Buder v. U.S., 05-2145.

Citation436 F.3d 936
Decision Date07 February 2006
Docket NumberNo. 05-2147.,No. 05-2145.,05-2145.,05-2147.
PartiesEstate of Kathryn M. BUDER, deceased, by and through, as personal and representative of the Estate of Kathryn M. Buder, deceased, as trustee of the G.A. Buder, Jr. Residuary Trust, and as beneficiary of the G.A. Buder, Jr. Residuary Trust — G.A. Buder, III — Theodore A. Buder — Marshall O. Buder; G.A. Buder, Jr. Residuary Trust by and through, as trustee of the G.A. Buder, Jr. Residuary Trust, and as beneficiary of the G.A. Buder, Jr. Residuary Trust — G. A. Buder, III — Theodore A. Buder — Marshall O. Buder; G.A. Buder, III, Theodore A. Buder, and Marshall O. Buder as the remaining beneficiaries of the G.A. Buder, Jr. Residuary Trust; Theodore A. Buder, as a remaining beneficiary of the G.A. Buder, Jr. Residuary Trust; Marshall O. Buder, as a remaining beneficiary of the G.A. Buder, Jr. Residuary Trust, Appellants/Cross-Appellees, v. UNITED STATES of America, Appellee/ Cross-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

Thomas B. Weaver, argued, St. Louis, MO (John R. Barsanti, Jr., Paul E. Kovacs, and Jeffery T. McPherson, on the brief), for appellants/cross-appellees.

Steven W. Parks, argued, Tax Division, Dept. of Justice, Washington, D.C. (Richard Farber, on the brief), for appellee/cross-appellant.

Before MURPHY, FAGG, and SMITH, Circuit Judges.

FAGG, Circuit Judge.

The facts are undisputed and were fully recited by the district court in this case. Estate of Kathryn M. Buder v. United States, 372 F.Supp.2d 1145, 1146-48 (E.D.Mo.2005). We give an abbreviated version here. When G.A. Buder, Jr. died in 1984, his will created a residuary trust for the benefit of his wife and children. His estate treated the residuary trust as qualified terminable interest property (QTIP) and claimed a marital deduction for the trust's value. During litigation over a charitable deduction, the Government raised an affirmative set-off defense that the residuary trust did not qualify as a QTIP. Because the Government did not raise the issue until ten days before trial, however, the court refused to consider the unpleaded defense as untimely. See Buder v. United States, 7 F.3d 1382 (8th Cir.1993) (affirming district court).

When Buder's wife died in 2000, her personal representatives included the residuary trust in her estate's federal estate tax return. Two years later, the estate representatives and Buder's sons filed this action asserting claims for refunds of federal estate tax based on incorrect inclusion of the trust on Buder's wife's return. The Government acknowledged the residuary trust should have been taxed with the G.A. Buder estate, but it was not because of the estate's QTIP election. The Government conceded the sons were entitled to a refund plus interest, but argued the amount of the refund should be offset by a proportionate amount of the tax that should have been paid on the trust by G.A. Buder's estate. Because the statute of limitations had run on any action by the Government to recover the tax, the Government invoked the doctrine of equitable recoupment.

The district court* analyzed the elements of equitable recoupment and concluded they were satisfied, id. at 1150-59, but limited the amount recouped to the tax burden that would have been borne by the plaintiffs if the improper QTIP election had not been made and the tax had been imposed in a timely manner, id. at 1162 & n. 25. As for interest on the equitable recoupment, the court examined the tax statutes cited by the parties, and agreed with the parties that the tax code's general rule is that interest is paid on tax unpaid on or before the due date, with narrow exceptions. The court observed, however, that

none of the Code provisions directly address whether interest is due in the equitable recoupment context. Equitable recoupment is an affirmative defense; it is an equity-based remedy available to [the Government] here only to prevent Plaintiffs' unjust enrichment. The doctrine was not created to allow the Government to collect taxes that have not been paid on time; instead, the doctrine in this case is applied to reduce the refund to which Plaintiffs are lawfully entitled.

Id. at 1164. After noting that the cases cited by the Government failed to provide...

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