Sarmiento v. United States, No. 11-3752 (2d Cir. 2012)Annotate this Case
Plaintiffs appealed an order of the district court granting in part and denying in part the motion of defendant to dismiss the complaint for failure to state a claim. Plaintiffs contended that the IRS wrongfully withheld tax refunds to which plaintiffs were entitled as the result of the IRS's misinterpretation of contractual language in Offer-in-Compromise (OIC) agreements that plaintiffs entered into with the IRS. The principal issue on appeal was whether specialized tax terms in an OIC agreement derived their meaning from the Internal Revenue Code or from ordinary "plain English." The court held that, when used in IRS standard form documents, specialized tax terms such as "refund" and "overpayment" were interpreted in light of the Internal Revenue Code. Further, tax refunds made pursuant to the Economic Stimulus Act of 2008, I.R.C. 6428, related to the 2007 tax year, and so those refunds fell with the OIC agreements' temporal limitation. Finally, plaintiffs' agreement to forfeit their interest in "any" tax refund for the 2007 tax year encompassed anticipated as well as unanticipated tax refunds. Based on these holdings, the court concluded that the IRS correctly withheld the tax refunds at issue in this action from plaintiffs under the express terms of the OIC agreements.