Eleventh Circuit Holds That 28 U.S.C. § 1346(a)(1) Does Not Grant Concurrent Jurisdiction in U.S. District Court Over Case for Overpayment Interest Owed to the Taxpayer

In Paresky v. United States, No. 19-14589 (11th Cir. Apr. 30, 2021), the Eleventh Circuit holds “a matter of first impression within our Circuit” that 28 U.S.C. § 1346, the general federal jurisdiction statute for cases where the United States is a defendant, does not confer jurisdiction “concurrent with the United States Court of Federal Claims, over a taxpayer’s civil action against the government solely for overpayment interest owed to the taxpayer.”

Congress, in 28 U.S.C. § 1346(a)(1), conferred original jurisdiction – concurrent with the Court of Federal Claims – on the district courts of any “civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.”

The Pareskys brought their action under this section to recover interest on their tax overpayment. “[T]he Pareskys filed multiple claims with the Internal Revenue Service (‘IRS’) in late 2009 to recover taxes that were overpaid for the tax years of 2003, 2004, 2005, 2006, and 2007,” associated with losses due to investments in Bernie Madoff’s notorious Ponzi scheme. “The Pareskys received tentative refunds of approximately ten million dollars for tax years 2003 through 2007 in April and May 2010. The Pareskys, however, asserted that they were also entitled to interest on the tax overpayments, claiming that the IRS had exceeded the statutory forty-five-day limitations period in Internal Revenue Code (‘I.R.C.’) § 6611(e)(2) to process and issue them tentative refunds for each tax year.”

After exhausting procedures in the IRS, the Pareskys filed their action in Court of Federal Claims under the Tucker Act for recovery of the interest. The court denied the government’s motion to dismiss on timeliness grounds, but transferred the case to the Southern District of Florida because it was not evident how the Southern District of Florida or this Court would address jurisdiction over a standalone claim for overpayment interest.” The district court dismissed for lack of subject matter jurisdiction, holding that 28 U.S.C. § 1346(a)(1) did not confer jurisdiction “to permit a taxpayer to recover a sum that it never paid to the [g]overnment.”

The Eleventh Circuit affirms. For section 1346(a)(1) to confer jurisdiction, the civil action must seek recovery of “(1) ‘any internal revenue tax alleged to have been erroneously or illegally assessed or collected,’ (2) ‘any penalty claimed to have been collected without authority,’ or (3) ‘any sum alleged to have been excessive or in any manner wrongfully collected under the internal revenue laws’ . . . . . If an overpayment interest claim does not fall into one of these categories, then the Court of Federal Claims has exclusive jurisdiction over the claim under the Tucker Act. See 28 U.S.C. § 1491(a)(1)[.]”

“As two of our sister circuits [Second and Federal] have recognized—and the parties do not dispute—a claim for overpayment interest does not fall within either of the first two categories of § 1346(a)(1).” As far as the third category, the court notes a circuit split, with the Sixth Circuit breaking with the others in “concluding that overpayment interest falls within the ‘any sum’ category.”

The Eleventh Circuit sides with the majority on the third category. “The statutory use of the term ‘excessive’ assumes that there exists an amount that does not exceed the usual, proper, or normal amount and that therefore cannot be recovered from the government. In the context of overpayment interest, however, there is no amount of overpayment interest that would be proper for the government to hold once the taxpayer is entitled to that interest under I.R.C. § 6611 . . . . The statute does not contemplate any amount of overpayment interest that may be properly held by the government once the taxpayer becomes entitled to it . . . . Additionally, the word ‘sum’ used in the phrase ‘any sum alleged to have been excessive or in any matter wrongfully collected,’ refers to an amount previously paid to the government by a taxpayer; it therefore does not include overpayment interest . . . . Finally, the verb tense used in the statute—’alleged to have been excessive or . . . wrongfully collected’—is the present perfect, which also indicates that the ‘any sum’ category refers to amounts previously paid by a taxpayer.”

“The district court therefore correctly determined that it lacked jurisdiction over the Pareskys’ overpayment interest claim and properly dismissed their amended complaint . . . . Because the district court lacked jurisdiction over the Pareskys’ standalone overpayment interest claim, we affirm the district court’s dismissal of the amended complaint.”

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: