DOJ Argues Court of Federal Claims Erred In Dismissing Refund Claim

 GLOSSARY

On March 2, 2007, the Court of Federal Claims issued an opinion dismissing without prejudice taxpayer's complaint and the Government's counterclaim. (A2-12.) On March 16, 2007, the Government filed a timely motion for reconsideration of the Court's opinion. (A839-53.) See R.C.F.C. 59. The Court denied that motion by order issued May 10, 2007. (A13-16.) On May 16, 2007, the Court of Federal Claims entered judgment. (A1.) That judgment was a final order, resolving all claims for all parties.² On July 6, 2007, within 60 days after entry of judgment, the United States filed a notice of appeal, 28 U.S.C. § 2107(b) (A925-26), which was timely under Federal Rule of Appellate Procedure 4(a)(1)(B). This Court has jurisdiction under 28 U.S.C. § 1295(a)(3).

1. Whether the Court of Federal Claims erred in holding that BFI, Inc.'s conversion to a Delaware limited liability company terminated its existence as agent for the subsidiary members of the consolidated group, where the relevant consolidated return regulation looks to state law concepts of termination and dissolution to determine when such agency ceases and where Delaware law expressly provides that a corporation that converts to a limited liability company continues to exist and does not dissolve.

2. Assuming, arguendo, that the continued existence under Delaware law of BFI, Inc., albeit as a limited liability company with a new name, is not dispositive of its status as agent for the consolidated group, whether the Court of Federal Claims erred in holding that the entity classification regulations caused a termination of BFI, Inc. for purposes of filing administrative refund claims on behalf of the consolidated group, even though those regulations provide that an election to be disregarded does not terminate an entity's ability to file refund claims.

3. Whether, even if BFI, Inc. lacked capacity to file refund claims as agent for the consolidated group, the Court of Federal Claims still had jurisdiction over the claims as claims made on behalf of the individual members of the group, including BFI, Inc.

BFI, Inc., was incorporated in Delaware in 1970.³ (A570-72.) During the years at issue, it was the parent company of a consolidated group that included over 100 members engaged in the waste disposal business. (A26, 449.) On July 30, 1999, Allied Waste North America, Inc. (AWNA), a wholly-owned subsidiary of Allied Waste Industries, Inc. (Allied), acquired substantially all of the stock of BFI, Inc. (A26, 417-18.) At the time of the acquisition, the consolidated group of which BFI, Inc. was the parent terminated, and BFI, Inc. and all of the members of its consolidated group became members of a consolidated group of which Allied was the parent. (A419, 449, 660.)

On December 31, 2004, BFI, Inc. converted under Delaware law from a corporation to a limited liability company (A578), "changing its name from 'Browning-Ferris Industries, Inc.' to 'Browning-Ferris Industries, LLC'" (BFI, LLC) (A577). The statute governing the conversion, Del. Code Ann., tit. 8, § 266 (2004), states that "[u]nless otherwise provided in a resolution of conversion adopted in accordance with this section, the converting corporation shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion shall not constitute a dissolution of the corporation." The resolution of conversion adopted by BFI, Inc.'s board of directors did not provide that the conversion should constitute a dissolution of BFI, Inc. or provide that BFI, Inc. should wind up its affairs, pay its liabilities, or distribute its assets. (A572-74.) Instead, the resolution stated that "the Conversion shall not constitute a dissolution of the Company and shall constitute a continuation of the existence of the converted Company in the form of a limited liability company of the State of Delaware." (A573.)

B. The relevant tax returns and claims for refund

BFI, Inc. filed income tax returns for its taxable years ending September 30, 1997 and September 30, 1998 on behalf of its consolidated group. (A570-71.) As noted above, on July 30, 1999, AWNA acquired BFI, Inc. and its subsidiaries. (A26, 417.) Shortly before that acquisition, BFI, Inc. and several of its subsidiaries had entered into a contingent liability tax shelter transaction. (A26-27, 449.) The contingent liability tax shelter was a widely marketed tax-shelter transaction designed to generate large capital losses for tax purposes. (A71-92.) See Coltec Industries, Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 2006), cert. denied, 127 S. Ct. 1261 (2007); Black & Decker Corp. v. United States, 436 F.3d 431, 433 (4th Cir. 2006); I.R.S. Notice 2001-17, 2001-1 C.B. 730.⁴ In this case, the contingent liability transaction purportedly generated more than $900 million in capital loss deductions. (A26-27, 449.) Following the acquisition, BFI, Inc., filed a final return on its own behalf and as agent for the subsidiary members of its consolidated group (for the short year ending July 30, 1999), claiming the $900 million in deductions. (A449.) In July 2000, BFI, Inc. filed a corporate application for tentative refund in which it claimed that the tax liability for the group was reduced by $32,709,291 for 1997 and by $9,498,799 for 1998. (A602.) The tentative refunds were based in part on carryback losses generated by the contingent liability tax shelter. (A602, 682-83.) The IRS made the requested tentative refunds. (A69.)

In a subsequent audit, the IRS disallowed the carryback losses claimed for the contingent liability tax shelter and determined deficiencies of $19,079,286 and $3,519,979 for 1997 and 1998, respectively. (A67-69, 681.) On or about April 25, 2005, the deficiencies were paid from an account of a subsidiary of Allied that was used to pay cash transactions of all Allied subsidiaries, including BFI, Inc. (A603, 693-94.) The cover letter accompanying the payments referenced "Browning-Ferris, Industries, Inc. and Subsidiaries . . . FEIN 74-1673682" and stated that the enclosed checks were "in payment of tax for the above-referenced taxpayer." (A603.)

On or about May 6, 2005, the IRS received claims for refund for 1997 and 1998 in the name of "Browning-Ferris Industries, Inc. & Subsidiaries," using the employer identification number (EIN) 74-1673682. (A511-23.) That EIN was the one assigned by the IRS to BFI, Inc., and that business entity continued to use that EIN for refund purposes after it converted to a limited liability company with a new name -- i.e., BFI, LLC. (A511, 517, 533, 538.) The claims were signed by Dale Parker, Allied's vice president for tax, using the title "VP." (A511, 517.) The explanation of changes in the claims for refund stated that the "[t]he term 'Claimant' as used herein refers to Browning-Ferris Industries, Inc. and the members of its consolidated group as appropriate." (A514, 520.) The claims were based on the theory that the contingent liability tax shelter was valid and sought refunds of $18,549,092 for 1997 and $9,711,514 for 1998. (A511-23.) The "Claimant" simultaneously requested that the IRS promptly disallow the claims (A530-31), and the IRS did so on May 10, 2005 (A133-35).

