Mitsubishi Cement Corporation v. Cir

• Court: Court of Appeals for the Ninth Circuit
• Decided: November 13, 2020
• Docket: 19-71401
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS NOV 13 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

MITSUBISHI CEMENT CORPORATION No. 19-71401 & SUBSIDIARIES, A Delaware Corporation, Tax Ct. No. 7161-16

Petitioner-Appellant, MEMORANDUM* v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

Appeal from a Decision of the United States Tax Court

Argued and Submitted October 8, 2020 Seattle, Washington

Before: GILMAN,** CALLAHAN, and CHRISTEN, Circuit Judges.

Mitsubishi Cement Corporation & Subsidiaries (“Mitsubishi”) appeals the

decision of the United States Tax Court determining that Mitsubishi owed federal

income tax deficiencies in the amounts of $71,026 and $319,868 for the 2011 and

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Ronald Lee Gilman, United States Circuit Judge for the U.S. Court of Appeals for the Sixth Circuit, sitting by designation. 2012 tax years, respectively. Mitsubishi contends that the Tax Court erred by not

permitting the company to claim a larger deduction for depletion expenses related

to its mining of calcium carbonate, which would have reduced its income tax

liabilities. We have jurisdiction under 26 U.S.C. § 7482(a), and affirm.

1. Mitsubishi first argues that the Tax Court should have applied a

depletion allowance of 15 percent instead of 14 percent in calculating the amount

of its deduction. Despite acknowledging that 26 U.S.C. § 613(b)(7) requires

taxpayers taking a depletion deduction for the mining of calcium carbonate to use

an allowance of 14 percent, Mitsubishi contends that the court should have applied

the 15 percent rate prescribed by 26 C.F.R. § 1.613-2(a)(3). Mitsubishi is wrong.

An “agency’s ‘interpretation of the statute cannot supersede the language chosen

by Congress.’” Pac. Gas & Elec. Co. v. United States, 664 F.2d 1133, 1136 (9th

Cir. 1981) (quoting Mohasco Corp. v. Silver, 447 U.S. 807, 825 (1980)). Here,

§ 1.613-2(a)(3) sets forth a depletion rate that is directly contradicted by the

language of 26 U.S.C. § 613(b)(7), and thus the statute’s language controls. The

Tax Court correctly applied the statutory depletion allowance of 14 percent.

2. Mitsubishi next argues that it should have been permitted to include

the purchase cost of minerals that it adds to calcium carbonate to make its cement

products to its “mining costs” under 26 U.S.C. § 613(c)(4), thereby increasing the

amount of its depletion deduction. That section provides that certain “treatment

2 processes” are considered mining costs. 26 U.S.C. § 613(c)(4). “[I]n the case of

calcium carbonates . . . when used in making cement” those treatment processes

include “all processes (other than preheating of the kiln feed) applied prior to the

introduction of the kiln feed into the kiln.” Id. § 613(c)(4)(F). Mitsubishi argues

that the addition of these minerals to the calcium carbonate is a “process” that

occurs prior to introducing the concrete mixture into the kiln, and therefore the cost

of purchasing those additives constitutes mining costs.

This court has previously considered and rejected this argument on multiple

occasions. Sw. Portland Cement Co. v. United States, 435 F.2d 504, 509 (9th Cir.

1970); United States v. Cal. Portland Cement Co., 413 F.2d 161, 166–67 (9th Cir.

1969); Riddell v. Cal. Portland Cement Co., 330 F.2d 16, 18 (9th Cir. 1964); see

also 26 C.F.R. § 1.613-4(f)(2)(iv) (“The term mining does not include purchasing

minerals from another.”). Mitsubishi provides no reasonable basis on which to

distinguish this authority, and therefore its argument fails.

3. Mitsubishi also argues that both of the Tax Court’s alternative

holdings rejecting Mitsubishi’s proposed calculation of its gross sales should be

reversed. The first of these relates to Mitsubishi’s attempt to increase the value of

its constructive sales (meaning sales to entities that were controlled by the same

corporate parent) to reflect the prices that Mitsubishi claims it would have received

for its products on the open market. 26 C.F.R. § 1.613-4(d)(4)(v)(a)–(b). To do

3 so, Mitsubishi was required to establish the “representative market or field price”

for products “of like kind and grade” as Mitsubishi’s cement products. Id. § 1.613-

4(c)(1). “The taxpayer bears the burden of showing entitlement to a particular

deduction,” and “[t]he determination that a taxpayer failed to produce sufficient

evidence to support a deduction constitutes a factual finding subject to the ‘clearly

erroneous’ standard of review.” Boyd Gaming Corp. v. Comm’r of Internal

Revenue, 177 F.3d 1096, 1098 (9th Cir. 1999) (citation omitted).

Mitsubishi failed to meet that burden. The Tax Court correctly held that

Mitsubishi could not simply rely on its own sales to noncontrolled parties to

establish a market price during this period; instead, Mitsubishi was also required to

show that those sales were “representative” of the market. 26 C.F.R. § 1.613-

4(c)(1). The evidence before the Tax Court showed that Mitsubishi sold different

types of cement, and that these different types of cement had different qualities,

were used for different jobs, and that Mitsubishi tested each of them to make sure

that they met their own unique industry standards. The Tax Court found that

Mitsubishi did not introduce evidence establishing the market prices of each of

those different types of cements, or make a showing that all the different types of

cement were “of like kind and grade” as the cement products for which Mitsubishi

did introduce evidence. Mitsubishi has failed to demonstrate that the Tax Court’s

finding was clearly erroneous.

4 Second, Mitsubishi challenges the Tax Court’s determination that, even if

Mitsubishi had established that the prices that it charged unrelated customers were

representative of the market, Mitsubishi was required to reduce those prices to

reflect the reality that its purchasers would have been entitled to discounts under 26

C.F.R. § 1.613-4(e). The Tax Court reviewed Mitsubishi’s sales data and found

that the discounted prices Mitsubishi charged members of its controlled group

resembled discounts that unrelated purchasers of similarly large quantities of

cement would have received in the market. Mitsubishi fails to demonstrate that the

Tax Court’s finding on this point was clearly erroneous. Nor is Mitsubishi’s

argument that the Tax Court was barred from using sales to members of a

controlled group for this purpose persuasive. Contrary to Mitsubishi’s arguments,

Section 1.613-4(e) contains no bar on the use of such data.

AFFIRMED.