FIRST NATIONAL BANK OF CHICAGO, ETC., PETITIONER V. UNITED STATES
OF AMERICA

   No. 86-478

   In The Supreme Court of the United States

   October Term, 1986

   On Petition For A Writ Of Certiorari To The United States Court of
Appeals For The Ninth Circuit

   Memorandum For The United States In Opposition

   Petitioner challenges the court of appeals' holding that Section
6512(a) of the Internal Revenue Code /1/ deprived the district court
of jurisdiction to hear petitioner's claim for refund of federal
estate taxes, because the estate previously had filed a petition with
the Tax Court contesting the same tax liability.

   1. Petitioner was the trustee of six inter vivos trusts funded by
the estate of Hazel B. Crummer.  In 1974, the Commissioner asserted a
deficiency in estate taxes against the estate, and the estate filed a
petition with the Tax Court seeking a redetermination of the
deficiency.  Approximately three years later, the parties stipulated
to a deficiency of $1,340,604, plus statutory interest.  Pursuant to
the parties' stipulation, the Tax Court on October 28, 1977, entered
its decision that the estate was liable in those amounts.  The estate
paid the stipulated deficiency in installments, making the last
payment on April 17, 1978.  The total interest due was determined to
be $630,700, and that amount was also paid on April 17, 1978.  Pet
App. A2.

   The estate initially claimed the $630,700 interest expense as a
deduction on its fiduciary income tax return.  However, this turned
out to be less beneficial to the estate than deducting the interest as
an administrative expense on its estate tax return.  See I.R.C.
Section 2053(a)(2).  Therefore, on April 2, 1980, the estate filed
with the IRS a claim for refund of estate taxes, seeking to deduct the
interest payment against the gross estate and to recalculate the
estate tax liability previously determined by the Tax Court.  The
Commissioner rejected the refund claim, and petitioner, as the
fiduciary of the beneficiaries of the estate, instituted t is refund
suit in the United States District Court for the Central District of
California.  Pet. App. A2.

   The sole issue disputed by the parties was whether the district
court had jurisdiction to entertain petitioner's suit.  The government
maintained that the refund action was barred by the res judicata
effect of the Tax Court's decision and by Section 6512(a) of the Code,
which deprives the district courts of jurisdiction where a taxpayer
has filed a petition in the Tax Court to contest a deficiency asserted
by the IRS.  The district court rejected both arguments (Pet. App.
B1-B5).  It held that res judicata did not apply because the interest
expense did not arise until after the completion of the Tax Court
proceedings (id. at B3).  And the court held that Section 6512(a) did
not apply to a claim based solely on interest (Pet. App. B3-B4).
Accordingly, it concluded that the estate was entitled to an estate
tax refund of $478,794 plus interest, less an adjustment in the sum of
$49,056 plus interest;  the latter amount was intended to reflect the
tax benefit that had resulted from the deduction of the interest
expense on the estate's fiduciary income tax return (id. at C1-C2).

   The court of appeals unanimously reversed, holding that Section
6512(a) barred petitioner's refund action.  The court explained that
Section 6512(a), by its plain terms, prohibits a taxpayer from suing
in district court for a recomputation of an estate tax liability that
has already been redetermined by the Tax Court.  Pet. App. A4-A5.  The
court of appeals accordingly found it unnecessary to reach the
government's res judicata contention (id. at A3).

   2. The court of appeals correctly held that petitioner's refund
action was barred by Section 6512(a) of the Code.  That section
generally provides that, if the Commissioner has mailed a notice of
deficiency with respect to estate tax and if the taxpayer has filed a
timely petition with the Tax Court, "no credit or refund * * * of
estate tax in respect to the taxable estate of the same decedent * * *
shall be allowed or made and no suit by the tax payer for recovery of
any part of the tax shall be instituted in any court." The language of
the statute plainly established that a taxpayer cannot bring a refund
suit in district court alleging that the estate tax liability
determined by the Tax Court in a prior proceeding was too high.

