In 1998, a U.S. district court held that the imposition of the coal excise tax, or black lung excise tax, on coal destined for export was unconstitutional. The process of refunding the tax has been controversial. This is because some coal producers and exporters have attempted to bypass the limitations in the Internal Revenue Code's refund scheme for bringing suit under the Export Clause in the Court of Federal Claims, seeking damages from the United States in the amount of coal excise taxes paid. The Federal Circuit Court of Appeals held the court had jurisdiction under the Tucker Act to hear the suits and allowed them as an alternative to the Code's refund process. However, in a 2008 decision, United States v. Clintwood Elkhorn Mining Co., the Supreme Court unanimously held that taxpayers must comply with the Code's administrative refund process before bringing suit. Meanwhile, H.R. 1762 and S. 373 would provide an alternative method for taxpayers to receive coal excise tax refunds

Lunder, Erika

This report is on Coal Excise Tax Refunds: United States v. Clintwood Elkhorn Mining Co

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Coal Excise Tax Refunds: United States v. Clintwood Elkhorn Mining Co.

1 See CRS Report RS21935, The Black Lung Excise Tax on Coal, by Salvatore Lazzari.2 U.S. CONST. art. I, § 9, cl. 5.3 Ranger Fuel Corp. v. United States, 33 F. Supp. 2d 466 (E.D. Va. 1998).4 See IRS Notice 2000-28, 2000-1 C.B. 1116.Order Code RS22881May 16, 2008Coal Excise Tax Refunds: United States v.Clintwood Elkhorn Mining Co.Erika LunderLegislative AttorneyAmerican Law DivisionSummaryIn 1998, a U.S. district court held that the imposition of the coal excise tax, or blacklung excise tax, on coal destined for export was unconstitutional.  The process ofrefunding the tax has been controversial.  This is because some coal producers andexporters have attempted to bypass the limitations in the Internal Revenue Code’s refundscheme by bringing suit under the Export Clause in the Court of Federal Claims, seekingdamages from the United States in the amount of coal excise taxes paid.  The FederalCircuit Court of Appeals held the court had jurisdiction under the Tucker Act to hear thesuits and allowed them as an alternative to the Code’s refund process.  However, in a2008 decision, United States v. Clintwood Elkhorn Mining Co., the Supreme Courtunanimously held that taxpayers must comply with the Code’s administrative refundprocess before bringing suit. Meanwhile, H.R. 1762 and S. 373 would provide analternative method for taxpayers to receive coal excise tax refunds.Internal Revenue Code (IRC) § 4121 imposes an excise tax on domestically-minedcoal when it is sold by the producer to the first purchaser.  The producer is liable for thetax, but may pass it along to others through an increase in the coal’s purchase price; thus,it is possible that the producer does not actually bear the burden of the tax.1The Constitution’s Export Clause states that “No Tax or Duty shall be laid onArticles exported from any State.”2  Nonetheless, the coal excise tax was imposed on coaldestined for export.  In 1998, a federal district court held that the tax on such coal clearlyviolated the Export Clause.3  In 2000, the IRS acquiesced and stopped imposing the taxon coal that was in the stream of export when sold by the producer and actually exported.4CRS-25 See I.R.C. § 6511(a).6 See I.R.C. § 6402(a) (“In the case of any overpayment, the Secretary ... may credit the amountof such overpayment ... against any liability in respect of an internal revenue tax on the part ofthe person who made the overpayment [i.e., the producer] and shall ... refund any balance to suchperson”); I.R.C. § 6416(c) (“the amount of any [manufacturers excise] tax ... erroneously orillegally collected in respect of any article exported to a foreign country or shipped to apossession of the United States may be refunded to the exporter or shipper thereof, if the personwho paid such tax waives his claim to such amount”).  See also IRS Notice 2000-28, 2000-1 C.B.1116 (mimicking the statutory ordering of refund claims).7 I.R.C. § 6416(c).8 See IRS Chief Counsel Advice 200211043 (February 5, 2002) (indicating the IRS was unawareof any producers waiving their claim as of February 2002).9 See I.R.C. § 6416(a); IRS Notice 2000-28, 2000-1 C.B. 1116.10 28 U.S.C. § 1491(a)(1).11 See 28 U.S.C. § 2501; Venture Coal Sales Co. v. United States, 370 F.3d 1102, 1105 (Fed. Cir.2004) (stating a claim accrued for Tucker Act purposes each time the coal excise tax was paid).Claims for Refunds Under the IRC.  The IRC provides a process by whichtaxpayers who paid the unconstitutional tax may file for a refund from the IRS.  