`
`United States Court of Appeals
`for the Federal Circuit
`______________________
`
`ALTERNATIVE CARBON RESOURCES, LLC,
`Plaintiff-Appellant
`
`v.
`
`UNITED STATES,
`Defendant-Appellee
`______________________
`
`2018-1948
`______________________
`
`Appeal from the United States Court of Federal Claims
`in No. 1:15-cv-00155-MMS, Chief Judge Margaret M.
`Sweeney.
`
`______________________
`
`Decided: September 26, 2019
`______________________
`
`VIVIAN D. HOARD, Taylor English Duma LLP, Atlanta,
`GA, argued for plaintiff-appellant. Also represented by
`BRIAN GARDNER, KELLY MULLALLY; WILLIAM SIDNEY
`SMITH, Smith & Kramer, PC, Des Moines, IA.
`
` CLINT CARPENTER, Tax Division, United States Depart-
`ment of Justice, Washington, DC, argued for defendant-ap-
`pellee. Also represented by TERESA E. MCLAUGHLIN,
`RICHARD E. ZUCKERMAN.
` ______________________
`
`Before O’MALLEY, REYNA, and CHEN, Circuit Judges.
`
`
`
`2
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`O’MALLEY, Circuit Judge.
`Appellant Alternative Carbon Resources, LLC claimed
`nearly $20 million in energy tax credits meant for taxpay-
`ers who sell alternative fuel mixtures. The Internal Reve-
`nue Service (“IRS”) later determined that Alternative
`Carbon should not have claimed these credits and it de-
`manded repayment (along with interest and penalties).
`Alternative Carbon paid back the government, in part, and
`then filed this refund suit in the United States Court of
`Federal Claims (“Claims Court”).
`After the parties filed cross-motions for summary judg-
`ment, the Claims Court decided that Alternative Carbon
`failed to establish that it properly claimed the credits or
`that it had reasonable cause to do so. Alternative Carbon
`Res., LLC v. United States, 137 Fed. Cl. 1 (2018).
`The Claims Court therefore granted summary judgment
`for the government.
`Alternative Carbon appeals, arguing that it is entitled
`to claim the credits or that it at least had reasonable cause
`for claiming them and so it should not have to pay any pen-
`alties. Because we conclude that Alternative Carbon can-
`not show it is entitled to the credits or that it had
`reasonable cause for claiming them, we affirm.
`I. BACKGROUND
`A. Alternative Fuel Mixture Credits
`We begin with a brief overview of the tax credits that
`Alternative Carbon claimed. Section 6426(e) allows tax-
`payers to obtain a credit for “producing any alternative fuel
`mixture for sale or use in a trade or business of the tax-
`payer.” 26 U.S.C. § 6426(e)(1). The statute then defines an
`“alternative fuel mixture” as “a mixture of alternative fuel
`and taxable fuel” that is either “sold by the taxpayer . . . for
`use as fuel” or “used as a fuel by the taxpayer producing
`such mixture.” Id. at § 6426(e)(2)(A)–(B).
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`3
`
`As is typical in tax law, this definition of alternative
`fuel mixture incorporates other parts of the Internal Reve-
`nue Code by reference. For example, the statute relies on
`subsections (A), (B), and (C) of § 4083(a)(1) to supply a def-
`inition for “taxable fuel.” See id. As relevant here, that
`definition includes “diesel fuel.” Id. at § 4083(a)(1)(B).
`The statute also defines “alternative fuel” based on a list of
`examples that includes “liquid fuel derived from biomass
`(as defined in section 45K(c)(3)).” Id. at § 6426(d)(2)(G);
`see also id. at § 45K(c)(3) (broadly defining biomass as “any
`organic material” besides oil, natural gas, and coal).
`The statute does not, however, define what it means for a
`mixture to be “sold by the taxpayer.” Id. at § 6426(e)(2)(A).
`In 2006, the IRS issued a “notice” regarding § 6426.
