Anne (Sandy) Batchelor-Robjohns v. United States

Case: 14-10742 Date Filed: 06/05/2015 Page: 1 of 38

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
________________________

No. 14-10742
________________________

D.C. Docket No. 1:12-cv-20038-FAM

ANNE (SANDY) BATCHELOR-ROBJOHNS,
et al.

Plaintiffs-Appellees
Cross-Appellants,

versus

UNITED STATES OF AMERICA,

Defendant-Appellant
Cross-Appellee.

________________________

Appeals from the United States District Court
for the Southern District of Florida
________________________

(June 5, 2015)

Before MARTIN and DUBINA, Circuit Judges, and RODGERS, * District Judge.

RODGERS, District Judge:

*
Honorable Margaret C. Rodgers, Chief United States District Judge for the Northern District of
Florida, sitting by designation.
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This is an appeal of a federal income tax refund suit filed by the Estate of

George Batchelor (“Estate”).1 Counts I and II of the Estate’s three-count

Complaint involve Batchelor’s personal income taxes for 1999 and 2000. Count

III concerns the Estate’s attempt to claim a credit for its 2005 income taxes for

payments it made in settlement of various lawsuits against Batchelor. The district

court entered judgment in favor of the Estate on Counts I and II and in the

government’s favor on Count III. The Estate appeals the district court’s judgment

as to Count III, which we affirm, and the government appeals as to Counts I and II,

which we reverse.

I. Background
George Batchelor passed away in July 2002. Prior to his death, he owned all

of the stock in International Air Leases, Inc. (“IAL”), an aviation business which

bought, sold, repaired, serviced, and leased aircraft and aircraft parts. On February

10, 1999, Batchelor sold his IAL stock to International Air Leases of Puerto Rico,

Inc. (“IALPR”), for approximately $502 million. 2 As part of the transaction,

IALPR gave Batchelor a promissory note for $150 million (“Note”), which was

secured by IAL assets that had been transferred in the sale, such as aircraft planes

1
The Complaint was filed by Plaintiffs Anne-Batchelor-Robjohns, Daniel J. Perraresi, and
Father Patrick O’Neill, as co-personal representatives of the Estate of George E. Batchelor. The
Court refers to Plaintiffs collectively as “the Estate.”
2
Batchelor’s cost basis in his stock was $35,000. Thus, nearly the entire sales price represented
long-term capital gain.

2
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and engines (“Option Assets”). Batchelor retained an option to buy back the

Option Assets, and the parties agreed that if Batchelor exercised the option, they

would reduce the balance of the $150 million Note by a certain negotiated price for

each asset. On April 1, 1999, Batchelor exercised his option and purchased the

Option Assets for approximately $92.5 million, which reduced the balance on the

Note by that amount. IALPR paid off the Note in August 2000. 3 As a result of the

transaction, Batchelor received capital gains and interest income, and IAL realized

a capital gain through its sale of the Option Assets. On his 1999 personal income

tax return, Batchelor declared the income he received from the sale in 1999,

approximately $483 million, as capital gain, and paid capital gains tax on the

proceeds.4 On his 2000 personal income tax return, Batchelor declared $18.8

million of the sale proceeds as capital gain, and an additional $5.8 million as

interest income on the Note.

In February 2002, IAL was placed into involuntary bankruptcy. The IRS

determined that IAL was liable for approximately $100 million in unpaid taxes,

largely as a result of its attempt to use a tax shelter scheme after the stock sale, and

3
The government claims, and the district court found, that Batchelor received $131.2 million of
the $150 million Note in 1999 and $24.7 million in 2000. Although the total amount Batchelor
received exceeds the $150 million face value of the Note, $5.8 million of the amount received in
2000 represented interest on the Note, which Batchelor reported as ordinary income.
4
It was later stipulated that Batchelor should have reported part of the 1999 income (about $6.5
million) from payments on the Note as interest income.

3
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issued a notice of deficiency for that amount. Although there was never any

suggestion that Batchelor was involved in the scheme, the government nevertheless

sought to collect IAL’s corporate income tax obligation directly from Batchelor

under a transferee liability theory. 5 This suit is referred to as “Batchelor I.”

In Batchelor I, the government attempted to prove that the sale of the IAL

stock rendered IAL insolvent because the transferring parties undervalued the

Option Assets by approximately $23.5 million, such that Batchelor received excess

consideration relative to the actual fair market value of the IAL stock. The

government sought to establish the relative values of the IAL stock and Option

Assets through expert testimony. The district court, however, struck the experts

based on the government’s failure to comply with the expert disclosure

requirements under the civil rules of procedure, and granted summary judgment in

the Estate’s favor. Consequently, the value of the Option Assets was not decided

in Batchelor I.

In December 2004, the government sued the Estate based on its

determination that Batchelor had underreported his capital gains in conjunction

with the IAL sale on his 1999 and 2000 personal income tax returns. This suit is

5
Under 26 U.S.C. § 6901, the government may collect a tax liability that a taxpayer cannot pay
from a transferee who has received assets from the taxpayer. Here, the government sought to
collect IAL’s unpaid corporate income tax from Batchelor, and subsequently from his Estate,
pursuant to 28 U.S.C. § 3304(b)(1)(B), which provides that certain transfers for less than fair
market value will be considered fraudulent as to a debt to the United States.

4
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referred to as “Batchelor III.” In that suit, the government argued, as it did in

Batchelor I, that Batchelor had undervalued the Option Assets by $23.5 million,

resulting in a tax deficiency of approximately $6.7 million. The Estate

subsequently paid the tax, and the government then dismissed the case without

prejudice while acknowledging the Estate’s right to sue for a refund.6 Thereafter,

the IRS denied the Estate’s refund claim, and the Estate filed the instant suit

seeking a refund of these tax payments in Counts I and II.

Count III of the Estate’s Complaint concerns settlement payments the Estate

made in connection with four civil lawsuits. In 2002, both IAL and IALPR sued

the Estate, seeking to set aside the sale of Batchelor’s stock as a fraudulent

transfer. In addition, the Estate inherited two suits commenced prior to that sale,

each stemming from Batchelor’s involvement with Rich International Airways

(“Rich”). The Estate eventually settled all four lawsuits, and made settlement

payments totaling $41 million in July 2004.7 The Estate subsequently filed its

Federal Estate Tax Return and deducted the settlement payments from Batchelor’s

gross estate as claims against the Estate pursuant to 26 U.S.C. § 2053(a)(3). The

6
To protect its interest in the probate estate, the government filed suit in Batchelor III before the
IRS had issued a Notice of Deficiency to Batchelor or his Estate for Batchelor’s 1999 and 2000
income tax returns. After the IRS issued a Notice of Deficiency on April 29, 2005, the Estate
chose to pay the tax and sue for a refund.
7
In 2002, the Estate settled with the Rich plaintiffs for $2 million and $25 million. The Estate
settled with IALPR for $12 million in 2003, and with IAL for $1 million in 2004.

