_____________

No. 95-1306MN

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Northern States Power Company, *

a Minnesota Corporation, and *

Northern States Power Company, *

a Wisconsin Corporation, *

* On Appeal from the United

Appellees, * States District Court

* for the District of

v. * Minnesota.

*

*

United States of America, *

*

Appellant. *

___________

 Submitted: October 16, 1995

 Filed: January 2, 1996

___________

Before RICHARD S. ARNOLD, Chief Judge, WOLLMAN and MORRIS SHEPPARD

ARNOLD, Circuit Judges.

___________

RICHARD S. ARNOLD, Chief Judge.

This case presents a narrow and interesting question about how

to interpret several provisions of the Internal Revenue Code. The

United States appeals from the District Court's tax-refund award to

Northern States Power Company and one of its subsidiaries

(collectively, "NSP"). The District Court granted NSP's motion for

summary judgment, and held that NSP was entitled to have the

interest on its tax refunds computed by offsetting, or "netting,"

its tax underpayments in 1980, 1983, and 1984 against its

overpayments in 1981 and 1982. This "netting" approach eliminates

the expensive - for NSP - effect of a one per cent. difference
 1

Congress set the interest rate owed by a taxpayer on

underpayments one per cent. higher than the rate paid to a taxpayer

on overpayments in the Tax Reform Act of 1986, Pub. L. No. 99-514,

100 Stat. 2085, § 1511(a). The rates have changed several times

since then, but the rate itself does not matter here. 

 2The parties stipulated the following overpayments: in 1980,

$1,846,947; in 1981, $5,616,786; in 1982, $130,238; in 1983, $311,

663; and in 1984, $1,212,867. In all, NSP overpaid $9,118,501. 

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between the interest rates on overpayments and underpayments, that

is, between what the Government pays and what it earns.1 The

United States argues that the tax laws give the IRS discretion to

credit a taxpayer's overpayment against the same taxpayer's

outstanding liability, and that overpayments and underpayments may

be "netted" for interest-calculation purposes only when the IRS

decides to make such a credit. We agree, and reverse.

I.

The relevant facts of this case are not contested. In 1990,

after an audit, the IRS rejected several of NSP's claimed

deductions and assessed tax deficiencies against NSP for 1980,

1981, 1983, and 1984. That same year, NSP paid the IRS over $23

million for the deficiencies, plus interest. NSP then filed

amended returns, asserting previously unclaimed tax credits for

1981, 1982, and 1984, and brought this case, seeking refunds based

on these credits. 

In 1994, NSP and the IRS settled most of their disputes. They

agreed that NSP had overpaid its taxes in 1981 and 1982, but

underpaid in 1980, 1983, and 1984. And because the agreed-upon

deficiencies for 1980, 1983, and 1984 were smaller than was thought

when NSP paid its $23 million deficiency, it turns out NSP actually

overpaid for all five years.2

 So the parties agree that NSP is

entitled to refunds plus interest for all five years in question

(1980-84). Here, however, NSP and the IRS part company; they do
 3

The "netting" method of interest calculation would entitle

NSP to an additional $460,000.

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not agree on how to calculate the interest due on the refund. This

disagreement is the subject of this appeal. 

What makes this case interesting is the gap between the

interest rates on underpayments and overpayments. See I.R.C. (26

U.S.C.) § 6621(a). If interest accrued on underpayments and

overpayments at the same rate, the parties' disagreement would

evaporate. That is, it would make no difference if underpayments

and overpayments were "netted," and the applicable interest rate

then applied to the difference, or if interest accrued, at the

applicable rates, simultaneously and separately on the overpayments

and the underpayments. Either way, it would all come out in the

wash. But the rates are not the same, so netting can, in some

cases, save - or cost - a great deal.3 

In this case, before NSP paid the deficiencies in 1990, it had

overpaid in 1981 and 1982 more than it underpaid in 1980, 1983, and

1984. The United States argues that the interest due NSP should be

calculated separately for each of the tax years in question. But

NSP insists the IRS should credit its 1981 and 1982 overpayments

against its 1980, 1983, and 1984 underpayments as of the time the

underpayments arose. If the IRS takes this "netting" approach, the

interest rate gap does not come into play because, on balance, NSP

was, during the relevant years, the United States' creditor, not

debtor. 

II.

A.

The District Court granted NSP's motion for summary judgment,

and held that NSP is "entitled to have the interest on its tax
 4

In its brief, NSP points to the legislative history of other

statutes passed since the 1986 Act. The District Court, however,

mentioned only the 1986 Act's history when it granted NSP's motion

for summary judgment. 

