Alternative Carbon Resources v. United StatesAlternative Carbon Resources v. United States
VIVIAN D. HOARD, Taylor English Duma LLP, Atlanta, GA, argued for plaintiff-appellant. Also represented by BRIAN GARDNER, KELLY MULLALLY; WILLIAM SIDNEY SMITH, Smith & Kramer, PC, Des Moines, IA.
CLINT CARPENTER, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by TERESA E. MCLAUGHLIN, RICHARD E. ZUCKERMAN.
Before O’MALLEY, REYNA, and CHEN, Circuit Judges.
Appellant Alternative Carbon Resources, LLC claimed nearly $20 million in energy tax credits meant for taxpayers who sell alternative fuel mixtures. The Internal Revenue Service (“IRS“) later determined that Alternative Carbon should not have claimed these credits and it demanded repayment (along with interest and penalties). Alternative Carbon paid back the government, in part, and then filed this refund suit in the United States Court of Federal Claims (“Claims Court“).
After the parties filed cross-motions for summary judgment, the Claims Court dеcided that Alternative Carbon failed to establish that it properly claimed the credits or that it had reasonable cause to do so. Alternative Carbon Res., LLC v. United States, 137 Fed. Cl. 1 (2018). The Claims Court therefore granted summary judgment for the government.
Alternative Carbon appeals, arguing that it is entitled to claim the credits or that it at least had reasonable cause for claiming them and so it should not have to pay any penalties. Because we conclude that Alternative Carbon cannot show it is entitled to the credits or that it had reasonable cause for claiming them, we affirm.
I. BACKGROUND
A. Alternative Fuel Mixture Credits
We begin with a brief overview of the tax credits that Alternative Carbon claimed.
As is typical in tax law, this definition of alternative fuel mixture incorporates other parts of the Internal Revenue Code by reference. For example, the statute relies on subsections (A), (B), and (C) of
In 2006, the IRS issued a “notice” regarding
To put all of this in plain English, a taxpayer can claim the alternative fuel mixture credit under
this appeal are, thus, whether the taxpayer actually sold the fuel mixture here and, if so, whether any such sale was “for use as fuel.”
B. Alternative Carbon’s Business
Alternative Carbon argues that it is entitled to claim this alternative fuel mixture credit because it sold an alternative fuel mixture to third parties who, in turn, used the mixture as fuel in anaerobic digestion tanks. Before addressing this argument, we briefly discuss anaerobic digestion and Alternative Carbon’s businеss model. See
Some microorganisms produce methane when they digest organic matter. The input for this process of anaerobic digestion, i.e., the organic material that the microorganisms digest, consists of organic solids called feedstock mixed in a sludge with water.2 Id. at 8; see also J.A. 550 (“[The] microbes basically eat the organics, and a by-product of that is methane gas.“). Anaerobic digester tanks provide a place for the microorganisms to digest the feedstock. J.A. 872–73. Entities that operate these digester tanks then use the resulting methane to generate electricity (among other things). See, e.g., J.A. 552.
Alternative Carbon began operating in 2011. Its business generally involved a few basic steps. First, Alternative Carbon bought feedstock from ethanol production plants. Next, it paid a trucking company to transport the feedstock. Along the way, the trucking company added diesel fuel to the feedstock. The trucking company then delivered this feedstock/diesel mixture to entities that operated
anaerobic digestion tanks.3 The digester operators ultimately fed the mixture to methane-producing microorganisms. Each step is discussed in more detail below.
When Alternative Carbon purchased feedstock from its suppliers, the feedstock consisted of organic material that might otherwise be considered waste. For example, the process of distilling ethanol produces water and corn solids (“stillage“) as a by-product. J.A. 1718. This solid stillage is then further distilled through a centrifuge to separate liquid (“thin-stillage“) from other solids. Id. Alternative Carbon paid ethanol producers to acquire this thin-stillage. Id. In addition to thin-stillage, Alternative Carbon used other organic materials as feedstock. J.A. 1718–20.
After рurchasing the feedstock, Alternative Carbon paid a trucking company to mix enough diesel fuel with the feedstock so that the resulting mixture could qualify as an alternative fuel mixture under
Having made the feedstock/diesel mixture, the trucking company delivered the mixture to digester operators. Alternative Carbon paid a fee to the operators based on how much feedstock/diesel mixture they accepted. See, e.g., J.A. 794. In Alternative Carbon’s contract with the Des Moines Wastewater Reclamation Authority
(“WRA“), this “disposal fee” was “$0.02634 per delivered gallon” plus applicable taxes. Id. In its contract with Amana Farms, the “handling fee” was twenty-five dollars per ton. J.A. 1054. There are no contracts between Alternative Carbon and other digester operators in the record.
