prior to January 1, 1995, on the first $10,000 of its overpayment. Gen. Elec. Co. v. United States, 384 F.3d at 1313.

The Court of Appeals for the Federal Circuit initially addressed the meaning of the term "overpayment” as follows: We agree with GE and the trial court that the term "overpayment," as used in the Internal Revenue Code, does not ordinarily include interest that is earned on the overpayment. We do not agree with GE, however, that the statutory provision that preserves the regular interest rate for small corporate overpayments of $10,000 or less should be interpreted to mean that the interest on very large overpayments should accrue interest at the rate Congress reserved for small overpayments. We think it highly unlikely that Congress intended the exception to the GATT rate for small overpayments to have such dramatic potential consequences for overpayments vastly larger than the modest overpayments of $10,000 or less that are eligible for the regular rate. [Id. at 1310-1311; emphasis supplied.]

After noting that section 6611 "authorizes the allowance of interest on any 'overpayment'" and that section 6611 "dictates that interest shall be paid 'at the overpayment rate established under section 6621'", id. at 1308, the Court of Appeals for the Federal Circuit stated that because sections 6611 and 6621 are "integrally related *** the term 'overpayment' must mean the same thing in the two sections." Gen. Elec. Co. v. United States, supra at 1311. This led the court to conclude that "section 6611 requires us to reject GE's theory of the case". Id. at 1311–1312.

As we shall discuss, petitioner believes this analysis by the Court of Appeals for the Federal Circuit is flawed because "overpayment" does not include interest compounded under section 6622.

Petitioner challenges the holding of the Court of Appeals for the Federal Circuit by arguing that the phrase "overpayment of tax" in section 6621(a) limits the scope of the change in corporate interest rates to the overpayment itself, thus allowing accrued interest on the overpayment to continue to receive the regular interest rate, which is always 1.5 percent higher.

The role of the phrase "overpayment of tax" is central to this dispute. We find the phrase in question is a device to describe the occasion when the GATT rate is triggered for all interest computational purposes including compounding under section 6622. We do not read the phrase "overpayment of tax” as a limitation on the scope of the applicability of the

changed rate once triggered. Given the role of section 6621 in the statutory scheme for interest, we must reject petitioner's construction.

The role of section 6621 is to set interest rates which are not constant but may change quarterly. Sec. 6621(b); sec. 301.6621-1(a)(3), Proced. & Admin. Regs. The GATT rate change is described in the public law as a change for purposes of determining interest after December 31, 1994. Uruguay Round Agreements Act, sec. 713, 108 Stat. 5001. This change from the regular rate applies on its face to all applications of interest after December 31, 1994, in situations when the GATT rate is triggered. The language added to section 6621(a) triggers a change in interest rate.

Sections 6611, 6621, and 6622 constitute the statutory scheme to authorize interest on overpayments, set the rate of interest, and provide for the method of computation, respectively. Each section has a distinct role in an integrated scheme for overpayment interest.

Petitioner would read the sections in isolation to separate the overpayment from the accrued interest. This reading would have section 6621 accomplish more than simply set the interest rate. We do not interpret the change to section 6621 to bifurcate the interest rate for compounding from the overpayment interest rate. Further, the legislative history of the change and the description of the effective date in section 713(b) of the Uruguay Round Agreements Act do not support petitioner's interpretation. Both the legislative history accompanying the 1994 amendment and the effective date language discuss a change in the rate of interest without distinguishing between the rate paid on an overpayment and the rate compounded.3 The legislative history does not state that the rate was meant to be bifurcated between interest on the overpayment itself and interest on accrued interest. We find that the importance of such a distinction leads to the conclusion that the omission was intentional. This conclusion is supported by Exxon Mobil Corp. v. Commissioner, 126 T.C. 36, 42 (2006) filed today, finding that a "bifurcation in the

*

3 See S. Rept. 103-412, at 11 (1994) (“The outlay reductions in Title VII derive from * * * reducing the interest rate * with respect to large corporate tax overpayments." (Emphasis added.)). The language in the effective date was discussed previously.

interest to be paid on the tax overpayment itself and the interest to be paid on interest is not found in the statute." Petitioner further challenges the Court of Appeals for the Federal Circuit's position that section 6611 authorizes the payment of interest by explaining that only simple interest was paid before section 6622 became law. Interest on interest is a function of the compounding provided by section 6622; however, the interest that is compounded originates as the interest authorized by section 6611 on an overpayment, and the rate of both is set by section 6621. One common component of the interest rate applicable to all overpayments is the Federal short-term rate. Sec. 6621(a)(1)(A). The Federal short-term rate used in section 6621(a)(1)(A) is redetermined on a quarterly basis. Sec. 6621(b). A fluctuation in the Federal short-term rate affects the rate applicable to corporate overpayments under both sections 6611 and 6622. Similarly, there is no logical reason that requires a different result regarding the GATT rate change, effective after December 31, 1994.

