U.S. v. Tate & Lyle North American Sugars, Inc.

• Decision Date: 28 August 2002
• Docket Number: No. 97 CIV.9113 (RMB).,97 CIV.9113 (RMB).
• Citation: 228 F.Supp.2d 308
• Parties: UNITED STATES of America, Plaintiff, v. TATE & LYLE NORTH AMERICAN SUGARS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

228 F.Supp.2d 308

UNITED STATES of America, Plaintiff, v. TATE & LYLE NORTH AMERICAN SUGARS, INC., Defendant.

No. 97 CIV.9113 (RMB).

United States District Court, S.D. New York.

August 28, 2002.

Order Issued September 20, 2002.

Order Supplemented September 25, 2002.

COPYRIGHT MATERIAL OMITTED

Jonathan Jackel, Burt Manel & Miller, Washington, DC, for defendants.

Sheila M. Gowan, Assist. U.S. Atty., U.S. Attorney's Office, New York City, for plaintiff.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

BERMAN, District Judge.

I. Introduction

On or about December 10, 1997, plaintiff the United States of America ("Plaintiff" or the "IRS" or the "Government") commenced this action, "seek[ing] to recover a $1,526,100.60 interest payment it made to defendant Tate & Lyle North American Sugars, Inc., successor to Domino Sugar Corporation, formerly known as Amstar Sugar Corporation ..., when the [IRS] returned a remittance that Amstar sent the IRS in December 1990."¹ Pre-Trial Memorandum of Law of Plaintiff United States ("Pl.Mem."), dated April 25, 2002, at 1-2; see also Complaint ("Compl.") ¶ 33. On December 14, 1990, Amstar remitted $6,497,710.00 to the IRS (the "December 1990 remittance"), which—as a result of adjustments in the taxpayer's favor—the IRS returned on September 28, 1993, with interest (the "September 1993 check"). The IRS contends that the September 1993 check mistakenly included the $1.526.100.60 which it now seeks; that the basis of the mistake was that the December 1990 remittance was a cash bond; and that "[i]t is well established that a taxpayer is not entitled to interest on a cash bond if it is returned by the IRS."² Pl. Mem. at 2. Defendants argue, among other things, that the IRS treated the December 1990 remittance as a payment of tax, Defendants' Pre-Trial Memorandum ("Def.Mem."), dated May 25, 2002, at 4; that "Amstar treated the [December 1990 remittance] as a payment of tax," Id.; that Amstar did not authorize anyone to designate the December 1990 remittance as a cash bond, Def. Mem. at 3; and that "Amstar did not want to give the [G]overnment an interest-free loan."³ Def. Mem. at 10.

The central issue in this case is whether Amstar's December 1990 remittance was a cash bond or a payment of tax. The case was tried before the Court without a jury, commencing on June 18, 2002 and concluding on June 19, 2002. At trial, the parties presented stipulations of fact, written exhibits, and witness testimony (both oral and by deposition). The Court had the opportunity to assess the demeanor and credibility of the witnesses which—because the parties presented starkly different versions of what occurred and what was intended —is crucial in this case.

The evidence presented during the trial established the following, among other things, by a preponderance of the evidence:

1. The December 1990 remittance was legally and factually a cash bond.

2. The December 1990 remittance was identified as a "cash bond" in the transmittal letter forwarding the check to the IRS.

3. The transmittal letter, dated December 14, 1990, was signed by Jared Twenty ("Twenty"), the Director of Taxes for TLI's U.S. subsidiaries and an employee of A.E. Staley Manufacturing Company ("Staley"), a "sister subsidiary" of Amstar.

4. Twenty testified that he was motivated in making the December 1990 remittance to stop interest from accruing (which is the function of a cash bond).

5. Twenty and his predecessor as Director of Taxes for TLI's U.S. subsidiaries, William Carnie ("Carnie"), specifically discussed making a deposit in the nature of a cash bond— before the December 1990 remittance was actually made—with Carol Robbins ("Robbins"), a Revenue Agent for the IRS who was working on the Amstar account.

6. Robbins testified that she believes that Carnie clearly knew what a cash bond was and that he understood the implications of making a deposit in the nature of a cash bond. She also testified that she believes that, while Twenty may not have understood fully different technical options, he discussed the cash bond option with her and with others at Amstar and its related entities, or perhaps with attorneys from Burt, Maner & Miller ("BM & M") (outside counsel whom Twenty contacted daily for tax advice), before making the December 1990 remittance. Robbins also believed that Twenty certainly did understand that the December 1990 remittance would stop interest from accruing.

7. Robbins, on behalf of the IRS, treated, and intended to treat, the December 1990 remittance as a cash bond.

8. No one from the taxpayer side ever advised the IRS that the December 1990 remittance was not a cash bond or that Twenty was not authorized to characterize and make the December 1990 remittance as a cash bond until after the IRS advised the taxpayer that interest had been paid inadvertently on the cash bond and requested the return of the interest payment.

