United States v. Clintwood Elkhorn Mining

This is a cute little case which has to do with the reimbursement of taxes and interest paid to a mining company after the statute requiring these taxes was found to be unconstitutional. If we keep in mind that the case has to do with how much reimbursement a company receives rather than whether reimbursement is available at all we are, in Jesus' words, not far from the Kingdom of Heaven. I will state the technical question at issue below, but first let's get into the "flow" of the case.

Relevant Background Facts

The issue goes back to a 1978 law passed by Congress which, among other things, expressly taxed exports of coal from United States mines. Clintwood was affected, of course, and paid the tax according to law. More than a decade ago, however, domestic coal-exporting companies challenged the constitutionality of this export tax. On what grounds? Well, there happens to be a clause in the US Constitution which runs as follows:

"No Tax or Duty shall be laid on Articles exported from any State," Art I, sec. 9, cl. 5.

It seems as if this Constitutional provision hits the nail right on the head, doesn't it? The coal companies surely thought so, and that is why they brought suit, seeking to have the 1978 law repealed. In response to these claims, "the government did not provide..any basis" for defending the tax as constitutional, Ranger Fuel Corp. v. US, 33 FSupp 2d 366, 369 (E.D. Va 1998). The court declared the tax unconstitutional, and the government didn't even appeal. The IRS, which never likes to change course when it has to do with refunds, formally acquiesced in the invalidation of the tax in a May 22, 2000 notice (Notice 2000-28, 2000-1 Cum. Bull. 1116).

Then, of course, Clintwood and every other domestic coal exporting company wanted their money back--i.e., the taxes they had paid because of an unconstitutional statute. They also wanted interest. That is where the fun began....

One Court Decides

Late in 2000 the Federal Circuit Court, which deals with such matters, addressed the remedies available to these coal exporters (Cyprus Amax v. US, 205 F3d 1369). It held that the government's violation of the Export Clause of the US Constitution gave rise to a claim of money damages under the Constitution itself--i.e., there didn't need to be any enabling or authorizing statute for companies to get their money back. The court stressed, however, that there were time constraints on such suits. Damages under the Export Clause, it held, are limited by the Tucker Act's six-year statute of limitations on damages claims against the federal government (28 USC sec. 2501). This was a significant holding, because the government had argued in the Cyprus Amax case that the coal producers were required to pursue their damages claims under the Internal Revenue Code's refund scheme. Under this scheme (26 USC sec. 7422(a)), taxpayers must file an administrate claim with the IRS before filing suit to recover any internal revenue tax alleged to have been erroneously or illegally assessed or collected. Under the IRS rules, an administrative claim must be filed within three years from the time the return was filed (26 USC sec. 6511(a).

Thus, we have the germ of a problem here. The court concluded that, under the Tucker Act, six years of claims could be reimbursed, while the IRS Code suggested that only three years were available. Even though the court in Cyprus Amax decided on the former remedy, the IRS never gave up the fight.

Fast Forward to Today

Clintwood faithfully paid the tax assessed on them from the years 1978-1999. In April 2000 it and others filed suit in the Court of Federal Claims ("CFC") under the Tucker Act seeking damages in the amount of export taxes paid over the previous six years (1994-1999). The complaint also sought interest under 28 USC 2411 for their overpayment in respect "of any internal revenue tax." The company also filed an administrative fund claim, pursuant to the tax law (26 USC 6511(a)) with the IRS, asking for full reimbursement of taxes and interest from 1997-1999. Thus, the companies seemingly fully "covered" their bases--they filed not under one statute but under both, the Tucker Act and the Internal Revenue Code. The government didn't protest the 1997-1999 refunds, with interest, and paid this claim. What is at issue in this case are the refund and interest for the years 1994-1996. The amount of taxes paid during those three years? About $1,000,000.

The CFC held that Clintwood was entitled to damages in the amount of excise taxes paid during 1994-1999 and not just for the three-year period of administrative claims. However, the CFC held that Clintwood was not entitled to interest. Therefore, the CFC entered judgment for Clintwood to the tune of about $1,000,000. On appeal the Court of Appeals for the Federal Circuit (373 F3d 3d 1373 (2007)) did two things: (1) it first declined to revisit the Cyprus Amax decision, summarized above; and (2) it held that Clintwood was entitled to interest on their damages claim as well, pursuant to 28 USC sec. 2411. The court held that sec. 2411 is a "straightforward recognition that the government should pay for its use of a taxpayer's money to which the government was not entitled." The government had argued that interest was only avaiable for claims pursued through the administrative tax refund scheme.

Before the Supreme Court

At issue, then, is both the refund of the $1,000,000 for taxes paid in 1994-96 and the interest on that amount. The government contends in its petition for certiorari that Clintwood hadn't properly filed its administrative claims for all the years (1994-1996 included), and thus should not have the ability to use the Tucker Act scheme. In addition, the petition points out that a recent case in the Supreme Court (EC Term of Years, 127 S Ct 1763 (2007)) held that when a taxpayer seeks a refund, with interest, the taxpayer is required to pursue the much more detailed scheme of the IRS Code than that of the Tucker Act. Hence, the question presented by the petition, on which the Court granted cert, is the following:

"Whether a taxpayer who would have been entitled to file a tax refund action in federal court to seek a refund of taxes (and interest thereon), but who failed to satisfy a statutory prerequisite to such an action (namely, the filing of a timely administrative refund claim) and is therefore barred from bringing such an action, may obtain a refund, and interest thereon, through an action directly under the Constitution pursuant to the Tucker Act, 28 U.S.C. 1491(a)."

Thus, the US Government asks the Court to clarify which method for seeking reimbursement is proper. If the Court sides with the Government, then Clintwood doesn't get its $1,000,000 + interest; if it sides with Clintwood, then there will be a party at Clintwood's headquarters. I can just hear Justice Scalia intoning the phrase "detailed statutory scheme" as he reverses the Federal Circuit. Can you hear it?

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