Court Opinion

ID: 4331293
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:03:40.182443+00
Date Added: 2024-06-11T14:47:32.006900
License: Public Domain

109 T.C. No. 1

                     UNITED STATES TAX COURT

BANKAMERICA CORPORATION, as successor in interest to CONTINENTAL
   BANK CORPORATION, as successor in interest to CONTINENTAL
  ILLINOIS CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL
                      REVENUE, Respondent%

     Docket No. 5931-83.               Filed July 15, 1997.

          P had deficiencies in its Federal income tax for
     years 1 and 2. In year 3, P carried back an amount of
     investment tax credit to years 1 and 2, reducing the

      %
         This Court has issued five opinions under this docket
number, each captioned Continental Illinois Corp. v.
Commissioner: T.C. Memo. 1988-318, T.C. Memo. 1989-468, T.C.
Memo. 1989-636, 94 T.C. 165 (1990), and T.C. Memo. 1991-66,
relating to the tax liability of petitioner's predecessor for the
tax years 1975 through 1979. Portions of the decisions in T.C.
Memo. 1988-318, T.C. Memo. 1989-636, and T.C. Memo. 1991-66 were
affirmed in part and reversed in part and remanded to this Court
in Continental Illinois Corp. v. Commissioner, 998 F.2d 513 (7th
Cir. 1993), cert. denied 510 U.S. 1041 (1994), and a decision was
entered in accordance with the opinion of the Court of Appeals
for the Seventh Circuit. Petitioner has filed a timely motion to
redetermine interest.
                               - 2 -

     amount of its deficiencies. In year 6, a net operating
     loss arose which was carried back to year 3. The
     carryback of the year 6 loss displaced a year 3 foreign
     tax credit, which was then carried back to years 1 and
     2, displacing the investment tax credit originally
     taken in those years. R computed interest under sec.
     6601, I.R.C., from the end of year 3 to the due date of
     the return for year 6 on deficiency amounts for years 1
     and 2, calculated after the effect of the year 6 loss,
     without reducing the deficiencies by the amounts of ITC
     taken from year 3 to year 6. P filed a timely motion
     under sec. 7481(c), I.R.C., to redetermine interest.
     Held, P has made overpayments of interest for years 1
     and 2 because R should have taken the investment tax
     credit amounts into account in calculating interest
     accruing from the end of year 3 until the due date of
     the return for year 6 on deficiency amounts reduced by
     the investment tax credit carried back.

     Roger J. Jones and Jeffrey B. Frishman, for petitioner.

     Pamela V. Gibson and Richard G. Goldman, for respondent.

                      SUPPLEMENTAL OPINION

     TANNENWALD, Judge:   A decision was entered in this case on

November 17, 1994, pursuant to a stipulated computation, in

accordance with the opinion of the Court of Appeals for the

Seventh Circuit in Continental Illinois Corp. v. Commissioner,

998 F.2d 513 (7th Cir. 1993), cert. denied 510 U.S. 1041 (1994).

On December 20, 1995, petitioner filed a timely motion under

section 7481(c)1 and Rule 261 to redetermine interest for the

     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 3 -

1977 and 1978 tax years, alleging that respondent has erroneously

calculated such interest.   The issue for decision is whether

respondent has failed to take into account the carryback of a

1979 investment tax credit (ITC), and consequently overcharged

petitioner for interest which accrued before the effect of a 1982

net operating loss (NOL) carryback.

Background

     In 1983, respondent determined deficiencies against

petitioner's predecessor in interest for the tax years 1975

through 1979.   Petitioner's predecessor challenged these

deficiencies in this Court, which issued the following five

opinions, under this same docket number, each captioned

Continental Illinois Corp. v. Commissioner: T.C. Memo. 1988-318,

T.C. Memo. 1989-468, T.C. Memo. 1989-636, 94 T.C. 165 (1990), and

T.C. Memo. 1991-66.   Decision was entered on May 13, 1992 (the

1992 decision), and was based on Rule 155 computations (the 1992

computations) which took into account certain amounts of an ITC

carried back from 1979.

     Portions of this Court's decision as reflected in T.C. Memo.

1988-318, T.C. Memo. 1989-636, and T.C. Memo. 1991-66 were

appealed by the parties to the Court of Appeals for the Seventh

Circuit.   The Court of Appeals for the Seventh Circuit affirmed

in part and reversed in part and remanded the case to this Court

in Continental Illinois Corp. v. Commissioner, 998 F.2d 513,
                               - 4 -

issued on July 9, 1993.   Following this remand, the parties filed

with the Court on November 2, 1994, stipulated computations (the

1994 computations) covering the years 1976 to 1979.   The 1994

computations did not include the amounts of the 1979 ITC that

were included in the 1992 computations.   This Court's decision,

based on the 1994 computations, was entered on November 17, 1994,

and became final within the meaning of section 7481(a)2 on

December 17, 1994 (the 1994 decision).    As part of that decision,

it was decided that there was an overpayment for the taxable year

1977 in the amount of $9,089,070.00, and a deficiency for the

taxable year 1978 in the amount of $1,544,492.72.   The decision

document indicated that it "[incorporated] herein the facts

recited in the respondent's computation as the findings of the

Court".

     Petitioner's tax liability for the taxable years at issue,

with the effect and timing of various credit and net operating

loss (NOL) carrybacks, reflecting the 1994 decision, is described

in more detail as follows:

     1977 Tax Year

     Petitioner had a tax liability for the 1977 tax year of

$24,200,118, before taking into account any credit carrybacks.

Between April 15, 1977, and June 17, 1978, petitioner made

      2
         That section provides for a 30-day instead of a 90-day
period for a decision of this Court to become final where there
has been a remand by the Court of Appeals.
                              - 5 -

payments totaling $14,234,576 against this tax liability,

producing a deficiency of $9,965,542.