`See I.R.S. Notice 2006-92, 2006-2 C. B. 774. Among other
`things, the IRS interpreted alternative fuel mixture to
`“mean[] a mixture of alternative fuel and taxable fuel that
`contains at least 0.1 percent (by volume) of taxable fuel (as
`defined in § 4083(a)(1)).” Id. at § 2(b). It also explained
`that “[a] mixture producer sells a mixture for use as a fuel
`if the producer has reason to believe that the mixture will
`be used as a fuel.” Id. § 2(f)(2). The notice does not address
`what it means for an alternative fuel mixture to be sold in
`the first place.
`To put all of this in plain English, a taxpayer can claim
`the alternative fuel mixture credit under § 6426 by selling
`a mixture of alternative fuel, e.g., liquid fuel derived from
`biomass, and taxable fuel, e.g., diesel fuel, so long as the
`mixture is ultimately sold for use as fuel.1 The issues in
`
`1 Section 6426(a) also provides that “[n]o credit shall
`be allowed in the case of the credits described in subsec-
`tions (d) and (e) unless the taxpayer is registered under
`section 4101.” 26 U.S.C. § 6426(a). There is no dispute
`that Alternative Carbon satisfied this condition. See Alter-
`native Carbon, 137 Fed. Cl. at 22.
`
`
`
`4
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`this appeal are, thus, whether the taxpayer actually sold
`the fuel mixture here and, if so, whether any such sale was
`“for use as fuel.”
`B. Alternative Carbon’s Business
`Alternative Carbon argues that it is entitled to claim
`this alternative fuel mixture credit because it sold an alter-
`native fuel mixture to third parties who, in turn, used the
`mixture as fuel in anaerobic digestion tanks. Before ad-
`dressing this argument, we briefly discuss anaerobic diges-
`tion
`and Alternative Carbon’s
`business model.
`See also Alternative Carbon, 137 Fed. Cl. at 7–12, 16–19.
`Some microorganisms produce methane when they di-
`gest organic matter. The input for this process of anaerobic
`digestion, i.e., the organic material that the microorgan-
`isms digest, consists of organic solids called feedstock
`mixed in a sludge with water.2 Id. at 8; see also J.A. 550
`(“[The] microbes basically eat the organics, and a by-prod-
`uct of that is methane gas.”). Anaerobic digester tanks pro-
`vide a place for the microorganisms to digest the feedstock.
`J.A. 872–73. Entities that operate these digester tanks
`then use the resulting methane to generate electricity
`(among other things). See, e.g., J.A. 552.
`Alternative Carbon began operating in 2011. Its busi-
`ness generally involved a few basic steps. First, Alterna-
`tive Carbon bought feedstock from ethanol production
`plants. Next, it paid a trucking company to transport the
`feedstock. Along the way, the trucking company added die-
`sel fuel to the feedstock. The trucking company then deliv-
`ered this feedstock/diesel mixture to entities that operated
`
`2 These organic solids are also sometimes called sub-
`strates. For clarity, and consistent with the Claims Court,
`we will use the term “feedstock” throughout this opinion to
`describe these organic materials. Alternative Carbon, 137
`Fed. Cl. at 8 n.6.
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`5
`
`anaerobic digestion tanks.3 The digester operators ulti-
`mately fed the mixture to methane-producing microorgan-
`isms. Each step is discussed in more detail below.
`When Alternative Carbon purchased feedstock from its
`suppliers, the feedstock consisted of organic material that
`might otherwise be considered waste. For example, the
`process of distilling ethanol produces water and corn solids
`(“stillage”) as a by-product. J.A. 1718. This solid stillage
`is then further distilled through a centrifuge to separate
`liquid (“thin-stillage”) from other solids. Id. Alternative
`Carbon paid ethanol producers to acquire this thin-stillage.
`Id. In addition to thin-stillage, Alternative Carbon used
`other organic materials as feedstock. J.A. 1718–20.
`After purchasing the feedstock, Alternative Carbon
`paid a trucking company to mix enough diesel fuel with the
`feedstock so that the resulting mixture could qualify as an
`alternative fuel mixture under § 6426. Alternative Carbon,
`137 Fed. Cl. at 9; see also J.A. 814 (“[Y]ou got to put a
`splash of diesel fuel in it, and here’s why . . . it has a splash
`of diesel fuel in it before so we can generate tax credits.”).
