# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 4- 25 37

__ __ __ __ __ __ __ __ __ __ __ __ __ _

Ill in oi s Lu m

be r an d M at eri al Deal ers Ass oc ia ti on Heal th Ins ur an ce Tru st

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el le e

v.

Uni te d S ta te s o f Am eri ca

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll an t

__ __ __ __ __ __
App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Dis tri ct of M in ne so ta - Mi nn eap ol is

__ __ __ __ __ __

Su bm it te d: Marc h 1 0, 2 01 5
Fil ed : J ul y

23 , 20 15

__ __ __ __ __ __

Befo re WOL LMAN, BEAM, an d LOKEN, Circ ui t J ud ge s.

__ __ __ __ __ __

LOKEN, Ci rcu it Ju dg e.

Ill in oi s Lum

be r an d Ma t e r ia l Deal ers Ass oc ia ti on Heal th In su ran ce Trus t (“ Ill in oi s Lum

be r”) is a ta x- ex em

pt in su ran ce tru st op erat in g un de r 26 U.S.C. (I.R.C.)
§ 50 1( c)(9 ). Ill in oi s Lum be r pu rch as ed li fe in su ran ce po li c ie s is su ed by Gen eral

Am eri can Mu tu al Hol di ng Co m pa ny (“ GAMHC”)

, a m

ut ua l in su ran ce co m

pa ny. In

20 03

, G AMHC be ga n th e pr oc es s of de m ut ua li zat io n, co nv ert in g fro m an in su rer

own ed by it s p o l i c yh o ld er m em be rs to on e own ed by st oc kh ol de rs

. See ge ne ral lyDor ran ce v. Uni te d S t a t es , 87 7 F. Su pp

. 2d 82 7, 82 9- 30 (D. Ariz

. 20 12 ). In 1
Sep te m be r 20 03 , I ll in oi s Lu mb er rece iv ed a $1 ,47 4,4 42 .30 li qu id at in g di st rib ut io n

an d a le tt er rep or ti ng th at GAMH C h a d ob ta in ed a pr iv at e ru li ng fro m th e IRS th at

m em be rs hi p in te res ts qu al ifi ed as cap it al as se ts an d “ th e en ti re am ou nt of th e in it ia l

di st rib ut io n

. . . wil l co ns ti tu te lo ng -te rm cap it al ga in .” Ill in oi s Lum be r rep or te d th e

ga in o n it s Unr el at ed Bu si ne ss In co m e Tax Ret ur n fo r fis cal y ear 20 04 an d pa id a

c a p i t al ga in s ta x of $2 00 ,68 6. Ill in oi s Lum be r rece iv ed ad di ti on al GAMHC

di st rib ut io ns of $2 85 ,64 7 an d $2 13 ,56 7, whi ch it rep or te d as ta xa bl e cap it al ga in s on
it s fi sc al 20 06 an d 2 00 8 t ax ret ur ns

.

The IRS ad op te d th e po si ti on th at a po li cy ho ld er’s pr op r ie ta ry in te res t in a

m ut ua l in su ran ce co m

pa ny ha s a ta x ba si s of zero in Rev en ue Ru li ng 71 -2 33

, 19 71 -1

C

. B

. 1 1 3

. I n 20 08

, th e Co ur t of Fed eral Cl ai m s reject ed th at po si ti on

. Fi sh er v.
Uni te d St at es , 82 Fed

. Cl

. 78 0, 79 5- 97 (2 00 8)

. Ill in oi s Lum be r th en fil ed refu nd

cl ai m s fo r th e cap it al ga in s ta xe s pa id in 20 04

, 20 06

, an d 2 0 0 8

. Th e IRS de la y ed

ru li ng on th e refu nd cl ai m s un ti l th e Fed eral Ci rcu it affi rm ed th e Co ur t of Cl ai m s in

