Exxon Mobil Corporation and Affiliated Companies, f.k.a. Exxon Corporation and Affiliated Companies v. Commissioner , 136 T.C. 99 ( 2011 )

EXXON MOBIL CORPORATION AND AFFILIATED COMPANIES,
F.K.A. EXXON CORPORATION AND AFFILIATED COMPANIES,
PETITIONERS v. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT
Docket Nos. 18618–89, 18432–90. Filed February 3, 2011.
The Tax Reform Act of 1986, Pub. L. 99–514, sec. 1511(a),
100 Stat. 2744, modified sec. 6621, I.R.C., to increase the
interest required to be paid by taxpayers to the Government
on underpayments to a higher rate than the Government was
required to pay taxpayers on overpayments. This resulted in
taxpayers’ having to pay interest to the Government even
when underpayments were offset by overpayments; i.e., when
no tax was due. In 1998 Congress enacted sec. 6621(d), I.R.C.,
and an uncodified special rule set forth in the Internal Rev-
enue Service Restructuring and Reform Act of 1998, Pub. L.
105–206, sec. 3301(c)(2), 112 Stat. 741, as amended by the
Omnibus Consolidated and Emergency Supplemental Appro-
priations Act, 1999, Pub. L. 105–277, div. J, sec. 4002(d), 112
Stat. 2681–906 (1998), to eliminate the interest rate differen-
tial on overlapping periods of interest on overpayments and
underpayments. Ps seek relief from interest rate differentials
due on underpayments for 1975 through 1978 and equivalent
overpayments for 1979 and 1980. Respondent disputes the
jurisdiction of the Court to make the determination and the
applicability of interest netting to the facts of these cases.
Held: Pursuant to sec. 7481(c), I.R.C., this Court has jurisdic-
tion to determine interest netting pursuant to sec. 6621(d),
I.R.C., and the uncodified special rule. Held, further, sec.
6621(d), I.R.C., and the uncodified special rule apply to 1979
and 1980, and petitioners are entitled to eliminate the
interest rate differentials for the overlap periods in the
amounts stipulated by the parties.
Kevin L. Kenworthy and Alan I. Horowitz, for petitioners.
R. Scott Shieldes, for respondent.
OPINION
HAINES, Judge: These consolidated cases are before the
Court on respondent’s motion to dismiss for lack of jurisdic-
tion, petitioners’ motion for partial summary judgment under
sections 7481(c) and 6621(d) seeking a net interest rate of
zero on equivalent underpayments and overpayments in Fed-
eral income taxes for overlapping periods preceding July 22,
99
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100 136 UNITED STATES TAX COURT REPORTS (99)
1998, and respondent’s cross-motion for partial summary
judgment in opposition to petitioners’ motion. 1
The issues presented are: (1) Whether this Court has juris-
diction under section 7481(c) to resolve petitioners’ section
6621(d) interest-netting claim; and (2) whether, pursuant to
section 6621(d) and an uncodified special rule set forth in the
Internal Revenue Service Restructuring and Reform Act of
1998 (RRA 1998), Pub. L. 105–206, sec. 3301(c)(2), 112 Stat.
741, as amended by the Omnibus Consolidated and Emer-
gency Supplemental Appropriations Act, 1999 (1998 Act),
Pub. L. 105–277, div. J, sec. 4002(d), 112 Stat. 2681–906
(1998), petitioners are entitled to a net interest rate of zero
on equivalent underpayments and overpayments in Federal
income taxes for overlapping periods preceding July 22, 1998.
The parties have stipulated the facts relevant to the
instant motions.
Background
Petitioners in these cases, Exxon Mobil Corp. & Affiliated
Cos., are corporations organized and existing under the laws
of the United States. Petitioners are successors in interest to
Exxon Corp. & Affiliated Cos. All references to petitioners
are either to Exxon Mobil Corp. & Affiliated Cos. or to Exxon
Corp. & Affiliated Cos., where the context so requires. The
parties have stipulated that an appeal would lie with the
U.S. Court of Appeals for the Second Circuit.
I. Prior Determinations
Petitioners filed timely consolidated Federal income tax
returns for 1975 through 1980 that were audited by the
Internal Revenue Service (IRS) over a period ending in 1990.
Adjustments that petitioners agreed to were assessed and
the assessments, together with ‘‘underpayment interest’’,
were paid. Unless otherwise specified or the context other-
wise requires, the term ‘‘underpayment interest’’ refers to
interest provided for generally by section 6601(a), the term
‘‘overpayment interest’’ refers to interest provided for gen-
1 Unless otherwise indicated, all section references are to the Internal Revenue Code (Code),
as amended and in effect at relevant times. All Rule references are to the Tax Court Rules of
Practice and Procedure. Amounts are rounded to the nearest dollar.
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(99) EXXON MOBIL CORP. v. COMMISSIONER 101
erally by section 6611(a), and the term ‘‘interest’’ refers to
either or both.
A. The 1979/1980 Litigation
On June 29, 1989, respondent issued a notice of deficiency
to petitioners, determining income tax deficiencies for 1977,
1978, and 1979. 2 Petitioners did not petition the Court in
response to the notice of deficiency for 1977 and 1978, and,
as a consequence, those deficiencies were assessed and paid.
Petitioners did, however, file a timely petition in response to
the notice of deficiency for 1979 which was assigned docket
No. 18618–89 (1979 litigation).
On July 16, 1990, respondent issued a notice of deficiency
to petitioners for 1980 as well as 1981 and 1982. 3 Petitioners
timely filed a petition for redetermination in this Court for
those years which was assigned docket No. 18432–90 (1980
litigation). During the course of respondent’s audits, peti-
tioners’ administrative appeals, and the litigation of these
cases, petitioners made a number of substantial advance pay-
ments to respondent of taxes and interest with respect to
each of the tax deficiencies determined by respondent against
petitioners for 1979 and 1980.
This Court has issued a number of opinions addressing the
issues raised in these cases. 4 The parties ultimately resolved
the remaining issues by agreement, and decisions were
entered in accordance with the parties’ agreed computations.
