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Decision in Fuel Mixture Case Should Stand, Government Argues

AUG. 30, 2021

Delek US Holdings Inc. v. United States

DATED AUG. 30, 2021
DOCUMENT ATTRIBUTES
  • Case Name
    Delek US Holdings Inc. v. United States
  • Court
    United States Court of Appeals for the Sixth Circuit
  • Docket
    No. 21-5257
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-33691
  • Tax Analysts Electronic Citation
    2021 TNTF 167-21

Delek US Holdings Inc. v. United States

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 JUDGMENT OF THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE

BRIEF FOR THE APPELLEE

DAVID A. HUBBERT
Acting Assistant Attorney General

BRUCE R. ELLISEN (202) 514-2929
PAUL A. ALLULIS (202) 514-5880
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:
MARY JANE STEWART
Acting United States Attorney


TABLE OF CONTENTS

Table of contents

Table of authorities

Statement regarding oral argument

Jurisdictional statement

Statement of the issue

Statement of the case

A. Introduction

B. Statutory scheme

1. Cost of goods sold

2. Fuel excise taxes

a. Historical fuel excise taxes

b. Use of fuel excise-tax funds

3. Coordination of income-tax and excise-tax benefits

C. Delek's tax reporting

D. District Court proceedings.

Summary of argument

Argument

The District Court correctly held that the excise-tax credit under I.R.C. § 6426 reduces excise-tax liability under I.R.C. § 4081 and that Delek, in computing its gross income, is not entitled to claim as “costs” the full amount of an excise tax that it never actually paid

Standard of review

A. Section 6426 allows a “credit against” Section 4081 excise-tax liability; it does not pay that liability

1. Mixture Credits reduce — and do not pay — Section 4081 excise-tax liabilities

a. A credit “allowed against the tax imposed” such as the Mixture Credit operates as a direct reduction in tax liability by the amount of the credit

b. The plain language of § 6426 shows that its excise-tax credit reduces the amount of § 4081 excise-tax liabilities

c. Statutes concerning different contexts do not render the Mixture Credit a payment

d. Section 6426 does not give Delek an option between a credit and a payment

e. The text of § 4081(b) confirms that § 6426 credits reduce § 4081 excise-tax liability

f. The text of § 9503 also confirms that § 6426 credits reduce § 4081 excise-tax liability

2. The statutory structure confirms that § 6426's excise-tax credit is a reduction of Delek's deductible excise-tax expense

B. The legislative history confirms the District Court's interpretation of the statutes

C. The Government is not seeking to tax Delek's § 6426 credits

1. Delek's “default exclusion rule” cannot alter the statutory text52

2. The District Court's decision does not create “nonsensical” “discrimination”

Conclusion

Certificate of compliance

Addendum

Certificate of service

TABLE OF AUTHORITIES

Cases:

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

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

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

Cummings v. United States, 866 F. Supp. 2d 42 (D. Mass. 2011)

Disabled American Veterans v. Commissioner, 942 F.2d 309 (6th Cir. 1991)

Duncan v. Walker, 533 U.S. 167 (2001)

Exxon Mobil Corp. v. United States, 2018 WL 4178776 (N.D. Tex. Aug. 8, 2018), appeal pending, No. 21-10373 (5th Cir)

Fisher v. Nissan North America, Inc., 951 F.3d 409 (6th Cir. 2020)

Hart Furniture Co. v. Commissioner, 12 T.C. 1103 (1949), rev'd on other grounds by joint stipulation, 188 F.2d 968 (5th Cir. 1950) (per curiam)

Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524 (2019)

Hurd Millwork Corp. v. Commissioner, 44 B.T.A. 786 (1941).

K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988)

Liberty Nat. Bank & Trust Co. v. United States, 867 F.2d 302 (6th Cir. 1989)

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

Nat'l Credit Union Admin. v. First Nat'l Bank & Trust Co., 522 U.S. 479 (1998)

Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929)

Snyder v. Commissioner, 894 F.2d 1337 (unpublished), 1990 WL 6953 (6th Cir. 1990).

Sorenson v. Secretary of the Treasury, 475 U.S. 851 (1986)

State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 137 S. Ct. 436 (2016)

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

Sunoco, Inc. v. United States, 129 Fed. Cl. 322 (2016), aff'd, 908 F.3d 710 (Fed. Cir. 2018).

Sunoco, Inc. v. United States, 908 F.3d 710 (Fed. Cir. 2018), cert. denied, 140 S. Ct. 46 (2019)

Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560 (2012)

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

United States v. State of New York, 315 U.S. 510 (1942)

Weiss v. Commissioner, 129 T.C. 175 (2007)

Statutes:

Internal Revenue Code (26 U.S.C.):

§ 31

§ 31(a)(1)

§ 38

§ 40

§ 40(a)

§ 40(c)

§ 40A

§ 40A(c)

§ 41

§ 45H

§ 45H(a)

§ 46

§ 48(g)(1)

§ 61

§ 87

§ 87(1)

§ 87(2)

§ 164(a)(3)

§ 164(a)(5)

§ 263A

§ 263A(a)(2)(B)

§ 275(a)(1)

§ 280C(d)

§ 280D

§ 471

§ 4051

§ 4051(d)

§ 4071

§ 4081

§ 4081(a)

§ 4081(a)(2)

§ 4081(b)

§ 4081(b)(1)

§ 4081(b)(2)

§ 4081(c)

§ 4081(c)(4)

§ 4986(a)

§ 5011

§ 6110(b)(1)(A)

§ 6110(i)(1)

§ 6110(k)(3)

§ 6211(b)(1)

§ 6302

§ 6315

§ 6426

§ 6426(a)

§ 6426(a)(1)

§ 6426(b)

§ 6426(c)

§ 6426(e)

§ 6426(g)

§ 6427

§ 6427(e)

§ 6427(e)(1)

§ 6427(e)(3)

§ 6427(f)

§ 6429

§ 6429(a) (1980)

§ 7701(a)(28)

§ 9503

§ 9503(b)

§ 9503(b)(1)

§ 9503(b)(1)(D) (2000)

§ 9503(b)(2)

28 U.S.C.:

§ 1291

§ 1346(a)(1)

§ 2107(b)

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

Crude Oil Windfall Profit Tax Act of 1980, Pub. L. No. 96-223, § 232(d)(1)(B), 94 Stat. 277

Energy Policy Act of 1992, Pub. L. No. 102-486, § 1920(a), 106 Stat. 3026

Energy Tax Act of 1978, Pub. L. No. 95-618, § 221(a)(1), 92 Stat. 3185

Highway Revenue Act of 1956, ch. 462, Tit. II, § 209, 70 Stat. 397-401

Highway Revenue Act of 1982, Pub. L. No. 97-424, Tit. V, 96 Stat. 2171

Revenue Act of 1932, ch. 209, § 617(a), 47 Stat. 266

Regulations:

Treas. Reg. (26 C.F.R.):

§ 1.61-3(a)

§ 1.164-2(f)

§ 1.461-4(g)(6)

§ 1.446-1(c)(1)(ii)

§ 1.461-4(g)(6)

§ 40.6302(c)-1(a)(1)

§ 40.6302(c)-1(a)(3)

§ 40.6302(c)-1(b)(1)

§ 48.4081-3(g)

§ 48.4081-3(g)(1)

Legislative History:

Congressional Research Service Report RL32979

H.R. Rep. No. 108-548 (2004)

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

Joint Comm. on Taxation, General Explanation of the Crude Oil Windfall Profit Tax Act of 1980, JCS-1-81 (1981)

Joint Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress, JCS-5-05 (2005)

Joint Comm. on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 4520, the “American Jobs Creation Act of 2004,” JCX-69-04 (Oct. 2004)

Joint Comm. on Taxation, Tax Expenditures for Energy Production & Conservation, JCX-25-09R (2009)

Other Authorities:

Black's Law Dictionary (11th ed. 2019)

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

Chief Counsel Advice 200211042

Chief Counsel Advice 200708003

Chief Counsel Advice 200842002

Chief Counsel Advice 201342010

Chief Counsel Advice 201406001

150 Cong. Rec. S 11019, 11024 (Oct. 10, 2004)

IRS Form 720 Instructions (available at https://eformrs.com/Forms09/FedPdf09/720JAN.pdf) (last visited Aug. 27, 2021)

Maule, Tax Incentives for Production & Conservation of Energy, Tax Mgmt. Portfolios No. 512 at 55 (2016)

Maule & Van Loo, Principles of Income Tax Credits, Tax Mgmt. Portfolios No. 506 at 15 (2019)

Notice 2015-56, 2015-35 I.R.B. 235

Rev. Rul. 79-315, 1979-2 C.B. 27

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

Rev. Rul. 85-30, 1985-1 C.B. 20

GLOSSARY

2004 Jobs Act

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

Am. Br.

Amicus Brief

Br.

Appellant's Brief

CCA

Chief Counsel Advice

FSLIC

Federal Savings & Loan Insurance Corporation

I.R.C.

Internal Revenue Code (26 U.S.C.)

IRS

Internal Revenue Service

Stip.

Stipulation of Facts, RE 35, PageID#145

Tax-Expenditure Report

Joint Committee on Taxation, Tax Expenditures for Energy Production & Conservation, JCX-25-09R (2009)

Treas. Reg.

Treasury Regulations (26 C.F.R.)

Windfall-Profit Report

Joint Comm. on Taxation, 96th Cong., 1st Sess., General Explanation of the Crude Oil Windfall Profit Tax Act of 1980, JCS-1-81 (J. Comm. Print 1981)


STATEMENT REGARDING ORAL ARGUMENT

Counsel for the United States believe that oral argument would be helpful to the Court given the complexity of the statutory scheme at issue.

JURISDICTIONAL STATEMENT

On April 23, 2019, Delek US Holdings, Inc., filed a complaint for refund of income taxes for its 2011 tax year. (Complaint, RE 1, PageID#1.) The District Court had jurisdiction under 28 U.S.C. §1346(a)(1). On January 25, 2021, the District Court granted the Government's motion for summary judgment and dismissed Delek's suit. (Order, RE 67, PageID#1823.)

