Order Code RS22881
May 16, 2008
Coal Excise Tax Refunds: United States v.
Clintwood Elkhorn Mining Co.
Erika Lunder
Legislative Attorney
American Law Division
Summary
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 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 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.
Internal 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 producer does not actually bear the burden of the tax.1
The Constitution’s Export Clause states that “No Tax or Duty shall be laid on
Articles exported from any State.”2 Nonetheless, the coal excise tax was imposed on coal
destined for export. In 1998, a federal district court held that the tax on such coal clearly
violated the Export Clause.3 In 2000, the IRS acquiesced and stopped imposing the tax
on coal that was in the stream of export when sold by the producer and actually exported.4
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.
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Claims for Refunds Under the IRC. 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 return was filed or two years
from the time the tax was paid, whichever is later.5 The producer that paid the tax has
first claim to any refund.6 Exporters may claim refunds only “if the person who paid such
tax [i.e., the producer] waives his claim to such amount.”7 This may preclude tax refunds
being claimed by exporters because it may be unlikely that coal producers would waive
their rights to such claims.8 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 burden of the tax was shifted, the amount of tax
to the ultimate purchaser; or (3) has filed the ultimate purchaser’s written consent for the
refund with the IRS.9
Claims for Damages Under the Export Clause. Some coal producers and
exporters have brought suits under the Export Clause seeking damages from the United
States in the amount of unconstitutional coal excise taxes they paid. They have brought
the suits in the Court of Federal Claims, arguing that it has 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 unliquidated damages in cases not sounding in tort.”10
Taxpayers have used these suits as a way to bypass two limitations in the IRC refund
process. First, the Tucker Act has a longer statute of limitations — six years from the
time the tax is paid11 — than the IRC. Thus, by bringing these suits, taxpayers could 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.
5 See I.R.C. § 6511(a).
6 See I.R.C. § 6402(a) (“In the case of any overpayment, the Secretary ... may credit the amount
of such overpayment ... against any liability in respect of an internal revenue tax on the part of
the person who made the overpayment [i.e., the producer] and shall ... refund any balance to such
person”); I.R.C. § 6416(c) (“the amount of any [manufacturers excise] tax ... erroneously or
illegally collected in respect of any article exported to a foreign country or shipped to a
possession of the United States may be refunded to the exporter or shipper thereof, if the person
who 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 unaware
of 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).
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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 right
enforceable against the United States for money damages.”12 Thus, the substantive right
must be found in another source of law.13 In the coal excise tax situation, the question is
whether the Export Clause provides a right to monetary damages when the government
violates it. If the answer is yes, a related question is whether such a claim could be made
independently of an IRC refund claim. If not, then taxpayers would have to file a timely
refund claim with the IRS according to the rules in the IRC,14 and then wait six months
unless 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 Federal
Circuit addressed the jurisdictional question. The court’s holding had two basic
components. The first was that the Export Clause was a money-mandating provision, as
required for Tucker Act jurisdiction.17 The second was that a cause of action founded in
a violation of the Export Clause was self-executing.18 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 coal excise tax
refunds.19 In that case, the court held that the Tucker Act did not provide jurisdiction to
hear the claim of an ultimate purchaser that, although alleging it paid the tax through
higher coal prices, 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 that it dismissed due to lack of constitutional standing.20 To have
standing to bring suit, “[a] plaintiff must allege personal injury fairly traceable to the
defendant’s allegedly unlawful conduct and likely to be redressed by the requested
relief.”21 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
12 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 recovery
of 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); Ontario
Power Generation, Inc. v. United States, 54 Fed. Cl. 630 (Fed. Cl. 2002), aff’d on other grounds
by 369 F.3d 1298 (Fed. Cir. 2004).
21 Allen v. Wright, 468 U.S. 737, 751 (1984).
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lacking. This was because it was the independent actions of the producers that
determined whether the parties paid any amount of the unconstitutional tax. Thus, under
the court’s decisions, these parties would not be able to bypass the IRC refund process by
bringing suit under the Export Clause. 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 to
the government.22
United States v. Clintwood Elkhorn Mining Co.
