Strategic Housing Finance Corp. v. United States , 93 Fed. Cl. 1317 ( 2010 )

United States Court of Appeals
for the Federal Circuit
__________________________
STRATEGIC HOUSING FINANCE CORPORATION
OF TRAVIS COUNTY,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
2009-5078
__________________________
Appeal from the United States Court of Federal
Claims in 06-CV-741, Judge Margaret M. Sweeney.
______________________
Decided: June 7, 2010
______________________
WILLIAM MARK SCOTT, Law Office of W. Mark Scott
PLLC, of Washington, DC, argued for plaintiff-appellant.
BETHANY B. HAUSER, Trial Attorney, Appellate Sec-
tion, Tax Division, United States Department of Justice,
of Washington, DC, argued for defendant-appellee. With
her on the brief were JOHN A. DICICCO, Acting Assistant
Attorney General, and RICHARD FARBER, Attorney.
__________________________
Before GAJARSA, LINN, and MOORE, Circuit Judges.
STRATEGIC HOUSING v. US 2
GAJARSA, Circuit Judge.
The issue before this court is whether a bond issuer
must first seek an administrative refund for an arbitrage
rebate from the Internal Revenue Service (“IRS”) before
filing a suit for a refund in the U.S. Court of Federal
Claims (“CFC”). Strategic Housing Finance Corp. of
Travis County, Texas (“Strategic Housing”), appeals from
the CFC’s order dismissing Strategic Housing’s suit
against the United States to recover its arbitrage rebate.
In its complaint before the CFC, Strategic Housing al-
leged, among other things, that the United States re-
quired it to remit the arbitrage rebate as an illegal
exaction or taking. The CFC dismissed the suit for lack of
jurisdiction under I.R.C. § 7422(a). 1 We affirm and hold
that § 7422(a) prohibits a court from asserting jurisdiction
to hear a bond issuer’s claim to recover an arbitrage
rebate when the issuer failed to first seek an administra-
tive refund from the IRS. However, we vacate that por-
tion of the CFC’s judgment addressing whether I.R.C.
§ 148(f)(3) grants the Secretary of the Treasury (the
“Secretary”) unfettered discretion to accelerate an arbi-
trage rebate.
BACKGROUND
Because of the complexity of the subject matter in this
proceeding, it is helpful for the reader to obtain a general
understanding of arbitrage bonds and rebates.
I. Arbitrage Bonds & Rebates
In general, Congress exempts the interest a bond-
holder earns on a state or local government bond from his
gross income for tax purposes. See I.R.C. § 103(a) (2006).
1 All citations to the Internal Revenue Code
(“I.R.C.”) are references to Title 26 of the United States
Code.
3 STRATEGIC HOUSING v. US
However, Congress does not grant tax-exempt status to
three types of state or local government bonds, including
arbitrage bonds as defined in I.R.C. § 148. See id.
§ 103(b)(2). Arbitrage is the practice of “simultaneous[ly]
buying and selling . . . identical securities in different
markets, with the hope of profiting from the price differ-
ence in those markets.” Black’s Law Dictionary 112 (8th
ed. 2004). For a bond, “[i]nvestment earnings that exceed
the yield on a bond issue are referred to as arbitrage.” 1
Jacob Mertens, Jr., The Law of Federal Income Taxation §
8:22, at 8-86 (2007). Accordingly, an arbitrage bond is
any bond from which the issuer uses part of the proceeds
“to acquire higher-yielding investments or to replace
funds which were so used.” Id. For example, a state or
local government might issue ten-year bonds with a 3.0%
interest rate and invest the proceeds into ten-year federal
government bonds with a 3.5% interest rate instead of
using the proceeds from the sale of its bonds for the
purpose for which the bonds were issued. See, e.g., S.
Rep. No. 91-552, at 219 (1969) (“Some State and local
governments have misused their tax exemption privilege
by engaging in arbitrage transactions in which the funds
from the tax-exempt issues are employed to purchase
higher yielding Federal or other obligations the interest
on which is not taxed in their hands . . . .”).
Congress has enacted legislation defining arbitrage
bonds and granting the Secretary rulemaking authority to
carry out its arbitrage laws. See I.R.C. § 148. Congress
has defined arbitrage bonds as bonds that the issuer
issues “reasonably expect[ing]” to use “any portion of the
proceeds . . . directly or indirectly—(1) to acquire higher
yielding investments, or (2) to replace funds which were
used directly or indirectly to acquire higher yielding
STRATEGIC HOUSING v. US 4
investments.” Id. § 148(a) (alteration added). 2 Accord-
ingly, a bond’s arbitrage status depends on the bond yield.
To ensure the enforcement of the arbitrage laws, Congress
has authorized the Secretary to “prescribe such regula-
tions as may be necessary or appropriate to carry out the
purposes of” its arbitrage laws. Id. § 148(i).
Pursuant to this rulemaking authority, the Secretary
has defined bond yield for variable interest rate bonds
using a formula that depends in part on the fees a bond
issuer pays for qualified guarantees. See Treas. Reg.
§ 1.148-4(c)(1) (2009) (“The yield for each computation
period is the discount rate that, when used in computing
the present value as of the first day of the computation
period of all the payments of principal and interest and
fees for qualified guarantees that are attributable to the
computation period, produces an amount equal to the
present value . . . of the bonds . . . .”).3 In general, a
guarantee is another firm’s promise to make payments for
items such as the bond’s principal and interest when the
bond issuer fails to pay the bondholders. See id. § 1.148-
4(f)(3). A guarantee is a “qualified guarantee” only if the
fees that the bond issuer pays for the guarantee satisfy
additional regulations. See id. § 1.148-4(f)(1). For exam-
ple, the “[f]ees for a guarantee must not exceed a reason-
able, arm’s-length charge for the transfer of credit risk.”
Id. With a few exceptions, see, e.g., I.R.C. § 148(c)(1),
state or local government bonds that the Secretary de-
termines meet Congress’s definition of arbitrage bonds
2 The term ‘higher yielding investments’ means any
investment property which produces a yield over the term
of the issue which is materially higher than the yield on
the issue.” I.R.C. § 148(b)(1).
