In the above situation, in effect (for everything other than interest relating to a corporation's tax overpayment up to $10,000) the regular interest rate, for practical purposes, is eliminated from the statutory language of section 6221, and there remains in section 6621(a)(1) only one interest ratethe GATT rate-that applies to all further interest accrual relating to corporate overpayments of tax and to accrual of compound interest thereon.

Section 6621(a)(1) does not refer to overpayment "rates". Once the GATT trigger occurs, then any and all further interest after December 31, 1994, relating to or associated with that excess corporate overpayment, is to accrue only at the reduced GATT rate.

Our interpretation of the statutory language is supported by the holding of this Court in State Farm Mut. Auto. Ins. Co. v. Commissioner, 126 T.C. 28 (2006), filed today, and also by the recent holdings of the Court of Appeals for the Federal Circuit and the U.S. Court of Federal Claims in Gen. Elec. Co. v. United States, 384 F.3d 1307 (Fed Cir. 2004), affg. on this issue and remanding in part 56 Fed. Cl. 488 (2003).

As explained in State Farm Mut. Auto. Ins. Co. v. Commissioner, supra at 33, with regard to the language of section 6621(a)(1):

The role of the phrase "overpayment of tax" is central to this dispute. We find the phrase in question is a device to describe the occasion when the GATT rate is triggered for all interest computational purposes including compounding under section 6622. We do not read the phrase "overpayment of tax" as a limitation on the scope of the applicability of the changed rate once triggered. * * *

The legislative history of the GATT rate change and the effective date language, set forth above, discuss only a change in the rate of interest "without distinguishing between the rate paid on an overpayment and the rate compounded." State Farm Mut. Auto. Ins. Co. v. Commissioner, supra at 33. A bifurcation in the interest to be paid on the tax overpayment itself and the interest to be paid on interest is not found in the statute.

In Gen. Elec. Co. v. United States, 384 F.3d at 1311, the Court of Appeals for the Federal Circuit explained its holding, in part, as follows:

We think it highly unlikely that Congress intended the exception to the GATT rate for small overpayments to have such dramatic potential consequences for overpayments vastly larger than the modest overpayments of $10,000 or less that are eligible for the regular rate. *** While the statutory scheme is not easy to unravel, the most straightforward interpretation of the statutory language leads us to reject [the taxpayer's] submission.

In Gen. Elec. Co. v. United States, 56 Fed. Cl. at 496, the Court of Federal Claims explained its holding, in part, as follows:

The GATT rate merely attaches prospective impact to the meeting of a condition as of the effective date of the statute, to wit, the existence of an overpayment for the relevant taxable year that exceeds $10,000. * *

Petitioners read the language of section 6621(a)(1) (“to the extent that an overpayment of tax *** exceeds $10,000") as providing more than the trigger for application of the GATT rate. Petitioners read that language as limiting application of the GATT rate to just the "overpaid taxes" and interest accruing on the overpaid taxes after December 31, 1994, and petitioners describe the December 31, 1994, accrued overpayment interest balance as neither "tax' nor something that was ever 'overpaid"" by petitioners.

Petitioners refer us to Code sections and to various situations in which overpayment interest is or has been treated differently from overpayments of tax and from underpayment interest. For example, section 6601(e)(1) specifically provides that any reference to "tax" shall also refer to underpayment interest ("any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax”), while no similar provision covers overpayment interest.

Under section 6511(a) a 3-year limitation period applies to a refund of an "overpayment of any tax", while a refund of overpayment interest is governed by the general 6-year period of limitation applicable to claims against the Government. 28 U.S.C. secs. 2401, 2501 (2000); Gen. Instrument Corp. v. United States, 33 Fed. Cl. 4, 6 (1995).

Under section 6402(a) an overpayment "including any interest allowed thereon" may be credited against a taxpayer's other tax liabilities. Prior to 1954, however, the predecessor to section 6402(a) referred only to "overpayment", and it was understood that the statutory language did

not allow the crediting of overpayment interest. See S. Rept. 1622, 83d Cong., 2d Sess. 5230 (1954) ("This section *** changes existing law so as to permit expressly the crediting of interest on an overpayment against any outstanding liability for any tax.").

Prior to 1997, under section 6512(b)(1) this Court's jurisdiction with respect to an "overpayment" was held not to include overpayment interest. Harrison v. Commissioner, T.C. Memo. 1994-614. In 1997, section 7481(c) was amended to permit us to exercise jurisdiction over some overpayment interest.

