Energy Company Seeks Fuel Mixture Tax Credit Decision Reversal

DELEK US HOLDINGS, INC.,
Plaintiff-Appellant
v.
UNITED STATES OF AMERICA,
Defendant-Appellee

In The United States Court of Appeals
For the Sixth Circuit

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
OF THE MIDDLE DISTRICT OF TENNESSEE
CIVIL ACTION NO. 3:19-CV-00332
JUDGE WILLIAM L. CAMPBELL, JR.

BRIEF OF APPELLANT DELEK US HOLDINGS, INC.

NORTON ROSE FULBRIGHT US LLP
Robert J. Kovacev
rob.kovacev@nortonrosefulbright.com
799 Ninth Street, N.W.
Washington, D.C. 20001-4501
Telephone: (202) 662-0200
Facsimile: (202) 662-4643

Robert C. Morris
robert.morris@nortonrosefulbright.com
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Facsimile: (713) 651-5246

Counsel for Plaintiff-Appellant

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Table of Contents

Disclosure of Corporate Affiliations and Financial Interest

Table of Contents

Table of Authorities

Statement in Support of Oral Argument

Statement of Jurisdiction

Statement of Issue

Statement of the Case

Summary of Argument

Argument

Conclusion

Certificate of Compliance

Certificate of Service

Addendum

Table of Authorities

Cases

Anderson Oldsmobile, Inc. v. Hofferbert, 102 F. Supp. 902 (D. Md. 1952)

Bay Shore Power Co. v. Oxbow Energy Sols., LLC, 969 F.3d 660 (6th Cir. 2020)

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

Centex Corp. v. United States, 395 F.3d 1283 (Fed. Cir. 2005)

Comm'r v. Glenshaw Glass Co., 348 U.S. 426 (1955)

Comm'r v. Weisman, 197 F.2d 221 (1st Cir. 1952)

Consol. Edison Co. of New York, Inc. v. United States, 10 F.3d 68 (2d Cir. 1993)

Day v. Heckler, 735 F.2d 779 (4th Cir. 1984)

Dine Citizens Against Ruining Our Env't v. Jewell, 2015 WL 4997207 (D.N.M. Aug. 14, 2015)

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

Esgar Corp. v. Comm'r, 744 F.3d 648 (10th Cir. 2014)

Exxon Mobil Corp. v. United States, 2018 WL 4178776 (N.D. Tex. Aug. 8, 2018)

Flood v. United States, 33 F.3d 1174 (9th Cir. 1994)

Ginsburg v. United States, 136 Fed. Cl. 1 (2018)

Gitlitz v. Comm'r, 531 U.S. 206 (2001)

Gross v. FBL Financial Services, Inc., 557 U.S. 167 (2009)

Hardin v. Reliance Tr. Co., 2006 WL 2850457 (N.D. Ohio Sept. 29, 2006)

In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710 (6th Cir. 2019)

Juliana v. United States, 2018 WL 9802138 (D. Or. Oct. 15, 2018)

Keen v. Helson, 930 F.3d 799 (6th Cir. 2019)

Maines v. Comm'r, 144 T.C. 123 (2015)

Melson v. Prime Ins. Syndicate, Inc., 429 F.3d 633 (6th Cir. 2005)

Meredith Corp. v. United States, 447 F. Supp. 3d 805 (S.D. Iowa 2020)

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

Old Colony Tr. Co. v. Comm'r, 279 U.S. 716 (1929)

Oshkosh Truck Corp. v. United States, 123 F.3d 1477 (Fed. Cir. 1997)

Porter v. Comm'r, 288 U.S. 436 (1933)

Randall v. Loftsgaarden, 478 U.S. 647 (1986)

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

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

Sunoco, Inc. v. United States, 908 F.3d 710 (Fed. Cir. 2018)

Sunoco, Inc. v. United States, 128 Fed. Cl. 345 (2016)

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

Tax Analysts & Advocates v. Blumenthal, 566 F.2d 130 (D.C. Cir. 1977)

Tempel v. Comm'r, 136 T.C. 341, 351 (2011)

United Sav. Assoc. of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988)

United States v. Fior D'Italia, Inc., 536 U.S. 238 (2002)

United States v. Kaiser, 363 U.S. 299 (1960)

United States v. Piedmont Mfg. Co., 89 F.2d 296 (4th Cir. 1937)

United States v. Veloz-Alonso, 910 F.3d 266 (6th Cir. 2018)

Weingarden v. Comm'r, 825 F.2d 1027 (6th Cir. 1987)

Westcott v. Comm'r, 92 T.C.M. (CCH) 426 (2006)

Statutes

2 U.S.C. § 166

26 U.S.C. § 31

26 U.S.C. § 40

26 U.S.C. § 40A

26 U.S.C. § 41

26 U.S.C. § 45B

26 U.S.C. § 45H

26 U.S.C. § 61

26 U.S.C. § 87

26 U.S.C. § 164

26 U.S.C. § 280C

26 U.S.C. § 4051

26 U.S.C. § 4071

26 U.S.C. § 4081

26 U.S.C. § 5011

26 U.S.C. § 5041

26 U.S.C. § 6110

26 U.S.C. § 6426

26 U.S.C. § 6427

26 U.S.C. § 7422

26 U.S.C. § 9503

26 U.S.C. § 9601

26 U.S.C. § 9602

28 U.S.C. § 1291

28 U.S.C. § 1294

28 U.S.C. § 1346

Former 26 U.S.C. § 44E

Former 26 U.S.C. § 46

Former 26 U.S.C. § 48

Former 26 U.S.C. § 86

Former 26 U.S.C. § 280D

Former 26 U.S.C. § 4986

Ky. Rev. Stat. § 141.350

Mich. Comp. Laws § 206.251

Ohio Code § 5747.08(H)

Regulations

Treas. Reg. § 1.61-3

Treas. Reg. § 40.6011(a)-1

Treas. Reg. § 40.6302(c)-1

Treas. Reg. § 48.4081-3

Public Laws and Legislative History

108 Cong. Rec. E1841 (Sept. 17, 2003)

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

150 Cong. Rec. S10929 (Oct. 9, 2004)

“Alcohol Fuels Tax Incentives,” Congressional Research Service Report RL32979 (July 6, 2005)

American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat. 1418 (2004)

Crude Oil Windfall Profit Tax Act of 1980, Pub. L. No. 96-223, 94 Stat. 229 (1980)

Energy Policy Act of 1992, Pub. L. No. 102-486 106 Stat. 2776 (1992)

Energy Tax Act of 1978, Pub. L. No. 95-618, 92 Stat. 3174 (1978)

H.R. Conf. Rep. 108-755, as reprinted in 2004 U.S.C.C.A.N. 1341

H.R. Rep. No. 92-533 (1971), as reprinted in 1971 U.S.C.C.A.N. 1825

H.R. Rep. No. 100-1104 (1988) (Conf. Rep), as reprinted in 1988 U.S.C.C.A.N. 5048

H.R. Rep. No. 108-548, 2004 WL 1380512 (2004)

H.R. Rep. No. 109-203 (2005) (Conf. Rep.), as reprinted in 2005 U.S.C.C.A.N. 452

Highway Revenue Act of 1982, Pub. L. No. 97-424, 96 Stat. 2097 (1982)

Revenue Act of 1962, Pub. L. No. 87-834, § 2, 76 Stat. 967 (1962)

Revenue Act of 1964, Pub. L. No. 88-272, § 203, 78 Stat. 19 (1964)

Revenue Act of 1971, Pub. L. No. 92-178, § 101, 85 Stat. 497 (1971)

S. Rep. No. 87-1881 (1962), as reprinted in 1962 U.S.C.C.A.N. 3297

S. Rep. No. 92-437 (1971), as reprinted in 1971 U.S.C.C.A.N. 1918

Surface and Air Transportation Programs Extension Act of 2011, Pub. L. 112-30, 125 Stat. 342 (2011)

Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324 (1982)

Tax Reform Act of 1969, Pub. L. No. 91-172, 83 Stat. 487 (1969)

Volumetric Ethanol Excise Tax Credit (“VEETC”) Act of 2003, S. 1548, 108th Cong. (2003)

Other Authorities

Black's Law Dictionary (8th ed. 2004)

Comptroller General, General Accounting Office No. PAD-78-40, Investment Tax Credit: Unresolved Issues 2 (1978), https://www.gao.gov/assets/130/122690.pdf

I.R.S. Chief Counsel Adv. 201342010 (Oct. 18, 2013)

I.R.S. Notice 2015-56, 2015 WL 4779497 (Aug. 31, 2015)

Merriam-Webster's Collegiate Dictionary (11th ed. 2003)

Priv. Ltr. Rul. 201022012 (Feb. 25, 2010)

Tech. Adv. Mem. 200215004 (Dec. 20, 2001)

U.S. Const. amend. XVI

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Statement in Support of Oral Argument

This appeal presents an important issue of tax law and statutory interpretation: when a statute creating a federal tax incentive for renewable fuels is silent as to the income tax effect of that incentive, may a taxpayer exclude the incentive from its taxable income when it is earned as a credit against excise taxes? This issue has direct implications for the entire renewable fuels industry. It also concerns the income tax treatment of federal tax credits generally, which may affect millions of taxpayers nationwide. Oral argument would significantly aid the Court's decisional process in dealing with the complex statutory context of this appeal, which is a case of first impression in this Circuit. Delek therefore respectfully requests oral argument under Fed. R. App. P. 34(a) and 6 Cir. R. 34(a).

