           In the United States Court of Federal Claims
                                           No. 15-878T
                                    Filed: December 15, 2017
                                    NOT FOR PUBLICATION

                                              )
 MARC H. PRYDE and                            )
 LISA R. PRYDE,                               )
                 Plaintiffs,                  )              I.R.C. § 172; Net Operating Loss;
                                              )              Carryback; Theft Loss Deduction;
 v.                                           )              I.R.C. § 165; Bad Debt Deduction;
                                              )              I.R.C. § 166; RCFC 56; Res
 THE UNITED STATES,                           )              Judicata; Judicial Notice.
                                              )
                       Defendant.             )
                                              )

       Brian G. Isaacson, Attorney of Record, Isaacson Law Firm, Seattle, WA, for plaintiffs.

       Brian James Sullivan, Trial Attorney, Jason S. Selmont, Trial Attorney, Court of Federal
Claims Section, Robert J. Higgins, Of Counsel, David I. Pincus, Chief, Court of Federal Claims
Section, David A. Hubbert, Acting Assistant Attorney General, Tax Division, United States
Department of Justice, Washington, DC, for defendant.
                         MEMORANDUM OPINION AND ORDER

I.     INTRODUCTION
       In this tax refund action, plaintiffs, Marc H. Pryde and Lisa R. Pryde, seek to recover a
tax refund in the amount of $876,352.00 in connection with certain financial losses associated
with several defaulted loans, based upon the bad business debt deduction under Internal Revenue
Code (“I.R.C.”) § 166(a); the theft loss deduction under I.R.C. § 165(c); Revenue Ruling 2009-9;
and the safe-harbor provision set forth in Revenue Procedure 2009-20. See generally Compl.
The parties have filed cross-motions for summary judgment on the issue of whether plaintiffs are
entitled to a tax refund based upon the aforementioned provisions, pursuant to Rule 56 of the
Rules of the United States Court of Federal Claims (“RCFC”). See generally Pl. Mot.; Def. Mot.
For the reasons discussed below, the Court DENIES plaintiffs’ motion for summary judgment,
or, in the alternative, partial summary judgment and GRANTS-IN-PART the government’s
cross-motion for summary judgment.




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II.     FACTUAL AND PROCEDURAL BACKGROUND1
        A.      FACTUAL BACKGROUND
        In this tax refund action, plaintiffs, Marc H. Pryde and Lisa R. Pryde, seek to recover a
tax refund in the amount of $876,352.00 in connection with certain financial losses associated
with several defaulted loans, based upon the bad business debt deduction under I.R.C. § 166(a);
the theft loss deduction under I.R.C. § 165(c); Revenue Ruling 2009-9; and the safe-harbor
provision set forth in Revenue Procedure 2009-20. See generally Compl. Plaintiffs claimed the
bad business debt and theft loss deductions in tax year 2009, and they seek to carryback the
unused deductible losses to 2004. Id. ¶ 5. Plaintiffs also seek to carryforward any remaining
deductible losses to 2005. Id. And so, plaintiffs seek tax refunds in the amounts of $36,000.00
for tax year 2009; $85,400.00 for tax year 2004; and $754,952.00 for tax year 2005.2 Id.
                1.      The Pryde Family Real Estate Business
        As background, plaintiffs are a married couple and they reside in Washington State. Id. ¶
6. The Pryde family has been involved in the real estate development business in the Seattle area
for several decades. Id. ¶¶ 13-16. The father of Marc Pryde, Harry Pryde, began work in the
real estate industry in the 1940s. Def. Ex. 1 at 6. In the late 1980s, Marc Pryde joined the family
business as the general counsel for the Pryde Corporation. Def. Ex. 2 at 4.
                2.      The Mastro Loans
        In addition to developing real estate, the Pryde family occasionally lent money to others.
Compl. ¶¶ 21-22. Specifically relevant to this tax refund dispute, Marc Pryde made several loans
to Michael R. Mastro—a former Seattle-based real estate developer, lender, and investor. Id.;
see also Compl. Ex. D.


1
  The facts recited in this Memorandum Opinion and Order are taken from plaintiffs’ complaint
(“Compl.”) and the exhibits thereto (“Compl. Ex. ___”); plaintiffs’ motion for summary judgment, or, in
the alternative, partial summary judgment (“Pl. Mot.”) and the exhibits attached thereto (“Pl. Ex. ___”);
the government’s response and opposition to plaintiffs’ motion and cross-motion for summary judgment
(“Def. Mot.”) and the exhibits attached thereto (“Def. Ex. ___”); the Declaration of Jex Bjorn (“Bjorn
Decl.”); and the Supplemental Declaration of Jex Bjorn (“Bjorn Supp. Decl.”).
2
  During discovery, plaintiffs were informed that they had already received $36,000.00 as a tax refund for
tax year 2009. See Def. Mot. at 11. And so, the parties filed a joint stipulation of dismissal with regards
to plaintiffs’ tax year 2009 claim on February 8, 2016. See Joint Stipulation of Dismissal (Docket Entry
No. 13).



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       Specifically, on February 3, 2006, Marc Pryde loaned $5 million to Mr. Mastro. Compl.
¶¶ 1, 22. Mr. Mastro made payments to reduce the $5 million principal balance of this loan
down to $2 million. Id. ¶¶ 2, 31.
       On May 23, 2008, Marc Pryde made another loan to Mr. Mastro in the amount of
$400,000.00. Id. ¶ 2. In addition, on December 2, 2008, Marc Pryde made another loan to Mr.
Mastro in the amount of $2 million (the February 2, 2006; May 23, 2008; and December 2, 2008
loans, collectively, the “Mastro Loans”). Id. As of December 2, 2008, the outstanding principal
balance of the Mastro Loans was $4,400,000.00. Id. ¶¶ 2, 31.
       Mr. Mastro also issued an unsecured promissory note to Marc Pryde in connection
with these loans. See generally Compl. Ex. A. Under the terms of the Mastro Loans, the
proceeds of the loans were to be payable on demand. Compl. Ex. A at 1; Compl. Ex. D at
1; Def. Ex. 2 at 26-27. Between 2006 and 2009, Mr. Mastro made monthly interest
payments to Marc Pryde in connection with the Mastro Loans. See Def. Mot. at 6; Def. Ex.
2 at 26, 42. To that end, Mr. Mastro has paid Marc Pryde more than $1.3 million in interest
in connection with the Mastro Loans. Def. Mot. at 6; Def. Ex. 1 at 46. See generally Def.
Exs. 5, 19.
               3.      The Great Recession And Mastro Bankruptcy
       The Seattle real estate market rapidly deteriorated during the latter part of 2008 through
mid-2009, as a result of the Nation’s financial crisis. See Def. Mot. at 7; Def. Ex. 8 at 7; Def.
Ex. 16 at 7. See generally Def. Ex. 17. As a result, the demand for real estate shriveled and
property values plummeted. Def. Mot. at 8; Def. Ex. 8 at 7, 14; Def. Ex. 16 at 7. See generally
Def. Ex. 17.
       These adverse conditions crippled Mr. Mastro’s properties located in the Seattle-area real
estate market. Def. Mot. at 8. And so, by March 2009, Mr. Mastro was unable to meet his bank
loan payment obligations. Def. Ex. 6 at 12-13; Def. Ex. 8 at 11; Def. Ex. 9 at 20-21.
       On July 10, 2009, three banks—Columbia State Bank, First Sound Bank, and Venture
Bank—filed an involuntary bankruptcy petition against Mr. Mastro in the United States
Bankruptcy Court for the Western District of Washington (the “Bankruptcy Proceedings”).
Compl. ¶ 25. See generally Pl. Ex. A. In his first report to creditors in these Bankruptcy
Proceedings, the bankruptcy trustee, James Rigby, stated that:



