United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
                       REVISED JULY 2, 2007                   April 9, 2007
              IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT             Charles R. Fulbruge III
                                                                Clerk


                            No. 06-40466


UNITED STATES OF AMERICA

          Plaintiff - Appellant

v.

BIRNIE DAVENPORT, ET AL

          Defendants

GORDON E DAVENPORT

          Defendant - Appellee


                       --------------------
           Appeal from the United States District Court
          for the Southern District of Texas, Galveston
                       --------------------

Before KING, GARZA, and PRADO, Circuit Judges.

KING, Circuit Judge:

     In an action to determine the federal tax liability of the

estate of Birnie Davenport, the tax court held that the estate

was liable for the unpaid gift tax on inter-vivos gifts of stock

made by Birnie Davenport to her two nephews, Gordon Davenport and

Charles Botefuhr, and her niece, Patricia Vestal.    Because the

estate did not pay the tax, the government now seeks to collect

it from Gordon Davenport under the provisions of the Internal

Revenue Code imposing liability for an unpaid gift tax on the

transferee of the gift.    The district court held that Gordon

Davenport was not bound by the doctrine of res judicata to

certain key determinations made by the tax court.    Because we
                           No. 06-40466
                                -2-

agree with the government that this case involves the same

nucleus of operative facts as the proceeding in the tax court,

and that as a result res judicata applies, the district court’s

judgment is REVERSED.

               I. FACTUAL AND PROCEDURAL BACKGROUND

     Birnie and Elizabeth Davenport, who were sisters, lived

together much of their adult lives.   Over many years, the two

sisters commingled all of their earnings and assets.   Pursuant to

a long-standing oral agreement between the two, Elizabeth

Davenport held legal title to the assets, but the sisters shared

equally in the profits and losses of their investments.    They

considered all of their assets to be jointly owned, and their

income tax returns filed over many years reflected this belief.

Each of the sisters filed a separate income tax return in which

she reported her earnings from her job and an equal share of

profits and losses from the joint investments.   The IRS accepted

this split of investment income and expenses throughout numerous

audits between 1965 and 1979.

     The sisters’ investments included stock in Hondo Drilling

Company.   At the time of Elizabeth Davenport’s death in 1979, the

sisters owned 3220 shares of Hondo stock.   The sisters had two

nephews, Gordon Davenport and Charles Botefuhr, and one niece,

Patricia Vestal.   Gordon Davenport, Botefuhr, and Vestal were

appointed co-executors of Elizabeth Davenport’s estate.1

     In July 1980, slightly more than six months after her

     1
         Botefuhr resigned his position after a dispute
concerning how to report assets held in Elizabeth Davenport’s
name.
                            No. 06-40466
                                 -3-

sister’s death, using two conveyance methods, Birnie Davenport

transferred half (1610 shares) of the Hondo stock to her niece

and nephews.    First, she transferred 537 shares to Gordon

Davenport and 536 shares to Vestal through installment sale

agreements, with the stock being valued in the agreements at $804

per share.2    Birnie Davenport reported the installment sales on

her 1980 income tax return and indicated on that form that the

sales were to related parties.3    Second, Birnie Davenport

transferred 537 shares to Botefuhr as an outright gift.       In a

signed “Family Agreement,” Botefuhr promised to file the

appropriate gift tax return that would report the gift made by

Birnie Davenport and to pay on her behalf the gift taxes

associated with his gift.    Botefuhr did not fulfill this

responsibility.    In July 1981, Hondo Drilling Company redeemed

Botefuhr’s shares at $2190 per share.4


     2
        This transaction also included seventy-five shares of
Union Supply Company stock. Because the Hondo stock accounted
for most of the transaction’s value, we will refer only to the
Hondo stock.
     3
        In 1982, Birnie Davenport forgave the remaining balance
on Gordon Davenport’s and Vestal’s promissory notes. Birnie
Davenport’s 1983 gift tax return reported forgiving the
promissory notes and reported and paid $71,911 in gift tax
liability.
     4
        During this time, the IRS investigated the estate tax
owed by Elizabeth Davenport. The investigation culminated late
in 1982. The report concluded that: (1) all of the property held
in Elizabeth Davenport’s name, including all of the Hondo stock,
should be included in her estate and (2) that Birnie Davenport’s
prior conveyances were ineffective. The estate settled the claim
at a valuation of $2,400 per share of Hondo stock so that the IRS
would abandon its claim that all of the property recorded in
Elizabeth Davenport’s name belonged only to her. Thus, the
settlement cleared up title concerns on Birnie Davenport’s half
of the property.
                                No. 06-40466
                                     -4-

