Sunoco Inc. v. Commissioner

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 09-2423

SUNOCO INC AND SUBSIDIARIES

v.

COMMISSIONER OF INTERNAL REVENUE,
Appellant

Appeal from a Decision of the
United States Tax Court
(IRS-1: 97-19631)
Tax Court Judge: Hon. Laurence J. Whalen

Argued: January 25, 2011

Before: McKEE, Chief Judge, SMITH, Circuit Judge, and
STEARNS, District Judge*

(Opinion filed: October 7, 2011)

JOHN A. DiCICCO, ESQ.
Acting Assistant Attorney General
ANDREA TEBBETS, ESQ.
FRANCESCA U. TAMAMI, ESQ. (Argued)
Attorneys
Tax Division, Appellate Section
Department of Justice
P.O. Box 502
Washington, D.C. 20044
Attorneys for Appellant

STEPHEN D.D. HAMILTON, ESQ. (Argued)

*
Hon. Richard G. Stearns, District Judge of the United States
District Court for the District of Massachusetts, sitting by
designation.
1
ALFRED W. PUTNAM, JR., ESQ.
D. ALICIA HICKOCK, ESQ.
Drinker, Biddle & Reath LLP
One Logan Square, Suite 2000
Philadelphia, PA 19103
Attorneys for Appellees

OPINION

McKEE, Chief Judge.

The Commissioner of the Internal Revenue Service
(“IRS”) appeals the United States Tax Court‟s ruling that the
latter had subject matter jurisdiction over a claim by Sunoco,
Inc., and its Subsidiaries (collectively referred to as
“Sunoco”). The underlying dispute arises from Sunoco‟s
overpayment of income tax for certain years. The IRS either
refunded the overpayments to Sunoco or applied the
overpayments as credits to other tax years and/or to other of
Sunoco‟s liabilities for other types of taxes before Sunoco
contested a notice of deficiency the IRS issued for those
years. Sunoco claimed that the IRS did not pay it enough
overpayment interest on those overpayments. The Tax Court
ruled that it had subject matter jurisdiction over Sunoco‟s
claim. In its appeal, the IRS argues that the Tax Court lacked
subject matter jurisdiction over Sunoco‟s claim. We agree
and will therefore vacate the Tax Court‟s ruling.

I. FACTS AND PROCEDURAL HISTORY

Sunoco, Inc., formerly Sun Company, Inc.,
headquartered in Philadelphia, Pennsylvania, is the parent of
a group of companies engaged primarily in the manufacturing
and marketing of petroleum products, logistics businesses,
and cokemaking operations, in the United States and
elsewhere. For many years, Sunoco has filed a consolidated
Federal tax return that includes several hundred of its
subsidiaries.

As is typical of most large public companies, Sunoco
is continually audited by the IRS. The audits generally result
in various adjustments to Sunoco‟s tax liabilities for a

2
particular year, as items are identified by the IRS and by
Sunoco‟s in-house tax personnel. Those adjustments are
both “up” (meaning additional taxes are owed) and “down”
(meaning that Sunoco overpaid a given tax for a given
period). Many of these adjustments are resolved
administratively within the IRS, either at the audit level or the
IRS appeals office level.

The audits and appeals typically take years to
complete. Any applicable period of limitation is usually
extended by the parties‟ execution of IRS Form 872-A,
entitled “Special Consent to Extend the Time to Assess Tax.”
In return, Form 872-A extends the time in which the taxpayer
may file a claim for credit or refund for a given tax year.

On July 1, 1997, after the completion of one such audit
cycle and an IRS administrative appeals process, the IRS
issued a notice of deficiency to Sunoco for the tax years 1979,
1981, and 1983. The IRS claimed deficiencies of income tax
in the amounts of $10,563,157.00, $5,163,449.00, and
$35,916,359.00 respectively, for a total amount of
$51,642.965.00.

Sunoco responded to the notice of deficiency by filing
a timely petition in the Tax Court in which it contested the
IRS‟s determination of deficiencies for 1979, 1981, and
1983. It also asserted that it had made income tax
overpayments for those years totaling $46,100,857.00.
Sunoco sought a refund of the overpayment together with
interest.

Thereafter, in November of 1997, Sunoco amended its
petition to add, inter alia, allegations relating to certain errors
that Sunoco claimed the IRS had made in computing
underpayment and overpayment interest. Sunoco alleged that
for each of the disputed years, the interest the IRS had
charged on “underpayments” pursuant to I.R.C. § 6601 was
too high, and the interest the IRS had paid to Sunoco on
“overpayments” pursuant to I.R.C. § 6611 was too low.1

1
The Tax Court summarized the situation before it as
follows:

3
 The Tax Court held a trial on the merits with respect to
certain substantive issues not related to the amount of interest
owed.2 The Tax Court subsequently issued two opinions on
the disputed substantive issues.3

[Sunoco‟s] overpayment claims include overpayments
consisting in part of interest [the IRS] computed on the
interim underpayment balances reflected in [Sunoco‟s]
account, so-called underpayment interest. [Sunoco]
contends that the amounts of underpayment interest . . .
computed are too high. [Sunoco‟s] overpayment claims also
include overpayments consisting in part of interest computed
on the interim overpayment balances reflected in [Sunoco‟s]
account, so-called overpayment interest. [Sunoco] contends
that the amounts of overpayment interest respondent
computed are too low.

Sunoco, Inc. and Subsidiaries v. Comm’r of the IRS, 122 T.C.
88, 91 (2004).

As the IRS explained in the memorandum it filed in
the Tax Court in support of its motion to dismiss Sunoco‟s
amended petition:

The Internal Revenue Code
separately provides, in section
6601 and 6611, for the payment
of underpayment interest on
amounts payable by taxpayers to
the government that are not paid
when due and for the payment of
overpayment interest by the
government when taxes that have
been overpaid by the taxpayer are
refunded or credited.

2
The Tax Court severed Sunoco‟s overpayment claims
relating to the interest on overpayments from the trial.
3
Sunoco, Inc. v. Comm’r of the IRS, 118 T.C. 181 (2002);
Sunoco, Inc. v. Comm’r of the IRS, T.C. Memo. 2004-29.