5
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Estate later sought a refund of $8.3 million on its 2005 income tax return for those

payments pursuant to 26 U.S.C. § 1341, which the IRS denied and the Estate now

seeks to recover in Count III.

During the district court proceedings, the Estate filed a motion for summary

judgment with respect to Count I on the basis of res judicata, arguing that both

Batchelor I and its refund claim in Count I of this case involve the same cause of

action. The government filed a cross-motion for summary judgment on Count III,

arguing that the Estate should be precluded from taking both an income tax

deduction and an estate tax deduction for the settlement payments. The district

court granted both motions. With respect to the Estate’s motion on Count I, the

court found that res judicata barred the government’s claim because the instant

case and Batchelor I “arise out of the very same transaction” and because in both

cases the government sought to establish that the value of the Option Assets

transferred to Batchelor in 1999 had a higher value than Batchelor had reported.

Regarding the government’s motion on Count III, the court determined that

because the Estate deducted the settlement payments from Batchelor’s gross estate

to reduce its estate tax obligations, the Estate could not also use those payments to

reduce Batchelor’s personal income tax liability. The case then proceeded to trial

on Count II, which, like Count I, concerned the effect of the IAL stock sale on

Batchelor’s personal income taxes. As with Count I, the district court determined

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that Count II arose from the sale of the Option Assets at issue in Batchelor I, and

that res judicata precluded the government from contesting the Estate’s refund

claim. 8 These cross-appeals followed.

II. Standards of Review
The district court’s application of res judicata presents a question of law

which we review de novo. In re Piper Aircraft Corp., 244 F.3d 1289, 1295 (11th

Cir. 2001). Likewise, the district court’s interpretation of a statute – here, various

provisions of the Tax Code – is also a question of law we review de novo. Comm’r

v. Neal, 557 F.3d 1262, 1269 (11th Cir. 2009).

III. Analysis
First, we address the district court’s application of res judicata to Counts I

and II. Second, we address the Estate’s attempt to claim an income tax deduction

for the settlement payments at issue in Count III.

8
Count I of the Estate’s Complaint concerns Batchelor’s 1999 income tax return. Count II
focuses on Batchelor’s 2000 income taxes, and involves a proposed increase in Batchelor’s
capital gains by approximately $5.8 million. On July 21, 2005, the Estate paid the additional tax
allegedly owed on the proposed increase ($584,637), along with interest, and subsequently
initiated the instant refund suit. The government later conceded that Batchelor had in fact
reported the $5.8 million at issue and that no additional tax was owed for 2000, but claimed the
Estate was not entitled to a refund because the government should be permitted to offset
Batchelor’s 1999 tax deficiency by the excess amounts paid for 2000. In its Order dated
November 13, 2013, the district court found that the IRS had erroneously determined that
Batchelor failed to report the $5.8 million at issue, and that the challenges the government made
to this refund claim, including its attempt to offset its proposed recalculation of Batchelor’s 1999
taxes, were barred by res judicata. Our opinion addresses only the district court’s application of
res judicata.

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A. Res Judicata
The district court determined that the government was precluded from

defending against the Estate’s claim that it had accurately reported the value of the

Option Assets when calculating Batchelor’s 1999 and 2000 income tax obligations.

According to the district court, res judicata applies because both this suit and

Batchelor I “arise out of the very same transaction” and “the government here is

attempting to establish the exact same thing it sought to prove in Batchelor I: that

the value of the option assets transferred to Batchelor in 1999 had a higher value

than Batchelor and IALPR agreed upon.” The district court also found that

Batchelor’s 1999 and 2000 income tax obligations could have been raised and

decided in Batchelor I, such that those claims may not be raised here.

The government makes two primary arguments on appeal. First, it argues

that res judicata does not apply because the personal income tax claims against

Batchelor in this case and the transferee liability claim against IAL in Batchelor I

are not the same cause of action. Second, the government argues that, even if the

claims are part of the same cause of action, it could not have asserted the instant

claims in Batchelor I given that the IRS had not yet issued a Notice of Deficiency

with respect to the income tax claims against Batchelor at the time the complaint in

Batchelor I was filed or when the time to amend the pleadings expired. 9 See Piper

9
On April 29, 2005, the IRS issued a Notice of Deficiency to the Estate for Batchelor’s 1999 and
2000 income taxes, which was within the extended statute of limitations on assessment
8
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Aircraft Corp., 244 F.3d at 1296 (explaining that res judicata does not bar a claim

that could not have been raised in the prior action). In response, the Estate argues

that both Batchelor I and the Estate’s refund claims in Counts I and II arise out of

the same transaction, i.e., the sale of Batchelor’s stock and subsequent transfer of

the Option Assets, and that the value of the Option Assets is the critical factual

issue in both cases. The Estate also argues that the deficiency in Batchelor’s 1999

and 2000 income taxes existed when Batchelor filed each return in 2000 and 2001,

such that the government could have pursued a deficiency suit against him in

Batchelor I, thereby satisfying this particular res judicata requirement. Finally, the

Estate argues that although the value of the Option Assets was not actually

resolved in Batchelor I, the government should not be given a second bite at the

apple with respect to that determination, particularly since it sought to employ the

same expert witnesses and valuation reports across the two cases. Because we find

that Batchelor I and the instant suit are not the same cause of action, and therefore

the instant suit is not barred, we need not address whether the government could

have pursued its claims in Batchelor I, under a res judicata analysis, even though

the IRS did not issue a Notice of Deficiency with respect to Batchelor’s 1999 and

2000 tax returns until the period to amend the pleadings in Batchelor I had expired.

applicable in this case. This is significant because the Tax Code’s provisions relating to the
assessment of deficiencies do not permit the government to bring suit to collect a tax deficiency
until a Notice of Deficiency has been issued and the requisite 90-day period during which the
taxpayer may file a petition in Tax Court has passed. See 26 U.S.C. § 6213(a).
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The primary dispute on appeal is whether the Estate’s refund claims in

Counts I and II are part of the same cause of action as the transferee liability claim

in Batchelor I. The party asserting res judicata bears the burden of showing that

the later-filed suit is barred. In re Piper Aircraft, 244 F.3d at 1296. For a prior

judgment to bar a subsequent action under the doctrine of res judicata, the

following requirements must be met: (1) the prior judgment must have been a final

judgment on the merits; (2) the prior judgment must have been rendered by a court

of competent jurisdiction; (3) the parties, or those in privity with them, must be

identical in both suits; and (4) the same cause of action must be involved in both

cases. Ray v. Tenn. Valley Auth., 677 F.2d 818, 821 (11th Cir. 1982); Ragsdale v.

Rubbermaid, Inc., 193 F.3d 1235, 1238 (11th Cir. 1999). We address only the last

of these requirements.

When determining whether the causes of action are the same for purposes of

res judicata, we consider “whether the primary right and duty are the same in each

case.” Ragsdale, 193 F.3d at 1239. Although we have described the “rights and

duties” test as the “principal” res judicata test, id., we have stressed that courts

must also consider the factual context of each case along with the “rights and

duties” at issue. See Manning v. City of Auburn, 953 F.2d 1355, 1359 (11th Cir.