`Alternative Carbon’s expert conceded that adding the die-
`sel fuel “did not measurably change the methane produc-
`tion” of the microorganisms. J.A. 616; see also J.A. 1026
`(“Q. And, in fact, you wouldn’t recommend putting diesel in
`an anaerobic digester [tank]; is that right? A. Typically,
`no. I wouldn’t recommend it.”).
`Having made the feedstock/diesel mixture, the truck-
`ing company delivered the mixture to digester operators.
`Alternative Carbon paid a fee to the operators based on
`how much
`feedstock/diesel mixture
`they accepted.
`See, e.g., J.A. 794. In Alternative Carbon’s contract with
`the Des Moines Wastewater Reclamation Authority
`
`
`3 For clarity, we will refer to these entities collec-
`tively as digester operators.
`
`
`
`6
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`(“WRA”), this “disposal fee” was “$0.02634 per delivered
`gallon” plus applicable taxes. Id. In its contract with
`Amana Farms, the “handling fee” was twenty-five dollars
`per ton. J.A. 1054. There are no contracts between Alter-
`native Carbon and other digester operators in the record.
`Digester operators like WRA and Amana Farms also
`paid an annual
`fixed
`fee to Alternative Carbon.
`See J.A. 795; J.A. 1054. But the fees Alternative Carbon
`paid digester operators far surpassed the annual fees it col-
`lected from them. Alternative Carbon, 137 Fed. Cl. at 18
`(“Throughout 2011, plaintiff received $8,950.00 of income
`for the purchase of its alternative fuel mixtures and paid
`its customers a total of $1,678,029.07 in ‘disposal fees.’”).
`There is also no evidence in the record that the fees paid by
`WRA or Amana were based on the value of the feed-
`stock/diesel mixture. See, e.g., Oral Arg. at 2:24–40
`(“Q. And what do you say the value of the goods transferred
`was? A. The value of . . . the goods transferred to the di-
`gester companies is not quantified in the record . . . .”),
`http://oralarguments.cafc.uscourts.gov/de-
`fault.aspx?fl=2018-1948.mp3; J.A. 861 (“This is for their
`tax credit stuff. A once a year charge of $950 for us to ‘buy’
`product (AD feedstock).”).
`Once the feedstock/diesel mixture was delivered, it was
`fed into digester tanks along with other feedstocks.
`See, e.g., J.A. 878–79. Some of the resulting methane was
`flared, i.e., burned off as excess, and some was used to gen-
`erate electricity. Alternative Carbon, 137 Fed. Cl. at 8;
`J.A. 1475.
`C. Alternative Carbon’s Tax Planning
`From the outset, Alternative Carbon and its business
`plan were designed in view of the alternative fuel mixture
`tax credit. For example, James Huyser, one of Alternative
`Carbon’s founders, testified:
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`7
`
`We understood that if the tax credits . . . w[ere] go-
`ing to be approved in 2011, we needed to have a
`vehicle whereby we could have a company that we
`could operate through that would be able to pur-
`chase waste products, transport waste products,
`and sell waste products as fuel for anaerobic digest-
`ers. And so there needed to be some sort of com-
`pany structure in order to do all this and also be
`considered an entity for the tax credits that were a
`part of our business plan.
`J.A. 851; see also J.A. 527–28.
`To ensure that Alternative Carbon could obtain the
`credits, its founders consulted with a tax attorney named
`Greg Sanderson. Initially, Sanderson sent them infor-
`mation about energy tax credits and advised them to regis-
`ter their company with the IRS. See, e.g., J.A. 528–29.
`Partners at Alternative Carbon also reached out to Sand-
`erson with specific questions about their business.
