No. 15-5059 IN THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT WELLS FARGO & COMPANY, Plaintiff-Appellee v. UNITED STATES, Defendant-Appellant ON APPEAL FROM THE ORDER OF THE UNITED STATES COURT OF FEDERAL CLAIMS No. 11-808-T, Judge Nancy Firestone CORRECTED BRIEF FOR THE APPELLANT CAROLINE D. CIRAOLO Acting Assistant Attorney General DIANA L. ERBSEN Deputy Assistant Attorney General GILBERT S. ROTHENBERG (202) 514-3361 JONATHAN S. COHEN (202) 514-2970 ELLEN PAGE DELSOLE (202) 514-8128 Attorneys, Tax Division Department of Justice Post Office Box 502 Washington, D.C. 20044 May 13, 2015 12695276.1 TABLE OF CONTENTS Page Table of contents ......................................................................................... i Table of authorities .................................................................................. iii Statement of related cases ........................................................................ xi Glossary ...................................................................................................xiii Jurisdictional statement ......................................................................... xiv Statement of the issues .............................................................................. 1 Statement of the case ................................................................................. 2 A. Procedural History ................................................................... 2 B. Factual Background ................................................................. 3 1. Introduction to the statutory framework ....................... 3 2. The relevant mergers ...................................................... 4 3. The claims for interest .................................................... 7 4. Proceedings in the CFC .................................................. 8 a. The test situations ................................................. 8 b. The cross-motions for partial summary judgment .............................................................. 11 c. The CFC’s opinion ............................................... 13 Summary of argument ............................................................................. 17 Argument: I. The CFC erred in permitting netting in Situation 1, where both the overpayment and underpayment were made before the merger .................................................................. 22 - i - 12695276.1 Page Standard of review .......................................................................... 22 A. Introduction to interest netting under I.R.C. § 6621(d) ....... 22 B. The CFC erred in not following Energy East ........................ 27 C. Netting in Situation 1 also is not permissible under Magma .................................................................................... 31 D. The CFC erred in concluding it need not follow Energy East and Magma because they did not involve mergers ...... 33 1. The CFC erred in equating the surviving corporation’s assumption of liabilities with making all parties to a merger the same taxpayer ..... 34 2. The notion that a merger makes previously separate taxpayers the “same taxpayer” is incompatible with multiple Internal Revenue Code provisions ............................................................. 40 3. Code Sections §§ 6601(e) and 6402(a) do not support the CFC’s holding ............................................ 45 II. The CFC erroneously allowed netting in Situation 3 .................... 46 A. Under Energy East, § 6621(d) requires comparing the entities as of the time the overpayment and the underpayment were made ..................................................... 46 B. Magma’s TIN test provides a practical test for ascertaining whether two entities are the “same taxpayer” that is consistent with the statutory language ................................................................................. 48 1. The meaning of “same” ................................................. 48 - ii - 12695276.1 Page(s) 2. The Magma court adopted a practical test, based on whether the TIN the same, that is consistent with § 6621(d)’s statutory language ............................. 50 C. Even under a broader inquiry into corporate identity, netting should not have been allowed in Situation 3 ........... 52 D. The CFC erred in viewing a merger as automatically making all participants the “same taxpayer” ....................... 54 1. Cases pre-dating I.R.C. § 381 do not support the proposition that pre-merger CoreStates and post- merger First Union are the same taxpayer ................. 56 2. Other statutory schemes do not establish that the merged entities are retroactively the same taxpayer ......................................................................... 