Goldring v. United States, No. 20-30723 (5th Cir. 2021)Annotate this Case
The Fifth Circuit affirmed in part and reversed in part the district court's grant of summary judgment in favor of the government in this tax refund action arising under the Internal Revenue Code. Taxpayers overpaid their reported 2010 tax liabilities by an amount sufficient to cover any later-determined deficiency for the 2010 tax year, and then elected on their 2010 tax return to credit the overpayment forward to their estimated 2011 tax liabilities. The IRS subsequently completed an audit of taxpayers' 2010 tax return and determined that their interest award in a prior lawsuit should have been reported as ordinary income taxable at the ordinary income rate.
The court concluded that the interest award is properly classified and taxable as ordinary income. The court explained that the award portion of the judgment one of the taxpayers received was "in lieu of" what she might have earned on the fair value of her shares for the 13-year period between the merger and final judgment in the prior litigation. Therefore, the court concluded that it qualifies as ordinary income under the origin-of-the-claim doctrine. However, in the absence of clear statutory authority, the court applied the established use-of-money principle and concluded that the IRS improperly assessed underpayment interest against taxpayers from April 16, 2012 to April 15, 2017. The court remanded for the district court to enter a judgment for taxpayers as to their claim for refund of the $603,335.27 underpayment interest amount.