                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 07a0040n.06
                           Filed: January 12, 2007

                                             No. 05-6629

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT


ISSAC B. TIGRETT II,                                       )
                                                           )         ON APPEAL FROM THE
       Plaintiff-Appellant,                                )         UNITED STATES DISTRICT
                                                           )         COURT FOR THE WESTERN
v.                                                         )         DISTRICT OF TENNESSEE
                                                           )
UNITED STATES OF AMERICA,                                  )                  OPINION
                                                           )
       Defendant-Appellee.                                 )




BEFORE:        COOK and McKEAGUE, Circuit Judges; and WILHOIT, District Judge.*

       McKEAGUE, Circuit Judge.              Plaintiff-appellant Issac B. Tigrett II filed amended

individual income tax returns for tax years 1994-1997, seeking refunds of taxes paid. Before the

Internal Revenue Service responded to the amended returns, Tigrett instituted this action to preserve

his rights. After a bench trial, the district court awarded judgment substantially in favor of the

United States, finding that Tigrett had failed to carry his burden of proving entitlement to the claimed

business deductions. On appeal, we find no error and therefore affirm the judgment of the district

court for the reasons that follow.



________________________

        * The Honorable Henry R. Wilhoit, Jr., Senior United States District Judge for the Eastern
District of Kentucky, sitting by designation.
No. 05-6629
Tigrett v. United States




                      I. FACTUAL AND PROCEDURAL BACKGROUND

        The relevant facts are largely undisputed. Plaintiff-appellant Issac B. Tigrett II1 is a

developer and promoter of restaurant and entertainment venues. He created the original “Hard Rock

Café” in London in 1971, and subsequently developed and refined the formula which has been

duplicated in some 180 establishments in 60 countries worldwide. During the 1990s, Tigrett sought

to reproduce his Hard Rock Café success using a different music theme, gospel and blues music,

matched with the cuisine of the American South. He developed, promoted, financed and opened the

first “House of Blues” restaurant in Cambridge, Massachusetts in 1992. From 1992 to 1997, he was

chairman of the board of directors and chief executive officer of HOB Entertainment, Inc. (“HOB”),

the corporation formed to develop the House of Blues concept. It was in connection with his efforts

to promote the House of Blues concept that Tigrett personally incurred the $5 million expense which

is at the center of this litigation.

        The district court summarized the relevant facts and history of administrative proceedings

as follows:




        1
         In this court’s case caption, appellant’s first name appears as “Issac.” In the lower court
record, his name is consistently spelled in the more conventional way, “Isaac.” While the
discrepancy is noted in appellant’s brief at p. 1, n. 1, he has not directly advised which version is
correct and has not moved to correct the case caption. Hence, appellant is referred to herein as
“Issac.”

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Tigrett v. United States

               In early 1996, HOB was afforded the opportunity to open a temporary House
       of Blues venue in Centennial Park in Atlanta, Georgia, during the 1996 Olympic
       games. . . .
               Because some of the members of the Board of Directors of HOB were
       concerned that the proposed Atlanta venue might not be successful, Plaintiff, along
       with board members Dan Ackroyd and Kit Goldsbury, agreed that in the event HOB
       lost money in connection with the Olympic venture they would contribute funds to
       cover the shortfall. [According to the later memorialized Contribution Agreement,
       Ackroyd and Goldsbury each agreed to contribute up to $1 million and Tigrett up to
       $5 million.] . . . Thereafter, HOB resolved to advance up to $7,000,000 in
       connection with the House of Blues Atlanta venture and established a subsidiary
       company, House of Blues Atlanta, Inc. (“HOB Atlanta”), to operate the temporary
       venue in Atlanta. HOB provided all of the capital used by HOB Atlanta in operating
       the temporary venue. HOB anticipated that the funds used for the temporary venue
       in Atlanta would be repaid from either the profits resulting from the venue or via the
       indemnification agreement.
               The temporary venue was set up to operate during the Atlanta Olympic
       Games, but was closed for four and one-half days following the explosion of a bomb
       in Centennial Park. Ultimately, the accountants for HOB determined that HOB lost
       more than $10,000,000 from the operation of the temporary Atlanta venue. On
       October 23, 1996, the HOB Board of Directors requested that Plaintiff honor his
       agreement to indemnify HOB for such losses. . . . [I]n January of 1997 . . . Plaintiff
       paid HOB $5,000,000.
               Plaintiff was terminated as Chief Executive Officer of HOB by October of
       1997 . . . .

