United States Court of Appeals 

for the Federal Circuit ______________________

WESTROCK VIRGINIA CORPORATION,

Plaintiff-Appellant

v.

UNITED STATES,

Defendant-Appellee

______________________

2018-1877

______________________

Appeal from the United States Court of Federal Claims 

in No. 1:15-cv-00355-LKG, Judge Lydia Kay Griggsby.

______________________

OPINION ISSUED: June 28, 2019

OPINION MODIFIED: November 4, 2019*

______________________

JERRY STOUCK, Greenberg Traurig LLP, Washington, 

DC, argued for plaintiff-appellant. Also represented by 

PAMELA J. MARPLE, MICHAEL J. SCHAENGOLD. 

 ANDREW M. WEINER, Tax Division, United States Department of Justice, Washington, DC, argued for 

 

* This opinion has been modified and reissued following a combined petition for panel rehearing and rehearing en banc filed by Appellant.
2 WESTROCK VIRGINIA CORPORATION v. UNITED STATES

defendant-appellee. Also represented by GEOFFREY 

KLIMAS, BRUCE R. ELLISEN, RICHARD E. ZUCKERMAN. 

 ______________________

Before NEWMAN, LINN, and WALLACH, Circuit Judges.

LINN, Circuit Judge.

WestRock Virginia Corporation (“WestRock”) appeals a 

decision of the United States Court of Federal Claims 

(“Claims Court”) affirming the Department of the Treasury’s award of a cash grant to WestRock in an amount that

WestRock contends is less than the grant amount required 

under Section 1603 of the American Recovery and Reinvestment Act of 2009 (“Section 1603”). WestRock Va.

Corp. v. United States, 136 Fed. Cl. 267 (2018). Because 

the Claims Court correctly determined that the amount of 

Treasury’s grant award was consistent with Section 1603, 

we affirm.

I

In 2009, President Obama signed the American Recovery and Reinvestment Act (“Recovery Act”) into law to encourage investments in clean energy property. Pub. L. No. 

111-5, 123 Stat 115, 115–16 (“The purposes of this Act include . . . invest[ing] in transportation, environmental protection, and other infrastructure that will provide longterm economic benefits.”). At the time of enactment, Section 48 of the Internal Revenue Code (“IRC” or “Code”) already encouraged such investments by providing lump 

sum, investment tax credits for certain qualifying property. 

But, because tax credits are beneficial only if one is already 

generating income, Congress enacted Section 1603 of the 

Recovery Act to create an alternate program that provides

cash grants in lieu of a tax credit to investors for certain 

qualifying investments. See H.R. Rep. No. 111-16 at 620–

21 (“It is intended that the grant provision mimic the operation of the credit under [IRC] section 48.”). Section 1603, 
WESTROCK VIRGINIA CORPORATION v. UNITED STATES 3

which is administered by Treasury, recites, in relevant 

part:

SEC. 1603. GRANTS FOR SPECIFIED ENERGY 

PROPERTY IN LIEU OF TAX CREDITS.

(a) IN GENERAL.—Upon application, the Secretary of the Treasury shall, subject to the requirements of this section, provide a grant to each 

person who places in service specified energy property to reimburse such person for a portion of the 

expense of such property as provided in subsection 

(b). 

* * *

(b) GRANT AMOUNT.—

(1) IN GENERAL.—The amount of the grant under 

subsection (a) with respect to any specified energy 

property shall be the applicable percentage of the 

basis of such property.

(2) APPLICABLE PERCENTAGE.—For purposes 

of paragraph (1), the term “applicable percentage” 

means—

(A) 30 percent in the case of any property described 

in paragraphs (1) through (4) of subsection (d), and 

(B) 10 percent in the case of any other property.

* * *

(d) SPECIFIED ENERGY PROPERTY.—For purposes of this section, the term “specified energy 

property” means any of the following:

(1) QUALIFIED FACILITIES.—Any qualified 

property (as defined in section 48(a)(5)(D) of the Internal Revenue Code of 1986) which is part of a 
4 WESTROCK VIRGINIA CORPORATION v. UNITED STATES

qualified facility . . . described in [§ 45(d)(3)] of 

such Code.