       Birnie Davenport died in 1991.     Gordon Davenport, Vestal,

and Botefuhr were appointed as personal representatives of her

estate.       While preparing Birnie Davenport’s estate tax return in

1991, Corrine Childs, the Davenport sisters’ long-time tax

attorney, learned that Botefuhr had not filed the 1980 gift tax

return or paid the taxes as promised.          When Vestal and Gordon

Davenport filed the estate tax return, they filed a gift tax

return reporting the 1980 gift to Botefuhr at $804 per share.

The estate paid a gift tax of $95,322 with the return.          Botefuhr

did not sign either the gift tax return or the estate tax return.

       In 1992 the IRS initiated an audit of Birnie Davenport’s

estate tax return and 1980 gift tax return and ultimately

determined that Birnie Davenport’s gift of Hondo stock to

Botefuhr should have been valued at $2730 per share rather than

$804 per share.       The large discrepancy in values created a

correspondingly large gift tax deficiency, which Birnie

Davenport’s estate contested in tax court.          See Estate of

Davenport v. Comm’r, 

(1997).          One issue

before the tax court was whether Birnie Davenport made a

completed gift to Gordon Davenport, Vestal, and Botefuhr.             

      The tax court held that even though Birnie Davenport did

not have legal title at the time of the transfers, she did effect

inter vivos gifts to Gordon Davenport, Vestal, and Botefuhr of

the Hondo stock, which the tax court valued at $2000 per share.5

       5
        The tax court decided this value and incorporated by
reference the parties’ stipulation of fact which read:

               38.   For the purposes of this litigation, if
                     the Court finds that Birnie Davenport
                               No. 06-40466
                                    -5-

412.       A second issue before the tax court was whether

the statute of limitations barred the government from recovering

the gift tax due.       The tax court held that the statute of

limitations did not bar assessment of gift tax liability because

with respect to each of the transfers, the limitations period

started running on November 7, 1991, when Vestal and Gordon

Davenport filed Birnie Davenport’s 1980 gift tax return.         

      In accordance with its findings, the court calculated the

tax deficiency owed by the estate.6       The Tenth Circuit affirmed

the tax court’s decision.       Estate of Davenport v. Comm’r, 

, 1188 (10th Cir. 1999) (holding that Birnie Davenport

“had a sufficient ownership interest in the Hondo stock . . . to

effect inter vivos transfers of [it]” and that Birnie Davenport

completed gifts during July 1980 to her two nephews and niece).

       Despite the tax court’s decision, the estate did not pay the

taxes owed.       Because the tax court lacks the authority to enforce

its judgments, the government filed the current action in the

Northern District of Oklahoma against the estate and all three



                    transferred Hondo stock to Patricia
                    Vestal, Gordon Davenport, and Charles
                    Botefuhr in the calendar quarter ending
                    September 30, 1980, the parties agree
                    that the fair market value of such Hondo
                    stock was $2,000.00 per share at the time
                    of the transfers.

       6
        The tax court determined that the estate’s deficiency in
unpaid gift taxes was $822,653, that the estate owed an
additional penalty of $205,663 for the failure to timely file the
1980 gift tax return, and that the estate owed interest on both
the unpaid gift taxes and the penalty. In 1998 the IRS assessed
that with penalties and interest, the estate’s tax bill amounted
to about $5.2 million.
                           No. 06-40466
                                -6-

cousins to reduce to judgment the estate’s liability and the

donees’ liability as transferees pursuant to I.R.C. § 6324(b).

See United States v. Estate of Davenport, 

,

1332 (N.D. Okla. 2001).   The estate conceded liability.      

also sought individual liability against the three

cousins in their capacity as co-executors pursuant to 31 U.S.C.

