[00:00:00] Speaker 04:
Inc.

[00:00:00] Speaker 04:
versus United States 17-1402 Counselor Gare is that correct?

[00:00:28] Speaker 03:
Yes, your honor.

[00:00:29] Speaker 03:
Thank you, Judge Branya, and may it please the court.

[00:00:32] Speaker 04:
And you reserved three minutes of your time for rebuttal.

[00:00:35] Speaker 03:
Yes, your honor, I did.

[00:00:36] Speaker ?:
OK.

[00:00:37] Speaker 03:
Your honors, I'd like to begin today with two undisputed propositions about the federal tax law at issue in this appeal.

[00:00:44] Speaker 03:
First, it is undisputed that when Congress passed the statute at issue in this case, it intended to incentivize the creation of environmentally friendly blended fuels

[00:00:57] Speaker 03:
by granting a tax credit to companies that blended such fuels.

[00:01:01] Speaker 01:
Is there any reason to think that it intended to drastically increase the pre-existing incentive for that as opposed to drastically increase the amount of the receipts that were going to be committed into the Highway Trust Fund?

[00:01:19] Speaker 03:
Yes.

[00:01:20] Speaker 03:
The statute it wrote, the legislative history, the structure, and I'll explain all those.

[00:01:24] Speaker 03:
And I'd also just quarrel a little bit with

[00:01:26] Speaker 03:
the premise of that question, which is that this is a drastic benefit.

[00:01:30] Speaker 03:
And maybe I can start by just sort of explaining the benefit at issue here.

[00:01:35] Speaker 03:
It's undisputed that Congress did grant a credit to companies that blended fuels.

[00:01:39] Speaker 03:
The credit is expressed in terms of $0.51 per gallon of alcohol used in the gasoline to blend it.

[00:01:46] Speaker 03:
For ethanol, which is about 10% alcohol, that works out to about a $0.05 a gallon credit.

[00:01:52] Speaker 03:
And ultimately, the issue in this case is whether that credit is worth

[00:01:56] Speaker 03:
five cents or three and a half cents.

[00:01:59] Speaker 03:
There is a lot of money involved because the plaintiff here, Sunoco, paid billions of dollars in excise taxes as well.

[00:02:08] Speaker 03:
So there are large amounts of money involved.

[00:02:11] Speaker 03:
But the government has drastically overstated the amount of the benefit that we're claiming here.

[00:02:16] Speaker 03:
And moreover, the government is in a difficult position because the government acknowledges that companies that simply blend the gasoline

[00:02:24] Speaker 03:
are entitled to the full value of the credit and yet their position.

[00:02:29] Speaker 01:
By the way, I didn't see information about whether the, telling me anything about the dollar size or even percentage of the net payouts from the United States Treasury to people as opposed to the credits.

[00:02:50] Speaker 01:
Are we talking about, I understand that under, what is this, 6427E1, there are going to be some payments.

[00:03:00] Speaker 01:
And you make, obviously, a quite big deal out of that.

[00:03:04] Speaker 01:
But do we have any information about whether, as a practical matter, that's a small amount, or either relatively or at most?

[00:03:12] Speaker 03:
Your Honor, it's not on the record.

[00:03:14] Speaker 03:
My understanding is that it is not a major proportion of the

[00:03:19] Speaker 03:
the dollars that flow both ways in this, that most of the manufacturers claiming credits also remove the gasoline from a refinery in an unblended state, which is what triggers the excise tax.

[00:03:33] Speaker 03:
But it has to be acknowledged that Congress recognized that there would be companies that didn't remove the gas and incur the excise tax, but simply blended it.

[00:03:43] Speaker 03:
And for those companies, Congress gave it the same credit.

[00:03:46] Speaker 03:
And the government acknowledges that those companies are entitled to the full value of the credit.

[00:03:50] Speaker 03:
And so its position before this court is that somehow the same credit means something less when the company not only blends it but removes it from the refinery and therefore incurs the excise tax.

[00:04:02] Speaker 03:
And to go to the statutory text, I think maybe the clearest indication that this is not what Congress had in mind is that when Congress wanted a credit to offset the value of a deduction,

[00:04:16] Speaker 03:
It said so.