`On January 21, 2011, Huyser emailed Sanderson about
`an agreement between Alternative Carbon and WRA that
`was signed the same day. J.A. 1083; see also J.A. 794. The
`agreement stated that WRA would charge a “disposal fee”
`for accepting the feedstock/diesel mixture, but it did not
`mention any money flowing from WRA to Alternative Car-
`bon. J.A. 794. In his email, Huyser asked Sanderson
`whether the transaction between Alternative Carbon and
`WRA, in which Alternative Carbon paid WRA to accept the
`feedstock/diesel mixture, counted as a sale of the mixture
`for purposes of obtaining the tax credits. J.A. 1083
`(“We are basing [the] ‘sale’ and its consideration on the ser-
`vice provided by the WRA in disposing of the ‘non-combus-
`tible’ materials.”). Sanderson replied that Alternative
`Carbon would have “a better case if you charge the user of
`the mixture for the fuel value, and they charge you a dis-
`posal fee.” J.A. 1082. But Sanderson added that he “d[id]
`not have a full understanding of the economics” of
`
`
`
`8
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`Alternative Carbon’s business. Id. For example, Sander-
`son asked “[h]ow do you make money from this business if
`you pay the digester company to take the liquid” and
`“[d]oes this business cash flow without the 50 cent per gal-
`lon credit?” Id. He also cautioned that while “[t]wo private
`letter rulings [from the IRS] indicate that the IRS may con-
`sider the transfer as a ‘sale’ even if you do not receive pay-
`ment for the fuel . . . [these private letter rulings] may not
`be technically cited as precedent by other taxpayers.” Id.
`In June 2011, Alternative Carbon received a question-
`naire from the IRS asking for additional information about
`its business. J.A. 1522–33; see also J.A. 399. Huyser
`drafted an initial response and then sent it to Sanderson.
`J.A. 1522. Sanderson replied with several comments and
`questions. For example, Sanderson asked:
`Which credit are you trying to claim: the mixture
`credit for liquid biomass and diesel[] or compressed
`liquified biogas? I do not think you qualify for the
`compressed liquified biogas credit because you are
`not the producer (i.e. owner of the gas and all in-
`gredients). Does the digester company claim a
`credit? If so there may be a problem of double-dip-
`ping.
`J.A. 1525 (capitalization altered).
`On July 12, 2011, the IRS issued an advisory letter
`stating that alternative fuel mixtures used in anaerobic di-
`gester tanks are not “used as a fuel” under § 6426.
`See I.R.S. Chief Counsel Advisory, IRS CCA 201133010,
`2011 WL 3636293 (July 12, 2011). After this advisory let-
`ter issued, Sanderson asked the IRS whether Alternative
`Carbon should stop claiming the tax credit for selling an
`alternative fuel mixture to digester operators. J.A. 1286.
`According to Sanderson, an IRS agent told him that Alter-
`native Carbon should continue to claim the credits so long
`as its registration was not revoked. J.A. 1286–87.
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`9
`
`Sanderson therefore told Alternative Carbon that it should
`continue to claim the credits. J.A. 401.
`Ultimately, Alternative Carbon claimed $19,773,393 in
`alternative fuel mixture credits for 2011. Alternative Car-
`bon, 137 Fed. Cl. at 19. On March 12, 2012, however, the
`IRS began an initial audit of Alternative Carbon. Id. The
`IRS eventually determined that Alternative Carbon was
`not entitled to the alternative fuel mixture credits and so
`it assessed the full value of the credits along with “exces-
`sive claim penalties.”4 Id. at 19–20.
`D. The Claims Court’s Decision
`Alternative Carbon sent partial payments to the IRS
`followed by requests for refunds. Id. at 20. When the IRS
`did not respond to these requests, Alternative Carbon filed
`suit in the Claims Court. Id. The government counter-
`claimed for the full amount of taxes and penalties owed.
`Id. at 21.
`After discovery, the parties filed cross motions for sum-
`mary judgment. Id. In its motion, the government argued
`that Alternative Carbon was not entitled to the alternative
`fuel mixture credit because (1) the feedstock/diesel mixture
`was not an alternative fuel, (2) the mixture was not sold,
`and (3) to the extent it was sold, it was not sold for use as
`fuel. The government also argued that (4) Alternative Car-
`bon had no reasonable cause for claiming the credits and
`thus the assessed penalties were appropriate. The Claims
`Court addressed each argument.
