Issues
Must a taxpayer seek repayment and interest of unconstitutionally levied taxes only through IRS Tax Code administrative remedies, or may a taxpayer alternatively bring claims for damages and interest under the Tucker Act, which applies a less restrictive statute of limitations?
The Clintwood Elkhorn Mining Company sought to recover export tax payments after a federal court found the 1978 tax unconstitutional. Clintwood filed timely administrative refund claims under the IRS Tax Code within its three-year statute of limitations, and received repayments with interest for 1997 to 1999. However, Clintwood also filed an Export Clause damages claim for tax payments from 1994 to 1996 under the Tucker Act, which has a longer six-year statute of limitations. The government argued that the Tax Code provides the exclusive remedy for such refunds, while Clintwood argued that the Tucker Act alternative best remedies the government's unconstitutional taxation. The Court of Federal Claims found that Clintwood was entitled to receive damages, but not interest, under the Tucker Act. On appeal, the Federal Circuit awarded Clintwood both damages and interest for its 1994 to 1996 payments. The Supreme Court will determine whether Clintwood can file claims for repayment of unconstitutional taxes under the Tucker Act, and whether these alternative claims include interest awards. In addition to affecting the outcome of similar pending cases, the Court's decision will likely affect all taxpayers by determining the amount of reimbursement for taxes later found to be unconstitutional.
Questions as Framed for the Court by the Parties
Whether a taxpayer who would have been entitled to file a tax refund action in federal court to seek a refund of taxes (and interest thereon), but who failed to satisfy a statutory prerequisite to such an action (namely, the filing of a timely administrative refund claim) and is therefore barred from bringing such an action, may obtain a refund, and interest thereon, through an action directly under the Constitution pursuant to the Tucker Act, 28 U.S.C. 1491(a)?
Facts
In 1978, Congress passed a law taxing coal exports from United States mines. Clintwood Elkhorn Mining Company v. United States, 473 F.3d 1373, 1374 (Fed. Cir. 2007); 26 U.S.C. § 4121(a)(2). Clintwood Elkhorn Mining Company, Gatliff Coal Company, and Premier Elkhorn Coal Company ("Clintwood"), three mining companies, paid this tax for over 20 years, from 1978 to 1999. Clintwood, 473 F.3d at 1375.
In 1998, several companies successfully challenged the constitutionality of the statute's export tax on coal, arguing that it violated the Export Clause of the Constitution. See Brief for Respondents at 1-2; Ranger Fuel Corp. v. United States, 33 F. Supp. 2d 466 (E.D. Va. 1998). The Export Clause mandates that "no tax or duty shall be laid on articles exported from any state." U.S. Const. art. I, § 9, cl. 5. In 2000, the IRS formally acquiesced to the decision, stating that it would refund any taxes paid on exported coal if taxpayers filed a timely administrative claim for refund. Brief for United States at 2; Notice 2000-28, 2000-1 C.B. 1116 (2000). The IRS tax refund statute limits the recovery of overpayments to up to three years preceding the taxpayer's claim. 26 U.S.C. §§ 6511(a), 7422(a). Taxpayers may also receive interest for overpayments. 28 U.S.C. § 2411.
Taxpayers like Clintwood have an alternative method of getting their tax refunds. In Cyprus Amax Coal Co. v. United States, the court found that such a taxpayer may also sue for damages directly under the Export Clause in the Court of Federal Claims without first filing an administrative refund claim with the IRS. 205 F.3d 1369, 1373-76 (2000). The court found that this jurisdiction to sue directly under the Constitution came from the Tucker Act, which provides a six-year statute of limitations. See Petition for Writ of Certiorari at 3-4; 28 U.S.C. § 1491(a). The Tucker Act is silent on the availability of interest. § 1491(a).
In April 2000, Clintwood filed timely administrative claims under the tax refund statute to recover its payments from 1997 to 1999, and the government reimbursed Clintwood for its taxes and interest during that period. See Brief for Respondents at 2. However, Clintwood did not file administrative claims for its refund and interest from 1994 to 1996, but instead filed Tucker Act claims directly through the Court of Federal Claims. See Clintwood, 473 F.3d at 1375. Clintwood's claims from 1994 to 1996 sought to recover payments totaling about $1,065,936 in export taxes. Petition for Writ of Certiorari at 4. The government challenged Clintwood's recovery of both its payments and interest beyond the Code's three-year statute of limitations. See Clintwood, 473 F.3dat 1374-75.