[00:04:17] Speaker 01:
It said so in the very same act, in the very set of eight pages that Congress enacted in the Jobs Act here, and that's in section 280C, which dealt with the... So now we're moving off 9503, which I think is fair to say was a centerpiece of your argument and maybe is not so strong a point because it starts with, for purposes of this paragraph, we're even moving off, was it 6427?

[00:04:44] Speaker 01:
And let me ask you this question about 6427, E1 and E3.

[00:04:48] Speaker 01:
The natural meaning of those provisions to me is that the payments under E1 are not the credits because E3 says the payments actually distinguishes the payments from the credits, which seems to me to support, and I want your response to this, rather strongly the government's view

[00:05:13] Speaker 01:
that your attempt to treat the credits as a payment of tax just like the payment out of the government to the pure blenders.

[00:05:27] Speaker 03:
And so I think what the E section of 2427 does is say that where you've taken the credits in 6426, you don't also get the payment.

[00:05:37] Speaker 03:
Now, with respect to whether the credit is operating as a payment,

[00:05:40] Speaker 03:
It is.

[00:05:40] Speaker 03:
I mean, first of all, the legislative history says that.

[00:05:42] Speaker 03:
It's legislative history.

[00:05:43] Speaker 03:
But page 304 of the conference report says the credit is a payment.

[00:05:47] Speaker 01:
Right.

[00:05:47] Speaker 01:
But I guess it seems to me that the language of E3 and E1 cuts up against that.

[00:05:53] Speaker 01:
That is, it makes the distinction between payments and credits.

[00:05:58] Speaker 03:
But Your Honor, you're right that there is that distinction there.

[00:06:02] Speaker 03:
But then the question is, does the credit operate as a payment?

[00:06:06] Speaker 03:
Legislative history says that.

[00:06:07] Speaker 03:
The conference report says that.

[00:06:08] Speaker 03:
I would say go to the excise tax form, form 720, which was submitted in the Court of Federal Claims, a document 33.3.

[00:06:18] Speaker 03:
And you work through that form.

[00:06:19] Speaker 03:
Not in the appendix.

[00:06:21] Speaker 03:
It's not in the appendix, I apologize.

[00:06:22] Speaker 03:
But when you work through that form, what you see is it starts with the taxes.

[00:06:27] Speaker 03:
And that includes the excise tax at issue here in line 79 of part one of the form.

[00:06:34] Speaker 03:
And then it's not until part three that you start with the total tax.

[00:06:39] Speaker 03:
And then you back out claims, which include the credit at issue in this case, to get at the balance.

[00:06:47] Speaker 03:
And so it's clear from that that the credits are operating as a payment.

[00:06:50] Speaker 03:
I would also point you to the August 29, 2003 Chief Counsel memorandum, which is a document 2222 in the Court of Federal Claims.

[00:07:00] Speaker 03:
And there the Chief Counsel for the IRS explains that the way that you calculate the amounts here is you start with,

[00:07:09] Speaker 03:
gross income, you apply the tax rate to that to determine your tax liability, and then you apply credits and payments against that tax liability.

[00:07:18] Speaker 03:
Again, making clear that the credits are working as a payment.

[00:07:22] Speaker 04:
Section 31 of the code is perhaps... So that interpretation represents a significant revenue effect.

[00:07:33] Speaker 04:
And the Joint Committee statement in the Jobs Act said that the Jobs Act would have no

[00:07:39] Speaker 04:
revenue effect.

[00:07:40] Speaker 04:
Your position seems to be a significant revenue effect.

[00:07:44] Speaker 03:
Well, Your Honor, we would quarrel with the amount of the revenue effect, but what I would say to that is first, courts have recognized that those sorts of statements in committee reports are a notoriously poor indicator of congressional intent.

[00:07:57] Speaker 03:
That's the first point.

[00:07:58] Speaker 03:
The second point is we know that had to be wrong because the government itself acknowledges that the credit in 6427, that is a new

[00:08:07] Speaker 03:
benefit that went to companies that simply blended the gasoline.

[00:08:12] Speaker 03:
And that clearly had a revenue impact on the law.

[00:08:17] Speaker 01:
But quite possibly, quite small.

[00:08:20] Speaker 01:
Well, we can debate that.

[00:08:21] Speaker 01:
Well, no, you answered probably my first question.

[00:08:25] Speaker 03:
Well, I would call it quite small.

[00:08:27] Speaker 01:
A billion a year.