4
 In May of 1999, Sunoco and the IRS entered into
various stipulations that disposed of most of the competing
claims. The remaining disputes included the claim that the
amount of interest paid to Sunoco on its overpayment of
various taxes was insufficient. That was the claim that
Sunoco had added by amending the petition it had filed in the
Tax Court in response to the notice of tax deficiency.4

In March of 2000, the IRS moved to dismiss Sunoco‟s
amended petition to the extent that it asked the Tax Court to
order the IRS to pay additional overpayment interest under
I.R.C. § 6611, 26 U.S.C. § 6611. The IRS contended that
Sunoco‟s “claims for overpayment interest for the taxable
years 1979, 1981, and 1983” must be “dismissed for lack of
jurisdiction [because] the Tax Court does not have
jurisdiction to determine the amount of interest due on
overpayments allowed prior to the commencement of the
case.” Most of the overpayments underlying Sunoco‟s claims
for interest were interim overpayments that the IRS credited
against a tax liability of Sunoco for a different tax year and/or
a different tax, pursuant to I.R.C. § 6402(a), 26 U.S.C. §
6402(a), before the notice of deficiency issued.5 The IRS had
refunded the remaining overpayments to Sunoco before the
notice of deficiency issued. In its motion to dismiss, the IRS

4
The other two unresolved issues, the determination of
interest expense for purposes of computing Sunoco‟s foreign
tax credit limitation and the deductibility of certain expenses
at a strip mine, were decided in favor of the IRS on March 15,
2002 (in 87 T.C.M. (CCH) 111), and February 4, 2004 (in
118 T.C. 111), respectively. Those rulings are unrelated to
this appeal.
5
26 U.S.C. § 6402, captioned “Authority to Make Credits or
Refunds,” provides, in relevant part, as follows: “General
Rule. – In the case of any overpayment, the Secretary, within
the applicable period of limitations, may credit the amount of
such overpayment, including any interest allowed thereon,
against any liability in respect of an internal revenue tax on
the part of the person who made the overpayment and shall,
subject to subsections (c), (d), and (e), refund any balance to
such person.” 26 U.S.C. § 6402(a) (emphasis added).

5
challenged the Tax Court‟s jurisdiction to adjudicate
Sunoco‟s claim for interest on Sunoco‟s overpayment of
taxes. The IRS contended that Sunoco‟s appropriate remedy
for seeking overpayment interest with respect to the amounts
that had previously been refunded or credited is a timely-filed
suit in a federal district court or the Court of Federal Claims.6

The Tax Court denied the IRS‟s motion to dismiss in
an opinion dated February 4, 2004. It held that it had
jurisdiction to determine interest with respect to
overpayments where the overpayments and interest on
overpayments had been refunded to the taxpayer or otherwise
credited to the taxpayer‟s account before the case arrived in
the Tax Court. Sunoco, Inc. and Subsidiaries v. Comm’r of
the IRS, 122 T.C. 88 (2004). The court‟s decision was based
on its interpretation of 26 U.S.C. § 6512(b)(1) and (3) as well
its earlier decision in Estate of Baumgardner v. Comm’r of
Internal Revenue, 85 T.C. 445 (1985).

After the Tax Court denied a motion to reconsider, the
IRS and Sunoco filed a second stipulation of settled issues
limited to the interest calculation issue. Sunoco and the IRS
expressed their intention to “agree to the underlying facts and
the computation of interest, if the [Tax] Court‟s determination
as to jurisdiction is either not appealed or is sustained on
appeal, while preserving for potential appeal the legal issue of
the Court‟s jurisdiction over [Sunoco‟s] claim to additional
overpayment interest.”

Concurrently with the second stipulation of settled
issues, the parties filed a stipulation as to the underlying tax
liabilities for each of the disputed years, showing an
overpayment of $14,587,489 for 1979, a deficiency of
$287,345 to be assessed and paid for 1981, and a deficiency
of $24,138,971 to be assessed for 1983, of which $20,104,500
remains to be paid. The Tax Court entered a decision
accordingly on February 12, 2009.

6
Sunoco did file protective suits in the Court of Federal
Claims, but voluntarily dismissed them with prejudice in
January of 2009. Sunoco, Inc. and Subsidiaries v. United
States, Fed. Cl. Nos. 99-909 & 00-478 (consolidated).
6
 The IRS then filed this appeal challenging the Tax
Court‟s jurisdiction over Sunoco‟s claim to additional interest
on Sunoco‟s tax overpayments.

II. STANDARD OF REVIEW

We have jurisdiction pursuant to 26 U.S.C. §
7482(a)(1). Our review of the Tax Court‟s construction of the
Internal Revenue Code is plenary. Nat’l Starch & Chem.
Corp. v. Comm’r of the IRS, 918 F.2d 426, 428 (3d Cir.
1990). We therefore exercise de novo review over the Tax
Court‟s determination of its subject matter jurisdiction.
Stepnowski v. Comm’r of the IRS, 456 F.3d 320, 322 (3d Cir.
2006).
III. DISCUSSION.

As noted earlier, when Sunoco filed its amended
petition for redetermination of deficiencies for 1979, 1981,
and 1983, Sunoco claimed, inter alia, additional interest on
overpayments that the IRS had previously refunded to Sunoco
and/or credited to other of Sunoco‟s tax liabilities, before the
notice of deficiency issued. As we have also noted, the Tax
Court determined that it could exercise jurisdiction over
Sunoco‟s claim based on its reading of 26 U.S.C. §
6512(b)(1) and (3), and its earlier holding in Estate of
Baumgardner v. Comm’r of the IRS. See 122 T.C. at 96-101.7

On appeal here, the IRS contends that the Tax Court
erred as a matter of law in its reading of the controlling
statutes and in relying on the analysis in Baumgardner. We
agree, and we will address each of the IRS‟s main arguments

7
See 122 T.C. at 100-01 (“We believe that [the IRS‟s] view
of what constitutes an overpayment for purposes of section
6512(b) is too narrow and does not square with our opinion in
Estate of Baumgardner v. Comm’r, supra. Contrary to [the
IRS‟s] position, we believe that, under certain circumstances,
additional overpayment interest that is allowable under
section 6611(a) with respect to an interim overpayment is
similar to the underpayment involved in Estate of
Baumgardner and can constitute an overpayment for purposes
of section 6512(b).”