C. The proceedings in the Court of Federal Claims

On July 12, 2006, this Court held that a critical aspect of the contingent liability tax shelter lacked economic substance. See Coltec, 454 F.3d at 1360. Accordingly, this Court vacated the decision of the Court of Federal Claims in that case and remanded the case for a recomputation of the allowable loss deduction. Id. At a status conference held the following month in the instant case, counsel for taxpayer stated to the Court of Federal Claims that "it ha[d] come to our attention that there is a jurisdictional issue present in this case that we were previously unaware of." (A235.) According to counsel, BFI, Inc. was not the proper party to have filed the refund claims for the years at issue in the pending tax refund suit. (A235.) Counsel contended that BFI, Inc. "was terminated out of legal existence" by its conversion from a corporation to a limited liability company on December 31, 2004, and that BFI, Inc. therefore lacked the capacity to file refund claims. (A236.)

Consistent with taxpayer's new position, the members of the BFI consolidated group, on August 24, 2006, purportedly designated BFI Waste Systems of North America, Inc. as the substitute agent for the members of the consolidated group under Treas. Reg. § 1.1502-77A(d). (A552.) On or about August 26, 2006, "BFI Waste Systems of North America, Inc. Designee for Consolidated Group f/k/a Browning Ferris Industries, Inc. and Subsidiaries" filed refund claims for 1997 and 1998, which tracked the original claims. (A550-60.) Simultaneously, "Browning-Ferris Industries, LLC for consolidated group f/k/a Browning-Ferris Industries, Inc. & Subsidiaries" filed protective refund claims for 1997 and 1998, which also tracked the original claims. (A533-43.) All of the claims were signed by the corporate officer who signed the original claims, Dale Parker, Allied's vice president for tax.⁵ (A533, 538, 550, 555.) On August 31, 2006, the IRS, apparently based on representations made to it, approved the designation of BFI Waste Systems of North America, Inc. as the substitute agent. (A510.)

In support of its theory, taxpayer argued that: (1) Treas. Reg. § 1.1502-77A provides that the common parent of a consolidated group is "the sole agent for each subsidiary in the group" and that "the common parent will file claims for refund or credit" (A283); (2) if the existence of the common parent terminates, it is no longer authorized to act on behalf of the consolidated group or file claims for refund (A284-86); (3) BFI, Inc. ceased to exist, for federal tax purposes, when it converted from a corporation to a limited liability company in December 2004 (A287-88); and (4) because BFI, Inc. no longer existed under federal tax law in May 2005, the claims for refund that it filed were invalid (A289).

In arguing that BFI, Inc. ceased to exist (Step (3), supra), taxpayer noted that under Treas. Reg. § 301.7701-3(b)(1)(ii), a business entity not classified as a corporation that does not elect to be otherwise classified is "[d]isregarded as an entity separate from its owner if it has a single owner" and maintained that the regulation applied to BFI, Inc.'s situation post-conversion. (A287.) It then argued that under Treas. Reg. § 301.7701-3(g)(1)(iii), BFI, Inc. was deemed to liquidate and that "this liquidation . . . constitutes a termination of its existence as the common parent of the BFI Group for purposes of the federal tax law." (A288.) Taxpayer cited Rev. Rul. 2004-59, 2004-1 C.B. 1050; Interlake Corp. v. Commissioner, 112 T.C. 103 (1999); and the preamble to consolidated return regulations proposed in 2000 as support for its position. (A287-88.)

The Government opposed taxpayer's motion, asserting that the motion was motivated by a blatant forum-shopping strategy. (A351-53.) The Government first argued that taxpayer could not voluntarily dismiss its suit under the terms of Rule 41(a), R.C.F.C., because the Government objected to dismissal, because the Government had filed a counterclaim, and because the counterclaim could not remain pending for independent adjudication by the Court if taxpayer's action were dismissed. (A363-66.) The Government then disputed taxpayer's contention that jurisdiction was lacking. The Government maintained that, under Delaware law, BFI, Inc. continued to exist after its conversion from a corporation to a limited liability company and that the conversion was a mere change in form. (A368-70.) It also argued that taxpayer was mistaken when it argued that, under Treas. Reg. § 301.7701-3(g)(1)(iii), BFI, Inc. ceased to exist for purposes of filing a tax refund claim. (A370.) In this regard, the Government pointed out that Treas. Reg. § 301.7701-2(c)(2)(iii)(A) provides that "[a]n entity that is otherwise disregarded as separate from its owner is treated as an entity separate from its owner for purposes of . . . Refunds or credits of Federal tax." (A371.) The Government argued in the alternative that the IRS had waived strict compliance with the claim-for-refund requirements in the Treasury Regulations and that the claims at issue constituted adequate informal claims for refund. (A372-75.) Finally, the Government maintained that Rules 17 and 25, R.C.F.C., establish that substitution of the appropriate parties in interest is the proper procedure for addressing changes in the status of an entity and that dismissal is not allowed. (A376.)

In reply, taxpayer argued that the Government's arguments based on Rule 41(a) and the rules governing substitution (i.e., Rules 17 and 25) were unavailing because they could not cure a jurisdictional defect. (A737, 746-47.) Taxpayer further argued that BFI, Inc.'s legal capacity under state law is irrelevant because federal law determines the authority to file claims for refund. (A742.) Taxpayer responded to the Government's contention that Treas. Reg. § 301.7701-2(c)(2)(iii)(A) establishes BFI, Inc.'s authority to file claims for refund by arguing that the regulation does not speak to whether it can file on behalf of the subsidiary members of a consolidated group. (A743-44.) BFI, Inc. argued that Treas. Reg. § 301.7701-2(c)(2)(iii)(A) was not on point for the additional reason that BFI, LLC was the disregarded entity and it did not file the claims for refund; rather, BFI, Inc. did. (A744.) Finally, BFI, Inc. argued that the Government's reliance on the informal claim doctrine was misplaced because the doctrine does not apply to situations where the "wrong taxpayer" files the claim for refund. (A745-46.)

After these initial statements, the Court explored the law applicable to situations where a common parent has terminated. The Court noted that the consolidated return regulations in effect during the years in suit (Treas. Reg. § 1.1502-77A) provided a procedure for designating a new agent, but that, outside the designation procedure, these regulations did not authorize any entity to act as agent for a consolidated group whose parent's existence has terminated. (A8.) Based on that regulation, the preamble to regulations that went into effect after the years in suit, and nonprecedential Field Service Advisories (FSAs) issued by the IRS, the Court concluded that the designation procedure in the consolidated return regulations provides "the exclusive procedure for determining what entity is authorized to act on behalf of a consolidated group whose parent has terminated." (A9.) "Absent such designation, the IRS is left with no choice but to deal with each group member individually." (A9.)

