United States Court of Appeals

for the Fifth Circuit

No. 20-30723

William Goldring; Jane Goldring, 

Plaintiffs—Appellants,

versus

United States of America, 

Defendant—Appellee.

Appeal from the United States District Court

for the Eastern District of Louisiana

USDC No. 2:18-CV-10756

Before Jones, Southwick, and Engelhardt, Circuit Judges.

Kurt D. Engelhardt, Circuit Judge:

In this tax refund action arising under the Internal Revenue Code 

(“IRC”), the district court granted summary judgment in favor of the 

Government and dismissed William and Jane Goldring’s claims in their 

entirety. For the following reasons, we AFFIRM IN PART and 

REVERSE IN PART.

I.

In 1997, Jane Goldring (“Mrs. Goldring”) held 120,000 shares of 

stock—roughly a 15% stake—in Sunbelt Beverage Corporation (“Sunbelt”), 

United States Court of Appeals

Fifth Circuit

FILED

October 4, 2021

Lyle W. Cayce

Clerk

Case: 20-30723 Document: 00516040727 Page: 1 Date Filed: 10/04/2021
No. 20-30723

2

a privately held Delaware corporation. On August 22, 1997, Sunbelt engaged 

in a cash-out merger, which resulted in Mrs. Goldring’s Sunbelt shares being 

cancelled as of the merger date and converted into the right to receive $45.83 

per share. 

On December 12, 1997, Mrs. Goldring filed a petition for appraisal of 

her Sunbelt shares in the Delaware Court of Chancery (“Delaware Court”).1

On August 12, 1999, Mrs. Goldring filed a separate complaint in the Delaware 

Court asserting claims for unfair dealing and breach of fiduciary duty against 

Sunbelt and its corporate directors. In December 2001, the two actions were 

consolidated (“Delaware Litigation”). Mrs. Goldring requested rescissory 

relief in the form of restoration of her 15% stake in Sunbelt. In the alternative, 

she requested the fair value of her Sunbelt shares as of the merger date, 

interest on the fair value of her shares, court costs, attorneys’ fees, and expert 

fees.

The Delaware Litigation was stayed for several years, pending the 

conclusion of arbitration proceedings. After the stay was lifted, a three-day 

bench trial was held in April 2009. The Delaware Court issued a written

opinion on February 15, 2010, which found that Sunbelt and its directors 

undervalued Mrs. Goldring’s Sunbelt shares and failed to act with “any 

semblance of fair process” during the merger. Applying the “discounted 

cash flow” valuation methodology recommended by the parties’ respective 

experts, the Delaware Court found that the fair value of Mrs. Goldring’s 

Sunbelt shares on the merger date was $114.04 per share. The Delaware 

1 See 8 DEL. C. § 262(a). (“Any stockholder of a corporation of [Delaware] who 

holds shares of stock on the date of the making of a demand . . . with respect to such shares, 

who continuously holds such shares through the effective date of the merger or 

consolidation . . . and who has neither voted in favor of the merger or consolidation nor 

consented thereto in writing . . . shall be entitled to an appraisal by the Court of Chancery 

of the fair value of the stockholder’s shares of stock . . . .”).

Case: 20-30723 Document: 00516040727 Page: 2 Date Filed: 10/04/2021
No. 20-30723

3

Court declined to award Mrs. Goldring her requested rescissory relief, based 

on practical difficulties in carving out a 15% stake of Sunbelt’s complex 

business portfolio and the court’s conclusion that the fair value award of 

$114.04 per share was an adequate substitute remedy. The Delaware Court 

awarded Mrs. Goldring court costs and expert fees but declined to award 

attorneys’ fees. Finally, the Delaware Court exercised its statutory discretion 

to award Mrs. Goldring pre- and post-judgment interest for the period 

between the merger date and payment of the judgment, calculated at the rate 

established under Delaware law.2 The Delaware Court directed the parties 

to agree on a proposed order implementing the terms of its decision.