Fi sh er v. Uni te d S t a t e s , 33 3 F. App ’x 57 2 (Fed

. Ci r. 20 09 ). Ci ti ng th e Fed eral

Ci rcu it ’s de ci si on , th e IRS al lo wed Ill in oi s Lum be r’s ref u n d c l a im s fo r 20 06 an d

20 08 an d pa id refu nd s of $4 2,8 47 an d $3 2,0 35 in Ju ly 20 10

. Howev er, in Ju ne 20 11

, th e IRS de ni ed Ill in oi s Lum be r’s cl ai m fo r a 20 04 refu nd be cau se th e cl ai m was no t

fil ed wit hi n t he th ree year st at ut e o f li m it at io ns in I.R.C. § 65 11 (a).

Afte r ex ha us ti ng ad m in is tra ti ve ap pe al s, Ill in oi s Lum be r br ou gh t th is act io n

se ek in g a refu nd of th e al le ge d cap it al ga in s ta x ov erp ay m en t in fis cal y ear 20 04

. See

28 U.S.C. § 13 46 (a)( 1)

. The di st ric t co ur t de ni ed th e go ve rn m en t’s m ot io n to di sm is s
fo r la ck of juri sd ic ti on be cau se th e cl ai m was ti m e-b ar r e d a n d g ran te d Ill in oi s

Lum be r’s m ot io n fo r su m

m ary jud gm en t, co nc lu di ng th at th e I n t ern al Rev en ue

Co de ’s m it ig at io n pr ov is io ns , I.R.C. §§ 13 11 -1 31 4, ap pl y an d pe rm it co rrec ti ng th e

App eal arg ue d, No s. 1 3- 16 54 8 a nd 13 -1 66 35 (9t h C ir. Ap r. 9, 2 01 5)

. 1

-2

-erro ne ou s reco gn it io n of ga in in 20 04 th at wou ld ot he rwis e be ti m e-b arre d. See Ill

.

Lum be r

. . . Heal t h In s. Trus t v. Uni te d St at es , Ci vi l No. 13 -CV-7 15

, 20 14 W L

17 57 86 1 (D. Mi nn

. Apr

. 30

, 20 14 ). The go ve rn m en t ap pe al s. Rev ie win g th e

in te rp ret at io n a nd ap pl ic at io n o f th e m it ig at io n p ro vi si on s de no vo , we rev ers e.

I.

Gen eral ly, a ta xp ay er m

us t fil e an ad m in is tra ti ve cl ai m fo r refu nd wit h th e IRS

wit hi n th ree y ears of th e ti m e th e ta x ret ur n was fil ed or wit hi n two y ears of th e ti m e
th e ta x was pa id

. I.R.C. § 65 11 (a). Bec au se th e Uni te d St at es can no t be su ed wit ho ut

it s co ns en t, fi li ng a ti m el y refu nd cl ai m wit h th e IRS is a juri sd ic ti on al pre req ui si te

to a ta x refu nd la wsu it

. See I.R.C. § 74 22 (a); Ch ern in v. Uni te d St at es , 14 9 F.3 d 80 5,

8 1 3 ( 8t h Ci r. 19 98 ). Ill in oi s Lum be r’s 20 04 ret ur n was fil ed on Ju ly 25

, 20 04 ; no
cl ai m fo r r e f

un d was fil ed be fo re Nov em be r 23

, 20 08 ; th eref

or e, it s refu nd la wsu it

was un ti m el y

.

Bec au se th e fed eral in co m e ta x ap pl ie s to co m pl ex tra ns act io ns an d is rep or te d

an d pa id on an an nu al ba si s, th e st at ut e of li m it at io ns can res ul t in se ve re in eq ui ti es ;

“ co rrec ti on of a n e rro r m ay be ba rred by th e li m it at io ns pe rio d be fo re th e pr op er

tre at m en t is de te rm in ed an d th us ei th er th e ta xp ay er or th e pu bl ic rev en ue s m ay lo se .”

