In a published decision last Wednesday in a tax dispute spanning nearly 30 years, the Sixth Circuit denied Ford Motor Company’s demand for almost $450 million of interest on a tax refund from the IRS. The dispute began in the 1990s when the IRS sought nearly a decade’s worth of back taxes from Ford, which Ford remitted as “deposits in the nature of a cash bond.” Later, at Ford’s request, the IRS held the money as “advance tax payments” for accounting purposes. The IRS subsequently determined that Ford in fact had overpaid its taxes during the years in question and refunded the money with interest. However, Ford sought additional interest payments from the IRS beginning from the time the overpaid taxes were held as “deposits.” In denying Ford’s claims, the Sixth Circuit panel focused on the plain language of the tax statute at issue.
The thrust of Ford’s claim was that the IRS improperly calculated the amount of overpaid interest from the time Ford requested that the IRS covert its deposits into advance tax payments, rather than from the date when Ford first remitted the deposits. However, the Sixth Circuit had already heard the case once, having affirmed the district court’s grant of judgment on the pleadings for the IRS in 2012. But Ford appealed to the Supreme Court, and it remanded the case on jurisdictional and waiver-of-immunity issues. On remand, the Sixth Circuit determined that it had jurisdiction to hear the case under the tax code.
Reaching the merits, the Sixth Circuit noted that “[b]oth parties offer imaginative and convoluted theories to support their arguments,” but proceeded to use the canons of strict construction and plain language to adjudicate the dispute. Using Webster’s definitions, the panel reasoned that “[a] remittance is a payment when it is given to discharge a debt or obligation,” and so Ford’s entitlement to interest on its tax remittances depended on whether its “deposits” were remitted “to discharge a debt.” At the time Ford remitted the money, the Internal Revenue Code treated tax “deposits” as immediately refundable to a taxpayer. In turn, the court held that with such remittances, a “sophisticated taxpayer” like Ford intended to take advantage of this provision, to have the deposited funds immediately available, and not actually to “discharge a debt.” Thus, because Ford did not make a “payment” to the IRS within the meaning of the statute, Ford’s deposits could not be overpayments, and hence the IRS did not owe interest on them.
This case is notable not only for the fact that simple canons of statutory construction cost Ford a nearly $450 million tax refund, but also because it reminds court watchers that, at least in the Sixth Circuit, the practice of plain language interpretation (especially of tax statutes) remains alive and well.