Opinion
Case No. 1:02CV1181
January 27, 2003
MEMORANDUM OF OPINION AND ORDER
Plaintiff, Voss Industries, Inc. (Voss), brought this action against the United States of America (government) for refund of a required payment under 26 U.S.C. § 7519 of the Internal Revenue Code for tax year 1993. Included are claims for refund of the required payment, declaratory judgment and equitable tolling of the statute of limitations. The fourth count for justifiable reliance was voluntarily dismissed. Prior to June 1, 1993, Voss operated as an S corporation as defined in 26 U.S.C. § 1361. As an S corporation, Voss was required to make annual payments to the Internal Revenue Service (IRS) under 26 U.S.C. § 7519. For the tax year ending May 31, 1993, Voss properly and timely filed its federal tax return. On June 1, 1993, Voss's S corporation status was automatically terminated because it had established an Employee Stock Ownership Plan. So after June 1, 1993, Voss was no longer required to make payments to the IRS under § 7519. On June 29 1999, Voss filed a Form 8752 requesting a refund of its § 7519 payment in the amount of $64,586.00 for the October 1, 1992 to May 31, 1993 tax period. The IRS refused to reimburse the funds, asserting that it was a claim for refund of taxes which claim had been filed late. This matter is before the Court upon cross motions for summary judgment. (ECF 19, 22). The issue before the Court is whether the moneys paid to the IRS by an S corporation pursuant to 26 U.S.C. § 7519 are taxes subject to the statute of limitations for tax refund claims.
The government states that Form 8752 was filed on July 2, 1999. The exact date is not important here.
Subchapter S of the IRS Code treats an S corporation as a pass through entity so that its income and losses pass through to the shareholders of the corporation. Thus, an S corporation is not normally subject to corporate income tax. 26 U.S.C. § 444 (a) allows an S corporation to elect to have a taxable year other than the required tax year. 26 U.S.C. § 1378. An S corporation that elects to use a tax year other than the required year must make the required payment calculated in the manner set forth in 26 U.S.C. § 7519 (b). 26 U.S.C. § 7915 (c)(2)(A) provides that if an election under section 444 is terminated, the entity is entitled to a refund. Voss made its required payment to the IRS but when its S corporation status terminated, it did not file the Form 8752 seeking a refund of the payment until June 29, 1999, more than five years after its last § 7519 required payment. 26 U.S.C. § 6511 (a) provides:
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the tax payer is required to file a return 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 of such periods expires the later, or if no return was filed by the taxpayer, within two years from the time the tax was paid.
Voss contends that the request for refund was not untimely under § 6511, as the government contends, because § 6511 applies only to the recovery of a tax and the § 7519 required payment is not a tax. If the required payment is considered a tax, Voss's request for payment is untimely. A refund of a payment not considered to be a tax must be made 90 days after the day on which the claim for refund is filed with the Secretary. 26 U.S.C. § 7519 (c)(3)(B).
26 U.S.C. § 7519 (f)(1) states that any payment required by § 7519 shall be assessed and treated as if it were a tax imposed by subtitle C. In subsection (f)(3), the Code provides for the purposes of determining interest, any payment shall be considered a tax. Each party relies on these two subsections. Voss contends that the language specifically describes the payments "as if" they were taxes implying that they are not taxes. Furthermore, while the statement pertains to collection of payments and interest on payments, the section does not state that refunds of the payments are to be treated as if the payments had been taxes. The government argues that regardless whether the § 7519 payment is a tax, the statute requires it be treated as a tax and therefore, the provisions of § 6511 apply.
A tax has been defined as "a pecuniary burden laid upon individuals or property for the purpose of supporting the government." United States v. Reorganized CF I Fabricators of Utah, Inc., 518 U.S. 213, 224 (1996); State of New Jersey v. Anderson, 203 U.S. 483, 491-92 (1906); In re: Boston Regional Medical Center, Inc., 291 F.3d 111, 120 (1st Cir. 2002). It has also been defined as an enforced contribution to provide support of the government. United States v. La Franca, 282 U.S. 568, 572 (1931); National Federation of Republican Assemblies v. United States, 148 F. Supp.2d 1273, 1278 (S.D. Ala 2001). The § 7519 payments certainly fit under the definition of a tax.
Only one court decision has been found that involves § 7519 and whether payment under it is a tax. In Semmes, Bowen Semmes v. United States, 30 Fed. Cl. 134 (1993), aff'd., 34 F.3d 1081 (Fed. Cir. 1994), the court stated that "a required payment under § 7519 is not a tax." Id. at 135. The plaintiff sought interest on the refund of a required payment made under § 7519. The refund, due April 15, 1992, was paid by a check dated June 23, 1992. The government argued that § 7519 prohibits payment of interest on refunds of required payments whether or not the refund is late. A taxpayer is entitled to interest on a refund for overpayment of a tax. Since section 7519(f)(3) provided that "no interest shall be allowed with respect to any refund of a payment under this section," the court granted the government's Fed.R.Civ.P. 12(b)(6) motion to dismiss.