On March 16, 2021, Delek timely filed a notice of appeal. See 28 U.S.C. § 2107(b). This Court has jurisdiction under 28 U.S.C. § 1291.

STATEMENT OF THE ISSUE

A taxpayer who sells inventory in its trade or business generally calculates gross income from a sale by subtracting from the sales price its costs of producing or acquiring the inventory. Those costs sometimes include federal excise taxes. Congress has imposed one such excise tax on certain fuels. I.R.C. § 4081(a). Congress has also provided a “credit . . . against the tax imposed by section 4081” (I.R.C. § 6426(a)) to those who mix alcohol into gasoline (see § 6426(b)) or biodiesel into diesel fuel (see § 6426(c)) (“Mixture Credits”). The question presented is:

Whether a taxpayer who creates alcohol or biodiesel blends may claim as part of its costs the amount of the excise tax listed in § 4081(a) even though it received an excise-tax credit under § 6426(a)(1) “against the tax imposed by section 4081” and thus never incurred or paid that full amount.

STATEMENT OF THE CASE

A. Introduction

This appeal is brought by a fuel producer claiming that it can decrease the amount of its income subject to federal income tax by the amount of an excise-tax expense it did not incur or pay because its liability for the tax in issue was reduced by an offsetting excise-tax credit. Delek benefited from over $64 million in § 6426 excise-tax credits against § 4081 fuel-excise taxes that, because of the Mixture Credits, it never had to pay. Yet Delek wishes to include the full amount of those credits in its cost-of-goods-sold calculation as if it had paid them, thereby reducing its income and its income-tax liabilities. The District Court correctly denied the income tax refunds Delek seeks.

B. Statutory scheme

1. Cost of goods sold

A taxpayer who sells inventory in its trade or business is taxed on its “'gross income'” from those sales, which includes “the total sales, less the cost of goods sold.” Treas. Reg. § 1.61-3(a); see I.R.C. §§ 263A, 471. For example, if a business pays $12 for a widget and resells it for $20, it should report gross income of $8 because it is entitled to subtract the $12 cost from its $20 sale. In calculating its gross income from sales, a business may subtract any properly allocable costs that otherwise would be deductible and are actually incurred. See Affiliated Foods, Inc. v. Commissioner, 128 T.C. 62, 80 (2007); Treas. Reg. §§ 1.446-1(c)(1)(ii), § 1.461-4(g)(6). One notable example is federal excise tax. See I.R.C. § 263A(a)(2)(B); Treas. Reg. §§ 1.164-2(f), 1.461-4(g)(6). If the business in the example above pays $1 in federal excise tax (on top of the $12 purchase price) to acquire the widget, its “cost of goods sold” would be $13, and its gross income would be $7. This case presents the question whether a taxpayer may include in its “costs” the amount of a fuel excise tax that it did not actually incur or pay because it received a statutory credit “against” that excise tax.

2. Fuel excise taxes

a. Historical fuel excise taxes

The United States has long imposed excise tax on certain types of fuel, including gasoline used in highway transportation. See, e.g., Revenue Act of 1932, ch. 209, § 617(a), 47 Stat. 266. As relevant here, §4081 generally imposed an excise tax on the removal of taxable fuel from a refinery or terminal, the entry of taxable fuel into the United States, and the sale of taxable fuel to certain purchasers. I.R.C. § 4081(a).

To encourage the use of renewable fuels, Congress has at times provided certain excise-tax and income-tax incentives for producers that blend alcohol into gasoline for sale or use. Such blended fuel originally was exempt from the fuel excise tax. See Energy Tax Act of 1978, Pub. L. No. 95-618, § 221(a)(1), 92 Stat. 3185 (enacting § 4081(c)). Then it was subject to reduced excise-tax rates. See Highway Revenue Act of 1982, Pub. L. No. 97-424, Tit. V, Subtit. B, 511(d)(1), 96 Stat. 2171 (amending § 4081(c)). Eventually it was subject to reduced rates that varied depending on the amount of alcohol in the blend. See Energy Policy Act of 1992, Pub. L. No. 102-486, § 1920(a), 106 Stat. 3026 (amending § 4081(c)); see also, e.g., I.R.C. § 4081(c)(4) (2000). A blender who, for example, mixed alcohol into gasoline that already had been taxed at the full excise-tax rate could obtain a direct payment equal to the excise-tax incentive. Crude Oil Windfall Profit Tax Act of 1980, Pub. L. No. 96-223, § 232(d)(1)(B), 94 Stat. 277 (enacting I.R.C. § 6427(f)). In lieu of those excise-tax benefits, a blender could choose to take an income-tax benefit (an income-tax credit) under I.R.C. § 40 instead. Id., § 232(b)(1), 94 Stat. 273-74; see Joint Comm. on Taxation, 96th Cong., 1st Sess., General Explanation of the Crude Oil Windfall Profit Tax Act of 1980, at 89-92, JCS-1-81 (J. Comm. Print 1981) (Windfall-Profit Report). A blender could claim the income-tax credit without regard to whether it had an excise-tax liability. Id. at 89.

b. Use of fuel excise-tax funds

Section 4081's excise tax has been used to support federal highways since 1956, when Congress established the Highway Trust Fund. See Highway Revenue Act of 1956, ch. 462, Tit. II, § 209, 70 Stat. 397-401; see I.R.C. § 9503. As of 2004, § 9503 “appropriated to the Highway Trust Fund amounts equivalent to the taxes received in the Treasury” under “section 4081 (relating to the tax on gasoline, diesel fuel, and kerosene),” among other taxes. I.R.C. § 9503(b)(1)(D) (2000). By that time, however, Congress had become concerned that the reduced excise-tax rates for renewable fuels under § 4081 were negatively affecting the Highway Trust Fund. See H.R. Rep. No. 108-548. at 141-43 (2004). Accordingly, Congress restructured the excise-tax benefit for alcohol blends (and added a new benefit for biodiesel blends) in a way that allowed “the full amount of tax” to be “credited to the Highway Trust Fund” (H.R. Rep. No. 108-755 at 308 (2004)) while at the same time providing fuel blenders “a benefit equivalent to the reduced tax rates” (id. at 304; see id. at 308).

To achieve that goal, Congress took three integrated steps in the American Jobs Creation Act of 2004 (2004 Jobs Act), Pub. L. No. 108-357, 118 Stat. 1418. First, it amended § 4081 by eliminating the reduced excise-tax rates for fuel blends. See, e.g., 2004 Jobs Act §§ 301(c)(7) & 853, 118 Stat. 1461, 1609; see I.R.C. § 4081(a)(2). Second, in place of the reduced rates, Congress enacted I.R.C. § 6426, which created an excise-tax credit for alcohol and biodiesel fuel blends to be “allowed as a credit against the tax imposed by section 4081.” 2004 Jobs Act § 301(a), 118 Stat. 1459. Congress also enacted I.R.C. § 6427(e), which directs the Secretary to pay a blender “an amount equal to” the § 6426 Mixture Credit, except that “no amount shall be payable . . . with respect to which an amount is allowed as a credit under section 6426.” 2004 Jobs Act § 301(c)(9), 118 Stat. 1461. Third, Congress added a “new flush sentence” to § 9503(b)(1), the provision addressing appropriations to the Highway Trust Fund, that read: “For purposes of this paragraph, taxes received under sections 4041 and 4081 shall be determined without reduction for credits under section 6426.” 2004 Jobs Act § 301(c)(11), 118 Stat. 1462.

3. Coordination of income-tax and excise-tax benefits

Since enacting § 40 in 1980, Congress has “integrated” the income-tax and excise-tax benefits for blended fuel so that only one benefit applies for any gallon of fuel and the alternative benefits are equivalent. H.R. Rep. No. 108-755, at 300. To ensure that only one benefit applies, Congress reduced the amount of the § 40 income-tax credit by the amount of any excise-tax benefit claimed by the taxpayer.1

In this way, taxpayers who blend fuel for sale or use receive either an excise-tax benefit or an income-tax benefit — but not both — so that “a gallon of qualified fuel is only taken into account once.” Joint Committee on Taxation, Tax Expenditures for Energy Production & Conservation, JCX-25-09R, at 22 (2009) (Tax-Expenditure Report).

To further coordinate the tax benefits, Congress ensured that the amount of the benefit from the income-tax credit was “generally the same as the benefit of [the] excise tax exemption.” Windfall-Profit Report at 92. Congress thus required taxpayers claiming the income-tax credit under § 40(a) to include the amount of the credit in gross income for income-tax purposes. I.R.C. § 87(1). That provides parity with the excise-tax benefit because the excise-tax benefit reduces deductible excise-tax expense: “[b]ecause the excise tax is a deductible expense for the person on whom it is imposed . . . it is necessary to have an amount equivalent to the income tax credit (or refund) includible in income to produce the same net tax effect.” Windfall-Profit Report at 92 n.3.

This equivalency was retained after the 2004 Jobs Act amendments. Taxpayers that opt for income-tax credits under § 40 or § 40A, rather than the new excise-tax credit under § 6426, are required to include the amount of income-tax credit in income under § 87. In this way, the “benefit obtained from the excise tax credit is coordinated with the alcohol fuels income tax credit.” H.R. Rep. No. 108-755, at 304.

C. Delek's tax reporting

During the years at issue, Delek, through its subsidiaries, owned and operated refineries that produced ethanol gasoline blends and biodiesel mixtures. (Stip., RE 35, PageID#146.) Those activities caused Delek to incur § 4081 excise taxes and allowed it to claim either an income-tax credit (§ 40 or § 40A) or an excise-tax credit (§ 6426). (Id., PageID#148.) During 2010 and 2011, Delek opted for the excise-tax credit. (Id.)

Delek claimed in excess of $64 million in Mixture Credits during 2010 and 2011, reducing its excise-tax expense under § 4081 by a like amount. (Id.) When computing its cost of goods sold for purposes of determining its income-tax liability on its sale of blended fuels during 2010 and 2011, it included on its income-tax returns for those years its actual excise-tax expense (that is, the amount that it paid to the IRS after claiming the § 6426 excise-tax credits). (Id., PageID#149.)

