Whirlpool Appeals Tax Court Branch Income Decision in Sixth Circuit

Whirlpool Financial Corporation, et al.
Petitioners-Appellants
v.
Commissioner of Internal Revenue,
Respondent-Appellee

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

ON APPEAL FROM THE DECISIONS OF THE UNIT

BRIEF FOR PETITIONERS-APPELLANTS,
WHIRLPOOL FINANCIAL CORPORATION, ET AL.

Rodney H. Standage

Mark A. Oates
Robert H. Albaral
A. Duane Webber
Summer M. Austin
Joseph B. Judkins
Meerah Kim
Cameron C. Reilly

Whirlpool Corporation
325 N LaSalle
Chicago, IL 60605
(269) 277-6623

Baker & McKenzie LLP
300 E. Randolph Dr.
Suite 5000
Chicago, IL 60601
(312) 861-7594

---

TABLE OF CONTENTS

JURISDICTIONAL STATEMENT

STATEMENT OF THE ISSUES

STATEMENT OF THE CASE

SUMMARY OF ARGUMENT

ARGUMENT

CONCLUSION

TABLE OF AUTHORITIES

Cases

Am. Bus Ass'n v. Slater, 231 F.3d 1 (D.C. Cir. 2000)

Arangure v. Whitaker, 911 F.3d 333 (6th Cir. 2018)

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988)

Busey v. Deshler Hotel Co., 130 F.2d 187 (6th Cir. 1942)

Carver v. United States, 412 F.2d 233 (Ct. C1. 1969)

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)

Chrysler Corp. v. Commissioner, 436 F.3d 644 (6th Cir. 2006)

City of Arlington v. FCC, 569 U.S. 290 (2013)

City of Tucson v. Commissioner, 820 F.2d 1283 (D.C. Cir. 1987)

Commissioner v. Acker, 361 U.S. 87 (1959)

Commissioner v. Baertschi, 412 F.2d 494 (6th Cir. 1969)

Commissioner v. Brown, 380 U.S. 563 (1965)

Conn. Nat'l Bank v. Germain, 503 U.S. 249 (1992)

Contreras-Bocanegra v. Holder, 678 F.3d 811 (10th Cir. 2012)

Eckstein v. United States, 452 F.2d 1036 (Ct. C1. 1971)

Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005)

Farley v. Commissioner, 7 T.C. 198 (1946)

FDIC v. Meyer, 510 U.S. 471 (1994)

Holmes v. Commissioner, 184 F.3d 536 (6th Cir. 1999)

INS v. Cardoza-Fonseca, 480 U.S. 421 (1987)

INS v. National Ctr. for Immigrants' Rights, Inc., 502 U.S. 183 (1991)

Iselin v. United States, 270 U.S. 245 (1926)

Kirkendall v. Dep't of the Army, 479 F.3d 830 (Fed. Cir. 2007)

La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355 (1986)

Lin-Zheng v. Attorney General, 557 F.3d 147 (3d Cir. 2009)

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)

Nahey v. Commissioner, 111 T.C. 256 (1998)

Officemax, Inc. v. United States, 428 F.3d 583 (6th Cir. 2005)

Old Colony R.R. Co. v. Commissioner, 284 U.S. 552 (1932)

Peno Trucking, Inc. v. Commissioner, 296 Fed. Appx. 449 (6th Cir. 2008)

Prof'l & Exec. Leasing, Inc. v. Commissioner, 89 T.C. 225 (1987)

Railway Labor Execs.' Ass'n. v. Nat'l Mediation Bd., 29 F.3d 655 (D.C. Cir. 1994)

Reid v. Memphis Publishing Co., 521 F.2d 512 (6th Cir. 1975)

Shook v. United States, 713 F.2d 662 (11th Cir. 1983)

Sierra Club v. EPA, 793 F.3d 656 (6th Cir. 2015)

Smith v. United States, 508 U.S. 223 (1993)

Snyder v. Commissioner, 66 T.C. 785 (1976)

Taft Broadcasting Co. v. United States, 929 F.2d 240 (6th Cir. 1991)

Dome Co. v. Commissioner, 26 B.T.A. 967 (1932)

United States v. Larionoff, 431 U.S. 864 (1977)25

United States v. Merriam, 263 U.S. 179 (1923)

Walton v. Hammons, 192 F.3d 590 (6th Cir. 1999)

Statutes

26 U.S.C. §954

26 U.S.C. §954(d)(1)

26 U.S.C. §954(d)(2)

26 U.S.C. §6213(a)

26 U.S.C. §6214(a)

26 U.S.C. §7422

26 U.S.C. §7482

26 U.S.C. §7482(b)

26 U.S.C. §7483

26 U.S.C. §7502

Regulations

Prop. Reg. §1.953-2(f)(3)(v) (1991)

Treas. Reg. §1.953-2

Treas. Reg. §1.953-2(c)(3)(iv)

Treas. Reg. §1.954-3(a)(4)

Treas. Reg. §1.954-3(a)(4)(i)

Treas. Reg. §1.954-3(a)(4)(ii)

Treas. Reg. §1.954-3(b)(1)(i)

Treas. Reg. §1.954-3(b)(1)(ii)

Treas. Reg. §1.954-3(b)(1)(ii)(a)

Treas. Reg. §1.954-3(b)(1)(ii)(b)

Treas. Reg. §1.954-3(b)(2)(i)(c)

Treas. Reg. §1.954-3(b)(2)(ii)

Treas. Reg. §1.954-3(b)(2)(ii)(a)

Treas. Reg. §1.954-3(b)(2)(ii)(c)

Treas. Reg. §1.954-3(b)(2)(ii)(e)

Treas. Reg. §301.7701-2(a)

Treas. Reg. §301.7701-3(a)

Treas. Reg. §31.3121(d)-1(c)(1)

Treas. Reg. §31.3121(d)-1(c)(2)

Legislative History

H.R. 10650, 87th, Cong, Sec. 12(a), § 954(d) (Aug. 16, 1962)

H.R. Rep. No. 87-1447 (1962)

H.R. Rep. No. 87-2508 (1962)

S. Rep. No. 87-1881 (1962)

Treaties

Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Lux.-Mex., 2450 U.N.T.S. 95

Model Tax Convention on Income and on Capital 2017 (Full Version), OECD Publishing (OECD Nov. 21, 2017)

Federal Rules of Appellate Procedure

Federal Rule of Appellate Procedure 13(a)(1)(A)

Miscellaneuos

BNA Portfolio 6240-1st: CFCs — Foreign Base Company Income (Other than FPHCI), Chapter VII. H, (2019)

Fowler's Dictionary of Modern English Usage (Oxford U. Press 2015)

J. Isenbergh, International Taxation, Chapter 74, Controlled Foreign Corporations (4th ed. 2006)44-46, 49

Merriam-Webster Dictionary (2020)

Webster's Third New International Dictionary of the English Language Unabridged (3d ed. 1961)21

U.C.C. §2-106(1)

U.C.C. §2-401(2)

---

STATEMENT IN SUPPORT OF ORAL ARGUMENT

Counsel for Appellants believe that oral argument would assist the Court in its disposition of this appeal, given the complex interactions of the Internal Revenue Code provisions and corresponding regulations promulgated by the Department of Treasury (“Treasury”) and the Internal Revenue Service (“IRS”).

JURISDICTIONAL STATEMENT

Whirlpool Corporation was the common parent of U.S. and foreign subsidiaries, including Whirlpool International Holdings, S.a.r.l. & Consolidated Subsidiaries (“WIH”) and Whirlpool Financial Corporation & Consolidated Subsidiaries (“Whirlpool Financial”) (collectively, “Whirlpool”). On March 29, 2017, the IRS issued a notice of deficiency to WIH regarding its federal income taxes for taxable year ended December 31, 2000. On March 31, 2017, the IRS issued a notice of deficiency to Whirlpool Financial regarding its federal income taxes for taxable year ended December 31, 2005. On June 23, 2017, Whirlpool timely filed a petition in the U.S. Tax Court challenging the Commissioner's asserted tax deficiencies.¹ The Tax Court had jurisdiction under sections 6213(a), 6214(a), and 7442.²

On June 9, 2020, the Tax Court entered separate final decisions in Docket Numbers 13986-17 and 13987-17 disposing of all issues. On September 4, 2020, within 90 days after entry of decision, Whirlpool timely filed separate notices of appeal under sections 7502 and 7483. This Court has jurisdiction under section 7482. Venue in this Court is proper because Whirlpool's principal place of business was Benton Harbor, Michigan, at the time it filed its Tax Court petitions. See I.R.C. §7482(b).

STATEMENT OF THE ISSUES

1. Did the Tax Court err in denying Whirlpool's motion for partial summary judgment under section 954(d)(1) despite finding that: (a) the refrigerators and washers (the “Products”) sold by Whirlpool Overseas Manufacturing S.a.r.l. (“WOM”) were not the property (the raw materials and components) purchased by WOM; (b) the materials purchased by WOM were substantially transformed into the Products before sale by WOM; and (c) WOM's contracts to provide manufacturing personnel to make the Products gave WOM the legal right to control the method and manner of production by those personnel, as well as the ability to terminate work by those personnel at its manufacturing sites? Each fact provides an independent legal basis for ruling in Whirlpool's favor under section 954(d)(1).