Digester operators like WRA and Amana Farms also paid an annual fixed fee to Alternative Carbon. See J.A. 795; J.A. 1054. But the fees Alternative Carbon paid
Once the feedstock/diesel mixture was delivered, it was fed into digester tanks along with other feedstocks. See, e.g., J.A. 878–79. Some of the resulting methane was flared, i.e., burned off as excess, and some was used to generate electricity. Alternative Carbon, 137 Fed. Cl. at 8; J.A. 1475.
C. Alternative Carbon’s Tax Planning
From the outset, Alternative Carbon and its business plan were designed in view of the alternative fuel mixture tax credit. For example, James Huyser, one of Alternative Carbon’s founders, testified:
We understood that if the tax credits . . . w[ere] going to be approved in 2011, we needed to have a vehicle whereby we could have a company that we could operate through that would be able to purchase waste products, transport waste products, and sell waste products as fuel for anaerobic digesters. And so there needed to be some sort of company structure in order to do all this and also be considered an entity for the tax credits that were a part of our business plan.
J.A. 851; see also J.A. 527–28.
To ensure that Alternative Carbon could obtain the credits, its founders consulted with a tax attorney named Greg Sanderson. Initially, Sanderson sent them information about energy tax credits and advised them to register their company with the IRS. See, e.g., J.A. 528–29. Partners at Alternative Carbon also reached out to Sanderson with specific questions about their business.
On January 21, 2011, Huyser emailed Sanderson about an agreement between Alternative Carbon and WRA that was signed the same day. J.A. 1083; see also J.A. 794. The agreement stated that WRA would charge a “disposal fee” for accepting the feedstock/diesel mixture, but it did not mention any money flowing from WRA to Alternative Carbon. J.A. 794. In his email, Huyser asked Sanderson whether the transaction between Alternative Carbon and WRA, in which Alternative Carbon paid WRA to accept the feedstock/diesel mixture, counted as a sale of the mixture for purposes of obtaining the tax credits. J.A. 1083 (“We are basing [the] ‘sale’ and its consideration on the service provided by the WRA in disposing of the ‘non-combustible’ materials.“). Sanderson replied that Alternative Carbon would have “a better case if you charge the user of the mixture for the fuel value, and they charge you a disposal fee.” J.A. 1082. But Sanderson added that he “d[id] not have а full understanding of the economics” of
Alternative Carbon’s business. Id. For example, Sanderson asked “[h]ow do you make money from this business if you pay the digester company to take the liquid” and “[d]oes this business cash flow without the 50 cent per gallon credit?” Id. He also cautioned that while “[t]wo private letter rulings [from the IRS] indicate that the IRS may
In June 2011, Alternative Carbon received a questionnaire from the IRS asking for additional information about its business. J.A. 1522–33; see also J.A. 399. Huyser drafted an initial response and then sent it to Sanderson. J.A. 1522. Sanderson replied with several comments and questions. For example, Sanderson asked:
WHICH CREDIT ARE YOU TRYING TO CLAIM: THE MIXTURE CREDIT FOR LIQUID BIOMASS AND DIESEL[] OR COMPRESSED LIQUIFIED BIOGAS? I DO NOT THINK YOU QUALIFY FOR THE COMPRESSED LIQUIFIED BIOGAS CREDIT BECAUSE YOU ARE NOT THE PRODUCER (I.E. OWNER OF THE GAS AND ALL INGREDIENTS). DOES THE DIGESTER COMPANY CLAIM A CREDIT? IF SO THERE MAY BE A PROBLEM OF DOUBLE-DIPPING.
J.A. 1525.
On July 12, 2011, the IRS issued an advisory letter stating that аlternative fuel mixtures used in anaerobic digester tanks are not “used as a fuel” under
Sanderson therefore told Alternative Carbon that it should continue to claim the credits. J.A. 401.
Ultimately, Alternative Carbon claimed $19,773,393 in alternative fuel mixture credits for 2011. Alternative Carbon, 137 Fed. Cl. at 19. On March 12, 2012, however, the IRS began an initial audit of Alternative Carbon. Id. The IRS eventually determined that Alternative Carbon was not entitled to the alternative fuel mixture credits and so it assessed the full value of the credits along with “excessive claim penalties.”4 Id. at 19–20.