§ 3713 for allegedly making improper distributions from the

estate before paying the federal tax liabilities.    

court dismissed the § 3713 claim pre-trial.       

Davenport and Botefuhr contested

jurisdiction, the district court overruled their motions to

dismiss for lack of personal jurisdiction.    

      On

appeal, the Tenth Circuit held that the Oklahoma district court

did not have jurisdiction over Botefuhr and Gordon Davenport

after dismissing the § 3713 claim.    United States v. Botefuhr,

, 1274 (10th Cir. 2002).

     The case was remanded to the Oklahoma district court, which

transferred Botefuhr’s case to the Western District of Texas and

Gordon Davenport’s case to the Southern District of Texas.         The

case before this panel involves solely Gordon Davenport’s appeal.

     The Southern District of Texas ruled on multiple motions for

summary judgment by Gordon Davenport and the government.         First

it determined that the statute of limitations barred assessment

of the gift tax on the imputed gift arising from the July 1980

installment sale, but that the statute of limitations did not bar

assessment of the gift to Botefuhr.   Second, it held that

although res judicata and collateral estoppel bound Gordon
                                  No. 06-40466
                                       -7-

Davenport to the tax court’s finding that he was a donee, neither

doctrine established the value of the gift to him (the Hondo

stock) or the amount of his liability.             Finally, the district

court held that the government failed to provide any evidence on

damages, an essential element of its claim, and it granted

summary judgment against the government.            The government now

appeals.

                                 II. DISCUSSION

     The Internal Revenue Code imposes tax liability “on the

transfer of property by gift.”          I.R.C. § 2501(a).     The definition

of a gift includes transfers of property for “less than an

adequate and full consideration in money or money’s worth.”

I.R.C. § 2512.         The donor, as the party who makes the gift, bears

the primary responsibility for paying the gift tax.             See I.R.C.

§ 2502(c) (“The tax imposed by 2501 shall be paid by the

donor.”).      When, as here, the donor dies before paying the gift

tax owed, the personal representative of the estate is

responsible for paying the tax out of the estate, as a debt

against the donor’s estate.          Treas. Reg. § 25.2502-2.     The donee

may also be held personally liable for the full amount of any

unpaid gift tax pursuant to 26 U.S.C. § 6324(b).7             Although the

donee’s liability is limited to the value of the gift he received

from the donor, he may be forced to pay more than the gift tax

attributable to his gift.          § 6324(b); see also 14 EDWARD J. SMITH,

MERTENS LAW   OF   FEDERAL INCOME TAXATION § 53:42 (2004).   Thus, Gordon

     7
        Section 6324(b) states: “If the tax is not paid when due,
the donee of any gift shall be personally liable for such tax to
the extent of the value of such gift.” I.R.C. § 6324(b).
                           No. 06-40466
                                -8-

Davenport is liable for all the gift tax owed by the estate for

1980, up to the value of the gift he received.

     The government seeks to collect unpaid gift taxes owed by

the Birnie Davenport estate from Gordon Davenport pursuant to the

transferee liability provision of I.R.C. § 6324(b).    The

government argues that the tax court’s decision is res judicata

as to the liability of Gordon Davenport, and that accordingly,

Gordon Davenport may not relitigate the value of the Hondo stock

or whether the statute of limitations expired on the gifts to

Gordon Davenport, Vestal, and Botefuhr.

     The term “res judicata” is often used to describe two

discrete preclusive doctrines: res judicata and collateral

estoppel.8   Baker v. Gen. Motors Corp., 

, 233 n.5

(1998).   These doctrines “relieve parties of the cost and

vexation of multiple lawsuits, conserve judicial resources, and,

by preventing inconsistent decisions, encourage reliance on

adjudication.”   Allen v. McCurry, 

, 94 (1980).        Under

the doctrine of res judicata, “a final judgment on the merits

bars further claims by parties or their privies based on the same

cause of action.”   Montana v. United States, 

, 153

(1979).   The bar prevents relitigation of all “issues that were

or could have been raised in [the previous] action.”    Federated

Dep’t Stores, Inc. v. Moitie, 

, 398 (1981).      In

contrast, under the doctrine of collateral estoppel, “the second

action is upon a different cause of action and the judgment in


     8
        Res judicata is also known as claim preclusion, and
collateral estoppel as issue preclusion.
                                No. 06-40466
                                     -9-

the prior suit precludes relitigation of issues actually

litigated and necessary to the outcome of the first action.”