2. Did the Tax Court err in denying Whirlpool's motion for partial summary judgment under section 954(d)(2) because Congress did not grant to Treasury authority to promulgate the “Manufacturing Branch Rule” in Treas. Reg. §1.954-3(b)(1)(ii), which is therefore invalid?

3. Did the Tax Court err in denying Whirlpool's motion for partial summary judgment under section 954(d)(2) on the ground that the Remainder (within the meaning of Treas. Reg. §1.954-3(b)(1)(ii)(a)) engaged in no “selling activities” under Treas. Reg. §1.954-3(b)(2)(i)(c) and therefore no sales income could be allocated to the Remainder, no tax rate disparity (“Tax Rate Disparity”) existed under Treas. Reg. §1.954-3(b)(1)(ii)(b), and the Manufacturing Branch Rule, even if valid, was thus inapplicable?

4. Did the Tax Court err in denying Whirlpool's motion for partial summary judgment under section 954(d)(2) on the ground that the Remainder engaged in no “selling activities” under Treas. Reg. §1.954-3(b)(2)(ii)(c) and therefore no sales income could be allocated to the Remainder under Treas. Reg. §1.954-3(b)(2)(ii)(c) and hence the Remainder could have no foreign base company sales income (“FBCSI”) under Treas. Reg. §1.954-3(b)(2)(ii)(e)?

5. Did the Tax Court err in granting the Commissioner's cross-motion for summary judgment under section 954(d)(2) on the ground that, even under the Tax Court's reasoning, material questions of fact existed as to the amount of sales income allocable to the Remainder, if any?

STATEMENT OF THE CASE

A. Procedural History.

The IRS determined that WOM's income in 2009 constituted FBCSI under section 954(d) and issued notices of deficiency to Whirlpool. Whirlpool challenged these determinations in petitions timely filed in the Tax Court.

On February 4, 2019, Whirlpool filed a Motion for Partial Summary Judgment under Section 954(d)(1). Record (“R.”) 27 (Pet'r Br.), Appendix (“Apx.”) 131-345. On February 22, 2019, Whirlpool filed a Motion for Partial Summary Judgment under Section 954(d)(2). R. 33 (Pet'r Br.), Apx. 346-996. On April 23, 2019, Respondent filed a Cross-Motion for Summary Judgment under Section 954(d)(2) and opposed Appellant's partial summary judgment motion under section 954(d)(1) claiming that genuine disputes of material fact existed. R. 42 (Resp't Br.), Apx. 997-2610.

On June 24, 2019, Whirlpool filed a Reply Brief under sections 954(d)(1) and 954(d)(2). R. 46 (Pet'r Reply), Apx. 2611-2794. On August 23, 2019, Respondent filed a Sur-Reply. R. 50 (Resp't Sur-Reply), Apx. 2795-2897. On September 23, 2019, Whirlpool filed a Response to Respondent's Sur-Reply. R. 53 (Pet'r Resp.), Apx. 3161-3220.

On May 5, 2020, the Tax Court issued an opinion granting Appellee's Cross-Motion for Summary Judgment under Section 954(d)(2) and denying Whirlpool's Motions for Partial Summary Judgment under Sections 954(d)(1) and 954(d)(2). R. 54 (Op.), Apx. 3221-82.

On June 9, 2020, the Tax Court severed the consolidation of Docket Numbers 13986-17 and 13987-17 and entered separate decisions. R. 57-58, Apx. 3283-86. Appellants timely filed notices of appeal on September 4, 2020, under Federal Rule of Appellate Procedure 13(a)(1)(A). This Court has jurisdiction under 26 U.S.C. §7482. Pursuant to a Joint Motion to Consolidate Appeals, on October 8, 2020, this Court consolidated Nos. 20-1899 and 20-1900 in the appeal.

Because the Tax Court's decisions involved questions of law rather than fact, this Court reviews those decisions de novo. See Holmes v. Commissioner, 184 F.3d 536, 543 (6th Cir. 1999).

B. Facts.

1. Undisputed Facts Relating to the Section 954(d)(1) Issue.

WOM purchased raw materials from unrelated parties and sold finished Products to related parties. WOM thus sold personal property that was different than the personal property that it purchased. R. 54 (Op.) at 24, Apx. 3244.

The personal property purchased by WOM was substantially transformed in Mexico into the Products sold by WOM. R. 54 (Op.) at 25, Apx. 3245. WOM's Mexican operations were substantial in nature. R. 54 (Op.) at 9-11, Apx. 3229-31.

WOM contracted with a separate company to secure the labor required to manufacture its Products. These contracts unambiguously gave WOM the legal right to control the method and manner in which the personnel manufactured the Products. R. 54 (Op.) at 32, Apx. 3252.

2. Undisputed Facts Relating to the Section 954(d)(2) Issue.

WOM was a subcontractor for Maytag Sales, Inc. and Whirlpool Corporation (collectively, “Whirlpool US”) and Whirlpool Mexico S. de R.L. de C.V. (“Whirlpool Mexico”). Under WOM's contracts with Whirlpool US and Whirlpool Mexico, WOM used Whirlpool's intellectual property to produce the Products. The contracts required WOM to sell all of its output to Whirlpool US and Whirlpool Mexico. Under the contracts, WOM received a price for its manufacture of the Products equal to its manufacturing costs plus 6%. R. 54 (Op.) at 42, Apx. 3262; R. 33 (Pet'r Br.), Apx. 566, 579, 592, 603. This price was intended to “achieve an arms' length Manufacturing Margin” for WOM. R. 33 (Pet'r Br.), Apx. 558, 574, 585, 597.

WOM produced the Products at its manufacturing plants in Mexico. The manufacturing operations were substantial, producing in 2009 approximately one million refrigerators and a half-million washers in plants with over 1.37-million square feet of manufacturing floor space and over $146 million of manufacturing equipment and tooling. Over 3,300 manufacturing personnel worked at WOM's Mexican plants. R. 27 (Pet'r Br.) at 19, Apx. 163.

WOM operated its business in Mexico through both (a) direct ownership and use in Mexico of manufacturing equipment, manufacturing tooling, raw materials, work-in-process inventory, and finished-goods inventory, R. 54 (Op.) at 9-11, Apx. 3229-31, and (b) a wholly-owned Mexican subsidiary, Whirlpool Internacional S. de R.L. de C.V. (“WIN”), that was disregarded as being separate from WOM for U.S. Federal income tax purposes under the “check-the-box rules” of Treas. Reg. §§301.7701-2(a) and -3(a). R. 54 (Op.) at 7-8, Apx. 3227-28. Collectively, these activities constituted WOM's “Manufacturing Branch,” that is, WOM's manufacturing business in Mexico.

The Manufacturing Branch entered into contracts and bought raw materials and other manufacturing inputs from third parties in the name of WOM; paid for these items with WOM's money and took title in WOM's name; produced the Products in dedicated plants located in Mexico using WOM's equipment and tooling; transferred title to, and thus made the sale of, the Products to Whirlpool US and Whirlpool Mexico at the end of the manufacturing lines; and invoiced Whirlpool US and Whirlpool Mexico on behalf of WOM. The Manufacturing Branch then arranged for the shipment and export of the Products. R. 54 (Op.) at 10-11, Apx. 3230-31.

Mexico's Maquiladora manufacturing incentives program (the “Maquiladora Statute”) dictated WOM's Manufacturing Branch's structure. The Maquiladora Statute generally offered reduced tax rates to a foreign company that (a) manufactured products in Mexico using a Mexican corporation (the “Maquiladora”) employing Mexican labor and then (b) exported the products. Under the Maquiladora Statute, the Maquiladora could only provide labor services; it could not own the raw materials, work-in-process inventory, finished-goods inventory, or the manufacturing equipment and tooling used to manufacture the products. The foreign company, known as the Foreign Principal, was required to directly own the raw materials, work-in-process and finished-goods inventories, and equipment and tooling. If the price paid by the Foreign Principal to the Maquiladora for labor services comported with Mexican transfer-pricing rules, Mexico taxed the Maquiladora's profits at a reduced rate, and deemed the Foreign Principal's conduct of its business in Mexico not to constitute a “permanent establishment.” Thus, Mexico wholly exempted from tax (which it was otherwise entitled to collect under the Luxembourg-Mexico Tax Treaty³) the profits attributable to what was in fact a permanent establishment of the Foreign Principal, and Mexico conferred various trade and duty advantages on the import of manufacturing inputs and the export of finished products. R. 54 (Op.) at 12-13, Apx. 3232-33.

Consistent with the foregoing regime and separate from WIN (WOM's Mexican subsidiary that was disregarded for U.S. income tax purposes), WOM had a permanent establishment in Mexico because it directly owned raw materials, work-in-process inventory, and finished-goods inventory in Mexico, used dedicated manufacturing plants to produce its Products, and had dependent agents that routinely accepted contracts on its behalf in Mexico. R. 54 (Op.) at 9-13, Apx. 3229-33; R. 33 (Pet'r Br.), Apx. 422-23, 688-92.