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refunds for 1980 through 1984 computed by netting the 1981 and '82

overpayments against the '80, '83, and '84 underpayments." The

Court agreed with NSP that the 1986 Tax Reform Act, Pub. L. No. 99-

514, § 1511(b), 100 Stat. 2085, showed Congress's "specific concern

about potential unfairness to taxpayers, [who] had an overpayment

in one year and an underpayment in another . . .." The Court

stated that "[t]he legislative history which accompanies the Act is

explicit in providing that the Service should adopt and implement

computerized netting procedures" to "eliminate the unfairness"

caused by the higher interest rate for underpayments. Without

disparaging the Court's unease with what it perceived to be IRS

overreaching, we disagree with its decision. We think this case is

controlled by the text of the Internal Revenue Code, not by the Tax

Reform Act's, or any other, legislative history.4

B.

Our analysis starts, and in this case ends, with the statutes

themselves. See Staples v. United States, 114 S. Ct. 1793, 1797

(1994) (a statute's language is "the starting place in [a court's]

inquiry"); Arkansas AFL-CIO v. F.C.C., 11 F.3d 1430, 1440 (8th Cir.

1993) (when Congress's intent is clear from the words of the

statute, that is the "end of the judicial inquiry"). We think that

when, as here, the statutes are straightforward and clear,

legislative history and policy arguments are at best interesting,

at worst distracting and misleading, and in neither case

authoritative. See Davis v. Michigan Dept. of the Treasury, 489

U.S. 803, 808 n.3 (1989) ("Legislative history is irrelevant to the

interpretation of an unambiguous statute."); United States v.

Field, 62 F.3d 246, 249 (8th Cir. 1995) (when the statutory

language is not ambiguous, there is "no need to search for clues to
 5

I.R.C. § 6601(a) provides:

General Rule.--If any amount of tax imposed by this title

(whether required to be shown on a return, or to be paid

by stamp or by some other method) is not paid on or

before the last date prescribed for payment, interest on

such amount at the underpayment rate established under

section 6621 shall be paid for the period from such last

date to the date paid.

. . . 

I.R.C. § 6611 states:

(a) Rate.--Interest shall be allowed and paid upon any

overpayment in respect of any internal revenue tax at the

overpayment rate established under section 6621.

(b) Period.--Such interest shall be allowed and paid as

follows:

(1) Credits.--In the case of a credit, from

the date of the overpayment to the due date of

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Congress' intent in the legislative history").

As both parties recognize, the Internal Revenue Code does

provide for the type of "netting" sought by NSP in this case.

Under Section 6601(f) of the Code (26 U.S.C.):

If any portion of a tax is satisfied by credit of an

overpayment, then no interest shall be imposed under this

section on the portion of the tax so satisfied for any

period during which, if the credit had not been made,

interest would have been allowable with respect to such

overpayment.

So, the IRS may credit a taxpayer's overpayments against its

underpayments and thereby sidestep the effect of Section 6621's

interest-rate gap. But must it do so in this case? 

Section 6601(f)'s netting provision is an exception to the

general rules for calculating interest on overpayments and

underpayments. See I.R.C. §§ 6601(a); 6611(a), (b)(1), (2).5 The
the amount against which the credit is taken.

(2) Refunds.--In the case of a refund, from

the date of the overpayment to a date (to be

determined by the Secretary) preceding the

date of the refund check by not more than 30

days, whether or not such refund check is

accepted by the taxpayer after tender of such

check to the taxpayer. The acceptance of such

check shall be without prejudice to any right

of the taxpayer to claim any additional

overpayment and interest thereon.

. . . 

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statute makes it plain that its netting provision comes into play

"[i]f any portion of a tax is satisfied by credit of an

overpayment." Turning next to Section 6402(a) (Authority to Make

Credits or Refunds), we find this provision:

General Rule.--In the case of any overpayment, the

Secretary, within the applicable period of limitations,

may credit the amount of such overpayment, including any

interest allowed thereon, against any liability in

respect of an internal revenue tax on the part of the

person who made the overpayment and shall, subject to

subsection (c) and (d), refund any balance to such person

(emphasis added).

Accordingly, the applicable Treasury regulation states that "[t]he

Commissioner . . . may credit any overpayment of tax, including

interest thereon, against any outstanding liability . . . owed by

the person making the overpayment . . .." 26 C.F.R. § 301.6402-1

(1995) (emphasis added). 

