Court Opinion

ID: 2967572
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:53:47.480456+00
Date Added: 2024-06-11T13:14:05.203691
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                 FOR THE FOURTH CIRCUIT

JOHN E. LANE, III, Executor, Estate      
of Beverly W. Powell,
                  Plaintiff-Appellant,
                  v.                              No. 01-2161

UNITED STATES OF AMERICA,
               Defendant-Appellee.
                                         
JOHN E. LANE, III, Executor, Estate      
of Beverly W. Powell,
                   Plaintiff-Appellee,
                  v.                              No. 01-2180

UNITED STATES OF AMERICA,
               Defendant-Appellant.
                                         
            Appeals from the United States District Court
         for the Western District of Virginia, at Lynchburg.
                 Norman K. Moon, District Judge.
                            (CA-00-4-6)

                       Argued: February 25, 2002
                        Decided: April 17, 2002

   Before WILKINSON, Chief Judge, MICHAEL, Circuit Judge,
    and Raymond A. JACKSON, United States District Judge
     for the Eastern District of Virginia, sitting by designation.

Affirmed in part, reversed in part, and remanded by published opin-
ion. Chief Judge Wilkinson wrote the opinion, in which Judge
Michael and Judge Jackson joined.
2                       LANE v. UNITED STATES
                             COUNSEL

ARGUED: Joel Bron Miller, WOOTEN & HART, P.C., Roanoke,
Virginia, for Appellant. Steven Wesley Parks, Tax Division, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee. ON BRIEF: Eileen J. O’Connor, Assistant Attorney Gen-
eral, John L. Brownlee, United States Attorney, Bruce R. Ellisen, Tax
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellee.

                              OPINION

WILKINSON, Chief Judge:

   John Lane, as executor of the estate of Beverly Powell, filed suit
seeking a refund of federal gift taxes allegedly overpaid by Mrs. Pow-
ell for tax year 1994. The United States brought a counterclaim seek-
ing to recover allegedly erroneous income tax refunds issued for tax
years 1992 and 1993. The parties dispute whether $798,250 in pay-
ments made between 1988 and 1993 by Mrs. Powell’s late husband,
Hampton Powell, to his friend and former secretary, Jane Young,
were gifts or compensation for services. The district court concluded
that they were gifts and dismissed the complaint. It also held that the
counterclaim was time-barred under 26 U.S.C. § 6532(b) because the
government failed to prove that Lane made intentional or knowing
misrepresentations in connection with the amended income tax
returns he filed.

   Lane appeals, and the United States cross-appeals. Because the
payments in question were gifts, and because Lane’s grossly negligent
misrepresentations were sufficient to trigger the extended limitations
period of § 6532(b), we affirm in part, reverse in part, and remand
with instructions to enter judgment in favor of the United States on
its counterclaim.

                                   I.

    What follows is a story of sentiment which appellant would convert
                        LANE v. UNITED STATES                          3
into a tale of greed. We therefore relate in some detail the district
court’s findings following a bench trial.*

                                   A.

   Hampton Powell was formerly CEO of the Lane Company, a furni-
ture manufacturer based in Altavista, Virginia. Jane Young was his
secretary there from 1958 until he retired in 1984. Young handled Mr.
Powell’s personal and financial affairs. Because Mr. Powell had a
lifelong distrust of attorneys and accountants, he refused to seek their
advice regarding tax and estate planning. Instead, he relied exclu-
sively upon Young to prepare his and his wife’s tax returns. Young
studied tax materials and passed a tax course exam.

   Mr. Powell was a very generous man. Indeed, giving was his pri-
mary pleasure in life. Before 1988, he made annual transfers of Lane
Co. stock to churches, charities, family members, and Young each
Christmas. The Powells also made substantial cash gifts to charity
from 1983 through 1993. His practice at Christmas was to give shares
of stock in equal amounts to Young, Mrs. Powell, and his sister. He
also gave Young myriad gifts of clothing, jewelry, perfume, candy,
collectibles, and housewares during the year.

