Equitable doctrines are generally read into most federal statutes of limitations. Equitable tolling typically applies “when the prospective plaintiff simply does not have and cannot with due diligence obtain information essential to bringing a suit.” Wolin v. Smith Barney Inc., 83 F.3d 847, 852 (7th Cir. 1996). Similarly, when a defendant acts affirmatively to dissuade a plaintiff from pursuing a claim, equitable estoppel may apply to preclude the defendant from relying on the statute of limitations as a defense: “Equitable estoppel . . . is invoked when the prospective defendant does make such a special effort to cover up [his] fraud or does something else to prevent the prospective plaintiff from suing in time, such as promising not to plead the statute of limitations as a defense.” Id.
But do these doctrines have a role to play in tax cases? A district judge in Nevada recently looked at whether equitable tolling could apply in a refund case, and handed the government a win. Advanced Ref. Concepts, LLC v. United States, No. 3:18-cv-00163-LRH-CLB, 2019 U.S. Dist. LEXIS 221581 (D. Nev. Dec. 26, 2019).
The taxpayer, ARC, invented a new fuel that combined compressed natural gas with diesel fuel. Id. at *1. Various federal excise taxes apply to fuel, see I.R.C. §§ 4041, 4081, and in 2009, ARC registered as a taxable fuel registrant, receiving both an “S” and a “UV” designation. Advanced Ref. Concepts, 2019 U.S. Dist. LEXIS 221581 at *1.
In April of 2013, ARC filed a refund claim for excise taxes for the quarter that ended March 31, 2013. That claim was disallowed. Id. at *1-*2. ARC then filed refund claims for the second and third quarters of 2013, receiving the full $45,224.73 that it claimed. Id. at *2. In 2014, however, the IRS advised ARC that its “S” designation was being revoked and that it would have to repay the IRS the refund received for the second and third quarters of 2013. Id.
The IRS offered ARC a deal: It could have a different classification (“AM”) applicable to producers of alternative fuel mixtures, if it waived the three-quarters of refunds it had previously sought. Id. ARC accepted the offer, and on February 20, 2014, it signed a Form 2297 waiving its right to notice of the disallowance of its refund claim for the first quarter of 2013, and a consent to assessment form for the second and third quarters. Id. at *3.
After repaying the previously refunded taxes, ARC received the agreed-upon AM designation in January of 2015. When ARC filed amended returns for 2012 through 2014, however, it was informed that its “AM” designation was improper, and the IRS denied its claim. Id. ARC then appealed this determination through an IRS mediation program; initially, a settlement was reached, but on November 2, 2015, ARC was advised that the settlement was not approved. Id. ARC’s case was transferred to IRS Appeals in February of 2016 and was denied in April of 2016.
ARC filed suit on April 17, 2018. Several of its claims were disposed on a motion to dismiss, leaving only a refund claim based upon the revocation of its “S” designation. Id. at *3-*4. The government then moved for summary judgment on the remaining claim, arguing that it was filed outside the statute of limitations.
The statute of limitations for a refund action is governed by section 6532(a)(1) of the Internal Revenue Code, which provides as follows:
No suit or proceeding under section 7422(a) for the recovery of any internal revenue tax, penalty, or other sum, shall be begun before the expiration of 6 months from the date of filing the claim required under such section unless the Secretary renders a decision thereon within that time, nor after the expiration of 2 years from the date of mailing by certified mail or registered mail by the Secretary to the taxpayer of a notice of the disallowance of the part of the claim to which the suit or proceeding relates.
I.R.C. § 6532(a)(1). Further, “[i]f any person files a written waiver of the requirement that he be mailed a notice of disallowance, the 2-year period prescribed in paragraph (1) shall begin on the date such waiver is filed.” I.R.C. § 6532(a)(3).
Accordingly, the district court initially observed that ARC was required to file its action within two years of the date that it signed the Form 2297 waiver, which was February 20, 2014. Advanced Ref. Concepts, 2019 U.S. Dist. LEXIS 221581 at *8-*9. ARC acknowledged this but asserted that the statute of limitations should be equitably tolled. Id. at *9.
The district court recognized that equitable doctrines typically apply to federal statutes of limitations: “Equitable tolling is read into every federal statute of limitations and is presumed to apply in suits against the United States, unless Congress provides otherwise.” Id. (citation omitted). ARC, however, had a problem: In 1997, the Supreme Court held that a related provision of the Code, section 6511, was not subject to equitable tolling. See United States v. Brockamp, 519 U.S. 347, 350-52 (1997).
Section 6511 provides in relevant part as follows:
(a) Period of limitation on filing claim
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer 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 2 years from the time the tax was paid. Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid.
(b) Limitation on allowance of credits and refunds
(1) Filing of claim within prescribed period
No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period.
I.R.C. § 6511(a), (b).
By its terms, section 6511 sets a specific time for administrative claims for a refund or credit to be presented for the IRS and then bars the IRS from allowing any such claims that are filed after that deadline. In Brockamp, the Supreme Court held that equitable tolling did not apply under section 6511, relying primarily upon the highly detailed and technical language that Congress used, which was qualitatively different from traditional statutes of limitations. 519 U.S. at 351-52. The Court also observed that applying equitable tolling would create administrative havoc. Id. at 352-53.
In Advanced Refining, the district court considered two competing cases from the Northern District of California addressing the application of Brockamp to section 6532(a), Thomasson v. United States, Case No. C-96-3023-VRW, 1997 U.S. Dist. LEXIS 5625 (N.D. Cal April 21, 1997), which followed Brockamp, and Hyler v. United States, Case No. C 07-05046 CRB, 2008 U.S. Dist. LEXIS 7392 (N.D. Cal Jan. 22, 2008), which did not. After considering the analysis of the two competing opinions, the Advanced Refining court concluded that Brockamp’s reasoning was equally applicable to section 6532(a) of the Code; the court specifically noted the highly technical language of section 6532, as well as the administrative problems that implying an equitable tolling exception would create. Advanced Ref. Concepts, 2019 U.S. Dist. LEXIS 221581 at *11-*12.
ARC’s remaining claims were dismissed because it failed to timely file administrative claims within the time specified under section 6511. While the taxpayer argued that the government should be estopped, the district court rejected that argument, which is directly contrary to Brockamp.
While it appears that ARC did not receive fair treatment from the government here, this is almost certainly the correct result. Once you accept the premise that Congress did not intend equitable tolling to apply to the limitations period for administrative claims for a refund under section 6511, it is difficult to believe it intended it to apply to suits for a refund under section 6532(a), particularly given the express language of section 6511(b) barring untimely refunds or credits. And ARC could have helped itself either by requesting an extension of the statute of limitations under section 6532(a)(2) while the case was before IRS Appeals or by filing suit sooner.