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Albemarle Corp. & Subsidiaries v. United States

United States Court of Appeals, Federal Circuit

October 22, 2015

UNITED STATES, Defendant-Appellee

Appeal from the United States Court of Federal Claims in No. 1:12-cv-00184-MBH, Judge Marian Blank Horn.

JEROME LIBIN, Sutherland Asbill & Brennan LLP, Washington, DC, argued for plaintiff-appellant.

DEBORAH K. SNYDER, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by TERESA E. MCLAUGHLIN, GILBERT STEVEN ROTHENBERG, CAROLINE D. CIRAOLO, DIANA L. ERBSEN.

Before PROST, Chief Judge, BRYSON and HUGHES, Circuit Judges.


Bryson, Circuit Judge.

Albemarle Corporation and Subsidiaries (" Albemarle" ) petitions for rehearing of this court's August 13, 2015, decision on its appeal from the Court of Federal Claims. For the reasons set forth below, we deny the petition.

1. In its petition, Albemarle first argues that the decision in this case conflicts with this court's recent decision in Salem Financial, Inc. v. United States, 786 F.3d 932 (Fed. Cir. 2015). Albemarle's argument is not really based on the Salem case, which says nothing about when foreign taxes accrue, but instead is based on the Court of Federal Claims' decision in Reading & Bates Corp. v. United States, 40 Fed.Cl. 737 (1998). That case was cited in Salem, but for an entirely different proposition having nothing to do with the accrual date for foreign tax liability.

In any event, the Reading & Bates case provides no support for Albemarle's argument. The government argued in that case that the plaintiff was required to report income from a tax indemnification agreement in the tax years to which the income related (1976 and 1977). The plaintiff argued that income resulting from the indemnification agreement did not accrue until 1984, when the plaintiff's contested tax liability for foreign taxes for the years 1976 and 1977 was resolved. 40 Fed.Cl. at 750. The Court of Federal Claims agreed with the plaintiff that the foreign tax contest had delayed the accrual of the plaintiff's income until 1984, because the amount that the plaintiff was entitled to receive under the indemnification agreement could not be ascertained until the contest was over. Id. at 753.

Reading & Bates does not support Albemarle's position that a contested tax liability " actually accrues" in the contest resolution year for two reasons. First, the Reading & Bates decision deals with when income accrues for purposes of calculating " gross income" under the Tax Code; the court did not address when foreign taxes " actually accrue" for purposes of the statute of limitations. Second, the court in Reading & Bates expressly distinguished between the accrual of income and the accrual of foreign tax credits, noting that the relation-back rule applies to the accrual of foreign taxes, but not to accrual of income. 40 Fed.Cl. at 753 (" Defendant's argument is based on the erroneous assumption that foreign tax credits are treated in the same manner as income." ).

2. Albemarle next argues that the panel opinion in this case ignored the Supreme Court's opinion in Dixie Pine Products Co. v. C.I.R., 320 U.S. 516, 64 S.Ct. 364, 88 L.Ed. 270, 1944 C.B. 509 (1944), and the accrual principles discussed in that opinion.

In fact, the panel opinion discussed at some length both the Dixie Pine case and the line of authority based on that decision. Albemarle simply disagrees with the panel's distinction of that line of cases. In particular, Albemarle argues that the panel improperly held that there is only one year of accrual for contested taxes, i.e., the year of origin, and refused to apply the " all events test" that is set forth in Dixie Pine and codified in section 461 of the Tax Code. That, however, is not an accurate description of the panel's analysis. The panel acknowledged that two critical dates exist for a party that wishes to seek foreign tax credits based on a contested tax liability. As the panel opinion explained, " [F]or the purpose of determining in what year the right to claim the credit arises, the contested tax doctrine and section 461 apply. For the purpose of determining against which U.S. tax the foreign tax is to be credited, the contested tax doctrine does not apply, and the tax is held to have accrued in the taxable year 'to which the tax relates.'" Slip op. at 13.

Thus, pursuant to section 461, Albemarle did not have the right to claim a foreign tax credit until 2002, when the contest was over and liability was finalized. When Albemarle filed a claim for foreign tax credits, however, the credits were offset against its tax liability for the year 1998 under the relation-back doctrine. Therefore, contrary to Albemarle's assertion, the panel explicitly acknowledged the applicability of section 461, i.e., the all-events test, to the contested foreign tax situation.

Albemarle also faults the panel for holding that the company's 1997 tax liability accrued in 1997, not in 2002. See Pet. at 6. But Albemarle itself admitted that foreign tax liability " accrues" in its year of origin for purposes of the foreign tax credit statutes (specifically, sections 901 and 905). See 26 U.S.C. § 901(b)(1) (" [The following amounts shall be allowed as the credit: . . .] the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year . . ." ); Appellant's Br. 20 (stating that under section 901(b)(1) " a foreign tax credit may only be claimed for a year in which foreign tax was 'paid or accrued.'" ).

3. Albemarle takes issue with the court's citation of Treasury Regulation 1.904-2(c)(1), 26 C.F.R. ยง 1.904-2(c)(1), which deals with carryback and carryover of unused foreign taxes under the per-country limitation on foreign tax credits. Albemarle argues that the court's analysis is flawed ...

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