   Mr. Powell amassed great wealth during his career, primarily in the
form of Lane Co. stock, which was converted to Interco stock when
Interco acquired Lane Co. in the mid-1980s. Due to concerns over
Interco’s prospects, Young persuaded Mr. Powell to sell his stock at
the last minute before a deadline, which he had been reluctant to do
because of his long association with Lane Co. When Interco subse-
quently went into bankruptcy, he was very grateful to her.

  The Powells had no children, and Mr. Powell viewed Young
almost as a daughter. He took a fatherly interest in her life, and in her
son and two grandsons. Young viewed Mr. Powell as a father and the
best friend she ever had. She promised him that she would look after

  *Lane contests many of these findings. As discussed below, however,
we conclude from our review of the record that the district court did not
commit clear error in making them. See Comm’r v. Duberstein, 363 U.S.
278, 289-91 (1960).
4                       LANE v. UNITED STATES
Mrs. Powell when he died. Young continued to help him with his
finances after he retired in 1984, as she did with her own aged family
members. She never expected to be paid, and told him so.

   After retiring from Lane Co. in March 1989, Young continued to
help Mr. Powell with his personal finances until his death in June
1994. She devoted no more than two hours per week on average to
his finances. They never negotiated any exchange of money for her
services. During the last five years of his life, she visited him when-
ever he was in the hospital, and she went to the Powell home every
month or two to discuss their finances and socialize.

   Mr. Powell made gifts totaling $798,250 to Young from 1988 to
1993 — the Contested Payments in this case. All of the payments
were made pursuant to Letters of Authorization, which stated that
they were gifts. He called each of the six year-end payments her
annual Christmas gift.

   As part of the Contested Payments, Mr. Powell gave Young gifts
of Conrail stock and $100,000 in spring 1989. Beyond his usual gen-
erosity, he was concerned about her future welfare in light of her wid-
owhood and recent retirement, and he was grateful to her for
persuading him to sell his Interco stock. His gratitude was also one
motivating reason for the first Contested Payment.

   Mr. Powell filed federal gift tax returns for tax years 1988-1993,
reporting his payments to Young as gifts. Mrs. Powell signed each of
these returns. Because Mrs. Powell viewed the payments as gifts from
Mr. Powell, she did not report them on her income tax returns.

   Mr. Powell made the Contested Payments solely from his assets.
He always consulted Mrs. Powell beforehand, however, and she did
not object. Thanks to Mr. Powell, Young was financially secure and
did not need to work by 1988. She nonetheless continued to help Mr.
Powell out of gratitude for all he had done for her. When he asked
whether he owed her anything for preparing one of his returns, she
replied that he owed her nothing due to his generosity over the years.
Though she received no payment in 1994, she never considered filing
a claim against his estate.
                       LANE v. UNITED STATES                        5
   The only understanding Young ever had was that Mr. Powell made
the payments out of love and affection. She thought that he never
would have paid anyone $100,000 a year or more for any services,
and that he plainly could distinguish a paycheck from a gift.

                                 B.

   After Mr. Powell died in June 1994, Mrs. Powell engaged John
Lane to advise her regarding the administration of Mr. Powell’s estate
and her own financial planning. Lane had an accountant examine the
tax implications of recharacterizing the Contested Payments as com-
pensation to Young. Lane advised Mrs. Powell to amend her 1989-
1993 gift tax returns and claim that the payments in those years were
compensation. But because of her declining health, as well as her late
husband’s view of them as gifts, she declined.

  When Mrs. Powell died in July 1995, Lane became the executor of
her estate, and began to investigate the propriety of the Contested
Payments. He accused Young of self-dealing and breach of fiduciary
duty. These accusations were an attempt to get Young to defend the
payments by showing what she had done to deserve them, thereby
twisting her words into an admission that she had "earned" them. But
Young repeatedly insisted that the payments were gifts, and Lane
uncovered no evidence of any attempt by her to deceive Mr. Powell.