1992) (explaining that it is an “oversimplification” to focus on rights and duties

alone and that we must also compare the factual issues in each case). In general,

10
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even if the rights and duties at issue are distinct, where a case “arises out of the

same nucleus of operative fact, or is based upon the same factual predicate,” as a

former action, the two cases constitute the same “claim” or “cause of action” for

purposes of res judicata. Ragsdale, 193 F.3d at 1239. When applying the “same

nucleus of operative fact” test, we “look to the factual issues to be resolved [in the

second lawsuit between the parties] and compare them with the issues explored in

[the first lawsuit].” Id. We apply a pragmatic approach to this analysis by

comparing the substance of the actions, not their form. See id. at 1239 & 1239 n.8.

Applying these principles, we conclude that res judicata does not preclude

the government from contesting the Estate’s refund claims. First, the instant case

and Batchelor I do not share the same nucleus of operative fact. The Estate’s

refund claims in Counts I and II pertain to Batchelor’s personal income tax

liabilities for 1999 and 2000. Relevant to that determination are all facts that might

impact Batchelor’s income tax liability for those particular years, including

whether he should have treated a portion of the income he received from the IAL

stock sale as interest on the Note rather than as capital gain, a fact unrelated to

Batchelor’s potential liability for IAL’s tax obligations as transferee. In contrast,

the government’s claims in Batchelor I involve IAL’s corporate income tax

liability. Facts impacting that issue include IAL’s alleged use of a tax shelter

scheme (in which Batchelor played no role), and IAL’s solvency before and after

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the transfer, neither of which impact the computation of Batchelor’s own income

tax obligations. Given the different tax liabilities at issue, the cases are factually

distinct.

The Estate argues unconvincingly that both Batchelor I and the instant suit

involve the same fundamental issue regarding the value of the Option Assets and

the impact that valuation might have on its eventual tax liabilities, such that the

cases share the same nucleus of operative fact. The Estate’s focus is too narrow.

Although it is true that both suits involve a common factual issue, i.e., the value of

the Option Assets, this is often the case in tax law, where an individual transaction

may have multiple tax consequences. See Towe v. Comm’r, 64 T.C.M. 1424, 1992

WL 353773, at *3 (1992) (noting that “[a] single transaction or series of

transactions can result in the incidence of both gift and income taxes”). Yet, what

matters for res judicata purposes is not whether one common factual issue exists

across two distinct tax liabilities, but whether the two suits constitute the same

cause of action. Where, as here, the two suits involve different tax liabilities with a

host of potential issues unique to each type of tax, the causes of action cannot be

the same. Moreover, if we agreed with the Estate and ruled that the existence of

one such common question across distinct tax liabilities precludes the future

assessment of a tax liability that has not actually been litigated, our decision would

potentially preclude the IRS, through an overly-broad interpretation of res judicata,

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from collecting unpaid taxes for distinct tax liabilities linked only by a particular

common transaction (from among potentially dozens of transactions in a given

year’s tax). This would be an unworkable result, and would not square with the

Tax Code’s detailed statutory scheme on assessments. See Michael v. Comm’r, 75

F.2d 966, 969 (2d Cir. 1935) (rejecting taxpayers’ argument “that in one

proceeding there must be determined the liability of the petitioner for his own taxes

and his liability . . . for the taxes of all other taxpayers” because such a rule “would

involve great difficulty in its administration and would practically render valueless

the provision of the law which grants a longer period in which to assert the liability

of a transferee of assets”). 10

We reach the same outcome under the rights and duties test. Here, we find it

significant that the instant case involves Batchelor’s individual income tax liability

under the statutory provisions governing personal income tax obligations,

including 26 U.S.C. §§ 1, 6012, 6072, whereas Batchelor I was based on the

corporate income tax liability imposed on IAL under statutes pertaining to that

10
In a related argument, the Estate insists that the tax implications of specific completed
transactions should be litigated only once. The Estate’s argument, however, rests on principles
of issue preclusion rather than claim preclusion, and would be more persuasive had the value of
the Option Assets actually been decided in Batchelor I. See Pleming v. Universal-Rundle Corp.,
142 F.3d 1354, 1359-60 (11th Cir. 1998) (noting that for collateral estoppel to apply, the issue
must have been actually litigated and determined in the prior proceeding); Adolph Coors Co. v.
Comm’r, 519 F.2d 1280, 1283 (10th Cir. 1975) (stating that “[t]he doctrine of collateral estoppel
is strictly applied in tax cases,” and rejecting taxpayer’s attempt to invoke the doctrine where the
relevant issue had been raised, but not decided, in a previous case).

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particular tax, including 26 U.S.C. § 11. Thus, the two suits involve distinct tax

obligations with a different set of rights and duties. 11 Seeking to define the

applicable “right” or “duty” more broadly, the Estate argues that the primary right

at issue in both suits is the government’s right to have the proper values reported

and taxes paid on a particular transaction. Although in some cases we have

defined the applicable “right” or “duty” broadly, such as the right to continued

employment, Ray, 677 F.2d at 821-22, 12 in other contexts we have focused more

narrowly on specific statutory rights and duties to determine whether the cases are

substantively distinct, see, e.g., White v. World Fin. of Meridian, Inc., 653 F.2d

147, 150 (5th Cir. 1981); 13 I.A. Durbin, Inc. v. Jefferson Nat’l Bank, 793 F.2d

1541, 1549-50 (11th Cir. 1986).14 In the tax context, which is largely statutory, we

11
Although the government sought to collect the unpaid tax directly from Batchelor in Batchelor
I, his potential liability as transferee does not change the nature of the corporate tax liability at
issue in Batchelor I.
12
In Ray, we found that an employee’s breach of contract claim arising from his termination was
barred by res judicata due to an earlier suit alleging improper termination in violation of the
employee’s civil rights because in both suits “the primary right at issue was [plaintiff’s] right of
continued employment” and the breach of contract claim was substantively identical to the
earlier civil rights claims. Ray, 677 F.2d at 821-22.
13
All decisions of the former Fifth Circuit issued before October 1, 1981, are binding precedent
in this circuit. See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981).
14
In White, we rejected the res judicata defense because “[a]lthough the primary right and duty
in both statutes . . . is identical in that they require [certain bank] disclosures, the nature and
extent of those disclosures and the remedies afforded for nondisclosure are distinct” under the
governing statutes, such that the “violations or wrongs” sued for under each statute were
different. White, 653 F.2d at 150. In I.A. Durbin, we ruled that plaintiffs’ contempt proceeding
in bankruptcy court alleging wrongful seizure of personal property did not bar their subsequent
civil rights suit alleging various constitutional claims based on the same seizure of property
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believe the latter approach is best. Accordingly, given that each type of tax at issue

in this case is governed by substantively distinct provisions of the Tax Code, we

find that the suits derive from different “rights and duties” within the meaning of

our prior precedent, and thus do not constitute the same cause of action.

