FANNIE MAE CASE REMANDED TO DETERMINE IF STATUTE ON UNDERPAYMENTS WAS CLOSED.

Ellen Page Delsole, Attorney, Tax Division, United States Department of Justice, of Washington, DC, argued for defendant- appellant. With her on the brief were Eileen J. O'Connor, Assistant Attorney General, Richard T. Morrison, Deputy Assistant Attorney General, and Richard Farber, Attorney.

Appealed from: United States Court of Federal Claims

Senior Judge John P. Wiese

MICHEL, Circuit Judge.

Federal National Mortgage Association ("FNMA") filed this tax refund action to recover overpayment interest, invoking a statutory "Special Rule" that permits taxpayers to request retroactive application of an Internal Revenue Code provision requiring the Internal Revenue Service ("IRS") to apply a zero net interest rate to overlapping periods of mutual taxpayer and IRS indebtedness. On the parties' cross-motions for partial summary judgment, the United States Court of Federal Claims held that FNMA was entitled to the interest it claimed. Fed. Nat'l Mortgage Ass'n v. United States, 56 Fed. Cl. 228 (2003). The Court of Federal Claims failed to correctly construe the contested statute in accordance with principles of sovereign immunity requiring express waiver. Accordingly, we reverse the judgment in favor of FNMA and remand for fact-finding as discussed herein.

Meanwhile, in 1990 and 1992, respectively, FNMA made tax and deficiency interest payments to the IRS as a consequence of income tax underpayments for the 1983 and 1986 tax years. The periods during which the IRS owed FNMA refunds of overpaid tax (for 1974 and 1975) plus overpayment interest overlapped with the periods during which FNMA owed the IRS for the 1983 and 1986 deficiencies. During the periods of overlap, FNMA owed no net tax. A net liability for FNMA arose for each overlap period,¹ nonetheless, because the IRS charges taxpayers a higher interest rate on underpayments than it pays in overpayment interest.

Section 6621(d) of the Internal Revenue Code was enacted in 1998 as part of the IRS Restructuring and Reform Act of 1998 ("the RRA"), Pub. L. No. 105-206, 112 Stat. 685 (codified at 26 U.S.C. § 6621(d)). It requires the IRS to apply a zero net interest rate to overlapping periods of mutual indebtedness between a taxpayer and the IRS, as follows:

FNMA then filed the present refund action pursuant to 28 U.S.C. § 2411. The parties premised their cross-motions for partial summary judgment on their differing interpretations of the "[s]ubject to any applicable statute of limitation not having expired with regard to either a tax underpayment or a tax overpayment" condition in the special rule.⁵ FNMA argued that retroactive application of section 6621(d) via the special rule is available where the limitations period for either the overpayment period or the underpayment period had not expired as of July 22, 1998. The government argued that the special rule authorizes interest netting for pre-July 22, 1998 periods only if both limitations periods had not expired.

In a very careful and thorough opinion, the Court of Federal Claims granted summary judgment in favor of FNMA, holding that "the special rule applies as long as at least one of the applicable statutes of limitations remains open." Fed. Nat'l Mortgage, 56 Fed. Cl. at 238. It concluded that "it is impossible to tell from the plain language of the statute" which interpretation Congress intended, id. at 234, and discerned no guidance from the "sparse" and "ambiguous" legislative history, id. at 237-38. It held that no deference was due the IRS interpretation set forth in Revenue Procedure 99-43 under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), or Skidmore v. Swift & Co., 323 U.S. 134 (1944). It found, however, "compelling principles supporting the conclusion" it reached, including "a long-standing rule of statutory construction" that "doubt [in matters of statutory interpretation] be resolved against the government and in favor of the taxpayer" together with "the principle that remedial statutes should be interpreted broadly in order to effectuate congressional goals." Fed. Nat'l Mortgage, 56 Fed. Cl. at 239.

This appeal followed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).

