Manor Care, Inc. v. United StatesManor Care, Inc. v. United States
provide cost data. In this case, Commerce did not draw such adverse inferences. Although “Commerce has not stated that it will abandon the practice of using adverse inferences,” Maj. Op. at 1375, when Commerce attempted to do so during the eighteenth review, the Trade Court overturned the drawing of adverse inferences as “contrary to law.” Maj. Op. at 1375 n. 6. SKF‘s concern is no longer relevant to this investigation, and any further explanation by Commerce would be advisory at best. Moreover, Commerce did not entirely fail to consider this argument either. Commerce briefly addressed its practice of adverse inferences and simply determined that it would not apply it in this case. See Decision Mem. at 48-49.
In light of the foregoing, it is my view that neither of SKF‘s concerns raises an important aspect of the problem or a material issue warranting a vacatur and remand. Commerce has adequately explained its change in practice, adequately considered SKF‘s concerns, and Commerce‘s path may reasonably be discerned from its decision. Commerce explained that its decision was based upon the statutory emphasis on the use of actual costs, the Statement of Administrative Action‘s language contemplating the same, the inability of acquisition costs to properly capture the actual costs of the manufacturer in this situation, and the need for more consistency. Decision Mem. at 47-49. Not only did Commerce provide a reasoned explanation for its change in practice after sixteen years, but Commerce warned SKF during the fifteenth administrative review that it would be changing to this methodology and did not implement the change until two review years later, during the seventeenth administrative review. Even if Commerce‘s explanation of the two concerns raised by SKF and found wanting by the majority lacked ideal clarity, a point with which I disagree, this court should “uphold a decision of less than ideal clarity if the agency‘s path may reasonably be discerned.” State Farm, 463 U.S. at 43, 103 S.Ct. 2856.
Because Commerce sufficiently addressed all material concerns and its path can be reasonably discerned, I see no need to remand for further explanation and would affirm.
Richard Farber, Attorney, Appellate Section, Tax Division, United States Department of Justice, of Washington, DC, for defendant-appellee. With him on the brief were John A. Dicicco, Acting Assistant Attorney General, and Bethany B. Hauser, Attorney.
David W. Bunning, Greenberg Traurig LLP, of New York, New York, for Amicus Curiae. With him on the brief were Mark E. Solomons and Laura Metcoff Klaus, of Washington, DC.
Before RADER, Chief Judge, DYK and PROST, Circuit Judges.
DYK, Circuit Judge.
Manor Care, Inc., HCR Manor Care, Inc., and Manor Care of America, Inc. (collectively “Manor Care” or “taxpayers“) are operators of nursing homes. They brought suit in the United States Court of Federal Claims (“Claims Court“) under the Tucker Act,
BACKGROUND
In 1996 and 1997, Congress enacted the WOTC and WtW tax credit to provide employers an incentive to hire individuals from certain disadvantaged groups.1 See
As amended, the WOTC provides a tax credit to the employer equal to a percentage of first-year wages paid to “members of a targeted group.”
The WtW credit provides a tax credit equal to a percentage of first and second-year wages paid to “individuals who are long-term family assistance recipients.”
For both types of tax credit, there are “[s]pecial rules for certification” set forth in
From 1998 through 2001, Manor Care pre-screened and hired individuals who had indicated under penalty of perjury that they were members of certain targeted groups. Manor Care submitted the pre-screening notices to the designated local agencies as part of a request for certification, as required by
On their initial tax returns, taxpayers did not claim credits with respect to the 3,000 employees denied certification, but, in 2005, they filed amended tax returns seeking a refund, with statutory interest, for an alleged overpayment of approximately $3.4 million attributable to the credits. When the IRS denied the refund claims, taxpayers filed suit in the Claims Court on November 5, 2007, for Manor Care, Inc.‘s 1999, 2000, and 2001 tax years; for HCR Manor Care‘s short tax year ending September 25, 1998; and for Manor Care of America‘s tax year ending May 31, 1998.