Statement of Jurisdiction

Plaintiff-Appellant Delek US Holdings, Inc. (“Delek”) filed the underlying federal income tax refund suit to recover $16,595,135.00 in income taxes, plus interest, after the Internal Revenue Service (“IRS”) disallowed Delek's claim for the full value of an incentive promised by Congress for mixing renewable fuels. (Stipulation, RE 35, PageID # 150.) The Middle District of Tennessee had jurisdiction under 28 U.S.C. § 1346(a)(1) and § 7422.¹

Following cross-motions for summary judgment, the district court ruled that the IRS could reduce the value of the incentive. (Memorandum, RE 66, PageID # 1810-1822; Order, RE 67, PageID # 1823.) Delek filed a timely notice of appeal on March 16, 2021. (Notice of Appeal, RE 68, PageID # 1824-1826.) This Court has jurisdiction under 28 U.S.C. § 1291 and venue is proper under 28 U.S.C. § 1294(1).

Statement of Issue

The Internal Revenue Code provides an incentive for mixing renewable fuels in the form of either a (1) credit against the mixer's federal excise tax liability, or (2) cash payment to the mixer (“Incentive”). The Code is silent as to the income tax effect of the Incentive. It is undisputed that a mixer excludes the Incentive from its taxable income when earned as a cash payment, allowing the mixer to receive the full economic value of the Incentive. When the Incentive is earned as a credit, may a mixer also exclude the Incentive from its taxable income by including its full excise tax liability in its cost of goods sold, which includes the amount of the Incentive earned and used to satisfy that liability?

Statement of the Case

A. Fuel Excise Taxes and the Incentive

§ 4081(a) imposes federal excise taxes on mixers of 18.3 cents per gallon on the “removal of a taxable fuel from a refinery . . . or terminal,” the “entry into the United States of any taxable fuel for consumption, use, or warehousing,” and the “sale of taxable fuel” to certain purchasers (“Fuel Excise Tax” or “Fuel Excise Taxes”). Fuel Excise Taxes are remitted to the Highway Trust Fund, a statutorily-established trust fund (separate from the Treasury's general fund) that pays for constructing and maintaining the nation's highways and other critical infrastructure. § 9503(b); see generally §§ 9503, 9601-02.

Since 1978, Congress has used the excise tax system to encourage mixing renewable fuels. Initially, Congress provided an exemption from federal excise taxes for mixing renewable fuels. See Energy Tax Act of 1978, Pub. L. No. 95-618, § 221, 92 Stat. 3174 (1978). In 1982, Congress replaced the exemption with a structure that taxed renewable fuels at lower rates than the rates imposed on non-renewable fuels. See Highway Revenue Act of 1982, Pub. L. No. 97-424, 96 Stat. 2097 (1982). This reduced-rate structure applied, with modest updates and revisions, for approximately two decades.

By 2004, the reduced-rate structure resulted in a shortfall in revenues to the Highway Trust Fund due to the increasing use of renewable fuels in the United States. See 108 Cong. Rec. E1841 (Sept. 17, 2003) (statement of Rep. Oberstar) (“At a time when we should be investing more funds in the improvement of Nation's highways — funds that will improve safety and reduce congestion — we can not afford Highway Trust Fund revenues to be adversely effected by the current system of varying excise tax rates.”); see also H.R. Rep. No. 108-548, at 141, 2004 WL 1380512 (2004). Congress acted in the American Jobs Creation Act of 2004 (“Jobs Act”) to counter this shortfall, while continuing to incentivize the mixing of renewable fuels. See Pub. L. No. 108-357, §§ 301-302, 118 Stat. 1418, 1459-66 (2004).

The Jobs Act eliminated the reduced rate structure and imposed an across-the-board excise tax rate of 18.3 cents per gallon on the sale or removal of all taxable fuels (whether renewable or not). H.R. Conf. Rep. 108-755, at 306, as reprinted in 2004 U.S.C.C.A.N. 1341, 1383. Thus, a taxpayer who sells or removes a gallon of taxable fuel owes 18.3 cents of Fuel Excise Tax regardless of whether the taxable fuel contains alcohol or biodiesel mixtures.

At the same time, to encourage the production of alternative fuels, the Jobs Act created the Incentive in the form of a federal tax credit of 45 cents per gallon of alcohol, or $1.00 per gallon of biodiesel used to produce renewable taxable fuel that is sold or removed. §§ 6426(b) & (c) and 6427(e).² Relevant here, the Incentive could be earned as either a credit against Fuel Excise Taxes (“first method”), see § 6426(b) & (c), or cash payment (“second method”), see § 6427(e). The statutory regime is as follows:

First, the mixer calculates its Fuel Excise Taxes based on the overall gallons of taxable fuel sold or removed. This amount is reported on IRS Form 720, Quarterly Excise Tax Return. (Form 720, RE 35-1, PageID # 196.)

Second, the mixer calculates its tax-free Incentive based on the overall number of gallons of alcohol or biodiesel fuel used to create mixtures. See § 6426(b)(1) and (c)(1). The amount of Fuel Excise Taxes owed by the mixer is irrelevant to this calculation. Id.

Third, the mixer may use its earned Incentive to satisfy its Fuel Excise Taxes in the form of a credit against that liability. See §§ 6426(a) and 6427(e)(3), i.e. the first method. The amount of the credit is claimed on a separate line on IRS Form 720 that is subtracted from the “total tax.” If the earned Incentive is not enough to satisfy the mixer's entire liability, the mixer pays any remaining balance by cash via semi-monthly deposits or payment with its quarterly Federal Excise Tax returns.³

Fourth, the Treasury general fund pays the amount of the mixer's Fuel Excise Taxes that were satisfied by the Incentive into the Highway Trust Fund. § 9503(b)(1) provides that “the taxes received in the Treasury . . . under section 4081 . . . shall be determined without reduction for credits under section 6426,” i.e. the Incentive. (emphasis added). Therefore, earning the Incentive does not decrease the amount of Fuel Excise Taxes incurred by those mixers.

Fifth, any amount of Incentive not used to satisfy the mixer's Fuel Excise Taxes is paid in cash to the mixer tax-free. See § 6427(e)(1), i.e. the second method.

By way of example, assume a mixer mixes 50 gallons of biodiesel with 50 gallons of another fuel to make 100 gallons of a biodiesel mixture which it subsequently sells as taxable fuel under § 4081(a). When the mixer sells that 100 gallons, it incurs $18.30 in Fuel Excise Tax, which it reports on its Form 720 tax return at the end of each quarter. Because it used 50 gallons of biodiesel to create that mixture, the mixer is entitled to an Incentive in the amount of $50.00. Of that amount, the mixer may claim $18.30 as a credit against the mixer's $18.30 Fuel Excise Tax under the first method, and the Treasury pays that $18.30 out of the general fund into the Highway Trust Fund. The remaining $31.70 in Incentive is paid to the mixer in the form of a tax-free cash payment under the second method.

B. Delek's Fuel Excise Tax Liability

The facts are stipulated. (Stipulation, RE 35, PageID # 145-152.). Delek is a publicly-held downstream energy company engaged in the petroleum refining, logistics, convenience store retailing, and renewables business. (Id. PageID # 145.) Delek, through its subsidiaries, sold or removed alcohol and biodiesel mixtures from refineries or terminals in 2010 and 2011. Most of these sales were direct sales from refineries or terminals to customers. (Id.)

Delek's sales of alcohol and biodiesel mixtures were subject to the 18.3 cent per gallon Fuel Excise Tax. Delek's Fuel Excise Taxes were $178,425,697 and $305,463,110 for 2010 and 2011, respectively. Delek reported its sales and corresponding liability on its quarterly excise tax returns for 2010 and 2011. (Id. PageID # 147-48.)

It is stipulated that many of Delek's sales qualified for the Incentive. Delek claimed most of the Incentive for the qualifying sales ($23,089,295 and $41,713,065 in 2010 and 2011, respectively) as credits against its Fuel Excise Taxes under the first method, satisfying Delek's Fuel Excise Tax liability for those years. It claimed the remainder of the Incentive ($4,304,084 and $1,866,583 for 2010 and 2011, respectively) as cash payments under the second method. (Id. PageID # 148.)

Because the Treasury is required to remit the entire amount of Fuel Excise Taxes for sales of alcohol and biodiesel mixtures to the Highway Trust Fund, without any reduction for any Incentives earned, Delek's entire Fuel Excise Tax liability of $178,425,697 and $305,463,110, respectively, was remitted to the Highway Trust Fund.