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       Mastro’s state of insolvency did not arrive overnight. Mastro spent the time frame
       from at least mid 2008 through mid 2009 providing many creditors with second,
       third and fourth place liens against real estate property and assigning his promissory
       notes receivable. . . . Had the Mastro bankruptcy proceedings been filed one year
       earlier, prior to the assignment of significant assets to creditors and cash drawn
       down, there would probably have been more additional funds available for general
       unsecured creditors. But that is not the case.
Pl. Ex. D at 2.
       As a result of the Bankruptcy Proceedings, Marc Pryde discovered that Mr. Mastro made
allegedly fraudulent representations to convince him to make the Mastro Loans. Compl. ¶ 26. In
this regard, plaintiffs maintain that the 2009 Statement of Financial Condition that Mr. Mastro
provided to Marc Pryde fraudulently represented that Mr. Mastro had a positive net worth of
$125,653,341.00. Id. In contrast, Mr. Mastro’s Bankruptcy Schedules reported a negative net
worth of $82,871,897.00 in 2009. Id. Marc Pryde filed a proof of claim for $4,422,000.00 in the
Bankruptcy Proceedings on December 4, 2009. Pl. Ex. E at 1.
       On October 1, 2009, the State of Washington’s Department of Financial Institutions
Securities Division filed a statement of charges and notice of intent to enter an order to cease and
desist, to revoke exemptions, and to impose a fine against Mr. Mastro. See Compl. Ex. E at 13-
14; In the Matter of Determining whether there has been a violation of the Securities Act of
Washington by Michael R. Mastro, doing business as Mastro Properties, Order No. S-09-038-
09-SC0l (Oct. 1, 2009). In that proceeding, the State of Washington’s Department of Financial
Institutions alleged that Mr. Mastro violated state securities laws by selling unregistered
securities and by making untrue statements of material fact in the course of some of those sales.
See Def. Mot. at 8. See generally Def. Ex. 20. On January 10, 2010, Mr. Mastro entered into a
consent order with the Department of Financial Institutions and agreed to cease and desist from
violating the anti-fraud section of the Securities Act of Washington and to pay a fine. Compl. ¶
34; Def. Mot. at 8-9; Def. Ex. 20 at 17-20.
       Mr. Mastro’s troubles did not end, however, with this consent order. On October 25,
 2012, a federal grand jury sitting in the United States District Court for the Western District of
 Washington returned a 43-count indictment charging Mr. Mastro and his wife with




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    bankruptcy-related crimes.3 See Coml. Ex. H; see also United States v. Mastro, No. CR12-
    320 JCC (W.D. Wash. filed Oct. 25, 2012). The superseding indictment, filed November 7,
    2012, provides, among other things, that:

          Beginning on a date uncertain, but in or about 2008, and continuing through at
          least in or about August 2011, within the Western District of Washington and
          elsewhere, MICHAEL R. MASTRO and LINDA A. MASTRO, and others known
          and unknown to the Grand Jury, knowingly and willfully devised and attempted
          to devise, and executed and attempted to execute, a scheme and artifice to defraud
          the Bankruptcy Court for the Western District of Washington, the Court-
          appointed trustee in bankruptcy, and creditors in connection with an involuntary
          bankruptc y proceeding filed on or about July 10, 2009, under Title 11, United
          States Code, In re: Michael R. Mastro, Case No. 09-16841 (the ‘bankruptcy
          proceeding’), in that they prepared and filed and caused to be prepared and filed
          materially false and fraudulent documents, and made and caused to be made
          materially false and fraudulent representations concerning and in relation to that
          proceeding under Title 11, United States Code . . . .

Pl. Ex. J at ¶ 4. The superseding indictment also alleges that certain personal property—a
checking account, the Mastro’s home, home furnishings, and two diamond rings—were
concealed during the Bankruptcy Proceedings. Id. at ¶ 5. Nearly all of the property specified
in the superseding indictment has been seized and the proceeds from the sale of these items
have been distributed to Mr. Mastro’s unsecured creditors. See Def. Mot. at 9; Def. Ex. 16 at
8-9; see, e.g., Def. Exs. 21-22. To that end, in February 2012, the plaintiffs received a check
in the amount of $44,504.00 from Mr. Mastro’s bankruptcy trustee. Compl. ¶ 41.
                 4.      Plaintiffs’ 2009 Tax Returns
          The Internal Revenue Service (“IRS”) received plaintiffs’ original return for tax year
2009 on May 28, 2010. Def. Ex. 23 at 2. This return does not report any losses associated with
the Mastro Loans.4 See generally Def. Ex. 14. Based upon this return, the IRS refunded to
plaintiffs the sum of $36,000.00 on February 21, 2011. Def. Ex. 23 at 2.

3
 At the time of the aforementioned indictment, Mr. Mastro had fled the country and was living in France.
Pl. Ex. I at 3; Def. Mot. at 9. Extradition requests for Mr. Mastro and his wife have been denied on
humanitarian grounds and Mr. Mastro remains abroad. Def. Mot. at 9.

4
  Plaintiffs reported the Mastro Loan interest on their 2006, 2007, 2008, and originally filed 2009 income
tax returns as interest on a Schedule B, Interest and Ordinary Dividends. See Def. Ex. 11 at 7-8, 10, 15.
See generally Def. Exs. 5, 10, 12-14.



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       The parties disagree about whether plaintiffs’ original 2009 return contained a five-year
net operating loss (“NOL”) carryback election statement. See generally Def. Ex. 14; Bjorn Supp.
Decl. at ¶ 6. The return in the IRS’s files does not include a five-year NOL carryback election
statement pursuant to Revenue Procedure 2009-52. See generally Def. Ex. 14. But, plaintiffs’
accountant, Jex Bjorn, states in his supplemental declaration that plaintiffs’ “original [2009]
return was filed with the government on May 19, 2010 and contains the election statement
required under Rev. Proc. 2009-50. . . .” Bjorn Supp. Decl. at ¶ 6. Mr. Bjorn further states in his
supplemental declaration that he has attached “a true and correct copy of [plaintiffs’] original
2009 tax return that [he] filed with the IRS” to this supplemental declaration. Id. This document
is neither signed nor dated by plaintiffs. Id. at Ex. F at 26.
       On April 17, April 18, and May 24, 2011, the IRS received several amended tax returns
from plaintiffs for the 2009 tax year. See Def. Mot. at 10; Def. Ex. 23 at 2. See generally Def.
Exs. 24-26. These amended returns report the Mastro Loans as a bad business debt, or,
alternatively, as a theft loss. Def. Mot. at 10. See generally Def. Exs. 24-26. These amended
returns also include five-year NOL carryback election statements that have been prepared in
accordance with Revenue Procedure 2009-52. Def. Mot. at 10; Def. Ex. 24 at 34; Def. Ex. 25 at
38. The IRS has taken no action with respect to these returns. See generally Def. Ex. 23.
       On October 25, 2013, plaintiffs submitted an additional amended return for tax year
2009. Def. Ex. 23 at 3. See generally Compl. Ex. B. In this return, plaintiffs characterized the
Mastro Loans as a bad business debt under I.R.C. § 166(a); a theft loss under I.R.C. § 165(c); or,
alternatively, as eligible for safe-harbor relief under Revenue Procedure 2009-20. Compl. Ex. B
at 6. In this return, plaintiffs also sought to carryback unused deductible losses to tax year 2004,
and to carryforward remaining amounts to 2005. See generally Compl. Ex. B.
               5.      Plaintiffs’ Amended 2004 And 2005 Tax Returns
       The IRS’s certified transcripts show that on April 18, 2011, the IRS received plaintiffs’
amended returns for the 2004 and 2005 tax years, carrying back the remaining deductible losses
associated with the Mastro Loans from 2009 to 2004 and forward to 2005. See Def Mot. at 10;
Def. Ex. 27 at 3; Def. Ex. 28 at 5. See generally Def. Ex. 26. These amended returns also
sought refunds for the 2004 and 2005 tax years. Def. Ex. 27 at 3; Def. Ex. 27 at 5. See generally
Def. Ex. 26.