Dist ct. op. pp. 3-5, JA 20-22.2

               Plaintiff timely filed tax returns for the years 1994, 1995, 1996, and 1997.
       On November 17, 2000, Plaintiff timely filed amended tax returns for 1994, 1995,
       1996, and 1997, claiming a refund of Federal income taxes in the amount of $34,846
       for 1994, $143,043 for 1995, $121,075 for 1996, $122,764 for 1997 and $105,990
       for 1998. The amended returns claimed a loss for the year 1997 and a carry-back to
       reduce Plaintiff’s tax liability for 1994, 1995, and 1996. While the Internal Revenue
       Service issued a refund for the year 1998 based on a carry-forward of the 1997 loss,
       the Internal Revenue Service took no action regarding Plaintiff’s 1994, 1995, 1996,


       2
        The bombing at Centennial Park was an act of domestic terrorism that resulted in two deaths
and injuries to 111 persons. Eric Robert Rudolph pleaded guilty to the offense in 2005 and has been
sentenced to life imprisonment.

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        and 1997 tax refund claims for more than a year after the refund claims were filed.
        Because the Internal Revenue Service declined to enter an agreement tolling the
        limitations period provided by the Internal Revenue Code, Plaintiff filed this suit to
        preserve his rights. Plaintiff exhausted all administrative remedies available to him
        prior to filing this suit.

Id. at 2, JA 19.

        After denying cross-motions for summary judgment, the district court conducted a one-day

bench trial on November 22, 2004. Tigrett was the only witness at trial. The district court expressly

found Tigrett to be credible and found his testimony to be consistent with the allegations of his

complaint and with the joint final pretrial order. The court nonetheless held, in relevant part, that

Tigrett had failed to carry his burden of demonstrating entitlement to claim a deduction for the $5

million expense either as an ordinary business expense under 26 U.S.C. § 162, or as a business loss

under 26 U.S.C. § 165(c)(1). Since Tigrett was not the prevailing party, his request for attorney’s

fees under 26 U.S.C. § 7430 was also denied. Tigrett now appeals all three of these determinations.

In response, defendant-appellee United States renews its jurisdictional challenge.

                                        II. JURISDICTION

        The government contends that Tigrett did not properly exhaust his administrative remedies

as to the particular theories which are the subject of this appeal, and that the district court therefore

lacked jurisdiction to entertain them. Hence, the argument goes, even if this court were inclined to

reverse the district court’s judgment on the merits of Tigrett’s claim, the district court lacks

jurisdiction to grant the relief sought. The district court summarily rejected the jurisdictional

challenge, concluding, upon review of the record, that Tigrett’s claim for refund generally set forth

the material facts; that the claim adequately alerted the IRS to the grounds for refund; and that Tigrett

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had not asserted a whole new factual basis or legal theory in the court proceedings. The district

court’s jurisdictional ruling is subject to de novo review. Palkow v. CSX Transp., Inc., 431 F.3d 543,

548 (6th Cir. 2005) (subject matter jurisdiction reviewed de novo); Lockheed Martin Corp. v. United

States, 210 F.3d 1366, 1370 (Fed. Cir. 2000) (variance issue reviewed de novo).

       The government has correctly stated the general proposition, summarized as follows in Young

v. United States, 332 F.3d 893, 894-95 (6th Cir. 2003):

       “Federal courts have no jurisdiction to entertain taxpayer allegations that
       impermissibly vary or augment the grounds originally specified by the taxpayer in the
       administrative refund claim.” McDonnell v. United States, 180 F.3d 721, 722 (6th
       Cir.1999) (quoting Charter Co. v. United States, 971 F.2d 1576, 1579 (11th
       Cir.1992)). This rule prevents surprise and adequately notifies the IRS of the claim
       and its underlying facts. Id. Accordingly, “[w]hen a party fails to state with
       specificity the grounds for the refund, the court is without jurisdiction to entertain the
       action.” Id.