C. Cost of Goods Sold

Incurring Fuel Excise Taxes has income tax consequences for a mixer, because those taxes are included as part of the calculation of the mixer's gross income. The Sixteenth Amendment granted Congress the power to impose taxes on income. U.S. Const. amend. XVI. An income tax (as opposed to a gross receipts tax, which is not authorized by the Sixteenth Amendment) must by definition allow a business to offset from its gross revenues certain expenses incurred in producing those revenues in order to compute the amount of gross income subject to tax. Doyle v. Mitchell Bros. Co., 247 U.S. 179, 184-86 (1918); Treas. Reg. § 1.61-3(a). That offset is called “cost of goods sold.” See Comm'r v. Weisman, 197 F.2d 221, 224 (1st Cir. 1952) (“The return of capital is guaranteed by the 'cost of goods' offset against gross receipts and thus is avoided the charge that it is a tax on capital and not on income.”) Therefore, when a mixer sells taxable fuel, it must include the Fuel Excise Taxes incurred as a result of those sales in its cost of goods sold, thereby offsetting its gross income for federal income tax purposes.⁴ Mohawk Liqueur Corp. v. United States, 324 F.2d 241, 244 (6th Cir. 1963).

D. Delek's Income Tax Returns and Refund Claim

On its original 2010 and 2011 federal income tax returns, Delek incorrectly subtracted from its cost of goods sold the amount of the Incentive earned under the first and second methods. (Stipulation, RE 35, PageID # 149.) Delek thereafter filed a refund claim with the IRS to correct its tax returns and recover the income taxes it erroneously paid with respect to the Incentives earned under both methods. (Id. PageID # 149-50.)⁵

The IRS determined after examining the claim that when Delek “reduced its allowable excise tax expense which was included in Cost of Sales” on its original returns, it “effectively reported [the Incentive] in income.” (IRS Memorandum, RE 52-3, PageID # 1306.) Consistent with this determination, the IRS granted Delek's refund claim with respect to the Incentives earned under the second method. However, the IRS reached a different — and conflicting — determination with respect to the Incentives earned under the first method. (Id. PageID # 150.)

E. Proceedings in District Court

On April 23, 2019, Delek timely filed a tax refund suit in the Middle District of Tennessee to recover the denied portion of its refund claim. Both parties filed motions for summary judgment. (Pl. Motion for Summary Judgment, RE 51 & 52, PageID # 1247-1492; Def. Motion for Summary Judgment, RE 50, PageID # 1213-1246.) Without holding oral argument, the district court granted the IRS's motion and denied Delek's motion on January 23, 2021. (Memorandum, RE 66, PageID # 1810-1822.)

The district court adopted the Federal Circuit's reasoning in Sunoco, Inc. v. United States, 908 F.3d 710 (Fed. Cir. 2018), cert. denied, 140 S. Ct. 46 (2019), which determined that the statute unambiguously provides that a mixer should reduce its cost of goods sold by the amount of the Incentive earned under the first method. (Id. PageID #1817-19.)⁶ Purporting to construe § 6426 consistent with its plain meaning, the district court determined that “credit,” undefined in the statute, means a reduction in underlying tax liability instead of a “payment” of that liability. (Id. PageID #1818.) It also held that the provision in the appropriations provision of the statute defining “taxes received” to include taxes paid by Incentives as well as actual cash payments by taxpayers would be unnecessary if the Incentive were a payment of Fuel Excise Taxes. (Id. PageID #1819.) While the district court agreed with Delek that the Incentive earned under the second method was not taxable, it described the resulting inconsistency of tax treatment between the two methods as an “anomaly” that it need not resolve. (Memorandum, RE 66, Page ID # 1813 n.3.)

Summary of Argument

The sole issue presented on this appeal is whether the IRS must pay Delek the full value of the Incentive promised by Congress for mixing renewable fuels. It must.

Congress enacted the Incentive as a federal tax credit as part of the Jobs Act to incentivize mixing renewable fuels. A mixer earns the Incentive either as a (1) credit against the federal excise tax liability of the mixer, i.e. the first method, or (2) cash payment to the mixer, i.e. the second method. The parties agree that Delek's mixing activities underlying this dispute qualify for the Incentive. Where the parties disagree — and what is the outcome determinative issue — is whether the IRS can tax the Incentive differently, based solely on the method used by the mixer to earn the Incentive.

First, the plain meaning of the statute is unambiguous when read in the context of the entire statute. The Incentive should not be taxed under either method. The district court erred by adopting Sunoco's wrong-headed conclusion that “credit” in § 6426(a)(1), (b)(1) & (c)(1) means a reduction in the underlying total tax liability, akin to an exemption or forgiveness of tax, and could never mean a payment or other satisfaction of tax liability. This interpretation is unsupportable under the plain language of the statute, especially when considered in the context of the statutory scheme creating the Incentive. That statutory scheme unambiguously makes clear Congress intended the Incentive be used to satisfy a mixer's Fuel Excise Taxes, with the amount of the Incentive earned paid into the Highway Trust Fund as if the mixer paid cash.

Second, under the fundamental tax law principle herein referred to as the “default exclusion rule,” when Congress determines that a particular credit should be taxed either as income or by reducing an otherwise-allowable deduction, Congress does so expressly in the statutory text. Because §§ 6426 and 6427 are silent on the income tax treatment of the Incentive, the default exclusion rule applies and the Incentive is not taxed under either method.

Third, even if these statutes were ambiguous and the default exclusion rule did not apply, the legislative history demonstrates Congress intended to incentivize the use of renewable fuels without reducing the amount of Fuel Excise Taxes paid into the Highway Trust Fund. The Incentive accomplished this by 1) removing the previous regime's partial exemption for alcohol and biodiesel mixtures, 2) using the Incentive to pay part or all of the mixer's Fuel Excise Taxes in proportion to the amount of renewable fuel sold (with additional payment in cash if the Incentive exceeds that liability); and 3) having the Treasury pay the entire amount of the Fuel Excise Taxes into the Highway Trust Fund without reduction for the amount of the Incentive. The legislative history is consistent with interpreting the Incentive to be a payment of a mixer's Fuel Excise Taxes, not an exemption or forgiveness of that liability.

Fourth, the IRS may argue, as it did below, that the Incentive provides an unfair “windfall” to taxpayers if untaxed. This Court made clear in Summa Holdings, Inc. v. Comm'r, 848 F.3d 779 (6th Cir. 2017), that it is not a court's job to rewrite the Internal Revenue Code to reflect what the IRS thinks is a better policy outcome.

The IRS's discrimination against Incentives earned under the first method is wrong. There is nothing in the text of the statute or the legislative history of the Jobs Act to suggest, or even hint, that the tax treatment of the Incentive depends upon — and the value of the Incentive should be substantially reduced based solely on — the method under which the Incentive is earned. Delek is entitled to recover the portion of the Incentive earned under the first method that the IRS has illegally refused to refund. The Court should therefore reverse the district court's erroneous decision and remand with instructions to render judgment for Delek in the amount of $16,595,135.00 plus statutory interest.

Argument

I. Standard of Review

This Court reviews issues of statutory interpretation and summary judgment de novo. Bay Shore Power Co. v. Oxbow Energy Sols., LLC, 969 F.3d 660, 663 (6th Cir. 2020). It also reviews denials of cross-motions for summary judgment de novo, when decided on solely legal grounds as here. Id.

“[T]ax laws are to be construed liberally in favor of taxpayers.” Porter v. Comm'r, 288 U.S. 436, 442 (1933). This is especially true in cases like this when the tax benefit at issue is “an expression of 'public policy' rather than legislative grace.” Weingarden v. Comm'r, 825 F.2d 1027, 1029 (6th Cir. 1987) (interpreting charitable deduction statute liberally in favor of taxpayer) (citations omitted). Further, while the effect of cost of goods sold is similar to that of a deduction, cost of goods sold offsets are an inherent component of an income tax and a constitutional right, and therefore “have an entirely different status” from “deductions which (as a matter of grace) are allowed by the statute.” Anderson Oldsmobile, 102 F. Supp. at 905-09. The Court must therefore construe the Incentive liberally to give effect to Congress's public policy aim of promoting renewable fuels and in recognition of the constitutional status of cost of goods sold.

II. The Plain Meaning of the Statute Proves that the Incentive is not Taxed under Either the First or Second Method

The Court's analysis of the Incentive must start with the plain meaning of the statutes, here §§ 6426(a), (b) & (c), 6427(e), and 9503(b). See In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710, 717 (6th Cir. 2019). “In determining the meaning of a statutory provision, we look first to its language, giving the words used their ordinary meaning.” Id. (citation and internal quotation marks omitted). “Words 'must be read in their context and with a view to their place in the overall statutory scheme.'” Id. (citation omitted). This is especially true when Congress enacts a comprehensive statutory scheme, as it did here. Id. Courts may also consult dictionaries in use at the time the statute was drafted, so long as the dictionary definition is consistent with the statutory context. Id. Statutory construction can also take into account “other evidence of usage in the years preceding the enactment: for example, the sense in which courts used a particular word or phrase.” Id. at 718 (citation omitted).

This statutory scheme was designed to incentivize renewable fuels and preserve funding for the Highway Trust Fund. Under this scheme, mixers may earn the Incentive by two different methods.

Under the first method, the Incentive earned is used to pay the mixer's Fuel Excise Taxes, in the form of a tax credit. § 6426(a)(1) provides that “[t]here shall be allowed as a credit . . . against the tax imposed by section 4081 an amount equal to the sum of the credits described in subsections (b) [&] (c).” § 6426(b)(1) defines the alcohol fuel mixture credit as “the product of [45 cents] and the number of gallons of alcohol used by the taxpayer in producing any alcohol fuel mixture for sale or use in a trade or business of the taxpayer.” § 6426(c)(1) defines the biodiesel mixture credit as “the product of [$1.00] and the number of gallons of biodiesel used by the taxpayer in producing any biodiesel mixture for sale or use in a trade or business of the taxpayer.”