In Rev. Proc. 87-43, 1987-2 C.B. 590, respondent took the position that section 6601(c) (which at that time suspended the running of interest on a tax deficiency if respondent failed to make notice and demand on the taxpayer within 30 days of the taxpayer's filing of a waiver of restrictions on assessment) only suspended interest on a tax deficiency, not on the interest that had accrued on the underlying tax deficiency before the beginning of the suspension period.5

The above examples apparently persuade petitioners that when Congress wants overpayment interest treated the same as overpayments of tax, it knows how to explicitly so provide. Certainly, the language of section 6621(a)(1) could be clearer. Congress could have made explicit in the statutory language what respondent argues and what we today holdby expressly providing in the flush language of section 6621(a)(1) language to the effect that the reduced GATT rate, if triggered, would apply to any December 31, 1994, overpayment interest balance.

Congress also could have made explicit in the statutory language what petitioners argue-by expressly providing in the flush language of section 6621(a)(1) the GATT rate (rather than substituting in section 6621(a)(1)(B) the GATT rate for the regular rate), by leaving the regular rate in section 6621(a)(1)(B), and by providing language to the effect that the regular interest rate left in section 6621(a)(1)(B) would apply to any December 31, 1994, overpayment interest balance, even though a corporation had a tax overpayment in excess of $10,000.

5 Congress later changed the interpretation set forth in Rev. Proc. 87-43, 1987-2 C.B. 590, by amending sec. 6601(c) to refer explicitly to accrued interest.

As explained, however, on the basis of the language of section 6621(a)(1), as enacted, we conclude that the GATT rate applies to a corporation's December 31, 1994, overpayment interest balance for further accrual of interest thereon after December 31, 1994.

On brief, petitioners set forth an example involving a corporation's $100,000 tax overpayment for a year, as of March 15, 1990. In petitioners' example, on January 1, 1992, respondent refunds to the corporation $50,000 in principal, and on January 1, 1996, respondent refunds the remaining $50,000 principal balance. Petitioners then state:

For the 1992-1995 period, the applicable interest rate is applied to $50,000 in remaining principal, plus previously accrued interest. It is irrelevant to that latter computation that the "original" overpayment was $100,000.

But if, under the governing statutory language in petitioners' example, a corporation's overpayment of tax for a year in excess of $10,000 triggered a reduction in the overpayment interest rate, then the fact that the corporation's original overpayment was more than $100,000 would be highly relevant. That is the situation presented to us herein.

Petitioners suggest that their calculations are supported by the manner by which interest calculations routinely are adjusted in commercial debtor-creditor relationships for changes either in the principal amount outstanding or in the interest rate. We disagree. The "wrinkle" petitioners acknowledge herein that is not typical in the routine debtorcreditor relationship is that petitioners seek to apply the reduced interest rate not to the full outstanding balance of the overpayment interest on the effective date of the rate reduction but only to a portion thereof. It is that wrinkle that is in issue, and we find no support in petitioners' examples for the proposition petitioners seem to put forth that under commercial debtor-creditor loan agreements a prospective reduction in the applicable interest rate similar to that reflected in the GATT amendment necessarily would not apply to overpayment interest balance on the effective date of the rate reduction.

We conclude that petitioners' December 31, 1994, $1.6 billion overpayment interest balance accrues interest after December 31, 1994, at the reduced GATT rate.

As a related issue, petitioners contend that under section 6621(a)(1) the $10,000 exemption from the reduced GATT rate should apply to the last $10,000 of their tax overpayment for

each year.

Respondent counters that the $10,000 exemption applies to the first $10,000 of petitioners' tax overpayment for each

year.

The amount of the additional interest in dispute on this issue is set forth below:

We find petitioners' contention counterintuitive and contrary to the statutory language. It is noteworthy that in petitioners' own memorandum of law filed herein on February 28, 2005 (in the context of a discussion of the first issue discussed above), petitioners describe the $10,000 exemption as applicable to the "first" $10,000 of a taxpayer's tax overpayment.

Respondent emphasizes that each of petitioners' corporate Federal income tax returns for 1979 through 1985, when initially filed with respondent, reflected overpayments of tax in the millions of dollars, and that the tax overpayments reflected on those tax returns were paid to petitioners on or about the date the tax returns were filed via refunds or credits to petitioners' taxes for other years and long before January 1, 1995. Accordingly, respondent argues that as of the January 1, 1995, effective date of the GATT amendment, all of petitioners' then-remaining outstanding tax overpayments for each of the years in issue represented tax overpayments by petitioners in excess of $10,000, no portion of which qualifies for the exemption from the GATT rate. We agree.