On March 12, 2010, the parties executed a Forbearance and Payment 

Agreement (“Forbearance Agreement”), whereby Sunbelt agreed to pay the 

following amounts to Mrs. Goldring by April 15, 2010:

• $13,684,800 ($114.04 x 120,000 shares), the fair value of Mrs. 

Goldring’s Sunbelt shares on the merger date;

• $26,067,243.83 in pre-judgment interest at the Delaware statutory

rate from the August 12, 1999 merger date through March 7, 2010;

• $9,820.28 in court costs;

• $841,763 in expert fees; and

• Post-judgment interest at the Delaware statutory rate from March 8, 

2010 through the date the judgment was paid.

2 See 8 DEL. C. § 262(h) (“Unless the Court in its discretion determines otherwise 

for good cause shown, and except as provided in this subsection, interest from the effective 

date of the merger through the date of payment of the judgment shall be compounded 

quarterly and shall accrue at 5% over the Federal Reserve discount rate . . . as established 

from time to time during the period between the effective date of the merger and the date 

of payment of the judgment.”).

Case: 20-30723 Document: 00516040727 Page: 3 Date Filed: 10/04/2021
No. 20-30723

4

In exchange, Mrs. Goldring agreed to surrender her stock certificates to 

Sunbelt and waive her right to appeal the Delaware Court’s decision. 

On April 5, 2010, Sunbelt paid Mrs. Goldring the amounts listed in 

the Forbearance Agreement, plus $185,497.39 in post-judgment interest—a 

total of $40,789,124.50 (“Delaware Litigation Award”); Mrs. Goldring, in 

turn, surrendered her stock certificates to Sunbelt. A Judgment and 

Satisfaction of Judgment was entered in the Delaware Court on April 6, 2010.

On their joint federal income tax return for 2010, Mrs. Goldring and 

her husband, William Goldring (collectively “the Goldrings”), reported the 

entire Delaware Litigation Award as income from the disposition of a capital 

asset—i.e., Mrs. Goldring’s Sunbelt shares—taxable at the long-term capital 

gain rate. Although the Goldrings believed their reporting position was 

correct, they recognized that the Internal Revenue Service (“IRS”) might 

subsequently determine that the pre- and post-judgment interest portion of 

the Delaware Litigation Award (“Interest Award”) was ordinary income 

taxable at the higher ordinary income rate, which would render the Goldrings 

deficient on their 2010 taxes. In an attempt to avoid assessment of

underpayment interest in the event of a later-determined deficiency, the 

Goldrings paid their 2010 taxes as if they had reported the Interest Award as 

ordinary income. In other words, the Goldrings overpaid their reported 2010 

tax liabilities by an amount sufficient to cover any later-determined 

deficiency for the 2010 tax year. 

The Goldrings elected on their 2010 tax return to credit the 

overpayment forward to their estimated 2011 tax liabilities—an action known 

as a “credit-elect overpayment”3 The Goldrings continued to make credit3 A taxpayer that reports an overpayment of income tax may request a refund or 

elect to have the reported overpayment applied to his or her estimated tax for the following 

year. 26 U.S.C. § 6402(a)–(b); 26 C.F.R. § 301.6402-3(a)(5). “The subject of such an 

Case: 20-30723 Document: 00516040727 Page: 4 Date Filed: 10/04/2021
No. 20-30723

5

elect overpayments on their tax returns through the 2016 tax year and 

consistently maintained overpayment balances with the IRS sufficient to 

cover any potential deficiency for the 2010 tax year during this period. 

On July 14, 2015, the IRS completed an audit of the Goldrings’ 2010 

tax return and determined that the Interest Award should have been reported 

as ordinary income taxable at the ordinary income rate. Based on this 

determination, the IRS concluded that the Goldrings had underpaid their 

2010 taxes by $5,250,549 and issued the couple a deficiency notice on March 

30, 2017. The Goldrings consented to immediate assessment of the 

deficiency, reserving their right to file a refund claim after the deficiency was 

paid. 

