UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1975
JOHN G. GOETTEE, JR.; MARIAN GOETTEE,
Petitioners - Appellants,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent - Appellee.
Appeal from the United States Tax Court. (Tax Ct. No. 96-26591)
Argued: May 26, 2006 Decided: July 28, 2006
Before MOTZ, GREGORY, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Matthew Joseph McCann, Bethesda, Maryland, for Appellants.
Randolph L. Hutter, UNITED STATES DEPARTMENT OF JUSTICE, Tax
Division, Washington, D.C., for Appellee. ON BRIEF: Eileen J.
O’Connor, Assistant Attorney General, Richard Farber, UNITED STATES
DEPARTMENT OF JUSTICE, Tax Division, Washington, D.C., for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Petitioners-Appellants, John and Marian Goettee, appeal the
Order and Decision of the Tax Court denying them abatement of
interest that had accrued on past-due taxes. The Goettees claim
that the delay in payment was due in large part to the IRS and that
they therefore should not be liable for interest accrual resulting
from that delay. They also contend that the Tax Court abused its
discretion in refusing to award them reasonable litigation costs in
the action as a prevailing party.
Because the IRS is not compelled to abate interest for the
periods in question under the applicable statutes and regulations,
and because the Tax Court reasonably acted within its discretion in
refusing to award litigation costs to the Goettees, we Affirm the
Order and Decision of the Tax Court.
I.
During September 1981, the Goettees acquired a limited
partnership interest in The Thompson Equipment Associates
partnership (“TEA”), a type of shelter that came to be known as a
“Barrister Books” shelter. The IRS subsequently found this type of
shelter to be improper.
On October 15, 1986, the IRS sent the Goettees a notice of
deficiency. In it, the IRS made adjustments on account of TEA
items and determined deficiencies and additions to the Goettee’s
2
tax liability for 1978, 1979, 1981, and 1982. On November 3, 1986,
the Goettees challenged this determination in Tax Court and sought
a redetermination of their tax liabilities for all four years. The
Tax Court assigned the Goettees’ case to a group of cases
collectively referred to as the Barrister Books project. Andrew M.
Winkler served as lead counsel for the IRS in the Barrister Books
cases. Sometime around 1986, Winkler began extending a uniform
settlement offer to Barrister Books investors by settlement letters
one batch at a time. Winkler decided not to send a letter to all
Barrister Books investors simultaneously because he felt that it
would be impossible for the IRS to process all of the settlements
at once. Winkler stopped extending the offer on or about May 16,
1989 because he was waiting for the resolution of Series 115, the
lead case in the Barrister Books litigation project. In the spring
of 1993, after the Series 115 case concluded, Winkler again began
extending settlement offers. He sent the letters out roughly in
alphabetical order, subject to some exceptions. For example, if
several investors were represented by a single representative,
Winkler extended the offer to those individual investors at the
same time.
Although the Barrister Books settlements were complex, the IRS
staffed the matter leanly. The agency assigned the work to
officers to handle in addition to their normal case load. Around
July 1993, the Goettees’ case was assigned, along with about
3
seventy-five other Barrister Books cases, to appeals officer Fran
Rowland in the IRS’s Cincinnati office. Like other appeals
officers, Rowland managed multiple priorities while she processed
the settlement of the Barrister Books cases. Cases nearing the end
of the limitations period and those calendared for trial in
Cincinnati and Columbus, Ohio were given a higher priority than the
Barrister Books cases. Although Rowland's caseload was down by
about half in the spring of 1993, it returned to normal about the
same time that the Barrister Books cases were assigned to her.
Because of the increase in her workload, Rowland did not send
settlement letters to any Barrister Books taxpayers until about
September of 1993.
The settlement letters (1) stated the terms of the settlement
offer, (2) asked the recipients to submit to Rowland copies of
their canceled checks within 10 days so that she could verify the
recipients' actual cash investment in the partnership, and (3)
stated that upon receipt of the verification information, Rowland
would send to the taxpayer computations which showed the tax
effects of the settlement offer to that taxpayer.
Once a taxpayer accepted the settlement offer and returned the
signed decision document, Rowland prepared and submitted to her
boss, Paul Becker, an appeals transmittal and case memorandum for
his approval. If Becker approved, he signed the appeals transmittal
and case memorandum and transmitted the settlement documents to
4
Winkler. Winkler then reviewed the format and contents of the
decision documents, signed them, and forwarded them to the Tax
Court for entry of decision.
