USCA1 Opinion

United States Court of Appeals

United States Court of Appeals
For the First Circuit
For the First Circuit
____________________

No. 95-1173

GRENVILLE CLARK III,

Plaintiff, Appellee,

v.

UNITED STATES OF AMERICA,

INTERNAL REVENUE SERVICE,

Defendants, Appellants.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Martin F. Loughlin, Senior U.S. District Judge]

__________________________

____________________

Before

Torruella, Chief Judge,

___________
Stahl, Circuit Judge,
_____________
and Dominguez,* District Judge.
______________

____________________

Kent L. Jones, Tax

_____________

Assistant to the Solicitor General, with

Loretta C. Argrett, Assistant

___________________

Attorney General, and

David
English Carmack,
________________________

Sally J. Schornstheimer,
_________________________

and

Gary R. All
____________

Attorne

Department of Justice, Tax Division, were on brief for appellants.

Grenville Clark III pro se.
___________________
____________________
August 29, 1995
____________________

_____________________
*Of the District of Puerto Rico, sitting by designation.

STAHL, Circuit Judge.

STAHL, Circuit Judge.
_____________

case,

the government appeals

In this federal

the district court's

income tax

grant of

summary judgment to taxpayer Grenville Clark III in his

suit

to recover monies

collected by the Internal

("IRS") by levy.

Although we agree with

that

summary judgment for

erred in finding that

the district court

the taxpayer was

reduce the amount of the judgment because

Revenue Service

appropriate, we

the district court

Clark had fully extinguished his

1985

tax liability.

I.
I.
__

Factual Background
Factual Background
__________________

The material

14,

their

facts are not in dispute.

On August

1986, Clark and his then-spouse, Marguerite Clark, filed

1985 income

August 18, 1986.

tax

The

return, which

the

IRS received

on

return indicated a total tax liability

of

$13,648.00, and on

September 29, 1986,

the Clarks' 1985 tax liability

the IRS assessed

in that amount.1

Because the

receives

return,

____________________

1.

Typically,

when

the

evaluates the return for

finds

IRS

accuracy.

the return satisfactory,

the amount of
26 U.S.C.

tax

If, as in

this case, it

it enters an

assessment for

tax the taxpayer calculated to be

6201, 6203.

determination of

the

tax liability,

the

only after it

IRS may

taxpayer and gives him or

The IRS has

return

is filed

to make

U.S.C.

6501.

If the IRS

imperfect

or incomplete

an

enter

issues a notice

See
___

of

26 U.S.C.

three years from the

assessment of

her ninety days

to challenge its calculations in the Tax Court.

6201, 6212, 6213.

owing.

If it disagrees with the taxpayer's

different assessment, but

deficiency to the

it

date a

liability.

26

discovers that an assessment "is

in any

material

respect," it

may

correct the problem by making a supplemental assessment if it

does

so

within

the

three-year

-22

time

period

for

making

Clarks did not pay the tax in full at the time of filing, the

IRS added penalties and

interest to the amount due.

The IRS

then placed a lien upon

their real and personal property and

demanded that they satisfy the outstanding tax.

As

payments on

tax liability

of

June

13,

his 1985 tax

for

Clark

liability.

1986 in

interest and penalties.

1987,

the amount

had

He also

made

several

had an unpaid

of $13,415.00,

plus

On June 13, 1987, Clark sent the IRS

a check for $13,415.00, which he

indicated should be applied

to his 1986 liability by writing in the "memo" portion of the

check:

"1040 12/31/86 [Clark's

social security

number]."2

____________________

assessments.

26 U.S.C.

Once it

6204.

makes an

assessment of

liability for a given year,

to issue a
U.S.C.

the IRS generally has sixty days

6303(a),

and

U.S.C.

ten years

levies), see
___
to

26 U.S.C.
foreclose

judgment), see 26
___

6321,
liens

U.S.C.

Collection may

or
7403.

6331, or

period.