On August 18, 2017, the IRS assessed the following amounts against 

the Goldrings for the 2010 tax year: (1) the principal deficiency of $5,250,549 

(“2010 Deficiency”); and (2) underpayment interest of $603,335.27. In the 

following manner, the IRS retroactively satisfied the 2010 Deficiency

through application of the Goldrings’ existing credit-elect overpayment 

balances and retroactively assessed underpayment interest:

• April 15, 2011 through April 15, 2012: the IRS determined that the

Goldrings’ credit-elect overpayment for the 2010 tax year offset the 

2010 Deficiency and suspended the running of underpayment interest

during this period. However, the 2010 credit-elect overpayment was

deemed by the IRS to be applied in payment of the Goldrings’ 2011 

tax liabilities on April 15, 2012 and was no longer available for offset 

against the 2010 Deficiency moving forward. Therefore, the IRS 

determined that underpayment interest would run on the 2010 

Deficiency from April 16, 2012 until the deficiency was deemed 

satisfied.

election is known as a ‘credit elect overpayment’ or simply a ‘credit elect.’” FleetBoston 

Fin. Corp. v. United States, 483 F.3d 1345, 1347 (Fed. Cir. 2007).

Case: 20-30723 Document: 00516040727 Page: 5 Date Filed: 10/04/2021
No. 20-30723

6

• April 16, 2012 through April 15, 2015: the IRS assessed $494,110 in 

underpayment interest against the Goldrings for this period. 

• April 15, 2015: The IRS applied $4,246,848 in overpayment funds 

from the 2014 tax year to the 2010 Deficiency. The remaining balance 

on the 2010 Deficiency totaled $1,497,811. 

• April 16, 2015 through April 15, 2017: the IRS assessed $109,225 in

underpayment interest against the Goldrings for this period. 

• April 15, 2017: the remaining balance on the 2010 Deficiency was

deemed satisfied by the IRS through its application of overpayment

funds from the 2016 tax year.

The Goldrings filed a refund claim with the IRS in September 2017 

with respect to the principal 2010 Deficiency and underpayment interest

amounts (“Administrative Refund Claim”). When no action had been taken 

on the Administrative Refund Claim after six months, the Goldrings filed this 

refund lawsuit in federal district court. See 26 U.S.C. § 6532(a)(1).

The Goldrings’ complaint sought the following relief: (1) a refund of 

the amounts requested in their Administrative Refund Claim, plus interest 

and costs; (2) a declaration that the full Delaware Litigation Award—

including the Interest Award—is properly classified and taxed as a capital 

gain; (3) a declaration that the Goldrings are not liable for underpayment 

interest; and (4) court costs. The district court disposed of the Goldrings’ 

claims in two orders following the parties’ two successive rounds of crossmotions for summary judgment.

In the first round of cross-motions, the district court considered

whether the Interest Award should be classified and taxed as a capital gain,

as argued by the Goldrings, or classified and taxed as ordinary income, as 

Case: 20-30723 Document: 00516040727 Page: 6 Date Filed: 10/04/2021
No. 20-30723

7

argued by the Government.

4 The district court granted the Government’s 

motion and denied the Goldrings’ motion, finding that the Interest Award 

was properly classified and taxed as ordinary income. Specifically, the district 

court found that the Interest Award served to compensate Mrs. Goldring for 

her inability to use the fair value of her Sunbelt shares from the merger date 

through the conclusion of the Delaware Litigation, did not reflect a gain to 

Mrs. Goldring from the sale of her shares, and was not tied to the value of her

shares.

In the second round of cross-motions, the district court considered

whether the IRS properly assessed underpayment interest on the 2010 

Deficiency from April 16, 2012 through April 15, 2017. The Goldrings argued 

that underpayment interest should not have accrued, because the IRS 

consistently possessed sufficient credit-elect overpayment funds from the 

Goldrings to cover the 2010 Deficiency during this period. The Government 

countered that underpayment interest was properly assessed, because the 

Goldrings opted to apply their initial 2010 credit-elect overpayment toward 

their estimated 2011 tax liabilities; those funds were deemed applied on April 

15, 2012; and, as a result, those funds were no longer available to suspend the 

running of underpayment interest on the 2010 Deficiency from April 16, 2012 

until the 2010 Deficiency was deemed satisfied on April 15, 2017. Agreeing

with the Government’s argument, the district court granted the 

Government’s motion and denied the Goldrings’ motion.