Following Cyprus Amax, the Court of Federal Claims found that Clintwood was entitled to tax refunds, but not to interest, from 1994 to 1996. See id. at 1375. The court reasoned that recovery on interest is limited to taxpayers who have filed timely claims for refunds under the tax refund statute, and that consequently the recovery on interest did not apply to claims that were filed beyond the tax statute's three-year statute of limitations. Id. at 1375-76.
Both parties appealed, and the Court of Appeals for the Federal Circuit held that Clintwood was entitled to both refunds and interest from 1994 to 1996. See id. at 1374-76. Relying on statutory interpretation and legislative history, the Court found that the statutory provision on interest is a "straightforward recognition that the government should pay for its use of a taxpayer's money to which the government was not entitled," and that a tax overpayment is "not fully remedied unless it includes interest for the time that the money was in the hands of the government." See id. at 1376. The government appealed to the Supreme Court the issue of whether Clintwood is entitled to recovery of its payments and interest if it files through an alternative route under the Tucker Act. See Question Presented.
Analysis
I. Is the Statutory Tax-Refund Mechanism the Exclusive Remedy for Obtaining Refunds?
The government argues that the statutory language in 26 U.S.C. § 7422(a) in the Internal Revenue Code (Tax Code) provides the exclusive remedy for recovery of unlawful taxes. Brief for United States at 13-14. Under § 7422(a), "[n]o suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax . . . erroneously or illegally assessed or collected" until the taxpayer files a claim with the IRS. The government contends this language is unambiguous and plainly prevents taxpayers from filing suits such as Clintwood's without timely following the IRS's administrative procedures. See id.Therefore, the government concludes that the Federal Circuit erred in allowing Clintwood to use an "alternative" Tucker Act suit to recover damages for an Export Clause violation without filing a timely Tax Code administrative refund claim. See id. at 8. Further, the Tax Code, 26 U.S.C. § 6511(a), establishes a three-year statute of limitations for taxpayers to pursue this administrative procedure. See id. at 13. Under a separate statute, a taxpayer may not file a tax refund suit under § 7422(a) until two years after the IRS disallows a refund claim. See 26 U.S.C. § 6532(a)(1).
The Tucker Act, under which Clintwood sued for damages from 1994 to 1996, gives the Court of Federal Claims jurisdiction over constitutional suits against the government. See 29 U.S.C. § 1491(a). Clintwood argues that courts can enforce the Export Clause, which constitutionally restricts Congress's power, through the Tucker Act. See Brief for Respondents at 4. Clintwood relies on Cyprus Amax's holding that the Tucker Act provides an alternative to the statutory tax-refund scheme. 205 F.3d 1369 (2000).
Moreover, Clintwood asserts that the statutory tax-refund text is ambiguous in relation to Export Clause challenges to congressional taxing authority. See Brief for Respondents at 43. It is unclear that the unconstitutional coal tax, which affected coal already in international commerce, was ever an internal revenue tax within Congress's scheme. See id.In addition, since the IRS exceeded its lawful authority when it taxed Clintwood's exported coal, the statutory terms "refund" and "credit" may not apply to the relief Clintwood seeks. See id. at 44. Clintwood also asserts that, according to the Court, "the word 'any' should not be read to sweep in questionable . . . applications" without congressional authorization. See id. at 45. Because of these ambiguities, Clintwood's damages claim does not clearly fall under the tax-refund statute. See id. at 43-44. In addition, although taxpayers pursuing claims under § 7422 must follow its tax-refund requirements, Clintwood pursued an alternate Export Clause remedy using the Tucker Act. See Amicus Curiae Brief of Alliance Coal at 7. This only requires Clintwood to fulfill Tucker Act requirements, including its six-year statute of limitations. See id.
Even if the Tax Code does not explicitly bar Clintwood's Tucker Act claims, the government argues that Congress's statutory tax refund remedy is exclusive because of its comprehensiveness. See Brief for United States at 20. The government cites two recent Court cases holding that detailed statutes bar attempts to recover damages under the more general Tucker Act. See id. at 9. In EC Term of Years Trust v. United States, 127 S. Ct. 1763 (2007), a trust could not resort to the Tucker Act's general tax-refund jurisdiction after failing to bring a timely action under the specific tax statute: "a precisely drawn, detailed statute pre-empts more general remedies." 127 S. Ct. at 1766-67 & n.2. In addition, in Hinck v. United States, 127 S. Ct. 2011 (2007), a taxpayer could not rely on one section of a statute while bypassing other undesirable sections. See id. Like the detailed statutes in these cases, the comprehensive tax-refund scheme provides for limitation periods, requires administrative claims, and authorizes relief and interest. Brief for United States at 25. Therefore, the government concludes that the tax-refund scheme is exclusive and precludes Clintwood's Tucker Act claims. See id.
