When a taxpayer overpays his taxes, he is generally entitled to interest from the Government for the period between the payment and the ultimate refund. See 26 U.S.C. § 6611(a). That interest begins to run "from the date of overpayment." §§ 6611(b)(1), (b)(2). But the Code does not define "the date of overpayment."
In this case, after the Internal Revenue Service advised Ford Motor Company that it had underpaid its taxes from 1983 until 1989, Ford remitted a series of deposits to the IRS totaling $875 million. Those deposits stopped the accrual of interest that Ford would otherwise owe once the audits were completed and the amount of its underpayment was finally determined. See § 6601; Rev. Proc. 84-58, 1984-2 Cum. Bull. 501. Later, Ford requested that the IRS treat the deposits as advance payments of the additional tax that Ford owed. Eventually the parties determined that Ford had overpaid its taxes in the relevant years, thereby entitling Ford to a return of the overpayment as well as interest. But the parties disagreed about when the interest began to run under 26 U.S.C. § 6611(b)(1). Ford argued that "the date of overpayment" was the date that it first remitted the deposits to the IRS. Ibid. The Government countered that the date of overpayment was the date that Ford requested that the IRS treat the remittances as payments of tax. The difference between the parties' competing interpretations of § 6611(b) is worth some $445 million.
Ford sued the Government in Federal District Court, asserting jurisdiction under 28 U.S.C. § 1346(a)(1). The Government did not contest the court's jurisdiction. See Brief in Opposition 3, n. 3. The District Court accepted the Government's construction of § 6611(b) and granted its motion for judgment on the pleadings. A panel of the Court of Appeals for the Sixth Circuit affirmed, concluding that § 6611 is a waiver of sovereign immunity that must be construed strictly in favor of the Government. 508 Fed. Appx. 506 (2012).
Ford sought certiorari, arguing that the Sixth Circuit was wrong to give § 6611 a strict construction. In Ford's view, it is 28 U. S.C. § 1346 -- not § 6611 -- that waives the Government's immunity from this suit, and § 6611(b) is a substantive provision that should not be construed strictly. See Gómez-Pérez v. Potter, 553 U.S. 474, 491 (2008); United States v. White Mountain Apache Tribe, 537 U.S. 465, 472-473 (2003). In its response to Ford's petition for certiorari, however, the Government contended for the first time that § 1346(a)(1) does not apply at all to this suit; it argues that the only basis for jurisdiction, and "the only general waiver of sovereign immunity that encompasses [Ford's] claim," is the Tucker Act, 28 U.S.C. § 1491(a). Brief in Opposition 3, n. 3. Although the Government acquiesced in jurisdiction in the lower courts, if the Government is now correct that the Tucker Act applies to this suit, jurisdiction over this case was proper only in the United States Court of Federal Claims. See § 1491(a).
This Court "is one of final review, 'not of first view.'" FCC v. Fox Television Stations, Inc., 556 U.S. 502, 529 (2009) (quoting Cutter v. Wilkinson, 544 U.S. 709, 718, n. 7 (2005)). The Sixth Circuit should have the first opportunity to consider the Government's new contention with respect to jurisdiction in this case. Depending on that court's answer, it may also consider what impact, if any, the jurisdictional determination has on the merits issues, especially whether or not § 6611 is a waiver of sovereign immunity that should be construed strictly.
The petition for certiorari is granted, the judgment of the Sixth Circuit is vacated, and the case is remanded for further proceedings.
I picked up the following from the the SCOTUSblog, here, which I highly recommend to readers. That blog has linked to the petition and other briefs.
In the petition, Ford says the issue is:
When, if ever, may a court exercising jurisdiction pursuant to a waiver of sovereign immunity invoke the strict construction canon applicable to such waivers to construe a separate statutory provision that creates the substantive rights at issue?
Whether under 26 USC 6611, interest on an overpayment of tax resulting from the conversion of the taxpayer's deposit in the nature of a cash bond into a tax payment begins to run from (i) the date the deposit was remitted to the Internal Revenue Service or (ii) the date the taxpayer elected to convert the deposit into a payment.Hmmm. Are these parties passing in the night?
