Sandoval Lua v. United States

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