On November 24, 1993, Rowland sent the Goettees a settlement
letter. On December 2, 1993, the Goettees returned the verification
information to Rowland. On October 26, 1994, Rowland mailed the
settlement documents to the Goettees. They signed the decision
document on November 25, 1994, and mailed it to Rowland on December
14, 1994. The IRS eventually accepted the settlement and billed
the Goettees for their tax deficiencies.
The Goettees paid all of the back taxes due, but asked for an
abatement of the interest that had collected on the taxes due,
which amounted to the following amounts: 1978: $65,336.10-- 1979:
$36,456.54-- 1981: $4,689.52-- 1982: $13,243.89. Following
negotiations between the parties, the IRS decided to abate interest
that had accrued between October 4, 1995 and November 20, 1996
because the Goettees had been given incorrect advice by the IRS
during this time. The IRS refused to abate the interest that
accrued during any other periods.
At some point during the negotiations between the parties, the
Goettees also submitted $40,000 to the IRS as part of an Offer in
Compromise (“OIC”) of their interest liability. The IRS eventually
rejected the OIC.
5
On December 6, 1996, the Goettees filed a timely petition with
the Tax Court challenging the IRS's denial of the majority of their
request for abatement. The IRS filed a motion for partial summary
judgment, which the Tax Court granted, holding that the statute
under which the Goettees sought relief did not apply to tax year
1978. Accordingly, the case continued to trial only with respect
to abatement of interest concerning the taxable years 1979, 1981,
and 1982.
At trial, the Goettees contended that interest abatement was
warranted for two specific periods during which their delay in
payment was attributable to improper action by the IRS: the 328
day period between December 2, 1993 and October 26, 1994 during
which time the IRS was computing the tax due after it made the
Barrister Books settlement offer to the Goettees, and the 139 day
period between December 14, 1994 and May 2, 1995 during which time
the IRS was processing the Goettees’ signed settlement agreement.1
The Goettees also requested that the Tax Court “order abatement for
unspecified additional periods.” J.A. at 563. The Tax Court
ultimately held that the IRS abused its discretion in not abating
interest for the period of January 25 through April 24, 1995.
With respect to all other periods at issue, the Tax Court held that
1
At trial, the IRS conceded that abatement of interest for one
period of time - February 25 through April 25, 1995 - was
appropriate.
6
the IRS did not abuse its discretion by not abating interest
assessed against the taxpayers.
The Goettees filed a motion for reconsideration, which the Tax
Court denied. In addition, they filed a motion for an award of
reasonable litigation costs as a prevailing party in the amount of
$59,735.09. The Tax Court also denied this motion. The Goettees
timely appeal to this court the Tax Court Decision and Order, the
rejection of their motion for reconsideration, and the rejection of
their motion for an award of reasonable litigation costs.
II.
The Goettees first contend that the Tax Court erred in
granting partial summary judgment to the IRS and dismissing the
Goettees’ claim for interest abatement for tax year 1978 from the
suit. We reject this contention.
The Goettees filed their petition with the Tax Court seeking
abatement of interest with respect to tax years 1978, 1979, 1981,
and 1982. The Tax Court granted partial summary judgment to the
IRS, dismissing the 1978 tax year from the suit. The Tax Court
held that the Goettees’ claim for abatement of interest sounded
under 26 U.S.C. § 6404(e),2 which only applies to tax years
beginning after 1978. Tax Reform Act of 1986, Pub. L. No. 99-514,
2
All statutory citations are to Title 26 of the United States
Code.
7
§ 1563(b), 100 Stat. 2085, 2762. The Goettees argue that the Tax
Court erred in not also assessing their claim under § 6404(a),
which would apply to tax year 1978 and which authorizes the Service
“to abate the unpaid portion of the assessment of any tax or any
liability in respect thereof, which (1) is excessive in amount, or
(2) is assessed after the expiration of the period of limitation
properly applicable thereto, or (3) is erroneously or illegally
assessed.” 26 U.S.C. § 6404 (a). This argument fails.