WOM's only other operations existed in Luxembourg (i.e., the Remainder), where WOM was incorporated. In Luxembourg, the Remainder had a small office and a single part-time employee. The Remainder's single part-time employee performed no manufacturing or selling activities, but rather performed only “modest administrative functions.” R. 54 (Op.) at 7, Apx. 3227.

When Whirlpool re-organized its operations to qualify for the Maquiladora incentives, Whirlpool asked the Luxembourg government for a ruling regarding the profit attributable to WOM's Mexican manufacturing business (WOM's Mexican permanent establishment) and the profit that should be attributed to WOM's Luxembourg operations. Then, as now, Luxembourg generally taxed the worldwide income of its citizens and residents, including corporations like WOM incorporated in Luxembourg.⁴ However, under Articles 7(2) and 23(a)(1) of the Luxembourg-Mexico Tax Treaty, Luxembourg agreed that it would not (and could not) tax profits of its residents that constituted profits attributable to a permanent establishment in Mexico. In its ruling request, Whirlpool described WOM's business in Luxembourg and in Mexico and asked the Luxembourg government to confirm that, but for a de minimis allocation of profit to Luxembourg in connection with the single part-time employee, all of WOM's profits constituted profits attributable to its permanent establishment in Mexico — that is, the profits were attributable to WOM's manufacturing business conducted in Mexico and not to any activities in Luxembourg. Under the Luxembourg-Mexico Tax Treaty, as under the OECD Model Treaty on which it was based,⁵ only Mexico could tax the profits arising in Mexico from WOM's Mexican permanent establishment. Mexico's choice not to tax those profits under the Maquiladora Statute did not change that conclusion: profits attributable to WOM's Mexican manufacturing activities were taxable only by Mexico and not by Luxembourg. R. 33 (Pet'r Br.), Apx. 424-25, 695-96.

In allocating income between the Manufacturing Branch and the Remainder in connection with the Commissioner's Cross-Motion for Summary Judgment, the Tax Court allocated only the minor profit paid for labor (manufacturing services) to WOM's disregarded subsidiary (WIN, the Maquiladora) and did not allocate any profit to compensate the Manufacturing Branch for the cost and risk of owning all of the manufacturing inputs other than labor costs. The Manufacturing Branch thus was allocated no income as compensation for investing well over $500 million in raw materials and components, R. 54 (Op.) at 10, Apx. 3230,⁶ and over $146 million in manufacturing equipment and tooling, R. 27 (Pet'r Br.) at 19, Apx. 163. In total, the Tax Court allowed the Manufacturing Branch a total manufacturing profit of only $4 million on sales of over $800 million, a profit margin of just 0.5%.⁷ In contrast, the Tax Court allocated approximately $41 million⁸ to the Remainder on the sole basis that WOM held title to and sold the Products, which the Tax Court ruled constituted “sales activities” even though in reality, the Remainder did not hold title under the Manufacturing Branch Rule, did not perform any “selling activities,” and did not incur any selling costs. R. 54 (Op.) at 7, 50, Apx. 3227, 3270.

C. Rulings Presented for Review on Appeal.

This appeal presents the following three rulings of the Tax Court for review:

SUMMARY OF ARGUMENT

A. The Tax Court Erred in Denying Whirlpool's Motion for Partial Summary Judgment Under Section 954(d)(1).

Section 954(d)(1) unambiguously provides, in pertinent part, that FBCSI arises only when the personal property purchased is the same as the personal property sold. The Tax Court found that the personal property purchased by WOM (e.g., rolls of steel, sheets of plastic, chemicals, tubing, and paint) was not the same personal property sold by WOM (refrigerators and washers), that the refrigerators and washers were substantially transformed prior to sale, and that WOM had legal control over the manufacturing personnel's method and manner of production in its Mexican manufacturing operations. Accordingly, Whirlpool could not have FBCSI under section 954(d)(1) as a matter of law and was entitled to partial summary judgment in its favor.

B. The Tax Court Erred in Denying Whirlpool's Motion for Partial Summary Judgment Under Section 954(d)(2) For Three Independent Reasons.

First, the Tax Court erred in holding that the Manufacturing Branch Rule of Treas. Reg. §1.954-3(b)(1)(ii) was valid. Section 954(d)(2) applies to a CFC that operates a branch in a jurisdiction outside the CFC's country of incorporation under circumstances that are substantially equivalent to the CFC operating through a corporate subsidiary in that jurisdiction. Section 954(d)(2) thus authorizes Treasury to promulgate regulations to treat income attributable to the branch as FBCSI of the CFC. Treasury promulgated two branch rules in its regulations, a “Sales Branch Rule” under Treas. Reg. §1.954-3(b)(1)(i) and a “Manufacturing Branch Rule” under Treas. Reg. §1.954-3(b)(1)(ii). Consistent with the statute, the Sales Branch Rule identifies the situations in which income attributable to the branch must be treated as FBCSI of the CFC. The Manufacturing Branch Rule, however, takes the opposite approach and provides rules that treat income attributable to activities of the CFC that are separate and distinct from the branch (defined as the “Remainder” under the regulations) as FBCSI of the CFC. The Manufacturing Branch Rule thus is not within the authority granted by Congress and is therefore invalid under Chevron Step 1. Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 843 (1984); City of Arlington v. FCC, 569 U.S. 290, 307 (2013); Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988); La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 374 (1986).

Second, although the Tax Court found that the Remainder's sole (part-time) employee performed only “modest administrative functions,” R. 54 (Op.) at 7, Apx. 3227, which included no “selling activities,” the Tax Court erroneously interpreted the term “selling activities” under Treas. Reg. §§1.954-3(b)(2)(i)(c) and -3(b)(2)(ii)(c) to include the nominal sale by the Remainder. This interpretation is wrong for two reasons:

Under the Manufacturing Branch Rule's Tax Rate Disparity test, the lack of “selling activities” by the Remainder renders the Manufacturing Branch Rule inapplicable. Under the test, all income is allocated to the Manufacturing Branch except for any income attributable to “selling activities” performed by the Remainder. Treas. Reg. §1.954-3(b)(1)(ii)(b). Because the Remainder performed no “selling activities,” sales income cannot be attributed to the Remainder under the regulations. Treas. Reg. §1.954-3(b)(2)(i)(c). As a consequence, there is no Tax Rate Disparity⁹ and the Manufacturing Branch Rule is inapplicable by its own terms. Treas. Reg. §1.954-3(b)(1)(ii)(b). The lack of a Tax Rate Disparity is sufficient, standing alone, to compel partial summary judgment in favor of Whirlpool under section 954(d)(2).

Third, even if a Tax Rate Disparity existed, in a second step, Treas. Reg. §1.954-3(b)(2)(ii)(c) then allocates sales income to the Remainder based on the value of the “selling activities” performed by the Remainder “on behalf of” the Manufacturing Branch for potential inclusion as FBCSI. As in the Tax Rate Disparity test, if the Remainder performs selling and marketing services that constitute “selling activities,” an objective amount of income must be allocated to the Remainder based on the value of those activities. Again, the regulation's use of “on behalf of” means that under the legal fiction of the Manufacturing Branch Rule, the Remainder does not take title and thus does not make the legal sale. The Tax Court's ruling in this second-step income allocation — that the Remainder made the sale and that the fact of sale is a “selling activity” — is wrong on both counts. As the Remainder engaged in no “selling activities,” no sales income can be allocated to the Remainder under the Manufacturing Branch Rule, and WOM could not have FBCSI as a matter of law.

C. The Tax Court Erred in Granting the Commissioner's Section 954(d)(2) Cross-Motion for Summary Judgment Against Whirlpool For Three Independent Reasons.

First, the Manufacturing Branch Rule is not authorized by section 954(d)(2) and is invalid under Chevron Step One.

Second, even if the Manufacturing Branch Rule were valid, as a matter of law WOM could not have FBCSI because the Remainder performed no “selling activities” under Treas. Reg. §§1.954-3(b)(2)(i)(c) and -3(b)(2)(ii)(c).

Third, even under the Tax Court's reasoning, material questions of fact regarding the amount of sales income properly allocable to the Remainder preclude summary judgment. Having found that the Remainder's sole part-time employee performed only “modest administrative functions” that included no “selling activities,” the sole basis for the Tax Court's allocation is its ruling (as a matter of law, not a matter of fact) that the Remainder held title to and was the legal seller of the Products, and that “[m]aking sales is necessarily” a selling activity under the regulations. R. 54 (Op.) at 50, Apx. 3270. Material questions of fact exist as to the relative amounts of income attributable to (a) the Manufacturing Branch for manufacturing activities in Mexico involving thousands of manufacturing personnel and three-quarters of a billion dollars of cost, and (b) the Remainder based on “selling activities” consisting solely of a passive sale involving bare legal title held “on behalf of” the Manufacturing Branch.

Whirlpool presented substantial evidence of the relative activities undertaken by the Manufacturing Branch and the Remainder in its various filings, including not only documents and declarations establishing the facts, but also the Government of Luxembourg's prior determination that the exact income at issue in this case economically and legally constituted profits attributable to WOM's manufacturing activities in Mexico (i.e., the Manufacturing Branch) and were not profits attributable to WOM's de minimis administrative activities in Luxembourg (i.e., the Remainder). This evidence, particularly when viewed in the light most favorable to Whirlpool as the non-moving party under the Commissioner's cross-motion for summary judgment, raises material questions of fact as to the amount of income attributable to the Remainder. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991). These material questions of fact preclude summary judgment in the Commissioner's favor. Taft, 929 F.2d at 247. Accordingly, the Tax Court erred in granting the Commissioner's section 954(d)(2) cross-motion for summary judgment against Whirlpool.