Although the decision in this case is grounded in Eleventh Circuit res

judicata principles, our determination of whether Batchelor I and the instant suit

involve the same “cause of action” is guided as well by cases applying res judicata

in the tax context. The federal income tax is based on a system of annual

accounting, rather than transactional accounting. See 26 U.S.C. § 441. For this

reason, the United States Supreme Court in Comm’r v. Sunnen, 333 U.S. 591

(1948), recognized, in the context of a personal income tax dispute, that each tax

year “is the origin of a new liability and of a separate cause of action.” See id. at

598. According to Sunnen, “if a claim of liability . . . relating to a particular tax

year is litigated, a judgment on the merits is res judicata as to any subsequent

because the primary right in the contempt proceeding was the statutory right “to prevent
[defendants] from taking possession of the property after the filing of the bankruptcy petition,”
whereas the civil rights suit implicated the distinct “rights to be free from unreasonable searches
and seizures and to due process in the taking of their property.” I.A. Durbin, 793 F.2d at 1549-
50. See also Nash County Bd. of Educ. v. Biltmore Co., 640 F.2d 484, 487-88 (4th Cir. 1981)
(stating that res judicata will apply “when the two statutes afford the same right or interdict the
same wrong,” and finding the defense applicable where “the state and federal statutes upon
which the two actions are based are identical in language except in the requirement of the federal
statute, but not of the state statute, of a showing of interstate commerce,” particularly where the
two suits involve the same wrongful act and operative facts).

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proceeding involving the same claim and the same tax year.” Id. (emphasis

added). Consistent with Sunnen, this Court has recognized that a taxpayer’s total

tax liability for a particular type of tax and particular tax year constitutes a single

cause of action. See Finley v. United States, 612 F.2d 166 (5th Cir. 1980). In

Finley, we determined that “in federal tax litigation one’s total income tax liability

for each taxable year constitutes a single, unified cause of action, regardless of the

variety of contested issues and points that may bear on the final computation,” id.

at 170, and thus there can only be one suit related to a taxpayer’s tax liability for a

particular year and particular tax (e.g., a taxpayer’s year 2014 income tax liability).

See id. See also United States v. Davenport, 484 F.3d 321, 326 (5th Cir. 2007)

(noting, for purposes of res judicata, that “the tax liability of a particular tax for a

particular taxable year is a single cause of action”) (internal marks omitted);

Michael v. Comm’r, 75 F.2d 966, 969 (2d Cir. 1935) (recognizing that there can

only be one suit to determine a taxpayer’s individual tax liability for a particular

year); see also Estate of Hunt v. United States, 309 F.2d 146, 147-49 (5th Cir.

1962) (affirming dismissal of taxpayer’s suit for refund of estate taxes because a

prior refund suit involving the same estate taxes was res judicata as to any

additional issues that could have been raised with respect to the estate tax). For

this reason, courts have long held that res judicata does not bar a subsequent tax

suit unless the suit involves the same tax year and tax liability as a previous one.

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See S. Bancorporation, Inc. v. Comm’r, 847 F.2d 131, 136 (4th Cir. 1988) (“In tax

cases, res judicata is rare, since a prior income tax judgment could only bar a

subsequent proceeding involving the same claim in the same tax year.”); S-K

Liquidating Co. v. Comm’r, 64 T.C. 713, 719 (1975) (finding that a prior suit

involving the taxpayer’s withholding taxes for calendar years 1968 and 1969 did

not bar the IRS from pursuing a separate deficiency action for the taxpayer’s

corporate income tax liability for its fiscal year ending October 31, 1969, because

“[t]he two taxes and the two taxable periods . . . are different”); Smith v. United

States, 242 F.2d 486, 488 (5th Cir. 1957) (holding that res judicata does not apply

to suits involving monthly excise taxes because “[e]ach month . . . is the origin of a

new liability and of a separate cause of action”).

It makes sense that res judicata would not apply to suits involving different

tax years because the applicable laws and facts pertaining to distinct tax years are

ever-changing. See Sunnen, 333 U.S. at 597-99. According to Sunnen, for suits

involving different tax years, issue preclusion, which precludes litigation of only

those issues actually determined in the initial suit, is the more appropriate defense,

albeit one which should be used sparingly and with caution. See id. at 599-600;

see also Precision Air Parts, 736 F.2d at 1501 (distinguishing res judicata and

collateral estoppel); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n.5 (1979)

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(same). 15 Thus, as one court has explained, “claim preclusion (res judicata) should

give way to issue preclusion (collateral estoppel) where a different tax year is in

question, even if the legal issues and facts are otherwise the same.” Burlington N.

Santa Fe R. Co. v. Assiniboine and Sioux Tribes, 323 F.3d 767, 771 (9th Cir. 2003)

(emphasis added). See also, e.g., Cooper v. United States, 238 F.2d 40 (D.C. Cir.

1957) (finding taxpayer’s income tax refund suit for 1946 through 1950 barred by

res judicata for 1946 and by collateral estoppel for 1947 through 1950 where

taxpayer had previously brought suit on his 1946 taxes and lost and same tax issue

applied across all tax years); Jonas v. Trapp, 186 F.2d 951, 953-54 (10th Cir.

1950) (under the doctrine of collateral estoppel, taxpayer could not relitigate issue

of whether he was a business partner with his wife for his 1941 income taxes when

the court in a previous suit had rejected taxpayer’s argument as it pertained to his

1940 income taxes).

Relevant to the instant suit, courts applying the principles of Sunnen have

determined that res judicata does not apply to suits involving different types of tax

liability, even when the suits involve the same underlying transaction, and, at least

15
Sunnen explained,
[I]f a claim of liability or non-liability relating to a particular tax year is litigated,
a judgment on the merits is res judicata as to any subsequent proceeding involving
the same claim and the same tax year. But if the later proceeding is concerned
with a similar . . . claim relating to a different tax year, the prior judgment acts as
a collateral estoppel only as to those matters in the second proceeding which were
actually presented and determined in the first suit.
333 U.S. at 598-99.
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in some respects, the same tax year. Frank Sawyer Trust of May 1992 v. Comm’r,

133 T.C. 60 (2009), is such a case. There, the party attempting to invoke res

judicata, a trust, owned all of the stock in four corporations involved in the taxi

business. Id. at 62. During the 2000 tax year, the corporations sold substantially

all of their assets to unrelated third parties, recognizing substantial capital gains.

Id. at 63. During the 2000 and 2001 tax year, the trust sold its stock in the

corporations to a different third party. See id. at 63-65. The trust reported the sale

of its stock on its income tax returns for tax years 2000 and 2001. Thereafter, the

government sought to collect an alleged tax deficiency directly from the trust for

unreported gain on the sale of its stock, arguing not only that the trust’s basis in its

stock was underreported, but also that the stock sale should be recharacterized to

reflect the reality of the trust having sold the corporations’ assets and having

retained the sales proceeds for itself, without having paid any tax. Id. at 66-67.

When the initial suit against the trust failed, the government then brought a

separate action against the trust, as transferee of the corporations, seeking to collect

the corporations’ unpaid income tax attributable to the corporations’ sale of

assets. 16 See id. at 67-70.

