Taxation – Pre-Merger Tax Underpayments – Post-Merger Integration

Because Bank of America and Merrill Lynch were distinct corporate entities when the relevant payments were made, the interest netting provision does not apply.

We affirmed the district court’s grant of partial summary judgment in favor of the government.

Under the Internal Revenue Code, the government charges corporations interest on tax underpayments at a higher rate than it pays on tax overpayments. But where a taxpayer has made both “equivalent underpayments and overpayments” during the same time period, id. § 6621(d), the Code permits “interest netting,” eliminating any interest liability. This provision applies only when both payments are made “by the same taxpayer.” Here, Bank of America merged with Merrill Lynch in 2013. It now sought to recover interest on its pre-merger tax underpayments by netting them against pre-merger overpayments made by Merrill Lynch. According to the Bank, the post-merger integration renders it the “same taxpayer” as Merrill Lynch for purposes of § 6621(d). But that interpretation overlooks the statutory requirement that the underpayments and overpayments must be made by the same taxpayer. Because Bank of America and Merrill Lynch were distinct corporate entities when the relevant payments were made, the interest netting provision does not apply.

Both parties moved for partial summary judgment regarding the application of § 6621(d)’s “same taxpayer” requirement to two test cases. The parties agreed that the district court’s resolution of those test cases would, in practice, determine the remainder of the Bank’s claims. Relying in part on the Federal Circuit’s 2016 decision in Wells Fargo & Co. v. United States, the district court granted the government’s motion for partial summary judgment. It concluded that the “by the same taxpayer” requirement applies when the overpayments and underpayments were made. Because the Bank and Merrill Lynch were different companies before the merger, they were not the same taxpayer when the payments were made. And, even if the court looked to the law of mergers in Delaware (where the Bank and Merrill Lynch are incorporated), Delaware law doesn’t “retroactively change a taxpayer’s status as to earlier payments.”

Bank of America and Merrill Lynch were not the “same taxpayer” when they made the under- and overpayments at issue here. The Bank is therefore ineligible for interest netting under the plain text of the statute. Nonetheless, the Bank contended that § 6621(d) should be interpreted consistently with § 6402(a), the balance-netting provision, and that § 6402(a) permits balance netting in this case. Stated differently, the Bank argued that Congress enacted § 6621(d) “to ensure that a taxpayer that owes no tax will not have to pay interest.” Although this argument has intuitive appeal, the interest-netting and balance-netting provisions have materially different language and purposes and therefore should not be applied together in every case.

Affirmed.

Bank of America Corporation v. U.S. (Lawyers’ Weekly No. 001-142-25, 19 pp.) (James A. Wynn, J.) Appealed from the U.S. District Court for the Western District of North Carolina, at Charlotte (Robert J. Conrad, Jr., J.) ARGUED: Nicole A. Saharsky, MAYER BROWN, LLP, Washington, D.C., for Appellant. Ellen Page DelSole, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Brian W. Kittle, Geoffrey M. Collins, New York, New York, Marjorie M. Margolies, Chicago, Illinois, Minh Nguyen-Dang, Wajdi C. Mallat, MAYER BROWN LLP, Washington, D.C., for Appellant. David A. Hubbert, Deputy Assistant Attorney General, Norah E. Bringer, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Dena J. King, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charlotte, North Carolina, for Appellee. Tyler S. Badgley, Kevin R. Palmer, UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C.; Lauren Willard Zehmer, Kandyce Jayasinghe, Daniel G. Randolph, COVINGTON & BURLING LLP, Washington, D.C.; Liz Dougherty, BUSINESS ROUNDTABLE, Washington, D.C.; Kevin Carroll, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, Washington, D.C.; Thomas Pinder, Andrew Doersam, AMERICAN BANKERS ASSOCIATION, Washington, D.C., for Amici Curiae. U.S. Court of Appeals for the Fourth Circuit