On February 27, 2004, this Court entered a revised stipu-
lated decision in the 1979 litigation, determining that peti-
tioners were entitled to credit or refund of an income tax
overpayment for 1979. The revised stipulated decision
became final within the meaning of section 7481(a) on May
2 Before expiration of the periods of limitations on assessment for 1977, 1978, and 1979, the
parties extended the time to assess for these years to June 30, 1989.
3 Before expiration of the period of limitations on assessment for 1980, petitioners and re-
spondent extended the time to assess tax for 1980 to July 18, 1990.
4 See, e.g., Exxon Mobil Corp. v. Commissioner, 126 T.C. 36 (2006) (involving determination
of proper rate of interest to be applied to overpayment interest after Jan. 1, 1995), affd. 484
F.3d 731 (5th Cir. 2007); Exxon Mobil Corp. v. Commissioner, 114 T.C. 293 (2000) (involving
the deductibility of estimated dismantlement, removal, and restoration costs relating to the
Prudhoe Bay, Alaska, oil field); Exxon Corp. v. Commissioner, T.C. Memo. 1999–247 (involving
the deductibility of interest relating to contested tax deficiencies); Exxon Corp. v. Commissioner,
102 T.C. 721 (1994) (involving the computation of percentage depletion relating to the sale of
natural gas); Exxon Corp. v. Commissioner, T.C. Memo 1993–616 (involving the allocation of
profits from sales of Saudi Arabian crude oil), affd. sub nom. Texaco, Inc. v. Commissioner, 98
F.3d 825 (5th Cir. 1996); Exxon Corp. v. Commissioner, T.C. Memo. 1992–92.
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102 136 UNITED STATES TAX COURT REPORTS (99)
27, 2004. Respondent promptly credited the overpayment
determined in the 1979 litigation to petitioners’ accounts for
1989, 1997, 1998, 1999, and 2000 and paid to petitioners
overpayment interest. On June 14, 2004, respondent abated
income tax and underpayment interest for 1979 in accord-
ance with the decision entered in the 1979 litigation.
On July 28, 2004, this Court entered a stipulated decision
in the 1980 litigation, determining in part that petitioners
were entitled to credit or refund of an income tax overpay-
ment for 1980. The stipulated decision became final within
the meaning of section 7481(a) on October 26, 2004. On the
same day, in accordance with the decision entered in the
1980 litigation, respondent refunded to petitioners the over-
payment so determined and paid them overpayment interest.
On November 15, 2004, respondent abated income tax and
underpayment interest for 1980 in accordance with the deci-
sion in the 1980 litigation.
B. The 1975 Litigation
Petitioners also litigated their Federal income tax liabil-
ities for 1975 through 1978 in other forums. They consented
to the assessment of adjustments to which they did not
agree, paid the tax and interest assessed, and filed claims for
refund. Petitioners’ refund claims for 1975 through 1978
were not attributable to either interest or interest netting
but established the predicate for the subsequent refund
litigation described below. In 1995 respondent allowed some
of petitioners’ refund claims and abated income tax and
underpayment interest that reduced but did not eliminate
the underpayments previously assessed and paid for 1975
through 1978.
On October 30, 1996, petitioners timely filed a complaint
in the U.S. Court of Federal Claims seeking a refund of
income tax for 1975 (1975 litigation). Following a trial on the
merits of the substantive issues in the 1975 litigation, the
Court of Federal Claims issued findings of fact and conclu-
sions of law. Exxon Corp. v. United States, 45 Fed. Cl. 581(1999). Both parties appealed, and the Court of Appeals for
the Federal Circuit affirmed in part and reversed in part,
directing the Court of Federal Claims to calculate the
resulting refund due petitioners. Exxon Mobil Corp. v. United
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(99) EXXON MOBIL CORP. v. COMMISSIONER 103
States, 244 F.3d 1341 (Fed. Cir. 2001). On November 6, 2001,
judgment was entered in the 1975 litigation pursuant to
stipulation of the parties (1975 judgment).
On March 18, 2002, respondent satisfied the 1975 judg-
ment. On April 8, 2002, respondent abated income tax and
related underpayment interest in compliance with the 1975
judgment that reduced but did not eliminate the underpay-
ments previously assessed and paid for 1975.
C. The 1976 Litigation
On April 18, 2000, petitioners filed a complaint in the U.S.
District Court for the Northern District of Texas seeking an
income tax refund for 1976 (1976 litigation). On March 10,
2003, following a trial on the merits of the substantive
issues, the District Court issued findings of fact and conclu-
sions of law. Exxon Mobil Corp. v. United States, 253 F.
Supp. 2d 915 (N.D. Tex. 2003). Petitioners appealed to the
U.S. Court of Appeals for the Fifth Circuit.
While the 1976 litigation was docketed on appeal, the par-
ties reached a settlement that required a refund to be paid.
Respondent paid the refund, and, pursuant to the settlement,
abated income tax and related underpayment interest for
1976 that reduced but did not eliminate the underpayments
previously assessed and paid for 1976.
D. The 1977/1978 Litigation
On September 17, 2002, petitioners filed a complaint in the
U.S. District Court for the Northern District of Texas,
seeking income tax refunds for 1977 and 1978 (1977/1978
litigation). The parties resolved the 1977/1978 litigation by
agreement in 2003. Respondent refunded moneys to peti-
tioners for both years in accordance with the resolution of
the 1977/1978 litigation. Respondent abated income tax and
related underpayment interest in accordance with the resolu-
tion for 1977 and 1978 that reduced but did not eliminate the
underpayments previously assessed and paid for 1977 and
1978.
II. Interest Netting
Before 1987, section 6621 applied the same annual interest
rate to overpayments and underpayments. Therefore, if a
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104 136 UNITED STATES TAX COURT REPORTS (99)
taxpayer owed the Government an underpayment and the
Government, in turn, owed the taxpayer an overpayment in
an equivalent amount, the amounts could be offset pursuant
to section 6402 and no interest would be paid by either party.