Although both suits in Frank Sawyer implicated the sale of the corporate

assets, the Tax Court found that res judicata did not bar the transferee liability

16
The government was unable to collect against the corporations because they were insolvent at
the time the additional taxes were assessed. Frank Sawyer Trust, 133 T.C. at 70.
19
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action because the “cause of action” in each case was not the same. See id. at 76 &

72. According to the court, “[t]he deficiency cases [against the trust] dealt with the

trust’s gain on the sale of its stock,” and had the government prevailed the trust

would have been required to pay more tax on the sale of its stock. Id. at 76. The

trust, however, would not have been required to pay the corporations’ unpaid tax

liabilities at issue in the transferee action, which arose from the corporations’

attempts to artificially generate capital losses to offset their capital gains. Id. The

court emphasized that in the first suit against the trust, the government had not

attempted to collect the corporations’ unpaid corporate tax. Accordingly,

“[a]lthough the deficiency cases [against the trust for its own tax liabilities] and the

instant action [against the trust as transferee] arise out of similar facts, there [wa]s

no identity between the causes of action,” and therefore res judicata did not apply.

Id. at 78 (emphasis added).

The Tax Court applied this same reasoning nearly twenty years earlier in

Towe v. Comm’r, 64 T.C.M. 1424, 1992 WL 353773 (1992), in which it

determined that an income tax deficiency and a gift tax deficiency were separate

causes of action for purposes of res judicata, even though each deficiency suit

arose out of the same transaction and involved the same tax years. In Towe, the

taxpayers argued that the IRS was precluded from making a gift tax determination

concerning the same transaction and same taxable periods for which income tax

20
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determinations had already been made and judicially resolved. See id. at *1-*2

(noting that “[t]he 1979-81 income tax determinations concerned the same

transactions (transfers of realty) as the gift tax and transferee determinations”).

The taxpayers argued that “the [tax] treatment of the transfer of property was the

subject of earlier litigation and that there was an opportunity to litigate the issue”

in the earlier case. Id. at *4. Rejecting that argument, the court reasoned that “the

question of whether a particular transaction results in the incidence of gift tax is a

different issue or cause of action from whether it results in the incidence of income

tax.” Id. at *5. Thus, the court concluded that “[t]he determination of one [tax

liability] does not preempt the determination of the other . . . even though both

determinations may concern the same transaction and/or taxable period.” Id.

Accordingly, the IRS was not precluded by res judicata from making the gift tax

determinations. Id.

Frank Sawyer Trust and Towe are distinguishable from those cases where

res judicata has been applied in transferee liability suits involving a dispute as to

only one tax liability, including, for example, United States v. Davenport, 484 F.3d

321 (5th Cir. 2007), and Baptiste v. Comm’r, 29 F.3d 1533 (11th Cir. 1994), on

which the Estate relies. Davenport involved gifts of stock made by Birnie

Davenport, who passed away several years after making the gifts to her two

nephews and a niece without having paid the requisite gift tax. In an initial suit to

21
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determine the tax liabilities of Davenport’s estate, the Tax Court found the estate

liable for unpaid gift tax on Davenport’s stock gifts. The Tax Court valued the

stock at $2,000 per share, and calculated the tax deficiency owed by the estate

based on that amount. See Davenport, 484 F.3d at 324. The estate later failed to

pay the taxes owed. Id. The government then filed suit in federal district court

against both the estate and the recipients of the stock gifts as transferees pursuant

to 26 U.S.C. § 6324(b). 17 The Fifth Circuit found that the two suits involved the

same operative facts and underlying transactions, as well as the same tax liability

(i.e., the estate’s gift tax liability), such that both cases involved the same cause of

action. See id. at 327-28. Accordingly, the value of the stock, and the amount of

gift tax due, could not be re-litigated. Id. at 329.

This Court considered a factually similar case in Baptiste and reached the

same result. In that case, three brothers each received $50,000 as beneficiaries to

their father’s life insurance policy upon his death. Baptiste, 29 F.3d at 1535. After

the decedent’s estate filed an estate tax return, the IRS determined that the estate

owed additional estate tax, which the estate contested in Tax Court. Id. The

parties eventually stipulated to the amount of tax owed, and the court entered

17
Title 26 of the United States Code section § 6324(b) provides an avenue by which the
government may pursue a gift tax liability directly from the donee, who may be held personally
liable for the unpaid gift tax. The statute provides, “If the [gift] tax is not paid when due, the
donee of any gift shall be personally liable for such tax to the extent of the value of such gift.”
26 U.S.C. § 6324(b). See also Davenport, 484 F.3d at 325 (describing section 6324(b) as a
“transferee liability provision”).

22
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judgment in that amount. Id. at 1535-36. After the estate failed to pay the tax, the

government attempted to collect from the Baptiste brothers as transferees pursuant

to a statute that, like the gift tax statute at issue in Davenport, makes the recipient

of the decedent’s property personally liable for the estate tax. See 26 U.S.C. §

6324(a)(2). Applying res judicata, this Court held that Richard Baptiste, one of the

Baptiste brothers who resided in Florida, was not permitted to relitigate the value

of the property for purposes of calculating the amount of estate tax due. See

Baptiste, 29 F.3d at 1539-41. We explained that “[t]he fact that [Richard

Baptiste’s] purpose is to decrease his personal liability, rather than in the interest of

the estate, is of no moment. The estate’s liability [for the estate tax] and Baptiste’s

liability [as transferee] both embrace the same determination – the amount of estate

tax imposed by chapter 11.”18 Id. at 1539. See also Egan’s Estate v. Comm’r, 260

F.2d 779, 780-85 (8th Cir. 1958) (holding res judicata barred transferee of

corporation from relitigating transferor corporation’s income tax liability for 1948

for purposes of determining transferee’s liability for that particular tax).

As with Frank Sawyer Trust and Towe, and unlike Davenport and Baptiste,

Counts I and II of the instant suit involve different tax liabilities and different

underlying taxpayers than the claims at issue in Batchelor I. Therefore, the claims

are not part of the same cause of action, even though they each involve the same

18
Although Baptiste appears to be based on issue preclusion, it is still a useful comparison.

23
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underlying transaction. 19 For these reasons, we find that the district court erred in

applying res judicata to bar the government’s claims in Counts I and II and the

decision must be reversed.

B. Settlement Payments
Count III of the Estate’s Complaint concerns the $41 million in payments

the Estate made in 2004 to settle various lawsuits against Batchelor. In 2003, the

Estate deducted the payments from Batchelor’s gross estate as claims against the

estate pursuant to 26 U.S.C. § 2053(a)(3). The parties agree that this deduction

was proper, and Batchelor’s estate tax liability was not at issue before the district

court. However, after taking the estate tax deduction, the Estate also claimed an

$8.3 million credit on its 2005 income tax return for the settlement payments. The

IRS denied the claim, and the Estate then filed the instant suit seeking a refund for

the perceived overpayment pursuant to 26 U.S.C. § 1341. The district court

rejected the Estate’s claim, finding that 26 U.S.C. § 642(g) barred the Estate from

claiming both an estate tax deduction under § 2053 and an income tax deduction

for the same payment. We agree, and therefore affirm the district court’s ruling.

