Opinion ID: 210971
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Text: 4 Section 6621 of the Internal Revenue Code generally requires taxpayers to pay a higher interest rate on tax underpayments than it requires the IRS to pay to taxpayers on overpayments. See 26 U.S.C. § 6621(a)(1)(B), (c)(1) (2000). In 1998 Congress amended § 6621 as part of the Restructuring and Reform Act of 1998, Pub.L. No. 105-206, 112, to require interest netting. 26 U.S.C. § 6621(d). Under § 6621(d), a zero-net interest rate applies when there are underpayments and overpayments by the same taxpayer for overlapping tax periods. In addition to applying prospectively from July 22, 1998, an uncodified special rule governs interest netting for tax years before 1998 and provides that interest netting is only available if the statutes of limitations remain open. In other words, it is [s]ubject to any applicable statute of limitation not having expired [by July 22, 1998] with regard to either a tax underpayment or a tax overpayment. Pub.L. No. 105-206, § 3301(c)(2), 112 Stat. 685, 741 (1998), amended by Pub.L. No. 105-277, § 4002(d), 112 Stat. 2681, 2681-906-07 (1998). 5 In 1990 and 1992, respectively, FNMA made tax and interest payments to the IRS to satisfy deficiencies for tax years 1983 and 1986, paying interest at the underpayment rate. In 1994, pursuant to a Tax Court decision, the IRS refunded nearly $309 million in overpayment tax and interest for tax years 1974 and 1975, paying interest at the overpayment rate. See Fed. Nat'l Mortgage Ass'n v. Comm'r, 100 T.C. 541, 1993 WL 210390 (1993). On December 29, 1999, after the 1998 amendment to § 6621, FNMA filed an administrative claim with the IRS for application of the zero-net interest rate and identified overlapping periods of overpayment for 1974 and 1975 and periods of underpayment for 1983 and 1986. On June 7, 2000, the IRS denied the request reasoning that the statute of limitations for refund must be open on July 22, 1998 on both the overpayment and underpayment periods. The statutes for tax periods December 31, 1983 and December 31, 1986 [have] expired. 6 FNMA then filed a refund action pursuant to 28 U.S.C. § 2411 (2000) in the United States Court of Federal Claims. Fed. Nat'l Mortgage Ass'n v. United States, 56 Fed.Cl. 228 (2003). FNMA argued that the special rule only requires an open statute of limitations for either the overpayment tax period or the underpayment tax period, but does not require that the statutes of limitations remain open for both. The Court of Federal Claims agreed and granted summary judgment in favor of FNMA. Id. at 239. On appeal, we reversed because the Court of Federal Claims lacked jurisdiction to grant relief under § 6621 and held that the special rule for § 6621 does not apply unless the taxpayer demonstrates that the statute of limitations was open for both the overpayment and underpayment years. Fed. Nat'l Mortgage Ass'n, 379 F.3d at 1311; see also Computervision Corp. v. United States, 445 F.3d 1355, 1373-74 (Fed.Cir.2006) (reaffirming our decision in Federal Nat'l Mortgage Ass'n ). Because the parties had stipulated that the statute of limitations was open for the overpayment tax years 1974 and 1975 and the statute of limitations was closed for the underpayment tax year 1986, thus barring an interest netting claim on the basis of the 1986 tax year, we remanded only for a factual determination regarding whether the statute of limitations for the 1983 underpayment year was closed on July 22, 1998. Fed. Nat'l Mortgage Ass'n, 379 F.3d at 1311. 7 In view of the limited nature of our remand, we confine our discussion of the background facts to tax year 1983 and to the question of whether the statute of limitations for the 1983 underpayment year was closed on July 22, 1998. Id. FNMA filed its federal income tax return for the 1983 tax year on or before September 15, 1984. After the IRS audited the 1983 return, it entered into a series of Form 872 (Consent to Extend the Time to Assess Tax) agreements with FNMA that extended the statute of limitations for assessment of tax until March 15, 1989. In November 1988, the parties executed a Form 872-A (Special Consent to Extend the Time to Assess Tax), which extended the statute of limitations for assessment until the occurrence of certain specified events. The first paragraph of Form 872-A provided that the limitations period for assessment remains open until the 90th day after: (a) the IRS receives Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, from the taxpayer; (b) the IRS mails the taxpayer a Form 872-T; or (c) the IRS mails a notice of deficiency to the taxpayer[]. The second paragraph of Form 872-A provided: This agreement ends on the earlier of the above expiration date or the assessment date of an increase in the above tax or the overassessment date of a decrease in the above tax that reflects the final determination of tax and the final administrative appeals consideration. Under § 6511(c), the Form 872-A agreement also extended the deadline for FNMA to file a refund claim until six months after the expiration of the period within which an assessment may be made pursuant to the [Form 872-A] agreement. 26 U.S.C. § 6511(c)(1); see also Form 872-A, ¶ 4 (The taxpayer(s) may file a claim for credit or refund and the Service may credit or refund the tax within 6(six) months after this agreement ends.). 8 On December 14, 1990, the parties executed a Form 870-AD (Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of Overassessment) settlement agreement in which FNMA consented to a proposed deficiency of $59,493,854 in tax and $66,698,615 in interest for tax year 1983. FNMA paid the deficiency on December 31, 1990. In the Form 870-AD, FNMA reserved the right to timely file claims for refund or credit or prosecute timely filed claims solely on three grounds, each of which related to a Tax Court proceeding concerning other taxable years. In essence, the parties agreed in the first reservation that if the Tax Court proceeding was ultimately resolved favorably to the taxpayer, the IRS would allow a refund for the tax year 1983. The applicable condition stated: If the decision of the Tax Court upholding the taxpayer's position regarding the concurrent mortgage sale issue becomes final under I.R.C. Section 7481, gross income for 1983 does not include the purchase discount amortization of $172,467. After the execution of Form 870-AD, the IRS sent FNMA a letter stating that it had closed this case on the basis agreed upon and [was] sending the case file to the service center. Along with the letter, the IRS enclosed an executed Closing Agreement (Form 906) that recited the terms of the settlement. 9 The Tax Court's decision concerning the first reserved issue became final in 1994 and was favorable to the taxpayer. On June 6, 1994, FNMA filed an amended 1983 tax return seeking a refund of $79,335. On May 1, 1995, the IRS sent FNMA a check for $223,187.82, reflecting the full refund amount plus interest accrued since 1983. 10 On remand, in a careful opinion the Court of Federal Claims found that, following the Forms 872-A and 870-AD, the only issue left open was the possibility of securing a refund for the 1983 tax year. Fed. Nat'l Mortgage Ass'n, 69 Fed.Cl. at 93. The court rejected FNMA's argument that Form 872-A restricts termination of the extension to specific, identifiable events because the second paragraph of Form 872-A looks beyond the clear notice concept of paragraph one and requires instead an assessment of the parties' conduct. Id. at 94. The court noted that the language of the Form 870-AD and the taxpayer's limited reservations express[] a mutual commitment to accept [] the final determination of plaintiff's 1983 income tax liability in accordance with the specifications of the reservations. Id. Thus, the court concluded that the issuance of a refund check in the claimed amount corresponds to the final determination and appeals consideration for plaintiff's 1983 taxable year and, accordingly, brings to a close, 90 days after the date of refund, the period for the assessment of tax as contemplated by Form 872-A. Id. at 93-94. Accordingly, the court granted summary judgment in favor of the government. Id. at 95. FNMA timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3) (2000).