`
`
`4 The IRS assessed other penalties, but they are not
`at issue in this appeal. See Alternative Carbon, 137 Fed.
`Cl. at 37.
`
`
`
`10
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`1. Whether the mixture is an
`alternative fuel mixture
`As noted above, § 6426 defines an alternative fuel to
`include liquid fuel derived from biomass. The government
`argued below—but does not maintain on appeal—that the
`feedstock/diesel mixture was not a “liquid fuel” because it
`contained “solid fuel dissolved or suspended in water.”
`J.A. 648; see also Alternative Carbon, 137 Fed. Cl. at 23–
`24. The Claims Court rejected this argument, however, ex-
`plaining that “a mixture comprised of water and dissolved
`or suspended solids is clearly a ‘liquid’ in layman’s terms.”
`Alternative Carbon, 137 Fed. Cl. at 24. It therefore rea-
`soned that fuel dissolved or suspended in water was “liquid
`fuel,” too. Id.
`2. Whether the mixture was sold
`Section 6426’s definition of alternative fuel mixture
`also requires the mixture to be “sold by the taxpayer.”
`26 U.S.C. § 6426(e)(2)(A). The government argued that Al-
`ternative Carbon’s feedstock/diesel mixture did not clear
`this threshold because Alternative Carbon did not sell the
`feedstock/diesel mixture. Instead, the government argued
`that Alternative Carbon bought disposal services from
`WRA and Amana. The Claims Court agreed.
`With respect to the annual fee Alternative Carbon col-
`lected from digester operators, the Claims Court concluded
`that the fee “lacked economic substance because those
`nominal amounts were collected solely for the purpose of
`receiving tax credits.” Alternative Carbon, 137 Fed. Cl.
`at 28. To support this view, the Claims Court pointed to
`emails from WRA showing that the $950 fee it paid to Al-
`ternative Carbon “was intentionally offset by a $950 ad-
`ministrative fee that the WRA charged so that the sale
`price and fee would be ‘a wash.’” Id. (“[T]he parties in-
`tended for there to be no substantive sale price—they
`simply engaged in ‘a contrived transaction performing no
`economic or business function other than to generate tax
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`11
`
`benefits.’”). This showed that “the ‘sales’ price did not have
`an independent business purpose and only served to qual-
`ify the transactions as sales for purposes of the alternative
`fuel mixture credit.” Id. The Claims Court also empha-
`sized that Alternative Carbon determined how much mix-
`ture would be transferred, charged a flat fee, and did not
`collect or pay sales tax. Id.
`In addition to the annual fee, Alternative Carbon ar-
`gued that valuable consideration was exchanged in these
`transactions because it provided the feedstock/diesel mix-
`ture and various fees in exchange for “being relieved of its
`obligation to dispose of the by-products remaining at the
`conclusion of the anaerobic digestion process.” Id. at 28–
`29 (internal quotation marks omitted). The Claims Court
`reasoned, however, that this was “a separate bargain from
`plaintiff’s receipt of money in exchange for the alternative
`fuel mixtures it delivered.” Id. at 30. Thus, even if this
`exchange “was a bona fide transaction,” the purported sale
`of the feedstock/diesel mixture was not. Id. The Claims
`Court therefore concluded that Alternative Carbon was not
`entitled to claim the credits because it did not sell the feed-
`stock/diesel mixture. Id. at 31.
`3. Whether the mixture was sold for use as fuel
`In addition to arguing that Alternative Carbon did not
`sell the feedstock/diesel mixture, the government also ar-
`gued that the mixture was not sold “for use as fuel” because
`it is not a “fuel.” Id. at 24–26. The government also argued
`that even if some feedstock could be used as a fuel, Alter-
`native Carbon had no evidence that its feedstock was used
`to produce energy. Id. at 26.