We further agree that Revenue Procedure 99-43 is not entitled to Chevron deference. The Court of Federal Claims correctly noted that an agency pronouncement not promulgated pursuant to an explicit or implicit congressional delegation of law-making authority is not entitled to deference under Chevron. Fed. Nat'l Mortgage, 56 Fed. Cl. at 235 (citing United States v. Mead Corp., 533 U.S. 218, 229 (2001)). The government argues that a revenue procedure qualifies for Chevron deference, noting that all IRS "forms of agency interpretation -- Treasury Regulations, revenue rulings, and revenue procedures" -- are promulgated with a comparable degree of formality and care, and that there is, therefore, no sound basis for distinguishing between Treasury Regulations and other IRS pronouncements. Cf. United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 218-20 (2001) (affording Treasury Regulation "substantial judicial deference"). As the Court of Federal Claims observed, however, "the issue is not whether the IRS voluntarily subjected Revenue Procedure 99-43 . . . to a measure of formalized review[, but] whether Congress intended for the IRS to do so." Fed. Nat'l Mortgage, 56 Fed. Cl. at 236. Furthermore, the IRS' limited solicitation of public comment did not extend to the statute of limitations issue.⁶

The government notes that we have left undecided the question of whether revenue rulings are "entitled to Chevron deference in accordance with" Mead. Am. Mut. Life Ins. Co. v. United States, 267 F.3d 1344, 1352-53 n.3 (Fed. Cir. 2001). Even assuming, however, that revenue rulings may, in some circumstances, qualify for deference under Chevron, the pronouncement at issue here is a revenue procedure, not a revenue ruling. The government asks that we ignore the distinction between the two, but the distinction is of the IRS' own making. As the Court of Federal Claims noted, Treasury Regulations define a revenue ruling as "an official interpretation by the [IRS] . . . published for the information and guidance of taxpayers, [IRS] officials, and others concerned." 26 C.F.R. § 601.601(d)(2)(i)(a) (2004). A revenue procedure is defined as a "statement of procedure that affects the rights or duties of taxpayers or other members of the public under the Code and related statutes or information that, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge." Id. § 601.601(d)(2)(i)(b). We need not decide, however, whether there is any distinction of significance between revenue rulings and revenue procedures for purposes of Chevron deference. The revenue procedure at issue here contains no analysis of text or legislative history or any other relevant interpretive guidance. It neither elucidates nor invokes support for its conclusion that "both periods of limitation applicable to the tax underpayment and to the tax overpayment . . . must have been open on July 22, 1998." 1999-47 I.R.B. at 580. We agree with the Court of Federal Claims, therefore, that it is of the nature of an enforcement guideline -- not a legislative-like interpretation -- and thus ineligible for Chevron treatment. See Mead, 533 U.S. at 234 (holding that Customs "classification rulings are best treated like 'interpretations contained in policy statements, agency manuals, and enforcement guidelines' [that are] beyond the Chevron pale." (quoting Christensen v. Harris County, 529 U.S. 576, 587 (2000))).

Mead reaffirmed, however, that, even where Chevron is inapplicable, an agency pronouncement "may merit some deference whatever its form, given the 'specialized experience and broader investigations and information' available to the agency." Id. (quoting Skidmore, 323 U.S. at 139). The extent to which such deference is accorded a given agency pronouncement "depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade." Skidmore, 323 U.S. at 140.

As noted above, however, Revenue Procedure 99-43 sets forth no reasoning in support of its conclusion regarding the introductory language of the special rule. Furthermore, as a "recent pronouncement implementing a new statute with no precedent in the tax laws," Fed. Nat'l Mortgage, 56 Fed. Cl. at 237, it is not entitled to the great weight given settled agency interpretations of long vintage. Cf. Cleveland Indians Baseball, 532 U.S. at 220 (deferring to the IRS' "steady interpretation of its own 61-year-old regulation implementing a 62-year-old statute"). Nor was it highly contemporaneous. Rather, the revenue procedure at issue here was promulgated 16 months after the special rule's enactment. In any event, its conclusion regarding the requirement for open periods of limitation is unaccompanied by any supporting rationale. Accordingly, the revenue procedure does not provide a basis for resolving the present appeal.