     In 1979, there arose a foreign tax credit (FTC) in the

amount of $29,327,737 and an ITC in the amount of $17,238,117.

In that year, petitioner applied $27,020,189 of the FTC, as well

as some of the ITC, to its 1979 tax liability, and carried

$2,307,548 of the FTC and $7,947,605 of the ITC back to 1977.

For interest purposes, petitioner received the benefit of this

carryback as of December 31, 1979.    Sec. 6601(d).3   Taking into

account a refund petitioner received in the amount of $4,067,608

for 1977, petitioner had, as of January 1, 1980, a 1977 tax

liability of $3,777,997.

     In 1982, there arose an NOL, $59,552,102 of which was

carried back to petitioner's 1979 tax year, pursuant to section

172(b),4 eliminating petitioner's 1979 tax liability.    The

elimination of the 1979 tax liability had the effect of releasing

the FTC and ITC which had arisen in 1979, to be used in other

      3
         Sec. 346 of the Tax Equity and Fiscal Responsibility Act
of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, amended sec.
6601(d), effective for interest accruing after October 3, 1982,
to change the date on which a taxpayer receives the benefit of a
carryback for interest purposes from the last day of the tax year
in which the carryback arose to the due date for the return for
that year.
      4
         Sec. 172(b)(1) provides that an NOL for any taxable year
shall be carried back to each of the 3 taxable years preceding
the loss year. Sec. 172(b)(2) provides that the entire amount of
the NOL shall be carried back first to the earliest year
possible.
                                - 6 -

years.    Petitioner carried back $27,356,042 of the FTC to 1977,

which, along with other credits from 1980 (work incentive credits

and new jobs credits) in the amount of $342,819, satisfied its

tax liability for 1977.   Because of ITC limitation rules found in

section 46(a)(3) and (4),5 the 1979 ITC originally carried back

to 1977 could no longer be used (since there was now, as of 1982,

after application of the FTC, no tax liability for 1977 against

which it could be applied), and was thus displaced and

subsequently carried over to 1981, a year not at issue.    As a

result of the NOL's causing the release and carryback of the 1979

FTC to 1977 (and the consequent release of the ITC), there was as

of March 15, 1983 (the due date for the 1982 return)6 an

overpayment of $9,089,070 for petitioner's 1977 tax year.7

      5
         For 1977, sec. 46(a)(3) and (4) limits available ITC to
$25,000 plus 50 percent of tax remaining after the application of
the FTC allowable for that year. The $25,000 limit was taken up
with ITC that arose and was used in 1977, and that is otherwise
not at issue. Also under sec. 38(c), effective for carrybacks
from tax years after Dec. 31, 1983, amounts of FTC must be
applied before any amounts of ITC.
      6
          See supra note 3.
      7
         The ITC at this point no longer affected petitioner's
substantive tax liability for 1977.
                                 - 7 -

     1978 Tax Year

     Petitioner had a tax liability of $6,608,807 for the 1978

tax year,8 not reflecting the effect of any carrybacks from

subsequent years.    Between April 17, 1978, and October 12, 1979,

petitioner made payments totaling $3,633,741 against this

liability, leaving a deficiency of $2,975,066.

     In 1979, there arose an FTC and an ITC, as discussed above.

None of the 1979 FTC was carried back to 1978, and $444,727 of

the 1979 ITC was carried back.    Thus, as of January 1, 1980,

petitioner had a 1978 tax liability of $2,530,339.

     In 1982, there arose, as discussed above, an NOL which was

carried back to 1979, eliminating tax liability for 1979 and

releasing the FTC and ITC which had arisen in that year.    Of the

released 1979 FTC, $1,971,695 was carried back to 1978.    Because

of the effect of the carryback of this FTC, petitioner was

precluded by section 46 from using the ITC carried back from

1979, which was then carried forward to 1981, a year not at

issue.    When adjusted for additional payments and credits of

$79,925, petitioner had a tax liability for 1978, as of March 15,

1983, of $1,464,568.

     The deficiencies and interest amounts involved were assessed

for both years by respondent and fully paid by petitioner.    In

      8
         This liability reflects an ITC that arose in 1978 and
was used in 1978.
                                    - 8 -

early 1995, shortly after the 1994 decision became final,

petitioner contacted respondent regarding the issue of the

inclusion of the 1979 amounts of ITC.        Discussions between

petitioner and respondent continued throughout 1995, after which

petitioner timely filed a motion under Rule 261 to redetermine

the interest flowing from the stipulated 1994 computations with

respect to the 1977 and 1978 tax years.

Discussion

        For the 1977 tax year, respondent has computed interest on a

deficiency of $11,733,7769 from December 31, 1977, to March 14,

1983.        For the 1978 tax year, respondent has computed interest on

a deficiency of $2,975,066 from December 31, 1977, to March 14,

1983.        Respondent has not given effect to amounts of 1979 ITC

which were carried back during the period 1980 through 1983

because these amounts of ITC were ultimately displaced and not

used for the years at issue.

     Petitioner claims that respondent has overcharged it for

interest by not taking into account the amounts of the 1979 ITC,

with the effect of charging petitioner interest on higher

deficiency amounts.        Petitioner's position is that respondent

must, in plain terms, "give it credit" for the 1979 ITC which

         9
         There is an unexplained difference of $8,174 in this
figure. It is elsewhere listed as $11,725,602. We use the
figure from the stipulated 1994 computations.
                                 - 9 -

reduced its 1977 deficiency to $3,777,997 during the period

January 1, 1980, to March 14, 1983, and reduced its 1978

deficiency to $2,530,339 during the same period, and charge it

interest on those lesser deficiency amounts during that period.

Petitioner's claim is based on the notion that respondent had use

of the money represented by the 1979 ITC "payment" during the

"interim" period from January 1, 1980, to March 14, 1983, and

cannot now charge petitioner for the use of that money.