Pub. L. No. 111-5, 123 Stat. 115, 364–65 (emphases added). 

Section 48(a)(5)(D) of the Internal Revenue Code, in 

turn, defines “qualified property” in relevant part as “tangible property (not including a building or its structural 

components), but only if such property is used as an integral part of the qualified investment facility,” and 

IRC § 45(d)(3) defines “qualified facility” as a “facility using 

open-loop biomass to produce electricity.” Id. (emphasis 

added). In sum, Section 1603 provides for a grant in the 

amount of 30 percent of the basis or cost of any qualified 

property that is used as an integral part of a facility that

uses open-loop biomass to produce electricity. 

II

WestRock runs a paper mill in Covington, Virginia. 

Previously, this paper mill was fueled by steam produced 

from eight boilers that burned various types of fuel, including fossil fuels and black liquor (a non-biomass fuel derived 

from the pulping process). In 2013, WestRock placed into 

service a cogeneration facility that burns open-loop biomass, i.e. material not originally intended for use as a fuel 

source. This facility uses two boilers to provide steam—a

new biomass-fired boiler and an old boiler from WestRock’s

paper mill. The steam produced from both boilers is

comingled and fed into a steam turbine generator. The 

generator then uses the steam to generate electricity. 

WestRock diverts some of the steam from the generator to

the paper mill for use in the industrial paper process. 

WestRock, 136 Fed. Cl. at 270 (citing J. App’x 378–79). 

While WestRock disputed this last point before the Claims 

Court, it does not do so on appeal. It is therefore undisputed that not all the steam that is fed into the generator 

is used to generate as much electricity as it is capable of 

producing.
WESTROCK VIRGINIA CORPORATION v. UNITED STATES 5

On December 23, 2013, WestRock submitted a Section 

1603 application to Treasury seeking payment in connection with its open-loop biomass cogeneration facility. In 

the application, WestRock claimed that its qualifying property cost $286,191,571 and requested a payment of 

$85,857,471—30 percent of the total claimed qualifying 

cost. The National Renewable Energy Laboratory 

(“NREL”) reviewed the application and determined that 

WestRock’s facility produced both process steam and electricity. NREL subsequently determined, based on further 

information provided by WestRock, that WestRock used

only 49.1 percent of the energy in the steam produced at 

the facility to produce electricity and that fossil fuel still 

comprised about 0.22 percent of the total fuel used in 

WestRock’s boiler. Accordingly, Treasury determined, 

“based on the information provided[,] that the energy property uses open-loop biomass to produce electricity at a 

value equivalent to 48.8% of the total steam and electricity 

produced from biomass and fossil fuel.” J. App’x 722. 

Therefore, Treasury reduced the cost basis by 51.2 percent, 

and, after statutory sequestration of certain funds, 

awarded WestRock $38,881,758—30 percent of the cost of 

what Treasury deemed qualifying property. 

WestRock filed suit at the Claims Court challenging 

Treasury’s award amount and alleging that Treasury improperly reduced the cost of the property based on use of 

that property. The parties filed cross motions for partial 

summary judgment on the issue of whether Treasury may 

reduce WestRock’s cost basis under Section 1603(b)(2)(A). 

The Claims Court found, based on the statutory text, that 

Section 1603 provides for reimbursement of only those 

costs associated with electricity production at WestRock’s 

open-loop biomass facility. The Claims Court also found 

that its conclusion was consistent with applicable, but nonbinding Treasury guidance, which provides for allocation of 

the cost basis between qualifying and non-qualifying activities. The Claims Court determined that this guidance 
6 WESTROCK VIRGINIA CORPORATION v. UNITED STATES

should be afforded deference under Skidmore v. Swift & 

Co., 323 U.S. 134 (1944). Accordingly, it affirmed Treasury’s grant amount. WestRock appeals. We have jurisdiction under 28 U.S.C. § 1295(a)(3) (2012). 