The claimmust be made within three years from the time the excise tax return was filed or two yearsfrom the time the tax was paid, whichever is later.5  The producer that paid the tax hasfirst claim to any refund.6  Exporters may claim refunds only “if the person who paid suchtax [i.e., the producer] waives his claim to such amount.”7  This may preclude tax refundsbeing claimed by exporters because it may be unlikely that coal producers would waivetheir rights to such claims.8  A taxpayer filing a refund claim must establish that it: (1) didnot include the tax in the coal’s purchase price or otherwise collect the tax from thepurchaser; (2) has repaid, in the event the burden of the tax was shifted, the amount of taxto the ultimate purchaser; or (3) has filed the ultimate purchaser’s written consent for therefund with the IRS.9 Claims for Damages Under the Export Clause.  Some coal producers andexporters have brought suits under the Export Clause seeking damages from the UnitedStates in the amount of unconstitutional coal excise taxes they paid.  They have broughtthe suits in the Court of Federal Claims, arguing that it has jurisdiction to hear them underthe Tucker Act.  That act grants the court jurisdiction over “any claim against the UnitedStates founded either upon the Constitution, or any Act of Congress or any regulation ofan executive department, or upon any express or implied contract with the United States,or for liquidated or unliquidated damages in cases not sounding in tort.”10Taxpayers have used these suits as a way to bypass two limitations in the IRC refundprocess.  First, the Tucker Act has a longer statute of limitations — six years from thetime the tax is paid11 — than the IRC.  Thus, by bringing these suits, taxpayers could seekdamages for taxes paid in the several years preceding the years for which they couldreceive IRC refunds.  Second, the Tucker Act, unlike the IRC, does not give priority toproducers’ claims.  Thus, it potentially allowed parties farther down the supply chain (e.g.,exporters) to bring claims alleging they deserved damages because they bore theeconomic burden of the tax. CRS-312 United States v. Mitchell, 463 U.S. 206, 216 (1983) (internal quotations and citations omitted).13 See id; United States v. Testan, 424 U.S. 392, 398, 400 (1976).14 See I.R.C. § 7422(a) (“No suit or proceeding shall be maintained in any court for the recoveryof any internal revenue tax alleged to have been erroneously or illegally assessed or collected ...until a claim for refund or credit has been duly filed with the Secretary ... ”).15 See I.R.C. § 6532(a).16 205 F.3d 1369 (Fed. Cir. 2000), cert. denied, 532 U.S. 1065 (2001).17 See 205 F.3d at 1373-74.18 See id. at 1374.19 See Ontario Power Generation, Inc. v. United States, 369 F.3d 1298 (Fed. Cir. 2004).20 See Emerald International Corp. v. United States, 54 Fed. Cl. 674 (Fed. Cl. 2002); OntarioPower Generation, Inc. v. United States, 54 Fed. Cl. 630 (Fed. Cl. 2002), aff’d on other groundsby 369 F.3d 1298 (Fed. Cir. 2004).21 Allen v. Wright, 468 U.S. 737, 751 (1984).A threshold issue has been whether the Court of Federal Claims can hear these suits.The Tucker Act only confers jurisdiction — it “does not create any substantive rightenforceable against the United States for money damages.”12  Thus, the substantive rightmust be found in another source of law.13  In the coal excise tax situation, the question iswhether the Export Clause provides a right to monetary damages when the governmentviolates it.  If the answer is yes, a related question is whether such a claim could be madeindependently of an IRC refund claim.  If not, then taxpayers would have to file a timelyrefund claim with the IRS according to the rules in the IRC,14 and then wait six monthsunless the IRS made a determination prior to that date,15 before bringing suit.  In Cyprus Amax Coal Co. v. United States,16 the Court of Appeals for the FederalCircuit addressed the jurisdictional question.  The court’s holding had two basiccomponents.  The first was that the Export Clause was a money-mandating provision, asrequired for Tucker Act jurisdiction.17  The second was that a cause of action founded ina violation of the Export Clause was self-executing.18  This meant the Clause provided aseparate cause of action so that a taxpayer could bring a suit for damages independent ofan IRC administrative refund claim.   In a later case, the court clarified that the ExportClause was not a money-mandating provision for all parties seeking coal excise taxrefunds.19  In that case, the court held that the Tucker Act did not provide jurisdiction tohear the claim of an ultimate purchaser that, although alleging it paid the tax throughhigher coal prices, did not directly pay the tax to the government. After the Cyprus Amax decision answered the question of its jurisdiction under theTucker Act, the Court of Federal Claims heard several cases brought by coal brokers andultimate purchasers that it dismissed due to lack of constitutional standing.20  To havestanding to bring suit, “[a] plaintiff must allege personal injury fairly traceable to thedefendant’s allegedly unlawful conduct and likely to be redressed by the requestedrelief.”21  The parties alleged that they were injured by the government’s unconstitutionalimposition of the coal excise tax because the burden of the tax was shifted to them by coalproducers charging higher prices for coal.  