26 U.S.C.

file suit for collection without

during the three-year period.

letter to the

assessed
be

to

reduce

made
and

judicial methods
assessments

If it does

not make

to
an

the filing of a return, the

pursue collection activities after

the three-year

In a

collect the

(including federal liens

assessment within three years of

IRS may not

to

6502(a)(1).

through administrative methods

2.

tax

notice and demand for payment to the taxpayer, 26

amount, 26

(suits

a taxpayer's

6501.

the close of

It can, however,

an assessment if it does so

Id.
___

IRS dated September 22,

1989, Clark

wrote:
This

payment was

the memo

on

indicates
applied

the

that I
to

liability.

my

voluntarily made,
check

clearly

designated that
1986

Form

This memo conforms

instruction found at
return which

itself

and

1040

it be
tax

with the

line 67 of my

1986

asks that I write my social

security number

and "1986 Form

it.

-33

1040" on

The IRS, however,

outstanding

tax liability

balance due3

July

applied the $13,415.00 payment

for

and yielded an

17, 1987,

1985,

off

the

overpayment for that year.

On

the

IRS

issued Clark

and

the

IRS

which

to Clark's

paid

refund check

for

$11,652.28.

Clark

several

years, both about

corresponded

the refund and

over

the

next

about the balance

due on the 1986 account, which had not been credited with the

$13,415.00 payment.

that he

In his

had made a

liability, but

correspondence, Clark

insisted

$13,415.00 payment towards his

1986 tax

did not explicitly

mention that it

misapplied to his

1985 account and

Clark points out,

however, that the copies

check

he repeatedly

sent

to the

had been

mostly refunded to

IRS

him.

of the cancelled

showed code

numbers

imprinted

by the IRS that

indicated exactly how the payment

had been applied.

Finally, in November 1990, the IRS realized that it

had

misapplied the

1986 payment

to

Clark's 1985

account.

Clark continued to insist, however, that as he had designated

that the

payment be applied

receive credit

to his 1986 account,

for it there.

In response, the

he should

IRS removed

____________________

3.

According

to our calculations,

the balance due

on June

19, 1987, the date the IRS received the taxpayer's $13,415.00
payment, was $1,808.59.
the

payments

Clark

($14,140.72) and

We calculate this number

had made

subtracting

prior

to

that number

reflected in his account ($15,949.31).

-44

by adding

the misapplication
from the

charges

the $13,415.00 payment

from his 1985 account and

to his 1986

account,4 leaving his 1985 account

IRS's view,

a balance due of $13,415.00,

interest.

1985

After

taxes, the

some

IRS

applied it

with, in the

plus penalties and

additional correspondence

collected

$24,546.34

from

about his

Clark

by

levying upon his

bank accounts and seizing

and subsequently

selling his car.

Clark then filed a claim with the IRS for a

refund, but the claim was denied.

On

United

January

States

3,

District

1994, Clark

Court

for

brought

the

suit

District

in the

of

New

Hampshire, seeking a refund of the $24,546.34, plus interest.

Both parties

Clark

moved for

argued

that

the

summary

judgment.

IRS's

collection

In his

motion,

activities

were

unlawful because they were not done pursuant to an assessment

as

that

required by 26 U.S.C.

the

IRS

extinguished.

6502(a)(1), since the assessment

had

entered

in

The

government

September

responded

1986

that

had

been

assessments

cannot be extinguished and that its crediting of Clark's 1986

account

resulted in

leaving the

an underpayment

IRS its statutory

in

his 1985

rights to collect

account,

the unpaid

1985 tax liability on the basis of the original assessment.

____________________

4.

Because the

account
an

taxpayer

had

already

satisfied

his

1986

to avoid further penalties, the transfer resulted in

overpayment

taxpayer's

on

the

1986

account.

Pursuant

to

the

direction, the IRS applied the overpayment to his

tax liabilities for 1988 and 1989.

-55

The district

court relied

decision in United States v.

