     Case: 18-60735      Document: 00515176642         Page: 1    Date Filed: 10/28/2019




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                                                                 FILED
                                      No. 18-60735                        October 28, 2019
                                                                            Lyle W. Cayce
ANTHONY LAIRD,                                                                   Clerk


              Plaintiff - Appellant

v.

UNITED STATES OF AMERICA,

              Defendant - Appellee



                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 3:16-CV-392


Before OWEN, Chief Judge, and JONES and STEWART, Circuit Judges.
EDITH H. JONES, Circuit Judge: *
       Plaintiff Anthony Laird used personal funds to make a partial payment
on his corporation’s employment taxes.             The IRS later informed him the
particular tax had been overpaid. Rather than refund the overpayment to him,
the IRS exercised its right of setoff and applied the overpayment to another
portion of the corporation’s tax deficiencies. The district court dismissed the
case for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), but we
conclude that the IRS’s right of setoff may not apply to these unusual facts.


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                 No. 18-60735
Because limitations bars part of Laird’s recovery, however, we VACATE in
part, DISMISS in part, and REMAND.
                               BACKGROUND
I. Tax Terms
      For clarity, we explain the key tax terms involved in this case. Generally
speaking, a corporation’s employment taxes consist of two parts. The first part
is commonly called the Trust Fund Tax Liability. “The Internal Revenue Code
requires employers to withhold from their employees’ paychecks money
representing employees’ personal income taxes, unemployment insurance, and
social security taxes that those employees owe or will owe the government.”
IRS v. Energy Res. Co. (In re Energy Res. Co.), 871 F.2d 223, 225 (1st Cir. 1989)
(citing statutory provisions). These taxes are referred to as “trust fund taxes”
because the employer holds them “in trust for the United States.” The second
part of the employment tax is called the Non-Trust Fund Tax Liability. The
employer is directly liable for this portion of the tax and does not hold any
money in trust.
      Sometimes, as in this case, an employer fails to pay the trust fund
liability. If that happens, the IRS “can collect an equivalent sum directly from
the officers or employees of the employer who are responsible for their
collection and payment.” Id. This is called a Trust Fund Recovery Penalty.
II. Facts
      Anthony Laird owned and operated Laird Electric Company, Inc., a
Mississippi corporation.    The company was many years behind on its
employment tax payments. Specifically, it had not made several quarterly
payments spanning from 2006 to 2010. In 2014, Laird sent three checks to the
IRS as partial payment for the trust fund portions of those taxes, namely, three
payments of $20,000, $25,000, and $1,500 respectively, for a total of $46,500.
Each of these three checks was accompanied by instructions explaining that
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                                          No. 18-60735
the payments were to be applied only to the trust fund portions of the
company’s tax liabilities, from the oldest unpaid quarter to the newest, until
all the payments were exhausted. The IRS initially applied the checks to the
company’s trust fund balance for the second quarter of 2006.
        By January 2015, however, the company was still behind in its
employment taxes in the amount of $380,115.40. That figure included taxes
owed from the third quarter of 2006 through the fourth quarter of 2010 for both
trust fund and non-trust fund liability. Because of this unpaid debt, attorney
Harris Barnes, who represents both the company and Laird, received a
document from the IRS called “Form 2751 – Proposed Assessment of Trust
Fund Recovery Penalty.”                This document showed all of the company’s
remaining balances. An accompanying letter explained that because the IRS
had not received all of the company’s outstanding payments, it proposed to
assess a Trust Fund Recovery Penalty personally against Laird. This penalty
is “equal to the unpaid trust fund taxes which the business still owes the
government.” The total penalty covering all relevant tax quarters amounted
to $145,337.51.
        After receiving these documents, Laird sent the IRS a check for
$145,337.51. This check again included instructions explaining that it should
be applied only to the trust fund portion of the company’s taxes.                         It also
included a form that Laird signed consenting to the assessment of the Trust
Fund Recovery Penalty. 1 Laird thus agreed to be personally liable for, and
paid, the remaining balance of the trust-fund portion of his company’s taxes.
        Later, Mr. Barnes discovered that the IRS had erroneously assessed an
additional $28,413.18 in taxes against the company for the second quarter of
2006.        The IRS admitted its error upon being informed and abated the