[00:08:27] Speaker 03:
I think it's certainly material, Your Honor.

[00:08:31] Speaker 03:
The third point is that this court's responsibility is not to weigh what it believes the revenue affects

[00:08:36] Speaker 03:
would be, but to give effect to the statute that Congress enacted, the Supreme Court has made that clear.

[00:08:44] Speaker 03:
And the government's argument here really does fall back on this notion that somehow this is going to have an unwarranted impact on the FISC.

[00:08:53] Speaker 03:
To be clear, the statute at issue in this case has expired.

[00:08:56] Speaker 03:
It was expired in 2011.

[00:08:58] Speaker 03:
There's a three-year window for refund claims.

[00:09:01] Speaker 03:
That in itself sort of cuts against the sky.

[00:09:05] Speaker 01:
Should we make anything of the fact that your company's presumably very good tax lawyers for several years after 2004 thought that the right way to proceed is the way that the government is urging here?

[00:09:20] Speaker 03:
Your Honor, no more than you would in any refund case.

[00:09:22] Speaker 03:
This comes up all the time where taxpayers make mistakes and then come into court.

[00:09:26] Speaker 03:
and argue that they made an overpayment.

[00:09:28] Speaker 03:
And the courts determine whether or not that's correct as a matter of law.

[00:09:30] Speaker 03:
So no, I don't think that you can make anything out of that.

[00:09:33] Speaker 03:
We discovered our error.

[00:09:34] Speaker 03:
We filed a timely claim for a refund.

[00:09:37] Speaker 03:
And we're here explaining why we're entitled to the full value of the credit that Congress granted.

[00:09:44] Speaker 03:
I would also point you to the language that Congress used in 6426, the against the tax imposed language that the government itself

[00:09:53] Speaker 03:
points to.

[00:09:54] Speaker 03:
What's significant about that language is it tracks verbatim the same language used in section 31 of the code, which is the credit applied for withholding taxes.

[00:10:05] Speaker 03:
When the government withhold taxes from your salary, that is a classic credit where the amount of withheld wages is applied as a credit against the tax owed.

[00:10:19] Speaker 03:
And everybody understands that when

[00:10:21] Speaker 03:
Those withheld wages are paid against your tax owed.

[00:10:24] Speaker 03:
They're operating as a payment.

[00:10:26] Speaker 03:
They're not decreasing your tax liability to begin with.

[00:10:29] Speaker 03:
And yet that's the very same language that Congress chose in the credit provision at issue here, which is another indication that Congress intended this credit to operate as a payment.

[00:10:40] Speaker 03:
I would also, Your Honors, point you to the conference report, the legislative history, which

[00:10:46] Speaker 03:
is something we think that's appropriate to consider here.

[00:10:50] Speaker 03:
We're not arguing that the language is unambiguous, but we do believe that when you look at all indicia of congressional intent here, you come to the conclusion that Congress did intend the same credit to mean the same thing.

[00:11:02] Speaker 04:
If your position is accepted, it seems that you would be, Sunoco would be entitled to receive a significant windfall.

[00:11:13] Speaker 04:
Don't call it a windfall, let's just say a significant

[00:11:17] Speaker 04:
payment from the government.

[00:11:19] Speaker 04:
And I think the government argues that this is indeed a windfall.

[00:11:25] Speaker 04:
You're arguing in favor of looking at the legislative intent.

[00:11:31] Speaker 04:
Where in the history do we see that Congress intended that this type of effect to occur?

[00:11:38] Speaker 03:
Well, certainly the Congressional Research Service reports recognize that there was a greater subsidy.

[00:11:43] Speaker 04:
CRS?

[00:11:44] Speaker 04:
I mean, that's even less of a

[00:11:46] Speaker 04:
of a legislative authority than the committee report that you said was not correct.

[00:11:52] Speaker 03:
Well, courts have relied on it both ways.

[00:11:54] Speaker 03:
And we certainly go to that first, because we think the law that Congress enacted should control.

[00:11:59] Speaker 03:
But with respect to the notion that this is a windfall, our position is that a $1 credit is worth $1.

[00:12:06] Speaker 03:
The government acknowledges that $1 credit is worth $1.

[00:12:09] Speaker 04:
But this is a difference of, what, $300 million?

[00:12:13] Speaker 03:
On top of $6 billion in excise taxes, we pay.

