Tualatin Valley Builders Supply, Inc. v. U.S.

Decision Date10 April 2008
Docket NumberNo. 05-36173.,05-36173.
Citation522 F.3d 937
PartiesTUALATIN VALLEY BUILDERS SUPPLY, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Marc K. Sellers, Schwabe Williamson & Wyatt, P.C., Portland, OR, for the plaintiff-appellant.

David I. Pincus and Samuel A. Lambert, Tax Division, Department of Justice, Washington, DC, for the defendant-appellee.

Appeal from the United States District Court for the District of Oregon; Ancer L. Haggerty, District Judge, Presiding. D.C. No.CV-04-01581-HA.

Before: DIARMUID F. O'SCANNLAIN, SUSAN P. GRABER, and CONSUELO M. CALLAHAN, Circuit Judges.

Opinion by Judge GRABER; Specia; Concurrence by Judge O'SCANNLAIN.

GRABER, Circuit Judge:

The main question before us is whether the Internal Revenue Service ("IRS") exceeded its statutory authority when it promulgated Revenue Procedure 2002-40.1 We hold that the IRS acted within its authority. Because Plaintiff Tualatin Valley Builders Supply, Inc., failed to meet the Revenue Procedure's deadline for claiming the benefit of a temporary five-year net operating loss carryback, we affirm the district court's grant of summary judgment to the United States.

FACTUAL AND PROCEDURAL BACKGROUND

The material facts are not in dispute. Plaintiff is a dissolved Oregon corporation that has completed a Chapter 11 bankruptcy proceeding. Plaintiff's 2001 tax year ended on March 31, 2001. On its 2001 income tax return, timely filed in December 2001, Plaintiff claimed a net operating loss of about $5 million.2

On the same date that it filed its 2001 income tax return, Plaintiff filed for a "quick refund" for tax year 1999.3 Plaintiff's 1999 quick refund application used a net operating loss carryback from 2001. When Plaintiff filed that application, its 2001 net operating loss could be carried back only two years. I.R.C. § 172(b)(1)(A) (2001).4 The IRS allowed Plaintiff's tentative adjustment for 1999.

On March 9, 2002, a few months after Plaintiff filed its 2001 income tax return and application for a quick refund, Congress amended § 172 of the Internal Revenue Code to provide a five-year net operating loss carryback period for tax years ending in 2001 and 2002. Job Creation and Worker Assistance Act of 2002 ("JCWA Act"), Pub.L. No. 107-147, § 102(a), 116 Stat. 25-26, codified at I.R.C. § 172(b)(1)(H).5 Congress also provided that a taxpayer could elect not to take advantage of the new five-year carryback provision. Such an election would be allowed "in such manner as may be prescribed by the Secretary [of the Treasury] and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss." Id. § 102(b), codified at I.R.C. § 172(j). Once made, the election would be irrevocable. Id.

Because the JCWA Act amended the Internal Revenue Code in March 2002 but applied to tax years ending in 2001 and 2002, some taxpayers—like Plaintiff—already had established their tax positions for 2001 or 2002. In mid-2002, therefore, the IRS released Revenue Procedure 2002-40, which outlined procedures for implementing the five-year carryback period for those taxpayers. Rev. Proc.2002-40, §§ 1, 4-7. Generally, taxpayers wishing to change their tax positions were required to do so on or before October 31, 2002. Id. § 7.03.

On January 7, 2003, more than two months after the deadline established by the Revenue Procedure, Plaintiff filed an amended 1996 corporate income tax return in which it carried back its 2001 net operating loss. On that amended return, Plaintiff claimed a refund of income taxes, with interest, after applying a five-year carryback of its 2001 net operating loss. The IRS disallowed Plaintiff's refund claim because Plaintiff already had elected to carryback the 2001 net operating loss to tax year 1999, and Plaintiff had failed to file a change of position by October 31, 2002, as required by Revenue Procedure 2002-40. Through its liquidation plan agent, Plaintiff then brought this action, pursuant to 28 U.S.C. § 1346(a)(1), seeking a refund for 1996.