   In July 1996, Lane filed amended gift tax returns on behalf of the
late Mrs. Powell for tax years 1989-1994. The 1994 return stated a
refund claim for $136,920. The returns were premised on the
recharacterization of the Contested Payments as compensation. When
the IRS denied the claim in the 1994 return, Lane filed suit.

   In August 1996, Lane filed amended income tax returns (Forms
1040X) for 1992 and 1993 on behalf of the late Powells. They too
sought to recast the Contested Payments as compensation. They
claimed that a significant portion of the alleged compensation paid to
Young was deductible from the Powells’ taxable income. The IRS
thereafter paid $21,794.46 in refunds to Mrs. Powell’s estate.

  In signing the 1992-93 Forms 1040X, Lane was aware of no docu-
ment establishing an employment or contractual relationship — or
6                       LANE v. UNITED STATES
even an informal arrangement — between Mr. Powell and Young,
pursuant to which he paid her in exchange for services. Lane knew
of no oral statement by Mr. Powell that he made the payments to
compensate her. Lane had no personal knowledge of her efforts.

   Lane made false representations of material fact on the 1992-1993
income tax refund claims. Attachment 1040X-1, a three-page narra-
tive explanation setting forth the alleged factual and legal bases for
the refunds sought, fails to relate the crucial fact that Mr. Powell
viewed the Contested Payments as gifts and so characterized them on
his 1988-1993 gift tax returns. It cites authorities governing the taxa-
tion of employer-employee property transfers, possibly implying that
Young was his employee. And it states that she concedes the nature
of her services, but it reproduces only fragments of her words which
conflict with her simultaneously expressed belief that the payments
were gifts.

   It can reasonably be inferred that Lane intended for the IRS to issue
the requested income tax refunds in reliance upon the explanation
attached to each return, and that Lane wanted to convey that the value
of Young’s help from 1988 through 1993 was equal in value to the
Contested Payments. Had the returns disclosed that those payments
were reported as gifts on Mr. Powell’s original 1992-1993 gift tax
returns, or that the alleged "compensation" forming the basis for the
refund claims far exceeded any reasonable valuation of Young’s ser-
vices, the IRS would have inquired further.

                                   C.

   In view of these facts, the district court found that Mr. Powell’s
"dominant reason" for making the Contested Payments was the "af-
fection, respect, admiration, charity or like impulses" he felt toward
Young. That is, he was motivated by "a detached and disinterested
generosity." Comm’r v. Duberstein, 363 U.S. 278, 285-86 (1960)
(internal quotations omitted). It held that Lane had failed to prove that
the payments were compensation, and thus failed to prove that a gift
tax refund was due.

   The court also concluded that the government’s counterclaim to
recover allegedly erroneous income tax refunds for 1992 and 1993
                        LANE v. UNITED STATES                        7
was time-barred. Section 6532(b)’s two-year statute of limitations
period had passed. And the court held that its five-year limitations
period was unavailable because the United States had not proven that
Lane’s false statements on Attachment 1040X-1 were intentional or
knowing misrepresentations of material fact. In the court’s view, Lane
made only legal characterizations of the payments as compensation,
not patent misrepresentations.

   The court thus dismissed the complaint and the counterclaim. Lane
appeals, and the United States cross-appeals. The parties primarily
dispute whether the Contested Payments were gifts or compensation.
If the Contested Payments were compensation, then Mrs. Powell paid
too much in gift taxes during her lifetime, and her estate is entitled
to a refund. Lane’s 1994 amended gift tax return stated a refund claim
for $136,920. Also at stake is the validity of Lane’s amended 1992-
1993 income tax returns filed on behalf of the late Powells. If the
Contested Payments were compensation, then a portion of them was
deductible from the Powells’ taxable income. The IRS paid
$21,794.46 in income tax refunds to Mrs. Powell’s estate, and the
Service now seeks to recover that money as erroneously refunded.

