Intel Corp. & Consol. Subsidiaries v. Comm'r of Internal Revenue

• Decision Date: 30 July 1998
• Docket Number: No. 23010–89.,23010–89.
• Citation: 111 T.C. 90,111 T.C. No. 4
• Parties: INTEL CORPORATION AND CONSOLIDATED SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent *
• Court: U.S. Tax Court

111 T.C. 90

111 T.C. No. 4

INTEL CORPORATION AND CONSOLIDATED SUBSIDIARIES, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent *

No. 23010–89.

United States Tax Court.

July 30, 1998.

Joel V. Williamson, Wayne S. Kaplan, Thomas L. Kittle–Kamp, Marjorie M. Margolies, and Robert H. Perlman, for petitioner.

Beth L. Williams and Ewan D. Purkiss, for respondent.

SUPPLEMENTAL OPINION

TANNENWALD, Judge:

P had deficiencies in its Federal income tax for the taxable years 1979 and 1980. From the taxable year 1981, P carried back an amount of foreign tax to 1979 and 1980. From 1982, P carried back additional foreign tax to 1980. R computed interest under sec. 6601, I.R.C.1954, from the respective due dates of the returns for 1979 and 1980 until the end of 1981 for the deficiency amounts for 1979 and 1980, respectively, eliminated by the carryback from 1981. For the deficiency amount in 1980 eliminated by the carryback from 1982, R computed interest from the due date of the return for 1980 until the due date of the return for 1982. P filed a motion under sec. 7481(c), I.R.C.1986, to redetermine interest. Held, for the years at issue, sec. 904(c), I.R.C.1954, does not prevent interest from being imposed on the deficiency without reduction by a foreign tax carryback from a subsequent year. Held, further, the interest on the deficiency amounts eliminated by the carryback from 1981 stops accruing as of the end of 1981, and the interest on the deficiency amount eliminated by the carryback from 1982 stops accruing as of the due date of the 1982 return. Cf. sec. 6611(g) (now sec. 6611(f)(2)), I.R.C.1954, prior to and after the Tax Equity and Fiscal Responsibility Act of 1982, Pub.L. 97–248, sec. 346(c), 96 Star. 637.

A decision was entered in this case on December 9, 1993, pursuant to a stipulated computation, in accordance with this Court's opinion, Intel Corp. v. Commissioner, 100 T.C. 616, 1993 WL 228826 (1993), affd. 67 F.3d 1445 (9th Cir.1995), amended and superseded 76 F.3d 976 (9th Cir.1996). On May 9, 1997, petitioner filed a motion under section 7481(c) ¹ and Rule 261 to redetermine interest on the deficiencies for the 1979 and 1980 taxable years.

The parties agree that, for the taxable years 1979 and 1980, petitioner had foreign tax carrybacks from 1981 and 1982 as follows:

+----------------------------------+
                ¦¦         ¦¦          ¦¦Year      ¦
                ++---------++----------++----------¦
                ¦¦Year Used¦¦Amount    ¦¦Originated¦
                ++---------++----------++----------¦
                ¦¦1979     ¦¦$5,015,830¦¦1981      ¦
                ++---------++----------++----------¦
                ¦¦1980     ¦¦753,462   ¦¦1981      ¦
                ++---------++----------++----------¦
                ¦¦         ¦¦4,574,958 ¦¦1982      ¦
                +----------------------------------+
                

The parties disagree as to the effect, if any, of these carrybacks on the calculation of interest on the deficiencies for 1979 and 1980. The principal issue for decision is whether interest accrues on the portion of a deficiency that is eliminated by such carrybacks. If it does accrue, when does it end, i.e., at the close of the taxable year of the carryback or on the due date for the filing of the tax return for that year? We direct our attention, in the first instance, to the principal issue.

Section 6601(a) provides that interest shall be paid on the amount of tax not paid on or before the last date prescribed for payment for the period from such last date to the date paid. The last date prescribed for payment of income tax is generally the due date for filing the return without regard to any extension of time for filing. Sec. 6601(b)(1).

“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.” BankAmerica Corp. v. Commissioner, 109 T.C. 1, 14, 1997 WL 402282 (1997). Section 6601 reflects the “use of money” principle; “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.” Id. at 14. “In the absence of a clear legislative expression to the contrary, the question of who properly should possess the right of use of the money owed the Government for the period it is owed must be answered in favor of the Government.” Manning v. Seeley Tube & Box Co., 338 U.S. 561, 566, 70 S.Ct. 386, 94 L.Ed. 346 (1950).

