TAX COURT OPINION

Case: Exxon Mobil Corporation and Affiliated Companies, f.k.a. Exxon Corporation and Affiliated Companies
Docket Number: 18618-89
Judge: Swift
Opinion Type: reported
Filed: 01/17/2006
Pages: 10

126 T.C. No. 3 . UNITED 'STATES TAX COURT EXXON MOBIL CORPORATION AND AFFILIATED COMPANIES, f.k.a. EXXON CORPORATION AND AFFILIATED COMPANIES, Petitioners 2. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 18618-89, 18432-90 Filed January 17, 2006. 23331-95.. 4. interest balance of $1.6 billion Held: Under secs! 6611, 6621(a) (1) and 6622, petitioners' outstanding Dec. 31, 1994, cumulative accrued overpayment relating to the years ínvolved herein accrues further compound interest ·after Dec. 31, 1994, at the reduced interest rate applicable _to large corporate overpayments, not at Elec. Co. v. United States, 56 Fed. Cl. 488 (2003), , affd. 384 F.3d 1307 (Fed. Cir. 2004), and State Farm Mut. Auto. (2006), $450 million in accrued interest is denied. Ins. Co. v. Commissioner, 126 T.C. ___ the regular interest -rate. .Gen. followed. Petitioners' claim for an additional SERVED Jg| 1 7 2006 the Uruguay Round of Multilateral Because the new statutory language [in section 6621] was enacted as part of the statute that gave effect to the agreements reached at Trade Negotiations condúcted under the auspices of General Agreement on Tariffs and Trade ("GATT"), corporate ·overpayment interest rate of 0.5 percent set forth in the 1994 amendment is referred to as the "GATT rate." The higher interest rate on corporate overpayments that applied to all corporate overpayments prior to the 1994 Act and [that applies to corporate overpayments of $10,000 and less] is referred to as the "regular rate." * * * the the lower · We use the same nomenclature herein. Due to the 1.5-percent differeñtial under section 6621(a) (1) between the regular rate and the GATT rate, if the higher regular overpayment interest rate applies to petitioners' December 31, 1994, overpayment interest balance, there will accrue, after. December ·31, 1994, additional·interest in favor of petitioners of approximately $450 million. The parties have stipulated the facts relevant to the Background instant motion·s. Petitioners' corporate Federal income tax returns for 1979 through 1985 were timely filed with respondent. On each.of those tax returns as filed, petitïoners reported tax overpayments in excess of $10,000 and claimed refunds or credit transfers of the tax overpayments, which respondent allowed and credited in favor of petitioners. - 5 - been resolved, and decisions.have been entered in each of these consolidated cases. Discussion We start our analysis of the legal question before us with the language and.structure of the statute itself. Kaiser Aluminum & Chem. Corp. v. Boniorno,. 494 U.S. 827, 835 (1990); United States v. Ron Pair Enters,, Inc., 489 U.S. 235, '241 (1989); (cid:16)042Anderson v. Commissioner, 123 T.C. 219, 233 (2004), affd. 137 Fed. Appx. 373 (1st Cir. 2005). Section 6611 provides that taxpayers are to be allowed and are to be paid interest on any overpayments in respect of any internal revenue tax at the rate established under section 6621. Section 6622 provides that in computing the amount .of interest required to be paid under section 6611, the interest will be compounded daily. . Section 6621 provides that the rate of interest to be paid by_ respondent to corporate taxpayers on overpayments shall be the·sum of the Federal short-term interest rate, as calculated according to the formula set forth in section 6621(b), plus 2 percentage points, but plus only 0.5 percentage point where a corporate overpayment for a year is in excess of $10,000. The relevant text of section 6621(a) (1) provides as follows: (1) Overpayment rate.--The overpayment rate established under this. section shall be the -sum of -- The GAT.T amendment also.included a corollary 2-percentage point interest rate differential applicable..for periods after December 31, 1994,. in the interest rate applicable to large corporate tax underpayments in-excess of $100,000. " Sec. 6621(c). The above changes in the interest rates applicable to large corporate over- änd underpayme.nts were added by Congress as "outlay reduction(s] *.