Federal Nat. Mortg. Ass'n v. U.S., 03-5162.

• Citation: 379 F.3d 1303
• Decision Date: 12 August 2004
• Docket Number: No. 03-5162.,03-5162.
• Parties: FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

379 F.3d 1303

FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff-Appellee, v. UNITED STATES, Defendant-Appellant.

No. 03-5162.

United States Court of Appeals, Federal Circuit.

DECIDED: August 12, 2004.

Appeal from the United States Court of Federal Claims, John P. Wiese, J.

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Alan I. Horowitz, Miller & Chevalier, Chartered, of Washington, DC, argued for plaintiff-appellee. With him on the brief was Thomas D. Johnston.

Ellen Page Delsole, Attorney, Tax Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With her on the brief were Eileen J. O'Connor, Assistant Attorney General, Richard T. Morrison, Deputy Assistant Attorney General, and Richard Farber, Attorney.

Before MICHEL, SCHALL, and DYK, Circuit Judges.

MICHEL, Circuit Judge.

Federal National Mortgage Association ("FNMA") filed this tax refund action to recover overpayment interest, invoking a statutory "Special Rule" that permits taxpayers to request retroactive application of an Internal Revenue Code provision requiring the Internal Revenue Service ("IRS") to apply a zero net interest rate to overlapping periods of mutual taxpayer and IRS indebtedness. On the parties' cross-motions for partial summary judgment, the United States Court of Federal Claims held that FNMA was entitled to the interest it claimed. Fed. Nat'l Mortgage Ass'n v. United States, 56 Fed.Cl. 228 (2003). The Court of Federal Claims failed to correctly construe the contested statute in accordance with principles of sovereign immunity requiring express waiver. Accordingly, we reverse the judgment in favor of FNMA and remand for fact-finding as discussed herein.

BACKGROUND

Formerly a federal government agency, FNMA is a private, for-profit entity that provides liquidity for mortgage investments. FNMA had a series of tax disputes with the government during the 1980s and early 1990s. One such dispute was resolved in 1994 by the Tax Court, which determined that FNMA had overpaid its 1974 income taxes by $81,760,551 and its 1975 income taxes by $51,691,622. Fed. Nat'l Mortgage Ass'n v. Commissioner, No. 21557-86 (T.C. Feb. 23, 1994). The IRS refunded the amounts overpaid, together with overpayment interest, in several installments between August 1994 and November 1996.

Meanwhile, in 1990 and 1992, respectively, FNMA made tax and deficiency interest payments to the IRS as a consequence of income tax underpayments for the 1983 and 1986 tax years. The periods during which the IRS owed FNMA refunds of overpaid tax (for 1974 and 1975) plus overpayment interest overlapped with the periods during which FNMA owed the IRS for the 1983 and 1986 deficiencies. During the periods of overlap, FNMA owed no net tax. A net liability for FNMA arose for each overlap period,¹ nonetheless, because the IRS charges taxpayers a higher interest rate on underpayments than it pays in overpayment interest.

Section 6621(d) of the Internal Revenue Code was enacted in 1998 as part of the IRS Restructuring and Reform Act of 1998 ("the RRA"), Pub. L. No. 105-206, 112 Stat. 685 (codified at 26 U.S.C. § 6621(d)). It requires the IRS to apply a zero net interest rate to overlapping periods of mutual indebtedness between a taxpayer and the IRS, as follows:

Elimination of interest on overlapping periods of tax overpayments and underpayments. — 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.

26 U.S.C. § 6621(d) (2000).² This provision applies to interest accrued after the RRA's July 22, 1998 date of enactment. However, the RRA's uncodified special rule allows taxpayers to request that a zero net interest rate be applied to pre-July 22, 1998 periods of overlapping mutual indebtedness in some circumstances:

Special Rule. — Subject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment, the amendments made by this section shall apply to interest for periods beginning before the date of the enactment of this Act if the taxpayer —

(A) reasonably identifies and establishes periods of such tax overpayments and underpayments for which the zero rate applies; and

(B) not later than December 31, 1999, requests the Secretary of the Treasury to apply section 6621(d) of the Internal Revenue Code of 1986 ... to such periods.