The Court next turned to the effect of BFI, Inc.'s conversion from a corporation into a limited liability company in December 2004. Citing Treas. Reg. § 301.7701-3(b)(1)(ii), the Court stated that BFI, Inc. became a "disregarded entity" for federal tax purposes when it converted. (A10.) Looking to Treas. Reg. § 301.7701-3(g)(1)(iii), the Court added that BFI, Inc. was "deemed to have distributed 'all of its assets and liabilities to its single owner in liquidation.'" (A10.) According to the Court, "[t]his liquidation of BFI, Inc. constituted a termination of its existence as the common parent of the BFI Group for federal tax purposes" and "BFI, Inc. ceased to be the parent of the BFI Group." (A10.) The Court believed that the situation in the instant case was similar to that in Interlake, 112 T.C. 103, in which the Tax Court held that a common parent's authority to receive tentative refunds for the consolidated group terminated when it was spun off. (A10.) The Court concluded that "BFI, Inc was not authorized on May 5, 2005 to file a tax refund claim on behalf of the BFI Group." (A10.)

Finally, the Court commented on the Government's arguments. The Court stated that "[t]he flaw in [the Government's] position is that the Court does not have any discretion to waive a lack of subject matter jurisdiction." (A11.) Thus, in the Court's view, the Government's claims of forum shopping, prejudice, and waiver of the claim-for-refund requirements, as well as its suggestion of substitution, were irrelevant. (A11.) The Court did not dispute the Government's claim that BFI, Inc. continued to exist as a legal entity under Delaware law, but found the claim to be irrelevant because the "authority to act for a consolidated group is governed by the applicable federal tax regulations." (A11.) The Court did not mention the Government's argument based on Treas. Reg. § 301.7701-2(c)(2)(iii)(A) (providing that a disregarded entity is nevertheless treated as separate from its owner for purposes of tax refunds or credits).

With respect to the Government's first argument, the Court noted that it was based on Treas. Reg. § 1.1502-77A(d), which granted the Commissioner authority to deal directly with the individual members where the existence of the common parent had terminated and no successor had been designated. (A14.) The Court rejected the argument because "[t]here is nothing in the record to indicate that the Commissioner exercised any authority under § 1.1502-77A(d)." (A14.) According to the court, the Government's "argument 'confuses what the IRS is permitted to do with what taxpayers may do.'" (A14) (quoting Plaintiff's Response to Defendant's Motion for Reconsideration (A914)).

The Court viewed the Government's informal claim argument as a "reassert[ion]" of a previously made argument. (A15.) The Court stated that "[t]he informal claim doctrine is not so expansive . . . as to excuse a defect of a jurisdictional nature (e.g., a claim for refund filed by a common parent that has ceased to exist)." (A15.) The Court concluded that "a claim for refund containing an error concerning the identity of the taxpayer" does not come within the informal claim doctrine. (A15.)

Finally, the Court rejected the Government's argument that the Court created a new standard with far-reaching consequences. (A15.) In this regard, the Court noted that new regulations applied to claims for refund concerning taxable years beginning on or after June 28, 2002, and opined that "the present action involves a relatively unique factual setting." (A16.)

This appeal by the United States followed.

1. BFI, Inc. had not ceased to exist on the date the refund claims were filed. Under the consolidated return regulations, Treas. Reg. § 1.1502-77A, a new agent must be designated for a consolidated group if there has been a "dissolution" of the common parent or if the common parent's "existence is about to terminate." Dissolution and continued existence are state law concepts and depend on the state law under which the common parent was created. Under Delaware law, BFI, Inc.'s conversion from a corporation to a limited liability company constituted a continuation, rather than a dissolution, of BFI, Inc.

In looking to the entity classification regulations, rather than to the consolidated return regulations, the Court of Federal Claims engaged in the wrong analysis. Under Treas. Reg. § 1.1502-77A, the relevant inquiry is whether the common parent corporation exists or has dissolved, not how it is classified (i.e., what kind of entity is involved). Whether there was a deemed liquidation of BFI, Inc. under the entity classification regulations is irrelevant to BFI, Inc.'s continued existence as the common parent of the consolidated group.

2. Even if the entity classification regulations were considered here, the conversion of BFI, Inc. to a limited liability company did not terminate its capacity to act as agent for the subsidiary members of the consolidated group for purposes of filing refund claims. Treas. Reg. § 301.7701-3(g)(1)(iii) provides only that an association that elects to be disregarded as an entity is deemed to engage in a liquidation transaction. That regulation does not provide that the entity is dissolved or that its existence is terminated for all purposes.

Moreover, the Court's expansive reading of that regulation cannot be reconciled with the regulation cited by the Government, Treas. Reg. § 301.7701-2(c)(2)(iii), which the Court did not address. The latter regulation expressly provides that a disregarded entity, such as post-conversion BFI, Inc., is a separate entity for purposes of filing a claim for refund as well as for purposes of tax liabilities for periods when the entity was not disregarded. The Court of Federal Claims erred by ignoring Treas. Reg. § 301.7701-2(c)(2)(iii), which makes it plain, in this very context, that the application of the deemed liquidation construct upon which the Court relied was incorrect.

3. Even if BFI, Inc. lacked capacity to file the May 2005 refund claims as agent for the consolidated group, the refund claims were valid claims by the individual members of the group. Under Treas. Reg. § 1.1502-77A(d), the Commissioner may deal directly with any member of the group in respect of its liability if he has reason to believe that the existence of the common parent has terminated. In the absence of agency authority under Treas. Reg. § 1.1502-77A, BFI, Inc. still had the capacity to file the refund claims on its own behalf under Treas. Reg. § 301.7701-2(c)(2)(iii). Accordingly, even if BFI, Inc. was no longer the agent for the group in May 2005, the Court of Federal Claims still had jurisdiction over this suit.

4. There can be no dispute that the May 2005 refund claims were filed on behalf of the correct taxpayer and in connection with the correct tax liability. In August 2006, after taxpayer moved to dismiss this case, two additional sets of refund claims were filed with the IRS on behalf of the consolidated group. Those claims were identical in all material respects to the May 2005 claims. The only difference among the claims is the name of the entity identified as having filed the claims on behalf of the consolidated group. There has been no allegation in this case that the members of the consolidated group were unaware of the May 2005 refund claims or that they did not consent to their filing.

