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

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

In 1998, a U.S. district court held that the imposition of the coal excise tax, or black lung excise
tax, on exported coal was unconstitutional. Refunding the tax has been controversial. This is
because some coal producers and exporters attempted to bypass the limitations in the Internal
Revenue Code’s refund scheme by 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 there was Tucker Act jurisdiction to hear some of 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 held that taxpayers must
comply with the Code’s refund process. Meanwhile, several bills would provide an alternative
method for coal excise tax refunds, including the amended version of H.R. 6049 (Energy
Improvement and Extension Act of 2008) that was passed by the Senate on September 23, 2008,
and H.R. 7060 (Renewable Energy and Job Creation Tax Act of 2008), which was passed by the
House on September 26, 2008.

Claims for Refunds Under the IRC.................................................................................................1
Claims for Damages Under the Export Clause................................................................................2
United States v. Clintwood Elkhorn Mining Co..............................................................................3
Legislation in the 110^th Congress....................................................................................................4
Author Contact Information............................................................................................................5

nternal Revenue Code (IRC) § 4121 imposes an excise tax on domestically-mined coal when
it is sold by the producer to the first purchaser. The producer is liable for the tax, but may pass
it along to others through an increase in the coal’s purchase price; thus, it is possible that the ¹I

producer does not actually bear the burden of the tax.
The Constitution’s Export Clause states that “No Tax or Duty shall be laid on Articles exported ²
from any State.” Nonetheless, the coal excise tax was imposed on coal destined for export. In ³
1998, a federal district court held that the tax on such coal clearly violated the Export Clause. In

2000, the IRS acquiesced and stopped imposing the tax on coal that was in the stream of export ⁴

when sold by the producer and actually exported.

The IRC provides a process by which taxpayers who paid the unconstitutional tax may file for a
refund from the IRS. The claim must be made within three years from the time the excise tax ⁵
return was filed or two years from the time the tax was paid, whichever is later. The producer ⁶
that paid the tax has first claim to any refund. Exporters may claim refunds only “if the person ⁷
who paid such tax [i.e., the producer] waives his claim to such amount.” A taxpayer filing a
refund claim must establish that it: (1) did not include the tax in the coal’s purchase price or
otherwise collect the tax from the purchaser; (2) has repaid, in the event the tax burden was
shifted, the amount of tax to the ultimate purchaser; or (3) has filed the ultimate purchaser’s ⁸
written consent for the refund with the IRS. Taxpayers seeking a refund in court must first file a

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timely refund claim with the IRS and then wait six months, unless the IRS makes a determination ⁹
prior to that date, before bringing suit.

Some coal producers and exporters brought suits under the Export Clause seeking damages from
the United States in the amount of unconstitutional coal excise taxes they paid. They brought the
suits in the Court of Federal Claims, arguing that it had jurisdiction to hear them under the Tucker
Act. That act grants the court jurisdiction over “any claim against the United States founded
either upon the Constitution, or any Act of Congress or any regulation of an executive
department, or upon any express or implied contract with the United States, or for liquidated or ¹⁰
unliquidated damages in cases not sounding in tort.”
Taxpayers used these suits as a way to bypass two limitations in the IRC refund process. First, the ¹¹
Tucker Act has a longer statute of limitations—six years from the time the tax is paid—than the
IRC. This allowed taxpayers to seek damages for taxes paid in the several years preceding the
years for which they could receive IRC refunds. Second, the Tucker Act, unlike the IRC, does not
give priority to producers’ claims. Thus, it potentially allowed parties farther down the supply
chain (e.g., exporters) to bring claims alleging they deserved damages because they bore the
economic burden of the tax.
A threshold issue has been whether the Court of Federal Claims could hear these suits. The
Tucker Act only confers jurisdiction—it “does not create any substantive right enforceable ¹²
against the United States for money damages.” Thus, the substantive right must be found in ¹³
another source of law. One question has been whether the Export Clause provides a right to
monetary damages when the government violates it. If the answer is yes, a related question has
been whether such a claim could be made independently of an IRC refund claim. If not, then
taxpayers would need to meet the IRC’s more stringent requirements.
In Cyprus Amax Coal Co. v. United States,¹⁴ the Court of Appeals for the Federal Circuit
addressed the jurisdictional question. The court’s holding had two components. The first was that ¹⁵
the Export Clause was a money-mandating provision, as required for Tucker Act jurisdiction.
The second was that a cause of action founded in a violation of the Export Clause was self-¹⁶
executing. This meant the Clause provided a separate cause of action so that a taxpayer could
bring a suit for damages independent of an IRC administrative refund claim. In a later case, the
court clarified that the Export Clause was not a money-mandating provision for all parties seeking ¹⁷
coal excise tax refunds. In that case, the court held that the Tucker Act did not provide