ARGUMENT

Prior to 1962, the United States did not tax international profits of non-U.S. affiliates of a U.S. corporation until those profits were repatriated to the United States. Nearly sixty years ago, Congress enacted the Code's “Subpart F” provisions to tax certain specific and narrow types of international profits in the year earned, regardless of when those profits were repatriated. This case involves one of those narrow and specific types of income, Foreign Base Company Sales Income (previously defined as FBCSI). In pertinent part, section 954(d)(1) provides that FBCSI includes:

income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with . . . the sale of personal property to any person on behalf of a related person, [or] the purchase of personal property from any person and its sale to a related person,

subject to two exceptions (the “same country exceptions”), neither of which applies in this case. The second definition — “the purchase of personal property from any person and its sale to a related person” — frames the issue at bar under section 954(d)(1), while the first definition — “the sale of personal property to any person on behalf of a related person” — frames the type of FBCSI at issue under section 954(d)(2).

A. Whirlpool Was Entitled to Partial Summary Judgment Under Section 954(d)(1) Because WOM Did Not Sell the Same Property It Purchased And Thus Could Not Have FBCSI As A Matter of Law.

The relevant facts are simple and undisputed. As the Tax Court found, “the items that [WOM] sold were not the same as the items it purchased.” R. 54 (Op.) at 24, Apx. 3244. Further, “[i]t seems clear that these purchased items were 'substantially transformed.'” R. 54 (Op.) at 25, Apx. 3245.

The Commissioner conceded that the purchased items were substantially transformed insofar as the property WOM sold was not the property WOM purchased. R. 54 (Op.) at 26, Apx. 3246. Nonetheless, the Commissioner argued that WOM should still have FBCSI if WOM outsourced the manufacturing labor rather than having its own common-law employees manufacture the Products.

The plain language of section 954(d)(1) does not impose any such requirement, and nothing in the legislative history or the regulations suggests the contrary.

Even if required, the manufacturing personnel who worked at WOM's Mexican-manufacturing plants were WOM's common-law employees because WOM's contracts (through WIN, its disregarded Mexican subsidiary) gave WOM the legal right to control the work performed by the manufacturing personnel, which is sufficient to treat them as common-law employees as a matter of law. R. 54 (Op.) at 32, Apx. 3252 (“The agreements among IAW, CAW, and WIN appear to have given WIN the right to control the employees' work.”).

1. WOM's Sales of Refrigerators and Washers Did Not Result in FBCSI Under the Plain Language of Section 954(d)(1) Because WOM Did Not Sell the Same Property that It Purchased.

As relevant, section 954(d)(1) defines FBCSI to include income derived in connection with “the purchase of personal property from any person and its sale to a related person.” (Emphasis added.) The import of Congress' use of the word “its” in this way is clear: FBCSI includes only income derived from the purchase and sale of the same personal property.

Words in a statute are given their ordinary, natural meaning unless the statute expressly provides a different meaning. See FDIC v. Meyer, 510 U.S. 471, 476 (1994); Smith v. United States, 508 U.S. 223, 228 (1993); Old Colony R.R. Co. v. Commissioner, 284 U.S. 552, 560-61 (1932). The ordinary, natural meaning of “its” is “of or relating to it or itself as object of an action.” Its, Webster's Third New International Dictionary of the English Language Unabridged (3d ed. 1961). Grammatically, “its” is the possessive form of the pronoun “it.” Its, Fowler's Dictionary of Modern English Usage 442 (Oxford U. Press 2015). “It” refers to “that one,” while “itself” means “that identical one.” It, Itself, Webster's Third New International Dictionary of the English Language Unabridged (3d ed. 1961). In section 954(d)(1), “its” refers to the same personal property that is referenced earlier in the sentence. The phrase “its sale” necessarily refers to the sale by the CFC of the same property that the CFC purchased. Thus, the plain language of the statute is unambiguous: if the property sold was not the same property purchased, there is no FBCSI under section 954(d)(1).

As the plain language of section 954(d)(1) is unambiguous, there is no need to consult the legislative history to discern Congressional intent. See, e.g., Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005); Conn. Nat'l Bank v. Germain, 503 U.S. 249, 254 (1992) (“When the words of a statute are unambiguous, then, this first canon is also the last: 'judicial inquiry is complete.'”) (internal quotation omitted); Chrysler Corp. v. Commissioner, 436 F.3d 644, 654 (6th Cir. 2006). The legislative history nonetheless confirms that “the sale of the final product would not be [FBCSI] if . . ., in effect, the final product is not the property purchased.” H.R. Rep. No. 87-1447, at A94-A95 (1962); S. Rep. No. 87-1881, at 245 (1962). As an illustration of this difference, Congress explained that “[m]anufacturing and construction activities (and production, processing, or assembling activities which are substantial in nature) would generally involve substantial transformation of purchased parts or materials.” H.R. Rep. No. 87-1447, at A94-A95 (1962); S. Rep. No. 87-1881, at 245 (1962). This demonstrates that section 954(d)(1) does not apply to income from the sale of property that has been substantially transformed from the property purchased, so that the “final product is not the property purchased.” H.R. Rep. No. 87-1447, at A94-A95 (1962); S. Rep. No. 87-1881, at 245 (1962). Treas. Reg. §1.954-3(a)(4)(i) explicitly embraces this same principle — a CFC's income is not FBCSI under section 954(d)(1) if the property that the CFC sells “is in effect not the property which it purchased.”

Here, the Tax Court correctly found — and the Commissioner did not deny — that “the items that [WOM] sold were not the same as the items that it purchased.” R. 54 (Op.) at 24, Apx. 3244. This finding, without more, precludes a determination that WOM's sales generated FBCSI as a legal matter because the statute unambiguously provides that FBCSI arises only if the property sold was the same property purchased. There was no material question of fact on this point, so the Tax Court erred in failing to grant Whirlpool partial summary judgment under section 954(d)(1).

2. Because the Purchased Materials Were Substantially Transformed into the Refrigerators and Washers Sold, WOM Was Considered and Treated Under Treas. Reg. 1.954-3(a)(4) as Having Manufactured the Products it Sold, and Sale of the Products Did Not Give Rise to FBCSI.

The Tax Court found that “[i]t seems clear that these purchased items were 'substantially transformed,'” R. 54 (Op.) at 25, Apx. 3245, so that “the items that it [WOM] sold were not the same as the items that it purchased,” R. 54 (Op.) at 24, Apx. 3244, and that the Commissioner did not deny that the raw materials were substantially transformed before the final Products were sold. R. 54 (Op.) at 26, Apx. 3246. The Tax Court's finding that the raw materials were substantially transformed into the Products prior to sale leads to the same legal conclusion under the regulations — WOM's income was not FBCSI.

Treas. Reg. §1.954-3(a)(4) applies here. As the Tax Court explained, R. 54 (Op.) at 26-27, Apx. 3246-47, the Commissioner's position on the section 954(d)(1) issue hinges on the phrase “by such corporation” in the first sentence of Treas. Reg. §1.954-3(a)(4)(i), which states that FBCSI does not include income of a CFC on “the sale of personal property manufactured . . . by such corporation in whole or in part from personal property which it has purchased.” As the Tax Court also recognized, however, the very next sentence provides: “A foreign corporation will be considered, for purposes of this subparagraph, to have manufactured . . . personal property which it sells if the property sold is in effect not the property which it purchased.” Treas. Reg. §1.954-3(a)(4)(i) (emphases added). The regulation thus fully accords with the plain meaning of the statute. The regulation further provides, in relevant part, that in the case of manufacture, the property sold will not be considered the property purchased if the provisions of Treas. Reg. §1.954-3(a)(4)(ii) are satisfied.

Treas. Reg. §1.954-3(a)(4)(ii) provides that if purchased property is “substantially transformed prior to sale,” then “the property sold will be treated as having been manufactured . . . by the selling corporation.” (Emphasis added.) The Tax Court found and the Commissioner concedes that the raw materials purchased by WOM were substantially transformed prior to sale by WOM as refrigerators and washers. Accordingly, under the Commissioner's own regulations, the Products sold “will be treated as having been manufactured . . . by the selling corporation.”

Thus, under Treas. Reg. §1.954-3(a)(4)(i), WOM “will be considered . . . to have manufactured” the Products, and under Treas. Reg. §1.954-3(a)(4)(ii), the Products “will be treated as having been manufactured . . . by” WOM. That both regulations consider or treat WOM as the manufacturer is no coincidence: the standard under the statute is not who substantially transforms the purchased materials, but rather whether the purchased materials have been substantially transformed so that the Products sold are not the items purchased. Indeed, “regulations, in order to be valid, must be consistent with the statute under which they are promulgated.” United States v. Larionoff, 431 U.S. 864, 873 (1977). Given that no material questions of fact exist as to either the substantial transformation of the raw materials into Products, or that the Products sold by WOM were not the items purchased by WOM, the Tax Court erred in failing to grant Whirlpool's partial summary judgment motion under section 954(d)(1).

