Let’s start with the Code section:
§ 6532 Periods of limitation on suits.
(b) Suits by United States for recovery
of erroneous refunds.
Recovery of an erroneous refund by suit under section 7405 shall be allowed only
if such suit is begun within 2 years after the making of such refund, except
that such suit may be brought at any time within 5 years from the making of the
refund if it appears that any part of the refund was induced by fraud or
misrepresentation of a material fact.
I have not lost sleep trying to understand that
sentence.
But someone has.
Let’s introduce Jeffrey Page. He filed a 2016 tax
return showing a $3,463 refund. In early May 2017, he received a refund check
of $491,104. We are told that the IRS made a clerical error.
COMMENT: Stay tuned for more observations from Captain Obvious.
Page held the check for almost a year, finally cashing
it on April 5, 2018.
The IRS – having seen the check cash – wanted the
excess refund repaid.
Page wanted to enjoy the spoils.
Enter back and forth. Eventually Page returned
$210,000 and kept the rest.
On March 31, 2020, Treasury sued Page in district
court.
Page blew it off.
Treasury saw an easy victory and asked the district court
for default judgement.
The court said no.
Why?
The court started with March 31, 2020. It subtracted
two years to arrive at March 31, 2018. The court said that it did not know when
Page received the check, but it most likely was before that date. If so, more
than two years had passed, and Treasury could not pass Section 6532(b). They
would not grant default. Treasury would have to prove its case.
Treasury argued that it was not the check issuance
date being tested but rather the check clearance date. If one used the
clearance date, the suit was timely.
The district court was having none of that. It pointed
to precedence – from the Ninth Circuit Court of Appeals - and dismissed the
case.
The government appealed.
To the Ninth Circuit Court of Appeals, ironically.
The Ninth wanted to know when a refund was “made.”
“within 2 years after the making of such refund …”
Is this when the refund is allowed or permitted or is
it when the check clears or funds otherwise change hands?
The Ninth reasoned that merely holding the check does
not rise to the threshold of “making” a refund.
Why, we ask?
Because Treasury could cancel the check.
OK. Score one for the government.
The Ninth further reasoned that the statute of
limitations cannot start until the government is able to sue.
Why, we again ask?
Had Page shredded the check, could the government sue for
nearly half a million dollars? Of course not. Well then, that indicates that a
refund was not “made” when Page merely received a check.
Score two for the government.
The Ninth continued its reasoning, but we will fast
forward to the conclusion:
… we hold that a refund is made when the check clears the Federal Reserve.”
Under that analysis, Treasury was timely in bring
suit. The Ninth reversed the district court decision and remanded the case for
further proceedings.
What do I think?
I see common sense, although I admit the Ninth has many
times previously eluded common sense. Decide otherwise, however, and Treasury
could be negatively impacted by factors as uncontrollable as poor mail delivery.
Or by Page’s curious delay in depositing the check.
Then again, maybe a non-professional was researching
the matter, and it took a while to navigate to Section 6532 and its two years.
Our case this time was U.S. v Page, No 21-17083
(9th Cir. June 26, 2024).
