Tualatin Valley Builders Supply, Inc. v. United States , 522 F.3d 937 ( 2008 )

Opinion by Judge GRABER; Specia; Concurrence by Judge O’SCANNLAIN.

GRABER, Circuit Judge:

The main question before us is whether the Internal Revenue Service (“IRS”) exceeded its statutory authority when it promulgated Revenue Procedure 2002-40.¹ We hold that the IRS acted within its authority. Because Plaintiff Tualatin Valley Builders Supply, Inc., failed to meet the Revenue Procedure’s deadline for claiming the benefit of a temporary five-year net operating loss carryback, we affirm the district court’s grant of summary judgment to the United States.

FACTUAL AND PROCEDURAL BACKGROUND

The material facts are not in dispute. Plaintiff is a dissolved Oregon corporation that has completed a Chapter 11 bankrupt-ey proceeding. Plaintiffs 2001 tax year ended on March 31, 2001. On its 2001 income tax return, timely filed in December 2001, Plaintiff claimed a net operating loss of about $5 million.²

On the same date that it filed its 2001 income tax return, Plaintiff filed for a “quick refund” for tax year 1999.³ Plaintiffs 1999 quick refund application used a net operating loss carryback from 2001. When Plaintiff filed that application, its 2001 net operating loss could be carried back only two years. I.R.C. § 172(b)(1)(A) (2001).⁴ The IRS allowed Plaintiffs tentative adjustment for 1999.

On March 9, 2002, a few months after Plaintiff filed its 2001 income tax return and application for a quick refund, Congress amended § 172 of the Internal Revenue Code to provide a five-year net operating loss carryback period for tax years ending in 2001 and 2002. Job Creation and Worker Assistance Act of 2002 (“JCWA Act”), Pub.L. No. 107-147, § 102(a), 116 Stat. 25-26, codified at I.R.C. § 172(b)(1)(H).⁵ Congress also provided that a taxpayer could elect not to take advantage of the new five-year carryback provision. Such an election would be allowed “in such manner as may be prescribed by the Secretary [of the Treasury] and shall be made by the due date (inelud-ing extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss.” Id. § 102(b), codified at I.R.C. § 172(j). Once made, the election would be irrevocable. Id.

Because the JCWA Act amended the Internal Revenue Code in March 2002 but applied to tax years ending in 2001 and 2002, some taxpayers — like Plaintiff — already had established their tax positions for 2001 or 2002. In mid-2002, therefore, the IRS released Revenue Procedure 2002-40, which outlined procedures for implementing the five-year carryback period for those taxpayers. Rev. Proc.2002-40, §§ 1, 4-7. Generally, taxpayers wishing to change their tax positions were required to do so on or before October 31, 2002. Id. § 7.03.

On January 7, 2003, more than two months after the deadline established by the Revenue Procedure, Plaintiff filed an amended 1996 corporate income tax return in which it carried back its 2001 net operating loss. On that amended return, Plaintiff claimed a refund of income taxes, with interest, after applying a five-year carryback of its 2001 net operating loss. The IRS disallowed Plaintiffs refund claim because Plaintiff already had elected to carryback the 2001 net operating loss to tax year 1999, and Plaintiff had faded to file a change of position by October 31, 2002, as required by Revenue Procedure 2002^0. Through its liquidation plan agent, Plaintiff then brought this action, pursuant to 28 U.S.C. § 1346(a)(1), seeking a refund for 1996.

On cross-motions for summary judgment, the district court denied Plaintiffs claim for a refund. The court held that the IRS validly set the October 31, 2002, deadline in Revenue Procedure 2002-40, explaining:

The court construes this language [in I.R.C. § 172(j)] — “such election shall be made in such manner as may be prescribed by the Secretary ” (emphasis provided) — as plainly bestowing upon the IRS the explicit authority to determine how and when such elections can be made. The IRS did so by publishing Revenue Procedure 2002-40. The instructions prescribed by the Secretary establish the deadline of October 31, 2002, for electing to invoke the five-year carryback. Plaintiff failed to meet this deadline.

Plaintiff timely appealed.

STANDARD OF REVIEW

We review de novo both a district court’s grant of summary judgment and a district court’s interpretation of the Internal Revenue Code. Abelein v. United States, 323 F.3d 1210, 1213 (9th Cir.2003).