3 All citations to Treasury Regulations (“Treas.
Reg.”) are references to Title 26 of the Code of Federal
Regulations.
5 STRATEGIC HOUSING v. US
based on his yield calculations lose their tax-exempt
status such that bondholders must pay taxes on interest
earned on the bonds, id. § 103(b)(2).
Congress has, however, provided a means for state
and local governments to restore tax-exempt status to its
bonds after using the proceeds to acquire higher yielding
investments. A bond issuer can maintain the tax-exempt
status of its bonds by remitting the profits it earned from
arbitrage to the United States. See id. § 148(f)(2). This
sum is known as an arbitrage rebate. To qualify as an
arbitrage rebate, the bond issuer must remit 90% of its
arbitrage profits at least once every five years. Id.
§ 148(f)(3); Treas. Reg. §§ 1.148-3(e)(1), 1.148-3(f)(1),
1.148-3(g). However, the bond issuer’s last installment is
due sixty days after the day on which the bond issuer
redeems its last bond. I.R.C. § 148(f)(3).
This timetable for remitting arbitrage rebates con-
tains an important exception—the installments are due
as prescribed by statute “[e]xcept to the extent provided
by the Secretary.” Id. Pursuant to his rulemaking au-
thority, the Secretary has issued regulations governing
arbitrage restrictions on state and local government
bonds. See Treas. Reg. §§ 1.148-0 to 1.148-11. For exam-
ple, the Secretary has authorized the Commissioner of
Internal Revenue (the “Commissioner”) to “take specific
actions that ensure that the purposes of section 148 are
effectuated.” Strategic Hous. Fin. Corp. of Travis County
v. United States, 86 Fed. Cl. 518, 523 (2009). One of these
rules authorizes the Commissioner to accelerate the date
on which an arbitrage rebate is due:
If the Commissioner determines that an issue is
likely to fail to meet the requirements of § 1.148-3
and that a failure to serve a notice of demand for
payment on the issuer will jeopardize the assess-
STRATEGIC HOUSING v. US 6
ment or collection of tax on interest paid or to be
paid on the issue, the date that the Commissioner
serves notice on the issuer is treated as a required
computation date for payment of rebate for that
issue.
Treas. Reg. § 1.148-10(f).
The Secretary has also authorized the Commissioner
to allow a state or local government to “recover an over-
payment” of an arbitrage rebate when that government
“establish[es] to the satisfaction of the Commissioner that
the overpayment occurred.” Id. § 1.148-3(i)(1) (alteration
added). Both the regulations covering the accelerating
authority and overpayment disputes are at issue in this
case as explained below.
II. Strategic Housing’s Arbitrage Bonds & Rebate
Strategic Housing is a nonprofit corporation organized
to provide low-cost residential housing in Travis County,
Texas. Strategic Hous., 86 Fed. Cl. at 524. In September
2004, Strategic Housing issued a total of $35 million of
“Variable Rate Lease Purchase Revenue Bonds” to finance
a lease-to-own program in conjunction with the Federal
Home Loan Mortgage Corp., commonly known as Freddie
Mac. Id. at 524–25. Strategic Housing issued these
bonds with a statement that purchasers could exclude the
interest earned on the bonds from gross income for federal
income tax purposes. Id. at 525. Although Strategic
Housing’s tax counsel advised that it could include this
statement on the bonds, Strategic Housing did not obtain
an advance IRS ruling that the bonds qualified as tax-
exempt. Id.
After Strategic Housing began issuing the bonds, the
IRS performed an audit. Id. Based on that audit, the IRS
Office of Tax Exempt Bonds, Compliance and Program
7 STRATEGIC HOUSING v. US
Management (“TEB”) “develop[ed] concerns about various
arbitrage issues impacting the bonds.” J.A. 60 (alteration
added). In a letter dated May 31, 2006, a TEB examiner
explained that Strategic Housing was paying a “Forward
Purchaser Fee” to Société Générale for not only a “trans-
fer of credit risk,” but also so that Société Générale would
“assume[] liability for any principal shortfall, at the
bonds’ maturity.” Id. (alteration added). In other words,
the “[f]ees for [the] guarantee . . . exceed[ed] a reasonable,
arm’s-length charge for the transfer of credit risk,” Treas.
Reg. § 1.148-4(f)(4)(i) (alterations added), because the fees
paid for “services other than the transfer of credit risk,”
id. § 1.148-4(f)(4)(ii). The examiner explained that with
this shortfall included as part of the service fee, the fee
could not be a “qualified guarantee” under Treasury
Regulation § 1.148-4(f). J.A. 60. Without the qualified
guarantee, the Treasury Regulations required TEB to
calculate a higher bond yield, thus increasing the arbi-
trage and jeopardizing the bonds’ tax-exempt status. The
examiner also listed several other arbitrage concerns and
requested more information “in determining whether to
issue a preliminary adverse determination.” J.A. 61.
Instead of issuing a preliminary adverse determina-
tion, the IRS notified Strategic Housing on June 26, 2006,
that the agency was accelerating the due date of a full
arbitrage rebate pursuant to Treasury Regulation § 1.148-
10(f)—the accelerating authority. See Strategic Hous.,
86 Fed. Cl. at 525. In the notice, TEB informed Strategic
Housing that because it determined that the Société
Générale service fee was not a “qualified guarantee,” it
would adjust its calculation of the bond yield to exclude
the fee. J.A. 62–63. Reducing the bond yield created an
arbitrage bond and “result[ed] in rebate due.” J.A. 63
(alteration added). Moreover, TEB determined that
without the demand of an accelerated payment, the
STRATEGIC HOUSING v. US 8
rebate due on the bonds would be jeopardized. Accord-
ingly, TEB required Strategic Housing to remit a rebate
within sixty days of the June 26, 2006, rebate computa-
tion date, requiring the payment to be due on August 25,
2006. See Strategic Hous., 86 Fed. Cl. at 525.
The jeopardy notice did not state an amount for the
arbitrage rebate, and Strategic Housing hired an expert
who calculated the rebate to be $267,444.00. Id. After
obtaining a time extension, Strategic Housing remitted
$267,444.00 to the United States on September 21, 2006,
but “indicated on its enclosed IRS Form 8038-T that its
‘remittance was specifically made under protest with all
rights reserved.’” Id.