Clintwood counters that the Tucker Act provides taxpayers with jurisdiction for Export Clause claims. See Brief for Respondents at 25. Clintwood notes that, under Hinck, specific statutes do not preclude general statutes in all situations. See id. at 26. In addition, under EC Term of Years the preferred statutory provision is the provision that best resolves the claim, not the one that is most detailed. See id. Clintwood further contends that the "Tucker Act suit is better designed to enforce the Export Clause" than Congress's tax-refund scheme, and that Congress has not explicitly rejected Tucker Act suits while accepting the tax-refund scheme. Id. at 27-28.
II. Does the Export Clause Provide a Direct Cause of Action?
The government argues that the Export Clause does not provide Clintwood with a freestanding, self-executing cause of action against the United States. See Brief for United States at 29. The government contends that because Congress provided a statutory tax-refund procedure that Clintwood could (and did) use to obtain the refund allowed by the Tax Code for 1997 to 1999, no new constitutional cause of action under the Export Clause is either required or available. See id. at 40-41. The Export Clause only restricts government action, and does not extend enforcement power to private individuals. Brief for United States at 30-31. The government also argues that the Federal Circuit's comparison to another constitutional clause addressing monetary relief, the Article III Judicial Compensation Clause, fails to show that the Export Clause contains a freestanding cause of action for damages. See id. at 33. While the Export Clause text is silent on payment, the Compensation Clause expressly mentions compensation. See id.Further, the government points out taxpayers can pursue Export Clause remedies while complying with Tax Code procedures, and that courts avoid finding new constitutional damages remedies if Congress has already created opportunities for relief. See id. at 31, 35-36.
Clintwood, however, emphasizes that the Export Clause's restriction on Congress's power to tax exports prohibits the government from retaining any unconstitutionally gained export tax revenue. See Brief for Respondents at 14. Therefore, the Export Clause itself requires the government to restore any unlawfully collected tax. See id.In addition, amicus NFIB Legal Foundation notes that the Court has found constitutional provisions to be self-executing when they define violations in explicitly financial terms, as does the Export Clause. See Brief Amicus Curiae NFIB Legal Foundation in Support of Respondents at 10-11. Clintwood also argues that federal courts have Tucker Act jurisdiction over Export Clause claims, just as the Court has exercised jurisdiction over previous Tucker Act claims brought under the Judicial Compensation Clause. See Brief for Respondents at 15-16. Whether the Export Clause mandates compensation is a constitutional law question that Congress cannot override with tax-refund legislation. See id. at 21. In addition, the Tax Code's legislative history does not suggest that Congress intended the IRS, instead of federal courts, to resolve challenges to congressional authority such as damages claims for Export Clause violations. Brief Amicus Curiae NFIB Legal Foundation in Support of Respondents at 12.
III. Is an Interest Award Allowed?
The government argues that the Federal Circuit "compounded its error" by awarding Clintwood interest as well as damages for its Tucker Act claim. Brief for United States at 41. The tax-refund statute, contends the government, is a "package" from which the individual parts-including the administrative claim requirement, three-year statute of limitations, refunds, and interest-cannot be removed. Id.Clintwood's rejection of some tax-refund statute requirements is therefore inconsistent with accepting an award of interest that is only available under the same statute. See id. In addition, the government argues that courts can award no interest in a suit against the government without an explicit waiver of sovereign immunity for interest awards, which the Tucker Act lacks. See id. at 41-42. The government emphasizes that, since Clintwood's Tucker Act suit is not a tax-refund claim, Clintwood may be entitled to Export Clause violation damages but not to the tax-refund interest award. See id. at 42-43.
Clintwood contends that the Tucker Act remedy for Export Clause violations includes interest under the terms of the interest statute, 28 U.S.C. § 2411. See Brief for Respondents at 49. Under the interest statute, "interest shall be allowed" for "any overpayment in respect of any internal-revenue tax." 28 U.S.C. § 2411. Clintwood asserts that the interest statute is independent from any statutory tax scheme, and therefore is not limited to awards in tax-refund administrative claims. See Brief for Respondents at 50. In addition, Clintwood argues that the interest statute applies to its "overpayment" of taxes because the Court has broadly applied "overpayment" to situations where taxpayers paid more than they owed. See id. at 51-52. Clintwood concludes that because the Constitution prohibits the government from gaining revenue from export taxes, Clintwood's Tucker Act damages award must include both interest and repayment for the Export Clause to achieve its intended effect. See id. at 52-53.
