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Charleston Area Medical Center, Inc. v. United States

United States Court of Appeals, Federal Circuit

October 17, 2019

CHARLESTON AREA MEDICAL CENTER, INC., CAMC HEALTH EDUCATION AND RESEARCH INSTITUTE, INC., ON BEHALF OF THEMSELVES AND ALL OTHER TAXPAYERS SIMILARLY SITUATED, Plaintiffs-Appellants
v.
UNITED STATES, Defendant-Appellee

          Appeal from the United States Court of Federal Claims in No. 1:17-cv-01528-EDK, Judge Elaine Kaplan.

          Thomas D. Sykes, Law Offices of Thomas D. Sykes, LLC, Lake Forest, IL, argued for plaintiffs-appellants.

          Jennifer Marie Rubin, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Deborah K. Snyder, Richard E. Zuckerman.

          Before Lourie, O'Malley, and Chen, Circuit Judges.

          O'MALLEY, CIRCUIT JUDGE

         This case is about the interpretation of 26 U.S.C. § 6621(a)(1), which provides the interest rate that the Internal Revenue Service ("IRS") must use in calculating the amount of interest owed on a tax refund. Section 6621(a)(1) requires the IRS to apply a lower interest rate for refunds owed to "corporations" than for refunds owed to other types of entities. Charleston Area Medical Center, Inc. and CAMC Health Education and Research Institute (collectively, "the Taxpayers") applied for a tax refund arguing that they are entitled to the higher interest rate because they are nonprofit entities and not corporations. The IRS disagreed and applied the lower interest rate to calculate the refund owed to the Taxpayers. The U.S. Court of Federal Claims ("Claims Court") affirmed, reasoning that the Taxpayers, who are incorporated under state law, are corporations under § 6621(a)(1) notwithstanding their status as nonprofit entities. Charleston Area Med. Ctr., Inc. v. United States, 138 Fed.Cl. 626 (2018). The Taxpayers appeal.

         Although this is an issue of first impression for our court, four other circuits have concluded that a nonprofit entity that is incorporated under state law is a corporation under § 6621(a)(1). Maimonides Med. Ctr. v. United States, 809 F.3d 85 (2d Cir. 2015) ("Second Circuit"); United States v. Detroit Med. Ctr., 833 F.3d 671 (6th Cir. 2016) ("Sixth Circuit"); Med. College of Wis. Affiliated Hosps. v. United States, 854 F.3d 930 (7th Cir. 2017) ("Seventh Circuit"); Wichita Ctr. for Graduate Med. Educ., Inc. v. United States, 917 F.3d 1221 (10th Cir. 2019) ("Tenth Circuit"). While it is not unheard of for appellants revisiting questions previously considered by other courts to hit the circuit split jackpot, this is not such an instance. We agree with the interpretative path taken by our sister circuits-not because those decisions came first, but because they were correct. Therefore, we affirm.

         I. Legal Background

         The central issue in this appeal is straightforward- does the word "corporation," as it appears in 26 U.S.C. § 6621(a)(1), include nonprofit entities that are incorporated under state law. But the simplicity ends there. As is often the case with issues involving the Internal Revenue Code ("Code"), the parties' arguments rely on various authorities-including three provisions of the Code, two iterations of a Treasury regulation, and a notice of proposed rulemaking issued by the IRS on March 1, 2018. We detail each below.

         A. Code Provisions

         Section 6621(a)(1), the specific provision at issue in this appeal, recites:

(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 (as defined in subsection (c)(3), applied by substituting "overpayment" for "underpayment") exceeds $10, 000, subparagraph (B) shall be applied by substituting "0.5 percentage point" for "2 percentage points".

Id. (emphases added). Section 6621(a)(1) provides that if the taxpayer is a corporation and its overpayment exceeds $10, 000, the first $10, 000 will bear interest at the Federal short-term rate plus two percentage points, and the remainder will bear interest at the Federal short-term rate plus one-half of a percentage point. If the taxpayer is not a corporation and its overpayment exceeds $10, 000, the entire overpayment will bear interest at the Federal short-term rate plus three percentage points. Id. In plain English, a taxpayer's refund is greater if the IRS applies the formula set out for non-corporations than if it applies the formula set out for corporations.

         The sentence in § 6621(a)(1) beginning with the phrase "To the extent" is referred to as the "flush language." The flush language cross-references subsection (c)(3), which in turn, provides:

(3) Large corporate underpayment For purposes of this subsection-
(A) In general The term "large corporate underpayment" means any underpayment of a tax by a C corporation for any taxable period if the amount of such underpayment for such period exceeds $100, 000.
(B) Taxable period For purposes of subparagraph
(A), the term "taxable period" means-
(i) in the case of any tax imposed by subtitle A, the taxable ...

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