The ruling by the Court of Federal Claims in this case holds refund claims to an extraordinarily high level of technical accuracy. Controversies regarding the jurisdictional sufficiency of administrative refund claims arise frequently in tax refund litigation. If the Government were to make the argument that taxpayer makes here, it is highly unlikely, under existing precedent, that a court would find the "defect" in the May 2005 claims to be of jurisdictional proportions. The ruling by the Court of Federal Claims in this case, if affirmed, will create uncertainty in the law of refund jurisdiction. In most cases, that uncertainty would prejudice taxpayers.

The judgment of the Court of Federal Claims is erroneous and should be reversed.

A. Introduction

1. The opportunity to file consolidated federal income tax returns is a privilege granted under Section 1501 of the Internal Revenue Code to affiliated groups of corporations meeting certain qualifications. See I.R.C. § 1504. The filing of consolidated returns affords several advantages to an affiliated group of corporations, including deferral of gain recognized on transactions between members of the affiliated group, and greater utilization of loss carryovers. Wolter Construction Co., Inc. v. Commissioner, 634 F.2d 1029, 1031 n.1 (6th Cir. 1980). To avail themselves of the privilege of filing consolidated returns, affiliated groups must consent to be bound by all of the consolidated return regulations.⁶See I.R.C. § 1501.

The Code does not provide a statutory scheme for determining the tax liability of affiliated groups filing consolidated returns. Rather, it provides that such liability will be determined in accordance with regulations to be promulgated under a specific grant of rulemaking authority. I.R.C. § 1503. Section 1502, in turn, directs the Secretary of the Treasury to prescribe regulations to correctly determine the tax liability of corporations filing consolidated returns. This Court has recognized that the consolidated return regulations, given that they are so promulgated, "have the force and effect of law." Falconwood Corp. v. United States, 422 F.3d 1339, 1351 (Fed. Cir. 2005) (citing Union Electric Co. of Missouri v. United States, 305 F.2d 850, 854 (Ct. Cl. 1962)).

It thus is beyond question that, by filing a consolidated return, the members of an affiliated group are bound by the consolidated return regulations. And "[i]t is also well settled that the consolidated return regulations are unique and preempt other provisions of the Internal Revenue Code." Grove Equity, Inc. v. Commissioner, 67 T.C.M. (CCH) 2381, 2382 (1994) (citations omitted); accord Sooner Federal Savings & Loan Ass'n v. United States, 4 Cl. Ct. 746, 751 (1984). Conversely, "[t]he Code, or other law, shall be applicable to the group to the extent the regulations do not exclude its application." Treas. Reg. § 1.1502-80(a).

2. It is well established that the United States, as sovereign, may not be sued without its consent, and the terms of its consent define a court's jurisdiction. The United States has consented to tax refund suits when the taxpayer follows the conditions set forth in I.R.C. § 7422(a), which provides that no refund suit may be maintained "until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof." The filing of a refund claim with the Internal Revenue Service is a jurisdictional prerequisite to the filing of a refund suit. United States v. Dalm, 494 U.S. 596, 602 (1990); United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 272 (1931).

In this case, there is no question that refund claims were filed on behalf of the consolidated group in May 2005. At issue is whether those claims complied with the form required by the applicable regulations. Under Treas. Reg. § 1.1502-77A,⁷ Regulatory Addendum infra, the common parent is "the sole agent for each subsidiary in the group" and in that capacity can bind each member of the group by taking various actions related to the consolidated federal income tax liability for a consolidated return year. Treas. Reg. § 1.1502-77A(a). In particular, Treas. Reg. § 1.1502-77A(a) provides that the common parent will "file claims for refund," and that any refund will be made directly to and in the name of the common parent.

B. Under the relevant consolidated return regulations, BFI, Inc.'s status as agent for the consolidated group did not terminate when it converted to a limited liability company under Delaware law

BFI, Inc. was the common parent of the consolidated group during the 1997 and 1998 tax years and filed the May 2005 refund claims for those years on its own behalf and on behalf of each member of the group. The Court of Federal Claims concluded, however, that BFI, Inc.'s conversion in 2004 to a limited liability company terminated its existence as the common parent of the consolidated group. (A10.) In the Court's view, BFI, Inc. had been liquidated and no longer existed for all federal income tax purposes on the date the refund claims in issue were filed. (A10.) The Court held that "[t]he filing of a refund claim in the name of a corporation that no longer exists does not comply with Treas. Reg. § 1.1502-77A, and deprives the Court of jurisdiction." (A3.) Because BFI, Inc.'s existence had not terminated on the date the refund claims were filed, however, the refund claims did comply with Treas. Reg. § 1.1502-77A, and the Court's conclusion is erroneous.

1. Before turning to the regulations themselves, it is helpful to examine the state law whose application to the regulations is at issue. There is no dispute that BFI, Inc. was a corporation organized under the law of the State of Delaware (A570-72) and that, under the law of Delaware, BFI, Inc. did not cease to exist upon its conversion to a limited liability company. Delaware law expressly provides that when a corporation converts to a limited liability company, the conversion constitutes a continuation, rather than a dissolution, of the converting corporation. The Delaware statute pursuant to which BFI, Inc. converted to a limited liability company, as in effect in December 2004, provided as follows (Del. Code Ann., tit. 8, § 266 (2004) (emphasis supplied)):

The Court of Federal Claims did not dispute the Government's argument that the conversion to a limited liability company did not constitute a dissolution or termination of BFI, Inc. under Delaware law. (A11.) Rather, the Court deemed state law to be irrelevant because, in the Court's view, "the authority to act for a consolidated group is governed by the applicable federal tax regulations." (A11.) What the Court failed to take into account was that the relevant consolidated return regulations look to state law to determine whether a common parent that was created under state law has dissolved or terminated.

2. The consolidated return regulations applicable for the years in suit provide that the common parent is "the sole agent for each subsidiary in the group" and designate it as the entity to "file claims for refund." Treas. Reg. § 1.1502-77A(a). And, those regulations further prescribe certain procedures applicable to the "dissolution" of a common parent or "if for any other reason its existence . . . terminate[s]." Treas. Reg. § 1.1502-77A(d). Because there is no federal statute or regulation directing that the common parent's dissolution or termination is to be determined other than under state law, Treas. Reg. § 1.1502-77A(a) looks to state law in determining whether an entity created under state law serving as the common parent has dissolved or whether its existence has terminated. Further, as discussed in part B.1, supra, under the applicable state law, i.e., Delaware law, BFI, Inc. did not cease to exist.

In disregarding BFI, Inc.'s continued existence under Delaware law, the Court of Federal Claims looked to the regulations on procedure and administration that govern the classification of entities for federal tax purposes, and specifically to Treas. Reg. § 301.7701-3(g)(1). In looking to the entity classification regulations, rather than to the consolidated return regulations, the Court of Federal Claims engaged in the wrong analysis.

Treas. Reg. § 1.1502-77A, the relevant consolidated return regulation, governs a common parent's authority to act as agent for subsidiary members of a consolidated group. That regulation prescribes certain procedures in the event that a common parent corporation "contemplates dissolution, or is about to be dissolved, or if for any other reason its existence is about to terminate." Treas. Reg. § 1.1502-77A(d). In such circumstances, the common parent (or if the common parent fails to do so, the remaining members of the group) must notify the Commissioner and designate another member of the group to be the agent, subject to the Commissioner's approval. In the event that neither the common parent nor the remaining members designate a new agent, the Commissioner may deal directly with any member in respect of its liability if he has reason to believe that the existence of the common parent has terminated. Id.

Under Treas. Reg. § 1.1502-77A(d), whether a new agent must be designated turns on whether there has been a "dissolution" of the common parent or whether the common parent's "existence is about to terminate." Because dissolution and corporate existence are state law concepts and are not defined by the consolidated return regulations, the Tax Court has looked to state law to determine, for purposes of particular consolidated return regulations, whether or not a common parent ceased to exist and thereby ceased to be the agent for the subsidiary members of the consolidated group. See Union Oil Co. of California v. Commissioner, 101 T.C. 130, 132, 140 (1993) (common parent whose existence did not terminate under state law remained agent for the subsidiary members of the group for purposes of the issuance of notices of deficiency for pre-reorganization years); INI, Inc. v. Commissioner, 69 T.C.M. (CCH) 2113, 2121 (1995), aff'd without op., 107 F.3d 27 (11th Cir. 1997) (looking to state law and executed documents to determine whether the existence of an affiliated group terminated). Because BFI, Inc. did not dissolve or terminate when it converted to a limited liability company, see Del. Code Ann., tit. 8, § 266 (2004), BFI, Inc. did not cease to be the agent for the consolidated group under Treas. Reg. 1.1502-77A.

Contrary to the Court's reasoning below (A10), whether there was a deemed liquidation of BFI, Inc. under Treas. Reg. § 301.7701-3(g)(1) for purposes of computing its tax liability after the conversion is irrelevant to BFI, Inc.'s continued existence as the common parent of the consolidated group. Under Treas. Reg. § 1.1502-77A, the relevant inquiry is whether the common parent corporation exists or has dissolved, not how the common parent corporation is classified (i.e., what kind of entity is involved). Indeed, Treas. Reg. § 1.1502-77A is devoid of any reference to the entity classification regulations, or to a deemed liquidation. BFI, LLC is the same business entity as BFI, Inc.⁸ (A577.) The Court of Federal Claims's conclusion (A3, 10) that BFI, Inc.'s existence had terminated for purposes of Treas. Reg. § 1.1502-77A when it filed the refund claims on behalf of the consolidated group in May 2005, and that the claims thus failed to satisfy the jurisdictional prerequisite to the filing of a refund suit, is erroneous as a matter of law.

3. To the extent that there is any doubt about how the consolidated return regulations should be construed, the Commissioner's interpretation of those regulations is controlling under Auer v. Robbins, 519 U.S. 452, 462 (1997) (agency's interpretation of its own regulation is controlling unless 'plainly erroneous or inconsistent with the regulation"; fact that the interpretation appeared in a legal brief did not make it unworthy of deference where it was "in no sense a 'post hoc rationalizatio[n]" (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988)); see also Long Island Care at Home, Ltd. v. Coke, 127 S. Ct. 2339, 2349 (2007) (finding "controlling" an agency's interpretation of its own regulation set forth in an internal memorandum written in response to litigation); Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945) (an agency's construction of its own regulation is "of controlling weight unless it is plainly erroneous or inconsistent with the regulation"). Indeed, this Court has recognized that an agency's interpretation of its own regulations is entitled to "substantial deference by the courts," even when "offered in informal rulings such as in a litigating document." Smith v. Nicholson, 451 F.3d 1344, 1349-50 (Fed. Cir. 2006), cert. denied, 127 S. Ct. 1147 (2007); accord Cathedral Candle Co. v. U.S. Intern. Trade Comm'n, 400 F.3d 1352, 1364 (Fed. Cir. 2005) ("That generous degree of deference is due to an agency interpretation of its own regulations even when that interpretation is offered in the very litigation in which the argument in favor of deference is made"); see also Connecticut General Life Ins. Co. v. Commissioner, 177 F.3d 136, 144 (3d Cir.) (deferring to interpretation of a regulation advanced by the IRS in litigation), cert. denied, 528 U.S. 1003 (1999).

C. Even if the Court of Federal Claims were correct that Delaware law is irrelevant, it still erred in concluding that the conversion of BFI, Inc. to a limited liability company terminated its capacity to act as agent for the consolidated group for purposes of filing the instant refund claims because it misinterpreted the entity classification regulations and ignored Treas. Reg. § 301.7701-2(c)(2), which provides that BFI, Inc. was not terminated for purposes of filing refund claims

Even if this Court were to disagree with the Government's argument in Section B above and to conclude instead that Delaware law has no relevance here, this Court should still reverse the judgment of the Court of Federal Claims. The Court's holding below was based on its view that there was a "termination" of BFI, Inc. under the entity classification regulations of Treas. Reg. § 301.7701. (A10.) In reaching that conclusion, however, the Court failed to consider all of the entity classification regulations. Rather, the Court embraced taxpayer's claim that Treas. Reg. § 301.7701-3(g)(1)(iii) caused a "termination" without even mentioning the companion regulation cited by the Government (A371-72, 812-13), Treas. Reg. § 301.7701-2(c)(2)(iii), which demonstrates otherwise.⁹

The entity classification regulations, Treas. Regs. §§ 301.7701-1 through 301.7701-3, were issued in 1996 to update and clarify the rules for determining the classification of certain businesses for federal tax purposes. Under the Internal Revenue Code, corporations are subject to entity-level income tax, while "pass-through" forms, like partnerships, are not. See I.R.C. §§ 11(a), 701. The entity classification regulations contain both mandatory and elective provisions that state which business entities must be classified as corporations, and which can be treated as either corporations or partnerships (or sole proprietorships), at the taxpayer's election. Certain kinds of entities -- i.e., those listed in §§ 301.7701-2(b)(1), (3)-(8) -- must be classified as corporations. If the business entity is not a corporation under those sections, it is an "eligible entity" under § 301.7701-3(a). If the eligible entity has only one owner, the owner can elect to have the business classified as an association (taxable as a corporation). If, as was the case here, it does not so elect, it will be classified by default as a "disregarded" entity pursuant to §§ 301.7701-2(a); 301.7701-2(c)(2), 301.7701-3(b)(1)(ii).

