Gen. Mills, Inc. v. United States
| Decision Date | 14 October 2015 |
| Docket Number | No. 14-89T,14-89T |
| Parties | GENERAL MILLS, INC. AND SUBSIDIARIES, Plaintiffs, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Motion to Dismiss; Rule 12(b)(1); Jurisdiction; Statute of Limitations; 26 U.S.C. § 6230(c); TEFRA; Large Corporate Underpayment Interest; Computational Adjustment
Sheri A. Dillon, Washington, D.C., for plaintiffs.
Bart D. Jeffress, Trial Attorney, with whom were Tamara W. Ashford, Acting Assistant Attorney General, and David I. Pincus, Chief, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C., for defendant.
This case involves a dispute between General Mills, Inc. and its subsidiaries (GMI, plaintiff, or the corporation) and the Internal Revenue Service (IRS, government, or defendant). Compl. ¶ 1, ECF No. 1, filed Jan. 30, 2014. Plaintiff is the parent corporation of a number of the partners of General Mills Cereals, LLC (the partnership). Id. Plaintiff alleges that after certain partnership-level examinations of the partnership were settled, the IRS erroneously collected $5,958,695 in large corporate underpayment (LCU) interest on income tax underpayments by the corporation.1 Id. Plaintiff assertsthat the IRS calculated the LCU interest using an incorrect "applicable date." Id. Plaintiff claims that LCU interest began to accrue earlier than it should have because the IRS used the wrong date for its calculations. See id.
Defendant has moved to dismiss plaintiff's complaint, alleging a lack of jurisdiction under Rule 12(b)(1) of the Rules of the Court of Federal Claims (RCFC). Def.'s Mot., ECF No. 12, filed Sept. 9, 2014. Defendant asserts that plaintiff did not file its claim challenging the alleged error within six-months of receiving the respective notices of computational adjustment, as set forth in the Internal Revenue Code () at 26 U.S.C § 6230(c).2 Id. at 1-2. Defendant argues that because plaintiff did not file its administrative claim within the prescribed six-month limitations period, the court is without jurisdiction to hear it. Id. The court heard oral argument on September 10, 2015. See Transcript (Tr.), ECF No. 33, filed Sept. 17, 2015. For the reasons more fully addressed below, defendant's motion is GRANTED.
Before delving into the facts relevant to this dispute, the court provides a brief overview of the impetus for, and the effect of, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Under the tax code, partnerships, like General Mills Cereals, LLC, are not subject to income tax. See § 701. Instead, the partners in the partnership are liable in their individual capacities for income tax related to the partnership. Id. Prior to the enactment of TEFRA, the IRS performed an audit of each partner in a partnership when it sought an adjustment of an item related to the partnership. Prati v. United States, 81 Fed. Cl. 422, 427 (2008), aff'd, 603 F.3d 1301 (Fed. Cir. 2010). By conducting different individual audits, "the IRS could not guarantee consistent treatment of a partnership item for each partner in a partnership." Id.
The enactment of TEFRA, however, created a set of unified partnership audit procedures that reduced the burden on the IRS. See United States v. Woods, 134 S. Ct. 557, 562-63 (2013); McNaughton v. United States, 118 Fed. Cl. 274, 277 (2014), aff'd, 612 Fed. App'x 600 (Fed. Cir. 2015). These procedures "determine how partnership items [are to] be reported on all partners' individual returns." Bassing v. United States, 563 F.3d 1280, 1283 (Fed. Cir. 2009) (quoting Olson v. United States, 172 F.3d 1311,1316 (Fed. Cir. 1999)); see § 6222 () Although, each partner may participate in the IRS's examination of the partnership's return, see Olson, 172 F.3d at 1317, a partner need not do so, and "may waive this right, . . . [choosing instead to] opt out of partnership-level proceedings by entering into a binding settlement agreement with the IRS." Id. "Once the adjustments to partnership items have become final, the IRS may undertake further proceedings at the partner level to make any resulting 'computational adjustments' in the tax liability of the individual partners." Woods, 134 S. Ct. at 563. In applying the computational adjustments, the IRS may directly assess such adjustments against the partners or conduct deficiency proceedings. Id.
Plaintiff timely filed its corporate tax returns for the 2002 and 2003 tax years, respectively, on or about February 17, 2003 and February 17, 2004. Compl. ¶ 6. The partnership timely filed partnership tax returns for those years as well, respectively, on or about March 17, 2003 and March 15, 2004. Id. ¶ 11.
