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United States Court of Appeals,
Fifth Circuit.
No. 93-7567.
VALLEY ICE & FUEL COMPANY, INC., Plaintiff-Appellant, Cross-
Appellee,
v.
UNITED STATES of America, Defendant-Appellee, Cross-Appellant.
Sept. 2, 1994.
Appeals from the United States District Court for the Southern
District of Texas.
Before GARWOOD, JOLLY and SMITH, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Valley Ice & Fuel Company ("Valley"), a Brownsville, Texas
retailer of fuel oil, filed three refund claims for excise taxes
paid on fuel oil that it sold to Mexican nationals in the last
three quarters of 1988. The Mexican nationals owned and operated
vessels that entered American waters to purchase fuel oil from
Valley and then returned to Mexican waters. The Internal Revenue
Service ("IRS") refunded the second quarter amount, but refused to
refund the third and fourth quarter amounts. The IRS then demanded
repayment of the second quarter amount and assessed a penalty.
Unable to settle their differences administratively, the parties
sought relief in claims and counterclaims in the district court.
The district court held that the IRS could retain the third and
fourth quarter amounts, Valley could keep the refund of the second
quarter amount, and the IRS could not assess a penalty on Valley.
Still dissatisfied, both parties appeal. Because we hold that
1

Valley is not entitled to a refund under the applicable statute, we
reverse the district court's ruling that Valley may retain the
refund of the second quarter amount and affirm the IRS's retention
of the third and fourth quarter amounts; but because Valley
nevertheless acted reasonably, we affirm the inapplicability of the
penalty to Valley.
I
Valley is a Brownsville, Texas retailer of maritime supplies,
including fuel oil. Valley purchased fuel oil from Exxon and sold
that oil to retail customers. Section 10502 of the Revenue Act of
1987 moved the point of collection of excise taxes on fuel from the
sale made by the retailer to the sale made by the "producer."1
Under this new excise tax provision, which was effective from April
1, 1988 to December 31, 1988, Exxon, a producer, was liable under
26 U.S.C. § 4091 for the excise tax on fuel oil it sold to
retailers like Valley. Thus, Exxon charged Valley a grossed-up
purchase price for the fuel oil and forwarded the tax portion of
the purchase price to the IRS. Valley could recoup the portion of
the purchase price representing excise tax by charging a grossed-up
sales price to its domestic retail customers; thus, the cost of
the excise tax was passed to those customers.
Valley, however, also sold fuel to Mexican nationals who owned
and operated Mexican-flagged vessels that entered the United States
1Revenue Act of 1987, Pub.L. No. 100-203, § 10502, 101 Stat.
1330-382, 1330-438, 1330-446 (1987) (prior to 1988 amendment)
(entitled "Diesel Fuel and Aviation Fuel Tax Imposed at Wholesale
Level").
2

solely to purchase the fuel and then returned to Mexican waters.
Section 6427(l ) provided for the refund of the § 4091 excise tax
when the fuel was to be used in a "nontaxable use" such as sales of
fuel for export and sales of fuel to be used as supplies aboard
foreign vessels. See 26 U.S.C. §§ 6427(l )(2), 4041(g)(3), (l )
(1988). Accordingly, Valley sought to recoup the excise tax
portion of the purchase price it paid to Exxon with respect to the
fuel it sold for use aboard the Mexican vessels.
Because of its unfamiliarity with the new law, Valley inquired
of its certified public accountant ("CPA") regarding the
appropriate method of recouping the cost of the excise taxes.
Pursuant to its CPA's advice, Valley assumed that it could file for
a refund under § 6427(l ).2 This section allows the "ultimate
purchaser" of fuel oil to be used for a nontaxable purpose to claim
a refund for any excise taxes paid with respect to that fuel.
Thus, Valley assumed that it--not the owners and operators of the
Mexican vessels--was the "ultimate purchaser" of the fuel under §
6427(l ). Accordingly, Valley charged the owners and operators of
the Mexican vessels a "net" sales price--a price that did not
include the excise tax.
226 U.S.C. § 6427(l )(1) provides:
(1) In general.--Except as provided in subsection (k)
and in paragraph (3) of this subsection, if any fuel on
which tax has been imposed by section 4091 is used by
any person in a nontaxable use, the Secretary shall pay
(without interest) to the ultimate purchaser of such
fuel an amount equal to the aggregate amount of tax
imposed on such fuel under section 4091.
(Emphasis added).
3