[00:12:17] Speaker 03:
So yes, the amounts add up, your honor.

[00:12:19] Speaker 03:
But again, ultimately the question before the court is, did Congress enact a scheme where it said, we want you to blend this gas for environmental purposes?

[00:12:31] Speaker 03:
If you're a company and you just blend it, you get a dollar credit.

[00:12:35] Speaker 03:
That means it's a dollar.

[00:12:37] Speaker 03:
But if you're a company

[00:12:38] Speaker 03:
that happens also to bear an excise tax because you remove it from a refinery to begin with before it's blended, then that dollar credit isn't worth a dollar.

[00:12:48] Speaker 03:
And again, when Congress wanted a credit to offset a deduction, it said so.

[00:12:54] Speaker 03:
It said so in Section 280C.

[00:12:57] Speaker 03:
Congress didn't say so here.

[00:12:59] Speaker 04:
OK.

[00:12:59] Speaker 04:
You're into your rebuttal time.

[00:13:01] Speaker 04:
Thank you, Your Honor.

[00:13:02] Speaker 04:
OK.

[00:13:02] Speaker 04:
Thank you, sir.

[00:13:09] Speaker 04:
Councillor Hagley.

[00:13:17] Speaker 00:
Good morning and may it please the court.

[00:13:19] Speaker 00:
Sunoco's $300 million refund claim was properly rejected because it's not entitled to treat as a cost a tax that was never required to pay.

[00:13:28] Speaker 00:
Sunoco never incurred the full amount of the tax, only the amount of the tax as reduced by the credit as the only amount of tax that the government received that the Highway Trust Fund

[00:13:39] Speaker 00:
was credited with the full amount of the tax.

[00:13:42] Speaker 00:
It's just an accounting concept made possible by the special rule in 9503B.

[00:13:47] Speaker 00:
But that special rule, by its very terms, is limited to the Highway Trust Fund.

[00:13:53] Speaker 00:
It doesn't apply more broadly, as Sunoco argues, to computing how much tax payment.

[00:13:59] Speaker 04:
So what's your strongest case law to support that a tax credit can be used to reduce liability?

[00:14:07] Speaker 00:
that a tax credit reduces liability, the Supreme Court recognized that in the Randall case when it was analyzing what a federal tax credit is.

[00:14:14] Speaker 00:
And it said that it's not income or asset.

[00:14:16] Speaker 00:
It's just the right for the taxpayer to pay less tax.

[00:14:20] Speaker 00:
We see the same, the tax court relied on Randall in the Mayans case and in the Temple case where it reached the same conclusion that a tax credit is not a payment that the government owes the taxpayer.

[00:14:33] Speaker 00:
It's just the right to pay less tax to the government

[00:14:36] Speaker 00:
And then in revenue ruling 79-315, the Sixth Circuit Snyder decision.

[00:14:42] Speaker 00:
And in the recent case that we provided you, Hart Furniture Oil Tax Court case, the court said, because, and Ira said, because a tax credit reduces tax expense, it also reduces how much the taxpayer may deduct or include in cost of goods sold.

[00:14:59] Speaker 01:
Two of the points that maybe it's fair to say Mr. Garf featured are the

[00:15:06] Speaker 01:
following.

[00:15:07] Speaker 01:
One, what Congress did with respect to 280C.

[00:15:13] Speaker 01:
And I'd like you to try to explain that in a way I might understand.

[00:15:16] Speaker 01:
And the second is that in the government's view of the statute, what I'll call the pure blenders, the ones not liable for the excise tax, the ones who get cash from the Treasury, are being given a larger ethanol incentive

[00:15:36] Speaker 01:
than his clients who do pay the excess tax.

[00:15:41] Speaker 01:
And if I've misstated those two points, maybe you can get at what I should have said.

[00:15:45] Speaker 00:
No, I think you stated them perfectly.

[00:15:46] Speaker 00:
And let me address the second one first.

[00:15:49] Speaker 00:
With regard to the blenders who can get a payment versus the blenders who can only get a credit, this may not be obvious from our brief.

[00:15:58] Speaker 00:
So let me sort of explain that there's two different ways that blenders can operate.

[00:16:04] Speaker 01:
And by the way, do you happen to know anything about the magnitudes involved?

[00:16:09] Speaker 00:
I don't know the numbers.