Both the statute and the applicable regulations indicate that
§ 6404(a) does not apply to income, estate, or gift taxes. 26
U.S.C. § 6404(b); Treas. Reg. § 301.6404-1(b). Because the excess
interest at issue is a liability “in respect of” an income tax
assessment, and because income tax assessments are specifically
barred from consideration, the Tax Court correctly refused to
consider the Goettees’ claim under Section 6404(a). Bax v. Comm’r,
13 F.3d 54, 58 (2d Cir. 1993); Asciutto v. Comm’r, T.C. Memo 1992-
564, n.5. We therefore affirm the Tax Court’s partial summary
judgment dismissing the abatement claim for tax year 1978.3
3
The Goettees also raise § 6402(a) in support of their claim
relating to the 1978 tax year. They, however, raise it for the
first time in their reply brief. Accordingly, the Goettees waived
this argument because they did not raise it in their opening brief.
United States v. Jones, 308 F.3d 425, 427 n.1 (4th Cir. 2002).
8
III.
The Goettees next argue that the Tax Court erred in holding
that the Commissioner did not abuse his discretion in refusing to
abate interest for the vast majority of the delay alleged by the
Goettees. Specifically, they contend that (1) the IRS was
obligated to abate interest for the 328 day period between December
2, 1993 and October 26, 1994 that it delayed in computing the tax
due after it made the Barrister Books settlement offer to them; (2)
the period of time between October 4, 1995 and November 20, 1996
that the IRS chose for the partial abatement period was incorrect;
(3) the IRS was obligated to abate interest for the approximately
54 month period of time between May 1989 and November 1993 that it
took to extend the Barrister Books settlement offer to them; and
(4) the IRS was obligated to abate interest for the period of time
between May 15, 1996 and January 1997 that it held the $40,000
deposit. We address all four contentions in turn.
A.
Before we discuss the Goettees’ specific contentions, however,
it is helpful to understand the statutory and regulatory context in
which interest abatement operates. Interest on an unpaid federal
tax liability accrues from the date that the payment is due until
the date that the payment is made. § 6601(a). The Internal
Revenue Code, however, provides a mechanism to abate interest when
9
the delay in making the tax payment results from unreasonable
actions by the IRS. Abatement of interest for unreasonable errors
and delays by the IRS is controlled by § 6404(e), which, for the
time period applicable to this case, stated in relevant part:
(e) Abatement of interest attributable to unreasonable
errors and delays by Internal Revenue Service.
(1) In general. In the case of any assessment of
interest on . . . any deficiency attributable in whole
or in part to any unreasonable error or delay by an
officer or employee of the Internal Revenue Service
(acting in his official capacity) in performing a
ministerial or managerial act, . . . the Secretary may
abate the assessment of all or any part of such interest
for any period. For purposes of the preceding sentence,
an error or delay shall be taken into account only if no
significant aspect of such error or delay can be
attributed to the taxpayer involved, and after the
Internal Revenue Service has contacted the taxpayer in
writing with respect to such deficiency or payment.
§ 6404(e)(1)(A) (1995).4
Even though § 6404(e) is phrased in the permissive (“the
Secretary may abate the assessment of all or any part of such
interest”), the IRS does not have unfettered discretion in deciding
whether to abate interest. Once the taxpayer meets procedural
requirements not relevant here, the Tax Court has the authority to
overturn the IRS’s decision not to abate interest if the taxpayer
can demonstrate both that the delay resulted from unreasonable
4
Congress later expanded 26 U.S.C. § 6404(e)(1) to allow the
IRS to abate interest for an "unreasonable” error or delay in
performing a "ministerial or managerial” act. Taxpayer Bill or
Rights, Pub. L. No. 104-168, § 301, 110 Stat. 1452, 1457 (1996)
(effective for tax years beginning after July 30, 1996). This
amendment to § 6404(e) is inapplicable to this case.
10
delay by an IRS employee in performing a ministerial act and that
the Commissioner abused its discretion in refusing to abate the
interest. 26 U.S.C. § 6404(h).5 The Treasury regulations in
effect at the time relevant to this case defined a “ministerial
act” as
a procedural or mechanical act that does not involve the
exercise of judgment or discretion, and that occurs
during the processing of a taxpayer's case after all
prerequisites to the act, such as conferences and review
by supervisors, have taken place. A decision concerning
the proper application of federal tax law (or other
federal or state law) is not a ministerial act.