III. CFC Proceedings
On October 31, 2006, Strategic Housing filed suit
against the United States in the CFC to recover its arbi-
trage rebate of $267,444.00. According to its first
amended complaint, Strategic Housing alleged that the
IRS “committed an illegal exaction and illegal taking
without due process when it forced [Strategic Housing] to
make an early remittance of a disputed amount under
threat,” J.A. 77 (alteration added), and that the IRS
committed a separate illegal taking by refusing to pay
interest on any refund of the rebate, J.A. 78. Strategic
Housing further alleged that the IRS did not provide it
with “a reasonable, timely opportunity to refute the IRS
determinations [in the jeopardy notice] and, therefore, has
no means to receive a timely refund pursuant to existing
IRS administrative procedures.” J.A. 78 (alteration
added). Finally, Strategic Housing claimed that its arbi-
trage rebate was “an immediately refundable deposit.”
J.A. 87. Strategic Housing filed its complaint with the
CFC “without first filing a refund claim with the IRS” as
9 STRATEGIC HOUSING v. US
required by Treasury Regulation § 1.148-3(i)(1). Strategic
Hous., 86 Fed. Cl. at 526.
On June 6, 2007, the United States filed a Rule
12(b)(6) motion to dismiss Strategic Housing’s suit for
failure to exhaust administrative remedies. Id. at 527.
Subsequently, on October 26, 2007, the United States
filed a Rule 12(b)(1) motion to dismiss for lack of jurisdic-
tion based on I.R.C. § 7422(a), arguing that this statute
required Strategic Housing to file an administrative claim
for refund with the IRS before the CFC could assert
jurisdiction. See id. at 528. Section 7422(a) states in its
entirety as follows:
No suit or proceeding shall be maintained in any
court for the recovery of any internal revenue tax
alleged to have been erroneously or illegally as-
sessed or collected, or of any penalty claimed to
have been collected without authority, or of any
sum alleged to have been excessive or in any
manner wrongfully collected, until a claim for re-
fund or credit has been duly filed with the Secre-
tary, according to the provisions of law in that
regard, and the regulations of the Secretary estab-
lished in pursuance thereof.
In its opposition to the Rule 12(b)(1) motion, Strategic
Housing asserted for the first time that it had filed an
administrative claim on Form 8038-R (“Request for Re-
covery of Overpayments Under Arbitrage Rebate Provi-
sions”) on September 28, 2007, “to start the 6-month
period under [26 U.S.C.] § 6532.” Strategic Hous.,
86 Fed. Cl. at 526 n.18 (internal quotation marks omitted)
(alteration in original). Strategic Housing further claimed
to have “resubmitted” Form 8038-R to the IRS on Decem-
ber 12, 2007. Id.
STRATEGIC HOUSING v. US 10
The CFC granted the United States’ Rule 12(b)(1) mo-
tion, holding that it lacked jurisdiction. Id. at 546. Based
on the U.S. Supreme Court’s decision in United States v.
Clintwood Elkhorn Mining Co., 553 U.S. 1 (2008), the
CFC held that I.R.C. § 7422(a) requires state or local
governments that seek a refund of its arbitrage rebate “to
[first] seek an administrative refund prior to initiating
suit in the Court of Federal Claims.” Strategic Hous.,
86 Fed. Cl. at 526 (alteration added). Strategic Housing
now appeals that decision.
This court has jurisdiction over Strategic Housing’s
timely filed appeal pursuant to 28 U.S.C. § 1295(a)(3).
DISCUSSION
On appeal, Strategic Housing argues that the CFC
improperly dismissed its suit to recover an arbitrage
rebate for lack of jurisdiction under I.R.C. § 7422(a).
According to Strategic Housing, it was not required to file
an administrative refund claim with the IRS before filing
a civil action to recover an arbitrage rebate in the CFC.
This court reviews the CFC’s decisions regarding its
jurisdiction without deference as a matter of law. Keener
v. United States, 551 F.3d 1358, 1361 (Fed. Cir. 2009). As
the plaintiff, Strategic Housing bears the burden of estab-
lishing the CFC’s jurisdiction. Id.I. The Plain Language of I.R.C. § 7422(a)
When interpreting any statute, we look first to the
statutory language. Jimenez v. Quarterman, 129 S. Ct.
681, 685 (2009); Lamie v. U.S. Trustee, 540 U.S. 526, 534
(2004). The best evidence of congressional intent is the
plain meaning of the statutory language at the time
Congress enacted the statute. See, e.g., Ngiraingas v.
Sanchez, 495 U.S. 182, 187 (1990) (“We seek . . . indicia of
congressional intent at the time the statute was en-
11 STRATEGIC HOUSING v. US
acted.”); Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469
U.S. 189, 194 (1985) (“Statutory construction must begin
with the language employed by Congress and the assump-
tion that the ordinary meaning of that language accu-
rately expresses the legislative purpose.”). “[W]hen the
statutory language is plain, we must enforce it according
to its terms.” Jimenez, 129 S. Ct. at 685; see also Lamie,
540 U.S. at 534; Hartford Underwriters Ins. Co. v. Union
Planters Bank, N.A., 530 U.S. 1, 6 (2000).
This case requires us to interpret statutes governing
the CFC’s jurisdiction over a claim against the United
States to recover an arbitrage rebate. Under the Tucker
Act, the United States has waived its sovereign immunity
to suit when a plaintiff seeks to recover money that it
paid to the United States in full or in part. See Ontario
Power Generation, Inc. v. United States, 369 F.3d 1298,
1301 (Fed. Cir. 2004). Specifically, Congress waived the
government’s immunity to a party’s suit to recover sums
that the United States illegally exacted under the Inter-
nal Revenue Code. A party who seeks to recover “[1] any
internal-revenue tax alleged to have been erroneously or
illegally assessed or collected, or [2] any penalty claimed
to have been collected without authority or [3] any sum
alleged to have been excessive or in any manner wrong-
fully collected under the internal-revenue laws” may file a
“civil action against the United States” in federal district
court or in the CFC. 28 U.S.C. § 1346(a)(1) (alterations
added).
