ARCHER, Senior Circuit Judge.
Pacific Gas and Electric Company and PG & E Corporation (collectively “PGÉ”) appeal the United States Court of Federal Claims’ judgment that the Internal Revenue Service (“IRS” or “Service”) properly offset statutory interest that was erroneously paid to PGE (“erroneous interest”) with respect to the tax year 1982, against a later refund of tax and interest determined to be due PGE for the same tax year. Pac.
Gas & Elec. Co. v. United States,
55 Fed.Cl. 271 (2003)
(“PGE
I”). Because the IRS made this offset after the statute of limitations under 26 U.S.C. § 6532(b) would have precluded the government from filing suit to recover the erroneous interest, we reverse.
I
This case involves statutory interest erroneously paid to PGE for tax year 1982. PGE timely filed its 1982 tax return. PGE thereafter filed claims for refund for 1982 and the IRS made other adjustments with respect to that year, which are not necessary to detail. Suffice it' to say that in August 1988, the IRS determined that PGE had overpaid its 1982 tax. In determining the statutory interest under 26 U.S.C. § 6611 to be paid to PGE on this overpayment, the IRS made errors in its ealculation resulting in too much interest being paid to PGE.
PGE' thereafter filed additional refund claims for tax and interest for the tax year 1982- primarily to claim certain statutorily authorized carryback adjustments from tax year 1984. In reviewing those refund claims, the IRS discovered the- interest computation errors it had previously made in the August 1988 refund and determined that it had erroneously overpaid PGE $3,370,535 in statutory interest. The IRS then used the amount of this erroneous interest previously-paid to PGE in 1988 to offset and reduce the tax and interest for the tax year 1982 that it refunded to PGE in 1992. ■ ...
PGE filed suit in the Court of Federal Claims, contending it was entitled to the additional amount of $5,037,109 in connection with the 1992 refund.
PGE argued that bhe IRS was not permitted to offset such erroneous interest against its allowable refund of tax and interest in 1992 because it was done after the expiration of the statute of limitations for filing suit to recover an erroneous refund under 26 U.S.C. § 7405. 26 U.S.C. §§ 7405, 6532(b). The government.-argued that its use of the offset was permissible. Both parties moved for summary judgment.
The Court of Federal Claims held that the IRS’s offset action in 1992 was proper.
PGE I,
55 Fed.Cl. at 277. Although recognizing that a suit under 26 U.S.C. § 7405 for the amount of the erroneously paid interest would have been time-barred,
the court said “there is no provision in the [Internal Revenue] Code forbidding the administrative remedy the Service chose here.”
Id.
at 276. The court was not persuaded by PGE’s efforts to distinguish precedent the court found controlling. Specifically, the court explained:
The most clearly applicable precedents,
Lewis, Dysart,
and
Fisher,
all contemplate the allowance of an offset by the government when, as here, the same tax, taxpayer, and tax year are at issue. Plaintiff has attempted to distinguish the facts of this case from
Lewis
and
Fisher....
The most important fact for the court is that this case involves the same tax, with the same taxpayer, for the same tax year. As the Court of Appeals for the Federal Circuit stated in
Fisher, “Lewis
and
Dysart
together stand for the proposition that the government may offset against a tax refund claim any additional amounts the taxpayer owes with respect to the tax shown on the return, even though the statute of limitations would bar assessing the additional amount owed.” 80 F.3d at 1579. Here, plaintiff received an amount in overpayment with respect to tax year 1982. By requesting another refund in 1992 with respect to tax year 1982, plaintiff opened the door to the Service’s offsetting the 1988 overpayment amount. Therefore, the Service’s action in 1992 was legal.
Id.
at 277. The court further determined that the offset was implemented correctly.
PGE now appeals the issues of whether the offset was permissible and, if it was, whether the IRS implemented it properly. We have jurisdiction under 28 U.S.C. § 1295(a)(3).
II
“We review the Court of Federal Claims’ grant of summary judgment without deference.”
Agwiak v. United States,
347 F.3d 1375, 1377 (Fed.Cir.2003).
III
We must determine whether the IRS was entitled to offset the erroneous interest paid to PGE in 1988 against amounts due and owing PGE on a subsequent refund relating to the same tax year when the government could not have maintained a suit for such erroneous interest due to the expiration of the statute of limitations.