4 The district court noted that there was no dispute that the Goldrings properly 

reported the non-interest components of the Delaware Litigation Award—$14,536,383.28 

in court costs, expert fees, and the fair value of Mrs. Goldring’s Sunbelt shares on the 

merger date—as capital gains on their 2010 tax return. Likewise, the parties do not dispute 

the Goldrings’ tax treatment of these non-interest amounts on appeal.

Case: 20-30723 Document: 00516040727 Page: 7 Date Filed: 10/04/2021
No. 20-30723

8

The district court issued a final judgment dismissing the Goldrings’ 

claims with prejudice. This appeal followed. 

II.

We review a grant of a motion for summary judgment de novo, and we 

apply the same standard as the district court, viewing the evidence in the light 

most favorable to the nonmovant. First Am. Title Ins. Co. v. Continental Cas. 

Co., 709 F.3d 1170, 1173 (5th Cir. 2013). Summary judgment is appropriate 

where “there is no genuine dispute as to any material fact and the movant is 

entitled to judgment as a matter of law.” FED. R.CIV. P. 56(a). Courts do not 

disfavor summary judgment, but, rather, look upon it as an important process 

through which parties can obtain a “just, speedy and inexpensive 

determination of every action.” Celotex Corp. v. Catrett, 477 U.S. 317, 327 

(1986). A party asserting that there is no genuine dispute as to any material 

fact must support its assertion by citing to particular parts of materials in the 

record. FED. R. CIV. P. 56(c)(1)(A).

III.

A. Tax Treatment of Interest Award from Delaware Litigation

The IRC affords different tax treatment to ordinary income and 

capital gains. Income representing gain from the sale or exchange of a capital 

asset held by a taxpayer for more than one year is considered a long-term 

capital gain and is taxed at a favorable rate. 26 U.S.C. §§ 1(h), 1222(3). 

“[N]ot every gain growing out of a transaction concerning capital assets is 

allowed the benefits of the capital gains tax provision”—“[t]hose are limited 

by definition to gains from the sale or exchange of capital assets.” Dobson v. 

Comm’r, 321 U.S. 231, 231–32 (1944) (citation omitted). “Whether or not a 

sale or exchange has taken place for income tax purposes must be ascertained 

from all relevant facts and circumstances and the form of an agreement is not 

of itself determinative of the question of whether payments to the taxpayer 

Case: 20-30723 Document: 00516040727 Page: 8 Date Filed: 10/04/2021
No. 20-30723

9

should be treated as ordinary income or capital gains.” Brinkley v. Comm’r, 

808 F.3d 657, 665 (5th Cir. 2015) (citation omitted). “[A] transaction’s tax 

consequences depend on its substance, not its form.” Southgate Master Fund, 

L.L.C. ex rel. Montgomery Cap. Advisors, LLC v. United States, 659 F.3d 466, 

478–79 (5th Cir. 2011).

Gross or “[o]rdinary income is taxed at a higher rate.” Rodriguez v. 

Comm’r, 722 F.3d 306, 309 (5th Cir. 2013). The IRC broadly defines “gross 

income” as “all income from whatever source derived.” 26 U.S.C. § 61(a). 

“Interest” is included within the definition of “gross income.” Id. § 

61(a)(4).

The mere fact that litigation proceeds awarded in a final judgment are

labeled “interest” does not automatically make those proceeds ordinary 

income. See Kieselbach v. Comm’r of Internal Revenue, 317 U.S. 399, 403

(1943) (noting that “interest” label was “immaterial” to determining tax 

character of pre- and post-judgment interest award in an eminent domain 

action). Rather, litigation proceeds are ordinary income when they serve to 

indemnify taxpayers for “what they might have earned on the sum found to 

be the value of the property on the day the property was taken” if that sum

had been “put in the taxpayers’ hands” on that day. Id. at 403–04; see also

Isaac G. Johnson & Co. v. United States, 149 F.2d 851, 852 (2d Cir. 1945); 

Wheeler v. Comm’r of Internal Revenue, 58 T.C. 459, 461 (1972); Drayton v. 

