Opinion ID: 4528264
Heading Depth: 3
Heading Rank: 1

Heading: the 2002 and 2003 tax years

Text: years beginning after December 31, 2017. See Bipartisan Budget Act of 2015 § 1101, 129 Stat. at 638. Because this case concerns the 2002–2006 tax years, the previous TEFRA provisions apply, including § 6230(c)(2)(A). Our holding today is limited to interpreting the TEFRA provisions as they existed before the amendment. 2 The term “large corporate underpayment” means “any underpayment of a tax by a C corporation for any taxable period if the amount of such underpayment for such period exceeds $100,000.” § 6621(c)(3)(A). 3 Interest on underpayments of tax is generally imposed at the default underpayment rate of the federal short-term rate plus three percentage points. I.R.C. §§ 6601(a), 6621(a)(2). Case: 19-1124 Document: 42 Page: 8 Filed: 04/23/2020 8 GENERAL MILLS, INC. v. UNITED STATES GMI timely filed its corporate income tax returns for the 2002 and 2003 tax years, and the Partnership timely filed partnership income tax returns for those years as well. The partners of the Partnership are subsidiaries of the GMI corporate entity. 4 In January 2005, the IRS commenced a TEFRA audit of the Partnership’s 2002 and 2003 tax returns, and in April 2005, the IRS commenced an audit of GMI’s 2002 and 2003 corporate tax returns using deficiency procedures. On June 15, 2007, after completing the audit of GMI’s 2002 and 2003 corporate tax returns, the IRS mailed a 30day letter to GMI with an enclosed “examination report” showing the results of the corporate tax audit and “proposed changes to [GMI’s] tax[es].” J.A. 178. The 30-day letter identified tax deficiencies of more than $143 million for 2002 and of nearly $93 million for 2003. The letter explained the conditions under which LCU interest would be imposed: “If you are a ‘C’ Corporation, Section 6621(c) of the Internal Revenue Code provides that an interest rate 2% higher than the standard rate of interest will be charged on deficiencies of $100,000 or more.” It also stated: “If you pay the full amount due now, you will limit the amount of interest and penalties charged to your account.” As for the related TEFRA partnership proceeding for the 2002 and 2003 tax years, the partners entered into settlement agreements with the IRS in July 2010. The Partnership settlement agreements resulted in adjustments to partnership items reported on the Partnership’s 2002 and 2003 tax returns. The partners and the IRS executed a Form 870-LT(AD), “Settlement Agreement for Partnership Items and Partnership Level Determinations as to 4 The partners include, inter alia, General Mills Operations, Inc., GM Cereals Holdings, Inc., GM Cereals Operations, Inc., and the Pillsbury Company. J.A. 257, 262, 272, 287. Case: 19-1124 Document: 42 Page: 9 Filed: 04/23/2020 GENERAL MILLS, INC. v. UNITED STATES 9 Penalties, Additions to Tax and Additional Amounts and Agreement for Affected Items.” The Form 870-LT(AD) shows that the Partnership settlement agreements contemplated an assessment of “any interest provided by law.” J.A. 257–58, 262–63, 267–68, 272–73, 278–79, 287–88, 296–97, 305–06, 314–15, 323–24. On August 27, 2010, the IRS mailed a Form 5278 (“Statement – Income Tax Changes”), informing GMI of how the adjustments to partnership items resulting from the Partnership settlement agreements had increased GMI’s 2002–2003 corporate income tax liabilities beyond the deficiencies the IRS identified in the above-described 30-day letter from June 15, 2007. The accompanying cover letter stated, “[t]he enclosed audit statement explains how the adjustments made during our examination of General Mills Cereal, LLC affect your income tax return.” J.A. 332. The Form 5278 reflected additional underpayments by GMI of about $16 million for 2002 and more than $33 million for 2003. J.A. 333. The cover letter advised GMI that the IRS “will adjust your account and figure the interest . . . [and] will send a bill for any additional amount you owe.” J.A. 332. One week later, the IRS assessed against GMI the identified tax deficiencies plus interest, which included LCU interest. J.A. 186, 197. On April 11, 2011, GMI made payments of tax and in- terest to the IRS sufficient to eliminate its account balances with respect to the 2002 and 2003 tax years. J.A. 187, 344, 199, 338. On April 18, 2011 and April 20, 2011, the IRS mailed detailed interest computation schedules to GMI for the 2002 and 2003 tax years. J.A. 334–38, 342–44. The accompanying cover letters stated the interest computation schedules were used by the IRS to “calculate interest on the tax adjustment for the [2002 and 2003] return[s].” J.A. 334, 342. The interest computation schedules informed GMI that for the 2002–2003 tax years, the IRS treated July 15, 2007 Case: 19-1124 Document: 42 Page: 10 Filed: 04/23/2020 10 GENERAL MILLS, INC. v. UNITED STATES as the “applicable date” for imposing LCU interest. J.A. 335, 337. July 15, 2007 was the thirtieth day after the 30-day letter was issued on June 15, 2007. As required by statute, the “applicable date” for LCU interest to begin accruing is determined “by taking into account any letter or notice provided by the [IRS] which notifies the taxpayer” of the assessment (or the proposed assessment) of the tax or of the deficiency (or the proposed deficiency). See §§ 6621(c)(2)(A), (c)(2)(B)(i). The taxpayer has thirty days after notice to pay the large corporate underpayment before the enhanced interest rate will apply. Id. GMI acknowledges that it owed some amount of LCU interest, but disputes when the LCU interest should have begun to accrue. GMI claims that September 26, 2010— and not July 15, 2007—was the correct applicable date, because, in its view, it did not receive proper notice from the IRS before then. See Treas. Reg. § 301.6621–3(c)(1). September 26, 2010 was the thirtieth day after the IRS issued the Form 5278 on August 27, 2010 which, according to GMI, represented “the first notice it received upon the conclusion of the partnership proceedings that notified GMI of an assessment of tax attributable to partnership items.” General Mills, 123 Fed. Cl. at 581. In GMI’s view, the IRS incorrectly applied § 6621(c)(2)(A) for determining the applicable date, when it should have instead applied § 6621(c)(2)(B)(i). 5 Appellant’s Br. at 4–5. 5 Section 6621(c)(2)(A) provides for the applicable date for any underpayment of a tax to which the deficiency procedures apply. In such circumstances, the applicable date is the thirtieth day after the earlier of the date on which the IRS sends a “letter of proposed deficiency” (30day letter) or a “deficiency notice.” § 6621(c)(2)(A); Treas. Reg. § 301.6621–3(c)(2). On the other hand, § 6621(c)(2)(B)(i) supplies the applicable date for any underpayment of a tax to which nondeficiency procedures Case: 19-1124 Document: 42 Page: 11 Filed: 04/23/2020 GENERAL MILLS, INC. v. UNITED STATES 11