[00:16:10] Speaker 00:
I do believe that, as Mr. Garry said, that most blenders are in Senoko's situation.

[00:16:16] Speaker 00:
They're not entitled to a payment.

[00:16:17] Speaker 00:
They're only entitled to a credit.

[00:16:20] Speaker 00:
That's my understanding.

[00:16:22] Speaker 00:
But the comparison is really an apples to orange comparison because the two different blenders are operating differently.

[00:16:28] Speaker 00:
Let me explain that.

[00:16:32] Speaker 00:
For every, you receive the credit for blending the alcohol into the gasoline.

[00:16:36] Speaker 00:
And for every gallon of alcohol, it requires nine gallons of the gasoline, because the blenders, it's a 9 to 10 blend.

[00:16:45] Speaker 00:
So some blenders, most blenders, like Senoko, will blend alcohol into gasoline that is not previously taxed.

[00:16:54] Speaker 00:
And so they will be exposed to the tax on the entire 10 gallons.

[00:16:59] Speaker 00:
I'm going to round the numbers so I can do the math.

[00:17:02] Speaker 00:
So 18 times 10, $1.80.

[00:17:04] Speaker 00:
That's more than the credit.

[00:17:05] Speaker 00:
They're never going to be.

[00:17:06] Speaker 00:
It's mathematically impossible for them to receive a payment.

[00:17:12] Speaker 00:
Some blenders will blend into previously paid gasoline, where the tax has been previously paid.

[00:17:19] Speaker 00:
And by operation of 4081B, the tax will only be imposed on the extra gallon of alcohol that's included in the blend.

[00:17:27] Speaker 00:
So they will face $0.18.

[00:17:30] Speaker 00:
which would be less than the credit, so they would be entitled to a 32-cent payment.

[00:17:36] Speaker 00:
But this was also true for the Jobs Act.

[00:17:40] Speaker 00:
Blenders who blended into previously paid gasoline received a payment under 6 to 4.27 F. We've cited that many times in our brief.

[00:17:49] Speaker 00:
It's disregarded by opposing counsel.

[00:17:52] Speaker 00:
But my point is that the blenders who are operating the second way with their blending into previously paid gasoline

[00:17:58] Speaker 00:
presumably pay more for their gasoline.

[00:18:01] Speaker 00:
And so it's really difficult.

[00:18:02] Speaker 02:
Can I just be clear, I think I get this, but in this example you're talking about where they're blending into gasoline that's been previously paid by the tax, somebody else has already paid an excess tax on that.

[00:18:14] Speaker 00:
Somebody else has, and so as long as they can provide evidence to the IRS that that tax has been paid, I think perhaps maybe they get certificates or something from whoever they bought the gasoline, they will receive a credit under 4081B2

[00:18:27] Speaker 00:
against the tax imposed by 481B1.

[00:18:29] Speaker 00:
This is in our brief.

[00:18:31] Speaker 00:
I think it's page 35 through 36.

[00:18:33] Speaker 00:
And therefore, the only tax that is imposed is the $0.18 on the alcohol.

[00:18:40] Speaker 00:
And then they can apply the credit against that receipt of payment.

[00:18:43] Speaker 00:
But there's nothing unusual about the fact that the billion in dollars of credits that they received is worth less once you consider the income tax, because any time

[00:18:54] Speaker 00:
you're able to reduce a deductible expense, it has an impact on income tax.

[00:19:00] Speaker 00:
Whenever we refinance, my husband and I refer to it as good news, bad news.

[00:19:03] Speaker 00:
We get a better loan, we're going to pay a lot less money to the bank, but we're going to pay a little bit more money to the federal government because our interest expense deductions have gone down, which will increase our taxable income.

[00:19:15] Speaker 00:
But there's nothing unusual about that.

[00:19:18] Speaker 01:
And 280C.

[00:19:18] Speaker 00:
And then 280C,

[00:19:20] Speaker 00:
That relates to an income tax credit that did not reduce deductible expense.

[00:19:28] Speaker 00:
And it was a credit that was received for production of low sulfur diesel fuel and prevented double benefit.

[00:19:37] Speaker 00:
The code provides that any deductions that were taken or could be taken, any actual payments in making that low sulfur diesel fuel,

[00:19:49] Speaker 00:
The taxpayer may have paid for sulfur, cannot be taken to the extent of the credit.

