Opinion
CIVIL ACTION NO. 1:02cv193GRo
December 8, 2003
PARTIAL SUMMARY JUDGMENT
This cause comes before this Court on motion of the defendant, United States of America, [United States] for partial summary judgment [26-1] on Sun Manufacturing, Inc.'s equitable estoppel claim pursuant to Federal Rule of Civil Procedure 56. Pursuant to the Memorandum Opinion entered in this cause, this date, incorporated herein by reference, it is hereby,
ORDERED AND ADJUDGED that the motion of the defendant for partial summary judgment [26-1] on Sun Manufacturing, Inc.'s equitable estoppel claim be, and is hereby, granted. It is further,
ORDERED AND ADJUDGED that each party bear their respective costs in connection with this motion.
SO ORDERED AND ADJUDGED this the 8th day of December, 2003.
MEMORANDUM OPINION
This cause is before the Court on the motion of the Defendant, United States of America, [United States] for partial summary judgment [26-1] pursuant to Federal Rule of Civil Procedure 56. After due consideration of the pleadings, evidence of record, applicable law, and being otherwise duly advised in the premises, the Court finds as follows.Statement of Facts
The Plaintiff in this complaint, Sun Manufacturing, Inc., [Sun] manufactures logging trailers in Lucedale, Mississippi. With the sale of trailers, Sun is obligated to pay a federal excise tax of 12% of the sales price. Because a separate federal excise tax is charged on tires over 40 pounds, taxpayers paying the trailer excise tax are allowed to deduct the market price of the tires from the base of the trailer, thus avoiding a duplicate excise tax. From 1994 through the period at issue, Sun used $450 as a fair market price of tires when performing these deductions. The Internal Revenue Service [IRS] audited Sun regarding the trailer tax in October 1994 and July 1995, and again for each quarter of 1996 and 1997. Upon the completion of this second audit in December 1998, the IRS assessed additional excise taxes against Sun, stemming from the IRS's stance that Sun overstated the fair market price of tires, and therefore understated the figure used to calculate the trailer tax.
After paying a portion of the additional trailer tax levied against it, Sun filed suit, alleging the inability of the United States to recover "because it is equitably estopped from asserting that the tire exemption amount Sun used is incorrect." (Compl. p. 3.)
The United States filed a counterclaim seeking recovery of the unpaid balance of the additional trailer tax. In addition, the United States maintains that Sun cannot establish its claim based on the doctrine of equitable estoppel, because that doctrine can only be used against the United States in limited circumstances. (Mot. for Partial Summ. J., p. 4.) The United States argues that Sun must establish the traditional elements of estoppel and has the additional burden of showing that the United States engaged in affirmative conduct going beyond mere negligence. (Id.) The United States also contends that equitable estoppel cannot be applied to bar the IRS from correcting an error of law. (Id.) According to the United States, the IRS is not precluded from correcting an erroneous treatment of items on a tax return in spite of differing treatment in past tax years. (Id., p. 5.)
Sun determined the fair market value of the tires by contacting a Firestone brand tire dealer in February 1994. (Pl.'s Resp., Exh. C.) Sun argues that the IRS accepted the $450 value on the tires in a previous audit. (Id., p. 3.) During the 1998 audit, the IRS tried to verify the contents of the Firestone letter by contacting the dealer. (Id., Exh. E, p. 3.) The individual currently in charge of that dealership valued the tires in 1998 at $250-261 per tire. (Id.) The revenue agent contacted another Firestone dealer in Monroeville, Alabama, who placed the fair market value of the tires between $290-310 per tire. (Id.)