3. Even if Treas. Reg. §1.954-3(a)(4) Required a CFC's Common-Law Employees to Perform Manufacturing, the Seconded and Leased Employees Were WOM's Common-Law Employees.

As set forth above, section 954(d)(1), its legislative history, and the section 954(d)(1) regulations do not require the selling corporation to use its own employees to manufacture or substantially transform the raw materials into the products sold to avoid FBCSI.¹⁰ But even if they did, Whirlpool would still prevail. The Tax Court found that “[t]he agreements among IAW, CAW, and WIN appear to have given WIN the right to control the employees' work.” R. 54 (Op.) at 32, Apx. 3252. Since WIN is disregarded for U.S. Federal income tax purposes, WOM thus had the legal right to control the employees' work. The legal right to control the employees' work is the hallmark of a common-law employer/employee relationship. Indeed, the fundamental criterion for establishing a common-law-employment relationship is the right to exercise control, rather than an actual exercise of control. Treas. Reg. §§31.3121(d)-1(c)(1) and (2); Peno Trucking, Inc. v. Commissioner, 296 Fed. Appx. 449 (6th Cir. 20008); Prof'l & Exec. Leasing, Inc. v. Commissioner, 89 T.C. 225, 232-33 (1987) (“the test usually considered fundamental is whether the person for whom the work is performed has the right to control”) (internal quotations omitted).

As the Tax Court found, various intercompany agreements gave WIN (and therefore WOM) the legal right to control the leased employees. R. 54 (Op.) at 32, Apx. 3252. These agreements gave WOM the right to control the result of the work and the method and manner by which the leased employees manufactured the Products, requiring manufacture “in strict compliance with the instructions and specifications of” WOM, with Plant Managers to “work under the instructions and directions of WIN” (and therefore WOM), and with WOM having the right to terminate secondments “at any time.” R. 46 (Pet'r Reply), Apx. 2706, 2708, 2725, 2731-32; R. 44 (Resp't Br.), Apx. 1698-99, 1745-46, 1762-63. WOM required the personnel to produce the Products to WOM's specifications at WOM's Manufacturing Plants, using WOM's raw materials, component parts, supplies, equipment, tooling, and inventories. Thousands of pages of instruction sheets, which detailed every step of the manufacturing process, directed the method and manner of production of the Products. R. 46 (Pet'r Reply), Apx. 2738-94. Further, all manufacturing personnel reported to their respective Plant Managers, who, in turn, reported to Mr. Eduardo Elizondo Williams, the head of all Whirlpool manufacturing operations in Mexico and a member of WIN's Board of Directors. R. 27 (Pet'r Br.), Apx. 307. Because WOM had the right to control the production, including the manner and method of production, the seconded and leased employees constituted common-law employees of WOM under the regulations and case law. Treas. Reg. §§31.3121(d)-1(c)(1) and (2); Peno Trucking, 296 Fed. Appx. at 456; Prof'l & Exec. Leasing, 89 T.C. at 232-33.

No material question of fact exists as to WOM's legal right to control the employees' manufacture of the Products. WOM's legal right to control the employees established a common-law employment relationship. Accordingly, even if both section 954(d)(1) and the regulations required WOM to use its own employees to manufacture the Products to avoid FBCSI, Whirlpool would still be entitled to partial summary judgment in its favor under section 954(d)(1).

B. Whirlpool Was Entitled to Partial Summary Judgment Under Section 954(d)(2) Because the Manufacturing Branch Rule Regulations Are Invalid, and, Even if Valid, the Remainder Performed No “Selling Activities” and Thus WOM Could Not Have FBCSI.

1. The Manufacturing Branch Rule of Treas. Reg. §1.954-3(b)(1)(ii) Is Invalid Because It Exceeds the Authority Granted By Congress In Section 954(d)(2).

In section 954(d)(1), the four scenarios giving rise to FBCSI all require sales to or purchases from, or sales activities on behalf of, a related person. Congress was aware that taxpayers could effectively avoid a related-party sale by having a CFC operate through an unincorporated branch in a different legal jurisdiction, as the branch would be considered the same entity and not a related party. In section 954(d)(2), Congress sought to curtail this use of a branch instead of a subsidiary to conduct sales in a low-tax jurisdiction by providing Treasury with the authority to promulgate regulations under certain conditions to treat the income of the branch as FBCSI of the CFC. While Congress authorized Treasury to determine when to treat the income of the branch as FBCSI, that authority was unambiguously limited to treating the income of the branch, and only income of the branch, as FBCSI of the CFC. The Manufacturing Branch Rule does not treat the branch's income as FBCSI, but rather treats the income of the CFC outside the branch as FBCSI. In other words, the regulation's Manufacturing Branch Rule does exactly the opposite of what Congress authorized Treasury to do.

The validity of the Manufacturing Branch Rule is evaluated under the two-step test of Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (1984). Under Chevron Step One, the court must evaluate:

whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.

Id. If, on the other hand, the statute is ambiguous or silent on the precise question at issue, the question for the court in Chevron Step Two is “whether the agency's answer is based on a permissible construction of the statute.” Id. at 843 (footnote omitted). As this Court cautioned, however:

Chevron itself reminds courts that they must do their job before applying deference: they must exhaust the “traditional tools” of statutory interpretation and “reject administrative constructions” that are contrary to the clear meaning of the statute.

Arangure v. Whitaker, 911 F.3d 333, 335 (6th Cir. 2018) (quoting Chevron 467 U.S. at 843, n.9). These “traditional tools” include the text, context, and history of the statute, and the canons of construction. INS v. Cardoza-Fonseca, 480 U.S. 421, 449 (1987); Arangure, 911 F.3d at 338; Walton v. Hammons, 192 F.3d 590, 593-601 (6th Cir. 1999). If a court, employing these traditional tools, “ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect.”

Chevron, 467 U.S. at 843, n.9.

a. Section 954(d)(2) Unambiguously Granted Regulatory Authority to Treasury Only to Treat Sales Income of a Branch as FBCSI of the CFC, and Granted No Authority to Treat Income Attributable to the CFC Outside of the Branch as FBCSI.

To prevent taxpayers from avoiding FBCSI under section 954(d)(1) by using a branch of a CFC rather than a subsidiary, Congress enacted section 954(d)(2):

(2) Certain branch income. For purposes of determining foreign base company sales income in situations in which the carrying on of activities by a controlled foreign corporation through a branch or similar establishment outside the country of incorporation of the controlled foreign corporation has substantially the same effect as if such branch or similar establishment were a wholly owned subsidiary corporation deriving such income, under regulations prescribed by the Secretary the income attributable to the carrying on of such activities of such branch or similar establishment shall be treated as income derived by a wholly owned subsidiary of the [CFC] and shall constitute [FBCSI] of the [CFC].

(Emphases added.)

The introductory clause states that the subsection applies “[f]or purposes of determining [FBSCI],” a term defined in section 954(d)(1) to include four scenarios involving the sale of personal property (none of which includes the sale of property manufactured by the seller), in situations in which the use of a branch has substantially the same effect as if the branch were a wholly owned subsidiary deriving “such income” (a reference back to FBCSI). The introductory clause thus limits the scope of the subsection to the sales income of a branch that, if it were a subsidiary corporation, would have constituted FBCSI under section 954(d)(1).

In such situations, the operative clause then plainly and unambiguously authorized Treasury to promulgate regulations to treat the income of the branch as FBCSI of the CFC.

In section 954(d)(2), however, Congress granted Treasury no authority to treat income earned by the CFC outside the branch as FBCSI of the CFC.

The context of section 954(d)(2) also shows that Congress did not intend the subsection to apply to income attributable to the CFC's activities outside the branch. First, section 954(d)(2)'s title — “Certain branch income” — shows that (d)(2) focuses only upon income of the branch. See INS v. Nat'l Ctr. for Immigrants' Rights, Inc., 502 U.S. 183, 189 (1991) (statute's “title . . . can aid in resolving ambiguity”). Second, section 954(d)(2) is effectively an exception to the general rule of section 954(d)(1):

section 954(d)(2) articulates an additional situation in which some or all of the sales income attributable to a branch of a CFC will constitute FBCSI. As such, Congress identified the specific income — income of the branch, and only income of the branch — that should be treated as FBCSI of the CFC under this subsection. As for the specific conditions under which income of a sales branch would be treated as FBCSI of the CFC, Congress delegated the regulatory authority to Treasury. Congress did not, however, give Treasury unfettered authority under section 954(d)(2) to create new categories of FBCSI. As the text, structure, context, and title show, Congress granted Treasury authority only to treat income of the branch as FBCSI of the CFC.

The traditional tools also include legislative history. Sierra Club v. EPA, 793 F.3d 656, 665 (6th Cir. 2015). Although the statutory language in this case is unambiguous and resort to the legislative history is unnecessary, the legislative history is completely consistent with the plain language of the statute and further shows that section 954(d)(2) only applies to the income of the branch: “The Senate amendment . . . treats [FBCSI] of the branch as [FBCSI] of the [CFC].” H.R. Rep. No. 87-2508, at 31 (1962) (emphasis added). Indeed, the legislative history lacks even a single mention of any Congressional intent under section 954(d)(2) to treat income — other than that of the branch — as FBCSI of the CFC.

