  United States Court of Appeals
      for the Federal Circuit
                ______________________

      JOSEPH P. NACCHIO, ANNE M. ESKER,
            Plaintiffs-Cross-Appellants

                           v.

                  UNITED STATES,
                 Defendant-Appellant
                ______________________

                 2015-5114, 2015-5115
                ______________________

    Appeals from the United States Court of Federal
Claims in No. 1:12-cv-00020-MCW, Judge Mary Ellen
Coster Williams.
                 ______________________

                Decided: June 10, 2016
                ______________________

     THOMAS A. GENTILE, Wilson, Elser, Moskowitz, Edel-
man & Dicker LLP, Florham Park, NJ, argued for plain-
tiffs-cross-appellants. Also represented by WILLIAM D.
LIPKIND, Lampf, Lipkind, Prupis & Petigrow PC, West
Orange, NJ

    JACOB EARL CHRISTENSEN, Tax Division, United
States Department of Justice, Washington, DC, argued
for defendant-appellant. Also represented by CAROLINE D.
CIRAOLO, DIANA L. ERBSEN, GILBERT STEVEN ROTHENBERG,
RICHARD FARBER.
                 ______________________
2                                             NACCHIO   v. US




    Before O’MALLEY, CLEVENGER, and BRYSON, Circuit
                        Judges.
O’MALLEY, Circuit Judge.
     This is a tax case arising out of a criminal conviction
for insider trading. Joseph P. Nacchio and Anne M. Esker
(“Nacchio”) 1 filed this action in the Court of Federal
Claims seeking an income tax credit of $17,974,832 for
taxes paid on trading profits of $44,632,464.38, which
Nacchio was later ordered to forfeit to the United States
following his conviction for insider trading with respect to
those profits. The government opposed Nacchio’s request,
contending that his forfeiture payment was a non-
deductible penalty or fine and that he was estopped from
seeking tax relief because of his criminal conviction. The
parties filed cross-motions for summary judgment.
    The Court of Federal Claims denied the government’s
motion for summary judgment and granted Nacchio’s
cross-motion for partial summary judgment, holding that:
(1) Nacchio may deduct his criminal forfeiture payment
under Internal Revenue Code (I.R.C.) 2 § 165, but not
under I.R.C. § 162; and (2) Nacchio is not collaterally
estopped from pursuing special tax relief under I.R.C.
§ 1341. Rather than proceed to trial on Nacchio’s claim
for special relief under I.R.C. § 1341, the government
stipulated to the entry of final judgment in favor of


    1   We refer to Joseph Nacchio alone as the “taxpay-
er” for purposes of this appeal. Anne Esker, Nacchio’s
spouse, is a party to this case by virtue of having filed a
joint income tax return with Nacchio for tax year 2007.
She does not, however, have a separate or independent
interest in the refund claim at issue.
    2   The Internal Revenue Code is codified at Title 26
of the United States Code.
NACCHIO   v. US                                          3



Nacchio, waiving its right to challenge Nacchio’s claims
under § 1341 on other than deductibility and estoppel
grounds; the government expressly reserved its right to
appeal the court’s adverse rulings on those issues.
Nacchio reserved his right to appeal the court’s adverse
ruling as to deductibility under § 162.
     The government filed this appeal on the grounds re-
served in the parties’ stipulation. Nacchio filed a cross-
appeal. We find that Nacchio has failed to establish that
his criminal forfeiture was not a “fine or similar penalty”
and, therefore, reverse the court’s judgment of deductibil-
ity under § 165. We affirm the court’s judgment of non-
deductibility under § 162. Because establishing deducti-
bility under another section of the tax code is a prerequi-
site to pursuing special relief under § 1341, Nacchio
cannot pursue a deduction under § 1341. Judgment must
be entered in favor of the government.
                       BACKGROUND
          A. Nacchio’s Insider Trading Conviction
    From 1997 to 2001, Nacchio served as Chief Executive
Officer (“CEO”) of Qwest Communications International,
Inc. (“Qwest”). Nacchio v. United States, 115 Fed. Cl. 195,
197 (Fed. Cl. 2014). As part of his compensation for
serving as Qwest’s CEO, Nacchio received options to
purchase shares of Qwest stock. Id. at 197-98. When
Qwest opened a “trading window” in April 2001, Nacchio
exercised his options to purchase, and then “sold
1,255,000 shares of Qwest stock.” Id. On May 16, 2001,
Nacchio entered into an automatic sales plan to sell his
Qwest stock, and he sold his stock until May 29, 2001, the
day before the price of Qwest stock fell below $38 per
share. Id. Nacchio reported a net gain from these stock
sales of $44,632,464.38 in his 2001 joint tax return and
paid $17,974,832 in taxes on this gain. Id.
4                                             NACCHIO   v. US