                                  II.

                                  A.

   We review under the clearly erroneous standard the district court’s
factual determination that Mr. Powell’s dominant reason for making
the Contested Payments to Young was the affection he felt toward
her. See Duberstein, 363 U.S. at 289-91; Poyner v. Comm’r, 301 F.2d
287, 289 (4th Cir. 1962). This standard also applies "to factual infer-
ences from undisputed basic facts, . . . as will on many occasions be
presented in this area." Duberstein, 363 U.S. at 291; see also Poyner,
301 F.2d at 289. By contrast, once Mr. Powell’s dominant motive has
been determined, we review de novo the legal question of whether the
payments were gifts or income, as those terms are used in the Internal
Revenue Code. Poyner, 301 F.2d at 289-90.

                                  B.

  Section 102(a) of the Internal Revenue Code excludes from a tax-
payer’s gross income "the value of property acquired by gift." In
8                        LANE v. UNITED STATES
Duberstein, the Supreme Court observed that the term "gift" in § 102
is used in a "colloquial sense," not "in the common-law sense," and
it declined to establish a bright-line test for distinguishing gifts from
compensation payments under the Code. 363 U.S. at 284-85. Instead,
the Court stated that the gift-compensation determination "must be
based ultimately on the application of the fact-finding tribunal’s expe-
rience with the mainsprings of human conduct to the totality of the
facts of each case." Id. at 289. See also Poyner, 301 F.2d at 289. The
Court emphasized that

     [t]he nontechnical nature of the statutory standard, the close
     relationship of it to the data of practical human experience,
     and the multiplicity of relevant factual elements, with their
     various combinations, creating the necessity of ascribing the
     proper force to each, confirm us in our conclusion that pri-
     mary weight in this area must be given to the conclusions
     of the trier of fact.

Duberstein, 363 U.S. at 289. Thus, a payee’s having performed con-
temporaneous services for the payor might be significant to the gift-
compensation determination, but it is just one of "the totality of the
facts" that must be considered. Duberstein, 363 U.S. at 289.

   When the payment "proceeds from a detached and disinterested
generosity, . . . out of affection, respect, admiration, charity or like
impulses" toward the payee, it is a gift for federal tax purposes. Id.
at 285 (internal quotations omitted). The Court stressed that "the most
critical consideration . . . is the transferor’s ‘intention.’" Id. at 285-86
(quoting Bogardus v. Comm’r, 302 U.S. 34, 43 (1937)). Thus, in mak-
ing the gift-compensation determination, "the proper criterion . . . is
one that inquires what the basic reason for [the payor’s] conduct was
in fact—the dominant reason that explains his action in making the
transfer." Id. at 286.

   The district court properly applied Duberstein in concluding that
the Contested Payments were gifts, not compensation. It was far from
clearly erroneous for the court to find that Mr. Powell’s "dominant
reason" for making the payments was the "affection, respect, admira-
tion, charity or like impulses" he felt toward Young. Duberstein, 363
                         LANE v. UNITED STATES                          9
U.S. at 285-86. Indeed, a plethora of facts support the court’s determi-
nation.

   First, Mr. Powell was a generous person in general, and he felt
fatherly affection for Young in particular. Indeed, he expressed and
acted on the basis of sincere concerns about her future welfare. In
addition, he had a longstanding practice of periodically making sub-
stantial gifts to Young in addition to other members of his family.
Moreover, he made clear, contemporaneous expressions of intention
— both oral and written — that the Contested Payments were gifts.
And perhaps most significant of all, he subsequently filed gift tax
returns, reporting the payments as gifts. All of these facts support the
district court’s determination that Mr. Powell’s "dominant reason" for
making the Contested Payments was the "affection, respect, admira-
tion, charity or like impulses" he felt toward Young. Id. That, in turn,
compels the legal conclusion that the Contested Payments were gifts.
See Poyner, 301 F.2d at 289-90.