D. The Claims Court’s Decision
Alternative Carbon sent partial payments to the IRS followed by requests for refunds. Id. at 20. When the IRS did not respond to these requests, Alternative Carbon filed suit in the Claims Court. Id. The government counterclaimed for the full amount of taxes and penalties owed. Id. at 21.
After discovery, the parties filed cross motions for summary judgment. Id. In its motion, the government argued that Alternative Carbon was not entitled to the alternative fuel mixture credit because (1) the feedstock/diesel mixture was not an alternative fuel, (2) the mixture was not sold, and (3) to the extent it was sold, it was not sold for use as fuel. The government also argued that (4) Alternative Carbon had no reasonable cause for claiming the credits and thus the assessed penalties were appropriate. The Claims Court addressed each argument.
1. Whether the mixture is an alternative fuel mixture
As noted above,
2. Whether the mixture was sold
With respect to the annual fee Alternative Carbon cоllected from digester operators, the Claims Court concluded that the fee “lacked economic substance because those nominal amounts were collected solely for the purpose of receiving tax credits.” Alternative Carbon, 137 Fed. Cl. at 28. To support this view, the Claims Court pointed to emails from WRA showing that the $950 fee it paid to Alternative Carbon “was intentionally offset by a $950 administrative fee that the WRA charged so that the sale price and fee would be ‘a wash.’” Id. (“[T]he parties intended for there to be no substantive sale price—they simply engaged in ‘a contrived transaction performing no economic or business function other than to generate tax
benefits.’“). This showed that “the ‘sales’ price did not have an independent business purpose and only served to qualify the transactions as sales for purposes of the аlternative fuel mixture credit.” Id. The Claims Court also emphasized that Alternative Carbon determined how much mixture would be transferred, charged a flat fee, and did not collect or pay sales tax. Id.
In addition to the annual fee, Alternative Carbon argued that valuable consideration was exchanged in these transactions because it provided the feedstock/diesel mixture and various fees in exchange for “being relieved of its obligation to dispose of the by-products remaining at the conclusion of the anaerobic digestion process.” Id. at 28–29 (internal quotation marks omitted). The Claims Court reasoned, however, that this was “a separate bargain from plaintiff’s receipt of money in exchange for the alternative fuel mixtures it delivered.” Id. at 30. Thus, even if this exchange “was a bona fide transaction,” the purported salе of the feedstock/diesel mixture was not. Id. The Claims Court therefore concluded that Alternative Carbon was not entitled to claim the credits because it did not sell the feedstock/diesel mixture. Id. at 31.
3. Whether the mixture was sold for use as fuel
In addition to arguing that Alternative Carbon did not sell the feedstock/diesel mixture, the government also argued that the mixture was not sold “for use as fuel” because it is not a “fuel.” Id. at 24–26. The government also argued that even if some feedstock could be used as a fuel, Alternative Carbon had no evidence that its feedstock was used to produce energy. Id. at 26.
The Claims Court rejected the government’s first argument, but it agreed that Alternative Carbon could not prove that its feedstock was used as a fuel. The Claims Court thus required Alternative Carbon to show that its feedstock—among all the other feedstocks input into the digester
to produce energy. Id. Because Alternative Carbon could not do so, the Claims Court concluded that it was not entitled to the tax credits. Id.
4. Whether Alternative Carbon should pay penalties
A taxpayer who wrongly claims the energy credits defined in
Applying this standard, the Claims Court concluded that Alternative Carbon had no reasonable cause for claiming the credits. Id. at 34, 37. In particular, the Claims Court emphasized that because Sanderson repeatedly qualified his advice based on not understanding the economics or science behind Alternative Carbon’s business it was unreasonable for Alternative Carbon to rely on him. Id. at 34. To the еxtent it would have been reasonable to rely on Sanderson, the Claims Court added that Alternative Carbon also “ignored” Sanderson’s advice. Id.
Alternative Carbon also argued that it reasonably relied on guidance from IRS agents, IRS private letter rulings, and the IRS’s decision to accept Alternative Carbon’s initial registration for the credits. Id. at 32, 35. The Claims Court, however, concluded that nothing the IRS did constituted advice that Alternative Carbon could have reasonably relied on. Id. For example, while Sanderson spoke with IRS agents about Alternative Carbon’s decision to claim the credits, none of them provided any
written guidance to Sanderson or Alternative Carbon. See, e.g., id. at 32–33. As to the private letter rulings, the Claims Court noted that these rulings “by their own terms” say they “may not be used or cited as precedent” by other taxpayers. Id. at 29 n.25.