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       Mr. Bjorn states in his original declaration filed with the Court on July 24, 2017, that he
“was responsible for making the five (5) year carryback election from 2009 to 2004 when [he]
prepared the federal income tax returns for plaintiffs, Marc H. Pryde and Lisa R. Pryde.” Bjorn
Decl. at ¶ 3. Mr. Bjorn also states in this declaration that he “met the requirements to carry
losses from 2009 to 2004 in accordance with Rev Proc 2009-26, section 4.01(3)(a)(i).” Id. at ¶ 7.
               6.      The American Recovery And Reinvestment Tax Act
       In February 2009, Congress amended Section 172(b)(1)(H) of the I.R.C. to extend the
carryback period to up to five years for 2008 net operating losses incurred by an “eligible small
business.” See American Recovery and Reinvestment Tax Act of 2009, Pub. L. No. 111-5 at §
1211, 123 Stat. 115. This law specifies that that the five-year NOL carryback election “shall be
made in such manner as may be prescribed by the Secretary, and shall be made by the due date
(including extension of time) for filing the taxpayer’s return for the taxable year of the net
operating loss.” Id. (providing I.R.C. § 172(b)(1)(H)(iii) as it then existed).
       In 2009, the United States Department of the Treasury (the “Treasury”) and the IRS
specified the manner of making a carryback election for 2008 NOLs in Revenue Procedure
2009-19. Rev. Proc. 2009-19, 2009-14 I.R.B. 747 (Apr. 6, 2009). This procedure required that
eligible small businesses attach an election statement to their 2008 tax return that clearly elects to
carryback an NOL under § 172(b)(1)(H) and states the length of the carryback. Id. § 4.01(3).
       On May 11, 2009, the IRS issued Revenue Procedure 2009-26, which eliminated the
requirement for a special election statement, “due to the fact that the [statutory amendment] and
issuance of Rev. Proc. 2009-19 occurred midway through the current tax return filing season,”
and many eligible small businesses missed the requirements. Rev. Proc. 2009-26 at § 1.02,
2009-19 I.R.B. 935 (May 11, 2009). And so, under Revenue Procedure 2009-26, an eligible
small business may make a carryback election by filing the appropriate tax form for the
carryback year. Id. § 4.01(3)(a). Under this procedure, no election statement is required and the
taxpayer’s amended return applying the NOL must be filed within six months after the due date
for filing the taxpayer’s return for the taxable year of the applicable 2008 NOL, or by April 17,
2009. Id. § 4.01(3)(a)-(b).
               7.      The Workers, Homeownership, And Business Assistance Act
       On November 6, 2009, President Obama signed into law a new amendment to I.R.C. §
172(b)(1)(H), as part of the Workers, Homeownership, and Business Assistance Act of 2009

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(“WHBAA”). See Pub. L. No. 111-92 at § 13(a), 123 Stat. 2984 (2009).5 The WHBAA extends
the favorable five-year carryback election for NOLs to all taxpayers with an NOL for tax years
2008 or 2009. Id. at § 13(a); see also I.R.C. § 172(b)(1)(H)(ii) (2009). The statute also requires
that the five-year NOL carryback election “shall be made in such manner as may be prescribed
by the Secretary, and shall be made by the due date (including extension of time) for filing the
return for the taxpayer’s last taxable year beginning in 2009.” Pub. L. No. 111-92 at § 13(a); see
also I.R.C. 172(b)(1)(H)(iii) (2009).
        On December 7, 2009, the Treasury and the IRS provided guidance about the manner for
making the carryback election under this new law in Revenue Procedure 2009-52. Rev. Proc.
2009-52, 2009-49 I.R.B. 744 (Dec. 7, 2009). Under Revenue Procedure 2009-52, a taxpayer
must provide a specific election statement stating three pieces of information, namely: (1) that
the taxpayer is electing to apply § 172(b)(1)(H) under Revenue Procedure 2009-52; (2) that the
taxpayer is neither a Troubled Asset Relief Program (“TARP”) recipient nor an affiliate of a
TARP recipient in either 2008 or 2009; and (3) the length of the NOL carryback. Id. at §
4.01(3)(a). In addition, Revenue Procedure 2009-52 requires that the five-year NOL carryback
election be made by the time period for the filing of the taxpayer’s 2009 return. Id. at §
4.01(3)(b).
        B.      PROCEDURAL HISTORY
        Plaintiffs commenced this tax refund action on August 14, 2015. See generally Compl.
On December 14, 2015, the government answered the complaint. See generally Answer.
        On July 24, 2017, plaintiffs filed a request for judicial notice and documents in support
thereof. See generally Pl. Request for Judicial Notice; Pl. Exs. A-J.6
        On August 1, 2017, plaintiffs filed a motion for summary judgment, or, in the alternative,
partial summary judgment. See generally Pl. Mot. On September 6, 2017, the government filed
a response and opposition to plaintiffs’ motion for summary judgment, or, in the alternative,

5
 On December 19, 2014, Congress repealed Section 172(b)(1)(H) in the Tax Increase Prevention Act of
2014. See Pub. L. No. 113-295 § 221(a)(30)(A), 128 Stat. 4010 (2014).
6
  On July 24, 2017, plaintiffs filed a motion for summary judgment, or, in the alternative, partial summary
judgment and attachments in support thereof. See generally Pl. MSJ; Bjorn Decl. On July 27, 2017,
plaintiffs filed a Notice of Errata and Correction to Plaintiffs’ Motion for Summary Judgment, or, in the
alternative, partial summary judgment. See generally Pl. Notice, July 27, 2017. On July 31, 2017, the
Court directed plaintiffs to file a corrected version of their motion. See Order, July 31, 2017.


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partial summary judgment, a cross-motion for summary judgment and attachments in support
thereof. See generally Def. Mot.; Def. Exs. 1-34.
       On October 3, 2017, plaintiffs filed a response and opposition to the government’s cross-
motion for summary judgment and a reply in support of their motion for summary judgment, or,
in the alternative, partial summary judgment and attachments in support thereof. See generally
Pl. Resp; Bjorn Supp. Decl.; Pryde Supp. Decl. On October 17, 2017, the government filed a
reply in support of its cross-motion for summary judgment. See generally Def. Reply.
       These matters having been fully briefed, the Court addresses the parties’ pending cross-
motions.
III.   LEGAL STANDARDS
       A.      Jurisdiction And Tax Refund Claims
       This Court possesses subject-matter jurisdiction over claims for the “recovery
of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.”
28 U.S.C. § 1346(a)(1); Dumont v. United States, 85 Fed. Cl. 425, 427–28 (2009). And so, a
taxpayer may bring an action in this Court to recover any internal revenue tax erroneously or
illegally assessed or collected, provided that the taxpayer first duly files a claim for a refund with
the IRS. I.R.C. § 7422(a); United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4 (2008);
Dumont, 85 Fed. Cl. at 427–28.
       Plaintiffs bear the burden to prove, by a preponderance of the evidence, that they are
entitled to the tax deductions at issue in this case and the correct amount of the tax refund due.
United States v. Janis, 428 U.S. 433, 440 (1976) (holding that the taxpayer bears the burden to
prove the erroneous nature of the assessment as well as the amount the taxpayer is entitled to
recover); Charron v. United States, 200 F.3d 785, 792 (Fed. Cir. 1999) (holding that, in a tax
refund suit, taxpayers were required to prove not only the excludability of items from taxable
income, but also the amount); Danville Plywood Corp. v. United States, 899 F.2d 3, 7-8 (Fed.
Cir. 1990) (holding that after a taxpayer overcomes the presumption of correctness, it must still
carry the ultimate burden of proof); Cook v. United States, 46 Fed. Cl. 110, 114–117 (2000)
(same). “It is well established that a tax assessment is presumptively correct.” Arrington v.
United States, No. 96-5079, 1997 WL 101091, at *4 (Fed. Cir. Mar. 7, 1997). And so, plaintiffs
will not recover in a tax refund case if they cannot prove the amount of the refund due. See
Janis, 428 U.S. at 440; Taylor v. Comm’r, 70 F.2d 619, 620 (2d Cir. 1934), aff’d, 293 U.S. 507


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(1935) (explaining that, in a refund suit, if the taxpayer fails to prove the amount due, the
taxpayer may not recover everything owed to him “even though we know that the tax is too
high”); see also Int’l Paper Co. v. United States, 36 Fed. Cl. 313, 322 (1996) (citing Janis, 428
U.S. at 440) (holding that the plaintiff, in order to recover, must prove “the precise dollar amount
of the refund to which it is entitled”); Sara Lee Corp. & Subs. v. United States, 29 Fed. Cl. 330,
334 (1993) (“[P]laintiff then must prove the exact dollar amount of the alleged overpayment to
which it claims a refund.”) (citations omitted).

       B.      RCFC 56
       Pursuant to RCFC 56, a party is entitled to summary judgment when there is “no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” RCFC
56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Biery v. United States,
753 F.3d 1279, 1286 (Fed. Cir. 2014). A dispute is “genuine” when “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. at 248. A fact is “material” if it could “affect the outcome of the suit under the
governing law.” Id.

       The moving party bears the burden of demonstrating the absence of any genuine issues of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). And so, ‘“the inferences to be
drawn from the underlying facts . . . must be viewed in the light most favorable to the party
opposing the motion.”’ Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
587-88 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).

       In making a summary judgment determination, the Court does not weigh the evidence
presented, but instead must “determine whether there is a genuine issue for trial.” Liberty Lobby,
Inc., 477 U.S. at 249; see also Am. Ins. Co. v. United States, 62 Fed. Cl. 151, 154 (2004); Agosto
v. INS, 436 U.S. 748, 756 (1978) (“[A trial] court generally cannot grant summary judgment
based on its assessment of the credibility of the evidence presented . . . .”). The Court may grant
summary judgment when “the record taken as a whole could not lead a rational trier of fact to
find for the nonmoving party . . . .” Matsushita Elec. Indus. Co., Ltd., 475 U.S. at 587.

