Supreme Court Agrees to Hear Foreign Tax Credit Issue in PPL

The Supreme Court this morning granted PPL’s petition for certiorari and will decide the question of the availability of the foreign tax credit for payments of the U.K. Windfall Tax on which we have reported extensively before.  See here and here. The Court took no action on the government’s petition for certiorari in the companion Entergy case from the Fifth Circuit.  That is a common practice for the Court when two cases present the same issue.  The Court will “hold” (that is, continue to take no action on it) the Entergy petition until it issues a decision in PPL, and then it will dispose of the Entergy petition as appropriate in light of the PPL decision.

PPL’s brief is due December 13.  The case likely will be argued in February or March, and a decision can be expected before the end of June.

(In case you are wondering why the Court is issuing orders on a day when the rest of Washington is shut down because of a hurricane, it is something of a Court tradition to stay open when the rest of the government is closed.  In 1996, the Court heard oral arguments (as it is also doing today) on a day when the city was hit with a paralyzing blizzard.  The Court sent out four-wheel drive vehicles to bring the Justices to the Court.)

Rehearing Denied in Historic Boardwalk

The Third Circuit yesterday denied the taxpayer’s petition for rehearing en banc in Historic Boardwalk in what seems like record time (the petition was filed on October 10).  The taxpayer’s last hope is to seek Supreme Court review, though the case does not look like one that could pique the Court’s interest.  A petition for certiorari would be due on January 22.

Government Seeks Rehearing En Banc in Quality Stores

The government yesterday filed a petition for rehearing en banc in the Sixth Circuit in the Quality Stores case, asking the full court to reverse the panel and eliminate the circuit conflict on the treatment for FICA purposes of supplemental unemployment compensation benefits.  As noted in our previous post, regardless of whether the petition is granted, the mere filing of the petition has the effect of postponing the deadline for seeking Supreme Court review.  The 90-day period for filing a petition for certiorari begins to run anew from the date of the resolution of the rehearing petition.  Thus, if this case ultimately goes to the Supreme Court, there is no longer any realistic possibility that it would be heard this Term — that is, a decision could not be expected by June 2013.

The rehearing petition emphasizes that the issue is important, stating that $120 million is at stake in pending refund suits alone, and that a total of over $1 billion is at issue when all claims are taken into account.  It also recites that the IRS has suspended action on administrative refund claims totalling over $127 million from approximately 800 taxpayers located in the Sixth Circuit.

The petition argues that the Sixth Circuit panel erred in two key respects.  “First, it failed to address the actual FICA question here based on its erroneous belief that Coffy [v. Republic Steel Co., 447 U.S. 191 (1980),] establishes that SUB pay is not wages for FICA purposes.”  Coffy was not a tax case, but instead was a case interpreting the Veterans’ Reemployment Rights Act, holding that SUB benefits are a “perquisite of seniority” for which returning veterans must be given service time credit for the time they spent in the military.  (That may sound deadly dull, but I note parenthetically that Coffy was also my first Supreme Court argument.)  On this point, the petition argues that the panel’s decision is in tension with two prior Sixth Circuit decisions holding that wages for FICA purposes is not limited to compensation for work performed.

The second error asserted in the rehearing petition is that, “in construing I.R.C. § 3402(o), the panel failed to recognize that the section’s applicability is expressly limited to income-tax withholding, which was a key factor in the Federal Circuit’s CSX decision.”  That issue was a focus of the original briefing in the case, but the rehearing petition asserts that the panel failed to address it in its decision.

There is no current due date for the taxpayer’s response.  Rule 40(a)(3) of the Federal Rules of Appellate Procedure provides that parties are not to respond to petitions for rehearing unless ordered by the court.  Given the importance and complexity of this case, there is a strong probability that the court will order a response.

Quality Stores – Petition for Rehearing

Taxpayer Seeks Rehearing En Banc in Historic Boardwalk

The taxpayer has filed a petition for rehearing and rehearing en banc in Historic Boardwalk, asking the Third Circuit to reconsider its decision denying the taxpayer’s claim for historic rehabilitation credits.  Among other points, the petition criticizes the panel’s decision for analogizing this case to the Second Circuit’s Castle Harbour decision, TIFD III-E, Inc. v. United States, 459 F.3d 220 (2d Cir. 2006), which found that the partner there had no downside risk that it would not recover its capital contribution.  The taxpayer argues that there was a risk here that the partner would not recover its capital contribution from the partnership, and the court erred in finding that there was no risk by taking the tax credits into account.  Specifically, the petition argues, “the Opinion wrongfully treats the allocation of the historic rehabilitation tax credits to [the investor] by operation of law (i.e., under the Code) as a repayment of capital to” the investor by the partnership.

There is no due date for a response by the government.  Under Rules 35 and 40 of the Federal Rules of Appellate Procedure, a party is prohibited from responding to a petition for rehearing unless it is directed to do so by the court.

Historic Boardwalk – rehearing petition

Supreme Court Expected to Act on Windfall Tax Petitions in Late October

In our previous post discussing the pending requests for Supreme Court review of the question of the creditability of the U.K. Windfall Tax, we noted that the Court had scheduled consideration of the PPL cert petition for its October 5 conference.  The Court has now postponed that consideration until its October 26 conference.  The reason for the change is to allow the Court to consider the PPL petition in tandem with the government’s petition in Entergy.

This postponement allows the Court to consider the issue with the benefit of an adversarial presentation.  As you will recall, the government “acquiesced” in PPL’s cert petition on the theory that the Court should resolve the circuit conflict, and therefore there are no briefs in that case arguing that the Court should deny certiorari.  The same is not true in Entergy, where the taxpayer vigorously argues that the Court should deny certiorari in both cases because the issue is not sufficiently significant to warrant Supreme Court review.  Entergy notes that there are only three taxpayers directly affected by the Windfall Tax issue and asserts that the Third Circuit and Fifth Circuit, though reaching different outcomes on the specific issue, do not disagree “on matters of fundamental principle” regarding the foreign tax credit provisions.  Rather, Entergy characterizes the circuit conflict as reflecting “an exceedingly narrow and technical disagreement” limited to how those principles should apply to the U.K. Windfall Tax.  In its reply brief, the government acknowledges that there are only three directly affected taxpayers, but argues that there is a difference between the two circuits on the “proper analytical approach” to foreign tax credit issues that could potentially lead to disparate results in cases involving other foreign taxes.

As a result of the schedule change, the Court will likely announce whether it will review the issue on its October 29 order list.  It is possible, if certiorari is granted, that the Court would make that announcement on October 26 in order to give the parties a head start on the briefing.

Entergy – Taxpayer’s Brief in Opposition to Certiorari

Entergy – Government Reply Brief in Support of Certiorari