`The Claims Court rejected the government’s first argu-
`ment, but it agreed that Alternative Carbon could not
`prove that its feedstock was used as a fuel. The Claims
`Court thus required Alternative Carbon to show that its
`feedstock—among all the other feedstocks input into the
`digester tanks—produced methane that was actually used
`
`
`
`12
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`to produce energy. Id. Because Alternative Carbon could
`not do so, the Claims Court concluded that it was not enti-
`tled to the tax credits. Id.
`4. Whether Alternative Carbon
`should pay penalties
`A taxpayer who wrongly claims the energy credits de-
`fined in § 6426 may be assessed additional penalties.
`26 U.S.C. § 6675(a). A taxpayer can avoid these penalties
`by demonstrating that it had “reasonable cause” to claim
`the credits. Id. While “reasonable cause” is not defined in
`the statute, the Claims Court looked to other areas of tax
`law to conclude that reasonable cause should turn on “‘the
`extent of the taxpayer’s effort to assess the taxpayer’s
`proper tax liability,’ judged in light of the taxpayer’s ‘expe-
`rience, knowledge, and education.’” Alternative Carbon,
`137 Fed. Cl. at 31 (quoting Stobie Creek Invs. LLC v. United
`States, 608 F.3d 1366, 1381 (Fed. Cir. 2010)).
`Applying this standard, the Claims Court concluded
`that Alternative Carbon had no reasonable cause for claim-
`ing the credits. Id. at 34, 37. In particular, the Claims
`Court emphasized that because Sanderson repeatedly
`qualified his advice based on not understanding the eco-
`nomics or science behind Alternative Carbon’s business it
`was unreasonable for Alternative Carbon to rely on him.
`Id. at 34. To the extent it would have been reasonable to
`rely on Sanderson, the Claims Court added that Alterna-
`tive Carbon also “ignored” Sanderson’s advice. Id.
`Alternative Carbon also argued that it reasonably re-
`lied on guidance from IRS agents, IRS private letter rul-
`ings, and the IRS’s decision to accept Alternative Carbon’s
`initial registration for the credits.
` Id. at 32, 35.
`The Claims Court, however, concluded that nothing the
`IRS did constituted advice that Alternative Carbon could
`have reasonably relied on. Id. For example, while Sander-
`son spoke with IRS agents about Alternative Carbon’s de-
`cision to claim the credits, none of them provided any
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`13
`
`written guidance to Sanderson or Alternative Carbon.
`See, e.g., id. at 32–33. As to the private letter rulings, the
`Claims Court noted that these rulings “by their own terms”
`say they “may not be used or cited as precedent” by other
`taxpayers. Id. at 29 n.25.
`Accordingly, the Claims Court granted summary judg-
`ment for the government. Appellant Alternative Carbon
`timely appealed. We have jurisdiction under 28 U.S.C. §
`1295(a)(3).
`
`II. DISCUSSION
`Summary judgment should be denied unless, drawing
`all justifiable inferences in the non-movant’s favor, “there
`is no genuine dispute as to any material fact and the mo-
`vant is entitled to judgment as a matter of law.”
`Fed. Cl. R. 56(a); see also Anderson v. Liberty Lobby, Inc.,
`477 U.S. 242, 255 (1986). “We review the Claims Court’s
`grant of summary judgment de novo.” Amergen Energy
`Co., ex rel. Exelon Generation Co. v. United States, 779 F.3d
`1368, 1372 (Fed. Cir. 2015). That means to prevail on ap-
`peal, “the non-movant need only show that one or more of
`the facts on which the [Claims Court] relied was ‘genuinely
`in dispute,’ as that phrase is interpreted in Anderson, and
`was material to the judgment.” Amini Innovation Corp. v.
`Anthony California, Inc., 439 F.3d 1365, 1368 (Fed. Cir.
`2006). Where the non-movant bears the ultimate burden
`of proof, however, “[a] nonmoving party’s failure of proof
`concerning the existence of an element essential to its case
`on which [it] will bear the burden of proof at trial neces-
`sarily renders all other facts immaterial and entitles the
`moving party to summary judgment as a matter of law.”
