[PUBLISHED]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
U.S. COURT OF APPEALS
No. 06-12461 ELEVENTH CIRCUIT
November 15, 2007
THOMAS K. KAHN
CLERK
D.C. Docket No. 03-00254 CV-HL-5
WILLIAM A. FICKLING, JR.,
NEVA L. FICKLING,
Plaintiffs-Appellants,
versus
UNITED STATES OF AMERICA,
Defendant-Appellee.
______________
Appeal from the United States District Court
for the Middle District of Georgia
_____________
(November 15, 2007)
Before EDMONDSON, Chief Judge, TJOFLAT and GIBSON,* Circuit Judges.
PER CURIAM:
This case is a taxpayer refund suit originating from a settlement between the
*
Honorable John R. Gibson, United States Circuit Judge for the Eighth Circuit, sitting by
designation.
taxpayers and the Internal Revenue Service (“Service”) over claimed capital losses
from a sale of securities in 1990. The settlement permitted the taxpayers to
recognize seventy percent of their claimed losses from the sale. Now taxpayers
assert that the thirty percent of losses disallowed should be treated as if thirty
percent of the sale were a disregarded transaction, and they have filed amended
returns that deduct from more recent capital gains this thirty percent as “unused
basis.” The district court granted the Government summary judgment. We affirm.
I.
William A. Fickling, Jr., founder and chairman of Charter Medical
Corporation (“Charter”), and his family had owned a sizable portion of Charter’s
common stock. In February 1990, following a management-led leveraged buy out
of Charter, William Fickling and his wife, Neva Fickling (collectively,
“Taxpayers”), converted a block of their shares of Charter into debentures with a
claimed market value of $16,041,839.1 By December 1990, the market for Charter
debentures had soured, and company-issued debt was selling for pennies on the
dollar.
On December 19, 1990, Taxpayers, along with their adult children
(“Fickling Children”), sold some $22 million of face-value Charter debentures to
1
Taxpayers also owned other interests in Charter which are not relevant to this appeal.
2
William H. Anderson II for approximately $170,000. Included in this sale was the
$16,041,839 worth of debentures at issue in this appeal, for which Taxpayers
received $129,790.93 from Anderson. Taxpayers claimed a capital loss of
$15,912,048 in their 1990 federal income tax return.2 Fifty-four days after the
sale, on February 11, 1991, Anderson sold the same $22 million worth of debt
back to the Fickling Children for $193,987.86.
Faced with continued financial difficulty, Charter underwent restructuring
in 1992. As part of the process, it exchanged outstanding debentures for common
shares of the new Charter, including the debentures owned by the Fickling
Children after the purchase from Anderson. Over the next three years, the
Fickling Children sold on the open market their new Charter shares and reported
their respective capital gains.
In 1995, the Service initiated an audit of the Taxpayers’ personal income tax
returns for the years 1988 through 1992. After an investigation, the Revenue
Agent for the audit proposed a series of adjustments to the Taxpayers’ returns for
1988, 1990, 1991, and 1992. Among the proposed adjustments was the
disallowance of $15,912,048 in losses that the Taxpayers claimed as a result of the
2
This was computed as the rounded sale price ($129,791) minus the basis of the
debentures ($16,041,839).
3
sale to Anderson. The Revenue Agent’s report of the Service’s position offered
three grounds for the disallowance, namely that the transaction between
Taxpayers, Anderson, and the Fickling Children was either a wash sale, a
transaction that lacked economic substance, or a related party transaction. The
Taxpayers appealed the determination and ultimately reached a formal settlement
with the Service’s Georgia Appeals Division in September 1999. The settlement
agreement provided that the Taxpayers would recognize as a loss seventy percent
of what they had initially claimed in the 1990 return, or $11,138,433. To
memorialize the settlement, the parties executed an Offer to Waive Restrictions on
Assessment and Collection of Tax Deficiency and to Accept Over Assessment
(Form 870-AD).
During the pendency of the appeal, the Taxpayers amended their returns for
the years 1993, 1994, and 1995 – the same years in which the Fickling Children
sold their shares of the newly-reorganized Charter – and reduced the combined
reported capital gains for these years by a total of $7,077,121.3 Based on these
amended capital gains, the Taxpayers claimed overpayments for the years 1993
3
The Taxpayers’ capital gains as originally reported for these years totaled $10,624,246.
The $7 million in amended deductions is approximately the sum of thirty percent of the original
$16 million basis in the 1990 debentures ($4.8 million) and two sources of funds that the Service
required the Taxpayers to report as cancellation of indebtedness and original issue discount
income ($2.2 million).
4
through 1995 totaling $1,709,809. In October 2002, the Service denied the
deductions claimed in the amendment on the grounds that the 1990 settlement had
already accounted for the entire basis of the debentures, and that the Taxpayers in
effect had waived their claim for thirty percent of the loss that they are now
seeking.
The Taxpayers initiated this refund suit in July 2003. The parties filed
cross-motions for summary judgment in March 2005; the district court denied the
Taxpayers’ motion and granted the Government’s motion in an order issued on
March 13, 2006. The Taxpayers timely filed their notice of appeal.
