Wells Fargo & Co. v. United States

• Decision Date: 29 June 2016
• Docket Number: 2015-5059
• Parties: Wells Fargo & Company, Plaintiff–Appellee v. United States, Defendant–Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

827 F.3d 1026

Wells Fargo & Company, Plaintiff–Appellee

v.United States, Defendant–Appellant.

2015-5059

United States Court of Appeals, Federal Circuit.

Decided: June 29, 2016

Gerald Kafka, Latham & Watkins LLP, Washington DC, argued for plaintiff-appellee. Also represented by Gregory G. Garre, Benjamin Snyder, Nicolle Nonken Gibbs.

Ellen Page DelSole, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Jonathan S. Cohen, Gilbert Steven Rothenberg, Caroline D. Ciraolo, Diana L. Erbsen.

Before Lourie, Hughes, and Stoll, Circuit Judges.

Stoll

, Circuit Judge.

The United States appeals from the Court of Federal Claims' order granting Wells Fargo & Company's motion for partial summary judgment and denying the government's motion for partial summary judgment. The court held that Wells Fargo's interest-netting claims under § 6621(d) of the Internal Revenue Code

(“I.R.C.”)¹ satisfy the statute's “same taxpayer” requirement. The court certified its interpretation of I.R.C. § 6621(d) for interlocutory review, and the government petitioned for permission to appeal. We granted the government's petition under 28 U.S.C. § 1292(d)(2). For the reasons below, we affirm-in-part, reverse-in-part, and remand for proceedings consistent with this opinion.

Background

Wells Fargo originally filed three administrative claims with the Internal Revenue Service seeking, among other things, refunds based on interest netting under § 6621(d)

between interest on tax underpayments and interest on tax overpayments. The IRS denied the interest netting claims at issue here. Wells Fargo then filed a complaint in the Court of Federal Claims, requesting tax refunds based on the application of interest netting under § 6621(d).

I.

Congress enacted I.R.C. § 6621(d)

to permit a taxpayer to cancel out, or “net,” interest on equivalent overpayments and underpayments. Section § 6621(d) reads:

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.

I.R.C. § 6621(d)

(emphasis added).

Absent an interest-netting provision like § 6621(d)

, a taxpayer might make equivalent underpayments and overpayments yet owe the IRS interest. This is because corporate taxpayers pay underpayment interest to the IRS at a higher rate than the IRS pays overpayment interest to corporations. See Tax Reform Act of 1986, Pub. L. No. 99–514, § 1511(a), 100 Stat. 2085, 2744. Section 6621(d) corrects this inequity by permitting taxpayers to net interest on “equivalent underpayments and overpayments by the same taxpayer.”

II.

In the decades before and after the turn of the century, Wells Fargo underwent seven mergers, resulting in the current embodiment of the company. The companies involved in these mergers made tax underpayments and overpayments. Wells Fargo seeks to net these payments under § 6621(d)

. In particular, Wells Fargo filed 64 separate claims for a refund in the Court of Federal Claims relating to these mergers and tax payments. Because of the complexity of the facts at issue, Wells Fargo and the government distilled Wells Fargo's claims into three “situations” that served as test claims for the factual and legal issues presented in the case. Wells Fargo & Co. v. United States , 117 Fed.Cl. 30, 34 (2014).

Situation One: In 1993, Old Wachovia had an overpayment. In 1999, First Union had an underpayment. Old Wachovia and First Union merged in 2001 through a statutory merger under I.R.C. § 368(a)(1)(A)

. Situation One is represented graphically below:

J.A. 1549 (annotated).

Situation Two: In 1993, First Union had an overpayment. Between 1993 and 1999, First Union underwent four mergers under I.R.C. § 368(a)(1)(A), (2)(D)

; First Union was the surviving corporation in each merger. Then, in 1999, First Union made an underpayment. Situation Two is represented graphically below:²

J.A. 1549 (annotated).

Situation Three: In 1992, CoreStates had an overpayment. In 1998, CoreStates merged with First Union under I.R.C. § 368(a)(1)(A)

. In 1999, surviving-corporation First Union made an underpayment. Situation Three is represented graphically below:

J.A. 1549 (annotated).

III.