Finally, the canon of construing tax statutes narrowly against the drafter confirms that subsection (d)(2) is limited to income of the branch. See Arangure, 911 F.3d at 339 (“The Supreme Court has repeatedly applied canons at step one.”). A longstanding canon holds that “[i]f the words [of a tax statute] are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer.” United States v. Merriam, 263 U.S. 179, 188 (1923); Officemax, Inc. v. United States, 428 F.3d 583, 594 (6th Cir. 2005); City of Tucson v. Commissioner, 820 F.2d 1283, 1288 n.31 (D.C. Cir. 1987) (“taxing statutes should be strictly construed and any doubt resolved in favor of the taxpayer.”); cf. Kirkendall v. Dep't of the Army, 479 F.3d 830, 845-46 (Fed. Cir. 2007) (applying canon of resolving “interpretive doubt . . . in the veteran's favor” in a Chevron analysis).

b. The Manufacturing Branch Rule Seeks to Treat Income Attributable to the CFC Outside the Branch as FBCSI of the CFC.

Treasury promulgated regulations establishing two branch rules under section 954(d)(2). In the Sales Branch Rule of Treas. Reg. §1.954-3(b)(1)(i), as authorized by the statute, Treasury established regulations that, under prescribed circumstances, treated the income of the branch as FBCSI of the CFC. Treasury's regulations, however, also created the Manufacturing Branch Rule under Treas. Reg. §1.954-3(b)(1)(ii), which is at issue in this case. Unlike the Sales Branch Rule, Treasury's Manufacturing Branch Rule seeks to treat income attributable to activities outside the branch as FBCSI of the CFC.¹¹

In so doing, Treasury improperly expanded the scope of its mandate under section 954(d)(2), thereby rendering the Manufacturing Branch Rule ultra vires and invalid.

The Manufacturing Branch Rule operates by first defining the activities of the Manufacturing Branch, in this case, WOM's Mexican manufacturing business. The regulation then defines the activities of the “Remainder,” in this case the Luxembourg activities of WOM, which consists solely of a small office and a single, part-time employee performing administrative functions unrelated to manufacturing or sales. The Manufacturing Branch Rule then allocates all income to the Manufacturing Branch, with the exception of the value of “selling activities” performed by the Remainder, which is allocated to the Remainder. The rate of hypothetical tax that would apply to the income of the Manufacturing Branch is then compared to the actual rate of tax paid by the Remainder on its income attributable to “selling activities” to determine whether a “Tax Rate Disparity” exists; that is, whether the actual rate of tax paid by the Remainder is less than 90% of, and at least five percentage points less than, the Manufacturing Branch's hypothetical rate. Treas. Reg. §1.954-3(b)(1)(ii)(b). If a Tax Rate Disparity exists, then income is allocated to the Remainder based on the value of its “selling activities,” and the income of the Remainder is then tested under the regulations to determine if the Remainder's income constitutes FBCSI of the CFC.

In short, the Manufacturing Branch Rule determines the circumstances in which income of the Remainder, not the income of the Manufacturing Branch, constitutes FBCSI of the CFC.

c. An Agency's Authority to Promulgate Regulations Is Limited to the Authority Granted by Congress.

“It is axiomatic that an administrative agency's power to promulgate legislative regulations is limited to the authority delegated by Congress.” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988). “[A]n agency literally has no power to act . . . unless and until Congress confers power upon it.” La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 374 (1986). “Where Congress has established a clear line, the agency cannot go beyond it.” City of Arlington v. FCC, 569 U.S. 290, 307 (2013). “[T]he question a court faces when confronted with an agency's interpretation of a statute it administers is always, simply, whether the agency has stayed within the bounds of its statutory authority,” id. at 297 (emphasis in original), or whether “the agency has gone beyond what Congress has permitted it to do[.]” Id. at 298.

d. The Statute Is Not Ambiguous.

The Tax Court concluded that section 954(d)(2) is “plausibly” ambiguous and therefore proceeded to Chevron Step Two. R. 54 (Op.) at 58-59, Apx. 3278-79. However, the Tax Court answered the wrong question in finding this “plausible” ambiguity. Rather than asking whether section 954(d)(2) authorized Treasury under any circumstances to treat income earned outside the branch as FBCSI of the CFC, the Tax Court instead examined the question of under what circumstances Treasury's section 954(d)(2) regulations could permissibly determine that income of the branch should be treated as FBCSI of the CFC. The Tax Court summarized its reasoning as follows:

In short, when stating that the branch's income shall be deemed derived by a. subsidiary “and shall constitute FBCSI,” Congress may have meant that the branch's income shall be deemed derived by a subsidiary “for purposes of determining FBCSI under subsection (d)(1).” If that were the intended meaning, section 954(d)(2) would plausibly envision regulations dealing with any sort of branch. For that reason it appears to us that the statute is ambiguous.

R. 54 (Op.) at 58, Apx. 3278 (emphases added).

Whirlpool agrees that Congress authorized Treasury to determine the circumstances under which the income of the sales branch could be considered FBCSI of the CFC. However, the issue in this case is whether Congress authorized Treasury, under section 954(d)(2), to treat the income earned outside the branch as FBCSI of the CFC. As the plain language of the statute shows, Congress did not. The statute is not ambiguous.

e. Silence Does Not Expand the Scope of the Statute.

In ruling that the statute “is silent on the question at issue,” R. 54 (Op.) at 58, Apx. 3278, the Tax Court again identified the wrong “question at issue.” The question at bar is whether section 954(d)(2) delegated authority to Treasury to treat income earned outside the branch — that is, the income of the Remainder — as FBCSI of the CFC under the Manufacturing Branch Rule.

As set forth above, the statute was not silent on this issue. The plain language specifically authorizes Treasury only to treat the income of the branch as FBCSI of the CFC. The very title of the subsection, “Certain Branch Income,” speaks to Congress' intent in this section. The legislative history aligns with the intent to grant authority to Treasury only with regard to income of the branch; not a single mention is made of any intent to treat income earned outside the branch as FBCSI of the CFC. The canon construing tax statutes against the government also establishes that Congress granted Treasury no authority to treat income earned outside the branch as FBCSI of the CFC.

There is a distinct difference between statutory silence on how a legislative regulatory grant of authority should be approached by the agency, and silence as to the grant of the legislative authority in the first instance. The distinction is well illustrated here. Specifically, section 954(d)(2) authorized Treasury to determine the circumstances when the income of the branch may be treated as FBCSI of the CFC. The statute does not tell Treasury how to exercise its regulatory authority to treat income of the branch as FBCSI of the CFC. However, the fact that Congress told Treasury it could issue regulations as to the income of the branch, but said nothing about income earned outside the branch, does not give Treasury authority by silence to treat income earned outside the branch as FBCSI of the CFC.

The Tax Court based its validity analysis on the premise that “nothing in the statute . . . prevents the Secretary from prescribing regulations that also address manufacturing branches.” R. 54 (Op.) at 58, Apx. 3278 (emphasis in original). The Tax Court's premise is wrong. Black-letter law holds that “an agency literally has no power to act . . . unless and until Congress confers power upon it.” La. Pub. Serv. Comm'n, 476 U.S. at 374. Silence “does not necessarily connote ambiguity, nor does it automatically mean that a court can proceed to Chevron step two.” Arangure, 911 F.3d at 338 (citing Railway Labor Execs.' Ass'n. v. Nat'l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994)).

In Railway Labor, the agency claimed rulemaking authority because the statute was silent and never expressly withheld that authority. An en banc D.C. Circuit disagreed. “To suggest, as the [Commission] effectively does, that Chevron step two is implicated any time a statute does not expressly negate the existence of a claimed administrative power . . . is both flatly unfaithful to the principles of administrative law . . . and refuted by precedent.” Railway Labor, 29 F.3d at 671 (emphasis in original). “[T]o presume a delegation of power” from the absence of “an express withholding of such power” would give agencies “virtually limitless hegemony.” Id. (emphasis in original). See also Lin-Zheng v. Att'y Gen., 557 F.3d 147, 156 (3d Cir. 2009) (en banc); Contreras-Bocanegra v. Holder, 678 F.3d 811, 818 (10th Cir. 2012) (en banc).

Contrary to the Tax Court's position, “a statutory silence on the granting of a power is a denial of that power to the agency.” Am. Bus Ass'n v. Slater, 231 F.3d 1, 8 (D.C. Cir. 2000) (Sentelle, J., concurring) (emphasis in original). The grant of agency power in section 954(d)(2) is limited to treating the income of the branch as FBCSI of the CFC. Treasury lacked the authority to treat income earned outside the branch (i.e., the Remainder's income) as FBCSI of the CFC.¹²

f. The Manufacturing Branch Rule Exceeds the Statutory Mandate and Is Invalid Under Chevron Step One.

Treasury's promulgation of the Manufacturing Branch Rule in Treas. Reg. §1.954-3(b)(1)(ii) “has gone beyond what Congress permitted it to do.” City of Arlington, 569 U.S. at 298. While section 954(d)(2) authorizes regulations to treat income of the branch as FBCSI of the CFC, the Manufacturing Branch Rule attempts to enlarge the statute to treat income earned outside the branch (i.e., by the Remainder) as FBCSI of the CFC. This Treasury cannot do. Id. at 307; Bowen, 488 U.S. at 208; La. Pub. Serv. Comm'n, 476 U.S. at 374; Chevron, 467 U.S. at 842-43.