       The above standard applies when the Court considers cross-motions for summary
judgment. Principal Life Ins. Co. & Subsidiaries v. United States, 116 Fed. Cl. 82, 89 (2014);
see also Estate of Hevia v. Portrio Corp., 602 F.3d 34, 40 (1st Cir. 2010). And so, when both

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parties move for summary judgment, ‘“the court must evaluate each party’s motion on its own
merits, taking care in each instance to draw all reasonable inferences against the party whose
motion is under consideration.”’ Abbey v. United States, 99 Fed. Cl. 430, 436 (2011) (quoting
Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)).
        C.      Res Judicata, Judicial Estoppel, And Judicial Notice
        The United States Court of Appeals for the Federal Circuit has recognized that “[t]he
doctrine of res judicata involves the related concepts of claim preclusion and issue preclusion.”
Phillips/May Corp. v. United States, 524 F.3d 1264, 1267 (Fed. Cir. 2008). Claim preclusion
bars a claim where: “(1) the parties are identical or in privity; (2) the first suit proceeded to a
final judgment on the merits; and (3) the second claim is based on the same set of transactional
facts as the first.” Cunningham v. United States, 748 F.3d 1172, 1179 (Fed. Cir. 2014) (quoting
Ammex, Inc. v. United States, 334 F.3d 1052, 1055 (Fed. Cir. 2003)); see also Federated Dep’t
Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981) (“A final judgment on the merits of an action
precludes the parties or their privies from relitigating issues that were or could have been raised
in that action.”) (citations omitted).

        The doctrine of collateral estoppel−or issue preclusion−protects litigants from the burden
of relitigating an identical issue with the same party and promotes judicial economy by
preventing needless litigation. Parklane Hosiery, Inc. v. Shore, 439 U.S. 322, 331 (1979);
Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 328-329 (1971). A party
asking the court to apply collateral estoppel must establish that:

        (1) the issue at stake is identical to the one involved in the prior proceeding; (2) the
        issue was actually litigated in the prior proceeding; (3) the determination of the
        issue in the prior litigation must have been a critical and necessary part of the
        judgment in the first action; and (4) the party against whom collateral estoppel is
        asserted must have had a full and fair opportunity to litigate the issue in the prior
        proceeding.

Dana v. E.S. Originals, Inc., 342 F.3d. 1320, 1323 (Fed. Cir. 2003) (internal quotation marks
omitted) (quoting Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1359 (11th Cir. 1998));
Banner v. United States, 238 F.3d 1348, 1354 (Fed. Cir. 2001) (citing Jet, Inc. v. Sewage
Aeration Sys., 223 F.3d 1360, 1365-66 (Fed. Cir. 2000)).

        Collateral estoppel may be used defensively or offensively. Parklane Hosiery, 439 U.S.
at 329. Offensive collateral estoppel–when a previous case precludes a defendant from litigating

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an issue in its defense–may require “a stronger showing that the prior opportunity to litigate was
adequate . . . .” Id. at 331 n.16 (citation omitted). The United States Supreme Court has also
held that courts should refrain from applying offensive collateral estoppel out of fairness to the
defendant if: (1) plaintiff could have easily joined the earlier action, or (2) where application of
offensive collateral estoppel would be unfair to the defendant. Id. at 330. Application of
offensive collateral estoppel would be unfair to the defendant if: (1) the defendant did not have
an incentive to fully litigate in the previous litigation; (2) the defendant did not have a full
chance to litigate the issues due to procedural disadvantages in the previous litigation; or (3)
there exist inconsistent judgments on record. Id.

        In addition, the United States Court of Appeals for the Federal Circuit has held that
application of offensive collateral estoppel also poses the danger of giving multiple plaintiffs a
“no lose incentive” to wait and take advantage of a ruling against the same defendant. Dana,
342 F.3d. at 1325-26 (citation omitted). Given this, “offensive collateral estoppel must be
applied with circumspection, even when the legal requirements for applying collateral estoppel
are satisfied.” Id. at 1326.

        The doctrine of judicial estoppel is applied to estop a party that has “successfully urge[d]
a particular position in a legal proceeding . . . from taking a contrary position in a subsequent
proceeding where its interests have changed.” Buckley v. United States, 57 Fed. Cl. 328, 341
(2003) (citations omitted). Judicial estoppel is “designed to prevent the perversion of the judicial
process and, as such, is intended to protect the courts rather than the litigants.” Id. And so, the
United States Court of Appeals for the Federal Circuit has identified three factors that should be
considered when determining whether judicial estoppel is appropriate to bar a claim: (1) whether
the party’s later position is clearly inconsistent with its earlier position; (2) whether the party has
succeeded in persuading a court to accept that party’s earlier position, so that judicial acceptance
of an inconsistent position in a later proceeding would create the perception that either the first or
the second court was misled; and (3) whether the party seeking to assert an inconsistent position
would derive an unfair advantage or impose an unfair detriment on the opposing party if not
estopped. N. Am. Rubber Thread Co. v. United States, 593 F.3d 1346, 1354 (Fed Cir. 2010)
(citations omitted).




                                                                                                     12
        Lastly, this Court may take judicial notice consistent with the provisions of Federal Rule
of Evidence 201. See Fed. R. Evid. 201; see also Wash. Mut., Inc. v. United States, 130 Fed. Cl.
653, 704 (2017); Canpro Invs. Ltd. v. United States, 130 Fed. Cl. 320, 331 n.2 (2017);
Confidential Informant 59-05071 v. United States, No. 11-153, 2017 U.S. Claims LEXIS 1374,
at *29 (Fed. Cl. Oct. 16, 2017); Rodriguez v. Sec’y of HHS, 91 Fed. Cl. 453, 460 (2010), aff’d,
632 F.3d 1381 (Fed. Cir. 2011). Pursuant to Federal Rule of Evidence 201, the Court “may
judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known
within the trial court’s territorial jurisdiction; or (2) can be accurately and readily determined
from sources whose accuracy cannot be reasonably questioned.” Fed. R. Evid. 201. Whether to
take judicial notice is a matter of discretion for the Court. See K/S Himpp v. Hear-Wear Techs.,
LLC, 751 F.3d 1362, 1367 (Fed. Cir. 2014); Murakami v. United States, 398 F.3d 1342, 1355
(Fed. Cir. 2005).
        D.      Section 172
        Section 172 of the Internal Revenue Code generally allows a taxpayer that has a net
operating loss during any taxable year to carryback that loss two years and to carryforward that
loss 20 years, to offset income received in those years. See I.R.C. at § 172(a)-(b). Section 172
provides, in relevant part, that:
        (a) Deduction allowed.−There shall be allowed as a deduction for the taxable year
        an amount equal to the aggregate of (1) the net operating loss carryovers to such
        year, plus (2) the net operating loss carrybacks to such year. For purposes of this
        subtitle, the term “net operating loss deduction” means the deduction allowed by
        this subsection.

        (b) Net operating loss carrybacks and carryovers.--
               (1) Years to which loss may be carried.--
                       (A) General rule.--Except as otherwise provided in this paragraph,
               a net operating loss for any taxable year--
                              (i) shall be a net operating loss carryback to each of the 2
                       taxable years preceding the taxable year of such loss, and
                              (ii) shall be a net operating loss carryover to each of the 20
                       taxable years following the taxable year of the loss.

I.R.C. § 172(a)-(b). Section 172 also defines “net operating loss” to mean “the excess of the
deductions allowed by this chapter over the gross income.” Id. at § 172(c). In addition, under
Section 172, NOLs that arise from theft may be carried back for up to three years. Id. at §
172(b)(1)(E).