However, beginning January 1, 1987, Congress amended
section 6621 to increase the rate of interest a taxpayer paid
on underpayments to a higher rate than a taxpayer received
on overpayments. See Tax Reform Act of 1986 (TRA 1986),
Pub. L. 99–514, sec. 1511(a), (b), (d), 100 Stat. 2744. Thus,
a taxpayer could end up paying interest to the Government
even in situations when no tax was due; i.e., when an under-
payment and an overpayment offset each other.
Congress recognized that taxpayers should not be paying
interest to the Government if no net tax was due. However,
it took 10 years before the problem was addressed. In 1998
Congress again amended section 6621 by adding section
6621(d) to authorize interest netting for periods when over-
payments and underpayments offset each other. See RRA
1998 sec. 3301, 112 Stat. 741. Section 6621(d) applied
prospectively to periods of overlap after July 22, 1998. How-
ever, an uncodified special rule in RRA 1998 sec. 3301(c)(2)
applied interest netting retroactively. Congress subsequently
added to the rule the phrase ‘‘Subject to any applicable
statute of limitation not having expired with regard to either
a tax underpayment or a tax overpayment’’ in a technical
corrections amendment later the same year. See 1998 Act
sec. 4002(d). The parties are now disputing the scope of
interest-netting relief granted by section 6621(d) and the
uncodified special rule.
Petitioners sought both administratively and in this Court
to preserve their right to interest netting. During the ongoing
litigation in the Court of Federal Claims and the District
Court for the Northern District of Texas, on December 17,
1999, petitioners requested administrative interest-netting
relief under newly enacted section 6621(d) and the uncodified
special rule by filing a timely claim with respondent.
On February 28, 2005, petitioners timely filed a motion
with this Court to redetermine postdecision interest for 1979
and 1980 pursuant to section 7481(c) and Rule 261, both of
which provisions will be discussed shortly. But for the motion
presently before this Court, petitioners have not asserted a
claim attributable to interest netting in prior litigation.
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(99) EXXON MOBIL CORP. v. COMMISSIONER 105
After reflecting all of the underpayments and overpay-
ments, together with interest, paid or credited by the parties
for 1975 through 1980, the parties have stipulated the fol-
lowing summary of petitioners’ income tax underpayment
and overpayment balances that have not been previously
netted for interest-netting purposes pursuant to section
6621(d). They have also stipulated the starting and ending
dates of the periods of overlap:
(Over)-/under-
Year payment balance Start date End date
1975 $45,327,497 1/1/87 12/22/87
1975 3,164,434 12/22/87 12/28/88
1976 6,218,939 1/1/87 12/22/87
1977 135,679,108 1/1/87 12/22/87
1977 119,043,520 12/22/87 7/18/88
1978 103,645,011 1/1/87 10/27/89
1979 (137,750,546) 1/1/87 10/27/89
1980 (208,122,341) 1/1/87 10/27/89
Should the Court grant petitioners’ motion as it pertains to
interest netting, the parties have also stipulated that peti-
tioners would be entitled to additional interest in the fol-
lowing amounts:
Additional Statutory
interest interest
to be paid date
$565,612 ................................................................... 12/28/88
66,033 ................................................................... 12/22/87
4,434,833 .................................................................. 10/27/89
3,864,292 .................................................................. 10/27/89
Discussion
I. Interest Provisions
Section 6601 requires a taxpayer to pay interest on any
income taxes remaining unpaid. Section 6601 provides:
SEC. 6601. INTEREST ON UNDERPAYMENT, NONPAYMENT, OR
EXTENSIONS OF TIME FOR PAYMENT, OF TAX.
(a) GENERAL RULE.—If any amount of tax imposed by this title * * * is
not paid on or before the last date prescribed for payment, interest on such
amount at the underpayment rate established under section 6621 shall be
paid for the period from such last date to the date paid.
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106 136 UNITED STATES TAX COURT REPORTS (99)
Conversely, section 6611 requires the Government to pay
interest on any overpaid income taxes. Section 6611 provides:
SEC. 6611. INTEREST ON OVERPAYMENTS.
(a) RATE.—Interest shall be allowed and paid upon any overpayment in
respect of any internal revenue tax at the overpayment rate established
under section 6621.
Before 1987 interest netting was accomplished through sec-
tion 6402, which authorizes the IRS to credit an overpayment
owed to a taxpayer from one year against an underpayment
owed by the same taxpayer to the Government from a dif-
ferent year. After the two amounts were offset, the interest
rate was applied to the net underpayment or net overpay-
ment, automatically resulting in less interest being paid or
received by the taxpayer. An offset pursuant to section 6402
was used only if the underpayment and overpayment were
both outstanding.
Effective January 1, 1987, TRA 1986 sec. 1511(a), (b), and
(d) increased the rate of interest a taxpayer pays on under-
payments to a higher rate than a taxpayer receives on over-
payments. The interest rate differential under section 6621
applied to underpayments that were still outstanding at the
end of 1986 as well as to new tax liabilities that arose after
1986. After the enactment of TRA 1986, the IRS no longer
offset an outstanding overpayment and underpayment and
applied an interest rate to the net amount pursuant to sec-
tion 6402. Rather, underpayment interest was calculated at
the higher underpayment rate while overpayment interest
was calculated at the lower overpayment rate. If the tax-
payer had equivalent overlapping overpayments and under-
payments for a period, the Government collected net interest
even though no tax was due to the extent of the overlap.
When TRA 1986 was enacted, Congress recognized the need
for a global interest-netting procedure that would prevent
taxpayers from having to pay net interest to the extent
underpayments and overpayments were equivalent. Congress
also recognized, however, that ‘‘The IRS requires substantial
lead time to develop the data processing capability to net
such underpayments and overpayments in applying differen-
tial interest rates.’’ S. Rept. 99–313, at 185 (1986), 1986–3
C.B. (Vol. 3) 1, 185. Accordingly, Congress provided for a 3-
year ‘‘transition period’’ during which interest netting would
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(99) EXXON MOBIL CORP. v. COMMISSIONER 107
be governed by IRS regulations. H. Conf. Rept. 99–841 (Vol.
