morning the court this appeal requires the court to decide whether interest netting was permissible and to test scenarios and all the mercy and seize section sixty six twenty one d of internal revenue which is the statute that authorizes the netting at issue here before you get into your argument can you just explain to me or maybe let me try to really understand what this note is the netting has to be overpayment and interest running and the underpayment interest running has to be the same that you could have an overpayment and ran from january to march and pay and then subsequently discover that there was also an under payment that ran from january to december for purposes of this statute for the period we're looking at is the at who made the underpayment or overpayment isn't the point of this statute about the netting period and who's responsible for the interest in the netting period and in a post merger world regardless of who made the underpayment or who made the overpayment originally the new entity is going to be responsible for paying the underpayment interest and are going to be allowed to get the overpayment introspect right well why shouldn't they be allowed to know why i think this is an important point that the court of kind of clients ever looked at this court made clear in energies which is defining president and there is a court that not only you have to look at the particular point in time when their payment underpaying were made and compare the factors that point but it  rejected the argument that the it was a follow the liability kind of statute whoever inherited the liability was entitled and the right to the ever paying that was entitled to netting and the court said no you have to look at the particular time when that occurred and i think there's a reason for well i understand that but it seems this is what was a little fuzzy to me about energy whether it was rely on on that alone or whether it was also relying on the fact that in energy east there was never a merger that they were just consolidated but still retain their separate corporate entity i think particularly i think think that that was not the focus of the the analysis because that same argument was made that energy's the tax payer argued that the consolidation made in the same tax payer and of course that we don't have to reach that because we look at but that's really different was the principle point of your present that case consolidated taxpayers aren't the same taxpayers but whether they are position would be that they're not the way the board didn't reach that because you look at the time they ever came and i understand this may not whether the same tax payer also only ends up being responsible for do you see a difference between the consolidated tax payers and energ side aside the rest of it and emerged there if we were just looking at an overlapping period after the merger they would be the same tax payer well i'm not sure that's correct your honor because what's what in this case in this situation where you have to compare  value not the case hypothetical that about energy isso if after the consolidation one company makes an overpayment another consult with a company but still a separate corporate entity they can under payment with the government's position  that even though their consolidated their sole separate entity so you don't that or would you allow betting because they're now a consolidated company and the underpayment an overpayment were made afterwards well that's not the case your honor but i think that and i think that is a i think our position would be depending on merger everything is one company and if everything was post merger then it would all be one company but i think it was a consolidated company first of all there are different elections that could be made by the company to either be to follow the saudi returns or not and the they could change that from year to year and so i think there would be more there than what the government's position has been in the context of what the metaphor help is that there have to be there would have to be some sort of tracing element so i think there is a difference if everything happens  but i think what we're dealing with here is a situation where either everything's free merger which i think is just like energies this case is indistinguishable from energy east and then if you look at what happens in our situation three in this case you're comparing a pre merger entity with the follow the transfer of assets and liabilities approach because there's a lot history of congress not wanting to encourage trafficking in tax benefits as a reason to merge and section three hundred one of the code is an example that  would not it seems to be a good reason to not allow retroactive netting before the merger but after the merger that ended the despite what happened before continues to be on the line for the underpayment an overpayment interest and gets hit with the penalty until it's resolved well but on the other hand it's a reason why a company might actually go shopping for a merger because if you have a company with a large underpayment same tax payer language prevents that being from a motivation for murder and so i think there's a reason congress would have chosen to do it that way and so and they so they specifically chosen the same attack their language which of course that energy means you have to exactly the same and we haven't argued for that because we don't think corporations are ever exactly the same from year to year that they change with time is a magnet for point out that we think that the i am really is under the cozy unique identifier of a taxpayer and so we think the fact that between in situation to the one that we conceded that the cia and is the same which is really the key factor is the indiana fire the taxpayer and we would urge that that is and this rebel test congress has repeatedly urged that the i r s adopt giving a predictable analysis and we have posited in the alternative another way of looking at it would be at least to let the t i a and be one when major factor but also that you might look to whether the businesses were the same but i think if the and that's not something that makes sense to the same taxpayer and i think if you look to federal tax law that it's really inconsistent with the idea that a merger can make the pre merger into a premature corporation the same taxpayer as the sons of the acquiring corporation year they file one return together the the company that ceases to exist as its final return it comes to an end and then section three eighty one contemplates specifically that in a merger you're transferring i we need to look at who made under payment overpayment as congress didn't want to encourage people to acquire companies to offset under payments that doesn't apply in situations three because the under payment the first union is seeking netting for occurred well after the acquisition of course states it's not like situation one where the both of them were before the things so the the rationale of purposeful acquisitions doesn't seem to apply to situation three well i think your honor that that certainly tax planning can have forward looking aspect to it and also i think that just  the concept of there being a particular t i n n n system