        1
            The district court’s conclusion that Laird did not consent was plainly in error.
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                                  No. 18-60735
additional tax as well as associated penalties and interest. The abatement
resulted in a $50,026.46 overpayment for the second quarter of 2006. But
despite the overpayment, the company remained in arrears for the non-trust
fund portions of several other quarters. IRS removed the overpayment from
the company’s ledger for the second quarter of 2006 and applied it to the non-
trust fund portions of the company’s outstanding obligations for other quarters.
The IRS could not apply the overpayment to the company’s trust-fund liability
because Laird’s compliance with the Trust Fund Recovery Penalty had
satisfied all of that debt.
      Following all of these payments, the company had fully paid its
employment taxes for the second quarter of 2006.            And of the company’s
original $380,115.40 debt from the third quarter of 2006 to 2010, Laird had
now paid the trust fund portion in full via the $145,337.51 Trust Fund
Recovery Penalty, leaving a remaining balance of $234,777.89, which
constituted the non-trust fund portion. The IRS had used the $50,026.46
overpayment to reduce part of the non-trust fund liability, but the company
remained in arrears.
      Laird now alleges that the overpayment arose from the three checks
totaling $46,500 that were accompanied by instructions specifically stating
that they were to be applied only to the trust fund portion of the company’s
taxes. Laird contends that the IRS disregarded his instructions by applying
the overpayment, designated only for trust-fund liability, to non-trust fund
liability. Because the IRS disregarded his instructions, Laird asserts that he
is entitled to a refund of $52,038.12, which represents “all credits for tax period
ending June 30, 2006 [the second quarter] applied to the non-trust fund portion




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                                    No. 18-60735
of employment tax liabilities of the taxpayer for other tax periods.” 2 The bulk
of that figure is the three payments totaling $46,500.
III. Procedural History
      Laird filed an administrative claim with the IRS requesting a refund,
but the IRS did not respond. Laird filed suit for the refund in the U.S. District
Court for the Southern District of Mississippi. The Government moved to
dismiss the case under Rule 12(b)(6), and the district court granted the motion.
Laird moved to reconsider under Rule 59(e), but the district court denied that
motion. Laird now appeals.
                            STANDARD OF REVIEW
      “Questions of subject-matter jurisdiction are reviewed de novo.”
Hous. Refining, L.P. v. United Steel, Paper & Forestry, Rubber, Mfg., 765 F.3d
396, 400 (5th Cir. 2014).
      “A dismissal for failure to state a claim under Rule 12(b)(6) is reviewed
de novo, accepting all well-pleaded facts as true and viewing those facts in the
light most favorable to the plaintiff.” Whitaker v. Collier, 862 F.3d 490, 496−97
(5th Cir. 2017) (internal quotation marks omitted). On a motion to dismiss,
our inquiry is normally limited to the plaintiff’s complaint and documents that
are attached to or incorporated in the complaint.              Lovelace v. Software
Spectrum, Inc., 78 F.3d 1015, 1017−18 (5th Cir. 1996).




      2 Laird’s $52,038.12 claim, is slightly higher than the amount of the overpayment,
which was $50,026.46. For the reasons explained below, however, this difference is
ultimately immaterial.
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                                       No. 18-60735
                                     DISCUSSION
       Three issues are pertinent to this appeal.                 First, the Government
contends that Laird lacks standing to contest the three payments totaling
$46,500. Second, the Government argues that the statute of limitations bars
Laird from any recovery exceeding $46,500.                Third, on the merits, Laird
contends that the IRS owes him a refund because, by applying the
overpayment to non-trust fund liability, it disregarded his instructions to apply
his $46,500 payment only to trust fund liabilities. 3
I. Standing
       The Government contends that Laird lacks standing to contest and
recover the three payments totaling $46,500. Specifically, the Government
argues that the Laird Electric Company, not Laird individually, made the
three payments, leaving Laird himself with no financial injury. 4 We disagree.
       The “irreducible constitutional minimum of standing contains three
elements”: (1) a concrete and particularized injury; (2) fairly traceable to the
Defendant’s challenged action; and (3) likely redressable by a favorable
decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560−61, 112 S. Ct. 2130,
2136 (1992). In refund cases,
       [u]nder I.R.C. 6402(a), a refund may only be obtained by the
       taxpayer who made the overpayment. As other circuits have
       construed this provision in the context of refund actions, it means
       that standing is limited to the party or parties who have at least
       arguably or derivatively made an actual overpayment, such that
       they have a financial interest in the litigation. We agree with our
       sister circuits on this point, whose necessary corollary is that any


       3 Laird also asserts that the district court erred in denying his motion to reconsider,
but this is intertwined with the dismissal order.

