Wells Fargo & Company v. United States

United States Court of Appeals
for the Federal Circuit
______________________
WELLS FARGO & COMPANY,
Plaintiff-Appellee
v.
UNITED STATES,
Defendant-Appellant
______________________
2015-5059
______________________
Appeal from the United States Court of Federal
Claims in No. 1:11-cv-00808-NBF, Senior Judge Nancy B.
Firestone.
______________________
Decided: June 29, 2016
______________________
GERALD KAFKA, Latham & Watkins LLP, Washington
DC, argued for plaintiff-appellee. Also represented by
GREGORY G. GARRE, BENJAMIN SNYDER, NICOLLE NONKEN
GIBBS.
ELLEN PAGE DELSOLE, Tax Division, United States
Department of Justice, Washington, DC, argued for
defendant-appellant. Also represented by JONATHAN S.
COHEN, GILBERT STEVEN ROTHENBERG, CAROLINE D.
CIRAOLO, DIANA L. ERBSEN.
______________________
2 WELLS FARGO & COMPANY v. US
Before LOURIE, HUGHES, and STOLL, Circuit Judges.
STOLL, Circuit Judge.
The United States appeals from the Court of Federal
Claims’ order granting Wells Fargo & Company’s motion
for partial summary judgment and denying the govern-
ment’s motion for partial summary judgment. The court
held that Wells Fargo’s interest-netting claims under
§ 6621(d) of the Internal Revenue Code (“I.R.C.”) 1 satisfy
the statute’s “same taxpayer” requirement. The court
certified its interpretation of I.R.C. § 6621(d) for interloc-
utory review, and the government petitioned for permis-
sion to appeal. We granted the government’s petition
under 28 U.S.C. § 1292(d)(2). For the reasons below, we
affirm-in-part, reverse-in-part, and remand for proceed-
ings consistent with this opinion.
BACKGROUND
Wells Fargo originally filed three administrative
claims with the Internal Revenue Service seeking, among
other things, refunds based on interest netting under
§ 6621(d) between interest on tax underpayments and
interest on tax overpayments. The IRS denied the inter-
est netting claims at issue here. Wells Fargo then filed a
complaint in the Court of Federal Claims, requesting tax
refunds based on the application of interest netting under
§ 6621(d).
1 References to the I.R.C. are to Title 26 of the
United States Code.
WELLS FARGO & COMPANY v. US 3
I.
Congress enacted I.R.C. § 6621(d) to permit a taxpay-
er to cancel out, or “net,” interest on equivalent overpay-
ments and underpayments. Section § 6621(d) reads:
To the extent that, for any period, interest is pay-
able under subchapter A and allowable under
subchapter B on equivalent underpayments and
overpayments by the same taxpayer of tax im-
posed by this title, the net rate of interest under
this section on such amounts shall be zero for
such period.
I.R.C. § 6621(d) (emphasis added).
Absent an interest-netting provision like § 6621(d), a
taxpayer might make equivalent underpayments and
overpayments yet owe the IRS interest. This is because
corporate taxpayers pay underpayment interest to the
IRS at a higher rate than the IRS pays overpayment
interest to corporations. See Tax Reform Act of 1986,
Pub. L. No. 99-514, § 1511(a), 100 Stat. 2085, 2744.
Section 6621(d) corrects this inequity by permitting
taxpayers to net interest on “equivalent underpayments
and overpayments by the same taxpayer.”
II.
In the decades before and after the turn of the centu-
ry, Wells Fargo underwent seven mergers, resulting in
the current embodiment of the company. The companies
involved in these mergers made tax underpayments and
overpayments. Wells Fargo seeks to net these payments
under § 6621(d). In particular, Wells Fargo filed 64
separate claims for a refund in the Court of Federal
Claims relating to these mergers and tax payments.
Because of the complexity of the facts at issue, Wells
Fargo and the government distilled Wells Fargo’s claims
into three “situations” that served as test claims for the
4 WELLS FARGO & COMPANY v. US
factual and legal issues presented in the case. Wells
Fargo & Co. v. United States, 117 Fed. Cl. 30, 34 (Fed. Cl.
2014).
Situation One: In 1993, Old Wachovia had an over-
payment. In 1999, First Union had an underpayment.
Old Wachovia and First Union merged in 2001 through a
statutory merger under I.R.C. § 368(a)(1)(A). Situation
One is represented graphically below:
J.A. 1549 (annotated).
Situation Two: In 1993, First Union had an overpay-
ment. Between 1993 and 1999, First Union underwent
four mergers under I.R.C. § 368(a)(1)(A), (2)(D); First
Union was the surviving corporation in each merger.
Then, in 1999, First Union made an underpayment.
Situation Two is represented graphically below: 2
2 We recognize that Situation Two also includes the
1998 merger of FCNJ and First Union carried out under
I.R.C. § 368(a)(1)(A). Wells Fargo, 119 Fed. Cl. at 30.
WELLS FARGO & COMPANY v. US 5
J.A. 1549 (annotated).
Situation Three: In 1992, CoreStates had an over-
payment. In 1998, CoreStates merged with First Union
under I.R.C. § 368(a)(1)(A). In 1999, surviving-
corporation First Union made an underpayment. Situa-
tion Three is represented graphically below:
J.A. 1549 (annotated).
6 WELLS FARGO & COMPANY v. US
III.
Because § 6621(d) allows interest netting only by the
“same taxpayer,” the dispute below centered on the mean-
ing of “same taxpayer.” Wells Fargo contended that
principles of merger law made all merged corporations the
“same taxpayer” under the statute, regardless of the
timing of the payments or the prior identities of the
corporations making them. The government countered
that the taxpayers are the “same taxpayer” only if the
taxpayers making the underpayments and overpayments
have the same Taxpayer Identification Number (“TIN”) at
the time of the payments. The government conceded that,
under this definition of “same taxpayer,” the acquiring
corporation and surviving corporation in Situation Two
were the “same taxpayer” because the corporation making
the overpayment and the corporation making the under-
payment had the same TIN. The government alternative-
ly argued that the court should decide the “same
taxpayer” question on the basis of whether the corpora-
tions were the same in all relevant essentials at the time
of the payments.
