                      126 T.C. No. 12



                UNITED STATES TAX COURT



       GARWOOD IRRIGATION COMPANY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1459-03.               Filed May 1, 2006.



     P, an S corporation, is due an overpayment that
exceeds $10,000. R computes that overpayment using the
Federal short-term rate plus 0.5 percentage point
according to R’s reading of sec. 6621(a)(1), I.R.C. P
maintains that it should not be treated as a
corporation for purposes of determining the applicable
rate because of its S corporation election. P’s
position is based upon sec. 6621(c)(3), I.R.C., which
is cross-referenced in sec. 6621(a)(1), I.R.C.

     Held: The lower corporate rate set forth in the
flush language of sec. 6621(a)(1), I.R.C., applies to C
corporations, and P is entitled to the higher rate of
overpayment interest set forth in sec. 6621(a)(1)(B),
I.R.C., for corporations (the Federal short-term rate,
plus 2 percentage points).
                                   - 2 -

       Donald F. Wood and Benjamin M. Leff, for petitioner.

       Richard T. Cummings and Michael W. Bentley, for respondent.



                                  OPINION


       GOEKE, Judge:     Petitioner has filed a motion under Rule 2611

seeking a redetermination of overpayment interest.        The issue is

the appropriate rate of interest on petitioner’s overpayment.

       The underlying facts of this case are set out in detail in

Garwood Irrigation Co. v. Commissioner, T.C. Memo. 2004-195, and

are incorporated herein by this reference.        Petitioner is

entitled to recover with interest an overpayment of tax on its

built-in gain for the taxable year ending December 31, 1999,

pursuant to our Memorandum Opinion.         Petitioner elected status as

an S corporation effective January 1, 1997, and remains such.

       In determining the interest due petitioner relative to that

overpayment, respondent applied the reduced interest rate

provided in the flush language of section 6621(a)(1).        Petitioner

disputes this computation in a timely filed motion under Rule

261.       Petitioner seeks the higher interest paid to noncorporate

taxpayers under section 6621(a)(1)(A) and (B) rather than the

lower rates for corporations provided in the parenthetical

language of subparagraph (B) and the flush language of section


       1
      Rule references are to the Tax Court Rules of Practice and
Procedure. Section references are to the Internal Revenue Code.
                                    - 3 -

6621(a)(1).   In other words, petitioner seeks interest to exceed

the Federal short-term rate by 3 percent instead of 0.5 percent.

     Section 6621(a)(1) provides:

     SEC. 6621.    DETERMINATION OF RATE OF INTEREST.

           (a)    General Rule.--

                (1) Overpayment rate.--The overpayment
           rate established under this section shall be
           the sum of–-

                       (A) the Federal short-term rate
                  determined under subsection (b), plus

                       (B) 3 percentage points (2
                  percentage points in the case of a
                  corporation).

           To the extent that an overpayment of tax by a
           corporation for any taxable period (as defined in
           subsection (c)(3), applied by substituting
           “overpayment” for “underpayment”) exceeds $10,000,
           subparagraph (B) shall be applied by substituting
           “0.5 percentage point” for “2 percentage points”.

The gist of this dispute is the cross-reference to subsection

(c)(3).   Subsection (c)(3) provides:

                (3) Large corporate underpayment.--For
           purposes of this subsection--

                       (A) In general.--The term “large
                  corporate underpayment” means any
                  underpayment of a tax by a C corporation
                  for any taxable period if the amount of
                  such underpayment for such period
                  exceeds $100,000.

                       (B) Taxable period.--For purposes
                  of subparagraph (A), the term “taxable
                  period” means–
                               - 4 -

                          (i) in the case of any
                     tax imposed by subtitle A, the
                     taxable year, or

                          (ii) in the case of any
                     other tax, the period to which
                     the underpayment relates.