Temp. Treas. Reg. § 301.6404-2T, 52 Fed. Reg. 30163 (Aug. 13,
1987). The regulations also provide examples of ministerial acts,
which include: (1) the transfer of a case file to another IRS
office after the taxpayer requested and the appropriate IRS
officials approved the transfer and (2) the issuance of a notice of
deficiency after the notice has been prepared and reviewed and all
other prerequisites to issuance have been completed. Id. (Examples
1-2). Examples of acts that are not ministerial include: (1) the
delay in processing a taxpayer's return caused by the IRS's need
first to examine extensively a tax shelter in which the taxpayer
invested; (2) a manager's decisions to send an employee to training
and not to reassign the employee's cases during the training; and
5
At the time the Goettees filed their petition, the operative
jurisdictional statute was § 6404(g), which was predesignated §
6404(h) under the IRS Restructuring and Reform Act of 1998,
effective for tax years ending after July 22, 1998. Pub. L. No.
105-206 § 3305(a), 112 Stat. 685.
11
(3) a decision to delay a planned examination of a taxpayer's
return because of other work priorities and resource limitations.
Id. (Examples 3-5).
Further, a taxpayer seeking interest abatement must go beyond
simply alleging general delay by the IRS, and also identify “a
specific period of time over which interest should be abated as a
result of the error or delay.” Donovan v. Comm’r, 80 T.C.M. (CCH)
78, 80 (2000).
To meet the burden of showing an abuse of discretion, the
taxpayer must demonstrate that the IRS refusal to abate interest
was made “arbitrarily, capriciously, or without sound basis in fact
or law.” Lee v. Comm’r, 113 T.C. 145, 149 (1999).
With this background in mind, we turn to the Goettee’s
specific contentions.
B.
The Goettees first contend that the Tax Court erred in holding
that the IRS did not abuse its discretion in refusing to abate
interest for the period of time between the decision to extend the
Barristers Books settlement offer to taxpayers and the time when
the Goettees actually received the offer.6 Specifically, the
6
The IRS claims that the Goettees waived this argument by not
raising it in the Tax Court. After review of the record, we hold
that the Goettees’ arguments in the tax court concerning this issue
were substantial enough to preserve it for appeal. We consider the
argument fully here.
12
Goettees contend that “[o]nce the decision was made by IRS to
extend the offer to all Barrister Books investors, the actual
transmittal of such an offer to each investor was a ministerial
act.” Appellant’s Brief at 23. A review of the record, however,
reveals that the Goettees vastly oversimplify the situation.
Winkler did testify in the Tax Court that Barrister Books
settlement offers were to be made available to all eligible
taxpayers. J.A. at 95. However, he immediately followed that
statement by noting that only he and one other appeals officer
would be available to work on the project. Id. Because he decided
that making the settlement offers to everyone at once would be
“very difficult” with only two agents working on the case, he
decided to make the offers in small groups so as not to overwhelm
resources. Id. In addition, Winkler testified that he stopped
sending out settlement offers while he waited for the “Series 115
case” to be resolved by the Tax Court. Winkler anticipated that
the IRS would prevail, and that its settlement position would be
enhanced as a result. Id. at 241-42. In other words, the delay in
sending out settlement offers resulted both from an administrative
decision to not overwhelm limited IRS resources and from a
strategic preference for offering the settlement from a position of
strength.
Strategic litigation decisions are, almost by definition, not
ministerial. See Lee, 113 T.C. at 150-51 (noting that an 11 year
13
delay resulting from litigation decisions was not a ministerial
delay). In addition, delay resulting from the allocation of IRS
resources is defined as non-ministerial according to the relevant
regulations. Treas. Reg. § 301.6404- 2T(b)(2) (example 5) (1993).
Accordingly, we affirm the Tax Court holding that the IRS did not
abuse its discretion in holding that the 4 ½ year delay in sending
the Barrister Books settlement offer to the Goettees was the result
of non-ministerial actions and, therefore, not eligible for
interest abatement pursuant to Section 6404(e).
C.
The Goettees next argue that the Tax Court erred in holding
that the IRS did not abuse its discretion in refusing to abate
interest for the 328 days that elapsed between the Goettees
accepting the Barrister Books settlement offer and the IRS
informing them of the amount of tax that would be due. According
to the Goettees, the mechanical act of computing the tax due and
preparing a stipulation decision are ministerial acts which fall
under the statute. While the Goettees correctly note that the
computation of the tax and mailing of the letter are ministerial
acts, J.A. at 574 (Tax Court finding), they fail to recognize that
these acts were not the reason for the delay.