Accordingly, the Claims Court granted summary judgment for the government. Appellant Alternativе Carbon timely appealed. We have jurisdiction under
II. DISCUSSION
Summary judgment should be denied unless, drawing all justifiable inferences in the non-movant’s favor, “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Alternative Carbon argues on appeal that it properly claimed the alternative fuel mixture credits and, in the
alternative, that it at least had a reasonable basis to do so. We address both arguments below.
A. Claiming the Tax Credits
Alternative Carbon bears the ultimate burden of proving it properly claimed the alternative fuel mixture credits. WMI Holdings Corp. v. United States, 891 F.3d 1016, 1021–22 (Fed. Cir. 2018). The government can therefore discharge its burden on summary judgment by establishing that Alternative Carbon failed to show it is entitled to the fuel credits as a matter of law. Dairyland, 16 F.3d at 1202.
Alternative Carbon insists that it is entitled to the credits because it transferred property, i.e., the disposal fee and the feedstock/diesel mixture, to customers in exchange for consideration, “an annual fee and relief from the obligation to dispose of the [alternative fuel mixture] and waste created by the [alternative fuel mixture].” Apрellant’s Br. at 32. According to Alternative Carbon, this shows that it “sold” its alternative fuel mixture “for use as fuel” under
As explained above, taxpayers may claim a credit under
The IRS generally defines a “sale” as “an agreement whereby the seller transfers the property (that is, the title or the substantial incidents of ownership) in goods to the buyer for a consideration called the price, which may consist of money, services, or other things.”
Alternative Carbon insists that its transactions with digester operators were sales because it transferred property, i.e., the disposal fee and its feedstock/diesel mixture, to customers in exchange for consideration, i.e., “an annual fee and relief from the obligation to dispose of the [alternative fuel mixture] and waste created by the [alternative fuel mixture].” Appellant’s Br. at 32. But the only aspect of this transaction that arguably distinguishes it from a situation where Alternative Carbon was buying disposal services is the annual fee digester operators paid to Alternative Carbon. And yet, Alternative Carbon offered no evidence that this fee reflected the price or value of the feedstock/diesel mixture. Oral Arg. at 2:32–40 (“The value of the goods transferred to the digester companies is not quantified in the record . . . .“). Without more, there is no evidence that the digester operators paid anything that genuinely can be characterized as consideration in order to obtain the feedstock/
Even if this fee might be technically characterized as a price, or as meaningful consideration, it lacked economic substance and should be disregarded. Coltec Indus., Inc. v. United States, 454 F.3d 1340, 1352 (Fed. Cir. 2006) (“[T]he economic substance doctrine has required disregarding, for tax purposes, transactions that comply with the literal terms of the tax code but lack economic reality.“); see also Feldman v. Comm’r, 779 F.3d 448, 457 (7th Cir. 2015) (disregarding one part of a transaction because it lacked economic substance). This doctrine “ensure[s] that tax benеfits are available only if ‘there is a genuine multipleparty transaction with economic substance which is compelled or encouraged by business or regulatory realities, is imbued with tax-independent considerations, and is not shaped solely by tax-avoidance features that have meaningless labels.’” Salem Fin., Inc. v. United States, 786 F.3d 932, 949 (Fed. Cir. 2015) (quoting Frank Lyon Co. v. United States, 435 U.S. 561, 583–84 (1978)).
The economic substance doctrine, once “a judicial tool for effectuating . . . Congressional purpose,” Coltec, 454 F.3d at 1354, has been codified at
(1) In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—
(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and
Transport may not have intended to be in a buyer/seller relationship, their intеnt does not change the legal substance of the transaction.“). It does not suggest that an exchange without any meaningful consideration is a sale.
(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
Against this backdrop, we agree with the Claims Court that Alternative Carbon offered no evidence suggesting the annual fee meaningfully changed its economic position or had any non-tax purpose whatsoever. See Stobie Creek, 608 F.3d at 1375 (“[W]e review the trial court’s application of the economic substance doctrine without deference.“). Indeed, the record compels the opposite conclusion. For example, the annual fees Alternative Carbon collected were nominal—$8,950—compared to the millions it paid in fees. Alternative Carbon, 137 Fed. Cl. at 28; see also Feldman, 779 F.3d at 457 (“Rеmove the Shapiro loan from this transaction and nothing of consequence changes.“).