The Court of Federal Claims found therequisite causal relationship between this injury and the government’s action to beCRS-422 See Ontario Power Generation, Inc. v. United States, 369 F.3d 1298 (Fed. Cir. 2004).23 553 U.S. ___ (2008).24 Clintwood Elkhorn Mining Co. v. United States, 473 F.3d 1373, 1376 (Fed. Cir. 2007).25 Id. at 1374-75.26 I.R.C. § 7422(a) (“No suit or proceeding shall be maintained in any court for the recovery ofany internal revenue tax alleged to have been erroneously or illegally assessed or collected ...until a claim for refund or credit has been duly filed with the Secretary ...”); I.R.C. § 6511(a), (b)(applying the IRC’s limitations period to refunds for “any tax imposed by this title” anddisallowing any refund “unless a claim for credit or refund is filed by the taxpayer within suchperiod”).27 Clintwood Elkhorn, No. 07-308, slip. op. at 4, 5(“[W]e cannot imagine what language couldmore clearly state that taxpayers seeking refunds of unlawfully assessed taxes must comply withthe Code’s refund scheme before bringing suit, including the requirement to file a timelyadministrative claim.”).28 Id. at 6 (quoting United States v. A.S. Kreider Co., 313 U.S. 443, 447 (1941)).lacking.  This was because it was the independent actions of the producers thatdetermined whether the parties paid any amount of the unconstitutional tax.  Thus, underthe court’s decisions, these parties would not be able to bypass the IRC refund process bybringing suit under the Export Clause.  As noted, the Federal Circuit Court of Appealsalso raised a barrier to claims by non-producer parties by holding there was no Tucker Actjurisdiction to hear the claim of an ultimate purchaser who did not actually pay the tax tothe government.22United States v. Clintwood Elkhorn Mining Co.On April 15, 2008, the Supreme Court held in United States v. Clintwood ElkhornMining Co.23 that taxpayers must comply with the IRC refund process before bringingsuit.  The taxpayers in that case had filed administrative refund claims for the three taxyears open under the IRC’s statute of limitations and filed suit in the Court of FederalClaims seeking the amount of taxes paid for the three previous years that were open onlyunder the Tucker Act’s longer limitations period.  The Court of Appeals for the FederalCircuit had allowed their suit and denied the government’s request to reverse its CyprusAmax holding, which allowed taxpayers to sue under the Export Clause independent ofthe IRC’s refund process.24   The appeals court said that the issue had been “fully aired”in Cyprus Amax and it could “discern no basis for reopening this question.”25The Supreme Court, in a unanimous decision, held that the plain language of therelevant IRC provisions, § 7422 and § 6511,26 clearly required that the taxpayers make atimely refund claim with the IRS before bringing suit.27  The Court also stated that it hadbasically decided the issue in a 1941 case where it had reasoned that the Tucker Act’sstatute of limitations was simply “‘an outside limit’” which Congress could shorten insituations requiring “‘special considerations,’” such as tax refunds because “‘suits againstthe United States for the recovery of taxes impeded effective administration of therevenue laws.’”28  The Court noted that it had explained in that case that the IRC’s refundCRS-529 Id. (quoting A.S. Kreider, 313 U.S. at 448).30 Id. at 7.31 Id. at 7-9.32 Id. at 9-10 (quoting McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Fla.Dept. of Business Regulation, 496 U.S. 18, 37 (1990)).33 Id. at 11.34 Thus, the decision could call into question the validity of a prior Federal Circuit case, Hatterv. United States, 953 F.2d 626 (Fed. Cir. 1992), where the court held that the CompensationClause provided a separate cause of action that allowed Article III judges to bring a claim seekingdamages for amounts withheld in social security taxes, independent of the IRC refund process.provisions would have “‘no meaning whatever’” if taxpayers who did not comply withthose provisions could still bring refund suits under the Tucker Act.29The Court did not address whether the Export Clause provided a cause of action thatcould be brought under the Tucker Act, finding that the IRC refund provisions wouldapply regardless of the answer to that question.30  Noting that it was clear from its pastcases that unconstitutionally-collected taxes could be subject to the same administrativerequirements as other taxes, the Court rejected the taxpayers’ argument that somethingunique about the Export Clause required different treatment.31  The Court explained thatwhile the government may not impose unconstitutional taxes, it may create anadministrative process to refund such taxes because of its “‘exceedingly strong interestin financial stability’” regardless of whether the tax violated the Export Clause or someother provision.32  The Court also rejected the taxpayers’ claim that the IRC refundscheme could not apply to facially unconstitutional taxes, finding the plain language ofIRC § 7422 clearly included such taxes.33There appear to be two primary impacts of the Court’s decision in ClintwoodElkhorn.  The first is that taxpayers seeking refunds for the unconstitutionally-imposedcoal excise tax must file refund claims with the IRS, subject to the IRC’s limitations.Thus, taxpayers are subject to the shorter statute of limitations and parties other thanproducers may only seek a refund if the producer has waived its right to the refund.Second, while the decision dealt with the Export Clause and coal excise tax, the Court’sanalysis seems broadly applicable to refund claims in general, including those based onviolations of other constitutional provisions.34Legislation in the 110th CongressH.R. 1762 and S. 373 would provide an alternative administrative refund procedure,separate from the existing IRC refund scheme, under which coal producers and exporterscould be refunded the unconstitutionally-imposed coal excise tax.  In order to claim therefund, a “coal producer” would have to establish that it, or a related party, exported coalto a foreign country or shipped it to a U.S. possession through means other than by an“exporter.”  An “exporter,” meanwhile, would have to establish that it exported coal toa foreign country or shipped it to a U.S. possession, or caused the coal to be exported orshipped.  Additionally, the producer or exporter would need to (1) have filed an excise taxCRS-6return between October 1, 1990, and the date of the act’s enactment, and (2) file a claimfor the refund within 30 days of the act’s enactment.The Treasury Secretary would have to determine whether the refund requirementswere met within 180 days of the claim being filed.  Once the Secretary determined arefund was owed, the refund, with interest, would have to be made within 180 days.Refunds to coal producers would equal the amount of coal excise tax paid.  Refunds toexporters would equal $0.825 per ton of exported coal.  Refund claims could only bemade for coal exported between October 1, 1990, and the date of the act’s enactment.  Norefund would be allowed if one had already been made or there was a settlement betweenthe government and producer or exporter.“Coal producer” would be defined as the person in whom the ownership of the coalis vested immediately after it is severed from the ground.  “Exporter” would mean aperson other than a coal producer who does not have a contract, fee arrangement or anyother agreement with a producer or seller to sell or export the coal to a third party andwho either (1) is documented as the exporter of record or (2) actually exported or shippedthe coal or caused such export or shipment.The legislation specifically states it would not give exporters standing to commenceor intervene in any judicial or administrative proceeding concerning a refund claim by acoal producer of any federal or state tax, fee, or royalty paid by the producer.  Similarly,it would not confer standing to coal producers with respect to any proceeding in whichan exporter is seeking a refund for any tax, fee, or royalty paid by the producer and allegedto have been passed on to the exporter.It appears the legislation’s proposed refund process would have three significantimpacts.  First, it would allow taxpayers to seek refunds for taxes paid in years not openunder current law.  Currently, taxpayers must file a refund claim within three years fromthe time the excise tax return was filed or two years from the time the tax was paid,whichever is later.  The Supreme Court’s holding in Clintwood Elkhorn makes clear thattaxpayers may not claim refunds for years outside of this period.  The legislation,however, would allow refunds back to 1990 so long as the taxpayer filed the claim within30 days of the act’s enactment and met the other requirements.  Second, the legislationcould expand the opportunity for exporters to claim refunds, in part because it would notrequire the producer to waive its claim to the refund in order for the exporter to file aclaim.  This may be limited, however, by the requirement to file a timely excise tax returnas it may be unclear the extent to which exporters have filed these returns.  Third, thelegislation would impose short time limits for the taxpayers and IRS to act on the refundclaims.  Thus, the legislation would encourage quick resolution of the claims, althoughadministrative issues could arise due to the requirement that refunds not be paid twice onthe same coal and the legislation’s silence on the issue of contestability.

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Coal Excise Tax Refunds: United States v. Clintwood Elkhorn Mining Co.

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