    In 2005, a federal grand jury indicted Nacchio on for-
ty-two counts of insider trading. United States v. Nacchio,
No. 05-cr-00545-EWN, 2007 U.S. Dist. LEXIS 54655, at
*2 (D. Colo. July 27, 2007). The indictment alleged that
Nacchio “did knowingly and willfully sell . . . more than
$100 million worth of Qwest common stock” in 2001
“while [he was] aware of and on the basis of material,
non-public information,” in violation of 15 U.S.C. §§ 78j,
78ff, and SEC Rules 10b-5 and 10b-5-1 (17 C.F.R.
§§ 240.10b-5, 240.10b5-1). Government’s Mot. Summ. J.
Ex. 1, Dkt. 17 at 3-5, Nacchio, 115 Fed. Cl. 195 (No. 1:12-
cv-00020), ECF No. 17. The indictment also included
criminal forfeiture allegations, pursuant to 18 U.S.C. §
981(a)(1)(C) and 28 U.S.C. § 2461(c), which would require
Nacchio, if convicted, to forfeit to the United States the
proceeds of his insider trading offenses. Joint Appendix
(“J.A.”) 41-42.
     In April 2007, a jury found Nacchio guilty on nineteen
of forty-two counts of insider trading. Nacchio, 2007 U.S.
Dist. LEXIS 54655, at *2. The district court sentenced
Nacchio to serve 72 months in prison, pay a 19 million
dollar fine, and forfeit the gross income of $52,007,545.47
that Nacchio derived as a result of the insider trading. Id.
    On March 17, 2008, a three judge panel of the Tenth
Circuit reversed Nacchio’s conviction and sentence.
United States v. Nacchio, 519 F.3d 1140, 1169 (10th Cir.
2008). Specifically, the court held that the district court
erred in excluding expert testimony that Nacchio had
sought to introduce at trial. Id. at 1149-50. The Tenth
Circuit then granted the government’s petition for rehear-
ing en banc and reinstated Nacchio’s conviction, holding
that the expert testimony was properly excluded. See
United States v. Nacchio, 555 F.3d 1234, 1239 (10th Cir.
2009) (en banc). The en banc court remanded the matter
to the panel for further proceedings on Nacchio’s chal-
lenge to his sentence. Id.
NACCHIO   v. US                                            5



    On remand, the initial decisional panel upheld most
aspects of the original sentence, but concluded that 18
U.S.C. § 981(a)(2)(B), rather than 18 U.S.C.
§ 981(a)(2)(A), applied to calculate the amount that
Nacchio was required to forfeit. United States v. Nacchio,
573 F.3d 1062, 1088-90 (10th Cir. 2009). Specifically, the
panel held that the district court had “applied the wrong
legal framework” when it imposed a forfeiture amount
representing the “gross proceeds” from Mr. Nacchio’s sales
of Qwest stock, rather than a forfeiture amount “that
more closely approximates Mr. Nacchio’s gain resulting
from the offense of insider trading.” Id. at 1087-90 (em-
phasis in original). The panel remanded the case to the
district court for resentencing.
     On June 24, 2010, the district court resentenced
Nacchio to serve 70 months in prison, pay a 19 million
dollar fine, and forfeit the net proceeds from his insider
trading—$44,632,464.38. J.A. 140-48. At the conclusion
of the resentencing hearing, Nacchio’s attorney inquired
whether the district court would “direct that the [forfeit-
ed] money go to a fund . . . set up for distribution to
[Nacchio’s] victims.” J.A. 494-95. In response, the prose-
cutor advised the court that “the Government’s intention
is for . . . the forfeiture funds[ ] to be used to compensate
victims,” but that the decision would be made by the
Asset Forfeiture and Money Laundering Section
(“AFMLS”) in Washington pursuant to its regulations. Id.
    In January 2011, Nacchio entered into a settlement of
a concurrent action against him by the Securities and
Exchange Commission. The settlement required that
Nacchio disgorge the sum of $44,632,464, less any
amounts forfeited and paid to the United States by
Nacchio in connection with his criminal case. Nacchio’s
criminal forfeiture thus satisfied his disgorgement obliga-
tion in the SEC civil action. Nacchio’s forfeited gain was
subject to remission, pursuant to 18 U.S.C. § 981(e)(6).
Thus, in September of 2011, the remission administrator
6                                              NACCHIO   v. US



