Northern States Power Co. v. U.S., 95-1306MN

• Decision Date: 02 January 1996
• Docket Number: No. 95-1306MN,95-1306MN
• Citation: 73 F.3d 764
• Parties: -323, 64 USLW 2430, 96-1 USTC P 50,022 NORTHERN STATES POWER COMPANY, a Minnesota Corporation, and Northern States Power Company, a Wisconsin Corporation, Appellees, v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 764

73 F.3d 764

77 A.F.T.R.2d 96-323, 64 USLW 2430,

96-1 USTC P 50,022

NORTHERN STATES POWER COMPANY, a Minnesota Corporation, and Northern States Power Company, a Wisconsin Corporation, Appellees, v. UNITED STATES of America, Appellant.

No. 95-1306MN.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 16, 1995.

Decided Jan. 2, 1996.

Charles Bricken, argued, Washington, DC (Gary R. Allen and Bruce R. Ellisen, on the brief) for appellant.

Steven Z. Kaplan, argued, Minneapolis, MN (Richard D. Snyder and David A. Lawrence, on the brief) for appellees.

Before RICHARD S. ARNOLD, Chief Judge, WOLLMAN and MORRIS SHEPPARD ARNOLD, Circuit Judges.

RICHARD S. ARNOLD, Chief Judge.

This case presents a narrow and interesting question about how to interpret several provisions of the Internal Revenue Code. The United States appeals from the District Court's tax-refund award to Northern States Power Company and one of its subsidiaries (collectively, "NSP"). The District Court granted NSP's motion for summary judgment, and held that NSP was entitled to have the interest on its tax refunds computed by offsetting, or "netting," its tax underpayments in 1980, 1983, and 1984 against its overpayments in 1981 and 1982. This "netting" approach eliminates the expensive--for NSP--effect of a one per cent. difference between the interest rates on overpayments and underpayments, that is, between what the Government pays and what it earns. ¹ The United States argues that the tax laws give the IRS discretion to credit a taxpayer's overpayment against the same taxpayer's outstanding liability, and that overpayments and underpayments may be "netted" for interest-calculation purposes only when the IRS decides to make such a credit. We agree, and reverse.

I.

The relevant facts of this case are not contested. In 1990, after an audit, the IRS rejected several of NSP's claimed deductions and assessed tax deficiencies against NSP for 1980, 1981, 1983, and 1984. That same year, NSP paid the IRS over $23 million for the deficiencies, plus interest. NSP then filed amended returns, asserting previously unclaimed tax credits for 1981, 1982, and 1984, and brought this case, seeking refunds based on these credits.

In 1994, NSP and the IRS settled most of their disputes. They agreed that NSP had overpaid its taxes in 1981 and 1982, but underpaid in 1980, 1983, and 1984. And because the agreed-upon deficiencies for 1980, 1983, and 1984 were smaller than was thought when NSP paid its $23 million deficiency, it turns out NSP actually overpaid for all five years. ² So the parties agree that NSP is entitled to refunds plus interest for all five years in question (1980-84). Here, however, NSP and the IRS part company; they do not agree on how to calculate the interest due on the refund. This disagreement is the subject of this appeal.

What makes this case interesting is the gap between the interest rates on underpayments and overpayments. See I.R.C. (26 U.S.C.) Sec. 6621(a). If interest accrued on underpayments and overpayments at the same rate, the parties' disagreement would evaporate. That is, it would make no difference if underpayments and overpayments were "netted," and the applicable interest rate then applied to the difference, or if interest accrued, at the applicable rates, simultaneously and separately on the overpayments and the underpayments. Either way, it would all come out in the wash. But the rates are not the same, so netting can, in some cases, save--or cost--a great deal. ³

In this case, before NSP paid the deficiencies in 1990, it had overpaid in 1981 and 1982 more than it underpaid in 1980, 1983, and 1984. The United States argues that the interest due NSP should be calculated separately for each of the tax years in question. But NSP insists the IRS should credit its 1981 and 1982 overpayments against its 1980, 1983, and 1984 underpayments as of the time the underpayments arose. If the IRS takes this "netting" approach, the interest rate gap does not come into play because, on balance, NSP was, during the relevant years, the United States' creditor, not debtor.

II.

A.

The District Court granted NSP's motion for summary judgment, and held that NSP is "entitled to have the interest on its tax refunds for 1980 through 1984 computed by netting the 1981 and '82 overpayments against the '80, '83, and '84 underpayments." The Court agreed with NSP that the 1986 Tax Reform Act, Pub.L. No. 99-514, Sec. 1511(b), 100 Stat. 2085, showed Congress's "specific concern about potential unfairness to taxpayers, [who] had an overpayment in one year and an underpayment in another...." The Court stated that "[t]he legislative history which accompanies the Act is explicit in providing that the Service should adopt and implement computerized netting procedures" to "eliminate the unfairness" caused by the higher interest rate for underpayments. Without disparaging the Court's unease with what it perceived to be IRS overreaching, we disagree with its decision. We think this case is controlled by the text of the Internal Revenue Code, not by the Tax Reform Act's, or any other, legislative history. ⁴

B.