     Petitioner maintains that the term that is defined by

subsection (c)(3) is not “taxable period” as respondent asserts,

but rather “overpayment of tax by a corporation for any taxable

period”.   Petitioner makes this argument in order to incorporate

not simply the provisions of subsection (c)(3)(B) of section 6621

into the operation of section 6621(a)(1), but also subsection

(c)(3)(A).   Thereby petitioner hopes to limit the meaning of

“corporation” in subsection (a)(1) to C corporations.   In other

words, this dispute turns on what is defined for purposes of the

flush language in subsection (a)(1) by the cross-reference to

subsection (c)(3) of section 6621.

     Respondent counters that subsection (c)(3)(A) provides a

different threshold than subsection (a)(1), $100,000 rather than

$10,000.   The parenthetical in subsection (a)(1) substitutes

“overpayment” for “underpayment”, but it does not say “$10,000”

rather than “$100,000”.   The lower threshold is set forth after

the parenthetical.   This creates a question as to why Congress

did not more artfully express the incongruity in dollar

thresholds, if petitioner’s argument is assumed to be correct.

Respondent argues that if “taxable period” is the defined term,
                               - 5 -

the incongruity of the threshold amount is avoided because only

subsection (c)(3)(B) is required to define the term.   Petitioner

forms its counterargument out of the broader reference in the

flush language of subsection (a)(1) to subsection (c)(3) rather

than subsection (c)(3)(B).   Petitioner states that the broader

subsection reference is intentional and must not be disregarded.

Petitioner reasons that the reference to subsection (c)(3) means

that “overpayment” and the words that follow are included in the

defined term, not simply “taxable period”.

     Another complication is that subsection (c)(3) does not

define “underpayment” but rather the phrase “large corporate

underpayment”.   “Large corporate overpayments” does not appear in

subsection (a)(1).

     Because neither party’s interpretation is without

difficulty, we find the statutory language to be ambiguous, and

we find reference to legislative history is appropriate.   While

we do not find a definitive answer in the legislative history,

there is some guidance.   The stated reason for the addition of

the flush language to section 6621(a)(1) was:

          Distortions may result if the rates of
          interest in the Code differ appreciably from
          market rates. Reducing the overpayment rate
          for large corporate overpayments of taxes
          will reduce the possibility of distortions.

H. Rept. 103-826 (Pt. 1), at 178 (1994), 1995-1 C.B. 250, 254.
                               - 6 -

     The phrase “large corporate overpayments” in the committee

report is significant since it echoes the definition of “large

corporate underpayment” in subsection (c)(3).   This parallel

language causes us to find that the reference to “(c)(3)” rather

than “(c)(3)(B)” was intentional and tilts the scales of the

statutory interpretation to petitioner’s broader reading.    It

follows that the overpayments subject to the lower rate of

overpayment interest set forth in the flush language are those of

C corporations, and petitioner is not limited to the 0.5-percent

addition to the Federal short-term rate.

     We have also considered that petitioner was at one time a C

corporation and is only now subject to a corporate-level tax

liability because of its prior status and the operation of

section 1374.   However, this does not change our conclusion

because in interpreting the application of section 6621(c)(3) to

underpayments, section 301.6621-3(b)(3), Proced. & Admin. Regs.,

provides that after the year of the S corporation election, the S

corporation is not to be treated as a C corporation in applying

the large corporate underpayment provision of section 6621(c)(3).

We find that the overpayment provisions of section 6621(a)(1)

should be applied in the same manner.

     We are left with one final issue.   Petitioner seeks the

additional 3 percentage points provided for a noncorporate

taxpayer in section 6621(a)(1)(B), but that section provides
                                 - 7 -

clearly “2 percentage points in the case of a corporation”.

While we agree with petitioner that “corporation” in the flush

language means C corporation as a result of the cross-reference

to subsection (c)(3), we do not find that cross-reference

applicable to the operation of subsection (a)(1)(B) and are left

with the word “corporation” with no cross-reference.        The general

definition of “corporation” in section 7701(a)(3) and section

301.7701-2(b)(1), Proced. & Admin. Regs., does not distinguish

between C and S corporations.    Accordingly, we find petitioner is

entitled to an additional 2 percentage points interest, rather

than the 3 percentage points for noncorporate taxpayers.

     To reflect the foregoing,


                                              An appropriate order

                                         will be entered.
