955 F.2d 1457 (11th Cir. 1992), 91-8248, RJR Nabisco, Inc. v. United States

Docket Nº:91-8248.
Citation:955 F.2d 1457
Party Name:RJR NABISCO, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
Case Date:March 17, 1992
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

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955 F.2d 1457 (11th Cir. 1992)

RJR NABISCO, INC., Plaintiff-Appellant,


UNITED STATES of America, Defendant-Appellee.

No. 91-8248.

United States Court of Appeals, Eleventh Circuit

March 17, 1992

Rehearing Denied April 15, 1992.

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Wayne S. Kaplan, Mayer, Brown & Platt, Chicago, Ill., Andrew L. Frey, Mayer, Brown & Platt, Washington, D.C., for plaintiff-appellant.

Gary R. Allen, Kevin M. Brown, Brian C. Griffin, Robert S. Pomerance, U.S. Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before KRAVITCH and EDMONDSON, Circuit Judges, and HENDERSON, Senior Circuit Judge.

KRAVITCH, Circuit Judge:

Plaintiff RJR Nabisco, Inc. ("Nabisco") filed an income tax action in the United States District Court for the Northern District of Georgia seeking a refund of interest it had paid under protest to the Internal Revenue Service ("IRS"). Nabisco moved for summary judgment, and the government similarly cross-motioned. The district court denied Nabisco's motion and entered an order granting summary judgment on behalf of the government. 759 F.Supp. 815. Nabisco appeals.


Prior to the 1982 changes in the Internal Revenue Code ("Code"), simple interest was assessed on any tax deficiency or tax overpayment. The accrual of compound interest was expressly prohibited by the Code. Section 344 of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") repealed this prohibition and provided that all interest assessed on tax deficiencies and overpayments would be compounded. The effective-date provision of Section 344 stated that the changes discussed within the text would "apply to interest accruing after December 31, 1982." This court must now determine whether Section 344 of TEFRA imposes compound interest on a taxpayer debt remaining unpaid after December 31, 1982, the principal portion of which had been paid previously such that the corpus of the debt consisted solely of simple interest accrued prior to January 1, 1983.


The facts in this case are not in dispute. A stipulation of facts was signed by both parties and submitted to the district court on August 31, 1990. Both sides agree that the resolution of the current controversy lies solely in the interpretation of Section 344 and not in discrepancies in the underlying factual scenario.

By means of a 1980 audit of Nabisco, the IRS assessed deficiencies in Nabisco's income tax payments for the years 1971 through 1974. Following negotiations with the appeals division of the IRS, Nabisco agreed, on July 16, 1985, to a final settlement of $51,759,762 to cover income tax deficiencies and associated penalties. Prior to the settlement, on February 1, 1982, Nabisco paid $60 million to the IRS. Under an administrative procedure existing at the time, taxpayers were permitted to make advance payments during the pendency of a tax dispute in order to terminate the running of simple interest on the disputed

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tax. Revenue Procedure 64-13, 1964-1 (Part 1) C.B. 674. In accordance with this procedure, Nabisco designated its $60 million payment as a deposit for the payment of any tax thereafter found to be due for the taxable years 1971 through 1974.

Nabisco's advance payment covered the entire amount of the tax deficiency ultimately determined to be due for the contested years. Therefore, pursuant to Section 4.01 of Revenue Procedure 64-13, the running of interest on plaintiff's tax deficiency for the 1971-1974 taxable years terminated completely. This termination reflected the law as of February 1, 1982, the date of Nabisco's advance payment. By letter dated February 8, 1982, the IRS acknowledged receipt of Nabisco's advance payment and confirmed that the running of interest on any ultimate tax deficiency satisfied by the advance payment had been terminated as of the date of the IRS's receipt of the funds.

On August 28, 1985, the IRS issued four notices concerning the tax controversies for the years 1971 through 1974. The notices applied the $60 million advance payment to the $51,759,762 tax deficiencies and penalties. 1 The notices also set forth the interest that the IRS claimed to be due on the agreed tax deficiencies. This interest consisted of two components. The first component is not in dispute here. That amount, $33,253,265.41, was simple interest computed from the date of the deficiencies through the advance payment date of February 1, 1982.

