of federal claims conclusion that it could do so is erroneous just to step back for a minute what section thirteen forty one of the code does is it provides a limited exception to the claim of right doctor and the claim of right doctor of course is the accepted doctrine in the tax law that says that a taxpayer who receives an item of income in one year has to include it in come in that year even though he might be required to repay it or part of it at a later time what section thirteen forty one does it provides a limited exception to that rule in in cases where the taxpayer is required to war in a later year that item received in a prior year under a doesn't for a few reasons first the restoration requirement is a separate requirement it's implicit in the language of the statute itself the statute section thirteen forty one says that you know it applies when the tax payer included an item in gross income in a prior year and then can claim a deduction because it was a stablished that the taxpayer did not have an unrestricted right to that item the only way that you can get a deduction for not having an unrestricted right to an item of income is if you paid it back or if you had an obligation to pay it back well you have to pay it back to and that's what the statute says restoration to another but the thing is in this case pen il quaker state didn't restore an item of income to anyone and to get back to your question about whether the how you define gross income being dispositive really that whole issue about the section sixty one regulation it's a red  pays it back in the next year i mean the other problem with that is that that definition is completely speculative you know it's not the definition of gross income as a computational they were sued for violations of the clean air act which provides for treble damages i mean they settled the case to avoid the risk and the potential liability in the costs of litigation it's not the same items so even if you accept that regulation and where to find it applies here it's the government doesn't even if you were to accept that it's still fundamentally speculative because they can't prove that it was the same call it's full of proof is required in this situation what if  what they have to prove essential is that they included in i don't mean gross income in a prior year that they restore and that's what they can prove to you keep shifting to you do you shift the restoration that we're talking about suddenly and now in response to a settlement question you're going back to the restoration i'm going to just get it i mean the government says there's something about the supplement that makes the amount of money we're talking about here four million something too speculative and my hypothetical is what if well no because they still can't point to something they received in a prior year that they paid back i mean paying an expense is not the restoration of an item of income i mean you can i were understated but section thirteen forty one doesn't apply to the understatement of costs it applies when you receive something specific included income paid tax on it and have to pay it back in a later year the other problem with the definition i mean even if you were to accept the debt you know there's theory that you know the item of income was a computational result well then they fail the deduction requirement of the statute because what they're saying to deduct it in the current years and that is the fundamental inconsistency in the court of federal claims opinion and in the taxpayer's theory is that even if you buy the approach that well the income and i mean even if you that that's the payments were were additional costs of goods sold for the prior years then they don't get a deduction in ninety five and ninety six for paying those costs because costs of goods sold are not  additional payment for crude oil even if the court were to accept that well then clearly the payment was made with respect to an item that was included in gross income by reason of the sale inventory so yes even if this court were to find that the taxpayer met all the requirements of thirteen forty one a which we don't believe but even if that were the case then clearly they failed the inventory exception in their barred from thirteen forty one a relief under section thirteen forty one be  very similar argument the tax payer said well in that case what happened is the taxpayer paid costs in the current years to clean up past contamination and it was the same theory they said well our costs were understated in prior gross income was overstated in the district court in that case and in the companion case of reynolds mental said no section three hundred forty one doesn't apply to allegedly understated expenses there is no restoration of an item of income alcoa was argued before the third circuit in mid may and is awaiting decision in the ninth circuit case you must be referring to texaco which was the case on the inventory exception that case i believe has been fully briefed and it's awaiting argument in the ninth avoid the risks and costs and expense of litigation in order to obtain releases from the other party so i think when you look at that it further proves the government's argument that it's not the same costs and that their argument is fundamentally can read it for what it says and still accept the government's argument i think it says what they're doing is settling a lawsuit and i think quicker seats theory is that while the settlement was really additional payments for crude oil in the prior years but as a post or a bit of a breach of the law right but i think the settlement payments were not in fact additional payments for crude oil they were settlement of an anti trust lawsuit that exposed them to all sorts of other liabilit thank you thank you included in pay tax on gross income and that gross income it measures by the amount of money it receives from its customers minus the cost to manufacture and sell those products and here after gross income had already been reported and tax and tax had been paid they were sued by several crude oil suppliers claiming that the quaker state had underpaid for the amount it differently well two points first of all quaker state had one relationship with these crude oil suppliers and any amounts it paid for additional amounts to obtain the crude all that they purchased from them so i think that's the only way to fairly characterize it on people lawsuits just because the bills are running you know a million dollars a month and for four or five million dollars you're going to the whole thing that's correct but then when you look for the tax consequences courts look to the origin of the claim and go and try to glean what the what the underlying action was about and here the underlying action was about an alleged underpayment of crude oil and maybe i'm not sure if your honor was was also getting into sort of the the cully principle and that's the question of if you know whether or not it actually appeared to the taxpayer in the earlier year that they had an unrestricted right to the income and what's important here is that there was there was no finding of guilt there was no indictment and chief judge damage was also the trial judge in the i think analyze this very well the only thing i