For the reasons set forth herein, judgment will be entered in favor of the Government against Tate & Lyle in the amount of $1,526,100.60.⁴

Pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ.P.") 52(a), the Court's findings of fact and conclusions of law follow:

II. Findings of Fact

1. "On December 22, 1988, [Refined Sugars Incorporated (`RSI')] acquired all of the stock of Amstar." Stip. Facts ¶ 4.⁵ "Immediately after the acquisition, RSI merged into Amstar, with Amstar as the surviving corporation." Id. at ¶ 7.

2. On August 16, 1989, Amstar became an affiliated company of TLI, the corporate parent (and owner) of several companies in the United States (collectively, the "Tate & Lyle Group" or the "TLI Affiliated Group"). See id. at ¶¶ 6, 8.

3. On June 15, 1990, Amstar filed a federal income tax return which included its taxable income for the period prior to affiliation with the Tate & Lyle Group, i.e., December 23, 1988 through August 16, 1989 (the "8908 return"). See id. at ¶¶ 10-11. "After the tax period ending August 16, 1989, Amstar filed its federal tax returns as part of the consolidated federal income tax returns for the TLI Affiliated Group." Id. at ¶ 12.

4. "In March 1990, the IRS Springfield, Illinois District Office issued an audit plan for the [Tate & Lyle Group's] consolidated income tax returns" for 1984, 1985, 1986, and 1987. Id. at ¶¶ 14, 18. "RSI was an affiliate of the Tate & Lyle [G]roup during the years covered by this audit ...." Id. at ¶ 15. "At the request of the Tate & Lyle [G]roup, the audits ... were performed in Illinois by the IRS Springfield District [O]ffice." Id. at ¶ 24. To carry out the audit, "[t]he TLI Affiliated Group provided the IRS with an office in the Decatur, Illinois building of TLI Affiliated Group member Staley." Id. at ¶ 25.

5. "Amstar's 8908 tax return was not included" in the March 1990 audit plan. Id. at ¶ 17. While investigating a "RSI net operating loss that was reported on the Tate & Lyle [G]roup return," id. at ¶ 28, the IRS "learned about the Amstar 8908 return and asked for a copy of it." Id. at ¶ 29.

6. Carnie was employed by Staley from 1977 through 1990. See deposition of William Carnie, dated March 8, 2000 ("Carnie Dep.") at 6:7-7:4. Carnie was the Director of Taxes for Staley until 1988, when TLI acquired Staley. See id. at 10:3-4. At that time, Carnie became the Director of Taxes for the Tate & Lyle Group. See id. at 10:4-11. Carnie testified at his deposition that "the Staley Tax Group then became ... the tax group that worked for the Tate & Lyle U.S. Group," id. at 11:21-12:1, which, beginning August 16, 1989, included Amstar. See Stip. Facts ¶ 8. At trial, Carnie was described as "tax-oriented" and "a tax professional." Tr. at 125:9-14.

7. Carnie and his assistant Martha Hoyt ("Hoyt") were primarily responsible for coordinating audits of the Tate & Lyle Group (which included Amstar) with the IRS. See Carnie Dep. at 23:21-24:24; Stip. Facts ¶ 8. Carnie was "responsible for ... dealing with the IRS. Whatever the IRS wanted done, his job was to get it fixed, plus deal with any issues that would have arisen, he and his staff." Deposition of John Hunter, dated March 23, 2000 ("Hunter Dep.") at 72:6-9.

8. "As of the fall of 1989, the Tate & Lyle [G]roup tax department was the focal point for communications with the IRS." Stip. Facts ¶ 23. Joseph Kelly ("Kelly"), the Treasurer of Amstar from December 1988 to June 1998, see Tr. at 31:21-23, confirmed that "Amstar relied on the Tate & Lyle tax group to communicate with the IRS ...." Id. at 36:13-14. Indeed, the "Tate & Lyle tax group ... in Decatur was the means for [Amstar] to communicate with the IRS on [its] audit issues." Id. at 34:19-22.

9. Robbins worked on the audit of the TLI Affiliated Group from June 1989 to September 1991. See Declaration of V. Carol Robbins, dated April 22, 2002 ("Robbins Decl.") ¶ 1. During this time, Robbins became the IRS Team Coordinator for the audit and was primarily responsible "to direct the other team members, conduct the examination and develop the issues that were identified by the IRS." Id.

10. Carnie and Robbins spoke regularly about the audit, i.e., "two or three times a week [when the IRS was] working in the Staley office building." Carnie Dep. at 35:19-20.

11. In August 1990, the IRS determined that Amstar's 8908 return showed that a deduction had been taken in the amount of $18,009,489.00, which represented an RSI net operating loss ("NOL"). See Stip. Facts ¶¶ 30-31. At the same time, "the RSI net operating loss [already] had been utilized on the Tate & Lyle [G]roup return or carried back to prior years' returns for the consolidated group [and] there was no loss available to carry forward onto other returns." Id. at ¶ 27. Thus, the RSI net operating loss was claimed erroneously by both the Tate & Lyle Group and Amstar on its 8908 return. See Robbins Decl. ¶ 6.

12. "As soon as [Robbins] learned about the two deductions for the same loss, [she] brought them to ... Carnie's attention and told him that [she] thought that the...