Hence, several questions are implicated by the government’s jurisdictional challenge. Has Tigrett

stated the asserted grounds for the claimed refund with sufficient specificity? Is the claim stated

clearly enough to avoid unfair surprise and adequately apprise the government of the claim and its

underlying facts? Do the grounds for relief asserted in Tigrett’s complaint impermissibly vary from

those asserted in the administrative claim for refund?

       Tigrett concedes that his amended tax returns do not assert the specific Internal Revenue

Code provisions under which he claimed entitlement to refunds. Indeed, there is no such

requirement. Tigrett’s amended returns were accompanied, however, by a three-page explanation

of the undisputed facts said to justify the amended returns and the claimed deductibility of his $5

million business loss or expense. Further, none of the theories asserted in the district court action


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No. 05-6629
Tigrett v. United States

is stated any more specifically in his district court complaint than in his amended returns. In other

words, there is no material variance between the administrative claim and the complaint. Nor is any

theory that Tigrett ultimately asserted in the district court at odds with his administrative claim or

his complaint.

        To be sure, the legal theories could have been stated more specifically. Yet, the government

gave Tigrett no reason to believe his claim was too vague or indefinite. First, the IRS granted the

claimed refund for 1998, based on the very same business loss asserted in connection with the other

years. This would appear to imply that the IRS not only understood but also approved of his claim.

Second, the amended returns for 1994 through 1997 remained pending for over a year without any

response from the IRS before Tigrett decided to file suit. During this time, the IRS did not seek

additional information or respond in any fashion that suggested the need for greater specificity or

clarification. Third, even after the district court action was commenced, the government never

moved for a more definite statement of Tigrett’s claim. The government first raised concern about

the specific nature of the grounds for Tigrett’s claim in response to his motion for summary

judgment. When the district court overruled the objection, the government subsequently conceded

jurisdiction in the parties’ joint final pretrial order. The government was then afforded a full and fair

opportunity to contest each of Tigrett’s theories on the merits in trial.

        Under these circumstances, the suggestion that the district court should have refrained from

exercising jurisdiction because the government was unfairly surprised and denied a fair opportunity

to resolve the matter administratively rings hollow. There simply is no reason to conclude that the

government’s handling of the claimed refund was in any way prejudiced as a result of Tigrett’s

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Tigrett v. United States

failure to originally identify the precise legal theories on which he relied. Considering this history

of proceedings, we conclude that Tigrett’s administrative claim contained the requisite specificity

to give the IRS adequate notice of the grounds for refund, and that the theories asserted in the district

court did not impermissibly vary from the grounds set forth in the administrative claim. The district

court’s rejection of the government’s jurisdictional challenge was therefore proper.

                                   III. ANALYSIS OF MERITS

        Tigrett contends the district court erred, however, on the merits of his claimed deductions.

Income tax deductions are “matters of legislative grace” and are construed strictly in favor of the

government. Intermet Corp. & Subsidiaries v. Comm’r, 209 F.3d 901, 904 (6th Cir. 2000). The

taxpayer bears the burden of proving entitlement to a claimed deduction. Id. The district court’s

findings of fact are reviewed for clear error and its applications of the law to the facts are reviewed

de novo. Friedman v. Comm’r, 216 F.3d 537, 542 (6th Cir. 2000).

        A. § 162 Ordinary Business Expense

        Tigrett contends his $5 million payment to HOB pursuant to the Contribution Agreement

was deductible as an ordinary business expense under 26 U.S.C. § 162. The district court was

satisfied that the payment was made in relation to Tigrett’s business, but held the expense was not

“ordinary.”

        Section 162(a) of the Code allows deduction of all “ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any trade or business.” 26 U.S.C. § 162(a). As

a threshold matter, “a taxpayer’s activities fall within the scope of § 162 only if an intent to profit

has been shown.” Portland Golf Club v. Comm’r, 497 U.S. 154, 164 (1990). To be engaged in a

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No. 05-6629
Tigrett v. United States

“trade or business,” a taxpayer must be involved in the activity with continuity and regularity for the

purpose of income or profit; sporadic activities, hobbies and recreational diversions do not qualify.