     Petitioner alleges that the amounts of ITC, which were

included in the Rule 155 computations that were prepared in 1992

before a decision was rendered by the Court of Appeals for the

Seventh Circuit, were erroneously left out of the 1994

computations.10   Due to the effects of the subsequent carryback

of the NOL from 1982, the inclusion or exclusion of the amounts

of 1979 ITC does not alter the underlying net tax liability for

either taxable year.    Petitioner does not contest in any way its

tax liability for the deficiencies as reflected in the 1994

decision.

     Section 7481(c) provides:

     Jurisdiction Over Interest Determinations.--
     Notwithstanding subsection (a), if --
               (1) an assessment has been made by the
          Secretary under section 6215 which includes
          interest as imposed by this title,

      10
            See appendix and discussion infra page 16.
                              - 10 -

               (2) the taxpayer has paid the entire amount
          of the deficiency plus interest claimed by the
          Secretary, and
               (3) within 1 year after the date the decision
          of the Tax Court becomes final under subsection
          (a), the taxpayer files a petition in the Tax
          Court for a determination that the amount of
          interest claimed by the Secretary exceeds the
          amount of interest imposed by this title,
     then the Tax Court may reopen the case solely to
     determine whether the taxpayer has made an overpayment
     of such interest and the amount of any such
     overpayment. * * *

See also Rule 261, which implements sec. 7481(c); Note to Rule

261, 93 T.C. 1040-1041; Stauffacher v. Commissioner, 97 T.C. 453,

455-456 (1991).   There is no dispute that, as to both tax years,

the three requirements of section 7481(c) have been met.

     First, the entire amount of the deficiency plus interest has

been paid.   Sec. 7481(c)(2); Melin v. Commissioner, 54 F.3d 432

(7th Cir. 1995), affg. an order of this Court.

     Second, a timely petition was filed.   Sec. 7481(c)(3).

     Third, a deficiency which includes interest has been

assessed in respect of each year.   Sec. 7481(c)(1); Asciutto v.

Commissioner, T.C. Memo. 1992-564, affd. 26 F.3d 108 (9th Cir.

1994).   In this connection, even though an overpayment was

ultimately found for 1977, there was a deficiency for the period

during which interest accrued, which is the subject of this

dispute.   In addition, where we have jurisdiction to determine an

overpayment (as we did in the original deficiency proceeding in

this case), we also have jurisdiction over the interest on that

overpayment.   Estate of Baumgardner v. Commissioner, 85 T.C. 445
                               - 11 -

(1985).    Under these circumstances, the interest issue before us

in respect of 1977 is within our jurisdiction.11

     There is also some question as to the exact nature of the

relief petitioner is requesting for 1978.   The statute only

grants this Court jurisdiction to determine an overpayment of

interest on a deficiency.   Petitioner alleges that respondent

has, on the whole, underassessed interest on the 1978 deficiency.

However, petitioner also contends that, as part of the interest

calculation which resulted in an underassessment with respect to

the 1978 tax year, respondent has overcharged interest on the

1978 deficiency during the period between its initial use of the

carryback of the 1979 ITC and the occurrence of the superseding

1982 NOL.   Under these circumstances, we are satisfied that we

have jurisdiction to determine whether there has been an

overpayment of interest during the specific "interim" period.12

     The three requirements of section 7481(c) having been

satisfied, we turn our attention to the basic question involved

herein, i.e., the extent to which the ITC for 1979, which was

omitted from the 1994 computation, should be taken into account

      11
         We note that respondent does not contest our
jurisdiction as to 1977.
      12
         In reaching this conclusion, we note respondent's
indication on brief that respondent will make any computational
adjustments that are a consequence of our decision, whether they
result in interest due to petitioner or respondent.
                                - 12 -

as a payment for purpose of determining interest due.     The

parties have locked horns on four elements upon which the

resolution of this question depends:

            (1)   Respondent contends that the 1994 decision has

     become final and that petitioner's motion seeks to modify

     that decision contrary to the established principle that

     this Court does not have jurisdiction to take such action in

     the absence of a showing of fraud on the Court, or lack of

     jurisdiction, in respect of the 1994 decision, which

     elements are concededly not present herein.     Petitioner

     asserts that, since it seeks no change in the amounts of the

     deficiencies for 1977 and 1978 set forth in the 1994

     decision, it is not seeking to modify a final decision, but

     only the underlying figures set forth in the 1994

     computations for the limited purpose of determining interest

     due.

            (2)   Respondent also argues that the relief petitioner

     is requesting involves a change in the numbers set forth in

     the 1994 computations, including specific line entries and

     that such changes would require the Court to re-open the

     record to admit new facts, a procedure that constitutes a

     prohibited attempt to introduce a new matter in a Rule 155

     proceeding.

            (3)   Respondent contends that, even if we find that we

     have jurisdiction, petitioner is bound by the 1994
                              - 13 -

     computations which it signed and that any modification of

     those computations is accordingly unwarranted.   In so doing,

     respondent denies that there was a mutual mistake by the

     parties based upon the omission from the 1994 computations

     of the 1979 ITC which had been included in the 1992

     computations.   Petitioner asserts that this omission

     constituted a mutual mistake and that therefore it should

     not be bound by those computations.

          (4)   Respondent asserts that, in any event, the 1994

     computations reflected the correct ordering of the

     carrybacks by petitioner and that petitioner's use of the

     ITC to reflect payment is not justified, as a matter of law,

     because the ITC amounts were made unavailable by the 1982

     NOL and the 1979 FTC.   Petitioner counters that the fact

     that the later events prevented the application of the ITC

     against its tax liability for deficiencies does not preclude

     its ability, for the purpose of computing interest due, to

     continue to treat them as payment for the periods when they

     were used, i.e., between the effective dates of the credits

     involved and the dates of occurrence of the later events.

     We deal with each of these elements in turn.