       4Of course, “the cardinal rule of corporate law is that a corporation possesses a legal
existence separate and apart from that of its officers and shareholders.” Buchanan v.
Ameristar Casino Vicksburg, Inc., 957 So. 2d 969, 977 (Miss. 2007) (internal quotation marks
omitted).
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                                       No. 18-60735
       party’s standing to seek a refund in a given case is limited to the
       amount of his own overpayment.

Delaune v. United States, 143 F.3d 995, 1006 (5th Cir. 1998). The traceability
prerequisite of standing is not challenged here.
       Despite the Government’s contention, the attachments to Laird’s
complaint strongly suggest that Laird personally paid the $46,500, and thus
incurred a stake in this refund litigation.             The Government misleadingly
asserts that Laird’s complaint does not identify who funded the three cashier’s
checks comprising the $46,500. Yet each of them identifies as the “remitter”
either “Tony Laird” or “Troy Laird,” 5 not the company. The remitter is the
person who furnishes funds that the bank uses when issuing the cashier’s
check.     The fact that Mr. Barnes’s transmittal letters with the checks
referenced Laird Electric Company as the “taxpayer” simply identifies to whose
credit the tax payments should be directed. The checks appear to show that
Laird made the payments and satisfy the injury component of standing
sufficiently to withstand dismissal.
       Further, Laird’s financial injury is theoretically redressable to the extent
that he, not the company, would be the one to receive a refund if he prevails.
The Supreme Court has interpreted 26 U.S.C. § 6402(a), the statute allowing
the IRS to give tax refunds, to mean that “All refunds made by the Secretary
under 6402(a) are paid to the person who made the overpayment.” Sorenson
v. Sec’y of the Treasury of the United States, 475 U.S. 851, 860, 106 S. Ct. 1600,
1607 (1986) (emphasis in original) (internal quotation marks omitted). In
short, Laird has standing.



       5 The name “Troy Laird” may be a clerical error, given that Mr. Barnes refers to his
client as “Tony Laird” in correspondence, and that the Plaintiff’s name on the case caption is
“Anthony Laird.” In any event, none of the checks list the company as the remitter.

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                                  No. 18-60735
II. The Statute of Limitations
      The Government contends that the Internal Revenue Code’s statute of
limitations bars Laird from recovering any amount beyond $46,500.              The
Government is correct.
      “Under settled principles of sovereign immunity, the United States, as
sovereign, is immune from suit, save as it consents to be sued . . . and the terms
of its consent to be sued in any court define that court’s jurisdiction to entertain
the suit. A statute of limitations requiring that a suit against the Government
be brought within a certain time period is one of those terms.” United States
v. Dalm, 494 U.S. 596, 608, 110 S. Ct. 1361, 1368 (1990) (internal quotation
marks and citations omitted).
      Under the Internal Revenue Code’s statute of limitations, a “claim for
credit or refund of an overpayment of any tax imposed by this title in respect
of which tax the taxpayer is required to file a return shall be filed by the
taxpayer within 3 years from the time the return was filed or 2 years from the
time the tax was paid, whichever of such periods expires the later.”
26 U.S.C.§ 6511(a); see Dalm, 494 U.S. at 609, 110 S. Ct. at 1368.
      Here, the company’s relevant tax return was filed on September 11,
2006. In September 2015, Laird and the company each filed an administrative
claim seeking a refund. More than three years passed between the time the
return was filed and the time Laird sought a refund. Laird may not recover
via the three-year provision.
      If a refund claim is not filed within the three-year period, then “the
amount of the credit or refund shall not exceed the portion of the tax paid
during the 2 years immediately preceding the filing of the claim.” 26 U.S.C.
§ 6511(b)(2)(B).   Consequently, Laird may only recover payments made
between September 2013 and September 2015.               The company’s Account
Transcript from the IRS shows that the only payments made within this time
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                                       No. 18-60735
period were the three checks totaling $46,500 in 2014. Because no other
payments were made within the limitations period, any recovery beyond
$46,500 is barred by the statute of limitations. The court lacks jurisdiction
over the remaining $5,538.12 of Laird’s $52,038.12 claim. 6
      It should also be noted that the $145,000 Trust Fund Recovery Penalty
payment is not part of Laird’s refund claim. It is true that Laird made that
payment in January 2015, within the limitations period.                However, that
payment does not come within the definition of Laird’s claim.                   Laird’s
complaint asserts that the $52,038.12 represents the “total of all credits for tax
period ending June 30, 2006 applied to the non-trust fund portion of
employment tax liabilities of the taxpayer for other tax periods.” The Account
Transcript for the company’s tax period ending June 30, 2006, which is
attached to the amended complaint, does not show the $145,000 payment, so
it was not applied to that tax period. Moreover, the IRS never proposed to
assess a Trust Fund Recovery Penalty against Laird for the second quarter of
2006. Rather, it proposed (and Laird paid) the penalty for various quarters
from the third quarter of 2006 to 2010. Accordingly, Laird’s claim does not
encompass the funds from the Trust Fund Recovery Penalty.
III. The Refund Claim
      On the merits, Laird contends that the IRS owes him a refund because
it disregarded the instructions to apply his $46,500 payment only to the
company’s trust fund liabilities.             The Government responds that the IRS
merely exercised its right of setoff by reallocating the $46,500 overpayment
from the second quarter of 2006 to the non-trust fund portions of the company’s
taxes for other quarters in order to partially satisfy the company’s other debts.
And indeed, the IRS could not use those funds to pay trust fund liability