United States, 801 F.2d 117, 124–30 (3d Cir. 1986); Leonard v. Comm’r, 94 

F.3d 523, 525–26 (9th Cir. 1996), as amended (Sept. 5, 1996).

The parties do not dispute that the portion of the Delaware Litigation 

Award comprising the fair value of Mrs. Goldring’s Sunbelt shares is 

properly classified and taxed as a capital gain. The Goldrings argue that the 

Interest Award should also be classified and taxed as a capital gain, because 

it was tied to the fair value of her Sunbelt shares.

Case: 20-30723 Document: 00516040727 Page: 9 Date Filed: 10/04/2021
No. 20-30723

10

We disagree. The Delaware Litigation record illustrates that the 

Interest Award was distinct from the fair value award. The Delaware Court 

determined that Mrs. Goldring’s shares were worth $114.04 apiece by 

applying the “discounted cash flow” valuation methodology recommended 

by Mrs. Goldring’s and Sunbelt’s experts. The pre- and post-judgment 

interest comprising the Interest Award, on the other hand, was calculated

separately through the Delaware Court’s application of the statutory interest 

rate under 8 DEL. C. § 262(h). The Delaware Court’s analysis and valuation 

of Mrs. Goldring’s shares made no mention of pre- or post-judgment 

interest, and the parties’ Forbearance Agreement itemized the fair value 

award and Interest Award separately. In addition, the Delaware Court had 

statutory discretion both to award pre- or post-judgment interest and to 

select the rate at which interest was computed. 8 DEL. C. § 262(h); Bell v. 

Kirby Lumber Corp., 413 A.2d 137, 149 (Del. 1980). Considering that the 

Delaware Court could have declined to award any pre- or post-judgment 

interest to Mrs. Goldring, it follows that the court’s decision to award 

interest was independent from its decision to value Mrs. Goldring’s shares at 

$114.04 apiece.

Moreover, the Delaware Litigation record demonstrates that the

Interest Award was properly classified and taxable as ordinary income under 

Kieselbach. If Sunbelt had simply offered Mrs. Goldring a fair price to cashout her 120,000 shares on the August 22, 1997 merger date, she could have 

immediately reaped the benefits of this transaction by investing the proceeds. 

Instead, she was offered a significantly undervalued price and had to wait for 

the culmination of nearly 13 years of state court litigation before finally 

receiving the fair value of her shares. The Delaware Supreme Court has 

explained that the purpose of a statutory interest award under 8 DEL. C. § 

262(h) is to fairly compensate the stockholder for her inability to use the fair 

value of her shares during a certain time period. Bell, 413 A.2d at 149. The

Case: 20-30723 Document: 00516040727 Page: 10 Date Filed: 10/04/2021
No. 20-30723

11

Delaware Court applied 8 DEL.C. § 262(h) to award Mrs. Goldring pre- and 

post-judgment interest that covered the period between the merger date and 

the date Sunbelt paid the final judgment in full—the time period Mrs. 

Goldring was deprived of the fair value of her shares. The Interest Award 

thus served to indemnify Mrs. Goldring for “what [she] might have earned” 

on the fair value of her shares if that money had been “put in [her] hands” 

on the merger date. Kieselbach, 317 U.S. at 403–04. 

The Goldrings argue that Kieselbach is distinguishable from this case,

because Mrs. Goldring did not relinquish title to her Sunbelt shares on the 

merger date but rather did so on the date the Delaware Litigation Award was 

paid, unlike Kieselbach, where a government entity received title to the 

taxpayers’ property immediately upon the taking of that property by eminent 

domain. The Goldrings further argue that Kieselbach involved a government 

payor unable to deduct interest expenses on tax documents, whereas Sunbelt 

was a private entity that could advantageously deduct the Interest Award on 

its taxes. These distinctions are irrelevant. As stated above, Kieselbach held 

that interest awarded in a judgment is ordinary income when it serves to 

indemnify a taxpayer for her lost opportunity to earn on the fair value of her 

capital asset. Id. The Interest Award in this case served that same purpose.

