December 15, 2016
ARMANDO SANDOVAL LUA, YADIRA SANDOVAL, Plaintiffs-Appellants
UNITED STATES, Defendant-Appellee
from the United States Court of Federal Claims in No.
1:13-cv-00095-CFL, Judge Charles F. Lettow.
H. Colon, Sean H. Colon, Inc., Woodland, CA, argued for
S. Moriarty, Tax Division, United States Department of
Justice, Washington, DC, argued for defendant-appellee. Also
represented by Richard Farber, Caroline D. Ciraolo.
Prost, Chief Judge, Wallach and Chen, Circuit Judges.
Wallach, Circuit Judge.
Sandoval Lua and Yadira Sandoval (together, "the
Sandovals") appeal from the decision of the U.S. Court
of Federal Claims ("Claims Court") granting summary
judgment in favor of the United States
("Government") as to certain tax refunds claimed by
the Sandovals. See Sandoval Lua v. United States,
123 Fed.Cl. 269, 277 (2015). We affirm.
2006, the U.S. Internal Revenue Service ("IRS")
opened an audit of the Sandovals' tax return for the 2004
fiscal year. Appellee's Suppl. App. ("SA") 3.
The IRS later expanded this audit to include the 2003 and
2005 fiscal years. SA 44. The Sandovals met with an IRS agent
several times and went over the proposed adjustments to the
Sandovals' taxable income and, thus, outstanding tax
liability owed, for the 2003 and 2004 fiscal years. SA 44-47.
During this process, the Sandovals signed two key documents;
in Form 4549, they waived their right to a notice of
deficiency for the years 2003 and 2004, and in Form 872, they
consented to extend the statute of limitations period for the
2003 fiscal year through December 31, 2008. SA 34, 36-37. The
Sandovals hired representation and obtained audit
reconsideration. SA 42, 46.
reconsideration, the IRS assessed deficiencies for the 2003
and 2004 fiscal years in the amounts of $60, 274 and $87,
566, respectively. SA 3, 9. IRS agents thereafter continued
to meet and confer with the Sandovals' representative in
the following months to prepare amended returns for 2003 and
2004. SA 46-47.
Sandovals filed amended tax returns in June 2008 for the
amounts owed that they considered to be "substantially
correct, " and requested abatements that roughly totaled
the outstanding amounts assessed but not paid. SA 58, 59-77
(2003 amended tax return), 78-95 (2004 amended tax return);
see also SA 156 at 58:6-7 (deposition of Ms.
Sandoval in which she states that they sent checks to the IRS
that were "an estimate of―only of the money that
we owed"). The returns included two checks and an
accompanying letter from their representative stating that
the checks were to be applied to the Sandovals' income
tax liability for 2003 and 2004, and that "any
overpayment" should be contributed to other years'
outstanding amounts due. SA 58. The IRS granted a substantial
portion of the requested abatements, such that these checks
and overpayment credits satisfied the Sandovals' tax
deficiencies in full from 2003 and 2004.SA 4, 10.
2010, the Sandovals filed a second set of amended returns for
2003 and 2004 seeking a full refund of funds remitted plus
amounts applied as overpayments from other tax years,
totaling approximately $101, 000. Appellants' Suppl. App.
27-69. The IRS denied the claims for refund and denied appeal
in 2012. SA 140-49, 151-52.
Sandovals filed suit in the Claims Court seeking the same
relief. The Sandovals contended that they were entitled to
the remitted funds on any of the following grounds: (1) they
withdrew consent to assessment without notice of deficiency
and never received subsequent notice; (2) the 2008 funds were
applied after the three year statute of limitations for
assessment had expired; or (3) the 2008 funds were given as
refundable deposits rather than as tax payments. The Claims
Court granted summary judgment in favor of the Government and
denied a cross-motion for summary judgment, finding that as a
matter of law the Sandovals were not entitled to the claimed
refunds. Sandoval Lua, 123 Fed.Cl. at 277.