      6
          $52,038.12 - $46,500 = $5,538.12.
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                                  No. 18-60735
because Laird’s Trust Fund Recovery Penalty had already satisfied that debt.
What this case boils down to is whether, under these particular facts, Laird’s
written instructions or the IRS’s right of setoff prevails.
      Generally, the IRS must follow a taxpayer’s written instructions as to
how a payment should be applied. This rule, called the voluntary partial
payment rule, predates 2002 but is now memorialized as Internal Revenue
Procedure 2002-26. It states:
      If additional taxes, penalty, and interest for one or more taxable
      periods have been assessed against a taxpayer . . . at the time the
      taxpayer voluntarily tenders a partial payment that is accepted by
      the Service and the taxpayer provides specific written instructions
      as to the application of the payment, the Service will apply the
      payment in accordance with those directions.

Rev. Proc. 2002-26 §3.01; see Wood v. United States, 808 F.2d 411, 416 (5th Cir.
1987) (“It is well established that in the absence of a direction by the taxpayer
the IRS can apply a payment to any outstanding tax liability of the
taxpayer. . . . But if a taxpayer directs that a payment be applied in a certain
manner, the IRS must abide by the taxpayer’s direction.”).
      But the IRS also has a statutory right of setoff. “In the case of any
overpayment, the Secretary, within the applicable period of limitations, may
credit the amount of such overpayment, including any interest allowed
thereon, any liability in respect of an internal revenue tax on the part of the
person who made the overpayment and shall . . . refund any balance to such
person.” 26 U.S.C. § 6402(a)(emphasis added). Thus, “the IRS’ right to setoff
derives from Section 6402(a) of the Internal Revenue Code . . . which provides
that generally a party is only entitled to a tax refund of the amount which
exceeds any outstanding liabilities.” In re Davis, 889 F.2d 658, 661 (5th Cir.
1989); see also Estate of Bender v. C.I.R., 827 F.2d 884, 888 (3d Cir. 1987)
(“Both reason and logic persuade us that before an individual may claim that

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                                 No. 18-60735
he has an income tax refund asset he must demonstrate that he does not owe
more money to the IRS than the IRS owes him.”). In other words, a taxpayer
is not necessarily entitled to a refund simply because he has made an
overpayment. If a taxpayer has overpaid one part of his taxes while remaining
liable for other taxes, he may only receive a refund if, in total, the IRS owes
him more money than he owes the IRS.
      According to the IRS, the voluntary payment rule yields to its setoff right
in the case of taxpayer overpayments.         In United States v. Ryan, the
Government argued that:
      under the voluntary payment rule, when a taxpayer who has
      outstanding tax liabilities voluntarily makes a payment, the IRS
      will usually honor a taxpayer’s request about how to apply that
      payment.     However, the government distinguishes partial
      payments of delinquent tax debts, to which no statute applies and
      to which the IRS applies its voluntary payment rule, from
      overpayments, which are governed by the clear rule of § 6402(a)
      and implementing regulations. Stating the government’s position
      another way: the voluntary payment rule applies when a taxpayer
      voluntarily makes a partial payment on his tax liabilities and
      designates the liability which should be credited at the time the
      payment is made; on the other hand, § 6402(a), and not the
      voluntary payment rule, applies to money that comes into the
      hands of the government because of overpayment of a particular
      liability.