_____________

on the

Fifth Circuit's

Wilkes, 946 F.2d 1143 (5th Cir.

______

1991), to hold that a full payment extinguishes an assessment

and

that

subsequent

assessments.

assessment

refunds

do

not

revive

extinguished

The district court also found that Clark's 1985

had

been extinguished.

Although acknowledging

that Clark was getting "an undeserved windfall," the district

court

granted

Clark's

motion for

rendering

moot

the government's

judgment.

The government appeals.

summary

cross

II.
II.
___

Discussion
Discussion
__________

judgment,

motion

thus

for summary

A. Standard of Review
______________________

As

always, we review

a district court's

grant of

summary judgment de novo and, like the district court, review

__ ____

the facts in the light most favorable to the nonmoving party.

See,
___

e.g., Udo
____ ___

Summary

v.

judgment

depositions,

no genuine

is

answers to

file, together with

is

Tomes, 54
_____

F.3d 9,

appropriate

when

issue as

to any

Cir. 1995).

"the

interrogatories, and

the affidavits, if any,

moving party is entitled

pleadings,

admissions on

show that there

material fact and

that the

to a judgment as a matter

of law."

Fed. R. Civ. P. 56(c).

B. Analysis
____________

1.

12 (1st

Can Assessments be Extinguished?

-66

The government argues that the district court erred

in

holding

Under

the

that assessments

government's

extinguished, so

are

extinguished

theory,

assessments

if there is

an underpayment of

by payment.

cannot

be

the amount

recorded in

period

the assessment at

any time during

the ten-year

for collection, then the IRS may institute procedures

to collect that amount.

The government

reasons that because

Clark's 1985 account reflected an underpayment of $13,415.00,

plus

interest and

misapplied

penalties,

$13,415.00

limitations period had

implement

due.

after

payment,

and

the

IRS

because

not expired, the IRS

administrative

procedures to

removed

the

the

ten-year

was entitled to

collect

the amount

The government's argument has essentially three prongs.

First,

the

government

argues

that

assessments

cannot be extinguished because they are merely administrative

records of

According

taxpayer's tax

liability

for a

given

year.

to the government, assessments are not affected by

payment, but

remain as

permanent records

of tax

liability

regardless of whether

or not.

the taxpayer satisfies

As such, assessments are not

or mortgages, which

assessments create no

like promissory notes

create liability and are

the debt is satisfied.

that liability

cancelled when

In fact, the government contends that

liability at all, since

is created by the Internal

tax liability

Revenue Code and may be collected

-77

even

without an

assessment if

the

IRS brings

suit within

three years of the filing of a return.

Second,

Revenue Code's

rebate

government argues

distinction between rebate

refunds5

cannot be

the

supports

its

extinguished.

position

This argument

that

the Internal

refunds and

that

is

non-

assessments

based

on

the

government's contention that when the IRS erroneously refunds

an amount

ways:

U.S.C.

to a taxpayer, it

(1) by

bringing an

7405,

procedures.6

can reclaim that amount

erroneous-refund suit

or

(2)

through administrative

Under

the

government's view,

in two

under 26

collection

if assessments

can be extinguished, then the IRS would not be able to pursue

____________________

5.

Rebate

refunds are generated when the IRS recalculates a

taxpayer's
example,

tax
a

liability for

taxpayer

submits

additional deductions.

given year,

an

amended

as

when, for

return

showing

According to the government, when the

IRS issues a rebate refund, the original assessment is abated

to

the

extent

of

taxpayer's actual
Non-rebate

refund

tax liability

refunds, on

recalculation
from a

the

of the

the

amount.

refunds

that

other

reflects

year in

hand,

the

question.

stem not

liability,

the taxpayer

According to

it

for the

taxpayer's tax

determination that

assessed

so

from

but rather

paid more

the government,

than the
non-rebate

do not affect the original assessment, which remains

intact as an accurate record of the taxpayer's tax liability.

6.