II.
We review the district court’s grant of summary judgment de novo. Sierra
Club v. Leavitt, 488 F.3d 904, 911 (11th Cir. 2007). Summary judgment is
appropriate only when, after viewing the evidence and all reasonable inferences
drawn from it in the light most favorable to the nonmoving party, the court
nonetheless concludes that no genuine issue of material fact exists and the moving
party is entitled to judgment as a matter of law. Id. The moving party carries the
initial burden of production, which can be met by showing that the nonmoving
plaintiff has “fail[ed] to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden
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of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548,
2552, 91 L. Ed. 2d 265 (1986). Once this burden is met, the nonmoving party
must present evidence beyond the pleadings showing that a reasonable jury could
find in its favor. Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990). At issue
in this case is whether the Taxpayers presented sufficient evidence that they have a
basis in the Charter shares on which they filed the amended returns for 1993
through 1995.
In granting the Government’s motion for summary judgment, the district
court held that the Taxpayers have produced no evidence that they were entitled to
a refund based on the amendments. The evidence that the Taxpayers did present –
calculations of the so-called “unused basis” constituting thirty percent of the basis
in the Charter debentures that the Taxpayers sold to Anderson in 1990 – failed to
show that these Taxpayers are entitled to the claimed overpayments in their
amended returns. Indeed, it is difficult to tell what cognizable legal grounds The
Taxpayers rely upon to claim a refund based on transactions between the Fickling
Children and third parties involving stock not owned by the taxpayers. In their
brief, the Taxpayers appear to offer two arguments in support of the contention
that they are entitled to deduct from their capital gains the basis on Charter stock
owned by their adult children. We consider each in turn.
6
First, the Taxpayers argue that because the 1990 sale of Charter debentures
to Anderson and resale to the Fickling Children was a sham, they ought to be
disregarded and the Taxpayers remained the owners of the stock until 1993 for
federal income tax purposes. It is not entirely clear how Taxpayers arrived at this
position. One theory that they seem to advance is that by challenging the original
return and capital loss claim filed in 1990, the Service bound itself to treat the
transaction with Anderson and the Fickling Children as a sham. This contention is
off the mark because the terms of the settlement allowed the Taxpayers to deduct
seventy percent of their claimed losses from the transaction, demonstrating that the
transaction was not disregarded for tax purposes. Moreover, the settlement
between the Taxpayers and the Service was noncommittal as between the
Government’s three legal challenges, thus belying the Taxpayers’ argument that
the Government took the position that the Anderson transaction was a sham.
Given the exacting requirements that taxpayers generally must satisfy in order to
establish estoppel against the Government, see, e.g., Bowling v. United States, 510
F.2d 112, 113 (5th Cir. 1975) (per curiam),4 the Taxpayers have failed to show that
the Anderson sale was disregarded.
4
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this court
adopted as binding precedent all of the decisions of the former Fifth Circuit prior to October 1,
1981.
7
The Taxpayers also attempt to pierce the form of their own sale to Anderson
and recast the entire deal as a sham transaction, even though they took the
opposite position in their original 1990 tax return and accepted the seventy-
percent deduction in the settlement. It is well established that “while a taxpayer is
free to organize his affairs as he chooses, nevertheless, once having done so, he
must accept the tax consequences of his choice . . . and may not enjoy the benefit
of some other route he might have chosen to follow but did not.” Bradley v.
United States, 730 F.2d 718, 720 (11th Cir. 1984) (quoting Comm’r v. Nat’l
Alfalfa Dehydrating and Milling Corp., 417 U.S. 134, 147, 94 S. Ct. 2129, 2136,
40 L. Ed. 2d 717 (1974)) (internal quotation marks omitted). The only exception
to this rule does not apply in this case because the Taxpayers produced no
evidence showing that the Anderson transaction was unenforceable ab initio due
to a contracting defect such as fraud, undue influence, or mistake. See Plante v.
Comm’r, 168 F.3d 1279, 1280-81 (11th Cir. 1999) (per curiam); Specter v.
Comm’r, 641 F.2d 376, 386 (5th Cir. April 3, 1981) .
Second, the Taxpayers argue that the settlement they reached with the
Service over the Anderson sale did not “reduc[e] the Ficklings’ basis; it only
prevented them from recognizing the entire loss claimed in 1990.” The
proposition that a settlement in which the Service recognized seventy percent of
8
the claimed losses from the transaction leaves the taxpayers with a carryover of
thirty percent of basis is nonsense; the conclusion that taxpayers should then be
able to turn around and deduct this amount from future capital gains of third
parties is nonsense upon stilts. When the Taxpayers sold their debentures to
Anderson in 1990, their entire basis in the securities was used to calculate the
claimed losses. Based on these losses, the Taxpayers and the Service reached an
agreement that extinguished both sides’ further claims. The Taxpayers now
attempt an end run around the settlement by reclaiming thirty percent of the
original basis in the debentures, but they of course relinquished any rights to such
a claim when they sold the debentures to Anderson. They cannot now double-
count that same thirty percent. Any other conclusion would eviscerate the original
settlement with the Service.
III.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
9