Mary McNulty Quoted in Tax Notes Today on Interest Netting

“WELLS FARGO SOLVES A NETTING PROBLEM, BUT MORE REMAIN”

A recent decision on interest netting in the Court of Federal Claims reached the sensible conclusion that following a merger, the surviving entity is the “same taxpayer” as the acquired corporation for purposes of interest netting under section 6621(d).
 
The IRS has taken a narrow view of the meaning of “same taxpayer” in recent years, and challenges to that position have not always been successful. In Wells Fargo & Co. v. United States, No. 11-808T (Fed. Cl. 2014) (Doc 2014-16178), the court sided with the taxpayer’s more expansive definition of same taxpayer. The issue is to what extent the availability of netting is determined based on who assumes liability for underpayment interest and who is entitled to overpayment interest, and how, if at all, the retention of separate identities by members of the consolidated group affects that analysis.
 
“This is a great decision when you have a statutory merger because the Court of Federal Claims will allow you to net between merged entities regardless of when payments arose,” said Mary A. McNulty of Thompson & Knight LLP. She added that the decision should also apply to liquidations and any situation in which one entity legally assumes the liabilities of the other entity.