US v. National Steel Corp.
| Citation | 883 F. Supp. 363 |
| Decision Date | 04 April 1995 |
| Docket Number | No. IP 94-1007-C.,IP 94-1007-C. |
| Parties | UNITED STATES of America, Plaintiff, v. NATIONAL STEEL CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
Peter Sklarew, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC and Jeffrey L. Hunter, Asst. U.S. Atty., Office of the U.S. Atty., Indianapolis, IN, for plaintiff.
Michael R. Fruehwald, Barnes & Thornburg, Indianapolis, IN and Kenneth J. Kies, Baker & Hostetler, Washington, DC, for defendant.
ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S MOTION TO DISMISS
This matter comes before the Court on the motion of plaintiff United States of America ("United States") for summary judgment against defendant National Steel Corporation ("National Steel"), and the motion of National Steel to dismiss for failure to state a claim. The issues have been fully briefed and are ripe for resolution. For the reasons discussed below, the Court GRANTS the plaintiff's motion for summary judgment and DENIES the defendant's motion to dismiss.
The following facts are undisputed.1 National Steel is a domestic corporation engaged in the production and manufacture of steel. National Steel is a calendar taxpayer.
On March 9 and 11, 1988, National Steel and a delegate of the Commissioner of Internal Revenue entered into a Closing Agreement on Final Determination Covering Specific Matters (Form 906) with respect to National Steel's taxable year ended December 31, 1987 ("Closing Agreement"). The Closing Agreement reflected National Steel's anticipation that it would be entitled to claim an overpayment of tax determined under § 212 of the Tax Reform Act of 1986 ("the 1986 Act"). The text provided that the Internal Revenue Service ("IRS") would promptly release any such refund; that National Steel would employ the refund within three years towards certain specified ends; and that the period of limitations for the IRS to bring suit to recover any amount of the refund that was determined to be erroneous or excessive would not expire prior to the expiration of the period of limitations on assessment of tax (taking into account extensions) for National Steel's 1987 tax year. The Closing Agreement further provided that it was final and conclusive, and that "no change or modification of applicable statutes will render this agreement ineffective with respect to the terms agreed to herein."
Pursuant to the Closing Agreement, on or about March 15, 1988, National Steel executed and submitted to the IRS an Election and Claim for Quick Release of Overpayment Resulting From the Application of Section 212 of the Tax Reform Act of 1986 ("Election/Claim").
The Election/Claim applied to 100 percent of National Steel's "existing carryforwards," as defined in § 212(g)(2) of the 1986 Act, attributable to investment tax credits ("ITCs") claimable by National Steel for each of the years 1979 through 1986 inclusive. Of the total $43,489,680 in existing carryovers reported in the Election/Claim, $5,782,782 was attributable to the ITC claimed by National Steel for the year 1986. Fifty percent of the total existing carryovers, or $21,744,840, was the amount calculated under § 212(b) of the 1986 Act. Of this amount, $2,891,391 (50% of $5,782,782) was attributable to the claimed ITC carryforward from the 1986 year.
On the Election/Claim, National Steel reported a 1987 unpaid income tax liability of $2,500,000 as of March 15, 1988, and claimed an overpayment of $19,244,840. On March 25, 1988, the IRS issued a refund to National Steel in the amount claimed.
On or about September or December 1988,2 National Steel filed its 1987 corporate income tax return (Form 1120), reflecting a net upwards adjustment of $6,511 to the existing carryforward previously claimed under § 212, and including a reconciliation of the amount due under § 212. The Form 1120 increased the amount calculated under § 212 from the $21,744,840 specified on the Election/Claim to the $21,748,096 shown on the reconciliation page and listed as estimated tax payments on line 32-b of the Form 1120.
Subsumed within the net additional $6,511 shown on National Steel's 1987 Form 1120 was a $10,039 increase in the 1986 ITC figure, from the $5,782,782 reflected in the Election/Claim to $5,792,821. That increased the § 212 amount attributable to the 1986 ITC carryforward by $5,020 (50% of $10,039), from the $2,891,391 specified on the Election/Claim to $2,896,411.