Comm’r v. Groetzinger, 480 U.S. 23, 35 (1987).

       To be deductible, an expense must be “ordinary and necessary” and must not be a capital

expenditure. INDOPCO, Inc. v. Comm’r , 503 U.S. 79, 85-86 (1992). An “ordinary expense” is

generally one of “common or frequent occurrence in the type of business involved.” Id. (quoting

Deputy v. Du Pont, 308 U.S. 488, 495 (1940)). A capital expenditure is one made to create or

enhance a separate and distinct asset, one that may be expected to yield benefits beyond the year in

which the expense is incurred. INDOPCO, 503 U.S. at 86-87. Whether a payment is a current

expense, and therefore “ordinary” and deductible, or, on the other hand, a non-deductible capital

expenditure, is a fact-specific question that may turn on distinctions of degree rather than of kind.

Id. at 86. “Although the mere presence of an incidental future benefit—‘some future aspect’— may

not warrant capitalization, a taxpayer’s realization of benefits beyond the year in which the

expenditure is incurred is undeniably important in determining whether the appropriate tax treatment

is immediate deduction or capitalization.” Id. at 87.

       Applying these standards to the record facts, the district court, in relation to the “trade or

business” requirement, noted the parties’ stipulation that Tigrett was “a developer and promoter of

restaurant and entertainment businesses.” Dist. ct. op. p. 16, JA 33. The court found, based on

Tigrett’s testimony, that his success as a developer and promoter involved developing a brand

identity for a particular concept restaurant and entertainment venue, and then continuously building

that brand nationally and/or internationally. Id. at 16-17, JA 33-34. The House of Blues Atlanta

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Tigrett v. United States

venture afforded an opportunity to expose the House of Blues brand to an international audience.

Id. at 17, JA 34. The court found the primary intended benefits of Tigrett’s agreement to indemnify

HOB were “to build the HOB brand and develop interest in a forthcoming initial public offering of

shares.” Id. at 14, JA 31. Finding that these intended benefits would serve not only HOB’s business

interests, but also Tigrett’s professional interests as a developer and promoter, the district court held

that Tigrett’s “dominant motivation” for entering into the contribution agreement was related to his

trade or business. Id. at 12 n. 5, JA 29. “In particular,” the court explained, “ the record indicates

that Plaintiff may have been motivated to indemnify the HOB Atlanta venture, at least in part, in

order to convince the HOB Board of Directors of his ability to promote the growth of the company

and thereby secure his position as Chairman and Chief Executive Officer.” Id.

        The government does not concede that Tigrett was engaged in a trade or business, but neither

does it contest the district court’s finding. In response to Tigrett’s appellate arguments for a § 162

deduction, the government stands on the correctness of the district court’s holding that the

contribution payment was not “ordinary.” As to this element, the district court reasoned as follows:

                Having reviewed the record and considering the relevant factors, the Court
        finds that Plaintiff has failed to meet his burden to prove that his indemnification
        payment was an “ordinary” expense within the meaning of § 162. Although Plaintiff
        contends that he has entered into similar indemnification agreements in the past
        (Trial Tr. at 39-41), there is no evidence in the record to show that it is a common or
        frequent occurrence in the restaurant and entertainment business for an officer of a
        corporation to make a personal guarantee in an amount several times his annual
        salary to encourage the corporation to undertake a new venture. Additionally, the
        court finds that, based upon the evidence in the record, the primary intended benefits
        of Plaintiff’s indemnification of the venture were to build the HOB brand and
        develop interest in a forthcoming initial public offering of shares. (Trial Tr. at 29,
        64.) Those benefits would likely be realized outside of the taxable year – and


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        therefore are more appropriately treated as capital expenditures. Accordingly,
        Plaintiff’s claim that he is entitled to a deduction under § 162 must also fail.

Dist. ct. op. p. 14, JA 31.