During the last three quarters of 1988, the excise-tax on the
fuel that it resold to Mexican nationals was $7,332,3 $29,789, and
$47,989, respectively.4 Valley timely filed for a refund of each
of these excise tax amounts. The IRS refunded the second quarter
amount, $7,332, but, belatedly contending that Valley was not the
"ultimate purchaser," refused to refund the third and fourth
quarter amounts, which totalled $77,778. Subsequently, the IRS
demanded that Valley return the $7,332 actually refunded and
assessed a penalty with respect to this amount.
II
After exhausting its administrative remedies, Valley filed a
suit for the refund of the third and fourth quarter amounts of
excise taxes. The IRS counterclaimed for the return of the refund
of the second quarter amount and for a penalty under 26 U.S.C. §
6675 for filing an excessive refund claim. Both parties filed
motions for summary judgment. The IRS argued that Valley was not
entitled to a refund of excise taxes because under § 6427(l ) only
the "ultimate purchaser" could claim a refund. The "ultimate
purchasers," the IRS argued, were the owners and operators of the
Mexican vessels. Thus, the IRS took the position that Valley
should have recouped the excise taxes it paid with respect to fuel
3The second quarter amount, $7,332, represents the net of
$8,082 of gross excise taxes less $750 of taxes subsequently paid
by a customer of Valley.
4Because the new provision under which Valley had to pay the
grossed-up price was effective beginning on April 1, 1988, the
three amounts were for the second, third, and fourth calendar
quarters of 1988, respectively.
4

oil sold to the owners of the Mexican fishing vessels by charging
them a grossed-up price that included the excise tax, which then
would have allowed the owners of the Mexican vessels to file for a
refund under § 6427(l ).
The magistrate judge entered summary judgment for the IRS
reasoning that Valley was not entitled to a refund of the third and
fourth quarter amounts of the excise tax because Valley was not the
"ultimate purchaser" of the fuel. The magistrate judge, however,
exercised his equity power by ordering the IRS not to seek a refund
of the second quarter amount, $7,332, and not to seek a penalty for
Valley's refusal to return the refund of the second quarter amount.
The district court adopted the summary judgment of the magistrate
judge. Both parties appeal.
III
We address three issues in this appeal. First, whether Valley
is entitled to a refund under § 6427(l ) of the excise taxes
attributable to the fuel it sold to Mexican nationals during the
third and fourth quarters of 1988. Second, whether the district
court erred in using its equity powers to order the IRS not to seek
the return of the allegedly erroneous refund of the excise taxes
attributable to fuel Valley sold to Mexican nationals in the second
quarter of 1988. Third, whether the district court erred in using
its equity powers to order the IRS not to seek a penalty against
Valley under § 6675. We review the district court's summary
judgment de novo. King Ranch, Inc. v. United States, 946 F.2d 35,
36 (5th Cir.1991).
5

A
First, Valley asserts that it is entitled to a refund of
excise taxes under § 6427(l ) because it qualifies as the "ultimate
purchaser" of the fuel sold to the Mexican nationals. See 26
U.S.C. §§ 6427(l )(2), 4041(g)(3), (l ), 4221(d)(3) (1988).
Despite purchasing the fuel for resale, rather than for its own
use, Valley argues that in the context of exportation, as that term
is used in the statute, it is an "ultimate purchaser" because it
was the last purchaser of the fuel in United States commerce.
Moreover, Valley argues that the purpose of the refund provision is
to avoid imposing an excise tax on sales of fuel for use as
supplies aboard foreign vessels, and that we should not frustrate
that purpose by strictly defining "ultimate purchaser" to exclude
retailers like Valley. Valley's arguments for a broad definition
fail for several reasons: (1) such a definition flies in the face
of the plain meaning of the words of § 6427(l ); (2) Valley did
not export the fuel; and (3) the plain meaning definition of
"ultimate purchaser" does not frustrate the congressional purpose
not to impose the § 4091 excise tax on fuel sold for export or for
use as supplies aboard foreign vessels.
Although § 6427 does not define the term "ultimate
purchaser," the plain meaning of that term is simply the purchaser
in the stream of commerce who is intended to use the product
himself--as opposed to a middleman who intended to resell the
product. Indeed, Congress has repeatedly defined the term
"ultimate purchaser," in other contexts, as "the first person who
6