However, a federal court’s jurisdiction over illegal ex-
action claims is subject to the administrative refund
scheme that Congress established in the Internal Reve-
nue Code. See Clintwood Elkhorn, 553 U.S. at 4 (“The
Internal Revenue Code specifies that before [bringing an
action for a tax refund], the taxpayer must comply with
the tax refund scheme established in the Code.”); United
STRATEGIC HOUSING v. US 12
States v. Dalm, 494 U.S. 596, 609–10 (1990) (interpreting
I.R.C. §§ 6511(a), 7422(a) to require a taxpayer seeking a
refund of a gift tax to file a refund claim with the IRS
before filing an action in federal court). Section 7422(a) of
the code states that “[n]o suit . . . shall be maintained in
any court for the recovery of [1] any internal revenue tax
alleged to have been erroneously or illegally assessed or
collected, or [2] of any penalty claimed to have been
collected without authority, or [3] of any sum alleged to
have been excessive or in any manner wrongfully col-
lected, until a claim for refund . . . has been duly filed
with” the IRS. (Alterations added.) In other words, a
party seeking to recover any internal-revenue tax, pen-
alty, or sum from the United States must pursue and
exhaust its administrative remedies pursuant to the IRS’s
regulations prior to filing a complaint in federal court.
In this case, the plain language of § 7422(a) bars the
CFC from asserting jurisdiction over Strategic Housing’s
claim for a refund of its arbitrage rebate. A claim to
recover an arbitrage rebate clearly falls into either the
statute’s first category as a claim to recover an allegedly
erroneous or illegal tax or into the third category as a
claim to recover an allegedly excessive or wrongfully
collected sum. Neither party argues that a claim to
recover an arbitrage rebate would qualify as a claim to
recover a penalty because a “‘a penalty . . . is an exaction
imposed by statute as punishment for an unlawful act.’”
United States v. Reorganized CF & I Fabricators of Utah,
Inc., 518 U.S. 213, 224 (1996) (quoting United States v. La
Franca, 282 U.S. 568, 572 (1931)); see also I.R.C. §
148(f)(4)(C)(vii) (providing bond issuers the option to pay
a penalty in lieu of an arbitrage rebate). Because the
statute clearly covers a claim to recover an arbitrage
rebate regardless of whether the rebate is defined as a tax
or non-tax, we decline Strategic Housing’s invitation to
13 STRATEGIC HOUSING v. US
determine whether an arbitrage rebate is a tax in the first
instance.
If an arbitrage rebate is a tax, a claim to recover an
arbitrage rebate would be a claim to recover an “internal
revenue tax alleged to have been erroneously or illegally
assessed or collected.” I.R.C. § 7422(a). This first cate-
gory in the claim-for-refund statute has remained virtu-
ally unchanged since Congress enacted it in 1866. See Act
of July 13, 1866, ch. 184, § 19, 14 Stat. 98, 152 (“[N]o suit
shall be maintained in any court for the recovery of any
tax alleged to have been erroneously or illegally assessed
or collected, until appeal shall have been duly made to the
commissioner of internal revenue . . . .”) (codified as
amended at Revised Statutes § 3226 (1878)). Likewise,
the meanings of the terms “assess” and “collect” have not
substantially changed since 1866. As in the 1860s, the
term “assess” still means “[t]o set, fix, or charge a certain
sum upon, as a tax.” Noah Webster et al., An American
Dictionary of the English Language 1324 (Springfield,
Mass., G. & C. Merriam 1865); see also 1 The Oxford
English Dictionary 709 (2d ed. 1989) (defining “assess” as
“[t]o settle, determine, or fix the amount of (taxation, fine,
etc.) to be paid by a person or community”); Webster’s New
International Dictionary of the English Language 139
(1925) (defining “assess” as “[t]o fix or determine the rate
or amount of” or “[t]o apportion (a sum to be paid by a
person, a community, or an estate), in the nature of a tax,
fine, etc.”). Moreover, in 1866, the term “collect” meant
“[t]o gather into one body or place,” and “collector” meant
“[a]n officer appointed and commissioned to collect and
receive customs, duties, taxes, or toll.” Noah Webster et
al., An American Dictionary of the English Language 251
(Springfield, Mass., G. & C. Merriam 1865). When Con-
gress later reenacted and amended Revised Statutes §
3226, see, e.g., Revenue Act of 1926, ch. 27, § 1113(a), 44
STRATEGIC HOUSING v. US 14
Stat. 9, 116, “collect” was more clearly defined in this
context as “[t]o demand and obtain payment of, as an
account, or other indebtedness; as, to collect taxes.”
Webster’s New International Dictionary of the English
Language 437 (1925); see also 3 The Oxford English
Dictionary 709 (2d ed. 1989) (defining “collect” as “[t]o
gather (contributions of money, or money due, as taxes,
etc.) from a number of people”).
Again if an arbitrage rebate is a tax, the plain mean-
ings of “assess” and “collect” show that Strategic Housing
made a claim to recover an “internal revenue tax [that it]
alleged to have been erroneously or illegally assessed or
collected.” I.R.C. § 7422(a) (alteration added). The IRS
“collected” Strategic Housing’s rebate when Strategic
Housing “paid to the United States,” id. § 148(f)(2), its
arbitrage rebate and the IRS deposited the rebate into
accounts holding the general federal revenues, Appellant’s
Br. 20. Based on its first amended complaint, Strategic
Housing in effect alleged that the IRS “wrongfully col-
lected” its arbitrage rebate because, among other things,
the agency allegedly did so in violation of the Due Process
Clause. To be sure, the IRS never assessed the arbitrage
rebate by determining how much Strategic Housing would
need to pay to retain its bonds’ tax-exempt status. But
the statutory language covers claims to recover a tax that
the United States either “assessed or collected.” I.R.C.