Fi rs t Nat’l Ban k of Om ah a v. Uni te d St at es , 56 5 F.2 d 50 7, 51 2 (8 th Ci r. 19 77 ). Afte r
fed eral co ur ts st ru gg le d fo r de cad es to fin d eq ui ta bl e so lu ti on s to su ch di le m m as , Co ng res s en act ed th e fir st m it ig at io n pr ov is io ns in 1 9 3 8

. The na rro w p ur po se was

to fas hi on a st at ut or y

rem ed y for si tu at io ns in whi ch
-

un de r ex is ti ng la w, an un fai r be ne fit wou ld ha ve be en ob ta in e d by [ei t h e r th e ta xp ay er or th e IRS] as su m in g an in co ns is te nt po si ti on an d
th en ta ki ng sh el te r be hi nd th e pr ot ect iv e ba rri er of th e st at ut e of
li m it at io ns

. Su ch res or t to th e st at ut e of li m it at io ns is a pl ai n m is us e of
it s fu nd am en ta l pu rp os e. The pu rp os e of th e st at ut e of li m it at i o n s t o
pr ev en t th e li ti ga t i o n of st al e cl ai m s is fu ll y reco gn iz ed an d ap pr ov ed

.

-3

-Bu t it was ne ve r in te nd ed to sa nc ti on act iv e ex pl o i t a t i on , by th e

be ne fic ia ry of th e st at ut or y ba r, of op po rtu ni ti es on ly op en to hi m if he

as su m es a p o s i t io n di am et ric al ly op po se d to th at ta ke n pr io r to th e

ru nn in g o f th e st at ut e.

S. Rep

. No. 75 -1 56 7, at 49 (1 93 8)

. The st at ut e was co m pl ex an d co nt ro ve rs ia l whe n

f i rs t en act ed

, ha s be en am en de d freq ue nt ly, an d ha s sp awn ed co nf li ct in g ju d i c i a l

in te rp ret at io ns th at are h a r d t o reco nc il e. See, e.g ., Not e, Sect io ns 13 11 -1 5 of th e

In t e r n a l R ev en ue Co de : So m e Pro bl em s in Adm in is tra ti on , 7 2 Harv . L. Rev . 1 53 6,

15 39 (19 59 ).

The cu rren t m it ig at io n pr ov is io ns pe rm it Ill in oi s Lum be r to ob ta in a refu nd of

20 04 cap it al ga in s ta x th at wou ld ot he rwis e be ba rred by § 65 11 (a) if (1 ) th ere was

a “ de te rm in at io n” as de fin ed in I.R.C. § 13 13 (a); (2 ) th e de te rm in at io n fel l wit hi n on e
of t h e “ci rcu m st an ces of ad jus tm en t” li st ed in I.R.C. § 13 12 ; an d (3 ) “ th e pa rty

ag ai ns t who m th e m it ig at io n pr ov is io ns are be in g in vo ke d [h ere, th e Secr et ary of th e

Treas ur y ] ha s m ai nt ai ne d a po si ti on in co ns is t e n t wit h th e ch al le ng ed erro ne ou s

in cl us io n

. . . of in co m e” in Ill in oi s Lum be r’s 20 04 ret ur n. O’ Bri en v. Uni te d St at es , 76 6 F.2 d 10 38 , 1 04 2 (7 t h C i r

. 1 9 8 5) ; se e I.R.C. § 13 11 ; Tax eraa s v. Uni te d St at es , 26 9 F.2 d 28 3, 28 9 (8 th Ci r. 1 9 5 9 ) ( “o n e cl ai m in g th e be ne fit s [o f m it ig at io n] m us t

as su m e th e bu rd en of pr ov in g th e ex is te nc e of th e pr ereq ui si te s to it s ap pl ic ab il it y ”).