⁹^Se^e^I.R.C.^§^§⁷⁴²²^{(a), 6}⁵³²^(a).
¹⁰^{28 U}^.^S.C^.^§¹⁴⁹¹⁽^a⁾⁽¹⁾^.
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jurisdiction to hear the claim of an ultimate purchaser who alleged it had paid the tax through
higher coal prices but did not directly pay the tax to the government.
After the Cyprus Amax decision answered the question of its jurisdiction under the Tucker Act,
the Court of Federal Claims heard several cases brought by coal brokers and ultimate purchasers ¹⁸
that it dismissed due to lack of constitutional standing. To have standing, “[a] plaintiff must
allege personal injury fairly traceable to the defendant’s allegedly unlawful conduct and likely to ¹⁹
be redressed by the requested relief.” The parties alleged that they were injured by the
government’s unconstitutional imposition of the coal excise tax because the burden of the tax was
shifted to them by coal producers charging higher prices for coal. The Court of Federal Claims
found the requisite causal relationship between this injury and the government’s action to be
lacking. This was because it was the independent actions of the producers that determined
whether the parties paid any amount of the unconstitutional tax. As noted, the Federal Circuit
Court of Appeals also raised a barrier to claims by non-producer parties by holding there was no
Tucker Act jurisdiction to hear the claim of an ultimate purchaser who did not actually pay the tax ²⁰
to the government.

In a 2008 decision, United States v. Clintwood Elkhorn Mining Co.,²¹ the Supreme Court held that
taxpayers seeking refunds for the unconstitutionally-imposed coal excise tax must comply with
the IRC refund process. The taxpayers in that case had filed administrative refund claims for the
three tax years open under the IRC’s statute of limitations and filed suit in the Court of Federal
Claims seeking the amount of taxes paid for the three previous years that were open only under
the Tucker Act’s longer limitations period. The Court of Appeals for the Federal Circuit had ²²
allowed their suit and denied the government’s request to reverse its Cyprus Amax holding. The
appeals court said that the issue of whether taxpayers could bring suit under the Export Clause
without complying with the IRC refund scheme had been “fully aired” in Cyprus Amax and it ²³
could “discern no basis for reopening this question.”
The Supreme Court, in a unanimous decision, held that the plain language of the relevant IRC ²⁴
provisions, § 7422 and § 6511, clearly required that the taxpayers file a timely refund claim with ²⁵
the IRS before bringing suit. The Court stated that it had basically decided the issue in a 1941

