 1997
penalties. After applying $9,206 of the $11,535 overpayment
to her 1997 liabilities and penalties, the IRS issued Greene-
Thapedi a check for $2,645, which included $316 in interest
owed by the IRS. The IRS then realized that Greene-
Thapedi was owed a second refund check of $753 because of
further adjustments to her 1997 penalties. Once the IRS
issued these two refund checks, Greene-Thapedi’s account
was settled. The IRS should have stopped there.
Instead, the agency mistakenly credited Greene-Thapedi
with a second refund in the amount of $11,535. Somewhat
red-faced, the government explains that this occurred
because of the delay between processing the 1997 return by
computer and processing the 1996 return by hand. The IRS
employee who manually entered Greene-Thapedi’s 1996
information added a second credit of $11,535 to her 1997
return even though this amount had already been ac-
counted for in the two refunds we discussed above. When all
was said and done, the defendant received yet a
third refund from the IRS in the amount of $17,028. (We
note that this amount differed from the original $11,535
refund because the interest amount and other assess-
ments changed every time Greene-Thapedi’s tax liability
was adjusted.)
Greene-Thapedi received the $17,028 refund on November
27, 1999. Interestingly, however, she did not cash it right
away. Instead, she spoke with two different IRS customer
service representatives, each of whom told her that the
refund amount was correct. After Greene-Thapedi asked for
a written confirmation from the IRS, the agency sent her a
copy of her 1997 tax account showing a zero balance and an
4 No. 03-3904
issued check in the amount of $17,028. After receiving this
confirmation, Greene-Thapedi cashed the check. Records
from the Treasury Department show that payment on the
check occurred on December 21, 1999. Sometime thereafter,
the government discovered that the $17,028 refund check
had been issued in error. After unsuccessfully attempting
to recover the funds from Greene-Thapedi, the government
filed a complaint in federal court on November 28, 2001,
two years and one day after Greene-Thapedi received the
check, but one year and 342 days after the payment was
completed.
The statute governing suits to recover erroneous tax
refunds provides that, absent fraud or misrepresentation,
an action must be brought within two years of “the mak-
ing of the refund.” 26 U.S.C. § 6532(b). In the district court,
Greene-Thapedi argued that her refund was “made” on
November 27, 1999, the date she received the check in the
mail. Relying on that date, she argued that the govern-
ment’s suit was time-barred by the statute of limitations
because it was filed on November 28, 2001, one day after
the two-year limitations period had run. The government
countered that the “making of [a] refund” occurs when the
Treasury authorizes the refund payment and the check
clears the relevant Federal Reserve Bank. If that is the
proper rule, then this case was filed in time, because the
payment was authorized on December 21, 1999. The district
court agreed with the government, holding that the statute
of limitations ran from the “date payment could no longer
be stopped, namely, the date on which the check clears the
Federal Reserve Bank.” This was a readily ascertainable
date, in the view of the district court, and a more certain
reference point than the date the taxpayer received the
check in the mail. After concluding that the government’s
suit was timely, the district court also found that the refund
issued to Greene-Thapedi was indeed erroneously issued. It
entered judgment for $15,784.48 plus interest in favor of
the United States and this appeal followed.
No. 03-3904 5
II
When the United States issues a taxpayer an erroneous
refund check, the government may bring a civil action
to recover the refund. 26 U.S.C. § 7405(b). Absent allega-
tions of fraud or misrepresentation on the part of the
taxpayer (and there is no hint of either one here), the
government must initiate such a suit within two years after
the refund was “made.” 26 U.S.C. § 6532(b) (“Recovery of an
erroneous refund by suit . . . shall be allowed only if such
suit is begun within 2 years after the making of such refund
. . . .”). We must decide, as a matter of first impression in
this circuit, what act triggers the two-year statute of
limitations in a suit brought by the government pursuant
to Section 6532(b). This is a determination that we make de
novo. United States v. Pearson, 340 F.3d 459, 464 (7th Cir.
2003); see also United States v. Domino Sugar Corp., 349
F.3d 84, 86 (2d Cir. 2003) (establishing a de novo review of
limitations in erroneous refund action).
