# In the United States Court of Federal Claims

KYOCERA AVX Components C orporation

,

Plaintiff,

v.

THE UNITED STATES OF AMERICA

,

Defendant. 

### ) ) ) ) ) ) ) ) ) ) ) ) No. 21

- 2146C (Filed: March 28, 2023 )

George B. Abney

, Alston & Bird LLP

, Atlanta

, Ga. , for Plaintiffs.

Jason Bergmann

, Tax Division , U.S. Department of Justice, Washington, D

. C

. , with

whom w ere David I. Pincus

, Chief, Court of Federal Claims Section, and David A.

Hubbert , Deputy Assistant Attorney General, for Defend ant.

OPINION AND ORDER

KAPLAN, Chief Judge.

KYOCERA AVX Components Corporation ( “ AVX ” ) brought this action seek ing

tax refund s for the tax year s ending March 31, 2007

, and March 31, 2008

. The I nternal

R evenue S ervice ( “ IRS ” ) withheld some $1.34 million from tax refund s it provided AVX

in 2020 as offset s against e xcess overpayment i nterest it had paid AVX in 2017

. AVX

contends that the offset s w ere illegal under P ac ific G as & E lec tric v. United States ( PG&E )

, 417 F.3d 1375 (Fed. Cir. 2005), because they w ere effected after the expiration

of the two

- year statute of limitations set forth in 26 U.S.C. § 7405 and 26 U.S.C. § 6532(b). See PG& E

, 417 F.3d at 1384 (holding that “the [IR S’s ] ability to offset erroneously paid statutory interest against a taxpayer’s refund claim . . . is subject to the same statute of limitations that applies to suits by the United States to recover erroneous refunds of taxes or erroneous payments of interest on refunds” ).

The United States responds that this case is factually distinguishable from PG&E

. It further contends that, even if PG&E is controlling, the court of appeals did not resolve

in that case whether the common

- law right of recoupment

— which is no t subject to

statutes of limitations

—

provided the IRS with an alternative basis for retaining portion s of AVX’s refund s equal to the amount of the excessive interest payments.2 Currently before the Court are the parties’ cross

- motions for judgment on the pl eadings. For the reasons set forth below, the Court agrees with AVX that this case is on

all fours with PG&E and also that the common

- law right of recoupment is inapplicable.

AVX’s motion is therefore GRANTED , and the government’s cross

- motion is DENIED

.

BACKGROUND 1

I. 2017 Refund Payments

In 2016, AVX filed refund claims with the IRS for tax years 2007 and 2008. Compl. ¶ 9, ECF No. 2

. 2 AVX requested t he refund s on the bas is o f net operating losses

incurred in tax year 2014 and carried back to 2007 and prior years, and on the basis of

certain carry forward tax credits

. Id. ; see also id. Ex. 1 at 2

– 3 ( 2007 IRS Form 1120x),

ECF No. 2

- 1; id. Ex. 2 at 2

– 3 ( 2008 IRS Form 1120x), ECF No. 2

- 2. 3 AVX claimed it

was due a refund o f more than $13 million for tax year 2007

. Compl. ¶ 9. It claimed a $5.6 million refund for tax year 2008. Id.

In 2017, the IRS notified AVX that it had decided to allow some portion s of the

refund claims for tax years 2007 and 2008

. Id. ¶ 11; see also id. Ex. 3 at 2

– 3 (IRS Letter 569), ECF No. 2

- 3. It issued refund payments to AVX in 2017 for the allowed amounts

. Compl. ¶ 13 ; Answer ¶ 13, ECF No. 15

. In addition, the IRS provided AVX with almost $1.8 mill ion in overpayment interest for tax years 2007 and 2008. Answer ¶ 13; see also Compl. ¶ 13; App. to Def.’s Resp. to Pl.’s Mot. for J. on Pleadings & Def.’s Cross

- Mot. for J. on Pleadings (“Def.’s Cross

- Mot. App.”) at 4, 8 (Tax Year 2007 & 2008 IRS

Account Transcripts), ECF No. 26

- 1. 4

1 The facts in this section , which are undisputed, are taken from the parties’ pleadings

, documents incorporated into those pleadings by reference, appendices to the government’s motions, and statutes subject to judicial notice. See T.H.R. Enters., Inc. v.

