We welcome back guest blogger Bob Probasco with an update on the Pfizer case and its, seemingly, never ending quest for interest on a large refund. Pfizer has moved past the procedural hurdles and onto the merits of its claim for interest. As Bob describes below, we have not yet seen the end of the case and our continuing lessons on the payment of interest. Keith
I’ve discussed a particular jurisdictional issue in the Pfizer case, and others, several times on Procedurally Taxing over the last two years. That issue was whether taxpayers can file standalone suits for additional overpayment interest, in excess of $10,000, in the Court of Federal Claims as well as District Court. (If you’re interested in this issue, the PT posts are here, here, here, here, here, here, here, and here.) Over that period, Pfizer has moved from the Southern District of New York to the Second Circuit to the Court of Federal Claims. The jurisdictional issue was resolved long ago, at least for this case, and the parties can proceed to the substantive issue.
When we last visited the status, Pfizer had filed a motion for summary judgment; the government opposed that motion and sought additional discovery. The CFC issued an opinion and order on September 14, 2020.
The substantive issue – overpayment interest when a refund check is re-issued
The case resolves around a refund of $499,528,449.05, resulting from an overpayment on Pfizer’s tax return for 2008, which was timely filed on September 11, 2009. The government contends that it processed six separate checks – five for $99 million each and the sixth for $4,528,449.05 – and mailed them on October 20, 2009, by first-class mail. Pfizer contends that its tax department in New York never received the checks. The government then cancelled the checks and executed an electronic funds transfer for the entire $499,528,449.05 on March 18, 2010, which was deposited into Pfizer’s account on the following day.
The government did not pay overpayment interest on the refund; Pfizer contends it should have. During that period, the overpayment interest rate on large balances (so-called “GATT interest”) was 1.5%. Even at that low rate, interest on half a billion dollars would have added up; Pfizer’s complaint asked for more than $8 million, “plus statutory interest” which continues to compound.
The legal dispute comes down to two words, italicized below. Section 6611(b), which defines the period for which overpayment interest is paid, states in relevant part:
(b) Period Such interest shall be allowed and paid as follows: . . .
In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. The acceptance of such check shall be without prejudice to any right of the taxpayer to claim any additional overpayment and interest thereon.
Meanwhile, Section 6611(e)(1), which is an exception under which overpayment interest will not be paid, states:
Refunds within 45 days after return is filed
If any overpayment of tax imposed by this title is refunded within 45 days after the last day prescribed for filing the return of such tax (determined without regard to any extension of time for filing the return) or, in the case of a return filed after such last date, is refunded within 45 days after the date the return is filed, no interest shall be allowed under subsection (a) on such overpayment.
The conference report for the 1993 amendment to Section 6611(e) describes the provision as:
No interest is paid by the Government on a refund arising from an original income tax return if the return is issued by the 45th day after the later of the due date of the return . . . or the date the return is filed.
The government focuses on the word “issued” in the legislative history for Section 6611(e) and concludes that mailing the refund within 45 days avoids interest, regardless of whether the refund is delivered to the taxpayer. Pfizer focuses on the word “tender” in Section 6611(b)(2) and concludes that it requires “that a taxpayer has some knowledge of [the refund check] and an opportunity to accept, or decline to accept, the check.” That quote is from Doolin v. United States, 918 F.2d 15, 18 (2d Cir. 1990). The Seventh Circuit adopted that analysis in Godfrey v. United States, 997 F.2d 335, 337 (7th Cir. 1993). The Doolin precedent is why Pfizer originally brought the case in the Southern District of New York instead of the Court of Federal Claims.
This issue appears to have been litigated infrequently, with Pfizer only the third case to address it. Although he didn’t seem very impressed with the government’s proffered legislative history, Judge Lettow didn’t decide the legal issue. Material disputes of fact remained.
The Fact Issues
The government offered evidence of the Treasury’s processing and mailing procedures and that Pfizer’s checks were processed accordingly. But an email from an IRS employee stated that “the checks weren’t sent & stopped the request.” Further, problems with the Post Office or Pfizer’s mail handling practices might have resulted in one or two missing checks, but there were six missing checks. That raised questions about whether Treasury’s procedures were really followed. Pfizer also argued that the usual presumption of delivery should not apply when there is evidence that the mail was not received.
On the other side, the government wanted additional discovery concerning Pfizer’s mail practices, to challenge Pfizer’s assertion that the checks were never delivered. A third-party contractor picked up all of Pfizer’s mail from the Post Office and took it to Pfizer’s central mailroom, to be sorted and delivered to various offices and departments. Pfizer’s Tax Department didn’t receive the refund checks but that didn’t necessarily mean Pfizer hadn’t. During an earlier deposition, an Operations Manager for Pfizer testified that he wasn’t aware of any complaints regarding lost, non-received, or misplaced mail. But he hadn’t inquired into incidents of lost mail in preparation for the deposition. The government had asked to examine a Pfizer witness concerning “all incidents in which Pfizer lost or allegedly failed to receive mail addressed to Pfizer” at that address and considered the deposition testimony insufficient.
The judge declined to resolve the statutory interpretation issue on a motion for summary judgment because neither party would have been entitled to summary judgment at this point. The government could not win because there were genuine disputes of act concerning whether Treasury issued and mailed the checks. Pfizer could not win because there were genuine disputes of fact concerning whether the checks were appropriately delivered to Pfizer.
As a result, the judge denied Pfizer’s motion for summary judgment and granted the government’s motion to reopen discovery. The judge ordered the parties to file a proposed schedule for discovery and further proceedings by the end of September. It may be a while longer before we get a ruling on the legal issue.