The Estate’s position is straightforward. According to the Estate, 26 U.S.C.

§ 1341 entitles it to a return of the taxes Batchelor paid on the $41 million in IAL

stock proceeds the Estate subsequently returned to IAL, IALPR, and the Rich
19
The parties dispute whether the two cases involve the same tax year. We need not resolve that
issue, however, based on our determination that the underlying tax liabilities are distinct.

24
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plaintiffs as settlement payments. The Estate argues it is not seeking a tax

windfall, but rather, because the $41 million at issue was originally reported as

capital gain, by effectively returning that income, it should now be permitted a

corresponding deduction or credit effectively consisting of a capital loss, and it

insists § 1341 was designed to accomplish precisely that result. 20 The government

maintains that the Estate cannot use the $41 million repayment to reduce both its

estate and income tax obligations, and instead may only deduct the payments from

either one tax or the other. We agree.

Section 1341 accounts for the fact that discrete financial transactions

sometimes implicate multiple tax years. In the ordinary case, deductions on a

particular item of income are taken during the same year the income is earned and

reported. See Mooney Aircraft, Inc. v. United States, 420 F.2d 400, 402-03 (5th

Cir. 1969). It is not always possible, however, to match income and expenses in

the same tax year, which may disadvantage the taxpayer due to changing

circumstances across the two tax years. See id. at 404-05; see also Healy v.

Comm’r, 345 U.S. 278, 284 (1953) (noting that when a taxpayer restores an item of

income in a later tax year, changes in income or fluctuations in tax rates between

the year of receipt and the year of repayment could disadvantage the taxpayer). In

North American Oil v. Burnett, 286 U.S. 417 (1932), the United States Supreme

20
The Estate calculated a refund of $8,322,466 under § 1341.

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Court recognized that “[i]f a taxpayer receives earnings under a claim of right and

without restriction as to its disposition, he has received income which he is

required to [report], even though it may still be claimed that he is not entitled to

retain the money, and even though he may still be adjudged liable to restore its

equivalent.” Id. at 424. This is known as the “claim of right” doctrine. Although

the taxpayer in North American Oil was eventually entitled to keep the income, id.

at 421, the Court explained that if the taxpayer, a corporation, “had been obliged to

refund the [income] received in 1917, it would have been entitled to a deduction

from the profits of 1922,” the year the dispute regarding the income was resolved.

Id. at 424. Although this was a hypothetical statement when made in North

American Oil, the Supreme Court later faced this very scenario in United States v.

Lewis, 340 U.S. 590 (1951). In that case, an employer gave his employee a

$22,000 bonus in 1944, which the employee reported as income in 1944. Id. at

590. In 1946, a court determined that half of the bonus had to be returned to the

employer. Id. The taxpayer returned the money, and then sought to amend his

1944 tax return to reduce his income for that year. See id. at 591. Consistent with

what it had said previously in North American Oil, the Supreme Court rejected this

approach, deciding instead that the proper solution would be to permit a deduction

in the year of repayment, 1946, for the amount of tax that had been erroneously

paid in 1944. See id. at 591-92. According to Lewis, the tax year in which the

26
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contested amount was received could not be reopened, regardless of whether this

would “result[] in an advantage or disadvantage to a taxpayer.” Id. at 592. 21

Congress later enacted 26 U.S.C. § 1341 to provide a statutory solution to

the problem presented in cases like Lewis and to account for the tax disparities that

may exist when a taxpayer claims a deduction in one year for an item of income

received in an earlier year that the taxpayer was obliged to return. See United

States v. Skelly Oil Co., 394 U.S. 678, 680-81 (1969) (“Section 1341 of the 1954

Code was enacted to alleviate some of the inequities which Congress felt existed in

this area”); Maxwell v. United States, 334 F.2d 181, 183 (5th Cir. 1964)

(“[O]rdinarily amounts received under a claim of right must be included in taxable

income in the taxable year of receipt, although repaid in a later year. Section 1341

was designed to alleviate the harsh effect of this rule”). Under 26 U.S.C. § 1341,

“a taxpayer is entitled to relief if in one year the taxpayer included an item as gross

income and paid tax on that income, then in a subsequent year is compelled to

return the item.” Steffen v. United States, 349 B.R. 734, 738 (M.D. Fla. 2006).

The purpose of § 1341 is to “put the taxpayer in the same position he would have

been in had he not included the item as gross income in the first place.” Fla.

Progress Corp. v. Comm’r, 348 F.3d 954, 957 (11th Cir. 2003). When § 1341

applies, the taxpayer is entitled to either a “deduction” or a tax “credit” in the year

21
Justice Douglas dissented, noting that the decision might allow the government to exact tax on
money that was not income to the taxpayer. See Lewis, 340 U.S. at 592 (Douglas, J., dissenting).
27
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of repayment; the taxes due for the year the income was received are not affected.

See 26 U.S.C. § 1341(a)(4) & (5).

For § 1341 to apply, the taxpayer must show the following:

(1) an item was included in gross income for a prior taxable year
(or years) because it appeared [at the time the income was
received] that the taxpayer had an unrestricted right to such
item;

(2) a deduction is allowable for the [current] taxable year because it
was established after the close of such prior taxable year (or
years) that the taxpayer did not have an unrestricted right to
such item or to a portion of such item; and

(3) the amount of such deduction exceeds $3,000.

26 U.S.C. § 1341(a). In addition to these statutory requirements, a taxpayer must

demonstrate a “substantive nexus between the right to the income at the time of

receipt and the subsequent circumstances necessitating a refund.” Steffen, 349

B.R. at 738. The taxpayer’s return of the income must not be the result of the

taxpayer’s purely voluntary choice; rather, it must be “established,” for example,

by a court, that the taxpayer did not have an unrestricted right to the income. See

id. at 739. The Tax Court has determined that payments made to settle a lawsuit

may satisfy this requirement. See Barrett v. Comm’r, 96 T.C. 713 (1991).

When § 1341 applies, the taxpayer is required to pay the lesser of two

computed tax payments in the year of repayment. See 26 U.S.C. § 1341(a) (“the

tax imposed by this chapter for the taxable year shall be the lesser of” the two

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computations) (emphasis added). Under the statute’s first method of calculation,

set forth in subsection (a)(4), the taxpayer simply computes the taxes owed in the

year of repayment by deducting the restoration payment from his income in that

year. 26 U.S.C. § 1341(a)(4). The second calculation method set forth in

subsection (a)(5) is more complex, and results in a credit based on the taxes that

would have been saved in the original year of receipt had the income never been

received in that year. 22 See id. at § 1341(a)(5) & (b); see also Fla. Progress, 348

F.3d at 957 (explaining that the (a)(4) method of calculation results in a deduction

from the current year’s taxes, whereas the (a)(5) method permits the taxpayer to

claim a tax credit for the amount his tax was increased in the prior year by

including the item of income).