     Initially, we note that the existence of a final decision

does not tie our hands in this case.   We recognize that we may

not modify a final decision absent a showing of fraud or lack of

jurisdiction.   Abatti v. Commissioner, 86 T.C. 1319, 1326 (1986),
                               - 14 -

affd. 859 F.2d 115 (9th Cir. 1988).     However, section 7481(c)

specifically carves out an exception to the rule on the finality

of our decisions.   Indeed, a prerequisite for invoking section

7481(c) is that the decision be final.     Aldrich v. Commissioner,

T.C. Memo. 1993-290.   Thus, as long as we do not change the

substance of the final decision, we are free to act under section

7481(c).

     Stauffacher v. Commissioner, supra, cited by respondent, is

clearly distinguishable.   In that case, the taxpayer sought a

change in the amount of deficiencies, although the taxpayer was

apparently requesting that this be done only for the purpose of

computing interest.    Petitioner herein is not seeking a change in

the amounts of the deficiencies for any purpose.     We do not think

that the fact that the 1994 decision specifically incorporated

the 1994 computations, see supra p. 4, requires a different

conclusion.   Under the circumstances herein, such action does not

elevate the computations from a position of providing a basis for

the decision to the position of an integral part of the decision

itself.

     Respondent also seeks refuge in the rule that petitioner may

not raise a new issue in a Rule 155 proceeding.     Cloes v.

Commissioner, 79 T.C. 933 (1982).     But even if the issue of the

proper application of the 1979 ITC as it affects interest

liability were never raised before, it is not a "new issue"

within the meaning of Rule 155.   Since in the instant case the
                               - 15 -

proper application of the 1979 ITC only affects interest, we had

no jurisdiction to decide the issue during the main deficiency

proceeding.   Pen Coal Corp. v. Commissioner, 107 T.C. 249, 255

(1996).   Thus, petitioner cannot be accused of raising a "new"

issue that it could not have brought up before.

     Moreover, this is not a Rule 155 proceeding, and

respondent's argument on this point reveals a misunderstanding of

the nature of the relief petitioner is requesting, and a

misapprehension of the difference between Rules 155 and 261.     The

purpose of a computation under Rule 155 is to show "the correct

amount of the deficiency, liability, or overpayment to be entered

as the decision."   Rule 155(a).   If there is disagreement between

the parties, the Court will determine the correct computation,

and argument on that point is "confined strictly to consideration

of the correct computation of the deficiency, liability, or

overpayment resulting from the findings and conclusions made by

the Court".   Rule 155(c).   Not only does Rule 155 not contemplate

that a computation thereunder should reflect interest amounts,

but, contrary to respondent's arguments on brief, the Rule does

not allow arguments as to any other issues beyond the issues

litigated in respect of the ultimate bottom-line deficiency,

liability, or overpayment for the years at issue.

     Rule 261(d), on the other hand, specifically contemplates

"bona fide factual dispute[s]" which would have to be addressed

by an evidentiary hearing.   This Rule implies that this Court
                              - 16 -

will, if necessary, accept new facts, specifically in the context

of a final decision, for the purpose of redetermining interest.

Additionally, respondent has never contested the existence of the

amounts of ITC, nor has respondent disputed the accuracy of the

amounts set forth in petitioner's motion.   The record herein

contains all the evidence needed to decide the ultimate issue

before us.   Thus, respondent's assertion of the need for new

facts is unfounded.

     As we view the situation in respect of the procedural

elements involved herein, petitioner is simply seeking to flesh

out the 1994 computations so as to provide the foundation for a

proper calculation of its liability for interest without in any

way changing its liabilities for the deficiencies.    Although

petitioner's efforts reflect changes in some of the numbers in

the 1994 computations, those changes do no more than offset each

other.   This is clearly reflected in the appendix to this opinion

which shows that in each year petitioner first adds in the 1979

ITC credits and then subtracts an identical amount.    In view of

the foregoing, we are satisfied that neither the rule as to the

finality of our decisions nor the principle that a new issue may

not be raised in a Rule 155 proceeding precludes us from

addressing the substance of petitioner's motion.

     Respondent also objects to any change in the 1994

computations, on the grounds that the computations were based on

a stipulation of settlement between petitioner and respondent,
                               - 17 -

and petitioner cannot now seek to be relieved of its stipulation.

According to respondent, petitioner cut a deal and is now stuck

with it.    According to petitioner, the amounts of ITC in

discussion were included in the 1992 computations but, as a

result of mutual inadvertence, then left out of the 1994

computations.13

     It is clear that we may reopen an otherwise valid settlement

agreement based on the existence of mutual mistake.     Callen v.

Pennsylvania R. Co., 332 U.S. 625, 630 (1948); Dorchester Indus.

Inc. v. Commissioner, 108 T.C. 320, 334 (1997).     We may also

relieve a party of a stipulation where justice requires.     Cf.

Rule 91(e); Adams v. Commissioner, 85 T.C. 359, 375 (1985); Shaw

v. Commissioner, T.C. Memo. 1991-372 n.3.     On the other hand,

unilateral mistake is generally not a ground for reforming a

settlement or stipulation.    Stamm Intl. Corp. v. Commissioner, 90

T.C. 315, 320 (1988); see Markin v. Commissioner, T.C. Memo.

1989-665.    It is also clear that the mere fact that a decision

which has become final is based on a stipulation does not bar the

application of section 7481(c).    In Stauffacher v. Commissioner,

97 T.C. 453 (1991), the underlying issues had been resolved on

the basis of a stipulated decision.     While the Court rejected the

      13
         We note that the Court of Appeals for the Seventh
Circuit did not address any issue or otherwise take any action in
respect of the application of carrybacks in the 1992
computations.
                                - 18 -

taxpayer's attempt to construct a different settlement, it did

redetermine the amount of interest owed, as recalculated by

respondent, which was lower than the amount which had been

assessed and paid.