III

Statutory interpretation is question of law that we review de novo. Belkin Int’l, Inc. v. Kappos, 696 F.3d 1379, 

1381 (Fed. Cir. 2012). The Supreme Court generally interprets statutes exempting parties from taxes or providing 

tax deductions narrowly. See INDOPCO, Inc. v. Comm’r, 

503 U.S. 79, 84 (1992) (“[T]his Court has noted the familiar 

rule that an income tax deduction is a matter of legislative 

grace and that the burden of clearly showing the right to 

the claimed deduction is on the taxpayer.” (internal citations and quotations omitted)); Helvering v. Nw Steel Rolling Mills, Inc., 311 U.S. 46, 49 (1940) (“It has been said 

many times that provisions granting special tax exemptions are to be strictly construed.”). While Section 1603 is 

not strictly such a statute, it similarly reimburses parties 

in lieu of a tax credit to promote the use of clean energy 

resources. 

The parties agree that Section 1603(b)(2)(A) provides 

for reimbursement of 30 percent of the cost of any qualified 

property—as defined in section 48(a)(5)(D) of the Code—

that is part of a qualified facility—as defined in Section 

45(d)(3) of the Code. They disagree, however, on whether 

Treasury may determine the basis or cost of the qualified 

property based on the use of that property. We conclude 

that Section 1603(b)(2)(A) unambiguously allows Treasury,

in calculating the amount of the grant specified in the statute, to reduce the basis of qualified property in proportion 

to its use in a qualifying activity. The statute’s plain text, 

underlying purpose, and legislative history support this 

conclusion. 

By incorporating the phrase “integral part” into the 

definition of “qualified property,” Section 1603 allows for 
WESTROCK VIRGINIA CORPORATION v. UNITED STATES 7

reimbursement of costs associated with a qualifying activity. As noted above, section 48(a)(5)(D) of the Internal Revenue Code defines “qualified property” in relevant part as 

“tangible property (not including a building or its structural components), but only if such property is used as an 

integral part of the qualified investment facility.” Id. (emphasis added). And IRC § 45(d)(3) defines a “qualified facility” as, inter alia, a “facility using open-loop biomass to 

produce electricity.” Id. (emphasis added). The plain text 

of Section 1603 incorporates definitions from the Internal 

Revenue Code that make clear that the use of the property 

should be considered in determining the basis for purposes 

of computing the amount of the grant. Thus, we agree with 

the Claims Court that the statutory language allows for reimbursement in the amount of 30 percent of only those 

costs associated with producing electricity.

This reading is also supported by the purpose underlying the Recovery Act. As explained above, when enacting 

Section 1603, Congress intended to provide an alternative

to the types of benefits provided under IRC § 48 for similar 

types of clean energy investments. Section 48 of the Code, 

like Section 1603, defines property that qualifies for an investment tax credit according to its use. See IRC § 48(a) 

(providing an “energy credit” of “30 percent in the case of” 

“energy property,” which is defined as “equipment which 

uses solar energy to generate electricity, to heat or cool (or 

provide hot water for use in) a structure, or to provide solar 

process heat, excepting property used to generate energy 

for the purposes of heating a swimming pool.”). 

In administering IRC § 48, Treasury promulgated regulations that similarly allocate the cost of the property according to use of that property. For example, Treas. Reg. 

1.48-9(e) defines “wind energy property” as equipment

“that performs a function described in paragraph (e)(2),” 

which, in turn, limits the tax credit to equipment that 

“[u]ses wind energy to heat or cool, or provide hot water for 

use in, a building or structure” or “[u]ses wind energy to 
8 WESTROCK VIRGINIA CORPORATION v. UNITED STATES

generate electricity.” Similarly, Treas. Reg. § 1.48-9(d)(4) 

states that “[p]ipes and ducts that are used to carry both 

energy derived from solar energy and energy derived from 

other sources” are eligible for tax credit as solar energy 

property “only to the extent of their basis or cost allocable 

to their use of solar energy during an annual measuring 

period.” Finally, Treasury Regulation § 1.48-9(d)(8) includes examples of equipment that qualify as solar energy 

property. These examples similarly reduce the cost or basis of the property according to an allocation of its uses. 