Specifically, the Tax Court found that “[i]t does not appear
that there was any delay in [the ministerial acts of] preparing the
14
settlement documents and mailing them to petitioners.” Id. at 575.
Instead, the Tax Court found that the more than 300 day delay
resulted from Rowland’s “prioritization decisions.” Id. at 572.
As we have noted, Rowland handled the Barrister Books settlement
offers in addition to her normal case load, which included cases
with statutory deadlines. In view of this fact, the Tax Court
“conclude[d] that Rowland’s delay in beginning to process
petitioners’ response to the settlement offer is properly
attributable to respondent’s reasonable prioritization decisions,
and thus is not attributable to error or delay in performing a
ministerial act.” Id. at 574.
Factual findings by the Tax Court can only be overturned upon
a showing of clear error–-which the Goettees do not make here. See
Norfolk Southern Corp. v. Comm’r, 140 F.3d 240, 248 (4th Cir.
1998). The Goettees instead challenge the Tax Court’s overall
legal conclusion. They contend that allowing the IRS to delay in
the performance of ministerial acts via “prioritization decisions”
with non-ministerial acts will enable the agency to thwart the
goals of § 6404(e). Unfortunately for the Goettees, the examples
given in the applicable regulations are almost directly on point:
Example 4. A revenue agent is sent to a training course,
and the agent's supervisor decides not to reassign the
agent's cases. During the training course, no work is
done on the cases assigned to the agent. Neither the
decision to send the agent to the training course nor the
decision not to reassign the agent's cases is, under the
circumstances, a ministerial act. Thus, interest
attributable to the delay cannot be abated.
15
Example 5. A taxpayer who claimed a loss from a tax
shelter on the taxpayer's income tax return is notified
that the Internal Revenue Service intends to examine the
return. However, because of other work priorities and
resource limitations, a decision is made not to commence
the examination for an extended period thereafter. The
decision not to commence the examination involves the
exercise of judgment and discretion and is not a
ministerial act; consequently, interest attributable to
the period of delay cannot be abated.
Temp. Treas. Reg. § 301.6404-2T, 52 Fed. Reg. 30163 (Aug. 13, 1987)
(examples 4-5). As in examples 4 and 5, the allocation of scarce
IRS resources that occurred here provides a valid reason for non-
ministerial IRS delay. We find no meaningful distinction between
the prioritization decisions discussed in examples 4 and 5 and the
prioritization decisions in this case. Accordingly, we affirm the
Tax Court on this claim.
D.
The Goettees next contend that the dates that the IRS chose to
abate interest in their case (10/04/95 to 09/20/96) were not linked
to any actual events and were, therefore, an arbitrary and abusive
use of IRS discretion. The Goettees want these dates extended to
correlate to the date they first submitted their abatement request
(09/05/95) and the date that the IRS acted to disallow the
abatement claim (11/13/96). We reject this claim because the
Goettees did not raise it until their motion for reconsideration
pursuant to Rule 161 of the Rules of the United States Tax Court.
16
“The Tax Court has held that decisions interpreting Rules 59
and 60 of the Federal Rules of Civil Procedure apply to motions for
reconsideration and further trial under Rule 161 of the Rules of
the United States Tax Court.” Estate of Kraus v. Comm’r, 875 F.2d
597, 602 (7th Cir. 1989) (citing Wheeler v. Comm’r, 46 T.C.M. (CCH)
642 (1983)). As in decisions under Rules 59 and 60 of the Federal
Rules of Civil Procedure, the panel reviews the Tax Court’s denial
of a motion for reconsideration under the abuse of discretion
standard. Id.
In this case, the Tax Court noted that
Petitioners did not ask us to consider at trial or on
brief the specific time periods set forth in their motion
that were allegedly confused or ignored by the
Commissioner's Appeals Office during which errors or
delays occurred that warrant abatement of interest.
Instead, petitioners asked the Court, on answering brief,
to order an abatement for additional unspecified time
periods. In Goettee I we declined to do so. We do not now
entertain petitioners' more detailed request. As we
stated, supra, reconsideration is not the appropriate
forum for offering new legal theories or rehashing
previously rejected arguments to reach the desired
result.