Alternative Carbon’s negotiations with WRA also show that the annual fee was added for tax purposes. In fact, Alternative Carbon’s original contract with WRA initially referenced only a “disposal fee” paid by Alternative Carbon to WRA. J.A. 794. In an email to Sanderson sent the day this agreement was signed, Huyser explained that Alternative Carbon was relying on this disposal fee to establish that a sale occurred between Alternative Carbon
that was “for [Alternative Carbon’s] tax stuff” and offset by “admin fees” that WRA charged right back to Alternative Carbon. J.A. 861 (“We turn around and charge them $950 for admin fees, so it is a wash.“).6
Alternative Carbon argues that applying the economic substance doctrine here punishes it for not being profitable. But Alternative Carbon offered no evidence it ever “reasonably expected” to generate any profit apart from the tax credits.
judgment.“); Blum v. Comm’r, 737 F.3d 1303, 1312 (10th Cir. 2013) (“The probability of earning a prоfit must be reasonable, not a mere possibility.” (citing Stobie Creek, 608 F.3d at 1376)).
Alternative Carbon also argues that the economic substance doctrine does not apply in this case. Appellant’s Br. 32 (“Congress specifically intended that alternative energy tax incentives be excluded from the economic substance doctrine.“). To support this claim, Alternative Carbon relies on a report by the Joint Committee on Taxation “cit[ing] alternative energy tax credits, new markets credits, low income housing credits, and rehabilitation credits as types of tax incentives that may not be disallowed for lack of pre-tax profits.” Id. at 44–45 (citing Staff of Joint Comm. on Taxation, 111th Cong., Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” as Amended, in Combination with the “Patient Protection and Affordable Care Act” at 152 n.344 (Comm. Print 2010)). This argumеnt is meritless. First, a committee report cannot overcome clear statutory text. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) (“As we have repeatedly held, the authoritative statement is the statutory text, not the legislative history or any other extrinsic material.“). The language on which Alternative Carbon relies, from a footnote in a committee report, also does not support its argument. The report says that taxpayers should be allowed to claim credits if they engage in transactions that, “in form and substance,” are “the type of activity that the credit was intended to encourage.” Staff of Joint Comm. on Taxation, 111th Cong., Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” as Amended, in Combination with the “Patient Protection and Affordable Care Act” at 152 n.344 (Comm. Print 2010)). This falls far short of instructing courts to ignore the economic substance doctrine just because the taxpayer is trying to claim an energy tax credit. Cf. Salem, 786 F.3d at 941 (“The economic substance doctrine thus
applies even to a transaction that is governed by a statute or regulation that itself contains a ‘substance-over-form’ provision.“).
Alternative Carbon’s other argument for ignoring the economic substance doctrine fares no better. According to Alternative Carbon,
Alternative Carbon also points to Sacks v. Commissioner, 69 F.3d 982 (9th Cir. 1995). There, the Tax Court treated a leaseback transaction involving solar water heaters as a sham transaction because the taxpayer’s estimated pre-tax income was negative. Sacks, 69 F.3d at 990. The Ninth Circuit reversed, explaining that the “investment did not become a sham just because its profitability was based on after-tax instead of pre-tax projections.” Id. at 991. In particular, the Ninth Circuit concluded that the “[a]bsence of pre-tax profitability does not show whether the transaction ha[s] economic substance beyond the creation of tаx benefits where Congress has purposely used tax incentives to change investors’ conduct.” Id. (internal quotation marks and citations omitted). But the taxpayer in Sacks provided evidence about how he could eventually make money through his water heater leaseback program. Id. (“If energy prices rise faster than the price of solar
water heaters fall, Mr. Sacks stands to make more money. After 53 months, when the units are still well within Amcor’s warranty period and their useful life by any measure, Mr. Sacks owns them free and clear and can negotiate whatever deal the market will bear.“). Alternative Carbon, by contrast, did not. Instead, it entered into unprofitable transactions while charging digester operators a nominal fee so it could generate tax credits.
Alternative Carbon’s reliance on Salem provides no help either. In that case, we acknowledged that “Congress often provides tax benefits to encourage sоcially beneficial activity that would not be pursued absent tax advantages.” Salem, 786 F.3d at 950. And yet, we also emphasized that even this activity “demands careful
Alternative Carbon maintains that, even without the annual fee, it still sold the feedstock/diesel mixture. According to Alternative Carbоn, this is so because the mixture was transferred as part of a transaction where it gave the mixture and a disposal fee to the digester operators in exchange for getting relief from its obligation to dispose of the feedstock/diesel mixture and associated waste. Appellant’s Br. 51. We are not convinced. The digester operators accepted the mixture because they were paid to do so. It would defy the statute’s obvious meaning to conclude that Alternative Carbon sold the mixture to these digester operators by buying disposal services from them.
