Sandoval Lua v. United States , 843 F.3d 950 ( 2016 )


Menu:
  •   United States Court of Appeals
    for the Federal Circuit
    ______________________
    ARMANDO SANDOVAL LUA, YADIRA SANDOVAL,
    Plaintiffs-Appellants
    v.
    UNITED STATES,
    Defendant-Appellee
    ______________________
    2016-1313
    ______________________
    Appeal from the United States Court of Federal
    Claims in No. 1:13-cv-00095-CFL, Judge Charles F.
    Lettow.
    ______________________
    Decided: December 15, 2016
    ______________________
    SEAN H. COLON, Sean H. Colon, Inc., Woodland, CA,
    argued for plaintiffs-appellants.
    REGINA S. MORIARTY, Tax Division, United States De-
    partment of Justice, Washington, DC, argued for defend-
    ant-appellee.  Also represented by RICHARD FARBER,
    CAROLINE D. CIRAOLO.
    ______________________
    Before PROST, Chief Judge, WALLACH and CHEN, Circuit
    Judges.
    2                           SANDOVAL LUA   v. UNITED STATES
    WALLACH, Circuit Judge.
    Armando Sandoval Lua and Yadira Sandoval (togeth-
    er, “the Sandovals”) appeal from the decision of the U.S.
    Court of Federal Claims (“Claims Court”) granting sum-
    mary judgment in favor of the United States (“Govern-
    ment”) as to certain tax refunds claimed by the
    Sandovals. See Sandoval Lua v. United States, 
    123 Fed. Cl. 269
    , 277 (2015). We affirm.
    BACKGROUND
    In 2006, the U.S. Internal Revenue Service (“IRS”)
    opened an audit of the Sandovals’ tax return for the 2004
    fiscal year. Appellee’s Suppl. App. (“SA”) 3. The IRS later
    expanded this audit to include the 2003 and 2005 fiscal
    years. 1 SA 44. The Sandovals met with an IRS agent
    several times and went over the proposed adjustments to
    the Sandovals’ taxable income and, thus, outstanding tax
    liability owed, for the 2003 and 2004 fiscal years. SA
    44−47. During this process, the Sandovals signed two key
    documents; in Form 4549, they waived their right to a
    notice of deficiency for the years 2003 and 2004, and in
    Form 872, they consented to extend the statute of limita-
    tions period for the 2003 fiscal year through December 31,
    2008. SA 34, 36–37. The Sandovals hired representation
    and obtained audit reconsideration. SA 42, 46.
    On reconsideration, the IRS assessed deficiencies for
    the 2003 and 2004 fiscal years in the amounts of $60,274
    and $87,566, respectively. SA 3, 9. IRS agents thereafter
    continued to meet and confer with the Sandovals’ repre-
    sentative in the following months to prepare amended
    returns for 2003 and 2004. SA 46–47.
    1   Deficiencies for the 2005 fiscal year were assessed
    and later disputed and resolved in the U.S. Tax Court.
    See Sandoval Lua v. Comm’r, T.C.M. (CCH) 2011-192
    (2011).
    SANDOVAL LUA   v. UNITED STATES                         3
    The Sandovals filed amended tax returns in June
    2008 for the amounts owed that they considered to be
    “substantially correct,” and requested abatements that
    roughly totaled the outstanding amounts assessed but not
    paid. SA 58, 59−77 (2003 amended tax return), 78–95
    (2004 amended tax return); see also SA 156 at 58:6−7
    (deposition of Ms. Sandoval in which she states that they
    sent checks to the IRS that were “an estimate of―only of
    the money that we owed”). The returns included two
    checks and an accompanying letter from their representa-
    tive stating that the checks were to be applied to the
    Sandovals’ income tax liability for 2003 and 2004, and
    that “any overpayment” should be contributed to other
    years’ outstanding amounts due. SA 58. The IRS granted
    a substantial portion of the requested abatements, such
    that these checks and overpayment credits satisfied the
    Sandovals’ tax deficiencies in full from 2003 and 2004. 2
    SA 4, 10.
    In 2010, the Sandovals filed a second set of amended
    returns for 2003 and 2004 seeking a full refund of funds
    remitted plus amounts applied as overpayments from
    other tax years, totaling approximately $101,000. Appel-
    lants’ Suppl. App. 27−69. The IRS denied the claims for
    refund and denied appeal in 2012. SA 140−49, 151–52.