The parties have offered two competing dates for our
consideration: the date the taxpayer receives the check
in the mail, and the date the Treasury honors the
check. Other logical possibilities include the date when the
check was prepared, which appears on the face of the check,
or the date when the IRS mailed the check. Our analysis
must be guided by the proposition that statutes of limita-
tions, when applied against the government, are to receive
a strict construction in favor of the government. Badaracco
v. Comm’r of Internal Revenue, 464 U.S. 386, 391-92 (1984);
E.I. Du Pont De Nemours & Co. v. Davis, 264 U.S. 456, 462
(1924); Domino Sugar Corp., 349 F.3d at 88.
Although the Supreme Court has not addressed the
precise question posed in this appeal, Greene-Thapedi
points to dicta in O’Gilvie v. United States, 519 U.S. 79(1996), to support her argument that the date of receipt
governs. In O’Gilvie, the Court determined that as be-
6 No. 03-3904
tween the date the check was mailed by the IRS or the date
that the check was received by the taxpayer, the limitations
period under 26 U.S.C. § 6532(b) commenced on the date
the check was received by the taxpayer. 519 U.S. at 91. At
a minimum, O’Gilvie thus rules out any earlier date than
the date when the check was received by the taxpayer. The
Court did not consider, however, whether the date of the
taxpayer’s receipt was the latest possible time for the
statute to begin running. Nonetheless, two aspects of the
Court’s reasoning are instructive. First, the Court empha-
sized the importance of construing limitations in favor of
the government. In fact, the Court rejected the date of
mailing in favor of the date of receipt because under the
facts of that case, use of the mailing date would have barred
the action and thus would have disadvantaged the govern-
ment. Id. The Court also observed that use of the “date of
receipt” rule had not “proved difficult to administer in
ordinary state or common-law actions for money paid
erroneously. The date the check clears, after all, sets an
outer bound.” Id. at 92. See also id. at 101 (stating that the
Court’s resolution did “not demand that [the statute of
limitations] issue be addressed, except to the extent of
rejecting the proposition that the statutory period begins to
run with the mailing of a refund check. So long as that is
not the trigger, there is no need to decide whether the
proper trigger is receipt of the check or some later event,
such as the check’s clearance.”) (Scalia, J., dissenting).
Much earlier, the Supreme Court held that the forerunner
of § 6532(b) ran from the “date of payment” rather than the
date on which the IRS Commissioner approved the refund.
United States v. Wurts, 303 U.S. 414, 418 (1924). Although
the Court did not define the “date of payment” as it bears
on this case, it again selected the date that favored the
government. Id. at 416. The Court also stated that the
taxpayer does not have a right to the refund prior to the
date of payment because the IRS could at any time before
No. 03-3904 7
then “cancel the payment and revoke the authority of
payment erroneously made.” Id. at 418.
The government’s authority to cancel payment on a check
prior to final authorization by the Treasury Department
was clear in 1924, and it remains clear today. See 31 U.S.C.
§ 3328(f) (“Nothing in this section limits the authority of the
Secretary to decline payment of a Treasury check after first
examination thereof at the Treasury.”); 31 C.F.R. § 240.6(b)
(“Treasury shall have the right as a drawee to complete first
examination of checks presented for payment, to reconcile
checks, and, when appropriate, to make a declination on
any check.”). As these provisions suggest, the Treasury is
authorized to decline payment on a check even after a
taxpayer has received it in the mail. See Wurts, 303 U.S. at
417-18 (stating that the IRS Commissioner “might—even
after a check was signed and mailed—cancel the pay-
ment. . . .”). This implies that the government should not
even think about this kind of suit before the taxpayer
cashes the refund check. Id. at 418 (“Obviously, the Govern-
ment had no right to sue this taxpayer to recover money
before money had been paid to him.”).
Only one court of appeals has addressed the precise
question before us. It concluded that the “making of
such refund” occurs on the date when “the check cleared the
Federal Reserve and payment to the taxpayer was autho-
rized by the Treasury.” United States v. Commonwealth
Energy Sys. and Subsidiary Cos., 235 F.3d 11, 14 (1st Cir.
