Appeal from a judgment of the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, granting summary judgment for the plaintiff in its suit for a refund of overpaid taxes. Reversed and remanded as to employees in the plaintiff's employ on the date on which the plaintiff ascertained its error with respect to the overpayment.
Mansfield, Circuit Judge, Smith, Chief Judge,*fn* and Palmieri, District Judge.*fn**
This appeal is from a judgment of the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, granting summary judgment for the plaintiff, Atlantic Department Stores, Inc. ("Atlantic"), in its suit against the United States to recover an overpayment of Federal Insurance Contribution Act ("FICA") taxes made by Atlantic for the calendar year 1974. The Government has appealed from the District Court's determination of one of the issues presented to it. With respect to that issue, we reverse.
The sole issue before us is whether Atlantic has a prior obligation to adjust certain employee claims before it can assert its right to a refund.
The facts are not in dispute. Atlantic is an employer which is obligated under the FICA statutory scheme to pay an excise tax on the wages it pays its employees and to withhold from those wages and pay to the Government an excise tax imposed on its employees. 26 U.S.C. §§ 3101, 3102, and 3111. For the purpose of calculating the amount of these excise taxes, the term "wages" does not include "the amount of any payment . . . made to, or on behalf of, an employee . . . on account of . . . sickness. . . ." 26 U.S.C. § 3121(a)(2)(B). During the calendar year 1974 Atlantic erroneously treated as wages subject to the FICA tax sick leave payments which it made to 2,409 employees. As a result, Atlantic overpaid the employer FICA tax by $11,636.10 and improperly withheld and overpaid the employee FICA tax by the same amount. After the payments were made, Atlantic discovered its error, and on June 16, 1975 it made a claim for refund of its overpayment of the employer FICA tax. This claim was rejected by the Internal Revenue Service ("IRS")*fn1 whereupon this suit was instituted.
After joinder of issue, the Government moved for judgment on the pleadings, or in the alternative, for judgment dismissing the complaint for failure to state a claim upon which relief could be granted. Atlantic cross moved for summary judgment. The parties entered into a stipulation of facts which provided, inter alia, that 2,409 employees were included in the overpayment for 1974; that the average overpayment per employee was $4.83; that 11% or approximately 265 of the employees involved were still employed by Atlantic at the time of the filing of the claim for refund; that the estimated cost to Atlantic of computing the amount of the overcollection from each employee and effecting repayment by mail would be $2.25 for each employee whose location was known and who was cooperative; and that for employees whose locations were not known or who were uncooperative the total cost of effecting repayment "may exceed the amount of the claim."
In the district court, the Government contended that Atlantic was obliged first to repay or adjust its overpayment of employee FICA tax in order to obtain a refund or credit for its own overpayment of the employer FICA tax. The district court held, however, that no such obligation was imposed under the Internal Revenue Code ("IRC") or the regulations promulgated thereunder or should be implied as a matter of equity. On this appeal, the Government argues that as a matter of statutory construction the district court erred in not imposing this obligation on Atlantic with respect to the claims of employees who were still in its employ at the time the overpayments were ascertained.
Neither the IRC nor the regulations expressly provide that an employer who has overpaid both the employer and the employee FICA taxes must claim a refund or credit on behalf of its employees in order to obtain a refund or credit of its own overpayment. The Government contends, however, that such an obligation on the part of the employer does arise out of the statutory provisions concerning adjustments of overpayments.
Section 6413(a)(1) of the IRC provides, in pertinent part, that
If more than the correct amount of tax imposed by section 3101, 3111 . . . is paid with respect to any payment or remuneration, proper adjustments, with respect to both the tax and the amount to be deducted, shall be made, without interest, in such manner and at such times as the Secretary or his delegate may by regulations prescribe.
Section 6413(b) provides, in pertinent part, that
If more than the correct amount of tax imposed by section 3101, 3111 . . . is paid or deducted with respect to any payment or remuneration and the overpayment cannot be adjusted under subsection (a) of this section, the amount of the overpayment shall be refunded in such manner and at such times (subject to the statute of limitations properly applicable thereto) as the Secretary or his delegate may by regulations prescribe.
Regulation § 31.6402(a)-2(a)(1) provides that any person who pays to the district director more than the correct amount of employer or employee tax under sections 3101 or 3111 may file a claim for refund. Regulation § 31.6402(a)-2(a)(2) provides that every claim by an employer for a refund or credit for an overpayment of employee tax must include a statement that the employer has repaid the tax to the employee or secured the written consent of the employee to the allowance of the refund or credit. Regulation § 31.6402(a)-2(b) provides that an employee may file a claim for an overpayment of employee tax provided that he has not been reimbursed by the employer ...