In the United States Court of Federal Claims

No. 15-587T 

(Filed: October 6, 2016) 

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Discovery Dispute Regarding IRS 

Notice 2015-16; Skidmore Deference; 

Internal IRS Documents Not Relevant

to Resolving Legal Issue Under 26 

U.S.C. § 6426(b). 

 * 

SUNOCO, INC., * 

 * 

 Plaintiff, * 

 * 

v. * 

 * 

THE UNITED STATES, * 

 * 

 Defendant. * 

 * 

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Kevin Johnson, with whom were A. Christopher Young and Robert Fay, Pepper Hamilton, 

LLP, Philadelphia, Pennsylvania, for Plaintiff. 

Jason Bergmann, with whom were Caroline D. Ciraolo, Principal Deputy Assistant 

Attorney General, David I. Pincus, Chief, and Mary M. Abate, Assistant Chief, Court of 

Federal Claims Section, Tax Division, U.S. Department of Justice, Washington, D.C., for 

Defendant. 

OPINION AND ORDER 

DENYING PLAINTIFF’S MOTION TO COMPEL 

WHEELER, Judge. 

 The parties in this case are engaged in fact discovery. Their cross-motions for 

judgment on the pleadings and partial summary judgment also are pending and fully 

briefed. In deciding those motions, the Court must determine whether IRS Notice 2015-

56 is entitled to deference under Skidmore v. Swift, 323 U.S. 134, 139–40 (1944). Notice 

2015-56 gives direct guidance on the main legal issue in this case: the tax treatment of the 

alcohol fuel mixture credit under 26 U.S.C. § 6426(b). 

On July 29, 2016, Sunoco, Inc. (“Sunoco”) filed a motion to compel production of 

documents pursuant to Rule 37(a) of the United States Court of Federal Claims. Sunoco 
2 

seeks certain internal IRS documents that it contends would help the Court determine 

whether Notice 2015-56 is entitled to Skidmore deference. The Government opposes the 

motion on the grounds that the requested documents are (1) irrelevant to the issue of 

whether Skidmore deference should apply, and (2) protected under the deliberative process 

and attorney-client privileges. The Court agrees that the requested documents are 

unnecessary, and further finds that IRS Notice 2015-56 is not entitled to Skidmore 

deference for purposes of the pending motions. Sunoco’s motion to compel is therefore 

DENIED as moot. 

Background 

 The core of the parties’ dispute in this case is a purely legal issue. Because the Court 

will decide that issue when it resolves the parties’ pending motions, only a brief summary 

is necessary here. Sunoco, like many companies that produce fuel, blended ethanol into its 

fuel and thereby qualified for the alcohol fuel mixture credit under 26 U.S.C. § 6426(b). 

Compl. ¶¶ 10–11, Dkt. No. 1. The credit reduced Sunoco’s excise tax liability under 26 

U.S.C. § 4081. A taxpayer may count excise taxes paid as part of its cost of goods sold or 

as business expenses, and thereby may reduce its overall income tax liability. The question 

therefore is whether a taxpayer must use its net excise tax paid—that is, whether it must 

subtract the amount of the alcohol fuel mixture credit from its gross excise tax liability—

when calculating deductions against its income tax liability. 

 The IRS has taken inconsistent stances on the alcohol fuel mixture credit’s tax 

treatment. First, it issued Chief Counsel Advisory 201342010 on October 18, 2013 (“2013 

CCA”). See 2013 WL 5858278. In the 2013 CCA, the IRS noted, “Some blenders included 

the § 6426(c) biodiesel mixture credits and the § 6427(e) payments in income through a 

negative adjustment to their biodiesel mixture cost of goods sold.” Id. It continued, “In 

our view . . . federal tax credits are not gross income for purposes of determining a 

taxpayer’s federal income tax liability.” Id. Therefore, the IRS initially agreed with 

Sunoco’s position and held that a credit substantially similar to the alcohol fuel mixture 

credit was not required to be counted as part of a taxpayer’s gross income. Id. 

On February 7, 2014, the IRS issued Chief Counsel Advisory 201406001 (“2014 

CCA”). See 2014 WL 499938. The IRS reversed course in the 2014 CCA, stating, “For 

federal income tax purposes, the claimant must treat the excise tax credits allowed under 

§ 6426(a) as a reduction in its federal excise tax liability under §§ 4081 and 4041. 