Sandovals subsequently filed this appeal. This court has
jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (2012).
court "review[s] the Claims Court's grant of summary
judgment de novo." Amergen Energy Co. v. United
States, 779 F.3d 1368, 1372 (Fed. Cir. 2015). Summary
judgment is appropriate if there is no genuine dispute as to
any material fact and the moving party is entitled to a
judgment as a matter of law. See Fed. R. Civ. P.
56(a); Consol. Edison Co. v. Richardson, 232 F.3d
1380, 1383 (Fed. Cir. 2000). "We view the evidence in a
light most favorable to the non-movant . . . and draw all
reasonable inferences in its favor." SunTiger, Inc.
v. Sci. Research Funding Grp., 189 F.3d 1327, 1334 (Fed.
Claims Court Properly Granted Summary Judgment to the
Appellants Consented to Assessment Without Notice of
Sandovals primarily argue that the 2003 and 2004 assessed
deficiencies are invalid because they "impliedly or
constructively" withdrew their consent to waive the
required notice of deficiency before the assessment, and the
Government then failed to attach a notice within the statute
of limitations period. Appellants' Br. 43. The Government
counters that this is a case in which the Sandovals
"effectively admitted they had not reported all of their
income on their original returns for 2003 and 2004, [and now
believe that] they are entitled to a refund of the additional
taxes that they reported on the amended returns and remitted
to the IRS in June 2008." Appellee's Br. 25. We
agree with the Government.
generally may not assess or collect income taxes until it
issues a notice of deficiency. See I.R.C.
§§ 6212(a), 6213(a) (2012). Nevertheless, a
taxpayer may waive the right to a notice of deficiency by
signing a waiver and filing it with the IRS at any time.
Id. § 6213(d). "A duly executed IRS Form
4549 is a proper waiver of the deficiency notice
requirements." Perez v. United States, 312 F.3d
191, 197 n.23 (5th Cir. 2002) (citation omitted);
see Robert E. McKenzie, 1 Representation Before the
Collection Division of the IRS § 3:148 (Thomson Reuters
ed., 2016). A taxpayer may withdraw the waiver and opt for
the requirement of a notice of deficiency accompanying an
assessment at any time until "such waiver has been acted
upon by the district director and the assessment has been
made in accordance with its terms . . . ." Treas. Reg.
§ 301.6213-1(d) (2016).
Sandovals claim that their request for audit reconsideration
in the form of a letter and a phone call in early-November
2007 impliedly or constructively withdrew their Form 4549
waiver. Appellants' Br. 37. In fact, there is
no mention of withdrawal or waiver in either the letter or
the Sandovals' description of the phone call to the IRS.
SA 46, 52. The Sandovals have presented no legal authority
that audit reconsideration is indicative of or synonymous
with waiver withdrawal. They have offered no authority to
suggest that courts have entertained a theory of constructive
or implied withdrawal. Without proof of withdrawal of the
waiver, the IRS properly denied the Sandovals' refund
request as a matter of law.
Sandovals further argue that the Government conceded the
issue of withdrawal at a status conference held in April
2014. Appellants' Br. 37. The Claims Court succinctly
stated that it "ha[d] never understood
[G]overnment's counsel to have waived this issue."
Sand-oval Lua, 123 Fed.Cl. at 274 (citation
agree with the Claims Court that the record does not support
the Sandovals' argument and that there is no
genuine dispute about this material fact. See
SunTiger, Inc., 189 F.3d at 1334 (explaining that no
genuine dispute as to a material fact exists if no record
evidence supports the nonmoving party's argument). At no
point did the Government concede that the Sandovals withdrew
their consent. We do not find that the Government conceded to
a withdrawal of the waiver of notice of deficiency here.
