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Airborne Freight Corp. v. United States

August 20, 1998

AIRBORNE FREIGHT CORPORATION, PLAINTIFF-APPELLEE,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLANT. AMERICAN TRUCKING ASSOCIATION, AMICUS; CALIFORNIA CHAMBER OF COMMERCE; CALIFORNIA GROCERS ASSOCIATION; CALIFORNIA RETAILERS ASSOCIATION; FOOD EMPLOYERS COUNCIL, INC.; FOOD MARKETING INSTITUTE; NATIONAL COORDINATING COUNCIL FOR MULTIEMPLOYER PLANS; OREGON GROCERY INDUSTRY ASSOCIATION; WASHINGTON RETAIL ASSOCIATION, AMICI CURIAE.



D.C. No. CV-95-00301-BJR

The opinion of the court was delivered by: Canby, Circuit Judge:

FOR PUBLICATION

Appeal from the United States District Court for the Western District of Washington Barbara J. Rothstein, District Judge, Presiding

Argued and Submitted March 12, 1998--San Francisco, California

Opinion by Judge Canby

The United States appeals two summary judgment rulings by the district court, which we review de novo. See Orthopaedic Hosp. v. Belshe, 103 F.3d 1491, 1495 (9th Cir. 1997). The rulings came in the course of Airborne Freight Corporation's tax refund suit. The first one overturned the Commissioner's determination that Airborne had improperly deducted contributions paid to several qualified multiemployer defined-benefit pension plans after the end of the taxable years in issue, pursuant to 26 U.S.C. S 404(a)(6)(1986). We reverse this decision on the authority of Lucky Stores, Inc. v. Commissioner of Internal Revenue, No. 97-70810, _______ F.3d _______ (1998), filed simultaneously with this opinion.

The United States also appeals the district court's ruling that Airborne was entitled to investment tax credits, pursuant to 26 U.S.C. S 204(a)(7), for property that it placed in service in 1989 and 1990 in its world headquarters building. We conclude that Airborne was entitled to investment tax credits, but only for property that had a class life of at least seven years. Accordingly, we vacate this portion of the district court's judgment, and remand.

Discussion

I. Deductions for Contributions to Multi-Employer Defined-Benefit Pension Plans

Pursuant to collective bargaining agreements, Airborne paid monthly contributions to several qualified multiemployer defined-benefit pension plans ("CBA plans") on behalf of its unionized employees. The amount of contribution due the plans from Airborne in any given month depended upon the number of hours worked by covered employees at particular rates of pay. Employers, whether on a cash or accrual basis, may deduct contributions to qualified pension plans in the taxable year when the contributions were actually paid. See 26 U.S.C. S 404(a). An exception to this rule provided that:

a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

26 U.S.C. S 404(a)(6).

Prior to 1989, Airborne deducted the twelve monthly contributions attributable to employee service during a particular taxable year from its taxable income for that same year. The twelfth payment was normally made after the end of the taxable year, pursuant to S 404(a)(6). Airborne then changed its practice. On its 1989 tax return, filed in September 1990, Airborne deducted the contributions that were based on employee service for the twelve months in 1989 plus the contributions for the first eight months in 1990. The effect of this change was to accord Airborne a one-time benefit of an additional deduction of an average of seven months' contributions. On its 1990 tax return, filed in September 1991, Airborne deducted the contributions for the last four months in 1990 plus the first eight months in 1991, for a total of twelve months' contributions. The Commissioner disallowed the deductions of $6,365,860 on Airborne's 1989 return that were based on contributions resulting from hours worked in 1990, and disallowed deductions of $491,036 on Airborne's 1990 return that resulted from hours worked in 1991. Airborne paid the tax and sued for a refund in district court. The district court granted Airborne's motion for summary judgment, and the United States now appeals.

[1] Our decision on this issue is controlled adversely to Airborne by our decision in Lucky Stores, Inc. v. CIR, No. 9770810, _______ F.3d _______ (1998), which deals with the identical issue and was filed simultaneously with our decision in this appeal.*fn1 In Lucky Stores, we concluded that employer contributions to CBA plans that were paid after the end of the taxable year and were based on employee hours worked after the end of the taxable year could not be considered as paid "on account of" that taxable year. Accordingly, we now conclude that the district court erred when it determined that Airborne's contested deductions for such contributions were proper.

II. The World Headquarters Exception to the Repeal of the Investment Tax Credit

Prior to 1986, taxpayers could receive an income tax credit for up to 10 percent of investment in certain tangible and depreciable property, such as leasehold improvements, equipment, and furnishings. Taxpayers were eligible for the tax credit in the year that the property was placed in service. The Tax Reform Act of 1986 generally repealed the investment tax credit for property placed in service after December 31, 1985. Pub. L. No. 99-514, S 211(a), 100 Stat. 2085, 2166 (1986) (codified at 26 U.S.C. S 49(a) (1986)). *fn2 The Act created an exception from the repeal, however, for certain types of ...


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