Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-15-05015/USCOURTS-ca13-15-05015-1/pdf.json

Parties Involved:
Albemarle Corporation & Subsidiaries
Appellant
United States
Appellee

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________

ALBEMARLE CORPORATION & SUBSIDIARIES,

Plaintiff-Appellant

v.

UNITED STATES,

Defendant-Appellee

______________________

2015-5015

______________________

Appeal from the United States Court of Federal 

Claims in No. 1:12-cv-00184-MBH, Judge Marian Blank 

Horn.

______________________

ON PETITION FOR REHEARING

______________________

Decided: October 22, 2015

______________________

JEROME LIBIN, Sutherland Asbill & Brennan LLP, 

Washington, DC, argued for plaintiff-appellant. 

DEBORAH K. SNYDER, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by TERESA E.

MCLAUGHLIN, GILBERT STEVEN ROTHENBERG, CAROLINE D.

CIRAOLO, DIANA L. ERBSEN.

Case: 15-5015 Document: 35 Page: 1 Filed: 10/22/2015
2 ALBEMARLE CORPORATION v. US

______________________

Before PROST, Chief Judge, BRYSON and HUGHES, Circuit 

Judges.

BRYSON, Circuit Judge.

Albemarle Corporation and Subsidiaries (“Albemarle”) 

petitions for rehearing of this court’s August 13, 2015, 

decision on its appeal from the Court of Federal Claims. 

For the reasons set forth below, we deny the petition.

1. In its petition, Albemarle first argues that the decision in this case conflicts with this court’s recent decision in Salem Financial, Inc. v. United States, 786 F.3d 

932 (Fed. Cir. 2015). Albemarle’s argument is not really 

based on the Salem case, which says nothing about when 

foreign taxes accrue, but instead is based on the Court of 

Federal Claims’ decision in Reading & Bates Corp. v. 

United States, 40 Fed. Cl. 737 (1998). That case was cited 

in Salem, but for an entirely different proposition having 

nothing to do with the accrual date for foreign tax liability.

In any event, the Reading & Bates case provides no 

support for Albemarle’s argument. The government 

argued in that case that the plaintiff was required to 

report income from a tax indemnification agreement in 

the tax years to which the income related (1976 and 

1977). The plaintiff argued that income resulting from 

the indemnification agreement did not accrue until 1984,

when the plaintiff’s contested tax liability for foreign 

taxes for the years 1976 and 1977 was resolved. 40 Fed. 

Cl. at 750. The Court of Federal Claims agreed with the 

plaintiff that the foreign tax contest had delayed the 

accrual of the plaintiff’s income until 1984, because the 

amount that the plaintiff was entitled to receive under 

the indemnification agreement could not be ascertained 

until the contest was over. Id. at 753.

Case: 15-5015 Document: 35 Page: 2 Filed: 10/22/2015
 ALBEMARLE CORPORATION v. US 3

Reading & Bates does not support Albemarle’s position that a contested tax liability “actually accrues” in the 

contest resolution year for two reasons. First, the Reading & Bates decision deals with when income accrues for 

purposes of calculating “gross income” under the Tax 

Code; the court did not address when foreign taxes “actually accrue” for purposes of the statute of limitations. 

Second, the court in Reading & Bates expressly distinguished between the accrual of income and the accrual of 

foreign tax credits, noting that the relation-back rule 

applies to the accrual of foreign taxes, but not to accrual 

of income. 40 Fed. Cl. at 753 (“Defendant’s argument is 

based on the erroneous assumption that foreign tax 

credits are treated in the same manner as income.”).

2. Albemarle next argues that the panel opinion in 

this case ignored the Supreme Court’s opinion in Dixie 

Pine Products Co. v. C.I.R., 320 U.S. 516 (1944), and the 

accrual principles discussed in that opinion.

