NOTE

Georgetown University Law Center selection for publication in ABA’s The Tax Lawyer (2018).

I. Introduction

What the law is and what the law should be are questions addressed by the judicial branch and the legislative branch of government, respectively. Courts are sometimes charged with bridging the gap between what Congress says and what Congress means by what it says. There is a proper role for interpretation where courts look to the text set forth by Congress, find the text to be ambiguous, then look to legislative history and other factors to interpret the text. In this sense courts do indeed interpret what Congress meant by what it said. However, the task of interpretation does not give courts the freedom to dictatewhat the law should be in the absence of ambiguous text. “Courts must presume that a legislature says in a statute what it means and means in a statute what it says there.”[1]

As exemplified in Sunoco v. United States,[2] where courts have the benefit of seeing the consequences of an enacted law, the temptation may arise to interpret the law based on what Congress likely intended rather than what Congress said. Where the language is clear, however, regardless of the law having financial consequences that may shock the court, adhering to the doctrine of separation of powers[3] requires courts to speak to what the law is, not what it should be. “The power to make the law rests with those chosen by the people. [The court’s] role is more confined—to say what the law is.”[4]

The question considered in Sunoco was whether Sunoco, a fuel blender that is eligible for a federal excise tax credit, should include excise taxes in its cost of goods sold without reducing its cost of goods sold by the amount of the excise tax credit.[5] The IRS argued that the reduction in excise tax liability should decrease Sunoco’s cost of goods sold by the amount of the excise tax credit, thereby increasing its federal income tax liability.[6] The United States Court of Federal Claims held that although “on paper” fuel blenders pay the full amount of the excise tax, in reality the credit results in fuel blenders not paying the full amount, and thus excise tax liability must be reduced by the amount of the credit when calculating cost of goods sold.[7]

This note argues that the decision in Sunoco undermines Congress’s constitutional authority to determine what the law should be. Part IIA of this note provides background on undisputed tax principles; the history of the Highway Trust Fund (HTF), which is funded by the collection of excise taxes on fuels and was established to provide a means by which to maintain the nation’s roadways;[8] and the American Jobs Creation Act (AJCA), which fixed the deficit that the structure of the HTF initially created.[9]

Part IIB sets forth the procedural history of Sunoco, and presents the Court’s reasoning for finding in favor of the government in the context of the facts set out in Part IIA. Part III explains why the Court’s reasoning was flawed. First, the Court disregarded what Congress said regarding the fuel blender mixture credits based on what the Court asserted was Congress’s intent in reality. In doing so, the Court erroneously disregarded an IRS advice memorandum that provided guidance on how to interpret the statutory text, and erroneously found the text to be ambiguous. Having found the text to be ambiguous and the legislative history unclear, the Court adopted the government’s interpretation of the mixture credit statutes because, according to the Court, Sunoco’s interpretation would enable Sunoco and other fuel blenders to claim massive amounts of refunds. However, the magnitude of the consequences of a statue put forth by Congress should have had no bearing on the Court’s statutory interpretation. Finally, the Court erroneously equated tax credits to tax exemptions to support its finding against Sunoco.

This note concludes by asserting that the Court’s decision will result in devaluation of fuel credits, jeopardizing Congress’s ability to effectuate energy policy via tax credit incentives. The decision should therefore be reversed.

II. Background

A. Historical Development

Under 26 U.S.C. § 4081, sellers of fuel are liable to pay excise taxes.[10]These taxes become part of the taxpaying fuel seller’s cost of goods sold.[11]The taxpayer deducts its cost of goods sold from its gross income, resulting in a lower federal income tax liability.[12] The greater the excise tax liability, the greater the cost of goods sold and the lower the income tax liability.

In 1956, Congress enacted the Highway Revenue Act, which created the Highway Trust Fund (HTF) to establish a source of revenue to maintain the nation’s interstate highway system.[13] When a seller of fuel like Sunoco pays its excise taxes, those taxes are dedicated to the HTF.[14]

In the years that followed, Congress used tax incentives to encourage manufacturers to use renewable fuels. The Energy Act of 1978 established a fuel excise tax exemption for manufacturers that blended gasoline with alcohol,[15]and a few years later replaced the full exemption with the Highway Improvement Act of 1982.[16] This Act provided a tiered, reduced-rate structure for excise taxation, which taxed gasoline for use in fuel-alcohol mixtures at lower rates than other gasoline.[17]