    The Sandovals filed suit in the Claims Court seeking
    the same relief. The Sandovals contended that they were
    entitled to the remitted funds on any of the following
    grounds: (1) they withdrew consent to assessment with-
    out notice of deficiency and never received subsequent
    2     The IRS applied overpayment credits of $4,390
    and $1,800 to the 2003 tax year, and $1,900.37 and
    $718.19 to the 2004 tax year. SA 3−4, 10. By the time
    the IRS granted the abatements, the Sandovals had
    overpaid their tax liabilities for 2003 and 2004. The IRS
    later issued a refund of $1,123.67 to the Sandovals. SA 5.
    4                           SANDOVAL LUA   v. UNITED STATES
    notice; (2) the 2008 funds were applied after the three
    year statute of limitations for assessment had expired; or
    (3) the 2008 funds were given as refundable deposits
    rather than as tax payments. The Claims Court granted
    summary judgment in favor of the Government and
    denied a cross-motion for summary judgment, finding
    that as a matter of law the Sandovals were not entitled to
    the claimed refunds. Sandoval Lua, 123 Fed. Cl. at 277.
    The Sandovals subsequently filed this appeal. This
    court has jurisdiction pursuant to 
    28 U.S.C. § 1295
    (a)(3)
    (2012).
    DISCUSSION
    This court “review[s] the Claims Court’s grant of
    summary judgment de novo.” Amergen Energy Co. v.
    United States, 
    779 F.3d 1368
    , 1372 (Fed. Cir. 2015).
    Summary judgment is appropriate if there is no genuine
    dispute as to any material fact and the moving party is
    entitled to a judgment as a matter of law. See Fed. R. Civ.
    P. 56(a); Consol. Edison Co. v. Richardson, 
    232 F.3d 1380
    ,
    1383 (Fed. Cir. 2000). “We view the evidence in a light
    most favorable to the non-movant . . . and draw all rea-
    sonable inferences in its favor.” SunTiger, Inc. v. Sci.
    Research Funding Grp., 
    189 F.3d 1327
    , 1334 (Fed. Cir.
    1999).
    I. The Claims Court Properly Granted Summary Judg-
    ment to the Government
    A. Appellants Consented to Assessment Without Notice of
    Deficiency
    The Sandovals primarily argue that the 2003 and
    2004 assessed deficiencies are invalid because they “im-
    pliedly or constructively” withdrew their consent to waive
    the required notice of deficiency before the assessment,
    and the Government then failed to attach a notice within
    SANDOVAL LUA   v. UNITED STATES                           5
    the statute of limitations period. 3 Appellants’ Br. 43. The
    Government counters that this is a case in which the
    Sandovals “effectively admitted they had not reported all
    of their income on their original returns for 2003 and
    2004, [and now believe that] they are entitled to a refund
    of the additional taxes that they reported on the amended
    returns and remitted to the IRS in June 2008.” Appellee’s
    Br. 25. We agree with the Government.
    The IRS generally may not assess or collect income
    taxes until it issues a notice of deficiency. See I.R.C.
    §§ 6212(a), 6213(a) (2012). Nevertheless, a taxpayer may
    waive the right to a notice of deficiency by signing a
    waiver and filing it with the IRS at any time. Id.
    § 6213(d). “A duly executed IRS Form 4549 is a proper
    waiver of the deficiency notice requirements.” Perez v.
    United States, 
    312 F.3d 191
    , 197 n.23 (5th Cir. 2002)
    (citation omitted); see Robert E. McKenzie, 1 Representa-
    tion Before the Collection Division of the IRS § 3:148
    (Thomson Reuters ed., 2016). A taxpayer may withdraw
    the waiver and opt for the requirement of a notice of
    deficiency accompanying an assessment at any time until
    “such waiver has been acted upon by the district director
    and the assessment has been made in accordance with its
    terms . . . .” 
    Treas. Reg. § 301.6213-1
    (d) (2016).
    The Sandovals claim that their request for audit re-
    consideration in the form of a letter and a phone call in
    early-November 2007 impliedly or constructively with-
    drew their Form 4549 waiver. 4 Appellants’ Br. 37. In
    3    The Sandovals also characterize their withdrawal
    of Form 4549 as “express[]” in one instance. Appellants’
    Br. 21.
    4   More specifically, the Sandovals argue that they
    believed that the case had been “closed” (i.e., “assessed”),
    such that withdrawal was no longer available on Novem-
    ber 1, 2007 and, thus, they requested the only available
    6                            SANDOVAL LUA   v. UNITED STATES
    fact, there is no mention of withdrawal or waiver in either
    the letter or the Sandovals’ description of the phone call to
    the IRS. SA 46, 52. The Sandovals have presented no
    legal authority that audit reconsideration is indicative of
    or synonymous with waiver withdrawal. They have
    offered no authority to suggest that courts have enter-
    tained a theory of constructive or implied withdrawal.
    Without proof of withdrawal of the waiver, the IRS
    properly denied the Sandovals’ refund request as a matter
    of law.
