Earlier this month, the Sixth Circuit issued an opinion in Ford v US, a case I originally wrote about late last year when the Supreme Court remanded the matter to the Sixth Circuit. The case considered whether Ford was entitled to receive overpayment interest on about $875 million of deposits it made that it subsequently requested the IRS treat as advance payments. It had made its deposits when IRS had audited Ford and had preliminarily determined that Ford had a sizeable liability. While Ford and IRS both eventually agreed that Ford overpaid its taxes, rather than underpaid, IRS and Ford disagreed on when the payments Ford made should generate overpayment interest.
In addition to the underlying issue as to when Ford was entitled to interest, the case has significant jurisdictional implications, as precedent outside the Sixth Circuit requires that disputes regarding the overpayment of interest are to be made in the Court of Federal Claims and not in federal district courts.
On remand, the Sixth Circuit addressed the merits after it addressed the jurisdictional issue that generated the remand. Here is a bit more factual context:
Ford Motor Company remitted hundreds of millions of dollars to the United States Treasury after the Internal Revenue Service (IRS) notified Ford that it had underpaid its taxes in prior years. Ford designated the funds as “deposits in the nature of a cash bond” but later asked the government to convert its remittances into “advance tax payments,” which are treated differently under the IRS’s revenue procedures. When the government subsequently reexamined its computations and determined that Ford had overpaid its taxes in the relevant timeframe, the United States refunded Ford’s payments with interest. But the government refused to pay Ford any interest for the period during which the United States held Ford’s money as deposits—before the remittances were converted to advance tax payments. Ford demands about $450 million in additional interest from the government.
The jurisdictional issue before the Sixth Circuit was whether the district court had jurisdiction under 28 U.S.C. § 1346(a)(1), which vests the district courts with jurisdiction to hear claims “for the recovery of any . . . sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.” The district court and the Sixth Circuit had previously not addressed this jurisdictional question, but the Supreme Court remanded for the appellate court to consider that, as well as whether the jurisdictional issue had any impact on the merits, and whether courts should view Section 6611 (the provision authorizing interest on overpayments) as a waiver of sovereign immunity.
A little backtracking may be helpful to appreciate how the case came back to the Sixth Circuit. Initially, the district court found in favor of the government in part because the district court deferred to Revenue Procedure 84-58 (since superseded); when Ford appealed, the US abandoned its argument that the Revenue Procedure was entitled to regulatory deference. The Sixth Circuit still held in favor of the government though, in part relying on the strict statutory construction canon applicable to waivers of sovereign immunity.
In opposing the cert petition Ford filed after it lost initially in the Sixth Circuit, the government argued for the first time that § 1346(a)(1) did not confer jurisdiction on the district court because “Ford did not seek to recover money already paid; rather, it demands interest that the IRS steadfastly refuses to pay.” The government maintained that “the only general waiver of sovereign immunity that encompasses [Ford’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.” It was that issue –which had not been briefed before—that triggered the Supreme Court’s remanding of the matter back to the Sixth Circuit.
Why does this matter? The Sixth Circuit is an outlier on this issue, as many other courts push these cases to the Claims Court and generally accept the government’s jurisdictional view. There is, however, a prior Sixth Circuit case, Scripps v US, that concluded that district courts have jurisdiction under 28 USC 1346(a)(1) to hear disputes about interest overpayments. In deciding the matter this month, despite its outlier status, the Sixth Circuit declined to accept the “government’s interest to poll the Sixth Circuit en banc to reconsider its view that the district court originally had jurisdiction under 28 USC 1346(a)(1).” To that end it discussed its view of the jurisdictional precedent in the Sixth Circuit:
In Scripps this court held that §1346(a)(1) confers jurisdiction on the federal district courts to adjudicate claims for overpayment interest because the term “recovery of any sum” in that statute includes suits to obtain overpayment interest. 420 F.3d at 597 (citing Flora v. United States, 362 U.S. 145, 149 (1960)). We concluded that our interpretation of § 1346(a)(1) was consistent with Library of Congress v. Shaw, 478 U.S. 310, 314 (1986), where the Court held that the United States is immune from any suit to obtain interest in the absence of express congressional consent to an award of interest. We noted that 26 U.S.C. § 6611, which specifically permits taxpayers to sue the government for overpayment interest, constitutes an express congressional waiver of the government’s immunity from suits to recover interest. Scripps, 420 F.3d at 597
On remand, the Sixth Circuit clarified its view as to how Supreme Court precedent treated interest claims against the federal government. Parsing Supreme Court cases such as Library of Congress v Shaw 478 US 310 (1986), the Sixth Circuit explained that waivers of sovereign immunity have two components: one jurisdictional one and one substantive:
Shaw thus appears to require two waivers of sovereign immunity in the context of a suit against the government to obtain interest—one jurisdictional waiver establishing the right to bring suit in an appropriate court, and a second substantive waiver expressly authorizing an award of interest.