Accordingly, the claimant’s allowable federal income tax deduction for federal excise taxes 

is reduced by the amount of the credits.”1

 Id. 

 

1

 The Government’s attempt to align the 2013 and 2014 CCAs is unconvincing. The 2013 CCA advised 

that § 6426(c) excise tax credits, which apply to biodiesel mixtures, were not to be included in a taxpayer’s 

gross income. See 2013 WL 5858278. The 2014 CCA’s advice meant that the same excise tax credits 
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Finally, the IRS released Notice 2015-56 on August 15, 2015—sixty-five days after 

Sunoco filed its complaint in this case. See 2015-35 I.R.B. 235 (2015). Notice 2015-56 is 

the only IRS advice on the main issue in this case that may be treated as binding. See 2014 

CCA, 2014 WL 499938 (“This advice may not be used or cited as precedent.”); 2013 CCA, 

2013 WL 5858278 (same). The Notice states that, “for federal income tax purposes, a 

claimant must reduce its § 4081 excise tax liability for each calendar quarter during the 

2014 calendar year by its biodiesel mixture credit attributable to a biodiesel mixture sold 

or used during that calendar quarter.” 2015-35 I.R.B. 235. Thus, Notice 2015-56 sides 

with the 2014 CCA, and against the 2013 CCA. 

Discussion 

 Under Skidmore, courts may give deference to an agency’s interpretation of its 

governing laws even when the agency does not use its rulemaking authority. 323 U.S. at 

139-40.2

 Agencies, as administrators of their governing statutes, contribute “a body of 

experience and informed judgment” that properly may guide a court’s decision in such 

cases. Id. at 140. In deciding whether to give deference to an agency interpretation, courts 

should consider the interpretation’s “thoroughness evident in its consideration, the validity 

of its reasoning, its consistency with earlier and later pronouncements, and all those factors 

which give it power to persuade, if lacking power to control.” Id. Depending on the 

balance of these factors, courts may give a range of deference from “great respect” to “near 

indifference.” United States v. Mead Corp., 533 U.S. 218, 228 (2001) (citations omitted). 

 AMP Inc. v. United States is instructive. See 185 F.3d 1333, 1338–39 (Fed. Cir. 

1999). In that case, the Court of Federal Claims had given deference to an IRS revenue 

ruling that bore directly on the parties and claims and was issued while the parties’ claims 

were pending with the IRS. Id. at 1338. The Federal Circuit noted that “[a] revenue ruling 

issued at a time when the I.R.S. is preparing to litigate is often self-serving and not 

generally entitled to deference by the courts.” Id. at 1338–39 (citation omitted). This was 

“especially true when the ruling cites no authority and is inconsistent with regulations and 

other pronouncements of the I.R.S.” Id. at 1339 (citation omitted). Therefore, the Circuit 

found that the revenue ruling was not entitled to deference. Id. 

 The situation here is remarkably similar to AMP. The IRS issued Notice 2015-56 

sixty-five days after Sunoco filed its complaint. Therefore, the IRS was not merely 

preparing to litigate when it issued the Notice—it was actually litigating. The Notice also 

 

reduced a taxpayer’s federal income tax deductions, which necessarily treats any excise tax credit as gross 

income. See 2014 WL 499938. The positions are irreconcilable. 

2

 When an agency exercises its rulemaking authority, courts may apply a higher degree of deference. See 

Chevron U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837 (1984). 
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does not give authority for the IRS’s determination. One would expect to see authority for 

the IRS’s position because Notice 2015-56 conflicts with the IRS’s earlier advice in the 

non-precedential 2013 CCA. These three factors—the timing of the Notice, the lack of 

authority, and the Notice’s inconsistency with prior IRS advice—mean that Notice 2015-

56 is not entitled to deference under Skidmore. In short, Notice 2015-56 is merely another 

vehicle through which the Government conveyed its position in this case. That position 

may be meritorious, or it may not be, but it deserves to be weighed equally against Sunoco’s 

arguments. 

Conclusion 

 The Court finds that IRS Notice 2015-56 is not entitled to deference for the parties’ 

cross-motions for judgment on the pleadings and partial summary judgment. Plaintiff’s 

motion to compel seeks documents only to support its argument that Notice 2015-56 should 

receive no deference. Therefore, Plaintiff’s motion to compel is DENIED as moot. 

 IT IS SO ORDERED. 

 s/Thomas C. Wheeler 

 THOMAS C. WHEELER 

 Judge