Summary
finding that neither taxpayer's present inability to make restitution for an erroneously paid tax refund, nor mistake by the IRS in issuing an erroneous refund, excused taxpayer's legal obligation to repay amount of refund to the government
Summary of this case from In re GouldOpinion
03-CV-6062T
December 18, 2003
DECISION and ORDER
INTRODUCTION
The United States of America ("Government") brings this action against defendant Ida Lee Campbell ("defendant") pursuant to §§ 7405 and 6602 of the Internal Revenue Code, codified at 26 U.S.C. § 7405 and 6602, to recover an erroneous tax refund paid to defendant on August 6, 2001. The Government moves for summary judgment under Federal Rule of Civil Procedure 56, arguing that it is entitled to judgment as a matter of law in the amount of $48,428.92 plus interest, because the refund was made in error.
BACKGROUND
On or about April 15, 1999, defendant filed an income tax return with the Internal Revenue Service ("IRS") for tax year 1998, in which she claimed a $40,000 credit for slavery reparations and directed the IRS to send her a refund in that amount. By letter dated January 26, 2000, the IRS informed defendant that it was disallowing the $40,000 credit and sought to collect a tax deficiency from defendant in the amount of the erroneously claimed credit. On April 21, 2000, defendant objected to the Government's position by filing a petition in Tax Court. To resolve the matter, defendant agreed in a signed stipulated decision filed with the Tax Court on June 13, 2001, that she was not entitled to receive any part of the $40,000 she claimed on her 1998 tax return. Nonetheless, on August 6, 2001, the IRS mistakenly issued defendant a check in the amount of $48,428.92, representing the $40,000 credit claimed and $8,428.92 in interest. Upon receipt of the refund, defendant deposited the check in her bank account, and subsequently spent the entire amount.
Although the IRS sought to recover a tax deficiency from defendant in the amount of the credit in 2000, she had yet to receive a tax refund for tax year 1998.
The Government initiated this suit on February 12, 2003, seeking to collect the $48,428.92 erroneously refunded to defendant, as well as interest accumulated since August 6, 2001, the date the refund check was issued. Defendant, proceeding pro se, filed an answer to the Government's complaint, but failed to respond to the Government's subsequent motion for summary judgment. At argument heard December 17, 2003 before this Court, defendant admitted that she knew she was not entitled to the refund, but that she had spent the entire amount and is not in a position to repay the money.
DISCUSSION
Rule 56 of the Federal Rules of Civil Procedure provides that a party is entitled to summary judgment as a matter of law only where, "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact. . . ." F.R.C.P. 56(c) (2003). The party seeking summary judgment bears the burden of demonstrating that no genuine issue of material fact exists, and in making the decision the court must draw all reasonable inferences in favor of the party against whom summary judgment is sought. Ford v. Reynolds, 316 F.3d 351, 354 (2d Cir. 2003) (citing Marvel Characters v. Simon. 310 F.3d 280, 285-86(2d Cir. 2002)). "Summary judgment is improper if there is any evidence in the record that could reasonably support a jury's verdict for the non-moving party." Id.The Government has the authority to sue an individual to recover an erroneously issued tax refund. United States v. Wurts, 303 U.S. 414, 415 (1938) ("The Government by appropriate action can recover funds which its agents have wrongfully, erroneously or illegally paid."). Specifically, Section 7405(b) of the Internal Revenue Code provides that, "[a]ny portion of a tax imposed by this title, that has been erroneously refunded . . . may be recovered by civil action brought in the name of the United States." 26 U.S.C. § 7405(b). The Government, in order to prove that it is entitled to recover an allegedly erroneous tax refund, must demonstrate by a preponderance of the evidence: (1) that a refund was made; (2) the amount of the refund; and (3) that the refund was improper. United States v. Ausperger, 452 F. Supp. 659, 666 (W.D.N.Y. 1978).
