Approximately five years after its Detroit counterparts received billions of dollars from the federal government, Ford Motor Company is attempting to recoup approximately $470 million in overpayment interest it believes it is owed from the federal government. Ford has petitioned the Supreme Court of the United States claiming that the Sixth Circuit improperly extended the “narrow construction” of a waiver of sovereign immunity to a narrow construction of Section 6611 of the Internal Revenue Code (relating to interest on overpayment of taxes). In arguing that certiorari is warranted, Ford noted that there is confusion among the circuit courts over the application of the strict construction canon to waivers of sovereign immunity. The Supreme Court docket for Ford’s case can be found here, and the petition for certiorari is here.
Originally, for the tax years 1983-1989, 1992, and 1994, the IRS determined that Ford had underpaid its taxes. In an effort to toll potential interest charges on its potential underpayment, Ford took advantage of a special rule in Rev. Proc. 84-58 that allowed it to make additional payments as a cash bond (i.e., a deposit), which had the effect of stopping the accrual of underpayment interest. Years later, Ford converted the deposit into an “advance payment” to satisfy further tax liabilities. However, the IRS subsequently determined that Ford had overpaid its taxes for the years in question. Ford then received from the IRS the amount of the overpayment, plus interest. The parties agree on the amount of the overpayment, but disagree as to when the overpayment interest should begin to accrue.
Ford argued, unsuccessfully, that the date of overpayment began once Ford had submitted the deposit. The government argued that since the payments must be made with respect to a tax liability, the date of overpayment did not begin until Ford requested that the IRS treat the cash bonds as “advance payments” to satisfy further tax liabilities. The district court agreed with the government, holding that Ford was not entitled to overpayment interest until it converted the deposit into an advance payment. Ford Motor Co. v. United States, 105 A.F.T.R.2d 2010-2775 (E.D. Mich. 2010) (available through PACER and major commercial reporting services).
On appeal, the Sixth Circuit, acknowledging that Ford’s interpretation of Code Section 6611 was “strong,” applied a strict construction canon to Code Section 6611 and affirmed the holding of the district court. Ford Motor Co. v. United States, 508 Fed. Appx. 506 (6th Cir. 2012) (not recommended for publication). The Sixth Circuit found that that Code Section 6611 is the provision that waives sovereign immunity for claims of overpayment interest and that the canon of narrow construction should apply to resolve the interpretation of Code Section 6611 in the government’s favor.
Ford is now asserting that 28 U.S.C. § 1346(a)(1) is the provision that waives the government’s sovereign immunity with respect to overpayment interest, and Code Section 6611 is the provision that confers the substantive right underlying the claim for overpayment interest. As such, and consistent with Supreme Court precedent, Code Section 6611 should not, Ford argues, be subject to the strict construction canon. In Ford’s petition for certiorari, it argued that “in direct conflict with [the Supreme] Court’s precedents, the Sixth Circuit invoked the strict construction canon to construe not the waiver of sovereign immunity, but instead the separate, substantive provision.” If the Supreme Court rules in Ford’s favor (and sends the case back to the Sixth Circuit on remand), the Sixth Circuit’s seemingly sympathetic view of Ford’s reading of Code Section 6611 may ultimately lead to a decision that could lead to some taxpayers seeking additional interest on overpayments. However, in 2004 Congress enacted Code Section 6603, which provides, in general, that if a taxpayer follows certain procedures pursuant to a deposit made after October 22, 2004, interest may accrue from the date of the deposit so long as the deposit is with respect to a “disputable tax.” Thus, even if Ford were to prevail, taxpayers that follow the requirements of Code Section 6603 (and corresponding Revenue Procedure 2005-18) will not have to rely on the Ford case.