United States , 160 Fed. Cl. 236, 239 ( 2022) (citing 5C Charles A lan Wright & Arthur R. Miller, Federal Practice and Procedure § 1367 (3d ed. 2004)).

2 AVX filed its complaint and attached exhibits under seal. See Compl., ECF No. 1; id.

Exs. 1

– 4, ECF Nos. 1

- 1 to 1

- 4; see also Pl.’s Mot. to File Compl. Under Seal, ECF No. 3; Order, ECF No. 7. At the same time, AVX proposed redactions to the complaint and

exhibits

, s ee Compl., ECF No. 2; id. Exs. 1

– 4, ECF Nos. 2

- 1 to 2

- 4

, which t he Court

ordered to be unsealed

, Order, ECF No. 12; see also Def.’s Mot. to Unseal, ECF No. 9. In this opinion, the Court will cite the redacted, publicly available complaint and exhibits.

3 The Court refers to the page numbers generated by its electronic filing system when citing the exhibits attached to AVX’s complaint.

4 Overpayment interest accrues “upon any overpayment” of tax “from the date of the overpayment.” 26 U.S.C. § 6611; see a lso 26 U.S.C. § 6621(a)(1) (establishing the interest rate on overpayments).3 Overall, and as reflected in the table that follows, the IRS made payments to AVX

in 2017 total ing $10,550,798.21 for 2007 and $3,792,619.75 for 2008 :

Tax Year 2007 Tax Year 2008

AVX’s Refund Claim s $13,087,535.00 $5,606,201.00

Allowed Amounts $9,052,954.00 $3,412,664.00

Overpayment Interest $1,424,582.67 $351,775.51

Deficiency Interest $73,261.54 $28,180.24

Total 2017 Refund $10,550,798.21 $3,792,619.75

Answer ¶ 13; Compl. ¶ 13; Compl. Ex. 1 at 2

– 3; Compl. Ex. 2 at 2

– 3; Compl. Ex. 3 at 6;

Def.’s Cross

- Mot. App. at 4, 8.

II. Offsets Applied Against Additional Refunds in 2020

AVX continued to pursue the allowance of more of its refund claims for tax years 2007 and 2008 which, as noted, it based on certain tax credits. See Compl. ¶ 14 ; see also

id. Ex. 1 at 2; id. Ex. 2 at 2; id. Ex. 3 at 7

. On October 23, 2019, the IRS agreed to allow an additional $2.4 million refund for 2007 and $2.2 millio n for 2008. Compl. ¶ 14; 5 see also id. Ex. 4 (IRS Form 870

- AD) at 2

– 3 , ECF No. 23. 6

In the course of preparing to make these additional refund payments

, however, the

IRS discovered that it had erred when calculating the overpayment interest due AVX in

connection with the refund payments it provided in 2017. Answer ¶ ¶ 13, 35. As a result, it had paid AVX $1.34 million more than it was entitled to receive

. See id. ¶ 32. In addition, the IRS discovered that in 2017 it had refunded roughly $60,000 in excessive deficiency interest. See i d. ¶ 33

. 7 W hen the IRS issued the additional refund payments in

2020

, it withheld $1.4 million from th em to offset the overpayment interest it erroneously

5 These amounts also reflected more recent adjustments to AVX’s refund claims based on information from the 2016 tax year. Answer ¶ 14; see also Compl. Ex. 4 at 3.

6 AVX included Exhibit 4 with its complaint. See Compl. Ex. 4, ECF No. 2

- 4. That filing, however, was incomplete

. See Answer ¶ 15. AVX later re placed its original filing with an updated exhibit that include s more details about AVX’s refunds. See Am. Doc.

, ECF No. 23. The Court will cite this latest fili ng as Exhibit 4 to AVX’s complaint.