     We must, therefore, determine whether the omission of the

amounts of 1979 ITC from the 1994 computations was a result of

unilateral or mutual mistake.    In respondent's initial notice of

objection to petitioner's motion, respondent conceded that the

ITC amounts were inadvertently left out of the 1994 computations:

     Respondent agrees that, on the basis of information now
     available, respondent would have agreed to the
     computations petitioner now advocates, had the matter
     been raised in 1994 when the computation on remand was
     being prepared.

In a supplemental notice of objection to petitioner's motion, and

on brief, respondent recants this concession, because, "upon

further consideration", respondent contends that the 1994

computations "correctly reflect the application of payments and

credits to the deficiencies determined therein."   Thus,

respondent does not deny that a mistake was originally made, but

rather contends that the mistake led to what respondent now

believes is the correct result, and therefore is not a mistake on

respondent's part.   As a consequence, respondent seeks to enforce

the 1994 computations as submitted on the ground that only a

unilateral mistake was involved.

     Stipulations are treated under general principles of

contract law.   Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986).
                                - 19 -

If a contract is based on a mutual mistake, a defense to

reformation or rescission is not that the contract with the

mistake is more beneficial to the defending party.    Similarly, it

is no defense to petitioner's motion for respondent to decide

that the outcome of the case with the stipulation based on a

mutual mistake is more favorable to respondent than the outcome

petitioner proposes.

     Respondent cannot claim prejudice by petitioner's proposed

treatment of the interim interest, respondent having included the

ITC amounts in question in the 1992 computations, Dorchester

Indus. Inc. v. Commissioner, supra, and petitioner having raised

the issue with respondent shortly after discovering the error.

See 13 Williston, Contracts, sec. 1578, at 507 n.5 (3d ed. 1970).

     Finally, as we discuss below, while it is uncontested that

the 1994 computations correctly reflect payments so as to

determine tax liability for the deficiencies, they do not

correctly reflect payments so as to determine the proper interest

liability.   According to respondent, if a change of heart takes

place, that is enough to eliminate the existence of a mutual

mistake even though in point of fact the change of heart proves

to be incorrect.   Respondent is in effect saying that, even if

petitioner's contention as to the substantive law is correct,

respondent's changed position remains unassailable.   We think

respondent's position creates a catch-22 situation and is

incongruous to say the least.
                              - 20 -

     We conclude that, in the interest of justice, petitioner

should be relieved from the effects of the stipulated 1994

computations for the narrow purpose of redetermining interest for

the 1978 and 1977 tax years during the interim period at issue.

Cf. Rule 91(e); Louisiana Land and Exploration Co. v.

Commissioner, 90 T.C. 630, 648 (1988); Korangy v. Commissioner,

893 F.2d 69, 72 (4th Cir. 1990), affg. T.C. Memo. 1989-2

(applying Rule 91(e) to a settlement agreement).

     In this context, we find it irrelevant whether the error as

to the carryback of the 1979 ITC was due to the carelessness of

either party, in this case, the failure of petitioner to protect

its interest by pointing out to respondent at the time the 1994

computations were constructed that the amounts of the 1979 ITC

had been omitted.   As we stated in Woods v. Commissioner, 92 T.C.

776, 789 (1989):

     The circumstances of this case do not warrant
     withholding relief from a mistake. The mere fact that
     the party seeking relief did not exercise reasonable
     care does not preclude reformation. 1 Restatement,
     Contracts 2d, sec. 155, comment a; sec. 157, p. 416.

          Reformation provides a result that both parties
     agreed to and prevents an unintended and unexpected
     windfall. * * *

     We now turn to the proper computation of interest, for

purposes of determining whether or not petitioner has actually
                              - 21 -

made an overpayment under section 6601(d), which deals with the

correct timing and application of loss and credit carrybacks.14

     The parties agree that through the interplay of sections

46(a) and 172(b), the 1979 ITC was displaced as of March 15,

1983, for purposes of determining petitioner's ultimate tax

liability.   Respondent, however, contends that this displacement

also means that the ITC may not be taken into account in

      14
         Sec. 6601(d) provides:
     Income Tax Reduced by Carryback or Adjustment for
     Certain Unused Deductions.--
          (1) Net operating loss or capital loss
     carryback.--If the amount of any tax imposed by
     subtitle A is reduced by reason of a carryback of a net
     operating loss, or net capital loss such reduction in
     tax shall not affect the computation of interest under
     this section for the period ending with the filing date
     for the taxable year in which the net operating loss or
     net capital loss arises.
          (2) Certain credit carrybacks.--
               (A) In general.--If any credit allowed for
          any taxable year is increased by reason of a
          credit carryback, such increase shall not affect
          the computation of interest under this section for
          the period ending with the filing date for the
          taxable year in which the credit carryback arises,
          or, with respect to any portion of a credit
          carryback from a taxable year attributable to a
          net operating loss carryback, capital loss
          carryback, or other credit carryback from a
          subsequent taxable year, such increase shall not
          affect the computation of interest under this
          section for the period ending with the filing date
          for such subsequent taxable year.
               (B) Credit carryback defined.--For purposes
          of this paragraph, the term "credit carryback" has
          the meaning given such term by section
          6511(d)(4)(C) [referring to the carryback of
          business credits, including the ITC, under section
          39].
                              - 22 -

determining interest liability during the period January 1, 1980,

to March 14, 1983.   We disagree.

     In Manning v. Seeley Tube & Box Co., 338 U.S. 561 (1950),

the Supreme Court held that the carryback of an NOL to abate a

deficiency does not abate the interest accrued on that deficiency

up until the date the NOL arises.    Absent a clear legislative

expression to the contrary, the "use of money" principle will

apply to the accrual of interest on a deficiency.    Id. at 566.

     The "use of money" principle is reflected in section 6601.