2. Even If the Manufacturing Branch Rule Were Valid, the Remainder Engaged in No “Purchasing or Selling Activities” and Thus WOM Could Not Have FBCSI Under the Regulation.

Application of the Manufacturing Branch Rule in this case is completely dependent in two different ways upon the Remainder (the CFC's operations outside of the Manufacturing Branch) engaging in “selling activities.” First, only income derived by the Remainder from “purchasing or selling activities” is used to determine if a Tax Rate Disparity exists. See Treas. Reg. §1.954-3(b)(2)(i)(c). If the Remainder derived no income from “purchasing or selling activities,” then a Tax Rate Disparity cannot exist and the Manufacturing Branch Rule by its own terms cannot apply. Second, if a Tax Rate Disparity exists, only income derived by the Remainder from “purchasing or selling activities” is allocated to the Remainder and is then tested to determine if that income constitutes FBCSI. See Treas. Reg. §§1.954-3(b)(2)(ii)(a), (c), and (e). If the Remainder derived no income from “purchasing or selling activities,” then there is no income to be tested and there can be no FBCSI under the Manufacturing Branch Rule.

In this case, the Remainder did not engage in any “purchasing or selling activities” and thus WOM cannot have FBCSI under the Manufacturing Branch Rule.

a. The Tax Court's Sole Basis for Finding that the Remainder Performed “Selling Activities” Is Wrong: The Remainder Did Not Hold Title and Was Not the Seller of the Products.

Having found that the Remainder's sole employee performed only “modest administrative functions,” R. 54 (Op.) at 7, Apx. 3227, that included no “purchasing or selling activities,” the Tax Court concluded that the Remainder engaged in “selling activities” solely because WOM was the entity that made the legal sale:

The statute defines FBCSI to include income “derived in connection with the * * * sale of personal property to any person on behalf of a related person.” Sec. 954(d)(1). After application of the branch rule, [WOM] unquestionably derived such income: It held legal title to the Products and it sold $800 million worth of Products to petitioner and Whirlpool Mexico during 2009. Making sales is necessarily a “sales activity.”

R. 54 (Op.) at 50, Apx. 3270 (emphases added).

In so ruling, the Tax Court ignored the legal fiction under the Manufacturing Branch Rule that treats the Remainder's “selling activities” as performed “on behalf of” the Manufacturing Branch. See Treas. Reg. §§1.954-3(b)(2)(i)(c) (“selling activities performed by or through the remainder . . . shall be treated as performed on behalf of the branch”) and -3(b)(2)(ii)(c) (identical language). As the Tax Court recognized, the regulations took the “on behalf of” language from the statutory text in section 954(d)(1). Congress added the “on behalf of” language to section 954(d)(1) to cover situations in which a CFC “does not take title to the property but acts on a fee or commission basis.” S. Rep. No. 87-1881, at 84 (1962); see also H.R. 10650, 87th Cong, Sec. 12(a), § 954(d) (Aug. 16, 1962). The regulation's use of the “on behalf of” language treats the Remainder as not holding title, but rather as acting on a “fee or commission basis.” Thus, in the context of Treas. Reg. §§1.954-3(b)(2)(i)(c) and -3(b)(2)(ii)(c), the Remainder is not the holder of legal title and is not the legal seller of the Products. Therefore, the Tax Court's sole basis for finding “selling activities” to justify the allocation of income to the Remainder is non-existent. The Remainder neither engaged in any “selling activities” nor was the holder of title or the legal seller under the regulation.

Moreover, even if the Remainder held bare legal title on behalf of the Manufacturing Branch, the Remainder would still not be considered the seller of the Products because an agent who holds title on behalf of its principal acts as a mere nominee. See Snyder v. Commissioner, 66 T.C. 785, 789 (1976); Carver v. United States, 412 F.2d 233, 240 (Ct. C1. 1969) (entity that acted as a nominee in purchase of land was not treated as owner of the land). Under Treas. Reg. §§1.954-3(b)(2)(i)(c) and -3(b)(2)(ii)(c), the Manufacturing Branch — the principal — sold the property. See Eckstein v. United States, 452 F.2d 1036, 1049 (Ct. C1. 1971); Dome Co. v. Commissioner, 26 B.T.A. 967, 969-70 (1932) (stock was issued in the nominee's name but the undisclosed principal actually bought and owned the stock).

Finally, the “sale” under U.S. principles occurred when title transferred at the end of the manufacturing lines in Mexico. Commissioner v. Baertschi, 412 F.2d 494, 498 (6th Cir. 1969); see also Sale, Black's Law Dictionary (10th ed. 2014); U.C.C. §§2-106(1) and 2-401(2). Thus, even if the regulation's “on behalf of” requirement is ignored, the sale occurred in Mexico as part of the Manufacturing Branch's activities, not in Luxembourg as part of the Remainder's activities.¹³

The Tax Court's view that the Remainder held title and made the legal sale is simply not accurate under the terms of the regulation itself. The Remainder, therefore, did not engage in any “selling activities” and thus no income can be attributable to the selling activities of the Remainder. Consequently, there can be neither a Tax Rate Disparity under Treas. Reg. §1.954-3(b)(1)(ii)(b) nor any income allocable to the Remainder under Treas. Reg. §1.954-3(b)(2)(ii) that could constitute FBCSI.

b. “Selling Activities” Require Active Steps or Efforts to Sell Products.

“Selling activities” require active steps or efforts and differ fundamentally from passively holding title and being the nominal seller. “Activity” is defined as “[b]ehavior or actions of a particular kind; a pursuit in which a person is active.” Activity, Merriam-Webster Dictionary (2020). “Selling activities” thus require active efforts or steps to sell. Farley v. Commissioner¸ 7 T.C. 198, 202 (1946); see also BNA Portfolio 6240-1st: CFCs — Foreign Base Company Income (Other than FPHCI), Chapter VII. H, (2019) at (1)(c)(3)(b) (Activities such as “soliciting orders, negotiating terms, and entering into contracts” are selling activities for branch rule purposes).

Other Subpart F regulatory provisions also confirm that “selling activities” require active conduct to achieve sales. The regulations under section 953, issued in 1964 just seven months after the section 954 regulations were promulgated, treat certain types of insurance income as Subpart F income. Treas. Reg. §1.953-2, like the Manufacturing Branch Rule in Treas. Reg. §1.954-3(b), used the term “selling activity.” Treas. Reg. §1.953-2(c)(3)(iv) provided that “a person will be considered to be engaged in selling activity if such person engages in an activity resulting in the sale of property.” Treasury's nearly simultaneous definition in two subpart F regulations of selling activities as active conduct leading to a sale is telling. In 1991, Treasury proposed new regulations under section 953, which again defined “selling activity” in similar terms. Prop. Reg. §1.953-2(f)(3)(v) (1991) provided in relevant part:

A person is engaged in selling activity if the person engages in any activity which is intended to result in the sale of property. . . . Selling activity takes place where the activities preparatory to the sale, such as advertising, negotiating, and distributing, take place.

While Treasury did not finalize the proposed regulations and the 1964 section 953 regulations are still in effect, the proposed regulations show that Treasury used “selling activity” to reflect its common usage, e.g., activities intended to result in a sale. The proposed regulation illustrates this common-sense usage by pointing to commonly understood selling activities “such as advertising, negotiating, and distributing.” Notably, the proposed regulations show that Treasury believed “selling activities” to be “activities preparatory to the sale[,]” not the sale itself.

Indeed, the active nature of “activity” distinguishes “selling activity” from “sale,” which, “in the ordinary sense of the word, is a transfer of property for a fixed price in money or its equivalent.” Commissioner v. Brown, 380 U.S. 563, 571 (1965); see also Nahey v. Commissioner, 111 T.C. 256, 262 (1998). Accordingly, even “frequent and continuous” sales do not equate with nor necessarily evidence “selling activities.” Farley v. Commissioner, 7 T.C. 198, 202 (1946).

The context of the regulation confirms the active nature of “selling activities.” Specifically, Treas. Reg. §§1.954-3(b)(2)(i)(c) and -3(b)(2)(ii)(c) use the selling activities to allocate income objectively between the Manufacturing Branch and the Remainder. In his treatise International Taxation, Professor Isenbergh¹⁴ explains how the value of the “selling activities” is used to allocate income between the manufacturer and the selling entity:

The scope of “on behalf of” [FBCSI] is more limited than first appears. It does not include gain attributable to the production operations of an affiliate. Thus, when “on behalf of” [FBCSI] arises from the sale by a CFC of goods produced by a subsidiary . . ., the “on behalf of” gain is not the entire gain measured by the difference between the goods' basis and sales price . . ., but is limited to the gain properly attributable to the sale of the goods by the CFC. The CFC's [FBCSI] should be computed as though the goods had been sold at an arm's length wholesale price to the CFC by the entity that produced them and resold by the CFC “on behalf of” the producer. When there is no readily determinable arm's length price (because the property is unique, made to order, etc.), then the amount of “on behalf of” [FBCSI] depends on the respective importance of the production operations and the CFC's selling activity in generating the gain. This approach is necessary to prevent [FBCSI] from swallowing up gains properly attributable to production and manufacturing, which are outside the reach of Subpart F.