As the popularity of fuel-alcohol mixtures increased, so did the amount of gasoline taxed at a reduced rate.[18] This led to a reduction in funding for the HTF,[19] prompting Congress once again to revisit the tax structure for renewable fuels. In 2004, as part of the AJCA, Congress authorized a new program with the aim of funding the HTF while still incentivizing the manufacturing of renewable fuels.[20] First, the Act replaced the tiered, reduced-rate structure for fuel-alcohol blends with a flat 18.3 cents per gallon excise taxation rate on all fuel manufacturers.[21] Second, to continue to encourage the manufacturing of renewable fuels, the Act provided that for every gallon of alcohol such manufacturers mixed with gasoline, the manufacturers would earn a 51-cent monetary credit.[22]

Section 6426(b) defines the alcohol fuel mixture credit as “the product of the applicable amount and the number of gallons of alcohol used by the taxpayer in producing any alcohol fuel mixture for sale or use in a trade or business…”[23] The statute then specifies what is meant by “applicable amount” and “alcohol fuel mixture.” Section 6426(c) and (d) provide the same definition for biodiesel mixtures and alternative fuel.

Section 6427(e)(1) states: “If a person produces a mixture described in section 6426 in such person’s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit or the biodiesel mixture credit or the alternative fuel mixture credit with respect to such mixture.”[24] (In the eyes of the law, a corporation like Sunoco qualifies as a person.)[25] Section 6427(e)(3) states: “No amount shall be payable under paragraph (1) or (2) with respect to any mixture or alternative fuel with respect to which an amount is allowed as a credit under section 6426.”[26]

In 2013, the IRS issued a Chief Counsel Advice memorandum that stated how the IRS interpreted the mixture credit. “The § 6426(c) excise tax credits and the § 6427(e) payments are not items of gross income under § 61…Our conclusion is consistent with the intent of Congress when it enacted the biodiesel fuel mixture credit.”[27] In 2015, after litigation in Sunoco had begun, the IRS issued Notice 2015-56, propounding the opposite interpretation but citing no authority.[28]

B. Sunoco v. United States

1. Procedural History

Sunoco is a petroleum and petrochemical manufacturer.[29] For tax years 2005-2008, Sunoco blended ethanol with its gasoline to create fuel-alcohol mixtures that qualify it for the section 6426 mixture credit.[30] On its original tax returns for the years in question, Sunoco reduced its cost of goods sold by the amount of the mixture credit, resulting in higher income tax liability.[31] That is, Sunoco calculated its cost of goods sold by reducing its excise taxes by the amount of the mixture credit (lowering the cost of goods sold), then subtracting the remainder from its gross income to calculate its taxable income. Subsequently, upon realizing its error, Sunoco filed amended tax returns for 2005-2008 claiming the full excise tax deduction, which the IRS denied.[32] In 2015, Sunoco filed suit in the United States Court of Federal Claims seeking a refund of approximately $300 million in income tax overpayment, arguing that it erroneously calculated its cost of goods sold by reducing its excise taxes by the amount of the mixture credit.[33]

The United States moved for judgment on the pleadings, arguing that Sunoco’s claim failed as a matter of law when the correct tax treatment of the mixture credit is applied.[34] The government argued that the mixture credit must be interpreted as a reduction of excise tax liability, which would increase Sunoco’s income tax liability.[35] Sunoco argued that the mixture credit does not affect its excise tax liability.[36] The Court looked to statutory language and legislative history, and ultimately rejected Sunoco’s position.[37] Sunoco appealed.

2. The Court of Federal Claims’s Decision

The Court first looked to the language of the mixture credit statutes to give meaning to their terms.[38] Section 6426(a)(1) states: “There shall be allowed as a credit…against the tax imposed by section 4081 an amount equal to the sum of the credits described in subsections (b), (c), and (e)…”[39]Subsection (b) is the mixture credit at issue in Sunoco, for which the government does not deny that Sunoco qualifies. Interestingly, the language Congress used here mirrors the language used in another type of credit: the childcare tax credit. Section 21 of the Internal Revenue Code states that “there shall be allowed as a credit against the tax imposed…an amount equal to…”[40]The Court sought to determine what Congress meant by “against the tax imposed” in the mixture credit statute—the same language that Congress had used in the past.

Under the government’s interpretation, the mixture credit would mean first (6427(e)(1)) a reduction in excise tax liability, and then (6427(e)(3)) a tax-free monetary payment to the taxpayer (Sunoco) to the extent that the credit amount under section 6426(a) exceeds Sunoco’s excise tax liability under section 4081.