    The Sandovals further argue that the Government
    conceded the issue of withdrawal at a status conference
    held in April 2014. Appellants’ Br. 37. The Claims Court
    succinctly stated that it “ha[d] never understood
    [G]overnment’s counsel to have waived this issue.” Sand-
    oval Lua, 123 Fed. Cl. at 274 (citation omitted).
    We agree with the Claims Court that the record does
    not support the Sandovals’ argument and that there is no
    genuine dispute about this material fact. See SunTiger,
    Inc., 
    189 F.3d at 1334
     (explaining that no genuine dispute
    as to a material fact exists if no record evidence supports
    the nonmoving party’s argument). At no point did the
    Government concede that the Sandovals withdrew their
    option of reconsideration. Appellants’ Br. 13−14. Because
    the case was not officially closed until November 26, 2007,
    the Sandovals also argue that the Government should
    have understood the reconsideration request to serve as a
    proxy for the withdrawal of Form 4549. Id. at 25, 36−37.
    They further claim that, without official closure of the
    case, “there was no support for audit reconsideration.” Id.
    at 27. However, the procedures for requesting audit
    reconsideration are not material to this case; we have no
    evidence to indicate that audit reconsideration is equiva-
    lent to waiver withdrawal.
    SANDOVAL LUA   v. UNITED STATES                             7
    consent. We do not find that the Government conceded to
    a withdrawal of the waiver of notice of deficiency here.
    B. The 2004 Assessment Limitations Period Had Not
    Expired
    The Sandovals next argue that their June 2008 remit-
    tance for the 2004 year was not timely because it did not
    fall within three years of the return filing. Appellants’ Br.
    45. Because the remittance was not timely, the Sando-
    vals argue that they should be refunded that amount
    remitted. Id. We agree with the Claims Court’s finding
    that there is no genuine dispute of material fact on this
    issue. Sandoval Lua, 123 Fed. Cl. at 276.
    As a general rule, all taxes “shall be assessed within 3
    years after the return was filed . . . .” I.R.C. § 6501(a). If
    a taxpayer “omits from gross income an amount properly
    includible therein” and “such amount is in excess of 25
    percent of the amount of gross income stated in the re-
    turn,” the assessment and collection period is extended to
    six years. Id. § 6501(e)(1)(A)(i).
    The Sandovals paid a remittance in June 2008, SA 58,
    and they do not dispute that their amended returns of
    $138,032 for fiscal year 2003 and $183,862 for fiscal year
    2004 are substantially more than 25% of their originally
    reported returns of $52,023 and $51,848, respectively, SA
    14, 24 (adjusted gross incomes originally reported), 59, 78
    (adjusted gross incomes as amended). The Sandovals also
    have offered no evidence to suggest that I.R.C.
    § 6501(e)(1)(A)(ii), which contains an exception for
    amounts omitted from gross income that were neverthe-
    less adequately disclosed, would apply. Accordingly, the
    applicable statute of limitations for the 2004 tax year
    assessment expired in April 2011, i.e, six years from the
    date the Sandovals filed their original tax return, and the
    Sandovals’ payments in June 2008 were timely.
    8                            SANDOVAL LUA   v. UNITED STATES
    C. The 2008 Remittances Were Appropriately Considered
    as Tax Payments
    The Sandovals further argue that the IRS improperly
    designated the 2008 remittances as payments, rather
    than deposits. Appellants’ Br. 41–42. Internal Revenue
    Code § 6603(a) provides that a “taxpayer may make a
    cash deposit with the [IRS] which may be used by the
    [IRS] to pay any tax . . . which has not been assessed at
    the time of deposit. Such a deposit shall be made in such
    a manner as the [IRS] shall prescribe.” The IRS’s Reve-
    nue Procedure explains that a deposit shall be accompa-
    nied with a “written statement” designating the deposit
    as such, and that any undesignated remittance “will be
    treated as a payment and applied by the [IRS] against
    any outstanding liability for taxes, penalties[,] or inter-
    est.” Rev. Proc. 2005-18, 2005-
    13 I.R.B. 798
     § 4.01(1)–(2)
    (2005).
    Prior to the adoption of the statutory definition of
    “deposit” in 2004, 5 courts used a test of “circumstances” to
    determine whether remittances were deposits or pay-
    ments. In New York Life Insurance Co. v. United States,
    we adopted the circumstances test and found that, when
    the party reserved the right to seek return of the remit-
    tance, a remittance made under protest following a notice
    of deficiency was a deposit as a matter of law upon the
    IRS’s failure to assess the deficiency within the statute of
    limitations. 
    118 F.3d 1553
    , 1559–60 (Fed. Cir. 1997).
