Because the new statutory language [in section 6621] was enacted as part of the statute that gave effect to the agreements reached at the Uruguay Round of Multilateral Trade Negotiations conducted under the auspices of the General Agreement on Tariffs and Trade ("GATT"), the lower corporate overpayment interest rate of 0.5 percent set forth in the 1994 amendment is referred to as the "GATT rate." The higher interest rate on corporate overpayments that applied to all corporate overpayments prior to the 1994 Act and [that applies to corporate overpayments of $10,000 and less] is referred to as the "regular rate." * * *

We use the same nomenclature herein.

Due to the 1.5-percent differential under section 6621(a)(1) between the regular rate and the GATT rate, if the higher regular overpayment interest rate applies to petitioners' December 31, 1994, overpayment interest balance, there will accrue, after December 31, 1994, additional interest in favor of petitioners of approximately $450 million.

Background

The parties have stipulated the facts relevant to the instant motions.

Petitioners' corporate Federal income tax returns for 1979 through 1985 were timely filed with respondent. On each of those tax returns as filed, petitioners reported tax overpayments in excess of $10,000 and claimed refunds or credit transfers of the tax overpayments, which respondent allowed and credited in favor of petitioners.

Upon audit, respondent determined substantial deficiencies in petitioners' Federal income taxes for 1979 through 1985. During the course of respondent's audits, petitioners' administrative appeals, and the litigation of these and related cases,2 petitioners made a number of substantial advance payments to respondent of taxes and of interest with respect to each of the tax deficiencies determined by respondent against petitioners for 1979 through 1985.

2 See, e.g., Exxon Corp. v. Commissioner, T.C. Memo. 1993-616 (involving the allocation of profits from sales of Saudi Arabian crude oil), affd. sub nom. Texaco, Inc. v. Commissioner, 98 F.3d 825 (5th Cir. 1996); Exxon Corp. v. Commissioner, 102 T.C. 721 (1994) (involving the computation of percentage depletion relating to the sale of natural gas); Exxon Corp. v. Commissioner, T.C. Memo. 1999-247 (involving the deductibility of interest relating to contested tax deficiencies); Exxon Corp. v. Commissioner, 113 T.C. 338 (1999) (involving the credibility of petroleum revenue tax paid to the United Kingdom); Exxon Mobil Corp. v. Commissioner, 114 T.C. 293 (2000) (involving the deductibility of estimated dismantlement, removal, and restoration costs relating to the Prudhoe Bay, Alaska, oil field).

As of the January 1, 1995, effective date of the above GATT amendment to section 6621(a)(1), with respect to each of the years 1979 through 1985, petitioners had received from respondent refunds of tax overpayments far in excess of $10,000, and petitioners still had outstanding with respondent overpayments of tax in excess of $10,000.

After the litigation and after settlement between the parties of many issues, all underlying tax issues relating to the Federal income taxes of petitioners for 1979 through 1985 have been resolved, and decisions have been entered in each of these consolidated cases.

Discussion

We start our analysis of the legal question before us with the language and structure of the statute itself. Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835 (1990); United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989); Anderson v. Commissioner, 123 T.C. 219, 233 (2004), affd. 137 Fed. Appx. 373 (1st Cir. 2005).

Section 6611 provides that taxpayers are to be allowed and are to be paid interest on any overpayments in respect of any internal revenue tax at the rate established under section 6621.

Section 6622 provides that in computing the amount of interest required to be paid under section 6611, the interest will be compounded daily.

Section 6621 provides that the rate of interest to be paid by respondent to corporate taxpayers on overpayments shall be the sum of the Federal short-term interest rate, as calculated according to the formula set forth in section 6621(b), plus 2 percentage points, but plus only 0.5 percentage point where a corporate overpayment for a year is in excess of $10,000.

The relevant text of section 6621(a)(1) provides as follows: (1) OVERPAYMENT RATE.-The overpayment rate established under this section shall be the sum of—

(A) the Federal short-term rate determined under subsection (b), plus (B) 3 percentage points (2 percentage points in the case of a corporation).

To the extent that an overpayment of tax by a corporation for any taxable period *** exceeds $10,000, subparagraph (B) shall be applied by substituting "0.5 percentage point" for "2 percentage points".[3]

The flush language of section 6621(a)(1), reflecting the reduced overpayment interest rate for large corporate overpayments for periods after December 31, 1994, was added to the Code in 1994 as part of the Uruguay Round Agreements Act (GATT), Pub. L. 103-465, sec. 713(a), 108 Stat. 5001 (1994). In accordance with the terminology used in Gen. Elec. Co. v. United States, 384 F.3d at 1309, we refer to the amendment of section 6621(a)(1) as the GATT amendment.

The effective date of the GATT amendment was provided in section 713(b), as follows:

(b) EFFECTIVE DATE.-The amendment made by this section shall apply for purposes of determining interest for periods after December 31, 1994.

The GATT amendment also included a corollary 2-percentage-point interest rate differential applicable for periods after December 31, 1994, in the interest rate applicable to large corporate tax underpayments in excess of $100,000. Sec. 6621(c).