                                                                                                     13
       With regards to the timing of bringing a tax refund claim based upon a NOL carryback,
Section 6511 of the I.R.C. provides that the time for filing an administrative refund claim is
typically three years from the due date for the return for the year in which the NOL arose, when
the basis for a tax refund is a NOL carryback. I.R.C. at § 6511(d)(2)(A). But, Congress has
periodically extended the carryback period beyond the typical two or three years, and specified a
separate deadline for the taxpayer to elect the extended carryback. See Tualatin Valley Builders
Supply, Inc. v. United States, 522 F.3d 937, 943 (9th Cir. 2008); McAllister v. United States, 125
Fed. Cl. 167, 169-70 (2016).
       Specifically relevant to this dispute, on November 6, 2009, President Obama signed into
law a new amendment to I.R.C. § 172(b)(1)(H), which extended the favorable five-year
carryback election for NOLs to all taxpayers with an NOL for tax years 2008 or 2009. See
Workers, Homeownership, and Business Assistance Act of 2009, Pub. L. No. 111-92 at § 13(a),
123 Stat. 2992; see also I.R.C. § 172(b)(1)(H) (2009). This law requires that the five-year NOL
carryback election “shall be made in such manner as may be prescribed by the Secretary, and
shall be made by the due date (including extension of time) for filing the return for the taxpayer’s
last taxable year beginning in 2009.” Pub. L. No. 111-92 at § 13(a); see also I.R.C. §
172(b)(1)(H)(iii)(II) (2009).
       On December 7, 2009, the Treasury Department and the IRS provided guidance
regarding how to make the carryback election under this law in Revenue Procedure 2009-52.
Rev. Proc. 2009-52, 2009-49 I.R.B. 744 (Dec. 7, 2009). Under Revenue Procedure 2009-52, a
taxpayer must provide a specific election statement stating three pieces of information, namely:
(1) that the taxpayer is electing to apply § 172(b)(1)(H) under Revenue Procedure 2009-52; (2)
that the taxpayer is neither a Troubled Asset Relief Program (“TARP”) recipient nor an affiliate
of a TARP recipient in either 2008 or 2009; and (3) the length of the NOL carryback. Id. at §
4.01(3)-(4). In addition, Revenue Procedure 2009-52 requires that the five-year NOL carryback
election be made by the time period for the filing of the taxpayer’s 2009 return. Id. at § 4.01(3).
        E.     Section 165
       Under Section 165 of the I.R.C., a taxpayer may deduct from the taxpayer’s income any
unreimbursed loss attributable to theft. See IRC § 165(a), (c), (e); Treas. Reg. § 1.165-8(a).
Specifically, Section 165 provides, in relevant part, that:
       (a) General rule.−There shall be allowed as a deduction any loss sustained during
       the taxable year and not compensated for by insurance or otherwise.
                                                                                                 14
        (b) Amount of deduction.--For purposes of subsection (a), the basis for
        determining the amount of the deduction for any loss shall be the adjusted basis
        provided in section 1011 for determining the loss from the sale or other disposition
        of property.

        (c) Limitation on losses of individuals.−In the case of an individual, the deduction
        under subsection (a) shall be limited to--
                (1) losses incurred in a trade or business;
                (2) losses incurred in any transaction entered into for profit, though not
        connected with a trade or business; and
                (3) except as provided in subsection (h), losses of property not connected
        with a trade or business or a transaction entered into for profit, if such losses arise
        from fire, storm, shipwreck, or other casualty, or from theft. . . .

        (e) Theft losses.−For purposes of subsection (a), any loss arising from theft shall
        be treated as sustained during the taxable year in which the taxpayer discovers such
        loss.

I.R.C. § 165(a)-(c), (e). The Treasury regulations implementing Section 165 also provide that
“the term ‘theft’ shall be deemed to include, but shall not necessarily be limited to, larceny,
embezzlement, and robbery.” Treas. Regs. § 1.165-8(5). Neither I.R.C. § 165 nor its
implementing regulations provide any further guidance for what constitutes a theft. See
generally I.R.C. § 165; Treas. Regs. § 1.165-8. But, this Court has generally recognized that, to
constitute a theft, the perpetrator must have had the specific intent to deprive the victim of his
property. See Goeller, 109 Fed. Cl. at 549; Schroerlucke v. United States, 100 Fed. Cl. 584, 598
(2011); see also De Fusco v. Comm’r, 38 T.C.M. (CCH) 920, 922 (1979); Model Penal Code §
223.3 (Am. Law. Inst. 2016).
        F.      Section 166
        Lastly, Section 166(a) of the IRC, allows as a deduction any bona fide debt that becomes
worthless within the taxable year. I.R.C. § 166(a). Specifically, Section 166 provides, in
relevant part, that:
        (a) General rule.—

               (1) Wholly worthless debts.—There shall be allowed as a deduction any
        debt which becomes worthless within the taxable year.

                (2) Partially worthless debts.—When satisfied that a debt is recoverable
        only in part, the Secretary may allow such debt, in an amount not in excess of the
        part charged off within the taxable year, as a deduction.

                                                                                                     15
        (b) Amount of deduction.—For purposes of subsection (a), the basis for
        determining the amount of the deduction for any bad debt shall be the adjusted basis
        provided in section 1011 for determining the loss from the sale or other disposition
        of property. . . .

        (d) Nonbusiness debts.—

                (1) General rule.—In the case of a taxpayer other than a corporation--
                       (A) subsection (a) shall not apply to any nonbusiness debt; and

                        (B) where any nonbusiness debt becomes worthless within the
                taxable year, the loss resulting therefrom shall be considered a loss from the
                sale or exchange, during the taxable year, of a capital asset held for not more
                than 1 year.

              (2) Nonbusiness debt defined.—For purposes of paragraph (1), the term
        “nonbusiness debt” means a debt other than—

                        (A) a debt created or acquired (as the case may be) in connection
                with a trade or business of the taxpayer; or

                        (B) a debt the loss from the worthlessness of which is incurred in
                the taxpayer's trade or business.

Id. § 166(a)-(b), (d).
        Section 166(d)(2) defines a business debt as “a debt created or acquired . . . . in
connection with a trade or business of the taxpayer,” or “a debt the loss from the worthlessness
of which is incurred in the taxpayer's trade or business.” Id. § 166(d)(2). Courts have
recognized that, to be eligible to deduct a loss as a bad business debt, an individual taxpayer
must show that the taxpayer was engaged in a trade or business and that the debt was
proximately related to that trade or business. See Putoma Corp. v. Comm’r, 66 T.C. 652, 673
(1976), aff’d, 601 F.2d 734 (5th Cir. 1979); Treas. Reg. § 1.166–5(b). Courts have also
recognized that the question of whether a purported loan is a bona fide debt for tax purposes is
determined from the facts and circumstances of each case. See A.R. Lantz Co. v. United States,
424 F.2d 1330, 1333 (9th Cir. 1970); Gross v. Comm’r, 401 F.2d 600, 603 (9th Cir. 1968), aff'g
T.C. Memo. 1967-31; Dixie Dairies Corp. v. Comm’r, 74 T.C. 476, 493 (1980). And so, to give
rise to a deduction under Section 166(a)(1), a debt must have become wholly worthless during
the tax year. Treas. Reg. § 1.166–3(b); see Bodzy v. Comm’r, 321 F.2d 331,335 (5th Cir. 1963),


                                                                                                   16
aff'g in part, rev'g in part T.C. Memo. 1962-40; see also Rutter v. Comm’r, T.C. Memo 2017-
174, 114 T.C.M (CCH) 282 (2017).
IV.     LEGAL ANALYSIS
        The parties have filed cross-motions for summary judgment on several issues related to
whether plaintiffs may recover in this tax refund matter.
        First, plaintiffs have moved for summary judgment, or, in the alternative, partial
summary judgment, upon eight grounds, namely that: (1) the doctrine of res judicata precludes
the re-litigation of certain issues regarding whether Mr. Mastro acted to defraud his creditors, or
made fraudulent transfers in this case, because those matters have been previously litigated in the
Bankruptcy Proceedings; (2) the doctrine of collateral estoppel precludes the re-litigation of
certain issues regarding whether Mr. Mastro was insolvent at the time of the Mastro Loans,
because those issues have also been previously litigated in the Bankruptcy Proceedings; (3) the
Court may take judicial notice of several documents related to the Bankruptcy Proceedings and
the subsequent federal criminal proceeding involving Mr. Mastro; (4) the government is
estopped from challenging the findings of fact and conclusions of law in the Bankruptcy
Proceedings under the doctrine of judicial estoppel; (5) if the Court applies the doctrines of res
judicata or collateral estoppel with respect to the Bankruptcy Proceedings, plaintiffs have
established that they were the victims of a theft by false pretenses; (6) if the Court applies the
doctrines of res judicata or collateral estoppel with respect to the Bankruptcy Proceedings,
plaintiffs have established that they had no prospect of recovering the outstanding balances for
the Mastro Loans; (7) plaintiffs may deduct the Mastro Loans as a bad business debt; and (8)
plaintiffs properly elected to carry their net operating losses in 2009 back five years. Pl. Mot. at
7-52.
        The government opposes plaintiffs’ motion upon the grounds that the doctrines of res
judicata, collateral estoppel, judicial estoppel, and judicial notice are not applicable to this case,
and that plaintiffs have not shown that they are entitled to a theft loss deduction because there are
material facts in dispute regarding whether plaintiffs were the victims of a theft. Def. Mot. at 31-
45.
        In addition the government has moved for summary judgment in its favor upon the
grounds that: (1) plaintiffs’ tax refund claims for tax years 2004 and 2005 fail because plaintiffs
did not timely file their five-year net operating loss carryback election, or their amended returns

