“Same taxpayer” rule, interest netting claims | KPMG | GLOBAL

“Same taxpayer” rule, interest netting claims when mergers are involved

“Same taxpayer” rule, interest netting claims

The U.S. Court of Appeals for the Federal Circuit today affirmed-in-part, but reversed-in-part and remanded a summary judgment order of the U.S. Court of Federal Claims that had allowed a taxpayer’s claims for interest netting in situations involving merged entities.


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The case is: Wells Fargo & Co. v. United States, 2015-5059 (Fed. Cir. June 29, 2016). Read the Federal Circuit’s decision [PDF 442 KB]


The Federal Circuit addressed the interest netting provisions of Code section 6621(d)—interest netting is allowed on equivalent underpayments and overpayments of the “same taxpayer”—and whether taxpayers involved in a merger are the “same taxpayer” with respect to the underpayments and overpayments. In other words, the pertinent question is: Was the entity that made the underpayment at the time of the underpayment the “same taxpayer” as the entity that made the overpayment at the time of the overpayment? 

In this case, there were two situations examined by the Federal Circuit. In one situation, one company made the underpayment, and another company made the overpayment. The two companies were later merged. The Federal Circuit concluded that at the times when the overpayment and underpayment were made, there were two distinct taxpayers. The appeals court pointed out that the fact that the two entities later merged did not change the fact that there were separate at the time of the original tax payments.

Yet, in another situation examined by the Federal Circuit, interest netting was allowed. 

  • An acquired corporation made an overpayment in 1992—before the merger.
  • The companies were merged in 1998.
  • In 1999, the surviving corporation made an underpayment of tax.

The Federal Circuit found that the overpayment was made by the “same taxpayer” as the post-merger surviving entity that had absorbed the acquired corporation and had made the underpayment.

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