`Dairyland Power Coop. v. United States, 16 F.3d 1197,
`1202 (Fed. Cir. 1994); see also Celotex Corp. v. Catrett, 477
`U.S. 317, 325 (1986).
`Alternative Carbon argues on appeal that it properly
`claimed the alternative fuel mixture credits and, in the
`
`
`
`14
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`alternative, that it at least had a reasonable basis to do so.
`We address both arguments below.
`A. Claiming the Tax Credits
`Alternative Carbon bears the ultimate burden of prov-
`ing it properly claimed the alternative fuel mixture credits.
`WMI Holdings Corp. v. United States, 891 F.3d 1016,
`1021–22 (Fed. Cir. 2018). The government can therefore
`discharge its burden on summary judgment by establishing
`that Alternative Carbon failed to show it is entitled to the
`fuel credits as a matter of law. Dairyland, 16 F.3d at 1202.
`Alternative Carbon insists that it is entitled to the
`credits because it transferred property, i.e., the disposal fee
`and the feedstock/diesel mixture, to customers in exchange
`for consideration, “an annual fee and relief from the obliga-
`tion to dispose of the [alternative fuel mixture] and waste
`created by the [alternative fuel mixture].” Appellant’s Br.
`at 32. According to Alternative Carbon, this shows that it
`“sold” its alternative fuel mixture “for use as fuel” un-
`der § 6426. The government maintains, however, that in
`each of these transactions Alternative Carbon was buying
`disposal services and not selling alternative fuel mixtures
`as required by § 6426. Appellee’s Br. at 30. We agree with
`the government.
`As explained above, taxpayers may claim a credit un-
`der § 6426(e) for “producing any alternative fuel mixture
`for sale or use in a trade or business of the taxpayer.”
`26 U.S.C. § 6426(e)(1). An “alternative fuel mixture” is de-
`fined as “a mixture of alternative fuel and taxable fuel”
`that is either “sold by the taxpayer . . . for use as fuel” or
`“used as a fuel by the taxpayer producing such mixture.”
`Id. at § 6426(e)(2). And while many of these terms, includ-
`ing alternative fuel and taxable fuel, incorporate defini-
`tions from within § 6426 or the Internal Revenue Code, the
`statute offers no specific definition of what it means for an
`alternative fuel mixture to be “sold by the taxpayer.”
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`15
`
`The IRS generally defines a “sale” as “an agreement
`whereby the seller transfers the property (that is, the title
`or the substantial incidents of ownership) in goods to the
`buyer for a consideration called the price, which may con-
`sist of money, services, or other things.” 26 C.F.R. § 48.0-
`2(a)(5). The parties agree that this definition applies here.
`Alternative Carbon insists that its transactions with
`digester operators were sales because it transferred prop-
`erty, i.e., the disposal fee and its feedstock/diesel mixture,
`to customers in exchange for consideration, i.e., “an annual
`fee and relief from the obligation to dispose of the [alterna-
`tive fuel mixture] and waste created by the [alternative
`fuel mixture].” Appellant’s Br. at 32. But the only aspect
`of this transaction that arguably distinguishes it from a sit-
`uation where Alternative Carbon was buying disposal ser-
`vices is the annual fee digester operators paid to
`Alternative Carbon. And yet, Alternative Carbon offered
`no evidence that this fee reflected the price or value of the
`feedstock/diesel mixture. Oral Arg. at 2:32–40 (“The value
`of the goods transferred to the digester companies is not
`quantified in the record . . . .”). Without more, there is no
`evidence that the digester operators paid anything that
`genuinely can be characterized as consideration in order to
`obtain the feedstock/diesel mixture.5
`
`
`5 Alternative Carbon argues that a sale can occur
`even if no price is paid by either party to the transaction.
