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Ford Motor Co. v. United States

United States Court of Appeals, Federal Circuit

November 9, 2018

FORD MOTOR COMPANY, Plaintiff-Appellant
v.
UNITED STATES, Defendant-Appellee

          Appeal from the United States Court of Federal Claims in No. 1:14-cv-00458-CFL, Judge Charles F. Lettow.

          Jessica Lynn Ellsworth, Hogan Lovells U.S. LLP, Washington, DC, argued for plaintiff-appellant. Also represented by Eugene Alexis Sokoloff, Katherine Booth Wellington; Robert E. Kolek, Schiff Hardin LLP, Chicago, IL.

          Richard Caldarone, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by David A. Hubbert, Francesca Ugolini.

          Before Moore, Wallach, and Hughes, Circuit Judges.

          Hughes, Circuit Judge.

         Ford Motor Co. sued the United States in the Court of Federal Claims to recover interest payments that it alleges the government owes on Ford's past tax overpayments. Ford can only recover this interest if it and its Foreign Sales Corporation subsidiary were the "same taxpayer" under 26 U.S.C. § 6621(d) when Ford made its overpayment and the subsidiary made equal tax underpayments. The Court of Federal Claims granted summary judgment for the government after concluding that Ford and its subsidiary were not the same taxpayer. For the reasons below, we affirm.

         I

         This case concerns the interplay between two statutory tax schemes, the "interest netting" provision of 26 U.S.C. (I.R.C.) § 6621(d) and the Foreign Sales Corporation statute that incentivized U.S. company exports between 1984 and 2000. We begin with a brief explanation of the purposes and structures of these schemes.

         A

         In general, a taxpayer who fails to fully pay taxes it owes to the government before the last date prescribed for payment will owe the government interest based on the duration and amount of the underpayment. I.R.C. § 6601(a). Relatedly, taxpayers who overpay their taxes are often entitled to receive interest payments from the government based on the duration and amount of their overpayment. Id. at § 6611. In both cases, the interest rates used to calculate the amount of interest owed are set by I.R.C. § 6621(a)-(c).

         Since 1986, most corporate taxpayers have faced different interest rates for overpayments and underpayments. Interest accrues at a higher rate on corporate taxpayers' underpayments than on their overpayments. Id. This rate discrepancy meant that a corporate taxpayer with equal underpayments and overpayments could be liable to the Internal Revenue Service for owed interest, even though, overall, it had paid the IRS the full amount of tax owed. Because the taxpayer's underpayment would accrue more interest than its overpayment during the same period, the taxpayer would be liable to the IRS for the difference in interest that accrued on the two equal sums.

         In 1996, Congress addressed this scenario by enacting I.R.C. § 6621(d) as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3301(a), 112 Stat. 741. Section 6621(d) provides:

To the extent that, for any period, interest is payable under subchapter A and allowable under subchapter B on equivalent underpayments and overpayments by the same taxpayer of tax imposed by this title, the net rate of interest under this section on such amounts shall be zero for such period.

         Put simply, this "interest netting" provision cancels out any interest accrual on overlapping underpayments and overpayments. By either decreasing the interest rate for an underpayment or increasing the interest rate for an overpayment, the IRS "nets" the two rates to ensure that the taxpayer's interest liability is zero. But this interest netting option is available only if the ...


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