Congress has enacted only one statutory barrier to the Government's authority to recover erroneously issued tax refunds — a two year statute of limitations. See 26 U.S.C. § 6532(b). As such, the Government must commence any recovery action within two years of the date the check clears the Federal Reserve. United States v. Commonwealth Energy System and Subsidiary Co. 235 F.3d 11 (1st Cir. 2000). As this action was commenced within the designated time period, the statutory barrier will not bar the Government from recovery in the instant case.
Here, the Government satisfies the required criteria for recovery of the erroneous refund. First, defendant admits in both her answer and on the record that she received a refund check from the Government. Second, there is no provision within the IRC allowing for a credit based on slavery reparations. Taylor v. united States, 57 Fed. Cl. 264, 266 (2003). Therefore, any monies paid to defendant based on a credit claimed for slavery reparations was improperly issued. Furthermore, by stipulated decision accepted by the Tax Court on June 13, 2001, defendant agreed that she was not entitled to the $40,000 credit she claimed on her 1998 tax return. Third, the Government proffers that the erroneous refund check was issued in the amount of $48,428.92, including interest. Defendant, in her answer, admits receiving a check in that amount, thus establishing the amount of the refund. Therefore, the Government has demonstrated by more than a preponderance of the evidence, that it is entitled to collect the $48,428.92 mistakenly paid to defendant.
While defendant admits that at the time she received the check she knew she was not legally entitled to it, she claims that she is unable to repay the Government. Neither defendant's present inability to make restitution, nor the mistake by the IRS excuses her legal obligation to repay the Government. Defendant had an affirmative duty to return the money upon receipt of the erroneous refund, or at a minimum, contact the IRS. Instead, she deposited the money in her checking account and proceeded to spend the entire amount. Although defendant certainly presents a heart-warming plea to forgive the debt, there is no legal basis for such action. Accordingly, defendant is ordered to repay the Government $48,428.92 — the amount of the erroneous refund.
Defendant is the single parent of twelve children and receives no support from their father. She has limited income of $247.00 per month, does volunteer work in the community and provides total care for a disabled child.
Lastly, Congress mandates that the Government is entitled to collect interest on any tax refunds erroneously distributed. Section 6602 of the Internal Revenue Code states, "[a]ny portion of an internal revenue tax . . . which has been erroneously refunded, and which is recoverable by suit pursuant to section 7405, shall bear interest at the underpayment rate established under section 6621 from the date of payment of the refund." Accordingly, the Government is entitled to interest calculated pursuant to § 6621 on the $48,428.92 erroneously refunded to defendant from August 6, 2001, the date the erroneous payment was made.
CONCLUSION
For the reasons set forth above I find that defendant is obligated to repay the Government in the amount of the erroneous refund. Accordingly, defendant is ordered to pay the Government $48,428.92, plus interest from August 6, 2001, at a rate established by sec tion6621 of the Internal Revenue Code.
ALL OF THE ABOVE IS SO ORDERED.
Orders on Motions
6:Q3-cv-06062-MAT U.S.A. v. Campbell
U.S. District Court [LIVE] NYWD U.S. District Court [LIVE]
Notice of Electronic Filing The following transaction was received from TO, entered on 12/19/2003 at 10:59 AM EST and filed on 12/18/2003
Case Name: U.S.A. v. Campbell
Case Number: 6:03-cv-6062
Filer:
Docket Text:
Document Number: 11
ORDER that Defendant is obligated to repay the government in the amount of the erroneous refund. Defendant is ordered to pay the government $48,428.92 plus interest from 8/6/01 at a rate established by section 6621 of the IRS. Signed by Judge Michael A. Telesca on 12/18/03. (TO,)
The following document(s) are associated with this transaction:
6:03-cv-6062 Notice will be electronically mailed to:
6:03-cv-6062 Notice will not be electronically mailed to:
Karen Wozniak U.S. Department of Justice Tax Division PO Box 55 Washington, DC 20044