in good faith purchases [the product] for purposes other than
resale." See 15 U.S.C. § 1231(g) (defining "ultimate purchaser"
with respect to the disclosure of information with respect to the
purchase of automobiles); 15 U.S.C. § 2821(9) (defining "ultimate
purchaser" with respect to the disclosure of octane ratings with
respect to the purchase of gasoline); 19 U.S.C. § 1627a(c)(4)
(defining "ultimate purchaser" with respect to the purchase of
unlawfully imported vehicles); 42 U.S.C. § 4902(4) (defining
"ultimate purchaser" with respect to noise control prevention
measures concerning purchased automobiles); 42 U.S.C. § 7550(5)
(1988) (defining "ultimate purchaser" with respect to air pollution
prevention measures concerning purchased motor vehicles). Thus,
under the plain meaning of § 6427(l ), the "ultimate purchasers" of
the fuel in the instant case were the Mexican nationals who, unlike
Valley, purchased the fuel for their own use instead of for
resale.5
5Valley's contention that § 6416(a)(3)'s inclusion of
retailers, like Valley, in that statute's definition of "ultimate
purchasers" supports the inclusion of retailers in § 6427(l )'s
definition of "ultimate purchaser" is meritless. Section
6416(a)(3) provides:
For purposes of this subsection, in any case in which
the Secretary determines that an article is not
taxable, the term, "ultimate purchaser" (when used in
paragraph (1)(B) of this subsection ) includes a
wholesaler, jobber, distributor, or retailer....
(Emphases added).
First, § 6416(a)(3)'s inclusion of "retailer" within the
definition of "ultimate purchaser" is expressly limited to §
6416(a)(1)(B) and thus, does not impact the plain-meaning
definition of the term found in § 6427(l ). Second, in
contrast to its express inclusion of the term "retailer" in
7

Further, Valley's argument that we should modify the
plain-meaning definition of "ultimate purchaser" when employed in
the context of exportation misapprehends the facts presented here:
Valley did not "export" the fuel. To export means to carry or send
an item to another country. See Canton R. Co. v. Rogan, 340 U.S.
511, 515, 71 S.Ct. 447, 449, 95 L.Ed. 488 (1951).6 Neither Valley
nor its agents shipped or transported the fuel to Mexico for
delivery, use, or sale there. Instead, Valley merely sold the fuel
retail at Brownsville to the owners and operators of the Mexican
vessels that were docked at Brownsville. Those foreign nationals
then departed with the fuel to Mexican waters where it was applied
to their own use. Thus, Valley is a retailer, not an exporter.
Consequently, the nontaxable use of the fuel in this case is not
based on exportation, § 4041(g)(3), but on the use of fuel as
supplies aboard foreign vessels, §§ 4041(g)(1), 4221(d)(3).
the § 6416 definition of "ultimate purchaser," Congress'
omitted "retailer" from the § 6427(l ) definition of
"ultimate purchaser." Accordingly, we believe that had
Congress intended § 6427(l ) "ultimate purchasers" to
include intermediate "retailers," it would have simply said
so as it did in § 6416. Under the rule of expressio unius
est exclusio alterius, § 6416(a)(3) actually reaffirms that
the plain meaning of "ultimate purchaser" in § 6427(l ) does
not include a "retailer" like Valley.
6"Export" is defined as follows:
To carry or send abroad.... To send, take, or carry an
article of trade or commerce out of the country. To
transport merchandise or goods from one country to
another in the course of trade. To carry out or convey
goods by sea. Transportation from the United States to
[a] foreign country.
BLACK'S LAW DICTIONARY 579 (6th ed. 1990) (citations omitted).
8