   a. Petitioner contends (Pet. 12-14) that Section 6512(a) is
inapplicable here because statutory interest is not part of the "tax"
and played no role in the deficiency proceedings in the Tax Court.
That contention is without merit.  As the court of appeals explained,
petitioner does not dispute the amount of interest due and paid on the
estate tax deficiency as redetermined by the Tax Court.  Rather,
petitioner "is seeking a recomputation of its estate tax liability"
based upon the deduction of that interest against the gross estate
(Pet. App. A5 (emphasis in original)).  Contrary to petitioner's
suggestion (Pet. 13, 21-22), therefore, the decision below is fully
consistent with Britton v. United States, 532 F. Supp. 275, 277 (D.
Vt. 1981), aff'd, 697 F.2d 288 (2d Cir. 1982), which involved a suit
for refund of allegedly excessive amounts of interest paid on the Tax
Court judgment.

   b. Petitioner also errs in contending (Pet. 14-19) that this case
falls within the exception set forth in Section 6512(a)(2).  That
subsection provides that the general prohibition against district
court jurisdiction set forth in Section 6512(a) does not apply "(a)s
to any amount collected in excess of an amount computed in accordance
with the decision of the Tax Court which has become final." But
petitioner paid the deficiency determined by the Tax Court and the
statutory interest thereon, exactly as it was directed by the Tax
Court's decision.  Thus, the estate clearly did not pay any amount "in
excess of (the) amount computed in accordance with the decision of the
Tax Court." Instead, as the court of appeals correctly observed, the
refund petitioner now seeks is grounded solely upon its attempt to
obtain a "redetermination in the district court of the estate tax,
which was the subject of the prior Tax Court proceedings and judgment"
(Pet. App. A4).

   Petitioner asserts (Pet. 18) that the amount of interest available
as a deduction was indeterminate at the time the parties agreed to the
stipulated deficiency in the Tax Court, and hence that the literal
application of Section 6512(a) contravenes "(f)airness, reason, and
justice." That contention is plainly mistaken.  At the time the
stipulation was agreed upon, the estate could have calculated the
interest due, claimed a deduction therefor against the gross estate,
and adjusted the stipulated deficiency accordingly.  Alternatively, as
petitioner now recognizes (Pet. 18-19), it could have asked the Tax
Court to defer entry of judgment for approximately six months until
final payment of the interest occurred, whereupon an appropriate
adjustment of the deficiency could have been made.  The estate
evidently failed to take such steps because of its belief that the
proper treatment of the interest expense was to deduct it on the
estate's fiduciary income tax return.  That belief may have been
erroneous, but that is no reason to ignore the plain language of the
statute.  Section 6512(a) operates "in effect (as) a statute of
limitations," barring refund actions based upon events that occur
following the final Tax Court determination.  United States v. Wolf,
238 F.2d 447, 450-451 (9th Cir. 1956).  See also Elbert v. Johnson,
164 F.2d 421, 424 (2d Cir. 1947) (where Tax Court had no jurisdiction
to grant relief requested, subsequent refund suit was nonetheless
barred);  Moir v. United States, 149 F.2d 455, 458-460 (1st Cir. 1945)
(petition to Tax Court barred subsequent action for refund of estate
taxes based upon the deduction of attorney's fees).  /2/

   It is therefore respectfully submitted that the petition for a writ
of certiorari should be denied.

   CHARLES FRIED

      Solicitor General

   DECEMBER 1986

   /1/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code (26 U.S.C.), as amended (the Code or I.R.C.).

   /2/ Petitioner's contention (Pet. 20) that the decision below
conflicts with decisions of other circuits is wholly without merit.
In none of the cases relied upon by petitioner did the estate initiate
proceedings in the Tax Court, and hence the applicability of Section
6512(a) was not in issue and was not addressed by the courts.  Those
cases did consider the application of res judicata principles to an
estate tax refund suit based on an attempt to deduct administrative
costs against the gross estate.  Hence, they might be relevant had the
court of appeals ruled that res judicata principles barred the refund
suit here.  The court, however, explicitly declined to reach that
issue (Pet. App. A3), and it therefore is not properly before this
Court.