Argued July 29, 2014
Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:08-cv-12960--Patrick J. Duggan, District Judge.
Gregory G. Garre, LATHAM & WATKINS LLP, Washington, D.C., for Appellant.
Arthur T. Catterall, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
Gregory G. Garre, Katherine I. Twomey, LATHAM & WATKINS LLP, Washington, D.C., Richard E. Zuckerman, HONIGMAN MILLER SCHWARTZ AND COHN LLP, Detroit, Michigan, for Appellant.
Arthur T. Catterall, Gilbert S. Rothenberg, Richard Farber, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
BEFORE: BATCHELDER, GIBBONS, and ROGERS, Circuit Judges. GIBBONS, J., delivered the opinion of the court, in which BATCHELDER, J., joined, and ROGERS, J., joined except for Part III.A. ROGERS, J. (pg. 20), delivered a separate concurring opinion.
JULIA SMITH GIBBONS,
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 district court rejected Ford's claim, and so do we.
Corporate tax returns, like individual tax returns, are subject to audit by the IRS. See generally 34 Am. Jur. 2d Federal Taxation ¶ 70000 et seq. When the taxpayer is a large corporation such as Ford, however, it often takes years for the IRS to conduct an audit and to assess the corporation's tax liability for any particular year. That delay can be costly. In the event the IRS ultimately determines that the taxpayer underpaid its taxes, federal revenue laws make the taxpayer liable for underpayment interest that accrued while the IRS analyzed the taxpayer's tax liability. 26 U.S.C. § 6601(a). But the risk runs both ways. If the IRS ultimately determines that the taxpayer overpaid its taxes for the year under scrutiny, the government is on the hook for overpayment interest, which accrues from " the date of the overpayment." 26 U.S.C. § 6611(b)(2).
Ford remitted approximately $875 million to the United States in the 1990s after the IRS initiated an audit and preliminarily determined that Ford had underpaid its taxes by nearly $2 billion during the preceding decade. Ford sent the money pursuant to Revenue Procedure 84-58, which allows taxpayers to remit funds to stop the accrual of underpayment interest. See Rev. Proc. 84-58, 1984-2 C.B. 501, superseded by Rev. Proc. 2005-18, 2005-1 C.B. 798. The revenue procedure identifies two distinct types of tax remittances: " deposits in the nature of a cash bond" and " advance tax payments." Ford designated each of its payments as a deposit in the nature of a cash bond, which the IRS says is " made merely to stop the running of [underpayment] interest," " is not a payment of tax," and " if returned to the taxpayer, does not bear interest." Id. § 2.03. Only later did Ford ask the IRS to treat its remittances as advance tax payments, which do bear interest in the event of an overpayment. Id. § 5.05. The IRS complied and converted Ford's deposits into advance tax payments, applying the payments against Ford's outstanding tax deficiency from prior years.
The dispute in this case arose when the IRS subsequently reversed its position and concluded that the monies Ford remitted to the IRS to cover the alleged deficiencies were actually an overpayment of taxes due for the years in question. The United States refunded Ford's tax remittances plus overpayment interest, as required under 26 U.S.C. § 6611. Importantly, and at the heart of this dispute, the IRS calculated the amount of overpayment interest from the dates on which Ford requested that its deposits be converted into advance tax payments rather than from the earlier dates on which Ford remitted the deposits. Ford believes the interest started to accrue on the deposit dates.
In July 2008 Ford filed a complaint in federal district court seeking $445 million in unpaid interest. Two years later the district court granted the government's
motion for judgment on the pleadings. The district court believed that it had to defer to the IRS's interpretation of the Internal Revenue Code as long as that interpretation was reasonable. In Revenue Procedure 84-58 the IRS interpreted § 6611 to require the government to pay interest only on overpayments designated as advance tax payments; in its view, taxpayers are not entitled to overpayment interest on remittances held as cash-bond deposits because there can be no overpayment of tax, and therefore no overpayment interest, until a taxpayer converts its cash-bond deposit into an advance tax payment. The district court deemed that interpretation to be reasonable and therefore upheld the IRS's calculation of Ford's overpayment interest. Ford Motor Co. v. United States, No. 08-12960, 2010 WL 2231894, at *7 (E.D. Mich. June 3, 2010).
Ford appealed the district court's decision to this court, and although the government abandoned its quest for regulatory deference, we affirmed. Ford Motor Co. v. United States, 508 F.App'x 498 (6th Cir. 2012), vacated, 134 S.Ct. 510, 187 L.Ed.2d 470 (2013). We held that the canon of strict construction applicable to waivers of sovereign immunity required us to interpret § 6611 narrowly. We therefore rejected Ford's attempt to interpret the term " overpayment" in § 6611 to encompass both deposits and advance tax payments, as the IRS defines those terms.
Ford filed a petition for rehearing en banc, arguing for the first time that § 6611 was not a waiver of sovereign immunity. Instead, Ford argued that the applicable immunity waiver came from 28 U.S.C. § 1346(a)(1)--the statute that vested the district court with jurisdiction to adjudicate Ford's case. Ford had not raised that argument in its briefs, and both this panel and the en banc court declined to rehear the appeal.
Ford then petitioned the Supreme Court for a writ of certiorari. In its opposition to that petition the United States argued that the district court (and therefore this court) lacked jurisdiction to hear this case. The government argued that § 1346(a)(1) does not apply to this claim and 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." In a footnote, the government acknowledged that it had not made this jurisdictional argument in the proceedings before this court because the jurisdictional question is foreclosed by E.W. Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005).
The Supreme Court granted Ford's petition for a writ of certiorari, vacated the panel's decision, and remanded the case to this court. The Court stated:
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.
Ford Motor Co. v. United States, 134 S.Ct. 510, 511, 187 L.Ed.2d 470 (2013). Ford's appeal is once again ripe for our review.
At the outset we must consider the question of jurisdiction--one of the two bases on which the Supreme Court remanded the case to this court. Ford invoked the district court's 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." In its opposition to Ford's certiorari petition the government argued that § 1346(a)(1) does not confer jurisdiction over this claim because Ford does not seek to recover money already paid; rather, it demands interest that the IRS steadfastly refuses to pay. The government maintains that " the only general waiver of sovereign immunity that encompasses [Ford's] claim is the Tucker Act, ...