“Same Taxpayer” Fixed at the Time of Payment:
Fourth Circuit Clarifies § 6621(d) Interest-Netting After Mergers

1. Introduction

Bank of America Corporation v. United States, decided on 29 July 2025 by the United States Court of Appeals for the Fourth Circuit, resolves an important question under 26 U.S.C. § 6621(d): when must two sets of tax payments be “by the same taxpayer” for the special interest-netting rule to apply? The dispute arose after Bank of America (BoA) merged with Merrill Lynch in 2013 and attempted to net interest on pre-merger underpayments it had made against pre-merger overpayments Merrill Lynch had made. The Internal Revenue Service (IRS) refused, the district court agreed with the government, and the Fourth Circuit has now affirmed—holding that for purposes of § 6621(d) the identity of the taxpayer is frozen at the moment each payment is made. Thus, post-merger consolidation cannot retroactively transform two distinct corporations into “the same taxpayer” for earlier tax years.

2. Summary of the Judgment

• The statutory phrase “by the same taxpayer” in § 6621(d) modifies the words “equivalent underpayments and overpayments,” not the interest payable.
• Applying the last-antecedent canon, the Fourth Circuit held that the relevant inquiry is whether the payments—when made—originated from the same legal person.
• Because BoA (underpayer) and Merrill Lynch (overpayer) were separate entities when the 1999 and 2005 payments occurred, they were not the same taxpayer and no interest netting is permitted, notwithstanding their 2013 merger.
• The Court rejected BoA’s alternative readings (“by” = “with respect to”) and dismissed reliance on Delaware merger law or the broader balance-netting rule in § 6402(a).
• Decision: District court’s grant of partial summary judgment for the United States affirmed.

3. Analysis

3.1 Precedents Cited and Their Influence

“Energy East makes clear that it is the identity of the corporation at the time of the payments that matters.” — Wynn, J.

• Energy East Corp. v. United States, 645 F.3d 1358 (Fed. Cir. 2011) – Established that § 6621(d) focuses on when payments are made, not when interest accrues or claims are filed.
• Wells Fargo & Co. v. United States, 827 F.3d 1026 (Fed. Cir. 2016) – Held that a post-merger survivor could not net interest on pre-merger under- and over-payments of different predecessor corporations; however, netting is allowed between a pre-merger payment by one entity and a post-merger payment by the survivor. – Fourth Circuit adopts and reinforces Wells Fargo’s reasoning, aligning its own circuit law with the Federal Circuit.
• Lockhart v. United States, 577 U.S. 347 (2016) – Source of the last-antecedent rule applied to statutory construction.
• Ford Motor Co. v. United States, 908 F.3d 805 (Fed. Cir. 2018) – Clarified mechanics of interest equalisation versus literal “netting.”

3.2 Court’s Legal Reasoning

1. Plain-text reading. – “By” naturally denotes agency/causation; the same taxpayer must make both payments. – Reading “by” as “with respect to” would distort ordinary usage and re-draft the statute.
2. Grammatical canons. – Last-antecedent rule: “by the same taxpayer” modifies the immediately preceding compound noun phrase, not the distant verb clause regarding interest.
3. Temporal anchor. – § 6621(d) “provides an identified point in time … when the overpayments and underpayments are made.” Anything occurring after that date (e.g., mergers, claim filings, audit adjustments) cannot retroactively satisfy the identity requirement.
4. Distinction from § 6402(a). – Balance-netting (offsetting principal) is discretionary and broader; interest-netting is narrower and automatic only if statutory conditions, including “same taxpayer,” are met.
5. Policy concerns. – Accepting BoA’s view would invite strategic or “abusive” mergers designed solely to wipe out large interest liabilities—an outcome the court deemed incompatible with congressional intent.

3.3 Likely Impact of the Decision

• Circuit Alignment & Uniformity. – Fourth Circuit now joins the Federal Circuit, substantially harmonising federal appellate authority on § 6621(d).
• M&A Tax Due-Diligence. – Corporations must assume that pre-acquisition or pre-merger interest exposures will not be neutralised by a target’s offsetting overpayments unless both arose in the same legal entity. – Impact on purchase-price adjustments, indemnity clauses, and valuation.
• Government Revenue Preservation. – Limits taxpayers’ ability to erase under-payment interest, preserving significant sums (BoA sought > $160 million).
• Litigation Strategy. – Taxpayers litigating in circuits without precedent will now face persuasive authority from two circuits, decreasing likelihood of forum shopping.
• Possible Legislative Response. – If Congress intends a more expansive rule, an amendment to § 6621(d) is required; the decision signals courts will not stretch the current language.

4. Complex Concepts Simplified

• Underpayment Interest (§ 6601). – When you owe the IRS money, interest accrues from the original due date until the debt is paid.
• Overpayment Interest (§ 6611). – When you pay too much tax, the IRS owes you interest, but at a lower rate than it charges for underpayments.
• Balance Netting (§ 6402(a)). – The IRS can credit an overpayment against any outstanding tax debt of the same person, wiping out or reducing principal.
• Interest Netting (§ 6621(d)). – When a taxpayer simultaneously has an underpayment and an overpayment of equal amount, the difference in interest rates is eliminated, making the “net rate” zero for that overlapping period.
• “Same Taxpayer.” – For interest netting, the entity that made both payments must be the same legal person at the time each payment occurred.
• Last-Antecedent Rule. – A grammar canon: a limiting phrase ordinarily modifies only the noun or clause it directly follows.

5. Conclusion

Bank of America Corporation v. United States cements a clear, bright-line rule in the Fourth Circuit: For purposes of § 6621(d), two payments are “by the same taxpayer” only if they were made by the identical legal entity at the moment the payments were tendered. Subsequent mergers, acquisitions, or other corporate transformations cannot retroactively satisfy that condition. The decision aligns the Fourth Circuit with Federal Circuit authority, curtails aggressive interest-netting strategies arising from corporate restructurings, and provides greater predictability in tax planning and M&A diligence. Unless Congress amends the statute, taxpayers must treat pre-merger under- and over-payments as forever segregated for § 6621(d) purposes.