                        126 T.C. No. 3



                   UNITED STATES TAX COURT



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.
   (2006), followed. Petitioners’ claim for an additional
   $450 million in accrued interest is denied.
                               - 2 -

     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.
                                - 3 -


     Because the new statutory language [in section 6621] was
     enacted as part of the statute that gave effect to the
     agreements reached at the Uruguay Round of Multilateral
     Trade Negotiations conducted under the auspices of the
     General Agreement on Tariffs and Trade (“GATT”), the lower
     corporate overpayment interest rate of 0.5 percent set forth
     in the 1994 amendment is referred to as the “GATT rate.”
     The higher interest rate on corporate overpayments that
     applied to all corporate overpayments prior to the 1994 Act
     and [that applies to corporate overpayments of $10,000 and
     less] is referred to as the “regular rate.” * * *


We use the same nomenclature herein.

     Due to the 1.5-percent differential under section 6621(a)(1)

between the regular rate and the GATT rate, if the higher regular

overpayment interest rate applies to petitioners’ December 31,

1994, overpayment interest balance, there will accrue, after

December 31, 1994, additional interest in favor of petitioners of

approximately $450 million.


                              Background

     The parties have stipulated the facts relevant to the

instant motions.

     Petitioners’ corporate Federal income tax returns for 1979

through 1985 were timely filed with respondent.   On each of those

tax returns as filed, petitioners reported tax overpayments in

excess of $10,000 and claimed refunds or credit transfers of the

tax overpayments, which respondent allowed and credited in favor

of petitioners.
                               - 4 -

     Upon audit, respondent determined substantial deficiencies

in petitioners’ Federal income taxes for 1979 through 1985.

     During the course of respondent’s audits, petitioners’

administrative appeals, and the litigation of these and related

cases,2   petitioners made a number of substantial advance

payments to respondent of taxes and of interest with respect to

each of the tax deficiencies determined by respondent against

petitioners for 1979 through 1985.

     As of the January 1, 1995, effective date of the above GATT

amendment to section 6621(a)(1), with respect to each of the

years 1979 through 1985, petitioners had received from respondent

refunds of tax overpayments far in excess of $10,000, and

petitioners still had outstanding with respondent overpayments of

tax in excess of $10,000.

     After the litigation and after settlement between the

parties of many issues, all underlying tax issues relating to the

Federal income taxes of petitioners for 1979 through 1985 have

     2
        See, e.g., Exxon Corp. v. Commissioner, T.C. Memo. 1993-
616, affd. sub nom. Texaco, Inc. v. Commissioner, 98 F.3d 825
(5th Cir. 1996) (involving the allocation of profits from sales
of Saudi Arabian crude oil); Exxon Corp. v. Commissioner, 102
T.C. 721 (1994) (involving the computation of percentage
depletion relating to the sale of natural gas); Exxon Corp. v.
Commissioner, T.C. Memo. 1999-247 (involving the deductibility of
interest relating to contested tax deficiencies); Exxon Corp. v.
Commissioner, 113 T.C. 338 (1999) (involving the credibility of
petroleum revenue tax paid to the United Kingdom); Exxon Mobil
Corp. v. Commissioner, 114 T.C. 293 (2000) (involving the
deductibility of estimated dismantlement, removal, and restora-
tion costs relating to the Prudhoe Bay, Alaska, oil field).
                              - 5 -

been resolved, and decisions have been entered in each of these

consolidated cases.


                            Discussion

     We start our analysis of the legal question before us with

the language and structure of the statute itself.   Kaiser

Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835 (1990);

United States v. Ron Pair Enters, Inc., 489 U.S. 235, 241 (1989);

Anderson v. Commissioner, 123 T.C. 219, 233 (2004), affd. 137

Fed. Appx. 373 (1st Cir. 2005).

     Section 6611 provides that taxpayers are to be allowed and

are to be paid interest on any overpayments in respect of any

internal revenue tax at the rate established under section 6621.

     Section 6622 provides that in computing the amount of

interest required to be paid under section 6611, the interest

will be compounded daily.

     Section 6621 provides that the rate of interest to be paid

by respondent to corporate taxpayers on overpayments shall be

the sum of the Federal short-term interest rate, as calculated

according to the formula set forth in section 6621(b), plus 2

percentage points, but plus only 0.5 percentage point where a

corporate overpayment for a year is in excess of $10,000.