Section 6601(a) provides for interest to be charged on a

deficiency.   Section 6601(d) provides that interest is not

affected by a carryback before the filing date of the year in

which the loss or credit arises.15   That is, the party who has

the use of the money pays interest up until the event which

causes the party no longer to have use of that money.    In

general, interest liability is determined under section 6601

synchronically, looking at the period during which interest

accrues, without reference to future events, such as loss or

credit carrybacks.   This general principle, evident from the

statute itself, is also clearly set forth in respondent's own

rulings.

      15
         Sec. 6601(d) mentions specifically net capital losses,
NOL's and ITC's, but is silent as to FTC's. See infra note 18.
                                - 23 -

     For example, in Rev. Rul. 66-317, 1966-2 C.B. 510, the

taxpayer claimed an ITC in year 1.       In year 4, an NOL arose which

was carried back to year 1, eliminating taxable income and tax

liability for year 1, and thereby displacing the ITC originally

claimed.   The ruling holds that the taxpayer was not required to

pay interest from year 1 to year 4 on that portion of the tax

that had been originally offset by the ITC that was displaced by

the NOL.

     In Rev. Rul. 71-534, 1971-2 C.B. 414, the taxpayer incurred

an NOL for year 6, which was carried back to year 3, eliminating

taxable income against which an FTC had been claimed in year 3.

As a result, the FTC was carried back to year 1, for which year a

refund was claimed.   The ruling holds that interest was due to

the taxpayer on the refund from the first day after the close of

year 6, because the significant event that gave rise to the year

1 overpayment was the year 6 NOL.16

     In Rev. Rul. 82-172, 1982-2 C.B. 397, the taxpayer had an

unused ITC in year 3 that it carried back to year 1.      In year 4,

the taxpayer incurred an NOL which it carried back to year 1,

eliminating all income and resultant tax liability against which

the ITC could be applied, and resulting in a refund for year 1.

The displaced ITC was carried to year 2, resulting in an

overpayment of tax for year 2.    The ruling holds that the

      16
           See infra note 18.
                               - 24 -

significant event that gave rise to the year 1 refund and the

year 2 overpayment was the year 4 NOL and that the taxpayer was

entitled to interest on both amounts only after the last day of

year 4.    Consistent with Rev. Rul. 66-317, supra, the ruling also

holds that the taxpayer did not have to pay interest on the

amount of its tax liability originally satisfied by the ITC from

year 3 to year 4, but then replaced by the NOL.    The ruling

specifically notes that "the obligation to pay * * * must be

considered sequentially."    Rev. Rul. 82-172, 1982-2 C.B. 397,

398.

       According to respondent, the use-of-money principle

illustrated in the revenue rulings only applies where there is a

fixed liability.    In this case, respondent's position is that,

because of the course of the litigation, the final liability for

1977 and 1978 did not become fixed until after the 1982 NOL

arose, which, by way of carryback, eliminated the use of any

amounts of ITC to reduce that liability, or reduce interim

interest charged.    Respondent's analysis is fundamentally flawed.

       While it is true that petitioner's final liability was fixed

by the 1994 decision of this Court, that decision, like all Tax

Court decisions, relates back to the time the liability arose.

That is, the effect of a decision of this Court is that a

deficiency or overpayment is found to exist in the amount

determined by this Court for all purposes, including interest.

There is no question that the ITC in question qualified as a
                                - 25 -

payment of the tax as initially shown on the returns.       Certainly,

the ITC is a payment of the tax as ultimately determined by this

Court.     The fact that the ultimate decision by this Court as to

petitioner's tax liability was delayed by the litigation process

is irrelevant.

     It is clear that these rulings reinforce petitioner's

position and the application herein of the general rule of

Manning v. Seeley Tube & Box Co., supra, and section 6601, that

"the underlying objective is to determine in a given situation

whose money it is and how long the other party had use of it."

Rev. Rul. 82-172, 1982-2 C.B. 397.       If respondent had use of

petitioner's money, even in the form of a credit, during the

relevant period, then respondent must take account of that money

in computing interest on any deficiency.       See also Rev. Rul. 85-

65, 1985-1 C.B. 366; Tech. Adv. Mem. 83-26-001 (Feb. 25, 1983);

Tech. Adv. Mem. 86-24-002 (Dec. 5, 1985); Tech. Adv. Mem. 94-43-

007 (May 19, 1994).17

     There are two exceptions to this general rule.       See G.C.M.

39,359 (May 14, 1985).     The first exception occurs in the case

where there is "clear legislative expression" indicating that the

      17
         "[A]lthough the petitioners are not entitled to rely
upon unpublished private rulings which were not issued
specifically to them, such rulings do reveal the interpretation
put upon the statute by the agency charged with the
responsibility of administering the revenue laws." Hanover Bank
v. Commissioner, 369 U.S. 672, 686 (1962) (fn. refs. omitted).
                              - 26 -

underlying principle of section 6601(d) should not apply.

Manning v. Seeley Tube & Box Co., 338 U.S. at 566.   Neither party

contends that such an exception applies to the facts of this

case.18

     The second exception occurs when the later event relates

back to the beginning of the interest period, in which case

interest is calculated from the beginning taking the change into

account.   This exception can be illustrated by General Dynamics

Corp. v. United States, 214 Ct. Cl. 369, 562 F.2d 1201 (1977),

which respondent cites in support of the argument that interest

on petitioner's deficiency not be reduced by the amounts of ITC

used between 1979 and 1983.   In that case, the taxpayer

      18
         But see Fluor Corp. v. United States, 35 Fed. Cl. 520
(1996), which holds that sec. 6601(d) does not apply to FTC's and
abated interest on a deficiency eliminated by the carryback of an
FTC. FTC carryovers "shall be deemed taxes paid or accrued" in
the years to which they are carried back or forward. Sec.
904(c). Sec. 6611(g) provides that, notwithstanding the
provisions of sec. 904(c), interest on an overpayment
attributable to an FTC accrues, not from the date "deemed" paid,
but from the date the taxes were actually paid. Significantly,
however, sec. 6601(d) with regard to underpayments lacks any
analogous provision as to the treatment of FTC's. The court in
Fluor interpreted this silence as the "clear legislative
expression" required by Manning v. Seeley Tube & Box Co., 338
U.S. 561, 566 (1950), to suspend the otherwise general "use of
money" principle, and not charge the taxpayer interest on the
deficiency eliminated by the carryback of the FTC. While we
recognize that there is a lack of statutory clarity in the
interplay between secs. 904, 6601, and 6611, we are not
confronted herein with comparable lack of clarity which would
cause us to characterize such lack of clarity as a "clear
legislative expression" for purposes of Manning v. Seeley Tube &
Box Co., supra.
                                - 27 -

