Court Opinion

ID: 5115935
Source: CourtListenerOpinion
Date Created: 2021-10-05 00:00:38.249852+00
Date Added: 2024-06-11T08:21:53.440809
License: Public Domain

Case: 20-30723    Document: 00516040727        Page: 1     Date Filed: 10/04/2021

          United States Court of Appeals
               for the Fifth Circuit                               United States Court of Appeals
                                                                            Fifth Circuit

                                                                          FILED
                                                                    October 4, 2021
                                No. 20-30723
                                                                     Lyle W. Cayce
                                                                          Clerk
   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”),
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   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 . . . .”).

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   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.”).

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   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 credit-

           3
             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

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   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).

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      • 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 cross-
   motions 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

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   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.

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          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

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   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.

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          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 cash-
   out 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

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   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,

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   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

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   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.

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          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 credit-
   elect 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 later-
   determined 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.

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          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.

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                                    No. 20-30723

          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

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                                    No. 20-30723

   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.

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