2000). In Commonwealth Energy, the IRS issued a sizable
refund check, which was received by the taxpayer on July
27, 1995. The government filed suit on July 30, 1997, two
years and three days later, claiming that the refund was
issued in error. Id. at 13. In deciding how to measure the
limitations period, the First Circuit concluded that a check-
clearing rule was superior to a date-of-receipt rule both
because it construed the limitations period in favor of the
government and because it provided a clear reference point
8 No. 03-3904
for all concerned. Id. at 14-15. (“Although the Treasury
cannot know for certain when a check is received by a
taxpayer, it can know when that check clears, and deter-
mine whether or when to file suit accordingly.”). Noting
that Treasury records reflected authorization of payment to
the taxpayer on August 2, 1995, the court held that the
government’s suit was not barred by the two-year limita-
tions period when it was filed on July 20, 1997. Id.Greene-Thapedi counters that there are two other
appellate decisions that apparently adopt a date-of-receipt
rule. In our view, however, those cases do not support
her position. Paulson v. United States, 78 F.2d 97 (10th Cir.
1935), is of little or no help to her. In the same vein as the
Supreme Court’s decision in Wurts, Paulson held that the
two-year limitations period did not commence with the date
on which the IRS Commissioner issued a refund but instead
“when the money is paid.” 78 F.2d at 99. The court did not
clarify what it meant by “when the money is paid,” but that
phrase seems to us to be consistent with the First Circuit’s
position. Indeed, the Tenth Circuit commented on the fact
that the IRS could cancel payment on a refund check at any
point prior to payment. Id. (“Ordinarily a statute of limita-
tion does not begin to run until a suit could be brought.
Certainly it cannot be contended that a suit of this nature
may be maintained and judgment secured after the sched-
ule of refunds and credits has been approved, but before the
money is paid to the taxpayer.”). United States v. Carter,
906 F.2d 1375 (9th Cir. 1990), is just another case in which
the court was presented with a choice between the date of
mailing and the date of receipt. As the Supreme Court later
did in O’Gilvie, the Ninth Circuit chose the date of receipt.
Id. at 1377-78. It said nothing about the date of negotiation,
as there was no need to do so.
We conclude that the First Circuit’s approach in Common-
wealth is sound, for the reasons given by that court. Factual
disputes are more likely to arise when a court is asked to
No. 03-3904 9
determine the date that a taxpayer received a refund check
in the mail. By contrast, a court can determine with near
certainty the date on which the Treasury authorized
payment on the check. This rule permits both the govern-
ment and the taxpayer to know exactly when the limita-
tions period commences. As applied to these facts, the two-
year statute of limitations began to run on December 19,
1999, when the Treasury department records show that
Greene-Thapedi received payment on the refund check. The
government’s suit, which was filed on November 28, 1999,
was thus not time-barred.
III
After a two-day bench trial, the district court concluded
that Greene-Thapedi had received an erroneous refund
check in the amount of $17,028. The government conceded,
however, that it was seeking only $15,784.48, for reasons
that it did not make clear to the district court. Accepting
the lower number, the court entered judgment for the
government in the amount of $15,784.48, plus interest.
We review its findings under the clear error standard
of Federal Rule of Civil Procedure 52(a). Piraino v.
Int’l Orientation Res., Inc., 137 F.3d 987, 990 (7th Cir.
1998).
Greene-Thapedi asserts that the district court erred when
it imposed the burden of proof on her as the taxpayer. But
the court’s opinion explicitly stated that the government
had the task of “proving that the refund was erroneous.”
Greene-Thapedi also claims that the government made
“judicial admissions” about the correctness of the refund.
We are not quite sure what to make of this argument, or its
relevance to the district court’s factual findings, because an
erroneous refund suit necessarily implies that the govern-
ment initially made a mistake in issuing the refund.
10 No. 03-3904
Finally, Greene-Thapedi now argues that the govern-
ment’s decision to seek less money than the face value of
the refund check, shows somehow that the court clearly
erred in finding that any amount at all was due. We
disagree. The trial testimony and documentary evidence
amply demonstrated that the IRS issued Greene-Thapedi
two separate refunds for $11,535, when she was entitled
to only one such refund. We conclude that the record
supports the district court’s finding that Greene-Thapedi
received an erroneous refund and AFFIRM the judgment.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-17-05