[00:19:55] Speaker 00:
There is no reason for a similar rule in the context of 6426 because the credit itself reduces the deductible expense in the first instance.

[00:20:04] Speaker 00:
So there's no actual payment of the tax that could be deducted in the same way that there's not a special rule for state tax credits that are applied to reduce state tax payment because it

[00:20:18] Speaker 00:
directly reduces the amount of payments, state tax payments, that are made.

[00:20:22] Speaker 00:
And that was probably better written in the brief, but it's just an apples and oranges comparison, again, to look at that.

[00:20:32] Speaker 00:
We've explained in our brief that we think that the plain language of the statute demonstrates that Congress intended the 6426 credit to reduce the amount of tax that Sunoco was required to pay, and therefore its deductible tax expense

[00:20:48] Speaker 00:
We rely first on language of 6426A1, which does provide that a credit against the tax imposed by 4081, and that is most naturally read as that the credit is part of the computation of the taxpayer's tax liability.

[00:21:07] Speaker 00:
Credits, again, are not payments.

[00:21:09] Speaker 00:
They are part of the computation of the tax.

[00:21:13] Speaker 00:
We see this worn out.

[00:21:15] Speaker 01:
Is that language similar to the Title 31 against the tax language?

[00:21:21] Speaker 00:
Part of the language is similar.

[00:21:22] Speaker 00:
And Section 31 does not demonstrate that credits pay tax liability.

[00:21:28] Speaker 00:
Section 31 demonstrates that if you pay your tax liability through withholding, the government is going to give you a credit for that.

[00:21:38] Speaker 00:
So every two weeks, part of my income is withheld by the Department of Justice,

[00:21:42] Speaker 00:
to pay my taxes.

[00:21:46] Speaker 00:
My employer is acting as an agent of the IRS.

[00:21:48] Speaker 00:
If that agent fails to give my tax money over to the IRS, the IRS is going to give me credit and go after the department for failing to send the funds over.

[00:22:00] Speaker 00:
So I'm not going to have to pay my tax twice.

[00:22:03] Speaker 00:
But this doesn't demonstrate that credits generally pay a tax liability.

[00:22:09] Speaker 00:
The taxpayer pays the tax liability through the withholding.

[00:22:12] Speaker 00:
And the reason why, with regard to Section 31, the credit is not part of the computation of liability is not because of the language that's in Section 31.

[00:22:22] Speaker 00:
It's because of a special rule that's in Section 6211B, which is the definition of deficiency.

[00:22:29] Speaker 00:
And there's a rule there that applies to Section 31 and to Section 33, but not any other credit.

[00:22:35] Speaker 00:
And both of those are credits that involve withholding by a taxpayer.

[00:22:38] Speaker 00:
It says that when we are computing the amount of taxes imposed

[00:22:42] Speaker 00:
We're not going to consider 31 credit or the 33 credit as part of that computation.

[00:22:48] Speaker 00:
But all other credits would be considered part of the computation of the tax liability that a taxpayer has.

[00:22:55] Speaker 00:
Are there any other further questions?

[00:22:59] Speaker 04:
So if Congress wanted to depart from the general rule that a taxpayer can deduct excise tax liability, why didn't it do so?

[00:23:08] Speaker 04:
I mean, it understood the scheme very well.

[00:23:11] Speaker 04:
wanted to make sure that the highway fund was replenished at the right rate.

[00:23:17] Speaker 04:
And there was a scheme in place.

[00:23:21] Speaker 04:
And I don't see that Congress addressed that and addressed what it's now views as an unintended effect.

[00:23:33] Speaker 00:
Well, Congress did not intend to increase the tax subsidy being provided fuel blenders.

[00:23:40] Speaker 00:
What it said in the history is that it intended to, and it did, replace the prior reduced rates with the excise tax credit.

[00:23:49] Speaker 00:
And just replacing the reduced rates with the excise tax credit, the Joint Committee of Taxation's analysis was that was not supposed to have a revenue impact, wasn't going to bring in new funds, wasn't going to cost the government anything.

[00:24:02] Speaker 00:
It was just changing the structure.

[00:24:05] Speaker 00:
And even the CRS report that the taxpayer relies on recognizes,

[00:24:09] Speaker 00:
that the amount of taxes that were actually owed and paid to the government are exactly the same after the Jobs Act as before.