In Fla. Progress, this Court decided, based on the language of the statute

and its corresponding regulations, that § 1341 does not, by itself, create an

independent tax deduction and instead applies “only if another code section would

provide a deduction for the item in the current year.” 348 F.3d at 963. See also id.

at 958-59 (rejecting the argument that “§ 1341 stands on its own” as a source of a

22
Under 26 U.S.C. § 1341(a)(5), the taxpayer first computes his original, prior year tax with the
restoration income included (as it was originally calculated in the year of receipt), then
recomputes his tax for the prior year as if the item had not been included. The taxpayer then
compares the two resulting tax obligations to determine the amount by which his tax would have
been reduced had he not originally received the restored income. In the final step, the taxpayer
reduces his current year’s tax obligation by the amount his tax liability would have been reduced
in the year of receipt under the re-computation.

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deduction); see also Alcoa, Inc. v. United States, 509 F.3d 173, 178 n.4 (3d Cir.

2007) (“[I]t is a prerequisite for section 1341 treatment that the taxpayer be entitled

to a deduction for all or part of the repaid amount under some other Code

section.”). 23 Thus, contrary to the Estate’s argument, we cannot resolve the instant

dispute simply by reference to § 1341.

To determine whether “another code section would provide a deduction for

the item in the current year,” Fla. Progress, 348 F.3d at 963, the district court

found, and we agree, that the tax code provisions relating to overlapping estate and

income tax deductions are relevant. In this context, 26 U.S.C. § 642(g), entitled

“Disallowance of double deductions,” generally prevents an estate from claiming

both an estate tax deduction under 26 U.S.C. § 2053 and an income tax deduction

for the same payment. The statute provides:

Amounts allowable under section 2053 or 2054 as a deduction in
computing the taxable estate of a decedent shall not be allowed as a
deduction . . . in computing the taxable income of the estate or of any
other person, unless there is filed . . . a statement that the amounts
have not been allowed as deductions under section 2053 or 2054 and a
23
In finding that § 1341 does not itself create an independent tax deduction, the Court reasoned:

Subsection (a) of § 1341 provides that “if” three requirements are met, “then” the
taxpayer is entitled to preferential treatment under [§ 1341]. 26 U.S.C. § 1341(a)
(emphasis added). One of those requirements is that “a deduction” be “allowable
for the taxable year because it was established after the close of such prior taxable
year . . . that the taxpayer did not have an unrestricted right to such item. . . .” 26
U.S.C. § 1341(a)(2). The provision itself does not indicate whether a deduction
should be allowable. That answer must be found in another provision of the code.
. . . The regulations interpreting this provision confirm this conclusion.

Fla. Progress, 348 F.3d at 958-59 (emphasis in original).
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waiver of the right to have such amounts allowed at any time as
deductions under section 2053 or 2054.

26 U.S.C. § 642(g). Section 642 contains an exception, however, for “income in

respect of decedents.” See id. (“subsection [g] shall not apply with respect to

deductions allowed under part II (relating to income in respect of decedents)”).

Thus, a double deduction is permitted for “taxes, interest, business expenses, and

other items accrued at the date of a decedent’s death” that fall within § 2053(a)(3)

as claims against the estate, as long as they are also allowable under § 691(b). See

26 C.F.R. § 1.642(g)-2. Section 691(b), in turn, provides that a decedent’s estate

may claim both deductions if the expense falls within one of six statutes: sections

162, 163, 164, 212, 611, or 27.24 The district court in this case properly required

the Estate to show that one of these statutes applied in order to claim both an estate

tax deduction under § 2053 and an income tax deduction for the same payment.

The Estate argues on appeal, as it did in the district court, that sections 162

and 212 provide the basis for permitting the “double deduction” of the settlement

payments at issue because the payments arise out of Batchelor’s business activities

24
Section 691(b) provides, in pertinent part:

The amount of any deduction specified in section 162, 163, 164, 212, or 611 . . .
or credit specified in section 27 . . ., in respect of a decedent which is not properly
allowable to the decedent in respect of the taxable period in which falls the date of
his death, or a prior period, shall be allowed . . . in the taxable year when paid . . .
to the estate of the decedent.

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in selling his IAL assets, and thus are ordinary and necessary business expenses.25

We disagree. The $41 million at issue derives from income Batchelor originally

reported as capital gain through the sale of his IAL stock. Batchelor’s treatment of

this income as capital gain determines the character of a subsequent repayment of

that income pursuant to Kimbell v. United States, 490 F.2d 203 (5th Cir. 1974), in

which this Court determined that “a payment made by a taxpayer in satisfaction of

a liability arising from an earlier transaction, on which that taxpayer reported

capital gain [as here], must be treated as a capital loss at least to the amount of the

capital gain,” rather than as a § 162 business expense. Id. at 205. It is undisputed

that Batchelor obtained the $41 million of income as a result of his sale of IAL

stock. It is also undisputed that the settlement payments were made to resolve

claims that Batchelor had received excess consideration in selling his interest in

IAL, such that the Estate’s repayments are sufficiently linked to Batchelor’s

original receipt of income. 26 Accordingly, Kimbell does not permit the Estate to

25
26 U.S.C. § 162(a) provides, “There shall be allowed as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or
business.” 26 U.S.C. § 212 similarly provides, “In the case of an individual, there shall be
allowed as a deduction all the ordinary and necessary expenses paid or incurred during the
taxable year . . . (1) for the production or collection of income.” Although the provisions are
similar, unlike § 162(a), § 212 lacks a “trade or business” requirement. See Estate of Yaeger,
889 F.2d 29, 33 (2d Cir. 1989).
26
The Estate concedes that if IAL was rendered insolvent by the stock sale and Batchelor
received excess consideration, he was liable to return it to IAL or its creditors, including the
plaintiffs in the four unrelated suits against Batchelor. Thus, we find that the amounts paid in
settlement of those suits are sufficiently linked to the initial income so as to trigger Kimbell.

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claim a deduction under § 162, and the Estate thus fails to satisfy § 691(b) by way

of § 162.

The Estate also attempts to satisfy § 691(b) by invoking § 212, which, in

pertinent part, permits a deduction to “an individual” for “ordinary and necessary

expenses paid or incurred during the taxable year . . . for the production or

collection of income.” 26 U.S.C. § 212(1). In this Circuit, however, “§ 162(a) and

212 are . . . considered in pari materia;” thus, “the restrictions and qualifications

applicable to the deductibility of trade or business expenses [under § 162] are also

applicable to expenses covered by section 212.” Sorrell v. Comm’r, 882 F.2d 484,

487 (11th Cir. 1989) (quoting Fishman v. Comm’r, 837 F.2d 309, 311 (7th Cir.