retained by the Department of Justice (“DOJ”) notified
prior participants in private securities class action litiga-
tion or SEC civil litigation concerning Qwest stock that
they were eligible to receive a remission from Nacchio’s
forfeiture. J.A. 508. In April of 2012, the Chief of the
AFMLS authorized remission of the forfeited funds to
eligible victims of Nacchio’s fraud. J.A. 251-54.
         B. Governing Provisions of the Tax Code
    Section 1341 provides special relief to a taxpayer who
is required to restore funds to a third party where the
taxpayer included the funds in his income in a prior
taxable year when it then “appeared that the taxpayer
had an unrestricted right” to the funds. I.R.C. § 1341.
Thus, a taxpayer must establish that he reasonably
believed he had an unrestricted right to the funds at issue
at the time he included those funds in his income. See
McKinney v. United States, 574 F.2d 1240, 1243 (5th Cir.
1978). We have said that where a taxpayer knowingly
obtains funds by fraudulent means, “it simply cannot
appear from the facts known to him at the time that he
has a legitimate, unrestricted claim to the money.” Culley
v. United States, 222 F.3d 1331, 1335 (Fed. Cir. 2000). As
a prerequisite to relief under § 1341, the taxpayer must
also establish that he is “entitled to a deduction (in excess
of $3,000) under another section of the Internal Revenue
Code for the loss.” Culley, 222 F.3d at 1333; see also
Griffiths v. United States, 54 Fed. Cl. 198, 202 (Fed. Cl.
2002) (“Section 1341 does not independently create a
deduction.”) (citation omitted).
    Section 165(a) provides for the deduction of “any loss
sustained during the taxable year and not compensated
for by insurance or otherwise.” I.R.C. § 165(c) provides
limitations on losses of individuals. Section 165(c)(2)
provides for the deduction of “losses incurred in any
transaction entered into for profit, though not connected
with a trade or business.”
NACCHIO   v. US                                           7



    We agree with the parties that § 165 is subject to a
“frustration of public policy” doctrine. Under this doc-
trine, a taxpayer cannot deduct a loss where its allowance
“would frustrate sharply defined national or state policies
proscribing particular types of conduct, evidenced by some
governmental declaration thereof.” Tank Truck Rentals v.
Comm’r, 356 U.S. 30, 33-36 (1958) (citing Comm’r v.
Heininger, 320 U.S. 467, 473-74 (1943)). In Tank Truck
Rentals, the Supreme Court upheld the disallowance of a
deduction for fines paid by a trucking company for viola-
tions of state maximum weight laws, observing that
“[w]here a taxpayer has violated a federal or a state
statute and incurred a fine or penalty he has not been
permitted a tax deduction for its payment.” Id. at 34. We
agree with the government, moreover, that prior to 1969,
the deduction of trade or business expenses under §
162(a) was limited by the same public policy doctrine that
precluded loss deductions under § 165 when their allow-
ance would frustrate sharply defined public policies.
Section 162(a) provides for deductions of “ordinary and
necessary expenses paid or incurred . . . in carrying on
any trade or business.”
    In 1969, Congress codified the “frustration of public
policy” doctrine as part of the Tax Reform Act of 1969,
Pub. L. No. 91-172, § 902(a), 83 Stat. 487, 710, in the form
of I.R.C. § 162(f). Section 162(f) provides: “FINES AND
PENALTIES.—No deduction shall be allowed under
subsection (a) for any fine or similar penalty paid to a
government for the violation of any law.” I.R.C. § 162(f)
(emphases added). Although the amendments to § 162
did not explicitly affect § 165, the “frustration of public
policy” doctrine has continuing vitality with respect to
§ 165. See Stephens v. Comm’r, 905 F.2d 667, 671 (2d Cir.
1990) (“Although Tellier and Tank Truck Rentals were
both decided pursuant to Tax Code provisions relating to
business expenses, the test for nondeductibility enunciat-
ed in those opinions is applicable to loss deductions under
8                                              NACCHIO   v. US



Section 165.”). See also Wood v. United States, 863 F.2d
417, 421 (5th Cir. 1989) (holding that “it is easy to sustain
a public policy rationale for denying a loss deduction”
sought under § 165); Medeiros v. Comm’r, 77 T.C. 1255,
1261 n.7 (1981) (“we cannot ascribe to Congress the
intent, in enacting section 162(f), to disallow the deduc-
tion of this penalty under section 162(a) but to allow it as
a loss deduction under section 165(a)”); Treas. Reg. (26
C.F.R.) § 1.165-1(a) (loss deductions under § 165(a) are
“subject to any provision of the internal revenue laws
which prohibits or limits the amount of the deduction”).
The Stephens Court, thus, looked to § 162(f) when inter-
preting the scope of permissible loss deductions under
§ 165. We do the same.
              C. Nacchio’s Tax Credit Claim
    In 2009, following Nacchio’s forfeiture, Nacchio
amended his 2007 tax return, claiming a $17,999,030
credit pursuant to I.R.C. § 1341. This amount represent-
ed the amount of tax Nacchio and his wife had paid on the
profits attributable to Nacchio’s exercise of Qwest options.
In a letter dated September 3, 2009, the Internal Revenue
Service (“IRS”) disallowed Nacchio’s credit, explaining
that § 1341 may be invoked only after the right to claim a
deduction is established elsewhere in the tax code. The
IRS found, however, that Nacchio’s forfeiture was “the
payment of a penalty for a violation of the law and, unlike
restitution, is not remedial in nature,” so a deduction was
not permitted under any section of the tax code, including
I.R.C. § 165(c)(2). J.A. 552. Nacchio’s counsel appealed
this decision within the IRS, but Nacchio was again
denied a refund.
    On January 10, 2012, Nacchio commenced this action
before the Court of Federal Claims, seeking a credit of
NACCHIO   v. US                                            9