The Court agrees with the government's position in the present case that the Semmes court ruling did not depend on whether the refund was considered a tax. Section 7519(f)(3) clearly states that no interest can be allowed on a refund of a required payment. There was no discussion concerning the court's classification of a refund under § 7519. In making its decision, the Semmes court relied solely on the language of § 7519. The statement that the refund was not a tax was dictum.
The legislative history demonstrates that Congress intended that payment under § 7519 be treated as a tax. The House bill provided:
The conference agreement follows the House bill with a modification requiring an electing partnership or S corporation, rather than the owners of such an entity, to make additional payments. Such additional payments are treated as payments of tax imposed by subtitle C. . . . The conference agreement provides that an electing partnership or S corporation must make a "required payment" for any taxable year for which an election is in effect. The payment is due on April 15th of the calendar year following the calendar year in which the election year begins, unless the Secretary of the Treasury provides for a later date. The "required payment" is the payment of a tax imposed by subtitle C that is due on such date . . . Partners in an electing partnership and shareholders in an electing S corporation are required to make enhanced estimated tax payments.
H.R. Conf. Rep. 100-495; H.R. Conf. Rep. No 495, 941, 110th Cong., 1st Sess., 1987 U.S.C.C.A.N. 2313-1245, 2313-1684.
The Court concludes that the moneys paid to the IRS by an S corporation pursuant to 26 U.S.C. § 7519 should be treated as a tax. Thus, the limitation provision of 26 U.S.C. § 6511 applies. Voss's request for refund is untimely.
In count three of the complaint, Voss asserts that the limitation period should be tolled. It was in the process of changing accounting firms and the claim for refund was inadvertently overlooked and not filed. Further, in the period subsequent to the S corporation termination, both elderly majority shareholders (husband and wife) had died, creating a temporary void in Voss's management. Subsequently, it was discovered that Voss had required payments held by the IRS and the new accounting firm submitted a claim for refund on April 17, 1999. The government has moved for summary judgment on this issue. Voss has not responded. Failure to respond as required by Rule 56 of the Fed.R.Civ.P. requires a conclusion that the claim has been abandoned. Graham v. American Cyanamid Co., 2000 WL 1911431 at *5 (S.D. Ohio, December 21, 2000); Douglas v. Victor Capital Group, 21 F. Supp.2d 379, 393 (S.D. N.Y. 1998); Black Law Enforcement Officers Ass'n. v. City of Akron, 1989 WL 168010 at *5 N.D. Ohio), aff'd., 920 F.2d 932 (6th Cir. 1990).
Voss stated in its brief in support of its motion for summary judgment that it filed for refund on June 29, 1999.
Section 6511(h) allows tolling in certain circumstances, i.e., when an individual is financially disabled. In United States v. Brockamp, 519 U.S. 347, 348 (1997), the taxpayer asked the Court to extend the statutory period for an equitable reason, namely, that he had a mental disability. The United States Supreme Court held that such a reason is not mentioned in the statute and Congress did not intend equitable tolling to apply to § 6511's time limitations for filing tax refund claims. Becton Dickinson and Co v. Wolckenbauer, 215 F.3d 340, 348 (3rd Cir. 2000), cert. denied, 531 U.S. 1071 (2001); Amoco Production Co. v. Newton Sheep Co., 85 F.3d 1464 (10th Cir. 1996). The IRS Restructuring and Reform Act of 1998, Pub.L. No. 105-206, § 3202(b), 112 Stat. 685, 741 added subsection (h). The Act provided:
(b) EFFECTIVE DATE. — The amendment made by subsection (a) shall apply to periods of disability before, on, or after the date of the enactment of this Act but shall not apply to any claim for credit or refund which (without regard to such amendment) is barred by the operation of any law or rule of law (including res judicata) as of the date of the enactment of this Act.
The tolling provision cannot be applied retroactively. Since Voss's claim for refund was untimely before § 6511(h) became effective, the claim for equitable tolling has no merit. See Pritchett v. United States, 2001 WL 616895 at *5 (D.Cal. April 12, 2001) (doctrine of equitable tolling not available before July 22, 1998 to expand time limits for filing tax refund claims under § 6511). Furthermore, tolling is limited to a taxpayer who is unable to manage financial affairs due to a disability. Voss, being a corporation, cannot be so classified.
26 U.S.C. § 6511 (h) defines a financially disabled individual as one who is unable to manage his financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
Accordingly, Voss's motion for summary judgment is denied. (ECF 19). The government's motion for summary judgment is granted. (ECF 22). Judgment is for the government.
IT IS SO ORDERED.