We agree with the United States that the word "liability" in

Section 6402 means "outstanding liability," one that is unpaid when

the credit is made. The Treasury regulations support this reading,

see 26 C.F.R. § 301.6402-1 (referring to an "outstanding

liability"), and we properly defer to these regulations. See

Cottage Savings Ass'n v. Commissioner, 499 U.S. 554, 560-61 (1991)
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(courts "must defer to [the Commissioner's] regulatory

interpretations of the Code so long as they are reasonable");

Miller v. United States, 65 F.3d 687, 689 (8th Cir. 1995) (same).

This is also the reading that makes the most sense, because only an

outstanding liability can be "satisfied" by a credit. See I.R.C.

§ 6601(f). NSP provides no support, other than a strained reading

of miscellaneous bits of legislative history, for its assertion

that Section 6402(a) is somehow "time-neutral," that a "liability"

may be one that no longer exists, but once did. We think this

argument withers before the statute's plain meaning. We are

likewise not convinced by NSP's attempt to read the word

"outstanding" out of the relevant Treasury regulation, 26 C.F.R.

§ 301.6402-1. In our view, the regulation means what it says. 

So there must be an outstanding tax liability, against which

an overpayment may be credited, before Section 6402's netting

exception comes into play. But even assuming such a liability, the

IRS has discretion whether to credit an overpayment to that

liability or not. Section 6402 is clear: the IRS "may credit the

amount of such overpayment . . . against any liability." See,

e.g., In re Ryan, 64 F.3d 1516, 1523 (11th Cir. 1995) ("[Section

6402], plainly gives the IRS the discretion to apply overpayments

to any tax liability."); Pettibone Corp. v. United States, 34 F.3d

536, 538 (7th Cir. 1994) (statute "leaves to the Commissioner's

discretion whether to apply overpayments to delinquencies or to

refund them to the taxpayer"); Estate of Bender v. Commissioner,

827 F.2d 884, 887 (3d Cir. 1987) (discretionary power under

§ 6402(a) "rests exclusively with the IRS"). 

NSP argues that -- the IRS's statutorily granted discretion

notwithstanding -- Congress has repeatedly insisted that the IRS

develop comprehensive and computerized interest-netting procedures,

to eliminate the possibility of unfairness caused by the interestrate gap. NSP cites no case or statutory authority for this

argument. Instead, NSP purports to glean a mandate for netting
 6

Section 1511(b) states:

. . . 

(b) COORDINATION BY REGULATION. -- The Secretary of the

Treasury . . . may issue regulations to coordinate

section 6621 of the Internal Revenue Code . . . with

section 6601(f) of such Code. Such regulations shall not

apply to any period 3 years after the date of the

enactment of this Act.

. . .

We note that this section says the Secretary "may" issue

regulations to coordinate the two Code sections. This is not a

mandate.

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from the 1986 Tax Reform Act and its legislative history, as well

as from the history of several later enactments. NSP notes that

when Congress passed the 1986 Tax Reform Act, it authorized the

Treasury Department to "coordinate" Section 6621's different

interest rates for under- and overpayments with Section 6601(f)'s

netting provision. Tax Reform Act of 1986, Pub. L. No. 99-514, 100

Stat. 2085, § 1511(b).6 NSP explains, citing legislative history,

that Congress recognized the IRS's need for 

substantial lead time to develop the data processing

capability to net . . . underpayments and overpayments in

applying differential interest rates. The bill,

therefore, provides that the Secretary of the Treasury

may prescribe regulations providing for netting of tax

underpayments and overpayments through the period ending

three years after the date of enactment of the bill. By

that date, the committee expects that the IRS will have

implemented computerized netting procedures. 

S. Rep. No. 313, 99th Cong., 2d Sess. 185, reprinted in 1986-3 C.B.

(Vol. 3) v., 185 ; see also H.R. Conf. Rep. No. 841 (Pt. II), 99th

Cong., 2d Sess. 785, reprinted in 1986-3 C.B. (Vol. 4) v., 785

(noting that, after three years, "the IRS should have implemented

the most comprehensive netting procedures that are consistent with

sound administrative practice").
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According to NSP, Congress has continued to call for netting

of overpayments and underpayments in the legislative history of

enactments since 1986. As we said above, however, all this

rummaging through the legislative history of statutes other than

those at issue is beside the point. See Consumer Product Safety

Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 117 (1980) ("`the views

of a subsequent Congress form a hazardous basis for inferring the

intent of an earlier one'") (citation omitted). The relevant

statutes are, we think, quite clear, and we are not convinced that

NSP's litany of congressional reports amounts to anything like a

mandate. Congress knows very well how to mandate something; it has

not done so here. A statement in a report that a committee of

Congress "expects" an agency to do something does not have the

force of law. The agency may, and probably should, heed such a

statement, but a court will not enforce it when the statute itself

contains no warrant for doing so.