     The relevant text of section 6621(a)(1) provides as follows:


          (1) Overpayment rate.--The overpayment rate established
     under this section shall be the sum of --
                                - 6 -

                (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 * * * exceeds
     $10,000, subparagraph (B) shall be applied by
     substituting “0.5 percentage point” for “2 percentage
     points”.[3]


     The flush language of section 6621(a)(1), reflecting the

reduced overpayment interest rate for large corporate

overpayments for periods after December 31, 1994, was added to

the Code in 1994 as part of the Uruguay Round Agreements Act

(GATT), Pub. L. 103-465, sec. 713(a), 108 Stat. 5001-5002 (1994).

In accordance with the terminology used in Gen. Elec. Co. v.

United States, 384 F.3d at 1309, we refer to the amendment of

section 6621(a)(1) as the GATT amendment.

         The effective date of the GATT amendment was provided in

section 713(b), as follows:


          (b) Effective Date.–-The amendment made by this
     section shall apply for purposes of determining interest for
     periods after December 31, 1994.



     3
        The version of the statute quoted in the text is the
current version, reflecting changes not relevant herein made by
the Taxpayer Relief Act of 1997 (TRA 1997), Pub. L. 105-34, sec.
1463(a), 111 Stat. 1057; TRA 1997, sec. 1604(b)(1), 111 Stat.
1097; Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, sec. 3302(a), 112 Stat. 741.
                               - 7 -

     The GATT amendment also included a corollary 2-percentage

point interest rate differential applicable for periods after

December 31, 1994, in the interest rate applicable to large

corporate tax underpayments in excess of $100,000.   Sec. 6621(c).

     The above changes in the interest rates applicable to large

corporate over- and underpayments were added by Congress as

“outlay reduction[s] * * * to assist in offsetting the projected

cost of the implementing legislation” relating to the GATT

treaty.   S. Rept. 103-412, at 11 (1994); H. Rept. 103-826 (I),

at 9 (1994), U.S.C.C.A.N. 1994, pp. 3773, 3781.   The Senate

report explained as follows:


     As set forth below in the * * * [Congressional Budget
     Office] cost estimate, the Uruguay Round agreement
     includes a commitment by the United States to reduce
     U.S. tariffs which would cause a loss of receipts to
     the U.S. Treasury. As explained above, the Budget
     Enforcement Act and Senate Rules require that these
     costs be offset. Due to this pay-as-you go
     requirement, it is both “necessary” and “appropriate”
     that provisions designed to offset the costs of the
     Uruguay Round agreement be included in this
     implementing legislation. [S. Rept. 103-412, at 135.]


     Petitioners acknowledge that respondent, with respect to

each of the years in issue, has refunded to petitioners all

overpaid taxes and overpaid interest that petitioners paid to

respondent, plus compound interest thereon through December 31,

1994.
                               - 8 -

     As indicated, however, petitioners contend that respondent

undercalculates, and has not paid petitioners, the full amount of

the additional interest that accrued after December 31, 1994, on

petitioners’ cumulative accrued overpayment interest balance of

approximately $1.6 billion that was outstanding on December 31,

1994, and that was not paid to petitioners until 2004 and 2005.

     As petitioners read the above GATT amendment to section

6621(a), the GATT overpayment interest rate reduction does not

apply to petitioners’ December 31, 1994, overpayment interest

balance.   Petitioners read section 6621(a)(1) either as expressly

supporting their interpretation or as vague and lacking a

specific mandate that the reduced GATT interest rate is to apply

to their December 31, 1994, overpayment interest balance.

Petitioners argue that “In the absence of some specific

instruction to the contrary, the interest continues to compound

at the same rate at which interest first began to accrue on the

tax overpayment”; i.e., at the regular rate.   Petitioners argue

further that the GATT amendment “directs that the change in

interest rate * * * should be limited to a portion of the amounts

owed to the taxpayer-–with the remaining portion continuing to

accrue interest at the regular rate.”

     Petitioners’ arguments focus on, or are dependent primarily

on, the interpretation of the flush language in section

6621(a)(1) that refers to an “overpayment of tax”.   Petitioners
                               - 9 -

argue that the words “overpayment of tax” do not include

overpayment interest, particularly the overpayment interest

balance that was outstanding on December 31, 1994.