The Goldrings also argue that the “origin-of-the-claim” doctrine 

should determine the tax treatment of the Interest Award. See Woodward v. 

Comm’r, 397 U.S. 572, 577 (1970) (test for tax character of litigation expenses 

is “whether the origin of the claim litigates is in the process of acquisition 

itself”); see also Meade’s Estate v. Comm’r, 489 F.2d 161, 166 (5th Cir. 1974) 

(determination of “whether legal expenses are incurred in the process of 

disposition of property” depends on “the origin of the particular litigation 

involved”). The origin-of-the-claim doctrine directs courts to determine the 

tax treatment of judgments by asking the following question: “in lieu of what 

was the judgment or litigation settlement awarded?” Srivastava v. Comm’r, 

Case: 20-30723 Document: 00516040727 Page: 11 Date Filed: 10/04/2021
No. 20-30723

12

220 F.3d 353, 365 (5th Cir. 2000) (citation omitted), overruled on other grounds 

by Comm’r v. Banks, 543 U.S. 426 (2005)). Under this doctrine, the Goldrings

contend that the Interest Award was taxable as a capital gain because it was 

part of a total judgment intended to compensate Mrs. Goldring for the loss of 

a capital asset—her Sunbelt shares—and it was paid “in lieu of” her claim 

for restoration those shares.

We disagree. As discussed above, the Interest Award portion of the 

judgment was awarded “in lieu of” what Mrs. Goldring might have earned

on the fair value of her shares for the 13-year period between the merger and 

final judgment in the Delaware Litigation; thus, it qualifies as ordinary 

income under the origin-of-the-claim doctrine. See id.

For these reasons, the Interest Award is properly classified and taxable 

as ordinary income.

B. Assessment of Underpayment Interest

Citing the “use-of-money” principle, the Goldrings contend that the 

IRS improperly assessed underpayment interest from April 16, 2012 through 

April 15, 2017, because the IRS had continuous possession of the couple’s 

credit-elect overpayment funds sufficient to satisfy the 2010 Deficiency

during this period.

If an amount of tax is not “paid” by the prescribed due date, the IRS 

may generally assess underpayment interest from that due date through the 

date the deficiency is satisfied. 26 U.S.C. § 6601(a). Under the use-of-money 

principle, a taxpayer is liable for interest only when the Government does not 

have the use of money it is lawfully due. Manning v. Seeley Tube & Box Co., 

338 U.S. 561, 566 (1950). We previously endorsed the use-of-money principle 

in a case involving § 6601(a) underpayment interest. Vick v. Phinney, 414 F.2d 

444, 448 (5th Cir. 1969) (stating that “interest is assessed in order to 

Case: 20-30723 Document: 00516040727 Page: 12 Date Filed: 10/04/2021
No. 20-30723

13

compensate a creditor, here the government, for the period during which it 

was deprived of the use of the money”).

We have not considered the application of the use-of-money principle 

to a scenario where, as here, the IRS assessed underpayment interest on a tax 

deficiency, even though it possessed credit-elect overpayments funds 

sufficient to satisfy that deficiency throughout the interest assessment 

period. Several courts outside of our circuit have encountered this issue, 

beginning with the Second Circuit in Avon Prod., Inc. v. United States, 588 

F.2d 342 (2d Cir. 1978). Noting the “clearly established principle that 

interest is not a penalty but is intended only to compensate the Government 

for delay in payment of a tax” the Avon court interpreted § 6601(a) to provide 

that “interest shall begin running when a tax becomes both due and unpaid.” 