$17,974,832 3 pursuant to I.R.C. § 1341. Appellees and
the United States agreed to litigate cross-motions for
summary judgment prior to discovery. The government
argued that: (1) § 162(f) barred any deduction under
either § 165 or § 162, and (2) even if the loss caused by the
forfeiture was a deductible loss under § 165 or § 162,
Nacchio was estopped from seeking the special tax relief
authorized by § 1341 because his criminal conviction was
conclusive with respect to his state of mind. Nacchio
argued that his loss was deductible under both § 165 and
§ 162 and that the question of whether it appeared that
he had an unrestricted right to his trading profits in 2001
was not actually litigated in his criminal trial.
    The Court of Federal Claims denied the government’s
motion for summary judgment and granted-in-part
Nacchio’s motion for partial summary judgment. The
court held that Nacchio’s forfeiture payment was deducti-
ble under I.R.C. § 165. Nacchio, 115 Fed. Cl. at 203.
First, it noted that the government did not dispute that
Nacchio’s forfeiture is a loss under § 165.     Second, it
found that the public policy against insider trading did
not prevent the deduction of the amount forfeited here.
Specifically, the court compared Nacchio’s case to Ste-
phens and reasoned that “[d]isallowing the deduction
would result in a ‘double sting’ by requiring taxpayers to




    3   When Appellees filed their amended return for the
2007 tax year, they erroneously calculated the amount of
tax that they had previously paid on Mr. Nacchio’s gain
from his exercise of Qwest stock options (and sales of
corresponding shares), by failing to deduct from the
amount of Mr. Nacchio’s gain $60,081.00 in brokerage
fees. As a result, the amended return for the 2007 tax
year claimed a refund of $17,999,030.00, when the correct
amount was $17,974,832.00. Appellee Br. 12 n.3.
10                                             NACCHIO   v. US



both make restitution and pay taxes on income they did
not retain.” Nacchio, 115 Fed. Cl. at 202.
    The court expressly rejected the government’s argu-
ment that deduction of the forfeiture was barred by I.R.C.
§ 162(f), which prohibits deductions “for any fine or simi-
lar penalty paid to the government for the violation of any
law.” Id. The court’s rationale was that, unlike the 19
million dollar fine, which was clearly punitive and was
paid from assets unrelated to insider trading, the forfei-
ture “exclusively represented the disgorgement of Mr.
Nacchio’s illicit net gain from insider trading.” Id. at 203.
In addition, the court found that “Nacchio’s forfeiture was
used for a compensatory purpose” because, even if not
characterized as restitution, the amounts paid ultimately
were returned to victims of Nacchio’s crimes through
remission. Id. In a footnote, the court rejected Nacchio’s
attempt to deduct his forfeiture under § 162 as an “ordi-
nary and necessary business expense.” Id. at 203 n.7.
    The court then rejected the government’s argument
that Nacchio was collaterally estopped from pursuing
special relief under § 1341. Relying on Culley, the gov-
ernment argued that, because fraudulent intent is a
necessary element of the crime of which Nacchio was
convicted, Nacchio could not now argue that he lacked
such intent, or that he somehow could have both subjec-
tively believed he had an unrestricted right to the funds
and fraudulently engaged in trades to obtain them.
Nacchio contended that the precise issue arising under
§ 1341 was not presented to the jury. He also asserted
that he had not had a full and fair opportunity to litigate
the question of his intent because certain evidentiary
rulings in the criminal action prevented him from doing
so. On both of these grounds, Nacchio argued that collat-
eral estoppel should not apply. The Court of Federal
Claims agreed with Nacchio, finding that “[t]he precise
issue of whether Mr. Nacchio himself subjectively believed
he had an unrestricted right to the funds he received from
NACCHIO   v. US                                          11



