124 T.C. No. 17
UNITED STATES TAX COURT
JOHN G. GOETTEE, JR. AND MARIAN GOETTEE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 26591-96. Filed May 31, 2005.
Ps claimed investment credits and losses arising out of
a partnership in which they held a limited interest. By
notice of deficiency, R disallowed these claimed credits and
losses. Ps accepted a settlement offer from R and paid all
deficiencies and additions reflected in the entered
decision. Ps requested abatement of interest on these
amounts. R initially disallowed the abatement request in
full, then later allowed partial abatement. Ps then paid
the remaining assessed interest liabilities. Ps petitioned
this Court to review R’s disallowance of interest
abatements. After R’s concessions, we determined (1) R
abused R’s discretion only for the period Jan. 24 through
Apr. 24, 1995, and not for any of the other time periods
(aggregating about 15-3/4 months) specifically put in issue,
*
This opinion supplements our previously filed opinions in
Goettee v. Commissioner, T.C. Memo. 1997-454, T.C. Memo. 2003-43
(hereinafter sometimes referred to as Goettee I), and T.C. Memo.
2004-9.
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and (2) R did not err in calculating the amounts of interest
on any remaining issue raised by Ps.
Ps move for an award of litigation costs.
Held: Ps have not “substantially prevailed” with
respect to the most significant issue or set of issues
presented, nor have they “substantially prevailed”
with respect to the amount in controversy. Sec.
7430(c)(4)(A)(i), I.R.C. 1986. Consequently, Ps are not the
“prevailing party” (sec. 7430(c)(4)(A), I.R.C. 1986), and
are not entitled to an award of reasonable litigation costs.
Sec. 7430(a)(2), I.R.C. 1986.
Matthew J. McCann, for petitioners.
William J. Gregg and Warren P. Simonsen, for respondent.
OPINION
CHABOT, Judge: This matter is before us on petitioners’
motion for an award of reasonable litigation costs pursuant to
section 74301 and Rule 231.2
The issues for decision are:
(1) Whether petitioners are the “prevailing party” for
purposes of section 7430--in particular:
(A) Whether petitioners “substantially prevailed”
1
Unless indicated otherwise, all section references are to
sections of the Internal Revenue Code of 1986 as in effect for
proceedings commenced at the time the petition in the instant
case was filed.
2
Unless indicated otherwise, all Rule references are to the
Tax Court Rules of Practice and Procedure.
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with respect to either the most significant issue or
set of issues or the amount in controversy, within the
meaning of section 7430(c)(4)(A)(i), or
(B) Whether respondent established that
respondent’s position was “substantially justified”
within the meaning of section 7430(c)(4)(B)(i);
(2) Whether petitioners unreasonably protracted the
proceedings; and
(3) Whether petitioners’ claimed costs are unreasonable
or excessive.
We reach issues (2) and (3) only if petitioners prevail, in
whole or in part, on issue (1).
In their memorandum of law, petitioners requested a hearing
on their litigation costs motion, on the ground that “respondent
has not favored petitioners with the basis for disagreement with
any allegations contained in petitioners’ motion”, in violation
of Rule 232(b)(7). Having examined the parties’ stipulations and
memoranda of law, we conclude that this litigation costs motion
may properly be resolved without an evidentiary hearing. See
Rules 231(b)(8), 232(a)(2) (last sentence), and 232(b) (final
flush language).
Background
The underlying facts of this case are set out in detail in
Goettee v. Commissioner, T.C. Memo. 1997-454, T.C. Memo. 2003-43,
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and T.C. Memo. 2004-9. We summarize the factual and procedural
background briefly here and make additional findings as required
for our ruling on the instant motion.
At all relevant times, petitioners resided in Maryland.
Petitioners requested an abatement of interest with respect
to underpayments for 1978, 1979, 1981, 1982, and 1983, which
respondent partially disallowed, and petitioners petitioned this
Court under section 6404 to review that disallowance as to all 5
years. In Goettee v. Commissioner, T.C. Memo. 1997-454, we
granted respondent’s motion for partial summary judgment as to
1978. Petitioners later conceded as to 1983. In Goettee I, what
remained before us was the matter of abatement of interest with
respect to the remaining 3 years (1979, 1981, and 1982) for the
periods of (1) December 2, 1993, through October 26, 1994, and
(2) December 14, 1994, through May 2, 1995. In Goettee I,
petitioners also urged us to order abatement for unspecified
additional periods. Finally, relying on our overpayment
jurisdiction in the interest abatement area (see sec.