7 Deficiency interest accrues on “any amount of tax” that “is not paid on or before the last date prescribed for payment.” 26 U.S.C. § 6601 (a) ; see also 26 U.S.C. § 6621(a)(2) (establishing the interest rate on underpayments).4

p rovided AVX in 2017 as well as the excess deficiency interest it had refunded. Id. ¶¶ 20

– 22, 26

– 28; Compl. ¶¶ 18, 20

– 22, 26

– 28.

T he 2020 refund payments totaled $1,266,105.00 for 2007 and $1,940,878.16 for

2008 , as set forth in the table below :

Tax Year 2007 Tax Year 2008

Additional Allowed

Amounts $2,421,197 $2,193,522

Excess Overpayment

Interest Offset $1,108,538 $235,382

Deficiency Interest Offset $46,554 $17,262

Total 2020 Refund $1,266,105 $1,940,878

Compl. ¶¶ 14, 16 ; id. Ex. 4 at 2

– 3; Answer ¶¶ 14, 16, 21, 27 ; Def.’s Cross

- Mot . App. at 5, 8, 9

– 12.

III. This Action

In November 2021, AVX filed the complaint in this case. Compl. at 8. Its complaint request ed a refund of the $1.4 million that the IRS withheld in 2020. Id. ¶¶ 20

– 24, 26

– 30, Prayer for Relief. The government answered in April 2022 and admitted that

the IRS offset t hat amount against AVX’s 2020 refunds to recover the excess

overpayment interest the IRS had paid in error , and the excess deficiency interest it h ad

refunded in 2017

. Answer ¶¶ 21

– 22, 27

– 28.

In May 2022, AVX moved for judgment on the pleadings

. See Pl.’s Mot. for J. on Pleadings (“Pl.’s Mot.”), ECF No. 18. Relying on the PG& E decision, AVX argues that

the Internal Revenue Code’s two

- year statute of limitations on suits to recover erroneous

refunds barred the IRS from reducing AVX’s 2020 refunds to recover the $1.34 million in overpayment interest that the IRS paid it three years earlier. Id

. at 1

– 2, 4

– 7

. 8

8 As noted, AVX sought to recover $1.4 million in its complaint. Compl. ¶ 1. That

amount included both the offset s for the excessive overpayment interest that the IRS paid

AVX in 2 017 and the offset s for the excess deficiency interest refunded to AVX that

year

. Answer ¶¶ 21

– 22, 27

– 28 , 32

– 33, 36

– 37

. In its motion for judgment on the pleadings, AVX no longer claims that the offset s for the excess deficiency interest

refunded to it in 2017 w ere barred by the statute of limitations and so requests a slightly lower award of $1.34 million

. See Pl.’s Mot. at 4

– 7. For the reasons set forth below in the

Discussion at II .C. , the Court will grant the government’s motion for judgment on the pleadings as to the portion of AVX’s claim that challenges the offset s imposed for the excess deficiency interest.5 The government filed a cross

- motion for judgment on the pleadings in July 2022.

Se e Def.’s Resp. to Pl.’s Mot. & Def.’s Cross

- Mot. for J. on Pleadings (“Def.’s

Cross

- Mot.”), ECF No. 26. It claims that this case is factually distinguish able from

PG&E

. Id. at 10

– 13. T herefore, it says, the court of appeals’ decision did not prohibit the IRS from exercising its common

- law right of offset to recover the excessive interest payments after the statute of limitations had run by offsetting that amount against AVX’s

2020 re funds. Id. at 10

– 16, 18. In addition, it contends that the common

- law right of recoupment also allowed the IRS to recover the excessive interest payments. Id. at 13

– 14,

16

– 17.

In September 2022, AVX filed its reply in support of its motion and its response to the government’s cross

- motion

. See Pl.’s Resp. to Def.’s Cross

- Mot. (“Pl.’s Resp.”), ECF No. 29. The government filed its reply in October 2022

. See generally Def.’s Reply in Support of its Cross

- Mot. (“Def.’s Reply”), ECF No. 33.

