Exxon Mobil Corp. v. Commissioner

• Decision Date: 03 February 2011
• Docket Number: 18432-90.,Docket Nos. 18618-89
• Citation: 136 T.C. 99
• Court: U.S. Tax Court
• Parties: EXXON MOBIL CORPORATION AND AFFILIATED COMPANIES, F.K.A. EXXON CORPORATION AND AFFILIATED COMPANIES, PETITIONERS<BR>v.<BR>COMMISSIONER OF INTERNAL REVENUE, Respondent.

136 T.C. 99

EXXON MOBIL CORPORATION AND AFFILIATED COMPANIES, F.K.A. EXXON CORPORATION AND AFFILIATED COMPANIES, PETITIONERS
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Docket Nos. 18618-89

18432-90.

02-03-2011

Kevin L. Kenworthy and Alan I. Horowitz, for petitioners.

R. Scott Shieldes, for respondent.

OPINION

HAINES, Judge:

These consolidated cases are before the Court on respondent's motion to dismiss for lack of jurisdiction, petitioners' motion for partial summary judgment under sections 7481(c) and 6621(d) seeking a net interest rate of zero on equivalent underpayments and overpayments in Federal income taxes for overlapping periods preceding July 22,

[136 T.C. 100]

1998, and respondent's cross-motion for partial summary judgment in opposition to petitioners' motion.^[1]

The issues presented are: (1) Whether this Court has jurisdiction under section 7481(c) to resolve petitioners' section 6621(d) interest-netting claim; and (2) whether, pursuant to section 6621(d) and an uncodified special rule set forth in the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3301(c)(2), 112 Stat. 741, as amended by the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 (1998 Act), Pub. L. 105-277, div. J, sec. 4002(d), 112 Stat. 2681-906 (1998), petitioners are entitled to a net interest rate of zero on equivalent underpayments and overpayments in Federal income taxes for overlapping periods preceding July 22, 1998.

The parties have stipulated the facts relevant to the instant motions.

Background

Petitioners in these cases, Exxon Mobil Corp. & Affiliated Cos., are corporations organized and existing under the laws of the United States. Petitioners are successors in interest to Exxon Corp. & Affiliated Cos. All references to petitioners are either to Exxon Mobil Corp. & Affiliated Cos. or to Exxon Corp. & Affiliated Cos., where the context so requires. The parties have stipulated that an appeal would lie with the U.S. Court of Appeals for the Second Circuit.

I. Prior Determinations

Petitioners filed timely consolidated Federal income tax returns for 1975 through 1980 that were audited by the Internal Revenue Service (IRS) over a period ending in 1990. Adjustments that petitioners agreed to were assessed and the assessments, together with "underpayment interest", were paid. Unless otherwise specified or the context otherwise requires, the term "underpayment interest" refers to interest provided for generally by section 6601(a), the term "overpayment interest" refers to interest provided for generally

[136 T.C. 101]

by section 6611(a), and the term "interest" refers to either or both.

A. The 1979/1980 Litigation

On June 29, 1989, respondent issued a notice of deficiency to petitioners, determining income tax deficiencies for 1977, 1978, and 1979.^[2] Petitioners did not petition the Court in response to the notice of deficiency for 1977 and 1978, and, as a consequence, those deficiencies were assessed and paid. Petitioners did, however, file a timely petition in response to the notice of deficiency for 1979 which was assigned docket No. 18618-89 (1979 litigation).

On July 16, 1990, respondent issued a notice of deficiency to petitioners for 1980 as well as 1981 and 1982.^[3] Petitioners timely filed a petition for redetermination in this Court for those years which was assigned docket No. 18432-90 (1980 litigation). During the course of respondent's audits, petitioners' administrative appeals, and the litigation of these cases, petitioners made a number of substantial advance payments to respondent of taxes and interest with respect to each of the tax deficiencies determined by respondent against petitioners for 1979 and 1980.

This Court has issued a number of opinions addressing the issues raised in these cases.^[4] The parties ultimately resolved the remaining issues by agreement, and decisions were entered in accordance with the parties' agreed computations.

On February 27, 2004, this Court entered a revised stipulated decision in the 1979 litigation, determining that petitioners were entitled to credit or refund of an income tax overpayment for 1979. The revised stipulated decision became final within the meaning of section 7481(a) on May

[136 T.C. 102]

27, 2004. Respondent promptly credited the overpayment determined in the 1979 litigation to petitioners' accounts for 1989, 1997, 1998, 1999, and 2000 and paid to petitioners overpayment interest. On June 14, 2004, respondent abated income tax and underpayment interest for 1979 in accordance with the decision entered in the 1979 litigation.