On cross-motions for summary judgment, the district court denied Plaintiff's claim for a refund. The court held that the IRS validly set the October 31, 2002, deadline in Revenue Procedure 2002-40, explaining:

The court construes this language [in I.R.C. § 172(j)]"such election shall be made in such manner as may be prescribed by the Secretary" (emphasis provided)—as plainly bestowing upon the IRS the explicit authority to determine how and when such elections can be made. The IRS did so by publishing Revenue Procedure 2002-40. The instructions prescribed by the Secretary establish the deadline of October 31, 2002, for electing to invoke the five-year carryback. Plaintiff failed to meet this deadline.

Plaintiff timely appealed.

STANDARD OF REVIEW

We review de novo both a district court's grant of summary judgment and a district court's interpretation of the Internal Revenue Code. Abelein v. United States, 323 F.3d 1210, 1213 (9th Cir.2003).

DISCUSSION

On appeal, Plaintiff makes two arguments. First, it argues that Revenue Procedure 2002-40 was an impermissible exercise of the agency's authority and an incorrect interpretation of JCWA Act § 102. Second, Plaintiff contends that, even if Revenue Procedure 2002-40 is valid, Plaintiff timely filed a refund claim under § 6511(d)(2)(A) of the Internal Revenue Code.6 As part of this second argument, Plaintiff contends that § 6511(d)(2)(B)(i), which mandates that a refund generally should be allowed even if otherwise prevented by operation or rule of law, trumps Revenue Procedure 2002-40 and its deadline of October 31, 2002.

In response, the government argues that Revenue Procedure 2002-40 is entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The Revenue Procedure, it contends, was promulgated pursuant to an express delegation of authority; and, in any event, Congress later authorized and endorsed the Revenue Procedure, including its deadline, when it amended the five-year carryback rule as part of the Working Families Tax Relief Act of 2004, Pub.L. No. 108-311, § 403(b)(2), 118 Stat. 1166, 1187. The government also argues that § 6511(d)(2)(B)(i) serves the specific purpose of permitting a net operating loss carryback to a year closed by litigation, which is not the situation here.

A. Revenue Procedure 2002-40

Statutory interpretation begins with the text of the enactment. Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001). If "Congress has directly spoken to the precise question at issue[,] . . . that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. If Congress has not spoken directly to the precise question at issue, we must decide how much weight to accord an agency's interpretation.

The text of JCWA Act § 102 creates a five-year net operating loss carryback period for losses arising in tax year 2001 or 2002 and gives taxpayers an opportunity to elect out of that five-year period. The statute is silent, though, on how to treat taxpayers who already had elected a two-year net operating loss carryback. Both I.R.C. § 172(j) and a related Congressional Letter7 gave authority to the IRS to promulgate implementing rules. See I.R.C. § 172(j)(providing that a taxpayer's "election shall be made in such manner as prescribed by the Secretary"); Congressional Letter (stating that "it is the intent of Congress that such revocation be made in such manner as prescribed by the Secretary" and "[w]e trust that this letter provides sufficient clarification so that guidance can be issued in a manner that fully reflects Congressional intent").

Generally, when Congress has "explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation," and "[s]uch legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778. The government contends that Revenue Procedure 2002-40 satisfies the requirements for, and is entitled to, Chevron deference. If the government is correct, then "a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." Id. at 844, 104 S.Ct. 2778.

But not all agency determinations are accorded Chevron deference. "[A]gencies charged with applying a statute necessarily make all sorts of interpretive choices, and . . . not all of those choices bind judges to follow them." United States v. Mead Corp., 533 U.S. 218, 227, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001). Even where not binding, those agency choices "certainly may influence courts facing questions the agencies have already answered." Id. In such an instance, "[t]he fair measure of deference to an agency administering its own statute has been understood to vary with circumstances." Id. at 228, 121 S.Ct. 2164. Generally referred to as Skidmore deference, the weight given to the agency's interpretation depends on "the degree of the agency's care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency's position." Id. (footnotes omitted) (citing Skidmore v. Swift & Co., 323 U.S. 134, 139-40, 65 S.Ct. 161, 89 L.Ed. 124 (1944)).

Our case law leaves unresolved the question whether a revenue procedure should receive Chevron or Skidmore deference. Compare Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004, 1012 (9th Cir.2002) (granting Chevron deference to an informal policy statement from the Department of Housing and Urban Development), wit...

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