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. 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.

PR Newswire

DALLAS, Jan. 18, 2013

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C.B. 501, superseded by Revenue Procedure 2005-18, 2005-1 C.B. 798, to stop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converted to advance payments and not from when Ford originally made the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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