DISCUSSION

On appeal, Plaintiff makes two arguments. First, it argues that Revenue Procedure 2002-40 was an impermissible exercise of the agency’s authority and an incorrect interpretation of JCWA Act § 102. Second, Plaintiff contends that, even if Revenue Procedure 2002-40 is valid, Plaintiff timely filed a refund claim under § 6511(d)(2)(A) of the Internal Revenue Code.⁶ As part of this second argument, Plaintiff contends that § 6511(d)(2) (B) (i), which mandates that a refund generally should be allowed even if otherwise prevented by operation or rule of law, trumps Revenue Procedure 2002-40 and its deadline of October 31, 2002.

In response, the government argues that Revenue Procedure 2002-40 is entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The Revenue Procedure, it contends, was promulgated pursuant to an express delegation of authority; and, in any event, Congress later authorized and endorsed the Revenue Procedure, including its deadline, when it amended the five-year carryback rule as part of the Working Families Tax Relief Act of 2004, Pub.L. No. 108-311, § 403(b)(2), 118 Stat. 1166, 1187. The government also argues that § 6511 (d)(2)(B)(i) serves the specific purpose of permitting a net operating loss carryback to a year closed by litigation, which is not the situation here.

A. Revenue Procedure 2002-10

Statutory interpretation begins with the text of the enactment. Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001). If “Congress has directly spoken to the precise question at issue[,] ... that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. If Congress has not spoken directly to the precise question at issue, we must decide how much weight to accord an agency’s interpretation.

The text of JCWA Act § 102 creates a five-year net operating loss carryback period for losses arising in tax year 2001 or 2002 and gives taxpayers an opportunity to elect out of that five-year period. The statute is silent, though, on how to treat taxpayers who already had elected a two-year net operating loss carryback. Both I.R.C. § 172(j) and a related Congressional Letter ⁷ gave authority to the IRS to promulgate implementing rules. See I.R.C. § 172(j)(providmg that a taxpayer’s “election shall be made in such manner as prescribed by the Secretary”); Congressional Letter (stating that “it is the intent of Congress that such revocation be made in such manner as prescribed by the Secretary” and “[w]e trust that this letter provides sufficient clarification so that guidance can be issued in a manner that fully reflects Congressional intent”).

Generally, when Congress has “explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation,” and “[s]uch legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.” Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778. The government contends that Revenue Procedure 2002-40 satisfies the requirements for, and is entitled to, Chevron deference. If the government is correct, then “a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.” Id. at 844, 104 S.Ct. 2778.

But not all agency determinations are accorded Chevron deference. “[A]gen-cies charged with applying a statute necessarily make all sorts of interpretive choices, and ... not all of those choices bind judges to follow them.” United States v. Mead Corp., 533 U.S. 218, 227, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001). Even where not binding, those agency choices “certainly may influence courts facing questions the agencies have already answered.” Id. In such an instance, “[t]he fair measure of deference to an agency administering its own statute has been understood to vary with circumstances.” Id. at 228, 121 S.Ct. 2164. Generally referred to as Skidmore deference, the weight given to the agency’s interpretation depends on “the degree of the agency’s care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency’s position.” Id. (footnotes omitted) (citing Skidmore v. Swift & Co., 323 U.S. 134, 139-40, 65 S.Ct. 161, 89 L.Ed. 124 (1944)).

Our case law leaves unresolved the question whether a revenue procedure should receive Chevron or Skidmore deference. Compare Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004, 1012 (9th Cir.2002) (granting Chevron deference to an informal policy statement from the Department of Housing and Urban Development), with Omohundro v. United States, 300 F.3d 1065, 1068 (9th Cir.2002) (per curiam) (applying Skidmore deference to an IRS revenue ruling).⁸ We need not resolve the tension between Schuetz and Omohundro here. Even assuming that Chevron deference is not appropriate, under the less stringent Skidmore analysis, we hold that Revenue Procedure 2002 — 40 still should receive significant deference and that the Revenue Procedure is valid.

Skidmore deference requires us to consider a variety of factors, such as the thoroughness and validity of the agency’s reasoning, the consistency of the agency’s interpretation, the formality of the agency’s action, and all those factors that give it the power to persuade, if lacking the power to control. Mead Corp., 533 U.S. at 228, 121 S.Ct. 2164. Some Skidmore factors are difficult to assess with respect to Revenue Procedure 2002 — 40: There is no prior or later interpretive history to JCWA Act § 102 or Revenue Procedure 2002-40, and no analysis or reasoning accompanied the Revenue Procedure’s procedural prescriptions. The balance of the Skidmore factors, however, reveal that Revenue Procedure 2002-40 is a persuasive interpretation of the law. The IRS— the authority on the interpretation and application of the Internal Revenue Code — promulgated Revenue Procedure 2002-40 under an express grant of congressional authority. The IRS did so only after requesting further guidance from Congress concerning its intent. In addition, the amendments that Congress enacted after publication of Revenue Procedure 2002-40 were consistent with the procedures and deadlines established by the IRS. See Working Families Tax Relief Act § 403(b)(2)(enacting technical amendments to the JCWA Act). That sequence suggests that Congress implicitly ratified the Revenue Procedure as consistent with its intentions in passing the JCWA Act. See, e.g., Bob Jones Univ. v. United States, 461 U.S. 574, 599-602, 103 S.Ct. 2017, 76 L.Ed.2d 157 (1983) (analyzing congressional action to determine whether it implicitly ratified an IRS revenue ruling).