J. Isenbergh, International Taxation, Chapter 74, Controlled Foreign Corporations at ¶74.29 (4th ed. 2006) (footnote omitted) (emphases added). “[S]elling activities” of the Remainder are identified so they can be priced by reference to market transactions, allowing allocation of the income based on the value of the selling activities performed by the Remainder. “The obvious approaches are analysis of the extent of the selling activity of the remainder CFC and, where available, comparable arm's length transactions.” Id. at ¶74.31.

c. In Ignoring the Remainder's Lack of Selling Activities, the Tax Court Improperly Allocated Manufacturing Income to the Remainder.

In this case, WOM acted as a subcontractor to Whirlpool (Whirlpool US and Whirlpool Mexico) and used Whirlpool's intellectual property to produce the Products to Whirlpool's specifications. In short, the Products were made to order. Under the Manufacturing Supply Agreements, WOM received a price intended “to achieve an arms' length Manufacturing Margin.” R. 33 (Pet'r Br.), Apx. 558, 574, 585, 597. WOM received cost plus 6% for the production of the Products. Under the Manufacturing Supply Agreements, WOM had no right to sell the Products incorporating Whirlpool's intellectual property to any entity other than Whirlpool US and Whirlpool Mexico. R. 33 (Pet'r Br.), Apx. 557, 573, 583-84, 596.

As Professor Isenbergh observes, when goods are made to order, the allocation of income between the Manufacturing Branch and the Remainder depends on the relative importance of the manufacturing activities and the selling activities. Because WOM made the Products to order and could sell only to Whirlpool, no selling activity was required and all of WOM's income related to the manufacture of the Products. Professor Isenbergh explains:

If a CFC were to sell a substantial, but single, item of property made on special order by a manufacturing subsidiary in a transaction in which the marketing effort were minimal . . . the amount of “on behalf of” [FBCSI] attributable to the CFC might be negligible.

International Taxation, at ¶74.29 (emphases added).

Rather than allocating income between the Manufacturing Branch and the Remainder based on the objective value of the Remainder's selling activities, the Tax Court made an ad hoc determination based upon its view that the manufacturing income intentionally not taxed by Mexico should be subject to U.S. tax.¹⁵ The Tax Court assigned over 90% of the profit to the Remainder even though the Remainder performed no selling activities (or any other activities of significance). As Professor Isenbergh predicted, allocation of income based on the Remainder's selling activities “is necessary to prevent [FBCSI] from swallowing up gains properly attributable to production and manufacturing, which are outside the reach of Subpart F.” Id. As foretold, the Tax Court's failure to allocate income to the Remainder on the basis of “selling activities” has indeed swallowed up the gains attributable to WOM's manufacturing operations.¹⁶

d. The Tax Court Erred in Denying Whirlpool's Summary Judgment Motion Under Section 954(d)(2).

As a matter of law, the Remainder cannot have FBCSI under the Manufacturing Branch Rule because it engaged in no “selling activities.” The Tax Court erred in failing to grant Whirlpool's motion for partial summary judgment under section 954(d)(2).

C. The Tax Court Erred in Granting the Commissioner's Section 954(d)(2) Cross-Motion for Summary Judgment Because, Under the Tax Court Ruling, Material Questions of Fact Existed As to the Amount of Sales Income Allocable to the Remainder.

The Tax Court erred in granting the Commissioner's section 954(d)(2) cross-motion for summary judgment for the reasons articulated above supporting Whirlpool's partial summary judgment motion, and also because the existence of material questions of fact regarding the amount of sales income properly allocable to the Remainder precluded summary judgment.

1. As the Non-Moving Party, Whirlpool Was Entitled to Have All Reasonable Factual Inferences Drawn In Its Favor.

In evaluating the parties' evidence on summary judgment, the court must draw all inferences “in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). Where both parties have moved for summary judgment, “the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.” Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991) (quoting Mingus Constructors v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)). In other words, each motion must be considered on its own merits. See Shook v. United States, 713 F.2d 662, 665 (11th Cir. 1983). Thus, in considering Respondent's cross-motion for summary judgment, the Tax Court was required to resolve all disputed questions of material fact in Whirlpool's favor. The Tax Court did not.

2. Whirlpool Presented Substantial Evidence to Establish that the Income at Issue Constituted Manufacturing Income of the Branch and Not Sales Income of the Remainder.

The Tax Court found that the Remainder's sole part-time employee performed only “modest administrative functions,” R. 54 (Op.) at 7, Apx. 3227, none of which constituted “selling activities.” The sole basis for the Tax Court's allocation is its ruling that the Remainder held title to and was the legal seller of the Products, and that “[m]aking sales is necessarily” a selling activity under the regulations. R. 54 (Op.) at 50, Apx. 3270. But even under this syllogism, there still are material, disputed questions of fact regarding the relative amounts of income attributable to (a) the Manufacturing Branch for manufacturing activities in Mexico involving thousands of manufacturing personnel and three-quarters-of-a-billion dollars of cost, and (b) the Remainder based on “selling activities” consisting solely of a passive sale involving bare legal title held “on behalf of” the Manufacturing Branch.

As discussed supra at 44-46, the income allocable to the Remainder must not include income attributable to the manufacture of the goods, and the amount of “on behalf of income” attributable to the Remainder is “negligible” when, as here, goods are made to specification. Isenbergh, International Taxation at ¶74.29. Further, absent evidence of market prices for the “selling activities,” the amount of “on behalf of” sales income attributable to the Remainder is a function of the relative importance of the manufacturing activities and the “selling activities” to the sale of the goods. Id.

In Mexico, the Manufacturing Branch produced the Products to specification under the Manufacturing Supply Agreements with Whirlpool using Whirlpool's intellectual property. In 2009, the Manufacturing Branch's 3,300 manufacturing personnel, working in over 1.3 million square feet of manufacturing space, using more than $146 million of manufacturing equipment and tooling, produced 1,000,000 refrigerators and 500,000 washers with an aggregate sale price of over $800 million and total manufacturing costs of over $750 million. The prices charged under the Manufacturing Supply Agreements were set at an amount (manufacturing cost plus 6%) intended to allow the Manufacturing Branch “to achieve an arms' length Manufacturing Margin[.]” R. 33 (Pet'r Br.), Apx. 558, 574, 585, 597. Under the Manufacturing Supply Agreements, the Manufacturing Branch was required to sell the Products only to Whirlpool US or Whirlpool Mexico.

In contrast, the Remainder's single, part-time employee performed “modest administrative functions” unrelated to manufacturing or selling activities. The only “selling activity” identified by the Tax Court was the Remainder's passive sale of the Products “on behalf of” the Manufacturing Branch. Even if that sale is regarded as a “selling activity,” such a passive “activity” cannot be accountable for 90% of the income generated by WOM's manufacture of the Products in Mexico.

WOM also presented evidence showing that the Government of Luxembourg considered these facts in determining the exact same question as that posed under section 954(d)(2) in this case: how much of WOM's income was attributable to WOM's Mexican business operations (that is, attributable to WOM's permanent establishment in Mexico) and how much of the income was attributable to WOM's operations in Luxembourg. The Government of Luxembourg had a direct financial interest in finding the income to be attributable to WOM's Luxembourg operations because Luxembourg could then tax that income, while under the Luxembourg-Mexico Tax Treaty it could not tax income attributable to WOM's Mexican business operations (i.e., WOM's permanent establishment). Against its financial interests, the Government of Luxembourg concluded that the entirety of WOM's income, but for a 12% markup on the relatively minor costs of the WOM Luxembourg operations, constituted profits attributable to WOM's Mexican business operations. R. 33 (Pet'r Br.), Apx. 678. WOM filed its tax returns in Luxembourg and in the United States in accordance with the ruling by the Government of Luxembourg.

These facts and the economic and legal determination by the Government of Luxembourg show that the income at issue constituted manufacturing income attributable to the Manufacturing Branch and not the Remainder. Moreover, in the context of the Commissioner's cross-motion for summary judgment, the Tax Court should have drawn all reasonable factual inferences in favor of Whirlpool. Whirlpool's evidence, particularly when viewed in the light most favorable to Whirlpool as the non-moving party under the Commissioner's cross-motion for summary judgment, raises material questions of fact as to the amount of income attributable to the Remainder. These material questions of fact preclude summary judgment in the Commissioner's favor. See Matsushita Elec. Indus., 475 U.S. at 587; Taft, 929 F.2d at 248. Accordingly, the Tax Court erred in granting the Commissioner's section 954(d)(2) cross-motion for summary judgment against Whirlpool.

CONCLUSION

For the reasons stated above, this Court should reverse the decisions below and grant summary judgment in favor of Whirlpool under both section 954(d)(1) and section 954(d)(2).

Dated: November 17, 2020

Respectfully submitted,

Mark A. Oates
Baker & McKenzie LLP
300 E. Randolph Street
Suite 5000
Chicago, IL 60601
(312) 861-7594
Mark.Oates@BakerMcKenzie.com
Attorney for Appellants