Our analysis starts, and in this case ends, with the statutes themselves. See Staples v. United States, --- U.S. ----, ----, 114 S.Ct. 1793, 1797, 128 L.Ed.2d 608 (1994) (a statute's language is "the starting place in [a court's] inquiry"); Arkansas AFL-CIO v. F.C.C., 11 F.3d 1430, 1440 (8th Cir.1993) (when Congress's intent is clear from the words of the statute, that is the "end of the judicial inquiry"). We think that when, as here, the statutes are straightforward and clear, legislative history and policy arguments are at best interesting, at worst distracting and misleading, and in neither case authoritative. See Davis v. Michigan Dept. of the Treasury, 489 U.S. 803, 808 n. 3, 109 S.Ct. 1500, 1504 n. 3, 103 L.Ed.2d 891 (1989) ("Legislative history is irrelevant to the interpretation of an unambiguous statute."); United States v. Field, 62 F.3d 246, 249 (8th Cir.1995) (when the statutory language is not ambiguous, there is "no need to search for clues to Congress' intent in the legislative history").

As both parties recognize, the Internal Revenue Code does provide for the type of "netting" sought by NSP in this case. Under Section 6601(f) of the Code (26 U.S.C.):

If any portion of a tax is satisfied by credit of an overpayment, then no interest shall be imposed under this section on the portion of the tax so satisfied for any period during which, if the credit had not been made, interest would have been allowable with respect to such overpayment.

So, the IRS may credit a taxpayer's overpayments against its underpayments and thereby sidestep the effect of Section 6621's interest-rate gap. But must it do so in this case?

Section 6601(f)'s netting provision is an exception to the general rules for calculating interest on overpayments and underpayments. See I.R.C. Secs. 6601(a); 6611(a), (b)(1), (2). ⁵ The statute makes it plain that its netting provision comes into play "[i]f any portion of a tax is satisfied by credit of an overpayment." Turning next to Section 6402(a) (Authority to Make Credits or Refunds), we find this provision:

General Rule.--In the case of any overpayment, the Secretary, within the applicable period of limitations, may credit the amount of such overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall, subject to subsection (c) and (d), refund any balance to such person (emphasis added).

Accordingly, the applicable Treasury regulation states that "[t]he Commissioner ... may credit any overpayment of tax, including interest thereon, against any outstanding liability ... owed by the person making the overpayment...." 26 C.F.R. Sec. 301.6402-1 (1995) (emphasis added).

We agree with the United States that the word "liability" in Section 6402 means "outstanding liability," one that is unpaid when the credit is made. The Treasury regulations support this reading, see 26 C.F.R. Sec. 301.6402-1 (referring to an "outstanding liability"), and we properly defer to these regulations. See Cottage Savings Ass'n v. Commissioner, 499 U.S. 554, 560-61, 111 S.Ct. 1503, 1507-08, 113 L.Ed.2d 589 (1991) (courts "must defer to [the Commissioner's] regulatory interpretations of the Code so long as they are reasonable"); Miller v. United States, 65 F.3d 687, 689 (8th Cir.1995) (same). This is also the reading that makes the most sense, because only an outstanding liability can be "satisfied" by a credit. See I.R.C. Sec. 6601(f). NSP provides no support, other than a strained reading of miscellaneous bits of legislative history, for its assertion that Section 6402(a) is somehow "time-neutral," that a "liability" may be one that no longer exists, but once did. We think this argument withers before the statute's plain meaning. We are likewise not convinced by NSP's attempt to read the word "outstanding" out of the relevant Treasury regulation, 26 C.F.R. Sec. 301.6402-1. In our view, the regulation means what it says.

So there must be an outstanding tax liability, against which an overpayment may be credited, before Section 6402's netting exception comes into play. But even assuming such a liability, the IRS has discretion whether to credit an overpayment to that liability or not. Section 6402 is clear: the IRS "may credit the amount of such overpayment ... against any liability." See, e.g., In re Ryan, 64 F.3d 1516, 1523 (11th Cir.1995) ("[Section 6402], plainly gives the IRS the discretion to apply overpayments to any tax liability."); Pettibone Corp. v. United States, 34 F.3d 536, 538 (7th Cir.1994) (statute "leaves to the Commissioner's discretion whether to apply overpayments to delinquencies or to refund them to the taxpayer"); Estate of Bender v. Commissioner, 827 F.2d 884, 887 (3d Cir.1987) (discretionary...