General Motors Corporation v. United States, Civ. A. No. 4-71986.

• Decision Date: 14 February 1975
• Docket Number: Civ. A. No. 4-71986.
• Citation: 389 F. Supp. 245
• Parties: GENERAL MOTORS CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Michigan

389 F. Supp. 245

GENERAL MOTORS CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 4-71986.

United States District Court, E. D. Michigan, S. D.

February 14, 1975.

E. Alan Moorhouse, General Motors Corp., Detroit, Mich., for plaintiff.

Robert Greco, U.S. Dept. of Justice, Washington, D.C., Saul A. Green, Detroit, Mich., for defendant.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge.

Plaintiff General Motors Corporation (GM) brings this action to recover interest from the United States under section 6611(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 6611(a), on certain amounts of federal excise tax erroneously assessed against, collected from, and later returned to GM. This court has jurisdiction under 28 U.S.C. § 1346(a). Both parties have moved for summary judgment and stipulated to the following facts.

In each of its Quarterly Federal Excise Tax Returns timely filed during the years 1961-63, GM claimed credits totaling $323,318.28, against the federal excise tax liabilities disclosed on its returns. GM claimed these credits under 26 U.S.C. § 6416(b) on the grounds that certain payments made by Frigidaire Division, an unincorporated division of GM, to its distributors for freight allowance claims to dealers constituted bona fide discounts, rebates, or allowances which readjusted the sales price of taxable articles such that GM could claim a proportionate credit of the federal excise tax previously paid with respect to such sales.

The Internal Revenue Service (IRS) audited GM's federal excise tax returns for the years 1961-63 and, on the theory that payments by Frigidaire Division were not bona fide discounts, rebates, or allowances, disallowed the credits. IRS then assessed $323,318.28 and $35,283.50, taxes and interest respectively, with regard to the disallowed credits, which amounts GM paid.

GM filed a timely refund claim for the tax and interest assessed. Upon learning that the refund claim was proposed to be denied, GM filed a timely protest and requested a District Conference. After this conference, the District Director informed GM that a refund was to be made in accordance with technical information received from the National Office concluding that the payments in controversy were bona fide discounts, rebates, or allowances. GM received a refund of the tax and interest assessed on September 13, 1968.

Although GM requested interest on the amount of interest and tax assessed, IRS has paid no interest for any portion of the assessment. GM now seeks by way of this action to recover statutory interest from August 14, 1964, the date GM was first advised by the revenue agent conducting the audit that he proposed to disallow the claimed credit and the date GM paid at least a part of the erroneous assessment, to September 13, 1968, the date of refund.

The issue in this case results from an apparent conflict between two statutory provisions. Section 6611(a), the provision under which GM claims entitlement to interest, provides that: "Interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the rate of 6 percent per annum." Yet, section 6416(b)(1), the provision under which GM claimed the excise tax credits and ultimately received a refund of the erroneous assessment, provides that: "credit or refund (without interest) shall be allowed or made in respect of overpayments . . . ."

GM contends that the "without interest" language of section 6416(b)(1) is limited to time periods prior to erroneous administrative action on a claimed credit or refund and that the general rule of section 6611 applies on the facts in this case. The government argues that the "without interest" language has no exception and, relying on familiar canons of statutory construction, asserts that the specific prohibition against recovery of interest in section 6416(b)(1) has priority over the general mandate of section 6611.

Whether the "without interest" language of section 6416(b) prevails over the general rule permitting recovery of interest on refunds under section 6611 (a) where the taxpayer claims erroneous administrative action was recently determined in a manner adverse to the government in Greyhound Corp. v. United States, 495 F.2d 863 (9th Cir. 1974). Greyhound involved the appropriateness of refunds of federal fuel excise taxes granted under 26 U.S.C. §§ 6416(b)(2) (H) & 6421(b) wherein the taxpayer claimed interest on a refund under section 6611(a).

