                            Willie Mae Barlow DAVIS, Petitioner-Appellee,

                                                    v.

                COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.

                                              No. 98-7026.

                                     United States Court of Appeals,

                                            Eleventh Circuit.

                                             April 27, 2000.

Appeal from a Decision of the United States Tax Court. (No. 4077-96).

Before ANDERSON, Chief Judge, and COX and HULL, Circuit Judges.

        PER CURIAM:

        This case presents the issue of whether the portion of a judgment paid directly to the taxpayer's

attorneys pursuant to a contingency fee arrangement is taxable as income to the taxpayer.

                               I. FACTS AND PROCEEDINGS BELOW

        In 1992, Willie Mae Davis prevailed in a suit against a mortgage company and won a $6,151,000

judgment, of which six million dollars was punitive damages. She had entered into a contingency fee

arrangement with her attorneys in 1989 and upon receiving the judgment, they retained $3,111,809 and she

received $3,039,191. Initially, Ms. Davis did not report any of the award as income in 1992 and upon audit,

the Internal Revenue Service ("IRS") determined that the entire six million dollar punitive damages award

should be included as income.1 The IRS allowed Ms. Davis a deduction for attorneys' fees and costs in the

amount of $3,069,250 and determined that Ms. Davis had a deficiency of $1,441,736.

        Ms. Davis petitioned the Tax Court for a redetermination of the deficiency. The Tax Court found

that although the punitive damages were otherwise taxable as income, the amount paid to her attorneys was




    1
     The compensatory damages of $151,000 were excludable because they were damages received on
account of personal injuries. See O'Gilvie v. United States, 519 U.S. 79, 117 S.Ct. 452, 136 L.Ed.2d 454
(1996).
not taxable income under Cotnam v. Commissioner, 263 F.2d 119 (5th Cir.1959).2 Thus the Tax Court

determined that Ms. Davis's tax deficiency was $919,772.3 The IRS appeals.

                                        II. STANDARD OF REVIEW

           We review de novo the tax court's conclusions of law and findings of fact for clear error. See

Sleiman v. Commissioner, 187 F.3d 1352, 1358 (11th Cir.1999).

                                               III. DISCUSSION

           This Court has previously addressed the issue of whether a taxpayer is taxed on the portion of a

judgment paid to the attorneys under a contingency fee arrangement in Alabama, and in light of the attorneys'

lien statute in Alabama, Ala.Code § 34-3-61 (1997). In Cotnam v. Commissioner, the former Fifth Circuit

found that a woman, who obtained a judgment on her oral contract with a man to care for him in return for

a fifth of his estate, was not required to include as income the portion of the award paid to her attorneys for

their work in enforcing that contract. Because Cotnam is squarely on point and controlling, as the IRS

acknowledges, we affirm the Tax Court on this issue.4

           Next, the IRS argues, in the alternative, that Ms. Davis made a taxable disposition of her property

in 1989 when she entered into the contingency fee arrangement. Reasoning that the court's interpretation of

the Alabama attorneys' lien statute in Cotnam gave an ownership interest in the claim to Ms. Davis's

attorneys, the IRS argues that by entering into the fee arrangement agreement, Ms. Davis in essence sold part

of her cause of action in 1989. Realizing that that taxable event in 1989 would be time-barred, the IRS


       2
     In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc), this Court adopted as
binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business
on September 30, 1981.

   3
    The deduction for attorneys' fees and costs which the IRS allowed was less favorable to the taxpayer than
the exclusion-from-income approach adopted by the Tax Court because the operation of technical tax rules
such as the alternative minimum tax.

       4
     The IRS's primary argument is that Cotnam was wrongly decided and should be overruled. We need
not address this argument because this panel is bound by Cotnam, which can be overruled only by the en banc
court. See United States v. Woodard, 938 F.2d 1255, 1258 (11th Cir.1991).

                                                       2
suggests that the value of the cause of action and the value of the attorneys' services were unascertainable in

1989, and thus that the taxable event should be deferred pursuant to the open transaction doctrine. The open

transaction doctrine, introduced in Burnet v. Logan, 283 U.S. 404, 51 S.Ct. 550, 75 L.Ed. 1143 (1931),

permits a delay in the assessment of the value of the property until the sum is made certain. Thus, under this

logic, the IRS argues that Ms. Davis's taxes should not be assessed until 1992 when she received her

judgment, and the value of the attorneys' services and her claim became apparent.

          The open transaction doctrine is only applicable when it is not possible to discern the value of either

of the assets exchanged. Under United States v. Davis, 370 U.S. 65, 82 S.Ct. 1190, 8 L.Ed.2d 335 (1962),

when only one of the assets has an unascertainable value, it is presumed to be of the same worth as the

property for which it was exchanged. The IRS concedes that it bore the burden of showing that the open

transaction doctrine applied and that the values of the properties exchanged were not ascertainable at the time

of the exchange. Because the IRS provided no proof that the values of either the cause of action or the

attorneys' services were unascertainable, it has failed to establish that the open transaction doctrine should

apply.5

          Because we find that Cotnam v. Commissioner is controlling and that the IRS failed to bear its burden

of proof on its open transaction argument, we affirm the decision of the Tax Court.

          AFFIRMED.




    5
     In light of this disposition, we of course need not decide whether there was a taxable event in 1989.

                                                        3