On July 28, 2004, this Court entered a stipulated decision in the 1980 litigation, determining in part that petitioners were entitled to credit or refund of an income tax overpayment for 1980. The stipulated decision became final within the meaning of section 7481(a) on October 26, 2004. On the same day, in accordance with the decision entered in the 1980 litigation, respondent refunded to petitioners the overpayment so determined and paid them overpayment interest. On November 15, 2004, respondent abated income tax and underpayment interest for 1980 in accordance with the decision in the 1980 litigation.

B. The 1975 Litigation

Petitioners also litigated their Federal income tax liabilities for 1975 through 1978 in other forums. They consented to the assessment of adjustments to which they did not agree, paid the tax and interest assessed, and filed claims for refund. Petitioners' refund claims for 1975 through 1978 were not attributable to either interest or interest netting but established the predicate for the subsequent refund litigation described below. In 1995 respondent allowed some of petitioners' refund claims and abated income tax and underpayment interest that reduced but did not eliminate the underpayments previously assessed and paid for 1975 through 1978.

On October 30, 1996, petitioners timely filed a complaint in the U.S. Court of Federal Claims seeking a refund of income tax for 1975 (1975 litigation). Following a trial on the merits of the substantive issues in the 1975 litigation, the Court of Federal Claims issued findings of fact and conclusions of law. Exxon Corp. v. United States, 45 Fed. Cl. 581 (1999). Both parties appealed, and the Court of Appeals for the Federal Circuit affirmed in part and reversed in part, directing the Court of Federal Claims to calculate the resulting refund due petitioners. Exxon Mobil Corp. v. United

[136 T.C. 103]

States, 244 F.3d 1341 (Fed. Cir. 2001). On November 6, 2001, judgment was entered in the 1975 litigation pursuant to stipulation of the parties (1975 judgment).

On March 18, 2002, respondent satisfied the 1975 judgment. On April 8, 2002, respondent abated income tax and related underpayment interest in compliance with the 1975 judgment that reduced but did not eliminate the underpayments previously assessed and paid for 1975.

C. The 1976 Litigation

On April 18, 2000, petitioners filed a complaint in the U.S. District Court for the Northern District of Texas seeking an income tax refund for 1976 (1976 litigation). On March 10, 2003, following a trial on the merits of the substantive issues, the District Court issued findings of fact and conclusions of law. Exxon Mobil Corp. v. United States, 253 F. Supp. 2d 915 (N.D. Tex. 2003). Petitioners appealed to the U.S. Court of Appeals for the Fifth Circuit.

While the 1976 litigation was docketed on appeal, the parties reached a settlement that required a refund to be paid. Respondent paid the refund, and, pursuant to the settlement, abated income tax and related underpayment interest for 1976 that reduced but did not eliminate the underpayments previously assessed and paid for 1976.

D. The 1977/1978 Litigation

On September 17, 2002, petitioners filed a complaint in the U.S. District Court for the Northern District of Texas, seeking income tax refunds for 1977 and 1978 (1977/1978 litigation). The parties resolved the 1977/1978 litigation by agreement in 2003. Respondent refunded moneys to petitioners for both years in accordance with the resolution of the 1977/1978 litigation. Respondent abated income tax and related underpayment interest in accordance with the resolution for 1977 and 1978 that reduced but did not eliminate the underpayments previously assessed and paid for 1977 and 1978.

II. Interest Netting

Before 1987, section 6621 applied the same annual interest rate to overpayments and underpayments. Therefore, if a

[136 T.C. 104]

taxpayer owed the Government an underpayment and the Government, in turn, owed the taxpayer an overpayment in an equivalent amount, the amounts could be offset pursuant to section 6402 and no interest would be paid by either party.

However, beginning January 1, 1987, Congress amended section 6621 to increase the rate of interest a taxpayer paid on underpayments to a higher rate than a taxpayer received on overpayments. See Tax Reform Act of 1986 (TRA 1986), Pub. L. 99-514, sec. 1511(a), (b), (d), 100 Stat. 2744. Thus, a taxpayer could end up paying interest to the Government even in situations when no tax was due; i.e., when an underpayment and an overpayment offset each other.

Congress recognized that taxpayers should not be paying interest to the Government if no net tax was due. However, it took 10 years before the problem was addressed. In 1998 Congress again amended section 6621 by adding section 6621(d) to authorize interest netting for periods when overpayments and underpayments offset each other. See RRA 1998 sec. 3301, 112 Stat. 741. Section 6621(d) applied prospectively to periods of overlap after July 22, 1998. However, an uncodified special rule in RRA 1998 sec. 3301(c)(2) applied interest netting retroactively. Congress subsequently added to the rule the phrase "Subject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax...