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Sunoco Seeks Reversal of Refund Denial in Fuel Tax Credit Case

MAR. 23, 2017

Sunoco Inc. v. United States

DATED MAR. 23, 2017
DOCUMENT ATTRIBUTES

Sunoco Inc. v. United States

SUNOCO, INC.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

Appeal from the United States Court of Federal Claims,
No. 1:15-cv-00587-TCW, Judge Thomas C. Wheeler

BRIEF FOR APPELLANT SUNOCO, INC.

Gregory G. Garre
Benjamin W. Snyder
Elana Nightingale Dawson
LATHAM & WATKINS LLP
555 Eleventh Street, NW
Suite 1000
Washington, DC 20004
(202) 637-2207
gregory.garre@lw.com

George M. Clarke, III
Counsel of Record
Vivek A. Patel
Kathryn E. Rimpfel
Eric M. Biscopink
BAKER & MCKENZIE LLP
815 Connecticut Avenue, NW
Suite 1200
Washington, DC 20006
(202) 452-7000
george.clarke@bakermckenzie.com

Counsel for Plaintiff-Appellant Sunoco, Inc.

March 23, 2017

CERTIFICATE OF INTEREST

Counsel for Appellant certifies the following:

1. Full Name of Party represented by me:

Sunoco, Inc.

2. Name of Real Party in interest (Please only include any real party in interest NOT identified in Question 3) represented by me is:

N/A

3. Parent corporations and publicly held companies that own 10 percent or more of stock in the party:

Energy Transfer Equity, L.P.

Energy Transfer Partners, L.P.

4. The names of all law firms and the partners or associates that appeared for the party or amicus now represented by me in the trial court or agency or are expected to appear in this court (and who have not or will not enter an appearance in this case) are:

Baker Hostetler LLP: Kevin Johnson and Jeffrey

Paravano Pepper Hamilton LLP: Christopher Young and Robert Fay

Date: March 23, 2017

Signature of counsel: George M. Clarke, III

Printed name of counsel: George M. Clarke, III

Please note: All questions must be answered


TABLE OF CONTENTS

CERTIFICATE OF INTEREST

TABLE OF AUTHORITIES

STATEMENT OF RELATED CASES

STATEMENT OF JURISDICTION

STATEMENT OF ISSUE

INTRODUCTION

STATEMENT OF THE CASE

I. Statutory Background

A. Taxation Of Gasoline

1. Funding The Highway Trust Fund

2. Incentivizing The Creation Of Renewable Fuels

3. Unintended Consequences Of Renewable Fuel Incentives

B. The American Jobs Creation Act

II. This Case

SUMMARY OF ARGUMENT

STANDARD OF REVIEW

ARGUMENT

I. THE GENERAL RULE IS THAT EXCISE TAXES ARE SUBTRACTED FROM GROSS INCOME OR OTHERWISE REDUCE TAXABLE INCOME

A. It Is Well Settled That A Taxpayer Can Treat Excise Tax Liability Either As Part Of Its Cost Of Goods Sold Or Deduct It As An Ordinary And Necessary Business Expense

B. This Rule Applies Regardless Of Whether The Taxpayer Itself Pays The Excise Taxes Or They Are Paid By A Third Party

II. CONGRESS WAS AWARE OF THE GENERAL RULE WHEN IT ENACTED THE JOBS ACT AND INTENDED IT TO APPLY

A. Congress Knew The General Rule That Excise Taxes Are Deductible Regardless Of Who Pays Them

B. The Statutory Program Created By Congress Strongly Supports The Conclusion That Congress Intended The General Rule To Apply Here

C. When Congress Wishes To Depart From The General Rule, It Has Done So Explicitly

III. NONE OF THE OTHER FACTORS RELIED UPON BY THE COURT OF FEDERAL CLAIMS COMPELS A DIFFERENT CONCLUSION

A. The Court Of Federal Claims Erred In Basing Its Interpretation On Its Review Of The Legislative History

B. The Court Of Federal Claims Erred In Dismissing What Congress Actually Did As A “Legal Fiction”

C. The Court Of Federal Claims Erred In Attaching Weight To Its Own Revenue Assessment Of Sunoco’s Interpretation

D. The Court Of Federal Claims Improperly Refused To Consider Contemporaneous Congressional Research Service Reports

E. The Court Of Federal Claims Erred In Analogizing The Credits At Issue To Taxable “Rebates” Or “Refunds”

F. The Court Of Federal Claims Erred In Invoking A Clear Statement Rule Against The Taxpayer

CONCLUSION

TABLE OF AUTHORITIES

CASES

Affiliated Foods, Inc. v. Commissioner, 128 T.C. 62 (2007)

American Financial Group v. United States, 678 F.3d 422 (6th Cir. 2012)

Auto–Ordnance Corp. v. United States, 822 F.2d 1566 (Fed. Cir. 1987)

B.C. Cook & Sons, Inc. v. Commissioner, 65 T.C. 422 (1975), aff’d 584 F.2d 53 (5th Cir. 1978)

Barnhart v. Peabody Coal Co., 537 U.S. 149 (2003)

BedRoc Ltd. v. United States, 541 U.S. 176 (2004)

Besong v. Commissioner, No. 30447-13S, 2016 WL 6520219 (T.C. Nov. 3, 2016)

Bowers v. New York & Albany Lighterage Co., 273 U.S. 346 (1927)

Bowsher v. Synar, 478 U.S. 714 (1988)

Bull v. United States, 479 F.3d 1365 (Fed. Cir. 2007)

Coca-Cola Co. v. United States, 87 Fed. Cl. 253 (2009)

Connecticut National Bank v. Germain, 503 U.S. 249 (1992)

Cramer v. Commissioner, 55 T.C. 1125 (1971)

Darby v. Cisneros, 509 U.S. 137 (1993)

Doyle v. Mitchell Brothers Co., 247 U.S. 179 (1918)

Fabreeka Products Co. v. Commissioner, 294 F.2d 876 (1st Cir. 1961)

Federal Home Loan Mortgage Corp. v. Commissioner, 121 T.C. 129 (2003)

Fort Howard Corp. v. Commissioner, 103 T.C. 345 (1994)

Frank Lyon Co. v. United States, 435 US 561 (1978)

Gitlitz v. Commissioner, 531 U.S. 206 (2001)

Goodyear Atomic Corp. v. Miller, 486 U.S. 174 (1988)

Granan v. Commissioner, 55 T.C. 753 (1971)

Growmark, Inc. v. Commissioner, No. 23797-14 (T.C. filed Oct. 8, 2014)

Guardian Industries Corp. v. United States, 477 F.3d 1368 (Fed. Cir. 2007)

Hanover Bank v. Commissioner, 369 U.S. 672 (1962)

Hassett v. Welch, 303 U.S. 303 (1938)

Heckler v. Turner, 470 U.S. 184 (1985)

Hibbs v. Winn, 542 U.S. 88 (2004)

Kissel v. Commissioner, 15 B.T.A. 1270 (1929)

Knight v. Commissioner, 552 U.S. 181 (2008)

Lang v. Commissioner, 100 T.C.M. 603 (CCH) (2010)

Lembeck v. Commissioner, 16 B.T.A. 250 (1929)

Lorillard v. Pons, 434 U.S. 575 (1978)

Magruder v. Supplee, 316 U.S. 394 (1942)

Maines v. Commissioner, 144 T.C. 123 (2015)

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353 (1982)

Miles v. Apex Marine Corp., 498 U.S. 19 (1990)

Mohawk Liqueur Corp. v. United States, 324 F.2d 241 (6th Cir. 1963)

Murphy v. IRS, 493 F.3d 170 (D.C. Cir. 2007)

Ratzlaf v. United States, 510 U.S. 135 (1994)

Rink v. Commissioner, 51 T.C. 746 (1969)

Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F.2d 858 (Fed. Cir. 1984), superseded on other grounds by 35 U.S.C. § 271(e) (1994)

Russello v. United States, 464 U.S. 16 (1983)

Salem Financial, Inc. v. United States, 786 F.3d 932 (Fed. Cir. 2015)

South Dakota v. Yankton Sioux Tribe, 522 U.S. 329 (1998)

Summa Holdings, Inc. v. Commissioner, 848 F.3d 779 (6th Cir. 2017)

Sunoco v. United States, 129 Fed. Cl. 322 (2016)

United Dominion Industries, Inc. v. United States, 532 U.S. 822 (2001)

United States v. Wells Fargo Bank, 485 U.S. 351 (1988)

USA Choice Internet Services, LLC v. United States, 522 F.3d 1332 (Fed. Cir. 2008)

Ventas, Inc. v. United States, 381 F.3d 1156 (Fed. Cir. 2004)

Wells Fargo & Co. v. United States, 827 F.3d 1026 (Fed. Cir. 2016)

White v. Aronson, 302 U.S. 16 (1937)

Xianli Zhang v. United States, 640 F.3d 1358 (Fed. Cir. 2011)

STATUTES

2 U.S.C. § 166(d)

26 U.S.C. § 45H(a)

26 U.S.C. § 61(a)

26 U.S.C. § 162

26 U.S.C. § 280C(d)

26 U.S.C. § 280D (1982) (repealed 1988)

26 U.S.C. § 4081(a)

26 U.S.C. § 4081(a) (2000)

26 U.S.C. § 4081(c) (2000)

26 U.S.C. § 4986 (1982) (repealed 1988)

26 U.S.C. § 6402

26 U.S.C. § 6426(a)

26 U.S.C. § 6426(b)

26 U.S.C. § 6427(e)

26 U.S.C. § 6429 (1982) (repealed 1988)

26 U.S.C. § 9503(b)

26 U.S.C. § 9601

28 U.S.C. § 1295(a)

28 U.S.C. § 1346(a)

28 U.S.C. § 1491

Pub. L. No. 95-618, 92 Stat. 3174 (1978) (codified at 26 U.S.C. § 4081(c))

Pub. L. No. 96-223, 94 Stat. 229 (1980)

Pub. L. No. 97-424, 96 Stat. 2097 (1982)

Pub. L. No. 98-369, 98 Stat. 494 (1984)

Pub. L. No. 99-514, 100 Stat. 2075 (1986)

Pub. L. No. 102-486, 106 Stat. 2776 (1992)

Pub. L. No. 108-357, 118 Stat. 1418 (2004)

Pub. L. No. 109-58, 119 Stat. 594 (2005)

Pub. L. No. 110-343, 122 Stat. 3765 (2008)

Pub. L. No. 111-312, 124 Stat. 3296 (2010)

Pub. L. No. 112-240, 126 Stat. 2313 (2013)

Pub. L. No. 113-295, 128 Stat. 4010 (2014)

OTHER AUTHORITIES

Ida A. Brudnick, Cong. Research Serv., CRS Report RL33471, The Congressional Research Service and the American Legislative Process (Apr. 12, 2011)

Bureau of the Fiscal Serv., U.S. Dep’t of the Treasury, The General Fund of the US Government (last updated June 9, 2016) https://www.fiscal.treasury.gov/fsservices/gov/acctg/genFund/genFund_home.htm

149 Cong. Rec. S10680 (daily ed. July 31, 2003)

150 Cong. Rec. S1210-11 (daily ed. Feb. 12, 2004)

Federal Rule of Civil Procedure 12(b)(6)

Federal Rule of Civil Procedure 12(c)

Stephen F. Gertzman, Federal Tax Accounting (Mar. 2017 update)

Steven H. Gifis, Law Dictionary (1975)

H.R. Rep. No. 108-755 (2004) (Conf. Rep.)

I.R.S. Chief Couns. Advice 200126005 (May 31, 2001), https://www.irs.gov/pub/irs-wd/0126005.pdf

I.R.S. Chief Couns. Advice 201223019 (June 8, 2012), http://www.irs.gov/pub/irs-wd/1223019.pdf

I.R.S. Priv. Ltr. Rul. 201022012 (Feb. 25, 2010), http://www.irs.gov/pub/irs-wd/1022012.pdf

I.R.S. Tech. Adv. Mem. 200215004 (Apr. 12, 2002), http://www.irs.gov/pub/irs-wd/0215004.pdf

Salvatore Lazzari, Cong. Research Serv., CRS Report RL32979, Alcohol Fuels Tax Incentives (July 6, 2005)

Rev. Rul. 75-301, 1975-2 C.B. 66

Rev. Rul. 78-38, 1978-1 C.B. 67

Rev. Rul. 78-39, 1978-1 C.B. 73

Rev. Rul. 78-173, 1978-1 C.B. 73

Rev. Rul. 84-41, 1984-1 C.B. 130 (1984)

Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts (2012)

Molly F. Sherlock, Cong. Research Serv., CRS Report R41227, Energy Tax Policy: Historical Perspectives On and Current Status Of Energy Tax Expenditures (May 2, 2011)

2A Norman Singer & Shambie Singer, Sutherland Statutory Construction (7th ed. updated Nov. 2016)

Staff of the Joint Comm. on Taxation, 108th Cong., General Explanation of Tax Legislation Enacted in the 108th Congress (JCS-5-05) (2005), http://www.jct.gov/publications.html?func+startdown&id=2314

Staff of Joint Comm. on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 5250, the ‘American Jobs Creation Act of 2004’ (JCX-69-04) (Comm. Print 2004)

Treas. Reg. § 1.61-3(a)

Treas. Reg. § 1.162-1

Treas. Reg. § 1.162-11(a)

Treas. Reg. § 1.164-1(a)

Treas. Reg. § 1.164-2(f)

Treas. Reg. § 1.461-4(g)(1)(ii)(A)

Treas. Reg. § 1.901-2(f)(1)

Treas. Reg. § 1.1375-1(c)(1)

U.S. Dep’t of Transp., Fed. Highway Admin., Status of the Federal Highway Trust Fund for the End of Fiscal Year 2004 (Oct. 2005), https://www.fhwa.dot.gov/policy/ohim/hs04/pdf/fe10.pdf

U.S. Dep’t of Transp., Fed. Highway Admin., Status of the Federal Highway Trust Fund for the Fiscal Year Ended September 30, 2000 (Oct. 2001), http://www.fhwa.dot.gov/ohim/hs00/pdf/fe10.pdf

U.S. Government Accountability Office, A Glossary of Terms Used in the Federal Budget Process (Sept. 2005), https://www.appropriations.senate.gov/imo/media/doc/glossary-of-terms-used-in-the-federal-budget-process.pdf

The Wolters Kluwer Bouvier Law Dictionary (2012)


STATEMENT OF RELATED CASES

There are no cases related to this case under Federal Circuit Rule 47.5(a). No appeal in or from this action was previously before this or any other appellate court and counsel knows of no case pending in this or any other court that will directly affect or be directly affected by this Court’s decision in this appeal.

STATEMENT OF JURISDICTION

In September 2013, Sunoco submitted to the Internal Revenue Service informal claims for refunds, along with amended tax returns, for the 2004–2009 tax years. Appx1003-1011 ¶¶ 15-70. On March 11, 2015, the Internal Revenue Service issued a statutory notice disallowing Sunoco’s claims. Appx1002 ¶ 6. Sunoco then timely filed this civil action against the United States in the Court of Federal Claims to recover its mistaken overpayment of internal revenue taxes. Appx1001-1014. The Court of Federal Claims had jurisdiction over the action under 28 U.S.C. §§ 1346(a)(1), 1491.

On November 22, 2016, the Court of Federal Claims entered final judgment in this case. Appx1. Sunoco filed a timely notice of appeal on December 22, 2016. ECF No. 57. This Court has jurisdiction under 28 U.S.C. § 1295(a)(3).

STATEMENT OF ISSUE

Whether Sunoco is entitled to subtract from its gross income or otherwise deduct the full amount of its excise tax liability in connection with the sale or use of gasoline or whether, as the Court of Federal Claims held, Sunoco is required to offset the amount of the excise tax liability it may subtract or deduct from its gross income by the amount of any alcohol fuel mixture tax credits it earns.

INTRODUCTION

While this appeal involves a tax issue, it boils down to a matter of statutory interpretation. In adopting the government’s position below, the Court of Federal Claims disregarded statutory text, settled rules of interpretation, and preexisting law. When courts disregard those things, they disregard the choices made by Congress. That disregard is on full display here.

For over 30 years, Congress sought to encourage fuel manufacturers to create renewable, alcohol-based fuel blends by setting lower excise tax rates on renewable fuels as compared to traditional fuels. That tax incentive was so successful, however, that it had unintended consequences. Excise tax revenues are the statutory funding source for the Highway Trust Fund (“HTF”) — the federal source of money for repair and upkeep of the nation’s roadways. So as renewable fuel production increased, the HTF’s revenue stream decreased (because of the lower rates of excise tax assessed on those fuels). By 2004, it had become clear that Congress had to act to save the HTF.

In the American Jobs Creation Act of 2004, Congress replaced the reduced rate approach for renewable fuels with an across-the-board excise tax rate for all gasoline, blended or not. Under this new arrangement, all gasoline manufacturers would incur a single, unreduced rate of excise tax. That was critical to maximizing the funds flowing into the HTF. But to continue to incentivize the production of renewable fuels, Congress created tax credits that manufacturers could earn by producing fuels mixed with alcohol. Taxpayers with credits could use those credits to satisfy any outstanding excise tax liability, and receive the balance of the credits, if any, as a tax-free payment from the government.

This new program had important implications under settled principles of tax law — with which Congress, of course, is presumed to be familiar. As a general matter, when taxpayers calculate their taxable income, they are allowed to subtract from gross income their cost of goods sold and deduct their business expenses. Excise taxes have long been considered part of a manufacturer’s cost of goods sold or a business expense. When Congress increased the excise tax rate for renewable fuels, then, it not only increased the excise tax liability for manufacturers, but also increased the amount that manufacturers could subtract when calculating their taxable income (by virtue of the increased excise tax liability).

Congress expressly stated that the credits provided to incentivize renewable fuels do not reduce the amount of the taxpayer’s excise tax liability. 26 U.S.C. § 9503(b)(1) (flush language). Rather, the credits are simply a way that a taxpayer may pay any excise tax liability. This kind of a scheme is not unusual. Congress often requires taxpayers to first satisfy any outstanding debt to the government before receiving any amounts that would otherwise be owed by the government. But allowing a credit to satisfy a tax liability is different from reducing the amount of the tax liability itself. Congress clearly appreciates this. When it wants to limit the size of the deduction for excise tax liability, it has done so explicitly.

The Court of Federal Claims recognized that, “on paper,” Congress said that “the full excise tax [liability] is imposed,” notwithstanding the renewable fuel mixture credits to which a manufacturer may be entitled. Appx8. But instead of giving effect to what Congress said, the court reasoned that the new alcohol fuel mixture credit was simply an “accounting sleight-of-hand” (Appx8) — a mere “legal fiction” (Appx8) — that could not be given its ordinary effect. Thus, the court held that the credits must be treated “as a reduction of the taxpayer’s excise tax liability,” Appx3; see also Appx5-6, Appx9 — the exact opposite of what Congress said. In reaching that result, the court not only disregarded the words Congress used, it engaged in a speculative policy analysis based on its review of the legislative history, its own revenue impact assessments, and other extra-textual considerations.

That decision should be reversed.

STATEMENT OF THE CASE

I. Statutory Background

A. Taxation Of Gasoline

1. Funding The Highway Trust Fund

Congress created the HTF in 1956 to establish a reliable source of funding for the nation’s roadways. Since the passage of the Highway Revenue Act, Congress has required that all federal excise taxes collected on fuels be deposited into the HTF. See 26 U.S.C. § 9503(b). One of those excise taxes — the one at issue here — is imposed on the removal of gasoline from a refinery or terminal; the entry of gasoline into the United States for consumption, use, or warehousing; or sales of gasoline to certain purchasers. See 26 U.S.C. § 4081(a).

2. Incentivizing The Creation Of Renewable Fuels

Separate from its revenue-generating function, Congress has also long used the Internal Revenue Code to encourage the creation and use of renewable fuels through tax incentives. In 1978, Congress established a complete tax exemption designed to reward manufacturers that blended gasoline with alcohol.1 See Energy Act of 1978, Pub. L. No. 95-618, § 221(a)(1), 92 Stat. 3174, 3185 (codified at 26 U.S.C. § 4081(c)) (“[N]o tax shall be imposed by this section on the sale of any — (A) gasoline in a mixture with alcohol, if at least 10 percent of the mixture is alcohol, or (B) for use in producing a mixture at least 10 percent of which is alcohol.”).

In 1982, Congress replaced the full excise tax exemption in Section 4081(c) with a reduced-rate structure, taxing gasoline for use in eligible alcohol-mixed fuels at lower rates than regular gasoline. See Highway Improvement Act of 1982, Pub. L. No. 97-424, 96 Stat. 2097. Although Congress continued to update and revise this gasoline-taxation approach over the next 20 years, it left intact the basic reduced-rate structure for excise taxation until 2004. See, e.g., Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494; Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776.

3. Unintended Consequences Of Renewable Fuel Incentives

By then, Congress realized that the reduced-rate structure was unsustainable. That structure had led to a massive deficit in the HTF because as the popularity of alcohol-blended fuels rose, so too did the proportion of gasoline taxed at a reduced rate. Those reduced rates resulted in a massive reduction in the revenue stream that funds the HTF. Thus, just as the nation’s infrastructure needs were increasing, the available funds in the HTF began to decrease dramatically. In the years leading up to 2004, the HTF’s year-end balances decreased by more than 50 percent: from $22.5 billion in 2000 to $10.8 billion in 2004.2 This shortfall was a direct result of Congress’s success in incentivizing alcohol-fuel blends, but it had to be addressed in order to save the HTF — and the nation’s highways.

B. The American Jobs Creation Act

In 2004, Congress set out to fix these problems in a bill that became part of the American Jobs Creation Act of 2004, Pub. L. No. 108-357, §§ 301-03, 118 Stat. 1418, 1459-66 (“Jobs Act”). In an eight-page section of the 244-page Jobs Act, Congress revamped the tax scheme for renewable-fuels.

In particular, the Jobs Act jettisoned the tiered, reduced tax rates for alcohol-blended gasoline and replaced them with an across-the-board taxation rate of 18.3 cents per gallon for all gasoline.3 Under the new program, as with the prior one, Congress continued to tax gasoline when it was removed from a manufacturing refinery or terminal; brought into the United States for consumption, use, or warehousing; or sold to certain persons. See 26 U.S.C. § 4081(a)(1). But unlike under the prior structure, the tax rate on the gasoline no longer depended on whether it would be mixed with alcohol in the future. Instead, under the new program all manufacturers were liable for the 18.3 cents per gallon of excise tax on all gasoline, even if the gasoline was blended with alcohol. This change in excise tax rates addressed the major problem created by the prior regime by greatly increasing the excise taxes flowing into the HTF.4

By itself, however, the movement to a single tax rate would have frustrated Congress’s second objective: to continue to incentivize the manufacturing of renewable fuels, including corn-based ethanol blends that provide significant revenue to several mid-western States in particular. To achieve that objective, Congress created a new incentive system under which manufacturers could earn separate, valuable credits for blending activities. Under Section 6426, for every gallon of alcohol a manufacturer blends with gasoline, the manufacturer earns a corresponding monetary credit of 51 cents — regardless of whether that fuel is subject to excise tax. See 26 U.S.C. § 6426(b)(1).

Consistent with its decision to do away with the reduced-rate excise tax regime, Congress specified that the “taxes received” under the revised gasoline excise tax provision — and thus deposited into HTF — “shall be determined without reduction for credits under section 6426.” 26 U.S.C. § 9503(b)(1) (emphasis added). Thus, “the full amount of user excise taxes levied [are] collected and remitted to the Highway Trust Fund (HTF),” and manufacturers entitled to credits are separately compensated from the General Fund.5 149 Cong. Rec. S10680 (daily ed. July 31, 2003) (statement of Sen. Grassley, a sponsor) (emphasis added).

As part of the new program, Congress allowed taxpayers to use any renewable fuels credits they earned to satisfy (i.e., pay) their excise tax liability. See 26 U.S.C. § 6426(a) (“There shall be allowed as a credit — (1) against the tax imposed by section 4081 an amount equal to the sum of the credits described in subsection[ ] (b). . . . ”). If the taxpayer had no excise tax liability,6 or if the taxpayer’s credits exceeded its Section 4081 liability, the taxpayer was entitled to a “tax-free payment” of the outstanding credit amount. Appx3, Appx6; see 26 U.S.C. § 6427(e)(1) (“If any person produces a mixture described in section 6426 in such person’s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit. . . .”).

II. This Case

Plaintiff-Appellant Sunoco, Inc. is a petroleum and petrochemical company. Appx1003 ¶ 10. Sunoco incurs excise tax liability on gasoline under the program discussed above. Appx1003 ¶ 12. As part of its refining and wholesale fuel supply business, Sunoco also blends ethanol with gasoline to create alcohol fuel mixtures, entitling it to a credit under Section 6426. Appx1003 ¶ 11.

On its original income tax returns for 2005 through 2008, Sunoco erroneously calculated its cost of goods sold by reducing its excise taxes by the value of its alcohol fuel mixture credits. Appx1003 ¶ 14. As a result, Sunoco’s taxable income was higher than it should have been, resulting in an approximately $306 million income tax overpayment. See Appx1006-1007 ¶¶ 30, 40, Appx1009-1010 ¶¶ 50, 60. Upon realizing its error, Sunoco submitted to the Internal Revenue Service (“IRS”) informal claims for income tax refunds arising from its miscalculation. Appx1004-1005 ¶¶ 20, 28, Appx1007-1008 ¶¶ 38, 48, Appx1010-1011 ¶¶ 58, 68. Sunoco also submitted formal refund claims for these years (in the form of amended returns on Form 1120X), claiming the additional deductions. Appx1004 ¶ 21, Appx1006-1007 ¶¶ 29, 39, Appx1009-1011 ¶¶ 49, 59, 69.

On March 11, 2015, the IRS issued a statutory notice of claim disallowance, denying Sunoco’s refund claims. Appx1002 ¶ 6. Sunoco filed suit in the United States Court of Federal Claims to recover its overpayments. 28 U.S.C. § 1491.

The government moved for judgment on the pleadings, arguing that “[t]he alcohol fuel mixture credit under § 6426 of the Code operates to reduce a taxpayer’s fuel excise tax under § 4081 and, as a result, a taxpayer may only claim in its cost-of-goods its fuel excise-tax liability after offsetting the tax credit.” Appx1044. Sunoco opposed the government’s motion and filed a responsive motion for partial summary judgment. Sunoco argued that it was permitted “to include in its costs of goods sold all of the fuel excise taxes it paid to the federal government without reducing cost of goods sold by the amount of the alcohol fuel mixture credit,” because the alcohol fuel mixture credit does not reduce a taxpayer’s excise tax liability. Appx1085-1086.

The Court of Federal Claims denied Sunoco’s motion and granted the government’s. Sunoco v. United States, 129 Fed. Cl. 322 (2016). The court recognized that, “on paper, fuel blenders now pay the full amount of the § 4081 excise tax.” Appx8. But the court rejected that reading of the statute, concluding that, “in reality, the full excise tax rates were not imposed.” Appx8. In the court’s view, Congress had simply created a “legal fiction,” and engaged in an “accounting sleight-of-hand,” when it created the alcohol fuel mixture credits. Appx8. Although it recognized that Congress said in the statute that “the full excise tax is imposed on blenders,” the court concluded that Congress nevertheless meant to “reduce the blenders’ tax liability in much the same way it did before.” Appx8.

The court also explored what it described as the “interesting side-effects” of the parties’ interpretations and conducted its own revenue-impact assessment of those interpretations. Appx11. It concluded that, while both interpretations lead to “unappetizing outcome[s]” not discussed in the legislative history, Sunoco’s was less appetizing. Appx11. The court likewise pointed to an unexplained statement in a Joint Committee on Taxation report accompanying the Jobs Act that the new credit would have “No Revenue Effect.” Appx11.

After weighing various other extra-textual considerations, the court ultimately concluded that if Congress wanted to convey the “tax benefits” that it believed followed from Sunoco’s interpretation, it had to “speak unequivocally.” Appx14. Finding such a clear statement lacking, it rejected Sunoco’s position.

This timely appeal followed.

SUMMARY OF ARGUMENT

The first canon of statutory construction is that Congress says what it means and means what it says. Here, the Court of Federal Claims itself recognized that the statute that Congress enacted “say[s] the full excise tax is imposed on fuel blenders.” Appx8 (emphasis added). Under settled principles, taxpayers are entitled to deduct the full excise taxes they incur — regardless of how they are paid or even who pays them. But instead of giving effect to what Congress said, the court disregarded Congress’s work as merely a “legal fiction,” an “accounting sleight-of-hand,” Appx8, and held that the credits must be treated “as a reduction of the taxpayer’s excise tax liability,” Appx3; see Appx5-6, Appx9 (emphasis added).

That decision cannot stand. First, Congress is not only presumed to say what it means, but also to know the law in the area in which it legislates. It is well settled that excise taxes may be subtracted from gross income or deducted from taxable income. This rule applies regardless of how the tax liability is satisfied (i.e., paid), including if credits are used to pay excise taxes. When Congress wants to depart from these rules, and on occasion it has, it does so expressly. Here, however, Congress made clear that the amount of excise taxes received under Section 4081 “shall be determined without reduction for credits.” 26 U.S.C. § 9503(b)(1) (emphasis added). That makes sense, because reducing the amount of the excise tax liability by the value of credits earned would defeat a primary purpose of the statute — to increase the taxes flowing to the HTF.

Second, the court erred when it declined to give effect to what Congress did “on paper” based on its view of what Congress meant “in reality.” Appx8. Courts sometimes refuse to give effect to transactions for federal tax purposes based on the conclusion that, no matter what an instrument might say on paper, the transaction is, in reality, a “sham.” In effect, the Court of Federal Claims created a “legislative sham” doctrine, which allows a court to disregard what Congress says on paper based on the court’s review of legislative history and other extra-textual considerations. That doctrine is not only novel, but also subverts the role of the courts in giving effect to the laws Congress enacts.

Third, instead of giving effect to the law Congress passed, the court improperly engaged in its own policy analysis of what revenue mechanism seemed most effective to it. The court itself observed that both proposed interpretations — the government’s and Sunoco’s — led to what it called “unappetizing outcome[s].” Appx11. Yet the court made its decision based on what it viewed as competing policy choices, finding that Sunoco’s interpretation was less desirable. In particular, the court erred in relying on an unexplained statement in a committee report that the law would have “No Revenue Effect.” Appx11. Courts have repeatedly, and rightly, refused to rely on such unenacted revenue impact statements as probative of what Congress intended.

Fourth, the court erred by tipping the scales in favor of the government to the point that the court required Sunoco to show that Congress spoke “unequivocally” (Appx14) in providing that manufacturers would be entitled to the ordinary consequences of Congress’s actions — i.e., the right to subtract from their taxable income the full, unreduced amount of the excise tax liability imposed. There was ample evidence that this was what Congress in fact intended. But Sunoco did not have to meet a clear-statement rule in order to prevail. If anything, the taxpayer is entitled to the benefit of any doubt in construing the statute.

In the end, it is clear that the court concluded that Congress could not have meant what it said, because the court believed that would result in too much of a benefit to the taxpayer. But the court’s duty was to give effect to the statute that Congress enacted, not to substitute its own judgment about what it believed would be the best, or most effective, tax policy for the legislature to enact. The IRS is always free to go back to Congress and ask for a different, or more onerous, taxing scheme if it believes that the one Congress enacted is somehow inadequate or ill-advised, but the court overstepped its role in rewriting the law for Congress.

STANDARD OF REVIEW

This Court reviews judgments on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) on the same basis as it reviews dismissals pursuant to Rule 12(b)(6): The judgment, along with any questions of law, are reviewed de novo, while the facts alleged in the complaint, as well as all reasonable inferences, are presumed to be true. Xianli Zhang v. United States, 640 F.3d 1358, 1364 (Fed. Cir. 2011).

ARGUMENT

I. THE GENERAL RULE IS THAT EXCISE TAXES ARE SUBTRACTED FROM GROSS INCOME OR OTHERWISE REDUCE TAXABLE INCOME

When Congress legislates new taxes, it does so against the backdrop of settled tax principles. To understand what Congress intended in enacting the statute at issue, it is first necessary to understand those background principles.

A. It Is Well Settled That A Taxpayer Can Treat Excise Tax Liability Either As Part Of Its Cost Of Goods Sold Or Deduct It As An Ordinary And Necessary Business Expense

A business taxpayer’s federal income tax liability is based on its taxable income — a figure that takes into account, among other things, the costs the taxpayer incurs in manufacturing inventory for its business as well as the expenses it incurs in conducting its business. To determine its taxable income, a taxpayer must first calculate its gross income. Gross income for manufacturers like Sunoco “means the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources.” Treas. Reg. § 1.61-3(a); see also 26 U.S.C. § 61(a). Taxable income, in turn, is calculated by subtracting allowable deductions from that gross income. Knight v. Commissioner, 552 U.S. 181, 184 (2008); see also B.C. Cook & Sons, Inc. v. Commissioner, 65 T.C. 422, 428 (1975) (explaining that a taxpayer’s costs of goods sold are an “offset[ ] employed in the computation of gross income” and its deductions are “subtracted from gross income in arriving at taxable income”), aff’d, 584 F.2d 53 (5th Cir. 1978). To determine taxable income, then, a taxpayer must account for both exclusions from gross income (e.g., cost of goods sold) and deductions from gross income (e.g., ordinary and necessary business expenses).

It has long been established that a taxpayer’s taxable income should not include its excise tax expenses. Taxpayers have two options to account for excise taxes — they can either treat the taxes as part of their cost of goods sold (an exclusion from gross income) or deduct the taxes from their gross income as an ordinary and necessary business expense (a subtraction from gross income). Compare Mohawk Liqueur Corp. v. United States, 324 F.2d 241, 244 (6th Cir. 1963); Treas. Reg. § 1.61-3(a), with 26 U.S.C. § 162; Treas. Reg. § 1.162-1; Treas. Reg. § 1.164-2(f) (contemplating the deductibility of federal excise tax “under section 162 or section 212”).

The option that a taxpayer employs depends on, among other things, its accounting method. See Mohawk Liqueur Corp., 324 F.2d at 243-44. But regardless of the method used, it is undisputed that the taxpayer is permitted to exclude its federal excise tax liability from its taxable income. See Appx1047, Appx1070; Opinion and Order Denying Pl.’s Mot. to Compel 2, ECF No. 47 (“A taxpayer may count excise taxes paid as part of its cost of goods sold or as business expenses, and thereby may reduce its overall income tax liability.”).7

B. This Rule Applies Regardless Of Whether The Taxpayer Itself Pays The Excise Taxes Or They Are Paid By A Third Party

It is also settled that “taxes are deductible only by the person upon whom they are imposed.” Treas. Reg. § 1.164-1(a); Magruder v. Supplee, 316 U.S. 394, 396 (1942). As a result, even if a third party pays a taxpayer’s taxes, only the taxpayer actually liable for the tax can claim any benefit that flows from a payment of the tax. See, e.g., Treas. Reg. § 1.901-2(f)(1); see also Guardian Indus. Corp. v. United States, 477 F.3d 1368, 1372 (Fed. Cir. 2007) (noting a “general and undisputed proposition that the party who pays the tax may not be the party that is legally liable for the tax”). “[T]he source of the funds . . . used to make a payment generally is not relevant.” Stephen F. Gertzman, Federal Tax Accounting ¶ 3.04[3][a] (Mar. 2017 update); see also id. n.127 (citing Rev. Rul. 78-173, 1978-1 C.B. 73 (taxpayer permitted to deduct medical payments made by a parent on his behalf); Rev. Rul. 78-38, 1978-1 C.B. 67 (use of credit cards deemed equivalent of payment of liability with borrowed funds); Rev. Rul. 78-39, 1978-1 C.B. 73 (same)).

Courts and the government have uniformly applied this principle to a variety of factual scenarios. For example, when taxes are assessed against a rental property, only the landlord/owner can deduct the tax expense regardless of whether a tenant actually paid the tax bill. See Treas. Reg. § 1.162-11(a); Rev. Rul. 75-301, 1975-2 C.B. 66; Kissel v. Commissioner, 15 B.T.A. 1270, 1274 (1929). The same is true when one family member pays another family member’s real estate taxes directly to the government. See, e.g., Lang v. Commissioner, 100 T.C.M. (CCH) 603 (2010); Cramer v. Commissioner, 55 T.C. 1125, 1130 (1971). Likewise, payments made by a shareholder on behalf of a corporation are deductible only by the corporation. See, e.g., Rink v. Commissioner, 51 T.C. 746, 752-53 (1969); cf. Lembeck v. Commissioner, 16 B.T.A. 250, 252 (1929). And when a third party loans a taxpayer money to pay for a medical expense, only the taxpayer can take a deduction for the expense. See Granan v. Commissioner, 55 T.C. 753, 755-56 (1971).

The reason for this rule is straightforward: The third party’s payment of the taxpayer’s tax liability is offset by a mirror-image transaction between the taxpayer and the third party. If a lender pays a taxpayer’s tax liability, for example, the taxpayer incurs liability in that amount to the lender. See, e.g., Lembeck, 16 B.T.A. at 252. Or if a debtor who owes the taxpayer makes a tax payment on the taxpayer’s behalf, then the third-party debtor’s liability to the taxpayer is satisfied by that amount. The taxpayer, in other words, incurs liability (or gives up a right to repayment) in order to satisfy its tax liability.

The result is no different when the government is the third party paying a portion of the taxpayer’s liability. In that situation, just as with a private third party, the taxpayer forgoes funds to which it would otherwise be entitled in exchange for the government’s payment of its tax obligation. See, e.g., 26 U.S.C. § 6402 (requiring a taxpayer’s refund to first be applied against, inter alia, outstanding federal or state tax obligations); Treas. Reg. § 1.1375-1(c)(1) (allowing gasoline and fuel tax credits to offset passive investment income tax of S corporations). Thus, when a taxpayer’s excise tax liability exceeds the alcohol fuel mixture credit it has earned, the taxpayer forgoes the tax-free payment it would otherwise receive from the government (under 26 U.S.C. § 6427(e)) in exchange for having the government pay a portion of its excise tax bill. But the government’s use of the credits to pay the tax bill does not change (or reduce) that bill any more than using a gift certificate to pay for a meal at a restaurant changes the size of the check.8 See I.R.S. Chief Couns. Advice 200126005 at 4 (June 29, 2001), https://www.irs.gov/pub/irs-wd/0126005.pdf (“[T]his transaction is analogous to . . . pay[ing] . . . state tax liability by transferring property to the state, rather than money. In this case, the transferee transfers property (the credit) to the state in satisfaction of its tax liability. This ‘payment’ of property is a payment of tax. . . .”). The bottom line is that what matters for purposes of deductibility is the existence (and amount) of the tax liability and on whom it is imposed — not how that liability was satisfied.

II. CONGRESS WAS AWARE OF THE GENERAL RULE WHEN IT ENACTED THE JOBS ACT AND INTENDED IT TO APPLY

The Jobs Act, like any other Act of Congress, must be interpreted in light of these background legal principles. Courts “presume that Congress is familiar with existing Federal law when it enacts a new statute.” Wells Fargo & Co. v. United States, 827 F.3d 1026, 1037 (Fed. Cir. 2016); see also South Dakota v. Yankton Sioux Tribe, 522 U.S. 329, 351 (1998); Miles v. Apex Marine Corp., 498 U.S. 19, 32 (1990); Goodyear Atomic Corp. v. Miller, 486 U.S. 174, 184-85 (1988). Congress need not take any affirmative action to signal its acknowledgement of existing laws when it passes new ones. Roche Prods., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 864 (Fed. Cir. 1984) (“There is no affirmative obligation on Congress to explain why it deems a particular enactment wise or necessary, or to demonstrate that it is aware of the consequences of its action.”), superseded on other grounds by 35 U.S.C. § 271(e) (1994)). “Rather, because ‘laws are presumed to be passed with deliberation, and with full knowledge of all existing ones on the same subject,’ . . . [courts] must presume Congress was aware [of the existing law] . . . and chose to [apply] it.” Id.

A. Congress Knew The General Rule That Excise Taxes Are Deductible Regardless Of Who Pays Them

This presumption applies with particular force here. Congress surely knew of the general rule that excise taxes are deductible. First, that rule is codified within the Internal Revenue Code and reflected in its regulations — the very body of law that Congress was amending when it enacted the Jobs Act. Second, the rule is long-standing and widely recognized in both government publications and court decisions. In fact, courts and commentators have recognized this basic principle for nearly as long as the United States has assessed income taxes. See, e.g., Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185 (1918). And third, Congress expressly disclaimed application of the rule with respect to income tax credits in the very same Title of the Act, just a few pages later. See American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 339(c), 118 Stat. 1418, 1484 (“No deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for the taxable year under section 45H(a).”). Thus, there can be no doubt that Congress knew of the general rule that taxes, including excise taxes, can be subtracted from gross income regardless of whether the taxpayer pays them directly or they are paid through some alternative means.

B. The Statutory Program Created By Congress Strongly Supports The Conclusion That Congress Intended The General Rule To Apply Here

The only question left is whether Congress intended to depart from the general rule in enacting the excise tax and credits program at issue here. The statutory text chosen by Congress shows that it did not. And, in fact, the words it chose are perfectly consistent with the general rule.

Before the Jobs Act, the amount of alcohol manufacturers blended with gasoline directly determined — and reduced — the excise tax rate they paid and, thus, the amount of their excise tax liability. See, e.g., 26 U.S.C. § 4081(a), (c) (2000). But, as discussed above, Congress abandoned that reduced-rate regime in the Jobs Act because of its adverse impact on the HTF and, in its place, adopted a program under which all gasoline manufacturers would pay the same excise tax rate. The statutory text is clear on this — after the Jobs Act, the same 18.3 cent per gallon rate applies whenever a manufacturer incurs excise tax liability. See 26 U.S.C. § 4081(a); Jobs Act, § 301(c)(7), 118 Stat. at 1461; see supra at 7-8.

Separate and apart from this new, unitary-rate tax regime, Congress also created rewards that manufacturers could earn if they produced renewable fuels, including alcohol fuel mixtures. Unlike the prior regime, the new rewards are not tied to a taxpayer’s excise tax liability. Previously, a taxpayer had an excise tax incentive for producing renewable fuel only if the taxpayer also incurred excise tax liability. That is because the incentive itself was inextricably tied to taxation — it reduced the applicable tax rate. Under the new program, however, the reward a taxpayer earns for creating renewable fuels is independent of the excise tax liability a gasoline manufacturer incurs for selling or using fuel in a taxable transaction.

Indeed, as discussed above, a taxpayer can earn alcohol fuel mixture credits even if it does not actually incur excise tax liability. This fact is evident from Congress’s creation of a non-taxable direct payment from the government in such circumstances. See 26 U.S.C. § 6427(e)(1) (“If any person produces a mixture described in section 6426 in such person’s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit or the biodiesel mixture credit or the alternative fuel mixture credit with respect to such mixture.”).

To be sure, if taxpayers do incur excise tax liability, they are allowed to apply the credit first to satisfy — i.e., pay — their outstanding excise tax liability (thereby reducing their own cash outlays at the time of sale). When they do so, Congress provided that taxpayers cannot later receive a direct payment as well (which would effectively allow them to receive the credit twice). See id. § 6427(e)(3). But this provision simply prevents double-dipping. It does not change the fact that a taxpayer’s excise tax liability is independent of any credit it might receive and use to satisfy that liability.

This approach is consistent with Congress’s general practice of providing for money owed to a taxpayer by the government to be applied first against any outstanding debt the taxpayer owes to the government. For example, the government regularly pays taxpayers’ tax liabilities by simply offsetting funds due to the taxpayer against taxes due from the taxpayer. See 26 U.S.C. § 6402; Treas. Reg. § 1.461-4(g)(1)(ii)(A) (“[P]ayment includes the furnishing of cash or cash equivalents and the netting of offsetting accounts.”); see, e.g., I.R.S. Priv. Ltr. Rul. 201022012 at 2 (Feb. 25, 2010), http://www.irs.gov/pub/irs-wd/1022012.pdf (“A § 4051(d) credit for a particular transaction does not reduce the § 4051 liability [imposed on sales of certain truck trailers] for that transaction; rather, this credit is used to reduce the total balance owed by X to the IRS.”); I.R.S. Tech. Adv. Mem. 200215004 at 3 (Apr. 12, 2002), http://www.irs.gov/pub/irs-wd/0215004.pdf (“The § 4051(d) credit does not reduce the § 4051 liability; rather, credits are used to reduce the balance due.”); I.R.S. Chief Couns. Advice 201223019 (June 8, 2012), http://www.irs.gov/pub/irs-wd/1223019.pdf (“[Section] 6402(a) would apply to permit offset of an overpaid excise tax of one type against a liability for another excise tax type. . . .”). This practice is far more efficient than sending a refund check to a taxpayer along with a polite note asking it to endorse the check and send it back to the IRS to settle the outstanding balance on its tax liability.

But Congress made clear that it did not intend the credits to reduce a taxpayer’s excise tax liability (as opposed to satisfying that liability). When Congress passed the Jobs Act, it amended the provision that governs HTF funding to state that “the taxes received in the Treasury . . . under . . . section 4081 . . . shall be determined without reduction for credits under section 6426.” 26 U.S.C. § 9503(b)(1) (emphasis added). That provision not only establishes that the credits do not reduce a taxpayer’s tax liability, but confirms that the government still receives the full amount of the taxes when a credit is used to satisfy a taxpayer’s excise tax liability. The only way for the government to “receive” taxes is for a taxpayer to have paid them — whether by cash or credit.

This understanding is also consistent with Congress’s use of the term “credit” to define the benefit taxpayers can earn for creating alcohol fuel mixtures. In the accounting sense, a “credit” is recognized as “an asset.” The Wolters Kluwer Bouvier Law Dictionary 694 (2012); see also Steven H. Gifis, Law Dictionary 50 (1975) (“In an accounting, a credit is money owing and due to one, and is considered an asset.”). In effect, the alcohol fuel mixture credit is an “asset” owed by the federal government to a qualifying fuel producer for engaging in incentivized blending activity. When used to offset the excise tax liability a manufacturer owes to the government, the asset is used as a payment that satisfies the liability.

This construction directly advances Congress’s objective. As the Court of Federal Claims itself recognized, the “main point” of the new program was to “replenish the [HTF].” Appx9. It accomplished that result by increasing the excise tax rate paid by manufacturers, applying that rate to all gasoline manufacturers, and making clear that the credits do not reduce the amount of excise tax that taxpayers pay or that the HTF receives.

C. When Congress Wishes To Depart From The General Rule, It Has Done So Explicitly

The Jobs Act was not the first time Congress allowed a credit to be used to pay a taxpayer’s excise tax liability. Under the Crude Oil Windfall Profit Tax Act, as in the Jobs Act, producers of crude oil incurred excise tax liability on the extraction of taxable crude oil. See 26 U.S.C. § 4986 (1982). And, also as in the Jobs Act, producers of crude oil could earn credits — there, for the production of crude oil from land in which the producer owned royalty rights. See 26 U.S.C. § 6429 (1982). But, unlike in the Jobs Act, the Windfall Profit Tax Act also included a provision addressing the deductibility of credits. It said: “No deduction shall be allowed for that portion of the tax imposed by section 4986 for which a credit or refund is allowable under section 6429.” 26 U.S.C. § 280D (1982).

Section 280D is no longer in effect,9 but it is nevertheless important for two reasons. First, it confirms congressional understanding that excise tax liability, whether paid directly by a taxpayer or satisfied with a credit, is deductible. If, to the contrary, any credit applied to excise tax liability reduced the taxpayer’s liability (rather than just satisfied an outstanding balance), then Section 280D would have been superfluous. Congress is not in the business of enacting meaningless laws, however, and so it must have understood that it needed to expressly foreclose deductions in order to displace the default rule discussed above. See Hibbs v. Winn, 542 U.S. 88, 101 (2004) (“A statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant. . . .” (citation omitted)). Second, Section 280D confirms that Congress knows how to disallow deductions for excise tax liability satisfied with a credit when it wants to. Congress obviously did not do so here.

Nor can the absence of a provision relating to the alcohol fuel mixture credit in the Jobs Act comparable to that in Section 280D be brushed aside as mere oversight. When Congress adopted the Jobs Act, it did include a provision to disallow the deduction of an expense to the extent it is offset by a credit — just not the expense at issue in this case. Specifically, Congress added a provision under which producers of low sulfur diesel fuel could earn credits. See 26 U.S.C. § 45H(a); Jobs Act § 339, 118 Stat. at 1481-84. It simultaneously required, however, that a taxpayer’s deduction for expenses related to the production of such fuel “be reduced by the amount of the credit determined for the taxable year under section 45H(a).” 26 U.S.C. § 280C(d). “[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983) (alteration in original) (citation omitted); see also Ventas, Inc. v. United States, 381 F.3d 1156, 1161 (Fed. Cir. 2004). That Congress did not include a similar provision for the alcohol fuel mixture credit speaks volumes.

The Court of Federal Claims dismissed the significance of Congress’s decision not to enact anything like Section 280C in connection with the tax credits at issue here on the ground that Section 280C “appears in the income tax portion of the Internal Revenue Code, so all of the credits included therein are income tax credits.” Appx14 n.6. But the court failed to account for the fact that Congress has included credits applicable to excise taxes “in the income tax portion of the Internal Revenue Code” before, Appx14 n.6 — specifically, with former Section 280D. That Congress chose not to do so here is therefore strong evidence that it intended a taxpayer’s excise tax liability for gasoline to remain deductible as it had been prior to the Jobs Act — but now at the same rate of taxation for all taxpayers.

The Court of Federal Claims also missed the larger point. Although Section 280C is in the income tax portion of the Code, it was modified as part of a comprehensive and coordinated overhaul to the taxation of renewable fuels — an overhaul that addressed both the income and excise tax portions of the Code. Congress did not address excise — or income — taxation in a vacuum. Rather, it did so in eight consecutive pages of the Jobs Act, in which Congress detailed the adjustments that it chose to make to both the income tax system and the excise tax system. Viewed in this light, it is obvious that Congress knew when and where it wanted to deviate from the general rule regarding deductions and when and where it did not.

III. NONE OF THE OTHER FACTORS RELIED UPON BY THE COURT OF FEDERAL CLAIMS COMPELS A DIFFERENT CONCLUSION

“The preeminent canon of statutory interpretation requires us to ‘presume that [the] legislature says in a statute what it means and means in a statute what it says there.’” BedRoc Ltd. v. United States, 541 U.S. 176, 183 (2004) (alteration in original) (quoting Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992). The Court of Federal Claims recognized that the Jobs Act “say[s] the full excise tax is imposed on fuel blenders” like Sunoco, Appx8 (emphasis added), but nevertheless held that the credits must be treated “as a reduction of the taxpayer’s excise tax liability,” Appx3 (emphasis added); see Appx5-6, Appx9. None of the reasons it gave for that conclusion holds up.

A. The Court Of Federal Claims Erred In Basing Its Interpretation On Its Review Of The Legislative History

The Court of Federal Claims, to its credit, was at least frank that it was not basing its ruling on the text of the provisions at issue. Instead, the court found that “[t]he statute’s language supports both parties’ interpretations,” and turned to the legislative history for a “clearer picture.” Appx7. That was error.

Given the statutory indicia of intent discussed above (supra at 22-31), including Congress’s explicit statement that fuel producers incur the full amount of excise tax liability and that the credits do not reduce the taxes received, it is clear that Congress intended the same, unreduced amount of tax to be deductible. Resort to legislative history was thus unnecessary and, indeed, inappropriate. See Ratzlaf v. United States, 510 U.S. 135, 147-48 (1994) (“[W]e do not resort to legislative history to cloud a statutory text that is clear.”); Darby v. Cisneros, 509 U.S. 137, 147 (1993) (“Recourse to the legislative history . . . is unnecessary in light of the plain meaning of the statutory text.”).

In any event, the legislative history just confirms that Congress intended to do exactly what it said: Impose a single, unreduced rate of excise tax on gasoline regardless of whether it is then blended with alcohol, in order to ensure that the HTF remained fully funded. As the Conference report explained, the final bill “eliminates reduced rates of excise tax for most alcohol-blended fuels and imposes the full rate of excise tax on most alcohol-blended fuels.” H.R. Rep. No. 108-755, at 306 (2004) (Conf. Rep.); see also id. at 307 (“Under the provision, the full rate of tax for taxable fuels is imposed on both alcohol fuel mixtures and the taxable fuel used to produce an alcohol fuel mixture.”).

Moreover, the legislative history makes clear that, rather than operating “as a reduction of the taxpayer’s excise tax liability,” as the Court of Federal Claims conceived of the credit, see Appx3 (emphasis added), “[t]he credit is treated as a payment of the taxpayer’s tax liability received at the time of the taxable event.” H.R. Rep. No. 108-755, at 304 (emphasis added). Senator Grassley of Iowa — Chairman of the Senate’s Committee on Finance and a primary sponsor of the renewable fuels credit — reiterated this point in his own remarks.10 In short, the legislative history refutes the Court of Federal Claims’ interpretation.

B. The Court Of Federal Claims Erred In Dismissing What Congress Actually Did As A “Legal Fiction”

The Court of Federal Claims did not dispute that this was what the legislative history said or, more to the point, what the statute said. To the contrary, the court acknowledged that “on paper, fuel blenders now pay the full amount of the § 4081 excise tax.” Appx8 (emphasis added). But whereas both the statute and the legislative history indicated that this is exactly what Congress intended, the Court of Federal Claims declared that, “in reality, the full tax rates were not imposed.” Appx8. “In essence,” it concluded, “the Mixture Credit amounts to accounting sleight-of-hand” — a “legal fiction” that allows “Congress [to] say the full excise tax is imposed on fuel blenders” while “reduc[ing] the blenders’ tax liability in much the same way it did before.” Appx8.

The point is so remarkable it bears repeating: The Court of Federal Claims refused to give effect to what Congress said “on paper” — that is, in the Jobs Act and, ultimately, the Internal Revenue Code — because it concluded that, “in reality,” Congress was just engaging in a “sleight-of-hand.” Appx8.

Courts have developed a doctrine that allows them to disregard for federal tax purposes transactions that they deem to be a “sham.” See, e.g., Frank Lyon Co. v. United States, 435 U.S. 561, 580-81 (1978) (economic substance doctrine); Salem Fin., Inc. v. United States, 786 F.3d 932, 950-51 (Fed. Cir. 2015) (same). But as far as we are aware, courts have never applied such a “sham” doctrine to the laws that Congress enacts — enabling a court to disregard what Congress says “on paper” in order to address the economic “reality” of the situation, as the court perceives it. And such a “legislative” sham doctrine would, of course, undermine the separation of powers, giving courts the power not just to say what the law is, but what it should be.

As Judge Sutton recently observed, “‘[f]orm’ is ‘substance’ when it comes to law. The words of law (its form) determine content (its substance).” Summa Holdings, Inc. v. Commissioner, 848 F.3d 779, 782 (6th Cir. 2017). What Congress does “on paper” is not “legal fiction,” it is the law.

C. The Court Of Federal Claims Erred In Attaching Weight To Its Own Revenue Assessment Of Sunoco’s Interpretation

The Court of Federal Claims was particularly focused on its own assessment of the revenue impact of Sunoco’s interpretation. The court speculated that Congress may not have appreciated the “interesting side-effects” that its decision to reinstate the full excise tax, paired with a tax-free, refundable credit, would create for fuel producers’ income tax liability. Appx11. But Congress is presumed not only to mean what it says, but to intend the ordinary consequences of its actions — even when it comes to tax laws. See Summa Holdings, 848 F.3d at 789-90; see also Gitlitz v. Commissioner, 531 U.S. 206, 219-20 (2001) (refusing to judicially modify an alleged “double windfall” “[b]ecause the Code’s plain text permits the taxpayers here to receive these benefits”).

The Court of Federal Claims’ independent assessment of what interpretation was preferable as a revenue policy matter was especially inappropriate because the court itself observed that both side’s interpretations lead to “unappetizing outcome[s]” using its revenue-maximizing metric. Appx11. Indeed, the court described the result called for by the government’s interpretation as “puzzling,” and recognized that Congress likely “did not believe” when it passed the law that it was going to achieve the effects under the government’s interpretation as well. Appx11. That put the Court of Federal Claims in the position of picking the interpretation that it believed made the most sense as a policy matter. But the court’s job was to give effect to the law that Congress enacted, not to remake the law to achieve what it believed was in the best interests of the public fisc. See Hanover Bank v. Commissioner, 369 U.S. 672, 688 n.23 (1962) (“Granting the government’s proposition that these taxpayers have found a hole in the dike, we believe it one that calls for the application of the Congressional thumb, not the court’s.” (quoting Fabreeka Prods. Co. v. Commissioner, 294 F.2d 876, 879 (1st Cir. 1961)).).

Moreover, the court erred in concluding that Congress could not have intended Sunoco’s interpretation. The court pointed to a Joint Committee on Taxation report on the Jobs Act as a whole, which stated that the committee staff had described the “excise tax credit (in lieu of reduced tax rate on gasoline) to certain blenders of alcohol fuel mixtures” as producing “No Revenue Effect.” Appx11 (quoting Staff of Joint Comm. on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 5250, the ‘American Jobs Creation Act of 2004’ (JCX-69-04) at Provision III.A.1 (Comm. Print 2004)). But statements about perceived revenue impacts are notoriously poor indicators of Congress’s intent, especially when, as here, the committee staff provides no explanation for the methodology by which they produce their estimates. See, e.g., Federal Home Loan Mortg. Corp. v. Commissioner, 121 T.C. 129, 145-46 (2003) (“[W]e fail to see how the revenue estimates and the comparative reductions in petitioner’s tax liabilities are particularly relevant to the question before us, which involves the interpretation of a particular statute. . . .”); Fort Howard Corp. v. Commissioner, 103 T.C. 345, 364 (1994) (“We place little faith in the interpretation value of these estimates.”).

Reliance on staff revenue projections to interpret tax provisions is all the more unwise where the revenue projection is demonstrably wrong under every reasonable interpretation. That is the case with the “No Revenue Effect” projection here. Even the government must acknowledge that the projection fails to account for the fact that the new tax-free, refundable credit is available to producers with no excise tax liability. Those producers had received no benefits under the previous regime of reduced excise tax rates, but under the government’s interpretation they were the biggest beneficiaries of the new refundable credit program. They pocket the full benefit of the new tax credits even though they have incurred no excise tax liability at all and received no benefit under the prior regime — a fact that necessarily and unavoidably increased the cost of the renewable fuels incentive program over the historical baseline. The Joint Committee staff’s “projection” is thus incompatible with either proposed interpretation of the provisions at issue, making it a particularly poor basis for the Court of Federal Claims to use to pick between those alternative readings.

Moreover, the government has offered no explanation for why Congress would have wanted to treat excise-tax-paying fuel blenders like Sunoco less favorably for income tax purposes than blenders who were not paying excise tax, and thus had not previously benefited from Congress’s efforts to promote renewable fuels. The only explanation the Court of Federal Claims could muster for this anomaly was that Congress had included the latter category of blenders by accident. See Appx11. In other words, once again, the court just picked sides based on its own policy assessment.

D. The Court Of Federal Claims Improperly Refused To Consider Contemporaneous Congressional Research Service Reports

Even as it relied on the indisputably flawed revenue estimate of the Joint Committee staff, the Court of Federal Claims refused even to consider reports produced by the Congressional Research Service (“CRS”) shortly after passage of the Jobs Act that described the alcohol fuel mixture credit’s effect on income tax liability. See Appx12 n.4. Those reports specifically acknowledged that, “[w]hen income tax effects are considered, . . . the new excise tax credit has a greater economic or subsidy value than the exemption before it because income tax deductions are taken at 18.4¢ rather than 13.3¢.” Salvatore Lazzari, Cong. Research Serv., CRS Report RL32979, Alcohol Fuels Tax Incentives at Summary (July 6, 2005); see also Molly F. Sherlock, Cong. Research Serv., CRS Report R41227, Energy Tax Policy: Historical Perspectives On and Current Status Of Energy Tax Expenditures at 23 n.45 (May 2, 2011) (“Allowing an excise tax credit . . . increases the value of the tax incentive. . . . Since the taxpayer initially paid the higher excise tax rate, the taxpayer[ ] is able to deduct that higher excise tax as an expense to offset taxable income.”). That understanding is entirely consistent with Sunoco’s position in this case, and irreconcilable with the view taken by the Court of Federal Claims and the government.

The court, however, refused to consider the reports on the ground that “they simply interpret enacted legislation.” Appx12 n.4. That is true, but they nevertheless can be probative. And once the court began plumbing other extra-textual sources, there was no reason for it to ignore the CRS Reports. The CRS is a division of the Library of Congress created by statute “to advise and assist any committee of the Senate or House of Representatives and any joint committee of Congress in the analysis, appraisal, and evaluation of legislative proposals within that committee’s jurisdiction, or of recommendations submitted to Congress, by the President or any executive agency.” 2 U.S.C. § 166(d)(1); see also Bowsher v. Synar, 478 U.S. 714, 746 n.11 (1988) (Stevens, J., concurring in the judgment) (describing the CRS as a “congressional agent”). Thus, Congress relies on the CRS to inform the exercise of its legislative powers. See Ida A. Brudnick, Cong. Research Serv., CRS Report RL33471, The Congressional Research Service and the American Legislative Process 2 (Apr. 12, 2011) (“[CRS’s] responsibility is to ensure that Members of the House and Senate have available the best possible information and analysis on which to base the policy decisions the American people have elected them to make.”). Its reports therefore can provide valuable insights about what Congress understands a law to be when it passes it.

For these reasons, courts have frequently relied on CRS reports in interpreting what Congress knew the law to be when it enacted a statute. See, e.g., Barnhart v. Peabody Coal Co., 537 U.S. 149, 171-72 & n.15 (2003) (citing a CRS report to indicate what Congress knew and intended when it enacted the Coal Industry Retiree Health Benefit Act of 1992); Heckler v. Turner, 470 U.S. 184, 197 (1985) (relying on a CRS report to indicate that Congress knew of the generally accepted categorization of mandatory tax withholdings as work expenses before the enactment of The Omnibus Budget Reconciliation Act of 1981); Bull v. United States, 479 F.3d 1365, 1374 (Fed. Cir. 2007) (noting that a CRS report provided factual basis for Congress in enacting the Customs Officer Pay Reform Act). Especially given the reliance it placed on its own revenue assessment, the Court of Federal Claims erred in categorically refusing to consider the on-point CRS research on the impact of the program at issue.

The CRS reports were particularly probative here, given that they informed Congress’s decision to extend provisions similar to those in question. The first CRS report, for example, was written to assist Congress’s consideration of the Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594, in which Congress extended from 2006 until 2008 the availability of certain Section 6426 tax credits and related Section 6427 refund payments.11 See Pub. L. No. 109-58, § 1344, 119 Stat. at 1052. Congress was therefore informed of the income tax effects of its decision to reinstate the unreduced excise tax rate, and nevertheless decided to extend that treatment further without any modification. Later bills, which also benefited from the CRS’s explanation of the regime Congress had put in place, repeatedly extended the program at issue here in unmodified form as well. See Pub. L. No. 113-295, Div. A § 160, 128 Stat. 4010, 4022-23 (2014), enacted on December 19, 2014; Pub. L. No. 112-240, § 405, 126 Stat. 2313, 2340 (2013), enacted on January 2, 2013; Pub. L. No. 111-312, §§ 701, 708, 124 Stat. 3296, 3310, 3312 (2010), enacted on December 17, 2010; Pub. L. No. 110-343, Div. B § 202, 122 Stat. 3765, 3832-33 (2008), enacted on October 3, 2008.

Congress’s continued utilization of a single, unreduced excise tax rate and refundable credit, notwithstanding the CRS’s explanation of the result that treatment had for income taxes, is persuasive evidence that Congress fully intended those results. Cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 382 n.66 (1982) (“Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change. . . .” (quoting Lorillard v. Pons, 434 U.S. 575, 580 (1978)).

E. The Court Of Federal Claims Erred In Analogizing The Credits At Issue To Taxable “Rebates” Or “Refunds”

The Court of Federal Claims also erred in attempting to analogize the alcohol fuel mixture credit to “rebate[s]” paid by private parties or “refund[s]” from state taxing authorities. Appx12. It first pointed to Affiliated Foods, Inc. v. Commissioner, in which the Tax Court held that, where a taxpayer receives a rebate from a manufacturer, the rebate “is treated as a reduction in the cost of goods sold.” 128 T.C. 62, 80 (2007). In its own context, that rebate rule makes sense: A car-buyer who pays $20,000 for a car and receives a $2,500 manufacturer’s rebate simply for purchasing that car has effectively paid just $17,500 for the car. See Rev. Rul. 84-41, 1984-1 C.B. 130 (“Trade discounts represent adjustments to the purchase price granted by a vendor.”). That rule, however, is dependent on the fact that the purchase and rebate are inextricably linked: A purchaser is not entitled to a rebate unless she purchases the car, and thus does not give up anything of independent value when the rebate is netted against the purchase price.

But no such necessary connection exists here. As noted above, see supra at 10 n.6, 25, the activities giving rise to credits under Section 6426 and excise tax under Section 4081 are distinct. A producer receives a credit if it blends gasoline with alcohol, while it incurs tax liability if (and only if) it is also the entity that removed the gasoline from the refinery or terminal, brought the gasoline into the United States, or sold the gasoline to certain purchasers. Because those activities are distinct (and may be performed by different entities), the alcohol fuel mixture credit is earned independent of whether or not excise tax liability is incurred.

As a result, a taxpayer that removes gasoline from a terminal — thus incurring excise tax liability — and then blends that gasoline with alcohol — thus earning a credit — gives up something of independent value (namely, a tax-free refund payment) in order to reduce the amount it must pay out of pocket to settle its excise tax bill. To return to the car example: If the car buyer is an employee of the dealership, and is told that she need only pay $17,500 for the $20,000 car if she’ll also agree to forgo her $2,500 paycheck for the month, then it is clear that the true “cost” of the car is $20,000 even though she only cuts the dealership a $17,500 check. The Court of Federal Claims’ attempt to analogize the cases ignored that crucial difference.

The court was even farther afield when it relied on Maines v. Commissioner, 144 T.C. 123 (2015). There, the Tax Court found that where the State of New York paid out a cash refund to a taxpayer based on a particular incentive program built into state tax law, that payment constituted “gross income” of the taxpayer. Id. at 136. The decision turned on the undisputed legal principle that “a particular label given to a legal relationship or transaction under state law is not necessarily controlling for federal tax purposes.” Id. at 132. New York, in other words, could not dictate how the federal government would treat a cash payment just by calling that payment an “overpayment[ ]” of past state taxes. Id. Sunoco, however, is relying on federal not state law: Federal law makes federal excise taxes deductible by the taxpayer regardless of who actually pays them, and federal law dictates that any portion of the credit leftover after excise taxes are paid is distributed as a tax-free refund. While a State cannot dictate that treatment, Congress undoubtedly can. Maines is therefore inapposite.

Further, to the extent that Maines does address bifurcation of tax credits into taxable and non-taxable portions, it held that credits are taxable only where they represent “an accession to the [taxpayer’s] wealth.” 144 T.C. at 136. The court therefore held that the portion of a credit that was paid out as a cash refund was taxable as income, while the portion used to pay down tax liability was not. Id. at 134-36. Here, however, the Court of Federal Claims and the government have proposed the opposite treatment, acknowledging that the credit does not increase a taxpayer’s taxable income if it is paid out in cash to the taxpayer, but somehow does increase taxable income where it is instead used to pay down the taxpayer’s excise tax balance. If anything, therefore, Maines undermines the Court of Federal Claims’ holding.

F. The Court Of Federal Claims Erred In Invoking A Clear Statement Rule Against The Taxpayer

In the end, the Court of Federal Claims resorted to the rule that “exemptions from taxation are not to be implied; they must be unambiguously proved.” Appx14 (emphasis added) (quoting United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988)). In doing so, the court acknowledged that the rule does not apply squarely to the credit-related questions in this case because “[e]xemptions and tax credits are different.” Appx14. But the court nevertheless concluded that “the real-world effect Sunoco seeks is similar to that of an exemption,” and so thought it appropriate to invoke the clear-statement rule for exemptions anyway. Appx14.

That was error. Indeed, if there were any basis to invoke a “tiebreaker” canon, the tie would go to the taxpayer, not the government. As this Court has acknowledged, “if doubt exists as to the construction of a taxing statute, the doubt should be resolved in favor of the taxpayer.” USA Choice Internet Servs., LLC v. United States, 522 F.3d 1332, 1343 (Fed. Cir. 2008) (emphasis added) (citation omitted); see also, e.g., Bowers v. New York & Albany Lighterage Co., 273 U.S. 346, 350 (1927) (“The provision is part of a taxing statute; and such laws are to be interpreted liberally in favor of the taxpayers.”); Murphy v. IRS, 493 F.3d 170, 179 (D.C. Cir. 2007) (“[A]n ambiguity in the meaning of a revenue-raising statute should be resolved in favor of the taxpayer.” (citing, inter alia, Hassett v. Welch, 303 U.S. 303, 314 (1938)); see also United Dominion Indus., Inc. v. United States, 532 U.S. 822, 839 (2001) (Thomas, J., concurring); Auto-Ordnance Corp. v. United States, 822 F.2d 1566, 1571 (Fed. Cir. 1987) (“Even assuming the existence of doubt, it is established that, in a tax refund case, the doubt should be resolved in favor of the taxpayer.” (citing White v. Aronson, 302 U.S. 16, 20 (1937)); Coca-Cola Co. v. United States, 87 Fed. Cl. 253, 259 (2009).

To be sure, courts have occasionally applied a different rule for tax exemptions, which, as noted above, “are not to be implied,” but must instead be “unambiguously proved.” Wells Fargo Bank, 485 U.S. at 354 (quoted in Appx14); cf, Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 359 (2012) (describing “[t]he false notion that tax exemptions . . . should be strictly construed”). As the Court of Federal Claims recognized, however, this case does not involve an exemption from tax. Instead, the “real-world effect” the government seeks and that the Court of Federal Claims ordered is to treat a portion of the alcohol fuel mixture credit as additional taxable income to the taxpayer (by virtue of a reduction in costs of goods sold). Appx14. On that question, any doubt must be resolved in Sunoco’s favor. See USA Choice, 522 F.3d at 1343.

Ultimately, though, this Court need not decide whether the question here is better treated as one of tax inclusion or tax exemption, because “the more important point, the one essential here, is that the canon comes at the end, not the beginning, of the interpretative process.” American Fin. Grp. v. United States, 678 F.3d 422, 429 (6th Cir. 2012). “At this point in the process,” there is “no additional work for the canon to do, and assuredly not the kind of work that would undo all of the other indicators of statutory meaning apparent here.” Id. The sources of congressional intent discussed above — including most importantly the text of the statute — eliminate any ambiguity over whether Congress intended to reduce the tax benefit that ordinarily flows from excise tax liability, and there is thus no need (or basis) to resort to a tiebreaking canon at all.

* * * * *

The Court of Federal Claims, egged on by the government, seemed to believe that it had a duty to step in and explain that, no matter what the statute actually said and did, Congress could not have intended the scale of the “subsidy” that it in fact created. Appx11. But “[t]he last thing the federal courts should be doing is rewarding Congress’s creation of an intricate and complicated Internal Revenue Code by closing gaps in taxation whenever that complexity creates them.” Summa Holdings, 848 F.3d at 790; see also Hanover Bank, 369 U.S. at 688 n.23; Gitlitz, 531 U.S. at 219-20. That’s Congress’s job.

The Court of Federal Claims’ job, just like this Court’s, is to give effect to the statute that Congress enacted. The statute at issue, as the court itself recognized, established a program under which manufacturers paid and the government received the full amount of excise tax liability — without reduction for any excise tax credits a manufacturer might receive. Under settled principles, manufacturers like Sunoco were entitled to subtract that full amount of tax from their taxable income, no matter how much they received in credits. Congress knew how to modify this income tax treatment when it wanted. In all the years the program was functioning, it never did. It is not for the courts to do so now.

CONCLUSION

The judgment of the Court of Federal Claims should be reversed.

Gregory G. Garre
Benjamin W. Snyder
Elana Nightingale Dawson
LATHAM & WATKINS LLP
555 Eleventh Street, NW
Suite 1000
Washington, DC 20004
(202) 637-2207
gregory.garre@lw.com

George M. Clarke, III
Counsel of Record
Vivek A. Patel
Kathryn E. Rimpfel
Eric M. Biscopink
BAKER & MCKENZIE LLP
815 Connecticut Avenue, NW
Suite 1200
Washington, DC 20006
(202) 452-7000
george.clarke@bakermckenzie.com

Counsel for Plaintiff-Appellant Sunoco, Inc.

March 23, 2017

FOOTNOTES

1Over the next few years, Congress expanded and refined the benefits available to manufacturers of alcohol-mixed fuels. In 1980, Congress enacted the Crude Oil Windfall Profit Tax Act of 1980, Pub. L. No. 96-223, 94 Stat. 229, which added an income tax credit for manufacturers that blended alcohol fuels. See Pub. L. No. 96-223, § 232(b)(1), 94 Stat. at 273-75 (codified at 26 U.S.C. § 44E; current 26 U.S.C. § 40); id. § 232(c), 94 Stat. at 277 (codified at 26 U.S.C. § 86; current 26 U.S.C. § 87)). The Act also included an excise tax on crude oil, with corresponding provisions addressing credits applicable to crude oil production. See 26 U.S.C. §§ 280D, 4986, 6429 (1982) (repealed 1988).

2See U.S. Dep’t of Transp., Fed. Highway Admin., Status of the Federal Highway Trust Fund for the Fiscal Year Ended September 30, 2000 (Oct. 2001), http://www.fhwa.dot.gov/ohim/hs00/pdf/fe10.pdf; U.S. Dep’t of Transp., Fed. Highway Admin., Status of the Federal Highway Trust Fund for the End of Fiscal Year 2004 (Oct. 2005), https://www.fhwa.dot.gov/policy/ohim/hs04/pdf/fe10.pdf.

3The rate is sometimes listed as 18.4 cents per gallon. That figure reflects the 18.3-cents-per-gallon excise tax plus the 0.1-cent-per-gallon tax for the Leaking Underground Storage Tank Trust Fund tax. See 26 U.S.C. § 4081(a)(2)(B).

4See 149 Cong. Rec. S10680 (daily ed. July 31, 2003) (statement of Sen. Grassley) (“Under the [new excise tax regime] we . . . increase the revenue source for the Highway Trust Fund. This is because the full amount of user excise taxes levied will be collected and remitted to the Highway Trust Fund (HTF). In simplifying the tax collection system, all user excise taxes levied on both gasoline and ethanol blended fuels would be collected at 18.4 cents per gallon. . . .”); Staff of the Joint Comm. on Taxation, 108th Cong., General Explanation of Tax Legislation Enacted in the 108th Congress (JCS-5-05) at 224 (2005), https://www.jct.gov/publications.html?func=startdown&id=2314 (“[T]he Congress believed that alcohol-blended fuels should be taxed at rates equal to gasoline or diesel.”).

5In essence, the General Fund is America’s checkbook. See Bureau of the Fiscal Serv., U.S. Dep’t of the Treasury, The General Fund of the US Government (last updated June 9, 2016) https://www.fiscal.treasury.gov/fsservices/gov/acctg/genFund/genFund_home.htm. The General Fund consists of various receipt and expenditure accounts that hold “all federal money not allocated by law to any other fund account.” U.S. Government Accountability Office, A Glossary of Terms Used in the Federal Budget Process 3 (Sept. 2005), https://www.appropriations.senate.gov/imo/media/doc/glossary-of-terms-used-in-the-federal-budget-process.pdf. Tax revenue is first deposited into the General Fund, and then transferred to a trust fund or other account when mandated by law. See, e.g., 26 U.S.C. § 9601.

6The blender of biodiesel or renewable fuels who earns credits under Section 6426 need not be the same entity that incurs excise tax liability under Section 4081. For example, biodiesel producers often blend biodiesel within a production terminal and then sell the blended fuel to another wholesaler operating in the same facility. In this scenario, the biodiesel blender earns a credit for every gallon of blended biodiesel it sells, but does not incur excise tax liability under Section 4081 because it has not removed the fuel from the production facility.

7As the parties did below, and as the Tax Court has done in the past, “[f]or convenience, references to deductions will include cost of goods sold even though technically cost of goods sold is taken into account in the determination of a taxpayer’s gross income.” Besong v. Commissioner, No. 30447-13S, 2016 WL 6520219, at *3 n.5 (T.C. Nov. 3, 2016).

8For example, if a diner’s lunch costs $10 and he has a gift certificate worth $5, the diner pays the difference — $5. But that does not mean that the diner is getting a “free lunch,” or even a $5 lunch, from the restaurant — lunch costs $10 regardless of how much the gift certificate is worth. So too here.

9Section 280D was repealed in the Tax Reform Act of 1986, Pub. L. No. 99-514, § 803(b)(2)(A), 100 Stat. 2075, 2355.

10150 Cong. Rec. S1210-11 (daily ed. Feb. 12, 2004) (statement of Sen. Grassley) (“[U]nder the Finance Committee amendment no general revenue is transferred to the highway trust fund. . . . Ethanol-blended fuel users will now pay the full excise tax and the trust fund will receive the money. The benefit will be taken as a tax credit against the general fund.” (emphasis added)). Because Senator Grassley was the primary sponsor of the provision to switch to a refundable credit as an incentive for increased use of ethanol-blended fuels, his remarks merit particular deference. See 2A Norman Singer & Shambie Singer, Sutherland Statutory Construction § 48:4 (7th ed. updated Nov. 2016).

11The credits extended related to the production of biodiesel under Section 6426(c). Biodiesel, like the alcohol fuel mixtures at issue here, is taxable under Section 4081 if removed from a refinery or terminal, brought into the United States, or sold to certain persons. The Section 6426(c) biodiesel credits similarly satisfy a producer’s Section 4081 liability and are paid into the HTF. 26 U.S.C. § 9503(b). Thus, a biodiesel producer that incurs Section 4081 tax liability confronts the same issue that Sunoco, an alcohol fuel mixture producer, does here. See, e.g., Petition, Growmark, Inc. v. Commissioner, No. 23797-14 (T.C.. filed Oct. 8, 2014).

END FOOTNOTES

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