Plaintiff contends that neither § 172(j) nor the Congressional Letter directs the IRS to issue rules specifically related to a taxpayer in Plaintiffs position — that is, a taxpayer that filed an application for tentative adjustment under the two-year net operating loss carryback rule and now seeks to apply the five-year net operating loss carryback rule. Although that may be so, Congress has given the IRS broad authority to issue rules implementing the tax laws. I.R.C. § 7805(a)(“[T]he Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including ... as may be necessary by reason of any alteration of law in relation to internal revenue.”). That broad authority supplements the specific grant of authority that Congress gave the IRS in JCWA Act § 102(b).

Silence or ambiguity on a precise issue within the general ambit of a statute does not mean that courts accord no deference to an agency’s interpretation of that statute. On the contrary, Congress’ silence in this situation created an ambiguity for the IRS to resolve. In seeking to find a balance between the finality of income tax elections and a retroactive statute, the Revenue Procedure provides taxpayers a period of time, albeit a limited one, to make a new election to modify a prior one. Requiring taxpayers to decide by October 31, 2002, whether they would apply the five-year net operating loss carryback period was consistent with the text of the JCWA Act and was implicitly ratified by Congress when it amended the Act in 2004.

B. I.R.C. § 6511(d)(2)(B)(i)

Plaintiff next argues that I.R.C. § 6511 (d)(2)(B)(i) trumps Revenue Procedure 2002-40’s reduction of the three-year period within which a taxpayer can file an amended return carrying back a net operating loss. Section 6511(d)(2)(B)(i) provides:

If the allowance of a credit or refund of an overpayment of tax attributable to a net operating loss carryback ... is otherwise prevented by the operation of any law or rule of law other than section 7122 (relating to compromises), such credit or refund may be allowed or made, if claim therefor is filed within the period provided in subparagraph (A) of this paragraph [providing a three-year period for the filing of an amended return].

The government contends that § 6511(d)(2)(B)® serves a far narrower purpose, namely, ensuring that a net operating loss carryback is available even if the carryback year was litigated and closed. In support, the government cites the legislative history of the precursor to § 6511(d)(2)(B)® from the Income Tax Code of 1939⁹ and Mar Monte Corp. v. United States, 503 F.2d 254, 258 (9th Cir.1974), in which we recognized that § 6511(d)(2)(B)® reflected a congressional concern that a taxpayer otherwise might be foreclosed from carrying back a net operating loss to a tax year previously litigated.

We need not decide whether § 6511(d)(2)(B)® takes precedence over Revenue Procedure 2002-40 because the two may be harmonized. Simply put, Revenue Procedure 2002-40 did not shorten the period for filing an amended return. Under I.R.C. § 6511, Plaintiff still could file an amended return any time within three years from the date its 2001 return was due, carrying back its net operating loss for two years; Plaintiff simply could not carryback its 2001 net operating loss for five years without having also complied with the notice requirements of Revenue Procedure 2002-40. Had Plaintiff given the IRS timely notice of an election to change its previously established tax position, it would have had three years to file a claim for 1996 by means of an amended return.

CONCLUSION

It is well established that “[w]hether and to what extent deductions shall be allowed depends upon legislative grace.” New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 78 L.Ed. 1348 (1934). Congress provided eligible taxpayers with a windfall when it enacted JCWA Act § 102, extending from two years to five years the period in which 2001 and 2002 net operating losses could be carried back and deducted. Congress did not act fast enough to preempt taxpayers such as Plaintiff from establishing contrary tax positions, so it authorized the IRS, both generally and specifically, to promulgate rules implementing the new five-year carryback period. The IRS did so in Revenue Procedure 2002-40, which established an October 31, 2002, deadline for taxpayers in Plaintiffs position. That deadline is consistent with the text of the statute and the authority Congress has conferred on the IRS. Moreover, Congress implicitly ratified Revenue Procedure 2002-40 when it amended JCWA Act § 102 while leaving untouched the Revenue Procedure and its prescriptions. Because Revenue Procedure 2002-40 does not prohibit a taxpayer from filing a claim for refund in the absence of compliance, the Revenue Procedure neither shortens the period for filing a claim for refund or credit under § 6511(d)(2)(A) nor conflicts with § 6511(d)(2)(B)(i).

