Eaglehawk Carbon, Inc. v. United States

• Decision Date: 16 July 2015
• Docket Number: No. 13-1021 T,13-1021 T
• Parties: EAGLEHAWK CARBON, INC., TWIN STAR MINING, INC., WHITE FLAME ENERGY, INC., RED RIVER COAL COMPANY, INC., and USIBELLI COAL MINE, INC., Plaintiffs, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

EAGLEHAWK CARBON, INC.,

TWIN STAR MINING, INC.,WHITE FLAME ENERGY, INC.,RED RIVER COAL COMPANY,INC., and USIBELLI COAL MINE, INC., Plaintiffs, v. THE UNITED STATES, Defendant.

No. 13-1021 T

United States Court of Federal Claims

July 16, 2015

Tax; Interest Rate on Overpayment, 26 U.S.C. § 6621(a)(1) (2012); Subchapter S Corporations Treated as Corporations.

John Yates Merrell, Jr., McLean, VA, for plaintiffs Eaglehawk Carbon, Inc., Twin Star Mining, Inc., White Flame Energy, Inc., and Red River Coal Company, Inc. Steven H. Becker, New York, NY, for plaintiff Usibelli Coal Mine, Inc.

Miranda Bureau, United States Department of Justice Tax Division, with whom were Caroline D. Ciraolo, Acting Assistant Attorney General, David I. Pincus, Chief, Court of Federal Claims Section, Mary M. Abate, Assistant Chief, Washington, DC, for defendant.

OPINION

Bush, Senior Judge.

This case is before the court on cross-motions for summary judgment filed under Rule 56 of the Rules of the United States Court of Federal Claims (RCFC). The motions have been fully briefed, and oral argument was held on April 21, 2015. For the reasons stated below, defendant's motion for summary judgment is granted and plaintiffs' motion for summary judgment is denied.

BACKGROUND

Plaintiffs are five coal mining companies which are organized as "'small business corporation[s]' under Subchapter S of the Internal Revenue Code." Compl. ¶¶ 2-6 (citing 26 U.S.C. §§ 1361-1379 (2012)). It is undisputed that these coal companies overpaid certain coal sales excise taxes and were owed refunds, plus interest, of their overpayments. The tax years in question span from 1990 through 1996. The overpayment refunds were all made in April of 2009, and the amounts of those refunds are not in dispute. Plaintiffs' claims focus instead on the interest they received on their overpayments, which, according to plaintiffs, was calculated according to a lower formula than was appropriate.

The governing statute for computing the interest owed taxpayers on their overpayments is 26 U.S.C. § 6621 (2012). If plaintiffs' interpretation of § 6621(a)(1) is correct, they should have been paid the interest rate paid to individuals, not the interest rate paid to corporations. The difference is not insignificant because plaintiffs' claims identify additional interest allegedly owed to them through 2009, which totals approximately $6 million dollars, and reference further interest which has allegedly accrued since that date.

DISCUSSION

I. Standard of Review

"[S]ummary judgment is a salutary method of disposition designed to secure the just, speedy and inexpensive determination of every action." Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1562 (Fed. Cir. 1987) (internal quotations and citations omitted). The moving party is entitled to summary judgment "if the movant shows that there is no genuine dispute as to any materialfact and the movant is entitled to judgment as a matter of law." RCFC 56(a). A genuine issue of material fact is one that could change the outcome of the litigation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

Tax controversies are well-suited to disposition on cross-motions for summary judgment when the outcome turns on the proper interpretation of the Internal Revenue Code (IRC or Code), rather than on disputes of fact. See Dana Corp. v. United States, 174 F.3d 1344, 1347 (Fed. Cir. 1999) (stating that summary judgment was appropriate in that tax refund suit because issues of law were the only disputed issues before the trial court). Here, there are no material facts in dispute. To prevail on their motion for summary judgment, plaintiffs bear the burden to show that they are entitled, as a matter of law, to receive the additional interest requested in the complaint. See, e.g., Transamerica Corp. v. United States, 902 F.2d 1540, 1543 (Fed. Cir. 1990) ("The ruling of the Commissioner of Internal Revenue enjoys a presumption of correctness and a taxpayer bears the burden of proving it to be wrong." (citing Welch v. Helvering, 290 U.S. 111, 115 (1933))).

II. Analysis

As a threshold matter, both parties assert that the meaning of § 6621(a)(1) is clear, although their interpretations of this statutory provision are at odds and conflicting. See Pls.' Reply at 1 ("[I]f anyone, it is plaintiffs who are best able to argue that a plain reading of the statute favors them."); Def.'s Mot. at 7 ("The language of § 6621(a)(1) is not ambiguous."). To determine whether a statute has a clear meaning and is unambiguous, this court examines the plain text and employs traditional tools of statutory construction. See, e.g., Cathedral Candle Co. v. U.S. Int'l Trade Comm'n, 400 F.3d 1352, 1362 (Fed. Cir. 2005) (citations omitted). In this analysis, the plain text of the statute is of paramount importance. See, e.g., Timex V.I., Inc. v. United States, 157 F.3d 879, 882 (Fed. Cir. 1998) ("Because a statute's text is Congress's final expression of its intent, if the text answers the question, that is the end of the matter.") (citations omitted).

