Browning-Ferris Industries, Inc. & Subsidiaries v. United States , 274 F. App'x 900 ( 2008 )

NOTE: This disposition is nonprecedential.
United States Court of Appeals for the Federal Circuit
2007-5144
BROWNING-FERRIS INDUSTRIES, INC.
& SUBSIDIARIES,
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant.
Philip Karter, Chamberlain, Hrdlicka, White, Williams & Martin, of West
Conshohocken, Pennsylvania, argued for plaintiff-appellee. With him on the brief were
Herbert Odell and Jonathan M. Prokup.
Deborah K. Snyder, Attorney, Appellate Section, Tax Division, United States
Department of Justice, of Washington, DC, argued for defendant-appellant. With her on
the brief were Nathan J. Hochman, Assistant Attorney General; Richard T. Morrison,
Deputy Assistant Attorney General; Gilbert S. Rothenberg and Robert W. Metzler,
Attorneys; and Donald L. Korb, Chief Counsel, Internal Revenue Service, of
Washington, DC.
Appealed from: United States Court of Federal Claims
Judge Thomas C. Wheeler
NOTE: This disposition is nonprecedential.
United States Court of Appeals for the Federal Circuit
2007-5144
BROWNING-FERRIS INDUSTRIES, INC.
& SUBSIDIARIES,
Plaintiff-Appellee,
v.
UNITED STATES,
Defendant-Appellant.
Appeal from the United States Court of Federal Claims in 05-CV-738,
Judge Thomas C. Wheeler.
__________________________
DECIDED: April 16, 2008
__________________________
Before GAJARSA, Circuit Judge, CLEVENGER, Senior Circuit Judge, and MOORE,
Circuit Judge.
PER CURIAM.
This is a tax case. The United States appeals from the final decision of the
United States Court of Federal Claims holding that, pursuant to a particular Treasury
Regulation, Browning-Ferris Industries, Inc. ("Inc.") is deemed to have liquidated on
December 31, 2004, and thus liquidated no longer qualified to act as the proper agent
for a consolidated group of subsidiary companies for which it, before the deemed
liquidation, had been the common parent. Browning-Ferris Indus., Inc. v. United States,
75 Fed. Cl. 591 (2007). We reverse and remand.
I
The parties know the facts of this case, which thus need not be recited in any
detail for purposes of this opinion. In a nutshell, Inc. filed a tax refund suit in the Court
of Federal Claims. The court's jurisdiction over such a suit depends on there having
first been a proper request for refund filed by the plaintiff and denied by the government.
26 U.S.C. § 7422(a); Chicago Milwaukee Corp. v. United States, 40 F.3d 373, 374 (Fed.
Cir. 1994). After the suit was filed by Inc., its counsel explored the consequences, for
tax refund filing purposes, of Inc.'s conversion on December 31, 2004, to a limited
liability company ("LLC") under Delaware law.
II
Under settled law, a company that ceases to exist may not act as agent for a
consolidated group. Interlake Corp. v. Comm'r of Internal Revenue, 112 T.C. 103, 114
(1999) ("Of course, if the common parent ceases to exist, its authority to act for the
group terminates."). Under the Delaware statute pursuant to which Inc. converted to
LLC, "conversion shall not constitute dissolution of the corporation." 8 Del. C. § 266(f).
Thus, Inc. continued to exist under Delaware law after its conversion to LLC.
Inc.'s counsel before the Court of Federal Claims was concerned, however, that
under a particular Treasury regulation, Inc. was, for tax refund filing purposes, deemed
liquidated as a result of its conversion to LLC. Since Inc.'s refund filings for the 1997
and 1998 tax years had been filed in Inc.'s name after its December 31, 2004,
conversion, counsel opined that the hypothetical event of deemed liquidation deprived
Inc. of its standing to file for refunds for those two tax years. Lacking proper standing,
Inc. would not have presented a proper request for refunds, and consequently the
2007-5144 2
predicate for jurisdiction in the Court of Federal Claims would not be met. Concerned
that the Court of Federal Claims might lack jurisdiction over its refund suit, Inc. moved
for voluntary dismissal without prejudice.
III
In order for Inc.'s motion to dismiss to succeed, Inc. had to convince the Court of
Federal Claims that Inc. ceased to exist before the refund claims for 1997 and 1998
were filed. Because Inc. continued to exist under Delaware law after its conversion to
LLC, Inc.'s failure to exist had to be demonstrated under federal tax law.
The only federal tax authority presented to the court to support the claim that Inc.
ceased to exist after its conversion is Treas. Reg. §301.7701-3(g)(1)(iii). That particular
regulation deals with a very precise situation, namely conversion of an association to a
disregarded entity:
(iii) Association to disgregarded entity. If an eligible entity
classified as an association elects under paragraph (c)(1)(i)
of this section to be disregarded as an entity separate from
its owner, the following is deemed to occur: The association
distributes all of its assets and liabilities to its single owner in
liquidation of the association.
The Court of Federal Claims believed that this regulation applied to the facts of this
case, and that Inc.'s conversion to a limited liability company triggered the deemed
liquidation of Inc.
IV
At oral argument of this appeal, it became apparent that the above regulation
does not apply to the facts of this case. Inc. is a corporation, not an "eligible entity" as
defined in the pertinent regulation. Even if Inc. became an eligible entity when it
converted to LLC, it was never an "eligible entity classified as an association."
2007-5144 3
Moreover, neither Inc. nor LLC ever made any election under paragraph (c)(1)(i) of
Treas. Reg. §301-7701-3. Counsel for Inc. could point to no other source of federal tax
law that might support the contention that Inc. ceased to exist for the purpose of filing
for tax refunds for years before Inc.'s conversion to LLC. Nor did counsel assert that
Inc. had made an election under paragraph (c)(1)(i), which requires the election of an
eligible entity to be disregarded to be made on Form 8832 and filed with the service
center designated on Form 8832. As noted, no such election had been made.
The Court of Federal Claims erred in its belief that the above-cited deemed
liquidation regulation applies to the facts of this case. It does not, and in the absence of
any other authority cited to produce the hypothetical demise of Inc. for purposes of filing
the tax refund requests for 1997 and 1998, we must reverse the ruling that Inc. ceased
to exist as of the date of its conversion to LLC.
Inc., not having been shown to lack standing to have filed the two identified
refund requests, passes jurisdictional muster with its tax refund case in the Court of
Federal Claims. The order dismissing the complaint is reversed. The case is remanded
for further proceedings.
COSTS
No costs.
2007-5144 4