Computervision Corp. v. U.S.

• Decision Date: 20 April 2006
• Docket Number: No. 05-5014.,05-5014.
• Citation: 445 F.3d 1355
• Parties: COMPUTERVISION CORPORATION, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

445 F.3d 1355

COMPUTERVISION CORPORATION, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 05-5014.

United States Court of Appeals, Federal Circuit.

April 20, 2006.

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John S. Brown, Bingham McCutchen LLP, of Boston, Massachusetts, argued for plaintiff-appellant. With him on the brief were George P. Mair, Donald-Bruce Abrams and Matthew D. Schnall.

Bruce R. Ellisen, Attorney, Tax Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Eileen J. O'Connor, Assistant Attorney General; Richard T. Morrison, Deputy Assistant Attorney General; and Gilbert S. Rothenberg and Francesca U. Tamami, Attorneys.

Before NEWMAN, RADER, and DYK, Circuit Judges.

DYK, Circuit Judge.

Computervision Corporation ("Computervision") appeals the decision of the United States Court of Federal Claims which held that Computervision is not entitled to a refund of deficiency interest assessed and paid with respect to its 1982 tax year. The court granted the United States' motion to dismiss on the ground that the statute of limitations barred an interest suspension claim because the plaintiff failed to file a claim with the Internal Revenue Service ("IRS") until more than 10 years after the expiration of the two year limitation period of 26 U.S.C. § 6511(a). The court also held that an interest netting claim failed to state a claim because the requirements of 26 U.S.C. § 6621(d) were not met under our decision in Federal National Mortgage Ass'n v. United States, 379 F.3d 1303 (Fed.Cir.2004). We affirm.

BACKGROUND

The facts of this case are not in dispute. On September 14, 1983, Computervision, a manufacturer of computer-aided manufacturing products, overpaid its tax liability shown on its 1982 return by $4,750,231, and elected to apply this overpayment to its 1983 tax year.¹ On September 17, 1984, Computervision overpaid the amount of taxes shown on the 1983 return by $7,329,276, and again elected to apply this overpayment to the following year, the 1984 tax year. Finally, on July 2, 1985, Computervision filed a return for the 1984 tax year showing an overpayment of $7,166,031, and requested a refund of the entire amount. The IRS paid the refund, without interest, on August 2, 1985.

Following an audit, the IRS issued an "examination report" on January 7, 1986, in which it asserted that the taxpayer's 1982 return had understated its tax liability and proposed a deficiency of $6,224,982 for the 1982 tax year. A portion of this deficiency resulted from the IRS's determination that a subsidiary of Computervision, Computervision International, Inc. (CVI), did not qualify as a domestic international sales corporation, or DISC, during the 1983 tax year. See 26 U.S.C. § 992(a)(1) (1982).² Another portion of the deficiency concerned what we refer to as non-DISC issues.

On April 11, 1986, Computervision submitted a protest regarding the IRS's position with respect to the 1982 tax year to the Boston Appeals Office of the IRS, disputing among other issues the determination that CVI was not a DISC. The non-DISC issues in the examination report were resolved by an agreement that the tax liability relating to the non-DISC issues was $2,215,952.³ The IRS proposed a total 1982 tax deficiency of $7,886,409. Of that amount, $5,670,457 was attributable to the DISC issue, and $2,215,952 to non-DISC issues.

A 1985 net operating loss carryback eliminated all of the proposed 1982 deficiency (except for a deficiency of $37,776 attributable to investment tax credit recapture). However, the carryback did not eliminate Computervision's liability for interest which had accrued on the 1982 deficiency. On June 3, 1988, the IRS assessed Computervision deficiency interest totaling $4,095,974.42, plus tax in the amount of $37,776. After corrections, the $4,095,974 interest assessment was revised to $4,063,073. Importantly for purposes of this appeal, the $4,063,073 interest assessment included (1) interest in the amount of $2,808,888 attributable to the still-disputed DISC qualification issue, and (2) interest in the amount of $1,254,186 attributable to the resolved non-DISC issues. The IRS computed the deficiency interest based on the entire 1982 deficiency amount, from the due date of the 1982 return to the due date of the 1985 return (when the NOL carryback offset the deficiency). Computervision paid the $37,776 tax deficiency on March 7, 1989. Computervision eventually also paid the deficiency interest claimed by the IRS, with the final payment of $4,045,011.64 occurring on April 28, 1989.