In 2015, Delek changed its reporting position and filed a refund claim with the IRS totaling over $16 million, seeking to include in its cost-of-goods-sold computation for 2010 and 2011 the amount of excise taxes it would have owed under § 4081 without regard to the Mixture Credits it had claimed against the tax during those years. (Id., PageID#149-50.)2 The IRS denied the claim. (Id., PageID#150.)

D. District Court proceedings

Delek sued and the parties filed cross-motions for summary judgment. The Government argued that the § 6426 Mixture Credit reduced the amount of the § 4081 excise tax that Delek was required to pay, and that only the amount of tax that Delek was required to pay could be included in its cost of goods sold for purposes of computing its income-tax liability. (Mem., RE 50-2, PageID#1218-43.) Delek argued that (1) disallowing its claim amounted to taxing its Mixture Credits in violation of what it calls the “default exclusion rule” (Mem., RE 52, PageID#1266-70), and (2) the Mixture Credit did not reduce its excise-tax liability, but instead served to pay its excise-tax liability, and it could include the amount of that payment in its cost of goods sold. (Id., PageID#1270-76.) Delek also argued that the Federal Circuit's decision in Sunoco, Inc. v. United States, 908 F.3d 710 (Fed. Cir. 2018), cert. denied, 140 S. Ct. 46 (2019), which held in favor of the Government on the same issue involved here, was “fatally flawed.” (Mem., RE 52, PageID#1276.)

The District Court granted judgment to the Government. (Opinion, RE 66, PageID#1810-22.) It agreed with the Federal Circuit that the Mixture Credit “is 'a credit, not a payment,' the credit reduces Section 4081 excise tax liability, and [a taxpayer] [can]not treat the amount of [the credit] as a deductible expense.” (Id., PageID#1814, quoting Sunoco, 908 F.3d at 717-19). It held that “[i]n the context used here” the plain language of the statute means that the Mixture Credit is “'an amount subtracted directly from one's total [§ 4081 excise] tax liability, dollar for dollar, as opposed to a deduction from gross income.'” (Id., PageID#1818, quoting Black's Law Dictionary (10th ed. 2014).) The court noted that § 6427(e) “separately provides for payments, as distinct from the credit allowed against excise tax in Section 6426.” (Id.) This distinction would be unnecessary if the Mixture Credit also was a payment against the § 4081 excise tax as opposed to a reduction of that tax. And Congress “expressly distinguish[ing] between the two by directing that payment was only provided if the Mixture Credit was not allowed as a credit against excise tax liability.” (Id., citing § 6427(e).)

The District Court rejected Delek's argument that § 9503's language providing that “for purposes of [that] paragraph” the amounts to be allocated to the Highway Trust Fund are to be calculated “under section 4081 . . . without reduction for credits under section 6426” means that the Mixture Credit “does 'not decrease the amount of Fuel Excise Taxes paid.'” (Id.) It explained not only that that calculation is expressly limited to that specific paragraph, but also that the language would be unnecessary if “taxpayers were viewed as having paid the full amount for all purposes” notwithstanding claiming Mixture Credits. (Id., PageID#1819.)

The District Court rejected Delek's “default exclusion rule” argument, and held that the “determination that the Mixture Credit reduces excise tax liability does not result in the Mixture Credit being taxed as income.” (Id., PageID#1819.) Although the credit “has the effect of reducing excise tax liability, which results in a corresponding decrease in production cost” that does not mean that the credit “itself is includable in gross income.” (Id., PageID#1820.)

Finally, the District Court rejected Delek's argument that “it incurred the full amount of the excise tax for tax purposes without 'cash having changed hands.'” (Id., PageID#1820.) To the contrary, “Delek has provided no basis to unlink Section 4081 excise tax liability from Section 6426 Mixture Credits.” (Id., PageID#1820.) Indeed, “the language in the statute makes clear the Mixture Credit is 'allowed against' excise tax liability. Given the structure of the statutory scheme, if the taxpayer is allowed a Mixture Credit under Section 6426, the excise tax liability is determined in conjunction with the credit.” (Id., PageID#1821.)

SUMMARY OF ARGUMENT

The District Court correctly rejected Delek's attempt to claim an income-tax refund by inflating its cost-of-goods-sold (and accordingly reducing its gross income) by the amount of excise-tax expense that it neither incurred nor paid because it was reduced by an offsetting excise-tax credit.

This appeal concerns the impact of the 2004 Jobs Act on the income-tax liability of a fuel blender that received excise-tax credits for its blending activity. Prior to the Act, such blenders paid a reduced rate of the I.R.C. § 4081 excise tax, which reduced their excise-tax expense and thus their cost of selling fuel. After the Act, such blenders were subject to an unreduced rate of the § 4081 excise tax but, at the same time, received a credit against that tax, which together reduced their actual excise-tax expense and thus their cost of selling fuel. The question on appeal is whether, when Congress restructured the excise tax for fuel blenders in the 2004 legislation, it intended to allow such blenders to claim an income-tax deduction for excise tax they neither incurred nor paid by allowing them to compute their deductible cost of selling fuel without taking into account the excise-tax credits that they used to reduce their actual excise-tax expense. The District Court correctly answered that question in the negative.

The relevant authorities hold that tax credits reduce the taxpayer's tax liability (like exemptions and rebates) and therefore produce a corresponding reduction in the taxpayer's deductible tax expense. Consistent with those authorities, the plain language of I.R.C. §6426 requires that the excise-tax credit be applied against the § 4081 tax, and, as such, the credit necessarily reduces the amount of excise tax that the taxpayer is required to pay. In this case, it is undisputed that Delek only paid the amount of excise tax due from it after application of the Mixture Credit. Nevertheless, in computing its costs of goods sold, Delek seeks to include over $64 million of excise tax, the liability for which had been eliminated by the Mixture Credits claimed by Delek.

By artificially inflating its excise-tax expense for income-tax purposes in this way, Delek upends Congressional design equalizing the income-tax benefits and alternative excise-tax benefits for fuel mixtures and thwarts Congressional intent that the credit not be used for both income-tax and excise-tax purposes. The District Court correctly held that § 6426's plain language prohibits that treatment. That conclusion is supported also by the plain language of § 4081(b) and § 9503(b), both of which confirm that the Mixture Credit operates as a reduction — and not a payment — of Delek's § 4081 excise-tax liability.

The legislative history likewise confirms that Congress did not intend to increase the tax benefits for fuel blenders like Delek by allowing both an income-tax and excise-tax benefit. To the contrary, the history indicates that Congress intended to provide such blenders only an “equivalent” benefit and to prohibit using the credit for both income-tax and excise-tax purposes.

ARGUMENT

The District Court correctly held that the excise-tax credit under I.R.C. § 6426 reduces excise-tax liability under I.R.C. § 4081 and that Delek, in computing its gross income, is not entitled to claim as “costs” the full amount of an excise tax that it never actually paid.

Standard of review

This Court reviews a grant of summary judgment de novo. Fisher v. Nissan North America, Inc., 951 F.3d 409, 416 (6th Cir. 2020).

A. Section 6426 allows a “credit against” Section 4081 excise-tax liability; it does not pay that liability

Although presented in several variations, the overarching theme of Delek's argument is that § 6426 pays a portion of Delek's § 4081 excise-tax liability, and that Delek is entitled to claim that payment as its own when calculating its “costs.” The District Court correctly rejected that argument, as did the Federal Circuit when a different fuel blender made the same argument: “The plain meaning of the statute is clear — the Mixture Credit is a credit, not a payment, which must first be used to decrease a taxpayer's gasoline excise tax liability before receiving any payment under § 6427(e).” Sunoco, 908 F.3d at 718. See Exxon Mobil Corp. v. United States, 2018 WL 4178776 (N.D. Tex. Aug. 8, 2018) (rejecting same argument), appeal pending, No. 21-10373 (5th Cir).

1. Mixture Credits reduce — and do not pay — Section 4081 excise-tax liabilities

Delek's entire argument is erected upon an unsound foundation. It argues that the Mixture Credit is an “incentive” which may, at Delek's election, be taken either as a credit against its § 4081 excise-tax liability or in the form of a cash payment. (See, e.g., Br. 6, 7, 13, 14, 19, 49 n.16.) It calls these two purported options the “first method” and the “second method.” (Br. 6, 7.) Amicus echoes this view, asserting that taxpayers “had the option to either claim the credit as a satisfaction against their § 4081 excise-tax liability or as a cash payment.” (Am. Br. 16.) Viewed in that way, Delek argues, the credit is not a reduction in its § 4081 liability but rather a payment of that liability. And, Delek argues, it is entitled to include in its cost-of-goods-sold calculation the nominal amount of excise tax listed in § 4081 without any reduction for Mixture Credits because it is “liable for the entire [§ 4081] amount, regardless of whether it pays its Fuel Excise Taxes via [Mixture Credits], cash, or a combination of each.” (Br. 20 (emphasis in original).) Delek and Amicus are both wrong. There are not two “methods” for obtaining the Mixture Credit; there is only one. There is no “option” (Br. 49 n.16) or “choice” (Am. Br. 17). A blender like Delek must, if at all, claim the Mixture Credit against its § 4081 excise-tax liability, thereby reducing the amount it owes and actually pays to the Treasury, and may receive a cash payment under § 6427 only to the extent that its Mixture Credits exceed its § 4081 liabilities.3 The Mixture Credit is not a payment of Delek's § 4081 excise-tax liabilities. It is a reduction in that liability because it is part of the calculation of that liability. With its foundation thus undermined, Delek's argument collapses.

a. A credit “allowed against the tax imposed” such as the Mixture Credit operates as a direct reduction in tax liability by the amount of the credit

Delek concedes (Br. 21) “the reality that” the amounts of its § 4081 excise-tax liability as reduced by the Mixture Credit “are not literally 'received in the Treasury.'” Undeterred by this reality, Delek nevertheless argues (Br. 18) that the Mixture Credit “is used to pay” its §4081 excise-tax liabilities “in the form of a tax credit.” Consistent with reality, however, the law is clear that credits like the § 6426 excise-tax credit reduce — and do not pay — a taxpayer's tax liability. As the District Court correctly observed, “if the taxpayer is allowed a Mixture Credit under Section 6426, the excise tax liability is determined in conjunction with the credit.” (Op., RE 66, PageID#1821.)