        Tigrett contends the district court erred in holding the contribution payment to be a capital

expenditure. He maintains that the contribution payment did not create or develop a distinct asset.

Yet, he entered into the contribution agreement for the dual purposes of promoting the name

recognition and goodwill associated with HOB and enhancing or protecting his reputation as an

entrepreneur. Money spent enhancing reputation or good will is generally deemed to be a capital

expenditure, because it is intended to create a future benefit, representing a capital asset. See Welch

v. Helvering, 290 U.S. 111, 115-16 (1933). At the time he actually made the payment, however, he

contends there was no longer a future benefit to be realized; the payment was made only to satisfy

the indemnity obligation. Moreover, he insists that although contribution payments of this

magnitude may not be commonly made by corporate officers, it is not an unusual undertaking for

someone in the trade or business of developing concept restaurants and entertainment venues.

        Tigrett’s arguments are ultimately unpersuasive. The notion of viewing the contribution

payment separately from the contribution agreement is artificial and at odds with the court’s duty to

undertake a fact-specific inquiry into the substance of the transaction. In making this inquiry and

ascertaining Tigrett’s motives, the purpose for the actual payment cannot be divorced from the

purpose of Tigrett’s assumption of the indemnification obligation in the first place. Clearly, if he

had failed to make the promised $5 million indemnity payment, his reputation as an entrepreneur

would have suffered greatly. In Tigrett’s own words, “My reputation is key and following what I


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Tigrett v. United States

say I’m going to do is very important to me, and I will do anything to protect that reputation . . . .”

Trial tr. p.40, JA 122. The actual payment was thus undeniably made in service of his original

purpose, i.e., to protect his reputation, a capital asset.

        Moreover, Tigrett’s characterization of the $5 million contribution payment as an “ordinary”

expense rather than a capital expenditure is belied by the “Contribution Agreement,” which by its

very terms and form implies a contribution to capital. See N. Am. Rayon Corp. v. Comm’r, 12 F.3d

583, 586-87 (6th Cir. 1993) (generally, taxpayer’s argument for tax consequences at odds with form

of transaction must be supported by evidence of mistake, undue influence, fraud or duress). Tigrett’s

characterization of the payment as ordinary is undercut also by his own testimony that “[t]his was

a very abnormal situation, very, very abnormal”. . . “a once in a lifetime opportunity.” Trial tr. pp.

40, 60, JA 122, 142. While Tigrett testified that he, as an entrepreneur, had previously invested

substantial personal funds to support a Hard Rock Café venture, he did so then, too, not out of

personal profit motive, but to safeguard his reputation. Id. at 39-40, JA 121-22. The record simply

fails to substantiate that an expenditure of this magnitude by an individual entrepreneur, reimbursing

corporate loss, comes within the realm of “normalcy,” or “within the normal over-head [sic] or

operating costs of such [entrepreneurial] activities,” such as would justify treatment as an ordinary

expense. See Deputy v. Du Pont, 308 U.S. at 496. Considering that the distinction between an

ordinary expense and capital expenditure may depend on degree, rather than kind, the district court

can hardly be faulted for its determination that this personal assumption and payment of a $5 million

indemnity obligation, in connection with the unique opportunity posed by the Atlanta Olympic



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Games, and covering corporate losses unforeseeably occasioned in part by an act of domestic

terrorism, was anything but “ordinary.”

       To the extent such a finding entails fact-finding, the district court, having conducted the

bench trial and had the opportunity to evaluate the credibility of the lone witness and assess the

significance of trial exhibits, cannot be deemed to have clearly erred in its assessment of the record.

To the extent the determination that the payment was not an ordinary expense entails a legal

conclusion, Tigrett has failed to bear his burden of demonstrating error under the law. We find no

error in the district court’s rejection of Tigrett’s claimed § 162 deduction.