64 F.3d 1516, 1522 (11th Cir. 1995) (emphasis in original). The Eleventh
Circuit ultimately adopted the Government’s argument.          Id. at 1523.    It
explained that
      because both parties agree that the statute, § 6402(a), plainly gives
      the IRS the discretion to apply overpayments to any tax liability,
      the issue in this case is a narrow one: whether the IRS, despite
      this statutory grant of authority, has administratively decided to
      restrict its discretion and abide by the voluntary payment rule
      when a taxpayer makes an overpayment. Whatever may be the
      situation with tax payments other than overpayments . . . we hold
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                                No. 18-60735
      that the government has convincingly demonstrated that the IRS
      has not administratively restricted its authority to decide how to
      allocate overpayments. In other words, the IRS has not extended
      its voluntary payment rule to overpayments.

Id. at 1523; see also Bryant v. C.I.R., 97 T.C.M. (CCH) 1384, *4 (2009)
(“[S]ection 6402(a) and the regulations promulgated thereunder demonstrate
that a taxpayer’s right to designate the application of his voluntary payment
does not extend to an overpayment reported on a return.”); United States v.
Lavi, No. 02-CV-6299, 2004 WL 2482323, at *7 (E.D.N.Y. 2004) (“[T]he
voluntary payment rule applies when a taxpayer voluntarily makes a partial
payment on his tax liabilities and designates at the time of payment the
liability that is to be credited; conversely, Section 6402(a) and not the
voluntary payment rule, applies to money that comes into the hands of the
government because of overpayment of a particular liability.”) (citing Ryan,
64 F.3d at 1522−23). These courts have held that the IRS is not bound by a
taxpayer’s written instructions in the event of an overpayment, in contrast to
a voluntary partial payment. Pursuant to Ryan, the fact that IRS disregarded
“the taxpayer’s” written instructions in deciding how the refund should be
applied, a decision arguably contrary to Rev. Proc. 2002-26, Sec. 3.01, would
not be improper.
      Although we pay close attention to sister circuits’ authorities, we need
not reach the application of Ryan at this point because an important fact may
exist that would render both § 6402(a) and Ryan inapplicable: Laird may have
used his own funds, not those of the company, to pay taxes on behalf of Laird
Electric, a separate corporate entity. Recall what § 6402(a) says. IRS “may
credit the amount of such overpayment . . . against any liability in respect of
an internal revenue tax on the part of the person who made the overpayment.”
26 U.S.C. § 6402(a) (emphasis added). That language does not permit the IRS

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                                      No. 18-60735
to offset one person’s tax debt with another person’s payments. Rather, the
IRS may offset the tax liabilities of the person who made the overpayment.
And indeed, Ryan was a case about individuals who had overpaid their own
income taxes and asked the IRS to apply their overpayment to the previous tax
year; no separate entity was involved. Ryan, 64 F.3d at 1517.
       Laird’s complaint and accompanying checks, as noted above, may be read
to state that Laird, the remitter of the cashier’s checks, used his own money to
pay the corporation’s relevant trust fund taxes. If further factual development
corroborates that Laird’s personal resources covered those checks, then Ryan
is distinguishable and under the plain language of § 6402(a), IRS would owe
Laird $46,500.       Unfortunately, we cannot be sure whether Laird or his
company underwrote those checks. Mr. Barnes, at oral argument on appeal,
claimed not to know whose funds were paid to the bank for the cashier’s checks.
Further, throughout the amended complaint, both Laird, and occasionally
Laird Electric, are referred to as the “taxpayer.” 7 In short, we cannot review
Laird’s claim without knowing whether he or the company paid the taxes for
which refund is now claimed. 8 The district court will have to sort this out on
remand.




       7
         Laird’s amended complaint specifically purports to identify him as “taxpayer,”
Introduction, and Laird Electric Company as “Corporation,” par. 7. Later, the terminology
becomes confused. Compare, for instance, “When the taxpayer’s representative contacted the
IRS with respect to this additional assessment….” Par. 39, and “Further, the IRS erroneously
assessed the taxpayer additional tax…” Par. 51, with “Later, the taxpayer paid the trust fund
portion owed for all tax periods at issue beyond June 30, 2006.” Par. 53.

       To be clear, nothing in our analysis affects or draws in question Laird’s personal
       8

payment of more than $145,000 wherewith he accepted responsibility for trust fund taxes.
That payment plays no part in our analysis, nor is it material on remand.
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                              No. 18-60735
                            CONCLUSION
     For the foregoing reasons, the judgment of the district court is
VACATED in part, DISMISSED in part for lack of jurisdiction, and
REMANDED for further proceedings consistent with this opinion.




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