Ford Motor Co. v. United States, (No. 10-1934) (United States Court of Appeals for the Sixth Circuit), 2012 TNT 243-16, aff'g Ford Motor Co. v. United States, No. 2:08-cv-12960 (E.D. Mich. 2010), 2010 TNT 108-15.
DALLAS, Jan. 18, 2013 /PRNewswire/ -- Ford submitted remittances to the Internal Revenue Service (IRS), pursuant to Revenue Procedure 84-58, 1984-2 C.B. 501, superseded by Revenue Procedure 2005-18, 2005-1 C.B. 798, to stop the accrual of underpayment interest related to 30-day letters it received from the IRS. Ford designated these remittances as deposits in the nature of a cash bond, but subsequently, Ford requested that the IRS treat the remittances as advance payments. The IRS complied with the request. Eventually, the IRS determined that Ford overpaid its taxes. The resultant refunds included interest under section 6611 computed from the dates when the deposits were converted to advance payments and not from when Ford originally made the deposits.
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Ford sued for approximately $445 million in overpayment interest computed from the original deposit dates. The Sixth Circuit agreed with the government that interest under section 6611 accrued only from the later dates when the deposits were converted to payments.
Section 6611 does not define "the date of overpayment." The government argued that there can be no "overpayment" under section 6611, unless there has been a "payment," and there was no payment until Ford requested that its deposits be converted into payments. Prior to the conversion date, the remittances were treated as deposits, and Ford could have requested that the funds be returned at any time. Ford argued that section 6611 and section 6601 should be interpreted symmetrically. Section 6601 stops the accrual of underpayment interest on the date the tax is "paid," and section 6611 starts the accrual of overpayment interest on the "date of the overpayment." Because its deposits stopped the accrual of interest under section 6601 from the deposit dates, Ford argued that those deposit dates should also be considered the payment dates for purposes of determining the date of overpayment under section 6611.
Ford also argued that section 5.05 of Revenue Procedure 84-58 supported its position. The first sentence of section 5.05 provides that "[r]emittances treated as payments of tax will be treated as any other assessed amount and compound interest will be paid on any overpayment under section 6611 of the Code...." Ford argued that this sentence is a general rule, allowing overpayment interest on remittances that are treated as payments of tax, regardless of whether the remittances were originally treated as payments or were later converted to payments. The government argued that Revenue Procedure 84-58 does not even contemplate requests to convert a deposit to a tax payment. In the government's view, a conversion of a deposit to a payment is effectively a return of this deposit, which does not accrue overpayment interest, followed by an "immediate resubmission" of the amount as an actual tax payment, which does accrue overpayment interest from the date it is treated as being resubmitted. The court found the government's "constructive return" interpretation to be "strained" because if it were correct, the taxpayer should also lose the benefit of stopping the accrual of underpayment interest for the period up to the conversion date. However, the government did not argue that Ford should lose the benefit of the deposit, stopping the accrual of underpayment interest.
The court found Ford's and the government's interpretation of the meaning of the phrase "the date of overpayment" in section 6611 to be "conflicting, plausible readings of section 6611." The court also found Ford's interpretation of section 5.05 to be "superior" to that of the government. However, because of the ambiguity, the court held that it could not conclude that Congress has "unequivocally expressed" its waiver of sovereign immunity, allowing Ford to receive overpayment interest.
Although the Sixth Circuit's opinion in Ford's case was unfavorable, there is language in the opinion that provides support for favorable taxpayer results on other remittance issues. For example, the court noted that the fact that a taxpayer can initially request that a remittance be treated as a deposit or a tax payment supports the logical inference that a taxpayer may request conversion from a deposit to tax payment. The IRS, in some recent situations, has refused to allow taxpayers to re-designate remittances.
The court also noted that the government's "constructive return" theory was a flawed interpretation ofRevenue Procedure 84-58, but that the theory made some sense in connection with section 6603, which allows interest on returned deposits at a reduced rate (section 6603 interest). Ford made an argument that because section 6603 allows a taxpayer who requests the return of a deposit to obtain section 6603 interest computed from the date of remittance date, it didn't make sense to interpret section 6611 to allow a taxpayer who converts a deposit to recover interest only from the conversion date. The government responded that the conversion of a deposit involves two separate transactions. First, the deposit is constructively returned, and then it is immediately re-submitted as a payment. The court noted that under this reasoning, section 6603 would allow interest to be paid at two different rates—the lower section 6603 rate from the date of deposit to the date of conversion and at the normal interest rate from the date of conversion to the date of refund.
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