trading in 2001 was not adjudicated in the criminal
proceeding.” Id. at 204. The court concluded that the
question of whether Nacchio acted with the mistaken
belief required by § 1341 was a factual one to be decided
at trial.
     The government moved for reconsideration of the
court’s decision, but the court denied the motion. Rather
than proceed to trial on the issue of Nacchio’s subjective
belief under § 1341, the government stipulated to the
entry of a final judgment in favor of Nacchio, reserving its
right to appeal the court’s adverse rulings on the applica-
bility of § 162(f) and estoppel. In the stipulation, Nacchio
also reserved the right to appeal the Court of Federal
Claims’s determination that the forfeited funds were not
deductible as a business expense under § 162.
    The government appealed and Nacchio cross-
appealed.     We have jurisdiction under 28 U.S.C.
§ 1295(a)(3).
                       DISCUSSION
    We review the Court of Federal Claims’s grant of
Nacchio’s motion for partial summary judgment de novo.
Culley, 222 F.3d at 1333. Whether Nacchio is entitled to
an income tax deduction for the amount he forfeited to the
government as part of his sentence for insider trading is a
question of law, reviewable de novo. The question pre-
sented is, in essence, whether Nacchio must forfeit his
insider trading gains to the government using after-tax
dollars.
                   A. I.R.C. § 165(c)(2)
    To begin with, it is questionable whether § 165(c)(2) is
even applicable where, as here, the “loss” sustained arose
from a mandatory forfeiture of profit pursuant to a crimi-
nal conviction. Instead, the “losses” that § 165(c)(2)
generally seems to contemplate are losses in the value of
assets purchased for investment that failed to bear fruit.
12                                           NACCHIO   v. US



See, e.g., Nathel v. Comm’r, 615 F.3d 83, 94 (2d Cir. 2010)
(involving deductibility of capital contributions allegedly
made to obtain releases from loan guarantees); Chen v.
Comm’r, No. 12982-12S, 2014 Tax Ct. Summary LEXIS 6,
at *11 (T.C. 2014) (involving deductibility of allegedly
abandoned investment property); Seed v. Comm’r, 52 T.C.
880, 884-85 (1969) (involving deductibility of financial
contributions to an abandoned venture).
    In any event, the government conceded before the
Court of Federal Claims that Nacchio’s forfeiture was a
“loss” under § 165(c)(2), and we do not revisit that ques-
tion on appeal. Nacchio, 115 Fed. Cl. at 201. Instead, the
government argues that, despite being a “loss,” the forfei-
ture is not deductible under § 165 because allowing the
deduction would contravene public policy, as codified in
§ 162(f). The relevant question for resolving this appeal,
accordingly, is whether Nacchio’s criminal forfeiture is a
“fine or similar penalty” under § 162(f), or if allowing a
deduction in these circumstances would otherwise frus-
trate public policy.
    We recognize that, as a general matter, we must use a
flexible standard to “accommodate both the congressional
intent to tax only net income, and the presumption
against congressional intent to encourage violation of
declared public policy.” Tank Truck Rentals, 356 U.S. at
35. And “[i]ncome from a criminal enterprise is taxed at a
rate no higher and no lower than income from more
conventional sources.” Comm’r v. Tellier, 383 U.S. 687,
691 (1966). We further understand Nacchio’s argument
that not being allowed to deduct his forfeited income from
his taxes would result in a sort of “double sting”: both
giving up his ill-gotten gains and paying taxes on them.
But in this case, the relevant statutes, regulations, and
body of relevant case law lead us to conclude that
Nacchio’s criminal forfeiture must be paid with after-tax
dollars, just as fines are paid with after-tax dollars.
Specifically, as explained below, the government has
NACCHIO   v. US                                            13



demonstrated that Nacchio’s criminal forfeiture is a “fine
or similar penalty” within the meaning of § 162(f).
    First, the plain language of the statutory provision
under which the amount Nacchio forfeited was calculated
supports the view that Congress intended the forfeiture to
be paid with after-tax dollars. The Tenth Circuit held on
remand that Nacchio’s forfeiture should be calculated in
accordance with § 981(a)(2)(B), not § 981(a)(2)(A).
Nacchio, 573 F.3d at 1090. Section 981(a)(2)(B) states
that:
    [T]he term “proceeds” means the amount of money
    acquired through the illegal transactions resulting
    in the forfeiture, less the direct costs incurred in
    providing the goods or services. . . . The direct
    costs shall not include . . . any part of the income
    taxes paid by the entity.
18 U.S.C. § 981(a)(2)(B) (emphases added). Thus, the
language of the statute suggests that—by design—the
forfeiture amount does not account for taxes paid on the
amount of money acquired through the illegal transac-
tions.
     Next, Treasury Regulation § 1.162-21(b)(1) defines
“fine or similar penalty” for the purposes of § 162(f) as
including, inter alia, “an amount—(i) Paid pursuant to
conviction or a plea of guilty or nolo contendere for a crime
(felony or misdemeanor) in a criminal proceeding.” 26
C.F.R. § 1.162-21. In Colt Industries, Inc. v. United
States, we looked to the Treasury Regulation’s definition
of a “fine or similar penalty” in denying deductions a
taxpayer sought under § 162(a) for civil penalties it had
paid to the state for violations of the Clean Water Act and
the Clean Air Act. 880 F.2d 1311, 1313 (Fed. Cir. 1989)
(“If there were any doubt about the meaning of the phrase
‘fine or similar penalty’, it is readily removed by reference
to Treasury regulations promulgated in interpretation of
the provision.”).
14                                             NACCHIO   v. US