Because § 6621(d)

allows interest netting only by the “same taxpayer,” the dispute below centered on the meaning of “same taxpayer.” Wells Fargo contended that principles of merger law made all merged corporations the “same taxpayer” under the statute, regardless of the timing of the payments or the prior identities of the corporations making them. The government countered that the taxpayers are the “same taxpayer” only if the taxpayers making the underpayments and overpayments have the same Taxpayer Identification Number (“TIN”) at the time of the payments. The government conceded that, under this definition of “same taxpayer,” the acquiring corporation and surviving corporation in Situation Two were the “same taxpayer” because the corporation making the overpayment and the corporation making the underpayment had the same TIN. The government alternatively argued that the court should decide the “same taxpayer” question on the basis of whether the corporations were the same in all relevant essentials at the time of the payments.

In a partial summary judgment order, the Court of Federal Claims held that Wells Fargo could net interest in all three situations. After considering myriad sources of authority, the court largely adopted Wells Fargo's position, holding that, under principles of merger law, merged entities are the “same taxpayer” for the purposes of § 6621(d)

. It first looked to the text of the statute to determine whether the meaning of “same taxpayer” is defined and concluded that it is not. The court explained that neither the statute nor Treasury regulations define the term “same taxpayer.” Wells Fargo , 117 Fed.Cl. at 36.

The court turned next to § 6621(d)

's legislative history to see if it defines “same taxpayer,” but concluded it does not. Nevertheless, the court found that “the legislative history reveals that Congress intended for § 6621(d) to be remedial in nature” and so “the statute must be construed broadly.” Id. (citing Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967)

). The court explained that the legislative history offered two insights into Congress's intent in enacting the statute. First, the legislative history revealed that Congress intended § 6621(d) “to provide fairness for taxpayers.” Id. (citing H.R. Rep. No. 105-364, pt. 1, at 63–64 (1997) (“[T]axpayers should be charged interest only on the amount they actually owe, taking into account overpayments and underpayments from all open years.”); S. Rep. No. 105-174, at 61 (1998)). Second, the history “ma [de] clear that Congress was aware that large corporations, like plaintiff, would be the primary beneficiaries of the provision, because only large corporations such as plaintiff would likely have multiple open years with the IRS.” Id.

The court also examined the sole Federal Circuit case interpreting § 6621(d)

's “same taxpayer” provision, Energy East Corp. v. United States , 645 F.3d 1358 (Fed. Cir. 2011). The government had argued that Energy East established that whether payments were made by the “same taxpayer” must be measured at the time of the overpayments and underpayments. But the court distinguished Energy East on the ground that it concerned a group of corporations affiliated for filing consolidated income tax returns, while Wells Fargo's netting claims implicated merged corporations. Wells Fargo , 117 Fed.Cl. at 37–39.

Because the definition of “same taxpayer” remained unclear after reviewing the text of the statute, the legislative history, and precedent, the court next turned to principles of merger law. The court explained that merger law operates to take two separate entities and merge them into one surviving corporation:

In a merger, the acquired and acquiring corporations have no post-merger existence beyond the surviving corporation; instead, they become one and the same by operation of law, and thereafter the surviving corporation is liable for the pre-merger tax payments of both the acquired and acquiring corporations. Because the surviving corporation steps into the shoes of the acquired entity and the surviving corporation is liable retroactively for the tax payments of its predecessors, it does not matter when the initial payments were made.

Id . at 38

(citing John Wiley & Sons, Inc. v. Livingston , 376 U.S. 543, 550 n. 3, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) ; Treas. Reg. § 1.368–2(b)(1)(ii) ).

The Court of Federal Claims also examined Treasury regulations and guidance from the IRS predating this case. It found that these sources authorized merged corporations to net interest. Id. at 41

. The court explained that while the guidance was not precedential, it was helpful evidence in determining the position of the IRS. Id. (citing Rowan Cos. v. United States, 452 U.S. 247, 261 n. 17, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981) (“Although these rulings have no precedential force, ... they are evidence....”); Magma Power Co. v. United States, 101 Fed.Cl. 562, 571–72 (2011) ). The court found this guidance consistent with Wells Fargo's view that merged entities are the “same taxpayer” for the purposes of the statute.

The court “conclude[d] that merged corporations are the ‘same taxpayer’ for purposes of § 6621(d)

based on the undisputed principles of corporate law, as well as IRS rules governing statutory mergers and IRS guidance.” Wells Fargo , 117 Fed.Cl. at 42. The court reasoned that an acquired corporation is the “same” as a surviving corporation under the operation of merger law. The surviving corporation takes on all of the assets and liabilities of both the acquired corporation and the acquiring corporation—the...