In sum, giving appropriate deference to Revenue Procedure 2002-40, we hold that Plaintiff was required to file either an application for tentative refund or an amended tax return on or before October 31, 2002, in order to carryback its 2001 net operating loss to its 1996 tax year. It did not do so. Accordingly, we agree with the district court that Plaintiffs refund claim for 1996 was untimely.

AFFIRMED.

1 . A Revenue Procedure is a "statement of procedure that affects the rights or duties of taxpayers or other members of the public under the Code and related statutes or information that, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge.” Treas. Reg. (26 C.F.R.) § 601.601 (d)(2)(i)(b). "Revenue Procedures usually reflect the contents of internal management documents, but, where appropriate, they are also published to announce practices and procedures for guidance of the public.” Id. § 601.601 (d)(2)(vi).

2 .A taxpayer’s net operating loss for a given taxable year is the excess of deductions over gross income. Internal Revenue Code (26 U.S.C.) (I.R.C.) § 172(c). The Internal Revenue Code permits a taxpayer to carryback a net operating loss to prior tax years and carry-forward a net operating loss to future tax years. Id. § 172(b)(1)(A). As a general rule, a carryback is limited to two years and a cariy-forward is limited to 20 years. Id. The total net operating loss carrybacks and carry-forwards for a given tax year are allowed as a deduction against taxable income. Id. § 172(a). Simply stated, a taxpayer that has a net operating loss for a given tax year may use that loss to offset income in prior years, later years, or both.

3 . A "quick refund” refers to an application for tentative adjustment on IRS Form 1139, "Corporation Application for Tentative Refund,” under Treas. Reg. § 1.6411-1 (b)(1).

4 . Although I.R.C. § 172 has been amended since 2001, the text of the subparagraph that provides for the two-year carryback period remains unchanged. Compare I.R.C. § 172(b)(1)(A) (2001) with I.R.C. § 172(b)(1)(A) (2007). Therefore, unless the context requires otherwise, we omit the year of the I.R.C. from our citations.

5 . In its briefing, the government aptly describes JCWA Act § 102 as “essentially a temporary statutory provision that applies to only two tax years.”

6 . Section 6511(d)(2)(A) allows a taxpayer to file a refund claim due to a net operating loss carryback within three years of the date when the return is due for the year generating the net operating loss.

7 . Shortly after passage of the JCWA Act, and in response to a Treasury Department inquiry, the chairs and ranking members of the House Ways and Means Committee and the Senate Finance Committee sent a joint letter to the Treasury Department to "provide sufficient clarification so that the Treasury Department can issue guidance reflecting the Congressional intent of [the JCWA Act].” Congressional Letter from Rep. Bill Thomas, Chair, Comm, on Ways and Means; Sen. Max Bau-cus, Chair, Comm, on Finance; Rep. Charles B. Rangel, Ranking Member, Comm, on Ways and Means; Sen. Charles E. Grassley, Ranking Member, Comm, on Finance, to Mark A. Weinberger, Assistant Sec’y (Tax Policy), Dep't of the Treasury (Apr. 15, 2002).

8 . A revenue ruling is “an official interpretation by the Service that has been published in the Internal Revenue Bulletin ... for the information and guidance of taxpayers, Internal Revenue Service officials, and others concerned.” Treas. Reg. § 601.601 (d)(2)(i)(a). Revenue rulings “do not have the force and effect of Treasury Department Regulations ..., bul are published to provide precedents to be used in the disposition of other cases, and may be cited and relied upon for that purpose.” Id. § 601.601 (d)(2)(v)(d).

9 . A Report of the House Ways and Means Committee discussing § 322(g), the predecessor statute to § 6511(d)(2)(B)(i), stated:

[U]nder the proposed subsection (g) of § 322 of the Code, even though the tax liability for a given taxable year, for example, has already been litigated before the Tax Court, credit or refund of an overpayment attributable to a carry-back may be allowed or made, if claim for credit or refund is filed within the period prescribed in section 322(b)(6)....

H.R.Rep. No. 79-849 (1945), reprinted in 1945 C.B. 566, 587.