Pub. L. No. § 105-206, 3301(c)(2), 112 Stat. 685, 741 (1998), amended by Pub.L. No. 105-277, § 4002(d), 112 Stat. 2681, 2681-906 (1998). FNMA filed an administrative claim with the IRS pursuant to section 6621(d) and the special rule for the application of a zero net interest rate to the overlapping periods at issue here in December 1999. The IRS disallowed FNMA's claim on June 7, 2000.³ It cited its Revenue Procedure 99-43, which interprets the special rule as requiring that "both periods of limitation applicable to the tax underpayment and to the tax overpayment ... must have been open on July 22, 1998." Rev. Proc. 99-43, 1999-47 I.R.B. 579, 1999 WL 1019050. The IRS concluded that the limitations periods for the 1983 and 1986 (underpayment) years had expired.⁴ It determined, therefore, that FNMA's claim did not satisfy the requirements of the special rule.

FNMA then filed the present refund action pursuant to 28 U.S.C. § 2411. The parties premised their cross-motions for partial summary judgment on their differing interpretations of the "[s]ubject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment" condition in the special rule.⁵ FNMA argued that retroactive application of section 6621(d) via the special rule is available where the limitations period for either the overpayment period or the underpayment period had not expired as of July 22, 1998. The government argued that the special rule authorizes interest netting for pre-July 22, 1998 periods only if both limitations periods had not expired.

In a very careful and thorough opinion, the Court of Federal Claims granted summary judgment in favor of FNMA, holding that "the special rule applies as long as at least one of the applicable statutes of limitations remains open." Fed. Nat'l Mortgage, 56 Fed.Cl. at 238. It concluded that "it is impossible to tell from the plain language of the statute" which interpretation Congress intended, id. at 234, and discerned no guidance from the "sparse" and "ambiguous" legislative history, id. at 237-38. It held that no deference was due the IRS interpretation set forth in Revenue Procedure 99-43 under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), or Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944). It found, however, "compelling principles supporting the conclusion" it reached, including "a long-standing rule of statutory construction" that "doubt [in matters of statutory interpretation] be resolved against the government and in favor of the taxpayer" together with "the principle that remedial statutes should be interpreted broadly in order to effectuate congressional goals." Fed. Nat'l Mortgage, 56 Fed. Cl. at 239.

This appeal followed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).

DISCUSSION

"We review the Court of Federal Claims' grant of summary judgment without deference." Agwiak v. United States, 347 F.3d 1375, 1377 (Fed.Cir.2003).

I.

As the Court of Federal Claims noted, statutory interpretation begins with the language of the statute. Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001). Here, however, we agree that the language at issue — "[s]ubject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment" — is equally subject to both proffered interpretations, the parties' efforts to persuade us to the contrary notwithstanding.

We further agree that Revenue Procedure 99-43 is not entitled to Chevron deference. The Court of Federal Claims correctly noted that an agency pronouncement not promulgated pursuant to an explicit or implicit congressional delegation of law-making authority is not entitled to deference under Chevron. Fed. Nat'l Mortgage, 56 Fed. Cl. at 235 (citing United States v. Mead Corp., 533 U.S. 218, 229, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001)). The government argues that a revenue procedure qualifies for Chevron deference, noting that all IRS "forms of agency interpretation — Treasury Regulations, revenue rulings, and revenue procedures" — are promulgated with a comparable degree of formality and care, and that there is, therefore, no sound basis for distinguishing between Treasury Regulations and other IRS pronouncements. Cf. United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 218-20, 121 S.Ct. 1433, 149 L.Ed.2d 401 (2001) (affording Treasury Regulation "substantial judicial deference"). As the Court of Federal Claims observed, however, "the issue is not whether the IRS voluntarily subjected Revenue Procedure 99-43 ... to a measure of formalized review[, but] whether Congress intended for the IRS to do so." Fed. Nat'l Mortgage, 56 Fed. Cl. at 236. Furthermore, the IRS' limited solicitation of public comment did not extend to the statute of limitations issue.⁶

The government notes that we have left undecided the question of whether revenue rulings are "entitled to Chevron deference in accordance with" Mead. Am. Mut. Life Ins. Co. v. United States, 267 F.3d 1344, 1352-53 n. 3 (Fed.Cir.2001). Even assuming, however, that revenue rulings may, in some circumstances, qualify for deference under Chevron, the pronouncement at issue here is a revenue procedure, not a revenue ruling. The government asks that we ignore the distinction between the...