The government contends that the legislative history of

7405 shows that the section was not intended to

exclusive
as

method for collecting

a Senate

states,

erroneous refunds.

explaining the

"the erroneous

assessment in
Cong.,

Report

refund may

the ordinary manner."

1st Sess.

42

(1928); see
___

United States, 931 F.2d 554,

be the IRS's

predecessor
[also]

Rather,

of

be recovered

S. Rep. No.

7405
by

960, 70th

also Brookhurst, Inc. v.

____ _________________

557 (9th Cir.) (IRS not limited

_____________
to

7405

because imperfect

within three

years from

assessment

date tax

may be

return was

reassessed

filed), cert.
_____

denied, 502 U.S. 907 (1991).

______

-88

administrative

refunds.

was

collection procedures

to recover

non-rebate

The government explains that if an erroneous refund

a rebate

refund,

then

before

the IRS

can

implement

administrative collection

procedures, it must

supplemental assessment,

abated

since the

to the extent of the

a supplemental

because

under

erroneous

26 U.S.C.

that if

6211.

tax

liability and

administrative

government

to

enter a

could

not,

so

under

refunds

The

the erroneous refund

the original assessment

IRS has the authority

assessment

rebate

original assessment

26

U.S.C.

constitute

to

2604

deficiencies

government contends, however,

was a non-rebate

still reflects the

provides

collection

was

refund and does not reflect the

taxpayer's true tax liability; the

enter

first enter a

basis

procedures

refund, then

taxpayer's total

for

implementing

immediately.

The

argues that not only is there no need for the IRS

supplemental assessment,

since

non-rebate

refunds

but

do

that it

not

actually

constitute

deficiencies under

still

the

6211 and since the

exists and there

same tax

if

assessments could be extinguished, then the IRS would not

be

able

to

pursue

The

valid assessments for

reasons that

to

liability.

cannot be two

original assessment

administrative

government

collection

recover erroneous non-rebate refunds.

thinks that

administrative collection

-99

procedures

Because the government

procedures should

be

available for recovering non-rebate refunds, it contends that

assessments cannot be extinguished.

Third,

support

its view

See Davenport v.
___ _________

the

government

that

cites

three

assessments cannot

gives back to the taxpayer

that

be extinguished.

United States, 136 B.R. 125,

_____________

1991) (holding that "[a]

cases

127 (W.D. Ky.

non-rebate erroneous refund

simply

a part of the taxpayer's assessed

tax and the assessed balance due may be collected by ordinary

collection procedures");

Sanfellipo v.
__________

United States,
_____________

90-2

U.S.

Tax Cas.

(CCH)

(taxpayer's payment

50,567, at

85,943 (N.D.

of assessments "did

Cal. 1990)

not extinguish

the

liabilities or otherwise foreclose the IRS from attempting to

collect the erroneous refunds"); Groetzinger v. Commissioner,

___________
____________

69 T.C. 309, 315-16 (1977) (viewing all transactions together

to

determine

that

erroneous

refund

resulted

in

an

underpayment of tax).

We decline to adopt the government's

assessments cannot be

Fifth

and

addressed

taxpayer

Seventh

this

extinguished.

Circuits,

issue

thus

tenders payment on

extinguishes the

the

far, in

O'Bryant v. United States, 49

Instead, we

only

holding

the extent

follow the

circuits

a tax assessment,

assessment to

position that

that

to

have

when

that payment

of the

payment.

F.3d 340, 346 (7th Cir. 1995);

________

_____________

Wilkes, 946 F.2d at 1152; see also Karp v. United States, 868
______
___ ____ ____
_____________

F. Supp. 235,

237 (N.D. Ill. 1994); United States v. Brown,

______________
_____

-1010

782 F.

Supp.

321, 324-25

(N.D.

Tex. 1990);

Rodriguez
_________

v.

United States, 629 F. Supp. 333, 344 (N.D. Ill. 1986); United
_____________
______

States v. Young, 79-2 U.S.

______
_____

(D. Del.