On April 15, 2008, the Supreme Court held in United States v. Clintwood Elkhorn
Mining Co.23 that taxpayers must comply with the IRC refund process before bringing
suit. 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 allowed their suit and denied the government’s request to reverse its Cyprus
Amax holding, which allowed taxpayers to sue under the Export Clause independent of
the 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.”25
The Supreme Court, in a unanimous decision, held that the plain language of the
relevant IRC provisions, § 7422 and § 6511,26 clearly required that the taxpayers make a
timely refund claim with the IRS before bringing suit.27 The Court also stated that it had
basically decided the issue in a 1941 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 administration of the
revenue laws.’”28 The Court noted that it had explained in that case that the IRC’s refund
22 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 of
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 ...”); I.R.C. § 6511(a), (b)
(applying the IRC’s limitations period to refunds for “any tax imposed by this title” and
disallowing any refund “unless a claim for credit or refund is filed by the taxpayer within such
period”).
27 Clintwood Elkhorn, No. 07-308, slip. op. at 4, 5(“[W]e cannot imagine what language could
more clearly state that taxpayers seeking refunds of unlawfully assessed taxes must comply with
the Code’s refund scheme before bringing suit, including the requirement to file a timely
administrative claim.”).
28 Id. at 6 (quoting United States v. A.S. Kreider Co., 313 U.S. 443, 447 (1941)).
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provisions would have “‘no meaning whatever’” if taxpayers who did not comply with
those provisions could still bring refund suits under the Tucker Act.29
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 the answer to that question.30 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 treatment.31 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 some
other provision.32 The Court also rejected the taxpayers’ claim that the IRC refund
scheme could not apply to facially unconstitutional taxes, finding the plain language of
IRC § 7422 clearly included such taxes.33
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 parties other than
producers 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’s
analysis seems broadly applicable to refund claims in general, including those based on
violations of other constitutional provisions.34
Legislation in the 110th Congress
H.R. 1762 and S. 373 would provide an alternative administrative refund procedure,
separate from the existing IRC refund scheme, under which coal producers and exporters
could be refunded the unconstitutionally-imposed coal excise tax. In order to claim the
refund, a “coal producer” would have to establish that it, or a related party, exported coal
to 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 to
a foreign country or shipped it to a U.S. possession, or caused the coal to be exported or
shipped. Additionally, the producer or exporter would need to (1) have filed an excise tax
29 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, Hatter
v. United States, 953 F.2d 626 (Fed. Cir. 1992), where the court held that the Compensation
Clause provided a separate cause of action that allowed Article III judges to bring a claim seeking
damages for amounts withheld in social security taxes, independent of the IRC refund process.
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return between October 1, 1990, and the date of the act’s enactment, and (2) file a claim
for the refund within 30 days of the act’s enactment.
The Treasury Secretary would have to determine whether the refund requirements
were met within 180 days of the claim being filed. Once the Secretary determined a
refund 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 to
exporters would equal $0.825 per ton of exported coal. Refund claims could only be
made for coal exported between October 1, 1990, and the date of the act’s enactment. No
refund would be allowed if one had already been made or there was a settlement between
the government and producer or exporter.
“Coal producer” would be defined as the person in whom the ownership of the coal
is vested immediately after it is severed from the ground. “Exporter” would mean a
person other than a coal producer who does not have a contract, fee arrangement or any
other agreement with a producer or seller to sell or export the coal to a third party and
who either (1) is documented as the exporter of record or (2) actually exported or shipped
the coal or caused such export or shipment.
The legislation specifically states it would not give exporters standing to commence
or intervene in any judicial or administrative proceeding concerning a refund claim by a
coal 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 which
an exporter is seeking a refund for any tax, fee, or royalty paid by the producer and alleged
to have been passed on to the exporter.
It appears the legislation’s proposed refund process would have three significant
impacts. First, it would allow taxpayers to seek refunds for taxes paid in years not open
under current law. Currently, taxpayers must file a refund claim 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 Supreme Court’s holding in Clintwood Elkhorn makes clear that
taxpayers 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 within
30 days of the act’s enactment and met the other requirements. Second, the legislation
could expand the opportunity for exporters to claim refunds, in part because it would not
require the producer to waive its claim to the refund in order for the exporter to file a
claim. This may be limited, however, by the requirement to file a timely excise tax return
as it may be unclear the extent to which exporters have filed these returns. Third, the
legislation would impose short time limits for the taxpayers and IRS to act on the refund
claims. Thus, the legislation 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 the legislation’s silence on the issue of contestability.