producing such mixture to any person for use as fuel . . . .“). Such a transaction is clearly not the sort of transaction that Congress contemplated in
Alternative Carbon’s contrary argument relies on two private letter rulings from the IRS in the context of a similar tax credit related to alcohol-based fuels. Appellant’s Br. 49 (citing I.R.S. Priv. Ltr. Rul. 9631012 (Aug. 2, 1996); I.R.S. Priv. Ltr. Rul. 9229038 (July 17, 1992)). In both of these cases, the taxpayer transferred a mixture that included alcohol to entities that “dispose[d] of the [mixture] by using it as a fuel.” I.R.S. Priv. Ltr. Rul. 9229038 (July 17, 1992). The IRS concluded that this transfer was a “sale” because the taxpayer—who transferred the mixture for disposal—was “relieved from the duty associated with having to dispose of the [mixture].” Id. But these private letter rulings have no precedential weight. See, e.g., id. (“This ruling is directed only to the taxpayer who requested it. Section 6110([k])(3) of the Code provides that it may not be used or cited as precedent.“). The rulings аlso arose in a completely different context where the taxpayer had a legitimate non-tax purpose for acquiring the waste and for paying someone to take it. Id.
Ultimately, Alternative Carbon did not offer evidence raising a genuine dispute about whether it sold the feedstock/diesel mixture to the digester operators. Accordingly,
we agree with the Claims Court that the government was entitled to summary judgment.7
B. Penalties
A taxpayer who wrongly claims a credit under
We have emphasized that determining whether reasonable cause exists depends on “all the pertinent facts and circumstances.” Stobie Creek, 608 F.3d at 1381 (citing
important . . . factor[] is ‘the extent of the taxpayer’s effort tо assess the taxpayer’s proper tax liability,’ judged in light of the taxpayer’s ‘experience, knowledge, and education.’” Id. (quoting
Alternative Carbon argues that “Sanderson [reasonably] determined that . . . the sale to a digester customer is a sale for use as a fuel, regardless of who pays whom.” Appellant’s Br. 55. And, according to Alternative Carbon, he also reasonably advised “that the then-newly enacted economic substance doctrine would not bar [Alternative Carbon] from claiming the credits based on the legislative history of section 7701(o).” Id. (citing J.A. 398).
Setting aside the question of whether Sanderson’s advice included any unreasonable assumptions, Alternative Carbon cannot show that its reliance on his advice was reasonable. As the Claims Court correctly recognized, Sanderson repeatedly hedged his advice and demonstrated an incomplete understanding of Alternative Carbon’s business. See Alternative Carbon, 137 Fed. Cl. at 34 (“[P]laintiff’s primary adviser could not unambiguously endorse plaintiff’s business model as late as July 2011—after
plaintiff had already claimed millions in alternative fuel mixture credits but had yet to claim millions more.“); see also J.A. 1082 (Sanderson stating he “d[id] not have a full understanding of the economics” of
To the extent it might have been reasonable to rely on Sanderson’s advice, moreover, Alternative Carbon cannot show that it followed his advice. In particular, Sanderson advised Alternative Carbon to charge “the user of the mixture for the fuel value.” J.A. 1082. But Alternative Carbon offered no evidence it did so. Alternative Carbon, 137 Fed. Cl. at 33 (“[P]laintiff ignored Mr. Sanderson’s advice to charge its customers for the fuel value when it instead charged its customers a flat fee for an undefined amount of its alternative fuel mixtures.“); Oral Arg. at 2:24–40.
Finally, Alternative Carbon’s partners should have recognized that receiving millions of dollars in tax credits for transferring feedstock from one entity to another—while mixing in a meaningless amount of diesel along the way—was “too good to be true.” Salem, 786 F.3d at 960 (“[C]laiming nearly $500 million in foreign tax credits by subjecting income to economically meaningless activities was ‘too good to be true.’“). This is yet another reason why Alternative Carbon cannot establish reasonable cause for claiming the credits. Stobie Creek, 608 F.3d at 1382.
For these reasons, we agree with the Claims Court that Alternative Carbon cannot show it had reasonable cause for claiming the alternative fuel mixture credits.
III. CONCLUSION
We have considered the parties’ remaining arguments and find them unpersuasive. Alternative Carbon cannot show that it was entitled to claim the alternative fuel mixture credits under
AFFIRMED
COSTS
No costs.