That is the question, the answer for which Judge Christian N. (“Speedy”) Weiler needs a trial, in A.C.M.E., Docket No. 3327-22, filed 10/19/23.

IRS wants summary J, of course. Problem is, A.C.M.E. claims that what IRS calls prepayments, and therefore taxable in year of receipt even though prepaid services aren’t delivered until later, are really deposits. It comes down to who controls the money once the recipient gets it: has the payor a present right to get it back, or has the recipient got complete domination?

The guiding light is Indianapolis P&L, 490 US 203 (1990). And it looks like IRS is leading on paper, but A.C.M.E. points to some givebacks.

“…factors such as control over deposits (i.e., absence of a trust fund), unrestricted use, nonpayment of interest, and later application of the moneys to services are probative but not dispositive in evaluating the existence of complete dominion.” Order, at p. 5. (Citation omitted).

A.C M.E. never raised equitable recoupment in its pleadings, bur raises it for the first time in its opposition papers. That’s a Rule 39 no-no.

“The doctrine requires a party to prove the following elements: (1) the overpayment or deficiency for which recoupment is sought by way of offset is barred by an expired period of limitation, (2) the time-barred overpayment or deficiency arose out of the same transaction, item, or taxable event as the overpayment or deficiency before the Court, (3) the transaction, item, or taxable event has been inconsistently subjected to two taxes, and (4) if the transaction, item, or taxable event involves two or more taxpayers, there is sufficient identity of interest between the taxpayers subject to the two taxes that the taxpayers should be treated as one. ” Order, at pp. 5-6.

More to the point, IRS hasn’t convinced Judge Speedy Weiler that complete dominion over the money has gone from the cherrypickers who deal with A.C.M.E. to A.C.M.E.

“We have reservations ruling on the disallowance of these prepayment accounts of $4.8 million and $2 million in 2015 and 2016, respectively, as well as the inclusion of the entire beginning accounts payable credit balance of $34 million as income for 2015, through summary judgment and without understanding the full impact of these adjustments to other taxable periods. Petitioner now seeks to raise the issue of equitable recoupment and furnished a sworn statement indicating how these adjustments would result in the inclusion of some $38 million in income reported in tax years 2018 and 2019, which are now closed. Although the issue of equitable recoupment is not properly before us; at a minimum, petitioner has created a material issue of fact, precluding summary adjudication of these ‘prepayment’ issues.” Order, at p. 6. (Footnote omitted).

IRS wanted either a five-and-ten substantial understatement chop, or a straight negligence chop,  but furnished no Boss Hossery, so no summary J on chops.

A.C.M.E. didn’t contest disallowance of some outside services deductions, or disallowance of an NOL carryforward, but IRS doesn’t get those either. “In denying the principal relief sought by respondent, it is unclear whether the purpose of summary judgment would be accomplished here, by us ruling on these additional issues in a piece meal fashion. Accordingly, we refrain from ruling on these remaining issues.” Order, at p. 7. (Citation omitted).

A.C.M.E’s trusty attorney should applaud Judge Speedy Weiler’s goalmouth saves, worthy of Vladislav Aleksandrovich Tretiak at the top of his form; the dollar amounts those deductions were worth are not stated, but they can’t have been pennies.