Indeed, in Sunoco, the Federal Circuit rejected exactly this argument. 908 F.3d at 716. Because the Mixture Credit “is applied 'against' the gasoline excise tax imposed under § 4081,” the Mixture Credit “works to reduce the taxpayer's overall excise-tax liability.” Id. Rejecting the argument “that a 'credit' under § 6426 is a 'payment' of [a taxpayer's] § 4081 excise-tax liability,” the court explained that “the Jobs Act treats 'credits' differently from 'payments,' as evidenced by the language in § 6427(e)(1), which grants payment to a taxpayer in the same amounts as the Mixture Credit,” to the extent the credit exceeds §4081 liability. Id. “The plain language of § 6427(e)(3) therefore distinguishes the § 6426 'credit' from the 'payment' allowable under § 6427(e)(1).” Id.

This holding is consistent with the settled principle that taxpayers may deduct from gross income, or include in their cost of goods sold, only an expense for which they bore the economic burden. If (for example) a taxpayer receives a “price rebate” on goods that it purchased for resale, it cannot treat as an expense the original unreduced price for such goods, but must instead treat the rebate “as a reduction in the cost of the goods sold.” Affiliated Foods, Inc. v. Commissioner, 128 T.C. 62, 80. (2007). See Rev. Rul. 84-41, 1984-1 C.B. 130; Rev. Rul. 85-30, 1985-1 C.B. 20.

Similarly, the IRS has long determined that where a taxpayer receives a credit against a deductible tax, its tax expense (and thus the amount of its allowable deduction) is reduced by the credit amount. See Rev. Rul. 79-315, 1979-2 C.B. 27 (portion of state income-tax rebate that was “credited against [state] tax due” is “treated as a reduction of the outstanding [tax] liability” and is therefore not “deductible under section 164(a)(3) of the Code as a state income tax paid”).4

The courts agree. See, e.g., Hurd Millwork Corp. v. Commissioner, 44 B.T.A. 786 (1941) (real estate taxes not deductible on federal return where local government had eliminated that liability to encourage taxpayer to rebuild a manufacturing facility). As the Hurd court explained, a taxpayer is not allowed to deduct “taxes” that it “would never have to pay . . . out of its own operating revenues.” Id. at 793.

Similarly, in Snyder v. Commissioner, 894 F.2d 1337 (unpublished), 1990 WL 6953, *4 (6th Cir. 1990), this Court concluded that, if a taxpayer receives “a right to start paying the state less in taxes than would have to be paid in the absence of the right,” as opposed to the right “to receive an amount of money,” then the right to the state-tax reduction “reduce[s] the deductions available” for federal income-tax purposes. See also Cummings v. United States, 866 F. Supp. 2d 42, 48 (D. Mass. 2011) (taxpayer exempted from local taxes in exchange for investment activity could not deduct gross amount of real property taxes “because the exempted amounts of tax are never assessed or imposed on the taxpayer in the first place”). Although these authorities addressed the effect of state and local tax reductions on the federal deduction for state and local taxes, rather than the effect of federal tax credits on deductible federal taxes, the cases are nevertheless apt because state or local income tax and federal excise tax are both expenses that may reduce gross income as a component of cost of goods sold or as a deduction from gross income.

That a tax credit is refundable to the extent it exceeds the taxpayer's tax liability — that is, that part of the credit may be used to reduce tax liability and any remaining part may be received as a payment — does not change the basic principle that tax credits that reduce tax liability produce a corresponding reduction in the amount of the taxpayer's allowable deduction for tax expenses. For example, in Revenue Ruling 79-315, the IRS determined that the portion of a tax rebate that was used to “reduc[e]” a tax liability was not “deductible under section 164(a)(3),” even if part of the rebate was paid to the taxpayer. 1979-2 C.B. 27. See also Maines v. Commissioner, 144 T.C. 123, 135-36 (2015) (portion of refundable credit that reduced taxpayer's state-tax liability was not taxable income because it merely “reduce[d]” state-tax liability); Hart Furniture Co. v. Commissioner, 12 T.C. 1103, 1107-08 (1949) (federal tax credit “allowed against” a federal excise tax reduced taxpayer's deductible tax expense; taxpayer had “no actual or apparent liability” for the unreduced amount), rev'd on other grounds by joint stipulation, 188 F.2d 968 (5th Cir. 1950) (per curiam).

Thus, judicial and administrative authorities have long understood that a credit allowed against a tax generally reduces, rather than pays, the taxpayer's tax liability. Congress and commentators have recognized this principle when discussing the § 6426 credit. See Tax-Expenditure Report at 24 (§ 6426's “alcohol fuel mixture credit must first be taken to reduce excise tax liability for gasoline”); Maule, Tax Incentives for Production & Conservation of Energy, Tax Mgmt. Portfolios No. 512 at 55 (2016) (“the [§ 4081] fuels excise tax is reduced by an excise tax credit that makes that tax less than it otherwise would be”).

b. The plain language of § 6426 shows that its excise-tax credit reduces the amount of § 4081 excise-tax liabilities

Delek argues (Br. 24) that the Mixture Credit “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[.]” But the Supreme Court has recognized that credits often “can be used only to offset tax that would otherwise be owed.” Sorenson v. Secretary of the Treasury, 475 U.S. 851, 854 (1986); cf. United States v. State of New York, 315 U.S. 510, 518-19 (1942) (credit for payments to an unemployment fund allowable “against the tax imposed” by the Social Security Act serves only to reduce that tax). It has also recognized that the determination of a tax credit's proper treatment ultimately is statute-specific. See Sorenson, 475 U.S. at 854-55; New York, 315 U.S. at 518-20; see also K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988) (“In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.”)

As the Federal Circuit held in Sunoco, the “plain meaning of the statute is clear — the [§ 6426] Mixture Credit is a credit, not a payment, which must first be used to decrease a taxpayer's gasoline excise-tax liability before receiving any payment under § 6427(e).” 908 F.3d at 718. The District Court here similarly concluded that “the plain meaning of the statute is that the Mixture Credit is a credit that reduces the taxpayer's excise tax liability.” (Op., RE 66, PageID#1819).

Section 6426(a)(1) is most naturally read as providing that the excise-tax credit is part of the calculation of a taxpayer's § 4081 excise-tax liability and, as such, reduces the amount of that liability. For the years at issue, § 6426(a)(1) provided 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 § 6426(b), (c), and (e), including (as relevant here) an “alcohol fuel mixture credit” and a “biodiesel mixture credit.” When a statutory credit is allowed “against” a tax, the “commonly accepted definition” is that the credit “is allowable as a subtraction from tax liability for purposes of computing the tax due.” Maule & Van Loo, Principles of Income Tax Credits, Tax Mgmt. Portfolios No. 506 at 15 (2019). Under that approach, a “[c]redit is a direct reduction of tax liability.” Id. at 11. Nothing in § 4081 or § 6426 suggests that Congress intended to deviate from that common understanding of the phrase “credit . . . against the tax imposed.” Accordingly, the plain meaning of § 6426 is that the excise-tax credit reduces a taxpayer's excise-tax liability — just as a rebate reduces the effective price of a widget — and thus reduces the cost of goods sold for purposes of computing the gross income on a sale.

That interpretation coheres with the ordinary meaning of “tax credit.” Because the Internal Revenue Code does not define that term, courts should look to its ordinary meaning in this context. See Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566 (2012). The ordinary meaning of a “tax credit” is “[a]n amount subtracted directly from one's total tax liability, dollar for dollar, as opposed to a deduction from gross income.” Black's Law Dictionary 1501 (8th ed. 2004); Black's Law Dictionary (11th ed. 2019). Applying that definition here, the Mixture Credit is “subtracted directly from” the § 4081 excise-tax liability, “dollar for dollar,” thereby reducing the taxpayer's § 4081 excise-tax liability. Id. Delek is thus incorrect in arguing (Br. 25) that the District Court “depart[ed] from the general definition of 'credit.'” On the contrary, by use of the term “shall,” the statute mandates this treatment. That is to say, § 6426(a)(1) does not simply provide a standalone, general credit; it provides that there “shall be allowed” a credit “against the tax imposed by section 4081” and thereby expressly links the credit to the imposition of that particular excise tax. If, as Delek argues, the credit constitutes a payment, instead of part of the calculation of its fuel excise-tax liability, then the reference to “section 4081” in § 6426(a)(1) would be superfluous.

Delek tacitly admits that its interpretation would ignore this explicit linkage. (See also Am. Br. 14.) Under Delek's reading of the statute (Br. 35), “Delek's use of [the Mixture Credit] to pay its [§ 4081 liabilities] 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.” But, by mandating that the Mixture Credit “shall” be allowed “against” the § 4081 excise-tax liability, Congress expressly declared its intent that the credit not be some fungible asset that Delek could apply as it sees fit. The credit can, and must, only be used to reduce § 4081 liability.

To bolster its argument that the Mixture Credit is a payment (not a reduction) of the § 4081 excise-tax liability, Delek argues (Br. 26) that it “operates equivalent to semimonthly cash deposits of Fuel Excise Taxes with the IRS.” This is completely inaccurate. Although Delek correctly observes that, in general, “semimonthly cash deposits are used to satisfy the final [§ 4081 excise] tax liability” (Br. 26 (emphasis in original); see Br. 30), that observation does not further Delek's cause. Indeed, the Treasury regulations confirm that the Mixture Credit — unlike a cash deposit — is a part of the calculation of a taxpayer's § 4081 excise-tax liability.