Under the second method, the Incentive earned is paid in cash to the mixer. § 6427(e)(1) provides in relevant part that “[i]f any person produces a mixture described in section 6426 in such a person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit and biodiesel fuel credit . . . with respect to such mixture.” § 6427(e)(3) further provides that “[n]o amount shall be payable under paragraph (1) . . . with respect to any mixture or alternative fuel with respect to which an amount is allowed as a credit under section 6426.”

Significantly, the plain language of the statute provides the same economic Incentive to mixers who earn the Incentive under both methods — the mixer earns either 45 cents or $1.00 per gallon as either a dollar-for-dollar credit or a cash payment.

Similarly, regardless of the method, the amount paid into the Highway Trust Fund (i.e., the total Fuel Excise Taxes incurred by the mixer) remains the same. § 9503(b)(1)⁷ states: “[t]here are hereby appropriated to the Highway Trust Fund amounts equivalent to the taxes received in the Treasury before October 1, 2011” under. inter alia, § 4081. This subsection further provides that “[f]or purposes of this paragraph, taxes received under [section 4081] shall be determined without reduction for credits under section 6426.” § 9503(b)(2) further states: “[t]here are hereby appropriated to the Highway Trust Fund amounts equivalent to the taxes which are received in the Treasury after September 30, 2011, and before July 1, 2012, and which are attributable to liability for tax incurred before October 1, 2011, under the provisions described in paragraph (1).”

This language clearly provides that a mixer is liable for the entire Fuel Excise Tax amount, regardless of whether it pays its Fuel Excise Taxes via the Incentive, cash, or a combination of each. The text also reflects the reality that Fuel Excise Taxes paid by the Incentive are not literally “received in the Treasury.” Instead, the amounts are paid from the Treasury general fund into the Highway Trust Fund. The statutory text “taxes received . . . shall be determined without reduction for credits under section 6426” was necessary to ensure that “taxes received” would include taxes not literally “received in the Treasury” (i.e., cash received from mixers), but also payments from the general fund to cover the amounts of Incentives earned. Further, § 9503(b)(2) reflects Congress's intent that the taxes paid into the Highway Trust Fund are equal to a mixer's total excise tax liability — “liability for tax incurred” — which necessarily includes amounts paid via the Incentive.⁸

All three provisions are silent as to the income tax effect of earning the Incentive under either method. There is no language in these three statutes addressing the income tax treatment of the Incentive. The most logical reading is the income tax effect of the Incentive should be the same, regardless of the method by which a mixer earns the Incentive.

The question therefore, boiled down to its essence, is whether the Incentive can be taxed as income, either through inclusion in taxable income or by reducing cost of goods sold (which as explained above has the result of increasing taxable income), when the statute is silent on the matter.

The district court's entire plain meaning analysis began and ended with consulting a dictionary. This led the district court to erroneously define “credit” in § 6426 in isolation to mean an erasure of the underlying total tax liability as if such liability never existed, without addressing the broader statutory context. (Memorandum, RE 66, PageID # 1818-19.) Notably, the district court found the statutory language was unambiguous; in other words, the district court concluded there is no other reasonable interpretation of these terms.

The district court's interpretive exercise fails on its own terms. "Statutory interpretation is a 'holistic endeavor' — the structure and wording of other parts of a statute can help clarify the meaning of an isolated term.” Keen v. Helson, 930 F.3d 799, 803 (6th Cir. 2019) quoting United Sav. Assoc. of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988). The statutory context of the Incentive is important, and the district court's myopic focus on the dictionary definition of an isolated term missed the mark. In re Application, 939 F.3d at 718.

A. When Properly Interpreted in its Statutory Context, “Credit” means a Payment of Tax, not an Erasure of the Underlying Tax Liability

1. The Generally Accepted Definition of “Credit” in the Tax Context means a Dollar-for Dollar Satisfaction of Tax Liability, not an Erasure of the Underlying Liability

“[C]redit” is not defined in the Internal Revenue Code. Contemporaneous dictionaries define “credit” as “a deduction from an amount otherwise due,” see Merriam-Webster's Collegiate Dictionary, (11th ed. 2003); and “tax credit” as “an amount subtracted directly from one's total tax liability, dollar for dollar, as opposed to a deduction from gross income,” see Black's Law Dictionary (8th ed. 2004). These definitions are consistent with case law defining “credit” in the tax context to mean an incentive that is applied dollar-for-dollar to satisfy tax liability, as opposed to a deduction which reduces a taxpayer's taxable income before its tax liability is calculated (and therefore reduces tax liability by only a fraction based on the taxpayer's marginal tax rate). See, e.g., United States v. Fior D'Italia, Inc., 536 U.S. 238, 250 (2002) (describing § 45B tax credit as “a nonrefundable tax credit on FICA taxes paid, i.e., permits restaurants to offset any FICA it pays on employee tips on a dollar for dollar basis against its own income tax liability”); Tax Analysts & Advocates v. Blumenthal, 566 F.2d 130, 135 (D.C. Cir. 1977) (contrasting “tax credits which can offset tax liability on a dollar-for-dollar basis” with “deductions from gross income”).

But the district court did not interpret “credit” to mean satisfying tax liability on a dollar-for-dollar basis, which would have been consistent with both the dictionary definition and usage of the term by the courts. The district court quoted Black's Law Dictionary's definition of “tax credit” but misread that definition to mean erasing the underling tax liability, tantamount to an exemption or forgiveness of tax. (Memorandum, RE 66, PageID # 1819.) Indeed, the district court held that “credit” could not reasonably be defined in any other way. (Id.) This departure from the general definition of “credit” led the court to conclude erroneously that the Incentive could not be a “payment” of the underlying tax liability, because using the Incentive erased the underlying tax liability, with the result that a mixer would not be able to claim a deduction or cost of goods sold offset for the amount of the Incentive used as a credit against excise tax. (Id. PageID # 1817-1818.)

To be sure, a tax credit typically reduces the amount of cash payment required when a taxpayer files its return at the end of a given tax period. A tax credit thus typically operates equivalent to semimonthly cash deposits of Fuel Excise Taxes with the IRS. Such semimonthly cash deposits do not erase the payor's total tax liability for Fuel Excise Taxes, which is fixed and determined at the time of sale or removal of taxable fuels. Rather, the semimonthly cash deposits are used to satisfy the final tax liability, just like the Incentive. The total tax liability (i.e., tax incurred by the mixer) remains the same whether that liability is satisfied with cash deposits or withholdings, tax credits earned, or cash payments made with the return. These three are distinctions without a difference for federal income tax purposes. United States v. Piedmont Mfg. Co., 89 F.2d 296, 299 (4th Cir. 1937) (“A payment by credit . . . for all purposes of the United States and the taxpayer, is received as equivalent” to “a payment in cash.”); accord Consol. Edison Co. of New York, Inc. v. United States, 10 F.3d 68, 74 (2d Cir. 1993) (use of credits “did not reduce Con Edison's underlying tax liability” and such credits were “effectively utilized to discharge Con Edison's full tax liability.”) Applying the correct definition of “credit,” the statutory language unambiguously indicates that the Incentive satisfies, rather than erases, a mixer's Fuel Excise Tax liability.

2. The Statutory Context Proves that “Credit” does not Erase the Underlying Tax Liability

As noted above, the district court inexplicably restrained its analysis of “credit” to consulting a dictionary. This is wrong. Keen, 930 F.3d at 803; In re Application, 939 F.3d at 718. As shown below, the statutory context of the Incentive unambiguously supports Delek's position.

Congress enacted § 9503(b)(2), which provides that Fuel Excise Taxes “received” shall include the entire “liability for tax incurred,” i.e., the total Fuel Excise Taxes incurred at the time taxable fuel is sold even if the tax is not yet paid. Congress first enacted § 9503(b)(2) when it codified the Highway Trust Fund in the Internal Revenue Code in 1983, with identical language to the version in effect in 2010 and 2011 except for the cutoff dates. Pub. L. 97-424, § 531(a), 96 Stat. 2097 (1983). By retaining this language when it enacted the Jobs Act, Congress indicated its intent to incorporate § 9503(b)(2) into the statutory regime that created the Incentive. See United States v. Veloz-Alonso, 910 F.3d 266, 268-69 (6th Cir. 2018) (“A long-established canon of statutory interpretation instructs that, when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intent to the contrary, to regard each as effective”) (citation and internal quotation omitted); Gross v. FBL Financial Services, Inc., 557 U.S. 167, 174-75 (2009) (“When Congress amends one statutory provision but not another, it is presumed to have acted intentionally.”) (citation omitted).

The district court erroneously adopted the IRS's argument that a taxpayer cannot incur excise tax liability until cash changes hands. (Memorandum, RE 66, PageID # 1820-21.) But § 9503(b)(2) makes an important distinction between “liability for tax incurred” and receipt of cash from a taxpayer. It expressly provides that Fuel Excise Taxes not yet paid as of a certain date (October 1, 2011, in the example above) are nonetheless incurred and therefore included in Fuel Excise Taxes “received.” The district court's opinion that tax liability requires cash to change hands directly contradicts the express language of § 9503(b)(2).

