Court Opinion

ID: 3016199
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:15:15.784266+00
Date Added: 2024-06-11T11:46:58.067335
License: Public Domain

_____________

                            No. 95-1306MN
                            _____________

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
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

        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.
    2
     The 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.

                               -2-
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

     3
      The "netting" method of interest calculation would entitle
NSP to an additional $460,000.

                               -3-
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

    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.

                               -4-
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

     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

                                  -5-
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)

          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.

     . . .

                               -6-
(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 interest-
rate gap.    NSP cites no case or statutory authority for this
argument. Instead, NSP purports to glean a mandate for netting

                               -7-
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").

     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.

                                -8-
     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.

                               -9-
                               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

      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.

                               -10-
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

                               -11-
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.

                              -12-