I.R.C. § 6302 authorizes the Secretary to establish the time and mode for collecting certain taxes, including the excise taxes imposed by § 4081. The relevant regulations require each person that is required to file Form 720 (Quarterly Federal Excise Tax Return) to make deposits of tax for each semimonthly period in which tax liability is incurred. Treas. Reg. § 40.6302(c)-1(a)(1). Those deposits must be at least 95% of the net excise-tax liability owed during that period. Treas. Reg. § 40.6302(c)-1(b)(1). Importantly, those regulations define “net” tax liability to account for “any adjustments allowable in accordance with the instructions applicable to the form on which the return is made.” Treas. Reg. § 40.6302(c)-1(a)(3). This includes adjustments to § 4081 excise-tax liability due to claiming a Mixture Credit. See Instructions for Form 720 at 14 (Rev. Jan. 2010) (available at https://eformrs.com/Forms09/FedPdf09/720JAN.pdf) (last visited Aug. 27, 2021) (“[a]ny alcohol fuel mixture credit must first be taken on Schedule C to reduce your taxable fuel liability”). Thus, blenders like Delek are required to make cash deposits — which later may be used to satisfy any net § 4081 excise-tax liability — after accounting for credits under § 6426. The Mixture Credit is not itself a “deposit” but rather a part of the calculation of a taxpayer's § 4081 excise-tax liability, which is part (or all of) the taxpayer's net excise-tax liability against which a deposit is required.

This same error is reflected elsewhere in Delek's brief. Relying on I.R.C. § 9503(b)(2), for example, Delek argues that “liability is incurred at the time of sale or removal, before a mixer has filed its tax return, computed how much [Mixture Credit] it will earn, or made any cash payment of that tax.” (Br. 22 n.8; see also Br. 27-28). Similarly, relying on Treas. Reg. § 48.4081-3(g), Delek argues (Br. 29-30) that a blender's fuel excise-tax liability is “the total tax incurred at the moment taxable fuel is sold or removed, without reduction for any” Mixture Credit. And, relying on the excise-tax form itself (Form 720), Delek argues (Br. 30-31) that the Mixture Credit “is a payment of the 'total tax.'” In all of these arguments, Delek confuses taxable events with fuel excise-tax liability. Section 4081 excise-tax liability is based on the aggregation of taxable events occurring during the taxable period (a calendar quarter). Credits earned during that same period are taken into account as well to determine a total excise-tax liability. See I.R.C. § 6426(a).

Treas. Reg. § 48.4081-3(g) is not to the contrary. That regulation simply identifies the taxable event and the party responsible for payment. As explained at pp. 38-39, infra, that regulation supports the District Court's holding by clarifying that § 4081(b)(2)'s use of the phrase “credit against the tax imposed” means a credit that is used to “compute” total excise tax due. And § 9503(b)(2) is an appropriations accounting provision it does not define a taxpayer's tax liability at all. That provision merely ensures that collections for taxable periods ending before the specified date are credited to the trust fund even if they are actually received much later.

Similarly, Delek's reliance on the structure of the Form 720 also misses the mark. While the form uses the term “Total tax” to label Part III, line 3, that sum is merely an interim computation prior to the application of the “Claims” reflected in Part III, line 4. (IRS Form 720, Part III, RE 35-1, PageID#196.) Those “Claims” include Mixture Credits. (Id., Schedule C, lines 12, 13, PageID#200.) To compute the taxpayer's actual excise-tax liability, one must subtract Part III, line 4 (Claims), from Part III, line 3 (Total tax), as Delek did when it originally — and properly — computed the excise-tax expenses that it included in its costs of goods sold. In any event, as the District Court held (Op., RE 66, PageID#1821) tax forms “do not alter statutory language.” See Weiss v. Commissioner, 129 T.C. 175, 177 (2007).

c. Statutes concerning different contexts do not render the Mixture Credit a payment

Delek also incorrectly attempts (Br. 33) to equate the Mixture Credit with credits provided in other statutory contexts, such as paycheck withholding. Under I.R.C. § 31(a)(1), the “amount withheld as tax” from wage income is “allowed to the recipient of the income as a credit against the [income] tax imposed by this subtitle.” Delek argues that because those § 31 credits are treated “as a payment of tax” (as opposed to a reduction in income tax owed) then the Mixture Credits must also be “payments” of its § 4081 excise taxes. (Br. 33.) But the statutory context is completely different. Delek fails to cite I.R.C. § 6211(b)(1), which expressly excludes § 31 credits from the computation of tax imposed. Effectively, § 31 credits, liked estimated tax payments (see I.R.C. § 6315), are an expedient way for individuals — through wage withholding — to prepay their own income-tax liabilities. Far from supporting Delek's position, Congress's omission of a similar exception for Mixture Credits strongly suggests that no such exception applies. See State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 137 S. Ct. 436, 442 (2016) (“Congress' use of explicit language in one provision cautions against inferring the same limitation in another provision”) (cleaned up). The same logic applies to the state-tax provisions Delek references. (Br. 33-34.)

Delek (Br. 32) and Amicus (Am. Br. 25-26) similarly err in their reliance on a private letter ruling interpreting the phrase “allowed as a credit against the tax imposed” in the context of reporting the I.R.C. § 4051 truck tax and a credit for a different tax (the I.R.C. § 4071 tire tax) on an excise-tax return.5 The context there involves the unique situation where a taxpayer is subject to excise tax when purchasing trucks, but the truck's tires were previously subject to a different but related excise tax. The excise tax on truck purchases is imposed on the purchase price. Without the credit, the taxpayer would pay excise tax twice on the tires. To avoid this double taxation, § 4051(d) credits the taxpayer with the tire excise tax that has already been paid. Delek, in contrast, seeks a double benefit by reducing its income-tax liability in the amount of an excise-tax credit that it never paid. But, as explained at pp. 7-9, supra, Congress intended a taxpayer to obtain either an excise-tax benefit or an income-tax benefit, but not both.

Delek's reliance (Br. 26) on United States v. Piedmont Mfg. Co., 89 F.2d 296 (4th Cir. 1937), in this regard is also misplaced. That case involved the question whether the court had jurisdiction over a refund claim where the taxes had been paid via a credit from taxes overpaid in a different year. The court there simply held that there was no reason — in that context — to distinguish between payments by new cash or overpayment credits for purposes of determining whether there was jurisdiction to sue for refund. That holding has no bearing on whether Delek's claiming Mixture Credits to reduce its § 4081 excise-tax liabilities should be treated as a payment — by Delek — of those liabilities.

Delek's reliance (Br. 26) on Consolidated Edison Co. of New York, Inc. v. United States, 10 F.3d 68 (2d Cir. 1993), is similarly misplaced. In that case, the City of New York offered Con Edison an 8% discount on its real estate tax liabilities in exchange for prepayment of those liabilities in cash. The Second Circuit held that this discount did not “forg[ive]” the real estate taxes, but rather represented the time “value of this cash during the period of prepayment.” Id. at 74. For that reason, Con Edison was allowed to deduct the full amount of its municipal real estate tax obligations notwithstanding the discount, because, taking into account the time value of its advance cash payment, the discounts were “effectively utilized to discharge Con Edison's full tax liability.” Id. At the same time, however, the court held that Con Edison “must include the discounts in its gross income since they had the economic value of satisfying part of its tax liabilities.” Id. Delek ignores this portion of the Con Edison holding, arguing that it should be allowed to treat the amount of its Mixture Credits as a “payment” of its § 4081 excise-tax liabilities, and thus include the amount reduced by those credits in its cost-of-goods-sold calculation, but without including the amount of the Mixture Credits in its gross-income calculation. Delek cannot have it both ways. If the Mixture Credits are a payment — by the United States — of Delek's § 4081 excise-tax liabilities, then the amount of those Mixture Credits must be included in Delek's gross income, and the result is exactly the same. See Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 729 (1929) (third party's payment of a taxpayer's tax liability constitutes taxable income to the taxpayer).

Delek incorrectly argues (Br. 28-29) that interpreting § 6426's credit as a reduction of § 4081 excise-tax liability would mean that “there would never be any cash payment under” § 6427(e). There will always be a cash payment allowed under § 6427(e) to the extent that the Mixture Credit exceeds § 4081 excise-tax liability. See I.R.C. § 6427(e)(3). That outcome is not, as Delek contends (Br. 29), “possible only if 'credit' means 'payment[.]'” To the contrary, that outcome is possible because § 6427(e) specifically provides that the Secretary “shall pay . . . an amount equal to the [§ 6426] credit” but only to the extent that that amount exceeds the amount actually “allowed as a credit under section 6426.” I.R.C. §§ 6427(e)(1), (3) (emphasis added). See Tax-Expenditure Report at 24 (§ 6426's “alcohol fuel mixture credit must first be taken to reduce excise tax liability for gasoline” and “[a]ny excess credit may be taken as a payment or income tax credit”); Notice 2015-56, 2015-35 I.R.B. 235; Notice 2016-05, § 2, 2016-6 I.R.B. 302. The District Court correctly observed that “[i]f Congress intended the credit against excise tax under Section 6426(a) and the payment of any excess under Section 6427(e) to both be treated as payments, it could have provided as much without the need for the distinctions provided.” (Op., RE 66, PageID#1818.)

d. Section 6426 does not give Delek an option between a credit and a payment

Given that express statutory restriction on when a cash payment may be claimed, Amicus strays far from the statutory text when it argues that §§ 6426 and 6427(e) “provide[ ] blenders with a choice of how to utilize the credits.” (Am. Br. 17; see also Br. 49 n.16.) It bases this strained reading of the statutes on Congress's use of the term “allowed” (as opposed to “allowable”) in § 6427(e). It argues that that term means that § 6427(e)(3)'s express limitation on cash payments “was based on the credits that the blender chose to use to satisfy its Motor Fuel Excise Tax, not the amount that it could have used to satisfy that tax[,]” because, according to Amicus, “it is well understood that the term 'allowed' refers to the deductions or credits actually taken by the taxpayer” while “'allowable' refers to the amounts that the taxpayer was permitted to claim, but may not have.” (Am. Br. 18; see also Br. 49 n.16.) Even assuming arguendo the correctness of that distinction between “allowed” and “allowable,” that does not further Amicus's argument, because both § 6427(e) and § 6426 use the term “allowed.” The term must mean the same thing in both places. If Amicus is correct that “allowed” means “credits actually taken by the taxpayer” then § 6426's mandate that its credits “shall be allowed . . . against the tax imposed by section 4081” must mean that the Mixture Credits shall “actually [be] taken by the taxpayer” against its § 4081 excise-tax liabilities. Section 6427(e)(3) then provides a cash payment for any credit exceeding § 4081 liabilities. There is no option or choice. The statute is clear: blenders must first use any Mixture Credits to reduce their § 4081 excise-tax liabilities, before claiming any cash payment under § 6427(e) in the amount of the excess Mixture Credits.

e. The text of § 4081(b) confirms that § 6426 credits reduce § 4081 excise-tax liability

The District Court's reading of “credit against the tax imposed” in § 6426 is also supported by the use of that same phrase in § 4081(b). Section 4081(b) imposes the fuel-excise tax on blenders, even if the blender mixes alcohol into fuel previously taxed under § 4081(a). To avoid double taxation on the same fuel, § 4081(b)(2) allows a “credit against the tax imposed” by § 4081(b)(1) for the tax previously paid under § 4081(a). Section 4081(b)(2) and the related regulation clarify that the § 4081(b)(2) credit is used to “compute[ ]” the amount of tax owed under § 4081(b)(1), and that the “[t]ax is computed” on the difference between the amount of fuel previously taxed under § 4081(a) and the amount of fuel taxable under § 4081(b) (that is, the § 4081(b)(1) tax will be imposed on only the additional previously untaxed alcohol that is blended into the previously taxed fuel). Treas. Reg. § 48.4081-3(g)(1).