§ 7422(a) (emphasis added). Accordingly, § 7422(a) bars
the CFC from asserting jurisdiction over a bond issuer’s
refund claim for an arbitrage rebate when one assumes
that an arbitrage rebate is a tax and when the issuer has
not first sought an administrative refund from the IRS.
Even if a claim to recover an arbitrage rebate is not a
claim to recover a tax, the claim would fall squarely
within the third category of § 7422(a). A word-by-word
analysis demonstrates that a claim to recover an arbi-
15 STRATEGIC HOUSING v. US
trage rebate would be a claim to recover “any sum alleged
to have been excessive or in any manner wrongfully
collected.” I.R.C. § 7422(a).
First, if an arbitrage rebate is not a tax, then it would
unquestionably be a sum as used in § 7422(a). In Flora v.
United States (“Flora II”), 362 U.S. 145 (1960), the Su-
preme Court interpreted “any sum” in 28 U.S.C. §
1346(a)(1) to cover any “amounts which are neither taxes
nor penalties” that a party seeks to recover from the
United States. Id. at 149. The Court’s definition of “any
sum” also applies to § 7422(a). As the Court explained,
Congress “copied” the language in 28 U.S.C. § 1346(a)(1)
from Revised Statutes § 3226—the precursor statute to
I.R.C. § 7422(a). Flora v. United States (“Flora I”), 357
U.S. 63, 65 (1958); see also Flora II, 362 U.S. at 152.
Consequently, “the function of the phrase [‘any sum’ in 28
U.S.C. § 1346(a)(1)] is to permit suit for recovery of items
which might not be designed as either ‘taxes’ or ‘penalties’
by Congress or the courts.” Flora II, 362 U.S. at 149(alteration added). In contrast, “the function of the
phrase [‘any sum’ in § 7422(a)] is to [bar] suit for recovery
of items which might not be designed as either ‘taxes’ or
‘penalties’ by Congress or the courts,” if the party has not
first filed the claim with the IRS. Id. (alterations added).
The Court’s interpretation comports with how the
term “sum” has been defined since Congress first included
the phrase “any sum which it is alleged was excessive, or
in any manner wrongfully collected” in 1872 into the
claim-for-refund statute. Act of June 6, 1872, ch. 315, §
44, 17 Stat. 230, 257 (codified as amended at Revised
Statutes § 3226 (1878)). The term “sum” has long meant
“[a] quantity of money or currency” or “any amount,
indefinitely.” Noah Webster et al., An American Diction-
ary of the English Language 1324 (Springfield, Mass., G.
& C. Merriam 1865); see also 17 The Oxford English
STRATEGIC HOUSING v. US 16
Dictionary 166 (2d ed. 1989) (defining “sum” as “[a] quan-
tity or amount of money”); Webster’s New International
Dictionary of the English Language 2078 (1925) (defining
sum as “[a] quantity of money or currency” or “any
amount, indefinitely”). Moreover, it makes no difference
that the sum came from an arbitrage rebate because “any”
means any. As the Court recently explained, “Five ‘any’s’
in one sentence and it begins to seem that Congress
meant [I.R.C. § 7422(a)] to have expansive reach.” Clint-
wood Elkhorn, 553 U.S. at 7 (alteration added).
Second, Strategic Housing alleged that this sum was
collected in “excess.” In its first amended complaint,
Strategic Housing asserted that the IRS’s exclusion of the
Société Générale service fee was error and that the correct
calculation with the fee yielded a negative arbitrage of
$229,060.43. Strategic Hous., 86 Fed. Cl. at 525–26.
Accordingly, Strategic Housing alleged that the arbitrage
rebate was in excess of $496,504.43.
Third, Strategic Housing alleged that the IRS “wrong-
fully collected” the arbitrage rebate. As noted above,
collect means “[t]o gather (contributions of money, or
money due, as taxes, etc.) from a number of people.” 3
The Oxford English Dictionary 709 (2d ed. 1989). The IRS
“collected” Strategic Housing’s arbitrage rebate because it
informed Strategic Housing that “the required rebate
payment must be paid no later than 60 days after the
computation date” and it accepted Strategic Housing’s
payment by depositing the sum into accounts holding
general revenues. J.A. 62 (emphasis added).
A recent Supreme Court decision reinforces this con-
clusion. In Clintwood Elkhorn, the Court held that
§ 7422(a) barred coal companies from filing suit against
the United States in the CFC for a refund of taxes that
the United States levied on shipments of coal exports in
17 STRATEGIC HOUSING v. US
violation of the Export Clause. 553 U.S. at 4. The Court
explained that the CFC lacked jurisdiction because the
coal companies failed to first seek an administrative
refund from the IRS as required by § 7422(a). Id. Recog-
nizing that the statute of limitations in the Internal
Revenue Code had run, the coal companies filed suit in
the CFC, asserting that the Tucker Act’s more generous
statute of limitations applied to their refund suit. Id. at
6. Under the Internal Revenue Code’s statute of limita-
tions, a taxpayer seeking a tax refund must file a claim
within three years of filing a return or within two years of
paying the tax, whichever is later. See I.R.C. § 6511(a).
In contrast, the Tucker Act required a party to file a claim
in the CFC “within six years after such claim first ac-
crues.” 28 U.S.C. § 2501. The Court held that the plain
meaning of I.R.C. § 7422(a) demonstrated that Congress
required a party seeking a tax refund for any reason to
follow the same procedure—filing a refund claim first
with the IRS. Clintwood Elkhorn, 553 U.S. at 4, 7–9.
The same is true of arbitrage rebates. The Court’s
expansive reading of § 7422(a) suggests that a claim for a
refund of an arbitrage rebate is either a claim to recover
an allegedly erroneous or illegal tax or a claim to recover
an allegedly excessive or wrongfully collected sum. Such
an expansive reading comports with Congress’s purpose
in enacting § 7422(a). As the Court noted, Congress
designed its refund scheme “‘to advise the appropriate
officials of the demands or claims intended to be asserted,
so as to insure an orderly administration of the revenue,’
to provide that refund claims are made promptly, and to
allow the IRS to avoid unnecessary litigation by correct-
ing conceded errors.” Clintwood Elkhorn, 553 U.S. at 11–
12 (quoting United States v. Felt & Tarrant Mfg. Co., 283
U.S. 269, 272 (1931)). As in Clintwood Elkhorn, confer-
ring jurisdiction on the CFC over Strategic Housing’s suit
STRATEGIC HOUSING v. US 18
here would run counter to the refund scheme because
jurisdiction would deprive the IRS of an opportunity to
evaluate Strategic Housing’s claim to recover its arbitrage
rebate in the first instance.
