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after filing their refund request, the
Taxpayers in jurisdictions other than the Fifth Goldrings filed suit in a Louisiana
district court. The court considered
Circuit should be prepared for the IRS to take two issues: (1) whether the $26 million
the position that credit-elect overpayments interest payment was long-term capital
gain or ordinary income; and (2) if $26
are not available to stop underpayment million was ordinary income, did the
interest from accruing. Goldrings’ overpayment reflected on
their 2010 tax return stop the interest
from accruing on the tax deficiency.
The district court held for the IRS on
in two separate instances whether a pay- payment as ordinary income. If the $26 both issues, finding that because the
ment the taxpayer labeled as a deposit million was ordinary income instead of Goldrings elected to credit the overpay-
was in fact a deposit. These cases are long-term capital gain, the Goldrings ment to their 2011 estimated tax, the
discussed below. would owe an additional $5 million in overpayment was no longer available
tax. To avoid owing underpayment inter- to suspend the interest on their 2010
Goldring est in the event the IRS assessed a tax underpayment. The Goldrings appealed
In 2021, the Fifth Circuit held that deficiency, the Goldrings overpaid their to the Fifth Circuit.
underpayment interest did not accrue reported 2010 tax liability by approxi- Assessment of underpayment
because the IRS possessed sufficient mately $5 million. interest: The Fifth Circuit upheld the
credit-elect overpayment funds from the Rather than send the IRS a $5 mil- lower court’s ruling that the $26 million
taxpayer to satisfy a later-determined tax lion remittance either as a deposit or an was ordinary income, rejecting the tax-
deficiency (Goldring, No. 20-30723 (5th advance payment, the Goldrings over- payers’ argument that the lower capital
Cir. 10/4/21)). paid their 2010 tax liability by $5 mil- gains rate applied because the $26 mil-
Background: Jane Goldring owned lion and they completed line 75 of the lion was related to the disposition of a
shares in a corporation. As part of a Form 1040, U.S. Individual Income Tax capital asset (the corporate shares).
merger, the corporation canceled Gold- Return. On the 2010 Form 1040, line 75 The real issue, as the Fifth Circuit
ring’s shares and converted them to a asked the taxpayer what amount of their saw it, was whether the Goldrings’ $5
right to $45.83 per share. In December overpayment they wanted applied to million overpayment suspended the run-
1997, Goldring sued the corpora- their 2011 estimated tax. This is referred ning of underpayment interest. The IRS
tion for unfair dealings and breach of to as a “credit-elect overpayment.” On argued that when the Goldings elected
fiduciary duty. In 2010, the Delaware their 2010 tax return, the Goldrings to credit that overpayment to their
Court of Chancery ruled for Goldring elected to credit the approximately $5 2011 estimated tax liabilities, the funds
and ordered the corporation to pay million overpayment to their estimated were no longer available to cover the
her $114.04 per share. In addition to 2011 tax liability (i.e., credit-elect over- 2010 deficiency.
the fair market value of the shares (ap- payment). On their tax returns for tax The IRS relied on FleetBoston Fin.
proximately $13 million), the court also years 2011 through 2016, the Goldrings Corp., 483 F.3d 1345 (Fed. Cir. 2007).
ordered the corporation to pay Goldring never used the $5 million overpayment In that case, the majority of the Federal
interest on the shares from the date of to pay their current-year tax liability, and Circuit held that the funds could not be
the merger (approximately $26 million) they always continued to make credit- credited to any later-determined defi-
plus various litigation costs. elect overpayments. ciency for the year of the overpayment
On their tax return for 2010, Gold- As the Goldrings predicted, the IRS because the taxpayer elected to credit the
ring and her husband treated the ap- audited their 2010 tax return and deter- payments to its next year’s account. The
proximately $40 million they received mined the $26 million interest payment court stated that a “credit elect overpay-
from the corporation as income from was ordinary income. The IRS assessed ment will be deemed to reside in the tax
the disposition of a capital asset. This approximately a $5 million deficiency account for the succeeding year, even if
meant that the $40 million was taxed at and $600,000 of underpayment interest. it is not needed to pay estimated tax in
the long-term capital gain rate instead The Goldrings paid the tax and filed for that year.”
of the higher ordinary income tax rate. a refund. The Fifth Circuit rejected the Federal
The Goldrings recognized that the IRS The IRS did not act on the Gold- Circuit’s reasoning and instead relied on
might treat the $26 million interest rings’ refund request, and six months the Second Circuit case Avon Products,

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