     Beginning January 1, 1995, petitioners effectively would

place interest accrual on their overpayments of interest relating

to 1979 through 1985 into three baskets:


     First Basket: Interest accruing after December 31,
          1994, relating to overpayments of tax
          of $10,000 or less and statutory interest thereon;

     Second Basket: Interest accruing after December 31, 1994,
          relating to overpayments of tax in excess
          of $10,000 and statutory interest thereon;

     Third Basket: Interest accruing after December 31, 1994,
          relating to overpayment interest balance outstanding
          as of December 31, 1994.


     Petitioners would apply the GATT rate only to the contents

of the second basket.   To the contents of the first and third

baskets, petitioners would apply the regular interest rate, not

the GATT rate.

     The third basket, however, suggested by petitioners is not

supported by the statutory language.   The second basket already

includes post-December 31, 1994, interest accrual and compound

interest thereon relating to corporate tax overpayments in excess

of $10,000; namely, the subject matter to which the flush

language of section 6621(a)(1) applies the reduced GATT interest

rate.
                             - 10 -

     For purposes of further interest accrual on petitioners’

December 31, 1994, overpayment interest balance, it is

statutorily placed in the second and only other basket.

     Petitioners’ interpretation of section 6621(a)(1) (that

would place in a third basket interest accruing after

December 31, 1994, on a corporation’s December 31, 1994,

overpayment interest balance) stretches the language of section

6621(a) beyond logic.

     Disregarding fluctuations in the Federal short-term rate,

the language of section 6621(a)(1) establishes a specific and

definite overpayment interest rate where a corporation has made a

tax overpayment for a year of $10,000 or less and another

specific and definite overpayment interest rate where a

corporation has made a tax overpayment in excess of $10,000.4

     If or where the reduced GATT rate becomes applicable to a

corporation for a year (because of a tax overpayment for the year

in excess of $10,000), the flush language of section 6621(a)(1)

does not provide its own, stand-alone, reduced interest rate that

becomes applicable only to overpayments of tax.   Rather, that

language explicitly bumps the corporation back up into section

6621(a)(1)(B) and “substitutes” or replaces the “2 percentage

points” therein with “0.5 percentage point”.   In that situation,

     4
        We note in the language of sec. 6621(a) the definite
article “the” –– “The overpayment rate”.
                             - 11 -

with respect to that corporation (and with respect to all

overpayment interest accrual except that relating to the

corporation’s tax overpayment up to $10,000), section 6621(a)(1)

effectively provides only one interest rate –- the reduced GATT

rate.

     In the above situation, in effect (for everything other than

interest relating to a corporation’s tax overpayment up to

$10,000) the regular interest rate, for practical purposes, is

eliminated from the statutory language of section 6221, and there

remains in section 6621(a)(1) only one interest rate –– the GATT

rate -- that applies to all further interest accrual relating to

corporate overpayments of tax and to accrual of compound interest

thereon.

     Section 6621(a)(1) does not refer to overpayment “rates”.

Once the GATT trigger occurs, then any and all further interest

after December 31, 1994, relating to or associated with that

excess corporate overpayment, is to accrue only at the reduced

GATT rate.

     Our interpretation of the statutory language is supported by

the holding of this Court in State Farm Mut. Auto. Ins. Co. v.

Commissioner, 126 T.C.     (2006), filed today, and also by the

recent holdings of the Court of Appeals for the Federal Circuit

and the U.S. Court of Federal Claims in Gen. Elec. Co. v. United
                             - 12 -

States, 384 F.3d 1307 (Fed Cir. 2004), affg. on this issue and

remanding in part 56 Fed. Cl. 488 (2003).

     As explained in State Farm Mut. Auto. Ins. Co. v.

Commissioner, supra (slip op. at 9), with regard to the language

of section 6621(a)(1):


          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. * * *


     The legislative history of the GATT rate change and the

effective date language, set forth above, discuss only a change

in the rate of interest “without distinguishing between the rate

paid on an overpayment and the rate compounded.”   State Farm Mut.

Auto. Ins. Co. v. Commissioner, supra (slip op. at 10).   A

bifurcation in the interest to be paid on the tax overpayment

itself, and the interest to be paid on interest is not found in

the statute.

