Baron & Co., 967 F. Supp. 785, 790 (S.D.N.Y. 1997).
Notwithstanding that the IRS's reassertion of this argument is
procedurally barred, the Court explains below why the argument
is substantively unpersuasive.
The IRS reasons that because Plaintiffs were by statute
constructive participants in the Tax Court proceeding initiated
by Winer for readjustment of partnership items, (see Reply Br.
Supp. U.S.' Mot. Recons. at 1 (citing 26 U.S.C. § 6226(c))),
they are bound by the decisions of the Tax Court, even if those
decisions are in error, and even if those decisions are
"voidable" for lack of jurisdiction. (Mem. Law Supp. U.S.' Mot.
Recons. at 2.) According to the IRS, in every decision of the
Tax Court inheres the Tax Court's determination that it has
jurisdiction to issue such decision. (Id.) Therefore, the IRS
maintains, the Tax Court's tacit determination that it had
jurisdiction to issue the June 1994 Decision, notwithstanding
that the February 1994 Decision had already become final, cannot
be collaterally attacked in this Court. (Id. at 2-4.) Instead,
Plaintiffs' "exclusive manner to challenge . . . whether the Tax
Court had the ability to vacate the undated [February 1994]
Decision and to enter [the June 1994] Decision . . . was to
appeal" the latter. (Id. at 5.)
The Court rejects the IRS's argument. The IRS assumes
improvidently that Plaintiffs' action for recovery of taxes is
necessarily a collateral attack on the jurisdiction of the Tax
Court, rather than an attack on the IRS's interpretation of the
legal effect of the June 1994 Decision as restarting the clock
on the time period within which the IRS was required to serve
its notice of deficiency upon Plaintiffs. Cf. Banque Nationale
De Paris v. 1567 Broadway Ownership Assocs., 248 A.D.2d 154,
155, 669 N.Y.S.2d 568, 569 (1st Dep't 1998) (distinguishing a
collateral attack upon a judgment, on the one hand, from a legal
challenge to an erroneous interpretation of that judgment, on
the other). Although in Carroll II this Court concluded that
the "Tax Court had no jurisdiction to vacate [the February 1994
Decision] by later order," — a conclusion the Court finds no
reason to upset — even if it were assumed to the contrary that
the Tax Court did in fact have jurisdiction to issue the June
1994 Decision vacating the February 1994 Decision, that does not
mean that June 1994 Decision, or the vacatur contained therein,
had the legal effect of depriving the February 1994 Decision of
the finality it had attained on May 24, 1994, as the IRS seems
to believe it did.
Rather, like those cases in which Federal Rule of Civil
Procedure 60(a) is used to correct clerical mistakes in
judgments without restarting or tolling the time in which to
take an appeal,*fn4 the June 1994 Decision "did not make any
meaningful change to the prior order and therefore did not start
the statute of limitations clock anew." Hirshfield, 2001 WL
579783, at *10. So concluded Judge Sweet upon identical facts in
an action for recovery of taxes paid by another Stevens partner.
The Court agrees with Judge Sweet's analysis on this
point.*fn5 Even if
the Tax Court had unquestioned jurisdiction to vacate and
reenter the February 1994 Decision as postdated, that
jurisdictionally sound vacatur and reentry would have had no
legal effect on the time period within which the IRS was
required to serve its notice of deficiency upon Plaintiffs. The
important point here is that the Tax Court's vacatur and reentry
corrected a mere clerical error without purporting to restart
the limitations clock, and without changing the substantive
rights of the parties in such a way as would restart the running
of the limitations clock as a matter of law. As explained in
Robert Louis Stevenson Apartments, Inc. v. Commissioner,
337 F.2d 681 (8th Cir. 1964) (cited in 1967 Advisory Committee Note
to Federal Rule of Civil Procedure 13(a)), it is in those
circumstances when the Tax Court's correction or vacatur would
necessarily address "`questions of substance'" or go "to the
core of the Tax Court's conclusion" that the time in which to
appeal would run from the date of such correction or vacatur.
See id. at 683-85. On the other hand, where, as here, the
correction or vacatur addresses a "`mere matter of form,'" it
does not deprive the Tax Court's decision of finality. See id.
at 684; Seiberling Rubber Co. v. United States, 156 Ct.Cl.