Sunoco argued that the statutes taken together must be construed as a single, tax-free payment of excise tax liability.[41] That is, section 6427(e)(3) describes the process by which the payment cited in section 6427(e)(1) is implemented: “a taxpayer’s excise tax liability and the government’s obligation to pay the credit first offset each other before resulting in a cash payment to the taxpayer.”[42]

The Court found that the language of the statutes was ambiguous. First, the Court stated, “credit against the tax imposed” has no clear definition.[43] The Court noted that Congress “seems to use the term ‘credit’ to mean either a ‘subtraction in tax liability’ or ‘amounts that are not subtracted from tax liability, but that instead resemble deductions or that are credits in an accounting sense.’”[44] Further, the Court noted, the statutory language alluding to the payment mechanism was unclear and supported both party’s arguments.[45]

Based on its determination that the statutory language was ambiguous, the Court considered the legislative history to give meaning to it. The Court found the legislative history unhelpful in determining the tax implications of the mixture credit. The AJCA Conference Report states that in place of the reduced excise tax rates, the mixture credit may be “applied against section 4081 excise tax liability.”[46] Further, the Report asserts that “the credit is treated as a payment of the taxpayer’s tax liability…”[47] The Court determined that because this passage uses the “applied against” language similar to the language found in section 6426(a), this provision sheds no light on whether “against the tax imposed by section 4081” means that the credit is a nontaxable payment, as Sunoco argues, or a reduction in excise tax liability.[48]

As the Court saw it, fuel blenders pay “on paper” the full amount of section 4081 excise tax rather than a reduced rate.[49] However, “in reality, the full tax rates were not imposed” because the mixture credit “means the taxpayer itself does not pay the full amount of its excise tax liability; rather, it pays excise taxes that are reduced by the amount of the mixture credit.”[50] The Court reasoned that this “accounting sleight-of-hand” allowed Congress to say that the full excise tax was imposed on fuel blenders—thus replenishing the HTF—while still providing a tax incentive for blenders.[51] In essence, the Court found that they key to interpreting the mixture credit was that Congress created a “legal fiction”[52] that would allow it to transfer money from the Treasury General Fund to the HTF.[53]

Further, the Court stated that the government’s approach and Sunoco’s approach to the mixture credit statutes both have unsavory consequences. Under the government’s interpretation, the value of the mixture credit that is used to reduce a taxpayer’s excise tax liability becomes subject to income tax, but any amount that exceeds excise tax liability is not.[54] The consequence of this is that taxpayers without excise tax liability who received no tax benefit under the lowered excise tax rates for blenders now receive the mixture credit tax-free, while taxpayers with excise tax liability who did previously receive tax benefits now have their credits taxed as income.[55]

Under Sunoco’s interpretation, the Court said, the subsidy to fuel blenders would be about thirty-five percent more than the subsidy conferred by the previous tax regime.[56] This could mean that if other fuel blenders like Sunoco claim refunds, it would cost billions of dollars.[57] For example, in a similar suit brought by ExxonMobil, the fuel blender is seeking $1.35 billion in refunds.[58] The Court was not persuaded that Congress believed it was conferring a subsidy of this magnitude on fuel blenders.

The Court was further convinced that in the face of ambiguity in the mixture credit statutes, Sunoco must not be permitted to deduct the full amount of its excise tax liability from its gross income. It relied on a case that states “exemptions from taxation are not to be implied; they must be unambiguously proved.”[59] The Court went on to say that while exemptions and credits are different, the “real-world effect Sunoco seeks is similar to that of an exemption.”[60]

3. King v. Burwell

The Supreme Court’s decision in King v. Burwell is instructive because it provides guidance as to when the Court needs to consider more than statutory text in isolation, and the procedure for doing so.[61] In Burwell, the Court had to decide whether the statutory language of the Affordable Care Act (ACA) made subsidies available on an Exchange regardless of whether it was established by a State or by the Federal Government. The ACA set out to reform health insurance coverage by establishing three key provisions, plus the creation of a State Exchange.[62] The Act allows for each state to establish its own exchange, and if a state does not, the Act instructs that the Federal Government will establish “such exchange.”[63] The Act then provides that subsidies will be allowed if an individual has registered for a health insurance plan “through an exchange established by the State.”[64] The Court determined that “an exchange established by the State” was ambiguous,[65] and reasoned that statutory words must be read “in their context and with a view to their place in the overall statutory scheme.”[66] Given that the language of the Act elsewhere instructed that the Federal Government will establish “such exchange” (a State Exchange) if a state does not establish its own, the Court resolved the ambiguity by concluding that “an exchange established by the State” referred also to those exchanges established by the Federal Government in states that did not establish their own.[67]