Goettee v. Comm’r, 87 T.C.M. (CCH) 808, 810 (2004). In other
words, the Tax Court rejected this argument on motion for
reconsideration because the Goettees could and should have raised
this argument in a previous filing. Such rejections are common in
Tax Court because “[r]econsideration under Rule 161 serves the
limited purpose of correcting substantial errors of fact or law and
allows the introduction of newly discovered evidence that the
17
moving party could not have introduced, by the exercise of due
diligence, in the prior proceeding.” Estate of Quick v. Comm’r,
110 T.C. 440, 441 (1998) (emphasis added). “Reconsideration is not
the appropriate forum for . . . tendering new legal theories.” Id.
at 441-42. Accordingly, we hold that the Tax Court did not abuse
its discretion in refusing to consider an argument on
reconsideration that should have been raised at trial.
E.
The Goettees argue that the Tax Court erred in holding that
IRS did not abuse its discretion in refusing to toll the accrual of
interest for the period of time that the IRS held the Goettees’
$40,000 submitted with the OIC. While this argument may hold some
superficial appeal, the Tax Court clearly and concisely explained
why the applicable statutes and regulations do not allow for
interest abatement in such a case. We find this reasoning
compelling and, accordingly, affirm the Tax Court on this issue.
The Goettees contend, in essence, that the IRS cannot charge
them interest on a liability while the IRS is holding funds
designated to pay that liability. This contention fails because it
misapprehends the legal status of the money at issue. Because the
Goettees submitted the check as part of an offer in compromise of
a liability, the $40,000 is treated as a deposit, not as a payment
of their tax liability. See Keith v. Commissioner, 35 T.C. 1130,
18
1136 (1961). This was not money given to the IRS as a credit
against the liability at issue. This was instead a deposit, in the
nature of a surety bond, that accompanied the Goettees’ offer to
settle the case. See Roseman v. United States, 323 U.S. 658, 662
(1945). There is no indication that the Goettees ever intended it
to be applied to their outstanding liability.7 It was part of a
separate transaction to settle the liability. The effect of the
$40,000 on the Goettees’ accruing interest was, therefore,
nonexistent.
Also, even if the $40,000 should have been applied to the
liability, it still would not affect the Goettee’s claim for
abatement of interest. The IRS procedures applicable at the
relevant time indicate that “[t]he Service will allocate any
remittance treated as a payment of tax to penalty or interest as
designated by the taxpayer if the remittance exceeds the full
amount of the underlying tax due. . . . If more than one period of
tax is involved, the Service will allocate an undesignated
remittance so as to satisfy all tax, penalty, and interest for the
earliest period before applying any excess to other periods.” Rev.
7
The regulations applicable at the time confirm that money
accompanying OICs is not normally meant to be applied to the
liability at issue. Specifically, they note that “[i]f an offer in
compromise is withdrawn or rejected, the amount tendered with the
offer . . . shall be refunded without interest, unless the taxpayer
has stated or agreed that the amount tendered may be applied to the
liability with respect to which the offer was submitted.” Treas.
Reg. § 301.7122-1(d)(4) (1993) (emphasis added).
19
Proc. 84-58, 1985-48 I.R.B. 39, at 6.01 (emphasis added). In this
case, therefore, the entire $40,000--which was not designated to
apply to any specific year--would be allocated against the
liability for 1978--which was over $40,000 and over which the Tax
Court does not have jurisdiction. See, supra, Section II.8
F.
In short, we hold that the Tax Court did not err in holding
that the IRS did not abuse its discretion in refusing to abate
interest for all of the disputed periods at issue.
IV.
Finally, the Goettees appeal the Tax Court’s refusal to award
them reasonable litigation costs in this matter as a prevailing
party. Under § 7430, the prevailing party in any administrative or
court proceeding in connection with the “determination, collection,
or refund of any tax, interest, or penalty” may be awarded a
judgment for reasonable administrative or litigation costs. §
7430(a). In order to receive an award of litigation costs, the
taxpayer must (1) be the prevailing party; (2) have exhausted
8
There does appear to be a four month period in which the IRS
held the $40,000 after the Goettees withdrew the OIC. This extra
delay does not, however, address the underlying concern--that the
$40,000 cannot be applied to abate the interest for the underlying
debt. The proper remedy (if any) for that four month delay is not
the abatement that the Goettees request in this case.