* * to assist in offsetting the projected cost of the implementing legislation" relating to the GATT treaty. S. Rept. 103-412, at 11 (1994); H. Rept. 103-826 (I)., at 9 (1994), U.S.C.C.A.N. 1994, pp. 3773, 3781. The Senate report explained as follows: * * (Congressional.Budget the Uruguay Round agreement As set forth below in the * Office] cost estimate, includes a commitment by the United States to reduce U.S. tariffs which would cause a loss of receipts to the U.S. Treasury. Enforcement Act and Senate Rules require that these costs be.offset. requirement, it is both "necessary" and "appropriate" that provisions designed to offset the costs of Due to. this pay-as-you go As explained above, the Budget (cid:16)042Uruguay Round agreement be included in this. the implementing legislation. [S. Rept. 103-412, at 135.] Petitioners acknowledgé that respondent, -with respect to. each of the yeärs in issue, has refunded to petitioners all overpaid taxe.s and overpaid interest that petitioners paid to respondent, plus compound interest thereon through. December 31, 1994. argue that the words "overpayment of tax" do not include overpayment interest, particularly the overpayment interest balance that was outstanding on December.31, 1994. Beginning January 1, 1995, petitioners effectively would place interest accrual on thbir overpayments of interest relating to 1979 through 1985 into three·baskets: First Basket: Interest accruing after December 31, 1994, o.f $10,000 or less and statutory interest thereon; relating to overpayments of tax . Second Basket: Interest accruing after December 31, 1994, relating to overpaymehts of tax in excess of $10,000 and statutory interest thereon; Third Basket: Interest accruing after December 31, 1994, .relating to overpayment _interest balance outstanding as of December 31, 1994. Petitioners would apply the GATT rate·only to the contents ,of the ·second basket. To the contents of the first and third baskets, petitioners would apply the regular interest rate, not the GATT rate. The third basket, however, suggested by petitioners is not supported by the statutory language.. The second basket already includes póst-December 31, 1994, interest accrual and compound interest thereon relating to corporate tax overpayments in excess of $10,000; namely, the sub'ject matter to which the flush language of section 6621(a) (1) applies the reduced.GATT interest rate. - 11 - with respect to that corporation (and with respect to all overpayment interest accrual except that relating to the corporation's tax overpayment up to $10,000), section.6621(a) (1) effectively provides only one interest rate -- the.reduced GATT rate. In the above situation, in effect (for everything other than interest relating to a corporation's tax overpayment up to $10,000) the regular interest rate, for practical purposes, 1s eliminated from the statutory language of section (6221, and there remains in section 6621(a) (1!) only one interest rate -- the GATT rate -- that applies to all.further interest accrual. relating to corporate overpayments of tax and to accrual.·of compound interest thereon. Section 6621(a) (1) does not refer to overpayment "rates". Once the GATT trigger occurs, then any and all further interest after December 31, 1994, relating to or associated with that excess corporate overpayment, is to accrue only at the reduced GATT rate. Our interpretation of the.statutory language is supported by the holding of this Court in State Farm Mut... Auto. Ins. Co. V. Commissioner, 126 T.C. ___ (2006), filed today, and also by the recent holdings of the Court of Appeals for the Federal Circuit and the U.S. Court of Federal Claims in Gen. Elec. Co. v. United - 13 - scheme is not easy to unravel, interpretation.of the st.atutory language leads us to reject [the taxpayer's] submission. the most straightforward In Gen. Elec. Co. v. United States, 56 Fed. Cl. at 496, the Court of Federal Claims explained its holding, in part, as follows: The GATT rate merely attaches prospective impact meeting of a condition as. of statute, relevant to wit, taxable year that exceeds $10,00.0. * the existence of an overpayment for the - * * the effective date of the to the Petitioners read the lang.uage of section 6621(a) (1) ("to the extent that an overpayment of tax * * * exceeds $10,000") as providing more than the trigger for ápplication of the GATT rate. Petitioner's read that language as limiting application of the GATT rate to just the "overpaid taxes" and interest.accruing on the overpaid taxes after December 31, 1994, and petitioners describe the December 31,. 