The second component consisted of compound interest computed on the outstanding simple interest of $33,253,265.41 that had ceased accruing on February 1, 1982. The compounding began January 1, 1983 and ended August 28, 1985, the date of the IRS's statement of taxes due. The aggregate compound interest amount for the four years was $12,861,568.13.

The IRS found authority for the imposition of compound interest under Section 6622(a) of the Code, which provides that any interest required to be paid under the Code be compounded daily. 26 U.S.C. 6622(a). Section 6622(a) was added to the Code by Section 344 of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). Pub.L. No. 97-248, 96 Stat. 324, 635 (1982). Under an effective-date provision set forth in Section 344(c) of TEFRA, the compounding rule of Section 6622(a) would apply "to interest accruing after December 31, 1982." 26 U.S.C. 6622 note.

On September 6, 1985, plaintiff paid the IRS $46,114,733.54, the full amount of interest, simple and compound, described in the notices of August 28, 1985. No additional interest was assessed for the period from the notice date of August 28, 1985 through the payment date of September 6, 1985 because Nabisco's payment was made within ten days of the IRS' notice in accordance with Section 6601(e)(3) of the Code.

On January 7, 1986, Nabisco submitted written claims to the IRS for refund of the compound interest amounts included in Nabisco's September 6 payment. The IRS denied Nabisco's claims for refund. Plaintiff then instituted the present action in the federal courts.


Because this case involves an appeal from a summary judgment, we review the claims de novo. Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1570 (11th Cir.1991). In determining whether summary judgment is appropriate, we apply the same legal standards that control the district court. Buxton v. City of Plant City, 871 F.2d 1037, 1040 (11th Cir.1989).

IV. THE STATUTE: I.R.C. § 6622

The resolution of the dispute depends upon the interpretation of an effective date provision of a Section of the Internal Revenue Code. More specifically, we must determine whether compound interest should be assessed on a certain taxpayer debt pursuant to Section 6622 of the Code when that debt consists only of interest

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and not of principal or whether that debt is exempt from such interest under the former simple-interest regime.

Simple interest is calculated only on an outstanding principal debt. Compound interest, on the other hand, is calculated on an outstanding principal amount as well as any interest owed but unpaid at the date of the calculation. When compound interest is calculated, the only number examined is the entire debt owed by the taxpayer; what that debt consists of is irrelevant. In contrast, under a simple-interest regime, the only relevant number for purposes of calculating interest owed is the outstanding principal amount, regardless of how far interest payments are in arrears.

  1. Text and Legislative History

    Section 344 of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") added Section 6622 to the Internal Revenue Code. This new Section repealed the prior statute that subjected tax deficiencies to simple interest and that specifically prohibited the imposition of compound interest on such deficiencies. Under the new statute, all tax deficiencies are subject to compound interest:


    (a) GENERAL RULE.--In computing the amount of any interest required to be paid under this title ... such interest and such amount shall be compounded daily.

    Section 6622 note set forth the effective date for the new regime:

    EFFECTIVE DATE.--The amendments made by this Section shall apply to interest accruing after December 31, 1982.

    § 344 of TEFRA, Public No. 97-248, 96 Stat. 324, 635-36 (1982).

    Until the passage of TEFRA in 1982, tax deficiencies were subject only to simple interest. I.R.C. § 6601. Interest accrued only on the unpaid principal amount, not on any accrued but unpaid interest amount. In fact, the old Code specifically prohibited any compounding of interest: "No interest under this Section shall be imposed on the interest." I.R.C. § 6601(e)(2) (in effect before TEFRA). This prohibition was removed by Section 6601(e)(2) of the new Code.

    In addition, an administrative procedure in effect under the old regime provided that an advance payment by a taxpayer to cover a principal obligation terminated the running of interest even if the interest owed on that debt was left unpaid. 2

  2. Plain Meaning

    The first step in any question of statutory interpretation must be an examination of the language of the statute itself. Greyhound Corp. v. Mt. Hood Stages, Inc., 437 U.S. 322, 330, 98 S.Ct. 2370, 2375, 57 L.Ed.2d 239 (1978) (citing Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472, 97 S.Ct. 1292, 1300, 51 L.Ed.2d 480 (1977) and Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 1383, 47 L.Ed.2d 668 (1976)). If this language is unambiguous, the courts must enforce the statute as written absent a clearly expressed legislative intent to the contrary. United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980); Birmingham Trust Nat'l...

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