   It is true, of course, that "the donor’s characterization of his action
is not determinative." Duberstein, 363 U.S. at 286. Rather, "there
must be an objective inquiry as to whether what is called a gift
amounts to it in reality." Id. The district court in this case made just
such an inquiry. And though the Court in Duberstein stated that "the
parties’ expectations or hopes as to the tax treatment of their conduct
in themselves have nothing to do with the matter," id., here Mr. Pow-
ell characterized the payments as gifts to his own financial detriment.
Under these circumstances, his view of them is one significant factor
that evidences his intention in making the payments to Young.
Indeed, Lane is not able to cite a single case in which a court has held
that payments in contention were compensation where the payor sub-
mitted gift tax forms.

   It is also true that Mr. Powell was profoundly grateful to Young for
her timely advice in connection with the Interco stock sale, and that
his gratitude to her for that advice was one motivating factor behind
the first Contested Payment. Further, the payments were contempora-
neous with much of the help she gave him. But these considerations
do not by themselves suffice to show that the "dominant reason" for
the payments was compensatory in nature where, as here, the facts
point overwhelmingly in the opposite direction. If something looks
10                      LANE v. UNITED STATES
like a duck, walks like a duck, and talks like a duck, and the district
court determines it to be a duck, it is not our place on review to call
it something else. Accordingly, the district court correctly held that
the Contested Payments were not compensation, and thus that no
refund was due the Estate for gift taxes overpaid.

   Throughout these proceedings, Lane has insinuated that Young was
motivated by how much she stood to gain from the characterization
of the Contested Payments as gifts and not compensation. It is cer-
tainly the case that, insofar as the payments were viewed by the IRS
as gifts, the Powells would have to pay the resultant gift taxes, and
Young would not have to pay any income taxes. But Lane has not
produced any evidence that Young coerced or manipulated Mr. Pow-
ell into characterizing the payments as gifts. And in view of their
quasi-familial personal relationship, there is strong evidence that
Young never had any desire to manipulate Mr. Powell even if she
could have. Nor do we see how she could have duped him even if she
had wanted to do so. As a wealthy businessman, Mr. Powell was far
from unsophisticated concerning his financial affairs. The district
court determined that Mr. Powell freely characterized the payments
to Young as gifts because that is exactly how he thought of them.

                                  III.

   The United States filed a counterclaim against Lane under 26
U.S.C. § 7405 to recover allegedly erroneous income tax refunds
granted to him from the 1992-1993 tax years. Section 7405 states that
any suit for the recovery of an erroneous refund is subject to the limi-
tations periods set forth in § 6532(b), which provides:

     Recovery of an erroneous refund by suit under section 7405
     shall be allowed only if such suit is begun within 2 years
     after the making of such refund, except that such suit may
     be brought at any time within 5 years from the making of
     the refund if it appears that any part of the refund was
     induced by fraud or misrepresentation of a material fact.

§ 6532(b). The district court’s holding that § 6532(b)’s five-year limi-
tations period applies only to intentional or knowing misrepresenta-
tions of material fact concerns a pure question of statutory
                        LANE v. UNITED STATES                         11
interpretation. We therefore review it de novo. See United States v.
Segers, 271 F.3d 181, 183 (4th Cir. 2001).

   The two-year limitations period had already lapsed by the time the
United States sought to state its counterclaim. Thus, the government
may move forward only if it can take advantage of the five-year
period by showing that Lane induced the IRS to pay the refund "by
fraud or misrepresentation of a material fact." Because the United
States has not alleged that Lane committed fraud in requesting the
refunds, the issue before us is whether the government may recover
on the basis of a "misrepresentation" by him. The answer to this ques-
tion depends upon how that statutory term is construed — in particu-
lar, what mens rea, if any, it requires.