Sections 4081(b)(2) and 6426(a) both use the same critical language — “allowed as a credit against the tax imposed by [§ 4081]” — and the phrases should be given the “same meaning” in each provision. I.R.C. § 7701(a)(28); see Nat'l Credit Union Admin. v. First Nat'l Bank & Trust Co., 522 U.S. 479, 501 (1998). Therefore, as with the § 4081(b)(2) credit, the § 6426(a) credit is properly interpreted as part of the computation of Delek's excise-tax liability.

f. The text of § 9503 also confirms that § 6426 credits reduce § 4081 excise-tax liability

Section 9503 provides that “[f]or purposes of this paragraph, taxes received under sections 4041 and 4081 shall be determined without reduction for credits under section 6426.” I.R.C. § 9503(b) (flush language) (emphasis added). Delek inexplicably argues that this “language confirms that the [Mixture Credit] is a payment of [§ 4081 excise-tax liabilities] even though that payment was not literally 'received' by Treasury.” (Br. 36; see also Am. Br. 29.) On the contrary, the District Court correctly observed (Op., RE 66, PageID#1819) that if Congress understood taxpayers receiving § 6426's excise-tax credit to have paid the full amount of the § 4081 tax — without reduction for the credit — then there would have been no need for § 9503(b). See Sunoco, 908 F.3d at 7127. But, taxpayers pay only an amount of § 4081 tax that has been reduced by the amount of § 6426's excise-tax credit. Accordingly, § 9503(b) contains a special rule that, only for purposes of the Highway Trust Fund, the amount of excise taxes credited to the Fund as being paid are not reduced by the Mixture Credit. The District Court's interpretation of § 6426 thus gives meaning to § 9503(b)'s special rule and prevents it from being a mere “surplusage.” Duncan v. Walker, 533 U.S. 167, 174 (2001).

2. The statutory structure confirms that § 6426's excise-tax credit is a reduction of Delek's deductible excise-tax expense

The statutory coordination of the income-tax and excise-tax benefits for fuel mixtures further demonstrates that Congress intended §6426's excise-tax credit to reduce the amount of § 4081 tax that Delek was required to pay, and thus the amount of its deductible tax expense.

Prior to the 2004 Jobs Act, alcohol blenders could claim an income-tax credit under § 40(a) or reduced excise-tax rates under § 4081(c), but not both. I.R.C. § 40(c). After replacing those reduced rates with § 6426(b)'s excise-tax credits, Congress retained the prohibition against claiming both an income-tax benefit and an excise-tax benefit for the same gallon of fuel. I.R.C. § 40(c). Both before and after the Jobs Act, the amount of the income-tax credit available under § 40(a) was required to be “reduced to take into account any benefit provided with respect to such alcohol” by reason of § 4081(c)'s reduced rates (before the Jobs Act) or § 6426's excise-tax credit (after the Jobs Act). I.R.C. § 40(c).

Moreover, to maintain the equivalency between the income-tax and excise-tax benefits, Congress required taxpayers who claimed the §40 income-tax credit to include the amount of the credit in their income. I.R.C. § 87(1). Including the amount of the income-tax credit in income provides parity with the excise-tax benefit because a reduction in excise-tax expense increases taxable income for income-tax purposes (by reducing the taxpayer's deductible tax expense or cost of goods sold): “Because the excise tax is a deductible expense for the person on whom it is imposed . . . it is necessary to have an amount equivalent to the income tax credit (or refund) includible in income to produce the same net tax effect.” Windfall-Profit Report at 92 n.3.6

In 2004, when Congress replaced § 4081(c)'s reduced excise-tax rates with an equivalent excise-tax credit for alcohol-fuel mixtures under § 6426(b), Congress retained the rule that the § 40 income-tax credit must be included in gross income. I.R.C. § 87(1). This was not a mere oversight. The Jobs Act also enacted a new income-tax credit and alternative excise-tax credit for biodiesel mixtures. I.R.C. §§ 40A, 6426(c). And, like the existing § 40 income-tax credit for alcohol-fuel mixtures, the § 40A income-tax credit for biodiesel fuels is includable in gross income under § 87(2) to coordinate, and equalize, the income-tax benefit with the related, alternative excise-tax benefit under § 6426(c).

If Congress had intended that the amount of the § 6426 excise-tax credit for alcohol and biodiesel mixtures would not increase a taxpayer's gross income (by limiting the amount of its deductible excise-tax expense), there would have been no need for § 87's inclusion of the related § 40 and § 40A income-tax credits in gross income. In other words, if Congress intended to allow a taxpayer to decrease its gross income by the amount of § 4081 excise tax before application of the Mixture Credit, then it would have eliminated § 87's reference to § 40 and would not have included the new § 40A income-tax credit in § 87. That Congress required these income-tax credits to be included in gross income is further evidence that Congress intended the alternative excise-tax credits in § 6426 to reduce a taxpayer's “deductible expense” for income-tax purposes. Windfall-Profit Report at 92 n.3.

Delek's claim that its § 6426 excise-tax credits do not reduce the amount of its deductible tax expense is inconsistent with Congress's careful balancing of the income-tax and excise-tax benefits. If Delek had claimed the income-tax credit under §§ 40 and 40A, rather than the § 6426 excise-tax credit, it could have deducted the full amount of the excise tax imposed by § 4081 because the amount of that tax would not have been reduced by any excise-tax credits. But, in that situation, Delek would have been required to include the amount of income-tax credits claimed under §§ 40 or 40A in its gross income, pursuant to § 87.

That inclusion would have placed Delek in the same position, tax-wise, as it is under the District Court's decision. Under Delek's anomalous position, however, the § 6426 excise-tax credit would be far more advantageous than the alternative income-tax credits, even though Congress intended the credits to be of equivalent value.

B. The legislative history confirms the District Court's interpretation of the statutes

The history of the 2004 Jobs Act reinforces the natural reading of the statute that Mixture Credits reduce — and do not “pay” — Delek's § 4081 excise-tax liability..

Notably, the original proposed House bill provided that an excise-tax credit “shall . . . be treated — (i) as a payment of the taxpayer's liability for tax imposed by section 4081[.]” H.R. 4520, 108th Cong. 2d Sess., § 251(a)(1) (as introduced in the House on June 4, 2004) (emphasis added). But the statute that Congress enacted — § 6426 — does not contain that language. Rather, it created an excise-tax credit for alcohol and biodiesel fuel blends to be “allowed as a credit against the tax imposed by section 4081.” 2004 Jobs Act § 301(a), 118 Stat. 1459; see I.R.C. § 6426(a). The Conference Report confirms that that credit is not a payment of a taxpayer's excise-tax liability, but instead “may be taken against the tax imposed on taxable fuels (by section 4081).” H.R. Rep. 108-755, at 306. It operates as a payment only “[t]o the extent the . . . credit exceeds any section 4081 liability,” and such “payments are intended to provide an equivalent benefit to replace the [reduced rates] being repealed.” Id. at 308. That portion of the Conference Report cited by Delek (Br. 57-58) confirms this distinction between credits and payments: “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. Rep. No. 108-755, at 308 (emphasis added).

Delek is correct in asserting (Br. 58) that Congress intended to ensure that “[t]he Highway Trust Fund is credited with the full amount of tax imposed on alcohol and biodiesel fuel mixtures.” H.R. Rep. No. 108-755, at 307 (emphasis added). But Delek errs when it asserts (Br. 58) that “Congress intended the 'full amount of tax imposed' to mean” that a blender such as Delek should be treated, for cost-of-goods-sold purposes, as if it had paid the full amount of § 4081 excise tax that it would have owed notwithstanding the Mixture Credit. Contrary to Delek's contention, the Jobs Act did not “ensur[e] that sellers of alcohol and biodiesel mixtures paid the full amount of Fuel Excise Tax into the Highway Trust Fund.” (Br. 58 (emphasis added).)

Congress simply credited the Highway Trust Fund with the full tax rate for each gallon of blended fuel, even though blenders do not pay that rate as a result of the Mixture Credit. The changes were intended to bolster the Highway Trust Fund without changing the net tax effect for fuel blenders. Accordingly, the crediting was accomplished through the special rule set out in § 9503(b), an accounting provision that by its terms applies only “[f]or purposes of” the Highway Trust Fund. Blended-fuel producers like Delek, however, continued to pay the same reduced amount of excise tax because, instead of receiving a tax exemption that reduced their excise-tax liability, they received an “equivalent” excise-tax credit that similarly reduced their excise-tax liability. H.R. Rep. No. 108-755, at 308.

Nothing in the legislative history indicates that Congress restructured the excise-tax regime to increase the tax benefits for fuel blenders like Delek by allowing them to claim both an income-tax benefit and an excise-tax benefit. To the contrary, the Conference Report states that § 6426's excise-tax credit was “[i]n lieu of the reduced excise tax rates,” and was “intended to provide an equivalent benefit to replace the partial exemption . . . being repealed by” the legislation. H.R. Rep. No. 108-755, at 307-308 (emphasis added); see id. at 306 (“In place of reduced rates, the conference agreement creates two new excise tax credits: the alcohol fuel mixture credit and the biodiesel mixture credit.”). This Report further states that Congress intended taxpayers to receive only one tax benefit for their blending activity, emphasizing that the fuel-mixture credits “cannot be claimed for both income and excise tax purposes.” Id. at 306, 307, 308.