On January 12, 2005, the IRS issued a Notice of Beginning of Administrative Proceedings (NBAP) with respect to the returns filed by the partnership for the 2002 and 2003 tax years. Id. ¶ 13. Issued pursuant to TEFRA provisions, the NBAP stated that the IRS would initiate a non-deficiency partnership proceeding. See id. Several months thereafter, on April 4, 2005, the IRS began its examination of plaintiff's corporate tax returns for the years 2002 and 2003. Id. ¶ 8. The examination was conducted by deficiency proceedings. Id.
On June 15, 2007, nearly two years after deficiency proceedings were initiated, the IRS sent plaintiff an IRS Letter 950 and an enclosed "examination report showing proposed changes to [plaintiff's] tax[es]" for the 2002-2003 tax years. Def.'s Mot., Ex. 1 at 1. Both plaintiff and defendant refer to this letter and its various enclosures as a notice of proposed deficiency. Compl. ¶ 9; Def.'s Mot. Ex. 1, Index. The letter stated: "If you are a 'C' Corporation, Section 6621(c) of the Internal Revenue Code provides that an interest rate 2% higher than the standard rate of interest will be charged on deficiencies of $100,000 or more."3 Def.'s Mot., Ex. 1 at 1. It further stated that "[i]fyou pay the full amount due now, you will limit the amount of interest and penalties charged to your account." Id. The letter directed plaintiff to notify the IRS by July 16, 2007 as to whether or not plaintiff agreed with the changes identified in the notice. Id.
On July 27, 2010, the IRS and plaintiff executed, by Form 870-LT(AD), a "Settlement Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts and Agreements for Affected Items." Def.'s Mot., Ex. 4. Part I of the settlement agreement addresses the "Offer of Settlement of Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts, and Waiver of Restrictions on Assessment for Partnership Items, Penalties, Additions to Tax, and Additional Amounts." It states in relevant part:
The undersigned taxpayer(s) . . . also waive(s) the restrictions provided in IRC sections 6225(a) and 6213(a) and consent(s) to the assessment and collection of any deficiency attributable to partnership items, penalties, additions to tax, and additional amounts that relate to adjustments to partnership items, as set forth in the attached Schedule of Adjustments (plus any interest provided by law).
Def.'s Mot., Ex. 4 at 80 (emphasis added). Part II of the settlement agreement addresses the "Offer of Settlement of Affected Items and Waiver of Restrictions on Assessment." It states in relevant part:
The undersigned taxpayer(s) . . . also waive(s) the restrictions provided in IRC sections 6225(a) and 6213(a) and consent(s) to the assessment and collection of any deficiency attributable to partner level determinations, as set forth in the attached Schedule of Adjustments, plus any interest provided by law.
Id. at 81 (emphasis added). Finally, the "Instructions for Signing [Settlement Agreement] Form 870-LT(AD)" include the following language:
NOTE: The submission of this offer by you and the acceptance of the offer for the Commissioner may result in an additional tax liability to you plus interest as provided by law. If the result is a decrease in tax, the amount of the decrease will be sent to you with interest as provided by law.
Id. at 82 (emphasis added). The plain terms of the settlement agreement contemplate an assessment of "'any' interest provided by law."
On August 27, 2010, the IRS sent plaintiff a cover letter with a Form 5278. Compl. ¶ 14; Def.'s Mot., Ex. 5. The cover letter stated that "[t]he enclosed audit statement explains how the adjustments made during our examination of General Mills Cereals, LLC affect your income tax return." Def.'s Mot., Ex. 5 at 155. The enclosed form, a Form 5278, is titled as a "Statement - Income Tax Changes." Id. at 156. Plaintiff refers to this cover letter and the attached Form 5278 audit statement as a notice of computational adjustment.4 Compl. ¶ 14. The Form 5278 statement showed how the settlement—specifically the adjustments made during the partnership examination of partnership items—affected plaintiff's income tax liability as a partner. Id. ¶ 15; Def.'s Mot., Ex. 5 at 155. Among the various line items on the Form 5278 is the one for "Balance due or (Overpayment) excluding interest and penalties" and a corresponding dollar amount. Def.'s Mot., Ex. 5 at 156. The cover letter with the Form 5278 statement advised plaintiff that the IRS "will adjust your account and figure the interest," and that "[t]he Service Center will send a bill for any additional amount you owe." Id. at 155. One week later, on September 3, 2010, the IRS assessed against GMI the identified tax deficiencies plus interest (which included large corporate underpayment interest).5 Def.'s ...
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