[00:24:16] Speaker 00:
This is page 1997 and 1999 of the Joint Appendix.

[00:24:20] Speaker 00:
The flaw in the analysis in the CRS report is thinking that a taxpayer was entitled to deduct more than the amount of actual tax owed and paid to the government.

[00:24:31] Speaker 00:
That's contrary to basic background principles.

[00:24:33] Speaker 00:
It's contrary to the rules regarding how you compute the tax liability

[00:24:37] Speaker 00:
for purposes of what's incurred or paid.

[00:24:39] Speaker 00:
We cite these regulations on page three of our brief.

[00:24:42] Speaker 01:
Some of the legislative history, I don't remember whether it's the House report or the Conference report, speaks of wanting to put more money into the Highway Trust Fund, but it also speaks of a problem of fraud in the earlier regime.

[00:24:59] Speaker 01:
What was that and how did this solve it?

[00:25:01] Speaker 00:
Right, right.

[00:25:01] Speaker 00:
There are three reasons for

[00:25:03] Speaker 00:
restructuring, mainly the high-rate trust from the fraud.

[00:25:07] Speaker 00:
The way the fraud came up is before, when there were reduced rates, taxpayers could say, I'm selling this gasoline to someone who is going to blend.

[00:25:15] Speaker 00:
I'm entitled to claim the reduced rate.

[00:25:17] Speaker 00:
And then the blending would never occur.

[00:25:20] Speaker 01:
And then the third reason was... And hence the focus in the new statute on the timing.

[00:25:24] Speaker 00:
Exactly.

[00:25:25] Speaker 00:
Hence the focus.

[00:25:26] Speaker 00:
And then the third reason, there were three reasons for change, and the third reason was just to simplify.

[00:25:31] Speaker 00:
because under the reduced rates, there was like a tier of analysis depending on how much alcohol was actually blended in.

[00:25:37] Speaker 00:
But what Congress did not say is they did not say, we are increasing the tax subsidy for fuel blenders.

[00:25:44] Speaker 00:
That was not one of the reasons for the change.

[00:25:46] Speaker 00:
And if Congress really did want to increase it, you would think that they would have promoted it as opposed to keeping it secret.

[00:25:51] Speaker 00:
It took Sunoco almost eight years to discover this reported tax benefit.

[00:25:56] Speaker 00:
And while Sunoco is absolutely entitled to,

[00:26:00] Speaker 00:
you know, change its mind and come into court and seek a refund and say, we've got it wrong.

[00:26:04] Speaker 00:
We do think that, to the extent the court thinks that the law isn't clear, a tax deduction needs to be clearly provided for.

[00:26:11] Speaker 00:
And the fact that it took Sanoco almost eight years to find it meant that it's not clearly provided for.

[00:26:17] Speaker 01:
Is this same issue currently before the Fifth Circuit or in the district court?

[00:26:20] Speaker 00:
It's before the district court in Texas in the ExxonMobil case.

[00:26:26] Speaker 00:
And also, it's before the tax court

[00:26:28] Speaker 00:
in the Gromark case.

[00:26:29] Speaker 00:
We cite both of those decisions in our related cases.

[00:26:32] Speaker 04:
And there's an IRS ruling on this particular issue, too.

[00:26:35] Speaker 00:
There's a presidential IRS ruling that specifically addressed it, notice 2015-56.

[00:26:41] Speaker 04:
What about the Court of Federal Claims that says that what the government has done here is a sleight of hand?

[00:26:47] Speaker 04:
What did it mean by that?

[00:26:50] Speaker 00:
I would disagree that it's a sleight of hand, because I think the statute on its face, Congress was clear of what it was doing.

[00:26:55] Speaker 00:
I think what it meant was,

[00:26:56] Speaker 00:
It was raising the rates but providing a tax credit to reach the same result.

[00:27:01] Speaker 00:
And I guess, in some level, you can view that as a sleight of hand.

[00:27:05] Speaker 00:
But since the credit is on the face of the statute and the special rule in 9503B was on the face of the statute, it's really not a sleight of hand.

[00:27:13] Speaker 04:
Could it be that it changed the law, it sees unintended effect, it's taking a position that's a sleight of hand that's creating this, that's a fiction?

[00:27:26] Speaker 00:
I mean, I think the only fiction is that the money going into the Highway Trust Fund is coming from gasoline taxes.