    Similarly, in this case, Nacchio’s criminal forfeiture
meets the definition of a “fine or similar penalty” under
Treasury Regulation § 1.162-21(b)(1). Nacchio’s criminal
forfeiture was imposed pursuant to 18 U.S.C.
§ 981(a)(1)(C) and 28 U.S.C. § 2461(c), as part of his
sentence in a criminal case. Section 981(a)(1)(C), as
amended by the Civil Asset Forfeiture Reform Act of
2000, Pub. L. No. 106-185, § 20, 114 Stat. 202, 224, au-
thorizes the forfeiture of “proceeds” traceable to numerous
felony offenses, including any offense constituting “speci-
fied unlawful activity” as defined by 18 U.S.C.
§ 1956(c)(7)(A). Section 1956(c)(7)(A), in turn, defines
“specified unlawful activity” as any act or activity consti-
tuting an offense under 18 U.S.C. § 1961(1)(D), which
includes “any offense involving . . . fraud in the sale of
securities.”
    28 U.S.C. § 2461(c) requires forfeiture whenever a de-
fendant in a criminal case “is convicted of the offense
giving rise to the forfeiture,” in which case the court “shall
order the forfeiture of the property as part of the sentence
in the criminal case.” This forfeiture is mandatory when
the relevant prerequisites are met. See United States v.
Blackman, 746 F.3d 137, 143 (4th Cir. 2014) (“Notably,
§ 2461(c) (in conjunction with § 981) provides that the
district court ‘shall order’ forfeiture in the amount of the
criminal proceeds. As the Supreme Court remarked in a
related context, ‘Congress could not have chosen stronger
words to express its intent that forfeiture be mandatory in
cases where the statute applied.’”) (quoting United States
v. Monsanto, 491 U.S. 600, 607 (1989)).
    Though we have not considered the precise question
posed here, other courts of appeals have done so, repeat-
edly concluding that forfeitures of property to the gov-
ernment similar to the one at issue are not deductible
because they are punitive. See King v. United States, 152
F.3d 1200, 1202 (9th Cir. 1998) (“on this matter of nation-
al tax policy there is something to be said for uniformity
NACCHIO   v. US                                          15



among the circuits”). For example, in Wood, the Fifth
Circuit denied a loss deduction under § 165 for the civil
forfeiture of proceeds from the taxpayer’s drug trafficking
activities. 863 F.2d at 418. The appellant pled guilty to a
criminal offense, conspiracy to import marijuana and
importation of marijuana, and was sentenced to serve
four years in prison and pay a $30,000 fine. Id. The
appellant argued, inter alia, that, because he already paid
his criminal debt by means of imprisonment and the
$30,000 fine, he should not have to pay taxes on proceeds
he forfeited to the government. Id. at 421. The court,
nevertheless, found that his drug proceeds were taxable
income and that “[f]orfeiture cannot seriously be consid-
ered anything other than an economic penalty for drug
trafficking.” Id. See also Fuller v. Comm’r, 213 F.2d 102,
105-06 (10th Cir. 1954) (disallowing business loss deduc-
tion under the precursor of § 165 for the cost of whiskey
confiscated by law enforcement agencies of a “dry” state);
King, 152 F.3d at 1201-02 (no loss deduction under
§ 165(a) for voluntary disclosure and forfeiture of hidden
drug trafficking profits).
    In non-tax cases, our sister courts of appeals have
confirmed that, while restitution is compensatory, crimi-
nal forfeiture under § 2461(c) serves a distinct, punitive
purpose. The Eleventh Circuit held in United States v.
Joseph that a convicted criminal could not offset his
restitution by the amount he forfeited under 18 U.S.C.
§ 981 and 28 U.S.C. § 2461. 743 F.3d 1350, 1354 (11th
Cir. 2014). The court held that, “[w]hile restitution seeks
to make victims whole by reimbursing them for their
losses, forfeiture is meant to punish the defendant by
transferring his ill-gotten gains to the United States
Department of Justice (DOJ).” Id. In Blackman, the
Fourth Circuit reversed the trial court’s ruling that it did
not need to order criminal forfeiture under 28 U.S.C.
§ 2461(c) when it had ordered restitution in the same
amount for a different offense than the one at issue in the
16                                             NACCHIO   v. US



