they paid a price that included the cost of the tax would invite further hemorrhaging of gasoline tax revenues. Gasoline purchasers would have little incentive to ensure that the taxes had been paid by an upstream supplier. To require those purchasers to provide proof that the tax "has been paid" makes it less likely they will participate in schemes of evasion.
Janus is also in a better position than the Service to obtain documentation of payment of the tax. A buyer of gasoline may readily demand as a condition of purchase that its seller provide that proof. Because payments to the Service are often made not by the direct supplier of the party seeking the refund, but by upstream suppliers, the Service may have difficulty identifying the payor of the tax.
In addition, even if the Service can verify that a particular supplier has paid the tax in a particular quarter, it may not be able to determine whether those payments were attributable to the gasoline for which the refund is sought. Indeed, the Code's confidentiality provisions may prevent the Service from disclosing any information it does obtain. See § 6103.
Janus' claim will be dismissed for lack of jurisdiction to the extent that it seeks refunds of taxes whose payment it has not established.
The Service says it will allow refunds to the extent it has received payments of tax for gasoline sold by Janus to the City. But the Service says that some of the refunds it granted in the first two quarters of 1989 were erroneous because there is no proof that taxes were paid on the sales of all the gasoline on which those refunds were based. The Service wishes to reduce the refund payments due in this action by the amount that its previous refunds were excessive. If sums already refunded remain after this reduction, the Service seeks to offset them against the deficiencies assessed when the Service disallowed the credits by Janus in subsequent quarters.
The Service is authorized, within the applicable limitations period, to credit the amount of any overpayment against "any liability" for federal taxes of the person who made the overpayment. See § 6402(a). After offsetting the overpayment against any outstanding tax liability, the Service "shall" refund any remaining balance to that person. See id.
Any refunds to Janus for sales of gasoline on which the excise taxes had not been paid were erroneous. Janus is liable for the amount of these refunds as well as for the deficiency that resulted when the Service disallowed the credits that it had claimed in 1990 and 1991. But there is a question whether the applicable period of limitations has expired.
Section 6532(b) provides that a suit under § 7405 for recovery of an erroneous refund must be brought within two years after the making of the refund, or five years if any part of the refund was induced by fraud or misrepresentation. The erroneous refunds were issued in 1989. The Service has not yet brought suit. Even if the refund had been induced by fraud or misrepresentation which the government has not alleged the limitations period has expired.
But suit under § 7405 is not the only remedy by which the Service may recover an erroneous refund. See Brookhurst, Inc. v. United States, 931 F.2d 554, 556-67 (9th Cir.), cert. denied., 502 U.S. 907, 112 S. Ct. 299, 116 L. Ed. 2d 242 (1991); Tucker v. United States, No. 87 Civ. 3349, 1989 U.S. Dist. LEXIS 5671, *8, 1989 WL 58012, at *3-4 (S.D.N.Y May 23, 1989). It may also use the Code's assessment provisions, which have a different limitations period. Section 6501(a) provides that the amount of tax imposed shall be assessed within three years after the filing of the return. If a tax has been assessed within this period, the Service may collect it by levy or court proceeding within ten years after the assessment. See § 6502(a).
The Service's papers show that it has assessed deficiencies against Janus for its disallowed credits in 1990 and 1991. It may set off Janus' refunds in this action against these deficiencies. The record does not show that the Service has made assessments for the refunds erroneously issued in 1989. If the Service did so in a timely fashion, it may set off any refunds due to Janus against this liability.
Plaintiff's motion for summary judgment is denied. The Service's cross-motion for partial summary judgment is granted in part and denied in part as detailed above.
The government may have thirty days from entry of this order to submit documentation of such assessments against Janus as it made concerning the amounts it claims were erroneously refunded in 1989, and to submit computations showing the amounts of refunds allowed and disallowed in each quarter. Janus may file objections in the following thirty days.
Dated: Brooklyn, New York
February 20, 1996
Eugene H. Nickerson, U.S.D.J.
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