Equitable Estoppel Unavailable to Require Reimbursement from Treasury of Taxes Paid Under Protest

In Affordable Bio Feedstock, Inc. v United States, 2022 U.S. App. LEXIS 20577 (11th Cir. July 26, 2022), the Eleventh Circuit held that the taxpayer was not eligible for reimbursement of protest payments made to the Internal Revenue Service (“IRS”) because “payments of money from the Federal Treasury are limited to those authorized by statute.” The sole issue before the court was “whether any court may order that funds be appropriated from the Federal Treasury based on equitable estoppel without specific authorization from Congress.”

Affordable Bio Feedstock (“ABF”) was a waste-to-energy company that acquired oil and food waste from restaurants and processed it for use as alternative fuel. Section 4041(a)(2) of the Internal Revenue Code (“Code”) imposes an excise tax on certain alternative fuels, and taxpayers paying the tax are required to register for the excise tax via Form 637, which includes “activity letters” describing the activities subject to the excise tax. Pertinent to the activities of ABF, registration is required for taxpayers to claim the alternative fuel excise tax credit allowed under sections 6426 and 6427 of the Code.

ABF submitted its Form 637 applications to the IRS in 2013 requesting the appropriate registration activity letters. The IRS agent assigned to ABF’s registration request recommended that ABF’s application be approved, and the District Director subsequently approved the registration. In 2018, ABF’s registrations were revoked, and the IRS sought reimbursement of the alternative fuel tax credits that Treasury had paid to ABF, along with interest and penalties. ABF returned a portion of the tax credits it received, totaling $51,397, under protest.

ABF filed a claim for reimbursement of the “protest payments” made to the IRS, and argued that the IRS was equitably estopped from recovering the section 6427(e)(2) alternative fuel tax credits because both an IRS agent and the District Director approved ABF’s activity letter registrations. The district court rejected ABF’s argument and granted the government’s motion for summary judgment. The Eleventh Circuit, relying on the Supreme Court’s decision in Office of Personnel Management v. Richmond, 496 U.S. 414 (1990), affirmed, holding that courts may not order funds be appropriated from the Federal Treasury based on equitable estoppel without specific authorization from Congress.

In an opinion written by Judge Tjoflat and joined by Judge Wilson and Judge Branch, the court repeated its statement in Shuford v. Fidelity National Property & Casualty Insurance Co., 508 F.3d 1337 (11th Cir. 2007), that “the ‘Supreme Court has held that equitable estoppel is unavailable in a claim against the government for funds from the public treasury.’” The money to which ABF claimed it was entitled, having been returned to the IRS under protest, was within the Federal Treasury. Thus, the IRS would have to withdraw money from the Federal Treasury to pay any adverse equitable judgments. Under Richmond, the Appropriation Clause’s “explicit rule of decision” for withdrawing funds from the Federal Treasury requires that “the payment of money from the Treasury must be authorized by a statute.” Unfortunately for ABF, when its registrations were revoked, its activities no longer qualified for sections 6426 or 6427 excise tax credits. Accordingly, the return of ABF’s “protest payments” would not be “authorized by a statute.”

Posted by Mary Kate Nicholson.

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