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August 3, 2000


The opinion of the court was delivered by: Joyner, District Judge.


This tax refund case has been brought before the Court on the parties' cross-motions for summary judgment. For the reasons which follow, the Defendant's motion shall be granted, while the plaintiff's motion is denied.

Factual Background

Prior to 1986, certain "investment tax credits" were available to domestic manufacturers who invested in equipment and other materials to modernize their production capabilities. Any tax credits that a manufacturer did not use in a given year could be carried back for a three-year period or carried forward for the fifteen subsequent years and used to reduce taxes for those years. Tax credits that were not used by the end of the 15 year carry forward period were lost. Under the 1986 Tax Reform Act, the investment tax credit ("ITC") was eliminated, effective for property placed in service after December 31, 1985. However, in recognition of the reliance that many domestic steel companies had placed upon it in their tax planning, Congress enacted Section 212 of the Tax Reform Act ("TRA") whereby steel manufacturers could obtain a cash refund for their accumulated unused tax credits by treating 50% of their existing, unused carry-forwards of ITC to offset their 1987 tax liability.

Like most other domestic steel producers, Plaintiff, Bethlehem Steel had accumulated a significant amount of investment tax credits in the ten-year period preceding the enactment of the TRA. Because Bethlehem and most other eligible steel companies anticipated large refunds from the application of Section 212 but would not be in a position to file their 1987 tax returns until the Fall of 1988, they negotiated with the Internal Revenue Service to obtain the release of the anticipated overpayments early. Two meetings were held between representatives of the steel companies and the IRS in February and March, 1988, culminating in the execution between the parties of a Closing Agreement on Final Determination Covering Specific Matters on March 9, 1988 along with the filing by Bethlehem on March 15, 1988 of an Election and Claim for Quick Release of Overpayment Resulting From the Application of Section 212 of the Tax Reform Act of 1986. The Election/Claim included regular investment tax credit carry forwards in the aggregate amount of $280,856,047 from the tax years 1976-1986. Fifty percent of the unused credits or $140,428,024 was claimed as a credit against Bethlehem's federal income tax for 1987. The Election/Claim stated that Bethlehem had no 1987 unpaid Chapter 1 tax liability as of March 15, 1988 and therefore it claimed an overpayment and received a refund in the amount of $140,428,024 on March 25, 1988.

On November 10, 1988, subsequent to the negotiation and execution of the Closing Agreement and related documents, the Technical and Miscellaneous Revenue Act of 1988 ("TAMRA") was passed which, among other things, retroactively amended § 212 by providing that investment tax credits earned in periods after December 31, 1985 could not be included in existing carry forwards. § 1019 of TAMRA made this change effective retroactively to the effective date of § 212 of TRA. Thus, the last year for which the investment tax credit could be utilized was 1985.

Following the audit of the consolidated tax return that Bethlehem had filed for 1987 and 1988, the IRS determined that $11,381,450 of unused investment tax credits attributable to 1986 should be disallowed and it accordingly adjusted Bethlehem's tax liability to reflect that it owed an additional $5,690,725. Although Bethlehem paid this sum and the related interest assessed on it under protest, it reserved its right to file for a refund. On June 27, 1997, Plaintiff filed an amended U.S. Income Tax Return Form 1120X with the IRS seeking a refund of the 1987 income tax of $5,690,725 plus interest. When the IRS disallowed the claimed refund, this action ensued with Plaintiff arguing that the language in the closing agreement that "no change or modification of applicable statutes will render this agreement ineffective with respect to the terms agreed to herein," renders the TAMRA amendment inapplicable to divest it of its investment tax credit for 1986.

Standards Applicable to Summary Judgment Motions

The standards to be applied by the district courts in ruling on motions for summary judgment are set forth in Fed. R.Civ.P. 56. Under subsection (c) of that rule,
. . . . The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.

Pursuant to this rule, a court is compelled to look beyond the bare allegations of the pleadings to determine if they have sufficient factual support to warrant their consideration at trial. Liberty Lobby, Inc. v. Dow Jones & Co., 838 F.2d 1287 (D.C.Cir. 1988), cert. denied, 488 U.S. 825, 109 S.Ct. 75, 102 L.Ed.2d 51 (1988); Aries Realty, Inc. v. AGS Columbia Associates, 751 F. Supp. 444 (S.D.N.Y. 1990).

Generally, the party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering a summary judgment motion, the court must view the facts in the light most favorable to the non-moving party and all reasonable inferences from the facts must be drawn in favor of that party as well. U.S. v. Kensington Hospital, 760 F. Supp. 1120 (E.D.Pa. 1991); Schillachi v. Flying Dutchman Motorcycle Club, 751 F. Supp. 1169 (E.D.Pa. 1990). See Also: Williams v. Borough of West Chester, 891 F.2d 458, 460 (3rd Cir. 1989); Tziatzios v. U.S., 164 F.R.D. 410, 411, 412 (E.D.Pa. 1996).


Closing Agreements are authorized under 26 U.S.C. ยง 7121, ...

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