Thus, the IRS may credit an overpayment against an outstanding

liability, and, if it does, Section 6601(f)'s netting provision

comes into play. In this case, however, not only has the IRS

apparently chosen not to credit the overpayments, there were no

outstanding liabilities against which the overpayments might be

credited. NSP paid off its tax deficiencies, and then some, in

1990. It then amended its returns and established that it was

entitled to refunds, though not to a credit, because, again, it no

longer had any outstanding tax liabilities. Under Section 6402,

then, the IRS could not credit the overpayments, and so Section

6601(f)'s netting rule does not apply. And we emphasize again that

even if NSP had had outstanding liabilities, the IRS is not

required to credit overpayments against them, and therefore not

required to do the comprehensive netting described in Section

6601(f). In a proper case, the failure to credit overpayments

might be reviewable on an abuse-of-discretion basis, but no such

argument is made in this case.
 7

NSP claims that in the legislative history of the Omnibus

Budget Reconciliation Act of 1990, Pub. L. No. 101-508, 104 Stat.

1388, and of the Uruguay Round Agreements Act ("GATT"), Pub. L. No.

103-465, 108 Stat. 4809, Congress demanded the Treasury develop

"the most comprehensive crediting procedures under section 6402

that are consistent with sound administrative practice . . .."

H.R. Rep. No. 826(1), Subtitle B, 103d Cong., 2d Sess., reprinted

in 1994 U.S. Code Cong. & Ad. News 3773, 3950; H.R. Conf. Rep. No.

964, 101st Cong., 2d Sess., reprinted in 1990 U.S. Code Cong. & Ad.

News 2374, 2805-2806. 

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IV.

In our view, the language of the relevant statutes answers the

question raised in this case. Still, we think it appropriate to

comment on two other points discussed in the parties' briefs.

First, the parties argue at some length about whether or not the

IRS has the technological capacity to make interest netting its

standard practice. NSP insists that the IRS routinely does

extensive and complicated corporate-refund computations, and that

interest netting would not be inordinately burdensome on the IRS.

The IRS, on the other hand, insists that implementing a

comprehensive netting system would not be "consistent with sound

administrative practice."7

 

We do not know if the IRS can do computerized comprehensive

netting of the kind sought by NSP or not. But in this case the

IRS's capabilities are irrelevant. The statutes are unambiguous,

and do not require NSP's proposed accounting methods. If the law

did require the IRS to calculate interest by netting overpayments

and underpayments, so long as consistent with "sound administrative

practice," then the IRS would have to start netting, or show that

it could not. 

Second, NSP argues that a Seventh Circuit case, Pettibone

Corp. v. United States, 34 F.3d 536, supports its position. We

disagree. In Pettibone, the court held that the netting of

overpayments and underpayments was not a "setoff" within the
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meaning of the Bankruptcy Code. In Pettibone, as in this case, the

IRS and the taxpayer agreed on the amount of underpayments and

overpayments, but disagreed on how to net the two sums and on how

to calculate interest. Id. at 538. Ironically, the parties'

positions in Pettibone were the reverse of those here: the IRS

argued for "continuous netting of overpayments, underpayments, and

interest on the balance," while the taxpayer wanted to "tally the

overpayments and the underpayments separately," with "interest also

accru[ing] separately . . .." Ibid. The court did not address

whether or not netting was required, but simply held that the

netting was not a prohibited setoff. Id. at 542. Thus, Pettibone

has little to do with this case. Nevertheless, NSP argues that

because the IRS argued for continuous netting in Pettibone, it must

use continuous netting here.

We disagree. First, if the IRS were to argue that the tax

laws require continuous netting, for interest-calculation purposes,

of overpayments and underpayments, it would be mistaken. It is not

estopped to take the correct position here. Second, in Pettibone,

the IRS credited outstanding overpayments against outstanding

underpayments, which it is permitted to do under Section 6402(a).

The Pettibone court did discuss Section 6601(f)'s netting

procedure, but nothing in that decision suggests netting is

required when past underpayments have already been fully paid. In

fact, the Pettibone court noted that, under Section 6402(a), the

"Internal Revenue Code leaves to the Commissioner's discretion

whether to apply overpayments to delinquencies or to refund them to

the taxpayer," and emphasized that "[t]here are many reasonable

interpretations of the provisions of the Internal Revenue Code.

The IRS is free to choose among them." Pettibone, 34 F.3d at 538,

542.

V.

For the reasons discussed in this opinion, we reverse the
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judgment of the District Court, and remand for further proceedings

consistent with this opinion.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.