In a partial summary judgment order, the Court of
Federal Claims held that Wells Fargo could net interest
in all three situations. After considering myriad sources
of authority, the court largely adopted Wells Fargo’s
position, holding that, under principles of merger law,
merged entities are the “same taxpayer” for the purposes
of § 6621(d). It first looked to the text of the statute to
determine whether the meaning of “same taxpayer” is
defined and concluded that it is not. The court explained
that neither the statute nor Treasury regulations define
the term “same taxpayer.” Wells Fargo, 117 Fed. Cl. at
36.
The court turned next to § 6621(d)’s legislative history
to see if it defines “same taxpayer,” but concluded it does
WELLS FARGO & COMPANY v. US 7
not. Nevertheless, the court found that “the legislative
history reveals that Congress intended for § 6621(d) to be
remedial in nature” and so “the statute must be construed
broadly.” Id. (citing Tcherepnin v. Knight, 389 U.S. 332,
336 (1967)). The court explained that the legislative
history offered two insights into Congress’s intent in
enacting the statute. First, the legislative history re-
vealed that Congress intended § 6621(d) “to provide
fairness for taxpayers.” Id. (citing H.R. Rep. No. 105-364,
pt. 1, at 63–64 (1997) (“[T]axpayers should be charged
interest only on the amount they actually owe, taking into
account overpayments and underpayments from all open
years.”); S. Rep. No. 105-174, at 61 (1998)). Second, the
history “ma[de] clear that Congress was aware that large
corporations, like plaintiff, would be the primary benefi-
ciaries of the provision, because only large corporations
such as plaintiff would likely have multiple open years
with the IRS.” Id.
The court also examined the sole Federal Circuit case
interpreting § 6621(d)’s “same taxpayer” provision, Ener-
gy East Corp. v. United States, 645 F.3d 1358
(Fed. Cir. 2011). The government had argued that Energy
East established that whether payments were made by
the “same taxpayer” must be measured at the time of the
overpayments and underpayments. But the court distin-
guished Energy East on the ground that it concerned a
group of corporations affiliated for filing consolidated
income tax returns, while Wells Fargo’s netting claims
implicated merged corporations. Wells Fargo, 117 Fed.
Cl. at 37–39.
Because the definition of “same taxpayer” remained
unclear after reviewing the text of the statute, the legisla-
tive history, and precedent, the court next turned to
principles of merger law. The court explained that mer-
ger law operates to take two separate entities and merge
them into one surviving corporation:
8 WELLS FARGO & COMPANY v. US
In a merger, the acquired and acquiring corpora-
tions have no post-merger existence beyond the
surviving corporation; instead, they become one
and the same by operation of law, and thereafter
the surviving corporation is liable for the pre-
merger tax payments of both the acquired and ac-
quiring corporations. Because the surviving cor-
poration steps into the shoes of the acquired
entity and the surviving corporation is liable ret-
roactively for the tax payments of its predeces-
sors, it does not matter when the initial payments
were made.
Id. at 38 (citing John Wiley & Sons, Inc. v. Livingston, 376
U.S. 543, 550 n.3 (1964); Treas. Reg. § 1.368-2(b)(1)(ii)).
The Court of Federal Claims also examined Treasury
regulations and guidance from the IRS predating this
case. It found that these sources authorized merged
corporations to net interest. Id. at 41. The court ex-
plained that while the guidance was not precedential, it
was helpful evidence in determining the position of the
IRS. Id. (citing Rowan Cos. v. United States, 452 U.S.
247, 261 n.17 (1981) (“Although these rulings have no
precedential force, . . . they are evidence . . . .”); Magma
Power Co. v. United States, 101 Fed. Cl. 562, 571–72 (Fed.
Cl. 2011)). The court found this guidance consistent with
Wells Fargo’s view that merged entities are the “same
taxpayer” for the purposes of the statute.
The court “conclude[d] that merged corporations are
the ‘same taxpayer’ for purposes of § 6621(d) based on the
undisputed principles of corporate law, as well as IRS
rules governing statutory mergers and IRS guidance.”
Wells Fargo, 117 Fed. Cl. at 42. The court reasoned that
an acquired corporation is the “same” as a surviving
corporation under the operation of merger law. The
surviving corporation takes on all of the assets and liabili-
ties of both the acquired corporation and the acquiring
WELLS FARGO & COMPANY v. US 9
corporation—the surviving corporation steps into the
shoes of the predecessor corporations. The court conclud-
ed that “where a statutory merger has occurred, the
surviving corporation is the ‘same taxpayer’ as the ac-
quired corporation for purposes of § 6621(d).” Id. at 38.
Applying that definition to the three situations de-
scribed above, the Court of Federal Claims granted Wells
Fargo’s motion for partial summary judgment, agreeing
that it could net interest under § 6621(d) in all three
situations. The government moved for the court to certify
its opinion for immediate appeal. The court granted the
motion and issued an amended opinion reflecting the
certification. The government then petitioned our court
for review under 28 U.S.C. § 1292(d)(2). We granted the
petition, and the government submitted its appeal.
DISCUSSION
We review a grant of summary judgment by the Court
of Federal Claims de novo. Salman Ranch Ltd v. United
States, 573 F.3d 1362, 1370 (Fed. Cir. 2009). We also
review statutory interpretation de novo. Energy E., 645
F.3d at 1361. Neither party disputes the facts as recited
by the Court of Federal Claims.