Parklane Hosiery Co. v. Shore, 

, 327 n.5 (1979).

       This court reviews the res judicata effect of a prior

judgment de novo because it is a question of law.9       Test Masters

Educ. Servs., Inc. v. Singh, 

, 571 (5th Cir. 2005).

For res judicata to apply, the following four-part test must be

satisfied: (1) the parties must be either “identical or in

privity; (2) the judgment in the prior action [must have been]

rendered by a court of competent jurisdiction; (3) the prior

action must have been concluded to a final judgment on the

merits; and (4) the same claim or cause of action [must have

been] involved in both actions.”        In re Southmark Corp., 

, 934 (5th Cir. 1999); see also 15 ELIZABETH K. BERMAN, MERTENS LAW

OF   FEDERAL INCOME TAXATION § 60:32 (2000).

       This court determines whether two suits involve the same

claim or cause of action by applying the transactional test of

the Restatement (Second) of Judgments, § 24.       Petro-Hunt, L.L.C.

v. United States, 

, 395 (5th Cir. 2004).       Under the

transactional test, our inquiry focuses on whether the two cases

under consideration are based on “the same nucleus of operative


       9
        Gordon Davenport contends that the government
acknowledged before the district court that res judicata applies
only to the estate’s liability, and not his donee liability or
the valuation of the stock. A review of the government’s
response to Gordon Davenport’s second motion for summary judgment
and its cross-motion for partial summary judgment regarding
valuation indicates that the government argued, inter alia, that
res judicata bound Gordon Davenport to the tax court’s
determination of the gift tax due. The government did not waive
a res judicata argument.
                                  No. 06-40466
                                      -10-

facts.” In re Southmark 

(quoting In re

Baudoin, 

, 743 (5th Cir. 1993)).                The nucleus of

operative facts, rather than the type of relief requested,

substantive theories advanced, or types of rights asserted,

defines the claim.         Agrilectric Power Partners, Ltd. v. Gen.

Elec. Co., 

, 665 (5th Cir. 1994).                If the cases are

based on the same nucleus of operative facts, the prior

judgment’s preclusive effect “extends to all rights the original

plaintiff had ‘with respect to all or any part of the

transaction, or series of connected transactions, out of which

the [original] action arose.’”            

(citing RESTATEMENT (SECOND)     OF   JUDGMENTS § 24(1)).    Generally, “[t]he

tax liability of a particular tax for a particular taxable year”

is a single cause of action.            15 ELIZABETH K. BERMAN, MERTENS LAW   OF

FEDERAL INCOME TAXATION § 60:33 (2000).

     The first three elements of res judicata are not contested

by the parties.         As transferee, Gordon Davenport was in privity

with a party to the tax court proceeding, Birnie Davenport’s

estate, the transferor.          See Baptiste v. Comm’r, 

,

1539 (11th Cir. 1994) (“[I]t is well settled that a transferee is

in privity with his transferor for purposes of the Internal

Revenue Code.”); First Nat’l Bank of Chicago v. Comm’r, 

, 262 (7th Cir. 1940)(same).            Indeed, the tax liability of the

donor and donee are inseparable.            A prior decision determining

the liability of the donor binds the donee.              14 EDWARD J. SMITH,

MERTENS LAW   OF   FEDERAL INCOME TAXATION § 53:6 (2004).     And the tax

court, a court of competent jurisdiction, rendered final judgment
                           No. 06-40466
                               -11-

on the merits.10

     The parties differ as to whether the fourth element of res

judicata is satisfied:   whether this case involves the same cause

of action as the tax court proceeding.    The district court, in

its res judicata analysis, held that the tax court proceeding

involved different operative facts than this case.   The district

court determined that the tax court case involved a deficiency

notice against the estate itself and involved distinct facts

relating to Birnie Davenport’s ownership interests, donative

intent, and the estate’s ultimate gift tax liability, but that

this case involves facts relating to donee liability and the

statute of limitations under § 6324(b).   The government contends,

however, that the district court improperly focused on the facts

litigated, as would be proper under the doctrine of collateral

estoppel, rather than the operative facts of the case.