Petitioner points to the refund estimates prepared for Congress at the time the GATT rate was adopted to support its position. Petitioner asserts that in these estimates accrued interest was not subject to the lower GATT rate. Petitioner also argues that respondent initially applied the GATT rate only to the overpayment, not the accrued interest, and now respondent has changed his practice. While both these circumstances may evidence confusion about how the change would be implemented, we do not find that either point overcomes the logical meaning of the statutory language itself.

The remaining issue is whether the $10,000 threshold is to be applied to the highest total overpayment that previously existed or the amount at the effective date of the statutory change.

Much of the controversy in Gen. Elec. Co. v. United States, 384 F.3d 1307 (Fed. Cir. 2004), centered on the question whether the term "overpayment" as used in section 6621(a)(1) referred to a single, cumulative amount for a particular taxable year (the amount by which the tax paid for the year exceeded the tax liability for the year before any credits or refunds) or referred instead to the amount owed to the taxpayer at a particular point in time (e.g., the amount of any excess tax paid for a year that remained unrefunded

and uncredited on January 1, 1995). Although the two amounts could be the same in any given case, the issue was important in Gen. Elec. Co. because the "single, cumulative amount" of its 1978 overpayment had been fully refunded or credited before January 1, 1995, and the only "amount owed" to it on that date was previously accrued interest, which the parties agreed was not part of the "overpayment” as that term is used in section 6621(a)(1) for purposes of defining the $10,000 threshold. The taxpayer argued since there was no "overpayment" on January 1, 1995, its overpayment was less than $10,000, and the regular rate applied under section 6621(a)(1). The Court of Appeals for the Federal Circuit agreed with the Court of Federal Claims that the term "overpayment" as used in section 6621(a)(1) refers to a single, cumulative amount, not to whatever amount of overpayment may be owed to the taxpayer at a particular point in time.4 This point is important in the present case regarding the second issue raised by petitioner's motion, whether, despite the prior refund, $10,000 of the overpayment due on the effective date should receive the regular rate of interest rather than the GATT rate.

We agree with the analysis of the Court of Appeals for the Federal Circuit, which requires that the threshold is met based on the cumulative overpayment amount for the taxable year, not the specific amount remaining at the effective date after credits had been previously provided. Gen. Elec. Co. v. United States, 384 F.3d at 1308-1309.5 Accordingly, we will deny both aspects of petitioner's motion.

To reflect the foregoing,

An appropriate order will be issued.

4 The Court of Appeals for the Federal Circuit stated that "we agree with the trial court's analysis' that the amount of a tax overpayment once established is "fixed" and "does not vary as the government makes refunds or credits." Gen. Elec. Co. v. United States, 384 F.3d 1307, 1308-1309 (Fed. Cir. 2004), affg. in part and remanding in part 56 Fed. Cl. 488 (2003).

5 Since there was never any accrued interest on the first $10,000 of petitioner's overpayment, we are not faced with the allocation issue that required a remand by the Court of Appeals for the Federal Circuit in Gen. Elec. Co. v. United States, supra.

EXXON MOBIL CORPORATION AND AFFILIATED COMPANIES, F.K.A. EXXON CORPORATION AND AFFILIATED COMPANIES, PETITIONERS v. COMMISSIONER OF INTERNAL

REVENUE, RESPONDENT

Docket Nos. 18618-89, 18432-90, Filed January 17, 2006.
23331-95.

Held: Under secs. 6611, 6621(a)(1) and 6622, petitioners' outstanding Dec. 31, 1994, cumulative accrued overpayment interest balance of $1.6 billion relating to the years involved herein accrues further compound interest after Dec. 31, 1994, at the reduced interest rate applicable to large corporate overpayments, not at the regular interest rate. Gen. Elec. Co. v. United States, 56 Fed. Cl. 488 (2003), affd. 384 F.3d 1307 (Fed. Cir. 2004), and State Farm Mut. Auto. Ins. Co. v. Commissioner, 126 T.C. 28 (2006), followed. Petitioners' claim for an additional $450 million in accrued interest is denied.

Robert L. Moore II, Thomas D. Johnston, and Kevin Kenworthy, for petitioners.

Robert M. Morrison, for respondent.

OPINION

SWIFT, Judge: This matter is before us on petitioners' motions under section 7481(c) and Rule 261 for the Court to determine the correct amount of overpayment interest due petitioners.1

The primary issue presented is whether petitioners' cumulative accrued overpayment interest balance outstanding on December 31, 1994, of approximately $1.6 billion (relating to petitioners' consolidated Federal income taxes for 1979 through 1985) accrues compound interest thereafter until paid to petitioners at the regular corporate overpayment interest rate, as petitioners contend, or at the reduced overpayment interest rate applicable to large corporate overpayments, as respondent contends.

In its discussion of essentially the same question of statutory interpretation presented herein, the Court of Appeals for the Federal Circuit in Gen. Elec. Co. v. United States, 384 F.3d 1307, 1309 (Fed. Cir. 2004), explained:

1 Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.