Adopting the Court of Federal Claims’ holding as its
position, Wells Fargo argues that whenever two compa-
nies merge, any payments they made—whether before or
after the merger—were made by the “same taxpayer.”
Specifically, Wells Fargo argues that because it “has
subsumed in one corporate form the corporate identities of
the several corporations that have been merged into it—
becoming by operation of law liable for their underpay-
ments (and interest thereon) and entitled to refunds of
their overpayments (and interest thereon)—the ‘same
taxpayer’ made each of the overpayments and underpay-
ments at issue in the case.” Appellee Br. 56. Wells Fargo
essentially argues that two merging entities are the
10 WELLS FARGO & COMPANY v. US
“same taxpayer” because the surviving corporation ac-
quires and assumes the legal identity of the acquired
corporation, so a merger effectively makes two corpora-
tions into one. In other words, because the current Wells
Fargo incorporated all of the corporate entities that made
the underpayments and overpayments through mergers,
Wells Fargo is the “same taxpayer” as all of those entities.
In contrast to Wells Fargo’s singular approach, the
government argues each situation separately. It does,
however, propose two alternative general-purpose tests
that would apply across all three situations. For its first
test, the government proposes that “same taxpayer” be
decided by an entity’s TIN. Alternatively, the government
proposes that we adopt a dictionary definition of the word
“same.” In particular, the government proposes that we
determine whether two taxpayers are the “same taxpay-
er” by looking to whether they have “an identity of ‘rele-
vant essentials.’” Appellant Br. 49 (quoting Webster’s
Third New Int’l Dictionary 2007 (1969)).
The government’s TIN test would read § 6621’s net-
ting provisions to require that a corporation have the
same TIN at the time of both the underpayment and the
overpayment. The government uses a TIN to identify
each taxpaying entity, and a corporation’s TIN will re-
main the same even if it experiences substantial change
to its corporate structure. But under the government’s
proposed definition, an acquired corporation’s ability to
net interest ends with a merger. After an acquired corpo-
ration merges, it loses its TIN. So under the govern-
ment’s test, pre-merger overpayments and
underpayments by an acquired corporation cannot be
netted with payments by a post-merger entity under
§ 6621(d).
Moreover, the government’s TIN test had been adopt-
ed by the Court of Federal Claims in an earlier case,
Magma Power, 101 Fed. Cl. at 569. In that case, the court
WELLS FARGO & COMPANY v. US 11
considered whether a group of affiliated corporations
could net interest under § 6621(d). The affiliated corpora-
tions formed a consolidated group where a common parent
filed a single unified income tax return under one TIN
and received any refunds on behalf of the group. The
court found the TIN to be determinative of same-taxpayer
status. Id. (“[T]here seems no better plain meaning of the
term ‘same taxpayer’ than ‘same taxpayer identification
number.’”). Thus, in that case, the consolidated group or
corporations met the “same taxpayer” requirement be-
cause they shared a single TIN.
In both situations, the government would have us look
to the identity of the payer at the time of the payments, as
it argues Energy East requires. In the government’s view,
Energy East “held that I.R.C. § 6621(d) imposes a tem-
poral requirement, under which a court must look to the
time the overpayment and underpayment were made to
evaluate whether they were made by the same taxpayer.”
Appellant Br. 27. So under the government’s understand-
ing of Energy East, the relevant inquiry focuses on the
timing of the payments.
Applied to Situation One, the government’s approach
would find that different taxpayers made the underpay-
ment and overpayment, because the two payments were
made by then-unaffiliated corporations.
As noted above, the government concedes that Wells
Fargo may net interest in Situation Two, where the
surviving corporation in a merger (First Union) made an
overpayment before a series of mergers and an under-
payment afterward. Before, during, and after the mer-
gers in Situation Two, the underpaying and overpaying
company retained the same TIN because it was the sur-
viving corporation in the mergers. The government
contends that this fact is dispositive: because the TIN
remains the same, the taxpayers are the “same taxpayer”
under the statute. At the same time, the government
12 WELLS FARGO & COMPANY v. US
acknowledges that the pre- and post-merger corporations
in this situation are not identical because the taxpayer
(First Union) absorbed four separate corporate entities in
the time between its overpayment (pre-mergers) and
underpayment (post-mergers).
Turning to Situation Three, where the acquired non-
surviving corporation (CoreStates) had an overpayment
before merger and the surviving corporation (First Union)
had an underpayment after merger, the government
asserts that Wells Fargo cannot net interest because the
surviving corporation has a different TIN and thus is not
the same “taxpayer” as the acquired corporation that
made the overpayment. Notably, Situation Three differs
from Situation Two only in the choice of who is the named
surviving corporation.
The government further contends that netting should
not be allowed in Situation Three even under its more
lenient “same in relevant essentials” test. The govern-
ment acknowledges that “same taxpayer” cannot mean
the corporations are identical in all respects, as the stat-
ute is designed to aid large corporate taxpayers and “[t]he
reality is that the make-up of large corporations . . .
undergo[es] regular changes.” Appellant Br. 49 (quoting
Magma Power, 101 Fed. Cl. at 571) (alterations in origi-
nal). Indeed, the government points out that its conces-
sion of netting in Situation Two allows for a corporation to
undergo a large amount of change—i.e. four mergers—yet
remain the “same taxpayer.” Id. Thus, the relevant
question under this broader test would be whether in
Situation Three the taxpayers had the same relevant
essentials. The government argues that the overpaying
and underpaying corporate entities in Situation Three did
not have the same relevant essentials: the two entities
were incorporated under different names, held principle
offices in different states, filed different tax returns, and
operated with significant geographic differences. Appel-
WELLS FARGO & COMPANY v. US 13
lant Br. 51–53. Thus, the government argues that the
entities in Situation Three failed to meet § 6621(d)’s
“same taxpayer” requirement.