See
26 U.S.C. §§ 7405, 6532(b). Surprisingly, this issue appears be one of first impression.
PGE argues that when a taxpayer receives an erroneous refund of statutory interest it is not a tax liability but an ordinary debt obligation to the government. Thus, such erroneous interest mistakenly paid cannot be assessed or collected by the IRS in the same manner as a tax liability. PGE contends that it must be recovered, if at all, only by suit for an erroneous refund under 26 U.S.C § 7405 or by means otherwise afforded to the government for collection of debts
(e.g.,
through a common-law right of offset, provided that the right is exercised within the period of limitations applicable to suits brought under 26 U.S.C. § 7405). PGE also asserts that there is no statutory or regulatory basis for extending the Supreme Court’s decision in
Lewis v. Reynolds,
284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293 (1932), and its progeny to non-tax liabilities.
The government responds simply that under
Lewis v. Reynolds
and its progeny the taxpayer’s 1992 claim for refund of its 1982 overpayment reopened its entire 1982 liability to redetermination by the IRS. As such, it argues that the remedy of offset was available to the IRS.
A
Lewis v. Reynolds
was an income tax refund suit in which, in response to the refund claimed, the Commissioner of Internal Revenue determined that a deduction taken on the return, which was previously allowed, had been improperly taken. In determining the amount of the refund, the improper deduction was disallowed by the Commissioner. The limitations period for assessing an additional tax to reflect the disallowance of the deduction had passed when the Commissioner acted. The Supreme Court agreed with the Court of Appeals’ conclusion that the relevant statutory provisions “clearly limit refunds to overpayments. It follows that the ultimate question presented for decision, upon a claim for refund, is whether the taxpayer has
overpaid his tax
[and t]his involves a redetermination of the entire tax liability.”
Id.
at 283, 52 S.Ct. 145 (quoting
Lewis v. Reynolds,
48 F.2d 515, 516 (10th Cir.1931) (emphasis added)). Affirming the Commissioner’s action, the Court stated:
While the statutes authorizing refunds do not specifically empower the Commissioner to reaudit a return whenever repayment is claimed, authority therefor is necessarily implied. An overpayment must appear before refund is authorized. Although the statute of limitations may have barred the assessment and collection of any additional sum, it does not obliterate the right of the United States
to retain payments
already received when they do not exceed the amount
which might have been properly assessed and demanded.
284 U.S. at 283, 52 S.Ct. 145 (emphases added). Thus, the Court simply applied the statutory provisions dealing with refunds
which require that an overpayment
must be shown by the taxpayer before a refund can be authorized. Accordingly, where the taxpayer has filed a claim for a tax refund, the IRS may offset against the refund claim a tax deficiency for the same tax year that previously had not been assessed, even though the assessment of such tax is barred by the expiration of the applicable period of limitations. Otherwise, a refund might be made when there was not, in fact, an “overpayment,” an event that would be inconsistent with the statute.
See supra
at n. 4, 3.
This defense of “lack of overpayment,” permitting the government to offset a refund claim with a tax deficiency for the same tax year owed by the same taxpayer, was further explored by our predecessor court in
Dysart v. United States,
169 Ct.Cl. 276, 340 F.2d 624 (1965). In this case, the taxpayer sought a refund of an erroneously assessed and collected penalty for the tax year 1954. The government conceded that the penalty was collected in error but claimed an offset in view of a tax deficiency that exceeded the penalty, despite the fact that the statute of limitations barred the assessment of the tax deficiency.
The court ruled that “the tax penalty is an addition to the tax, 26 U.S.C. § 294 (1952), and as such is considered as part of the income tax for the taxable year.
See
Rev.Rul 56 — 492, 1956 WL 10960; 1956 — 2 Cum.Bul. 949.”
Id.
at 626 n. 1.
Another issue before the court was “whether in a suit for refund where both the taxpayers’ claim and the government’s setoff concern the same tax for the same year by the same taxpayers, the right of the government to assert such a defense is an unconditional right ... or whether ... such a right is subject to the court’s discretion after evaluating the ‘equities’ involved in each particular case.”
Id.
at 606.