1994, accrued overpayment interest balance as neither "'tax' nor something that was ever 'overpaid'" by petitioners. Petitioners refer us to Code sections and to various situations in which overpayment interest is or has been treated differently from overpayments of tax and from underpayment interest. For example, section 6601(e) (1) specifically provides that any reference to "tax"' shall also refer to underpayment interest ("any tax imposed by this title shall be deemed also to - 15 - running of interest on a tax deficiency if respondent failed to make notice and demand on the taxpayer within 30 days of the taxpayer's filing of a waiver of restrictions on assessment) only suspended interest on a tax deficiency, not on the interest that had accrued on the underlying tax deficiency before the beginning of·the suspension períod·.5 The above examples apparently persuade petitioners that when Congress wants overpayment interest treated the same as . overpayments of tax, it knows how to explicitly so provide. Certainly, the language of section 6621(a) (1) could be clearer. Congress could have made explicit in the statutory language what respondent argues and·what we today hold -- by expressly providing in the flush language of section 6621(a) (1) language to the effect that the reduced GATT rate, if triggered, would apply to any December 31, 1994, overpayment interest balance. . Congress also could have made explicit in the statutory language what petitioners argue -- by expressly providing in the flush language of section 6621(a) (1) the GATT rate (rather than substituting in section 6621(a) (1) (B) the GATT rate for the regular rate), by leaving the regular rate ·in section 6621(a) (1) (B), and by providing language to the effect that the 5 Congres's later changed the interpretation set forth in to Rev. Proc. 87-43, 1987-2 C.B. 590, by amending sec. 6601(c) refer explicitly to. accrued!interest. Petitioners suggest that their calculations are supported by the manner by which interest calculations routinely are.adjusted in commercial debtor-creditor relationships for changes either in the principal amount outstanding or in the interest rate. We disagrees The "wrinkle" petitioners acknowledge herein that is not typical in the routine debtor-creditor relationship is 'that petitioners seek to apply the reduced interest rate not to the full outstanding balance of the overpayment interest on 'the effective date of the rate reduction but only to a portion thereof. It is that wrinkle that is in issue, and we find no support in petitioners' examples for the proposition petitioners seem to put forth that under commercial debtor-creditor loan agreements a prospective reduction. in the applicable interest rate similar to that reflected in the GATT amendment necessarily would not apply to overpayment interest balance.on the effective date of the rate reduction. (cid:16)042We conclude that petitioners' December 31, 1994, $1.6 billion overpayment interest balance accrues interest after December 31,·1994, at the reduced GATT rate. As a related issùe, petitioners contend that under section 6621(a) (1) the $10,000 exemption from the reduced GATT rate should apply to the last $10,000 of their tax overpayment for .each year. - 19 - effective date of the GATT amendment, all of petitioners' then- remaining outstanding tax overpayments for each of the years in issue represented tax overpayments by petitioners 'in exce'ss of $10,000, no portion of which qualifies for the exemption from the GATT rate. We agree. Under section 301.6611-1(b), Proced. & Admin. Regs., the date of overpayment of a tax is' the date of payment of the first amount which, when added to previous payments, is in excess of the tax 1.iability (includincj any ïnterest, addition to tax, or additional amount). This regulation provides that tax overpayments are to be·refunded beginning with the first payment that exceeds the tax liability. Accordingly, all of petitioners' tax overpayments for the years in issue that remained outstanding after December 31, 1994, and that petitioners eventually received in 2004 and 2005 constituted overpayments "in excess of'S10,000" and, .beginning January l', 1995, accrued interest at the reduced (cid:16)042 GATT rate. Appropriate orders will be . entered.