Free Reply to Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-01189-CFL

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No. 05-1189 T (Judge Charles F. Lettow)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

THOMAS H. McGANN and EVELYN G. McGANN, Plaintiffs, v. THE UNITED STATES, Defendant.

REPLY BRIEF

EILEEN J. O'CONNOR Assistant Attorney General DAVID GUSTAFSON STEVEN I. FRAHM BART D. JEFFRESS Attorneys Justice Department (Tax) Court of Federal Claims Section P.O. Box 26, Ben Franklin Station Washington, D.C. 20044 (202)307-6496 (202)514-9440 (facsimile)

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Page TABLE OF CONTENTS Defendant's reply brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. The six-month period of limitation set forth in § 6230(c)(2)(A), not the two-year period of limitation set forth in § 6511(a), applies to plaintiffs' refund claim for tax motivated interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. B. Section 6230(d)(6) prevents application of the two-year period of § 6511(a) . . . 4 As valid Treasury Regulations and binding Federal Circuit precedent provide, tax motivated interest is a computational adjustment, and thus the six-month period of limitation in § 6230(c)(2)(A) applies to plaintiffs' challenge to the assessment of tax motivated interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

II.

IRS's mailing/s to plaintiffs were sufficient to commence the six-month period of § 6230(c)(2)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Plaintiffs' other contentions lack merit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Even if the Court were to agree with the Fifth Circuit's decision in Copeland, and disagree with the Tenth Circuit's and Ninth Circuit's decisions in Hildebrand and Hill, plaintiffs can not recover tax motivated interest in this case . . . . . . . . . . . . . . . . . . . . . . 24 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

III. IV.

V.

APPENDIX A: Declaration of Bart D. Jeffress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii-iii Exhibit 1 Description "Case Copy" Letter of IRS with enclosures, dated February 26, 2003, addressed to Thomas H. & Evelyn McGann . . . . . . . . . . . . . . . . . A-1-A-6 Form 4549A, dated February 20, 2003, with documents attached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7-A-12 490 Activity Summary with documents attached . . . . . . . . . . . A-13-A-16 -i-

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Letter dated April 14, 2003 from Gordon, Fournaris & Mammarella, P.A. to IRS re Thomas H. & Evelyn G. McGann, with enclosures . . . . A-17-A-18 (enclosures: A-19-A-30 and A-33-A-37) Form 843, dated April 11, 2003, enclosed with letter referred to in Exhibit 4 (pages A-26-A-28 are documents that plaintiffs appear to have attached to their Form 843 and may have come from the IRS; pages A-29-A-30 are documents that plaintiffs attached to their Form 843 and may have come from the IRS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19-A-30 Letter from IRS to Thomas H. & Evelyn G. McGann, dated December 22, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-31-A-32 Form 1040X, dated April 11, 2003, enclosed with letter referred to in Exhibit 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33-A-37

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Page TABLE OF AUTHORITIES Statutes: Tax Reform Act of 1986, Pub. L. No. 99-514, § 1875(d)(2)(A, C), 100 Stat. 2085, 2896, reprinted in 1986-3 C. B. 1, at 813. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Title 26, U.S.C.:1 § 183 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7, 12, 13, 25-28, 30-32 § 6226 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2, 23, 29-31 §§ 6211-6216 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 § 6230 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-6, 8, 9, 11-14, 16, 17, 21-23, 25, 28 § 6231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 9, 11, 16, 22, 28 § 6511 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4, 6-8, 13, 21, 23 § 6514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 § 6601 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 19 § 6621 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 10, 14, 25, 31 § 7422 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 25, 28

Regulations: Treas. Reg. § 301.6221-1 (c, d) (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Treas. Reg. § 301.6226(f)-1(a) (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Temp. Treas. Reg. § 301.6231(a)(6)-1T(b) (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9

Cases: Brookstone Corp. v. United States, Civ. A. No. H-91-3467, 1994 WL 621576 (S.D. Tex. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7 Brookstone Corp. v. United States, 58 F.3d 637 (Table) (5th Cir. 1995) . . . . . . . . . . . . . . 6 Commissioner v. Sunnen, 333 U.S. 591 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Connecticut Nat'l Bank v. Germain, 503 U.S. 249 (1992) . . . . . . . . . . . . . . . . . . . . . . . . 8

All statutory references to Title 26 of the United States Code are to the Internal Revenue Code of 1986, as in effect for the taxable year at issue or as in effect otherwise with respect to the facts of the present cases. Internal Revenue Code sections are referenced throughout the brief as "§ [section]." - iii -

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Page Copeland v. Commissioner, 290 F.3d 326 (5th Cir. 2002) . . . . . . . . . . . . 23, 24, 27, 28, 31 Federated Department Stores, Inc. v. Moitie, 452 U.S. 394 (1981) . . . . . . . . . . . . . . . . 29 Field v. United States, 328 F.3d 58 (2nd Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Field v. United States, 381 F.3d 109 (2d Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469 (Fed. Cir. 1991) . . . . . . . . . . . . . . . . . . . 30 Gitlitz v. Commissioner, 531 U.S. 206 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994) . . . . . . . . . . . . . 8, 24-26, 28 Hill v. Commissioner, 204 F.3d 1214 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . 8, 24-28 Int'l Nutrition Co. v. Horphag Research, Ltd., 220 F.3d 1325 (Fed. Cir. 2000) . . . . . . . 31 Krause v. Commissioner, 99 T.C. 132 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . 2, 13, 24-30 Lyons v. U.S., 45 Fed. Cl. 399 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 30 Mosca v. United States, 224 Ct. Cl. 678, 679, 650 F.2d 288 (1980) . . . . . . . . . . . . . . . . 29 N.C.F. Energy Partners v. Commissioner, 89 T.C. 741 (1987) . . . . . . . . . . . . . . . . . . . . 7 Odend'Hal v. Commissioner, 95 T.C. 617 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Olson v. United States, 37 Fed. Cl. 727 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-13 Olson v. United States, 172 F.3d 1311 (Fed. Cir. 1999) . . . . . . . . . . . . . . . . 2, 5, 9, 10, 11 Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Russello v. United States, 464 U.S. 16 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Saladino v. U.S., 62 Fed. Cl. 782 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Weiner v. United States, 389 F.3d 152 (5th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . 24, 32 Wolf v. Commissioner, 4 F.3d 709 (9th Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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Page Woody v. Commissioner, 95 T.C. 193 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Miscellaneous: Conf. Rep. No. 97-760 (1982), reprinted in 1982-2 C. B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1989 IRS NSAR 9164, 1989 WL 1173044 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 9

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