Specifically, one example notes that certain equipment 

that “serve the oil-fired water heater as well as the solar 

energy equipment” qualify for the tax credit “only to the 

extent of eighty percent of their cost or basis,” i.e. “the portion allocable to use of solar energy.” Id. Thus, Treasury’s

regulations administering the investment tax credit under 

IRC § 48 allocate the cost or basis similar to how Treasury 

allocated the cost or basis under Section 1603 here—that 

is, based on what Treasury deems are qualifying activities

under the statute.

Because Congress legislated against this regulatory 

backdrop when it enacted Section 1603 and because Section 1603 provides a cash grant in lieu of a tax credit under 

IRC § 48, we conclude that Congress intended that Treasury award grants under Section 1603 similar to how it has 

always awarded tax credits under Section 48—i.e., by fairly 

allocating the basis according to the use of that property. 

See Gazelle v. Shulkin, 868 F.3d 1006, 1011 (Fed. Cir. 2017) 

(“Congress ‘legislate[s] against the backdrop of existing

law.’” (citation omitted)). Indeed, in the legislative history 

accompanying the Recovery Act, Congress stated that “[i]t 

is intended that the grant provision mimic the operation of 

the credit under section 48.” H.R. Rep. No. 111-16 at 

621. Thus, as the government notes, while Congress provided another form of subsidy to owners of open-loop biomass facilities when it enacted the Recovery Act—a lump 
WESTROCK VIRGINIA CORPORATION v. UNITED STATES 9

sum cash grant rather than a lump sum investment tax 

credit—it did not change what it was subsidizing.

Finally, our interpretation finds support in the legislative history. A conference report accompanying the Act explains, when discussing the relevant portion of Section 

1603, that the statute provides for a grant payment for 

property that is “an electricity producing facility.” H.R. 

Rep. No. 111-16, at 620–21 (Feb. 12, 2009) (Conf. Rep.). It 

further states that:

An income tax credit is allowed for the production 

of electricity from qualified energy resources at 

qualified facilities (the “renewable electricity production credit”). Qualified energy resources comprise . . . open-loop biomass . . . . Qualified facilities 

are, generally, facilities that generate electricity using qualified energy resources. 

Id. at 620 (emphasis added). These statements from the 

legislative history illuminate Congress’s intent when enacting the statute. Specifically, they demonstrate that 

Congress intended to promote the use of clean energy resources for the production of electricity. This is consistent 

with the plain text of the statute and lends further support 

to the government’s reading. 

WestRock argues that, while the statute establishes 

that a qualified facility must use open-loop biomass to produce electricity, it does not allow Treasury to allocate cost

based on the percentage of steam used to actually produce 

electricity. According to WestRock, once it has been established that the qualified property uses biomass to produce 

electricity, Treasury must blindly reimburse WestRock for 

30 percent of the total cost of that property. We disagree. 

Not only does this read out the phrase “integral part” from 

the Internal Revenue Code, it also produces an absurd result. Under WestRock’s reading of the statute, any owner 

that uses its property to produce even a small amount of 

electricity would be reimbursed for 30 percent of the cost of 
10 WESTROCK VIRGINIA CORPORATION v. UNITED STATES

that property even if the property is in large part used for 

purposes entirely unrelated to the production of electricity. 

This is not the result Congress intended when it enacted 

Section 1603. See Griffin v. Oceanic Contractors, Inc., 458 

U.S. 564, 575 (1982) (“[I]nterpretations of a statute which 

would produce absurd results are to be avoided if alternative interpretations consistent with the legislative purpose 

are available.”). 

Finally, WestRock contends that the Claims Court 

erred when it relied on Treasury guidance and Skidmore 

deference to uphold Treasury’s grant amount. Because we 

conclude that Treasury’s grant amount is consistent with 

Section 1603 based on an unambiguous reading of the statute, we need not resort to agency deference, and thus, need 

not reach WestRock’s argument. 

CONCLUSION

For the reasons stated above, we affirm the Claims 

Court’s conclusion that the amount of Treasury’s grant 

award was consistent with Section 1603.

AFFIRMED

COSTS

No costs.