Second Circuit affirms taxpayer win in interest-netting case

Washington National Tax Services

In Exxon Mobil v. Commissioner of Internal Revenue, the U.S. Court of Appeals for the Second Circuit recently affirmed a taxpayer-favorable 2011 decision of the U.S. Tax Court in a case regarding interest netting on tax overpayments and underpayments. Because the Federal Circuit in 2004 reached a contrary result in FNMA v. United States, the Second Circuit’s decision creates a split in the circuits regarding the proper interpretation of the uncodified “special rule” that makes the interest-netting provisions of section 6621(d) applicable to periods of overlapping indebtedness that occurred prior to the July 22, 1998, effective date of the statute.

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