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Supreme Court Remands Tax Refund Case to Sixth Circuit to Determine Jurisdictional Issues. (Parker Tax Publishing January 2014)

The Sixth Circuit should have the first opportunity to consider a new argument by the IRS with respect to jurisdiction in a case involving a refund claim under Code Sec. 6611. Ford Motor Co. v. U.S., 2013 PTC 375 (S. Ct. 12/2/13).

When a taxpayer overpays his taxes, he is generally entitled to interest from the IRS for the period between the payment and the ultimate refund. That interest begins to run "from the date of overpayment." However, the Code does not define "the date of overpayment."

After the IRS advised Ford Motor Company that it had underpaid its taxes from1983 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 ongoing audits were completed and the amount of its underpayment was finally determined. 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 Code Sec. 6611(b)(1). Ford argued that "the date of overpayment" was the date that it first remitted the deposits to the IRS. The IRS 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 Code Sec. 6611(b) was $445 million.

Ford sued the IRS in federal district court and the IRS did not contest the court's jurisdiction. The court accepted the IRS's construction of Code Sec. 6611(b). The Sixth Circuit affirmed, concluding that Code Sec. 6611 is a waiver of sovereign immunity that must be construed strictly in favor of the IRS.

Ford appealed to the Supreme Court, arguing that the Sixth Circuit was wrong to give Code Sec. 6611 a strict construction. In Ford's view, 28 U.S.C. Section 1346, and not Code Sec. 6611, waives the IRS's immunity from the suit, and Code 6611(b) is a substantive provision that should not be construed strictly. In its response to Ford's petition to the Supreme Court, the IRS contended for the first time that Section 1346(a)(1) does not apply at all. Instead it argued that the only basis for jurisdiction, and the only general waiver of sovereign immunity that encompassed Ford's claim is the Tucker Act, 28 U.S.C. Section 1491(a). Although the IRS acquiesced in jurisdiction in the lower courts, its argument before the Supreme Court was that, if the Tucker Act applies to the suit, jurisdiction over the case was proper only in the U.S. Court of Federal Claims.

The Supreme Court held that the Sixth Circuit should have the first opportunity to consider the IRS's new contention with respect to jurisdiction in the case. Depending on that court's answer, the Supreme Court said, the Sixth Circuit may also consider what impact, if any, the jurisdictional determination has on the merits issues, especially whether or not Code Sec. 6611 is a waiver of sovereign immunity that should be construed strictly. As a result, the Court vacated the judgment of the Sixth Circuit and remanded the case for further proceedings.

For a discussion of the rules regarding interest on overpayments and underpayments of tax, see Parker Tax ΒΆ261,510. (Staff Contributor Parker Tax Publishing)

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