Finally, the plain-meaning definition of "ultimate purchaser"
does not frustrate Congress' purpose not to impose excise tax on
fuel oil sold for use as supplies aboard foreign vessels. Although
Valley, as a retailer, could not recoup the excise tax it paid to
Exxon as a portion of the purchase price of the fuel it sold to the
owners and operators of the Mexican vessels through the § 6427(l )
refund procedure, Valley could recoup the cost of the tax by
grossing-up the sales price it charged the Mexican nationals. The
Mexican nationals, as "ultimate purchasers," could then file for a
refund of the excise tax under § 6427(l ),7 thus, fulfilling the
congressional purpose to relieve the excise tax burden from fuel
used as supplies aboard foreign vessels.
In sum, Valley failed to recoup the excise tax in the way the
law allowed, i.e., by grossing up the price of the fuel it sold to
the Mexican nationals. Thus, similar to a taxpayer that files for
a justified refund one day late, Valley cannot now recoup the
excise tax that it could have recouped had it merely employed the
appropriate method.8
7Having foreign nationals file United States tax forms for a
refund of excise tax is not a novel procedure. See generally,
Rev.Rul. 69-406, 1969-2 C.B. 261 (providing a procedure for an
"ultimate purchaser," who is not subject to United States income
tax, to apply for refund of excise tax imposed on fuel used for
an exempt purpose).
8In support of its motion for summary judgment, Valley
submitted the affidavit of its CPA stating that an IRS agent had
specifically told him that Valley could file for a refund under §
6427(l ). The IRS supplied the affidavit of the IRS agent in
which he denied the allegations of Valley's CPA and stated that
he informed Valley's CPA that only the owners of the Mexican
vessels could file for a refund in a nonexport situation. Even
if Valley did in fact rely on the erroneous advice of the IRS
9

B
Second, the government argues that the district court erred
in using its equity power to order the government not to pursue the
return of the second quarter amount of excise tax, i.e., $7,332.
We agree.
The government is entitled to recoup the refund under the
relevant law, 26 U.S.C. § 7405. Valley is not entitled to the
refund under the relevant law, § 6427(l ). Equity has no power to
change this wholly legal result. See United States v. Coastal
Refining & Mkt., Inc., 911 F.2d 1036, 1043 (5th Cir.1990) (citing
Clark v. Barnard, 108 U.S. 436, 457, 2 S.Ct. 878, 890, 27 L.Ed. 780
(1883), and Immigration & Naturalization Serv. v. Pangilinan, 486
U.S. 875, 883-84, 108 S.Ct. 2210, 2216, 100 L.Ed.2d 882 (1988)).
Thus, the magistrate judge erred in using equity to award Valley
funds to which the law provides that Valley is not entitled.9
agent, however, we still could not grant Valley relief. Reliance
on the erroneous advice of an IRS agent will not support a
finding of equitable estoppel that justifies depriving the
Treasury of funds for which the relevant statutes do not
authorize disbursement. See Office of Personnel Mgmt. v.
Richmond, 496 U.S. 414, 425-26, 110 S.Ct. 2465, 2472, 110 L.Ed.2d
387 (1990) (quoting Knote v. United States, 95 U.S. 149, 154, 24
L.Ed. 442 (1877)) (holding that the erroneous advice of a
government official will not give rise to a claim of equitable
estoppel against the government that would require payment of
funds from the Treasury that the relevant statutes did not
authorize); Jones v. Department of Health & Human Services, 843
F.2d 851 (5th Cir.1988) (denying equitable estoppel defense based
on erroneous advice by a government agent with respect to social
security benefits).
9Because we hold that the legal remedy afforded the IRS
displaces equitable relief, we need not reach the government's
argument that the Anti-Injunction Act, 26 U.S.C. § 7421,
precludes the district court from issuing an injunction to
prevent the IRS from collecting monies due it under statute.
10

C
Third, the government argues that the district court erred in
using its equity powers to order it not to impose a penalty on
Valley for claiming an excessive refund. Valley argues that
regardless of the validity of the district court's equity-based
order, it is not liable under § 6675 for the penalty because it had
reasonable cause to claim the refund.10 Specifically, Valley argues
that it relied on the advice of its CPA in filing the refund claim.
Although we agree with the government that equity will not bar the
imposition of a statutory penalty, see Coastal Refining & Mkt., 911
F.2d at 1043, we agree with Valley that it acted with reasonable
cause.
"Whether the elements that constitute "reasonable cause' are
present in a given situation is a question of fact, but what
elements must be present to constitute "reasonable cause' is a
question of law." United States v. Boyle, 469 U.S. 241, 249 n. 8,
105 S.Ct. 687, 692 n. 8, 83 L.Ed.2d 622 (1985). The Boyle Court
held that an executor's reliance on an attorney to file the estate
tax return did not constitute "reasonable cause" for failure to
1026 U.S.C. § 6675(a) provides:
In addition to any criminal penalty provided by
law, if a claim is made under section ... 6427
(relating to fuels not used for taxable purposes) for
an excessive amount, unless it is shown that the claim
for such excessive amount is due to reasonable cause,
the person making such claim shall be liable to a
penalty in an amount equal to whichever of the
following is the greater: (1) Two times the excessive
amount; or (2) $10.
(Emphases added).
11