Although the Court of Federal Claims correctly recognized that the default classification of Treas. Reg. § 301.7701-3(b)(1)(ii) applied here, the Court read another part of the regulation -- i.e., Treas. Reg. § 301.7701-3(g)(1)(iii) -- to terminate BFI, Inc.'s existence for federal tax purposes, including for purposes of Treas. Reg. § 1.1502-77A. (A10.) However, Treas. Reg. § 301.7701-3(g)(1)(iii) provides only that an association that "elects" to be "disregarded as an entity" is "deemed" to engage in a liquidation transaction. That regulation does not state that the entity electing to be disregarded is dissolved or that its existence is terminated for all purposes. Rather, it states merely that the entity is "deemed" to distribute all its assets and liabilities to its single owner in a liquidation. That a corporation is deemed to have liquidated for purposes of determining the tax results of its election to be disregarded does not mean that it has dissolved.

Moreover, the Court's expansive reading of Treas. Reg. § 301.7701-3(g)(1)(iii) cannot be reconciled with the regulation cited by the Government, viz., Treas. Reg. § 301.7701-2(c)(2). The latter regulation expressly provides that a disregarded entity, such as post-conversion BFI, Inc., is a separate entity for purposes of filing a claim for refund as well as for purposes of tax liabilities for periods when the entity was not disregarded. In pertinent part the regulation, as in effect when the refund claims were filed in 2005, states (id., emphasis added):

Similarly, the Court of Federal Claims's reliance on Interlake Corp. v. Commissioner, 112 T.C. 103 (1999), to bolster its conclusion was misplaced. First, Treas. Reg. § 301.7701-2(c)(2)(iii) trumps the earlier Interlake decision to the extent that there is any conflict between the two. Treas. Reg. § 301.7701-2(c)(2)(iii) is entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). See McNamee v. Dept. of Treasury, 488 F.3d 100, 105-06 (2d Cir. 2007); Littriello v. United States, 484 F.3d 372, 377-78 (6th Cir. 2007); see also Marsh & McLennan Cos., Inc. v. United States, 302 F.3d 1369, 1375 (Fed. Cir. 2002). In Nat'l Cable & Telecommunications Ass'n v. Brand X Internet Services, 545 U.S. 967, 982 (2005), the Supreme Court held that "[a] court's prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion." Interlake was decided before Treas. Reg. § 301.7701-2(c)(2)(iii) was issued and does not hold that its construction follows from unambiguous statutory terms that left no room for agency discretion. See 112 T.C. at 115 ("the result we reach today is consistent with, and a logical extension of, the rationale underlying [certain] earlier decisions"). Thus, to the extent that Interlake and the regulation are in conflict, the regulation controls.

Furthermore, Interlake involved a situation that is fundamentally different from the instant case. In Interlake, a consolidated group continued to exist after the spinoff of a common parent. 112 T.C. at 105-06. Consequently, the Interlake court was faced with a situation where two existing corporations arguably had the capacity to file refund claims on behalf of a consolidated group. Id. at 113. Here, unlike in Interlake, the consolidated group itself terminated in 1999 when BFI, Inc. was acquired by AWNA. Furthermore, there is no question here regarding which of two corporations was the group's agent. Although the Tax Court observed in Interlake that it was "as though [the former common parent] ceased to exist," 112 T.C. at 114-15, the Interlake case, unlike this case, did not present the issue of whether the common parent had, in fact, ceased to exist.

The Court in this case, in reaching its conclusion that BFI, Inc. had terminated, also relied on a statement in a preamble issued in 2000 to proposed regulations that eventually replaced the consolidated return regulations applicable during the years in suit. (A8.) The preamble explained that under the then existing regulations, "issues arise about who has the authority to act on behalf of the group for consolidated return years where the common parent has ceased to exist (e.g., due to a merger or liquidation)[.]" 65 Fed. Reg. 57755, 57756 (Sept. 26, 2000). Although the Court recognized that "the new regulations do not apply in this instance" (A8), the Court appears to have read the parenthetical language to indicate the Treasury Department agreed that a deemed liquidation constituted a termination. However, the phrase, fairly read, indicates only that in some liquidations, the entity ceases to exist. It does not state that in every liquidation, the entity ceases to exist, and it does not speak to "deemed" liquidations. In any event, the preamble was issued in 2000, four years before Treas. Reg. § 301.7701-2(c)(2)(iii) was even proposed. See 69 Fed. Reg. 17117 (April 1, 2004). Accordingly, it does not speak to the effect of Treas. Reg. § 301.7701-2(c)(2)(iii).¹³

Taxpayer argued in the proceedings below (A743) that Treas. Reg. § 301.7701-2(c)(2)(iii) applied only for purposes of the entity's own tax liabilities or refunds and did not allow BFI, Inc. to file refund claims on behalf of the consolidated group after it had terminated. That argument is misguided. The plain language of Treas. Reg. § 301.7701-2(c)(2)(iii) states that the entity "is treated as an entity separate from its owner for purposes of . . . Refunds or credits of Federal tax." It does not limit the treatment to the entity's own refunds. Moreover, BFI, Inc.'s argument assumes what it must prove -- viz., that there has been a termination. As discussed above, a deemed liquidation serves merely to provide the tax consequences of a transaction, and does not constitute a dissolution or termination of the entity.

D. Even if BFI, Inc. lacked capacity to file the May 2005 refund claims as agent for the consolidated group, the refund claims were valid claims by the individual members of the group, including BFI, Inc.

Even if this Court were to reject the Government's arguments and, instead, were to agree with the Court's ruling below that BFI, Inc.'s existence as the common parent of the group had terminated, BFI, Inc.'s claims were still properly before the Court. Under Treas. Reg. § 1.1502-77A(d), "if the Commissioner has reason to believe that the existence of the common parent has terminated, he may, if he deems it advisable, deal directly with any member in respect of its liability." Although the Court of Federal Claims concluded in its opinion (A9) that absent the designation of a new agent "the IRS is left with no choice but to deal with each group member individually," the Court nevertheless summarily rejected the Government's argument in this regard, stating in its order on the Government's motion for reconsideration that "[t]here is nothing in the record to indicate that the Commissioner exercised his authority under § 1.1502-77A(d)." (A14.)