       B. § 165(c)(1) Business Loss

       Tigrett also contends his $5 million contribution payment to HOB was a loss incurred by him

in a trade or business that was not compensated for by insurance or otherwise, and that should

therefore be allowed as a deduction pursuant to 26 U.S.C. § 165(c)(1). Again, the district court was

satisfied that Tigrett’s $5 million payment was made in relation to his business of developing and

promoting restaurant and entertainment venues. It concluded, however, that the payment was not

a “loss” incurred in a trade or business because it was made pursuant to the indemnity or contribution

agreement that Tigrett voluntarily entered into without consideration. Citing A. Giurlani & Bros.

v. Comm’r, 119 F.2d 852, 857 (9th Cir. 1941), the court observed that generally, the voluntary

payment of another’s loss without any legal obligation to do so does not qualify as a loss pursuant

to § 165.

       Tigrett does not quarrel with this general proposition. He admits that he received no financial

consideration for his promise to indemnify HOB. Yet, he insists that he made the contribution

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Tigrett v. United States

payment involuntarily, pursuant to a legally binding and enforceable agreement. He contends the

district court erred by failing to distinguish between the contribution agreement and the payment

itself. At the time he entered into the agreement to indemnify HOB, voluntarily or not, Tigrett

contends there was no debt or loss for him to voluntarily assume. When he actually made the $5

million payment several months later, Tigrett contends he was under a legal obligation to do so,

consisting of the legally enforceable contribution agreement. In support, he cites Putnam v. Comm’r,

352 U.S. 82 (1956).

       In Putnam, the Supreme Court recognized, for purposes of the deductibility of a non-business

bad debt loss, that a “taxpayer who voluntarily buys a debt with knowledge that he will not be paid

is rightly considered not to have acquired a debt but to have made a gratuity.” Id. at 88. The

taxpayer in such a case has not sustained a cognizable loss. In contrast, the court observed, the

guarantor who pays a debt for another in compliance with his obligation under a contract of guaranty

sustains a deductible loss not by virtue of the payment to the creditor, but by virtue of the debtor’s

ultimate inability to fulfill its obligation to reimburse the guarantor. Id. at 88-89.

       As between these two examples, Tigrett contends he is unlike the former inasmuch as he, at

the time he entered into the contribution agreement, did not have knowledge that HOB Atlanta

would sustain losses for which he would have to indemnify HOB. When he did make the payment,

it was not voluntarily, but in performance of his legally binding obligation, like the latter guarantor

in the Putnam example, who was deemed to have sustained a deductible loss.

       The government, on the other hand, maintains that Putnam supports its position. Indeed,

when Tigrett entered into the contribution agreement, he did so voluntarily and gratuitously, without

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consideration, and with knowledge that if HOB Atlanta did not succeed, he would be responsible

to reimburse HOB for its investment loss without any expectation of reimbursement from HOB

Atlanta. That is, Tigrett, like the former taxpayer in the Putnam example, voluntarily assumed

responsibility for any loss with advance knowledge that he would not be paid. Thus, even under the

teaching of Putnam, Tigrett’s assumed obligation was a gratuity, and is not a deductible loss.

           Moreover, as the government correctly contends, if the $5 million payment was not a

gratuity, it was an investment in capital assets (i.e., Tigrett’s reputation as an entrepreneur as well

as HOB’s brand identity), which is not deductible as an ordinary business loss under § 165(c)(1).

See In re Vaughan, 719 F.2d 196 (6th Cir. 1983) (holding that, there being no economic difference

between directly investing money in a corporation and indirectly investing money by promising to

pay corporate debts, losses resulting from both activities are properly treated the same, as capital

losses).

           Putnam thus represents only illusory support for Tigrett’s position. It was not unreasonable

for the district court to find the teaching of Clark v. Kavanagh, 152 F.2d 49 (6th Cir. 1945), more

instructive. In Clark, the taxpayer, a testamentary trustee, paid an obligation pursuant to an eight-

year-old indemnity agreement, an agreement which he had entered into for “the preservation of his

reputation in financial circles.” Id. at 51. The court “assumed without deciding” that the trustee, in

the execution of the trust, was engaged in business. Id. Nonetheless, although the payment was

made pursuant to a legally binding obligation, the obligation was deemed to be a personal one,

gratuitously or voluntarily assumed. This preexisting voluntary character of the obligation was

deemed to “merge” with the actual payment, rendering the payment itself personal or voluntary, too.

