Corporation is "same taxpayer" for interest-netting purposes.

• Author: Beavers, James A.

The Court of Federal Claims held that, for purposes of interest netting under Sec. 6621(d), a taxpayer was the same taxpayer if it had the same identification number in the underpayment and overpayment years. Therefore, a corporation that had an underpayment before it became part of a consolidated group could net the interest on the underpayment against interest on an overpayment the corporation made in a year after it became part of the group.

Background

Magma Power Co. is a Nevada corporation with its principal place of business in Iowa. In 1995, Magma was acquired by CalEnergy Co. Inc. (CalEnergy). In all relevant respects Magma Power was the same company both before and after it became affiliated with CalEnergy. It has conducted the same operations, maintained the same place of business, and kept the same name. On the tax return immediately preceding the acquisition by CalEnergy, for the tax year ending December 31, 1993, the IRS assessed Magma Power a deficiency of $9,953,525. The company satisfied the delinquency and paid an additional $9,235,206 in interest in 2000 and 2002.

Since being acquired by CalEnergy, Magma Power has been included on the parent company's consolidated tax returns along with several other subsidiaries. Magma Power continues to pay taxes other than income tax independently. Throughout all relevant periods, Magma Power retained its separate and distinct employer identification number (EIN), used by the IRS as a means of specifically identifying the corporate taxpayers within the consolidated group. For the tax years 1995-1998, the IRS determined that the consolidated group was entitled to refunds resulting from tax overpayments. Accordingly, between August 2004 and October 2005, the IRS refunded the overpaid amount plus interest to the agent of the consolidated group, MidAmerican, which was CalEnergy's successor. The total interest paid was almost $5.9 million.

Magma Power contended that a substantial portion of the overpayments was generated by an IRS audit and subsequent tax adjustment and was directly attributable to the company. Magma Power also established that overlapping periods of interest extended from the due date of the returns resulting in the consolidated overpayments through the date on which the company satisfied its underpayment liability. Accordingly, Magma Power sought relief under the interest-netting provision in Sec. 6621(d), claiming that it was entitled to a net interest rate of zero on its...