Further, § 6427(e) (the second method) provides a cash payment for “an amount equal to the alcohol fuel mixture credit and biodiesel fuel credit . . . with respect to such mixture.” This provision effectively makes the Incentive a refundable credit. But if “credit” is defined to mean erasing the underlying tax liability as the district court found, by that definition, there would never be any cash payment under the second method. This is because after the full tax liability is satisfied, there is nothing left to erase. Consider the previous example of a mixer selling 100 gallons of taxable fuel containing 50 gallons of biodiesel. The total Fuel Excise Tax liability is $18.30. Under the district court's interpretation, applying $18.30 of the Incentive as a credit against excise tax would erase that tax. After that is done, the “amount equal to the . . . biodiesel fuel credit” would be zero by definition, because there could never be a “credit” greater than the underlying tax liability. This would deprive the mixer of the full value of the Incentive ($50.00) Congress intended it to receive.

Yet it is undisputed that mixers can — and Delek did — receive a cash payment for the amount of the Incentive earned in excess of its Fuel Excise Taxes. That outcome is possible only if “credit” means “payment,” in which case the amount of “credit” in excess of Fuel Excise Taxes is viewed as an overpayment returned to the mixer.

Moreover, the IRS's own regulations define “tax liability” for Fuel Excise Taxes as the total tax incurred at the moment taxable fuel is sold or removed, without reduction for any Incentive earned. Treas. Reg. § 48.4081-3(g)(1) provides that Fuel Excise Taxes are “imposed on the removal or sale of blended taxable fuel by the blender thereof.” Treas. Reg. § 48.4081-3(g)(2)(i) defines “liability” as “the tax imposed under paragraph (g)(1).” Thus a mixer's Fuel Excise Taxes are the full amount of tax imposed at the point of removal or sale, regardless of whether the Incentive is later claimed as a credit against that liability. The IRS cannot reasonably argue that its own regulations hinge on an unreasonable interpretation of the statutory text.

The IRS's own excise tax forms further underscore Delek's position. IRS Form 720, Quarterly Federal Excise Tax Return, requires taxpayers to calculate and report the “total tax” incurred for the quarter. (See, e.g., IRS Form 720, Part III, Line 3, RE 35-1, PageID # 196.) Taxpayers then apply any Incentive earned against the “total tax” incurred. The earned Incentive is a payment of the “total tax.” (See id. at Part III, Line 4; see also id. at Schedule C (“Claims”), PageID # 198-200).

The semimonthly cash deposits remitted to the IRS by taxpayers are treated exactly the same. (See id. at Part III, Line 5.) The result of applying these different payments is to calculate the “Balance Due,” i.e., the net tax due after taking all payments (both cash and earned Incentives) into account. (See id. at Part III, Line 10, PageID # 196.) And although the content of IRS forms may not be binding, courts routinely take judicial notice of the language used by the IRS in its forms. Westcott v. Comm'r, 92 T.C.M. (CCH) 426, at *5 (2006); see also Hardin v. Reliance Tr. Co., 2006 WL 2850457, at *4 (N.D. Ohio Sept. 29, 2006). Regardless, the IRS forms certainly do not “alter the statutory language” as the district court stated. (Memorandum, RE 66, PageID # 1821 n.8). Instead, the IRS forms follow the statutory and regulatory language.

The statutory context reveals that “credit” unambiguously means satisfaction of tax liability, not erasure of the underlying liability. Even if viewed most favorable to the IRS, “credit” is ambiguous and requires more efforts at statutory construction than the district court performed.

3. The District Court's Definition of “Credit” to mean Erasing Underlying Tax Liability would have Absurd and Damaging Results to the Tax System

Further echoing Sunoco, the district court forced its erroneous interpretation of “credit” into the statutory phrase “allowed as a credit against the tax imposed” in § 6426(a)(1) without considering the broader context of the phrase. (Id. PageID # 1817.) The phrase “allowed as a credit against the tax imposed” appears several times in the Internal Revenue Code, including in excise tax statutes. For example, § 4051(d) provides that “there shall be allowed as a credit against the tax imposed by this subchapter an amount equal to the tax . . . imposed by section 4071.” The IRS has confirmed that the § 4051(d) credit “does not reduce the 4051 liability for that transaction; rather, this credit is used to reduce the total balance owed by X to the IRS.” Priv. Ltr. Rul. 201022012 (Feb. 25, 2010); see also Tech. Adv. Mem. 200215004 (Dec. 20, 2001).

Similarly, in § 4081(b)(2), the phrase “shall be allowed as a credit against the tax imposed” appears in the context of a credit against Fuel Excise Tax incurred when a mixture is sold or removed by a mixer, in the case where another taxpayer has already paid the tax on the same fuel. The statutory phrase cannot mean that the other taxpayer erased the underlying tax liability, which a private taxpayer has no legal ability to do. Rather, it means that the other taxpayer satisfied that liability by its previous payment.⁹

Moreover, interpreting “credit” in the statutory phrase “shall be allowed as a credit against the tax imposed” to mean “erase the underlying tax liability” would wreak havoc on the operations of other provisions as well, with consequences far beyond this case.

For example, the phrase “shall be allowed . . . as a credit against the tax imposed by this subtitle” occurs in the statute requiring that income taxes on wage income be withheld from paychecks. § 31. When an individual has federal income tax withheld from a paycheck, that taxpayer's tax liability is not forgiven or cancelled. Instead, the withheld amount is used “as a credit” to satisfy a taxpayer's tax liability as a payment of tax, even though the employer — not the taxpayer — makes the cash payment to the Treasury.

Similarly, many state taxing statutes provide for withholding state income taxes using language virtually identical to § 31. This includes all states in the Sixth Circuit that impose individual income taxes on wages. See Mich. Comp. Laws § 206.251(1) (“The amount withheld . . . shall be allowed to the recipient of the compensation as a credit against the tax imposed on him or her by this part.”); Ky. Rev. Stat. § 141.350 (“The amount deducted and withheld . . . upon the wages of any individual . . . shall be allowed as a credit to the recipient of the income against the tax imposed. . . .”); Ohio Code § 5747.08(H) (“The amounts withheld by an employer . . . shall be allowed to the recipient of the compensation . . . as credits against payment of the appropriate taxes imposed on the recipient. . . .”)

State taxes that are paid or accrued, up to $10,000 for individuals, may be allowed as a deduction for federal income tax purposes. § 164(a). If the phrase “allowed as a credit against the tax imposed” means erasing the underlying tax liability, as opposed to a payment satisfying that liability, millions of individuals who pay their state income taxes via withholding would forfeit their deductions for state taxes. Simply put, if the district court's interpretation is sustained, there is no principled way to avoid interpreting the same phrase to prohibit federal income tax deductions for individuals whose states require withholding of state income tax. This highlights the absurdity of the district court's incorrect interpretation of the term “credit.”

Viewed through the prism of the deliberate statutory language, Delek's use of the Incentive to pay its Fuel Excise Taxes is no different from using it to pay any other cost or liability that would indisputably be either deductible or a cost of goods sold offset. It is absurd to suggest, absent a clear statutory directive, that the tax consequences of earning the Incentive should be different if Congress had required mixers to pay their total Fuel Excise Taxes in cash, then have the IRS separately pay the mixers the full amount of the Incentive earned, with the two checks passing in the mail.

B. The Statute Defines “Taxes Received” to Include Credits Paid via the Incentive; the District Court Rendered those words Superfluous

Similarly, the district court misinterpreted the plain language of § 9503(b), which provides that Fuel Excise “[T]axes received in the Treasury” shall be appropriated to the Highway Trust Fund.” § 9503(b)(1). Congress meant what it said: Fuel Excise Taxes are “received in the Treasury,” i.e., treated as a payment, even if paid from the general fund by the Treasury rather than literally received in the Treasury in the form of cash from a mixer.

Under the pre-Jobs Act regime, the amounts exempted from Fuel Excise Taxes were never imposed or paid, and were therefore not “taxes received” that were appropriated to the Highway Trust Fund. Indeed, to the extent Fuel Excise Taxes were collected on sales of exempt fuels under the old regime and subsequently refunded to the taxpayer, the Highway Trust Fund was required to reimburse the general fund for the amount refunded. See former § 9503(c)(2)(A). This made sense under the old exemption regime, because the exempted amounts were never owed in the first place.

When Congress created the Incentive, however, Congress intended that the mixer's entire Fuel Excise Tax liability be paid into the Highway Trust Fund. Thus, Congress stated expressly that “taxes received . . . shall be determined without reduction for credits under section 6426.” See § 9503(b)(1). This language confirms that the Incentive is a payment of Fuel Excise Taxes even though that payment was not literally “received” by Treasury. Congress also amended § 9503(c)(2)(A) to ensure that the Highway Trust Fund did not reimburse the general fund for Fuel Excise Taxes paid via the Incentive. See Jobs Act, Pub. L. 108-357, § 301(c)(13). This language further confirms that the Incentive is a payment of Fuel Excise Taxes while disproving the IRS's conjecture that Congress intended the Incentive to be a forgiveness or exemption from tax, in which case no such provisions would be necessary because the tax was never imposed in the first place. Indeed, it is the interpretation urged by the IRS and adopted by the district court that renders the flush language of § 9503(b)(1) superfluous. If Fuel Excise Tax meant only “Fuel Excise Tax paid in cash by a mixer,” there would be no need to define “taxes received” because those taxes would be “received in the Treasury” in a literal sense. Congress defined the term “taxes received” precisely to ensure that payments of Fuel Excise Taxes via the Incentive did not reduce the amounts received into the Highway Trust Fund.