The fir st two req ui rem en ts rai s e t ho rn y in te rp ret iv e is su es th at we ne ed no t

res ol ve in th is cas e. The pa rti es ag ree th at th e on ly po te n t i a l l y ap pl ic ab le

“ ci rcu m st an ce o f ad

jus tm en t” is § 1 31 2( 7) , whi ch pro vi de s i n re le va nt pa rt:

(7 ) Ba si s of pro pert y af ter err on eo us trea tm ent of a pri or
tra ns ac tio n. --

(A) Gen era l rul e.

-- The de te rm in at io n de te rm in es th e ba s i s of

pr op ert y , an d in res pe ct of an y tra ns act io n on whi ch su ch ba si s de pe nd s,

or in res pe ct o f an y tra ns act io n whi ch was erro ne ou sl y tre at ed as

-4

-affe c t i n g s u c h ba si s, th ere oc cu rred

. . . an y of th e erro rs de sc rib ed in

su bp arag rap h (C ) of

th is pa rag rap h.

* * * * *

(C) Prio r erro neo u s t rea tm ent.

-- W it h res pe ct to a ta xp ay er de sc rib ed in su bp arag rap h (B ) . . .

(i) th ere was an erro ne ou s i nc lu si on in , or o m is si on fro m , gr os s i nc om e, [o r]

(ii ) th ere was an erro ne ou s reco gn it io n, or no nr eco gn it io n, of ga in or l os s . . . .

T he legi sl at iv e hi st or y an d th e Treas ur y Reg ul at io ns pr ov id e ex am pl es of w he n

a ta xp ay er m ay

su cces sf ul ly inv ok e th is cir cu m st an ce o f ad jus tm en t:

In 19 31 th e ta xp ay er recei ve d s ecu rit ie s o f co rp or at io n A h av in g a fai r

m ark et va lu e of $5 ,00 0 in ex ch a n ge fo r se cu rit ie s of co rp or at io n B
whi ch co st hi m $1 2,0 00

. The ta xp ay er tr e a t e d th e ex ch an ge as on e in
whi ch ga in or l os s was no t reco gn iz ab le an d u po n a ud it th e ret ur n was

acce pt ed as fil ed

. He so ld th e A se cu rit i e s in 19 37 fo r $1 5,0 00 an d

rep or te d $3 ,00 0 ga in

. Afte r th e st at ut e of li m it at io ns ha d ru n on refu nd
cl ai m s fo r 19 31

, th e Co m

m is si on er as se rte d a de fic ie nc y fo r 19 37 on th e
gr ou nd th at th e lo ss real iz ed on th e ex ch an ge in 19 31 was e rro ne ou sl y
tre at ed as n on reco gn iz ab le , and th at th e ba si s for g ai n o r lo ss up on th e

sa le was $5 ,00 0, res ul ti ng in a g a i n o f $1 0,0 00

. The ta xp ay er an d th e Co m m is si on er th en en te red in to a cl os in g ag reem en t fo r 19 37 in whi ch
th e ta xp ay er ag reed to th e Co m m is si on er’s de te rm i n a t io n. To pr ev en t th e in co ns is te nt res or t to th e lo wer ba si s res ul ti ng in co m pl et e de ni al of

a de du ct io n fo r th e lo ss su st ai ne d in 19 31

, an ad jus tm en t wou ld be m ad e

. . . .

S. R e p

. No. 75 -1 56 7, at 49 ; se e Treas

. Reg

. § 1.1 31 2- 7, ex

. 4. In ge ne ral

,

co m m en ta to rs ag ree th at

, a s o n e p u t it

, “ [t]he op aci ty of th e m it ig at io n pr ov is io ns

-5

-pr ob ab ly reac he s it s zen it h wit h” th e ci rcu m st an ce of ad jus tm en t in § 13 12 (7 ). Jo hn

A

. Ly nc h, Jr

., In co m e Tax St at ut e of Lim it at io ns : Si xt y Years of Mi ti ga ti on

- - Eno ug h, Alre ad y !!, 51 S.C.L. Rev

. 62

, 87 (1 99 9)

. Ano th er co nc lu de d th at th e ba si s

pr ov is io n “ cri es fo r am en dm en t; an d

. . . un ti l am en dm en t co m es , we are li ke ly to se e

so m e ha rd cas es de ci de d i n h ars h way s an d ot he rs in to ta l di sr eg ard of th e st at ut e.”