6404(h)(2)(B)), petitioners also contended that respondent made
numerous computational errors in the interest calculations and
that failure to correct those errors constitutes an abuse of
discretion. Respondent conceded that abatement was appropriate
for February 25 through April 25, 1995, but contended failure to
abate interest for the remaining time in dispute did not
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constitute an abuse of discretion by respondent. Respondent also
conceded some of the computational matters and disputed others in
whole or in part. In Goettee I, we held for petitioners as to
January 25 through April 24, 1995,3 and for respondent as to all
the remaining time periods in issue. Also in Goettee I, we held
for respondent as to all the computational matters that
respondent had not conceded. In other words, in addition to the
time period and other matters conceded by respondent, we held for
petitioners only as to the 1-month period of January 25 through
February 24, 1995. In Goettee v. Commissioner, T.C. Memo. 2004-
9, we denied petitioners’ motion that we reconsider our opinion
in Goettee I.
____________________
Petitioners have not substantially prevailed with respect to
the most significant issue or set of issues.
Petitioners have not substantially prevailed with respect to
the amount in controversy.
Discussion
The Congress has provided for the awarding of litigation
costs4 to a taxpayer who satisfies a series of requirements. Sec.
3
In Goettee I, we refused to give effect to respondent’s
concession as to one of the days--Apr. 25, 1995. See Goettee I,
n.15.
4
Petitioners have requested only litigation costs in the
instant case, so we do not consider a possible award of
(continued...)
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7430.5
4
(...continued)
administrative costs.
5
Sec. 7430 provides, in pertinent part, as follows:
SEC. 7430 AWARDING OF COSTS AND CERTAIN FEES.
(a) In General.--In any administrative or court
proceeding which is brought by or against the United States
in connection with the determination, collection, or refund
of any tax, interest, or penalty under this title, the
prevailing party may be awarded a judgment or a settlement
for--
* * * * * * *
(2) reasonable litigation costs incurred
in connection with such court proceeding.
(b) Limitations.--
* * * * * * *
(3) Costs denied where party prevailing protracts
proceedings.--No award for reasonable litigation and
administrative costs may be made under subsection (a)
with respect to any portion of the administrative or
court proceeding during which the prevailing party has
unreasonably protracted such proceeding.
* * * * * * *
(c) Definitions.--For purposes of this section--
* * * * * * *
(4) Prevailing party.--
(A) In general.--The term “prevailing party”
means any party in any proceeding to which
subsection (a) applies * * *--
(i) which-–
(continued...)
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In general, the requirements of section 7430 are in the
conjunctive; i.e., the taxpayer must satisfy each of them in
order to succeed. See Corson v. Commissioner, 123 T.C. 202, 205-
5
(...continued)
(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, and
(ii) which meets the requirements of the
1st sentence of section 2412(d)(1)(B) of
title 28, United States Code * * *
(B) Exception if United States establishes
that its position was substantially justified.--
(i) General rule.--A party shall not be
treated as the prevailing party in a
proceeding to which subsection (a) applies if
the United States establishes that the
position of the United States in the
proceeding was substantially justified.
* * * * * * *
(C) Determination as to prevailing party.--
Any determination under this paragraph as to
whether a party is a prevailing party shall be
made by agreement of the parties or–-
* * * * * * *
(ii) in the case where such final
determination is made by a court, the court.
* * * * * * *
(6) Court proceedings.--The term “court
proceeding” means any civil action brought in a court
of the United States (including the Tax Court * * *).
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206 (2004); Minahan v. Commissioner, 88 T.C. 492, 497 (1987).
Respondent concedes that petitioners (1) exhausted available
administrative remedies (sec. 7430(b)(1)) and (2) met the net
worth requirements (subpars. (A)(ii) and (D)(ii) of sec.
7430(c)(4)). Respondent contends that (1) petitioners are not
“the prevailing party” because (A) petitioners did not
substantially prevail (sec. 7430(c)(4)(A)(i)) and (B)
respondent’s position “was substantially justified” (sec.
7430(c)(4)(B)(i)); (2) the amount of costs petitioners claim is
not reasonable (sec. 7430(a)(2)); and (3) petitioners
“unreasonably protracted such proceedings” (sec. 7430(b)(3)).
In order to be entitled to an award of litigation costs, one
of the requirements is that petitioners have “substantially
prevailed”. Although in general the requirements for an award
are in the conjunctive, the substantially prevailed requirement
is satisfied if petitioners satisfy either one of two statutory
alternatives.
