Mitsubishi Cement Corp. & Subsidiaries v. Comm'r

• Decision Date: 13 November 2020
• Docket Number: No. 19-71401,19-71401
• Parties: MITSUBISHI CEMENT CORPORATION & SUBSIDIARIES, A Delaware Corporation, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

MITSUBISHI CEMENT CORPORATION & SUBSIDIARIES, A Delaware Corporation, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 19-71401

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted: October 8, 2020

November 13, 2020

NOT FOR PUBLICATION

Tax Ct. No. 7161-16

MEMORANDUM^*

Appeal from a Decision of the United States Tax Court

Argued and Submitted October 8, 2020 Seattle, Washington

Before: GILMAN,^** CALLAHAN, and CHRISTEN, Circuit Judges.

Mitsubishi Cement Corporation & Subsidiaries ("Mitsubishi") appeals the decision of the United States Tax Court determining that Mitsubishi owed federal income tax deficiencies in the amounts of $71,026 and $319,868 for the 2011 and2012 tax years, respectively. Mitsubishi contends that the Tax Court erred by not permitting the company to claim a larger deduction for depletion expenses related to its mining of calcium carbonate, which would have reduced its income tax liabilities. We have jurisdiction under 26 U.S.C. § 7482(a), and affirm.

1. Mitsubishi first argues that the Tax Court should have applied a depletion allowance of 15 percent instead of 14 percent in calculating the amount of its deduction. Despite acknowledging that 26 U.S.C. § 613(b)(7) requires taxpayers taking a depletion deduction for the mining of calcium carbonate to use an allowance of 14 percent, Mitsubishi contends that the court should have applied the 15 percent rate prescribed by 26 C.F.R. § 1.613-2(a)(3). Mitsubishi is wrong. An "agency's 'interpretation of the statute cannot supersede the language chosen by Congress.'" Pac. Gas & Elec. Co. v. United States, 664 F.2d 1133, 1136 (9th Cir. 1981) (quoting Mohasco Corp. v. Silver, 447 U.S. 807, 825 (1980)). Here, § 1.613-2(a)(3) sets forth a depletion rate that is directly contradicted by the language of 26 U.S.C. § 613(b)(7), and thus the statute's language controls. The Tax Court correctly applied the statutory depletion allowance of 14 percent.

2. Mitsubishi next argues that it should have been permitted to include the purchase cost of minerals that it adds to calcium carbonate to make its cement products to its "mining costs" under 26 U.S.C. § 613(c)(4), thereby increasing the amount of its depletion deduction. That section provides that certain "treatmentprocesses" are considered mining costs. 26 U.S.C. § 613(c)(4). "[I]n the case of calcium carbonates . . . when used in making cement" those treatment processes include "all processes (other than preheating of the kiln feed) applied prior to the introduction of the kiln feed into the kiln." Id. § 613(c)(4)(F). Mitsubishi argues that the addition of these minerals to the calcium carbonate is a "process" that occurs prior to introducing the concrete mixture into the kiln, and therefore the cost of purchasing those additives constitutes mining costs.

This court has previously considered and rejected this argument on multiple occasions. Sw. Portland Cement Co. v. United States, 435 F.2d 504, 509 (9th Cir. 1970); United States v. Cal. Portland Cement Co., 413 F.2d 161, 166-67 (9th Cir. 1969); Riddell v. Cal. Portland Cement Co., 330 F.2d 16, 18 (9th Cir. 1964); see also 26 C.F.R. § 1.613-4(f)(2)(iv) ("The term mining does not include purchasing minerals from another."). Mitsubishi provides no reasonable basis on which to distinguish this authority, and therefore its argument fails.

3. Mitsubishi also argues that both of the Tax Court's alternative holdings rejecting Mitsubishi's proposed calculation of its gross sales should be reversed. The first of these relates to Mitsubishi's attempt to increase the value of its constructive sales (meaning sales to entities that were controlled by the same corporate parent) to reflect the prices that Mitsubishi claims it would have received for its products on the open market. 26 C.F.R. § 1.613-4(d)(4)(v)(a)-(b). To doso, Mitsubishi was required to establish the "representative market or field price" for products "of like kind and grade" as Mitsubishi's cement products. Id. § 1.613-4(c)(1). "The taxpayer bears the burden of showing entitlement to a particular deduction," and "[t]he determination that a taxpayer failed to produce sufficient evidence to support a deduction constitutes a factual finding subject to the 'clearly erroneous' standard of review." Boyd Gaming Corp. v. Comm'r of Internal Revenue, 177 F.3d 1096, 1098 (9th Cir. 1999) (citation omitted).

Mitsubishi failed to meet that burden. The Tax Court correctly held that Mitsubishi could not simply rely on its own sales to noncontrolled parties to establish a market price during this period; instead, Mitsubishi was also required to show that those...