III.  Analysis

A. Textual Interpretation

The Court of Federal Claims overstepped when it found that the text of the mixture credit statutes was unreliable because of its real-world consequences. First, the Court admitted that what Congress said “on paper” was clear, but then proceeded to overlook what Congress said and put forth its own ideas about what Congress intended “in reality.” Then, in an attempt to justify its actions, the Court analyzed the consequences of acting according to what Congress said, assuming that Congress did not consider the magnitude of the consequences of the statutes, and determining on its own that if Congress had thought things through before drafting the statute, it would not have said what it said. Despite acknowledging what Congress said “on paper,” the Court found ambiguity in the statutory language when there was none, and looked to factors outside the text, based on a manufactured perception of ambiguity in the statutes. In finding this ambiguity, the Court disregarded the pre-litigation IRS Advice Memorandum, which clearly stated that the excise tax credit does not reduce a fuel blender’s cost of goods sold. Further, the Court ignored the identical statutory language of the childcare tax credit, which is also clear. Having erroneously found the statutory language to be ambiguous, the Court proceeded to resolve this ambiguity by looking to the legislative history, which it also found to be unclear, and by equating tax credits to tax exemptions. However, the legislative history is not unclear, and the Court’s equation of tax credits to tax exemptions was erroneous. Thus, even if the Court had correctly found the statute to be ambiguous, it still should have found in favor of Sunoco.

1. What Congress Said On Paper

The Court of Federal Claims erroneously disregarded what Congress said “on paper” based on what the Court said was Congress’s intent “in reality.” Courts must look to text first in order to interpret a statute. If the text is ambiguous, courts may look to external sources such as legislative history to give meaning to the text. However, “even if a statute’s legislative history evinces an intent contrary to its straightforward statutory command, [courts] ‘do not resort to legislative history to cloud a statutory text that is clear.’”[68] The Court in Sunoco argued that the legislative history favors the government’s argument because the “key issue in interpreting the mixture credit” was its effect in reality.[69] However, the Conference Report states clearly and unambiguously that the AJCA eliminated prior “reduced rates of excise tax on most alcohol-blended fuels and impose[d] the full rate of excise tax.”[70] Thus, the Court need not have looked beyond the text for clarity. Even if it did, the legislative history was clear.

It is assumed that Congress knows the existing law when drafting new legislation. Congress considers the implications of new legislation against the background of existing legislation, and crafts the text to accurately represent the intended effects of the new statute. Here, it should be assumed that Congress was aware of how cost of goods sold is calculated. That is, Congress was aware that excise taxes become part of the taxpayer’s cost of goods sold, and knew that when excise tax liability goes up, income tax liability goes down[71]—a principle that was in place long before Congress drafted the version of the mixture credit statutes at issue. In deciding not to specify that the mixture credit reduces excise tax liability—knowing that excise taxes are included in cost of goods sold—Congress intended that fuel blenders’ excise tax liability would not be decreased by the amount of the mixture credit. Unless Congress says otherwise, it should be assumed that Congress intends to adhere to existing legislation. Congress would have specified that excise tax liability should be decreased by the amount of the mixture credit had it intended to depart from existing principles.

Thus it should not be assumed, as the Court does, that the text that Congress puts forth is a sham. The Court in Sunoco layered ambiguity onto unambiguous text set forth by Congress. The Court admitted that Congress said “the full excise tax is imposed on fuel blenders,” but dismissed this as a “sleight-of-hand.”[72] Significantly, the Court asked why Congress would “go to such lengths to create this legal fiction.”[73]

     King v. Burwell provides insight as to when a Court is able to determine that, although language may appear plain and unambiguous, it is necessary to consider that text in context and in light of the overall statutory scheme. King cautions, however, that “reliance on context and structure in statutory interpretation is a subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself.”[74] In Sunoco, even if the mixture credit statutes appeared to be ambiguous, the context and overall statutory scheme confirmed that the AJCA “imposed the full rate of excise tax.”[75] The Court, though, upon admitting this, did not heed King’s warning and proceeded to create legislation itself. Tellingly, the Court did not cite King as granting authority for its reasoning—to look at plain text set forth by Congress and determine outright that what Congress said is not what Congress meant. Indeed, no such authority is granted by King. Without that authority, what the Court did in Sunoco leaves the door open for the judicial branch to engage freely in policymaking. Even under King, the Court found ambiguity too quickly.

2. IRS Guidance

The Court should have given more deference to the Chief Counsel Advice memorandum issued by the IRS that speaks to how the agency interpreted the mixture credit statutes. Congress does sometimes delegate its power to agencies to determine what the law should be. The IRS has published two interpretations of the language that Congress put forth in the statutes—a Chief Counsel Advice memorandum and Notice 2015-56. While the issuance of advice memoranda does not create binding precedent, such memos can be useful for providing insight into the IRS’s position on matters where no other agency guidance is available.

In 2013, the IRS stated in its memo that “…a blender is not required…to include in its gross income the amount of the § 6426(c) excise tax credits and/or the § 6427(e) payments that it claims.”[76] This language indicates that the IRS interpreted Congress’s statutory mixture credit language in the same way that Sunoco interpreted the language.

