Court Opinion

ID: 3134124
Source: CourtListenerOpinion
Date Created: 2015-10-22 16:01:17.09147+00
Date Added: 2024-06-11T10:00:29.827052
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

 ALBEMARLE CORPORATION & SUBSIDIARIES,
            Plaintiff-Appellant

                          v.

                  UNITED STATES,
                  Defendant-Appellee
                ______________________

                      2015-5015
                ______________________

    Appeal from the United States Court of Federal
Claims in No. 1:12-cv-00184-MBH, Judge Marian Blank
Horn.

                ______________________

         ON PETITION FOR REHEARING
              ______________________

              Decided: October 22, 2015
               ______________________

   JEROME LIBIN, Sutherland Asbill & Brennan LLP,
Washington, DC, argued for plaintiff-appellant.

    DEBORAH K. SNYDER, Tax Division, United States De-
partment of Justice, Washington, DC, argued for defend-
ant-appellee.  Also    represented   by   TERESA     E.
MCLAUGHLIN, GILBERT STEVEN ROTHENBERG, CAROLINE D.
CIRAOLO, DIANA L. ERBSEN.
2                             ALBEMARLE CORPORATION    v. US

                 ______________________

Before PROST, Chief Judge, BRYSON and HUGHES, Circuit
                       Judges.
BRYSON, Circuit Judge.
    Albemarle Corporation and Subsidiaries (“Albemarle”)
petitions for rehearing of this court’s August 13, 2015,
decision on its appeal from the Court of Federal Claims.
For the reasons set forth below, we deny the petition.
     1. In its petition, Albemarle first argues that the de-
cision in this case conflicts with this court’s recent deci-
sion in Salem Financial, Inc. v. United States, 786 F.3d
932 (Fed. Cir. 2015). Albemarle’s argument is not really
based on the Salem case, which says nothing about when
foreign taxes accrue, but instead is based on the Court of
Federal Claims’ decision in Reading & Bates Corp. v.
United States, 40 Fed. Cl. 737 (1998). That case was cited
in Salem, but for an entirely different proposition having
nothing to do with the accrual date for foreign tax liabil-
ity.
    In any event, the Reading & Bates case provides no
support for Albemarle’s argument.        The government
argued in that case that the plaintiff was required to
report income from a tax indemnification agreement in
the tax years to which the income related (1976 and
1977). The plaintiff argued that income resulting from
the indemnification agreement did not accrue until 1984,
when the plaintiff’s contested tax liability for foreign
taxes for the years 1976 and 1977 was resolved. 40 Fed.
Cl. at 750. The Court of Federal Claims agreed with the
plaintiff that the foreign tax contest had delayed the
accrual of the plaintiff’s income until 1984, because the
amount that the plaintiff was entitled to receive under
the indemnification agreement could not be ascertained
until the contest was over. Id. at 753.
ALBEMARLE CORPORATION    v. US                             3

    Reading & Bates does not support Albemarle’s posi-
tion that a contested tax liability “actually accrues” in the
contest resolution year for two reasons. First, the Read-
ing & Bates decision deals with when income accrues for
purposes of calculating “gross income” under the Tax
Code; the court did not address when foreign taxes “actu-
ally accrue” for purposes of the statute of limitations.
Second, the court in Reading & Bates expressly distin-
guished between the accrual of income and the accrual of
foreign tax credits, noting that the relation-back rule
applies to the accrual of foreign taxes, but not to accrual
of income. 40 Fed. Cl. at 753 (“Defendant’s argument is
based on the erroneous assumption that foreign tax
credits are treated in the same manner as income.”).
    2. Albemarle next argues that the panel opinion in
this case ignored the Supreme Court’s opinion in Dixie
Pine Products Co. v. C.I.R., 320 U.S. 516 (1944), and the
accrual principles discussed in that opinion.
    In fact, the panel opinion discussed at some length
both the Dixie Pine case and the line of authority based on
that decision. Albemarle simply disagrees with the
panel’s distinction of that line of cases. In particular,
Albemarle argues that the panel improperly held that
there is only one year of accrual for contested taxes, i.e.,
the year of origin, and refused to apply the “all events
test” that is set forth in Dixie Pine and codified in section
461 of the Tax Code. That, however, is not an accurate
description of the panel’s analysis. The panel acknowl-
edged that two critical dates exist for a party that wishes
to seek foreign tax credits based on a contested tax liabil-
ity. As the panel opinion explained, “[F]or the purpose of
determining in what year the right to claim the credit
arises, the contested tax doctrine and section 461 apply.
For the purpose of determining against which U.S. tax the
foreign tax is to be credited, the contested tax doctrine
does not apply, and the tax is held to have accrued in the
taxable year ‘to which the tax relates.’” Slip op. at 13.
4                             ALBEMARLE CORPORATION     v. US