II), at II–785 (1986), 1986–3 C.B. (Vol. 4) 1, 785. By the close
of that period, Congress stated that ‘‘the IRS should have
implemented the most comprehensive netting procedures
that are consistent with sound administrative practice.’’ Id.By 1996 the Department of the Treasury (Treasury) and
the IRS had initiated a study but had not begun to implement
regulations or comprehensive interest-netting procedures.
See Announcement 96–5, 1996–4 I.R.B. 99; Notice 96–18,
1996–1 C.B. 370. In July 1996 Congress became impatient
and statutorily commissioned the Secretary of the Treasury
or his delegate to ‘‘conduct a study of the manner in which
the Internal Revenue Service has implemented the netting of
interest on overpayments and underpayments and of the
policy and administrative implications of global netting’’ and
to submit that study to Congress within 6 months. See Tax-
payer Bill of Rights 2, Pub. L. 104–168, sec. 1208, 110 Stat.
1473 (1996).
In response, Treasury submitted a report to Congress in
April 1997 which acknowledged that ‘‘Congress has pre-
viously concluded that comprehensive interest netting is
desirable to the maximum extent feasible.’’ See Department
of the Treasury, Office of Tax Policy, Report to the Congress
on Netting of Interest on Tax Overpayments and Under-
payments 2 (1997) (Treasury report) (available at
http: / / treasury.gov / resource - center / tax - policy / Documents /
t0neting.pdf). But the Treasury report stated that the
Treasury lacked statutory authority to implement global
interest netting and recommended that Congress grant such
authority with the following limitations: (1) Adopt the
interest equalization approach rather than an extension of
the credit/offsetting approach and require at least one over-
lapping period to have an outstanding balance in order for
the interest equalization approach to apply; (2) limit interest
netting to income taxes; (3) apply interest netting ‘‘only to
tax years that are not barred by statute’’, citing principles of
finality; (4) require the taxpayer to initiate interest netting
and bear the burden of establishing entitlement; and (5)
allow a phase-in period of 2 years. See id. at 41–42.
Congress rejected most of the recommendations, either in
whole or in part, when it enacted section 6621(d). See RRA
1998 sec. 3301. Section 6621(d) provides:
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108 136 UNITED STATES TAX COURT REPORTS (99)
SEC. 6621(d). ELIMINATION OF INTEREST ON OVERLAPPING PERIODS OF
TAX OVERPAYMENTS AND UNDERPAYMENTS.—To the extent that, for any
period, interest is payable under subchapter A and allowable under sub-
chapter B on equivalent underpayments and overpayments by the same
taxpayer of tax imposed by this title, the net rate of interest under this
section on such amounts shall be zero for such period.
Section 6621(d) adopted the interest equalization approach
but rejected the requirement that there be a balance out-
standing for one overlap period. See H. Conf. Rept. 105–599,
at 257 (1998), 1998–3 C.B. 747, 1011 (stating that interest
netting under section 6621(d) is applied without regard to
whether an overpayment or an underpayment is currently
outstanding). Further, the net interest rate of zero applied
even when special rules increased the rate of interest for
large corporate underpayments under section 6621(c) or
decreased the rate of interest for large corporate overpay-
ments under section 6621(a). Id. Interest netting was not
limited to income taxes and was made available ‘‘for any
period’’ and for any ‘‘tax imposed by this title’’. The burden
was not placed on the taxpayer to initiate interest netting or
to establish entitlement. Rather, section 6621(d) required the
IRS to automatically apply the net rate of zero on equivalent
overpayments and underpayments for the overlapping period.
Section 6621(d) significantly broadened the availability of
interest netting beyond what was recommended by the
Treasury report.
Section 6621(d) was effective for periods of overlap begin-
ning after July 22, 1998. The enactment of section 6621(d)
was accompanied by an uncodified special rule (special rule)
that permitted taxpayers to seek application of the interest-
netting relief of section 6621(d) for periods of overlap pre-
ceding July 22, 1998, so long as certain administrative filing
requirements were met. See RRA 1998 sec. 3301(c)(2). The
special rule initially enacted did not refer to a statute of
limitation. A technical correction provision, 1998 Act sec.
4002(d), amended RRA 1998 sec. 3301(c)(2) by adding: ‘‘Sub-
ject to any applicable statute of limitation not having expired
with regard to either a tax underpayment or a tax overpay-
ment’’. The special rule, as amended, provides:
(2) Special rule.—Subject to any applicable statute of limitation not
having expired with regard to either a tax underpayment or a tax overpay-
ment, the amendments made by this section shall apply to interest for
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(99) EXXON MOBIL CORP. v. COMMISSIONER 109
periods beginning before the [July 22, 1998] date of the enactment of this
Act if the taxpayer—
(A) reasonably identifies and establishes periods of such tax overpay-
ments and underpayments for which the zero rate applies; and
(B) not later than December 31, 1999, requests the Secretary of the
Treasury to apply section 6621(d) of the Internal Revenue Code of 1986,
as added by subsection (a), to such periods.
The IRS promulgated Rev. Proc. 99–43, 1999–2 C.B. 579, to
implement procedures for a taxpayer to request interest net-
ting under section 6621(d) and the special rule. On December
17, 1999, petitioners requested administrative interest-net-
ting relief by filing a timely claim with respondent on Form
843, Claim for Refund and Request for Abatement, in accord-
ance with the revenue procedure.
RRA 1998 sec. 3301(b) also added section 6601(f) to clarify
the offset provision of section 6402. Section 6601(f) provides:
SEC. 6601(f). SATISFACTION BY CREDITS.—If any portion of a tax is satis-
fied by credit of an overpayment, then no interest shall be imposed under
this section on the portion of the tax so satisfied for any period during
which, if the credit had not been made, interest would have been allowable
with respect to such overpayment. The preceding sentence shall not apply
to the extent that section 6621(d) applies.
If an outstanding overpayment is used to offset an out-
standing underpayment under section 6402, a zero interest
rate applies to the underpayment so offset. However, section
6402 applies only when the underpayment and the overpay-
ment are both outstanding. Therefore, as section 6601(f) pro-
vides, it does not apply to situations covered by section
6621(d) where there may be no outstanding balances at the
time the interest-netting determination is made.