1979); LaFollette
__________

192, 195 (S.D.

refund

Tax Cas. (CCH)

does

O'Bryant, 49
________

Cal. 1959).

not

revive an

v. United States, 176

______________

We also agree

extinguished

F.3d at 346; Wilkes, 946 F.2d

______

Seventh Circuit

9609, at

assessment.

at 1152.

See
___

As the

explained in O'Bryant, 49 F.3d at 346, there

________

difference between money taxpayers

as

of

result

F. Supp.

that an erroneous

is a fundamental

the

88,221

an

erroneous

refund

and

originally owed the IRS (their tax liability):

possess

money

they

taxpayers who

receive erroneous refunds owe the IRS "because they have been

unjustly enriched by it, not because they have not paid their

taxes."

Thus,

[w]hen a
in

taxpayer mails the IRS

the full

amount of his

liability,

and the

IRS

taxpayer's

liability

is

a check

assessed tax

cashes it,

the

satisfied, and

unless a new assessment is made later on,

any

erroneous,

unsolicited

refund that

the IRS happens to send the taxpayer must

be handled

on its

own terms,

not under

the rubric of the assessed liability.

Id. at 347.
___

As our discussion indicates,

the

government's

assertion

bookkeeping devices that

Like

that

we are unpersuaded by

assessments

are

cannot be extinguished by

the Seventh Circuit, we

merely

payment.

think this argument misses the

point.

-11-

11

Regardless of whether the assessment is a

record of the taxpayer's tax liability or
is

the liability

has already been

itself, the

satisfied and cannot be

sued on to collect a refund

not

from

that

reevaluation

liability

that results

liability

thereof but

from a

or

any
simple

mistake.

Id. at 346.
___

We

are

also

unpersuaded

by

the

government's

argument that

refunds

our

the difference between

shows that assessments

view,

once

extinguished.

refund,

If

it may

administrative

available.7

an

non-rebate

cannot be extinguished.

assessment

the IRS

rebate and

has

been

thereafter

issues an

recover that

refund under

collection

procedures

As the Seventh Circuit

paid,

it

is

erroneous

7405

if

In

or under

those

are

observed in O'Bryant, 49
________

F.3d at 347,

____________________

7.

The cases relied on by the government for the proposition

that after issuing an

the

money

either

administrative

erroneous refund, the IRS may

under

collection

7405

or

procedures

refunds, and thus do not hold either that

by

all

collect

implementing
involve

rebate

assessments cannot

be extinguished or

that non-rebate refunds may

on the basis of the original assessment.

F.2d

at 555;

1123,

Ideal Realty Co. v.

_________________

1124-25

Commissioner,
____________

(4th

Cir.

526 F.2d

1977)

1, 2 (9th

be collected

See Brookhurst, 931

___ __________

United States,
_____________
(per

curiam);

Cir. 1975);

561 F.2d
Warner
______

v.

Black Prince
____________

Distillery, Inc. v. United States, 586 F. Supp. 1169, 1170-71

________________
_____________
(D.N.J.

1984) (erroneous refund given on basis of taxpayer's

refund

claim

deductions).
314, 315-16
refund,
court

that

incorrectly

operating-loss

In United States v. C & R Invs., Inc., 404 F.2d

_____________
_________________
(10th Cir.

1968), which

the Tenth Circuit remanded

to

reported

determine

whether

involved a

the case to the district

deficiency

available.

-1212

non-rebate

procedures

were

it is an unjustified leap of logic to say

that because nonrebate
recovered by
collectible

reassessment, they
by

assessment.
the Code
result

refunds cannot be

resort to

There is

that Congress
and

we

refuse

the

must be
original

no indication

in

intended such
to

reach

a
it,

especially when doing so would require us

to mischaracterize an erroneous refund as
tax liability.

Finally,

because

their

holdings

are

logically

excluded by ours, we disagree with Davenport, Sanfellipo, and

_________ __________

Groetzinger.
___________

2.