Dan ie l Can de e Kni ck erb oc ke r, Jr

., Myster ie s of Mi ti ga ti on : The Ope ni ng of Barr ed

Years in Inc om e Tax Cas es , 30 Fo rd ha m L. Rev. 2 25 , 25 8 (1 96 1)

.

“ Tax ba si s is t h e a mo u n t us ed as th e co st of an as se t whe n co m pu ti ng ho w

m uc h it s own er ga in ed or lo st fo r ta x pu rp os es whe n di sp os in g of it .” Uni te d St at es

v. W oo ds

, 13 4 S. Ct

. 55 7, 56 1 (2 01 3) ; se e I.R.C. § 10 12

. C o n s i s t en t wit h th at

pr in ci pl e, co ur ts ha ve fo un d th at a po li cy ho ld er’s ta x ba si s in th e pr op rie ta ry po rti on
of a d e mu t u al iz ed in te res t de pe nd s up on th e in it ia l acq ui si ti on of th e in te res t, typic al ly, whe n m

ut ua l in su ran ce po li cy pr em iu m s were pa id

. See Fi sh er, 82 Fed

. Cl

.
at 79 9; Dor ran ce, 87 7 F. Su pp

. 2d at 83 7; St ep he n J. Ols en , Ch uc k vs

. Gol ia th : Bas is

of St oc k Rec ei ve d in Dem ut ua li zat io n of Mu tu al In su ran ce Co m pa ni es , 9 Hou s. Bu s.

& Tax L. J. 36 0, 38 2 (2 00 9)

. App lying th e awk ward la ng ua ge of § 13 12 (7 )(A) in th is

co nt ex t i s i nd eed pe rp le xi ng

.

Sect io n 13 13 (a)( 3) (B) pr ov id es th at th e Secr et ary’ s fin al d i s a l lo wan ce of a
cl ai m fo r refu nd is a qu al ifyin g de te rm in at io n “ as to it em s wit h res pe ct to whi ch th e

c l a i m was di sa ll owe d

. . . on ex pi rat io n of th e ti m e fo r in st it ut in g su it wit h res pe c t

th eret o (u nl es s su it is in st it ut ed be fo re th e ex pi rat io n of su ch ti m e)

. ” App lying
§ 13 13 (a)( 3)

, th e di st ric t co ur t co nc lu de d th at th e qu al ifyin g “ de te rm in at io n” in th is

cas e was th e Secr et ary’ s fin al di sp os it io n of Ill in oi s Lum be r’s cl ai m fo r refu nd

. Ill

. Lum be r, 20 14 W L 1 75 78 61 , a t *1 1. On ap pe al , t he go ve rn m en t arg ue s th e di st ric t

co ur t erre d be cau se Ill in oi s Lum be r ti m el y i n st it ut ed th is refu nd su it

. W e ne ed no t

de ci de th at m

ys ti fy in g qu es ti on of st at ut or y co ns tru ct io n be cau se th ere is a m or e
fu nd am en ta l fl aw in th e d is tri ct co ur t’s “ de te rm in at io n” de ci si on

.