During summary judgment proceedings, taxpayers primarily contended that the tax credits should have been permitted despite the certification denials because, under the “[s]pecial rules for certification” in
The parties filed cross motions for summary judgment. In October 2009, the Claims Court granted summary judgment for the government and dismissed the complaint. The court held that
DISCUSSION
I
Manor Care argues that by virtue of the “[s]pecial rules for certification” in
We are, of course, obligated to construe the statutory requirements of the Code by looking to the plain meaning of the literal text. See USA Choice Internet Servs., LLC v. United States, 522 F.3d 1332, 1336-37 (Fed.Cir.2008). Here, the definition of every targeted group requires that the individual be “certified by the designated local agency.” For example, a “qualified ex-felon” must be “certified by the designated local agency” as (i) having been convicted of a felony, (ii) having been released from prison within one year of being hired, and (iii) being a member of a low-income family.
Manor Care, however, argues that the “[s]pecial rules for certification” contained in
(12) Special rules for certifications.
(A) In general. An individual shall not be treated as a member of a targeted group unless—
(i) on or before the day on which such individual begins work for the employer, the employer has re-ceived
a certification from a designated local agency that such individual is a member of a targeted group, or (ii) (I) on or before the day the individual is offered employment with the employer, a pre-screening notice is completed by the employer with respect to such individual, and
(II) not later than the 21st day after the individual begins work for the employer, the employer submits such notice, signed by the employer and the individual under penalties of perjury, to the designated local agency as part of a written request for such a certification from such agency.
However, there is no basis for this construction in the statutory certification section. Section 51(d)(12)(A) does not provide that “an individual shall be treated as a member of a targeted group if” the employer timely “receive[s]” or “request[s]” certification. Rather, it provides that an “individual shall not be treated as a member of a targeted group unless” the employer follows the relevant procedures.
The obvious policy goal of
[T]he Congress was concerned about the extent to which the credit was being claimed for employees with retroactive certifications, i.e., for employees hired before the employer knew such individuals were members of target groups. Clearly, in these cases, the credit was not serving as an incentive for the hiring of target group members. Accordingly, the Act requires that certification that an individual is a member of a target group must be made or requested before the individual begins work.
Staff of J. Comm. on Taxation, 97th Cong., General Explanation of the Economic Recovery Tax Act of 1981, at 171 (Comm. Print 1981).2
Thus,
II
Taxpayers argue, apparently for the first time on appeal, that the statutes compel tax credits for any certifications improperly denied, and a genuine issue of material fact exists as to the extent to which certifications were wrongfully denied to these taxpayers by the state agencies.
Even if taxpayers had properly raised this argument, it is without merit. Nothing in the statute permits a taxpayer to challenge the denial of a state certification in a federal tax proceeding. Under the statute, and in accordance with general administrative law principles, the proper mechanism for challenging an improper certification is an administrative appeal to the state agency, not a collateral challenge in a tax refund proceeding. At the time the certifications were denied, it appears that procedures were already in place to review the denials. The record contains three example certification denials accompanied by letters from the local agencies, each stating the reasons for the denials along with information about submitting additional documentation for reconsideration. Thus, taxpayers could have challenged the denials before the appropriate state agencies. Subsections 51(d)(12)(B) and (C) of the Code make clear that denials of certifications must be challenged before the state agencies by requiring that state agencies denying certification provide a written explanation of the reasons for such a denial.
Because the statute made the availability of the tax credits dependent upon state action, an erroneous state action had to be corrected within the state system in order to secure a tax credit.4 Certification errors by state authorities cannot be corrected in federal tax proceedings.
Finally, Manor Care argues that the IRS‘s failure to provide the agencies timely advice regarding the eligibility requirements for certain targeted groups should excuse its failure to secure certification. Thus, even if certification were statutorily required, taxpayers argue that equitable principles should bar the government from relying on the certification requirements in denying the tax credits.