2004 Assessment Limitations Period Had Not Expired
Sandovals next argue that their June 2008 remittance for the
2004 year was not timely because it did not fall within three
years of the return filing. Appellants' Br. 45. Because
the remittance was not timely, the Sando-vals argue that they
should be refunded that amount remitted. Id. We
agree with the Claims Court's finding that there is no
genuine dispute of material fact on this issue. Sandoval
Lua, 123 Fed.Cl. at 276.
general rule, all taxes "shall be assessed within 3
years after the return was filed . . . ." I.R.C. §
6501(a). If a taxpayer "omits from gross income an
amount properly includible therein" and "such
amount is in excess of 25 percent of the amount of gross
income stated in the return, " the assessment and
collection period is extended to six years. Id.
Sandovals paid a remittance in June 2008, SA 58, and they do
not dispute that their amended returns of $138, 032 for
fiscal year 2003 and $183, 862 for fiscal year 2004 are
substantially more than 25% of their originally reported
returns of $52, 023 and $51, 848, respectively, SA 14, 24
(adjusted gross incomes originally reported), 59, 78
(adjusted gross incomes as amended). The Sandovals also have
offered no evidence to suggest that I.R.C. §
6501(e)(1)(A)(ii), which contains an exception for amounts
omitted from gross income that were nevertheless adequately
disclosed, would apply. Accordingly, the applicable statute
of limitations for the 2004 tax year assessment expired in
April 2011, i.e, six years from the date the Sandovals filed
their original tax return, and the Sandovals' payments in
June 2008 were timely.
2008 Remittances Were Appropriately Considered as Tax
Sandovals further argue that the IRS improperly designated
the 2008 remittances as payments, rather than deposits.
Appellants' Br. 41-42. Internal Revenue Code §
6603(a) provides that a "taxpayer may make a cash
deposit with the [IRS] which may be used by the [IRS] to pay
any tax . . . which has not been assessed at the time of
deposit. Such a deposit shall be made in such a manner as the
[IRS] shall prescribe." The IRS's Revenue Procedure
explains that a deposit shall be accompanied with a
"written statement" designating the deposit as
such, and that any undesignated remittance "will be
treated as a payment and applied by the [IRS] against any
outstanding liability for taxes, penalties[, ] or
interest." Rev. Proc. 2005-18, 2005-13 I.R.B. 798 §
to the adoption of the statutory definition of
"deposit" in 2004,  courts used a test of
"circumstances" to determine whether remittances
were deposits or payments. In New York Life Insurance Co.
v. United States, we adopted the circumstances test and
found that, when the party reserved the right to seek return
of the remittance, a remittance made under protest following
a notice of deficiency was a deposit as a matter of law upon
the IRS's failure to assess the deficiency within the
statute of limitations. 118 F.3d 1553, 1559-60 (Fed. Cir.
Sandovals argue that the Government is equitably estopped
from applying Revenue Procedure 2005-18 and that the New
York Life circumstances test should be used instead.
Appellants' Br. 41. According to Appellants, equitable
estoppel applies because the Government "consistently
and vehemently argued" that its November 2007
assessments were correct, which induced Appellants to remit
funds they claim were not owed. Id. The Sando-vals
further argue that the 2008 remittances constitute
"deposits" under the New York Life
circumstances test. Id. at 40.
both of the Sandovals' arguments unavailing. Appellants
must show "affirmative misconduct [as] a
prerequisite for invoking equitable estoppel against the
[G]overnment . . . ." Zacharin v. United
States, 213 F.3d 1366, 1371 (Fed. Cir. 2000) (emphasis
added) (citation omitted). The Sandovals have made no showing
of misconduct in this case.
agree with the Claims Court that the Sandovals "offer no
evidence that their 2008 remittance[s] complied with the
terms of . . . Revenue Procedure [2005-18]."
Sandoval Lua, 123 Fed.Cl. at 277. Because the funds
were received after 2004, the New York Life
circumstances test does not apply and I.R.C. § 6603
controls. The remittances accompanied amended tax returns
with tax liabilities in excess of $96, 000, which followed a
November 2007 deficiency assessment. SA 58-59 (cover letter
acknowledging amended tax liabilities for 2003 and 2004
totaling $96, 446.63). Their accompanying letter requested
that the IRS apply the payments to outstanding tax
liabilities for 2003 and 2004 fiscal years and any additional
years with liability in the event of overpayment. SA
58. The letter did not designate the remittances as
deposits, as Revenue Procedure 2005-18 requires. They were
tax payments, not deposits.