II. Tax Court Jurisdiction
The Tax Court is a court of limited jurisdiction, and we
may exercise our jurisdiction only to the extent authorized by
Congress. See sec. 7442. Before 1988 it was well settled that
this Court’s jurisdiction to redetermine a deficiency in tax
generally did not extend to statutory interest imposed under
section 6601. See Bax v. Commissioner, 13 F.3d 54, 56–57 (2d
Cir. 1993); Asciutto v. Commissioner, T.C. Memo. 1992–564,
affd. per order 26 F.3d 108 (9th Cir. 1994). The only recourse
for a taxpayer who disputed the amount of underpayment
interest was to pay the disputed interest, file a claim for
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110 136 UNITED STATES TAX COURT REPORTS (99)
refund, and then file a separate action either with a Federal
District Court, 28 U.S.C. sec. 1346(a)(2) (2006), or with the
Court of Federal Claims, 28 U.S.C. sec. 1491(a)(1) (2006). In
contrast, consistent with section 6601(e), the Tax Court did
have jurisdiction to redetermine statutory interest if a tax-
payer had properly invoked the Court’s overpayment jurisdic-
tion pursuant to section 6512(b)(2). See Barton v. Commis-
sioner, 97 T.C. 548, 554–555 (1991).
In 1988 the enactment of section 7481(c) in the Technical
and Miscellaneous Revenue Act of 1988, Pub. L. 100–647,
sec. 6246(a), 102 Stat. 3751, gave the Tax Court jurisdiction
to decide underpayment interest disputes after a decision for
a deficiency became final, see H. Conf. Rept. 100–1104 (Vol.
II), at 232 (1988), 1988–3 C.B. 473, 722 (providing that the
new section allowed a motion to redetermine interest ‘‘If a
dispute arises over the IRS’ computation of the interest due
on a deficiency’’). There was some confusion, however,
because section 7481(c) did not refer to overpayment interest.
In 1997 Congress amended section 7481(c) in the Taxpayer
Relief Act of 1997, Pub. L. 105–34, sec. 1452(a), 111 Stat.
1054, to clarify that ‘‘the Tax Court’s jurisdiction to redeter-
mine the amount of interest under section 7481(c) does not
depend on whether the interest is underpayment or overpay-
ment interest.’’ See H. Conf. Rept. 105–220, at 732–733
(1997), 1997–4 C.B. (Vol. 2) 1457, 2202–2203. Section 7481(c)
provides:
SEC. 7481(c). JURISDICTION OVER INTEREST DETERMINATIONS.—
(1) IN GENERAL.—Notwithstanding subsection (a), if, within 1 year
after the date the decision of the Tax Court becomes final under sub-
section (a) in a case to which this subsection applies, the taxpayer files
a motion in the Tax Court for a redetermination of the amount of
interest involved, then the Tax Court may reopen the case solely to
determine whether the taxpayer has made an overpayment of such
interest or the Secretary has made an underpayment of such interest
and the amount thereof.
Thus, section 7481(c) grants the Tax Court nonexclusive
jurisdiction, along with Federal District Courts and the
Court of Federal Claims, to determine disputes with respect
to the determination of underpayment and overpayment
interest. H. Conf. Rept. 105–220, supra at 733, 1997–4 C.B.
(Vol. 2) at 2203 (explaining that the clarification of this juris-
diction was not meant to ‘‘limit any other remedies that tax-
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(99) EXXON MOBIL CORP. v. COMMISSIONER 111
payers may currently have with respect to such determina-
tions, including in particular refund proceedings relating
solely to the amount of interest due’’).
In order for section 7481(c) to apply, this Court must have
determined that there is an underpayment pursuant to sec-
tion 6214(a) or an overpayment pursuant to section 6512(b),
and the decision with respect to the overpayment or under-
payment must be final. Section 7481(a) defines the cir-
cumstances when a decision of the Tax Court becomes final.
As a general rule, this Court lacks jurisdiction once a deci-
sion becomes final. 5 Taub v. Commissioner, 64 T.C. 741, 750
(1975), affd. without published opinion 538 F.2d 314 (2d Cir.
1976). However, section 7481(c) provides a limited statutory
exception to finality by authorizing the Court to reopen a
case in which a final decision has been entered only for the
purpose of determining postdecision interest disputes if the
taxpayer files a motion for redetermination of interest within
1 year from the date the decision became final.
The revised stipulated decision of this Court in the 1979
litigation, docket No. 18618–89, establishing an overpayment
for 1979 became final within the meaning of section 7481(a)
on May 27, 2004. The stipulated decision of this Court in the
1980 litigation, docket No. 18432–90, establishing an over-
payment for 1980 became final within the meaning of section
7481(a) on October 26, 2004. On February 28, 2005, peti-
tioners timely filed a motion with this Court to redetermine
interest for 1979 and 1980 pursuant to section 7481(c) and
Rule 261. 6
Although respondent concedes that petitioners have com-
plied with the procedural requirements set forth in section
7481(c) and Rule 261, respondent contends that sec-
5 There are limited exceptions to this rule. The Court may grant a motion for leave to consider:
(1) Whether the Court had jurisdiction to enter the decision in the first instance, Billingsley v.
Commissioner, 868 F.2d 1081, 1084–1085 (9th Cir. 1989), or (2) whether the decision entered
was the result of fraud on the Court, Abatti v. Commissioner, 859 F.2d 115, 118 (9th Cir. 1988),
affg. 86 T.C. 1319 (1986).
6 RULE 261. PROCEEDING TO REDETERMINE INTEREST
(a) Commencement of Proceeding: (1) How Proceeding Is Commenced: A proceeding to redeter-
mine interest on a deficiency assessed under Code section 6215 or to redetermine interest on
an overpayment determined under Code section 6512(b) shall be commenced by filing a motion
with the Court. The petitioner shall place on the motion the same docket number as that of
the action in which the Court redetermined the deficiency or determined the overpayment.
(2) When Proceeding May Be Commenced: Any proceeding under this Rule must be com-
menced within 1 year after the date that the Court’s decision becomes final within the meaning
of Code section 7481(a).