originally took FTC's in 1958 and 1959.      In 1961, an NOL arose,

which was carried back and displaced the FTC's from 1958 and

1959.     The taxpayer then decided to deduct the foreign taxes

(instead of taking them in the form of a credit) in 1958 and

1959.     The court held that the taxpayer owed interest as if FTC's

had not been invoked in the first place, but rather as if the

taxes had been deducted initially, because the later decision to

change from a credit to a deduction related back to the time the

credits or deductions arose, at the beginning of the interest

period.

     General Dynamics Corp. v. United States, supra, is clearly

distinguishable.     In the instant case, petitioner has not

attempted to deduct items previously reflected in a credit, or to

change the nature of a previously claimed credit, nor has it

claimed any new deductions against its 1977 or 1978 income.

Here, a credit was replaced not with a deduction, but with

another credit.     In Rev. Rul. 66-317, 1966-2 C.B. 510, the

replacement of a credit with a loss did not produce an interim

interest liability.     We are unable to see how petitioner's

replacement of a credit with a credit (ITC for FTC) could produce

such a liability herein.

        It is clear that the general use-of-money principle

enunciated in Manning v. Seeley Tube & Box Co., supra, reflected

in section 6601(d), and illustrated in respondent's rulings,

applies to the facts of this case.       For the application of that
                               - 28 -

principle for the period in dispute, the later event is the NOL

which arose in 1982, and which was carried back to 1979 which

displaced more 1979 credits back to 1977.    Section 6601(d)(1)

provides specifically:

     If the amount of any tax * * * is reduced by reason of
     a carryback of a net operating loss * * * such
     reduction in tax shall not affect the computation of
     interest under this section for the period ending with
     the filing date for the taxable year in which the net
     operating loss * * * arises.

Thus, applying the statute, the interest computation is not

changed by the 1982 NOL before March 15, 1983.    Before that date,

interest is computed on the deficiencies as they existed on

January 1, 1980, reflecting the ITC carried back from 1979, as if

the NOL had not occurred.

     Interest should then properly be charged based on the

deficiency determined sequentially by succeeding events.     That

is, as to the 1977 tax year, for the period January 1, 1980, to

March 14, 1983, interest is to be computed based on the

deficiency amount of $3,777,997, which reflects the carryback

from 1979 of an ITC in the amount of $7,947,605 and an FTC in the

amount of $2,307,548.    As to the 1978 tax year, for the period

January 1, 1980, to March 14, 1983, interest is to be computed

based on the deficiency amount of $2,530,339, which reflects the

carryback from 1979 of an ITC in the amount of $444,727.

     It should be pointed out that, under this analysis, there is

no danger of petitioner's receiving a double benefit for the 1979
                               - 29 -

ITC.    In the end, after taking into account the effects of the

1982 NOL, petitioner's ultimate tax liability was reduced by the

1979 ITC only once, namely, in 1981.      In addition, the 1979 ITC

reduced petitioner's liability for interest on any deficiency

from the point at which it was paid, first for the 1977 and 1978

tax years from January 1, 1980, to March 14, 1983, and then for

the 1981 tax year from March 15, 1983, onward.      There is no

overlap of periods to which the 1979 ITC was applied for purposes

of interest or liability for deficiencies.

       To reflect the foregoing,

                                        An appropriate order will

                                   be issued.
                                                                                           - 30 -

                                                                                            APPENDIX

                                                                                   TAX COURT DOCKET NO. 5931-83
                                                                           MOTION TO REDETERMINE INTEREST ON DEFICIENCY
                                                                                          TAX LIABILITY
                                                                                          TAX YEAR 1977
                                                                                                             Petitioner's
                                                                                                            Sec 7481(c)
                                                                                                              Interest                 Nov., 1994
                                                                                                            Computation                Stipulation                  Difference
Determination of Overassessment for Restricted Interest
Tax liability without credit carrybacks                                                                                  24,200,118                  24,200,118                            0
Tax assessed and paid                                                                                                    14,234,576                  14,234,576                            0
Deficiency without allowance for carrybacks                                                                               9,965,542                   9,965,542                            0

Tax liability after consideration of carryback from 1979 to 1977:
 Foreign tax credit carryback                                                                                             2,307,548                   2,307,548                             0
 Investment tax credit carryback                                                                                          7,947,605                           0                    7,947,605
 Total credit carryback from 1979 to 1977                                                                                10,255,153                   2,307,548                    7,947,605
 Unexplained difference included in stipulation                                                                                                           8,174                       (8,174)
Tax liability after consideration of carryback from 1979 to 1977                                                         13,944,965                  21,900,744                  (7,955,779)
Tax assessed and paid:
 Total payments                                                                                                          14,234,576                  14,234,576                            0
 Tentative allowance from 1979 to 1977                                                                                    4,067,608                   4,067,608                            0
 Net payments                                                                                                            10,166,968                  10,166,968                            0
Deficiency after consideration of credit carryback from 1979 to 1977                                                      3,777,997                  11,733,776                  (7,955,779)