219, 297 F.2d 842, 844-46 (1962) (four judge panel) (where Tax
Court, on its own motion, modified its decision within the
thirty-day window before such decision was to become final, but
the modification was "purely a formal or mechanical one," the
Tax Court's correction could not extend or restart the running
of the thirty-day period). Because Plaintiffs' entitlement to
the recovery of penalties they paid to the IRS need not hinge
upon whether the Tax Court lacked jurisdiction to enter the June
1994 Decision, but upon whether that decision, assuming its
validity, had any legal effect on the time in which the IRS was
required to issue its notice of deficiency, the IRS's res
judicata argument is inapplicable, and need not be considered
3. Jurisdictional Limitation on Plaintiffs' Amount of
Third, the IRS raises for the first time in this second motion
for reconsideration*fn8 its argument that § 6511(b)(2)(B)
limits the amount that Plaintiffs may recover to $20,000. (Mem.
Law Supp. U.S.' Mot. Recons. at 5-7.) Because § 6511(b)(2) is
jurisdictional in nature, this argument may be raised for the
first time on a motion for reconsideration. Zeier v. United
States IRS, 80 F.3d 1360, 1363-64 (9th Cir. 1996). Section
6511(b)(2)(B), which applies to tax penalties as well as taxes
alone, e.g., Pham v. United States, 42 Ct.Cl. 886, 888 (1999),
provides that the amount a taxpayer may recover in his claim for
refund "shall not exceed the portion of the tax paid during the
2 years immediately preceding the filing of the claim."
26 U.S.C. § 6511(b)(2)(B). Although Plaintiffs paid a total of
$81,391.95 in penalty additions and interest in several payments
between May 29, 1996, and March 7, 1997, (U.S.' Local R. 56.1
Stmt. Facts ¶ o; Pls.' Resp. U.S.' Local R. 56.1 Stmt. Facts ¶
O), the IRS points out that only one installment payment of
$20,000, made on June 3, 1996, had been paid as of the date
Plaintiffs' Form 843 dated May 29, 1996, was received by the IRS
on June 4, 1996.*fn9 (Mem. Law Supp. U.S.' Mot. Recons. at
5.) Because only $20,000 had been paid in respect of penalty
additions during the two years immediately preceding June 4,
1996, it is the IRS's contention that § 6511(b)(2)(B)
jurisdictionally limits any recovery to that amount.
This argument is closely related to another jurisdictional
argument raised by the IRS in its own motion to dismiss, or in
the alternative, for summary judgment. The IRS urges that
Plaintiffs' recovery of negligence and valuation overstatement
penalties is barred under the "prior claim rule" of § 7422(a),
because under Rock Island, Arkansas & Louisiana Railroad Co. v.
United States, 254 U.S. 141, 41 S.Ct. 55, 65 L.Ed. 188 (1920),
and its progeny, "a claim filed prior to payment is nothing more
than a request for abatement, and therefore cannot constitute a
duly filed claim for refund" within the meaning of § 7422(a).
(Mem. Law Supp. U.S.' Mot. Dismiss Alt. Summ. J. at 36; Reply
Br. Supp. U.S.' Mot. Dismiss Alt. Summ. J. at 7.) When the prior
claim rule of § 7422(a) is read together with the applicable
limitations bar of § 6511(a), requiring an administrative claim
for refund to be brought within two years from the time the tax
was paid, "the import of these sections is clear: unless a claim
for refund of a tax has been filed within the time limits
imposed by § 6511(a), a suit for refund . . . may not be
maintained in any court." United States v. Dalm, 494 U.S. 596,
602, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990) (quoted in Mem.
Law Supp. U.S.' Mot. Dismiss Alt. Summ. J. at 36).
Because the IRS takes the position that the effect of §
6511(b)(2)(B) is to limit the amount of recovery of "what would
otherwise be a valid claim for refund under § 6511(a)," (Mem.
Law Supp. U.S.' Mot. Dismiss Alt. Summ. J. at 37), the Court
finds it helpful to address whether the application of §§
7422(a) and 6511(a) to the facts of this case would permit any
recovery before determining whether § 6511(b)(2)(B) limits the
jurisdictional amount of such recovery.