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112 136 UNITED STATES TAX COURT REPORTS (99)
tion 7481(c) does not grant this Court jurisdiction to deter-
mine interest netting pursuant to section 6621(d). Citing
Lincir v. Commissioner, T.C. Memo. 2009–153, respondent
argues that section 6621(d) is not an interest rate provision
but a computation of a separate interest-netting amount for
respondent to administratively apply. If there are no out-
standing balances to offset under section 6402(a), respondent
argues that the determination of a net rate of interest of zero
will result in the payment of money to the taxpayer. Thus,
respondent posits, a claim under section 6621(d) constitutes
a general claim for money against the Government which
must be brought in a separate proceeding. We disagree.
Section 6621(d) is, at its core, an interest rate provision.
Section 6601 requires a taxpayer to pay interest on any
income taxes remaining unpaid. Section 6611 requires the
Government to pay interest on any overpaid income taxes.
Both provisions refer to section 6621 to determine the rate
of interest. Section 6621(a) initially sets the general overpay-
ment and underpayment rates, subject to adjustments
required by section 6621(b) and (c). Section 6621(d) reduces
the interest rate set pursuant to section 6621(a) to the net
rate of zero during overlap periods when underpayments and
overpayments are equivalent. The fact that interest netting
may result in the Government’s owing money to a taxpayer
does not morph section 6621(d) into a general claim for
money. Section 6621(d) does not refer to an amount, only to
a rate.
In Lincir v. Commissioner, supra, we recognized that sec-
tion 6621(d) is an interest rate provision. Lincir dealt with
the interaction of section 6621(d) and the interest component
of the addition to tax for negligence under repealed section
6653(a). The taxpayer argued that interest netting should
apply to the interest calculated on the underpayment attrib-
utable to negligence. The Court held against the taxpayer,
finding that interest netting under section 6621(d) applies
only to interest on underpayments and overpayments, not to
interest on penalties or additions to tax. Lincir does not
stand for the proposition that section 6621(d) requires an
amount to be determined. Lincir was a collection due process
case in which the abuse of discretion standard was applied
in deciding whether to sustain the Commissioner’s deter-
mination.
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(99) EXXON MOBIL CORP. v. COMMISSIONER 113
Congress directed the IRS to implement ‘‘the most com-
prehensive netting procedures that are consistent with sound
administrative practice.’’ H. Conf. Rept. 99–841 (Vol. II),
supra at II–785, 1986–3 C.B. (Vol. 4) at 785. Such a state-
ment is not limited to section 6402. It also applies to section
6621(d). In response, the IRS promulgated Rev. Proc. 99–43,
supra, which sets forth interest-netting procedures for sec-
tion 6621(d). Interest-netting claims should, for the most
part, be resolved in administrative proceedings. Section
6621(d) does not require an interest-netting claim to be initi-
ated in a separate action within the IRS or in a particular
forum, respondent’s assertions to the contrary notwith-
standing.
If, however, the interest-netting claim under section
6621(d) cannot be settled administratively, various courts
have been given concurrent jurisdiction to resolve the dis-
pute. A taxpayer may file a suit for refund or for payment
of additional overpayment interest in a Federal District
Court, 28 U.S.C. secs. 1346(a)(1), 2401(a), or in the Court of
Federal Claims, 28 U.S.C. secs. 1491(a)(1), 2501. In addition
the taxpayer may, pursuant to section 7481(c), file a motion
to redetermine interest when postdecision interest is dis-
puted after a decision has become final. Petitioners have
timely filed a motion with this Court to redetermine interest
for 1979 and 1980 pursuant to section 7481(c).
We therefore hold that we have jurisdiction pursuant to
section 7481(c) to determine interest netting under section
6621(d).
III. The Scope of Jurisdiction
Respondent makes several arguments seeking to limit the
scope of this Court’s jurisdiction.
A. Determination of Interest Rates
Respondent contends that because the Court is a court of
limited jurisdiction, our jurisdiction under section 7481(c)
must be limited to the determination of interest rates.
The title of section 7481(c) is ‘‘Jurisdiction Over Interest
Determinations.’’ However, the text clearly provides that ‘‘the
Tax Court may reopen the case solely to determine whether
the taxpayer has made an overpayment of such interest or
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114 136 UNITED STATES TAX COURT REPORTS (99)
the Secretary has made an underpayment of such interest
and the amount thereof.’’ (Emphasis added.)
Rule 261(b)(3)(B) identifies the elements required to
redetermine the amount of interest involved in an overpay-
ment as ‘‘the amount and date of each payment in respect of
which the overpayment was determined’’ and ‘‘the amount
and date of each credit, offset, or refund received from the
Commissioner in respect of the overpayment and interest
claimed by the petitioner.’’ Determining the amount of
interest under section 7481(c) requires the Court to analyze
the applicable rate, the principal amount, and the length of
time the overpayment or underpayment is outstanding. Con-
sequently, our jurisdiction under section 7481(c) necessarily
covers the factors required to determine the proper amount
of overpayment interest with respect to the years before the
Court and is not limited to determination of interest rates.
Within this framework overpayment interest can be deter-
mined without the necessity of multiple proceedings.
B. Original Jurisdiction
Respondent contends that our interest determinations
under section 7481(c) must be limited to 1979 and 1980,
years over which we have original jurisdiction, and not to
prior years over which we have no jurisdiction.
In order to put this argument into perspective, we turn to
section 6214, entitled ‘‘Determinations by Tax Court.’’ Section
6214(b) provides:
SEC. 6214(b). JURISDICTION OVER OTHER YEARS AND QUARTERS.—The
Tax Court in redetermining a deficiency of income tax for any taxable year
* * * shall consider such facts with relation to the taxes for other years
* * * as may be necessary correctly to redetermine the amount of such
deficiency, but in so doing shall have no jurisdiction to determine whether
or not the tax for any other year * * * has been overpaid or underpaid.
