The non-profit corporation in United States v. Detroit Medical Center, CA6, Case No. 15-1279, received a refund of payroll taxes along with interest on that overpayment from the IRS.  However, the organization was dismayed to find that it had been interest at a lower rate than it had expected to be paid.

The IRS noted the group of hospitals was organized as a corporation under corporate law and paid the lower rate of interest provided in IRC §6621(a)(1) for a “large corporation.” 

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In the case of Tricarichi v. Commissioner, T.C. Memo. 2016-132 the Tax Court was asked to decide whether Ohio state law or federal law applied to the computation of interest owed for an individual found to have transferee liability under federal tax law. In an earlier case (T. C. Memo 2015-201) the Tax Court had found Michael liable for taxes due following a “Midco” transaction.

Roughly summarized, a “Midco” transaction involved the sale of a corporation owned by a shareholder who would sell his stock to a third party. In turn, that party would sell the assets of the corporation and use those assets to finance the purchase from Michael, leaving little or no assets in the corporation to pay the resulting corporate income tax. While the buyers claimed to have a way to offset that gain, the Courts have found in a number of cases that the shareholder should have realized the result was too good to be true and imposed transferee liability when the “offset” is later found invalid and a large corporate tax liability exists for a corporation with no remaining assets. Michael was one of those found to have such liability.

The Federal Circuit wasn’t willing to go quite as far as the Court of Federal Claims in the case of Wells Fargo & Co. vs. United States, CA FC, No. 2015-5059, 2016 TNT 126-15 in allowing a corporation to allowing interest netting for overpayments and underpayments arising from prior years involving entities that later were acquired and merged into the entity.

In the original case (Wells Fargo & Company v. United States, Court of Federal Claims, No. 11-808T, 2014 TNT 125-13, 6/27/14) the Court of Federal Claims had adopted Wells Fargo’s position allowing that following mergers the corporation was in all cases the “same” corporation as any of the pre-merger predecessors.