At the outset, we agree with the government’s ap-
proach in two respects. First, we agree that each situa-
tion requires individual treatment, so we decline Wells
Fargo’s invitation to decide this case in one fell swoop.
Second, we agree with the government that Energy East
applies to this case. The Court of Federal Claims erred in
holding otherwise. This court decided Energy East as a
matter of statutory interpretation. We explained that in
§ 6621(d), the term “by the same taxpayer” immediately
follows and therefore refers to “equivalent underpayments
and overpayments.” Energy E., 645 F.3d at 1361. We
applied the last antecedent rule, which requires that “a
limiting clause or phrase ‘should ordinarily be read as
modifying only the noun or phrase that it immediately
follows.’” Id. (quoting Barnhart v. Thomas, 540 U.S. 20,
26 (2003)). We thus held that “the statute provides an
identified point in time at which the taxpayer must be the
same, i.e., when the overpayments and underpayments
are made.” Id. (emphasis omitted).
Energy East did not rely on the nature of the corpora-
tions at issue. Indeed, the parties did not dispute the
meaning of “same taxpayer” in that case because they
disagreed only on “the point in time at which the party
requesting the refund must be the ‘same taxpayer’ to avail
itself of interest netting under § 6621(d).” Id. As such, we
conclude that the statutory framework announced in
Energy East applies regardless of the corporate structures
at issue. We examine Situations One and Three below
under Energy East’s framework.
I.
We hold that Wells Fargo may not net interest in Sit-
uation One. Energy East requires us to ask this question:
is the entity that made the underpayment at the time of
14 WELLS FARGO & COMPANY v. US
the underpayment the “same taxpayer” as the entity who
made the overpayment at the time of the overpayment?
Id. Applying this framework here, the taxpayer that
made the underpayment in Situation One was not the
“same taxpayer” as the one that made the overpayment.
In Situation One, First Union made the underpay-
ment and Old Wachovia made the overpayment. The two
companies later merged. Thus, at the respective times of
the overpayment and underpayment, there were two
distinct taxpayers: First Union and Old Wachovia. In-
deed, the situation is markedly similar to the one this
court examined in Energy East. There, two separate
corporate entities made separate over- and underpay-
ments, after which a common parent corporation consoli-
dated the two entities as subsidiary siblings. Id. at 1359.
We held that those payments could not be netted under
§ 6621(d) because both the underpayment and overpay-
ment “occurred prior to [the parent’s] acquisition” of the
underpaying and overpaying entities. Id. at 1363. Simi-
larly here, the payments were both made before the
merger, and thus the payments were made by two sepa-
rate corporations. They do not meet the “same taxpayer”
requirement under § 6621(d).
That the two entities later merged does not change
the fact that they were separate at the time of the original
payments. Wells Fargo asserts that merger law operates
to retroactively make the two separate corporations the
same under the statute. But Wells Fargo points to no
controlling authority in the statute or case law to support
its position. Energy East makes clear that it is the identi-
ty of the corporation at the time of the payments that
matters. See id. Nothing in Energy East suggests that
later changes in corporate structure can retroactively
change a taxpayer’s status as to earlier payments. We
thus decline Wells Fargo’s invitation to extend the statute
WELLS FARGO & COMPANY v. US 15
to retroactively view merged entities as the “same tax-
payer.”
II.
Turning to Situation Three, we again ask whether the
entity at the time of the overpayment, CoreStates, is the
“same taxpayer” as the entity at the time of the under-
payment, the post-merger surviving corporation, First
Union. See id. at 1361. The answer to that question
depends on whether post-merger First Union, an entity
that has merged with CoreStates, is the “same taxpayer”
as the pre-merger CoreStates. To answer this question,
we must further clarify the meaning of “same taxpayer”
under § 6621(d). Specifically, we must determine whether
a post-merger entity is the “same taxpayer” as a pre-
merger acquired entity. For the reasons below, we find
that the corporations in Situation Three meet the “same
taxpayer” requirement.
A.
We begin with the text of the statute. See Duncan v.
Walker, 533 U.S. 167, 172 (2001). I.R.C. § 6621(d) pro-
vides the conditions that permit interest netting:
To the extent that, for any period, interest is pay-
able under subchapter A and allowable under
subchapter B on equivalent underpayments and
overpayments by the same taxpayer of tax im-
posed by this title, the net rate of interest under
this section on such amounts shall be zero for
such period.
I.R.C. § 6621(d) (emphasis added). The definition of
“same taxpayer” is not plain from the face of the statute.
Neither § 6621(d) nor the rest of the Internal Revenue
Code defines the term “same taxpayer.”
Further, the term “same taxpayer” is not self-defining.
Both parties agree that the term “same taxpayer” does not
16 WELLS FARGO & COMPANY v. US
require the taxpayer corporation to be completely identi-
cal. Indeed, in conceding Situation Two, which is very
similar to Situation Three, the government necessarily
concedes that the statute’s “same taxpayer” requirement
does not require that the corporations making the pay-
ments be identical. The government explains that “to
require absolute identity would make interest netting
generally inapplicable to ‘the companies that are most
likely to take advantage of interest netting,’ because ‘[t]he
reality is that the make-up of large corporations . . .
undergo[es] regular changes.” Appellant Br. 49 (quoting
Magma Power, 101 Fed. Cl. at 571) (alterations in origi-
nal). Thus, both parties agree that the context of
§ 6621(d) mandates that “same taxpayer” cannot require
corporations to remain largely unchanged. But the par-
ties dispute the extent of corporate change that “same
taxpayer” allows.
B.