1988), cert. denied, 487 U.S. 1235 (1988)); Estate of Meade v. Comm’r, 489 F.2d

161, 164 n.6 (5th Cir. 1974) (“For purposes of this distinction between capital

expenses and ordinary expenses, sections 162 and 212 are construed in the same

manner . . . .”). Moreover, the rationale of Kimbell – that a taxpayer who initially

reported income as capital gain may not receive the tax windfall that would result

by recharacterizing a related expense as an ordinary business expense – applies

with equal force to § 212. 27 See Estate of Meade, 489 F.2d at 163-66 (taxpayers

who received settlement payments in a lawsuit and reported those proceeds as

27
The parties dispute whether Batchelor’s liability accrued before his death. Having determined
that the Estate’s proffered income tax deduction is not allowable under section 691(b), we need
not address this argument.

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capital gain were not permitted to deduct their legal fees associated with the suit as

payments for the production of income under § 212). Thus, the Estate’s attempt to

invoke § 212 also fails.

In an attempt to circumvent the statutes, the Estate insists it should be

allowed a double deduction because otherwise the government will receive a

windfall from the income taxes Batchelor paid on the $41 million at issue. In

effect, the Estate urges us to fashion an equitable result; however, doing so would

require us to either disregard § 642(g), or to construe § 691(b) as though it also

included § 1341 as an exception, neither of which we can do. The double

deduction the Estate seeks is plainly prohibited by 26 U.S.C. § 642(g), see Estate

of Luehrmann v. Comm’r, 287 F.2d 10, 12-13 (8th Cir. 1961) (recognizing that the

purpose of § 642(g)’s predecessor statute “was to prevent taxpayers claiming the

same items of administration expenses as deductions for both estate income tax

and estate tax purposes”), and § 1341 is not one of the enumerated exceptions in

§ 691(b). Accordingly, we do not believe Congress intended to allow a double

deduction based solely upon the potential application of § 1341. See Andrus v.

Glover Constr. Co., 446 U.S. 608, 616-17 (1980) (“Where Congress explicitly

enumerates certain exceptions to a general prohibition, additional exceptions are

not to be implied, in the absence of evidence of a contrary legislative intent.”).

See also CBS Inc. v. Prime Time 24 Joint Venture, 245 F.3d 1217, 1226 (11th Cir.

34
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2001) (“‘[W]here Congress knows how to say something but chooses not to, its

silence is controlling.’”) (quoting In re Griffith, 206 F.3d 1389, 1394 (11th Cir.

2000) (en banc)); Harris v. Garner, 216 F.3d 970, 976 (11th Cir. 2000) (“[T]he

role of the judicial branch is to apply statutory language, not to rewrite it.”). Thus,

even assuming the equities actually favor the Estate, such concerns cannot trump

the applicable statutes. See Long v. Comm’r, 772 F.3d 670, 678 (11th Cir. 2014)

(“[D]eductions under the Internal Revenue Code are a matter of legislative grace

and the taxpayer who claims the benefit must . . . ‘clearly establish’ his entitlement

to a particular deduction.”) (internal marks and citations omitted); Estate of

Luehrmann, 287 F.2d at 15 (“Tax exemptions and deductions do not turn upon

general equitable considerations but depend upon legislative grace. Statutes

authorizing tax exemptions and deductions are to be strictly and narrowly

construed.”); Culley v. United States, 222 F.3d 1331, 1334 (Fed. Cir. 2000) (“It is

basic tax law that deductions from taxable income, for purposes of computing tax

due the United States, are matters of statutory grant”).

Finally, the Estate points to three authorities as grounds for invoking § 1341

without reference to either 642(g) or 691(b): Revenue Ruling 77-322, which

permits “[a]n estate [to] utilize . . . section 1341 . . . in computing its tax when it

restores an item that was previously included in income by the decedent under a

claim of right;” Estate of Good v. United States, 208 F.Supp. 521 (E.D. Mich.

35
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1962), in which the court determined that an estate was entitled to use § 1341 to

obtain a refund of the income taxes a decedent had paid on income that the

decedent’s employer later determined had been erroneously paid even though the

estate also took an estate tax deduction for the repayment; and Nalty v. United

States, No. 73-1574-B, 1975 WL 577 (E.D. La. Apr. 16, 1975), which followed

Estate of Good.

Aside from the fact that these authorities are not binding, see Redwing

Carriers, Inc. v. Tomlinson, 399 F.2d 652, 657 (5th Cir. 1968) (noting that

Revenue Rulings are merely persuasive), we disagree with their rationale. First,

Estate of Good, Nalty, and Revenue Ruling 77-322 do not account for this Circuit’s

requirement that a deduction must be allowable under another provision of the Tax

Code for § 1341 to apply. See Fla. Progress, 348 F.3d at 958-59. Thus, it is not

enough to merely conclude that the requirements of § 1341(a)(1)-(3) are met when

the facts of the case implicate § 642(g). Second, although the Estate’s authorities

purport to distinguish between the “credit” offered by subsection (a)(5) and the

“deduction” offered by subsection (a)(4), see Estate of Good, 208 F.Supp. at 523;

Nalty, 1975 WL 577, at *5 (relying on the same distinction); Rev. Rul. 77-322

(adopting Estate of Good without supporting explanation), we do not believe §

642(g)’s prohibition on double deductions would give way to § 1341 regardless of

whether the Estate claimed a credit or a deduction. The deduction/credit

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distinction merely determines how to account for a § 1341 repayment on one’s

return, nothing more. What matters is not whether a taxpayer may use § 1341 to

reduce his present year taxes through a tax credit or a deduction, but rather whether

a reduction in his income taxes is permitted at all (along with a corresponding

estate tax deduction). In addition, whether a particular application of § 1341 would

result in more favorable treatment to a taxpayer under subsection (a)(4) or (a)(5)

depends on the fortuities of a given case, including changing tax rates and tax

brackets between the year of receipt and the year of repayment. See Missouri Pac.

R.R. Co. v. United States, 423 F.2d 727, 729-35 (Ct. Cl. 1970) (discussing the

legislative history of § 1341 and its alternative methods of calculation in a case

where the taxpayer’s tax rates varied widely over the tax years in question); cf.

Skelly Oil Co., 394 U.S. at 681 (noting that, under the claim of right doctrine, “the

tax benefit from the deduction in the year of repayment might differ from the

increase in taxes attributable to the receipt; for example, tax rates might have

changed, or the taxpayer might be in a different tax ‘bracket.’”). We do not

believe Congress intended the availability of a double deduction under § 642(g) to

turn on such fortuities. Regardless of whether a taxpayer would be entitled to a

“deduction” under subsection (a)(4) or a “credit” under subsection (a)(5), section

642(g) and its accompanying regulations make clear that § 1341 alone does not

determine whether a taxpayer may reduce both his income and estate tax liabilities

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for the same outlay without consideration of § 691(b). Thus, we reject the

underlying rationale of the Estate’s authorities. Since the Estate has failed to

identify an applicable deduction identified in § 691(b), we find no error in the

district court’s determination that the Estate cannot avoid § 642(g)’s bar on double

deductions, and therefore affirm on Count III.

Accordingly, we reverse the district court’s judgment in favor of the Estate

on Counts I and II and affirm the judgment in favor of the government on Count

III.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

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