On January 5 the Federal Circuit issued its opinion in Brown v. United States, a case we have been following because it attracted an amicus brief. The case was argued before Judges Lourie, Dyk, and Stoll. The Browns appealed a dismissal by the United States Court of Federal Claims of a tax refund suit for lack of subject matter jurisdiction. Judge Lourie authored the opinion in the case, affirming the dismissal. This is our opinion summary.
Judge Lourie summarized the relevant background:
The Browns are U.S. citizens and husband and wife. In the relevant tax years, they lived in Australia and Mr. Brown worked for the Raytheon Company. In October 2018, the Internal Revenue Service (“IRS”) received amended returns for the Browns for 2015 and 2017. These returns were prepared and signed by John Anthony Castro, their attorney, but they were not accompanied by any powers of attorney. The two returns claimed the Foreign Earned Income Exclusion.
In January 2019, the Browns submitted a second amended return for 2015. Like their first amended return for that year, this return was prepared and signed by Mr. Castro and claimed the Foreign Earned Income Exclusion. It also did not append any powers of attorney.
In April 2019, the Browns received a decision letter from the IRS disallowing the Browns’ refund claims for 2015 and 2017. In this letter, the IRS explained that its records “show[ed] that, as an employee of Raytheon . . . living and working in Australia, [Mr. Brown] may have entered into a closing agreement . . . irrevocably waiving [the Case: 21-1721 Document: 44 Page: 2 Filed: 01/05/2022 BROWN v. US 3 Browns’] rights to claim the Foreign Earned Income [Exclusion] under [I.R.C.] section 911(a).” J.A. 350. In June 2019, the Browns filed this refund suit in the Court of Federal Claims. Under 26 U.S.C. § 6532 and § 7422(a), a suit may be brought in the Claims Court after an administrative claim has been filed and either the taxpayer waited six months before filing suit or the IRS took final action on the claim. Neither party seems to dispute that the Browns’ claim was properly before the Claims Court if it was “duly filed.”
The government argued that the Browns had not “duly filed” their administrative refund claims in accordance with 26 U.S.C. § 7422(a)’s mandate because they had not personally signed and verified their amended returns or properly authorized an agent to execute their returns. The Browns responded that even if they had not “duly filed” their refund clams, the IRS had waived the taxpayer signature and verification requirements by processing their refund claims, despite the claims’ defects. The Browns added that the signature and verification requirements are regulatory conditions, which the Supreme Court has deemed waivable, instead of unwaivable statutory conditions.”
Judge Lourie began by explaining the court’s holding: “While we disagree that the court lacked jurisdiction, we nonetheless affirm because the court was correct that the Browns failed to prove that their claim for refund was duly filed.” Judge Lourie explained that “the Claims Court erred in finding § 7422(a) to be jurisdictional.” The Federal Circuit, however, went on to find “that it was harmless error because the Browns failed to meet the ‘duly’ filed’ requirements.”
In particular, Judge Lourie explained that “the ‘duly filed’ requirement in § 7422(a) is more akin to a claims-processing rule than a jurisdictional requirement.” This “duty filed” requirement includes a requirement that a claim must include a “statement of the grounds and fact” that “must be verified by a written declaration that is made under penalties of perjury.” But, he continued, the “taxpayer signature requirement . . . may be excepted ‘when a legal representative certifies the claim and attaches evidence of a valid power of attorney.’”
The Browns contended that “the signature and verification requirements are regulatory provisions instead of statutory provisions and are therefore subject to waiver by the Secretary.” Additionally, the Browns argued, in this instance “the Secretary waived these requirements.”
In response to these arguments, Judge Lourie cited Supreme Court case law holding that “Congressional mandates, unlike regulations, ‘must be observed and are beyond the dispensing power of the Treasury officials.’” He also discussed the relevant statutory and regulatory provision in question. He, moreover, found that, in this instance, the “statutes’ implementing regulations echo the statutory default rule.” He explained how “[t]hey presumptively require individual taxpayers to execute their own refund claims and returns” and, “by regulation, the person who signs a return or other document must also verify it.” He indicated that “the person who signs a return or other document must also verify it.” Without this verification “the document is effectively unsigned . . . and the taxpayer has not ‘duly filed’ the refund claim.” As a result, he indicated that, “because the taxpayer signature and verification requirements derive from statute, the IRS cannot waive those requirements.”
In the alternative, the court found that waiver, even if available, did not apply here because “[t]he record does not indicate that the Commissioner dispensed with the requirements even though it examined the claim.”
In sum, the court explained, “the Claims Court properly dismissed the Brown’s suit because the Browns did not comply with the ‘duly filed’ requirement in § 7422(a).”