     The district court’s focus was improper because it looked to

the legal theories advanced, forms of relief requested, and types

of rights asserted.   See Agrilectric Power Partners, 

.   The operative facts in this case and the tax court

case are identical.   Both cases are based on the same two

transactions and factual events: (1) the July 1980 installment


     10
        The final judgment element does not require contested
litigation. “An agreed judgment is entitled to full res judicata
effect.” United States v. Shanbaum, 

, 313 (5th Cir.
1994) (holding that an agreed decision in the tax court prevented
the application of the innocent spouse rule in an action to
enforce the tax court judgment under res judicata); see also
Matter of W. Tex. Mktg Corp., 

, 500-01 (5th Cir. 1994)
(stating that a settlement agreement between the IRS and the
taxpayer incorporated into a judgment must be given full res
judicata effect).
                               No. 06-40466
                                   -12-

sale of the Hondo stock from Birnie Davenport to Vestal and

Gordon Davenport and (2) the July 1980 gift of the Hondo stock to

Botefuhr.       The tax court was required to decide the value of the

stock to calculate the tax owed by the estate.        Accordingly,

under the transactional test the same cause of action is involved

in both cases, and the district court improperly focused on what

was actually litigated rather than the operative facts.

     Our decision that the same cause of action is involved is

consistent with the decisions of the Eighth and Eleventh Circuits

that a transferee cannot relitigate the tax due after a prior

court had already determined the estate’s tax liability.         See

Baptiste v. Comm’r, 

, 1539 (11th Cir. 1994); Baptiste

v. Comm’r, 

, 436 (8th Cir. 1994).        The Baptiste cases

involved two brothers; Gabriel, residing in Nebraska, and

Richard, residing in Florida.       See 

received

$50,000 as a beneficiary of his father’s life insurance policy.

.      The IRS determined that the estate

owed a deficiency in estate tax, and after the estate contested

that deficiency, the IRS and the estate agreed to the estate tax

owed.     

court entered a stipulated decision of the

tax due from the estate, but the estate never paid the tax,

prompting the government to attempt to collect the tax from the

Baptiste brothers as transferees.11      

the Baptiste cases involved transferee
liability with regard to an unpaid estate tax, transferee
liability of estate tax functions the same as transferee
liability of gift tax. Section 6324(a) of the Internal Revenue
Code states that if the estate tax is not paid when due, then the
transferee “who receives, or has on the date of the decedent’s
death, property included in the gross estate . . . to the extent
                              No. 06-40466
                                  -13-

     Although Gabriel Baptiste did not contest that he was

personally liable as a transferee under I.R.C. § 6324(a)(2), he

attempted to contest the amount of the underlying estate tax

liability in a separate proceeding in the tax court.     The effort

was unsuccessful, the tax court holding that res judicata applied

to bar him from contesting the amount of the estate tax

liability.    

On appeal, Gabriel Baptiste argued that

res judicata did not apply to bind him to the tax court’s

decision regarding the existence and amount of estate tax imposed

for purposes of determining his transferee liability pursuant to

§ 6324(a)(2).     

Circuit held that the causes of

action in the two cases were identical, that is “the transferor

and Gabriel[] [Baptiste’s] respective obligation to pay the

estate tax imposed on the transfer of the decedent’s estate.”

    Because the causes of action were identical, res

judicata bound Gabriel Baptiste to the tax court’s decision for

purposes of determining both the transferee’s obligation to pay

the estate tax and the amount of the transferee’s liability.         

reasoned that the donee’s liability was determined by

the amount of the estate’s tax.      See 

Circuit ruled similarly in the challenge

brought by Richard Baptiste.      

.    Richard

Baptiste wanted to relitigate the valuation of the property, but

the court of appeals denied him that opportunity.      