    Thus, pursuant to section 461, Albemarle did not have
the right to claim a foreign tax credit until 2002, when the
contest was over and liability was finalized. When Albe-
marle filed a claim for foreign tax credits, however, the
credits were offset against its tax liability for the year
1998 under the relation-back doctrine. Therefore, contra-
ry to Albemarle’s assertion, the panel explicitly acknowl-
edged the applicability of section 461, i.e., the all-events
test, to the contested foreign tax situation.
    Albemarle also faults the panel for holding that the
company’s 1997 tax liability accrued in 1997, not in 2002.
See Pet. at 6. But Albemarle itself admitted that foreign
tax liability “accrues” in its year of origin for purposes of
the foreign tax credit statutes (specifically, sections 901
and 905). See 26 U.S.C. § 901(b)(1) (“[The following
amounts shall be allowed as the credit: . . .] the amount of
any income, war profits, and excess profits taxes paid or
accrued during the taxable year . . .”); Appellant’s Br. 20
(stating that under section 901(b)(1) “a foreign tax credit
may only be claimed for a year in which foreign tax was
‘paid or accrued.’”).
    3. Albemarle takes issue with the court’s citation of
Treasury Regulation 1.904-2(c)(1), 26 C.F.R. § 1.904-
2(c)(1), which deals with carryback and carryover of
unused foreign taxes under the per-country limitation on
foreign tax credits. Albemarle argues that the court’s
analysis is flawed because the per-country limitation on
foreign tax credits has been repealed.
    There are three problems with Albemarle’s argument.
First, while it is true that the statute that created a per-
country limitation on foreign tax credits has been re-
pealed, the corresponding regulation has not been re-
pealed, presumably because the regulation continued to
apply to transactions that pre-dated the statutory repeal.
Second, the validity of the panel opinion does not depend
on the existence of the per-country limitation. The point
ALBEMARLE CORPORATION    v. US                            5

of citing the regulation was not to address the substance
of the per-country limitation, but simply to show that the
phrase “actually paid or accrued,” which appears in both
the regulation and in section 6511(d)(3)(A), was given the
same interpretation under the regulation that the gov-
ernment contends it should have under section
6511(d)(3)(A). Third, in addition to Treasury Regulation
1.904-2(c)(1), the court cited the accompanying provision,
section 1.904-2(c)(2).    That regulation, which applies
when an overall limitation is imposed in a tax year,
contains language identical to the pertinent language of
section 1.904-2(c)(1). The overall limitation on tax credits
has not been repealed, so the point made in the panel
opinion is fully supported by the language of section
1.904-2(c)(2), even if the repeal of the per-country limita-
tion were somehow regarded as undermining the useful-
ness of section 1.904-2(c)(1) as a guide to the proper
interpretation of the phrase “actually paid or accrued.”
    4. Albemarle next argues that the “anomalous result”
that the panel stated would flow from Albemarle’s pro-
posed interpretation of the phrase “actually paid or ac-
crued,” see slip op. at 9-10, would never occur. The panel
noted that Albemarle’s interpretation of the term “actual-
ly paid or accrued” would have the plainly unintended
consequence that the credit for a contested foreign tax
would be allocated to one year (the year of origin), but
counted toward the limitation applicable to another year
(the contest resolution year).
    Albemarle acknowledges that under Treasury Regula-
tion 1.904-2(c), taxes that “actually accrue” in a given
year should be taken into account against the tax credit
limitation for that year. See Pet. at 12. Nonetheless,
Albemarle asserts that section 1.904-2(c) does not apply to
contested taxes, so that even if contested taxes “actually
accrue” in the contest resolution year, they are not count-
ed toward the credit limitation for that year. According to
Albemarle, that is because contested taxes are creditable
6                             ALBEMARLE CORPORATION     v. US

