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Schaeffler v. United States

United States District Court, N.D. Texas, Dallas Division

April 25, 2017

GEORG F.W. SCHAEFFLER and BERNADETTE SCHAEFFLER, Plaintiffs,
v.
UNITED STATES OF AMERICA, Defendant.

          MEMORANDUM OPINION AND ORDER

          BARBARA M. G. LYNN CHIEF JUDGE

         Before the Court is the Motion to Dismiss of the Defendant United States [ECF No. 28]. For the reasons stated below, the Motion is GRANTED.

         I. INTRODUCTION

         On December 30, 2015, Plaintiffs Georg F.W. Schaeffler and Bernadette Schaeffler filed this action for the refund of federal income taxes paid by Plaintiffs for the taxable year ending December 31, 2002, and for related statutory interest for an alleged overpayment. Compl. ¶ 1. [ECF No. 1]. Plaintiffs were previously married, and filed a joint income tax return for the 2002 tax year on or about October 15, 2003. Id. ¶ 5, 10. On April 10, 2013, Plaintiffs filed a claim with the IRS for the 2002 tax year, requesting a refund of $5, 170, 760. Id. ¶ 12. Broadly speaking, Plaintiffs allege they are entitled to a refund on account of a redetermination by German authorities of Georg Schaeffler's German tax liability, which Plaintiffs claim results in additional foreign tax credits available for use on Plaintiffs' 2002 federal income tax return and for carry forward of additional minimum tax credits. Id. ¶ 11.

         On August 5, 2016, the parties filed their Joint Report Regarding Contents of Scheduling Order, in which the Defendant asserted that the Court lacks subject matter jurisdiction because Plaintiffs filed their claim for refund outside the applicable statute of limitations. ECF No. 22 at 3-4. On August 15, 2016, the Court directed the parties to address the threshold issue of subject matter jurisdiction [ECF No. 23], and on September 9, 2016, Defendant filed its Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1).

         II. LEGAL STANDARDS

         a. SUBJECT MATTER JURISDICTION

         Motions filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure challenge the subject matter jurisdiction of the district court to hear a case. Fed.R.Civ.P. 12(b)(1). Federal subject matter jurisdiction is limited; federal courts may entertain only those cases involving a question of federal law or those where parties are of diverse citizenship. See 28 U.S.C. §§ 1331, 1332. They “must presume that a suit lies outside this limited jurisdiction, and the burden of establishing federal jurisdiction rests on the party seeking the federal forum.” Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). Federal courts have original jurisdiction over claims when a complaint states claims arising under federal law. Id. § 1331; Ky. Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 392 (5th Cir. 1977).

         Lack of subject matter jurisdiction may be found based on any one of three considerations: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts, plus the court's resolution of disputed facts. Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996). A motion to dismiss based on the complaint alone presents a “facial attack” that requires the court to decide whether the allegations in the complaint, presumed to be true, sufficiently state a basis for subject matter jurisdiction. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1998); Rodriguez v. Tex. Comm'n on the Arts, 992 F.Supp. 876, 878 (N.D. Tex. 1998) (citation omitted). Facial attacks are usually made early in the proceedings. Paterson, 644 F.2d at 523. However, if the Defendant supports the motion with evidence, then the attack is “factual, ” and “no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.” Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981) (en banc). A factual attack may occur at any stage of the proceedings. Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980). Regardless of the nature of the attack, the party asserting federal jurisdiction continually carries the burden of proof to show it exists. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001).

         b. TAXPAYER REFUND CLAIMS

         The doctrine of sovereign immunity bars suit against the United States unless it has expressly consented to be sued. United States v. Mitchell, 445 U.S. 535, 538 (1980). In 28 U.S.C. § 1346(a)(1), the United States has consented to be sued for taxes improperly assessed or collected, but only if the plaintiff complies with the jurisdictional requirements set forth in 26 U.S.C. § 7422.