case. In so doing, the court stated that, restitution and
forfeiture serve “distinct purposes: restitution functions to
compensate the victim, whereas forfeiture acts to punish
the wrongdoer.” Blackman, 746 F.3d at 143.
    In United States v. Venturella, defendants who were
convicted of mail fraud argued that “imposing restitution
and forfeiture for the same crime is an improper double
payment, which constitutes double jeopardy.” 585 F.3d
1013, 1019 (7th Cir. 2009). The Seventh Circuit disa-
greed, stating that “forfeiture seeks to punish a defendant
for his ill-gotten gains by transferring those gains . . . to
the United States Department of Justice . . . while resti-
tution seeks to make the victim whole.” Id. at 1019-20
(quoting United States v. Emerson, 128 F.3d 557, 567 (7th
Cir. 1997) (internal quotation marks omitted)); see also
United States v. Taylor, 582 F.3d 558, 567 (5th Cir. 2009)
(“Courts have also declined to offset restitution based on
the distinct purposes served by restitution and forfei-
ture.”).
     Like the trial court, Nacchio cites to Stephens to argue
that not all payments ordered by a court pursuant to a
criminal conviction are non-deductible losses. The tax-
payer in Stephens, like Nacchio, was convicted of white
collar crimes. At sentencing, the prosecutor recommend-
ed that Stephens pay restitution to the company whose
funds he had embezzled. Stephens, 905 F.2d at 668.
Stephens was then sentenced to several years in prison
and fines, but part of the prison term was suspended “on
the condition that he make restitution to Raytheon” in the
amount he embezzled plus interest. Id. The Second
Circuit held that the restitution was “a remedial measure
to compensate another party, not a ‘fine or similar penal-
ty.’” Id. at 672-73. It thus found the restitution deducti-
ble under § 165.
   Stephens is distinguishable. Unlike Nacchio’s case,
the Stephens case involved court-ordered restitution—
NACCHIO   v. US                                           17



imposed as a condition of his partially suspended sen-
tence—which was clearly remedial, as it restored the
embezzled funds to the injured party. The court noted
that the payment was so “Raytheon [would] get its money
back” and that “Stephens’ payment was made to Raythe-
on and not ‘to a government.’” Id. at 673. Thus, allowing
the restitution to be deducted comported with those cases
explaining the difference between restitution orders and
forfeiture orders. In Nacchio’s case, by contrast, forfei-
ture, not restitution, is at issue. The court’s amended
judgment specifically provided that the amount of restitu-
tion owed was “$0.00” and that restitution was “not
applicable.” J.A. 143, 148. At the resentencing hearing,
the district court judge described Nacchio’s sentence of
imprisonment, fine, and disgorgement as “three forms of
penalty.” J.A. 486. The judge further found that “the goal
of restitution, sadly [ ] is not applicable here” because
“there is no provision in the law for restitution.” Id.
Instead, the district court directed that the fine of 19
million dollars “be deposited to the Crime Victims’ Fund”
to “help fund state and local victims’ assistance pro-
grams[,] . . . And the forfeiture money can be used to
assist victims within limitations under the law.” Id.
(emphasis added).
     Nacchio clings to this last point—the fact that the for-
feited funds made their way to the victims of the crimes.
He argues that the remission process by which the funds
were distributed to the victims is governed by the Civil
Asset Forfeiture Reform Act of 2000, which has a compen-
satory purpose: to restore forfeited assets to victims of the
offense giving rise to the forfeiture. He also points out
that the remission payments were made to identifiable
persons who would have a civil cause of action against Mr.
Nacchio to recover those funds. He insists that the forfei-
ture was tantamount to restitution.
    The Attorney General’s post-hoc decision to use the
forfeited funds for remission did not transform the char-
18                                              NACCHIO   v. US



acter of the forfeiture so that it was no longer a “fine or
similar penalty” under § 162(f). The decision to use the
forfeited funds to compensate the victims was discretion-
ary. Section 981(e) authorizes the Attorney General to
“retain property forfeited pursuant to this section, or to
transfer such property on such terms and conditions as he
may determine” “(6) as restoration to any victim of the
offense giving rise to the forfeiture.” 18 U.S.C. § 981
(emphases added). In addition, 21 U.S.C. § 853(i), which
describes criminal forfeiture procedures applicable to
§ 2461(c), empowers the Attorney General to “grant
petitions for . . . remission of forfeiture . . . or take any
other action to protect the rights of innocent persons” with
respect to forfeited property. 21 U.S.C. § 853(i) (emphases
added).
    Consistent with these statutes, the prosecutor stated
at resentencing that the decision as to whether Nacchio’s
forfeiture would be used to compensate victims would be
made by the AFMLS in Washington. J.A. 494-95. The
Attorney General has delegated the authority to grant
petitions for remission to the Chief of the AFMLS. J.A.
252.
    Allowing Nacchio to deduct his forfeiture because the
AFMLS decided to distribute it to victims through remis-
sion would mean that whether two people convicted of the
same crimes could deduct their criminal forfeiture would
turn not on their actions, or the statutes governing their
sentencings, but on the after-the-fact discretionary deci-
sions of a third party. This is not the law. Instead, “[t]he
characterization of a payment for purposes of § 162(f)
turns on the origin of the liability giving rise to it.” Bailey
v. Comm’r, 756 F.2d 44, 47 (6th Cir. 1985) (citing Middle
Atl. Distribs. v. Comm’r, 72 T.C. 1136, 1145 (1979); Uh-
lenbrock v. Comm’r, 67 T.C. 818, 823 (1977)). We think
Congress could not have intended to create a scheme in
which the applicability of § 162(f) would depend upon how
NACCHIO   v. US                                          19