[00:27:35] Speaker 00:
And that only, you know, the money is, a lot of it is actually coming from the general fund.

[00:27:39] Speaker 00:
And the way that happens is by the special rule set out in 9503B, which says for purpose of the Highway Trust Fund, the amount of taxes received under 4081 shall be computed without regard to the offsetting credit in 6426.

[00:27:56] Speaker 04:
Okay.

[00:27:58] Speaker 00:
Thank you very much.

[00:28:04] Speaker 04:
You have three minutes, Mr. Gehr.

[00:28:07] Speaker 03:
Thank you, Your Honor.

[00:28:08] Speaker 03:
Your Honors, I think the sleight of hand is that the government does not want the law to have the effect that Congress laid out, which is to say that one of the central purposes of this law was to increase the funding going into the Highway Trust Fund.

[00:28:22] Speaker 03:
The way to do that was to increase

[00:28:24] Speaker 03:
the excise tax so you could increase the taxes received.

[00:28:29] Speaker 03:
And the way that Congress did that was to increase the level of tax and give you a credit that you could use to pay that excise tax.

[00:28:36] Speaker 03:
And then 9503B makes clear that those funds go into the Highway Trust Fund.

[00:28:41] Speaker 03:
What's significant about 9503 is it recognizes that the taxes are received, all of them, including the ones received, through payments.

[00:28:50] Speaker 03:
And we know that because it's the taxes received without reduction.

[00:28:53] Speaker 03:
If the government were right, then what Congress would have said in that rule is that the amount of the taxes received should be increased by the amount of the credits.

[00:29:01] Speaker 03:
But that's exactly the opposite of what Congress said.

[00:29:04] Speaker 01:
Why is that for purposes of this paragraph in 9503?

[00:29:09] Speaker 03:
Well, the first thing I would say is if you look at 9503 as a whole, that phrase occurs repeatedly throughout that.

[00:29:16] Speaker 03:
I think Congress is just referring to a complex provision

[00:29:19] Speaker 03:
You've got different subsections.

[00:29:20] Speaker 03:
It wants to make clear that it's addressing this for purposes of money going into the Highway Trust Fund.

[00:29:26] Speaker 03:
Nothing in that for purposes of paragraph takes anything away from the other statutory provisions that I've pointed here today.

[00:29:33] Speaker 03:
And it's perfectly consistent with our construction of the statute.

[00:29:37] Speaker 03:
With respect to whether a credit is a payment, it is a payment.

[00:29:40] Speaker 03:
Anyone who has had their wages withheld and used those to satisfy their tax liabilities know that those wages are going

[00:29:46] Speaker 03:
to pay their tax liability, not to reduce their tax liability.

[00:29:50] Speaker 03:
The language in 31, as even the government acknowledged, is identical with respect to the language in 6426 in terms of the credit against the tax imposed.

[00:30:01] Speaker 03:
With respect to 280C, it's true that that dealt with income versus excise taxes.

[00:30:05] Speaker 03:
But with respect, that's irrelevant to the point that when Congress wants to express that a credit should offset the amount of the deduction

[00:30:15] Speaker 03:
It does so.

[00:30:16] Speaker 03:
It did so in 280C.

[00:30:18] Speaker 03:
It didn't manifestly do so in the provision here.

[00:30:22] Speaker 03:
And under the Rossello case from the Supreme Court, we know that that's significant indicia of Congress's intent.

[00:30:27] Speaker 03:
I think I heard the government say that they were entitled to the benefit of some added presumption here.

[00:30:32] Speaker 03:
That would be incorrect.

[00:30:34] Speaker 03:
Under this Court's cases, notably USA Choice versus United States, any doubt goes to the taxpayer, not to the government.

[00:30:42] Speaker 03:
We think that

[00:30:43] Speaker 03:
The right conclusion here is to hold that after looking at all the initiative Congress is intending, the statutory provisions, the legislative history that says that the credit is treated as a payment and that the full excise tax is imposed.

[00:30:57] Speaker 03:
And the other initiative that I pointed here leads to the conclusion that the $1 credit that Congress enacted for all blenders is $1, whether you blend the credit, whether you blend the gas alone, or whether you happen to refine it first and then blend it.

[00:31:11] Speaker 03:
We'd ask the court to reverse.

[00:31:13] Speaker 04:
Alright, thank you very much.