After litigation began, the IRS issued Notice 2015-56 that went against what it said previously in its advice memorandum, stating that “for federal income tax purposes, a claimant reduces its § 4081 excise tax liability by the amount of…excise tax credit allowable under § 6426(c).”[77] As these two writings are inconsistent, the Court said that it would not give deference to the IRS’s interpretation as set forth in the Notice.[78] However, it is telling that the IRS agreed with Sunoco’s interpretation until litigation began and the economic implications came to light, after which it changed its mind. Rather than disregard the writings as inconsistent, the Court should have disregarded only the Notice because it was issued after litigation began, and relied on the unconflicted advice memorandum. If the Court believed that the Notice should not hold any weight, then it should not have any power to create a conflict with the memorandum, which could have been used in the absence of other agency guidance. The Court thus should have looked to the 2013 Chief Counsel Advice memorandum for guidance.

3. Relevant Legislation

The Court ignored other legislation that could have shed light on what Congress meant by the words in the mixture credit statutes. First, the childcare tax credit provision uses language identical to the mixture credit statute. The Court could have looked to how the childcare tax credit is applied “in reality” (after assessing tax liability) to determine how Congress intended the mixture credit to apply. Further, since the fuel excise tax is an indirect tax, the Court could have looked to the treatment of other indirect taxes such as sales tax to answer the question of whether the mixture credit should reduce Sunoco’s cost of goods sold. Considering the childcare tax credit and sales tax would have provided the Court with reliable language from Congress that could be applied to the Sunoco question as opposed to the Court imposing its own ideas about what Congress could have possibly meant based on how unfavorable the Court found the consequences of doing what Congress (clearly) said.

        a. Childcare Tax Credit. The language of the childcare tax credit and the fuel mixture credit statutes are identical, and should be interpreted in the same way. Section 21 of the Code allows for a childcare tax credit. It states that “there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount…paid by such individual during the taxable year.”[79] In practice, this credit is applied after assessing tax liability. It is a reduction in tax, not a reduction in out-of-pocket expenses. This is supported by the fact that the credit is nonrefundable; there is no reduction if a person otherwise does not have tax liability. The credit can only lower a tax bill, not a childcare bill. Given than the childcare credit is applied after assessing tax liability, the mixture credit should be applied after assessing tax liability, since the language in the statutes is the same. That would mean that fuel blenders pay the full amount of their excise tax liability, and then the mixture credit is applied.

The childcare credit functions the same way as a gift card to a store. Say you purchase a shirt online and your bill totals $100. If you pay $20 of the bill by applying a gift card worth $20 to that purchase, it doesn’t mean that your total bill was lowered by $20. You are still liable for paying the $100 bill.

By contrast, a rebate, such as a manufacturer’s rebate, reduces the cost of the item. If you buy a car for $20,000 and receive a $3,000 manufacturer’s rebate simply for buying the car, the buyer pays just $17,000 for the car. The rebate is treated as a reduction in the price. The Court erroneously compared the mixture credit’s effect on a taxpayer’s cost of goods sold to a manufacturer’s rebate.[80]

The language in section 6426 is identical to the language in section 21, and should be treated the same way. Section 6426 states that “there shall be allowed as a credit against the tax imposed by section 4081 for the taxable year…”[81] Where the entire tax liability is imposed under section 21, the language of section 6426 strongly suggests that the entire tax liability is imposed on fuel blenders. Further, the policy behind the childcare credit is to provide some support for childcare expenses. This is driven more by the rebate metaphor, but in practice does not reduce a taxpayer’s liability. The policy behind the childcare credit and the mixture credit is the same, and while the Court would have been correct had it stated that the policy was driven by the rebate metaphor, the Court could not stop there. The argument should have been that while the policy behind the childcare credit and the mixture credit is driven by the rebate metaphor, where the childcare credit in practice functions more like a gift card, the mixture credit must also function more like a gift card.

        b. Sales Tax. The Court should have also looked to the treatment of sales tax to interpret how Congress intended to treat excise tax. It may be argued that the childcare tax credit and the mixture credit address a different type of tax: The excise tax is an indirect tax, and therefore the mixture credit cannot be treated the same way as the childcare tax credit. However, other indirect taxes like sales tax provide guidance on this question. State income tax refunds are treated as a separate form of income for federal tax purposes. If a state refunded some sales tax, like income tax, it would likely similarly be considered a separate form of income rather than a lowering of the costs. The same logic should apply to a credit that lowers taxes in a given year, such as the mixture credit, because sales tax and excise tax are the same type of tax. Thus, the Court should have found that the mixture credit does not reduce a taxpayer’s cost of goods sold.