* * *
The word ‘‘determine’’ as it is used in section 6214(b) has a
specific and narrow meaning that is not implicated in this
case. In Hill v. Commissioner, 95 T.C. 437, 439 (1990), the
Court stated that it has ‘‘distinguished our authority under
section 6214(b) to compute a tax for a year not before the
Court from our lack of authority under that same section to
‘determine’ a tax for such year.’’ See also Lone Manor Farms,
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(99) EXXON MOBIL CORP. v. COMMISSIONER 115
Inc. v. Commissioner, 61 T.C. 436, 440 (1974) (holding that
section 6214(b) ‘‘does not prevent us from computing, as
distinguished from ‘determining,’ the correct tax liability for
a year not in issue when such a computation is necessary to
a determination * * * for a year that has been placed in
issue’’), affd. without published opinion 510 F.2d 970 (3d Cir.
1975).
Petitioners argue, and we agree, that it is unnecessary for
this Court to make any determinations for 1975–78, the
underpayment years over which we have no jurisdiction. The
underpayment for 1975 was determined after a trial on the
merits of the substantive issues and appeal to the Court of
Appeals for the Federal Circuit. Exxon Mobil Corp. v. United
States, 244 F.3d 1341 (Fed. Cir. 2001). Judgment was
entered on November 6, 2001, pursuant to stipulation of the
parties. The underpayments for 1976, 1977, and 1978 were
determined by settlement after petitioners had filed com-
plaints in the District Court for the Northern District of
Texas. The settlement for 1976 was reached while the case
was on appeal to the Court of Appeals for the Fifth Circuit
after a trial on the merits of the substantive issues. Exxon
Mobil Corp. v. United States, 253 F. Supp. 2d 915 (N.D. Tex.
2003).
These determinations by courts of competent jurisdiction
do not require further determinations by this Court. The par-
ties have stipulated the balances of underpayments and over-
payments for 1975 through 1980, the applicable overlap
periods, and the applicable amounts of interest. We may con-
sider these facts related to the 1975–78 underpayment years
to determine interest netting for the 1979 and 1980 overpay-
ment years, years over which we do have jurisdiction. See
sec. 6214(b).
IV. The Impact of the Special Rule
A. Introduction
For convenience, we again quote pertinent portions of the
special rule:
(2) Special rule.—Subject to any applicable statute of limitation not
having expired with regard to either a tax underpayment or a tax overpay-
ment, the amendments made by this section shall apply to interest for
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116 136 UNITED STATES TAX COURT REPORTS (99)
periods beginning before the [July 22, 1998] date of the enactment of this
Act * * *
When the special rule was originally enacted, it extended
interest-netting relief retroactively and did not contain the
introductory ‘‘subject to’’ language. See RRA 1998 sec.
3301(c)(2). The ‘‘subject to’’ language was added a few
months later and was explicitly designated a technical
correction. See 1998 Act sec. 4002(d).
The parties have stipulated that the period for filing suit
for payment of additional overpayment interest for 1979 and
1980, the overpayment years before us, as generally provided
under 28 U.S.C. secs. 2401 and 2501 (2006), had not expired
as of July 22, 1998. However, the parties do not ask us to
decide in this proceeding the status of 1975–78 with respect
to the ‘‘subject to’’ language of the special rule.
Petitioners argue that retroactive application of section
6621(d) via the special rule is available where the limitations
period for either the overpayment period or the under-
payment period had not expired as of July 22, 1998.
Respondent argues that the special rule, as amended,
restricts retroactive interest netting to cases where both the
overpayment and underpayment years are open as of July
22, 1998, the effective date of section 6621(d).
The same arguments were made in FNMA v. United
States, 379 F.3d 1303, 1307 (Fed. Cir. 2004) (FNMA I), where
the Court of Appeals for the Federal Circuit, when inter-
preting the special rule, stated: ‘‘we agree that the language
at issue—‘[s]ubject to any applicable statute of limitation not
having expired with regard to either a tax underpayment or
a tax overpayment’—is equally subject to both proffered
interpretations, the parties’ efforts to persuade us to the con-
trary notwithstanding.’’ We also find the ‘‘subject to’’ lan-
guage susceptible to either interpretation and cannot deter-
mine, from the language itself, which interpretation Con-
gress intended.
Respondent bases his position on Rev. Proc. 99–43, supra,
which pronounced that both periods had to be open, and the
Court of Appeals’ decision in FNMA I, which came to the ulti-
mate conclusion that the special rule was a waiver of sov-
ereign immunity that required strict construction of the
statute in favor of the Government.
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(99) EXXON MOBIL CORP. v. COMMISSIONER 117
B. Rev. Proc. 99–43
Respondent argues that we should give Skidmore deference
to Rev. Proc. 99–43, supra. See Skidmore v. Swift & Co., 323
U.S. 134 (1944). The revenue procedure was promulgated 16
months after the special rule’s enactment and states that the
special rule requires that ‘‘both periods of limitation
applicable to the tax underpayment and to the tax overpay-
ment * * * must have been open on July 22, 1998’’. Rev.
Proc. 99–43, sec. 4.01, 1999–2 C.B. at 580. The pronounce-
ment in the revenue procedure is not supported by any anal-
ysis of text or legislative history or any other relevant guid-
ance. It is not an interpretation but a litigation position. The
extent to which deference is accorded a given agency
pronouncement ‘‘[depends] upon the thoroughness evident in
its consideration, the validity of its reasoning, its consistency
with earlier and later pronouncements, and all those factors
which give it power to persuade’’. Skidmore v. Swift & Co.,
supra at 140. Because the pronouncement in Rev. Proc. 99–
43, supra, that both periods of limitation must be open is
unaccompanied by any supporting rationale, it is not entitled
to deference and does not provide a basis for resolving the
issues before us. Accord FNMA I, 379 F.3d at 1307–1309.
C. FNMA I
In FNMA I a three-judge panel of the Court of Appeals for
the Federal Circuit held that although Rev. Proc. 99–43,
supra, does not provide a basis to decide the case, the special
rule constitutes a waiver of sovereign immunity because it
‘‘discriminates between those claims for overpaid interest
Congress has authorized and those it has not.’’ Id. at 1310.