The background of this dispute is as follows. During the period in which the 3,000 requests for certification were denied, the statute required that an employee be “a member of a family” receiving government assistance for the following four targeted groups: qualified IV-A recipients,
In 2002 and 2003, three Congressmen involved in drafting the statutes urged the IRS to provide guidance on the family membership issue. In response, the IRS clarified the eligibility requirements in Revenue Ruling 2003-112, 2003-2 C.B. 1007 (Nov. 10, 2003) (“Revenue Ruling“), concluding that an employer was entitled to a tax credit for hiring an individual “if the individual is included on the grant (and thus receives [government] assistance) for some portion of the specified period.” The Revenue Ruling acknowledged that some of the certification requests were almost certainly denied improperly under a stricter standard applied by some state agencies.
However, it was not until March 2005 that the Department of Labor finally issued a training and employment guidance letter (“TEGL“) directing the state agencies to apply the Revenue Ruling to all certification requests filed on or after the date of the Revenue Ruling. This TEGL stated that a future TEGL would address concerns about requests denied before the Revenue Ruling.
In July 2006, the IRS published a study addressing the impact of the delay in announcing the proper guidelines on certifications before the Revenue Ruling. See Announcement 2006-49, 2006-2 C.B. 89 (July 17, 2006). The study found that “less than one percent” of the denials resulted from state agencies “taking a position inconsistent with the [Revenue Ruling].” J.A. 315. Consequently, the IRS concluded that “no ... administrative resolution is necessary or appropriate, and no credit will be allowed ... without proper certification by a designated local agency.” Id. An employer who believed an employee was improperly denied certification prior to the Revenue Ruling could “request that the ... agency reconsider that denial.” Id.
Taxpayers have introduced no evidence that any of the 3,000 allegedly improper
In Perdue Farms, the local agencies failed to process over 2,000 certification requests because the tax credit program had temporarily expired. Id. at *1. The government did not dispute that the certifications would have been granted had the requests been reviewed. In granting summary judgment to Perdue Farms, the court concluded that it would have been inequitable to allow the government to rely on the absence of certification to deny the tax credits that were clearly deserved. Id. at *2-3.
In H.E. Butt, almost 2,000 certification requests were never processed because the local agencies ran out of funding. Id. at 715. Because the circumstances made it impossible for plaintiffs to comply with the certification requirement, the court fashioned an equitable remedy to allow the taxpayer to proceed to trial, where it could present evidence as to how many, if any, of its employees would have qualified for certification had their requests been reviewed. Id.
We think these cases, which do not cite any pertinent case authority, were incorrectly decided. The general rule is that estoppel will not lie against the government because of actions by government agents. Office of Pers. Mgmt. v. Richmond, 496 U.S. 414, 426-27, 110 S.Ct. 2465, 110 L.Ed.2d 387 (1990). As a general matter, tax law requires strict adherence to the Code as written. The failure of the tax authorities to give clear guidance as to the meaning of a Code provision does not justify a departure from the strict requirements of the statute or lead to an “equitable” exception. The fact is that the Code is extraordinarily complex, and many provisions are not written with pristine clarity. In other words, they require interpretation. The failure of the IRS to provide clear guidance as to their meaning cannot excuse compliance with the Code requirements. The fact that the guidance here was directed to state agencies in no way suggests a different result.
As the Supreme Court noted in Lewyt Corp. v. C.I.R., 349 U.S. 237, 240, 75 S.Ct. 736, 99 L.Ed. 1029 (1955), “general equitable considerations do not control the measure of deductions or tax benefits where the benefit claimed ... is fairly within the statutory language and the construction sought is in harmony with the statute as an organic whole.” So, too, our court has reached a similar result. For example, in Marsh & McLennan Co. v. United States, 302 F.3d 1369, 1381 (Fed.Cir.2002), we held that a taxpayer could not recover additional interest on “credit elect overpayments” of federal income tax based on equitable considerations. The relevant Treasury Regulation stated that such credit elect overpayments did not bear interest under
If Congress had intended to excuse certification where the IRS had failed to provide clear guidance to the state agencies, it would have said so in the Code or authorized regulatory rules. Absent statutory or regulatory authority, we decline to rewrite the plain language of
AFFIRMED