4. Resolving Ambiguity

If the Court were still to determine, despite the arguments set forth above, that the mixture credit statutes are ambiguous, it should have resolved the ambiguity in favor of the taxpayer. Instead, the Court resolved what it perceived to be an ambiguity by saying that exemptions must be unambiguously proved, and even though credits aren’t exemptions, in reality they have a similar (not the same) effect.[82] This is the second time that the Court acknowledged that the text did not support its argument, but its own “reality” does. It is a well-settled principle that “if doubt exists as to the construction of a taxing statute, the doubt should be resolved in favor of the taxpayer.”[83] Where such a principle exists, the Court should not have analogized a tax credit to a tax exemption to extract a conclusion that supports its own ideas about what the law should be.

B. The Magnitude of the Consequences

It is Congress’s job to determine and convey what the law should be. It is the Court’s job to determine what the law is, as determined and conveyed by Congress. The Court expressed concern over Sunoco’s interpretation of the statutory mixture credit language because if Sunoco’s were the correct interpretation, other blenders could claim similar hundred-million-dollar refunds totaling billions of dollars.[84] However, the enormity of the financial consequence “in reality” should not have influenced the court’s analysis of what Congress said “on paper.” Even if what Congress said the law should be was shocking to the Court, the Court should not have made its own determination of what the law should be.

The Court in Sunoco admitted that “on paper, fuel blenders now pay the full amount of the § 4081 excise tax.”[85] That is, Congress determined what the law should be. From there, the doctrine of separation of powers instructs the Court to say what the law is. If it had done so, it would have found that Sunoco should indeed have included the full amount of excise taxes in its cost of goods sold rather than reduce its costs of goods sold by the amount of the mixture credit.

In Sunoco, however, the lines drawn by the doctrine of separation of powers (which are admittedly blurred every so often) were effaced by the Court. The Court determined that, in its own view, what Congress said should not be the law because it has economic consequences that displease the Court. The Court proceeded to police its own view of what the law should be (namely, something that doesn’t result in a potential billion-dollar refund to fuel blenders) by finding against Sunoco. In the past, when the effects of Congress’s enacted statutes did not serve Congress’s intent, Congress, not the Court, has changed the policy. E.g., when Congress saw that the popularity of fuel blends led to reduced funding for the HTF due to a large increase in the amount of gasoline taxed at a reduced rate, it amended the policy. If the effects “in reality” of the laws enacted by Congress shock Congress as much as they shocked the Court, Congress has the power to change them. It is not the Court’s constitutionally vested place to do so.

C. Policy Implications

The Court’s decision in Sunoco will make it more difficult for the federal government to use tax credits as energy policy. The effects of this decision go beyond the financial ramifications with which the Court concerned itself, and ripple through economic, energy, and environmental policies. Under the government’s argument, for every dollar Sunoco takes in excise credit, its excise tax incurred is reduced by $1.00.[86] This increases Sunoco’s income by $1.00, and at a 35% corporate income tax rate, increases its income tax liability by $.35. This leaves just $.65 worth of credit. However, the government also says—and the Court accepts—that the mixture credit “is a refundable tax-free payment…to the extent that the Mixture Credit amount under § 6426(a) exceeds the taxpayer’s excise tax liability under § 4081.”[87] In other words, the credits this latter taxpayer has are worth the full $1.00. It is a stretch to argue that Congress intended for tax credits awarded to taxpayers with excise tax liability to be worth 35% less than those same credits awarded to taxpayers without such liability.

Further, section 6427 provides that taxpayers can choose whether to apply credits to their existing tax liability, or receive a refund check.[88] Under the government’s interpretation, any taxpayer who elects to apply the credits would pay a 35% premium for doing so over electing to receive a refund.[89]

The fact that Congress gives taxpayers a choice between applying credits to offset tax liability or a refund indicates that they achieve the same end by different means. A refund check serves the same purpose as a credit, and it would be nonsensical to conclude that Congress effectively (“in reality”) gave taxpayers a choice between paying a 35% premium or a 0% premium. Taxpayers who elect to apply credits should be treated the same way, and receive the same benefit, as taxpayers who elect the refund. As stated above, state income tax refunds are treated as a form of income, not a reduction in tax liability. Thus, credits, which should be treated the same way as refunds to avoid imposing a 35% premium, should not be considered a reduction in tax liability.

