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Sixth Circuit Sharpens Ford’s Focus on Payment of Overpayment Interest

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While it appears that Ford’s petition for certiorari to the Supreme Court yielded Ford some of the answers it was looking for, Ford is still without the approximately $470 million in what it argues is overpayment interest.  As we discussed in a previous article, the Supreme Court asked the Sixth Circuit to address the question of proper venue.  The Government had previously argued that the Tucker Act (28 U.S.C. § 1491(a)) is the only general waiver of sovereign immunity regarding overpayment interest.  As such, the Government urged a district court would not have jurisdiction under 28 U.S.C. § 1346(a)(1) as Ford was not seeking to recover money that was already paid.  In an opinion dated October 1, the Sixth Circuit denied the Government’s claim that refund claims for overpayment interest, as opposed to claims for tax, penalties, and interest on tax and penalties, must exclusively be brought in the Court of Federal Claims rather than an appropriate federal district court.  This issue had previously been decided by the Sixth Circuit in Scripps Co. v. United States, 420 F.3d 589 (6th Cir. 2005).  In Scripps, the Sixth Circuit held that a suit to obtain overpayment interest includes a “recovery” of money as is described in 28 U.S.C. § 1346(a)(1).  The Sixth Circuit, in seeing no reason to revisit the Scripps decision, declined to revisit the issue and held against the Government’s jurisdiction claim.

Once the Sixth Circuit confirmed proper jurisdiction of the case, it then turned to the merits of the case.  The Sixth Circuit initially addressed whether Section 6611 (relating to overpayment of interest) constitutes a “waiver of sovereign immunity that must be strictly construed,” which would, in turn, require a narrow reading of the term “overpayment.”  The Government argued that Section 6611 constitutes a waiver of sovereign immunity, and as such, the term “overpayment” should be subject to the strict construction canon.  Ford argued that 28 U.S.C. § 1346(a)(1) was the appropriate waiver of sovereign immunity, and that Section 6611 was instead a substantive right underlying the claim.  The Sixth Circuit found that, during the years at issue, any distinction between overpayments of “deposits in the nature of a cash bond” and “advance tax payments” had been made by the Service and not by Congress.  As such, the Sixth Circuit held that the any distinction between deposits and advance tax payments are substantive only, and do not implicate sovereign immunity.

Next, the Sixth Circuit turned to the “date of overpayment,” and whether such date is properly determined as the day that Ford remitted deposits or, alternatively, the date that on which such deposits were converted into advance tax payments.  The Sixth Circuit determined that this issue turns on whether the payments were made by Ford “for the purpose of discharging its estimated tax obligations.”  The Sixth Circuit looked to the “tradeoffs” presented in Rev. Proc. 84-85 (which had been in effect during the years at issue).  In essence, the Sixth Circuit determined that in order for Ford to stop the accrual of underpayment interest, Ford had the ability to either (i) remit a cash-bond deposit which would not pay Ford potential overpayment interest, but which could be returned upon Ford’s demand, or (ii) make an advance tax payment, which would allow Ford to recoup interest with respect to an overpayment, but would deny Ford the immediate ability to recoup the funds.  The Sixth Circuit viewed the form of the remittances, either as a cash-bond deposit or an advance tax payment, as dispositive of the purpose of the payment.  As such, since Ford initially remitted cash-bond deposits, the Sixth Circuit found that Ford “did not remit those deposits to discharge its estimated tax deficiency.”  Thus, the Sixth Circuit held for the Government and found that the remittances were cash-bond deposits that were not entitled to overpayment interest, and that the “date of overpayment” did not begin until the date the payments were converted to advance tax payments.

While Ford received favorable rulings from the Sixth Circuit regarding both proper venue and whether Section 6611 constitutes a separate waiver of sovereign immunity, Ford ultimately lost regarding when an “overpayment” begins.  Ford now has the ability to file yet another petition for certiorari to the Supreme Court.  While any potential petition remains to be seen, it appears that the case at hand is finally narrowed down to the sole issue of when an “overpayment” begins.