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case where it had reasoned that the Tucker Act’s statute of limitations was simply “‘an outside
limit’” which Congress could shorten in situations requiring “‘special considerations,’” such as
tax refunds because “‘suits against the United States for the recovery of taxes impeded effective ²⁶
administration of the revenue laws.’” The Court noted that it had explained in that case that the
IRC’s refund provisions would have “‘no meaning whatever’” if taxpayers who did not comply ²⁷
with those provisions could still bring refund suits under the Tucker Act.
The Court did not address whether the Export Clause provided a cause of action that could be
brought under the Tucker Act, finding that the IRC refund provisions would apply regardless of ²⁸
the answer to that question. Noting that it was clear from its past cases that unconstitutionally-
collected taxes could be subject to the same administrative requirements as other taxes, the Court
rejected the taxpayers’ argument that something unique about the Export Clause required different ²⁹
treatment. The Court explained that while the government may not impose unconstitutional
taxes, it may create an administrative process to refund such taxes because of its “‘exceedingly
strong interest in financial stability,’” regardless of whether the tax violated the Export Clause or ³⁰
some other provision of the Constitution. The Court also rejected the taxpayers’ claim that the
IRC refund scheme could not apply to facially unconstitutional taxes, finding the plain language ³¹
of IRC § 7422 clearly included such taxes.
There appear to be two primary impacts of the Court’s decision in Clintwood Elkhorn. The first is
that taxpayers seeking refunds for the unconstitutionally-imposed coal 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 non-producer parties may only seek a refund if the producer who paid
the tax has waived its right to the refund. Second, the Court’s analysis seems broadly applicable
to refund claims in general, including those based on violations of other constitutional ³²
provisions.

The Senate-passed version of H.R. 6049, § 114 (Energy Improvement and Extension Act of 2008)
and H.R. 7060, § 114 (Renewable Energy and Job Creation Tax Act of 2008), passed by the
House on September 26, 2008, would provide an alternative administrative procedure for ³³
refunding the unconstitutionally-imposed coal excise tax. In order to claim a refund, a coal
producer would have to establish that it, or a related party, exported coal produced by it to a

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foreign country or shipped it to a U.S. possession, or caused such export or shipment, through
means other than by an exporter that met the proposal’s requirements to file a claim. A producer
with a favorable court judgment related to the excise tax’s constitutionality would be deemed to
meet this requirement. An “exporter” would have to establish that it exported coal to a foreign
country or shipped it to a U.S. possession, or caused such export or shipment. Additionally, the
producer or exporter would need to (1) have filed a return between October 1, 1990, and the date ³⁴
of the act’s enactment, and (2) file a claim for the refund within 30 days of the enactment.
The Treasury Secretary would have to determine whether the refund requirements were met
within 180 days of a claim being filed and pay any refund owed (with interest) within 180 days of
that determination. Refunds to producers would equal the amount of coal excise tax paid on the
exported or shipped coal (minus any amount paid pursuant to a favorable court judgment
mentioned above). Refunds to exporters would equal $0.825 per ton of exported or shipped coal.
Refund claims could only be made for coal exported or shipped between October 1, 1990, and the
date of the act’s enactment. No refund would be allowed if one had already been made to any
taxpayer or there was a final settlement between the government and producer, party related to
the producer, or exporter. The Senate bill states it would not give producers or exporters standing
to commence or intervene in each other’s judicial or administrative refund claim proceedings; the
House bill does not include such a provision.
It appears the bills’ proposed refund process would have three significant impacts. First,
taxpayers would be able to seek refunds for taxes paid in years not open under current law. The
Supreme Court’s holding in Clintwood Elkhorn makes clear that current law requires that a refund
claim be filed within three years from the time the excise tax return was filed or two years from
the time the tax was paid, whichever is later. The bills would allow refunds relating to coal
exported or shipped as early as October 1990 so long as the taxpayer filed a refund claim within
30 days of the provision’s enactment and met the other requirements. Second, the bills could
expand the opportunity for exporters to claim refunds beyond that available under current law, so
long as they are able to meet the requirements. Third, the bills would impose short time limits for
the taxpayers and IRS to act on the refund claims. Thus, they would encourage quick resolution
of the claims, although administrative issues could arise due to the requirement that refunds not
be paid twice on the same coal and their silence on the issue of contestability.
^Erik^{a Lun}^d^er
^L^e^gⁱ^s^l^at^iv^{e A}^t^torn^e^y
^el^uⁿ^d^er^@^c^rs^.l^oc.g^ov^{, 7-}⁴⁵³⁸

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