We proceed to consider first whether petitioners
substantially prevailed with respect to the most significant
issue or set of issues presented (sec. 7430(c)(4)(A)(i)(II)), and
then whether petitioners substantially prevailed with respect to
the amount in controversy (sec. 7430(c)(4)(A)(i)(I)).
A. Most Significant Issue
The parties have stipulated that they “agree that the most
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significant issue raised was whether Respondent abused its [sic]
discretion by denying Petitioners’ claims for abatement of
interest.”
Petitioners assert that there were two aspects to
respondent’s abuse of discretion--(1) delay in performing
ministerial acts and (2) error in performing ministerial acts.
Petitioners point out that respondent conceded error in both
aspects, contend that petitioners prevailed on both aspects, and
conclude that they “satisfy the prevailing party requirement.
Bowden v. Comm’r, TCM 1999-30, citing Huckaby, 804 F.2d 297 (5th
Cir. 1986).”
Respondent contends:
Petitioners originally requested interest abatement of
all assessed interest (other than the partial abatement
granted by respondent’s Appeals Office) attributable to
petitioners’ disallowed losses and credits claimed from
their investment in Thompson Equipment Associates.
Other than for a three-month period, petitioners were
unsuccessful in their argument for interest abatement.
Petitioners also argued for interest abatement derived
from errors by respondent in the amount of interest
computed. Respondent conceded before trial * * *
[several small items listed]. Other than these
concessions, all of petitioners’ arguments about errors
in calculating interest in this case were rejected by
the Court. Goetee, T.C. Memo. 2003-43, slip op. at 66,
67, and 71. Petitioners did not substantially prevail
as to the interest abatement and interest errors issues
in this litigation.
We agree with respondent.
The instant case is brought under section 6404(h)(1), to
determine whether respondent’s “failure to abate interest under
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this section was an abuse of discretion”. The parties’
stipulation as to the most significant issue presented (sec.
7430(c)(4)(A)(i)(II)) basically tracks the statute’s language.
Thus, petitioners’ overall success controls whether they
substantially prevailed on the most significant issue presented.
We discuss individual elements of petitioners’ claims and what
became of these elements, but we do so for convenience of
analysis, with the focus being on the forest and not the
individual trees.
Initially, petitioners proceeded pro se. In their petition,
they requested abatement of interest as to 1978, 1979, 1981,
1982, and 1983. After respondent’s motion for partial summary
judgment was granted and respondent’s motion to dismiss was
denied, petitioners retained their present counsel. Goettee v.
Commissioner, T.C. Memo. 1997-454. At the time of the first
partial trial in the instant case, petitioners’ trial memorandum
requested abatement of an aggregate of about $55,000 of interest
for 1979, 1981, and 1982, and ascribed this entirely to “delays
attributable in part to delay by IRS personnel in their
performance of ministerial acts.” In their opening brief after
completion of the trial in the instant case, petitioners
contended that:
2. Petitioners are entitled to an abatement of interest
from December 2, 1993 to October 26, 1994, and December
14, 1994 to April 25, 1995, and other periods due to
delays by Respondent in performing ministerial acts.
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3. Petitioners are entitled to an abatement or correction
of Respondent’s interest computation errors.
Petitioners’ opening posttrial brief listed a number of asserted
errors, the most significant of which appeared to be (1)
incorrect starting dates for interest computations as to all 3
years’ liabilities, and (2) respondent’s failure to pay interest
or provide offsets on account of a $40,000 settlement offer
amount which respondent held for about 7 months. In petitioners’
motion for reconsideration of our opinion in Goettee I, they
specified about 2-1/2 months of delay periods in addition to the
16-1/4 months they had specified in their opening posttrial
brief. See Goettee v. Commissioner, T.C. Memo. 2004-9, issues 2,
3, and 4.
We agree with petitioners’ contention in their motion
papers:
However, the government cannot avoid an award of
litigation costs by conceding a matter when such
concession is conditioned on terms unacceptable by the
other party. See, Culpepper-Smith v. U.S.A., 50 F.
Supp. 2nd 425, 430 (E.D. Pa 1999).
However, we do not determine that respondent in the instant case
improperly conditioned any concessions. In evaluating the extent
of petitioners’ success we take into account those matters that
respondent conceded (whether early or late in the proceedings) as
well as the one contested matter as to which we held in part for
petitioners.