would add to his analysis is that applying this principle the courts should require that there are some extrinsic finding of guilt otherwise the courts will get embroiled in very complex trials just to establish one word in section thirteen forty one surely this case should be remanded back with instructions to chief judge damage to try a complex antitrust matter just to establish this one word in thirteen forty one i think judge proceeds focused on the right fundamental question that's the definition of gross income and the government quaker states always maintained it's a unit concept gross receipts minus cost of goods sold the government wants to lop off gross receipts in the find that in that alone as gross income and your honour's that's like trying to what your definition of gross and well i think you're right it that's what you're left with in terms of eight in terms of thirteen forty one and then you get to be the inventory exception the inventory exception there are a lot of arguments there i think they're all much ado about nothing does not apply for the simple reason that it's inapplicable when the when you later your payment is made to someone other than from whom the goods were originally sold and all of the authorities that have considered distinction have accepted that in fact the internal revenue service itself on two separate occasions in a two field service advice that it cites pages forty four and forty five it held that the it held their oil producers sold crude oil inventory to customers and also paid royalties to roll the holders and the difference between the two was the profit reported in a later year if the royalty holders sued the new all producers claiming additional royalties and the oil producers restored amount to the royalty holders paid an additional amount to the world the holders and the iris on two separate occasions expressly held that the inventory exception was inapplicable even though the original sale  cruel inventory was inapplicable because the restoration was to a party other than to whom the goods were originally sold these revenue really were these were field service advice which up if you're not suggesting are you that we give sort of deference or positions issued by the government and of course they are asserting the revenue ruling which i which we believe is a blatant bootstrap of their litigating position it's also important because they've raised the deference issue and under meade under skidmore under cleveland indians baseball which the government cites one of the factors the courts look to to and in evaluating whether to defer to a revenue or excuse me whether to refer defer to an agency interpretation is whether or not it's a longstanding position whether or not it is a longstanding consistent position and these two field service advice shows that number one this is a new position and number two those field service advice flatly contradict the irises current position and quit your state also on page forty four forty five cited case law the carlene case and also commentary that argument the government's made first of all basic tax accounting demonstrates that there's nothing inconsistent sellers of inventory they must capitalize their expenses into the goods to which they relate and in and then they realize those expenses over time as the goods are sold but in rare instances such as here where the goods have already been sold there's nothing to capitalize them to so that so it's expens really and thirteen forty one of course it's always the situation in thirty forty one case that you have a deduction in the current year and it was something else in the earlier year on what theory is this expen well that's true but in the current in the current year when you quit your state made these payments it should be beyond dispute that they're entitled to a deduction and have the option under various theories including section one sixty the hypothetical tax based on what you know today and that's what quaker state that's what your state did and other than that but you would concede that the reason that the settlement amount of allowable in the  footnote seven of the reynolds opinion in which the court held that the court stated that well if reynolds if their cost of goods sold had been lower or had been higher in the earlier period well maybe they would  just change their price point and therefore they can establish that is actually any lower i mean this type of speculation this would invalidate even the most well established uncontroversial section thirteen forty one cases it would even invalidate the treasury regulation example there a a taxpayer sold his home to a buyer and later and reported the gain on that on that sale and then in a later year a real estate broker sued for five percent commission and in order to resolve that suit the taxpayer made in addition made a payment to the real estate broker and that that qualified for section thirteen forty one what one could speculate if the seller had known that it was going to have to pay a five percent commission maybe it would just raise the height of the price of its house and so so under the government sort of speculation that that it's trying to get this gauge in even that regulation wouldn't meet the established requirement important distinctions between case and the reynolds and alcoa cases and just to mention a couple of them number one has to do with the definition of gross income is the government argued in those cases and reynolds for example reynolds had never component of its cost of goods sold during the earlier period was the price of crude oil and so so i think that's an important distinction number two has to do i i think with you can categorize it as nexus and that is payments in the later years could in any way be considered an adjustment to the price paid in the earlier period were very different it has one relationship with these crude oil suppliers purchased crude oil from them in this earlier period and the additional payments in the later years were affected lee a price adjustment on that on that  lawsuit another distinction with the reynolds case reynolds because they involve retroactive environmental laws in the earlier period they had an actual absolute right to the gross non presidential they are not supposed to be relied upon as authority and you know that that's the government's position with respect to those f s a's it's a completely different species from a revenue ruling but nothing there is no authority that holds the inventory exception is limited to payments to customers including including the case there's nothing that says that and it's completely not supported by the statute the statute thirteen forty one eight is not apply to any deduction allowable with respect to an item that was included in gross income by reason of the sale of inventory and there's no basis in the statute or the regulations or any other source for restricting that to payments to customers a couple other things just to get back to something the taxpayer said about ronald's it actually was the taxpayers therion reynolds and alcoa that the remediation expenses were included in cost of goods sold that's what they were saying that they included cleanup costs and cost of goods sold and so when they paid them later it meant that the