Here is some more from Government's reply, although not tightly packaged in this blog. From page 3, fn 2:
Petitioner's complaint invoked 28 U.S.C. 1346(a)(1) as a ground of jurisdiction in the district court. See Pet. 6-7. In the government's view, Section 1346(a)(1) does not apply to this suit. See pp. 16-17, infra. Rather, the only general waiver of sovereign immunity that encompasses petitioner's claim is the Tucker Act, 28 U.S.C. 1491(a), which requires that suit be brought in the United States Court of Federal Claims. In light of controlling circuit precedent holding Section 1346(a)(1) applicable to suits like this one, however, see E.W. Scripps Co. v. United States 420 F.3d 589, 596-598 (6th Cir. 2005), the government did not argue in the courts below that the district court lacked jurisdiction here.According to the Government, the gravamen of Ford's statutory interpretation argument was that interest must be symmetrical -- i.e., since deposits are treated as payments for stopping accrual of interest, so they must be treated as payments for purposes of accruing interest. (See Brief in Opp. 4.)
Oh well. I think that the Government's view is consistent with practitioners' long-time understanding that, for deposits before Section 6603 (these deposits were before 6603), there is no overpayment interest while the deposit is a deposit -- i.e., before it is converted to a payment or returned to the taxpayer. I think Ford raises an ingenious -- if stretchy -- argument, probably because the numbers are so large.
The same issue, of course, is present with Section 6603 which gives deposits some interest, but at a lower rate than the normal overpayment rate. Addressing the Section 6603 scheme, I make the following observation in the current draft of my Federal Tax Procedure book (one footnote excluded):
Finally, strategically, on the front end, is it wise to remit as a deposit rather than a payment? The only advantage of the deposit is the right to request the payment back without going through the elaborate refund procedures. There is a cost to exercising the right to request the deposit back – i.e., if the taxpayer is ultimately held liable for the deficiency, then the return of the money will result in the accrual of deficiency interest. Further, if the remittance is a deposit rather than a payment and it is ultimately determined that the remittance exceeded the amount of the tax and interest due, the taxpayer will get a lower interest rate on the excess than the taxpayer would have received if it were a payment. n808 For these reasons, I have never seen a case where, on the front end, the mere right to request immediate return of the money was so important as to outweigh the benefits of the straight payment of tax. That is not to say that I cannot imagine a case where a bond would be preferable; I just haven’t seen one. And, because of the downsides of bonds, I recommend that practitioners be able to articulate a clear affirmative reason for remitting as a bond before recommending that to the client.Addendum: 12/7/13 9:10am:
n808 A good example of this phenomenon is United States v. Domino Sugar Corporation, cited above [349 F.3d 84 (2d Cir. 2003)]. There, although the taxpayer remitted as a bond, the IRS erroneously paid $1,512,100 interest on the bond and then successfully sued to recover the interest erroneously paid. If the remittance had been a payment, the taxpayer would have been entitled to that interest.
Another issue that I have not tracked down is the issue of when a direction to convert a deposit into a payment is effective. The Ford Motor case seems to assume that it was the date the IRS receives the direction. I have not traced down the case to see whether the IRS acted immediately on the direction, but the case discussion seems to assume at least that the IRS gave overpayment interest from the date of the direction, without regard to the date the IRS booked the deposit as a payment. This issue was presented in Principal Life, although not necessary for a decision in favor of the Government in that case. Principal Life Ins. Co. v. United States, 95 Fed. Cl. 786 (Fed. Cl. 2010)., here. See my blog on that case: Principal Life -- A Masterpiece of Tax Procedure (Federal Tax Procedure Blog 11/29/13), here. The resolution of when a deposit is treated as a payment upon direction of the taxpayer seems to call for a single solution resolution whichever way it goes. But, I wonder whether it may make a difference in different contexts. In Ford Motor Co., it would be inequitable for the IRS to delay treating the direction as a payment and paying interest accordingly. But, in Principal Life, overpayment was not the issue (i.e., at least real overpayment, for the taxpayer owed the tax), but an entirely separate issue where the IRS's apparent practice was to transform the payment from a deposit to a payment the time of the assessment.
Addendum 12/0/13 7:45 am:
Leslie Book, Ford v US: Supreme Court Weighs in on Lower Court Jurisdiction in Interest Disputes (Procedurally Taxing Blog 12/3/13), here.