Tax credit for research & development (R&D); 26 USC § 41; Whether the government was judicially estopped from challenging plaintiff-taxpayer’s use of the .92% fixed-base percentage; Browning v. Levy; Teledyne Indus., Inc. v. NLRB; New Hampshire v. Maine; Pegram v. Herdrich; Edwards v. Aetna Life Ins. Co.; United States v. Owens; City of Kingsport v. Steel & Roof Structure, Inc.; Reynolds v. Commissioner; Whether the government waived its right to appellate review by failing to submit an offer of proof; Applicability of FRE 103(a)(2); Burden of proof; Crooks v. Commissioner; Chrysler Corp. v. Commissioner; Shinseki v. Saunders; Consideration of non-evidentiary legal issues in a motion in limine instead of a summary judgment motion; Louzon v. Ford Motor Co.; Moot costs issue; 28 USC § 1920

In this tax-refund suit, the court reversed the district court, holding that judicial estoppel is not applicable to Tax Court settlements. Plaintiff-Audio Technica claimed it was entitled to an R&D tax credit, which is based on the taxpayer’s “fixed-base percentage.” A lower fixed-base percentage results in a higher R&D tax credit. Instead of litigating its claims for 2006-10 in Tax Court, it paid the IRS and sued for a refund in the district court. The government wanted to challenge plaintiff’s calculation of the fixed-base percentage (.92%) before the jury. But the district court granted plaintiff’s motion in limine, ruling that the government was judicially estopped from doing so because it previously agreed to the same fixed-base percentage in tax settlements with plaintiff for other tax years. The jury found for plaintiff and it was awarded a $40,432 refund. The district court also granted its request for costs in part. The main issue before the court was whether the district court erred by finding that the government was judicially estopped from challenging plaintiff’s use of the .92% fixed-base percentage. The court first noted that plaintiff’s motion should not have been addressed as a motion in limine but should have been considered in a motion for summary judgment. It then vacated the district court’s judgment and reversed its judicial estoppel order, holding that judicial estoppel does not apply to Tax Court settlements where “a court order memorializing a settlement agreement generally does not constitute judicial acceptance of the facts underpinning that agreement . . . .” Further, none of the orders approved by the Tax Court actually included the .92% rate. The court rejected plaintiff’s argument that the government waived its right to appellate review by failing to submit an offer of proof because “the district court’s order was not simply an exclusion of evidence, but rather a ruling for Audio Technica on the fixed-base percentage issue as a matter of law. . . . An order that goes beyond evidentiary questions and instead resolves an issue as a matter of law is not ‘a ruling to . . . exclude evidence . . . .’” Thus, FRE 103 did not apply. The court also held that plaintiff’s harmless error argument lacked merit where the government was deprived of its ability to cross-examine plaintiff’s witnesses about the fixed-base percentage and to argue that plaintiff failed to meet its burden of proof. Because the district court’s judgment was vacated, any argument as to costs became moot. The court remanded for a determination of plaintiff’s fixed-base percentage.