                                                                                                     17
for 2004 and 2005; (2) plaintiffs are not entitled to a bad business debt deduction because the
Mastro Loans are personal rather than business loans; (3) plaintiffs are estopped from claiming a
bad business debt; and (4) plaintiffs cannot establish an entitlement to relief under the safe
harbor set forth in Revenue Procedure 2009-20. Id. at 13-30.
          For the reasons discussed below, the undisputed material facts in this matter show that
application of claim preclusion, issue preclusion, judicial estoppel, and judicial notice are not
warranted in this case. In addition, the undisputed material facts show that plaintiffs did not
timely file their five-year net operating loss carryback election with their 2009 return, or timely
file their amended returns for tax years 2004 and 2005. And so, the Court DENIES plaintiffs’
motion for summary judgment, or, in the alternative, partial summary judgment; GRANTS-IN-
PART the government’s cross-motion for summary judgment; and DISMISSES the complaint.
          A.     Application Of Claim Preclusion, Issue Preclusion, Judicial
                 Estoppel, And Judicial Notice Are Unwarranted In This Case
                 1.      The Court Declines To Apply Claim Preclusion
          As an initial matter, plaintiffs inappropriately request that the Court apply claim
preclusion with respect to the Bankruptcy Proceedings before the United States Bankruptcy
Court for the Western District of Washington in this de novo tax refund matter. The United
States Court of Appeals for the Federal Circuit has held that claim preclusion applies when: (1)
the parties are identical to, or in privity with, the parties in the prior litigation; (2) the first suit
proceeded to a final judgment on the merits; and (3) the second suit is based on the same set of
transactional facts as the first suit. See, e.g., Cunningham v. United States, 748 F.3d 1172, 1179
(Fed. Cir. 2014). The Supreme Court has also recognized that, when the government is not a
party to a litigation, the government is only in privity with a party to that litigation when the
government had a significant role in the litigation. Montana v. United States, 440 U.S. 147, 154
(1979).
          In this case, it is undisputed that the government was not a party to the Bankruptcy
Proceedings before the United States Bankruptcy Court for the Western District of Washington.
See Pl. MSJ at 9-12; Def. Mot. at 33. Because the parties to that proceeding were Mr. Mastro
and his creditors, the undisputed material facts in this case also make clear that the government
was also not in privity with any party to those proceedings. See generally In re Mastro, 465 B.R.
576 (W.D. Wash. 2011). And so, the Court declines to apply claim preclusion with respect to the
Bankruptcy Proceedings in this matter.
                                                                                                            18
               2.      The Court Declines To Apply Issue Preclusion
       Plaintiffs’ request that the Court apply issue preclusion with respect to the Bankruptcy
Proceedings is similarly inappropriate. The Federal Circuit has held that a party asking the court
to apply collateral estoppel, or issue preclusion, must establish that:

       (1) the issue at stake is identical to the one involved in the prior proceeding; (2) the
       issue was actually litigated in the prior proceeding; (3) the determination of the
       issue in the prior litigation must have been a critical and necessary part of the
       judgment in the first action; and (4) the party against whom collateral estoppel is
       asserted must have had a full and fair opportunity to litigate the issue in the prior
       proceeding.

Dana v. E.S. Originals, Inc., 342 F.3d. 1320, 1323 (Fed. Cir. 2003) (quoting Pleming v.
Universal-Rundle Corp., 142 F.3d 1354, 1359 (11th Cir. 1998)); see also Christo v. Padgett, 223
F.3d 1324, 1339 (11th Cir. 2000); Banner v. United States, 238 F.3d 1348, 1354 (Fed. Cir. 2001)
(citing Jet, Inc. v. Sewage Aeration Sys., 223 F.3d 1360, 1365-66 (Fed. Cir. 2000)). Issue
preclusion may be used defensively or offensively. Parklane Hosiery, Inc. v. Shore, 439 U.S.
322, 326 (1979). Issue preclusion is not appropriate here because, as discussed above, the
government was not a party to the Bankruptcy Proceedings. See Pl. Mot. at 12-17; Def. Mot. at
34-35. See generally In re Mastro, 465 B.R. 576. Given this, the government did not have “a
full and fair opportunity to litigate” the issues presented in this case in the prior Bankruptcy
Proceedings. And so, the Court must also decline to apply issue preclusion in this matter.

               3.      The Court Declines To Take Judicial Notice Of The
                       Factual Findings And Legal Conclusions Of Other Courts
       In addition, the Court declines to take judicial notice of the findings of fact and
conclusions of law of the United States Bankruptcy Court for the Western District of Washington
and the United States District Court for the Western District of Washington in connection with
the proceedings involving Mr. Mastro before those courts. In their motion, plaintiffs request that
the Court take judicial notice of several documents related to either the Bankruptcy Proceedings,
or the subsequent federal criminal proceedings involving Mr. Mastro before the United States
District Court for the Western District of Washington. Pl. Mot. at 7-9.
       The United States Court of Appeals for the Federal Circuit has held that the question of
whether to take judicial notice is a matter of discretion for this Court. See K/S Himpp v. Hear-
Wear Techs., LLC, 751 F.3d 1362, 1367 (Fed. Cir. 2014). Generally, the Court “may judicially


                                                                                                   19
notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the
trial court’s territorial jurisdiction; or (2) can be accurately and readily determined from sources
whose accuracy cannot be reasonably questioned.” Fed. R. Evid. 201(b); see also Wash. Mut.,
Inc. v. United States, 130 Fed. Cl. 653, 704 (2017); Canpro Invs. Ltd. v. United States, 130 Fed.
Cl. 320, 331 n.2 (2017); Confidential Informant 59-05071 v. United States, No. 11-153, 2017
U.S. Claims LEXIS 1374, at *29-30 (Fed. Cl. Oct. 16, 2017); Rodriguez v. Sec’y of HHS, 91
Fed. Cl. 453, 460 (2010), aff’d, 632 F.3d 1381 (Fed. Cir. 2011).
          But, courts have also recognized that it is not appropriate for a court to adopt the factual
findings and legal conclusions of other courts. See Liberty Mut. Ins. Co. v. Rotches Pork
Packers, Inc., 969 F.2d 1384, 1388-89 (2d Cir. 1992) (“A court may take judicial notice of a
document filed in another court ‘not for the truth of the matters asserted in the other litigation,
but rather to establish the fact of such litigation and related filings.’”); see also Murakami v.
United States, 46 Fed. Cl. 731, 739-40 (2000) (observing that, even where judicial notice is
appropriate to establish that a document exists, the Court may not always take judicial notice of
the facts contained therein). Plaintiffs request that the Court do precisely this with regards to the
Bankruptcy Proceedings and criminal proceedings involving Mr. Mastro. And so, the Court
declines to take judicial notice of the findings of fact and conclusions of law of these other
courts.
                 4.      Judicial Estoppel Is Unwarranted
          Lastly, application of the doctrine of judicial estoppel with respect to the Bankruptcy
Proceedings is also unwarranted in this case, because plaintiffs have not shown that such extreme
relief is necessary here. In their motion for summary judgment, or, in the alternative, partial
summary judgment, plaintiffs request that the Court estop the government from challenging the
findings of fact and conclusions of law of the United States Bankruptcy Court for the Western
District of Washington, because the government relied upon those factual findings and legal
conclusions in the subsequent criminal proceedings involving Mr. Mastro before the United
States District Court for the Western District of Washington. Pl. Mot. at 9.
          The United States Court of Appeals for the Federal Circuit has identified three factors
that the Court should consider when determining whether judicial estoppel is appropriate: (1) the
party’s later position is clearly inconsistent with its earlier position; (2) the party has persuaded
the first court of that party’s position; and (3) the party seeking to assert an inconsistent position


