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WHITNEY v. UNITED STATES

December 7, 1995

WILLIAM G. WHITNEY and MARGARET D. WHITNEY, Plaintiffs,
v.
UNITED STATES OF AMERICA, Defendant.



The opinion of the court was delivered by: LARIMER

DECISION AND ORDER

 This is an action for recovery of federal income tax and interest allegedly erroneously assessed and collected. Plaintiffs ("the Whitneys") seek the return of monies for tax years 1986 (the first cause of action), 1987 (the second cause of action), and 1988 (the third cause of action). Presently before me is the Government's motion to dismiss the first cause of action for lack of subject matter jurisdiction (pursuant to Fed.R.Civ.P. 12(b)(1)) or, in the alternative, for partial summary judgment. For the reasons set forth below, the Government's motion to dismiss will be granted and the first cause of action dismissed in its entirety.

 BACKGROUND

 William Whitney was the sole shareholder of an S Corporation, started in 1975, which provided investment services. In 1986 he bought a house in Florida from which he operated part of his business (the other part remained in Rochester). Business reversals and the stock market crash in 1987 badly impacted his finances. In 1988, he tried to sell the Florida house. In 1990 he abandoned it, and in 1992 he lost the property in mortgage foreclosure proceedings.

 The Whitney's 1986 tax return was timely filed and their 1986 taxes paid in full on August 15, 1987. On or about June 14, 1993, the Whitneys filed an amended return for tax year 1986 (a Form 1040X), with the Internal Revenue Service District Office in Buffalo, New York. By this amended return the Whitneys sought a refund of federal income tax paid for 1986 in the amount of $ 22,200, together with allowable interest. This refund request was based on two things: the deduction of operating expenses incurred in connection with their business in Florida, as well as the carryback of net operating losses from tax year 1989.

 By letter dated September 8, 1993, the Buffalo Appeals Office of the Internal Revenue Service ("IRS") sent a letter notice to the Whitneys stating that there was no basis to allow any part of their claim for a refund. The letter stated in part: "you may pursue this matter further by filing suit in either the U.S. District Court or the U.S. Claims Court." This lawsuit was filed in September 1994 and the Whitney's first cause of action is for the 1986 refund that was denied by the IRS. *fn1"

 THE GOVERNMENT'S MOTION

 In its motion, the Governments asserts that the Whitney's first claim must be dismissed in its entirety as untimely. There are two aspects to the Government's motion, the first relating to the deduction for operating expenses and the second relating to the carryback of net operating losses from tax year 1989.

 Concerning the deduction for operating expenses, the Government contends that the Whitney's claim is untimely pursuant to 26 U.S.C. § 6511(a), the controlling statute of limitations. In relevant part this statute requires that an administrative claim for a tax refund must be filed within three years from the time the return for the tax year in question was filed. The claim for a refund is itself a necessary prerequisite to bringing any lawsuit. See 26 U.S.C. § 7422.

 In this case, the return for 1986 was filed on August 15, 1987. Therefore, asserts the Government, the claim for a refund must have been filed not later than three years later, August 15, 1990. In fact, the claim for refund (in this case the amended return) was not made until June 14, 1993, almost three years after the expiration of the limitations period. *fn2"

 The Whitneys do not dispute this limitations requirement but claim that the IRS' "denial letter" dated September 8, 1993 (from the Buffalo Appeals Office) constituted a "waiver" of the limitations period. Because the letter expressly stated "you may pursue this matter further by filing suit..." the Whitneys assert that the IRS waived its untimeliness defense. *fn3"

 I find this argument unpersuasive. First of all, I do not read the IRS letter as any type of waiver of the requisite limitation. The letter (which appears to be a form letter) merely advises the taxpayer that the administrative claim has been denied and the parties may pursue whatever remedies they have in the United States District Court or Claims Court. There is no mention whatsoever of jurisdictional issues, let alone an express waiver of any related defenses.

 Furthermore, I do not believe that the limitations period could be waived. See Rosenbluth Trading v. United States, 736 F.2d 43, 47 (2d Cir. 1984) (the filing of a timely refund claim is a jurisdictional requirement which cannot be waived); see also Olson v. United States, 80-1 U.S. Tax Cas. (CCH) P9324, 1979 WL 1544 (N.D. Ind. 1979) ("The Court doubts whether an employee of the Internal Revenue Service would have the power to waive the requirements of Section 6511(a) where the claim for refund is already barred at the time the alleged waiver occurs"). For these reasons I find that the Whitney's claim for a refund based upon 1986 operating expenses is untimely and must be dismissed.

 As for the second part of the Government's motion, that addressing the Whitney's claim for a refund based upon net operating loss carryback from the 1989 tax year, the controlling statute of limitations is 26 U.S.C. 65l1(d)(2)(A). This provision provides a "special period of limitation" for ...


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