II. Strategic Housing’s Arguments
Strategic Housing raises several arguments on ap-
peal, asserting that a plaintiff may file suit in the CFC to
seek a refund of its arbitrage rebate without first seeking
administrative relief from the IRS. As a threshold issue,
Strategic Housing argues that this court must define an
arbitrage rebate as either a tax or non-tax amount. If an
arbitrage rebate is a tax, then Strategic Housing argues
that I.R.C. § 7422(a) does not apply because Strategic
Housing made a deposit on its rebate under protest, not a
payment. Alternatively, Strategic Housing argues that if
an arbitrage rebate is not a tax, then we should interpret
§ 7422(a) to bar only claims to recover a tax because the
related statutes I.R.C. §§ 6511(a) and 6532(a) impose
timing limitations on claims to recover taxes only, not
other sums. We address these arguments in turn.
First, Strategic Housing argues that we must decide
as a matter of first impression whether an arbitrage
rebate is a tax or non-tax amount. Although federal
district courts have addressed this issue in passing, no
federal court has determined whether an arbitrage rebate
is a tax or non-tax amount. See Gov’t Fin. Officers Ass’n
v. United States, 680 F. Supp. 1538, 1534 (N.D. Ga.)
(“[T]he Arbitrage Tax is a direct tax on state and local
governments.”), vacated by 686 F. Supp. 901 (N.D. Ga.
1988); City of Galt v. United States, 804 F. Supp. 1275,
1278 (E.D. Cal. 1992) (stating in dicta that an “arbitrage
payment is not itself a tax”). As Strategic Housing cor-
rectly notes, the Supreme Court has generally defined “‘a
tax [as] a pecuniary burden laid upon individuals or
19 STRATEGIC HOUSING v. US
property for the purpose of supporting the government.’”
Reorganized CF & I Fabricators, 518 U.S. at 224 (altera-
tion added) (quoting New Jersey v. Anderson, 203 U.S.
483, 492 (1906)). An arbitrage rebate could be a tax on
the basis that Congress requires tax-exempt bond issuers
to remit the profits that the issuer earned from arbitrage
to the United States, I.R.C. § 148(f)(2), by making pay-
ments to the U.S. Treasury as designated by the Commis-
sioner, id. § 7809(a); Treas. Reg. § 1.148-3(g). According
to Strategic Housing, bond issuers make arbitrage rebate
payments into accounts that are part of the general
federal revenues and thus available for public use.
However, we need not resolve whether an arbitrage
rebate is a tax. As we explained above, I.R.C. § 7422(a)
clearly covers a claim to recover an arbitrage rebate
regardless of whether the rebate is defined as a tax or
non-tax amount. For the purposes of this appeal, we
merely recognize that an arbitrage rebate might be con-
sidered a tax within the meaning of § 7422(a), but ex-
pressly reserve that question for another day.
Second, Strategic Housing argues that § 7422(a) does
not apply if we consider an arbitrage rebate a tax because
Strategic Housing made a deposit, not a tax payment.
According to Strategic Housing, if an arbitrage rebate is a
deposit instead of a tax payment, then the Supreme Court
has held that the procedural prerequisites to filing a suit
in the CFC, such as a statute of limitations or § 7422(a),
do not apply. See Rosenman v. United States, 323 U.S.
658, 662–63 (1945). Consequently, Strategic Housing
argues that § 7422(a) does not apply to its arbitrage
rebate because it remitted the amount as a deposit under
protest, not a payment.
This court has indeed held that § 7422(a) does not ap-
ply to a deposit for a tax because a deposit is not a suit for
STRATEGIC HOUSING v. US 20
“recovery of any internal revenue tax.” N.Y. Life Ins. Co.
v. United States, 118 F.3d 1553, 1558 (Fed. Cir. 1997). In
New York Life Insurance Co., this court explained that
because the insurance company made the deposit “to
cover ‘a payment . . . of taxes expected to accrue in the
future,’ upon assessment,” it could not be “a payment of
taxes ‘erroneously or illegally assessed, or collected.’” Id.(emphasis added) (quoting § 7422(a)). In short, we held
that § 7422(a) does not bar a claim for a refund of a tax
deposit.
But Strategic Housing misunderstands the nature of
a deposit. An arbitrage rebate is simply not a deposit.
According to the Supreme Court, deposits are placed into
a separate account like “payments in escrow. They are set
aside . . . in special suspense accounts established for
depositing money received when no assessment is then
outstanding against the taxpayer.” Rosenman, 323 U.S.
at 662. A taxpayer makes a deposit on a future tax to
“stop[] the running of penalties and interest.” Id. (altera-
tion added). In contrast, a state or local government does
not deposit an arbitrage rebate into a separate account in
anticipation of paying the full rebate when it becomes
due. Instead, an arbitrage rebate is actually “paid to the
United States” as required by the statutory timetable
every five years or as made due by the Secretary. I.R.C.
§ 148(f)(3) (emphasis added). Even Strategic Housing
concedes that arbitrage rebates are “not segregated into a
special fund but deposited into the main coffers of the
Federal government.” Appellant’s Br. 20.
Moreover, a deposit on an arbitrage rebate would be
pointless. The only way for a state or local government to
preserve the tax-exempt status of its bonds is to pay the
rebate, id. § 148(f)(3), not place a deposit in an account
should the IRS later determine the bonds are arbitrage
bonds. In this case, Strategic Housing did exactly what
21 STRATEGIC HOUSING v. US
the statute requires—it paid the arbitrage rebate to the
United States.
Third, Strategic Housing argues that if an arbitrage
rebate is not a tax, then we should interpret I.R.C.
§ 6532(a) as limiting the claims covered under § 7422(a)
so as to cover only taxpayers or claims to recover a tax.
