Albert L. Shipley, Jr. And Evelyn Needham, Formerly Shipley v. United States

Appellants seek review of the dismissal by the district court of their suit for refund of Federal income taxes. The refund is claimed under 26 U.S.C. § 1341 , which allows a credit when a taxpayer receives income under claim of right in one year and is required to repay it in a later year, the credit being allowed in the year of repayment.

The appellants received a sum of money in 1967, which they treated as a gift and did not report as income on their tax return. In 1971 they were required to repay the sum to the estate of the donor by a California state court order on the grounds that the donor did not have donative capacity at the time of the gift. The Internal Revenue Service issued a notice classifying the sum as income and claiming a deficiency for tax due on those funds in 1967, the year of receipt. The Shipleys petitioned for rede-termination of the 1967 deficiency in the Tax Court. They also filed this action in the Federal district court for a credit and refund pursuant to 28 U.S.C. § 1341 , for the year in which the repayment was made. Only the district court action is before us. The district court granted a motion to dismiss under Rule 12(b) of the Federal Rules of…