Tax liability after consideration of carryback from 1982 to 1977:
 Current year investment tax credit (freed up)                                                                           (4,576,641)                 (4,576,641)                           0
 Unexplained difference included in stipulation                                                                                                           (8,174)                      8,174
 Foreign tax credit carryback                                                                                            25,048,494                  25,048,494                            0
 Investment tax credit carryback/(freed up)                                                                              (7,947,605)                            0                (7,947,605)
 Work incentive tax credit carryback                                                                                          15,550                      15,550                           0
 Jobs tax credit carryback                                                                                                   327,269                     327,269                           0
 Total credit carryback from 1982 to 1977                                                                                17,443,708                  25,391,313                  (7,947,605)
Tax liability after consideration of carryback from 1982 to 1977                                                           1,077,898                   1,077,898                           0
Net payments                                                                                                             10,166,968                  10,166,968                            0
Overpayment after consideration of credit carryback from 1982 to 1977                                                    (9,089,070)                 (9,089,070)                           0

Determination of Overassessment
Tax liability
Tax liability without credit carrybacks                                                                                  24,200,118                  24,200,118                            0
 Current year investment tax credit (freed up)                                                                           (4,576,641)                 (4,576,641)                           0
 Foreign tax credit carryback                                                                                            27,356,042                  27,356,042                            0
 Investment tax credit carryback/(freed up)                                                                                        0                           0                           0
 Work incentive tax credit carryback                                                                                          15,550                      15,550                           0
 Jobs tax credit carryback                                                                                                   327,269                     327,269                           0
 Total credit carryback                                                                                                  27,698,861                  27,698,861                            0
Tax liability after consideration of credit carryback from 1979 and 1982                                                   1,077,898                   1,077,898                           0
Tax assessed and paid
Total payments                                                                                                           14,234,576                  14,234,576                            0
 Tentative allowance from 1979 to 1977                                                                                    4,067,608                   4,067,608                            0
 Net payments                                                                                                            10,166,968                  10,166,968                            0
Overpayment after consideration of credit carryback from 1979 and
1982, as reflected in the Tax Court Decision dated November 17, 1994                                                   (9,089,070)                   (9,089,070)                           0
                                                                                   TAX COURT DOCKET NO. 5931-83
                                                                           MOTION TO REDETERMINE INTEREST ON DEFICIENCY
                                                                                          TAX LIABILITY
                                                                                          TAX YEAR 1978
                                                                           - 31 -

                                                                                     Petitioner's
                                                                                    Sec 7481(c)
                                                                                      Interest                  Nov., 1994
                                                                                    Computation                 Stipulation               Difference
Determination of Deficiency to be Paid for Restricted Interest
Tax liability without credit carrybacks                                                             6,608,807                 6,608,807                       0
Tax assessed and paid                                                                               3,633,741                 3,633,741                       0
Deficiency without allowance for carrybacks                                                         2,975,066                 2,975,066                       0

Tax liability after consideration of carryback from 1979 to 1978:
 Investment tax credit carryback                                                                      444,727                         0                  444,727
 Total credit carryback from 1979 to 1978                                                             444,727                         0                  444,727
Tax liability after consideration of carryback from 1979 to 1978                                    6,164,080                 6,608,807                (444,727)
Tax assessed and paid                                                                               3,633,741                 3,633,741                        0
Deficiency after consideration of credit carryback from 1979 to 1978                                2,530,339                 2,975,066                (444,727)

Tax liability after consideration of carryback from 1982 to 1978:
 Current year investment tax credit (freed up)                                                      (541,122)                 (541,122)                        0
 Foreign tax credit carryback                                                                       1,971,695                 1,971,695                        0
 Investment tax credit carryback/(freed up)                                                         (444,727)                         0                (444,727)
 Total credit carryback from 1982 to 1978                                                           1,526,968                 1,971,695                (444,727)
Tax liability after consideration of carryback from 1982 to 1978                                    5,178,234                 5,178,234                        0
Tax assessed and paid                                                                               3,633,741                 3,633,741                        0
Tax assessed 9/30/92 subsequent to Tax Court Decision                                               2,076,812                 2,076,812                        0
Total assessment                                                                                    5,710,553                 5,710,553                        0
Overassessment after consideration of credit carryback from 1982 to 1978                            (532,319)                 (532,319)                        0
Tax assessed 9/30/92 subsequent to Tax Court Decision but not paid                                  2,076,812                 2,076,812                        0
Tax deficiency before taking into account 9/30/92 assessment, as
 reflected in the Tax Court Decision dated November 17, 1994                                        1,544,493                 1,544,493                       0
Payments and credits applied after the Tax Court Decision                                              79,925                    79,925                       0
Deficiency after consideration of carryback from 1979 and 1982, and
 payments subsequent to the November 17, 1994 Tax Court Decision                                    1,464,568                 1,464,568                       0

Determination of Deficiency
Tax liability
Tax liability without credit carrybacks                                                             6,608,807                 6,608,807                       0
 Current year investment tax credit (freed up)                                                      (541,122)                 (541,122)                       0
 Foreign tax credit carryback                                                                       1,971,695                 1,971,695                       0
 Investment tax credit carryback/(freed up)                                                                 0                         0                       0
 Total credit carryback                                                                             1,971,695                 1,971,695                       0
Tax liability after consideration of credit carryback from 1979 and 1982                            5,178,234                 5,178,234                       0
Tax assessed and paid
Tax assessed and paid without consideration of events subsequent
   to Tax Court Decision                                                                            3,633,741                 3,633,741                       0
Tax deficiency before taking into account 9/30/92 assessment, as
 reflected in the Tax Court Decision dated November 17, 1994                                        1,544,493                 1,544,493                       0
Payments and credits applied after the Tax Court Decision                                              79,925                    79,925                       0
Deficiency after consideration of carryback from 1979 and 1982, and
 payments subsequent to the November 17, 1994 Tax Court Decision                                    1,464,568                 1,464,568                       0