     In Gen. Elec. Co. v. United States, 384 F.3d at 1311, the

Court of Appeals for the Federal Circuit explained its holding,

in part, as follows:


     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. * * * While the statutory
                              - 13 -

     scheme is not easy to unravel, the most straightforward
     interpretation of the statutory language leads us to reject
     [the taxpayer’s] submission.


     In Gen. Elec. Co. v. United States, 56 Fed. Cl. at 496, the

Court of Federal Claims explained its holding, in part, as

follows:


     The GATT rate merely attaches prospective impact to the
     meeting of a condition as of the effective date of the
     statute, to wit, the existence of an overpayment for the
     relevant taxable year that exceeds $10,000. * * *


     Petitioners read the language of section 6621(a)(1) (“to the

extent that an overpayment of tax * * * exceeds $10,000") as

providing more than the trigger for application of the GATT rate.

Petitioners read that language as limiting application of the

GATT rate to just the “overpaid taxes” and interest accruing on

the overpaid taxes after December 31, 1994, and petitioners

describe the December 31, 1994, accrued overpayment interest

balance as neither “‘tax’ nor something that was ever ‘overpaid’”

by petitioners.

     Petitioners refer us to Code sections and to various

situations in which overpayment interest is or has been treated

differently from overpayments of tax and from underpayment

interest.   For example, section 6601(e)(1) specifically provides

that any reference to “tax” shall also refer to underpayment

interest (“any tax imposed by this title shall be deemed also to
                                - 14 -

refer to interest imposed by this section on such tax”), while no

similar provision covers overpayment interest.

     Under section 6511(a) a 3-year limitation period applies to

a refund of an “overpayment of any tax,” while a refund of

overpayment interest is governed by the general 6-year period of

limitation applicable to claims against the Government.     28

U.S.C. secs. 2401, 2501.   Gen. Instrument Corp. v. United States,

33 Fed. Cl. 4, 6 (1995).

     Under section 6402(a) an overpayment “including any interest

allowed thereon” may be credited against a taxpayer’s other tax

liabilities.   Prior to 1954, however, the predecessor to section

6402(a) referred only to “overpayment”, and it was understood

that the statutory language did not allow the crediting of

overpayment interest.   See S. Rept. 1622, 83d Cong., 2d Sess.

5230 (1954) (“This section * * * changes existing law so as to

permit expressly the crediting of interest on an overpayment

against any outstanding liability for any tax.”).

     Prior to 1997, under section 6512(b)(1) this Court’s

jurisdiction with respect to an “overpayment” was held not to

include overpayment interest.    Harrison v. Commissioner, T.C.

Memo. 1994-614.   In 1997, section 7481(c) was amended to permit

us to exercise jurisdiction over some overpayment interest.

     In Rev. Proc. 87-43, 1987-2 C.B. 590, respondent took the

position that section 6601(c) (which at that time suspended the
                              - 15 -

running of interest on a tax deficiency if respondent failed to

make notice and demand on the taxpayer within 30 days of the

taxpayer’s filing of a waiver of restrictions on assessment) only

suspended interest on a tax deficiency, not on the interest that

had accrued on the underlying tax deficiency before the beginning

of the suspension period.5

     The above examples apparently persuade petitioners that when

Congress wants overpayment interest treated the same as

overpayments of tax, it knows how to explicitly so provide.

     Certainly, the language of section 6621(a)(1) could be

clearer.   Congress could have made explicit in the statutory

language what respondent argues and what we today hold -- by

expressly providing in the flush language of section 6621(a)(1)

language to the effect that the reduced GATT rate, if triggered,

would apply to any December 31, 1994, overpayment interest

balance.

     Congress also could have made explicit in the statutory

language what petitioners argue -- by expressly providing in the

flush language of section 6621(a)(1) the GATT rate (rather than

substituting in section 6621(a)(1)(B) the GATT rate for the

regular rate), by leaving the regular rate in section

6621(a)(1)(B), and by providing language to the effect that the

     5
        Congress later changed the interpretation set forth in
Rev. Proc. 87-43, 1987-2 C.B. 590, by amending sec. 6601(c) to
refer explicitly to accrued interest.
                              - 16 -

regular interest rate left in section 6621(a)(1)(B) would apply

to any December 31, 1994, overpayment interest balance, even

though a corporation had a tax overpayment in excess of $10,000.