The statute bars suit for recovery of the deficiency interest unless "a claim for refund... has been duly filed with the [IRS]...." 26 U.S.C. § 7422(a) (2000). A claim is timely filed if filed "within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever... expires the later ...." 26 U.S.C. § 6511(a). Within two years of the final payment, on August 4, 1989, Computervision filed a refund claim with the IRS (the "original refund claim"), in which it claimed "that portion of the interest relating to the [DISC] disqualification issue" for the 1982 tax year. The refund claim specifically requested $2,808,888, the amount of interest assessed by the IRS on the DISC tax liability. The refund claim also included a boilerplate provision stating that:

Computervision claims as a basis for the refund of the interest paid with respect to its 1982 taxable year such other grounds as are shown to be appropriate by the tax returns, books and records and the Examination Report and related Protest of Computervision and [CVI] for their respective tax years ended December 31, 1982, and January 31, 1983.

J.A. at 1228.

Section 6532 allows the taxpayer to commence suit six months after filing a refund claim if the IRS fails to disallow the claim during that time. 26 U.S.C. § 6532(a). By April 4, 1990, the IRS had not acted on the matter, so Computervision filed a complaint in the Court of Federal Claims. The complaint alleged that "Computervision is aggrieved by the defendant's failure to refund the interest attributable to the purported disqualification of [CVI] as a DISC."

Meanwhile, on November 4, 1993, Computervision filed a petition in the United States Tax Court disputing deficiencies that were assessed for two different tax years, 1983 and 1984 — primarily on the theory that the IRS had improperly denied DISC treatment for those years. Proceedings in the Court of Federal Claims relating to the 1982 tax year interest assessment were stayed pending the resolution of the DISC issue by the Tax Court, apparently on the theory that the DISC determination for the 1983 and 1984 tax years would also resolve the issue for the 1982 tax year. On March 18, 1996, the Tax Court ruled in Computervision's favor on the DISC issue, holding that CVI qualified as a DISC. Computervision Int'l Corp. v. Comm'r, 71 T.C.M. (CCH) 2450 (1996). The Tax Court's decision on the DISC issue became final on May 25, 1998.⁴

Following the resolution of the DISC issue by the Tax Court, the Court of Federal Claims lifted its stay with respect to the 1982 tax year proceedings on June 22, 1998. Computervision and the Department of Justice ("DOJ") engaged in settlement negotiations relating to the 1982 DISC issue. On July 22, 1998, Congress enacted a new provision of 26 U.S.C. § 6621, requiring interest netting, that is, requiring the IRS to "apply a zero net interest rate to overlapping periods of mutual indebtedness between a taxpayer and the IRS." Fed. Nat. Mortgage Assn. v. United States, 379 F.3d 1303, 1306 (2004) (describing 26 U.S.C. § 6621(d)). In May 2, 2000, letters to both DOJ and the IRS, Computervision claimed the right to a refund of non-DISC interest based on the theory of interest netting under 6621(d). Computervision did not in these letters assert a claim for interest suspension. The IRS replied on August 17, 2000, treating the claim as including an interest suspension claim for 1982. Specifically, the IRS's August 17 letter stated "Revenue ruling 99-40 (Sequa) [interest suspension] is applied regarding the credit elect [from the 1982 tax year] to 1983. No claim is necessary." J.A. at 1405. The DOJ sent a letter on October 25, 2000, stating that the DOJ was "not in agreement [with the IRS computations suggesting] that an additional refund or overpayment can be allowed in the instant litigation — over and above that negotiated on the basis of the issues in suit — based upon Revenue Ruling 99-40 absent the filing of a timely claim for refund raising the issue." J.A. at 1428 (emphasis in original). In a March 14, 2002, letter, the DOJ reiterated its position and stated that "we do not believe that a timely claim for refund has been filed on [the interest suspension] issue." J.A. at 1430. Computervision filed a formal amendment with the IRS on April 4, 2002, in which it claimed non-DISC interest under the interest suspension theory.

On July 9, 2003, Computervision filed an amended complaint in the Court of Federal Claims, claiming $820,946.13 in deficiency interest relating to non-DISC issues on theories of interest suspension and interest netting.

The government contended that the interest suspension claim was barred by the statute of limitations. Unlike the DISC interest claim, which involved a challenge to the underlying tax liability, the claim for interest suspension did not involve any challenge to the underlying deficiencies asserted with respect to the non-DISC issues. Rather, the taxpayer contended that, even though the underlying tax liability had been properly determined with respect to non-DISC issues, interest was not owed. The taxpayer relied on the principle of interest suspension, which derives from 26 U.S.C. § 6601(a), and was formally set out in Revenue Ruling 99-40, published on October 4, 1999, more than three...