                                                                                                      20
would impose an unfair detriment on the opposing party if not estopped. N. Am. Rubber Thread
Co. v. United States, 593 F.3d 1346, 1354 (Fed. Cir. 2010). None of these factors have been met
here.
        First, plaintiffs have not shown that the government’s position in this case “is clearly
inconsistent” with its earlier position in the criminal proceedings before the United States
District Court for the Western District of Washington, because the criminal proceedings
addressed actions that Mr. Mastro undertook during the Bankruptcy Proceedings. In contrast, the
actions at issue in this litigation occurred prior to the Bankruptcy Proceedings. See generally
Compl.; Pl. Ex. J.
        Plaintiffs also fail to show that the government successfully persuaded the United States
District Court for the Western District of Washington of its position in the criminal proceedings
involving Mr. Mastro, because it is undisputed that the government did not fully prosecute this
case after Mr. Mastro fled the United States. See also Pl. Ex. I at 3; Def. Mot. at 9; see, e.g.,
United States v. McCaskey, 9 F.3d 379 (5th Cir. 1993) (holding that “[t]he mere fact that a
United States Magistrate Judge signed the criminal complaint charging the defendants . . . does
not suggest that the government ever ‘successfully maintained’” that position in the first action);.
Plaintiffs similarly fail to establish that the government is “seeking to assert an inconsistent
position” in this matter, or that doing so “would impose an unfair detriment” on plaintiffs if not
estopped, given that the criminal proceedings involving Mr. Mastro were not fully prosecuted.
And so, the Court declines to apply judicial estoppel to estop the government from challenging
the findings of fact and conclusions of law of either the United States Bankruptcy Court for the
Western District of Washington, or the United States District Court for the Western District of
Washington in this proceeding.
        Because application of claim preclusion, issue preclusion, judicial notice, and judicial
estoppel are unwarranted in this case, the Court DENIES plaintiffs’ motion for summary
judgment, or, in the alternative, for partial summary judgment, upon the grounds that: (1) the
doctrine of res judicata precludes the re-litigation of certain issues regarding whether Mr. Mastro
acted to defraud his creditors or made fraudulent transfers in this case because those issues were
previously litigated in the Bankruptcy Proceedings; (2) the doctrine of collateral estoppel
precludes the re-litigation of certain issues regarding whether Mr. Mastro was insolvent at the
time of the Mastro Loans, because those issues were previously litigated in the Bankruptcy

                                                                                                    21
Proceedings; (3) the Court may take judicial notice of several documents related to the
Bankruptcy Proceedings and the subsequent federal criminal proceeding involving Mr. Mastro;
and (4) the government is estopped from challenging the findings of fact and conclusions of law
in the Bankruptcy Proceedings under the doctrine of judicial estoppel.
       Plaintiffs also rely upon the findings of fact and conclusions of law of the United States
Bankruptcy Court for the Western District of Washington and the United States District Court
for the Western District of Washington to seek summary judgment upon the grounds, that: (1)
plaintiffs were victims of a theft by false pretenses and (2) plaintiffs have established that they
had no prospect of recovering the outstanding balance for the Mastro Loans. And so, the Court
also DENIES plaintiffs’ motion for summary judgment, or, in the alternative, partial summary
judgment with respect to these issues.
       B.      The Undisputed Material Facts Show That Plaintiffs’ Returns Are Untimely
       Both parties have moved for summary judgment on the issue of whether plaintiffs
properly and timely filed a net operating loss five-year carryback election with their 2009
return—and whether plaintiffs timely filed their amended returns for 2004 and 2005—to enable
plaintiffs to recover a refund for tax years 2004 and 2005. For the reasons discussed below, the
undisputed material facts in this matter show that plaintiffs did not timely file their 2004 and
2005 amended returns and that plaintiffs also did not timely file a net operating loss five-year
carryback election statement with their 2009 return. And so, plaintiffs have not established that
they are entitled to any recovery in this tax refund dispute.
               1.    I.R.C. § 172 As Amended By The WHBAA
                     Applies To Plaintiff’s Tax Refund Claims
       As an initial matter, the undisputed material facts in this case make clear that plaintiffs’
tax refund claim is governed by I.R.C. § 172(b)(1)(H), as amended by the Workers,
Homeownership, and Business Assistance Act of 2009. See Pub. L. No. 111-92 § 13(a), 123
Stat. 2984 (2009). Specifically relevant here, the WHBAA extended the five-year carryback
election for NOLs to all taxpayers with a net operating loss for either tax year 2008 or 2009. Id.;
see also I.R.C. § 172(b)(1)(H)(ii) (2009). Because plaintiffs claim a NOL in 2009, and plaintiffs
are individual taxpayers, the WHBAA applies to their tax refund claim and allows plaintiffs to
make a five-year NOL carryback election provided that this election is timely made in the
manner prescribed by the statute. Pub. L. No. 111-92 at § 13(a).


                                                                                                      22
          In this regard, the WHBAA requires that the five-year NOL carryback election “shall be
made in such manner as may be prescribed by the Secretary, and shall be made by the due date
(including extension of time) for filing the return for the taxpayer’s last taxable year beginning in
2009.” Id. (emphasis supplied); see also I.R.C. § 172(b)(1)(H)(iii) (2009). The Treasury
Department has provided guidance to taxpayers regarding how and when to make the five-year
NOL carryback election under the WHBAA, in Revenue Procedure 2009-52. See Rev. Proc.
2009-52.7 This guidance requires that a taxpayer must provide a five-year NOL carryback
election statement that includes three pieces of information, namely: (1) that the taxpayer is
electing to apply § 172(b)(1)(H) under Revenue Procedure 2009-52; (2) that the taxpayer is

7
    Rev. Proc. 2009-52 provides in relevant part that:
          SECTION 4. APPLICATION
          01 Time and manner of making the election under § 172(b)(1)(H).
          (1) In general. A taxpayer within the scope of this revenue procedure may make the
          election under § 172(b)(1)(H) or § 810(b)(4) by following the procedure described in either
          section 4.01(3) or section 4.01(4) of this revenue procedure. The procedures under this
          revenue procedure that apply to NOLs and the election under § 172(b)(1)(H) also apply to
          a loss from operations of a life insurance company and the election under § 810(b)(4).
          ....
          (3) Electing on a federal income tax return for the taxable year of the applicable NOL.
          (a) What to file. A taxpayer may make the election under § 172(b)(1)(H) by attaching a
          statement to the taxpayer’s federal income tax return for the taxable year in which the
          applicable NOL arises. A taxpayer that filed its federal income tax return for the taxable
          year of the applicable NOL may make the election by attaching a statement to an amended
          return for the taxable year of the applicable NOL. The election statement must state that
          the taxpayer is electing to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52,
          and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP
          recipient. The statement must specify the length of the NOL carryback period the taxpayer
          elects (3, 4, or 5 years).
          (b) When to file. A taxpayer must file the election statement with the taxpayer’s original
          or amended federal income tax return for the taxable year of the applicable NOL on or
          before the due date (including extensions) for filing the return for the taxpayer’s last taxable
          year beginning in 2009.
          (c) Carryback applications or refund claims. A taxpayer that makes the § 172(b)(1)(H)
          election under this section 4.01(3) must attach a copy of the election statement to the
          taxpayer’s claim for tentative carryback adjustment (Form 1045, Application for Tentative
          Refund; or Form 1139, Corporation Application for Tentative Refund) or amended return
          applying the applicable NOL to the carryback year. The due date for timely filing a claim
          for tentative carryback adjustment on Form 1045 or 1139 for a taxpayer that makes the §
          172(b)(1)(H) election is extended to the due date (including extensions) for filing the return
          for the taxpayer’s last taxable year beginning in 2009.