C. Because Congress did not Specify that the Incentive should be Taxed, the Default Exclusion Rule Applies

1. The Default Exclusion Rule Provides that Congress must Expressly State that a Federal Tax Credit should be Taxed as Income

It is a foundational tax principle that a federal tax credit is not a taxable event, i.e., the amount of the credit is not included as an item of income,¹⁰ unless Congress expressly specifies that it is. See, e.g., Randall v. Loftsgaarden, 478 U.S. 647, 657 (1986) (“the 'receipt' of tax deductions or credits is not itself a taxable event, for the investor has received no money or other 'income' within the meaning of the Internal Revenue Code. Thus, we would require compelling evidence before imputing to Congress an intent to describe the tax benefits an investor derives from tax deductions or credits . . . as 'income received thereon'”) (citation omitted); Tempel v. Comm'r, 136 T.C. 341, 351 (2011), aff'd sub nom. Esgar Corp. v. Comm'r, 744 F.3d 648 (10th Cir. 2014) (state tax credit “is not an accession to wealth and therefore does not give rise to income. It follows that the taxpayer who is able to claim a deduction or credit has no more income by virtue of having that right than the taxpayer who is unable to make such a claim.”)¹¹

This default exclusion rule is illustrated in the Jobs Act itself. That legislation included a separate income tax credit for biodiesel mixtures. § 40A. As part of the legislation, Congress specifically provided that the § 40A credit should be included in gross income for income tax purposes. See § 87 (“Gross income includes — (2) the biodiesel fuels credit determined . . . under section 40A(a).”) By contrast, Congress chose not to include a similar provision for the Incentive.

The IRS itself recognized that Congress spoke only when it wanted to override the default exclusion rule with respect to other federal tax credits included in the Jobs Act. Otherwise, it remained silent. In 2013, long before any litigation on this issue, the IRS's National Office published advice stating that “[t]he [Jobs Act's] legislative history provides that the § 40A credit must be included in gross income but is silent regarding the § 6426(c) credit and the § 6427 payment. . . . We think the fact that §§ 6426(c), 6427, and 40A were enacted together, yet Congress chose only to specifically provide that the credit under § 40A is includible in gross income, indicates that Congress intended to exclude from gross income the § 6426(c) credit and the § 6427 payment.” I.R.S. Chief Counsel Adv. 201342010 (Oct. 18, 2013). Although not legally binding, the IRS's admission on the matter, before it became a litigant on this issue, is persuasive.¹²

2. The Default Exclusion Rule also Applies to Reducing Deductions or Cost of Goods Sold in Connection with a Tax Incentive

The default exclusion rule applies with equal force to reducing deductions or cost of goods sold in connection with claiming a tax incentive, which the IRS acknowledged is essentially the same as making the incentive taxable. (IRS Memorandum, RE 63-1, PageID # 1800.) When Congress wishes to reduce otherwise-allowable deductions for taxpayers claiming a tax incentive, it says so explicitly.

Indeed, Congress did so in the very same legislation that created the Incentive. The Jobs Act also created a tax incentive, codified at § 45H, to incentivize the production of low sulfur diesel fuel by providing small business refiners with a credit of 5 cents per gallon. Ordinarily, expenses relating to producing such fuel would be a deductible business expense. Congress therefore coupled the enactment of § 45H with the enactment of § 280C(d), which required a decrease in otherwise allowable tax deductions “by the amount of the credit determined . . . under section 45H(a).”¹³ When Congress wanted to limit otherwise-allowable deductions, it did so. “[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) (citations omitted). Congress's decision to reduce allowable deductions in connection with the § 45H credit and its refusal to do so for the first or second methods of the Incentive under § 6426 is dispositive. Id.

Conversely, the absence of a statutory provision explicitly reducing otherwise-allowable deductions connected with a tax incentive means that such deductions are not reduced if the incentive is claimed. For example, just ten months after the Jobs Act, Congress enacted a tax credit for the amount of excise taxes on distilled spirits paid by eligible wholesalers. § 5011. This provision contained no provision limiting otherwise-allowable deductions. Therefore, as recognized in the legislative history, wholesalers were allowed under the default exclusion rule to take this credit “in addition to present-law rules allowing tax included in inventory costs to be deducted as a cost of goods sold” without the statute saying so. H.R. Rep. No. 109-203 (2005) (Conf. Rep.), as reprinted in 2005 U.S.C.C.A.N. 452, 771.¹⁴

3. The History of the Past Investment Tax Credit Shows that Congress Speaks Directly When A Tax Credit Decreases An Otherwise Allowable Tax Deduction

The history of the investment tax credit of former § 46 (“Past Investment Credit”) clearly illustrates the default exclusion rule at work. Congress enacted the Past Investment Credit in 1962 as “a subsidy provided by the Federal Government through the tax system to encourage investment activity.”¹⁵ When Congress originally enacted the Past Investment Credit in 1962, it also enacted former § 48(g)(1), which provided that “[t]he basis of any [property qualifying for the Past Investment Credit] shall be reduced . . . by an amount equal to” the Past Investment Credit. See Revenue Act of 1962, Pub. L. No. 87-834, § 2, 76 Stat. 967, 970 (1962). This basis reduction had the effect of reducing taxpayers' otherwise allowable tax deductions for depreciation with respect to property qualifying for the Past Investment Credit. Without this accompanying provision, Congress recognized that the Past Investment Credit would not have either been included as taxable income or reduced taxpayers' tax deductions for depreciation. See S. Rep. No. 87-1881, at 12, 19 (1962), as reprinted in 1962 U.S.C.C.A.N. 3297, 3315.

Approximately two years later, Congress changed its mind. Starting in 1964, taxpayers were no longer required to reduce their depreciable tax basis in property qualifying for the Past Investment Credit by the amount of the credit claimed. Congress enacted this change by repealing former § 48(g)(1). See Revenue Act of 1964, Pub. L. No. 88-272, § 203, 78 Stat. 19, 33-34 (1964) (“Subsection (g) of section 48 (requiring that the basis of section 38 property be reduced by 7 percent of the qualified investment) is hereby repealed.”) Importantly, Congress did not enact a provision specifying that a taxpayer was not required to reduce its basis by the amount of the Past Investment Credit claimed. Instead, it accomplished its goal through silence.

Congress repealed the Past Investment Credit in 1969, only to restore it in 1971. See Tax Reform Act of 1969, Pub. L. No. 91-172, § 703, 83 Stat. 487, 660-70 (1969); Revenue Act of 1971, Pub. L. No. 92-178, § 101, 85 Stat. 497, 498-501 (1971). Congress intended the 1971 legislation to provide the maximum possible economic stimulus.

To accomplish this goal, Congress reenacted the credit provision and remained silent regarding any reduction of basis for the amount of the Past Investment Credit claimed. See H.R. Rep. No. 92-533, at 30 (1971), as reprinted in 1971 U.S.C.C.A.N. 1825, 1845; S. Rep. No. 92-437, at 45 (1971), as reprinted in 1971 U.S.C.C.A.N. 1918, 1951. Congress knew that it did not need explicitly to state that the credit should not be taxed (either through inclusion in gross income or reduction in basis) — basis — because of the default exclusion rule, its silence was enough.

Congress changed its mind again in 1982 by once more requiring that taxpayers reduce the cost basis of qualifying property by a percentage of the Past Investment Credit claimed in tax years beginning after December 31, 1982. Congress implemented the basis reduction by explicitly enacting a new § 48(q), which provided, in relevant part, that “the basis of such property shall be reduced by 50 percent of the amount of the credit so determined.” Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 205, 96 Stat. 324, 427 (1982). The Past Investment Credit then remained in effect until it was repealed in 1986.

4. The District Court Erroneously Determined that the Default Exclusion Rule Applies to Income Tax Credits but not Excise Tax Credits

Citing no authority, the district court summarily concluded that the default exclusion rule does not apply to excise tax credits. (Memorandum, RE 66, PageID # 1820 n.6.) (“Delek's citation to numerous statutes in which Congress has specifically included a tax credit as gross income are inapposite as none of these involve a credit against excise tax.”). This is wrong. Former § 280D specifically addressed the default exclusion rule as to credits against the windfall profits excise tax imposed by former § 4986. Congress explicitly provided that “[n]o 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.” Former § 280D. If the default exclusion rule did not apply to excise tax credits, as the district court erroneously assumed, then former § 280D would have been superfluous. See also § 5041(c) (providing a credit against excise tax for small domestic wineries, and an explicit “denial of deduction” provision). Clearly, the district court's failure to apply the default exclusion rule to the Incentive because it involved an excise tax credit is error.

