Court Opinion

ID: 209955
Source: CourtListenerOpinion
Date Created: 2011-03-13 08:01:45+00
Date Added: 2024-06-11T17:27:58.967855
License: Public Domain

NOTE: This disposition is nonprecedential.

United States Court of Appeals for the Federal Circuit
                                     2007-5144

                      BROWNING-FERRIS INDUSTRIES, INC.
                             & SUBSIDIARIES,

                                                       Plaintiff-Appellee,

                                         v.

                                 UNITED STATES,

                                                       Defendant-Appellant.

      Philip Karter, Chamberlain, Hrdlicka, White, Williams & Martin, of West
Conshohocken, Pennsylvania, argued for plaintiff-appellee. With him on the brief were
Herbert Odell and Jonathan M. Prokup.

       Deborah K. Snyder, Attorney, Appellate Section, Tax Division, United States
Department of Justice, of Washington, DC, argued for defendant-appellant. With her on
the brief were Nathan J. Hochman, Assistant Attorney General; Richard T. Morrison,
Deputy Assistant Attorney General; Gilbert S. Rothenberg and Robert W. Metzler,
Attorneys; and Donald L. Korb, Chief Counsel, Internal Revenue Service, of
Washington, DC.

Appealed from: United States Court of Federal Claims

Judge Thomas C. Wheeler
                      NOTE: This disposition is nonprecedential.

 United States Court of Appeals for the Federal Circuit

                                      2007-5144

                      BROWNING-FERRIS INDUSTRIES, INC.
                             & SUBSIDIARIES,

                                                            Plaintiff-Appellee,

                                          v.

                                  UNITED STATES,

                                                            Defendant-Appellant.

         Appeal from the United States Court of Federal Claims in 05-CV-738,
                             Judge Thomas C. Wheeler.
                          __________________________

                          DECIDED: April 16, 2008
                          __________________________

Before GAJARSA, Circuit Judge, CLEVENGER, Senior Circuit Judge, and MOORE,
Circuit Judge.

PER CURIAM.

      This is a tax case. The United States appeals from the final decision of the

United States Court of Federal Claims holding that, pursuant to a particular Treasury

Regulation, Browning-Ferris Industries, Inc. ("Inc.") is deemed to have liquidated on

December 31, 2004, and thus liquidated no longer qualified to act as the proper agent

for a consolidated group of subsidiary companies for which it, before the deemed

liquidation, had been the common parent. Browning-Ferris Indus., Inc. v. United States,

75 Fed. Cl. 591 (2007). We reverse and remand.
                                              I

       The parties know the facts of this case, which thus need not be recited in any

detail for purposes of this opinion. In a nutshell, Inc. filed a tax refund suit in the Court

of Federal Claims. The court's jurisdiction over such a suit depends on there having

first been a proper request for refund filed by the plaintiff and denied by the government.

26 U.S.C. § 7422(a); Chicago Milwaukee Corp. v. United States, 40 F.3d 373, 374 (Fed.

Cir. 1994). After the suit was filed by Inc., its counsel explored the consequences, for

tax refund filing purposes, of Inc.'s conversion on December 31, 2004, to a limited

liability company ("LLC") under Delaware law.

                                              II

       Under settled law, a company that ceases to exist may not act as agent for a

consolidated group. Interlake Corp. v. Comm'r of Internal Revenue, 112 T.C. 103, 114

(1999) ("Of course, if the common parent ceases to exist, its authority to act for the

group terminates."). Under the Delaware statute pursuant to which Inc. converted to

LLC, "conversion shall not constitute dissolution of the corporation." 8 Del. C. § 266(f).

Thus, Inc. continued to exist under Delaware law after its conversion to LLC.

       Inc.'s counsel before the Court of Federal Claims was concerned, however, that

under a particular Treasury regulation, Inc. was, for tax refund filing purposes, deemed

liquidated as a result of its conversion to LLC. Since Inc.'s refund filings for the 1997

and 1998 tax years had been filed in Inc.'s name after its December 31, 2004,

conversion, counsel opined that the hypothetical event of deemed liquidation deprived

Inc. of its standing to file for refunds for those two tax years. Lacking proper standing,

Inc. would not have presented a proper request for refunds, and consequently the

2007-5144                                 2
predicate for jurisdiction in the Court of Federal Claims would not be met. Concerned

that the Court of Federal Claims might lack jurisdiction over its refund suit, Inc. moved

for voluntary dismissal without prejudice.

                                                III

       In order for Inc.'s motion to dismiss to succeed, Inc. had to convince the Court of

Federal Claims that Inc. ceased to exist before the refund claims for 1997 and 1998

were filed. Because Inc. continued to exist under Delaware law after its conversion to

LLC, Inc.'s failure to exist had to be demonstrated under federal tax law.

       The only federal tax authority presented to the court to support the claim that Inc.

ceased to exist after its conversion is Treas. Reg. §301.7701-3(g)(1)(iii). That particular

regulation deals with a very precise situation, namely conversion of an association to a

disregarded entity:

               (iii) Association to disgregarded entity. If an eligible entity
               classified as an association elects under paragraph (c)(1)(i)
               of this section to be disregarded as an entity separate from
               its owner, the following is deemed to occur: The association
               distributes all of its assets and liabilities to its single owner in
               liquidation of the association.

The Court of Federal Claims believed that this regulation applied to the facts of this

case, and that Inc.'s conversion to a limited liability company triggered the deemed

liquidation of Inc.

                                                IV

       At oral argument of this appeal, it became apparent that the above regulation

does not apply to the facts of this case. Inc. is a corporation, not an "eligible entity" as

defined in the pertinent regulation.       Even if Inc. became an eligible entity when it

converted to LLC, it was never an "eligible entity classified as an association."

2007-5144                                   3
Moreover, neither Inc. nor LLC ever made any election under paragraph (c)(1)(i) of

Treas. Reg. §301-7701-3. Counsel for Inc. could point to no other source of federal tax

law that might support the contention that Inc. ceased to exist for the purpose of filing

for tax refunds for years before Inc.'s conversion to LLC. Nor did counsel assert that

Inc. had made an election under paragraph (c)(1)(i), which requires the election of an

eligible entity to be disregarded to be made on Form 8832 and filed with the service

center designated on Form 8832. As noted, no such election had been made.

       The Court of Federal Claims erred in its belief that the above-cited deemed

liquidation regulation applies to the facts of this case. It does not, and in the absence of

any other authority cited to produce the hypothetical demise of Inc. for purposes of filing

the tax refund requests for 1997 and 1998, we must reverse the ruling that Inc. ceased

to exist as of the date of its conversion to LLC.

       Inc., not having been shown to lack standing to have filed the two identified

refund requests, passes jurisdictional muster with its tax refund case in the Court of

Federal Claims. The order dismissing the complaint is reversed. The case is remanded

for further proceedings.

                                          COSTS

       No costs.

2007-5144                                 4