While the Joint Committee on Taxation estimated that the mixture credit would have “no revenue effect,” this statement is not dispositive. The mixture credit’s budgetary effects are apparent not only under Sunoco’s interpretation, but under the government’s as well. The government argues that prior to the AJCA amendments, fuel blenders with no excise tax liability could receive benefits in the form of an income tax credit under section 40,[90] so the fact that producers with no excise tax liability under the prior regime would receive excise tax credits under the new regime supports the idea that there is no revenue effect under their interpretation. However, the Tax Court places “little faith in the interpretation value of these estimates,”[91] and has unequivocally stated that it “fail[s] to see how the revenue estimates…are particularly relevant” when the question is a matter of statutory interpretation.[92]Moreover, the Committee gives no indication as to how it came to conclude that a change in income tax benefits and excise tax benefits would create no revenue effect. Even if a change in income tax benefits and excise tax benefits netted out, Congress’s purpose was to replenish the HTF via a new excise tax incentive structure; i.e., Congress wanted an increase in revenue after the AJCA amendments. If there were to be no revenue effect, Congress would not have endeavored to make the amendments. Even if the Committee had explained how it arrived at its conclusion, to place the Committee’s statement over the words put forth by Congress is unacceptable. If the Sunoco decision stands, it will devalue fuel credits: Markets will discount the value of incentive tax credits, reducing the effectiveness of using tax credits to drive economic and even environmental conservation policy. The decision should be reversed to preserve the doctrine of separation of powers and to avoid undermining Congress’s power to make policy via tax incentives.

IV. Conclusion

This note argues that the decision in Sunoco undermines Congress’s constitutionally vested authority to determine what the law should be. The statutory language of the fuel blender mixture credit and basic principles of taxation support Sunoco’s interpretation of how the mixture credit should be applied, regardless of how shocking it may be to the Court.

First, the Court should not have looked beyond what Congress said “on paper” to interpret the mixture credit statutes. The Court erroneously disregarded an unconflicted Chief Counsel Advice memorandum that should have been used to provide guidance on how to interpret the statutory text. Further, the Court’s analysis should have turned on the treatment of similar legislation like the childcare tax credit and sales tax to confirm that Sunoco’s interpretation of the mixture credit was correct. Second, where the Court admitted to what Congress said “on paper,” the magnitude of the consequences of that statute should have no bearing on the Court’s statutory interpretation. Finally, even if the Court determined that the statutory language was ambiguous, it should have construed the statute in favor of the taxpayer, Sunoco.

The Court found that the mixture credit amounts to a decrease in excise tax liability, which means that Sunoco and other fuel blenders must decrease their cost of goods sold by the amount of the mixture credit, thereby increasing their income tax liability. The decision as it stands could jeopardize Congress’s ability to effectuate energy policy via tax credit incentives, because markets will discount the value of incentive tax credits. The court should have found in favor of Sunoco.

[1]Conn. Nat’l Bank v. Germain, 503 U.S. 249, 254 (1992).

[2]Sunoco v. United States, 129 Fed.Cl. 322 (2016).

[3]Separation of Powers, Black’s Law Dictionary (10th ed. 2014).

[4]King v. Burwell, 135 S.Ct. 2480, 2496 (2015) (citing Marbury v. Madison, 5 U.S. 137, 177 (1803)).

[5]129 Fed.Cl. at 322.

[6]Id.

[7]Id.

[8]See 26 USC § 9603(c)(1) (2010).

[9]See Brief for Appellant at 6-7, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[10]Reuters, Fuel Producer Misinterpreted Mixture Credit Application, 98 Prac. Tax Strategies 269 (2017).

[11]129 Fed.Cl. at 325 (citing Mohawk Liqueur Corp. v. United States, 324 F.2d 241, 244 (6^thCir. 1963)).

[12]Id. at 326.

[13]Weingroff, Federal Highway Administration, Federal-Aid Highway Act of 1956: Creating the Interstate System (Sidebars), Summer 1996. See also Brief for Appellant at 5, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[14]26 U.S.C. § 9503(b) (2011).

[15]26 U.S.C. § 4081(c) (2012).

[16]Brief for Appellant at 6, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402). See also Highway Improvement Act of 1982, Pub. L. No. 97-424, 96 Stat. 2097.

[17]Id.

[18]129 Fed.Cl. at 328.

[19]Id.

[20]Brief for Appellant at 8, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[21]Id.

[22]Id. at 9. See also 26 U.S.C. § 6426(b)(1) (2011).

[23]26 U.S.C. § 6426(c) (2011).

[24]26 U.S.C. § 6427(e)(1) (2008).

[25]Legal Information Institute, Corporations, available at http://www.law.cornell.edu/wex/corporations (last visited March 23, 2018).

[26]28 U.S.C. § 6427(e)(3) (2008).

[27]IRS Chief Counsel Advice memorandum No. 201342010 from Michael J. Montemurro, Chief, Branch 4, Office of Associate Chief Counsel, to Carol Bingham McClure, Associate Area Counsel (Houston) (Large Business & International) (August 29, 2013).