5. Applying the Default Exclusion Rule Harmonizes the Tax Treatment of the First and Second Methods of Earning the Incentive

The absence of words in a statute is as significant to statutory interpretation as their presence. See, e.g., Melson v. Prime Ins. Syndicate, Inc., 429 F.3d 633, 637 (6th Cir. 2005) (“legislative silence on what would be a fundamental change in the law provides evidence that the legislature did not intend such a change”). As with the provisions discussed above, Congress's silence in § 6426 with respect to reducing cost of goods sold because of the Incentive demonstrates that the default exclusion rule applies here.

Ironically, when it comes to the second method of earning the Incentive — the cash payment under § 6427(e) — the IRS, the Federal Circuit in Sunoco, and the district court all applied the default exclusion rule. Claiming the Incentive as a cash payment under § 6427(e) neither increases taxable income nor reduces deductions or cost of goods sold because Congress did not expressly say so. I.R.S. Chief Counsel Adv. 201342010 (Oct. 18, 2013); Sunoco, 908 F.3d at 716 (“The IRS does not tax as income direct payments to taxpayers made under” the second method.); Memorandum, RE 66, PageID # 1813 n.3 (recognizing that the second method is not taxable). Further, there is no dispute that if a mixer received the Incentive as a cash payment and used that payment to pay a state tax liability (or another expense that is deductible or includible in cost of goods sold), the mixer would receive the Incentive tax-free and be allowed a deduction for the expense. Consistency in interpreting the statute mandates that the Incentive not reduce cost of goods sold when used to pay Fuel Excise Taxes.

Despite this well-established principle, the IRS contended, and the district court agreed, that Delek must decrease its cost of goods sold by the amount of the Incentive earned under the first method. (Id. PageID # 1820-21.) This inequitable treatment of the Incentives (and the mixers claiming them) is inconsistent with Congressional intent and is wholly unsupported by the authorities. See, e.g., Oshkosh Truck Corp. v. United States, 123 F.3d 1477, 1481 (Fed. Cir. 1997) (“[U]nless there is a rational reason for different treatment, similarly-situated taxpayers should be treated similarly"); United States v. Kaiser, 363 U.S. 299, 308 (1960) (Frankfurter, J., concurring) ("The Commissioner cannot tax one and not tax another without some rational basis for the difference.") Absent statutory language clearly demonstrating Congress's intent to distinguish between the income tax treatment of Incentives earned under the first and second methods, the statute should be interpreted to avoid that discriminatory effect.

It is nonsensical that one mixer suffers an income tax increase, while another mixer engaging in the same activities suffers no tax increase, plus receives tax-free cash, when the statute makes no distinction for the income tax treatment of the two methods. The only explanation mustered by the IRS is to label the tax-free status of the second incentive as an “anomaly,” a view apparently adopted by the district court. (Memorandum, RE 66, PageID # 1813 n.3.) This purported “anomaly” resolves itself, however, if the Incentive does not reduce cost of goods sold when used to satisfy a mixer's Fuel Excise Taxes, thus maintaining consistency between the two methods.¹⁶

6. The Sunoco Decision Erroneously Ignored the Default Exclusion Rule

As noted, the district court adopted Sunoco, agreeing that the plain meaning of the statute indicates that the Mixture Credit reduces tax liability.” (Memorandum, RE 66, Page ID # 1817.) It also rejected Delek's argument that Sunoco was flawed because the Federal Circuit ignored its own precedent applying the default exclusion rule. See Centex Corp. v. United States, 395 F.3d 1283 (Fed. Cir. 2005). (Memorandum, RE 66, Page ID # 1816-17.) But because Sunoco did ignore the default exclusion rule, which was correctly applied in Centex, its decision was flawed and its reasoning should not be adopted in this Circuit.

While Centex is a breach of contract case against the government, the tax treatment of the incentive payments was the central issue in the case.

Centex involved the federal income tax consequences of an incentive program offered by Congress to healthy financial institutions (“acquiring institutions”) to absorb troubled thrifts in response to the savings and loan crisis of the late 1970s and early 1980s. As part of the program, the government agreed to make tax-free payments to acquiring institutions in amounts that equaled the losses suffered by those institutions on assets acquired from the troubled thrifts (“covered assets”). Congress authorized the incentives to be paid to acquiring institutions as either a: (1) fixed contribution (i.e., the amount of the payment was fixed in advance), or (2) guarantee against losses (i.e., the amount of the payment was calculated by reference to the net loss experienced on covered assets). The statute included amendments to the tax law to allow government-assisted transfers of failing thrifts to acquiring institutions to be treated as a tax-free reorganization with the result that the acquiring institution's tax basis in the transferred assets would remain the same as that in the hands of the troubled thrifts. The amendments to the tax law also made it clear that the incentive payments would not be treated as gross income to acquiring institutions and would not reduce the tax basis of the covered assets, but the statute did not expressly address whether acquiring institutions could also deduct the built-in losses realized on the covered assets as those assets were sold or liquidated, written down, or written off.

The government contended that if the amount of the incentive payment was fixed in advance, the incentive payment was untaxed and did not destroy the ability of the acquiring institution to deduct built-in losses on the covered assets. However, if the amount of the incentive payment was calculated after the acquiring institution suffered net losses on covered assets, the government argued that general tax principles prohibited the acquiring institution from deducting those built-in losses. The government argued that absent a statutory provision that expressly allowed a deduction for the built-in losses on the covered assets, those losses were not deductible because the tax-free payments received by acquiring institutions had the effect of reimbursing the acquiring institutions for the losses.

Centex rejected the government's arguments for a number of reasons, including that “if the deduction of built-in losses were not allowed, the effect on taxpayers . . . would be the same as taxing” the assistance payments. Id. at 1296. Centex also highlighted the government's attempt to impose different tax results on acquiring institutions based solely on the form in which the incentive payments were received. The court explained that “[u]nder the government's theory . . . only one of those forms of assistance payments would remain untaxed and not destroy the deductibility of the built-in losses on the acquired institution's assets. Id. at 1297. The court found it “highly unlikely that Congress intended explicitly to create a tax-free incentive for acquiring institutions but implicitly to withdraw that benefit depending on how the parties structured the assistance payment.” Id.

Centex therefore correctly followed the default exclusion rule: when Congress offers federal tax credits to incentivize certain activities, the incentives are not taxed (or deductions reduced, which amounts to the same thing) unless Congress expressly provides so. Sunoco wrongly ignores its own precedent in Centex, and the district court was equally wrong to dismiss Centex because it did not address the exact same sections of the Internal Revenue Code at issue here. (Memorandum, RE 66, PageID # 1816.)

III. Even if the Text were Ambiguous, the Legislative History Supports Delek's Interpretation

As explained above, the statutory text, interpreted through accepted canons of statutory interpretation, reveals that the Incentive should not be taxed in any form under the first method. The legislative history provides further support for this interpretation, and none for the district court's interpretation of the statute.¹⁷

A. Before the Jobs Act, Renewable Fuels were Partially Exempt from Fuel Excise Taxes, which were therefore Never Incurred

Before the Jobs Act, renewable fuels enjoyed a partial exemption from the Fuel Excise Tax. Under the Energy Tax Act of 1978, Pub. L. No. 95-618, no excise tax was imposed upon gasoline used in producing a mixture that contained at least ten percent alcohol. The excise tax was then imposed at a rate of four cents per gallon. However, this arbitrary ten-percent threshold did not provide any incremental benefits for mixers using over ten percent alcohol in a mixture. Likewise, mixers falling below this all-or-nothing threshold received no excise tax benefit.

Two years later, Congress enacted the Crude Oil Windfall Profit Tax Act of 1980, which created a 40 cents per gallon income tax credit for alcohol used in fuel. Pub. L. No. 96-223, § 44E, 94 Stat. 229 (1980). This credit under former § 44E (current § 40) required mixers to include the credit in gross income under former § 86 (current § 87). Although the excise tax exemption and income tax credit could be claimed in tandem, former § 44E(c) (current § 40(c)) expressly required taxpayers to reduce the amount of the income tax credit claimed by an amount equal to the mixer's excise tax benefit.

In 1982, this exemption was replaced with a system imposing a reduced excise tax rate on gasoline used in alcohol fuel mixtures. The Highway Revenue Act of 1982, Pub. L. No. 97-424, raised the excise tax rate from four cents to nine cents per gallon. At the same time, the previous exemption for gasoline used in alcohol fuel mixtures was replaced with a reduced excise tax rate of four cents per gallon, thus reflecting excise tax savings of five cents per gallon for such mixtures. In coordination with this increased excise tax benefit, Congress also adjusted the income tax credit under former § 44E, increasing such credit from 45 cents to 50 cents per gallon of ethanol used in alcohol fuel mixtures.

In 1992, Congress again adjusted this reduced-rate system, opting for a tiered system taxing mixtures at different rates, depending upon the alcohol content of such mixture. See Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776 (1992). Although these reduced rates successfully increased the production of renewable fuels, it simultaneously resulted in a revenue shortfall for the Highway Trust Fund, which received the bulk of its funding from excise taxes.