7
separately.8

1. THE TAX COURT ERRED IN HOLDING THAT IT
HAD
JURISDICTION OVER SUNOCO’S CLAIMS FOR
ADDITIONAL OVERPAYMENT INTEREST,
BECAUSE SUCH
INTEREST IS NOT AN OVERPAYMENT OF
TAX.

At the outset, it is important to understand the
difference between the two types of interest claims that
Sunoco asserted in its amended petition. Sunoco‟s first claim
was that it had paid too much “deficiency interest.”
Deficiency interest is interest charged to a taxpayer pursuant
to I.R.C. § 6601, on tax underpayments the taxpayer has
made (or should have made) for a given period.9 The IRS,
like banks or any other creditor, charges interest on money it
is owed over time. Thus, when a taxpayer underpays taxes for
a certain tax period, the IRS charges interest on the amount of
the deficiency. Concomitantly, the IRS pays a taxpayer
interest on any amount of taxes that a taxpayer pays that
exceeds the actual tax liability for a given year. This second
type of interest is known as “overpayment interest,” and it
underlies the jurisdictional dispute here.

The issue before us arises from Sunoco‟s claim that its
tax payments exceeded the amount of taxes it owed for the
years in question. Sunoco therefore asked the Tax Court to
award it the amount of interest it was purportedly owed on the
amount of its overpayment of taxes (“overpayment interest”)
pursuant to I.R.C. § 6611.10

8
Because we conclude that the statutes conferring jurisdiction
on the Tax Court do not extend to interest on Sunoco‟s
overpayments, we need not address all of the arguments the
IRS makes on appeal.
9
Deficiency interest is “interest on the amount of tax which is
said to be unpaid.” Alexander Proudfoot Co. v. United States,
454 F.2d 1379, 1381 (Ct. Cl. 1972)
10
Making matters more complicated, Sunoco claims that the
8
 The IRS acknowledges that the Tax Court had
jurisdiction over the first type of claim under the Tax Court‟s
limited overpayment jurisdiction set forth in I.R.C. § 6512(b).
However, the IRS contends that the Tax Court does not have
jurisdiction over the second type of claim, i.e., Sunoco‟s
claim that the government did not pay it enough interest on
Sunoco‟s overpayments of tax. The IRS notes that Sunoco
made interim tax payments for 1979, 1981, and 1983, before
the IRS determined that there were deficiencies for those
years. At various times before Sunoco commenced the Tax
Court proceedings, the IRS refunded overpayments to Sunoco
or applied the overpayments as credits to other tax years
and/or Sunoco‟s tax liabilities for other types of taxes.

Section 6611(a) of the Internal Revenue Code provides
that “[i]nterest shall be allowed and paid upon any
overpayment in respect of any internal revenue tax at the
overpayment rate established under section 6621.” 26 U.S.C.
§ 6611(a). The IRS contends that overpayment interest is not
itself an overpayment of tax because the taxpayer has paid
nothing to the IRS. Rather, the taxpayer is owed money by
the government.

Therefore, according to the IRS, a claim for
overpayment interest is a general monetary claim against the
United States, which (like all such claims) must be brought in
the federal district courts or the Court of Federal Claims
within the six-year limitations period set forth in 28 U.S.C. §§
2401 (district court)11 and 2501 (Court of Federal Claims).12

Government owes interest on insufficient refunds as well as
inadequate tax credits that were either paid or credited against
other tax liabilities, and that any overpayment interest that
was paid to Sunoco or any tax credits were less than Sunoco
was entitled to based on the size of its overpayments; and that
the Government therefore owes additional interest on those
tax overpayments or insufficient credits. However, the
distinction is not relevant to our analysis. We will therefore
simplify things and use the term “overpayment interest” to
refer to all of Sunoco‟s claims for interest from the
Government as asserted in the amended petition Sunoco filed
in the Tax Court.
11
Section 2401 provides, in relevant part, as follows: “Except
9
 Thus, the IRS contends that the Tax Court wrongly
held that insufficient overpayment interest should be
characterized as an “overpayment” subject to its jurisdiction,
in the same way that overpaid deficiency interest is treated as
an overpayment within its jurisdiction. The IRS submits that
the Tax Court improperly expanded its jurisdiction over
disputes involving deficiency interest by equating interest a
taxpayer owes the Government that has accrued on a tax
deficiency with interest the Government owes a taxpayer on
the amount of tax payments that exceed the taxpayer‟s actual
tax obligation. We agree.

2. THE TAX COURT’S JURISDICTION TO
DETERMINE OVERPAYMENTS AND
OVERPAYMENT INTEREST
IS NARROWLY CIRCUMSCRIBED BY
THE INTERNAL REVENUE CODE.

The Tax Court is a court of limited jurisdiction
possessing only such jurisdiction as is expressly conferred by
Congress. See I.R.C. § 7442 (“The Tax Court and its
divisions shall have such jurisdiction as is conferred on them
by this title, by chapters 1, 2, 3, and 4 of the Internal Revenue
Code of 1939, by title II and title III of the Revenue Act of
1926 (44 Stat. 10-87), or by laws enacted subsequent to
February 26, 1926.”). See also Estate of Smith v. Comm’r of
the IRS, 638 F.2d 665, 669 (3d Cir. 1981) (“The Tax Court . .
. is purely a creature of statute and has only the power given it
by Congress.”).

Congress changed the status of the Tax Court from an
administrative forum to an Article I court in the Tax Reform

as provided by chapter 71 of title 41, every civil action
commenced against the United States shall be barred unless
the complaint is filed within six years after the right of action
first accrues.” 28 U.S.C. § 2401(a).
12
Section 2501 provides, in relevant part, as follows: “Every
claim of which the United States Court of Federal Claims has
jurisdiction shall be barred unless the petition thereon is filed
within six years after such claim first accrues.” 28 U.S.C. §
2501.
10
Act of 1969. However, nothing in the text of that Act
suggests that Congress intended to broaden the Tax Court‟s
jurisdiction or otherwise “decrease[] the dissimilarities
between the Tax Court and the district courts.” Cont’l
Equities, Inc. v. Comm’r of the IRS, 551 F.2d 74, 84 (5th Cir.
1977) (explaining that nothing in the Tax Reform Act of 1969
“indicate[s] that Congress intended to obliterate other
dissimilarities that it did not explicitly address.”).
Accordingly, “the conclusion that the 1969 Tax Reform Act
did not grant the Tax Court equitable jurisdiction is
inescapable.” Id. Indeed, the Tax Court itself has noted that
its “basic jurisdiction . . . was not changed by the Tax Reform
Act.” Burns, Stix Friedman & Co. v. Comm’r of the IRS, 57
T.C. 392, 396 (1971).