The above changes in the interest rates applicable to large corporate over- and underpayments were added by Congress as "outlay reduction[s] *** to assist in offsetting the projected cost of the implementing legislation" relating to the GATT treaty. S. Rept. 103-412, at 11 (1994); H. Rept. 103-826 (I), at 9 (1994). The Senate report explained as follows:

As set forth below in the *** [Congressional Budget Office] cost estimate, the Uruguay Round agreement includes a commitment by the United States to reduce U.S. tariffs which would cause a loss of receipts to the U.S. Treasury. As explained above, the Budget Enforcement Act and Senate Rules require that these costs be offset. Due to this pay-as-you go requirement, it is both "necessary" and "appropriate" that provisions designed to offset the costs of the Uruguay Round agreement be included in this implementing legislation. [S. Rept. 103-412, supra at 135.]

Petitioners acknowledge that respondent, with respect to each of the years in issue, has refunded to petitioners all overpaid taxes and overpaid interest that petitioners paid to

3 The version of the statute quoted in the text is the current version, reflecting changes not relevant herein made by the Taxpayer Relief Act of 1997 (TRA 1997), Pub. L. 105-34, sec. 1463(a), 111 Stat. 1057; TRA 1997, sec. 1604(b)(1), 111 Stat. 1097; Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3302(a), 112 Stat. 741.

respondent, plus compound interest thereon through December 31, 1994.

As indicated, however, petitioners contend that respondent undercalculates, and has not paid petitioners, the full amount of the additional interest that accrued after December 31, 1994, on petitioners' cumulative accrued overpayment interest balance of approximately $1.6 billion that was outstanding on December 31, 1994, and that was not paid to petitioners until 2004 and 2005.

As petitioners read the above GATT amendment to section 6621(a), the GATT overpayment interest rate reduction does not apply to petitioners' December 31, 1994, overpayment interest balance. Petitioners read section 6621(a)(1) either as expressly supporting their interpretation or as vague and lacking a specific mandate that the reduced GATT interest rate is to apply to their December 31, 1994, overpayment interest balance. Petitioners argue that "In the absence of some specific instruction to the contrary, the interest continues to compound at the same rate at which interest first began to accrue on the tax overpayment"; i.e., at the regular rate. Petitioners argue further that the GATT amendment "directs that the change in interest rate * * * should be limited to a portion of the amounts owed to the taxpayer-with the remaining portion continuing to accrue interest at the regular rate."

Petitioners' arguments focus on, or are dependent primarily on, the interpretation of the flush language in section 6621(a)(1) that refers to an "overpayment of tax". Petitioners argue that the words "overpayment of tax" do not include overpayment interest, particularly the overpayment interest balance that was outstanding on December 31, 1994.

Beginning January 1, 1995, petitioners effectively would place interest accrual on their overpayments of interest relating to 1979 through 1985 into three baskets:

First Basket: Interest accruing after December 31, 1994, relating to overpayments of tax of $10,000 or less and statutory interest thereon;

Second Basket: Interest accruing after December 31, 1994, relating to overpayments of tax in excess of $10,000 and statutory interest thereon;

Third Basket: Interest accruing after December 31, 1994, relating to overpayment interest balance outstanding as of December 31, 1994.

Petitioners would apply the GATT rate only to the contents of the second basket. To the contents of the first and third baskets, petitioners would apply the regular interest rate, not the GATT rate.

The third basket, however, suggested by petitioners is not supported by the statutory language. The second basket already includes post-December 31, 1994, interest accrual and compound interest thereon relating to corporate tax overpayments in excess of $10,000; namely, the subject matter to which the flush language of section 6621(a)(1) applies the reduced GATT interest rate.

For purposes of further interest accrual on petitioners' December 31, 1994, overpayment interest balance, it is statutorily placed in the second and only other basket.

Petitioners' interpretation of section 6621(a)(1) (that would place in a third basket interest accruing after December 31, 1994, on a corporation's December 31, 1994, overpayment interest balance) stretches the language of section 6621(a) beyond logic.

Disregarding fluctuations in the Federal short-term rate, the language of section 6621(a)(1) establishes a specific and definite overpayment interest rate where a corporation has made a tax overpayment for a year of $10,000 or less and another specific and definite overpayment interest rate where a corporation has made a tax overpayment in excess of $10,000.4

If or where the reduced GATT rate becomes applicable to a corporation for a year (because of a tax overpayment for the year in excess of $10,000), the flush language of section 6621(a)(1) does not provide its own, stand-alone, reduced interest rate that becomes applicable only to overpayments of tax. Rather, that language explicitly bumps the corporation back up into section 6621(a)(1)(B) and "substitutes" or replaces the "2 percentage points" therein with "0.5 percentage point". In that situation, with respect to that corporation (and with respect to all overpayment interest accrual except that relating to the corporation's tax overpayment up to $10,000), section 6621(a)(1) effectively provides only one interest rate-the reduced GATT rate.

4 We note in the language of sec. 6621(a) the definite article "the"-"The overpayment rate”.