To assist in deciphering the meaning of a statute, various tools of statutory construction may be employed. Beyond the plain text of the statute, the court may consider the structure of the statute, applicable canons of statutory construction, and legislative history. Id. (citations omitted). If the plain text and structure of thestatute do not decide the issue, courts often turn to canons of construction to interpret the statute. E.g., Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1340 (Fed. Cir. 2008). Legislative history may also be considered in appropriate instances, even where the statutory text is plain and unambiguous. See, e.g., In re City of Houston, 731 F.3d 1326, 1333 (Fed. Cir. 2013) (noting that even when a statute "is quite plain on its face [this] conclusion does not preclude an examination of legislative context"). To overcome the plain text of a statute, however, legislative history must clearly evidence legislative intent. See, e.g., Gardner v. Brown, 5 F.3d 1456, 1459-60 (Fed. Cir. 1993) ("The [party relying on legislative history] must make an extraordinarily strong showing of clear legislative intent in order to convince us that Congress meant other than what it ultimately said." (citing Glaxo Operations UK Ltd. v. Quigg, 894 F.2d 392, 395 (Fed. Cir. 1990))).

A statute is ambiguous if its terms permit two conflicting but reasonable constructions. See, e.g., Rosete v. Office of Pers. Mgmt., 48 F.3d 514, 518-19 (Fed. Cir. 1995) (finding a statute to be ambiguous because a key term was "capable of two reasonable interpretations"). Here, however, as explained below, only the government has a reasonable interpretation of § 6621(a)(1). The court begins, as it must, with an analysis of the plain text of the statute.

A. The Plain Text of Section 6621(a)(1)

For the majority of the time period relevant to plaintiffs' claims, the pertinent statutory text has distinguished between individual and corporate interest rates for tax overpayments:

(1) Overpayment rate

The overpayment rate established under this section shall be the sum of--

(A) the Federal short-term rate determined under subsection (b), plus

(B) 3 percentage points (2 percentage points in the case of a corporation).

To the extent that an overpayment of tax by a corporation for any taxable period (as defined in subsection (c)(3), applied by substituting "overpayment"for "underpayment") exceeds $10,000, subparagraph (B) shall be applied by substituting "0.5 percentage point" for "2 percentage points".

26 U.S.C. § 6621(a)(1). Thus, the formula for calculating interest on tax overpayments generally includes the variable Federal short-term rate (STR) plus a constant, either three percentage points (for individuals), or two percentage points (for corporations). There is also a special, reduced rate for interest on tax overpayments exceeding $10,000 which applies only to corporations, although this particular provision relies upon a separate section of the statute for clarification purposes. Plaintiffs in this suit allege that they are subject to neither the lower (STR plus 2 percentage points) interest rate applicable to "a corporation," § 6621(a)(1)(B), nor the special reduced rate of interest (STR plus .5 percentage point) applicable to "a corporation" whose tax overpayment exceeds $10,000, § 6621(a)(1).¹

1. S Corporations are Corporations for § 6621(a)(1)(B) Interest Purposes

Taking the simpler issue first, the plain text of § 6621(a)(1)(B) singles out corporations for a lower (STR plus 2 percentage points versus STR plus 3 percentage points) interest rate on tax overpayments. S corporations are corporations, as both a common sense interpretation of this designation and the IRC indicate. See Def.'s Mot. at 7-8 (citing, among other authorities, 26 U.S.C. § 7701(a) (2012), which provides a definition for 'corporation' for use throughout the Code "where not otherwise distinctly expressed or manifestly incompatible with the intent thereof"); Oral Argument Transcript (Tr.) at 8 (Plaintiffs' Counsel) ("An S corporation is a corporation."). Because plaintiffs are S corporations, and thus, are corporations as generally defined by the IRC, the lower (STR plus 2 percentage points) interest rate applies to their tax overpayments under $10,000during the time that § 6621(a)(1)(B) existed in its current form (1998 and later).²

2. S Corporations are Corporations for the Reduced Interest Rate for Corporate Tax Overpayments Exceeding $10,

Section 6621(a)(1) also provides, in its flush language,³ an even lower interest rate for corporations whose tax overpayments exceed $10,000. The court begins with the initial presentation of this special interest rate before turning to the other statutory guidance referenced in the flush language of § 6621(a)(1). As stated earlier, the statute provides that

[t]o the extent that an overpayment of tax by a corporation for any taxable period (as defined

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