`Appellant’s Br. at 42 (citing Basque Station, Inc. v. United
`States, 53 F. App’x 829 (9th Cir. 2002)). Not only is Basque
`a non-precedential opinion from a different circuit, it is in-
`apposite. 53 F. App’x at 831 (noting that the transporter
`“received compensation for the portion of fuel Transport re-
`tained”). Basque simply says that a buyer/seller relation-
`ship may emerge between two parties based on economic
`realities even if they are not directly exchanging goods with
`each other. Id. at 830–31 (“Although Basque and
`
`
`
`16
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`Even if this fee might be technically characterized as a
`price, or as meaningful consideration, it lacked economic
`substance and should be disregarded. Coltec Indus., Inc. v.
`United States, 454 F.3d 1340, 1352 (Fed. Cir. 2006) (“[T]he
`economic substance doctrine has required disregarding, for
`tax purposes, transactions that comply with the literal
`terms of the tax code but lack economic reality.”); see also
`Feldman v. Comm’r, 779 F.3d 448, 457 (7th Cir. 2015) (dis-
`regarding one part of a transaction because it lacked eco-
`nomic substance). This doctrine “ensure[s] that tax
`benefits are available only if ‘there is a genuine multiple-
`party transaction with economic substance which is com-
`pelled or encouraged by business or regulatory realities, is
`imbued with tax-independent considerations, and is not
`shaped solely by tax-avoidance features that have mean-
`ingless labels.’” Salem Fin., Inc. v. United States, 786 F.3d
`932, 949 (Fed. Cir. 2015) (quoting Frank Lyon Co. v. United
`States, 435 U.S. 561, 583–84 (1978)).
`The economic substance doctrine, once “a judicial tool
`for effectuating . . . Congressional purpose,” Coltec, 454
`F.3d at 1354, has been codified at 26 U.S.C. § 7701(o):
`(1) In the case of any transaction to which the eco-
`nomic substance doctrine is relevant, such transac-
`tion shall be treated as having economic substance
`only if—
`(A) the transaction changes in a meaningful
`way (apart from Federal income tax effects) the
`taxpayer’s economic position, and
`
`
`Transport may not have intended to be in a buyer/seller
`relationship, their intent does not change the legal sub-
`stance of the transaction.”). It does not suggest that an ex-
`change without any meaningful consideration is a sale.
`
`
`
`ALTERNATIVE CARBON RESOURCES v. UNITED STATES
`
`17
`
`(B) the taxpayer has a substantial purpose
`(apart from Federal income tax effects) for en-
`tering into such transaction.
`26 U.S.C. § 7701(o)(1)(A)–(B).
`
`Against this backdrop, we agree with the Claims Court
`that Alternative Carbon offered no evidence suggesting the
`annual fee meaningfully changed its economic position or
`had any non-tax purpose whatsoever. See Stobie Creek,
`608 F.3d at 1375 (“[W]e review the trial court’s application
`of the economic substance doctrine without deference.”).
`Indeed, the record compels the opposite conclusion. For ex-
`ample, the annual fees Alternative Carbon collected were
`nominal—$8,950—compared to the millions it paid in fees.
`Alternative Carbon, 137 Fed. Cl. at 28; see also Feldman,
`779 F.3d at 457 (“Remove the Shapiro loan from this trans-
`action and nothing of consequence changes.”).
`Alternative Carbon’s negotiations with WRA also show
`that the annual fee was added for tax purposes. In fact,
`Alternative Carbon’s original contract with WRA initially
`referenced only a “disposal fee” paid by Alternative Carbon
`to WRA. J.A. 794. In an email to Sanderson sent the day
`this agreement was signed, Huyser explained that Alter-
`native Carbon was relying on this disposal fee to establish
`that a sale occurred between Alternative Carbon and WRA.
`J.A. 1083. He added that he “did not feel comfortable with
`the back and forth payments to the [WRA] and [Alternative
`Carbon].” Id. But Sanderson told Huyser that Alternative
`Carbon would have a “better case” for claiming the credits
`if it “charge[d] the user of the mixture for the fuel value.”
`J.A. 1082. After this email, WRA and Alternative Carbon
`agreed to add an annual fee to the agreement. J.A. 795;
`see also Coltec, 454 F.3d at 1355 (suggesting the economic
`substance doctrine would “also apply if the taxpayer’s sole
`subjective moti