The government urges, however, that we look for insight into the intent of Congress in the General Explanation of Tax Legislation Enacted in 1998, prepared by the Joint Committee on Taxation, November 24, 1998 (the "Blue Book"). According to the Blue Book explanation relevant to the special rule:

The issue here concerns the limits of the condition set forth in the special rule's preface: the requirement that certain periods of limitations be open as of July 22, 1998. Such time bars, when they condition recovery from the government, are strictly construed. See United States v. Dalm, 494 U.S. 596, 608-09 (1990) ("'[A]lthough we should not construe . . . a time-bar provision unduly restrictively, we must be careful not to interpret it in a manner that would "extend the waiver beyond that which Congress intended."'" (quoting Block v. North Dakota, 461 U.S. 273, 287 (1983) (quoting United States v. Kubrick, 444 U.S. 111, 117-18 (1979)))).

Here, the implication of these principles is clear. As discussed above, the language at issue is ambiguous, subject to two conflicting interpretations. A waiver to the extent urged by FNMA, i.e., as to claims for overlapping indebtedness periods for which either the overpayment or the underpayment limitations period remains open, has, therefore, not been "unequivocally expressed," as is essential to its recovery here. United States v. King, 395 U.S. 1, 4 (1969) ("We think that this approach runs counter to the settled propositions that the Court of Claims' jurisdiction to grant relief depends wholly upon the extent to which the United States has waived its sovereign immunity to suit and that such a waiver cannot be implied but must be unequivocally expressed."). Accordingly, to the extent the government is correct that both limitations periods -- i.e., for the underpayments and the overpayments -- were closed on July 22, 1998, the Court of Federal Claims lacked jurisdiction to entertain FNMA's claim or at least its "jurisdiction to grant relief."⁸Id. We reverse, therefore, the grant of partial summary judgment in favor of FNMA, and remand only for a factual determination regarding whether the statute of limitations for the 1983 underpayment year was closed on July 22, 1998.

² Subchapters A and B of the Internal Revenue Code relate to interest on underpayments and overpayments of tax, respectively. See 26 U.S.C. §§ 6601, 6611.

³ The IRS issued a corrected notice of disallowance on July 20, 2000.

⁴ A claim for credit or refund of paid underpayment interest is barred if not filed within the later of three years from the date the return was filed or two years from the date the interest was paid. 26 U.S.C. § 6511.

⁵ According to the trial court, FNMA disputed the government's conclusion that the statute of limitations for the 1983 underpayment year was closed on July 22, 1998. Fed. Nat'l Mortgage, 56 Fed. Cl. at 230 n.5 (noting that its grant of summary judgment in FNMA's favor mooted the factual dispute). In light of our disposition, below, that issue is no longer moot.

⁶ The IRS requested comments

⁷ The government did not include a sovereign immunity argument in its motion papers. Nonetheless, because sovereign immunity, to the extent applicable, limits a court's authority to grant relief or even adjudicate, we are obliged to consider its applicability.

⁸ Because it affects such jurisdiction here, sovereign immunity assumes primacy over any other tools or principles of statutory construction and obviates the need for further consideration of the bases for the decision of the Court of Federal Claims. See Marathon Oil Co. v. United States, No. 03- 5147,___ F.3d ___, ___, 2004 WL 1461931, at *15 (Fed. Cir. 2004) (noting that "the legislative history of [an ambiguous waiver statute] is legally irrelevant: If Congress has left us with an ambiguous statute, no waiver of sovereign immunity can be found, regardless of what Congress may or may not have intended as a purpose for its statute").