The Tax Court‟s principal basis for jurisdiction is
I.R.C. § 6213(a), 26 U.S.C. § 6213(a). That section of the
Tax Code gives the Tax Court jurisdiction to redetermine a
“deficiency” in income, estate, gift, and certain excise taxes
as to which the IRS has issued a notice of deficiency pursuant
to I.R.C. § 6212(a), 26 U.S.C. § 6212(a), and the taxpayer has
filed a timely petition for redetermination. Pursuant to I.R.C.
§ 6214(a), the Tax Court has such jurisdiction “even if the
amount so redetermined is greater than the amount of the
deficiency” as set forth in the notice of deficiency, and its
jurisdiction extends to “any additional amount, or any
addition to the tax,” asserted by the IRS at or before trial.

However, jurisdiction concerning overpayments (e.g.,
tax refunds) generally lies with the federal district courts and
the Court of Federal Claims. See 28 U.S.C. § 1346(a)(1);13

13
Which provides: “The district courts shall have original
jurisdiction, concurrent with the United States Court of
Federal Claims, of . . . [a]ny civil action against the United
States for the recovery of any internal-revenue tax alleged to
have been erroneously or illegally assessed or collected, or
any penalty claimed to have been collected without authority
or any sum alleged to have been excessive or in any manner
wrongfully collected under the internal-revenue law.” 28
U.S.C. § 1346(a)(1). We do not think it irrelevant that
Congress chose not to make the jurisdiction of the various
district courts concurrent with that of the Tax Court in
11
28 U.S.C. § 1491(a)(1);14 Baumgardner, 85 T.C. at 452.
Nevertheless, Congress did confer “overpayment jurisdiction”
on the Tax Court, “[u]nder limited circumstances.”
Baumgardner, 85 T.C. at 452. The first such circumstance
arises under I.R.C. § 6512(b)(1), which provides, in relevant
part, as follows:
[I]f the Tax Court finds that there
is no deficiency and further finds
that the taxpayer has made an
overpayment of income tax for
the same taxable year . . . in
respect of which the Secretary
determined the deficiency, or
finds that there is a deficiency but
the taxpayer has made an
overpayment of such tax, the Tax
Court shall have jurisdiction to
determine the amount of such
overpayment, and such amount
shall, when the decision of the
Tax Court has become final, be
credited or refunded to the
taxpayer.15

26 U.S.C. § 6512(b)(1). See Baumgardner, 85 T.C. at 452
(“The Tax Court‟s overpayment jurisdiction is limited to
situations where a deficiency has been determined and the
taxpayer petitions the Court for a taxable period.”). When the
Tax Court is given overpayment jurisdiction, its jurisdiction is

allowing for such claims.
14
Which provides, in relevant part, as follows: “The United
States Court of Federal Claims shall have jurisdiction to
render judgment upon any claim against the United States
founded either upon the Constitution, or any Act of Congress
or any regulation of an executive department, or upon any
express or implied contract with the United States, or for
liquidated or unliquidated damages in cases sounding in tort.”
28 U.S.C. § 1491(a)(1).
15
This grant of jurisdiction in §6512(b)(1) is subject to the
limitations periods prescribed by subsection (b)(3).
12
exclusive. I.R.C. § 6512(a)(1), 26 U.S.C. § 6512(a)(1) (where
taxpayer has filed a petition in the Tax Court for a
redetermination of a deficiency, “no credit or refund of
income tax for the same taxable year . . . shall be allowed or
made and no suit by the taxpayer for the recovery of any part
of the tax shall be instituted in any court except,” as is
relevant here, “[a]s to overpayments determined by a decision
of the Tax Court which has become final.”).

The second circumstance where the Tax Court
acquires overpayment jurisdiction is set forth in I.R.C. §
6512(b)(2), 26 U.S.C. § 6512(b)(2). However, that provision
merely gives the Tax Court jurisdiction to enforce its
decisions. Thus, § 6512(b)(2) provides: “[i]f, after 120 days
after a decision of the Tax Court has become final, the
Secretary has failed to refund the overpayment determined by
the Tax Court, together with the interest thereon . . . , then the
Tax Court, upon motion by the taxpayer, shall have
jurisdiction to order the refund of such overpayment and
interest.” 26 U.S.C. § 6512(b)(2).

Although the Internal Revenue Code does not define
the term “overpayment,” the Supreme Court has “read the
word „overpayment‟ in its usual sense, as meaning any
payment in excess of that which is properly due.” Jones v.
Liberty Glass Co., 332 U.S. 524, 531 (1957). See also United
States v. Dalm, 494 U.S. 596, 609 n.6 (1990) (“The
commonsense interpretation is that a tax is overpaid when a
taxpayer pays more than is owed, for whatever reason or no
reason at all.”).

The Tax Court‟s jurisdiction over overpayments is
very constrained with respect to credits under I.R.C. § 6402,
26 U.S.C. § 6402.16 Section 6402(a) provides that “[i]n the
case of any overpayment, the Secretary, within the applicable
period of limitations, may credit the amount of such

16
As noted earlier, “[m]ost of the overpayments underlying
Sunoco‟s claims for overpayment interest were interim
overpayments that the IRS credited against a tax liability of
Sunoco for a different tax year and/or a different tax, pursuant
to I.R.C. § 6402(a), 26 U.S.C. § 6402(a), before the notice of
deficiency was issued.”
13
overpayment, including any interest allowed thereon, against
any liability in respect of an internal revenue tax on the part
of the person who made the overpayment and shall, subject to
subsections (c), (d), and (e), refund any balance to such
person.” 26 U.S.C. § 6402(a). The IRS has broad discretion
in determining whether to credit an overpayment for one tax
liability toward a different liability of the taxpayer, see, e.g.,
Estate of Bender v. Comm’r of the IRS, 827 F.2d 884, 887 (3d
Cir. 1987), and the IRS‟s discretion cannot be challenged in
the Tax Court. I.R.C. § 6512(b)(4) provides that “[t]he Tax
Court shall have no jurisdiction under this subsection to
restrain or review any credit or refund made by the Secretary
under section 6402.” 26 U.S.C. § 6512(b)(4).