Sandovals Waived Their Additional Arguments
Sandovals contest the Claims Court's rejection of two
additional arguments that (1) satellite reimbursements (from
Mr. Sandoval's occupation as a satellite dish installer)
cannot constitute "income" as defined by statute,
Appellants' Br. 41; and (2) the Form 4549 was signed
under duress, id. at 38-39. We agree with the Claims
Court that the Sandovals waived these arguments under the
substantial variance rule.
Revenue Code § 7422(a) provides that, to bring suit
against the United States for the recovery of income taxes, a
taxpayer must have timely filed a refund claim in the manner
prescribed by regulation. Treasury Regulation §
301.6402-2(b)(1) specifies that refunds will only be granted
on one or more of the grounds set forth in a timely-filed
claim and that the claim "must set forth in detail each
ground upon which a credit or a refund is claimed and facts
sufficient to apprise the Commissioner of the exact basis
interpreted this statute and regulation as stating a
"substantial variance" rule that bars taxpayers
from bringing new claims or facts not alleged in the refund
application to a court in which suit for refund is sought.
See Cencast Servs., L.P. v. United States, 729 F.3d
1352, 1366 (Fed. Cir. 2013); see also Lockheed Martin
Corp. v. United States, 210 F.3d 1366, 1371 (Fed. Cir.
2000) (explaining background and reasoning behind the
"substantial variance" rule). For a theory, claim,
or fact supporting the application for refund to be
admissible in a suit, we ask "whether there [wa]s a
substantial variance from a timely filed claim."
Computervision Corp. v. United States, 445 F.3d
1355, 1364 n.8 (Fed. Cir. 2006) (citation omitted).
agree with the Claims Court that, having failed to argue that
the satellite reimbursements were not income or that they
signed Form 4549 under duress in the initial refund
application, the Sandovals' introduction of these
arguments would be a "substantial variance" from
the initial claims. Sandoval Lua, 123 Fed.Cl. at 274
n.12. Therefore, these arguments were waived and were
appropriately not considered.
considered the Sandovals' remaining arguments and find
them unpersuasive. Accordingly, the decision of the U.S.
Court of Federal Claims is
 Deficiencies for the 2005 fiscal year
were assessed and later disputed and resolved in the U.S. Tax
Court. See Sandoval Lua v. Comm'r, T.C.M. (CCH)
 The IRS applied overpayment credits of
$4, 390 and $1, 800 to the 2003 tax year, and $1, 900.37 and
$718.19 to the 2004 tax year. SA 3-4, 10. By the time the IRS
granted the abatements, the Sandovals had overpaid their tax
liabilities for 2003 and 2004. The IRS later issued a refund
of $1, 123.67 to the Sandovals. SA 5.
 The Sandovals also characterize their
withdrawal of Form 4549 as "express" in one
instance. Appellants' Br. 21.
 More specifically, the Sandovals argue
that they believed that the case had been "closed"
(i.e., "assessed"), such that withdrawal was no
longer available on November 1, 2007 and, thus, they
requested the only available option of reconsideration.
Appellants' Br. 13-14. Because the case was not
officially closed until November 26, 2007, the Sandovals also
argue that the Government should have understood the
reconsideration request to serve as a proxy for the
withdrawal of Form 4549. Id. at 25, 36-37. They
further claim that, without official closure of the case,
"there was no support for audit reconsideration."
Id. at 27. However, the procedures for requesting
audit reconsideration are not material to this case; we have
no evidence to indicate that audit reconsideration is
equivalent to waiver withdrawal.
 See The American Jobs
Creation Act of 2004, Pub. L. No. 108-357, § 842, 118
Stat. 1418, 1598-1600.