Because the text of the statute does not define “same
taxpayer,” we look next to the legislative history. Like
the statute, it does not define “same taxpayer,” but it does
offer important context for understanding the statute. It
reveals that the statute is remedial in nature, and thus
should be read broadly. See Tcherepnin, 389 U.S. at 336
(“In addition, we are guided by the familiar canon of
statutory construction that remedial legislation should be
construed broadly to effectuate its purposes.”). Both the
statute’s legislative history and its historical context
suggest that Congress enacted § 6621(d) to remedy what
it saw as inequity in the tax code.
In the legislative history accompanying the enactment
of § 6621(d), Congress identified an inequity in the tax
code that it sought to fix. Congress explained that it had
not intended for a corporation to owe interest on an
underpayment when the corporation had an equivalent
WELLS FARGO & COMPANY v. US 17
overpayment that it could be credited against. H.R. Rep.
No. 105-364, at 63–64 (“The Committee believes that
taxpayers should be charged interest only on the amount
they actually owe, taking into account overpayments and
underpayments from all open years. The Committee does
not believe that the different interest rates provided for
overpayments and underpayments were ever intended to
result in the charging of the differential on periods of
mutual indebtedness.”). Congress introduced § 6621(d) to
fix this unintended consequence by permitting taxpayers
to “net” interest on equivalent overpayments and under-
payments. Id. at 64 (“The bill establishes a net interest
rate of zero on equivalent amounts of overpayment and
underpayment that exist for any period.”). The bill thus
remedied an unintended consequence caused by unequal
interest rates by ensuring that a taxpayer with equal
underpayments and overpayments would owe no interest
on those payments.
The history of interest netting provides further sup-
port for the contention that § 6621(d) was remedial legis-
lation. Ever since Congress set interest at different rates
on tax overpayments and underpayments, see Tax Reform
Act § 1511(a), Congress has repeatedly attempted to enact
broad interest-netting provisions. See Office of Tax Poli-
cy, Dep’t of the Treasury, Report to the Congress on Net-
ting of Interest on Tax Overpayments and Underpayments
21–24 (1997), available at https://www.treasury.gov/
resource-center/tax-policy/Documents/Report-Netting-
Interest-1997.pdf (hereinafter “Treasury Report”). For
instance, Congress enacted predecessors to § 6621(d)—
§ 6402(a) and § 6601—to permit the IRS to net overpay-
ment and underpayment interest. Id. Section 6402
allows for the satisfaction of “an underpayment . . . by the
application of an overpayment by the same taxpayer, . . .
then section 6601(f) permits the IRS to avoid computing
interest on the underpayment for the amount and period
18 WELLS FARGO & COMPANY v. US
of mutual indebtedness.” Id. at 9–10; I.R.C. §§ 6402(a),
6601(f). And Congress repeatedly instructed the IRS to
implement “the most comprehensive netting procedures
under section 6402 that are consistent with sound admin-
istrative practice.” Treasury Report at 22 (collecting
legislative history).
Despite these efforts of Congress, the IRS interpreted
its power to net interest narrowly. In order to find out
why the IRS had failed to implement broad interest
netting procedures, Congress directed the Treasury
Secretary to conduct a study, to hold hearings and receive
public comments, and to publish a report identifying any
limitations to its interest netting procedures. See
H.R. Rep. No. 104-506, at 49 (1996); see also Magma
Power, 101 Fed. Cl. at 563 (discussing the history of the
enactment of § 6621(d)). In its request, Congress ex-
pressed that it was concerned by the Secretary’s inaction:
Congress has never adopted differential interest
rates, or increased the amount of such differen-
tial, without at the same time also encouraging
the IRS to implement comprehensive interest net-
ting procedures. The Committee is concerned that
the IRS has failed to implement comprehensive
interest netting procedures and is interested in
learning whether the delay stems from technical
difficulties or substantive questions about the
scope of such interest netting procedures.
H.R. Rep. No. 104-506, at 50 (1996).
The Treasury study reported to Congress that “the
IRS currently does not perform global interest netting
because of its position that it lacks the legal authority to
do so.” Treasury Report at 40. The Treasury explained
that the IRS interpreted the law as granting it limited
netting powers, restricted to “offsetting.” Offsetting is the
power to credit an overpayment against outstanding
WELLS FARGO & COMPANY v. US 19
liabilities. The IRS’s interpretation derived from the text
of section 6402(a). 3 It permits offsetting overpayment
interest against any liability, which the Secretary inter-
preted as permitting the crediting of overpayment and
accrued interest against only “outstanding” liabilities.
Treas. Reg. § 301.6402–1. Acting under this interpreta-
tion, the Secretary did not apply § 6402(a) and § 6601(f) to
net interest globally, as Congress had instructed. Treas-
ury Report at 40–41.
We presume that Congress is familiar with existing
Federal law when it enacts a new statute. See, e.g., Miles
v. Apex Marine Corp., 498 U.S. 19, 32 (1990). In this case,
the presumption rings strong. The predecessor sections,
§§ 6601 and 6402(a), were the very statutes that Congress
had asked the Treasury to study. And these two sections
had been interpreted by the IRS as providing insufficient
legal authority to enact global netting procedures. So
when Congress enacted § 6621(d), it understood that
statute as expanding the IRS’s authority to net interest
against a statutory background consisting of §§ 6601 and
6402(a). Indeed, Congress even narrowed those existing
provisions so that they did not interfere with the scope of
the new § 6621(d). See Internal Revenue Service Restruc-
turing and Reform Act of 1998, Pub. L. No. 105-206,
3 26 U.S.C § 6402(a) reads:
In the case of any overpayment, the Secretary,
within the applicable period of limitations, may
credit the amount of such overpayment, including
any interest allowed thereon, against any liability
in respect of an internal revenue tax on the part of
the person who made the overpayment and shall,
subject to subsections (c), (d), (e), and (f) refund
any balance to such person.
