The last time we talked about Goldring v. United States, 15 F.4th 639 (5th Cir. Oct. 4, 2021), the taxpayers had won their case for a refund of deficiency interest, creating a circuit split with FleetBoston Fin. Corp v. United States, 483 F.3d 1345 (Fed. Cir. 2007). On November 18th, the government petitioned for a rehearing en banc.
On March 2, 2022, after briefing by the parties in early December, the court denied the petition for rehearing en banc. The court was polled, with seven judges (Smith, Stewart, Dennis, Haynes, Graves, Higginson, and Costa) voting for rehearing and ten judges (Owen, Jones, Elrod, Southwick, Willett, Ho, Duncan, Engelhardt, Oldham, and Wilson) voting against. That may be the end of things, with taxpayers filing future cases in district courts rather than the Court of Federal Claims, hoping to repeat the Goldring result.
It’s also possible that the government will consider filing a petition for a writ of certiorari, hoping to reverse. For one thing, the government argued in its petition that there were more potential cases with this issue than I had anticipated.
The Chief Counsel, Internal Revenue Service, has advised us that nearly 4.4 million individual taxpayers have claimed successive credit elects in the past three years. Chef Counsel estimates that approximately 25,000 of those individuals will have a later determined income-tax deficiency, and could file claims for refund of underpayment interest under the reasoning of the panel’s decision. For corporate taxpayers, to whom the panel’s reasoning equally applies, Chief Counsel foresees roughly 2,000 potential refund claims, which could range into the multiple millions of dollars. All of these claims must be manually processed, as the rule in this case would require the IRS to determine to what extent a taxpayer’s credit balances, year over year, offset a deficiency determination before interest can be computed on the difference.
Further, the panel’s opinion seemed to base the decision on a rationale with which the DOJ Tax Division strongly disagrees. The panel started with a statement about the purpose of interest. “Under the use-of-money principle, a taxpayer is liable for interest only when the Government does not have the use of money it is lawfully due.” It later noted “the simple, undisputed fact that the IRS was never deprived of its use of the money the Goldrings lawfully owed it at any point during the five-year underpayment interest assessment period.” But since the IRS held that money in accounts for other tax years, that sounds very much like a broad “netting” principle – that an overpayment in any tax year can be used to offset an underpayment in another tax year to reduce interest on the latter.
The DOJ Tax Division, on the other hand, construes the use-of-money principle more narrowly, as an aid for interpretation when the statute is ambiguous rather than a broad equitable principle. See a 2012 version of the DOJ Tax Division Settlement Reference Manual, specifically Appendix Y (Interest), page 2:
While case law is important in interpreting these statutes, interest liability may not be extended beyond what the statute prescribes. For example, the “use-of-money” principle is frequently invoked in tax cases. This principle, which is stated to be the rationale for charging interest, is a useful guide for interpreting interest statutes where the statute is ambiguous or where the application of the statute to a particular fact situation is unclear. Nonetheless, the use-of-money principle is not a principle of substantive law and (contrary to arguments sometimes advanced by taxpayers) cannot impose liability for interest that is beyond the scope of the Code’s interest provisions.
This is the most recent version of the manual I was able to find online. I’m not sure if there’s a more recent version, but I would be surprised if this attitude had changed in the past ten years.
I’ve heard/seen the attitude toward “use-of-money” arguments expressed somewhat more, shall we say, sharply or forcefully by at least one or two DOJ attorneys over the years. And the statutory netting provision of section 6621(d) is written more narrowly than the result in Goldring, arguably demonstrating that Congress specifically decided against offering the netting benefit that the Goldrings argued for. So, I wouldn’t be surprised if the DOJ attorneys here argued for a trip to the Supreme Court to try to overturn the Goldring result. I’m just speculating, of course, but I’d love to be a fly on the wall in the “Room of Lies” that Keith described here and here.