The Court held an oral argument on the parties’ cross

- motions on March 16,

2023

. See Order, ECF No. 35.

DISCUSSION

I. Standards for Judgment on the Pleadings

Under Rule 12(c) of the Rules of the Court of Federal Claims (“RCFC”), parties may move for judgme nt on the pleadings “[a]fter the pleadings are closed.” A p arty moving for judgment on the pleadings may prevail on its motion “where there are no material facts in dispute and the [ party ] is entitled to judgment as a matter of law.” N

. Z

. Lamb Co. v. United States , 40 F.3d 377, 380 (Fed. Cir. 1994).

A defendant may use a motion for judgment on the pleadings to challenge expressly th e sufficiency of a complaint under RCFC 12(b)(6) . RCFC 12(h )(2). Under RCFC 12(b)(6), a complaint is subject to dismissal “when the facts asserted by the claimant do not entitle him to a legal remedy.” Lindsay v. United States , 295 F.3d 1252, 1257 (Fed. Cir. 2002). To avoid dismissal on this basis, “ a complaint mu st contain sufficient factual matter, accepted as true, to ‘ state a claim to relief that is plausible on its

face. ’” Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly

, 550 U.S. 544, 570 (2007) ).

A court considering a defendan t’s motion for judgment on the pleadings likewise

must accept as true the plaintiff’s factual allegations “and make all reasonable inferences in favor of the plaintiff.” Agility Pub. Warehousing Co. K.S.C.P. v. United States , 969 F.3d 1355, 1364 (Fed. Cir. 2020) (quoting Cary v. United States , 552 F.3d 1373, 1376 (Fed. Cir. 2009)) ; see also id. (“A ‘court should only grant a defendant’s motion for judgment on the pleadings if the defendant is clearly entitled to judgment on the basis of the facts as the plaintiff has presented them.’” (quoting Owen v. United States , 851 F.2d 1404, 1407 (Fed. Cir. 1988))).6

II. M erits

A. Right of Offset and Pacific Gas & Electric

As noted, AVX contends th at the two

- year statute of limitations set forth at 26 U.S.C. §§ 7405 and 6532(b) precluded the IRS from offsetting the excessive overpayment interest that it paid AVX in 2017 against the amount of t he refund otherwise

due AVX and paid in 2020. Pl.’s Mot. at 1

– 2, 4

– 7. It argues that this result is compelled by the court of appeals’ decision in P G& E

. Id. The Court agrees.

In P G&E

, the taxpayer filed a refund request for tax year 1982. 417 F.3d at 1377. The IRS granted the request in 1988

. Id. I n the course of preparing the refund payment, however, the IRS miscalculated and overstated the amount of overpayment interest the taxpayer was entitled to receive under 26 U.S.C. § 6 611

. Id. As a result of the IRS’s

error, t he taxpayer received a refund payment in 1988 that included an excessive amount of overpayment interest

. Id.

Sometime thereafter, the taxpayer filed other refund claim s for tax year 1982. Id.

T he IRS again found the taxpayer entitled to a refund

. See i d. As it prepared the refund

payment

, however, the IRS discovered th e error it made when calculating the amount of overpayment interest to be included with the 1988 refund

. Id. When the IRS issued the refund payment, in 1992, it reduc ed the amount of the refund by the amount of the excess interest payment that it had provided the taxpayer with the 1988 refund. Id.

Th e taxpayer in PG&E challenged the offset on the grounds that it was untimely

because it was effected more than two years after receipt of the excessive interest

payment in 1988

. Id. at 1377

– 78. The Federal Circuit agreed

. Id. at 1384. It held that the

Internal Revenue Code’s two

- year statute of limitations on lawsuits to recover erroneous

refunds also restricted the IRS’s “ability to offset erroneously paid [overpayment] interest against a taxpayer’s refund claim.” Id.