Except in limited circumstances, the Tax Court also
lacks jurisdiction over issues relating to interest, whether on
underpayments or overpayments. See Comm’r of the IRS v.
McCoy, 484 U.S. 3, 5-6 (1987); Zfass v. Comm’r of the IRS,
118 F.3d 184, 191 (4th Cir. 1997) (citing “several appellate
court cases which recognize that the Tax Court does not have
jurisdiction regarding interest determinations.”); Melin v.
Comm’r of the IRS, 54 F.3d 432, 434 (7th Cir. 1995) (“The
Tax Court . . . does not have jurisdiction over challenges to
interest determinations in most circumstances.”); Bax v.
Comm’r of the IRS, 13 F.3d 54, 56 (2d Cir. 1993); Med-
James, Inc. v. Comm’r of the IRS, 121 T.C. 147, 152 (2003);
White v. Comm’r of the IRS, 95 T.C. 209, 213 (1990).

The interest imposed on underpayments by I.R.C. §
6601(a) is generally excluded from the definition of a
“deficiency” which the Tax Court has jurisdiction over, see
White, 95 T.C. at 213, but it is otherwise treated as a tax
pursuant to I.R.C. § 6601(e)(1) (“Any reference in this title
(except subchapter B of chapter 63, relating to deficiency
procedures) to any tax imposed by this title shall be deemed
also to refer to interest imposed by this section.”).

However, if the Tax Court properly obtains
jurisdiction over a deficiency for a given year and then finds
that the taxpayer has overpaid its taxes for that year, the Tax
Court may determine an overpayment of interest paid on the
deficiency, if the interest accrued and was paid before the
overpayment arose. Estate of Baumgardner, supra. See

14
Smith v. Comm’r, 429 F.3d 533, 538-39 (5th Cir. 2005) (“In
[Baumgardner], the Tax Court held that, at least when interest
has been assessed [against] and paid [by the taxpayer], it has
jurisdiction to determine an overpayment of interest as part of
its jurisdiction to determine an overpayment of tax on which
the interest was paid.”); Heffley v. Comm’r of the IRS, 884
F.2d 279, 287 (7th Cir. 1989) (in Baumgardner, “[t]he Tax
Court held that when it had jurisdiction to determine the
overpayment of the tax, it also had jurisdiction to determine
the overpayment of interest that the taxpayer paid with the
tax.”). The Tax Court‟s jurisdiction in such cases is based on
the delinquency owed by the taxpayer, but may then extend to
any claim that the taxpayer was charged too much interest on
the delinquency. The Tax Court‟s ability to determine if the
Government charged too much interest is tangential to that
grant of jurisdiction arising from the tax deficiency.
However, nothing in the relevant statutes or cases allows us to
infer that Congress also intended to give the Tax Court
jurisdiction over a taxpayer‟s claim against the Government
for interest owed to the taxpayer arising solely from the
taxpayer‟s overpayment of taxes. Indeed, that result would be
contrary to the concurrent grant of jurisdiction that Congress
limited to the Court of Federal Claims and the district courts
without mention of the Tax Court. See 28 U.S.C. §
1491(a)(1);17 28 U.S.C. § 1346(a)(1).18

The IRS properly concedes that the Tax Court has
jurisdiction to determine overpayments of deficiency interest
paid by Sunoco pursuant to I.R.C. § 6601. However, the
dispute between Sunoco and the IRS concerns interest which
Sunoco claims the government owes it (pursuant to I.R.C. §
6611) on overpayments of tax that had already been refunded
or credited before the notice of deficiency was issued.
Sunoco claims that since it was charged too much interest on
various tax obligations, the Tax Court could award it the
amount of interest that the Government charged that was in
excess of the amount which Sunoco actually owed on those
tax obligations. However, claims for such overpayment

17
See n.14, supra.
18
See n.13, supra.

15
interest are not subject to the Internal Revenue Code‟s
requirements (in I.R.C. §§ 6511 (“Limitations on credit or
refund”) and 7422 (“Civil actions for refund”)) for claiming a
tax refund or a refund of deficiency interest. Moreover, we
can find no provisions in the Internal Revenue Code which
specifically address actions to recover such overpayment
interest. See Alexander Proudfoot Co. v. United States, 454
F.2d 1379, 1384 (Ct. Cl. 1972); Barnes v. United States, 137
F. Supp. 716, 718 (Ct. Cl. 1956).

However, it is clear that such actions constitute claims
against the United States, viz., I.R.C. § 6611, and such claims
must be brought by filing a complaint in the appropriate
district court or the Court of Federal Claims within six years
of the accrual of the cause of action. See 28 U.S.C. §§
1346(a)(2)19 & 240120 (district courts); and 28 U.S.C. §§
1491(a)(1)21 & 250122 (Court of Federal Claims).

The Tax Court has been given jurisdiction over
overpayment interest in two very narrow circumstances, both
involving a final decision of the that court. The first, already
noted, concerns the enforcement of a decision. It is set forth
in I.R.C. § 6512(b)(2) which provides that “[i]f, after 120
days after a decision of the Tax Court has become final, the

19
Which provides, in relevant part, as follows: “The district
courts shall have original jurisdiction, concurrent with the
United States Court of Federal Claims, of . . . [a]ny other civil
action or claim against the United States, not exceeding
$10,000 in amount, founded either upon the Constitution, or
any Act of Congress, or any regulation of an executive
department, or upon any express or implied contract with the
United States, or for liquidated or unliquidated damages in
cases not sounding in tort.” 28 U.S.C. § 1346(a)(2).

20
See n.11, supra.
21
See n.14, supra.

22
See n.12, supra.
16
Secretary has failed to refund the overpayment determined by
the Tax Court, together with the interest thereon . . . , then the
Tax Court, upon motion by the taxpayer, shall have
jurisdiction to order the refund of such overpayment and
interest.” 26 U.S.C. § 6512(b)(2) (emphasis added).