The Court's reading of the record is erroneous. A subsidiary of Allied paid the deficiencies on behalf of "Browning-Ferris Industries, Inc. and Subsidiaries" in April 2005. (A603, 693-94.) The May 2005 refund claims were filed in the name of "Browning-Ferris Industries, Inc. & Subsidiaries," and the explanation of changes in the claims states that "[t]he term 'Claimant' as used herein refers to Browning-Ferris Industries, Inc. and the members of its consolidated group as appropriate." (A514, 517.) That description of the claimant is sufficiently broad to encompass all of the individual members of the group, including BFI, Inc. Indeed, this construction of the refund claims is eminently reasonable when juxtaposed against taxpayer's position, which is that no one was capable of making the refund claims at the time that the claims were filed. As discussed in Argument E, infra, at the very least, the members of the consolidated group ratified the original claims. Treas. Reg. § 1.1502-77A(d) requires taxpayers to notify the Commissioner if the common parent dissolves, but nothing in that regulation imposes any obligation on the Commissioner to provide notice that he is dealing with a member directly.¹⁴

Moreover, if BFI, Inc. lacked the capacity to file the refund claims as agent for the consolidated group in May 2005, it nevertheless had the capacity to file the refund claims on its own behalf under Treas. Reg. § 301.7701-2(c)(2)(iii).¹⁵ Absent any valid agency, when the IRS was dealing with BFI, Inc., it was dealing with BFI, Inc. in regard to its own liabilities and claims. A member of a consolidated group is severally liable for the income tax liability of the group. Treas. Reg. § 1.1502-6(a). BFI, Inc. would be treated as the party entitled to receive the alleged overpayment within the meaning of I.R.C. § 6402(a), in satisfaction of at least its own several liability for the group's tax. See Treas. Reg. § 301.7701-2(c)(2)(iii). Accordingly, even if BFI, Inc. was no longer the agent for the group in May 2005, the Court of Federal Claims had jurisdiction over this suit.

E. The Court's ruling adopts an unfounded hypertechnical approach to administrative refund claims that will redound to the detriment of taxpayers generally

There can be no dispute that the May 2005 refund claims were filed on behalf of the correct taxpayer and in connection with the correct tax liability. Two additional sets of refund claims (one labeled "protective") were filed with the IRS on behalf of the consolidated group in August 2006 (A533-43, 550-61), after taxpayer had filed its motion to dismiss this suit in the Court of Federal Claims. The August 2006 claims, like the original claims filed in May 2005, pertained to the tax liability of the consolidated group for its 1997 and 1998 taxable years. (A511, 517, 533, 538, 550, 555.) All of the claims, including the original ones, were signed by the same corporate officer, Dale Parker, Allied's vice president for tax. (A511, 517, 533, 538, 550, 555.) All identified Browning-Ferris Industries, Inc. & Subsidiaries as the name used on the original returns. (A511, 517, 533, 538, 550, 555.) All described the same contingent liability tax shelter transaction as grounds for the claimed refund. (A514-16, 520-23, 535-37, 540-42, 552-54, 557-59.) All sought identical adjustments to the tax liability of the consolidated group, for total claimed overpayments of $18,549,092 for 1997 and $9,711,514 for 1998. (A511, 517, 533, 538, 550, 555.)

The only difference among the various sets of refund claims was the agent identified as filing the claims on behalf of the consolidated group. The May 2005 claims were filed under the name "Browning-Ferris Industries, Inc. & Subsidiaries" (A511, 517), whereas the two sets of August 2006 claims were filed under the names of two different agents ("Browning-Ferris Industries, LLC," and "BFI Waste Systems of North America, Inc. Designee," respectively), in each case "for consolidated group f/k/a Browning-Ferris Industries, Inc. & Subsidiaries" (A533, 538, 550, 555).

There has been no allegation in this case that any member of the consolidated group was unaware of the May 2005 refund claims or that any member did not consent to their filing. At the very least, the filing of the complaint in this lawsuit, and the filing of subsequent refund claims that were substantively unchanged and signed by the same corporate officer, demonstrate that the consolidated group ratified the original claims.¹⁶ Courts have concluded that jurisdiction exists in analogous contexts based on ratification by subsequent conduct. See Davenport Recycling Associates v. Commissioner, 220 F.3d 1255, 1262 (11th Cir. 2000) (partnership implicitly ratified general partner's allegedly unauthorized filing of a Tax Court petition on behalf of partnership); Mishawaka Properties Co. v. Commissioner, 100 T.C. 353, 366-67 (1993) (partners, by subsequent conduct, implicitly ratified the filing of a TEFRA suit by a partner who was not the tax matters partner); Kraasch v. Commissioner, 70 T.C. 623, 629 (1978) (taxpayers implicitly ratified the filing of a deficiency suit by their accountant); Oldham's Estate v. Campbell, 217 F. Supp. 819, 824 (N.D. Tex. 1963) (finding jurisdiction over refund action because attorney's filing of administrative refund claim was subsequently ratified by powers of attorney). Where a party's conduct "subsequent to the transaction objected to, is such as reasonably to warrant the conclusion that he has accepted or adopted it," ratification is implied. Frank v. Wilson & Co., 27 Del. Ch. 292, 305-06, 32 A.2d 277, 283 (Del. 1943).

The purpose for the administrative claim requirement of I.R.C. § 7422(a) "is both to prevent surprise and to give adequate notice to the Commissioner of the nature of the claim, and its underlying facts, so that a thorough administrative investigation and determination can be made." Burlington Northern Inc. v. United States, 684 F.2d 866, 868 (Ct. Cl. 1982). There can be no dispute that the May 2005 refund claims satisfied that purpose. Those claims gave adequate notice of the nature of the claim and its underlying facts, including the identity of the taxpayer, the tax years at issue, the precise transaction serving as grounds for the claimed refund, the proposed adjustments to income and deductions, and the amounts upon which the claims were predicated. Any technical "defect" did not hinder the Commissioner's review of the validity of the refund claims. And, in fact, the IRS considered those claims and issued a determination on the merits. (A133.) In these circumstances, if the parties' roles here were reversed, the IRS normally would be held to have waived strict compliance with the formal requirements of its regulations. See United States v. Kales, 314 U.S. 186, 196-97 (1941); United States v. Memphis Cotton Oil Co., 288 U.S. 62, 281 (1933).