Circuit held that “[t]he fact that his purpose is to



of the value, at the time of the decedent’s death, of such
property, shall be personally liable for such tax.”
                                   No. 06-40466
                                       -14-

decrease his personal liability, rather than in the interest of

the estate, is of no moment.           The estate’s liability under

section 2002 and Baptiste’s liability under section 6324(a)(2)

both embrace the same determination–the amount of estate tax

imposed by chapter 11.”          

argues that his case can be distinguished

from the Eighth and Eleventh Circuits’ decisions because unlike

the Baptistes, who challenged the estate’s liability, he contests

the extent of his own transferee liability.            He contends that

because the Baptiste brothers received cash, the extent of the

donee’s liability was fixed at the amount of the cash received

and that the value of cash cannot be questioned in the way that a

stock’s value can be.          He argues that because the Baptiste

brothers could not relitigate the value of the cash (and thus the

extent of their liability), they attempted to relitigate the

underlying estate’s liability as a means of reducing their own

transferee liability.

     This argument does not succeed because the value of the

Hondo stock was a fundamental part of calculating the tax due in

this case.    The tax court’s determinations of the value of the

stock and the tax due are not separable.            Once a court determines

the tax liability of the transferor, “the decision is res

judicata of the liability with regard to the transferee for the

same tax if transferee status can be established.”             14 EDWARD J.

SMITH, MERTENS LAW   OF   FEDERAL INCOME TAXATION § 53:31 (2004).   The tax

court concluded Gordon Davenport was a transferee, and the Tenth

Circuit affirmed that decision.
                              No. 06-40466
                                  -15-

      Gordon Davenport also argues that we should follow the lead

of the Tenth Circuit in Botefuhr, a case in which the facts were

identical to those in this case.      In Botefuhr, the government

attempted to assert transferee liability against Vestal to

collect the tax owed by Birnie Davenport’s 

.      The question before the Tenth Circuit was whether Vestal

was bound by the estate’s stipulation during the tax court

proceedings that the value of the Hondo stock was $2000 per

share.     

  Vestal argued that the stipulation was

limited to the tax court proceeding and did not preclude

litigation of that issue in the subsequent proceeding.      

Circuit acknowledged that confusion existed regarding

whether the preclusion issue should be analyzed under the

principles of collateral estoppel or res judicata.      

82.   It concluded that “this matter must be evaluated as an

assertion of [collateral estoppel], rather than [res judicata].

[Res judicata] is inapplicable to the situation here presented.”

Circuit offered no other insight into its

conclusion that res judicata did not apply.12

      Although we have the utmost respect for the Tenth Circuit,

we decline to follow its decision in Botefuhr that res judicata

does not apply; instead, we side with the Eighth and Eleventh

Circuits in the Baptiste cases.      As discussed above, each element

of res judicata has been satisfied in the instant case.

      12
        Under the doctrine of collateral estoppel, the Tenth
Circuit ultimately held that Vestal was not precluded from
relitigating the value of the Hondo stock because it had never
been litigated on the merits. United States v. Botefuhr, 

, 1283 (2002).
                             No. 06-40466
                                 -16-

Accordingly, the doctrine of res judicata applies to preclude

Gordon Davenport and the government from litigating matters

arising from the same nucleus of operative facts that were or

could have been raised in the previous proceeding.     See 

.

     Finally, Gordon Davenport argues that the language of the

stipulation concerning the stock value was limited to the tax

court proceeding and in effect the government waived res judicata

with regard to that issue.    His argument fails because the

language does not expressly waive res judicata or express any

intent regarding future proceedings.    The stipulation merely

states the parties’ intent with regard to the proceeding in the

tax court: that the Hondo stock should be valued at $2000 per

share.

     In conclusion, we hold that all elements of res judicata

have been satisfied.   Accordingly, res judicata binds Gordon

Davenport to the value of the Hondo stock established in the tax

court proceeding.   The doctrine also precludes him from

relitigating other issues that were or could have been litigated

in that suit, such as whether the statute of limitations barred

assessment of the gift tax on either the gift to Botefuhr or the

gifts involved in the installment sale transactions.    Because we

hold that res judicata applies, we do not address the

government’s remaining arguments.

                          III. CONCLUSION

     For the reasons discussed above, we REVERSE the district

court’s judgment and REMAND for further proceedings.