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).
2
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).
3
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).
4
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.
5