By seeking to include in its cost of goods sold the amount of the § 4081 excise tax that it never paid because it received the § 6426 excise-tax credit, Delek seeks to claim a tax benefit for both income- and excise-tax purposes, contrary to Congressional intent. Far from claiming a benefit “equivalent” to the former reduced excise-tax rates, Delek instead seeks an additional income-tax benefit worth over $16 million for the years at issue on top of the over $64 million in reduced excise tax that it obtained via the Mixture Credit. Industry-wide, the additional benefit would cost the Treasury billions. See Sunoco, Inc. v. United States, 129 Fed. Cl. 322, 329 (2016), aff'd, 908 F.3d 710 (Fed. Cir. 2018).

The legislative history does not even hint that Congress anticipated that the excise-tax restructuring would cost the Treasury billions. To the contrary, when the Joint Committee on Taxation computed the budget effect of the proposed restructuring, it found that providing the “excise tax credit (in lieu of reduced tax rate on gasoline) to certain blenders of alcohol fuel mixtures” would have “No Revenue Effect.” Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 4520, the “American Jobs Creation Act of 2004,” JCX-69-04 at 2 (Oct. 2004). That revenue estimate is consistent with the Conference Report's conclusion that taxpayers could not claim the fuel-mixture credits “for both income and excise tax purposes.” H.R. Rep. No. 108-755, at 306; accord Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress, JCS-5-05, at 225-226 (2005).

Nor did Congress view the 2004 legislation as increasing the excise-tax liability for fuel blenders. Rather, the excise-tax credit for alcohol blending simply “replace[d],” and was in “lieu of,” the former reduced excise-tax rates for alcohol blending. H.R. Rep. No. 108-755, at 307-08. As the Joint Committee explained, when discussing whether to extend the excise-tax credit beyond its then-existing expiration date, the “alcohol fuel mixture credit must first be taken to reduce excise tax liability for gasoline.” Joint Committee, Tax-Expenditure Report at 24 (emphasis added). Indeed, when promoting the legislation during Congressional debate, Senator Grassley touted the fact that new revenues would go into the Highway Trust Fund without raising “new taxes.” 150 Cong. Rec. S 11019, 11024 (Oct. 10, 2004). Instead, alcohol-fuel blenders would have the same excise-tax liability as they had before the amendments, by claiming the new excise-tax credit against the full rate of tax imposed by § 4081, in lieu of the prior reduced rates. The Highway Trust Fund would nevertheless benefit because the “full amount of tax on alcohol fuels is credited to the Highway Trust Fund” from the “General Fund,” even though the taxpayer would not have paid the full amount of tax to the General Fund. H.R. Rep. No. 108-755, at 305. Delek's entire argument rests upon the faulty premise that by claiming Mixture Credits, Delek has in fact “paid” the full amount of § 4081 excise taxes that it would owe in the absence of the Mixture Credits. This interpretation is unsupported by the statutory language, its structure, or its legislative history.

Delek erroneously relies (Br. 59-60) on an isolated statement in a 2005 Congressional Research Service report. That report analyzes how the 2004 Jobs Act “restructured the basic tax subsidies for alcohol fuels,” replacing the partial excise-tax exemption with an excise-tax credit. Congressional Research Service Report RL32979, Summary. The report correctly observes that “there is no difference between the new excise tax credit and the old excise tax exemption in the actual excise tax paid or remitted to the Treasury[.]” Id. at 5; see also id. at 3 (the Mixture Credit “reduces the excise tax otherwise owed and remitted to the federal government”). The report nevertheless erroneously concludes that the credit had greater “value” than the exemption, based on the assumption by the author (an economist) that the blender could claim an income-tax deduction equal to the “Nominal” 18.4-cents-per-gallon excise-tax rate rather than equal to the “actual excise tax paid” (i.e., 13.3-cents-per-gallon). Id. at 6. The report cites nothing to support its assumption that a taxpayer may deduct nominal, nonexistent tax liability, rather than actual tax expense, and does not address the judicial and administrative authorities discussed above that have uniformly rejected that notion.

And the report contains other material errors, which further cast doubt on the quality of its analysis. For example, the report incorrectly concludes that “the blenders income tax credits were eliminated” by the Jobs Act. Id. at Summary. As discussed above at pp. 7-8, the § 40 income-tax credit remains in the Code, and continues to be includable in gross income under § 87. The report also incorrectly concludes that the §40 income-tax credit “was not as valuable as the [pre-Jobs Act excise-tax] exemption [under § 4081]” because the income-tax credit “was taxable as income” under § 87. Id. at Summary. That ignores how Congress intentionally included the income-tax credit in income for the very purpose of making it worth the “same” as the excise-tax exemption. Windfall-Profit Report at 92 n.3. Although, as Delek argues, some Congressional Research Service reports may at times be “considered persuasive evidence of Congressional intent” (Br. 60), this post-enactment report cannot, given its patent misunderstanding of the law at issue.

C. The Government is not seeking to tax Delek's § 6426 credits

1. Delek's “default exclusion rule” cannot alter the statutory text

Further distancing itself from the reality that it never actually paid § 4081 excise tax without reduction by Mixture Credits, Delek argues (e.g., Br. 21, 37-53) that the District Court's decision has the effect of imposing a tax on the amount of the Mixture Credits. According to Delek, taxing that credit is impermissible under what Delek calls the “default exclusion rule” that the amount of a tax credit is not included in gross income unless Congress so provides. (Br. 37.) Once again, reality has the better of the argument. As the District Court correctly held, Delek's “rule” “is inapplicable here” because the “determination that the [§ 6426] Mixture Credit reduces excise tax liability does not result in the Mixture Credit being taxed as income.” (Op., RE 66, PageID#1819.) Although the credit “has the effect of reducing excise tax liability, which results in a corresponding decrease in production cost” that does not mean that the credit “itself is includable in gross income.” (Id., PageID#1820.)

Delek's reliance on certain non-precedential guidance (CCA 201342010) issued by the IRS Chief Counsel in 2013 (Br. 39-40) is wholly misplaced.7 That CCA addressed the question whether § 6426's excise-tax credit was generally includable in gross income under the definition of I.R.C. § 61 (“all income from whatever source derived”). The CCA concluded, consistent with the District Court's holding, that it was not includable because “Federal tax credits are an element in the Code's formula for computing a taxpayer's tax due.” The CCA did not address the specific question presented here. That question, viz., “whether a claimant must reduce that portion of its cost of goods sold deduction attributable to the excises taxes imposed by §§ 4081 and 4041 by the fuel credits allowed under § 6426(a),” was addressed in advice issued by Chief Counsel four months later. See CCA 201406001 at 2. That CCA concluded that “the claimant must treat the excise tax credits allowed under § 6426(a) as a reduction in its federal excise tax liability under §§ 4081 and 4041. Accordingly, the claimant's allowable federal income tax deduction for federal excise taxes is reduced by the amount of the credits.” Id. at 1. See id. at 2 (if a credit is applied against “an otherwise deductible liability,” then “the deduction is reduced by the amount of the credit”). The IRS later reiterated this conclusion in precedential guidance. Notice 2015-56, 2015-35 I.R.B. 235.

The District Court correctly rejected Delek's comparison to statutes that function wholly differently from § 6426. (Op., RE 66 n.6, PageID#1820.) For example, Delek cites (Br. 40-41) I.R.C. §§ 45H and 280C(d). But§ 45H provides an income-tax credit, not an excise-tax credit. See I.R.C. §§ 45H, 38. Because federal income taxes are not deductible, I.R.C. § 275(a)(1), the § 45H credit does not reduce the amount of “an otherwise deductible liability” (CCA201406001 at 2). Rather, it reduces a taxpayer's income-tax liability. Accordingly, to ensure that taxpayers receiving the § 45H credit do not, in effect, receive a double tax benefit for the same payment, Congress also enacted § 280C(d), which provides that “deductions otherwise allowed under this chapter for the taxable year shall be reduced by the amount of the credit determined for the taxable year under section 45H(a).”

There was no reason to enact a special statutory provision like §280C(d) in order to reduce deductions for § 4081 tax expense, to the extent that a taxpayer claimed the Mixture Credit, because, under established federal tax law, § 6426 itself operates to reduce deductions for § 4081 tax expense by directly reducing the amount of the § 4081 tax expense that blenders like Delek incur and are required to pay.

Delek's discussion of the investment credit under former I.R.C. § 46 (Br. 42-45) is similarly inapt. Like § 45H, former § 46 provided an income-tax credit and, although calculated as a percentage of funds expended to acquire certain property, it accordingly did not directly reduce the amount of an otherwise deductible liability. Again, to ensure that taxpayers did not in effect obtain a double tax benefit for the same payment, Congress originally enacted former § 48(g)(1), which, like § 280C(d), specifically required taxpayers to reduce an otherwise deductible expense, depreciation, by an amount equal to the amount of the income-tax credit provided by § 46. That Congress later saw fit to effectively allow taxpayers an indirect double benefit does not affect the analysis of § 6426 above. Unlike the investment credit under former §46, the Mixture Credit is not part of the “General Business Credit” against income taxes provided in I.R.C. § 38. Cf. I.R.C. § 5011 (which provides an income-tax credit under I.R.C. § 38 with respect to certain payments of distilled-spirits excise taxes and therefore, does not reduce an otherwise deductible expense) (cited at Br. 41-42). Rather, by its terms, the Mixture Credit directly reduces the amount of the § 4081 tax expense that blenders like Delek incur and are required to pay. See I.R.C. § 6426(a) (“shall be allowed as a credit . . . against the tax imposed by section 4081”).8

Delek's citation (Br. 45-46) of former § 280D fails for the same reason. In 1980, Congress imposed an excise tax on the windfall profit from certain taxable crude oil, I.R.C. § 4986(a), that was withheld from the purchase price and remitted to the Government by the purchaser. It also enacted a new income-tax deduction, I.R.C. § 164(a)(5), that allowed producers to deduct that tax. Later, Congress enacted I.R.C. § 6429, which provided a limited credit for certain royalty owners of the “tax imposed by section 4986 which is paid in connection with qualified royalty production.” I.R.C. § 6429(a) (1980). Congress required purchasers to continue to withhold and remit the full amount of the tax, and then allowed the royalty-owner taxpayer to seek a tax credit for the tax that they had paid through withholding. Id.