[28]IRS Notice 2015-56.

[29]Scott DeCarlo, The World’s Biggest Companies, Forbes Global 2000 List, Forbes, April 18, 2012.

[30]129 Fed.Cl. at 324.

[31]Id.

[32]Bryan Koenig, Sunoco’s $300M Tax Suit Is Double-Dipping, Court Told, Law360, November 3, 2016.

[33]See generally 129 Fed.Cl. 322.

[34]Id. at 325.

[35]Id. at 327.

[36]Id. at 326.

[37]Id. at 332.

[38]Id. at 326.

[39]26 U.S.C. § 6426(a)(1) (2011).

[40]I.R.C. § 21 (2007).

[41]129 Fed.Cl. at 326.

[42]Id.

[43]Id. at 327.

[44]Id.

[45]Id.

[46]H.R. Rep. No. 108–755, at 304 (2004) (Conf. Rep.)

[47]Id.

[48]129 Fed.Cl. at 328.

[49]Id.

[50]Id. at 327.

[51]Id.

[52]Id.

[53]Id. at 328.

[54]Id. at 329.

[55]Id.

[56]Id.

[57]Id.

[58]Dana Milbank, In Hobby Lobby Ruling, the Supreme Court Uses A “Fiction”, The Washington Post, June 30, 2014.

[59]129 Fed.Cl. at 331 (citing United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988).

[60]Steven Mufson, IRS Whistle Blower Who Questioned Paper Industry Tax Break Fights To Keep His Job, The Washington Post, August 21, 2017.

[61]See generally King, 135 S.Ct. 2480.

[62]Id. at 2482.

[63]Id.

[64]Id.

[65]Id. at 2483.

[66]Id.

[67]Id. at 2496.

[68]Harry v. Marchant, 291 F.3d 767, 772 (11th Cir. 2001) quoting Ratzlaf v. United States, 510 U.S. 135, 147-48 (1994).

[69]129 Fed.Cl. at 327.

[70]H.R. Rep. No. 108-755, at 306 (2004) (Conf. Rep.).

[71]129 Fed.Cl. at 325 (citing Mohawk Liqueur Corp. v. United States, 324 F.2d 241, 244 (6^thCir. 1963)).

[72]129 Fed.Cl. at 327.

[73]Id. (emphasis added).

[74]135 S.Ct. at 2496.

[75]129 Fed.Cl. at 327.

[76]IRS Chief Counsel Advice memorandum No. 201342010 from Michael J. Montemurro, Chief, Branch 4, Office of Associate Chief Counsel, to Carol Bingham McClure, Associate Area Counsel (Houston) (Large Business & International) (August 29, 2013).

[77]IRS Notice 2015-56.

[78]129 Fed.Cl. at 325.

[79]I.R.C. § 21 (2007).

[80]See 129 Fed.Cl. at 330.

[81]26 U.S.C. § 6426 (2011).

[82]129 Fed.Cl. at 322.

[83]Brief for Appellant at 45, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402) (citing USA Choice Internet Servs., LLC v. United States, 522 F.3d 1332, 1343 (Fed. Cir. 2008); see also, e.g., Bowers v. New York & Albany Lighterage Co., 273 U.S. 346, 350 (1927) (“The provision is part of a taxing statute; and such laws are to be interpreted liberally in favor of the taxpayers.”); Murphy v. IRS, 493 F.3d 170, 179 (D.C. Cir. 2007) (“[A]n ambiguity in the meaning of a revenue-raising statute should be resolved in favor of the taxpayer.” (citing, inter alia, Hassett v. Welch, 303 U.S. 303, 314 (1938)); see also United Dominion Indus., Inc. v. United States, 532 U.S. 822, 839 (2001) (Thomas, J., concurring); Auto-Ordnance Corp. v. United States, 822 F.2d 1566, 1571 (Fed. Cir. 1987) (“Even assuming the existence of doubt, it is established that, in a tax refund case, the doubt should be resolved in favor of the taxpayer.” (citing White v. Aronson, 302 U.S. 16, 20 (1937)); Coca- Cola Co. v. United States, 87 Fed. Cl. 253, 259 (2009)).

[84]129 Fed.Cl. at 329.

[85]Id. at 327.

[86]Reply brief for Appellant at 17, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[87]129 Fed.Cl. at 326 (emphasis added).

[88]Reply brief for Appellant at 19, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[89]Emily L. Foster, Sunoco Decision Could Devalue Fuel Credits, Practitioner Says, Tax Analysts, July 10, 2017.

[90]Brief for Appellee at 59, fn. 20, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[91]Brief for Appellant at 36, Sunoco v. United States, 129 F.Cl 322 (2016) (No. 17-1402).

[92]Id.