-6

-The Secr et ary d e n i e d Ill in oi s Lum be r’s cl ai m fo r refu nd of 20 04 ta x pa id

be cau se th e cl ai m was un ti m el y

. The refo re, ev en if th at ru li ng was a “ de te rm in at io n,”

it was no t a “ de te rm in at io n [th at ] de te rm in e[d ] th e ba si s of pr op ert y ,” as § 13 12 (7 )(A)

req ui res

. The IRS di sa ll owa nc e co rres po nd en ce no te d th at th e cl ai m wou ld ha ve
b e e n gr an te d ha d it be en ti m el y fil ed

, bu t th at vo lu nt eere d co m m en t w a s n o t a

“ de te rm in at io n [o f] the ba si s o f pr op ert y .” On th e ot he r ha nd , t he Secr et ary’ s p rio r
al lo wan ce of Ill in oi s Lum be r’s ti m el y cl ai m s fo r refu nd of cap it al ga in s ta xe s pa id in

20 06 an d 20 08 was a de te rm in at io n es ta bl is hi ng th at Ill in oi s Lum be r ha d erro ne ou sl y
de te r mine d th e ba si s of it s de m ut ua li zed in te res t in 20 04

. Howev er, whe th er th at

de te rm in at io n co ul d qu al ify Ill in oi s Lum be r fo r a d ju s t ment of a ti m e-b arre d 20 04

erro r affe ct in g ba si s un de r § 13 12 (7 ) is an is su e -- no t ad dr es se d by th e pa rti es or th e
di st ric t co ur t -- th at ha s pr od uc ed co nf li ct in g jud ic ia l de ci si on s an d co m m en ta ry

. See

Kni ck erb oc ke r, Myster ie s of Mi ti ga ti on , 30 Fo rd ha m L. Rev

. at 25 5- 58 ; Ly nc h, Si xt y

Years of M it ig at io n, 5 1 S .C.L. Rev . at 8 7- 92 ; an d c as es cit ed

.

In ou r vi ew, th e an swe r t o th e m it ig at io n qu es ti on in th is cas e be co m es cl ear
whe n we fo cu s on th e th ird pr ereq ui si te , a n “ in co ns is te nc y ” th a t p ro vi de s th e pa rty

in vo ki ng th e st at ut e of li m it at io ns an ad va nt ag e by “ as su m [in g] a po si ti on
di am et ric al ly op po se d to th at ta ke n pri or to th e ru nn in g of the st at ut e.” S. Rep

. No.

75 -1 56 7, at 49

, co di fie d i n § 13 11 (b )(1 ). The re was no su ch in co ns is te nc y by th e

go ve rn m en t in th is cas e. Fi rs t, th e IRS di d no t act iv el y ch an ge it s lo ng st an di ng

po si t i o n t ha t m

ut ua l po li cy ho ld ers ’ pr op rie ta ry in te res ts ha ve a zero ba si s whe n an

in su ran ce co m

pa ny de m ut ua li zes

. The Secr et ary si m pl y acq ui es ced in th e Fed eral

Ci rcu it ’s reject io n of th at p o s i t i o n

. Seco nd

, fo cu si ng on th e ba si s is su e, th e

go ve rn m en t ga in ed no “ un fai r ta x ad va nt ag e by ta ki ng on e po si ti on at th e ti m e of th e

acq ui si ti on of pr op ert y an d an in co ns is te nt po si ti on at th e ti m e of it s di sp os it io n.” S.
Rep

. No. 75 -1 56 7, at 50

. It si m pl y al lo wed Ill in oi s Lum be r’s ti m el y cl ai m s fo r 2

Co m pa re Uni te d St at es v. Ro se nb erg er, 23 5 F.2 d 69

, 71 -7 3 (8 th Ci r. 19 56 ), 2

whe re th e go ve rn m en t, li ti ga ti ng an is su e affe ct in g ba si s i n on e ta x y ear, of fs et th e

-7

-refu nd ba se d up on jud ic ia l reject io n of th e IRS’s pr io r po si ti on , whi le as se rti ng th at

th e st at ut e o f li m it at io ns ba rred rev ie w of t he is su e in 20 04 , a clo se d t ax y ear.