         The timely filing of a refund claim with the IRS is a jurisdictional prerequisite to suit in a federal district court. 26 U.S.C. § 7422(a) (“No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax . . . until a claim for refund or credit has been duly filed with the Secretary . . . .”). Section 6511 of the Internal Revenue Code (the “Tax Code”) contains two separate provisions for determining timeliness of a refund claim. Id. § 6511; Comm'r v. Lundy, 516 U.S. 235, 239-40 (1996). Under § 6511(a), a claim for a tax refund “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 is later. Section 6511(b) defines two “look-back” periods. First, if the claim is filed “within 3 years from the time the return was filed, ” then the taxpayer is entitled to a refund of “the portion of the tax paid within the 3 years immediately preceding the filing of the claim.” 26 U.S.C. § 6511(b)(2)(A) (incorporating by reference § 6511(a)). Second, if the claim is not filed within that 3-year period, then the taxpayer is entitled to a refund of only that “portion of the tax paid during the 2 years immediately preceding the filing of the claim.” Id. § 6511(b)(2)(B) (incorporating by reference § 6511(a)). Section 6511(3)(A) provides a special 10-year limitations period for refund claims relating to foreign tax credits. Id. § 6511(3).

         c. FOREIGN TAX CREDITS, ALTERNATIVE MINIMUM TAX, AND MINIMUM TAX CREDITS

         The purpose of the Internal Revenue Code's foreign tax credit provisions is to reduce international double taxation. Compaq Comput. Corp. & Subsidiaries v. Comm'r, 277 F.3d 778, 786 (5th Cir. 2001). Section 901 of the Tax Code generally provides a foreign tax credit for the amount of creditable foreign taxes paid or accrued. 26 U.S.C. § 901.

         Alternative minimum tax (AMT) is separate from, and in addition, to regular income tax. 26 U.S.C. § 55(a); Merlo v. Comm'r, 492 F.3d 618, 620 (5th Cir. 2007). The AMT was enacted to “ensure that high-income taxpayers cannot avoid significant tax liability through the use of exclusions, deductions, and credits.” Merlo, 492 F.3d at 620. AMT is applied to an expanded income base known as alternative minimum taxable income, which is calculated by eliminating tax relief given to the taxpayer under the regular income tax regime. § 55(b)(2); Merlo, 492 F.3d at 620. If a taxpayer's tentative minimum tax-calculated by imposing AMT rates on the alternative minimum taxable income-is more than the regular income tax, the taxpayer pays the difference as AMT. § 55(a).

         Importantly, a taxpayer who pays AMT is entitled to use some or all of that amount as a credit against regular income tax, referred to as the “minimum tax credit.” § 53(a). The minimum tax credit for a given taxable year is limited to the excess of the taxpayer's regular tax liability, reduced by the sum of certain allowed credits, over the taxpayer's tentative minimum tax liability for that year. § 53(c). The minimum tax credit can be applied to reduce regular income tax-and is considered used up, or “absorbed”-to the extent that regular income tax exceeds the tentative minimum tax for that year. Unabsorbed minimum tax credits can be carried forward indefinitely to future tax years; if a taxpayer does not use all of the credit in one year, the credit may be aggregated with other credits carried forward and used to reduce tax liabilities in the future.[1]

         III. PLAINTIFFS' REFUND CLAIM

         Plaintiffs seek a refund of $5, 170, 760 for taxes paid for the 2002 tax year. Compl. ¶ 17. Plaintiffs' amended tax returns filed for the 2001 and 2002 tax years form the basis of their refund claim. Id. ¶ 16.

         a. PLAINTIFFS' THIRD AMENDED 2001 RETURN

         Plaintiffs filed their joint 2001 income tax return on Form 1040 on October 15, 2002. Def. App. at 1 [ECF No. 28-1 at 1]. On or about April 7, 2012, Plaintiffs filed their third amended income tax return for the 2001 tax year. Id. at 2, 77; Compl. ¶ 16. Plaintiffs allege that based on the figures in their original tax return filed for 2001, they were not subject to AMT. Compl. ¶ 16. The revisions made in the third 2001 amended return are summarized in the following table. ...


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