   Lane argues, and the district court agreed, that § 6532(b) contem-
plates only intentional or knowing representations because the word
"misrepresentation" implies an intent to deceive or mislead. Lane
claims that the government has failed to show any intentional or
knowing act. In addition, Lane submits that the United States has not
demonstrated any objective falsity. Rather, at most the government
has identified an honest disagreement as to whether the Contested
Payments were compensation or gifts. Lane asserts that this is a legal
question or, at a maximum, a mixed question of law and fact. It is not
a "fact" that can be determined to be empirically true or false.

   The United States, by contrast, maintains that § 6532(b)’s extended
limitations period is not limited to intentional or knowing misrepre-
sentations. Rather, by its terms the section provides a five-year limita-
tions period for instituting erroneous refund actions where there has
been a "misrepresentation" of material fact, not an intentional or
knowing misrepresentation. The United States submits that the word
"misrepresentation" includes negligent and even innocent misrepre-
sentations. In addition, the government claims that Lane’s amended
income tax returns "indisputably contained numerous misrepresenta-
tions of material facts that were at least negligent," and which were
critical to whether he was entitled to the refunds he sought on behalf
of Mrs. Powell’s estate.

  We need not accept either position for purposes of deciding this
case. To begin with, Lane’s view is clearly wrong. The five-year stat-
12                      LANE v. UNITED STATES
ute of limitations applies under circumstances of either "fraud or mis-
representation." And by definition, fraud requires an intentional or
knowing misrepresentation. See Black’s Law Dictionary 670-71 (7th
ed. 1999). Thus, to construe the word "misrepresentation" as limited
to intentional or knowing misrepresentations would render that statu-
tory term superfluous. This would ignore the basic principle of statu-
tory interpretation instructing courts to "avoid a reading which
renders some words altogether redundant." Gustafson v. Alloyd Co.,
513 U.S. 561, 574 (1995). See also United States v. Neustadt, 366
U.S. 696, 702 (1961) (holding that 28 U.S.C. § 2680(h) "applies to
both ‘misrepresentation’ and ‘deceit,’ and, as ‘deceit’ means fraudu-
lent misrepresentation, ‘misrepresentation’ must have been meant to
include negligent misrepresentation, since otherwise the word ‘mis-
representation’ would be duplicative") (internal quotations omitted).
Where possible, we must give effect to every term in the statute.
Lane’s construction of § 6532(b) needlessly fails to do so.

   In rejecting Lane’s view, we align ourselves with most of the
courts that have interpreted the term "misrepresentation" in § 6532(b).
See, e.g., Black Prince Distillery, Inc. v. United States, 586 F. Supp.
1169, 1174 (D. N.J. 1984) (stating that "[s]ection 6532(b) does not
require willfulness" and suggesting that the five-year limitations
period could be triggered "by a grossly negligent misrepresentation");
Merlin v. Sanders, 144 F. Supp. 541, 543 (N.D. Ga. 1956) (holding
that a "[w]ilful misrepresentation is not required"), aff’d, 243 F.2d
821 (5th Cir. 1957). But see United States v. Northern Trust Co., 93
F. Supp. 2d 903, 908-910 (N.D. Ill. 2000) (requiring that the misrep-
resentation be intentional or knowing). The district court in the case
at bar erred in following Northern Trust. That decision improperly
relied in large part on cases interpreting the meaning of the term "mis-
representation" in statutory provisions dealing with the circumstances
in which settlement agreements and closing agreements are binding
on the parties. 93 F. Supp. 2d at 908-909. But such agreements are
negotiated and executed jointly by the parties for the purpose of end-
ing an existing controversy. The meaning of the term "misrepresenta-
tion" in that setting in no way governs its meaning in the very
different context of § 6532(b), which places temporal limits on the
government’s ability to recoup erroneous refunds.