Petitioners point to the fact that at one point during the
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proceedings before the court respondent escalated the dispute by
indicating that petitioners owed almost $15,000 additional
interest and that “This was respondent’s position when trial
commenced”. As petitioners note, this contention was raised
almost 2-1/2 years after the instant case was begun, was not
embodied in any document filed with the Court, and was conceded
by respondent at the start of the trial (about 2 weeks after this
contention was raised), before the first witness was called to
the stand. This contention arose and vanished, without becoming
a part of the case; it never became part of what petitioners
asked this Court to require respondent to abate. Under these
circumstances, we do not take this evanescent contention into
account in determining whether petitioners substantially
prevailed as to the most significant issue or set of issues
presented.
Petitioners prevailed to some extent. They achieved some
success on the delay periods and some success on the error
disputes. However, these successes in the aggregate were barely
more than trivial compared to petitioners’ failures in the
litigation. As to the delay periods, petitioners prevailed with
respect to 3 months, and respondent prevailed with respect to 15-
3/4 months. Goettee I, issue I; Goettee v. Commissioner, T.C.
Memo. 2004-9, issues 2, 3, 4, and 5. As to the major errors
disputes, petitioners prevailed on one starting date; respondent
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prevailed on the two other starting dates and on the $40,000
settlement offer amount. Goettee I, issues II.A. and III. As to
the other errors disputes, petitioners prevailed on several
matters because of respondent’s concessions, and respondent
prevailed on all the unconceded items that went to opinion.
Goettee I, issue II.B.
There is no indication in the record, and petitioners do not
contend, that any matter as to which petitioners prevailed--
whether by respondent’s concession or by our holding--would
significantly benefit petitioners in later years. Cf. sec.
301.7430-5(h), Example (2), Proced. & Admin. Regs.
We conclude that, taking into account respondent’s
concessions as well as our holdings, petitioners have not
substantially prevailed with respect to what they and respondent
have stipulated to be the most significant issue or set of issues
presented.
Petitioners cite only one opinion on the issue of
substantially prevailing--Bowden v. Commissioner, T.C. Memo.
1999-30. In Bowden, we held that the taxpayers lost on the most
significant issue presented. In Bowden, we cited Bragg v.
Commissioner, 102 T.C. 715, 719-720 (1994), in which we also held
that the taxpayers lost as to the most significant issue or set
of issues presented. Petitioners point out that in Bowden we
cited Huckaby v. United States, 804 F.2d 297 (5th Cir. 1986). In
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Huckaby v. United States, 804 F.2d at 300, the Court of Appeals
stated as follows:
Huckaby, however, has prevailed on the primary issue:
whether the government was liable for tax return
disclosures that were given without written consent.
Section 7430(c)(2)(A)(ii)(II) is phrased in terms of
issues not claims. We therefore hold that Huckaby has
met the second prong of the “prevailing party”
requirement. [Emphasis in original.]
We have not found, and petitioners have not directed our
attention to, any element in the instant case that plays a role
similar to the significance of the “written consent” issue in
Huckaby.
In Wilkerson v. United States, 67 F.3d 112, 120 (5th Cir.
1995), the Court of Appeals stated as follows:
Wilkerson has prevailed on her claim of wrongful
levy, but failed on all her other claims, including
wrongful disclosure. Although she sought a greater
amount of damages for the disclosures, that fact alone
does not make the disclosure issue most significant.
See Huckaby, 804 F.2d at 299-300 (holding that a party
was a “prevailing party” despite award of only $1,000
out of possible $28,000 in damages). In order to
determine which issue is most significant, we must
determine which issue is primary or most nearly central
to the case. See id. at 300 (holding an issue most
significant because it was “the primary issue”).
Looking at the gravamen of Wilkerson’s complaint, the
primary issue was whether the levies on Wilkerson’s
property were wrongful. The bulk of Wilkerson’s claims
were in some way derived from the wrongfulness of the
levies. For example, Wilkerson’s argues that she is
entitled to recover under the Fifth Amendment because
the levies caused her to lose her business without due
process or just compensation. Likewise, Wilkerson
based her claim of wrongful disclosure on a theory that
the wrongfulness of the levies made the disclosures
wrongful. Although we reject this position,
Wilkerson’s complaint indicates the centrality of the
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levy issue. Accordingly, we hold that the wrongful
levy issue was the most nearly central to her case.
