Goldring v. United States, 15 F.4th 639

In 1997 Sunbelt Beverage completed a cash‑out merger; Jane Goldring owned 120,000 shares and sought appraisal in Delaware Court of Chancery.
After consolidated litigation and trial, the Delaware Court found Sunbelt undervalued the shares, awarded fair value of $114.04/share and discretionary pre‑ and post‑judgment interest under 8 Del. C. §262(h).
Parties executed a Forbearance Agreement and Sunbelt paid the court award in April 2010 (~$40.79M), and Jane surrendered her stock.
On their 2010 federal return the Goldrings reported the fair‑value components as long‑term capital gains but paid their tax as if the interest component were ordinary income and elected to credit those overpayments forward (credit‑elect) through 2016.
IRS audited in 2015, recharacterized the interest portion as ordinary income, assessed a $5,250,549 deficiency and $603,335.27 in underpayment interest; the IRS retroactively applied the Goldrings’ credit‑elect overpayments and assessed underpayment interest for April 16, 2012–April 15, 2017.
The district court granted summary judgment to the Government on both issues; the Fifth Circuit affirmed the tax characterization ruling but reversed and remanded for refund of the $603,335.27 underpayment interest.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Tax character of pre‑ and post‑judgment interest awarded in Delaware appraisal judgment	Goldring: interest is part of the total judgment tied to the value of the shares and should be taxed as long‑term capital gain	Gov.: interest is compensation for lost use of money and therefore ordinary income	Held: Ordinary income. Interest indemnified lost use of fair value (Kieselbach/origin‑of‑the‑claim analysis)
Assessment of §6601 underpayment interest for Apr 16, 2012–Apr 15, 2017 while IRS held credit‑elect overpayments	Goldring: use‑of‑money principle — IRS had continuous possession of sufficient credit‑elect funds, so tax was not unpaid and interest should not run	Gov.: statutory scheme (26 U.S.C. §§6402/6513 and regs) and FleetBoston permit assessment because credit‑elect funds are treated as residing in the succeeding year	Held: IRS improperly assessed underpayment interest for that period; Goldrings entitled to refund of $603,335.27 (use‑of‑money principle controls absent clear statutory authority)

Kieselbach v. Commissioner, 317 U.S. 399 (U.S. 1943) (pre‑ and post‑judgment interest taxable as ordinary income when compensatory for lost use of money)
Dobson v. Commissioner, 321 U.S. 231 (U.S. 1944) (capital gains treatment limited to gains from sale or exchange of capital assets)
Brinkley v. Commissioner, 808 F.3d 657 (5th Cir. 2015) (tax consequences determined by substance over form)
Southgate Master Fund v. United States, 659 F.3d 466 (5th Cir. 2011) (substance‑over‑form principle in tax characterization)
Rodriguez v. Commissioner, 722 F.3d 306 (5th Cir. 2013) (ordinary income taxed at higher rate; §61 includes interest)
Avon Prods., Inc. v. United States, 588 F.2d 342 (2d Cir. 1978) (use‑of‑money principle: no §6601 interest while IRS has sufficient overpayments)
FleetBoston Fin. Corp. v. United States, 483 F.3d 1345 (Fed. Cir. 2007) (credit‑elect overpayments deemed to reside in succeeding year; majority allowed underpayment interest)
Manning v. Seeley Tube & Box Co., 338 U.S. 561 (U.S. 1950) (interest compensates creditor for deprivation of use of money)
Vick v. Phinney, 414 F.2d 444 (5th Cir. 1969) (endorsing use‑of‑money principle in §6601 context)