The court held that the Supreme Court’s language in
Lewis v. Reynolds
laid down an “unqualified rule that ‘an overpayment must appear before refund is authorized,’ ” 340 F.2d at 629 (quoting
Lewis v. Reynolds,
284 U.S. at 283, 52 S.Ct. 145), and that there was nothing to suggest “limiting the defense of lack of overpayment where the refund claim and the set-off relate to the same tax, for the same year, payable by the same taxpayer,”
id.
at 629. The court further commented that when determining whether there was an overpayment, a taxpayer’s “entire
tax liability
under the particular tax return was open for redetermination.”
Id.
at 628 (emphasis added).
The
Dysart
case, therefore, reiterated the necessity of an overpayment before a refund can be authorized and held that a court may not look to the equities of a case to deny the defense of lack of overpayment to the government. Contrary to the government’s assertion,
Dysart
did not open the door wider than
Lewis v. Reynolds
already had for the IRS to offset a refund. At most, it simply clarified that setoff applied to the refund claim for a tax penalty improperly collected, because a tax penalty is an addition to tax and should be considered part of the tax liability.
Our holding in
Fisher v. United States,
80 F.3d 1576 (Fed.Cir.1996), involved a refund claim against which the government offset deficiency interest owed by the same taxpayer for the same tax year. Our analysis characterized the teachings of
Lewis v. Reynolds
and
Dysart
as permitting the government to offset against a tax refund claim any tax owed for that year:
“Lewis
and
Dysart
together stand for the proposition that the government may offset against a tax refund claim any additional amounts the taxpayer owes with respect to the
tax shown on the return,
even though the statute of limitations would bar assessing the additional amount owed.”
Id.
at 1579 (emphasis added). We also emphasized the necessity of the existence of an overpayment before a refund could be authorized.
Id.
at 1579 (noting that in
Dysart
our predecessor court stated “the essential principle that a taxpayer suing for a refund of tax for a particular year must show that, in actuality, he overpaid that tax”).
The crux of our decision in
Fisher,
however, involved the question of whether deficiency interest should be treated any differently than the tax deficiency in
Lewis v. Reynolds
or the tax penalty in
Dysart.
Looking to the Revenue Code and our predecessor court, we held that “for the purposes of offset, interest should [not] be treated any differently than other components of tax liability.”
Fisher,
80 F.3d at 1580;
see
26 U.S.C. § 6601(e) (1994) (stating that interest on tax underpayments “shall be assessed, collected, and paid in the same manner as taxes” and that any reference “to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax”);
Alexander Proudfoot Co. v. United States,
197 Ct.Cl. 219, 454 F.2d 1379, 1382 (1972) (stating “[t]he Code’s design for such interest is to assimilate it to the tax itself .... For a long time, deficiency interest has been so closely braided to principal that it has been deemed an integral part of the tax”).
The common thread in these cases is that the refund statute requires that there be an actual overpayment of tax to support a refund. There cannot be such an overpayment without taking into account any additional amount of assessable tax, interest, or penalty owed by the taxpayer even though such an amount could not be assessed and collected because of the running of the statute of limitations.
B
In the instant case, the amount used to offset the refund claim in 1992 was the erroneously calculated statutory interest, a nonassessable amount. The assessable quantities in
Lewis v. Reynolds
and its progeny (tax deficiency, deficiency interest, and tax penalty) are a part of a taxpayer’s tax liability, whereas nonassessable statutory interest is not. Thus, contrary to the government’s assertion,
Lewis v. Reynolds
and its progeny are not directly on point with the case before us. We must, however, decide whether to extend this line of cases to cover the situation at issue here. Because the courts have distinguished components of tax liability which are assessable amounts from statutory interest which is not a tax liability component or assessable, we have found no convincing reason the two quantities should be treated the same. We, therefore, decline to extend
Lewis v. Reynolds
and its progeny to reach the facts of this case.
The tax deficiencies (including assessable interest and penalties) asserted as an offset in
Lewis v. Reynolds
and its progeny are very different from the offset at issue here and even treated differently by the Internal Revenue Code. Our case law notes the distinctions. In
Proudfoot,
197 Ct.Cl. 219, 454 F.2d 1379, for example, our predecessor court explained that statutory interest arises simply because the government had possession of the taxpayer’s funds, whereas deficiency interest is additional money due the government that arises from the taxpayer’s tax liability:
[T]he Revenue Code deals quite differently with statutory interest payable by the Government on overpayments. Regulated by §§ 6611-6612, that form of interest is paid by the United States, not as a refund of interest previously paid by the taxpayer on demand of the Service, but simply because the Government has had use of money found to belong to the taxpayer....