Although the IRS originally maintained that Plaintiffs had not
made "any payment" of penalties prior to filing its original
Form 843, (Reply Br. Supp. U.S.' Mot. Dismiss Alt. Summ. J. at 6
(emphasis added)), such that that original claim was "only a
request for abatement," (Def.'s Sur-Reply Pls.' Cross-Mot. at
4), and could not, as a matter of law, have constituted a prior
claim for refund, see Rock Island, Ark. & La. R.R., 254 U.S.
at 142, 41 S.Ct. 55, the IRS now acknowledges in its motion for
reconsideration of Carroll II that $20,000 had been paid in
advance of Plaintiffs' claim for refund. An initial question,
then, is whether, or to what extent, this partial payment of
penalties satisfies the prior claim rule. Put differently, may
Plaintiffs now recover the entire $81,391.95 in penalty
additions and interest they paid by virtue of having made a
payment of part of that amount prior to filing their claim for
refund, or does § 7422(a)'s prior claim rule limit their
recovery to the $20,000 for which they had actually made a prior
claim within the time constraints of § 6511(a), or is recovery
barred altogether on the grounds that a taxpayer's prior claim
for refund may only be considered "duly filed" within the
meaning of § 7422(a) after the entire tax has been paid?
Plaintiffs contend, relying on United States v. Fidelity &
Deposit Co., 178 F.2d 753 (4th Cir. 1949) (per curiam), that
the Court's jurisdiction over the full amount they paid in
respect of the penalty additions and interest is satisfied
notwithstanding Plaintiffs' failure to make full payment prior
to filing their original claim for refund with the IRS. (Pls.'
Mem. Law Opp'n Def.'s Mot. Dismiss Alt. Summ. J. at 36.) In that
case, the Fourth Circuit Court of Appeals, in denying a petition
for rehearing, held that the United States District Court for
the District of Maryland properly had jurisdiction over the
As to the jurisdiction of the District Court . . .,
it appeared that, while the claim for refund was
filed before the fourth installment of the tax was
paid, the claim was denied after the payment of the
installment and that suit was not filed until almost
two and one-half years after the payment. To hold
under such circumstances that taxpayer should be
thrown out of court and told to file a new claim and
then bring suit on it, when the government is denying
any liability at all, would be to return to the reign
of senseless technicality from which the courts have
happily freed themselves.
Fidelity & Deposit, 178 F.2d at 754.
The IRS, on the other hand, relies on cases such as Lefrak v.
United States, No. 94 CIV. 7668, 1996 WL 420308 (S.D.N.Y. July
26, 1996), that engraft the "full payment rule" of Flora v.
United States, 362 U.S. 145, 177, 80 S.Ct. 630, 4 L.Ed.2d 623
(1960) (interpreting the broad jurisdictional grant of
28 U.S.C. § 1346(a)(1) to require "full payment of the assessment before
an income tax refund suit can be
maintained in a Federal District Court"),*fn10 into the
"prior claim rule" of § 7422(a):
It is clear . . . that a prospective plaintiff must
satisfy the full payment rule . . . through full
payment of the tax assessment at issue . . . prior to
filing a claim with the IRS in order for that claim
to constitute a duly filed claim for refund or credit
as required by the prior-claim rule.
Lefrak, 1996 WL 420308 at *5; see also Nelson v. United
States, 727 F. Supp. 1357, 1358 (Nev. 1989) (holding that claim
for refund could not have been "duly filed" within the meaning
of § 7422(a) "[u]ntil the entire tax was paid," such that the
court lacked jurisdiction even if partial payment were assumed
to have preceded claim for refund (emphasis added)); Douglas v.
United States, 727 F. Supp. 239, 240 (W.D.N.C. 1989) ("[C]laims
for refund submitted before full payment of assessment are not
`duly filed' under the provisions of section 7422(a). . . ."
(emphasis added)). But see King v. United States, 949 F. Supp. 787,
789-90 (E.D.Wash. 1996) (holding that § 7422(a) only
requires full payment prior to bringing suit, and rejecting
IRS's argument that full payment must be made before filing a
claim for refund with the IRS), aff'd on other grounds,