In fact, the panel opinion discussed at some length 

both the Dixie Pine case and the line of authority based on 

that decision. Albemarle simply disagrees with the 

panel’s distinction of that line of cases. In particular, 

Albemarle argues that the panel improperly held that 

there is only one year of accrual for contested taxes, i.e., 

the year of origin, and refused to apply the “all events 

test” that is set forth in Dixie Pine and codified in section 

461 of the Tax Code. That, however, is not an accurate 

description of the panel’s analysis. The panel acknowledged that two critical dates exist for a party that wishes 

to seek foreign tax credits based on a contested tax liability. As the panel opinion explained, “[F]or the purpose of 

determining in what year the right to claim the credit 

arises, the contested tax doctrine and section 461 apply.

For the purpose of determining against which U.S. tax the 

foreign tax is to be credited, the contested tax doctrine 

does not apply, and the tax is held to have accrued in the 

taxable year ‘to which the tax relates.’” Slip op. at 13.

Case: 15-5015 Document: 35 Page: 3 Filed: 10/22/2015
4 ALBEMARLE CORPORATION v. US

Thus, pursuant to section 461, Albemarle did not have 

the right to claim a foreign tax credit until 2002, when the 

contest was over and liability was finalized. When Albemarle filed a claim for foreign tax credits, however, the 

credits were offset against its tax liability for the year 

1998 under the relation-back doctrine. Therefore, contrary to Albemarle’s assertion, the panel explicitly acknowledged the applicability of section 461, i.e., the all-events

test, to the contested foreign tax situation.

Albemarle also faults the panel for holding that the 

company’s 1997 tax liability accrued in 1997, not in 2002. 

See Pet. at 6. But Albemarle itself admitted that foreign 

tax liability “accrues” in its year of origin for purposes of 

the foreign tax credit statutes (specifically, sections 901 

and 905). See 26 U.S.C. § 901(b)(1) (“[The following 

amounts shall be allowed as the credit: . . .] the amount of 

any income, war profits, and excess profits taxes paid or 

accrued during the taxable year . . .”); Appellant’s Br. 20 

(stating that under section 901(b)(1) “a foreign tax credit 

may only be claimed for a year in which foreign tax was 

‘paid or accrued.’”).

3. Albemarle takes issue with the court’s citation of 

Treasury Regulation 1.904-2(c)(1), 26 C.F.R. § 1.904-

2(c)(1), which deals with carryback and carryover of 

unused foreign taxes under the per-country limitation on

foreign tax credits. Albemarle argues that the court’s 

analysis is flawed because the per-country limitation on 

foreign tax credits has been repealed.

There are three problems with Albemarle’s argument. 

First, while it is true that the statute that created a percountry limitation on foreign tax credits has been repealed, the corresponding regulation has not been repealed, presumably because the regulation continued to 

apply to transactions that pre-dated the statutory repeal. 

Second, the validity of the panel opinion does not depend 

on the existence of the per-country limitation. The point 

Case: 15-5015 Document: 35 Page: 4 Filed: 10/22/2015
 ALBEMARLE CORPORATION v. US 5

of citing the regulation was not to address the substance 

of the per-country limitation, but simply to show that the 

phrase “actually paid or accrued,” which appears in both 

the regulation and in section 6511(d)(3)(A), was given the 

same interpretation under the regulation that the government contends it should have under section 

6511(d)(3)(A). Third, in addition to Treasury Regulation

1.904-2(c)(1), the court cited the accompanying provision, 

section 1.904-2(c)(2). That regulation, which applies 

when an overall limitation is imposed in a tax year, 

contains language identical to the pertinent language of 

section 1.904-2(c)(1). The overall limitation on tax credits 

has not been repealed, so the point made in the panel 

opinion is fully supported by the language of section 

1.904-2(c)(2), even if the repeal of the per-country limitation were somehow regarded as undermining the usefulness of section 1.904-2(c)(1) as a guide to the proper 

interpretation of the phrase “actually paid or accrued.” 

4. Albemarle next argues that the “anomalous result” 

that the panel stated would flow from Albemarle’s proposed interpretation of the phrase “actually paid or accrued,” see slip op. at 9-10, would never occur. The panel 

noted that Albemarle’s interpretation of the term “actually paid or accrued” would have the plainly unintended 

consequence that the credit for a contested foreign tax 

would be allocated to one year (the year of origin), but 

counted toward the limitation applicable to another year

(the contest resolution year).