   The government’s proposed interpretation of § 6532(b) goes too far
in the opposite direction. It would afford the United States the benefit
                         LANE v. UNITED STATES                         13
of a five-year limitations period for bringing actions to recover erro-
neous refunds even where the "misrepresentation" that led to the
refund is wholly innocent. The government is certainly correct that
§ 6532(b), like all statutes of limitations that run against the United
States, must be strictly construed in its favor. See, e.g., Badaracco v.
Comm’r, 464 U.S. 386, 391-92 (1984); E.I. DuPont de Nemours &
Co. v. Davis, 264 U.S. 456, 462 (1924); Levin v. Comm’r, 986 F.2d
91, 93 n.12 (4th Cir. 1993). But if Congress had intended to include
honest mistakes within the five-year purview, it most likely would
have used the term "misstatement" in the statute, not "misrepresenta-
tion." The latter is typically employed to suggest some degree of cul-
pability on the part of the actor. See Black’s Law Dictionary 1016
(7th ed. 1999).

   In any event, the factual misrepresentations here were neither inno-
cent nor even negligent. Rather, they were grossly negligent at best
and almost certainly reckless. Among Lane’s other misrepresentations
on his income tax refund claims, the district court specifically found
that, in characterizing the Contested Payments as compensation,
Attachment 1040X-1 did not include the critical fact that Mr. Powell
thought of the payments as gifts and so characterized them on his
1988-1993 gift tax returns. Lane thus did not indicate that the dece-
dent submitted gift tax forms. Neglecting to inform the IRS of such
a salient fact bearing on the validity of his refund claims cannot be
innocent or merely negligent.

   Lane relies on language in Northern Trust, 93 F. Supp. 2d at 907,
and United States v. Indianapolis Athletic Club, Inc., 785 F. Supp.
1336, 1338 (S.D. Ind. 1991), in arguing that the government has not
demonstrated any objective falsity, but rather has merely identified a
disagreement over a legal question or a mixed question of law and
fact. But the court in Northern Trust explicitly stated that the situation
with which it was dealing was distinguishable from cases such as
Duberstein, which "highlighted the need for a fact-based determina-
tion unimpeded by inexact verbal formulations." 93 F. Supp. 2d at
907. The district court erred in concluding that Lane made only legal
characterizations of the Contested Payments as compensation, not
patent misrepresentations. His claims and omissions in support of that
conclusion amounted to critical misrepresentations of material fact.
14                      LANE v. UNITED STATES
   Lane’s misrepresentations were grossly negligent at a minimum.
And in view of our conclusion that the statutory term "misrepresenta-
tion" in § 6532(b) lies somewhere in between the words "misstate-
ment" and "fraud" on a scale of increasing culpability, we hold that
the United States need not demonstrate more than gross negligence in
order to avail itself of § 6532(b)’s five-year limitations period. We
therefore must reverse the district court’s dismissal of the govern-
ment’s counterclaim.

   It follows from our resolution of the gift-compensation question
that the IRS paid the 1992-1993 income tax refunds to Lane in error
because his refund claims rested on the mistaken premise that the
Contested Payments in those years were not gifts but deductible com-
pensation. Accordingly, we remand the case to the district court with
instructions to enter judgment in favor of the United States on its
counterclaim.

                                  IV.

   It is a popular misconception that tax disputes are technical to the
exclusion of all else. This case shows otherwise. Not every relation-
ship in life may properly be characterized as involving "a mercenary
exchange of good offices according to an agreed valuation." Adam
Smith, The Theory of Moral Sentiments pt. II, § II, ch. III, ¶ 2 (1759).
Not every human interaction is animated by a desire to secure an
advantage, obtain compensation for services, or receive a quid pro
quo. The district court found that Mr. Powell’s relationship with Jane
Young was much deeper than that. It is reassuring that the law does
not permit appellant to tarnish the memory of their friendship by
retroactively undoing the kindness they exhibited toward each other
over many years.

   For the foregoing reasons, the judgment of the district court is
affirmed in part, reversed in part, and remanded with instructions to
enter judgment in favor of the United States on its counterclaim.

                       AFFIRMED IN PART, REVERSED IN PART,
                                           AND REMANDED