     As explained, however, on the basis of the language of

section 6621(a)(1), as enacted, we conclude that the GATT rate

applies to a corporation’s December 31, 1994, overpayment

interest balance for further accrual of interest thereon after

December 31, 1994.

     On brief, petitioners set forth an example involving a

corporation’s $100,000 tax overpayment for a year, as of

March 15, 1990.   In petitioners’ example, on January 1, 1992,

respondent refunds to the corporation $50,000 in principal, and

on January 1, 1996, respondent refunds the remaining $50,000

principal balance.   Petitioners then state:


     For the 1992-1995 period, the applicable interest rate is
     applied to $50,000 in remaining principal, plus previously
     accrued interest. It is irrelevant to that latter
     computation that the “original” overpayment was $100,000.


     But if, under the governing statutory language in

petitioners’ example, a corporation’s overpayment of tax for a

year in excess of $10,000 triggered a reduction in the

overpayment interest rate, then the fact that the corporation’s

original overpayment was more than $100,000 would be highly

relevant.   That is the situation presented to us herein.
                               - 17 -

     Petitioners suggest that their calculations are supported by

the manner by which interest calculations routinely are adjusted

in commercial debtor-creditor relationships for changes either in

the principal amount outstanding or in the interest rate.    We

disagree.    The “wrinkle” petitioners acknowledge herein that is

not typical in the routine debtor-creditor relationship is that

petitioners seek to apply the reduced interest rate not to the

full outstanding balance of the overpayment interest on the

effective date of the rate reduction but only to a portion

thereof.    It is that wrinkle that is in issue, and we find no

support in petitioners’ examples for the proposition petitioners

seem to put forth that under commercial debtor-creditor loan

agreements a prospective reduction in the applicable interest

rate similar to that reflected in the GATT amendment necessarily

would not apply to overpayment interest balance on the effective

date of the rate reduction.

     We conclude that petitioners’ December 31, 1994,

$1.6 billion overpayment interest balance accrues interest after

December 31, 1994, at the reduced GATT rate.

     As a related issue, petitioners contend that under section

6621(a)(1) the $10,000 exemption from the reduced GATT rate

should apply to the last $10,000 of their tax overpayment for

each year.
                             - 18 -

     Respondent counters that the $10,000 exemption applies to

the first $10,000 of petitioners’ tax overpayment for each year.

     The amount of the additional interest in dispute on this

issue is set forth below:


                     Post-Dec. 31, 1994, Additional
                       Interest Accrual Claimed on
          Year         $10,000 of Tax Overpayment
          1979                $2,461
          1980                 2,597
          1981                 2,597
          1982                 2,868
          1983                 2,857
          1985                 2,857


     We find petitioners’ contention counterintuitive and

contrary to the statutory language.   It is noteworthy that in

petitioners’ own memorandum of law filed herein on February 28,

2005 (in the context of a discussion of the first issue discussed

above), petitioners describe the $10,000 exemption as applicable

to the “first” $10,000 of a taxpayer’s tax overpayment.

     Respondent emphasizes that each of petitioners’ corporate

Federal income tax returns for 1979 through 1985, when initially

filed with respondent, reflected overpayments of tax in the

millions of dollars, and that the tax overpayments reflected on

those tax returns were paid to petitioners on or about the date

the tax returns were filed via refunds or credits to petitioners’

taxes for other years and long before January 1, 1995.

Accordingly, respondent argues that as of the January 1, 1995,
                              - 19 -

effective date of the GATT amendment, all of petitioners’ then-

remaining outstanding tax overpayments for each of the years in

issue represented tax overpayments by petitioners in excess of

$10,000, no portion of which qualifies for the exemption from the

GATT rate.   We agree.

     Under section 301.6611-1(b), Proced. & Admin. Regs., the

date of overpayment of a tax is the date of payment of the first

amount which, when added to previous payments, is in excess of

the tax liability (including any interest, addition to tax, or

additional amount).   This regulation provides that tax

overpayments are to be refunded beginning with the first payment

that exceeds the tax liability.   Accordingly, all of petitioners’

tax overpayments for the years in issue that remained outstanding

after December 31, 1994, and that petitioners eventually received

in 2004 and 2005 constituted overpayments “in excess of $10,000”

and, beginning January 1, 1995, accrued interest at the reduced

GATT rate.

                                    Appropriate orders will be

                               entered.