Th i s pr in ci pl e is well -il lu st rat ed by a cas e th e go ve rn m en t em ph as iz ed o n

ap pe al bu t fa il ed to cit e to th e d is tri ct co ur t. In Bri gh am v. Un it ed Sta te s, 4 70 F.2d

57 1 (Ct

. Cl

. 19 72 ), ta xp ay ers so ld sh ares in a co rp or at io n on an in st al lm en t ba si s,

rep or te d th e ga in s each y ear as cap it al ga in s, an d pr ot es te d whe n th e IRS recl as si fie d

th e ga in in 19 62 as or di na ry in co m e. The Co m m is si on er con ced ed th e is su e fo r th e

19 62 ta x y ear ba se d on a R e v e n u e R u l i n g th at ha d acq ui es ced in a co nt rary 19 65

Su pr em e Co ur t d eci si on . Taxp ay ers th en fil ed refu nd cl ai m s for th e 19 58 -1 96 1 t ax

y ears

. The Co ur t of Cl ai m s he ld th at th e m it ig at io n pr ov is io ns di d no t ap pl y an d th e
cl ai m s wer e th eref

or e ti m e-b arre d:

Th e cru ci al is su e is whe th er th e Co m m is si on er of In te rn a l

Rev en ue ha s ac ti vel

y mai nt ai ne d a po si ti on wit h reg ard to th e 19 62
de te rm in at io n whi ch i s in co ns is te nt wit h th e erro ne ou s in cl us io n or

reco gn it io n. The req ui rem en t o f th e mai nt en an ce of th e in co ns is te nt

po si ti on is ba si c to th e ex is te nc e of th e st at ut or y m it ig at io n pr ov is io ns

.

. . . Oth erwi se , th e m it ig at io n pr ov is io ns wil l n ot pe rm it th e ta xp ay ers
to “ awak en th e sl eep in g d og .”

* * * *

The Rev en ue Ru li ng was , in effe ct

, an acq ui es cen ce wit h th e Bro wn de ci si on of th e Uni t e d S t at es Su pr em e Co ur t.

. . . The fu nc ti on of th e

ru li ng was acq ui es cen ce, no t co m m an d.

. . . The Co m

m is si on er ha s no t

at te m pt ed to ex pl oi t th e st at ut e o f l i m it at io ns by ad op ti ng an in co ns is te nt st an c e f

o r an op en y ear. The Co m m is si on er, to th e

co nt rary, ha s m erel y acce de d to th e pl ai nt iff s’ de m an d fo r th e op en y ear.

. . . In th e fact ua l pa tt ern be fo re us , ad jus tm en ts fo r on e y ear do no t ha ve

ta xp ay er’s reco ve ry by acq ui es ci ng in th e ta xp ay er’s ch an ge of po si ti o n

. W e

co nc lu de d th is crea te d an un fai r ad va nt ag e th at sh ou ld b e ad jus te d un de r th e

m it ig at io n p ro vi si on s b y

m ak in g t he same bas is -aff ect in g c ha ng e in a cl os ed y ear.

-8

-a co ns eq ue nt ia l effe ct on ot he r y ears

. . . . Afte r a ch an ge in th e

in te rp ret at io n of th e la w, th e ta xp ay ers are at te m pt in g to reo pe n cl os ed

y ears

. . . .

47 0 F .2d at 5 74 -7 6 (e m

ph as is in ori gi na l; cit at io n om it te d) . Th at is th e si tu at io n i n
th is cas e. By co nt ras t, in Fi rs t Nati on al Ban k of Om ah a, we ap pl ie d th e ci rcu m st an ce
of ad ju s t men t in § 13 12 (1 ) be cau se “ un de r ou r syste m of an nu al in co m e ta x

acco un t in g it is in co ns is te nt to req ui re th e sa m e m on ey to be reco gn iz ed an d

acco un te d fo r in in co m e ta x ret ur ns in two di ffer en t y ears .” 56 5 F. 2 d a t 5 1 5

. W e
ob se rv ed th at it was “ ev id en t” th e m it ig at io n pr ov is io ns di d no t ap pl y in B r i g h a m

. Id . at 5 16 n.1 7.