Id.
at 1384;
see also Fisher,
80 F.3d at 1580 (“The Internal Revenue Code treats [deficiency] interest as an integral part of the liability itself. Thus, 26 U.S.C. § 6601(e) (1994), provides that interest on tax underpayments ‘shall be assessed, collected, and paid in the same manner as taxes’ and that any reference ‘to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.’ ”).
We are not the only court to treat tax monies differently based on the nature or generation of the funds.
See O’Bryant v. United States,
49 F.3d 340, 346 (7th Cir.1995);
Crocker First Nat’l Bank of S.F. v. United States,
137 F.Supp. 573, 574 (N.D.Cal.1955) (explaining that a suit to recover an erroneous refund is not a suit “in respect of any liability in respect of any tax,” because any tax liability was satisfied when the tax was originally paid). In
O'Bryant,
the taxpayers paid their tax and interest liability in advance, which amounts were then assessed. The Service later erroneously sent the taxpayers a refund check. Without reassessing the tax, the Service then instituted collection activities and recovered a portion of the erroneous refund. The taxpayers sued to quiet title and recover the monies they claimed were unlawfully taken by the government. The Seventh Circuit noted that the refund taxpayers received was a nonrebate refund. “Nonrebate refunds are sent to the taxpayer not because the IRS determines that the tax paid is not owing but because of mistakes, typically clerical or computer errors.”
O’Bryant,
49 F.3d at 342. The court stated that there is a fundamental difference between taxpayers’ liability for tax and their obligation, if any, to return a refund paid by mistake:
[The government’s proposed] approach would overlook the fundamental difference in character between the money that the O’Bryants now possess (a refund caused by the IRS’ error) and the money they originally owed the IRS (their tax liability). The money the O’Bryants have now is not the money that the IRS’ original assessment contemplated, since that amount was already paid. Rather, it is a payment the IRS accidentally sent them. They owe it to the government because they have been unjustly enriched by it, not because they have not paid their taxes.
Id.
at 346. The court held that because the money the taxpayer received was not a part of the taxpaying transaction, the Service could not recover the funds through post-assessment procedures.
Id.
A tax deficiency, tax penalty, and deficiency interest, the quantities permitted to offset the taxpayer’s claimed refunds in
Lewis v. Reynolds
and its progeny, are all components of a taxpayer’s tax liability.
See Dysart,
340 F.2d at 626 n. 1 (“[T]he tax penalty ... is considered as part of the income tax for the taxable year.”);
Proudfoot,
454 F.2d at 1382 (“[T]he Code’s design for such [deficiency] interest is to assimilate it to the tax itself.... For a long time, deficiency interest has been so closely braided to principal that it has been deemed an integral part of the tax”). Therefore, these components are taken into account in determining whether an overpayment exists and permitting them to offset a claimed tax refund is logical. There is no suggestion, however, that statutory interest is a part of, or even related to, a taxpayer’s tax liability. Indeed it cannot be, for in the case of statutory interest mistakenly paid, the taxpayer has no underlying statutory obligation under the tax code to pay the government. As stated in
O’Bryant,
mistaken nonrebate refunds are owed to the government by reason of unjust enrichment.
O’Bryant,
49 F.3d at 346. Statutory interest is also distinguishable from the components of tax liability because of its nonassessable nature. Given that a nonassessable quantity cannot be determined to be due and collectable,
see
West’s Tax Law Dictionary 67 (2004 ed.) (defining “assess” as “[t]he posting of tax, penalty, and interest that has been determined to be due and collectable”), it would be illogical to treat such a quantity as analogous to a taxpayer’s tax liability.
The tax code provides an integrated and comprehensive statutory scheme for assessing, collecting, and refunding taxes, deficiency interest, and penalties.
Lewis v. Reynolds
and its progeny did not disturb this framework; they merely applied the refund provision requiring an overpayment. Were we to hold that the IRS is correct in determining that an offset is permissible here, we would be going outside of this well-tailored statutory scheme. We, therefore, decline to extend
Lewis v. Reynolds
to apply to statutory interest improperly paid to PGE.