According to Strategic Housing, § 6532(a) only applies to
taxpayers, not non-taxpayers, because the statute says
that the Secretary will mail a “notice of disallowance” “to
the taxpayer.” (Emphasis added.) Under § 6532(a)(1), a
party filing a suit to recover “any internal revenue tax,
penalty, or other sum,” pursuant to § 7422(a), cannot do
so “before the expiration of 6 months from the date of
filing the claim” with the IRS or “after the expiration of 2
years from the date of mailing . . . to the taxpayer of a
notice of the disallowance.” (Emphasis added.) If an
arbitrage rebate is not a tax, Strategic Housing argues,
then § 6532(a)’s timing requirements and § 7422(a)’s
jurisdictional bar do not apply to bond issuers seeking to
recover an arbitrage rebate.
Strategic Housing has the proverbial tail wagging the
dog. The language in § 7422(a) defines the types of claims
barred for failure to exhaust one’s administrative reme-
dies, not the timing limitations in § 6532(a). Section
6532(a) means what it says: the statute clearly applies to
claims to recover any “tax, penalty, or other sum” when
read together with § 7422(a). The first sentence in
§ 6532(a) explicitly refers to the three types of claims
covered in § 7422(a). “No suit or proceeding under section
7422(a) for the recovery of any internal revenue tax,
penalty, or other sum, shall be begun before . . . 6 months
from the date of filing the claim . . . .” I.R.C. § 6532(a)(1)
(emphasis added). We recognize that the term “taxpayer”
ordinarily means one who pays a tax, not one who pays
some other sum. But we do not read the term “taxpayer”
STRATEGIC HOUSING v. US 22
as somehow redefining the three categories in § 7422(a).
As explained above, the terms “tax,” “penalty,” and “sum”
refer to three distinct claims. The Supreme Court has
decided the issue, explaining that the phrase using the
term “any sum” covers any “amounts which are neither
taxes nor penalties” that a party seeks to recover from the
United States. Flora II, 362 U.S. at 149; cf. Clintwood
Elkhorn, 553 U.S. at 7 (“Five ‘any’s’ in one sentence and it
begins to seem that Congress meant [I.R.C. § 7422(a)] to
have expansive reach.” (alteration added)). Thus, the
timing limitations in § 6532(a) apply to a claim to recover
not only any internal revenue tax, but claims to recover
any non-tax amounts such as penalties or other sums.
In support of its construction of §§ 7422(a) and
6532(a), Strategic Housing invokes two canons of statu-
tory construction: the in pari materia canon and the
absurdity canon. But these canons do not support Strate-
gic Housing’s argument. As Strategic Housing notes,
interpreting “any sum” in § 7422(a) differently from
“other sum” in § 6532(a) would violate the in pari materia
canon. Under this canon, courts should interpret statutes
with similar language that generally address the same
subject matter together, “‘as if they were one law.’”
Erlenbaugh v. United States, 409 U.S. 239, 243 (1972)
(quoting United States v. Freeman, 42 U.S. (3 How.) 556,
564 (1845)). While we certainly agree with Strategic
Housing that we must interpret §§ 7422(a) and 6532(a) in
pari materia, we disagree on how it applies in this case.
Both of these sections apply to parties seeking to recover
tax and non-tax amounts as long as the party’s claim falls
within the three categories of § 7422(a).
Section 7422(a)’s legislative history demonstrates that
the in pari materia canon is particularly applicable here
and that §§ 7422(a) and 6532(a) apply to the same types
of claims. Although Congress has relocated the claim-for-
23 STRATEGIC HOUSING v. US
refund statute several times over the past century and a
half, the jurisdictional bar now found in § 7422(a) and the
timing limitations now found in § 6532(a) were part of the
same section until 1954. See, e.g., 26 U.S.C. § 3772(a)(1)–
(2) (1952); 26 U.S.C. § 1672(a)(1)–(2) (1934); 26 U.S.C.
§ 156 (1926); Revised Statutes § 3226 (1878). When
Congress reorganized the Internal Revenue Code in 1954,
however, it separated the jurisdictional bar and timing
limitations into completely separate sections. See Inter-
nal Revenue Code of 1954, ch. 736, §§ 7422(a), 6532(a),
68A Stat. 3, 816, 876. Congress reorganized the code in
large part “to place [provisions] in [a] more logical se-
quence, [to] delet[e] . . . obsolete material, and . . . to
express the internal-revenue laws in a more understand-
able manner.” H. Rep. No. 83-1337, pt. 1, at 1 (1954)
(alterations added). Although Congress made substantive
changes to some of the internal revenue provisions, it
made no substantive changes to the jurisdictional bar or
timing limitations now found in §§ 7422(a) and 6532(a),
respectively. See H. Rep. No. 83-1337, pt. 34, at 99–109
(1954); S. Rep. No. 83-1622, pt. 36, at 133–49 (1954); see
generally H. Rep. No. 83-2543 (1954) (Conf. Rep.). Aside
from changing references from “the Commissioner” to “the
Secretary or his delegate,” Congress changed the first
sentence of the timing limitation from “[n]o such suit or
proceeding,” 26 U.S.C. § 3772(a)(2) (1952), to “[n]o suit or
proceeding under section 7422 (a) for the recovery of any
internal revenue tax, penalty, or other sum,” Internal
Revenue Code of 1954, ch. 736, § 6532(a), 68A Stat. 3,
816. Because we must interpret those sections together
and the plain meaning of § 7422(a) covers suits to recover
both taxes and non-tax amounts, the timing limitations in
§ 6532(a) apply to parties seeking to recover non-tax
amounts. Contrary to Strategic Housing’s argument,
§ 6532(a) does not define the types of suits covered in
§ 7422(a). Cf. United States v. Williams, 514 U.S. 527,
STRATEGIC HOUSING v. US 24
534 (1995) (“[I.R.C. § 6511(a)’s] plain terms provide only a
deadline for filing for administrative relief, not a limit on
who may file [under § 7422(a)].” (alterations added)). It is
the other way around.
