McFerrin-Appealed: Standard of Review and Applicable Law
When reviewing a district court decision after a bench trial, we review factual findings for clear error and conclusions of law de novo. Flint Hills Res. LP v. Jag Energy, Inc., 559 F.3d 373, 375 (5th Cir. 2009); Green v. Comm’r, 507 F.3d 857, 866 (5th Cir. 2007). “Findings of fact influenced by an erroneous view of the law are entitled to no deference.” G.M. Trading Corp. v. Comm’r, 121 F.3d 977, 980 (5th Cir. 1997).
In an action to recover an improperly paid refund, “the United States, as plaintiff . . . , bears the ultimate burden of proof to show not only that some amount has been erroneously refunded but also how much that amount is.” Soltermann v. United States, 272 F.2d 387, 387 (9th Cir. 1959); see also United States v. Commercial Nat’l Bank of Peoria, 874 F.2d 1165, 1169 (7th Cir. 1989) (“In an action to recover an erroneous refund . . . , the government bears the burden of proof.”). Tax credits are a matter of legislative grace, are only allowed as clearly provided for by statute, and are narrowly construed. See Stinson Estate v. United States, 214 F.3d 846, 848 (7th Cir. 2000); see also Helvering v. Nw. Steel Rolling Mills, Inc., 311 U.S. 46, 49 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Taxpayers are required to retain records necessary to substantiate a claimed credit. See I.R.C. § 6001; Treas. Reg. § 1.6001-1(a), (e). If the taxpayer can establish that qualified expenses occurred, however, then the court should estimate the allowable tax credit. See Cohan v. Comm’r, 39 F.2d 540, 544 (2d Cir. 1930) (“[T]he Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making. But to allow nothing at all appears to us inconsistent with saying that something was spent.”); see also Mendes v. Comm’r, 121 T.C. 308, 316 (2003) (refusing to estimate costs as taxpayer had failed to substantiate any qualified deduction); Fudim v. Comm’r, 67 T.C.M. (CCH) 3011, *12–*13 (1994) (accepting that qualified research occurred, and then estimating the time spent on that research based on “testimony and other evidence in the record”).