taxes “deemed . . . accrued other than by reason of section
904(d) [the carry rule, now section 904(c)]” in the year of
origin. See 26 C.F.R. §§ 1.904-2(b)(2), 1.904-2(c)(1)(ii)(b),
and 1.904-2(c)(2)(ii)(b). Thus, in Albemarle’s view con-
tested taxes cannot be counted toward the limitation of
the contest resolution year as taxes “actually . . . accrued”
in that year. See 26 C.F.R. §§ 1.904-2(c)(1)(ii)(a), 1.904-
2(c)(2)(ii)(a).
    Albemarle cites no authority for the proposition that
contested taxes should be “deemed . . . accrued other than
by reason of section 904(d)” in the year of origin. It simp-
ly asserts that contested taxes “clearly fall within the
foregoing language” and that no other category of taxes
would fit that definition.
     Albemarle is wrong on both counts. First, taxes
“deemed paid or accrued . . . other than by reason of
section 904(d)” is not a category that some taxes can just
“fall within.” The Tax Code has clear and explicit defini-
tions regarding what constitutes a tax “deemed paid or
accrued.” See 26 U.S.C. § 904(c) (unused taxes carried
from another year “shall be taxes deemed paid or accrued”
in the year to which such taxes are carried); § 902(a)(“[A]
domestic corporation which owns 10 percent or more of
the voting stock of a foreign corporation from which it
receives dividends in any taxable year shall be deemed to
have paid the same proportion of such foreign corpora-
tion’s post-1986 foreign income taxes . . .”); § 907(b)(2)(B)
(“any income, war profits, and excess taxes paid or ac-
crued (or deemed to have been paid or accrued under
section 902 or 960) during the taxable year . . .”);
§ 960(a)(1) (“Deemed paid credit”). Thus, a taxpayer
cannot unilaterally define a category of “deemed paid or
accrued” taxes, outside the confines of the Code and
regulations.
    Second, Albemarle is wrong that no other category of
taxes fits the definition of “deemed paid or accrued . . .
ALBEMARLE CORPORATION    v. US                            7

other than by reason of section 904(d).”            Section
907(b)(2)(B), for example, states that some taxes are
“deemed to have been paid or accrued under section 902
or 960,” which are taxes “deemed paid or accrued . . .
other than by reason of section 904(d).” See also 26 U.S.C.
§ 901(a)(“[T]he tax imposed by this chapter shall . . . be
credited with the amounts provided in . . . subsection (b)
plus, in the case of a corporation, the taxes deemed to
have been paid under sections 902 and 960.”).
    Because contested taxes are not “deemed . . . accrued
other than by reason of section 904(d),” Albemarle’s
contention that Treasury Regulation 1.904-2(c) does not
apply to contested taxes is incorrect. Albemarle’s pro-
posed interpretation of “actually . . . accrued” would thus
lead to the anomalous result that contested taxes would
be taken as credits in the year of origin, yet counted
toward the credit limitation in the contest resolution year.
For that reason, as well as the other reasons set forth
above and in the panel opinion, we reject Albemarle’s
interpretation of the statutory phrase “actually paid or
accrued.”
   The petition for rehearing is denied.