Section 1346(a)(1) grants concurrent jurisdiction to district courts and the Court of Federal Claims for (1) any civil action for the recovery of tax alleged to have been erroneously or illegally assessed or collected, (2) any unauthorized penalty collected, or (3) “any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.” Section 1346(a)(2) (commonly referred to as the “Little Tucker Act”) grants concurrent jurisdiction to the district court and the Court of Federal Claims for any other civil action or claim against the United States not exceeding USD 10,000 in amount.
On the other hand, section 1491(a)(1) grants jurisdiction to the Court of Federal Claims for any monetary claim against the United States that is founded either upon the Constitution, an Act of Congress, a regulation of an executive department, an express or implied contract, or for liquidated or unliquidated damages in cases not sounding in tort.
Court of Federal Claims
In September 2017, the Pareskys, victims of Bernie Madoff’s Ponzi scheme, filed a complaint in the Court of Federal Claims, arguing that the government owed them overpayment interest relating to their 2003 through 2007 tax years. The IRS moved to dismiss the Pareskys’ complaint, arguing that the Tucker Act, 28 U.S.C. §1491, provides the Court of Federal Claim with jurisdiction “to render judgment upon any claim against the United States founding either upon the Constitution, or any act of Congress,” but that the Pareskys failed to file their complaint within the six-year limitations period for claims under the Tucker Act.
The Court of Federal Claims found that it lacked jurisdiction because the Pareskys’ claim was untimely under the Tucker Act. It granted the Pareskys’ motion to transfer the case to the Southern District of Florida as it was “not evident how the Southern District of Florida or [this Court] would address jurisdiction over a standalone claim for overpayment interest.”
Southern District of Florida
The Pareskys filed an amended complaint, arguing that the district court had jurisdiction under sections 1346 and 1491; while the government moved to dismiss under FRCP 12(b)(1) – arguing lack of jurisdiction, or alternatively, even if there were jurisdiction, the Pareskys failed to timely file administrative claims.
The Magistrate Judge for the Southern District of Florida concluded in its Report and Recommendation that that the district court had jurisdiction over a claim for overpayment pursuant to section 1346(a)(1), relying on the Sixth Circuit’s decision in E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005). In Scripps, the Sixth Circuit found that the phrase “any sum” in section 1346(a)(1) includes overpayment interest. However, because the Pareskys had not timely filed their administrative claims with the IRS for their 2003-2006 tax years, the Magistrate Judge recommended the overpayment interest claim as to those tax years be dismissed for lack of subject matter jurisdiction.
Both parties filed separate objections to the Magistrate’s Report and Recommendation. The district court ultimately issued an order declining to adopt the Report and Recommendation, and dismissed the Paresky’s amended complaint for lack of subject matter jurisdiction. The district court explained in its order that during the objections period of the case at hand, the Second Circuit issued its decision in Pfizer Inc. v. United States, 939 F.3d 173 (2d Cir. 2019), which disagreed with the Sixth Circuit’s decision in Scripps. The Second Circuit held that overpayment interest suits lie exclusively within the jurisdiction of the Court of Federal Claims. The district court found the analysis in Pfizer to be “more reasoned and persuasive” while Scripps relied upon an overbroad reading of dicta.
The Pareskys moved for reconsideration of the district court’s order and filed their notice of appeal with the Eleventh Circuit. The district court denied the motion for reconsideration and entered judgment for the government.
Both parties appealed to the United States Court of Appeals for the Eleventh Circuit. The Eleventh Circuit reviewed the district court’s legal conclusions de novo. On appeal, the Pareskys urged the court to follow the reasoning of the Sixth Circuit in Scripps, while the government argued that the court should follow the reasoning of the Second Circuit in Pfizer.
The Eleventh Circuit affirmed the district court’s dismissal of the Pareskys’ amended complaint. The court determined that Pareskys’ claims for overpayment interest must fail because “overpayment interest” does not fall within any of the three exceptions under section 1346(a)(2) that grant concurrent jurisdiction to the lower district courts. Thus, jurisdiction for overpayment interest suits remains solely with the Court of Federal Claims.
Conclusion on Jurisdiction for Overpayment Interest Cases
In a 2020 case, Bank of America (BOA) sued for overpayment interest the Western District Court of North Carolina. The district court held that it had jurisdiction under 28 § USC 1346(a)(1) under the “any sum” language. The government appealed the case to the Federal Circuit for a transfer of the case to the Court of Federal Claims. Ultimately, the Federal Circuit held that the Court of Federal Claims had exclusive jurisdiction on overpayment interest suits. Because of the Federal Circuit decision in BOA, all overpayment interest cases will now be restricted to the Court of Federal Claims and Federal Circuit unless and until the Supreme Court reverses BOA. For more details, see previous Tax News and Developments article, “Federal Circuit Effectively Assumes Control Over All Payment Interest Suits.”
This alert is part of the Tax News and Developments newsletter. See the other articles below:
Part 1 - North America: Residual Profits and Market Jurisdictions
Part 2 - International: G20 supports latest Pillar One and Pillar Two proposals
Part 4 - United States: Ninth Circuit reverses Tax Court’s use of substance-over-form doctrine in Mazzei
Part 5 - North America: NOL carryback period waiver applies to certain specified liability losses
Part 6 - North America: Maryland Court of Appeals rules that Travelocity is not liable for Maryland sales and use tax prior to enactment of Maryland’s accommodations intermediary law
Part 7 - North America: IRS temporarily allows CFCs an automatic accounting method change to ADS