Having prevailed on the wrongful levy issue, Wilkerson
has prevailed as to the most significant issue in the
case.
We have not found, and petitioners have not directed our
attention to, any element in the instant case that plays a role
similar to the significance of the “wrongful levy” issue in
Wilkerson.
In the instant case, the parties have chosen by stipulation
to conflate all the different disputes--large, small, and
trivial--into one abuse of discretion issue. In accordance with
the parties’ stipulation, we have evaluated the bits and pieces
of the claimed abuse of discretion and concluded that by any
reasonable measure of significance it was respondent and not
petitioners who substantially prevailed on the most significant
issue or issues presented. Accordingly, the instant case is
properly distinguishable from Huckaby and Wilkerson. Under these
circumstances, we need not, and we do not, examine into the
analysis presented in Scrimgeour v. Internal Revenue, 149 F.3d
318, 326-329 (4th Cir. 1998), relating to whether section 7430
applies to disputes of the sort presented in Huckaby.
We hold for respondent on this issue. Sec.
7430(c)(4)(A)(i)(II).
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B. Amount in Controversy
Petitioners do not contend that they substantially prevailed
with respect to the amount in controversy because, they state,
“no simple mathematical application of the ‘amount in
controversy’ test seems possible in connection with this interest
abatement claim.”
Nevertheless, it may help to put this matter in perspective
to compare petitioners’ trial memorandum with the parties’ joint
Rule 155 computation.
Table 1
Year Petitioners’ Trial Memorandum Joint Overpayment As Percent
“Interest Paid - Rule 155 of Abatement Requested
Abatement Requested” Overpayment
1979 $36,520 $950.97 2.6
1981 4,975 456.23 9.2
1982 13,952 1,286.15 9.2
Totals 55,447 2,693.35 4.9
As table 1 shows, petitioners claimed in their trial
memorandum that they were entitled to an abatement of more than
$55,000 of the interest they paid for the 3 years remaining in
the case, but the parties’ joint Rule 155 computation shows that
they have been awarded not quite 5 percent of what they claimed.
We do not attempt in the instant case to set forth a
universal definition of “amount in controversy” in interest
abatement cases. See Dixson Corp. v. Commissioner, 94 T.C. 708,
715 (1990), as to deficiency cases. But surely, in the setting
of the instant case, that amount is not less than the amount
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petitioners claimed just before the start of the trial. To
paraphrase our comment in Bragg v. Commissioner, 102 T.C. at 719,
no matter which method or manner of analysis we use, petitioners
come out substantially defeated.6 Petitioners’ defeat is all the
clearer when the $2,700 overpayment amount (even as enhanced by
interest accruing after May 6, 2003, per the parties’ agreement)
is compared to petitioners’ claim for almost $60,000 in
litigation costs. See, e.g., Dang v. Commissioner, 259 F.3d 204,
206 (4th Cir. 2001), affg. an unreported order and decision of
this Court entered July 21, 2000.
We hold, for respondent, that petitioners did not
substantially prevail with respect to the amount in controversy.
Sec. 7430(c)(4)(A)(i)(I).
C. Conclusion
Petitioners have not “substantially prevailed” with respect
to either the amount in controversy or the most significant issue
or set of issues presented. Accordingly, petitioners are not a
“prevailing party” for purposes of section 7430. Because the
requirements of section 7430 are in the conjunctive, we need not
6
We note petitioners’ suggestion in their legal memorandum
that respondent’s concession of the additional $15,000 contention
“should affect any consideration of the amount in controversy
component of the test.” If we were to do so, adding that amount
to the totals, supra in table 1, would result in petitioners’
claiming relief of about $70,000 and obtaining relief of less
than $18,000. Even under this approach, petitioners would have
prevailed as to only one-fourth of the amount in controversy.
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here discuss whether respondent’s position was “substantially
justified”, whether petitioners unreasonably protracted the
proceedings, or whether petitioners’ claimed costs are
unreasonable or excessive. Also, we do not consider whether or
to what extent the analysis in Fla. Country Clubs, Inc. v.
Commissioner, 122 T.C. 73 (2004), affd. 404 F.3d 1291 (11th Cir.
2005), relating to deficiency cases, applies in interest
abatement cases.
For the above reasons, we hold petitioners are not entitled
to litigation costs.
To reflect the foregoing,
An appropriate order and
decision will be entered denying
petitioners’ motion for award of
litigation costs, as supplemented,
and determining overpayments in
accordance with the filed joint
Rule 155 computations.