Case Information
*1 In the United States Court of Federal Claims No. 15-587T
(Filed: October 6, 2016)
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SUNOCO, INC., *
* Discovery Dispute Regarding IRS
Plaintiff, * Notice 2015-16; Skidmore Deference; * v. * Internal IRS Documents Not Relevant * to Resolving Legal Issue Under 26 U.S.C. § 6426(b). THE UNITED STATES, *
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Defendant. *
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Kevin Johnson , with whom were A. Christopher Young and Robert Fay , Pepper Hamilton, LLP, Philadelphia, Pennsylvania, for Plaintiff.
Jason Bergmann , with whom were Caroline D. Ciraolo , Principal Deputy Assistant Attorney General, David I. Pincus , Chief, and Mary M. Abate , Assistant Chief, Court of Federal Claims Section, Tax Division, U.S. Department of Justice, Washington, D.C., for Defendant.
OPINION AND ORDER
DENYING PLAINTIFF’S MOTION TO COMPEL
WHEELER, Judge.
The parties in this case are engaged in fact discovery. Their cross-motions for
judgment on the pleadings and partial summary judgment also are pending and fully
briefed. In deciding those motions, the Court must determine whether IRS Notice 2015-
56 is entitled to deference under Skidmore v. Swift,
On July 29, 2016, Sunoco, Inc. (“Sunoco”) filed a motion to compel production of documents pursuant to Rule 37(a) of the United States Court of Federal Claims. Sunoco *2 seeks certain internal IRS documents that it contends would help the Court determine whether Notice 2015-56 is entitled to Skidmore deference. The Government opposes the motion on the grounds that the requested documents are (1) irrelevant to the issue of whether Skidmore deference should apply, and (2) protected under the deliberative process and attorney-client privileges. The Court agrees that the requested documents are unnecessary, and further finds that IRS Notice 2015-56 is not entitled to Skidmore deference for purposes of the pending motions. Sunoco’s motion to compel is therefore DENIED as moot.
Background
The core of the parties’ dispute in this case is a purely legal issue. Because the Court will decide that issue when it resolves the parties’ pending motions, only a brief summary is necessary here. Sunoco, like many companies that produce fuel, blended ethanol into its fuel and thereby qualified for the alcohol fuel mixture credit under 26 U.S.C. § 6426(b). Compl. ¶¶ 10–11, Dkt. No. 1. The credit reduced Sunoco’s excise tax liability under 26 U.S.C. § 4081. A taxpayer may count excise taxes paid as part of its cost of goods sold or as business expenses, and thereby may reduce its overall income tax liability. The question therefore is whether a taxpayer must use its net excise tax paid—that is, whether it must subtract the amount of the alcohol fuel mixture credit from its gross excise tax liability— when calculating deductions against its income tax liability.
The IRS has taken inconsistent stances on the alcohol fuel mixture credit’s tax
treatment. First, it issued Chief Counsel Advisory 201342010 on October 18, 2013 (“2013
CCA”). See
On February 7, 2014, the IRS issued Chief Counsel Advisory 201406001 (“2014
CCA”). See
*3
Finally, the IRS released Notice 2015-56 on August 15, 2015—sixty-five days after
Sunoco filed its complaint in this case. See 2015-
Discussion
Under Skidmore, courts may give deference to an agency’s interpretation of its
governing laws even when the agency does not use its rulemaking authority. 323 U.S. at
139-40. Agencies, as administrators of their governing statutes, contribute “a body of
experience and informed judgment” that properly may guide a court’s decision in such
cases. Id. at 140. In deciding whether to give deference to an agency interpretation, courts
should consider the interpretation’s “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, if lacking power to control.” Id. Depending on the
balance of these factors, courts may give a range of deference from “great respect” to “near
indifference.” United States v. Mead Corp.,
1999). In that case, the Court of Federal Claims had given deference to an IRS revenue ruling that bore directly on the parties and claims and was issued while the parties’ claims were pending with the IRS. Id. at 1338. The Federal Circuit noted that “[a] revenue ruling issued at a time when the I.R.S. is preparing to litigate is often self-serving and not generally entitled to deference by the courts.” Id. at 1338–39 (citation omitted). This was “especially true when the ruling cites no authority and is inconsistent with regulations and other pronouncements of the I.R.S.” Id. at 1339 (citation omitted). Therefore, the Circuit found that the revenue ruling was not entitled to deference. Id.
The situation here is remarkably similar to AMP. The IRS issued Notice 2015-56
sixty-five days after Sunoco filed its complaint. Therefore, the IRS was not merely
preparing to litigate when it issued the Notice—it was actually litigating. The Notice also
reduced a taxpayer’s federal income tax deductions, which necessarily treats any excise tax credit as gross
income. See
Chevron U.S.A., Inc. v. Natural Res. Defense Council, Inc.,
Conclusion
The Court finds that IRS Notice 2015-56 is not entitled to deference for the parties’ cross-motions for judgment on the pleadings and partial summary judgment. Plaintiff’s motion to compel seeks documents only to support its argument that Notice 2015-56 should receive no deference. Therefore, Plaintiff’s motion to compel is DENIED as moot.
IT IS SO ORDERED.
s/Thomas C. Wheeler THOMAS C. WHEELER Judge
Notes
[1] The Government’s attempt to align the 2013 and 2014 CCAs is unconvincing. The 2013 CCA advised
that § 6426(c) excise tax credits, which apply to biodiesel mixtures, were not to be included in a taxpayer’s
gross income. See