20 WELLS FARGO & COMPANY v. US
§ 3301(b), 112 Stat. 685, 741 (amending § 6601(f) to
provide that the section “shall not apply to the extent that
section 6621(d) applies.”).
Moreover, Congress expressed specific concerns aris-
ing out of the Secretary’s current interpretation of § 6402.
In the committee report discussed above, Congress noted
that current law encouraged taxpayers to delay their
payment of underpayments to ensure that they could be
available to offset later overpayments. H.R. Rep. No. 105-
364, at 64 (“The Committee is also concerned that current
practices provide an incentive to taxpayers to delay the
payment of underpayments they do not contest, so that
the underpayments will be available to offset any over-
payments that are later determined.”). Congress enacted
§ 6621 to correct this improper incentive. It explained
that “[t]he Committee believes that this is contrary to
sound tax administrative practice and that taxpayers
should not be disadvantaged solely because they promptly
pay their tax bills.” H.R. Rep. No. 105-364, at 63–64.
So when Congress enacted § 6621(d), it did so know-
ing that it was expanding on the IRS’s pre-existing au-
thority to implement interest netting. Section 6621(d)
remedied inequities caused by different overpayment and
underpayment interest rates. And it expanded the IRS’s
authority under prior statutory sections permitting inter-
est netting, namely §§ 6601 and 6402(a). Indeed, a non-
binding Field Service Advice Memorandum published
shortly after § 6621(d)’s passage echoed this sentiment.
See F.S.A. Mem. 200017003, 2000 WL 1873995 (Oct. 19,
1999). It explained that, “[i]n eliminating the interest
rate differentials without regard to whether overpay-
ments and underpayments are currently outstanding,
Code section 6621(d) should be available in those situa-
tions where the Service would be entitled to offset.” Id.
Thus, both Congress and the IRS expressed a contempo-
WELLS FARGO & COMPANY v. US 21
raneous understanding that § 6621(d) expanded on preex-
isting interest-netting authority.
The history of § 6621(d) therefore reveals that Con-
gress intended the section to be remedial, so we construe
the statute “broadly to effectuate its purposes.” See
Tcherepnin, 389 U.S. at 336.
C.
While Congress did not explicitly define the term
“same taxpayer” in the statute or legislative history, it did
not choose the term in a legal vacuum. Rather, Congress
chose this term against a background of merger law that
sheds some light on the meaning of “same taxpayer” in
the statute. While these sources do not control the out-
come of our inquiry, they nevertheless provide important
context to understand the meaning of § 6621. Goodyear
Atomic Corp. v. Miller, 486 U.S. 174, 184–85 (1988) (“We
generally presume that Congress is knowledgeable about
existing law pertinent to the legislation it enacts.”).
Wells Fargo asserts that courts have recognized as a
central principle of merger law that two companies effec-
tively become one after a merger. To an extent, we agree.
Although courts employ different terms to describe Wells
Fargo’s alleged principle, courts often reference a princi-
ple that mergers automatically effect the joining or ab-
sorption of the acquired entity into the survivor. See, e.g.,
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 550
n.3 (1964).
The Supreme Court, for example, has described mer-
gers as adhering to “the principle that the corporate
personality of the transferor is drowned in that of the
transferee.” Helvering v. Metro. Edison Co., 306 U.S. 522,
529 (1939). Circuit courts have described an acquired
corporation as “absorbed” rather than “drowned”: “A
merger of two corporations contemplates that one corpo-
22 WELLS FARGO & COMPANY v. US
ration will be absorbed by the other and will cease to exist
while the absorbing corporation remains.” Bowers v.
Andrew Weir Shipping, Ltd., 27 F.3d 800, 806 (2d Cir.
1994) (quoting Engel v. Teleprompter Corp., 703 F.2d 127,
131 (5th Cir. 1983)). And commentators imagine the
process as the survivor “stepping into the shoes” of the
acquired entity. Boris I. Bittker & James S. Eustice,
Federal Income Taxation of Corporations and Sharehold-
ers ¶ 12.22 (online ed. 2015) (“In a merger, one corpora-
tion absorbs the corporate enterprise of another
corporation, with the result that the acquiring company
steps into the shoes of the disappearing corporation as to
its assets and liabilities.”). Regardless of the words used
to describe the process, a merger of two corporate entities
mixes and combines the personalities of the predecessor
corporations into the survivor.
These merger principles have also guided the Su-
preme Court on related questions of law. In Metropolitan
Edison, for example, the Court used these principles to
resolve the dilemma of whether a corporation could de-
duct certain expenses relating to bonds issued by its
subsidiaries. 306 U.S. at 523. Between the time the
bonds were issued and redeemed, the subsidiaries had
merged into the parent corporation. Id. at 523–24. The
Court decided the case on “the principle that the corporate
personality of the transferor is drowned in that of the
transferee. It results that the continuing corporation may
deduct unamortized bond discount and expense in respect
of the obligations of the transferring affiliate.” Id. at 529.
As the Court explained, in cases of a “true merger or
consolidation whereby the identity of the corporation
issuing the bonds continues in the successor and the
latter becomes liable for the debts of the former by opera-
tion of law, the successor may deduct amortization of
discount and expense in respect of bonds issued by its
predecessor as well as unamortized discount and expense
WELLS FARGO & COMPANY v. US 23
on any of such bonds retired prior to maturity.” Id. at
526. In other words, if the bonds had changed hands in
that case, the corporation would not have been able to
access the deduction, but because the Court understood
the merger to be a continuation of the identity of the
acquired corporation in the successor corporation, the
successor corporation could deduct the assets.
These sources suggest that the post-merger surviving
corporation in Situation Three is the “same taxpayer” as
the pre-merger acquired corporation under § 6621(d).