Albemarle acknowledges that under Treasury Regulation 1.904-2(c), taxes that “actually accrue” in a given 

year should be taken into account against the tax credit 

limitation for that year. See Pet. at 12. Nonetheless, 

Albemarle asserts that section 1.904-2(c) does not apply to 

contested taxes, so that even if contested taxes “actually 

accrue” in the contest resolution year, they are not counted toward the credit limitation for that year. According to 

Albemarle, that is because contested taxes are creditable 

Case: 15-5015 Document: 35 Page: 5 Filed: 10/22/2015
6 ALBEMARLE CORPORATION v. US

taxes “deemed . . . accrued other than by reason of section 

904(d) [the carry rule, now section 904(c)]” in the year of 

origin. See 26 C.F.R. §§ 1.904-2(b)(2), 1.904-2(c)(1)(ii)(b),

and 1.904-2(c)(2)(ii)(b). Thus, in Albemarle’s view contested taxes cannot be counted toward the limitation of 

the contest resolution year as taxes “actually . . . accrued” 

in that year. See 26 C.F.R. §§ 1.904-2(c)(1)(ii)(a), 1.904-

2(c)(2)(ii)(a). 

Albemarle cites no authority for the proposition that 

contested taxes should be “deemed . . . accrued other than 

by reason of section 904(d)” in the year of origin. It simply asserts that contested taxes “clearly fall within the 

foregoing language” and that no other category of taxes 

would fit that definition.

Albemarle is wrong on both counts. First, taxes 

“deemed paid or accrued . . . other than by reason of

section 904(d)” is not a category that some taxes can just 

“fall within.” The Tax Code has clear and explicit definitions regarding what constitutes a tax “deemed paid or 

accrued.” See 26 U.S.C. § 904(c) (unused taxes carried 

from another year “shall be taxes deemed paid or accrued” 

in the year to which such taxes are carried); § 902(a)(“[A] 

domestic corporation which owns 10 percent or more of 

the voting stock of a foreign corporation from which it 

receives dividends in any taxable year shall be deemed to 

have paid the same proportion of such foreign corporation’s post-1986 foreign income taxes . . .”); § 907(b)(2)(B)

(“any income, war profits, and excess taxes paid or accrued (or deemed to have been paid or accrued under 

section 902 or 960) during the taxable year . . .”); 

§ 960(a)(1) (“Deemed paid credit”). Thus, a taxpayer 

cannot unilaterally define a category of “deemed paid or 

accrued” taxes, outside the confines of the Code and 

regulations. 

Second, Albemarle is wrong that no other category of 

taxes fits the definition of “deemed paid or accrued . . . 

Case: 15-5015 Document: 35 Page: 6 Filed: 10/22/2015
 ALBEMARLE CORPORATION v. US 7

other than by reason of section 904(d).” Section 

907(b)(2)(B), for example, states that some taxes are 

“deemed to have been paid or accrued under section 902 

or 960,” which are taxes “deemed paid or accrued . . . 

other than by reason of section 904(d).” See also 26 U.S.C. 

§ 901(a)(“[T]he tax imposed by this chapter shall . . . be 

credited with the amounts provided in . . . subsection (b) 

plus, in the case of a corporation, the taxes deemed to 

have been paid under sections 902 and 960.”). 

Because contested taxes are not “deemed . . . accrued 

other than by reason of section 904(d),” Albemarle’s

contention that Treasury Regulation 1.904-2(c) does not 

apply to contested taxes is incorrect. Albemarle’s proposed interpretation of “actually . . . accrued” would thus 

lead to the anomalous result that contested taxes would 

be taken as credits in the year of origin, yet counted

toward the credit limitation in the contest resolution year. 

For that reason, as well as the other reasons set forth 

above and in the panel opinion, we reject Albemarle’s 

interpretation of the statutory phrase “actually paid or 

accrued.” 

The petition for rehearing is denied. 

Case: 15-5015 Document: 35 Page: 7 Filed: 10/22/2015