In this latter connection, we are not persuaded by petitioner's argument that we should not give any consideration to the time-value-of-money element because that concept “can be applied only in the presence of a legislative directive to do so.” City of New York v. Commissioner, 103 T.C. 481, 487, 1994 WL 551412 (1994), affd. 70 F.3d 142 (D.C.Cir.1995). That language was used in analyzing the applicability of time-value-of-money substantive provisions of the Code. Interest per se involves the time value of money, and, if a directive is needed, it can be found in section 6601(a).

Section 901 allows a taxpayer who so elects a credit, subject to the limitation of section 904, for the amounts of certain “taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States”, plus those taxes deemed to have been paid under sections 902 and 960. Sec. 901(a) and (b)(1). The purpose of section 901 is to provide relief from U.S. taxation where income already has been taxed by another country. Perkin–Elmer Corp. & Subs. v. Commissioner, 103 T.C. 464, 470, 1994 WL 525817 (1994). Section 904(a) provides that the amount of the foreign tax credit “shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable income from sources without the United States * * * bears to his entire taxable income for the same taxable year.” This limitation was enacted to prevent foreign tax credits from eliminating U.S. tax on U.S.-source income. Perkin–Elmer Corp. & Subs. v. Commissioner, supra at 470–471. Section 904(c) provides for carryback and carryover of any excess foreign taxes as follows:

(c) Carryback and Carryover of Excess Tax Paid.—Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year for which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries * * * in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign countries * * * for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year * * *

Petitioner argues that section 904(c) is a clear legislative expression that interest is not imposed on tax liability “paid” by foreign tax carrybacks, because such carrybacks are “deemed taxes paid or accrued to foreign countries * * * in ” (emphasis added) the year to which they are carried back and no statutory provision exists that contradicts this plain language. Petitioner describes the various interest provisions in the Internal Revenue Code as detailed and complex and points to the absence of a specific interest provision concerning foreign tax carrybacks in situations involving deficiencies as significant in light of other provisions dealing with the question of interest on deficiencies involving other types of carrybacks. Respondent urges us to preserve symmetry between the treatment of interest on deficiencies with that of interest on overpayments in the foreign tax carryback situation, in keeping with Manning v. Seeley Tube & Box Co., supra; United States v. Koppers Co., 348 U.S. 254, 75 S.Ct. 268, 99 L.Ed. 302 (1955), and the recently decided Fluor Corp. & Affiliates v. United States, 126 F.3d 1397 (Fed.Cir.1997).

We begin our analysis of the scope of the language of section 904(c) mindful of our observations in Hospital Corp. of Am. v. Commissioner, 107 T.C. 73, 84–85, 1996 WL 518053 (1996):

The language of a statute * * * cannot be viewed in isolation. In construing the meaning of [a] section * * *, it is necessary to consider all of the words of the statute as well as their context, the purposes of the law, and the circumstances under which the words were employed. Furthermore, we must view the statute in context as a whole and with a view to its place in the overall statutory scheme. [Citations omitted.²]

Prior to 1942, there were no carrybacks of any kind, and therefore there was no problem in respect of interest on any overpayment or reduced underpayments attributable to carrybacks.

Section 153(a) of the Revenue Act of 1942 (1942 Act), ch. 619, 56 Stat. 847, amended section 122(b) of the 1939 Code to provide for a 2–year carryback of net operating losses. Section 204(b) of the 1942 Act, 56 Star. 900, amended section 710(c) of the 1939 Code to provide a 2–year carryback of unused excess profit tax credit. Section 153(d) of the 1942 Act, 56 Star. 848, amended section 3771 by adding subsection (e) to eliminate any interest on an “overpayment” attributable to either of such carrybacks for the period prior to the filing of a claim for refund for such overpayment. There was no comparable provision dealing with underpayments later reduced or eliminated by any such carryback, nor was there any comment in the legislative history adverting to such a situation.

The foregoing action by Congress was the subject of litigation culminating in Manning v. Seeley Tube & Box Co., supra, involving the propriety of charging interest on a deficiency which was later...