Marsh & McLennan Companies, Inc. v. U.S.

• Decision Date: 06 September 2002
• Docket Number: No. 02-5002.,02-5002.
• Citation: 302 F.3d 1369
• Parties: MARSH & McLENNAN COMPANIES, INC. and Subsidiaries, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

302 F.3d 1369

MARSH & McLENNAN COMPANIES, INC. and Subsidiaries, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 02-5002.

United States Court of Appeals, Federal Circuit.

September 6, 2002.

COPYRIGHT MATERIAL OMITTED

A. Duane Webber, Baker & McKenzie, of Washington, DC, argued for plaintiff-appellant. Of counsel was Neal J. Block, Baker & McKenzie, of Chicago, Illinois.

Paula K. Speck, Attorney, Tax Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Eileen J. O'Connor, Assistant Attorney General; and Richard Farber, Attorney.

Before MAYER, Chief Judge, MICHEL, and DYK, Circuit Judges.

DYK, Circuit Judge.

Marsh & McLennan Companies, Inc. ("Marsh") appeals the decision of the United States Court of Federal Claims granting summary judgment for the United States. The court held that Marsh is not entitled to interest on overpayments of federal income tax for 1985 and 1986 (which were applied to satisfy tax liabilities for 1987 and 1988) for the period after the due date of its 1987 and 1988 tax returns. Marsh & McLennan Cos. v. United States, 50 Fed. Cl. 140 (2001). Because the language of the pertinent statute, as authoritatively interpreted by a Treasury regulation, plainly denies such interest, we affirm.

BACKGROUND

The facts of this case are not in dispute. Marsh, a financial services company, overpaid its 1985 federal income taxes by $275,139 ("1985 overpayment") and overpaid its 1986 taxes by $3,412,083 ("1986 overpayment").

Marsh also overpaid the amount of 1987 federal income taxes shown on the return by $12,694,216, and at the time the 1987 return was filed, Marsh elected to apply this overpayment to its 1988 tax liability ("1987 credit elect overpayment"). The Internal Revenue Service ("IRS") permits a corporate taxpayer that has paid more than its liability in one year to claim a credit for the excess against its estimated taxes for the succeeding year. 26 U.S.C. § 6402(b) (2000).¹ The credit is called a "credit elect overpayment." As discussed below, credit elect overpayments do not earn interest. The 1987 credit elect overpayment was transferred by the IRS from Marsh's 1987 tax account into its 1988 tax account on March 15, 1989, the due date of its 1988 tax return.

Marsh also overpaid the amount of 1988 taxes shown on the return by $28,336,308, and at the time the 1988 return was filed, Marsh elected to apply this overpayment to its 1989 tax liability ("1988 credit elect overpayment"). A portion of the 1988 credit elect overpayment was transferred by the IRS from Marsh's 1988 tax account into its 1989 tax account on September 15, 1989, to satisfy its estimated 1989 tax liability, and the remainder of the 1988 credit elect overpayment was transferred from Marsh's 1988 tax account into its 1989 tax account on March 15, 1990, to satisfy its final 1989 tax liability.

Thus, Marsh had made four separate overpayments (if the 1987 and 1988 tax liabilities as shown in the returns were accurate): (1) the 1985 overpayment; (2) the 1986 overpayment; (3) the 1987 credit elect overpayment; and (4) the 1988 credit elect overpayment.

In 1994, the IRS determined that Marsh had in fact underpaid its 1987 taxes by $978,135. This increase in tax was less than the amount of the 1987 credit elect overpayment. The IRS applied Marsh's 1985 overpayment and a portion of its 1986 overpayment to its 1987 tax account on March 15, 1989, the date the 1987 credit elect overpayment was applied to Marsh's 1988 tax account.

Similarly, in 1994, the IRS determined that Marsh had in fact underpaid its 1988 taxes by $2,709,087. This increase in tax was less than the amount of the 1988 credit elect overpayment. The IRS applied the remainder of Marsh's 1986 overpayment to its 1988 tax account. The actual transfers were made on September 15, 1989 (the date the 1988 credit elect overpayment was applied to the estimated tax payment for 1989), and March 15, 1990 (the date the remainder of Marsh's 1988 credit elect overpayment was applied to Marsh's 1989 tax account).

There is no dispute concerning the amount of Marsh's 1985 and 1986 overpayments, the dates that those payments were credited to later years' taxes, the amount of the 1987 and 1988 credit elect overpayments, the dates on which those credit elect overpayments were needed to satisfy later years' obligations, or the amount of Marsh's 1987 and 1988 tax liabilities. The ultimate issue concerns the amount of interest due on the 1985 and 1986 overpayments.

