If you ask someone a direct question and the person responds with incorrect information, is the person bound by their misrepresentation? This raises questions of “estoppel,” which apply to most litigants. But does it apply to IRS employees who make a misrepresentation? Put another way, can you rely on statements by IRS representatives? The court addresses this in Fuller v. United States, No. 1:17-cv-238 (S.D. Ohio 2020).
Facts & Procedural History
The plaintiff was the executor of his father’s estate. He filed an estate tax return. The IRS sent the plaintiff a notice of deficiency asserting that additional estate tax was due.
The probate process was closed in September of 2007. The estate tax liability was not paid by this date.
Two years later the plaintiff visited the IRS service center to pay the estate taxes. He paid $50,000, but he did not ask how much was owed.
Several months later, the plaintiff visited the IRS service center again to make a payment. This time the plaintiff advised the IRS representative that he wanted to settle the estate tax balance. The IRS representative told him that approx. $120,000 was owed.
The plaintiff paid this amount by check, noting on the check that it was “paid in full.”
The IRS then sent collection notices for the unpaid interest and penalties accrued for the late paid estate tax.
The plaintiff paid the additional amounts, filed a refund claim, and eventually brought suit to recoup the additions to tax paid.
The Plaintiff’s Estoppel Argument
The court describes the plaintiff’s position as follows:
[He] contends that the IRS should be bound by its representative’s statement regarding the amount of the Estate taxes that were due and owing on December 11, 2009, and that the Estate is thus released of any obligation to pay any amount beyond the perceived “payment in full” that occurred that day.
The IRS attorney responded that the plaintiff was raising an estoppel argument. Estoppel is a judicial doctrine that bars one party from asserting or denying a fact contrary to their prior statement.
Estoppel is a judicial doctrine that is generally available to legal proceedings. Does it apply to a dispute with the IRS over the amount of tax penalties and interest owed?
Does Estoppel Apply to the IRS?
While estoppel applies to just about every potential party to litigation, it often does not apply to the government. The court summarized these rules as follows:
It is well established that estoppel cannot be used against the government on the same terms as against private parties.” United States v. Guy, 978 F.2d 934, 937 (6th Cir. 1992) (citing Office Pers. Mgmt. v. Richmond, 496 U.S. 414, 419 (1990)). “The party attempting to estop the government bears a very heavy burden.” Fisher v. Peters, 249 F.3d 433, 444 (6th Cir. 2001) (citing Richmond, 496 U.S. at 422). “The general rule is that reliance on misinformation provided by a government employee does not provide a basis for an estoppel.” Crown v. United States R.R. Ret. Bd., 811 F.2d 1017, 1021 (7th Cir. 1987). And, “[i]f a party claims the government is estopped from making an argument, summary judgment is appropriate in favor of the government if there is an insufficient showing for any of the estoppel arguments.” Michigan Express, Inc. v. United States, 374 F.3d 424, 426 (6th Cir. 2004) (citing Kennedy v. United States, 965 F.2d 413, 417 (7th Cir. 1992)).
The court does not say whether estoppel applies in this case. Instead, the court notes that the elements of estoppel are not satisfied here. The court notes that the plaintiff cannot show that the IRS representative engaged in misconduct or reliance on the IRS representative.
Can You Ever Rely on Representations by the IRS?
With the second element, reliance on the IRS representative, the court notes that the Federal tax system is complex and, as such, there is a “need for written records to serve as the basis for an estoppel claim.”
The court goes on to reason that “absent a writing requirement, estoppel arguments could quickly devolve into swearing contests about who said exactly what and when. Given the number of government representatives, and the number of their interactions with citizens on a daily basis, that has all the makings of chaos.”
In this case, the IRS representative provided what appears to be a post-it note with the amount of tax listed–absent any penalties and interest. It also included a written check from the exchange issued by the plaintiff noting that the estate tax was paid in full. The plaintiff did not keep the post-it note and the court did not consider the check as a written document.
The court goes on to explain that:
It is well-established that “those who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law.” Heckler, 467 U.S. at 63; Automobile Club of Mich. v. C.I.R., 353 U.S. 180, 183 (1957) (“The doctrine of equitable estoppel is not a bar to the correction by the Commissioner of a mistake of law.”). That is especially true if the citizen has the tools to figure out the correct answer on his or her own. Guy, 978 F.2d at 937. Notably, though, that forbidden form of reliance is exactly what Fuller asserts here. All agree that, even if the IRS representative stated in December 2009 that $120,558 would settle the account, that statement was “contrary to law.” Thus, it could not provide the basis for an estoppel.
There you have it. One cannot rely on oral misrepresentations by the IRS. Even if an IRS misrepresentation is reduced to writing, taxpayers are supposed to know the IRS was incorrect.
As in this case, any written IRS misrepresentation as to the amount of tax due to settle a balance–even if reduced to writing–cannot be the basis of an estoppel claim.