The other canon on which Strategic Housing relies
also does not help its cause. Strategic Housing argues
that interpreting § 7422(a) to cover non-tax amounts
would be absurd. According to Strategic Housing, if we
interpreted § 7422(a) to bar suits to recover any tax,
penalty, or other sum, but § 6532(a) to place timing limits
on only suits to recover a tax, then a party seeking to
recover a penalty or other sum could simply file its refund
claim with the IRS and then file the same claim seconds
later in federal court. We agree that such a construction
of §§ 7422(a) and 6532(a) would be absurd. See Green v.
Bock Laundry Mach. Co., 490 U.S. 504, 509 (1989) (inter-
preting a statute so as to avoid an “odd result”); id. at 527(Scalia, J., concurring) (“We are confronted here with a
statute which, if interpreted literally, produces an absurd,
and perhaps unconstitutional, result.”). However, the
logical incompatibility of these sections does not mean
that we can ignore the plain language of the statute. The
correct solution is to simply apply the plain language of §
7422(a).
Fourth, Strategic Housing argues that if an arbitrage
rebate is not a tax, then we cannot interpret § 7422(a) to
apply to a claim to recover an arbitrage rebate because
the statute of limitations in § 6511(a) only applies to
claims to recover a tax, not other sums. In support of its
argument, Strategic Housing relies on Clintwood Elkhorn
and Radioshack Corp. v. United States, 566 F.3d 1358(Fed. Cir. 2009), to claim that § 6511(a) limits the types of
claims to which § 7422(a) applies.
25 STRATEGIC HOUSING v. US
Strategic Housing misunderstands the limits of
§ 6511(a). That statute requires that a “[c]laim for credit
or refund of an overpayment of any tax imposed by this
title . . . shall be filed by the taxpayer within 3 years from
the time the return was filed or 2 years from the time the
tax was paid,” whichever is later. I.R.C. § 6511(a) (em-
phasis added). On its face, § 6511(a) only applies to
claims to recover a tax, not claims to recover a penalty or
other sum. The plain language of § 7422(a) is broader
than § 6511(a) as it covers three categories of claims, not
one. To be sure, both the Supreme Court and this court
have explained that “§§ 6511 and 7422 should be read
together to bar a suit for refund in any court.” Ra-
dioshack, 566 F.3d at 1362; see also Clintwood Elkhorn,
553 U.S. at 5 (“‘Read together, the import of these sections
is clear: unless a claim for refund of a tax has been filed
within the time limits imposed by § 6511(a), a suit for
refund . . . may not be maintained in any court.’” (quoting
Dalm, 494 U.S. at 602)). But neither court has held that
we must superimpose the limits of § 6511(a) onto
§ 7422(a). Rather, we have interpreted §§ 7422(a) and
6511(a) together when the case involved a claim to re-
cover a tax. See Clintwood Elkhorn, 553 U.S. at 4 (ad-
dressing how § 7422(a) applied to a claim to recover “taxes
collected in violation of the Export Clause”); Radioshack,
566 F.3d at 1359 (addressing how § 7422(a) applied to a
claim to recover payments under “the Federal Communi-
cations Excise Tax”). Therefore, all of Strategic Housing’s
arguments fail to support its position.
III. The CFC’s Administrative Procedure Act Analysis
Finally, we must address the CFC’s opinion on
whether a federal court could review the Secretary’s
decision to accelerate an arbitrage rebate under I.R.C.
§ 148(f)(3). The U.S. Constitution limits a federal court’s
jurisdiction “to all Cases, in Law and Equity, arising
STRATEGIC HOUSING v. US 26
under this Constitution, the Laws of the United States,
and Treaties made, or which shall be made, under their
Authority.” U.S. Const. art. III, § 2, cl. 1. If the Constitu-
tion, statute, or treaty does not confer jurisdiction on a
federal court, it has no power to resolve the merits of the
controversy before it. Consequently, a federal court
should not render an opinion on the merits when it de-
termines that it lacks jurisdiction over the matter: “Fed-
eral courts are not in the business of rendering advisory
opinions.” C&H Nationwide, Inc. v. Norwest Bank Tex.
NA, 208 F.3d 490, 493 (5th Cir. 2000); see also Alabama v.
Shelton, 535 U.S. 654, 676 (2002) (Scalia, J., dissenting)
(“[T]he Court has no business offering an advisory opinion
. . . .”).
In this case, the CFC rendered an advisory opinion on
whether § 148(f)(3) grants the Secretary unfettered dis-
cretion to accelerate an arbitrage rebate and thus makes
the Secretary’s accelerating decision unreviewable under
the Administrative Procedure Act (“APA”). See Strategic
Hous., 86 Fed. Cl. at 552–53. Before addressing the
merits, the CFC noted that “it is well-settled that the
Court of Federal Claims lacks jurisdiction to review an
agency’s decision under the APA.” Id. at 552. It further
noted, “[B]ecause the court cannot entertain actions based
upon the APA, plaintiff cannot seek judicial review of the
IRS’s action on that basis.” Id. Notwithstanding its lack
of jurisdiction, the court continued: “Even if plaintiff could
invoke the APA, it does not apply where ‘agency action is
committed to agency discretion by law.’” Id. (quoting 5
U.S.C. § 701(a)(2)). The court then conducted an APA
analysis. See id. at 552–53. The CFC should not have
conducted an APA analysis after recognizing that it
lacked jurisdiction. Consequently, we vacate that portion
of the CFC’s judgment addressing whether § 148(f)(3)
27 STRATEGIC HOUSING v. US
grants the Secretary unfettered discretion to accelerate an
arbitrage rebate.
CONCLUSION
For the foregoing reasons, we affirm and hold that
I.R.C. § 7422(a) prohibits a court from asserting jurisdic-
tion to hear a bond issuer’s claim to recover an arbitrage
rebate when the issuer failed to first seek an administra-
tive refund from the IRS. However, we vacate that por-
tion of the CFC’s judgment addressing whether I.R.C.
§ 148(f)(3) grants the Secretary unfettered discretion to
accelerate an arbitrage rebate.
AFFIRMED IN PART and VACATED IN PART
COSTS
Each party shall bear its own costs.