64 Conclusion ................................................................................................. 68 Statutory addendum ................................................................................. 69 Addendum Certificate of service Certificate of compliance TABLE OF AUTHORITIES Cases: American Cement Corp. v. United States, 234 F. Supp. 375 (E.D. Pa. 1964) ........................................... 42 Anspec Company, Inc. v. Johnson Controls, Inc., 922 F.2d 1240 (6th Cir. 1991) ................................................ 39 Athol Mfg. Co. v. Commissioner, 54 F.2d 230 (1st Cir. 1931) .................................................... 59 Barnhart v. Thomas, 540 U.S. 20 (2003) .................................................................. 28 - iii - 12695276.1 Cases (cont’d): Page(s) Bowers v. Andrew Weir Ship., Ltd., 27 F.3d 800 (2d Cir. 1994) ..................................................... 34 Burnet v. Sanford & Brooks Co., 282 U.S. 359 (1931) ................................................................ 41 California Casket Co. v. Commissioner, 19 T.C. 32 (1952) .................................................................... 60 Disabled Am. Veterans v. Commissioner, 942 F.2d 309 (6th Cir. 1991) .................................................. 30 Duncan v. Walker, 533 U.S. 167 (2001) .......................................................... 40, 49 Energy East v. United States, 645 F.3d 1358 (Fed. Cir. 2011) ................ 7-8, 11, 13-15, 18-20 25-33, 36, 39, 40, 46 Energy East v. United States, 92 Fed. Cl. 29 (2010), aff’d, 645 F.3d 1358 (Fed. Cir. 2011) ..................................... 48 Engel v. Teleprompter Corp., 703 F.2d 127 (5th Cir. 1983) .................................................. 34 Fed. Aviation Admin. v. Cooper, 132 S. Ct. 1441 (2012) ............................................................ 54 Federal Nat’l Mortgage Ass’n v. United States, 379 F.3d 1303 (Fed. Cir. 2004) .............................................. 53 Fidanque v. American Maracaibo Co., 92 A.2d 311 (Del. Ch. 1952) ................................................... 34 Frandsen v. Jensen-Sundquist Agency, Inc., 802 F.2d 941 (7th Cir. 1986) .................................................. 34 Helvering v. Metropolitan Edison Co., 306 U.S. 522 (1939) ........................................................... 60-62 John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964) ................................................................ 35 - iv - 12695276.1 Cases (cont’d): Page(s) Jones v. Noble Drilling Co., Inc., 135 F.2d 721 (10th Cir. 1943) ........................................ 60 Koppers Co., Inc. v. United States, 133 Ct. Cl. 22 (1955) ............................................................... 62 Lane v. Pena, 518 U.S. 187 (1996) ................................................................ 54 Libson Shops, Inc. v. Koehler, 353 U.S. 382 (1957) .......................................................... 62, 63 In re Longi, 759 F.2d 887 (Fed. Cir. 1985) ................................................ 48 Magma Power Co. v. United States, 101 Fed. Cl. 562 (2011) .................. 12, 14-15, 19, 21, 31-33, 46 48-52, 56 Marion-Reserve Power Co. v. Commissioner, 1 T.C. 513 (1943) .................................................................... 61 Mississippi Poultry Ass’n v. Madigan, 992 F.2d 1359 (5th Cir. 1993) ................................................ 48 Moline Properties v. Commissioner, 319 U.S. 436 (1943) ................................................................ 41 Morgan v. Commissioner, 309 U.S. 78 (1940) .................................................................. 41 Nathel v. Commissioner, 615 F.3d 83 (2d Cir. 2010) ..................................................... 30 New Colonial Ice v. Helvering, 292 U.S. 435 (1934) ..........................................41, 58-59, 61-62 New York Cent. R.R. Co. v. Commissioner, 79 F.2d 247 (2d Cir. 1935) ..................................................... 61 Overbrook Nat’l Bank of Philadelphia v. Commissioner, 23 B.T.A. 1390 (1931) ............................................................. 60 Pesquera Mares Australes Ltd. v. United States, 266 F.3d 1372 (Fed. Cir. 2001) .............................................. 48 Philadelphia & Reading Corp. v. United States, 602 F.2d 338, (Ct. Cl. 1979) ................................................... 55 Seaboard Air Line Ry. v. United States, 256 U.S. 655 (1921) ........................................................... 64-66 - v - 12695276.1 Cases (cont’d): Page(s) Shreveport Prod. & Ref. Co. v. Commissioner, 71 F.2d 972 (5th Cir. 1934) .................................................... 59 Standard Paving