20
available administrative remedies; (3) meet certain net-worth
requirements; and (4) have not unreasonably protracted or delayed
the proceedings. §§ 7430(a), b(1), b(3), c(4). Because this
statute “renders the United States liable for attorney’s fees for
which it would not otherwise be liable, [it] amounts to a partial
waiver of sovereign immunity [and] must be strictly construed in
favor of the United States.” Ardestani v. INS, 502 U.S. 129, 137
(1991). The panel reviews the Tax Court’s denial of litigation
costs under § 7430 for an abuse of discretion, “accord[ing]
substantial deference to the reasoning of the Tax Court.” Dang v.
Comm’r, 259 F.3d 204, 208 (4th Cir. 2001).
The Tax Court in this case held that the Goettees were not a
“prevailing party” at trial and, accordingly, did not reach the
other requirements under § 7430. Essentially, the statute defines
a “prevailing party” as one “which (I) has substantially prevailed
with respect to the amount in controversy, or (II) has
substantially prevailed with respect to the most significant issue
or set of issues presented.” § 7430(c)(4)(A)(I) (emphasis added).
While refusing to establish a mathematical cutoff for
“substantial,” the Tax Court noted that the Goettees only prevailed
with respect to three months of IRS delay, while the IRS prevailed
with respect to almost 16 months of the alleged delay. J.A. at
691. In addition, the Court noted that the Goettees were only
awarded “not quite 5 percent” of the amount of interest that they
21
claimed should be abated. Id. at 695. Taking these numbers into
account, as well as the fact that there was no one dominating issue
in this case on which the Goettees prevailed, the Tax Court held
that the Goettees did not “substantially prevail” as to either the
most significant issue or the amount in controversy in this case.
The Goettees contest this decision, contending that they
prevailed with respect to the most significant issue--whether the
IRS abused its discretion in refusing to abate interest. Citing
Wilkerson v. United States, 67 F.3d 112 (5th Cir. 1995), and
Huckaby v. United States Dep’t. of Treasury, 804 F.2d 297 (5th Cir.
1986), the Goettees argue that “substantially prevailing” presents
a yes or no question--not a question that lends itself to degrees
of difference. Once the IRS admitted that it had abused its
discretion, according to the Goettees, they “substantially
prevailed” as a matter of law. We disagree.
As the Tax Court held, the cases on which the Goettees rely
are distinguishable from this case. In both Wilkerson and Huckaby,
the Fifth Circuit did note that one does not need to prevail on the
majority of the issues presented in order to satisfy the
“substantially prevail” test. However, unlike those cases, in
which a central issue dominated the proceedings, this case
represented a series of claims of delay against the IRS, only a
very few of which actually bore fruit at trial. The Goettees
actually raised a series of individual--and unrelated--claims of
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delay against the IRS, requesting abatement for each individual
claim. The parties, by stipulation, chose to conflate these
individual disputes into one abuse of discretion issue in the Tax
Court. J.A. at 694. This conflation, however, does not change the
fact that, at heart, this case presented a series of claims against
the IRS, the vast majority of which were determined in the IRS’s
favor in the Tax Court. There was simply no central issue in this
case, as there was in Wilkerson and Huckaby, upon which either of
the parties could “substantially prevail,” notwithstanding the
remainder of the litigation.
In short, this issue, as noted above, falls squarely within
the discretion of the Tax Court, which has witnessed these
proceedings from the beginning and has carefully weighed the
interplay between the parties’ stipulations, what was actually at
issue, and who actually prevailed. J.A. at 694. We hold that the
Tax Court did not abuse its discretion in refusing to award the
Goettees reasonable litigation costs.
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V.
For all of the foregoing reasons, the Decision and Order of
the Tax Court is
AFFIRMED.9
9
The parties agree that there is a typographical error in the
Tax Court’s June 1, 2005 order. Specifically, the Tax Court
decided that interest should be abated for the period January 25
though April 24, 1995. The June 1, 2005 order, however, states
that interest should be abated for the period February 24 through
April 24, 1995. The parties also agree that the dollar amounts
stated in the June 1, 2005 order correctly reflect the underlying
decision. The typographical error, therefore, is harmless. We
leave to the Tax Court’s discretion whether to correct this
harmless error.
24