The second circumstance in which the Tax Court has
jurisdiction over overpayment interest is found in I.R.C. §
7481(c). That section provides in relevant part as follows:
[I]f, within 1 year after the date of
the decision of the Tax Court
becomes final . . . in a case to
which [I.R.C. § 7481(c)] applies,
the taxpayer files a motion in the
Tax Court for a redetermination
of the amount of interest involved,
then the Tax Court may reopen
the case solely to determine
whether the taxpayer had made an
overpayment of such interest or
the Secretary has made an
underpayment of such interest and
the amount thereof.

26 U.S.C. § 7481(c)(1). See ASA Investerings P’ship v.
Comm’r of the IRS, 118 T.C. 423, 425 n.3 (2002) (I.R.C. §
7481(c) “specifically carves out an exception to the rule on
the finality of our decisions; a prerequisite for invoking that
exception is a final decision of this Court.”). Thus, “[i]f the
Tax Court determines . . . that the taxpayer has made an
overpayment of interest or that the Secretary has made an
underpayment of interest, then that determination shall be
treated under section 6512(b)(1) as a determination of an
overpayment of tax.” 26 U.S.C. § 7481(c)(3). This
provision merely requires that an amount determined by the
Tax Court as owing to the taxpayer “be credited or refunded
to the taxpayer” in accordance with I.R.C. § 6512(b)(1), and
it brings that amount within the Tax Court‟s “jurisdiction to
enforce” under I.R.C. § 6512(b)(2).

I.R.C. § 7481(c) is therefore quite limited in scope and
only reaches situations where: (1) the Secretary has made an
assessment that includes interest, (2) “the taxpayer has paid

17
the entire amount of the deficiency plus interest claimed by
the Secretary,” and (3) “the Tax Court finds under section
6512(b) that the taxpayer has made an overpayment.” I.R.C.
§ 7481(c)(2), 26 U.S.C. §7481 (c)(2). See Bax, 13 F.3d at 57
(“The language [of § 7481(c)] is plain and clear: the tax court
may make a redetermination of interest in cases where the
taxpayer prepays both the entire amount of the deficiency and
the interest claimed by the government on the deficiency.”)
(emphasis in original). “Congress did not expressly grant
blanket federal jurisdiction over interest issues [to the Tax
Court] through section 7481(c).” Melin, 54 F.3d at 434.

Accordingly, neither I.R.C. §§ 6512(b)(2) nor 7481(c)
supplies a basis for the Tax Court‟s exercise of jurisdiction
over Sunoco‟s claims for additional overpayment interest.
Those sections only address post-judgment proceedings and
the Tax Court‟s jurisdiction to redetermine interest arising
from its decision.

The overpayment interest at issue here is not
attributable to any decision of the Tax Court. Indeed, no
decision had been entered when Sunoco raised its interest
claims. Rather, the interest at issue here arises from
overpayments that were refunded or credited before this case
began. We can find no statutory authorization for the Tax
Court to determine this kind of claim, and we are not
convinced by Sunoco‟s attempts to identify one.

Sunoco contends that the language in I.R.C. §
6512(b)(1), that the Tax Court shall have jurisdiction “to
determine the amount of such overpayment,” should be
stretched to include the amount of interest on an overpayment
for the taxable year that is before the Tax Court. Sunoco
argues that the omission of “interest” does not mean that
overpayment interest cannot be determined by the Tax Court.
However, Sunoco offers no authority for its contention and
we have found none. This argument is merely an ipse dixit.

In any event, I.R.C. § 6512(b)(1) does not provide
jurisdiction for claims of overpayment interest of the type
asserted by Sunoco here. That section provides, in relevant
part, as follows:
(b) Overpayment determined by
18
 Tax Court. –

(1) Jurisdiction to determine. --
[I]f the Tax Court finds that there
is no deficiency and further finds
that the taxpayer has made an
overpayment of income tax for
the same taxable year . . . in
respect of which the Secretary
determined the deficiency, or
finds that there is a deficiency but
the taxpayer has made an
overpayment of such tax, the Tax
Court shall have jurisdiction to
determine the amount of such
overpayment, and such amount
shall, when the decision of the
Tax Court has become final, be
credited or refunded to the
taxpayer.

26 U.S.C. § 6512(b)(1). In Estate of Baumgardner v.
Comm’r of the IRS, 85 T.C. 445 (1985), the Tax Court held
that an “overpayment of income tax,” under § 6512(b)(1)
also includes an overpayment of interest that the taxpayer
paid on the tax pursuant to I.R.C. § 6601.

Here, the Tax Court relied on Baumgardner in
holding that “[t]o the extent that overpayment interest under
section 6611 is not credited, we believe that it can be
considered to have been overpaid by the taxpayer for
purposes of section 6512(b).” 122 T.C. at 102. However, as
the IRS correctly notes, an overpayment of tax by the
taxpayer is not equivalent to interest that the Government
owes the taxpayer. As the Court of Appeals for the Federal
Circuit has explained, “the term „overpayment‟ as used in the
Internal Revenue Code, generally does not incorporate the
interest earned on the amount by which the taxpayer has
overpaid its taxes.” Gen. Elec. Co. v. United States, 384 F.3d
1307, 1312 (Fed. Cir. 2004). In concluding the contrary, the
Tax Court failed to understand that Sunoco‟s claims for
additional interest under I.R.C. § 6611 simply cannot be
viewed as an “overpayment” when that term is “read . . . in its

19
usual sense.” Liberty Glass, 332 U.S. at 531.

In Liberty Glass, the Supreme Court “read the word
„overpayment‟ in its usual sense, as meaning any payment in
excess of that which is properly due.” Id. That is not the
same as Sunoco‟s claim against the Government for interest it
claims the Government owes on Sunoco‟s excess tax
payments. The essence of Sunoco‟s claim is that it received
less interest than it was due on certain refunds and credits.
However, “the payment of more than is rightfully due is what
characterizes an overpayment.” Id. Interest owed by the
government to a taxpayer cannot be an overpayment of tax
paid by the taxpayer to the government.