of accounting there's really nothing it's very inconsistent with a tax on in particular the states actually that allows some of the state murder statute allow merging two different types of entities that would be under two different tax regimes in the say for example the limited partnership merged with a corporation or else they would be treated under the partnership tax regime was merged with the corporation and then they went forward of the corporation you would be saying that something was on the partnership with the same tax payer as something that was taxed as a corporation thing then creates a whole new different realm most of your rebuttal time that will give you two minutes back thank you very much representing wells fargo the resolution of the issue of the meaning of the term same taxpayer in this case involving a merger is instructed by three separate but very complimentary legal principles first the legal effect of a merger second the operation of sixty four o two which is the precursor to sixty six twenty one d and remains in effect and was applied here to the very same situation that we're talking about  those contacts and third the authority and the practice of the i r s where there is an underpayment an overpayment situation in a merger to look only at the successor corporation in collecting that under payment or the successor steps into the shoes not just for the assets and liabilities but the history let me address before i go to end up into any of those the energy each case because it is out there and we have to deal with it we don't disagree with the result on those facts but we have very different facts and a very different legal situation here factually that was a contractual acquisition it was not a merger which operates by operational law the three corporations all three of them to acquire and th three months of the history also pass is the best example perhaps that we cited for your argument basically that once you have a merger any entity that's merged into that company is retroactively considered the same  published ruling sixty two dash sixty involving employment taxes it addresses the issue of what is the effect they use the very term same taxpayer in addressing the successor corporation they said there is no predecessor successor relationship and statutory merger but one continuing taxpayer that's what we are saying whether you have taxes or whether you have punitive damages as was the case and so much tax for example outside of th for those even when it is a unique liability up to this hypothetical if you have two separate entities that had overlapping under payments over  were ultimately emerge and these were before the merger they were completed before the merger by the separate companies and they were acquired by a new company but the statute of limitations had run on thinking we could you seek a refund based upon netting these to acquire companies that had overlapping period i think you're positing very close to the situation one in my short answer with that was situation one of the i understand that the interest is still running i have to call it the interest is not running anymore it's  that the overpayment has been responded to one company with interest the underpayment has been paid and that has been interest isn't paid to the government but because they're overlapping and because there's a statute of limitations that allows you to seek refunds this new large company goes back  that situation if these were outstanding liabilities under sixty four o two the i r s would apply interest in anything in his discretion he can do that if it does that and there's no question here that that is sorry i'm not a tax or what do you mean by outstanding on a bill in other words if the amount of the underpayment an overpayment had not yet been paid they were outside my hypothetical then but no my point there were sixty four o two was the predecessor and indeed was cited multiple times and legislative history the treasury report looks at sixty four to and says there really no difference from a policy matter or from any implementation manner to do this they said they would be be the same to annex sixty six twenty one b as the service was doing under sixty four two that's the back door the service is already done as and indeed in this case it's stipulated for situations one two and three the government has applied in presenting with a balance of grandstanding now to answer your question terms of the front door the history follows in other words one when one of the short answer iris itself is so world in very many private situations i would direct the court's attention to a field service advice just a couple years after an act in two thousand and two twelve zero two eight they went through one of the casual wave in a very detailed way looking at nine situations situation went further and said that if the acquired corporation were still in existence i e the energy situation after the successor corporation acquired it then the successor corporation would not be entitled corporation is liable for the taxes and under right sixty six and twenty the interest follows the taxes and must be treated the same for the answers if the i r s is collecting from the successor corporation the under payments merger company and it requires that the successor also to file any claims for a refund for any over payments made by the merger company it's very difficult to understand how you can draw a distinction well that seems to make sense for post merger netting period because you continue to be liable i mean you are now fully reliable for the interest overpayment and will get allowable interest back but the hypothetical i have when it's closed and you're just going back in the in the books to seek an additional refund seems to run right into what your friends that was saying you shouldn't favor policies that allow structured mergers and acquisitions to to basically buy tax benefits but what the said again i'm going to refer to this sixty two ruling and there are others respect them and the six do is a close where they used the same taxpayer in a merger and they say it is a continuation out that taxpayer it is the same taxpayer they're not making any distinction between pre and post merger events having said that let me turn my attention if i may first to the fact of the statute what their stature did when it went it was an act congress very carefully in the it was a remedial provision intended to alleviate the burden that it had created over the course of the prior years increasing and its abolition and then increasing interest differential for corporations between overpayments and payments they said if the to the same time should happen and oh by the way we know that you the service allow this under sixty four to do we want you to do that here as well so we said no we can't we need said stories already traded looked at it and treasury said there's no reason not to we should do this we support the statute and we will follow your directive that you stated to us four times in legislative history from eighty four from eighty six through ninety five that said each time we ask that you impose and direct and implement the as most comprehensive introspecting possible i can to sixty four of two they specifically cited sixty four zero to