Allbritton v. Commissioner

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 94-40277
Summary Calendar

JOE L. & BARBARA B. ALLBRITTON,

Plaintiff-Appellee,

versus

COMMISSIONER OF INTERNAL REVENUE,

Defendant-Appellant.

Appeal from a Decision of the United States Tax Court

(October 25, 1994)

Before DUHÉ, WIENER, and STEWART, Circuit Judges.

PER CURIAM:

In this appeal from the Tax Court's grant of plaintiffs-

appellees' motion for summary judgment, the defendant-appellant

Commissioner of Internal Revenue (Commissioner) asserts error in

the court's determination that Section 163(d)(2) of the Internal

Revenue Code permits a taxpayer to carry over and deduct

investment interest expense in excess of taxable income. We

review this question of law de novo.1

The plaintiffs-appellees (Taxpayers) claimed deductions in

1
See Harris v. Commissioner, 16 F.3d 75, 81 (5th Cir. 1994).
1985 and 1986 for carryover investment interest expense that was

not deductible in 1984 under Section 163(d)(1).2 The carryover

to 1985 exceeded the Taxpayers' taxable income in 1984, and the

carryover to 1986 exceeded their taxable income for 1985. The

Commissioner determined deficiencies with respect to the

Taxpayers' 1985 and 1986 tax years, asserting that under Section

163(d)(2) of the Code, the Taxpayers could only carry over an

amount of investment interest expense that did not exceed their

taxable income for the year. The Taxpayers contested this

determination in Tax Court, maintaining that Section 163(d) did

not limit the investment interest carryover to the year's taxable

income, and the Tax Court granted their motion for summary

judgment.

We cannot find a single published opinion supporting the

Commissioner's position. In Beyer v. Commissioner3, the Fourth

Circuit considered and decided this very issue. After thoroughly

reviewing the legislative history of Section 163(d), that court

found that "Congress did not intend to impose a limitation on

2
Section 163(d) provides that the amount of investment
interest allowable as a deduction is limited to $10,000 plus the
amount of net investment income for the year. See 26 U.S.C.
§163(d)(1). It further provides for a carryover of disallowed
investment interest (that amount exceeding the Section 163(d)(1)
limitation) for any taxable year to the succeeding taxable year.
See 26 U.S.C. § 163(d)(2).
3
916 F.2d 153 (4th Cir. 1990).

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the carry-over of investment interest based on taxable income."4

Since the Beyer decision, every court that has considered this

issue - - two other Courts of Appeals and several district courts

- - have also rejected the Commissioner's position, finding that

the carryover deduction of investment interest is not limited to

taxable income.5

We agree with the reasoning in these cases and conclude, as

did they, that in enacting Section 163(d), Congress evidenced no

intent to limit the investment interest expense carryover to the

amount of a taxpayer's taxable income. Here, the Taxpayers were

entitled to their claimed deductions of investment interest

expense for 1985 and 1986, and the district court properly

granted their motion for summary judgment.

The government's assessment of deficiencies in the

Taxpayers' income taxes, and its appeal based on the same

statutory interpretation previously rejected by the Fourth

4
Id. at 157. The Fourth Circuit in Beyer reversed the Tax
Court's ruling in favor of the government. Subsequently, the Tax
Court explicity held invalid its previous decision. See Lenz v.
Commissioner, 101 T.C. 260, 261 (1993)(en banc)(stating that
"[u]pon reconsideration of our opinion in Beyer, we now think it
to be incorrect").
5
See Flood v. United States, No. 93-35429, 1994 WL 467307
(9th Cir. Aug. 31, 1994); Sharp v. United States, 14 F.3d 583
(Fed. Cir. 1993); Haas v. United States, No. 4:93-CV-158, 1994 WL
460545 (W.D. Mich. Jul. 19, 1994); Richardson v. United States,
No. Civ. 92-2267-T, 1994 WL 117046 (W.D. Okla. Jan. 18, 1994),
appeal docketed, No. 94-6107 (10th Cir. Mar. 21, 1994); Weiner v.
United States, No. 8:CV-92-00395, 1993 WL 738461 (D.Neb. Dec. 21,
1993).

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Circuit, the Federal Circuit, and several district courts6

constitutes "circuit-shopping" at the Taxpayers' expense in the

hopes of creating a circuit conflict. Under 26 U.S.C. § 7430, a

taxpayer who establishes that "the position of the United States

in the proceeding was not substantially justified" may recover

the reasonable costs of litigation.7 The Commissioner's repeated

losses on the identical issue establishes beyond serious question

that the government's actions in assessing the deficiencies,

litigating again an issue so consistently lost, and appealing the

grant of the Taxpayers' motion for summary judgment, were not

"justified to a degree that could satisfy a reasonable person."8

We have previously ruled that, while the Commissioner is

free by law to relitigate prior lost issues in other circuits, he

does so at the risk of incurring the obligation to reimburse the

taxpayer.9 Therefore, in continuing to litigate this issue

despite constant jurisprudence to the contrary, the Commissioner

6
The Ninth Circuit's decision in Flood v. United States,
dated August 31, 1994, came after the government's appeal in this
case.
7
See 26 U.S.C. § 7430(c)(4)(defining "prevailing party").
Section 7430 of Title 26 provides that "[i]n any . . . court
proceeding which is brought by or against the United States in
connection with the . . . refund of any tax, interest, or penalty
. . . the prevailing party may be awarded a judgment [for]
reasonable litigation costs incurred in connection with such
court proceeding." 26 U.S.C. § 7430(a)(1988).
8
See Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541,
2550, 101 L.Ed.2d 490, 504 (1988)(defining the term
"substantially justified" for purposes of awarding attorney fees
against the government).
9
See Estate of Perry v. Commissioner, 931 F.2d 1044, 1046
(5th Cir. 1991).

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is not substantially justified and should bear all reasonable

costs of Taxpayers' litigation.

For the foregoing reasons, we affirm the Tax Court's order

granting the Taxpayers' motion for summary judgment and invite

counsel for the Taxpayers to file an application in accordance

with Federal Circuit Rule 47.7(b)(2) for reasonable costs,

including attorney fees, under 26 U.S.C. § 7430.

AFFIRMED.

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