The Tax Court reasoned that when the Government
does not pay the proper amount of interest it owes on a tax
overpayment, the taxpayer “will have overpaid [its] liability
by the amount of allowable interest that is not credited.” 122
T.C. at 101. By way of explanation, the Tax Court posed the
following hypothetical:
For example, assume that,
pursuant to section 6402(a), the
Commissioner credits an
overpayment of $1,000 against a
liability of the same taxpayer for a
different taxable year, but fails to
include interest of $20 computed
under section 6611 that is
allowable on the overpayment.
Under these facts, the taxpayer
would have used $1,020 to satisfy
a liability of $1,000. In effect, the
taxpayer would have overpaid the
liability against which the
overpayment is credited by $20.

122 T.C. at 101-02.

However, as the IRS correctly explains, the amount
“used” by the taxpayer is irrelevant because there is no
possible way that the Tax Court‟s hypothetical taxpayer can
use the $20 that it does not have in order to satisfy a liability.
The fact that the taxpayer may have a claim for $20 of

20
interest does not convert a $1,000 credit into a $1,020 credit.
The credit is what it is. See Appellants‟ Br. at 39-40. Thus,
the Tax Court‟s hypothetical does not illustrate how Sunoco‟s
claim for interest the Government may owe it can be morphed
into an overpayment of taxes or interest on an underpayment
of a tax obligation conferring jurisdiction under I.R.C. §
6512(b)(1).

Moreover, the Tax Court‟s reasoning is undermined by
I.R.C. §§ 6512(b)(2) and 7481(c). As noted, those sections
authorize the Tax Court to enforce its decisions by ordering a
refund of an “overpayment and interest” if the Government
fails to pay (I.R.C. § 6512(b)(2)), and by redetermining the
amount of interest paid by the IRS if the taxpayer claims that
it is too low (I.R.C. § 7481(c)). The IRS points out that if
overpayment interest determinations were included in the Tax
Court‟s overpayment jurisdiction under I.R.C. § 6512(b)(1),
both §§ 6512(b)(2) and 7481(c) would be unnecessary
because the Tax Court would already be authorized to
determine the amount of interest due along with an
overpayment. See Smith v. Comm’r of the IRS, 123 T.C. 15,
51 (2004) (“if Congress had intended our overpayment
decisions under section 6512(b) were to include final interest
determinations, there would be no need to include section
7481(c)(2)(B)” (Goeke J., dissenting) (cited with approval on
appeal to the Fifth Circuit in holding that the Tax Court
lacked jurisdiction to refund the full amount of an
overpayment, see 429 F.3d 533, 538 (5th Cir. 2006)).

Perhaps because there is no statutory authority in the
Internal Revenue Code giving the Tax Court jurisdiction over
a taxpayer‟s claim that the Government did not pay it enough
overpayment interest, pursuant to I.R.C. § 6611, Sunoco
submits that the availability of I.R.C. § 7481(c) post-
judgment relief confirms the Tax Court‟s power to review
overpayment interest determinations.

Section 7481(c), captioned “Jurisdiction over interest
determinations,” provides:
(1) In general. – Notwithstanding
subsection (a), if within 1 year
after the date of the decision of
the Tax Court becomes final

21
 under subsection (a) in a case
to which this subsection
applies, the taxpayer files a
motion in the Tax Court for a
redetermination of the amount
of interest involved, then the
Tax Court may reopen the
case solely to determine
whether the taxpayer has made
an overpayment of such
interest or the Secretary has
made an underpayment of
such interest and the amount
thereof.

(2) Cases to which this subsection
applies. – This subsection
shall apply where –

(A)(i) an assessment has been
made by the Secretary under
section 6215 which includes
interest imposed by this title,
and

(ii) the taxpayer has paid the
entire amount of the
deficiency plus interest
claimed by the Secretary, and

(B) the Tax Court finds under
section 6512(b) that the
taxpayer has made an
overpayment

26 U.S.C. § 7481(c)(1), (2). Sunoco notes that Congress
amended I.R.C. § 7481(c) in the Taxpayer Relief Act of 1977
and added § 7481(c)(2)(B). Sunoco claims that the
amendment gives the Tax Court the authority to entertain its
claims for overpayment interest claims.

However, section 7481(c) does not apply here because
Sunoco‟s additional overpayment interest claims do not arise

22
from an overpayment that was determined in a final decision
of the Tax Court. Moreover, Sunoco wants additional
overpayment interest on overpayments previously refunded or
credited to it before its case even began, not interest on an
overpayment determined by the Tax Court in this case.
Section 7481(c) requires both a Tax Court decision and a
post-decision motion for relief. Neither requirement is met
here. 23

3. Estate of Baumgardner provides no support
for the Tax Court’s holding.

As noted, the Tax Court based its decision that it had
jurisdiction over Sunoco‟s overpayment claims partly on the
holding in Estate of Baumgardner v. Comm’r of the IRS, 85
T.C. 445 (1985). In Baumgardner, the decedent‟s estate and
the IRS settled the issues raised in a notice of deficiency after
the estate‟s personal representative had petitioned the Tax
Court to redetermine the deficiency. The estate and the IRS
agreed that the estate had overpaid its estate tax and that it
was entitled to interest.

The issue before the Tax Court was whether the term
“overpayment” in § 6512(b) included amounts that were paid
as interest, pursuant to an installment payment plan under
I.R.C. § 6166A. 85 T. C. at 446. (The Tax Court framed the
issue before it as “whether an overpayment of estate tax,
within the meaning of section 6512(b), may include the
overpayment of amounts originally paid as tax and interest by
means of section 6166A installment payments[.]”). The IRS

23
Sunoco also relies on Fortugno v. Comm’r of the IRS, 353
F.2d 429 (3d Cir. 1965). There, we affirmed the jurisdiction
of the Tax Court to determine whether an overpayment
existed, when the only consequence of that finding was an
award of overpayment interest. However, the issue in that
case was whether an overpayment existed at all, a matter that
is clearly within the jurisdictional grant of I.R.C. §
6512(b)(1). There is nothing in our opinion to suggest that
the Tax Court could take the additional step of determining
the type of additional overpayment interest claim asserted by
Sunoco here.