Relying on General Dynamics Corp. v. United States, 324 F.2d 971 (Ct.Cl. 1963), the court concluded that the "without interest" language of both sections 6416(b) and 6421(b) had no application to refund claims which are erroneously rejected and that interest should be allowed from the date of rejection. 495 F.2d at 870-71. The court refused to distinguish between the allowance of interest where, as in General Dynamics, a tax was wrongfully collected in the first instance and allowance of interest where the government has wrongfully rejected a legitimate claim for refund: "To hold otherwise would encourage the Internal Revenue Service to postpone action on this type of claim, or reject it, knowing there would be nothing to lose." Id. at 871.¹

In General Dynamics, supra, taxpayer claimed credits on its federal unemployment tax return for contributions paid to various state unemployment compensation funds. The Internal Revenue Service disallowed the credits and assessed additional taxes for the deficiency. Upon payment of the tax and protest by the taxpayer, IRS reversed its position, allowed the credits, and refunded the wrongfully assessed funds. Taxpayer sued for the interest on the withheld monies. The statutes under which the taxpayer sought recovery of the refund included "without interest" provisions. Nevertheless, the court, after an examination of the statutes in question and their legislative history, concluded that the "without interest" provisions did not bar taxpayer's right to statutory interest on a refund of tax resulting from an erroneous or illegal collection on the theory that the credits had been properly claimed in the first instance. 324 F.2d at 976.

The government would limit General Dynamics to its facts and argues that Greyhound is little more than an act of judicial legislation at odds with the clear language of section 6416(b). To support its theory of this case, the government looks to General Motors Corp., Frigidaire Div. v. United States, 292 F.2d 502 (Ct. Cl. 1961).

In General Motors, taxpayer sought recovery of interest on a judgment awarding a refund for overpayment of excise taxes under section 3443(a) of the Internal Revenue Code of 1939, the predecessor section to section 6416(b). The court, adopting the trial commissioner's opinion, denied taxpayer interest on the judgment on the ground that section 3443(c), which barred recovery of interest on claims or refunds under section 3443(a) was a special statutory provision relating solely to, and exclusively governing, interest on credits and refunds of manufacturer's excise taxes and hence prevailed, as regards the special subject of interest on such credits and refunds, over the general provisions of 28 U.S.C. § 2411(a).²

GM's claim for interest in this case is less ambitious than the claim advanced in General Motors. Had plaintiff prevailed in that action, interest would have been payable from the date of initial payment or collection without regard to whether the government had taken any affirmative erroneous action.³ Here, on the other hand, GM claims interest only from the date of erroneous administrative action, conceding that the "without interest" language of section 6416(b) covers the period of time from the initial payment of tax on the sales to which the claimed credits relate up to the time when credits are claimed, as well as the period from the time when credits were claimed to the time of the erroneous disallowance and assessment of additional tax.

The court finds that this limited claim for interest, on the facts of this case, comports with the language and legislative history of section 6416(b). The approach taken in Greyhound should have application here. Section 6416(b) provides that credit or refund without interest shall be allowed or made in respect of "overpayments". The subparagraph of the statute relating to price readjustments defines "overpayments" for purposes of this action by stating that "the part of the tax proportionate to the part of the price repaid or credited to the purchaser shall be deemed to be an overpayment." 26 U.S.C. § 6416(b)(1). Thus, "overpayment" means the taxes paid with respect to which a tax credit is claimed in the first instance rather than, as here, the amount paid the government because of an erroneous assessment based upon denial of credits which were properly taken.

The legislative history underlying section 6416(b), although less than comprehensive, also supports this view. Concerning section 621(c) of the Revenue Act of 1932, 47 Stat. 169, a predecessor of section 6416(b), the House Committee Report stated:

"Subsection (c) prohibits interest on credits or refunds, whether allowed or made administratively or pursuant to a judgment of a court. This is desirable to discourage delay in claiming credit or refund and to discourage litigation. Your committee sees no reason why the Government should pay 6 percent interest on amounts taxpayers have erroneously paid in." (Emphasis added.) H.R.Rep. No. 708, 72d Cong., 1st Sess., 39, 1939-1 Cum. Bull. 457, 485.

A fair reading of the Committee Report discloses that Congress was chiefly concerned with denying interest on credits claimed for overpayments generated by action of the taxpayer, not payments made in response to an erroneous assessment.⁴ As the Committee Report indicates, Congress sought to foreclose the possibility that taxpayers would delay a claim for credits in an attempt to maximize interest. The...