In so ruling, t he Federa l Circuit distinguished a line of cases which recognize the

IRS ’s right

— without regard to the expiration of any applicable limitations period

— to
offset a tax liability against a refund otherwise due for the same tax year. Id. at 1379

– 83 ( cit ing Lewis v. Reynolds , 284 U.S. 281 (1932) ; Dysart v. United States , 340 F.2d 624 (Ct. Cl. 1965); Fisher v. United States , 80 F.3d 1576 (Fed. Cir. 1996) )

. As the court of appeals explained in PG&E , t h e right of offset that emerged from these cases was based

on the recognition that the IRS has no obligation to issue a refund when the taxpayer still

owes tax es for the same tax year :

The common thread in these cases is that the refund statu t e requires that

there be an act ual overpayment of tax to support a refund. There cannot be such an overpayment without taking into account any additional amount of assessable tax, interest, or penalty owed by the taxpayer even though such7 an amount could not be assessed and collected because of the running of

the statute of limitations.

Id. at 1381.

In PG& E

, t h e court of appeals concluded that this longstanding rationale for permitting the IRS to employ offsets beyond the limitations period is not applicable

where the IRS seeks to offset a debt that is “not a tax liability component or assessable.”

Id. W hen the IRS provides a taxpayer too much overpayment interest , the taxpayer owes the excess payment amount to the government “ because they have been unjustly enriched by it, not because they have not paid their taxes .” Id. at 1382 (quoting O’Bryant v. United

States , 49 F.3d 340, 346 (7th Cir. 1995)). O ffsetting excessive overpayment interest against a tax refund , the court observed

, was inste ad “akin to a cause of action by the government in a suit to recover the erroneous interest.” Id. at 1384 ; see also 26 U.S.C. § 7405. “Thus,” the Federal Circuit held, “the [IRS’s] ability to offset erroneously paid [overpayment] interest against a taxpaye r’s refund claim in the same tax year is subject to the same statute of limitations that applies to suits” under section 7405. PG&E , 417 F.3d at 1384; see also 26 U.S.C. § § 6532(b) , 7405

.

In its cross

- motion, t he government contends that the Federal Circui t’s reasoning

in PG&E was flawed in several respects. Def.’s Cross

- Mot. at 14

– 16. But as the government knows, this Court is bound by decisions of the court of appeals. See

Strickland v. United States , 423 F.3d 1335, 1338 n.3 (Fed. Cir. 2005) (“[A] circuit court decision, if applicable, controls until the circuit court overrules it en banc.” ). Accordingly, the Court will not entertain the government’s argument s that PG&E was wrongly decided.

T he government also contends that PG& E is not controlling because of procedural differences between the refund payments at issue in this case and those at

issue there

. Def.’s Cross

- Mot. at 10

– 13. It observes that the 1988 and 1992 refunds in

PG&E originated from separately filed refund claims covering the 1982 tax year. Id. at
10

– 12; see also PG&E , 417 F.3d at 1377. Further, in PG& E

, according to the government, the IRS “fully resolved” the first refund claims in 1988. Def.’s Cross

- Mot. at 11. The taxpayer later filed “additional refund claims,” the governm ent notes, and, in 1992, the IRS issued a “subsequent refund” against which it offset the excessive overpayment interest from four years earlier. Id. at 12 (quoting PG&E , 417 F.3d at 1377

– 78).

In contrast, the government argues , AVX filed a single refund claim for tax year

2007 and a single refund claim for 2008. Id. ; see also Compl. Ex. 1 at 2

– 3; Compl. Ex. 2

at 2

– 3. Also, in this case, according to the government, the payments the IRS made in

2017 were only “interim ” in natu re
, and AVX’s 2007 and 2008 claims were not finally

resolved until 2020. Def.’s Cross

- Mot. at 12. The government characterizes the 2017 and 2020 payments as “ merely components of the same, ongoing refund claim [s] .” Id. In that context, according to the government, “it w ould be illogical to bar the IRS from correcting errors made in processing th[ose] same claim[s].” Id. at 12

– 13.8 AVX objects to the government’s characterization of the 2017 refund s as only

interim payments that did not resolve any part of AVX’s claims

. S ee Pl.’s Resp. at 12

– 15.