Id. at 343–44 (emphasis added). Applying the use-of-money principle, the

Avon court found that a tax is not considered “unpaid” and § 6601(a) 

underpayment interest may not run during any period the IRS possesses

enough credit-elect overpayment funds to satisfy a later-determined tax

deficiency.5 Id. at 343–46. Following Avon, district courts have consistently 

applied the use-of-money principle to reach similar holdings. May Dep’t 

Stores Co. & Subsidiaries v. United States, 36 Fed. Cl. 680 (1996); Sequa Corp. 

v. United States, No. 95 CIV. 2086 (KMW), 1999 WL 628286 (S.D.N.Y. June 

8, 1999); In re Vendell Healthcare, Inc., 222 B.R. 564 (Bankr. M.D. Tenn. 

1998); Otis Spunkmeyer, Inc. v. United States, No. C 02-05773 MJJ, 2004 WL 

5542870 (N.D. Cal. Aug. 10, 2004).

5 Although the court did not explicitly use the phrase “use of money,” the decision 

implicitly articulated the concept by finding that underpayment interest began to run on 

the date the IRS no longer had use of sufficient overpayment funds to satisfy the tax 

deficiency. Avon, 588 F.2d at 343–46.

Case: 20-30723 Document: 00516040727 Page: 13 Date Filed: 10/04/2021
No. 20-30723

14

The Government does not dispute that the IRS had continuous use of 

sufficient credit-elect overpayment funds to satisfy the Goldrings’ 2010 

Deficiency from April 16, 2012 through April 15, 2017. However, the 

Government argues that 26 U.S.C. §§ 6402(a)–(b) and 6513(d), and their 

corresponding Treasury Regulations, 26 C.F.R. §§ 301.6402-3(a)(5) and 

301.6513-1(d), permitted the IRS to assess underpayment interest during this

five-year period.

Section 6402(a)–(b) authorizes the IRS to either credit an 

overpayment to the taxpayer’s estimated taxes for the following year or 

refund the overpayment to the taxpayer. 26 U.S.C. § 6402(a)–(b). If the 

taxpayer opts to credit-elect an overpayment forward, then the IRS must 

apply those funds to the taxpayer’s estimated taxes for the following year;

however, no overpayment interest is permitted to accrue on the credit-elect 

overpayment. 26 C.F.R. § 301.6402-3(a)(5). Section 6513(d) provides that a 

credit-elect overpayment is treated as a payment of the taxpayer’s estimated 

taxes for the following year and that no credit or refund of that overpayment 

is permitted for the year in which the overpayment arises. 26 U.S.C. § 

6513(d). Finally, the corresponding Treasury Regulation to Section 6513

explains how to determine the period of limitations applicable to a creditelect overpayment. 26 C.F.R. § 301.6513-1(d).

The above-referenced provisions cited by the Government do not 

address the IRS’s ability to assess underpayment interest on a laterdetermined deficiency during periods where the IRS possesses credit-elect 

overpayment funds from the taxpayer sufficient to satisfy that deficiency. In 

fact, the provisions relied upon by the Government make no reference 

whatsoever to underpayment interest or § 6601(a)—the statute that 

empowers the IRS to charge such interest.

Case: 20-30723 Document: 00516040727 Page: 14 Date Filed: 10/04/2021
No. 20-30723

15

The Government also argues that the assessment of underpayment 

interest was proper under FleetBoston Fin. Corp. v. United States, 483 F.3d 

1345 (Fed. Cir. 2007). In FleetBoston, a corporate taxpayer overpaid its 

reported taxes for the 1984 and 1985 tax years. Id. at 1347. For both of those 

tax years, the taxpayer elected to credit the overpayment to the following

year’s tax liabilities. Id. The same pattern continued until 1991, when the 

taxpayer requested and received an overpayment refund. Id. The IRS 

subsequently determined that the taxpayer’s 1984 and 1985 tax returns were 

deficient. Id. at 1347–48. Although the taxpayer’s overpayments exceeded 

the 1984 and 1985 deficiencies and were not needed to pay its taxes in 

subsequent tax years, the IRS nonetheless charged underpayment interest on 

the deficiencies. Id. at 1352–53. The taxpayer contested the interest charges, 

arguing that interest should not have been assessed, because sufficient funds 

to pay the deficiencies were already in the IRS’s possession during the time 

periods at issue. Id. at 1348.