go back to what i said earlier because i think there really is a critical point here under sixty four o two interest netting is allowed indeed congress had to amend sixty four o two when enacted sixty two twenty one to make sure if there was an overlap between the two provisions sixty six twenty one the applied because it was broader it was not limited to being perspective in effect only it was a flexible to all open statue of limitations when it was enacted so it was not a let's see what happens in the future congress was presumed to understand when it did all that the way merger has been dealt with by the service indeed it is a bit wordy and not the situation where the service looked to the successor it would have to seek either through transfer reliability or other mechanisms and attempt to try to chase the liability of the merger corp is no longer in existence its assets and liabilities became by operation of law the essence of my abilities of the successor can i ask you about this again do you think  you agree that a consolidation company is not the same tap yes or so so even if they're consolidated you can net one company against another independent corporation within that consolidation consolidation does not make one the syntax for no it is merger it is the by operation of law and what the supreme court the state courts the i r s and his rights have always said it is a continuation of that merged company it is one in the same this is a provision while it is unique in that for the first time the services for the code uses the word same taxpayer but the service that used that same phrase a number of times in his prior ruling stating decades prior and it had outlined sixty four zero two to merged in successor corporations pre and post merger to allow netting as long as the mountains were outstanding and that is a provision congress that we like the way it works we want to extend it to balances that are not outstanding and  a successor corporation if expressly the excluded and chose not to deal with one of the two arguments a government made first argument a government made was there wasn't a continuation of been no the second argument was if you should not apply metropolitan because we just don't think it's right now assuming you're being in his decision with this report said in less than was it was unnecessary to discuss that issue since an alternative argument made by the government dispositive of this case so listen expressly kept in place metropolitan metropolitan that is and was very precise in saying we separate federal purposes the state law of fact and again that is now being replicated in the i r s regulations and three sixty eight days to be that says a merger by operation of law moves the absolutes in liabilities so that they become those of the was created by congress it was not true it does not create benefits what it is doing is dealing with the time value of money you have a situation where the amount paid to the government is nearly five percent greater than the amount the government pays back to the taxpayer over the same period of time and are saying that really shouldn't work that way when there are outstanding for that so as to make sense who were postmarked or netting or pre merger netting that continues to run pre merger under payments and over a continued to run into the postpartum period that it doesn't seem to make sense to me when two separate entities one had an underpayment that was resolved well before the merger one had an overpayment that was resolved well before the merger can then be used post merger to seek a refund when that unfairness because it's all about the fairness wasn't present because those two companies want the same end isn't unfair to you because you're not being subject to that conflicting interests right difference and that is the primary difference from energies is that in the energy situation those companies remained in existence the government could still chase them and he had to chase them for their under payments and over payments but pre or post merger in a merger situation that was not a merger that was pre post acquisition in a merger situation such as we have only one corporation remains and that is to well no i understand works fine i'm not sure that you're that i think you understand my hypothetical but you keep blurring it into where the obligations are going in the interest keeps running i understand you have it seems like you have a pretty good argument on that point but it seems you're also when you at least answered  paid right so they one company got the refund on the overpayment the other company pays the interest on the other you said when you answer the hypothetical as long as the statute of limitations hadn't run you could go back and net those two companies against each other korean company is not suffering the interest penalty for either of those two companies is there because it has been if it is now liable for that so it is something that's already been know it has not been paid that's my hypothetical though this is why i wish you would listen to the why isn't energy use just different because it involves consolidated companies and not a merger company i mean it does seem to make sense that the i r s has treated merge companies difference in consolidated court well i think first off to the extent that mr coffey discussed informal rulings those one i think was exactly like energies in that they were both entirely separate at those particular times that you look at that window in time and at that point they were separate and what energy said is that the that the court declined to rewrite the statute to say that netting was allowed its interest was payable by the same taxpayer so if ultimately the same taxpayer down the road were what became the same taxpayer are through transfers if it ended up in the hands of the same taxpayer that was that that wasn't the question the question w fact perhaps but i think if you that was an analysis of the test that you is consistent with that that result then i think you know because the court didn't reach that question maybe i don't think it maybe doesn't pick them because if they didn't reach that question they found it was unnecessary to decide the merger statutes that's not what happens there's a transfer of liabilities and still end of of having to be spelled out in the contract when you say fight agreement a merger of the statute spells out certain transfers happen but it's not like the companies i mean it's that if they became the same tax payer you would see routinely that for the year of the merger they would follow when we return as opposed to the six two separate returns i've discussed with the final returning file for the company that ceases to exist and you'd also see them going back and then doing their returns to adjust all the things that might be different when you've got the benefit of the two of them but what congress has provided specifically is that it sets forth in three eighty one a regime where things are transferred from one to the other that  reflects the concept that you're dealing with two separate entities from which certain assets from certain assets and liabilities are transferred and energy makes clear that the statute sixty six twenty one d contemplates that they have to be the same