The ruling by the Court of Federal Claims in this case holds administrative refund claims to an extraordinarily high level of technical accuracy. Contrary to Court's statement below (A16), this case does not present a "relatively unique factual setting." Controversies regarding the jurisdictional sufficiency of administrative refund claims arise frequently in tax refund litigation. The Government, not the taxpayer, typically is the moving party when jurisdiction is challenged. If the Government were to make the argument that taxpayer makes here, it is highly unlikely, under existing precedent, that a court would find the "defect" in the May 2005 refund claims to be of jurisdictional proportions. See Thompson v. United States, 332 F.2d 657, 660-61 (5th Cir. 1964) (refund claims were not fatally defective because they listed the trust as the taxpayer rather than the creators of the trust, where the claims stated the exact basis upon which the claims were predicated); De Haven v. Fahs, 176 F. Supp. 316, 322 (S.D. Fla. 1959) (refund claims accepted where the assignee of a dissolved corporation, instead of the sole surviving statutory trustee and sole surviving director of the corporation, filed the original claims for refund); Smith v. United States, 70 A.F.T.R.2d 5773, 5777 (N.D. Ill. 1992) (claim not invalid because it was executed in the incorrect legal capacity, i.e., as a surviving spouse, as opposed to representative of deceased's beneficiary); cf. Mills v. United States, 890 F.2d 1133, 1136 (11th Cir. 1989) (employer's FICA claim was sufficient to constitute notice of employee's claim for refund of his share of FICA contributions).

The ruling by the Court of Federal Claims in this case, if affirmed, will create uncertainty in the law of refund jurisdiction. For purposes of this case, an affirmance would constitute an endorsement of taxpayer's forum-shopping strategy. For most other cases, however, the approach used by the Court of Federal Claims here would prejudice taxpayers. Under that approach, taxpayer refund suits would be vulnerable to dismissal -- often fatally, since the applicable statute of limitations might well preclude timely refiling in any other court -- due to technical flaws in administrative refund claims that made no substantive difference whatsoever and had been held to be inconsequential in prior cases. Congress plainly did not intend such a potentially devastating result (for taxpayers generally) when it enacted the refund claim provisions of the Internal Revenue Code. Refund claims should not be "a game of legal 'gotcha.'" Mack v. Caspari, 92 F.3d 637, 640 (8th Cir. 1996) (discussing habeas cases) (citation omitted).

Here, the consolidated group has filed four sets of administrative refund claims with respect to its 1997 and 1998 tax liabilities, in an effort to comply with its own hypertechnical argument seeking to defeat refund jurisdiction. If the Court of Federal Claims's ruling adopting that approach were to be affirmed, many taxpayers likely would incur the additional burden and expense of filing multiple, substantially identical administrative claims for refund in order to avoid being deprived of their day in court.

² Although the Court of Federal Claims did not expressly state in its judgment that the Government's counterclaim was dismissed (A1), it is clear from the Court's opinion that the counterclaim was dismissed (A12). See Mulholland v. United States, 361 F.2d 237, 245 (Ct. Cl. 1966) (where a plaintiff's claim is rejected because of lack of jurisdiction, the Government's counterclaim must also be dismissed); see also Chase Manhattan Mortgage Corp. v. Moore, 446 F.3d 725, 726 (7th Cir. 2006) ("The test [for finality] is not the adequacy of the judgment but whether the district court has finished with the case.")

³ It also was registered as a foreign corporation in Arizona and Texas. (A631.)

⁴ The former Arthur Andersen accounting firm was involved in setting up contingent liability shelters both in this case and in Coltec. (A82-83, 87-88; Coltec, 454 F.3d at 1343.)

⁵ In April 2007, a fourth set of refund claims (labeled "protective") was filed on behalf of the consolidated group with respect to its 1997 and 1998 taxable years, by "BFI Waste Systems of North America, Inc. Designee for Consolidated Group f/k/a Browning-Ferris Industries, Inc. and Subsidiaries."

⁶ The consolidated return regulations to which BFI, Inc. and its subsidiaries consented by filing consolidated returns were promulgated in 1966 and were in effect, as subsequently amended, during the tax years in suit.

⁷ Treas. Reg. § 1.1502-77A applies to consolidated return years beginning before June 28, 2002. See Treas. Reg. § 1.1502-77A(g).

⁸ Indeed, the deemed liquidation upon which the Court based its conclusion that BFI, Inc. terminated for federal tax purposes was not from BFI, Inc. to BFI, LLC, it was from BFI, Inc. to "its single owner." Treas. Reg. § 301.7701-3(g)(1)(iii). Further, BFI, LLC, in the refund claims that it filed, continued to use the EIN assigned to BFI, Inc. (A511, 517, 533, 538.)

⁹ Treasury Regulations §§ 301.7701-2(c)(2)(iii) and 301.7701-3(g)(1)(iii) are reproduced in the Regulatory Addendum infra.

¹⁰ Subparagraph (iii) of Treas. Reg. § 301.7701-2(c)(2) is effective April 1, 2004, see Treas. Reg. § 301.7701-2(e)(2), and applies to the refund claims at issue here, which were filed on May 6, 2005.

¹¹ The Court of Federal Claims also cited Rev. Rul. 2004-59, 2004-1 C.B. 1050, to support its reading of Treas. Reg. § 301.7701-3(g)(1). (A10.) Like the regulation itself, that revenue ruling indicates only that the regulation provides the tax consequences of a transaction. It does not suggest that the express rule of Treas. Reg. § 301.7701-2(c)(2)(iii) does not apply.

¹² Although we maintain that the Court below committed reversible error by ignoring the relevant classification regulation, if there is any doubt as to what the classification regulations provide, it should be resolved by giving deference to the interpretation of those regulations expressed herein by the Commissioner. See Argument B.3, supra.

¹³ The Court of Federal Claims also erred by relying on IRS Field Service Advisories (FSAs). (A9.) FSAs are, by law, not precedent, but merely forms of internal, preliminary advice on a particular case, which are not even binding on IRS personnel working on that case. See I.R.C. § 6110(k)(3); Vons Companies, Inc. v. United States, 51 Fed. Cl. 1, 12-13 (2001). Moreover, even if FSAs were properly before the Court, the FSAs cited are inapposite because, in both, it was undisputed that the common parent had in fact ceased to exist, and both predate Treas. Reg. § 301.7701-2(c)(2)(iii).

¹⁴ The Court's statement that the Government's "argument 'confuses what the IRS is permitted to do with what taxpayers may do'" (A14) (quoting Plaintiff's Response to Defendant's Motion for Reconsideration (A914)) is fundamentally misconceived, because Treas. Reg. § 1.1502-77A(d) expressly permits the Commissioner to deal with any member directly. See Treas. Reg. § 1.1502-77A(d) (providing that the Commissioner "may, if he deems it advisable, deal directly with any member in respect of its liability").

¹⁵ Because BFI, Inc. filed on its own behalf, the IRS did not need to exercise its authority under Treas. Reg. § 1.1502-77A(d) with respect to it. BFI, Inc. always had the capacity to act on its own behalf.

¹⁶ The Form 10K filed with the SEC by Allied for its fiscal year ended December 31, 2005, stated that "we paid" the deficiency, and that "[i]n July 2005, we filed a suit for refund in the United States Court of Federal Claims." (A568.)