It contends that , as in PG&E

, the IRS ’s first refund payment s in 2017 fully resolved the corresponding components of AVX’s refund claims

. Id. at 14 ; see also PG&E , 417 F.3d

at 1377

. And in any event, AVX observes, the differences the government has identified do not appear to have any bearing on the applicability of the reasoning set forth in PG&E

. Pl.’s Resp. at 4

– 6.

The Court agrees that the distinctions the government would draw between the taxpayer’s refund claims in PG&E and AVX ’s claims seem contrived. But m ore to the point, PG&E did not turn on the manner in which the re fund claims in that case were presented or resolved. See PG&E , 417 F.3d at 1378

– 84. The Federal Circuit’s decision

centered on the “nonassessable nature” of the overpayment interest that the IRS paid the taxpayer in 1988 when it granted the first of the refund claims

. See id. at 13 81

– 83. The distinctions the gov ernment has identified are therefore immaterial and do not compel a

result here that would be different from the one that obtained in PG&E

.

B. Right of Recoupment

The government argues in the alternative that the IRS’s retention of the excess overpayment interest through an offset against refunds due AVX constituted an exercise

of the “ common

- law right of recoupment

. ” Def.’s Cross

- Mot. at 14. Th is argument is available to the government here because th e court of appeals expressly declined to address the applicability of the equitable recoupment doctrine in PG&E

. See 417 F.3d at 1385 n.10 (explaining that the right of recoupment was not before the Federal Circuit because it “does not appear to have been raised below, and, in any ev ent, it was not decided by the Court of Federal Claims ”).

Recoupment is an offset involving debts “arising out of the same transaction.”

Reiter v. Cooper , 507 U.S. 258, 264 (1993) ; see also Dysart , 340 F.2d at 627 ( noting that a party can assert the right of recoupment only “where a single or same transaction is involved”); Rothensies v. Elec. Storage Battery Co. , 329 U.S. 296, 299 (1946) ( stating

that t he right of recoupment “has never been thought to allow one transaction to b e offset against another” ). B ecause t he right “is in the nature of a defense arising out of some feature of the transaction upon which the plaintiff’s action is grounded,” it is not barred by statut ory limitations periods “so long as the main action itself is timely.” Bull v.

United States , 295 U.S. 247, 262 (1935).

In this case, AVX filed refund claims based on the fact

— not disputed by the

government

— that it overpaid its taxes for 2007 and 2008

. See Compl. Ex. 1 at 2

– 3; id.

Ex. 2 at 2

– 3; see also Answer ¶¶ 13

– 14 , 31

– 3 4 ; Compl. Ex. 4 at 2

– 3

. The government’s assertion that it is entitled to recover the excess statutory interest it paid AVX in 2017 is

not a defense to AVX’s claim that it overpaid its tax liabilities

. N or were the erroneous calculation of overpayment interest and the events that formed the basis for AVX ’s

refund claim s part of the same transaction

.9 T he Supreme Court has cautioned that in tax cases the right of recoupment is narrowly applied

. See Rothensies , 329 U.S. at 299

– 301 (discussing “the limited scope given to recoupment in tax litigation”); see also Dysart , 340 F.2d at 62 9 (explaining that

the Court in Rothensies “declare[d] that the doctrine of equitable recoupment should not be broadly ap plied”). In fact, s ince the Supreme Court first recognized the right in tax

cases nearly 80 years ago, it has upheld its application in only two such cases : Bull v.

United States , 295 U.S. 247 (1935), and Stone v. White , 301 U.S. 532 (1937)

.

I n both Bull and Stone

, the Court found the doctrine applicable where “ [a] single transaction or taxable event had been subjected to two taxes on inconsistent legal theories, and what was mistakenly paid was recouped against what was correctly due.”

Rothensies , 329 U.S. at 300. 9 “[T]hese facts,” the Court wrote in Rothensies

, “are the only ones in which [the right of recoupment] has been applied by this Court in tax cases.”