While the Sixth Circuit in Ford backtracked and held that Section 6611 is not a jurisdictional waiver, it stated that it is a substantive waiver provision, subject to a court’s strict construction of the statute. Nonetheless, the Sixth Circuit clarified that the strict construction did not automatically forestall recovery of interest:
Because sovereign-immunity waivers must be strictly construed, the government contends, any doubts about whether Ford’s deposits constituted “overpayments” under § 6611 must be resolved in favor of the United States. Properly interpreted, however, Shaw does not stand for the proposition that any ambiguity in the scope of a statutory interest provision must be resolved in the government’s favor. It stands instead for the proposition that a litigant may not sue the United States to recover interest unless Congress has expressly authorized suits for interest.
After disposing of the jurisdictional issue and whether the matter involved sovereign immunity, the court went on to the merits. Not surprisingly it stuck to its guns and held (again) in favor of the government. It did so by using the “the usual tools of statutory interpretation to determine whether “the date of the overpayment” under § 6611 was the date Ford remitted its deposits, as Ford contends, or the date the IRS converted its deposits into advance tax payments, as the government contends.” To that end, it considered a dictionary definition of payment as “the act of paying or giving compensation: the discharge of a debt or an obligation.”
The heart of the issue according to the Court was that Ford’s intent when it remitted the money to the IRS, and that it could have designated the remittance as a tax payment but it chose not to:
That definition focuses on the purpose with which a person or entity sends the funds: A remittance is a payment when it is given to discharge a debt or obligation. …
According to IRS revenue procedures in effect at the time, both cash-bond deposits and advance tax payments stopped the government from charging interest on an estimated tax underpayment while the IRS finalized its tax assessment (as long as the deposit was eventually posted against the assessment.) But the revenue procedures treated deposits and advance tax payments differently in one important respect: A taxpayer could demand the immediate return of a deposit anytime, while an advance tax payment would be returned only through the IRS’s formal refund process, which take’s time. See Rev. Proc. 84-85 § 4.02.1. So when Ford sent its remittances, it faced a tradeoff: If a taxpayer remitted a cash-bond deposit but subsequently demanded the deposit’s return, the IRS would not pay the taxpayer any interest for the period during which the government held the funds.When a taxpayer demanded a refund of an excessive advance tax payment, by contrast, the IRS allowed the taxpayer to recoup interest. Thus the revenue procedures forced taxpayers to choose: immediate access without interest, or interest without immediate access.
Considered in this context, Ford’s purpose comes more sharply into focus, see Dolan v. U.S. Postal Serv., 546 U.S. 481, 486 (2006) (“Interpretation of a word or phrase depends upon reading the whole statutory text, considering the purpose and context of the statute, and consulting any precedents or authorities that inform the analysis.”), and belies any claim that Ford’s purpose in remitting the cash-bond deposits was to discharge its estimated tax obligations. Ford could have designated its remittances as advance tax payments and instructed the IRS to apply its remittances against any tax liability ultimately assessed. Both parties agree that would have been a “payment” because such a remittance would have been made for the purpose of satisfying the estimated tax deficiency. Yet Ford chose instead to designate its remittances as deposits. Ford is a sophisticated taxpayer, and its designation of the remittances was not accidental. A taxpayer’s deliberate decision to designate its remittance as a deposit rather than an advance tax payment directly evidences an intent not to make a “payment.” That purpose is determinative.
(emphasis added; citations omitted)
Conclusion
This is a tough result for Ford. For other taxpayers, Steve has written about Section 6603 and interest on deposits before (and as we discuss in revised Saltzman/Book Chapter 6; the Ford dispute predates 6603). That provision allows taxpayers to get interest on deposits when the deposit is made for a disputable tax. What is potentially of more moment in this case, however, is whether other courts may follow the Sixth Circuit’s approach and allow federal district courts rather than the Court of Federal Claims to hear overpayment interest disputes. It is possible this will return to the Supreme Court, but at a minimum I would not be surprised to see other circuits wrestling with this issue.
UPDATE:
For an excellent earlier post discussing the Supreme Court remand last December, see Jack Townsend’s post Ford Wants Overpayment Interest While Its Remittance Was Held as a Deposit