W e co nc lu de th at Bri gh am is pe rs ua si ve au th or it y in th is cas e. The fai rn es s or

un fai rn es s of reo pe ni ng Ill in oi s Lum be r’s cl os ed 20 04 ta x y ear is no di ffer en t th an

if th e IRS ha d all owe d a di ff er en t GAMHC m

ut ua l po li cy ho ld er’s tim el y cl ai m s fo r
refu nd s of cap it al ga in s ta xe s pa id in 20 06 an d 20 08

. In ot he r wor ds

, Ill in oi s Lum be r

ur ge s us to in te rp ret th e m it ig at io n pr ov is io ns as al lo win g ta xp ay ers to reo pe n cl os ed

ta x y ears ba se d up on a fav or ab le ch an ge in

, or re i n t e rp ret at io n of

, th e in co m e ta x
l a w s

. Tha t wou ld be fu nd am en ta ll y in co ns is te nt wit h th e co ng res si on al in te nt in

en act in g th e m it ig at io n pr ov is io ns to “ pr es erv e un im pa ire d th e es se nt ia l fu nc ti on of

th e st at ut e of li m it at io ns .” Tax eraa s, 26 9 F

. 2 d a t 28 9, ci ti ng S. Rep

. No. 75 -1 56 7.

It wou ld al so ha ve a po te nt ia ll y s u b s t a n t ia l im pa ct on fed eral ta x rev en ue s th at

Co ng res s cl earl y

di d n ot in te nd

.

Fo r th es e reas on s, th e di st ric t co ur t co ns tru ed th e “ in co ns is te nt po si ti on ”

pr ov is io n in § 13 11 (b )( 1 ) f a r t oo br oa dl y in co nc lu di ng th at “ a ta xp ay er m ay cl ai m

a refu nd fo r a ba rred y ear where th e co rrec t re su lt is gi ve n effec t in an op en y ear by

a de te rm in at io n, an d th at co rrec t res ul t is in co ns is te nt wit h th e tre at m en t of th e it em

in a ba rred y ear.” Ill in oi s Lum be r, 2 0 1 4 WL 17 57 86 1, at *1 5 (q uo ta ti on om it te d)

. Fo r th e m it ig at io n pr ov is io ns to ap pl y , th ere m us t be an “ in co ns is te nc y ” th at

, un le ss

-9

-ad

jus te d, wil l cau se th e types of u n f a i r res ul ts in su cces si ve ta x y ears de sc rib ed in
§ 13 12

. Here, th ere was no in co ns is te nc y , m erel y di ffer en t res ul ts in su cces si ve ta x

y ears res ul t i n g fro m a jud ic ia ll y -impos ed ch an ge in th e ta x tre at m en t of a co m pl ex

tra ns act io n. Had Ill in oi s Lu mb er ti m el y ch al le ng ed th e IRS’s po si ti on , as th e

ta x p ay er di d in Fi sh er, it wou ld ha ve ob ta in ed a refu nd of th e cap it al ga in s ta x in

20 04

, as well as in 20 06 an d 20 08

. Hav in g sl ep t on it s rig h t s i n 2 0 0 4 be y on d th e

ap pl ic ab le st at ut e of li m it at io ns , it m ay no t us e th e m it ig at io n pr ov is io ns to “ awak en
th e sl eep in g d og .”

The jud gm en t of th e di st ric t co ur t is rev e r s ed

. Bec au se th e m it ig at io n

pr ov is io ns do no t ap pl y , Ill in oi s Lum be r’s refu nd cl ai m is ti m e-b arre d. Acco rd in gl y ,

we rem an d wi th in st ru ct io ns to di sm is s t he co m pl ai nt for lac k o f juri sd ic ti on

.

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