Merger law effects the automatic acquisition by the
surviving corporation of the assets and liabilities of the
acquired corporation. Indeed, the personality of the
acquired corporation is “drowned” in the survivor. Id. at
529.
Citing Newmarket Manufacturing Co. v. United
States, 233 F.2d 493, 499 (1st Cir. 1956) and E. & J. Gallo
Winery v. C.I.R., 227 F.2d 699, 705 (9th Cir. 1955), the
government argues that Metropolitan Edison’s language
is merely a “‘metaphorical expression[],’ reflecting the
concept that attributes of the corporation that ceases to
exist are transferred to another corporation.” Appellant
Reply Br. 20. But the cases cited by the government do
not support its position.
In Newmarket, the First Circuit called Metropolitan
Edison’s language a “metaphorical expression,” but never-
theless relied on this very “metaphorical expression” as
central to the court’s holding. See Newmarket Mfg., 233
F.2d at 499. Indeed, the First Circuit explained that an
acquired corporation’s “drowning” made it the “same
taxpayer” as the surviving corporation:
What the Court was saying, of course, was that
the transferee in a statutory merger should be
deemed to be continuing in itself the corporate life
of the now-defunct component, and that it fol-
24 WELLS FARGO & COMPANY v. US
lowed from this conceptual identity that the two
corporate entities were to be treated for a substan-
tive purpose in the income tax as the same taxpay-
er.
Id. (emphasis added). The First Circuit applied this logic
to find that a merged corporation was entitled to carry
back a net operating loss as a deduction against income
earned by an acquired corporation. Id.
The second case cited by the government, E. & J. Gal-
lo Winery, 227 F.2d at 705, simply noted that Metropoli-
tan Edison’s language is “possibly . . . a fiction,” but
nevertheless relied on that same language to support its
holding:
Possibly the concept that the former corporation
continues its identity and is an integral part of the
successor is a fiction. (The so-called major prem-
ise in Helvering v. Metropolitan Edison Co., su-
pra.) Possibly, the concept that the earlier
corporation is ‘drowned’ in the successor is a fic-
tion. But the successor corporation was allowed
the deduction of the ‘drowned’ corporation. If the
fiction can support a bond expense deduction, it
can bear the weight of an unused excess profits
tax credit.
Id. (citing Metro. Edison, 306 U.S. at 529). While the
court acknowledged that these principles may be a “fic-
tion,” the court believed this “fiction” “bear[s] . . . weight.”
Id. In fact, with particular relevance to the question
before us, the Ninth Circuit explained that the “major
premise” of Metropolitan Edison was “the concept that the
former corporation continues its identity and is an inte-
gral part of the successor.” Id. So, despite the govern-
ment’s contention otherwise, these two cases actually
suggest that Metropolitan Edison stands for a rule that
WELLS FARGO & COMPANY v. US 25
the acquired entity in a merger continues its identity and
is an integral part of the successor.
Federal tax law and the IRS’s treatment of the prede-
cessor statutes to § 6621(d) also both suggest that Wells
Fargo meets the statute’s “same taxpayer” requirement in
Situation Three. First, federal tax law recognizes statuto-
ry mergers under I.R.C. § 368(a)(1)(A) as a form of corpo-
rate reorganization where the pre-merger entities’ assets
and liabilities automatically become the assets and liabili-
ties of the post-merger surviving corporation. Indeed,
Treasury regulations recognize that a central, distin-
guishing feature of mergers from other forms of acquisi-
tion is that mergers affect a continuation of identity from
the pre-merger corporations to the post-merger surviving
corporation and pre-merger companies’ assets and liabili-
ties are automatically assumed by the post-merger enti-
ty. 4 Treas. Reg. § 1.368-2(b)(1)(ii); see also John Wiley,
4 Treas. Reg. § 1.368-2(b)(1)(ii) reads:
For purposes of section 368(a)(1)(A), a statutory
merger or consolidation is a transaction effected
pursuant to the statute or statutes necessary to
effect the merger or consolidation, in which trans-
action, as a result of the operation of such statute
or statutes, the following events occur simultane-
ously at the effective time of the transaction—
(A) All of the assets (other than those distributed
in the transaction) and liabilities (except to the
extent such liabilities are satisfied or discharged
in the transaction or are nonrecourse liabilities to
which assets distributed in the transaction are
subject) of each member of one or more combining
units (each a transferor unit) become the assets
26 WELLS FARGO & COMPANY v. US
376 U.S. at 550 n.3 (noting “the general rule that in the
case of a merger the corporation which survives is liable
for the debts and contracts of the one which disappears”).
Regarding overpayments and underpayments, the
IRS treats merged entities consistently with these back-
ground principles. After a merger, the surviving corpora-
tion is automatically liable for the underpayments and
entitled to the overpayments of its predecessors. The
government acknowledges as much: “The IRS allows the
surviving corporation in a merger, as the ‘successor corpo-
ration’ to make a claim for refund or credit ‘in the name
of, and on behalf of, the [predecessor] corporation, which
paid such taxes.’” Appellant Br. 36 n.13 (quoting Rev.
Rul. 54–17, 1954–1 C.B. 160) (alteration in original).
and liabilities of one or more members of one oth-
er combining unit (the transferee unit); and
(B) The combining entity of each transferor unit
ceases its separate legal existence for all purposes;
provided, however, that this requirement will be
satisfied even if, under applicable law, after the
effective time of the transaction, the combining
entity of the transferor unit (or its officers, direc-
tors, or agents) may act or be acted against, or a
member of the transferee unit (or its officers, di-
rectors, or agents) may act or be acted against in
the name of the combining entity of the transferor
unit, provided that such actions relate to assets or
obligations of the combining entity of the trans-
feror unit that arose, or relate to activities en-
gaged in by such entity, prior to the effective time
of the transaction, and such actions are not incon-
sistent with the requirements of paragraph
(b)(1)(ii)(A) of this section.
