NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ____________

                                       No. 19-2668
                                      ____________

                                ROBERT A. CONNELL,
                                            Appellant

                                             v.

                     COMMISSIONER OF INTERNAL REVENUE
                               ____________

                       On Appeal from the United States Tax Court
                               (Tax Court No. 16-14948)
                       Tax Court Judge: Honorable Julian I. Jacobs
                                     ____________

                    Submitted Pursuant to Third Circuit LAR 34.1(a)
                                    June 16, 2020

             Before: CHAGARES, PORTER and FISHER, Circuit Judges.

                                  (Filed: August 6, 2020)
                                       ____________

                                        OPINION*
                                      ____________

FISHER, Circuit Judge.

       The Internal Revenue Service issued a notice of deficiency to Robert Connell for

his 2011 taxes. Connell contested the deficiency. The United States Tax Court ruled in



       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
favor of the IRS, concluding that the cancellation of over $3 million of debt Connell had

owed to his former employer, Merrill Lynch, was taxable as ordinary income and not as a

capital gain. Connell appeals. We will affirm.1

       The District Court did not err in its articulation of the origin of the claim test.

Connell argues that the Tax Court should not have relied on State Fish Corp. v.

Commissioner,2 but instead on “more recent decisions,” such as Gail v. United States,3

that emphasize “economic reality.”4 However, State Fish and Gail express the origin of

the claim test in the same way: by asking, “In lieu of what were the damages awarded?”5

       The Tax Court’s application of this test was not clearly erroneous. We are

“particularly deferential” to the Tax Court’s “weigh[ing] [of] all of the facts and

circumstances in ascertaining the true substance or nature of the claim.”6 Connell

contends that the Financial Industry Regulatory Authority arbitration panel awarded him

cancellation of the debt as compensation for his book of business, a capital asset, and

therefore the cancellation of debt income should have been taxed as a capital gain. He


       1
          The Tax Court had jurisdiction under 26 U.S.C. §§ 6213(a), 7442. We have
jurisdiction under 26 U.S.C. § 7482(a). “We review the Tax Court’s legal conclusions de
novo and its factual findings for clear error.” Anderson v. Comm’r, 

, 164 (3d
Cir. 2012).
        2
          

(1967).
        3
          

(10th Cir. 1995).
        4
          Appellant’s Br. 34-35.
        5
          State Fish, 

(citation omitted); 

(citation
omitted).
        6
          Francisco v. United States, 

, 322 (3d Cir. 2001) (internal quotation
marks and citation omitted).

                                               2
argues that the Tax Court “look[ed] only to the legal theories and terms” in his arbitration

filings “rather than the factual economic realities of what actually happened here.”7 On

the contrary, the Tax Court reviewed in depth Connell’s recruitment to Merrill Lynch; the

employment agreement and promissory note at the heart of this litigation; the

circumstances surrounding Connell’s departure from Merrill Lynch; and the arbitration,

including the filings and the award.

       With this thorough factual backdrop firmly in hand, the Tax Court determined that

Connell did not carry his burden to show that the arbitration award was compensation for

his book of business. This conclusion was not clearly erroneous. The Tax Court found

that the $3.6 million loan, the balance of which the arbitration panel extinguished, was

part of Connell’s compensation package. Connell’s “monthly transition compensation”

was $42,980, and his monthly loan payment was also $42,980. The Tax Court found that

“[t]his arrangement, common to the industry, allowed Mr. Connell to receive the full

amount of his transition compensation up[ ]front, while recognizing income only as each

monthly payment came due.”8 Neither Connell’s employment agreement nor the

promissory note state or imply that the compensation was the price paid for Connell’s




       7
         Reply Br. 7.
       8
         JA13. In addition, Connell’s monthly transition compensation was reported on
his Merrill Lynch Form W-2. This also tends to show that the transition compensation
was ordinary income, and therefore, so was the cancellation of the debt Connell owed on
the loan that mirrored the compensation.

                                             3
book of business. Moreover, Connell did not introduce evidence that would have shown

that the value of his book was the same as the outstanding balance of the loan.

       Nor did the Tax Court err in interpreting Connell’s filings before the arbitration

panel. The Tax Court stated that, aside from arguing that Merrill Lynch offered the loan

to obtain Connell’s book of business, Connell’s arbitration “filings [also] emphasized that

Merrill Lynch breached the terms of the employment contract.”9 According to the Tax

Court, this latter “argument, by itself, would relieve Mr. Connell of his obligation to pay

the outstanding balance of the promissory note.”10 Connell insists that (1) a breach by

Merrill Lynch would not have relieved him of his repayment obligation, and (2) he never

argued it would. To the first point, if Merrill Lynch had violated the employment

agreement by terminating Connell other than for cause, Connell effectively would have

been relieved of his obligation to repay the loan because he would have been entitled to

up-front payment of the remainder of his monthly transition compensation—the loan

balance and the up-front payment would have been the same amount and would have

canceled each other out. To the second point, whether or not Connell articulated this

argument in the arbitration, it is plain on the face of the employment agreement and

promissory note.




       9
           JA39.
       10
            JA39.

                                             4
       Finally, the Tax Court did not misallocate the burden of proof because it did not

require Connell to prove his theory to a certainty. Connell repeatedly asserted before the

Tax Court that, when he was litigating before the arbitration panel, his only argument

about repayment of the loan was that he had the right to be compensated for his book of

business. The Tax Court disagreed that this was his only argument, pointing to other

arguments he made and concluding that he did not show that the extinguishment of the

loan was “solely for the acquisition of [his] book of business.”11 That was not a

misstatement of the burden of proof, but rather a response to the arguments Connell

himself made.

       For the foregoing reasons, we will affirm the Tax Court’s judgment.




       11
            JA39.

                                             5