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That is, the payment was deemed to be neither a loss incurred in the discharge of his duties as trustee

nor a loss incurred in a transaction entered into for profit. Id. The payment was not a “loss.”

Accordingly, the payment was held not to be deductible as a loss incurred in a trade or business, or

as a loss incurred in a transaction entered into for profit.

        Tigrett argues that Clark is factually distinguishable. Yet, Tigrett has conceded that he, like

the trustee in Clark, entered into the contribution agreement without any expectation of profit. See

Bessenyey v. Comm’r, 379 F.2d 252, 256 (2d Cir. 1967) (“The established rule, approved by this

circuit and others, is that deductibility of ‘business-like’ expenses or losses is denied unless the

taxpayer can show an intention to seek profit.”) Further, Tigrett, like the Clark trustee, was

motivated to enter into the indemnity agreement in part by a desire to preserve and enhance his

professional reputation. Moreover, his agreement to indemnify HOB, like the trustee’s indemnity

agreement in Clark, was not integral to his official role or business; it was personal and voluntary.

All of these considerations support the district court’s conclusion that the facts of Clark are

sufficiently analogous and its analysis persuasive.

        Tigrett argues Clark is distinguishable because the trustee’s indemnity payment was not

found to have been made in the trustee’s trade or business, whereas he was engaged in his trade or

business as a developer and promoter. While the Sixth Circuit in Clark did not identify the trade or

business in which the trustee made the indemnity payment, it expressly “assumed,” for purposes of

its analysis, that he was engaged in a trade or business. Clark, 152 F.2d at 51. The claimed

deduction was denied in Clark not because the trustee was not engaged in business, but because the

indemnity payment was, due to the personal and voluntary nature of the obligation undertaken, not

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a “loss.” This, and not the trade or business element, represented the ratio decidendi for the holding

in Clark. Hence, the district court, in following Clark, rightly focused on the voluntariness of

Tigrett’s contribution payment, stemming from the voluntary nature of the contribution agreement,

as disqualifying it from deductibility as a business “loss.”

       On the present record, we conclude that Tigrett has failed to carry his burden of

demonstrating entitlement to the deduction. Putnam represents only weak support for his argument

and he has failed to persuasively distinguish the Sixth Circuit case law properly relied on by the

district court. Hence, we find no error in the district court’s judgment rejecting the second asserted

basis for the claimed deduction.

       C. Estoppel

       Finally, Tigrett contends the government should be estopped to deny him the claimed

deduction for years 1994-1997 where it approved the same claimed deduction for 1998. Indeed, the

only explanation for the inconsistent treatment of the claimed deduction in 1998 is that a mistake

was made by the IRS. On this point, the district court agreed with the government that the IRS’s

erroneous treatment of an issue one year does not preclude its subsequent correction of its error in

other tax years. See Knights of Columbus Council No. 3660 v. United States, 783 F.2d 69, 73 (7th

Cir. 1986) (“The doctrine of equitable estoppel is not a bar to the correction by the Commissioner

of an error of law.”); Hawkins v. Comm’r, 713 F.2d 347, 351-52 (8th Cir. 1983) (same). In fact,

although there is no hint of detrimental reliance by Tigrett on the IRS’s error in this case, the

Commissioner has the power to correct legal errors retroactively even though the taxpayer may have



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detrimentally relied on the error. Knights of Columbus, 783 F.2d at 73. Tigrett’s argument for

estoppel is therefore unavailing.



                                       IV. CONCLUSION

       Entrepreneur Issac Tigrett undertook a huge financial gamble in furtherance of his personal

and professional interests and became the victim of unfortunate and unforeseeable circumstances.

His attempts to soften the blow through claimed deductions from his income tax liability have

proven unsuccessful. On appeal, we must conclude, as we construe income tax deductions under

the Internal Revenue Code strictly in favor of the government, that he has failed to carry his burden

of demonstrating error in the district court’s judgment. The claimed deductions were properly

denied. It follows that his claim for attorney’s fees, as prevailing party, was also properly denied.

For the foregoing reasons, the judgment of the district court is in all respects AFFIRMED.




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