the government, in its discretion, later decided to use the
funds generated by a fine or similar penalty.
    Second, although the forfeited funds wended their
way to Nacchio’s victims, the forfeited amount is unrelat-
ed to the amount of losses suffered by the victims. While
Nacchio forfeited his criminal “proceeds”—about 44
million dollars—the victims claim to have suffered almost
12 billion dollars in cumulative losses. J.A. 513. Though
not dispositive, the fact that Nacchio’s forfeiture was
pegged to his profits and not to the victims’ losses weighs
against a conclusion that Nacchio’s forfeiture was restitu-
tion to those victims. Nacchio cites Fresenius Medical
Care Holdings, Inc. v. United States, 763 F.3d 64 (1st Cir.
2014), for the proposition that this court must look to the
“economic reality,” rather than the form, of the particular
transaction at issue when deciding proper tax treatment.
Here, the economic reality is that Nacchio was punished
through forfeiture, not that Nacchio’s victims were fully
compensated. Even when a fine subsequently is applied
as restitution, deduction of the fine is disallowed. Bailey,
756 F.2d at 47.
    For all of these reasons, we hold that the trial court
erred in ruling that Nacchio may deduct his forfeiture
under § 165.
                    B. I.R.C. § 162(a)
    We briefly address Nacchio’s cross-appeal, in which he
argues that the Court of Federal Claims erred in holding
that the forfeited funds are not deductible under I.R.C.
§ 162. Nacchio, 115 Fed. Cl. at 203 n.7. It is necessary to
address this cross-appeal in light of our holding of non-
deductibility under § 165 because Nacchio contends that
§ 162 provides an alternative basis for him to deduct the
20                                           NACCHIO   v. US



forfeiture. 4 Section 162(a) allows “as a deduction all the
ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business.”
Nacchio argues that his criminal forfeiture was an “ordi-
nary and necessary expense paid or incurred in carrying
on his trade or business” because he was required to
forfeit funds that Qwest, through the mechanism of
options, had given to him as compensation in the course of
his employment as Qwest’s CEO.
    Because § 162(f) also applies to loss deductions under
§ 162(a), we affirm the trial court’s ruling that Nacchio
cannot deduct his forfeiture under § 162 for the reasons
articulated in Section A. above.
                   C. I.R.C. § 165(c)(1)
    Nacchio also argues that the Court of Federal Claims
did not specify in its holding whether the deduction was
allowed under § 165(c)(2) or § 165(c)(1).       Therefore,
Nacchio argues, for the first time on appeal, that his
forfeiture payment is deductible under either provision.
Thus, his position is that the forfeiture is alternatively
deductible under § 165(c)(1) as a “loss” incurred in a
“trade or business.” We generally do not consider issues
that were not clearly raised in the proceeding below.
Mass. Mut. Life Ins. Co. v. United States, 782 F.3d 1354,
1369 (Fed. Cir. 2015) (citing Hormel v. Helvering, 312
U.S. 552, 556 (1941) and San Carlos Apache Tribe v.
United States, 639 F.3d 1346, 1354-55 (Fed. Cir. 2011)).
We think it is clear that the Court of Federal Claims only
considered deductibility under (c)(2) and not (c)(1) of



     4  Because Nacchio’s argument is really one that
urges an alternative ground in support of the trial court’s
judgment, that argument is not properly raised as a cross-
appeal. No matter the procedural posture, we conclude
that the argument is not well taken.
NACCHIO   v. US                                          21



§ 165. See Nacchio, 115 Fed. Cl. at 201. In any event,
Nacchio’s new argument is meritless. Nacchio’s forfeiture
is not deductible under either provision of § 165(c) be-
cause it is a fine or similar penalty.
                       CONCLUSION
    For the foregoing reasons, we reverse the trial court’s
holding that Nacchio may deduct his forfeiture as a loss
under § 165 and affirm its holding that Nacchio may not
deduct his forfeiture as a loss under § 162. Because the
parties do not dispute that deductibility under another
provision of the tax code is a prerequisite to deductibility
under § 1341, we further hold that Nacchio also may not
seek special tax relief under § 1341. We, thus, do not
reach the government’s contention that Nacchio is es-
topped by his criminal conviction from seeking tax relief
under § 1341. We affirm-in-part, reverse-in-part, and
remand for entry of judgment in favor of the government.
 AFFIRMED-IN-PART, REVERSED-IN-PART, AND
               REMANDED
                          COSTS
   Each side to bear their own costs.