Id. ; see also United States v. Dalm

, 494 U.S. 596, 605 n.5 (1990) (reiterating that “ [s] ince

Bull , we have emphasized that a claim of equitable recoupment will lie only where the Government has taxed a single transaction, item, or taxable event under two inconsistent

theories ” ).

In this case, as noted above, the government’s claimed right to recoup the interest overpayments does not involve any “tax able event” or taxable transaction at all. See

Rothensies , 329 U.S. at 300

. It arises out of the IRS’s miscalculation of the amount of overpayment interest due AVX under 26 U.S.C. § 6611. See Answer ¶ ¶ 2, 13, 32. The claim is not based on any obligation imposed on AVX under the Internal Revenue C ode.

I t does not involve the taxation of a single transaction based on two inconsistent theories

.

In short, this case does not fit into the limited c ategory of tax cases for which the right to equitable recoupment has been recognized. See Rothensies , 329 U.S. at 299

– 300

. The government’s contention, therefore, that the doctrine of equitable recoupment permitted the IRS to recover the excess overpayment interest , is without merit.

9 In Bull

, for example, the executor of a deceased business partner’s esta te paid estate tax on the partner’s share of profits following his death. 295 U.S. at 251

– 52. Several years later, the government determined that it should have taxed the profits as income, and it assessed an income tax deficiency, but without crediting th e amount the executor had already paid in estate tax. Id. at 252

– 53. The Court held that the executor could recoup the estate tax in an action concerning the income tax, even though the limitations period on claiming a refund for the estate tax had expired

. Id. at 260

– 63. This was so, the Court explained, because the estate and income taxes arose “out of the same transaction” that served as the basis for the timely litigation concerning the income tax, i.e.

, the executor ’s receipt of the decedent’s share of partnership profits. Id. Further, the partnership profits were taxed on inconsistent theories (in one instance the shares of profit were subject to

estate tax and in the other they were subject to income tax). See Rothensies

, 329 U.S. at

300.10 C. The IRS’s Recovery of Deficiency Interest

In 2017 , the IRS, in addition to miscalculating the overpayment interest owed to
AVX, also refunded too much deficiency interest to AVX. Answer ¶¶ 2, 13, 32

– 33 ; see also Def.’s Cross

- Mot. at 7

– 8. The IRS discovered its error w hile processing AVX’s

2020 refunds . Answer ¶ 35. As it did with the excessive overpayment interest, the IRS

offset the erroneously refunded deficiency interest

— roughly $47,000 for 2007 and $17,000 for 2008

— against AVX’s 2020 refunds

. Id. ¶¶ 2 1

– 22 , 27

– 28, 35

– 37; see also

Def.’s Cross

- Mot. at 7

– 8.

Th ese offset s w ere not subject to the statute of limitations because deficiency

interest is part of a taxpayer’s tax liability

. See PG&E , 417 F.3d at 1381

– 83 ; see also

Fisher , 80 F.3d at 1580 (“The Internal Revenue Code treats interest on a tax liability as an integral part of the liability itself.”). D eficiency interest is therefore “taken into account in determining whether an overpayment exists” and whether the I RS in fact owes a refund.

PG&E , 417 F.3d at 1383

. Thus, the IRS may offset deficiency interest against a taxpayer’s refund claim for the same tax year even though the statute of limitations prohibits the IRS from assessing the outstanding interest. Id. at 1381

– 83; see also Fisher

, 80 F.3d at 1580 (“We see no convincing reason why, f or purposes of offset, [deficiency] interest should be treated any differently than other components of tax liability.”).

CONCLUSION

For the foregoing reasons, AVX’s motion , ECF No. 18, is GRANTED

. The government’s cross

- motion , ECF No. 26, is GRANTED as to the deficiency interest that the IRS offset against AVX’s 2020 refunds. It is otherwise DENIED

. The parties shall file a joint repo rt within 20 days stating the amount of the judgment that should be

entered consistent with the foregoing

.

IT IS SO ORDERED.

s/Elaine D. Kaplan

ELAINE D. KAPLAN Chief Judge