Discussion
To what extent can a taxpayer recover taxes wrongly imposed by the government? The issue in this latest tax case before the Supreme Court turns on whether such a taxpayer is limited to the remedy outlined in the IRS Tax Code, or whether the taxpayer may also seek a remedy under the Tucker Act, which applies a less restrictive statute of limitations.
The government argues that the Tax Code unambiguously makes its tax refund scheme the exclusive remedy to recover wrongfully imposed taxes. Brief for United States at 13-14. The government maintains that because Congress expressly provided a remedy for wrongfully-imposed taxes, the Federal Circuit had no jurisdiction to create an "alternative" remedy that allowed Clintwood to recover more damages by filing under the Tucker Act. See id. at 7-10. Furthermore, the government argues, the tax refund process is a "package deal," so Clintwood should not be able to pick and choose its most advantageous provisions. Id. at 11. Thus, Clintwood cannot apply for damages under the Tucker Act (bypassing the tax refund statute) and simultaneously claim interest payments under the tax refund statute. Id.
Clintwood argues that the IRS refund statute is ambiguous because it does not expressly limit the remedy for an unconstitutional tax to a "tax refund." Brief for Respondents at 43-45. Because of this ambiguity, Clintwood argues that the Tucker Act alternative provides the best means of enforcing the Export Clause because it specifically provides for damages for constitutional violations. Id. at 4. Clintwood also argues that the Tucker Act remedy includes interest, even though the act is silent on the issue, because the interest statute upholds court judgments for "any overpayment" of tax. Id. at 6, 51.
A Supreme Court holding for Clintwood has broad potential tax ramifications because courts could allow taxpayers to recover damages beyond those spelled out in Congress's tax-refund scheme. Petition for Writ of Certiorari at 25. Consequently, similarly situated taxpayers could maneuver to recover more money through the Tucker Act's extended statute of limitations, even if they failed to file timely administrative refund claims under the Tax Code. See id. This extra recovery would frustrate fair and efficient administration of the tax system. See id.The government fears that a decision for Clintwood would open the floodgates to new tax-refund suits and expose the government to tens of millions of dollars of potential liability from similar untimely refund claims. See Reply Brief for United States at 9. Furthermore, the government contends, any tax alleged to violate the Constitution could give rise to an independent judicial remedy. Petition for Writ of Certiorari at 25.
On the other hand, Clintwood argues that a decision in favor of the government would defeat the purpose of the Export Clause by allowing the government to keep its wrongfully obtained taxes. Brief for Respondents at 6. Clintwood contends that restricting remedies to the IRS refund scheme will not account for economic business damages, the costs of resources in paying the taxes, and the lost time-value of the money. See id. at 32, 38. In addition, Clintwood notes that it paid export taxes since they were first levied in 1978, yet is only attempting to reclaim the last six years of payments because of the Tucker Act's six-year statute of limitations. See id. at 2. Clintwood argues thatforcing taxpayers to follow the detailed administrative scheme's three-year statute of limitations will even further limit permitted claims and delay recovery. See id. at 32, 35. Clintwood contends that the administrative scheme would essentially turn Congress's tax scheme into "little more than a borrowing program," where the government could take "all the revenue it wants," enjoy its time value, and wait years to repay only limited refunds to the "lending" companies. See id. at 35.
Either way, the Supreme Court's decision will likely affect many taxpayers by determining how much reimbursement they can receive if they pay taxes later found to be unconstitutional. This decision will likely affect the outcome of more than 25 pending cases involving similarly situated companies. See Amicus Curiae Brief of Alliance Coal at 1; Petition for Writ of Certiorari at 25. In addition, small businesses are particularly concerned about burdensome taxes and the effects of an unfair Tax Code on their ability to grow and contribute to the economy.Brief Amicus Curiae of National Federation of Independent Business (NFIB) Legal Foundation at 1-3. The outcome of this case will likely be influenced by another recent tax case, EC Term of Years Trust v. United States, where the Court found that a taxpayer must pursue the more detailed tax refund scheme instead of the Tucker Act when filing for a refund with interest. See 127 S. Ct 1763 (2007).
Conclusion
In United States v. Clintwood Elkhorn Mining