United States District Court, M.D. Tennessee, Northeastern Division
WAVERLY D CRENSHAW, JR. CHIEF UNITED STATES DISTRICT JUDGE.
a case about glider semi-trucks and, more particularly,
whether excise taxes are properly imposed on the sale of
those trucks. A glider truck is built from a kit. Glider kits
consisting of new tractor parts, including such things as the
cab, frame, sheet metal, mounting brackets and steering gear,
are produced by original equipment manufacturers like
Peterbilt, Kenworth, Freightliner, and Western Star.
Powertrains and other necessary parts are then added and the
glider trucks are offered for sale, usually at a price that
is less that 75% of the cost of a new truck.
Truck Parts and Sales, LLC (“FTPS”) is a glider
kit assembler, and has been for 30 years. (Doc. No. 1,
Complaint ¶ 13). FTPS's gliders “begin as worn
or wrecked highway tractors, the engines and transmissions of
which are capable of being repaired (i.e., rebuilt).”
(Id. ¶ 18). When a glider truck is
assembled and sold to a customer (usually an independent
owner-operator or a small to mid-size trucking fleet), FTPS
retains a copy of the previously taxed tractor's title.
(Id. ¶¶ 18, 21). It is
at this point that the tax dispute between FTPS and the
Internal Revenue Service (“IRS”) comes into play,
setting the stage for the Government's Motion to Dismiss
in Part (Doc. No. 18) and Motion to Strike (Doc. 17).
Factual Background 
the Internal Revenue Code, a 12% federal excise tax is
imposed “on the first retail sale” on
“tractors of the kind chiefly used for highway
transportation in combination with a trailer or
semitrailer.” 26 U.S.C. § 4051(a)(1). The code
also provides, however:
Certain repairs and modifications not treated as manufacture
(1) In general
An article described in section 4051(a)(1) shall not be
treated as manufactured or produced solely by reason of
repairs or modifications to the article (including any
modification which changes the transportation function of the
article or restores a wrecked article to a functional
condition) if the cost of such repairs and modifications does
not exceed 75 percent of the retail price of a comparable new
26 U.S.C. § 4052(f)(1).
its costs and profits in assembling the glider (including the
costs of rebuilding the engine and/or transmission, buying a
glider kit, and melding the two) does not exceed seventy-five
percent of the retail price of a comparable new highway
tractor, FTPS believes that it is entitled to the exception
set forth in § 4052(f)(1) and, thus not liable for the
12% tax set forth in § 4051(a). For two decades, the IRS
apparently had the same view.
and its predecessor Fitzgerald Kit Truck and Sales, LLC were
examined on four separate occasions between 1991 and 2011,
covering tax years 1991, 1996-1997, and 2006-2011. During
each of those years, FTPS did not collect excise tax on the
sale of gliders. Following each of the examinations, the IRS
determined that “FTPS's gliders satisfied the 75
percent safe harbor math test under § 4052(f)(1) and
therefore were not taxable under § 4051(a)(1).”
(Complaint ¶ 33). FTPS even received a letter from a
District Director of the IRS dated March 20, 1998 that
stated, in part:
It has . . . been determined all of your rebuilt worn
tractors using glider kits qualified for the 75% safe harbor
provisions per Revenue Ruling 91-27. In conclusion, it is our
opinion that no Federal Excise Tax applies to your glider kit
installations for 1996 and 1997.
(Doc. No. 1-2 at 1). Unsurprisingly, FTPS continued not to
collect the excise tax on the sale of its gliders. (Complaint
2014, the IRS began an examination for each of the tax
quarters from 2012 to 2014. On May 26, 2015, the IRS sent a
letter informing FTPS that, among other things, it owed
excise taxes, penalties, and interest. (Id.
¶¶ 34-36). An accompanying report from a revenue
agent opined that FTPS was “not extending [the] useful
life of an existing vehicle, ” but instead was
“fabricating . . . a truck tractor that did not exist
prior to the fabrication.” (Id. ¶ 37).
FTPS filed a written protest and additional documentation
with IRS Appeals (“Appeals”), the parties agreed
to mediate their dispute before an IRS Appeals Mediator. An
agreement was struck whereby no tax would be due for any
period up to that point, but FTPS would begin collecting
excise tax on a “prospective basis.” (Doc. No.
1-3 at 1). The next day, the mediator confirmed the agreement
in a document titled “Mediator's Report, ”
and indicated that “settlement documents will be
prepared under established appeals procedures.”
(Id.). The Mediator's report outlining the terms
of the settlement was signed by the Mediator, the IRS Appeals
Team Manager, and a representative for FTPS.
whatever reason, however, the IRS chose not to abide by the
settlement, and sustained the assessments set forth in the
earlier letter. (Id. ¶¶ 47-48). This may
have been due, in part, to the fact that “in 2014 the
IRS decided to target the glider industry, and specifically
FTPS, and reversed its position [on taxibility] in secret,
without any ...