C
The only case we have found that deals with erroneously refunded statutory interest is factually distinguishable from the instant case. In
Crocker,
137 F.Supp. 573,
the government offset erroneously paid interest for tax year 1942 against a refund for tax year 1945. .The court stated that “since it [is] obvious that the offset claimed by the Commissioner must be the equivalent of a cause of action by the Government in a suit to recover the erroneous payment, the parties [do] not dispute that the time limitation for suit ap-plie[d] equally to the offset.”
Id.
at 574. The offset in
Crocker
was not made within two years after the payment of the erroneous interest on the 1942 refund. Another question before the court was whether a wartime statute suspending certain time limitations relating to internal revenue operated to extend the time in which suit might have been brought to recover the interest paid on the 1942 refund and consequently the time in which the offset could be made. The court determined that the offset had not been timely made and entered judgment for the taxpayer.
As can be seen,
Crocker
dealt with applying the offset to a refund claim for a different tax year, whereas in this the case the offset was applied to a claimed refund in the same tax year. Moreover, the court noted that the government conceded that the statute of limitations pertaining to when the United States may sue to recover erroneous refunds of taxes or erroneous payments of interest on refunds applied, whereas in this case the government
makes no such concession. While readily distinguishable on the facts,
Crocker
does equate the ability to offset erroneously or mistakenly paid statutory interest with a cause of action by the government to sue for an erroneous refund under § 7405.
Like the court’s determination in
Crocker,
we view the offset claimed by the Service here as akin to a cause of action by the government in a suit to recover the erroneous interest. As noted in
Crocker,
while there is no statute governing the time limit for when such an offset may be made, there is a statute expressly limiting when the government can sue to recover erroneous refunds under 26 U.S.C. § 7405.
Id.
at 574 (“There is no limitation statute specifically fixing the time within which such an offset may be made. There is, however, a statute, limiting to two years, the time within which the United States may sue to recover erroneous refunds of taxes or erroneous payments of interest on refunds.”). We see no reason why this statute of limitations should not apply equally to the offset in this case. Thus, we hold that the Service’s ability to offset erroneously paid statutory interest against a taxpayer’s refund claim in the same tax year is subject to the same statute of limitations that applies to suits by the United States to recover erroneous refunds of taxes or erroneous payments of interest on refunds.
See
26 U.S.C. §§ 6532(b), 7405.
Recent decisions internal to the IRS are not at odds with our determination today. Indeed, the Chief Counsel of the IRS expressly approved of the
Crocker
decision and further explained “we are of the opinion that as long as the Service is unable to assess nonrebate refunds, the Service may justifiably rely on the common law right of offset to recover these non-tax debts. The applicable statute of limitations for this remedy is the two or five
year period set forth in I.R.C. § 6532(b).” IRS CCA 200014033.
While not bound by the Service’s position, we simply note that our analysis has led us to the position espoused by the Service for at least the last thirty years.
Indeed,
Lewis v. Reynolds
is now over seventy years old. Congress and the IRS
have had ample time to provide specific authority that would have broadly allowed the offset the government is seeking in this case. Indeed, if it were intended to allow the government to recover mistaken payments of statutory interest (and other non-tax debts) by way of offset, and not merely tax liabilities used to determine whether there was an overpayment of tax, the tax code or the regulations could have so stated.
In the present case the offset occurred after the two-year statute of limitations had expired. As such, the Service’s right to offset was time-barred.
Because we hold that the offset applied here was not available to the IRS, the issue of whether the IRS correctly implemented the offset is moot.
IV
Our decision today results in a -windfall for the taxpayer. As the Seventh Circuit has noted in a similar situation, “although it may seem unjust that the IRS cannot recover its erroneous refund in this case, ... we cannot base our resolution of the issue before us on the equities of a particular factual situation.... [Tjhere are many situations in which permitting the IRS to recover would be just as unfair as barring recovery here.” O’Bryant, 49 F.3d at 346-47.
We hold that the offset applied to PGE’s 1992 refund claim was time-barred. Accordingly, we reverse the trial court’s judgment with respect to the offset and remand for further proceedings as necessary.
No Costs.
REVERSED AND REMANDED