WELLS FARGO & COMPANY v. US 27
Similarly, the IRS recognizes that the successor corpora-
tion can agree to extend statutes of limitations “on behalf
of an absorbed constituent.” Rev. Rul. 59–399, 1959–2
C.B. 488; Appellant Br. 36 n.13. Thus, the IRS itself has
treated parties to a statutory merger as the same taxpay-
er in other contexts following a merger.
The IRS’s treatment of interest netting under § 6402
further supports our conclusion that interest netting
under § 6621 should extend to merged corporations. As
discussed above, because § 6402 predates § 6621, it is part
of the legislative history with which Congress is presumed
to be familiar. Miles, 498 U.S. at 32 (“We assume that
Congress is aware of existing law when it passes legisla-
tion.”). This presumption has particular force here, where
Congress enacted § 6621(d) after repeatedly informing the
Secretary of its desire for broad interest netting under
§ 6402(a) and the Secretary nonetheless remained reti-
cent to apply its powers broadly.
At the Court of Federal Claims, the government con-
ceded that Wells Fargo could offset overpayments and
underpayments under § 6402(a). See J.A. 677 (offsetting
overpayment of $2,060,843.32 from Fidelity’s 1993 income
tax account against underpayment from First Union’s
2003 income tax account). The IRS therefore allowed
offsetting of overpayments and underpayments between
Wells Fargo and its predecessors that directly parallel the
overpayments and underpayments on appeal before us.
The government justifies this difference in treatment
under the two sections by arguing that § 6402(a)’s lan-
guage is broader than § 6621(d). The government asserts
that Congress’s use of “same” before taxpayer makes all
the difference: whereas § 6402(a) merely requires “such
person” must have made the overpayment, § 6621(d)
requires the “same taxpayer.” While the government’s
argument might have force without context, the history of
28 WELLS FARGO & COMPANY v. US
§ 6621(d)’s enactment belies the government’s position.
Before enacting § 6621(d), Congress repeatedly directed
the Secretary to implement “comprehensive crediting
procedures under section 6402.” H.R. Rep. No. 104–506,
at 50. When the Secretary failed to act because it be-
lieved its legal authority was too narrow under § 6402(a),
Congress broadened the Secretary’s power to net interest
by enacting § 6621(d). Thus, the government’s assertion
that § 6402(a) permits offsetting by merged entities, but
not interest netting under § 6621(d), goes directly against
this statutory history. Moreover, there is no clear indica-
tion in the text of the statute that Congress intended to
exclude merged entities by using the term “same taxpay-
er” rather than “such person.” Put simply, Congress’s
invocation of the word “same” does not suggest it intended
to carve merged corporations out of the scope of interest
netting under § 6621(d).
Finally, the government argues that I.R.C. § 381
mandates a finding that a surviving corporation cannot
net interest from a payment made by an acquired corpo-
ration. Section 381 enumerates the tax attributes that
transfer from an acquired corporation to a surviving
corporation in a merger. The list of transferred tax at-
tributes does not include interest netting. The govern-
ment thus argues that § 381 “makes clear that a merger
does not make all the participants in a merger the same
taxpayer,” because it excludes interest netting from the
list of tax attributes that transfer automatically. Appel-
lant Br. 22. Wells Fargo responds that § 381 reflects
Congress’s express authorization for some tax attributes
to transfer automatically, but it does not mandate against
interest netting here because it does not foreclose addi-
tional tax attributes from transferring in a merger. Wells
Fargo draws support from the section’s legislative history
and relevant Treasury regulations, which explain that “no
inference is to be drawn” from § 381 as to whether any tax
attribute may transfer from an acquired corporation to a
WELLS FARGO & COMPANY v. US 29
successor. See S. Rep. No. 83-1622, at 4915 (1954) (“No
inference is to be drawn from the enactment of this sec-
tion whether any item or tax attribute may be utilized by
a successor or a predecessor corporation under existing
law.”); Treas. Reg. § 1.381(a)-1(b)(3) (directing that “no
inference is to be drawn from the provisions of section 381
as to whether any item or tax attribute shall be taken into
account by the successor corporation”). The Court of
Federal Claims agreed with Wells Fargo, explaining that
“the fact that interest netting is not included on the § 381
list is not determinative because the legislative history on
that provision makes clear that the list was not intended
to be exhaustive.” Wells Fargo, 117 Fed. Cl. at 40 n.11.
The Court of Federal Claims thus concluded that § 381
does not mandate a particular interpretation of § 6621(d)
or foreclose merged corporations from netting interest
here. We agree with the Court of Federal Claims’ conclu-
sion on this point.
D.
For the reasons above, we find that Wells Fargo may
net interest in Situation Three. As noted above, § 6621(d)
is a remedial statute, which we read broadly. Moreover,
Congress promulgated § 6621 against the legal back-
ground detailed above, including principles of merger law
and the IRS’s treatment of mergers in the statutory
precursor to § 6621(d). Also, general IRS treatment of
mergers suggests that § 6621(d)’s “same taxpayer” re-
quirement, read broadly, permits netting in Situation
Three. Thus we hold that an acquired corporation that
makes an overpayment before a merger is the “same
taxpayer” for the purposes of § 6621(d) as the post-merger
surviving entity that has absorbed the acquired corpora-
tion.
30 WELLS FARGO & COMPANY v. US
CONCLUSION
For the foregoing reasons, we hold that Wells Fargo
may net interest under § 6621(d) in Situation Three, but
that it may not net interest in Situation One. We affirm-
in-part, reverse-in-part, and remand for proceedings
consistent with this opinion.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED
COSTS
No costs.