Because the § 6429 credit was for taxes that actually had been “paid,” § 6429(a), and that were expressly deductible, § 164(a)(5), Congress also enacted a provision that made clear that § 4986 taxes for which taxpayers had claimed a credit under § 6429 could not be deducted under § 164(a)(5) because the tax payment had been recovered from the Government by means of the credit. That is § 280D. Unlike the § 6429 credit, where the taxpayer was entitled to a refund for a portion of the tax that it had actually paid, § 6426's excise-tax credit is applied directly against the § 4081 tax as a part of the calculation of the taxpayer's tax liability, and thereby reduces that tax liability in the first instance. Because there is no out-of-pocket tax payment that is later recouped as a credit that is “treated as an overpayment” (as there was with the § 6429 credit), there was no need for Congress to enact a special no-deduction rule analogous to § 280D.

The clear meaning of § 6426's plain language also renders futile Delek's reliance (Br. 50-53) on Centex Corp. v. United States, 395 F.3d 1283 (Fed. Cir. 2005). The District Court correctly concluded that “Centex concerned an entirely different statutory scheme.” (Op., RE 66, PageID#1816).

Centex involved the Government's efforts to ameliorate the savings and loan crisis by inducing healthy financial institutions to take over troubled thrifts. 395 F.3d at 1287. The Federal Savings & Loan Insurance Corporation entered into contracts with financial institutions pursuant to which FSLIC agreed to make payments to compensate for losses on certain assets of the acquired thrifts when they were sold or written down. Id. at 1288. As part of the basis of the bargain, the acquiring institutions and FSLIC both understood that, notwithstanding the payments in compensation of built-in losses, the institutions would nevertheless be entitled, under then-existing law, to claim income-tax deductions for those losses. Id. Several years later, Congress enacted the “Guarini amendment” which effectively retroactively disallowed those loss deductions by requiring the FSLIC assistance payments to be taken into account as compensation for those losses. Id. at 1289. The Centex court held that doing so was a breach of contract by the Government, and accordingly awarded damages. Id. at 1287.

To reach that result, the Centex court rejected application of the “general principle” that “payments that are designed to reimburse a taxpayer for an expense or loss may bar the taxpayer from claiming a deduction for that expense or loss” (id. at 1293-94), because “Congress legislated with great particularity during the 1980s on the subject of the tax consequences of FSLIC-assisted acquisitions and created special tax rules for that narrow class of transactions” (id. at 1294). “After a close examination of the series of statutory provisions enacted in the 1980s and early 1990s that specifically addressed FSLIC-assisted acquisitions,” the court concluded that “prior to the enactment of the Guarini amendment in 1993, Congress allowed built-in losses to be deducted even though they were offset by FSLIC assistance payments.” Id. at 1295; see also id. at 1297-1302. Indeed, it was “impossible to read the sequence of enactments between 1981 and 1989 as reflecting any other congressional understanding.” Id. at 1304.

Far from supporting Delek, then, Centex supports the Government's argument. Centex rejected the application of any “general principle” (like Delek's “default exclusion rule”) in the face of statutes mandating the tax treatment in question. That the statutes at issue in Centex favored the taxpayer there is of no moment. The point is that when express statutory language dictates a particular tax treatment, that language must prevail. And here, the express language of § 6426 mandates that its credit be used as a reduction “against the tax imposed by section 4081.” Delek's “default exclusion rule” cannot override this express statutory language.

2. The District Court's decision does not create “nonsensical” “discrimination”

Delek argues that the District Court's opinion would lead to “nonsensical” “inequitable treatment” of “similarly situated” taxpayers. (Br. 48-49; see also Am. Br. 11-14, 21-22.) Delek admits, however, that its argument requires the “absen[ce] [of] statutory language clearly demonstrating Congress's intent” to treat the § 6426 Mixture Credit and the § 6427 payment differently. (Br. 48.) But, as is explained above, and as both the District Court and Sunoco held, the statutes in question here clearly do distinguish between the two, by calling one a credit against excise tax and the other a payment, and by requiring that a blender first use any Mixture Credit under § 6426 to reduce any § 4081 excise-tax liability before claiming any excess payment under § 6427(e). If different “classes of blenders” “receive different economic benefits” (Am. Br. 12) that is only a function of this statutory language.

For this same reason, Delek's reliance (Br. 62-63) on Summa Holdings, Inc. v. Commissioner, 848 F.3d 779 (6th Cir. 2017), is strange. In that case, the language of the relevant statutes allowed the tax benefit that the taxpayer sought. Id. at 784, 788-90. Here it is Delek who wishes to ignore the statute's plain language by, as the District Court observed, “recharacteriz[ing] the Mixture Credit to change a credit into a payment.” (Op., RE 66, PageID#1821.) Indeed, the entire thrust of Amicus's argument (e.g., Am. Br. 3, 7, 11-14, 21-22) is that this Court should ignore the statute's language in favor of what Amicus views as more preferable policy choices. But courts “may not rewrite the statute simply to accommodate [a] policy concern.” Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524, 531 (2019).

And Amicus grossly oversimplifies the “economic value” (Am. Br. 13) of the Mixture Credit and potential § 6427 payments anyway. There are myriad factors that affect a blender's costs and the “economic value” of the Mixture Credit and the § 6427 payment, including, for example, whether the claimant purchases fuel that has already been taxed and the tax was included in the sale price (vs. blending with fuel that has not already been taxed), or when the blender blends the fuels (i.e., whether before or after removal).

In any event, tax provisions frequently provide different benefits to taxpayers in different circumstances. For example: (1) a taxpayer with a gross income-tax liability may obtain a benefit from a non-refundable tax credit, but a taxpayer with no such liability will not; (2) whether an individual obtains a tax benefit from a charitable contribution will depend on whether his or her itemized deductions are greater than the standard deduction (which, in turn, may depend on whether that individual pays interest on a home mortgage); and (3) a husband and wife who marry on December 31st may owe tax in a vastly different amount than if they had married the following day, January 1st. The fact that two different taxpayers might obtain different economic benefits from tax provisions enacted by Congress is not necessarily “nonsensical” or “discriminatory” (Br. 48). Regardless, it is hardly irrational to distinguish between Mixture Credits that reduce a deductible excise-tax expense and those that do not. As explained at p. 23, supra, a refundable tax credit is bifurcated into one portion that reduces tax and another portion that generates a payment, and the tax treatment of the two portions can differ. Maines, 144 T.C. at 135-36; see also Rev. Rul. 79-315.

The District Court's decision is mandated by the statutes' plain language. Delek's disagreement with the policy choices reflected in that clear language provides no basis to rewrite those statutes as Delek suggests.

CONCLUSION

The judgment of the District Court should be affirmed.

Respectfully submitted,

DAVID A. HUBBERT
Acting Assistant Attorney General

BRUCE R. ELLISEN (202) 514-2929
PAUL A. ALLULIS (202) 514-5880
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:
MARY JANE STEWART
Acting United States Attorney

AUGUST 2021

FOOTNOTES

1As amended by the Jobs Act, § 40(c) (“Coordination with exemption from excise tax”) provides that the “amount” of the income-tax credit for blended fuels must be “properly reduced to take into account any benefit provided with respect to such alcohol solely by reason of the application of . . . section 6426, or section 6427(e).” Before the amendment, § 40(c) similarly coordinated the income-tax credit with former “section 4081(c),” which provided reduced rates for alcohol-fuel blends.

2Delek had reported a net operating loss in 2010 and carried that loss forward to its 2011 tax year. (Stip., RE 35, PageID#149.) The refund that Delek sought on its amended 2011 return reflected an increase in the 2010 net operating loss it had carried forward on its original return as a result of increasing its 2010 cost-of-goods-sold calculation by the amount of § 6426 credits it had received in 2010. (Id., PageID#150.)

3Alternatively, a blender may claim an income-tax credit, I.R.C. §§ 40, 40A, but then must include that amount in gross income, I.R.C. § 87. A blender may not claim both an excise-tax and an income-tax benefit on the same gallon. See §§ 40(c), 40A(c), and 6426(g).

4This long-standing precedential guidance has been reiterated in a series of nonprecedential IRS rulings. See, e.g., CCA 200211042; CCA 200708003; CCA 200842002; IRS NSAR 20085201F.

5Private letter rulings may not be relied on as precedent. I.R.C. § 6110(b)(1)(A), (k)(3); see Liberty Nat. Bank & Trust Co. v. United States, 867 F.2d 302, 304-5 (6th Cir. 1989).

6The Joint Committee explained how Congress carefully calibrated the income-tax and excise-tax benefits to be equivalents. In 1980, when the income-tax credit was enacted, Congress provided an exemption from the 4-cents-per-gallon excise tax on motor fuel that was comprised of at least 10% alcohol. The income-tax credit, in turn, provided a 40-cents-per-gallon credit for the production of alcohol that would be blended with motor fuels. “[F]or a taxpayer in the 40 percent marginal tax bracket, a 40 cent excise tax exemption is worth 24 cents after income tax since the loss of the deduction will increase income tax liability by 16 cents. Similarly a 40 cent income tax credit plus the inclusion in income of 40 cents will result in a benefit of 24 cents after income tax.” Joint Committee, Windfall-Profit Report at 92 n.3.

7Chief Counsel Advice does not reflect deliberative positions of the IRS and are not precedential authority. See I.R.C. § 6110(i)(1), (k)(3); Disabled American Veterans v. Commissioner, 942 F.2d 309, 315 n.5 (6th Cir. 1991).

8Amicus's citation (Am. Br. 15) of the I.R.C. § 41 research credit is flawed for the same reason.

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Case Name
    Delek US Holdings Inc. v. United States
  • Court
    United States Court of Appeals for the Sixth Circuit
  • Docket
    No. 21-5257
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-33691
  • Tax Analysts Electronic Citation
    2021 TNTF 167-21
Copy RID