744 F.3d 1199
10th Cir.2014Background
- Tax dispute settled by 1988 Closing Agreement among TAPS owners, predecessors in interest, and IRS.
- Arco Transportation Alaska owned 21% of TAPS as of July 1, 1977; later transfers increased its holdings to 22.295% by 2000.
- Conoco acquired Arco Transportation in 2000 via a 338(h)(10) asset sale treatment; Arco later sold more TAPS interests in 2001.
- Closing Agreement allowed up to $900 million DR&R deductions amortized over 318 months, with ownership as of July 1, 1977 defining the initial allocation.
- Conoco sought going-forward deductions for later-acquired interests and basis-increase deductions from higher liabilities; IRS challenged both.
- District court granted summary judgment for IRS; the court of appeals affirmed, holding no going-forward or basis-increase deductions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arco Transportation is an owner for later interests | Conoco argues Arco is owner for all interests via Closing Agreement terms. | IRS says owner status is limited to July 1, 1977 interests; successors are narrow. | Arco not owner for later interests; not a successor in interest under its Additional transfers. |
| Whether Conoco may take going-forward deductions for post-1977 interests | Conoco contends going-forward deductions apply to interests acquired after July 1, 1977 via successor in interest. | Closing Agreement ties owners and successors to July 1, 1977 interests; post-1977 interests excluded. | No going-forward deductions for post-1977 interests. |
| Whether Conoco may claim basis-increase deductions | Closing Agreement fixed liability at $900 million and exempt from § 461(h), permitting basis increases. | $900 million is a cap, not a fixed liability; § 461(h) precludes pre-performance deductions. | Basis-increase deductions disallowed; § 461(h) applies. |
Key Cases Cited
- Int’l Tel. & Tel. Corp. v. United States, 221 Ct.Cl. 442, 608 F.2d 462 (1979) (consolidated return context and tax unit concept)
- Turnbull, Inc. v. Comm’r, 373 F.2d 91 (5th Cir.1967) (liability consolidation and tax liability sharing)
- United Dominion Indus., Inc. v. United States, 532 U.S. 822 (2001) (consolidated filing liability and statutory framework)
- Centex Corp. v. United States, 395 F.3d 1283 (Fed.Cir.2005) (consolidated return treatment and tax benefits to group)
- Ellinger v. United States, 470 F.3d 1325 (11th Cir.2006) (strict construction of closing agreements)
- United States v. Nat’l Steel Corp., 75 F.3d 1146 (7th Cir.1996) (federal common law interpretation of closing agreements)