Sun maintains that it relied to its detriment on the United States' prior acceptance of the $450 fair market valuation of the tires, and asserts that because it cannot go back and charge its customers a higher price for the trailers sold which utilized the $450 value on the tires, equitable estoppel should prevent a change in the valuation of the tires for past sales. (Pl.'s Resp., p. 11.) Sun contends that affirmative misconduct is shown in this case because the IRS specifically considered the fair market value of the tires in past audits and did not challenge the amount until the second audit. (Id., p. 13.) Sun asserts that the IRS should have warned Sun that it should not rely on the earlier audit and unchallenged fair market values on the tires, further asserting that the failure to warn launches the IRS's conduct in the matter beyond negligence. (Id.)
Sun asserts that the IRS' representations regarding the fair market value of the tires is a question of fact and not law. (Id., p. 15.) Sun contends that the IRS has not produced a factual basis for its decision to change the fair market value of the tires. (Id., p. 17, n. 3.)
Standard of Review
Summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c). All disputed facts I are resolved in favor of the party opposing the summary judgment. Ameristar Jet Charter, Inc. v. Signal Composites, Inc., 271 F.3d 624, 626 (5th Cir. 2001). The nonmoving party may not rely upon mere allegations or denials within the pleadings, but must come forward with specific facts showing the presence of a genuine issue for trial. Mercury Air Group, Inc. v. Mansour, 237 F.3d 542, 548 (5th Cir. 2001).
To establish a claim of estoppel against the United States, a party must prove affirmative misconduct by the United States along with the traditional elements of estoppel. In re Taylor, 132 F.3d 256, 263 (5th Cir. 1998), reh'g sugg. for reh'g en banc denied 140 F.3d 1040 (5th Cir. 1998). "The traditional elements of estoppel are: (1) that the party to be estopped was aware of the facts; and (2) intended his act or omission to be acted upon; (3) that the party asserting estoppel did not have knowledge of the facts; and (4) reasonably relied on the conduct of the other to his substantial injury." United States v. Bloom, 112 F.3d 200, 205 (5th Cir. 1997). Estoppel against the United States must result from a representation of an official authority acting with the scope of that authority. See United States v. Walcott, 972 F.2d 323, 325 (11th Cir. 1992). To satisfy the affirmative misconduct element of estoppel, an official must intentionally or recklessly mislead the estoppel claimant, as in making a statement with knowledge of its falsity or an intention to mislead. Moosa v. Immigration Naturalization Serv., 171 F.3d 994, 1004 (5th Cir. 1999); REW, Enter, v. Premier Bank, N.A., 49 F.3d 163, 170 (5th Cir. 1995), reh'g denied (April 27, 1995); Ingalls Shipbuilding, Inc. v. Director, 976 F.2d 934, 938 (5th Cir. 1992). The private party must establish actions on the part of the United States which constitute more than mere negligence, delay, inaction, or failure to follow an internal agency guideline to establish estoppel against the United States. Fano v. O'Neill, 806 F.2d 1262, 1265 (5th Cir. 1987). In addition, "[t]he rule is well settled that the IRS's acceptance of incorrect prior returns, or its failure to make an assessment upon a prior audit does not estop the IRS from making an otherwise appropriate assessment at some later date." Knights of Columbus Council #3660 v. United States, 783 F.2d 69 (7th Cir. 1986).
The IRS Commissioner may change an earlier interpretation of the law, even if such a change is made retroactive in effect. Dresser Indus., Inc. v. United States, 238 F.3d 603, 609 (5th Cir. 2001); see Dickman v. C.I.R. 465 U.S. 330, 343 (1984); Dixon v. United States, 381 U.S. 68, 72-5 (1965); Automobile Club of Mich. v. Commissioner, 353 U.S. 180, 183-84 (1957). This rule applies even though a taxpayer may have relied to its detriment upon the Commissioner's prior position. Dixon, 381 U.S. at 73. The Court concludes that the United States' motion for partial summary judgment on Sun's equitable estoppel claim should be granted.
Conclusion
The Court finds that, for reasons set forth above, that the United States's motion for partial summary judgment [26-1] should be granted. A separate Order in conformity with and incorporating by reference the foregoing Memorandum Opinion shall issue. Each party shall bear their respective costs.