file the return because the relevant statute placed a clear
obligation to file the return on the executor. Id. at 249-50, 105
S.Ct. at 692. Accordingly, any reliance by the executor on the
attorney was a matter between those individuals and did not affect
the legal obligation imposed upon the executor alone. Id. at 250,
105 S.Ct. at 692. The Boyle Court distinguished the
obligation-to-file-a-return situation, in which reliance on an
agent usually does not constitute "reasonable cause," from the
interpretation-of-a-legal-issue situation, in which a taxpayer's
reliance on his attorney may constitute "reasonable cause." Id. at
250-51, 105 S.Ct. at 692 (citing Burton Swartz Land Corp. v.
Commissioner, 198 F.2d 558, 560 (5th Cir.1952) (holding that
reliance on tax advice of accountant that personal holding company
tax returns were not due under the relevant statutes constituted
"reasonable cause" for not filing such returns)).
In the instant case, § 6675 obviously imposed no obligation on
Valley to file for a refund. Further, the undisputed facts show
that Valley's president took steps in an effort to comply with the
rapidly changing law regarding excise taxes on fuel. Among these
steps was Valley's seeking the advice of its CPA regarding the new
law. After thorough discussions, Valley relied on the advice of
its fully informed CPA regarding the interpretation of a new
statute that was only in effect for nine months.11 The CPA advised
11Effective January 1, 1989, Congress amended § 4092(b) to
include certain retailers in the definition of "producers";
thus, allowing such retailers to pay a net purchase price for
fuel that excludes the excise tax cost. Technical and
Miscellaneous Revenue Act of 1988, Pub.L. No. 100-647, § 3003,
12

Valley that, under the applicable law, Valley could file for a
refund under § 6427(l ). Although the CPA's legal interpretation
failed ultimately to be correct, we hold that Valley's reliance on
that legal interpretation by its tax expert constitutes "reasonable
cause" for filing the refund claim under § 6675. See Boyle, 469
U.S. at 251, 105 S.Ct. at 692 (stating, "[W]hen an accountant or
attorney advises a taxpayer on a matter of tax law, such as whether
a liability exists, it is reasonable for the taxpayer to rely on
that advice").12 Accordingly, the IRS may not collect a penalty
under § 6675 from Valley.
IV
For the foregoing reasons, the judgment of the district court
is AFFIRMED with respect to the IRS's retention of the third and
fourth quarter amounts, REVERSED with respect to the Valley's
retention of the refund for the second quarter, and AFFIRMED with
102 Stat. 3342, 3616 (1988).
12In the late-filing context, the Treasury has indicated
that the exercise of "ordinary business care and prudence"
constitutes "reasonable cause." Treas.Reg. § 301.6651-1(c)(1)
(as amended in 1973). See Boyle, 469 U.S. at 246 n. 4, 105 S.Ct.
at 690 n. 4 (stating that the courts owe deference to the
Treasury's definition of "reasonable cause" under Chevron U.S.A.,
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837,
844 & n. 14, 104 S.Ct. 2778, 2782 & n. 14, 81 L.Ed.2d 694
(1984)). In the context of filing for excessive refunds, the IRS
has indicated that even lack of knowledge of a relevant authority
may constitute reasonable cause. Internal Revenue Manual (CCH) §
4786(2) (Apr. 26, 1989) (Examination) (stating that "reasonable
cause" under § 6675 "implies an unintentional error, such as
mathematical or bookkeeping error, or a lack of knowledge of a
Revenue Ruling, etc."). Valley's error of misinterpreting a new
statutory scheme based on the advice of its tax expert falls
within this reasonable cause exception to the penalty for
excessive refund claims.
13

respect to the denial of the IRS's assessment of a penalty under §
6675.
AFFIRMED in part, REVERSED in part, and RENDERED.

14