IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 94-40005
No. 94-40006
No. 94-40007
(Consolidated cases)
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M. LANE POWERS,
Petitioner-Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
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Appeal from the Decisions
of the United States Tax Court
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(April 13, 1995)
Before GARWOOD, JOLLY and STEWART, Circuit Judges.
CARL E. STEWART, Circuit Judge:
In our opinion in this case, reported at Powers v.
Commissioner, 43 F.3d 172 (5th Cir. 1995), we concluded that
taxpayer M. Lane Powers, as a prevailing party, was entitled to the
litigation costs that related to his success on appeal.1 Of the
issues in dispute in the consolidated appeal, we determined that
Powers had prevailed on the NOL carryback issue, on three out of
the four time periods at issue for which the tax court had not
awarded fees, but that he had lost on the hourly fee issue. We
found that his losses were not of such magnitude so as to deprive
1
26 U.S.C. § 7430 authorizes such an award to a prevailing
party in tax litigation against the Internal Revenue Service.
him of prevailing party status under § 7430. Thus, we invited
Powers to submit an application for attorneys' fees and costs,
providing us with information on costs expended on his appeal.
The government argues in its opposition to the fee application
that Powers should not be entitled to anything for his fees on
appeal relating to the net operating loss carryback issue because
its position was not unreasonable on this issue. The
"reasonableness" or "substantial justification" of the government's
position in defending this appeal is an appropriate inquiry under
§ 7430. The mere fact that a taxpayer prevails on appeal does not
automatically entitle him to attorney's fees.
The government argues that it was not acting unreasonably in
challenging Powers on the carryback issue, and that the Tax Court's
finding in its favor on the carryback issue supports its position.
In Huckaby v. Commissioner, 804 F.2d 297 (5th Cir. 1986), we
observed that a victory in the lower court does not automatically
mean the IRS acted reasonably. The government's position can be
unreasonable if its arguments "rang hollow or were specious or
defied its own regulations." (emphasis added) Huckaby at 299. In
our opinion in the case at bar, we found that the Treasury
Regulations require that the correct section of the Internal
Revenue Code be cited in an election to carry forward a net
operating loss and to waive the right to carryback. Nonetheless,
the government maintained that a proper election had been made even
though the wrong code section was cited in the taxpayer's purported
election. Under Huckaby, we conclude that the government's
2
position before the Tax Court and on appeal defied its own
regulation and was thus unreasonable.2
In his application, Powers requests $20,076.35, or 80%, of a
total expenditure of $25,095.44. He arrives at this figure by
noting that he was entirely successful in cases 94-40005 and 94-
40006 (tax years 1976 and 1977), which primarily involved the NOL
carryback issue. He contends that these two cases represent two
thirds of the appeal, because there were three consolidated cases
on appeal, and that he should receive reimbursement for two-thirds
of his fees and costs for his victory on the NOL carryback issue.
Powers seeks an additional 12.5% of his fees for his partial
success in case 94-40007, representing the 1978 and 1979
litigation. Rounding off these two amounts to 80% would give
Powers the relief he seeks.
The Government strenuously objects to the amount Powers seeks.
They argue that the carryback issue did not constitute two thirds
of the appeal, and that we should not calculate fees in terms of
the cases appealed from. Instead, we should look at the issues on
which Powers prevailed. The government is correct under the case
law and Section 7430. See e.g., Heasley v. Commissioner, 967 F.2d
116 (5th Cir. 1992), and Huckaby v. U.S. Dept. of Treasury, supra,
804 F.2d at 300. This view is also consistent with our opinion, in
2
Although our opinion in this case did not expressly state
that we found the government's position unreasonable, such a
finding was both inherent and implicit in view of the fact that we
concluded that Powers was entitled to litigation costs for his
victories on appeal and invited him to submit an application for
these costs.
3
which we analyzed the number of issues on which Powers had
prevailed in order to determine whether he was entitled to fees at
all.
This case involved three primary issues: the carryback issue,
the number of hours awarded, and the hourly rate. For purposes of
our analysis, we have assigned each issue equal weight. Powers
prevailed on the carryback issue, entitling him to one third of
total expenditures for his victory on that issue. That issue
represents one third of the total fees, or 1/3 of $25,095.44, which
equals $8,365.15. Powers also won on three of the four time
periods, entitling him to three fourths of the one third
attributable to that issue. One third of $25,095.44 is $8,365.15.
Three fourths of that one third is $6,273.86. Powers should be
entitled to this amount on the issue of the number of hours. He
lost on the hourly rate issue and therefore recovers nothing for
that issue. Thus, Powers should be entitled to $8365.15 (full
amount attributable to carryback issue) and $6273.86 (three fourths
of the amount attributable to the number of hours issue), for a
total of $14,639.01.
IT IS ORDERED that Powers is hereby awarded $14,639.01 for
litigation costs on appeal.
4
GARWOOD, Circuit Judge, concurring in part and dissenting in part:
I join in all of the Court's per curiam except the portion
thereof dealing with the net operating loss carryback issue. In my
view, the resolution of this issue presented an extremely close
question, and I am unable to conclude that the government's
position in regard thereto, though it ultimately did not prevail,
was either unreasonable or without substantial justification.
5