Neither party in the case had raised sovereign immunity as
an issue. The Court of Appeals went on to hold that the
waiver was expressly conditioned by the introductory lan-
guage ‘‘Subject to any applicable statute of limitation not
having expired’’. Thus, the Court concluded that the term of
consent in the special rule limited a court’s jurisdiction to
entertain a suit, that the principle of strict construction had
to be applied, and that the principle assumed ‘‘primacy over
any other tools or principles of statutory construction’’. Id. at
1311 n.8. Therefore, the principle of strict construction
required an interpretation of the special rule in favor of the
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118 136 UNITED STATES TAX COURT REPORTS (99)
Government. The Court of Appeals remanded the case to the
Court of Federal Claims to determine whether the limita-
tions period for the underpayment year was closed on July
22, 1998. On remand, the Court of Federal Claims granted
summary judgment to the Government. See FNMA v. United
States, 69 Fed. Cl. 89 (2005), affd. 469 F.3d 968 (Fed. Cir.
2006). In affirming the Court of Federal Claims, the Court of
Appeals reaffirmed its position in FNMA I.
With all due respect to the Court of Appeals for the Fed-
eral Circuit, section 6621(d), as modified by the special rule,
is a remedial statute that must be interpreted to achieve the
remedial purpose Congress intended; i.e., taxpayer relief
from disparate interest rates. And such an interpretation is
appropriate regardless of whether the special rule constitutes
a waiver of sovereign immunity. See Sullivan v. Town &
Country Home Nursing Servs., Inc., 963 F.2d 1146, 1151–
1152 (9th Cir. 1992) (‘‘when the federal government waives
its immunity, the scope of the waiver is construed to achieve
its remedial purpose’’).
The Supreme Court has cautioned against overbroad use of
the strict construction principle if a waiver of sovereign
immunity is involved. See United States v. White Mountain
Apache Tribe, 537 U.S. 465, 472–473 (2003); United States v.
Mitchell, 463 U.S. 206, 216–219 (1983). The strict construc-
tion principle is actually ‘‘no more than an aid in the task of
determining congressional intent.’’ Block v. North Dakota ex
rel. Bd. of Univ. & Sch. Lands, 461 U.S. 273, 293 (1983)
(O’Connor, J., dissenting). ‘‘The mere observation that a
statute waives sovereign immunity * * * cannot resolve
questions of construction. The Court still must consider all
indicia of congressional intent.’’ Id. at 294; see also Franchise
Tax Bd. v. USPS, 467 U.S. 512, 521 (1984) (scope of waiver
of sovereign immunity ‘‘can only be ascertained by reference
to underlying congressional policy’’).
Section 6611(a) provides that ‘‘Interest shall be allowed
and paid upon any overpayment in respect of any internal
revenue tax’’. Section 6611(a) waives sovereign immunity.
See E.W. Scripps Co. & Subs. v. United States, 420 F.3d 589,
597 (6th Cir. 2005); Gen. Elec. Co. & Subs. v. United States,
56 Fed. Cl. 488, 497 (2003) (such a waiver exists in section
6611), affd. in part and remanded in part 384 F.3d 1307(Fed. Cir. 2004). While we find that the special rule is not
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(99) EXXON MOBIL CORP. v. COMMISSIONER 119
a waiver of sovereign immunity but an interest rate provi-
sion, the fact that the special rule is based on an existing
waiver in section 6611 does not mean that the special rule
itself is governed by the strict construction principle. See
Gomez-Perez v. Potter, 553 U.S. 474 (2008) (concluding that
a substantive provision in a section did not have the same
high hurdle of being narrowly construed in favor of the
Government as the waiver sovereign immunity provision,
even though they were in the same section); see also Dolan
v. USPS, 546 U.S. 481, 491–492 (2006); Kosak v. United
States, 465 U.S. 848, 853 n.9 (1984).
The ‘‘subject to’’ language was added by a technical correc-
tion. Unlike a typical statutory amendment that operates
prospectively and is designed to change prior law, a technical
correction relates back to the original date of enactment.
Congress turns to technical corrections when it wishes to
clarify existing law or repair a scrivener’s error, rather than
to change the substantive meaning of the statute. Wilhelm
Pudenz, GmbH v. Littlefuse, Inc., 177 F.3d 1204, 1210–1211
(11th Cir. 1999); Aetna Cas. & Sur. Co. v. Clerk, U.S. Bankr.
Court (In re Chateaugay Corp.), 89 F.3d 942, 954 (2d Cir.
1996). As a technical correction there is no doubt that the
special rule was not intended to restrict interest netting but
to extend interest-netting relief to periods of overlap pre-
ceding July 22, 1998, that were open on that date.
After considering the statutory text, legislative history and
relevant policies surrounding section 6621(d), and the special
rule, we hold that interest netting should be available even
if only one applicable limitations period was open on July 22,
1998. Otherwise, any closed period would trump an open one.
Moreover, two different limitation periods may apply to the
same tax year. By way of example, if a taxpayer can file a
timely suit for additional overpayment interest for a given
tax year, such a year should be considered ‘‘open’’ even if a
suit to redetermine the underlying tax liability is time
barred.
For the foregoing reasons, we hold that: (1) We have juris-
diction pursuant to section 7481(c) to determine interest net-
ting under section 6621(d) and the special rule; (2) the scope
of our jurisdiction is limited to a determination of interest
netting for 1979 and 1980, years for which the applicable
limitations periods were open as of July 22, 1998; (3) section
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120 136 UNITED STATES TAX COURT REPORTS (99)
6621(d) and the special rule require only one leg of the
limitations period to be open as of July 22, 1998; and (4) peti-
tioners are entitled to additional interest pursuant to section
6621(d) and the uncodified special rule in accordance with
the stipulations and agreements of the parties.
In reaching our holdings, we have considered all argu-
ments made, and, to the extent not mentioned, we conclude
that they are moot, irrelevant, or without merit.
To reflect the foregoing,
An order will be issued granting peti-
tioners’ motion for partial summary judg-
ment and denying respondent’s motion to dis-
miss for lack of jurisdiction and cross-motion
for partial summary judgment.
f
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