An "overpayment" occurs when a taxpayer "has paid as an installment of the tax more than the amount determined to be the correct amount of such installment." 26 U.S.C. § 6403 (2000). The IRS has authority to either refund or credit the overpayment to any unpaid installment. Id. Unlike credit elect overpayments, overpayments bear interest. See id. § 6611(a). For the 1985 overpayment amount and the portion of the 1986 overpayment amount credited against Marsh's 1987 tax liability, the IRS allowed interest through April 15, 1988, the due date for Marsh's 1987 tax return (plus one month).² For the portion of the 1986 overpayment amount credited against Marsh's 1988 tax liability, the IRS allowed interest through April 15, 1989, the due date for Marsh's 1988 tax return (plus one month). The government stopped the running of interest on those dates because it reasoned that overpayment interest runs only until the "due date" of a taxpayer's federal income tax return for the year to which the overpayment was applied.

The governing statute, 26 U.S.C. § 6611 (2000), entitled "Interest on overpayments," provides in relevant part that "[s]uch interest shall be allowed and paid as follows: ... In the case of a credit, from the date of the overpayment to the due date of the amount against which the credit is taken." Id. § 6611(b)(1). Treasury Regulation § 301.6611-1(h)(1) provides: "General rule. If an overpayment of tax is credited, interest shall be allowed from the date of the overpayment to the due date ... of the amount against which such overpayment is credited." 26 C.F.R. § 301.6611-1(h)(1) (2001). "Due date" is defined in subsection 301.6611-1(h)(2)(i): "In general. The term `due date,' as used in this section, means the last day fixed by law or regulations for the payment of the tax (determined without regard to any extension of time)...." Id. § 301.6611-1(h)(2)(i). For taxes reported on a return, this payment date is the last unextended date fixed for filing the return. 26 U.S.C. § 6151(a) (2000).

The parties apparently agree that, absent the credit elect overpayments, the two due dates involved here were March 15, 1988, and March 15, 1989 (i.e., the due dates for the 1987 and 1988 tax returns respectively) and that interest on the 1985 and 1986 overpayments would have ceased on those dates. Thus, the issue on appeal is the effect of the credit elect overpayments on the running of interest. It is well established that the taxpayer earns no interest on credit elect overpayments. If a taxpayer elects to credit against its estimated liability for one taxable year an overpayment shown on its return for the preceding year, it collects no interest even though at one point it has paid the IRS more than was due. 26 C.F.R. § 301.6611-1(h)(2)(vii) (2001); Martin Marietta Corp. v. United States, 216 Ct.Cl. 47, 572 F.2d 839, 841 (1978). The question is whether credit elect overpayments must be taken into account in calculating the interest due on other overpayments.

PROCEEDINGS BELOW

Marsh filed a complaint in the Court of Federal Claims seeking $833,522 in overpayment interest for the period between April 15, 1988, and March 15, 1989, for its 1985 overpayment and a portion of its 1986 overpayment; for the period between April 15, 1989, and September 15, 1989, for a portion of its 1986 overpayment; and between April 15, 1989, and March 15, 1990, for the remainder of its 1986 overpayment, the ending dates representing the dates on which the credit elect overpayments were applied to subsequent tax year liabilities. The government filed a motion for summary judgment, and Marsh filed a cross motion for summary judgment.

Marsh argued that 26 U.S.C. § 6611, which provides for the accrual of interest on overpayments "to the due date of the amount against which the credit is taken," should be construed to mean that interest runs until an account actually becomes deficient, that is, "due and unpaid." Marsh argued that its 1987 tax account was not actually deficient until March 15, 1989, when the 1987 credit elect overpayment was applied to its 1988 tax account. Similarly, Marsh argued that its 1988 tax account was not actually deficient until September 15, 1989, when a portion of its 1988 credit elect was applied to its 1989 estimated taxes, and on March 15, 1990, when the remainder of its 1988 credit elect was applied to its 1989 tax account.

The government argued that, under the plain meaning of section 6611 and Treasury Regulation § 301.6611-1(h)(2), the "due date of the amount against which the credit is taken" is the due date of a taxpayer's federal income tax return for the year to which the overpayment is applied. Marsh's 1985 overpayment and a portion of its 1986 overpayment were applied to its 1987 tax account, and the remainder of the 1986 overpayment was applied to Marsh's 1988 tax account. Marsh was required to file its 1987 tax return on March 15, 1988, and its 1988 tax return on March 15, 1989. Therefore, the government argued, Marsh was entitled to interest on its 1985 overpayment and a portion of its 1986 overpayment until March 15, 1988, and on the remainder of its 1986 overpayment until March 15, 1989.³

The Court of Federal Claims recognized that the case turned on the interpretation of section 6611, and determined that, read in isolation, the statutory language, "which is, at best, not a model of clarity," does not "yield[] a satisfactory...