    The Sandovals argue that the Government is equita-
    bly estopped from applying Revenue Procedure 2005-18
    and that the New York Life circumstances test should be
    used instead. Appellants’ Br. 41. According to Appel-
    lants, equitable estoppel applies because the Government
    5   See The American Jobs Creation Act of 2004, Pub.
    L. No. 108-357, § 842, 
    118 Stat. 1418
    , 1598−1600.
    SANDOVAL LUA   v. UNITED STATES                        9
    “consistently and vehemently argued” that its November
    2007 assessments were correct, which induced Appellants
    to remit funds they claim were not owed. 
    Id.
     The Sando-
    vals further argue that the 2008 remittances constitute
    “deposits” under the New York Life circumstances test.
    Id. at 40.
    We find both of the Sandovals’ arguments unavailing.
    Appellants must show “affirmative misconduct [as] a
    prerequisite for invoking equitable estoppel against the
    [G]overnment . . . .” Zacharin v. United States, 
    213 F.3d 1366
    , 1371 (Fed. Cir. 2000) (emphasis added) (citation
    omitted). The Sandovals have made no showing of mis-
    conduct in this case.
    We agree with the Claims Court that the Sandovals
    “offer no evidence that their 2008 remittance[s] complied
    with the terms of . . . Revenue Procedure [2005-18].”
    Sandoval Lua, 123 Fed. Cl. at 277. Because the funds
    were received after 2004, the New York Life circumstanc-
    es test does not apply and I.R.C. § 6603 controls. The
    remittances accompanied amended tax returns with tax
    liabilities in excess of $96,000, which followed a Novem-
    ber 2007 deficiency assessment. SA 58−59 (cover letter
    acknowledging amended tax liabilities for 2003 and 2004
    totaling $96,446.63). Their accompanying letter request-
    ed that the IRS apply the payments to outstanding tax
    liabilities for 2003 and 2004 fiscal years and any addi-
    tional years with liability in the event of overpayment.
    SA 58. The letter did not designate the remittances as
    deposits, as Revenue Procedure 2005-18 requires. They
    were tax payments, not deposits.
    D. The Sandovals Waived Their Additional Arguments
    The Sandovals contest the Claims Court’s rejection of
    two additional arguments that (1) satellite reimburse-
    ments (from Mr. Sandoval’s occupation as a satellite dish
    installer) cannot constitute “income” as defined by stat-
    ute, Appellants’ Br. 41; and (2) the Form 4549 was signed
    10                          SANDOVAL LUA   v. UNITED STATES
    under duress, id. at 38–39. We agree with the Claims
    Court that the Sandovals waived these arguments under
    the substantial variance rule.
    Internal Revenue Code § 7422(a) provides that, to
    bring suit against the United States for the recovery of
    income taxes, a taxpayer must have timely filed a refund
    claim in the manner prescribed by regulation. Treasury
    Regulation § 301.6402-2(b)(1) specifies that refunds will
    only be granted on one or more of the grounds set forth in
    a timely-filed claim and that the claim “must set forth in
    detail each ground upon which a credit or a refund is
    claimed and facts sufficient to apprise the Commissioner
    of the exact basis thereof.”
    We have interpreted this statute and regulation as
    stating a “substantial variance” rule that bars taxpayers
    from bringing new claims or facts not alleged in the
    refund application to a court in which suit for refund is
    sought. See Cencast Servs., L.P. v. United States, 
    729 F.3d 1352
    , 1366 (Fed. Cir. 2013); see also Lockheed Martin
    Corp. v. United States, 
    210 F.3d 1366
    , 1371 (Fed. Cir.
    2000) (explaining background and reasoning behind the
    “substantial variance” rule). For a theory, claim, or fact
    supporting the application for refund to be admissible in a
    suit, we ask “whether there [wa]s a substantial variance
    from a timely filed claim.” Computervision Corp. v. Unit-
    ed States, 
    445 F.3d 1355
    , 1364 n.8 (Fed. Cir. 2006) (cita-
    tion omitted).
    We agree with the Claims Court that, having failed to
    argue that the satellite reimbursements were not income
    or that they signed Form 4549 under duress in the initial
    refund application, the Sandovals’ introduction of these
    arguments would be a “substantial variance” from the
    initial claims. Sandoval Lua, 123 Fed. Cl. at 274 n.12.
    Therefore, these arguments were waived and were appro-
    priately not considered.
    SANDOVAL LUA   v. UNITED STATES                   11
    CONCLUSION
    We have considered the Sandovals’ remaining argu-
    ments and find them unpersuasive. Accordingly, the
    decision of the U.S. Court of Federal Claims is
    AFFIRMED