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neither a TARP recipient nor an affiliate of a TARP recipient in either 2008 or 2009; and (3) the
length of the NOL carryback. Id. at § 4.01(3)(a). This guidance also requires that the five-year
NOL carryback election be made by the time period for the filing of the taxpayer’s 2009 return.
Id. at § 4.01(3)(b). In addition, the Treasury’s guidance similarly requires that a taxpayer that is
making a five-year NOL carryback election also attach a copy of the requisite carryback election
statement to the taxpayer’s amended return applying the net operating loss to the carryback year.
Id. at § 4.01(3)(c). And so, pursuant to Revenue Procedure 2009-52 and the WHBAA, plaintiffs
must have filed their five-year NOL carryback election statement, and their amended returns for
tax years 2004 and 2005, by the due date for their 2009 returns. Id.
               2.    Plaintiffs Failed To File Timely Amended
                     Returns For Tax Years 2004 And 2005
       The undisputed material facts in this matter show that plaintiffs did not timely file their
amended 2004 and 2005 tax returns. It is undisputed that the due date for plaintiffs’ 2009 return
was October 15, 2010. See Def. Mot. at 5; Bjorn Supp. Decl. at Ex. F at 8; see also I.R.C. §§
6072(a), 6081; Treas. Regs. § 301.9100-2(b). And so, under the WHBAA and Revenue
Procedure 2009-52, plaintiffs were also required to file their amended 2004 and 2005 returns
applying their net operating loss to the carryback years, and their five-year NOL carryback
election statement, by October 15, 2010. Rev. Proc. 2009-52 at § 4.01(3)(b).
       Plaintiffs have not established that they filed their 2004 and 2005 amended returns by
October 15, 2010. In this regard, the IRS’s certified transcripts show that plaintiffs filed their
amended 2004 and 2005 tax returns on April 18, 2011−more than six months after the due date
for these amended returns. Def. Ex. 27 at 3; Def. Ex. 28 at 5. The Court presumes that the IRS’s
certified transcripts are “true, accurate, and correct.” See Davis v. United States, 43 Fed. Cl. 92,
94 (1999). To overcome this presumption, plaintiffs must “present[] reliable evidence . . . strong
enough to suggest that it is highly probable that the filing has taken place.” Id. Plaintiffs have
not done so here.

       Plaintiffs do not dispute that their amended return for 2005 was untimely. See Pl. Resp.
at 22-23. See generally Bjorn Supp. Decl. In addition, while plaintiffs do contend that their
2004 amended return was timely filed with the IRS, they fail to provide any reliable evidence to
support this contention. Specifically, plaintiffs have provided the Court with a document that
they represent to be a copy of their 2004 amended return. See generally Bjorn Decl. at Ex. C.


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But, this document is unsigned and undated. Id. at 7. And so, plaintiffs have not provided the
Court with any reliable evidence to show that their 2004 amended return was actually filed with
the IRS by October 15, 2010. See Davis, 43 Fed. Cl. at 94.

       The Court also observes that the document that plaintiffs identify as their 2004 amended
return does not contain the carryback election statement required under Revenue Procedure
2009-52. See Rev. Proc. 2009-52 at § 4.01(3)(a), (c). See generally Bjorn Decl. at Ex. C. Given
this, the undisputed material facts in this case show that plaintiffs did not timely file their
amended 2004 or 2005 tax returns with the IRS as required by the WHBAA and Revenue
Procedure 2009-52.

       Because plaintiffs have not established that they timely filed their 2004 and 2005
amended returns, plaintiffs cannot establish that they are entitled to a tax refund in this matter for
tax years 2004 and 2005. And so, the Court DENIES plaintiffs’ motion for summary judgment,
or, in the alternative, partial summary judgment and GRANTS the government’s cross-motion
for summary judgment on this issue.
               3.      Plaintiffs Did Not Timely File Their Carryback Election Statement
       Although the Court need not reach this issue, the undisputed material facts in this case
also show that plaintiffs did not timely file the five-year NOL carryback election statement to
accompany their 2009 tax return. As discussed above, under Revenue Procedure 2009-52 and
I.R.C. § 172(b)(1)(H) as amended by the WHBAA, plaintiffs must have filed their five-year
NOL carryback election statement with the IRS by October 15, 2010. Pub. L. No. 111-92 at §
13(a); see also I.R.C. § 172(b)(1)(H) (2009); Rev. Proc. 2009-52 at § 4.01(3)(a). Again,
plaintiffs have not established that they have done so here.

       In this regard, the IRS’s records show that plaintiffs filed their 2009 return on May 28,
2010. Def. Ex. 23 at 2. See generally Def. Ex. 14. But, there is no genuine dispute that this
return does not contain a five-year NOL carryback election statement. Pl. Mot. at 52; Pl. Resp.
at 22-23. See generally Def. Ex. 14. There is also no evidence in these IRS records to indicate
that plaintiffs subsequently filed another return for tax year 2009 by October 15, 2010, that
contained their five-year NOL carryback election statement. See generally Def. Exs. 23-26.
And so, the Court presumes that the IRS’s records regarding plaintiffs’ 2009 return are “true,



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accurate, and correct,” unless plaintiffs put forward reliable evidence to the contrary. Davis, 43
Fed. Cl. at 94.

       In their motion for summary judgment, or, in the alternative, partial summary judgment,
plaintiffs point to an unsigned and undated copy of their 2009 tax return, which includes a
carryback election statement to show that they timely filed their five-year NOL carryback
election. Pl. Mot. at 52; Pl. Resp. at 22-23. See generally Bjorn Supp. Decl. at Ex. F. While
plaintiffs maintain that they filed this document with the IRS on May 19, 2010, they put forward
no evidence to show that this document was actually filed with the IRS at that time. Bjorn Supp.
Decl. at ¶ 6. See generally Bjorn Supp. Decl. at Ex. F. And so, again, the Court is unable to rely
upon the evidence provided by plaintiffs to determine whether, and when, plaintiffs filed their
five-year NOL carryback election statement. See Davis, 43 Fed. Cl. at 94.

       The Court is also unpersuaded by the representations made by plaintiffs’ accountant, Jex
Bjorn, in his supplemental declaration regarding the filing of plaintiffs’ five year NOL carryback
election statement. In his supplemental declaration, Mr. Bjorn states that he included a five-year
NOL carryback election statement with plaintiffs’ original 2009 return that was filed with the
IRS on May 19, 2010 and he attached a copy of this return to his supplemental declaration.
Bjorn Supp. Decl. at ¶¶ 6-7; see Bjorn Supp. Decl. at Exs. F-G. But, this statement contradicts
Mr. Bjorn’s prior deposition testimony, in which he stated that the return attached to his
supplemental declaration was “a test thing,” which was not intended to be filed with the IRS.
Def. Ex. 11(a) at 12-13.

       The Court is similarly unpersuaded by the representations made by Marc Pryde in his
supplemental declaration regarding the timeliness of plaintiffs’ five-year NOL carryback election
statement. In his supplemental declaration, Mr. Pryde states that he “personally verified that Jex
[Bjorn] affixed the five-year carryback to the 2009 original 1040 return” filed with the IRS in
May 2010. Pryde Supp. Decl. at ¶ 37; see also Pryde Supp. Decl. at ¶ 38. But, this statement
contradicts Mr. Pryde’s prior deposition testimony on this topic, in which he testified that he did
not know what a five-year carryback election looked like or recall Mr. Bjorn giving him a five-
year carryback election statement. See Def. Ex. 2(a) at 3-4. Marc Pryde also stated in his
deposition testimony that he did not recall either signing plaintiffs’ original 2009 return in May
2010, or how this return was filed with the IRS. See id. at 4-5. Given the contradictions in the


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evidence put forward by plaintiffs, plaintiffs simply have not established that they timely filed a
NOL carryback election statement with their 2009 tax return. Grand Arcadian, Inc. v. United
States, 87 Fed. Cl. 193, 206 (2009) (holding that under the sham affidavit rule, a trial court may
disregard supplemental affidavits which are inconsistent with prior deposition testimony unless
the affiant also provides a harmonizing explanation). This failure is also fatal to their tax refund
claim for tax years 2004 and 2005. And so, the Court GRANTS the government’s cross-motion
for summary judgment and DENIES plaintiffs’ motion for summary judgment, or, in the
alternative, partial summary judgment on this issue.8

V.      CONCLUSION
        In sum, the undisputed material facts in this matter show that application of claim
preclusion, issue preclusion, judicial estoppel, and judicial notice are not warranted in this case.
In addition, the undisputed material facts in this matter show that plaintiffs have not timely filed
either their amended 2004 and 2005 tax returns, or the five-year NOL carryback election
statement to accompany their 2009 tax return. And so, plaintiffs have not met their burden to
establish that they are entitled to a tax refund for tax years 2004 and 2005.

        In light of the foregoing, the Court:

        1. DENIES plaintiffs’ motion for summary judgment, or, in the alternative, partial
            summary judgment;
        2. GRANTS-IN-PART the government’s cross-motion for summary judgment; and

        3. DISMISSES the complaint.




8
  Because the undisputed material facts show that plaintiffs failed to timely file their amended 2004 and
2005 tax returns and their five-year NOL carryback election statement, the Court does not reach the
remaining issues raised in the parties’ cross-motions for summary judgment.



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The Clerk shall enter judgment accordingly.

The parties shall bear their own costs.

IT IS SO ORDERED.



                                          s/ Lydia Kay Griggsby
                                          LYDIA KAY GRIGGSBY
                                          Judge




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