Was Clark's 1985 Assessment Extinguished?

Although

not invited to do

so by either party, we

nonetheless find it necessary to consider whether Clark fully

satisfied

the assessment

for his

1985 tax liability.

The

district court held that the 1985 assessment was extinguished

no

later

than July

20,

1987, the

misapplied Clark's $13,415.00

That

misapplication, however,

satisfied

Clark's $1,808.59

date

on which

payment to his

had

two

1985 account.8

results:

outstanding tax

the IRS

(1)

it

liability, and

____________________

8.

Given the thrust of the government's brief on appeal, and

because

the

IRS

removed the

$13,415.00

taxpayer's 1985 account and moved

assume for

the

purposes of

this

payment

it to his 1986 account, we

case that

direct how the IRS must apply their payments.

629 F. Supp. at
tax

from the

taxpayers

may

Cf. Rodriguez,
___ _________

344 (checks tendered to satisfy

outstanding

liability for three years extinguished liability for all

three years,

even though the

IRS applied too much

money to

one account and too little

refund);

to another and therefore issued a

Young, 79-2 U.S. Tax Cas. (CCH) at

_____

(payment made towards

assessment, even though

individual tax liability

the IRS credited the

88,220-88,221
extinguished
payment to the

taxpayer's sole proprietorship tax account and refunded it).

-1313

(2)

it generated a large overpayment, which the IRS refunded

to Clark.

This situation is similar to that considered by the

Fifth Circuit in Wilkes, which

______

an

estate.

Because the estate

involved income taxes paid by

had miscalculated the amount

of tax due, it paid $218.11 less than the

The

IRS,

however,

taxpayer's payment

results:

and (2)

(1)

erroneously

to the

refunded

to

realized

its mistake

tax

the

an

estate's account,

unrelated

which had

$218.11 balance,

a large overpayment, which

estate.

and

Several

sued

years

the

two

later,

estate to

the IRS

the

IRS

reduce

the

to judgment, hoping thereby to collect the entire

liability

assessment.9

entitled

credited

it satisfied the outstanding

it generated in

assessment

actual amount due.

again

The Fifth

to recover only

on

the

basis

of

Circuit

held

that

$218.11, the

the

the

only portion

original

IRS

was

of the

assessment

payment.

remaining

Wilkes,
______

that

had

not

946 F.2d at 1152.

been

extinguished

Accordingly, the Fifth

Circuit entered

judgment against

the estate,

$218.11,

portion

assessment

that

unextinguished.

of

the

by

but only

that

for

remained

Id.
___

____________________

9.

There

IRS

had

was some question

ever actually

in that case

entered

an assessment.

Circuit, however, assumed arguendo that

________
F.2d at 1148.

-1414

about whether the

it had.

The Fifth
Wilkes, 946
______

We

follow

the

assessments may only

the

taxpayer,

misapplication,

and

Fifth

Circuit

be extinguished by payment

not

Clark

by an

had

IRS

paid all

amount due under his 1985 assessment.

the misapplication,

except

Clark had

for the $1,808.59

been Clark's position

and

error.

but

hold

that

tendered by
________

Prior

to the

$1,808.59

of the

Accordingly,

extinguished the

prior to

assessment,

still outstanding.

It has always

that he never tendered

the $13,415.00

towards the 1985

to

be applied

tendered

the

assessment; rather, that amount

to his

$1,808.59

1986

due

liability.

under

the

was always

Thus, Clark

1985

never

assessment.

Because he never tendered the $1,808.59, Clark still remained

liable for

it.

The IRS was

therefore entitled

to collect

that amount under the original assessment.

III.
III.
____

Conclusion
Conclusion
__________

For the foregoing

summary

judgment

to Clark,

reasons, we affirm the

the amount

of that

judgment by $1,808.59,

plus interest due, which the

IRS was

entitled to

This case is

collect.

accordance with this opinion.

but reduce

grant of

remanded for

action in

-1515