B. The Legislative History Indicates an Intent to Create a New Regime that both Incentivizes Renewable Fuels and Fully Funds the Highway Trust Fund

The concept of the Incentive as a departure from the previous regime originated with legislation proposed by Senator Grassley in 2003, titled the Volumetric Ethanol Excise Tax Credit (“VEETC”) Act of 2003, S. 1548, 108th Cong. (2003). The VEETC bill's objective was to improve the tax collection system for renewable fuels, increase revenue for the Highway Trust Fund, and incentivize the mixing of renewable fuels. See 149 Cong. Rec. S10680 (daily ed. July 31, 2003) (statement of Sen. Grassley) (Congress intended the Incentive to “increase the revenue source for the Highway Trust Fund,” to ensure “the full amount of user excise taxes levied will be collected and remitted to the Highway Trust Fund,” and to “enhance the delivery of renewable fuels in the marketplace.”); see also 108 Cong. Rec. E1841 (Sept. 17, 2003) (statement of Rep. Oberstar) (House version of VEETC bill noting that the previous regime of partially-exempting renewable fuels from the Fuel Excise Tax “has had a deleterious effect on the Highway Trust Fund.”). The VEETC bill also proposed to abolish the tiered system imposed in 1992, in order to provide “tremendous new flexibility to gasoline refiners, marketers, and ethanol producers.” 149 Cong. Rec. S10680 (daily ed. July 31, 2003) (statement of Sen. Grassley).

The VEETC bill was ultimately incorporated into the Jobs Act. Pub. L. No. 108-357, tit. III, subtit. A, 118 Stat. 1418, 1459-66 (2004) (“Volumetric Ethanol Excise Tax Credit”). Senator Grassley explained that including the VEETC into the Jobs Act constituted a “substantial overhaul of the fuel excise tax system.” 150 Cong. Rec. S10929 (Oct. 9, 2004). The Conference Committee Report states that “[t]he provision eliminates the requirement that 2.5 and 2.8 cents per gallon of excise taxes be retained in the General Fund with the result that the full amount of tax on alcohol fuels is credited to the Highway Trust Fund.” Further, “[t]he provision also authorizes the full amount of fuel taxes to be appropriated to the Highway Trust Fund without reduction for amounts equivalent to the excise tax credits allowed for alcohol or biodiesel fuel mixtures and the Highway Trust Fund is not required to reimburse the General Fund for any credits or payments taken or made with respect to qualified alcohol fuel mixtures or biodiesel fuel mixtures.” H.R. Conf. Rept. No. 108-755, at 308, as reprinted in 2004 U.S.C.C.A.N. at 1382.

C. Congress Intended the Incentive to be a Clean Break from the Previous Exemption Regime

Congress intended a clean break from the past to ensure that “[t]he Highway Trust Fund is credited with the full amount of tax imposed on alcohol and biodiesel fuel mixtures." Id. at 307, as reprinted in 2004 U.S.C.C.A.N. at 1383 (emphasis added). Clearly also, Congress intended the “full amount of tax imposed” to mean the total Fuel Excise Tax liability, whether paid by cash or via the Incentive. Id.

The Jobs Act reformed the Fuel Excise Tax regime by eliminating the previous partial exemptions from tax and ensuring that sellers of alcohol and biodiesel mixtures paid the full amount of the Fuel Excise Tax into the Highway Trust Fund. Id. The Incentive was also designed to promote the mixing of renewable fuels without reducing the amount of Fuel Excise Taxes incurred for those fuels. Id. The Incentive is not tied to the number of gallons of fuel sold (as under the old regime) but instead to gallons of alcohol and biodiesel fuel used to produce fuel that was sold — a point emphasized by the use of the term “volumetric” in the subtitle. See § 6426(b)(1) and (c)(1) (the alcohol fuel mixture credit and biodiesel mixture credit are “the product of the applicable amount and the number of gallons of [alcohol or biodiesel, respectively] used by the taxpayer in producing any [alcohol fuel mixture or biodiesel mixture] for sale or use in a trade or business of the taxpayer.”) (emphasis added). In so doing, the Incentive abolished the pre-Jobs Act's restrictive tiered system, expanding the types of mixing activities eligible for the Incentive. If Congress intended the Incentive to match the amount of the pre-Jobs Act exemption, Congress would not have adopted this volumetric method for calculating the tax benefit.

Congress could have also structured the Incentive as an exemption from Fuel Excise Taxes like under the previous regime. But, it did not. Instead, the Incentive “may be taken against the tax imposed on taxable fuels.” It does not exempt or waive Fuel Excise Taxes; it provides a mechanism to pay that liability. “[T]he tax law treats the blenders as paying the full excise tax . . . the substitution of a tax credit for an equivalent exemption means that blenders are treated nominally as paying the full [Fuel Excise Tax]; they will get higher income tax deductions, which increases the effective amount of the new tax credit.” “Alcohol Fuels Tax Incentives,” Congressional Research Service Report RL32979, at CRS-6 (July 6, 2005).

CRS is a division of the Library of Congress that advises Congress “in the analysis, appraisal, and evaluation of legislative proposals.” 2 U.S.C. § 166(d)(1). CRS reports are therefore considered persuasive evidence of Congressional intent, and courts have relied on CRS reports to interpret ambiguous terms in the Jobs Act and other statutes. See, e.g., Meredith Corp. v. United States, 447 F. Supp. 3d 805, 823 (S.D. Iowa 2020) (relying on CRS report to interpret § 199, enacted as part of the Jobs Act); Juliana v. United States, 2018 WL 9802138, at *2 (D. Or. Oct. 15, 2018); (taking judicial notice of CRS reports); Dine Citizens Against Ruining Our Env't v. Jewell, 2015 WL 4997207, at *5 (D.N.M. Aug. 14, 2015), aff'd, 839 F.3d 1276 (10th Cir. 2016) (citing CRS report).

IV. The Court should not Attempt to Rewrite the Tax Code to Avoid a Purported “Windfall”

In Sunoco, the Federal Circuit improperly characterized the Incentive as a “windfall” in the form of a purported double benefit. Sunoco, 908 F.3d at 719. The Sunoco court then set out to correct what it believed to be a Congressional error. Id., see also Sunoco, 129 Fed. Cl. at 326-27; Exxon Mobil Corp. v. United States, 2018 WL 4178776 (N.D. Tex. Aug. 8, 2018), appeal pending, No. 21-10373 (5th Cir.) (adopting the analysis from the Sunoco Court of Federal Claims decision). This is impermissible under Sixth Circuit precedent.

As discussed above, Congress uses tax credits to incentivize certain activities. Under the default exclusion rule such benefits are not included in income and do not reduce otherwise-allowable tax deductions unless Congress explicitly says otherwise. Far from being a “windfall,” that purported “double benefit” is an inherent part of the benefits and incentivizing effects of the Incentive.

Congress set the value of the Incentive at 45 cents and $1.00 per gallon, respectively. The IRS nonetheless decided that the Incentive resulted in too large of a benefit, and therefore Congress did not mean what it said. In so doing, the IRS substituted its judgment for that of Congress and partially negated the intended benefit of the Incentive by reducing its value to approximately 29 cents and 65 cents per gallon (assuming a 35% marginal rate).

This Court held in Summa Holdings, Inc. v. Comm'r (“Summa”), 848 F.3d 779 (6th Cir. 2017), that the IRS cannot “recharacterize the meaning of statutes — to ignore their form, their words, in favor of [the IRS's] perception of their substance.” Id. at 785. Because the statutory language and the legislative history both support Delek's claim, Summa deals a fatal blow to the IRS's attempt to tax the Incentive because of the purported “windfall.”

In Summa, the IRS sought to deny a taxpayer's “considerable” tax benefits realized through the use of a newly-created DISC and Roth IRAs, both of which are tax incentives designed to encourage certain activities. Like with Delek's refund claim, the IRS determined in Summa that the benefits provided by the tax incentives as drafted by Congress resulted in an “unintended consequence” and “increased the scale of the savings beyond Congress's original estimation.” Id. at 790; compare Sunoco, 908 F.3d at 719 (attempting to justify its decision based on the court's own analysis of the purported “windfall” effect of the Incentive on tax revenue).

Summa rejected the IRS's invitation to re-write the tax code to reduce the value of the incentives. “'Form' is 'substance' when it comes to law. The words of law (its form) determine content (its substance).” Summa, 848 F.3d at 782. See also Bedroc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004) (“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.'”) (citation omitted).

“The 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, 848 F.3d at 790; see also Gitlitz v. Comm'r, 531 U.S. 206, 219-20 (2001) (rejecting IRS's request to eliminate a purported “double windfall” “[b]ecause the Code's plain text permits the taxpayers here to receive these benefits. . . .”). The IRS cannot “search through the Internal Revenue Code and correct whatever oversights Congress happens to make or redo any policy missteps the legislature happens to take,” even if the IRS believes the Incentive “amounts to dubious tax policy.” Summa, 848 F.3d at 790. The IRS's “windfall” argument is in irreconcilable conflict with Summa.

Conclusion

Delek respectfully requests that the Court reverse the judgment of the district court in all respects and render judgment in Delek's favor, or in the alternative reverse the judgment and remand the case to the district court for further proceedings as necessary.

Dated this 28th day of May 2021.

Robert J. Kovacev
NORTON ROSE FULBRIGHT US LLP
799 9th Street NW
Suite 1000
Washington, DC 20001
Telephone: (202) 662-6462

Robert C. Morris
NORTON ROSE FULBRIGHT US LLP
1301 McKinney
Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-8404