A majority of the Federal Circuit found that because the 

overpayments were designated “credit elect overpayments” these funds 

could not be credited to any later-determined deficiency for the year of the 

overpayment. Id. at 1353. Specifically, the FleetBoston majority relied on

Section 6513(d) and 26 C.F.R. § 301.6402-3(a)(5), which provide that the 

IRS must treat and apply credit-elect overpayments as payment of the 

taxpayer’s estimated taxes for the following year. Id. at 1349. The majority 

interpreted these provisions as providing that a “credit elect overpayment 

will be deemed to reside in the tax account for the succeeding year, even if it 

is not needed to pay estimated tax in that year.” Id. at 1353. Because the 

taxpayer failed to show that “any overpayments of estimated tax or income 

tax for later tax years ever resided in its 1984 and 1985 tax accounts; those 

overpayments therefore never suspended the underpayment interest due for 

1984 and 1985.” Id. at 1354.

Case: 20-30723 Document: 00516040727 Page: 15 Date Filed: 10/04/2021
No. 20-30723

16

The FleetBoston dissent argued that under the use-of-money principle, 

underpayment interest does not accrue for any period the IRS possesses

sufficient funds from the taxpayer to satisfy the later-determined deficiency. 

Id. at 1355–58 (Newman, J., dissenting). The dissent noted that the majority 

disregarded the fact that, throughout the period for which the IRS assessed 

underpayment interest, the IRS possessed funds belonging to the taxpayer in 

an amount exceeding the later-determined deficiency. Id. at 1355. The dissent 

further cautioned that the majority “diverge[d]” from statutory law and the 

rulings of Avon and its progeny by “establish[ing] a new rule that applies even 

when the overpayment was not needed and was not used to pay any tax 

obligation.” Id. 

We agree with the FleetBoston dissent. The FleetBoston majority was 

correct that Section 6513(d) and 26 C.F.R. § 301.6402-3(a)(5) provide that 

the IRS must treat and apply credit-elect overpayments as payment of the 

taxpayer’s estimated taxes for the following year. However, as discussed 

above, these provisions do not address the IRS’s ability to charge § 6601(a)

underpayment interest on a later-determined deficiency during periods

where it has use of enough credit-elect overpayment funds to satisfy that 

deficiency.

Further, like the FleetBoston majority, the Government’s argument in 

this case fixates on theoretical migration of credit-elect overpayment funds 

from one tax year to another. See 26 U.S.C. § 6513(d); 26 C.F.R. § 301.6402-

3(a)(5) However, this argument completely ignores the simple, undisputed

fact that the IRS was never deprived of its use of the money the Goldrings 

lawfully owed it at any point during the five-year underpayment interest 

assessment period.

In the absence of clear statutory authority, we apply the established

use-of-money principle and conclude that the IRS improperly assessed 

Case: 20-30723 Document: 00516040727 Page: 16 Date Filed: 10/04/2021
No. 20-30723

17

underpayment interest against the Goldrings from April 16, 2012 to April 15, 

2017. Manning, 338 U.S. at 566; Avon, 588 F.2d at 343–46. The Goldrings’ 

summary judgment evidence shows that the IRS had continuous use of the 

Goldrings’ credit-elect overpayment funds in an amount sufficient to satisfy 

the 2010 Deficiency throughout that five-year period. Accordingly, the 

Goldrings are entitled to a refund of the underpayment interest amount of 

$603,335.27.

IV.

For the foregoing reasons, we AFFIRM the grant of the 

Government’s first cross-motion for summary judgment and AFFIRM the

denial of the Goldrings’ first cross-motion for summary judgment.

We REVERSE the grant of the Government’s second cross-motion 

for summary judgment, REVERSE the denial of the Goldrings’ second 

cross-motion for summary judgment, and REMAND to the district court 

with an order to enter judgment for the Goldrings as to their claim for refund 

of the $603,335.27 underpayment interest amount.

Case: 20-30723 Document: 00516040727 Page: 17 Date Filed: 10/04/2021