During its examination of National Steel's 1987 income tax return, the IRS examined whether National Steel's 1986 ITC was properly attributable to transition property in accordance with § 49(e) of the Internal Revenue Code of 1986 ("the Code"). The IRS disallowed $509,134 of the $5,792,821 carryforward of ITC from 1986 to National Steel's 1987 tax year, but otherwise did not challenge National Steel's 1986 ITC as attributable to transition property. National Steel agreed to the $509,134 adjustment, thus reducing the originally claimed $5,792,821 carryforward from the 1986 year to $5,283,688 and reducing any otherwise allowable 50% credit under § 212 by $254,567.
After completing its examination of National Steel's 1987 tax return, the IRS advised National Steel that the IRS had determined that it was improper to include the 1986 ITC in the computation of "existing carryforwards" under § 212. National Steel disputed this position. On December 15, 1991, the IRS sent National Steel a notice of the proposed adjustments, including disallowance of the § 212 credit attributable to the 1986 ITC. National Steel protested the adjustment to the IRS Appeals Office on March 16, 1992.
On January 15, 1992, National Steel paid the IRS $1,720,020 in tax (plus interest), of which $254,567 was attributable to the agreed adjustment referred to above. The $1,720,020 was assessed by the Secretary of the Treasury on February 6, 1992.
This payment by National Steel (subsuming the disallowance of $254,567 of the § 212 overpayment attributable to the 1986 ITC figure as already adjusted on the return) reduced from $2,891,391 to $2,641,844 the remaining portion of the March 25, 1988, refund that is attributable to the original inclusion of the 1986 ITC in the computation of the § 212 refund. In other words, of the $2,891,391 portion of the March 25, 1988, refund attributable to the initially claimed 1986 ITC carryforward, National Steel has repaid $249,547 to the IRS. Therefore, the present controversy involves the remaining $2,641,844 of the March 25, 1988, refund that has not been repaid, plus interest if applicable. The plaintiff is in agreement with this "bottom line" figure of $2,641,844.
During the course of the IRS examination of National Steel's 1987 income tax return, National Steel and the IRS executed several Forms 872 (Consent to Extend the Time to Assess Tax), extending the limitations period on assessments ultimately until June 30, 1994.
On June 28, 1994, a delegate of the Secretary of the Treasury made an assessment against National Steel for corporate income tax for the 1987 year in the amount of $2,641,844, plus $2,369,300.69 in interest. The United States commenced this action on June 29, 1994.
In evaluating a motion to dismiss for failure to state a claim, the Court accepts as true all well-pleaded factual allegations and the inferences reasonably drawn from them. Baxter by Baxter v. Vigo County School Corp., 26 F.3d 728, 730 (7th Cir.1994). Dismissal is appropriate only if it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief. Hi-Lite Prods. Co. v. American Home Prods. Corp., 11 F.3d 1402, 1405 (7th Cir.1993). However, the Court need not ignore facts set out in the complaint that undermine the plaintiff's claims, American Nurses' Ass'n v. State of Illinois, 783 F.2d 716, 724 (7th Cir.1986), nor is the Court required to accept the plaintiff's legal conclusions. Gray v. Dane County, 854 F.2d 179, 182 (7th Cir.1988).
Rule 56(c) of the Federal Rules of Civil Procedure provides that a motion for summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions of file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A party moving for summary judgment initially has the burden of showing the absence of any genuine issue of material fact in evidence of record. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Schroeder v. Barth, Inc., 969 F.2d 421, 423 (7th Cir.1992). If the moving party carries this burden, the opposing party then must "go beyond the pleadings" and set forth specific facts that show that a genuine issue exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Co., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Hong v. Children's Mem. Hosp., 993 F.2d 1257, 1261 (7th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 1372, 128 L.Ed.2d 48 (1994). An issue is genuine only if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Conclusory statements and speculation are not sufficient to defeat a proper motion for summary judgment. See Weihaupt v. American Med. Ass'n, 874 F.2d 419, 428 (7th Cir.1989); First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985).
The opposing party must do more than create a mere "colorable" factual dispute to defeat summary judgment; disputed facts must be material, that is, outcome determinative. Anderso...
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