23
contended that the Tax Court had no jurisdiction to determine
issues concerning interest and that the personal representative
had to institute a separate refund action in the district court or
Claims Court (now Court of Federal Claims).24
The Tax Court there held that the term “overpayment”
as used in § 6512(b) includes interest and, therefore, held that
it had “jurisdiction to consider interest as part of an
overpayment.” 85 T. C. at 458-59. Significantly, however,
the Tax Court in Baumgardner made it abundantly clear that
it was referring to interest that had accrued on a tax
delinquency that had been paid to the Government. The Tax
Court held: “Interest may be part of an overpayment if the
interest accrued and was paid prior to the time the
overpayment was claimed or arose. This is the type of
interest we are considering in this case.” Id. at 452.
(emphasis added) See also id. at 460 (“Our holding [is] that
the term „overpayment‟ includes assessed and paid interest at
the time of overpayment.”).

As we have explained, the ordinary meaning of
“overpayment,” does not extend to Sunoco‟s claim here.
Baumgardner concerned a greater amount of interest that was
paid by the taxpayer on a tax deficiency than was actually
due. The claim there thus involved a claim for deficiency
interest. As we have explained, Sunoco‟s claim is not about
overpayment of deficiency interest; Sunoco‟s claim is about
interest to be “allowed and paid” to the taxpayer “upon any
overpayment in respect of any internal revenue tax.” I.R.C. §
6611.

Thus, rather than following the holding in
Baumgardner, the Tax Court actually extended the reasoning
in that case to a very different situation. The error of the Tax
Court‟s approach is clearly illustrated in Alexander Proudfoot
Co. v. United States, 454 F.2d 1379 (Ct. Cl. 1972). There, the
Court of Claims explained:
[t]he Code‟s design for [deficiency]

24
The IRS acknowledged, however, that as things stood at
that time, the action could be barred by the expiration of the
statute of limitations on filing a claim for a refund. 85 T.C. at
448, 452-53.

24
 interest is to assimilate it to the tax
itself, so that the taxpayer who pays
both . . . can and should proceed to
seek to recover both together through
one proceeding. For a long time,
deficiency interest has been so closely
braided to principal that it has been
deemed an integral part of the tax.

454 F.2d at 1382 (emphasis added). However, “Congress has
distinguished markedly between a refund of that kind paid by
a taxpayer and statutory interest payable by the Government
on an overpayment.” Id. at 1385. The Court further
explained:
[T]he Revenue Code deals quite
differently with statutory interest
payable by the Government on
overpayments. Regulated by §§
6611-12, that form of interest is
paid by the United States, not as a
refund of interest previously paid
by the taxpayer on demand of the
Service, but simply because the
Government has had the use of
money found to belong to the
taxpayer. Typical is interest on an
overpayment. . . . Unlike
deficiency interest paid by the
taxpayer, Congress did not
provide that statutory interest to
be paid by the United States is to
be fully assimilated in treatment
to the principal amount of a tax.
Nor does the Code extend the
refund claim mechanism of §
6511 to such interest, or tie a
special limitations period to the
filing of such a claim. The result
is that the ordinary six-year
limitations statute controls . . . and
no claim need be filed within the

25
 time limits of § 6511.25

Id. at 1384 (citations omitted).

This distinction between deficiency interest and
overpayment interest has been recognized as critical in other
cases where the taxpayer has attempted to obtain additional
overpayment interest, see Gen. Elec. Co. v. United States, 384
F.3d 1307, 1312 (citing cases), and in those involving
governmental attempts to recover excessive overpayment
interest. In Pacific Gas & Elec. v. United States, 417 F.3d
1375 (Fed. Cir. 2005), the Court of Appeals for the Federal
Circuit explained that a “tax deficiency, tax penalty, and
deficiency interest . . . are all components of a taxpayer‟s
liability. Therefore, these components are taken into account
in determining whether an overpayment exists. . . . There is
no suggestion, however, that statutory [overpayment] interest
is a part of, or even related to, a taxpayer‟s tax liability.” Id.
at 1382-83 (citations omitted).

The Court of Appeals for the Sixth Circuit has reached
the same conclusion. In E.W. Scripps Co. v. United States,
420 F.3d 589, 595 (6th Cir. 2005), that court noted that I.R.C.
§ 6601(e)(1) “specifically provides for the treatment of
deficiency interest, in most contexts, as part of the underpaid
tax,” while “§ 6611, which pertains to statutory interest on
overpayment of tax, does not contain a similar provision,
which arguably implies that interest on an overpayment of
taxes should not be treated as part of the overpaid tax itself.”

Finally, in Chase Manhattan Bank, N.A. v. Gov’t of the

25
Which provides: “Claim for credit or refund of an
overpayment of any tax imposed by this title in respect of
which the taxpayer is required to file a return shall be filed by
the taxpayer within 3 years from the time the return was filed
or 2 years from the time the tax was paid, whichever of such
periods expires the later, or if no return was filed by the
taxpayer, within 2 years from the time the tax was paid.
Claim for credit or refund of an overpayment of any tax
imposed by this title which is required to be paid by means of
a stamp shall be filed by the taxpayer within 3 years from the
time the tax was paid.” 26 U.S.C. § 6511(a).
26
Virgin Islands, 173 F. Supp. 2d 386 (D.V.I. 2001), rev’d on
other grounds, 300 F.3d 320 (3d Cir. 2002), the district court
opined:
This absence of similar language
[in I.R.C. § 6611] makes perfect
sense because overpayments can
bear no tax liability, whereas
additions, underpayments, and
penalties, are taxes by definition.
Since there is nothing taxable
about overpayments, they impose
no substantive tax liability and
sections 6611 and 6621 of the
federal income tax law are merely
administrative provisions to aid
the government in calculating the
amount of interest it owes to the
overpaying taxpayer.

173 F. Supp.2d at 391.

Because overpayment interest, i.e., interest owed to the
taxpayer by the government, is not “a part of, or even related
to, a taxpayer‟s tax liability” and is not “assimilated in
treatment to the principal amount of a tax,” the Tax Court
here erred in holding that “under certain circumstances,
additional overpayment interest under section 6611(a) with
respect to an interim overpayment is similar to the
underpayment interest involved in Estate of Baumgardner
and can constitute an overpayment for purposes of section
6512(b).” 122 T. C. at 101.

IV. CONCLUSION

For all of the above reasons, we hold that the Tax
Court lacked subject matter jurisdiction over the claims raised
in Sunoco‟s Amended Petition, and we will therefore vacate
the order of the Tax Court.

27