Rustam v. Comm'r

MEMORANDUM OPINION

WELLS, Judge: This case is before the Court on respondent's motion to dismiss for lack of jurisdiction and petitioner's motion for award of reasonable litigation costs. ¹ Unless otherwise noted, all section references are to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background

At the time of filing his petition, petitioner resided in Toluca Lake, California.

On January 21, 2004, respondent's Appeals Office issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, determining that a proposed levy to recover a section 6672 trust fund penalty liability*45 with respect to petitioner's 1997 tax year was appropriate. ² The first page of the notice of determination stated:

   If you want to dispute this determination in court, you must

   file a petition with the United States Tax Court for a

   redetermination within 30 days from the date of this letter.

               *   *   *

   The time limit for filing your petition is fixed by law. The

   courts cannot consider your case if you file late. If the court

   determines that you made your petition to the wrong court, you

   will have 30 days after such determination to file with the

   correct Court. [Emphasis added.]

*46 Petitioner subsequently petitioned this Court for review pursuant to section 6330(d). Petitioner contended that he was not liable for the underlying tax liability because he was not a "responsible person" for purposes of collecting, accounting for, and paying over taxes as required by sections 6671 and 6672.

Before answering the petition, respondent filed a motion to dismiss for lack of jurisdiction pursuant to section 6330(d)(1)(B) and Rule 53. In response, petitioner filed an opposition. Subsequently, petitioner filed a motion for award of reasonable litigation costs. On October 13, 2004, the parties presented oral arguments before this Court with regard to respondent's motion to dismiss for lack of jurisdiction and petitioner's motion for award of reasonable litigation costs.

Discussion

Motion To Dismiss for Lack of Jurisdiction

Section 6330 provides persons liable for tax with the right to a hearing with the Commissioner's Appeals Office before the Secretary may levy upon the property of such persons. ³ The determination of the Commissioner's Appeals Office is subject to judicial review, pursuant to section 6330(d)(1):

SEC. 6330(d). Proceeding After Hearing. --

 *47   (1) Judicial review of determination. -- The person may, within

   30 days of a determination under this section, appeal such

   determination --

     (A) to the Tax Court (and the Tax Court shall have

     jurisdiction with respect to such matter); or

     (B) if the Tax Court does not have jurisdiction of the

     underlying tax liability, to a district court of the United

     States.

   If a court determines that the appeal was to an incorrect court,

   a person shall have 30 days after the court determination to

   file such appeal with the correct court.

*48 The jurisdiction of this Court to review administrative determinations with respect to levy actions, therefore, is limited to actions in which we have jurisdiction of the underlying tax liability. See sec. 6330(d)(1)(B).

Petitioner does not argue that this Court has jurisdiction over the underlying section 6672 liability that is the subject of respondent's collection action. Rather, petitioner contends that respondent waived the right to challenge this Court's jurisdiction by stating on the notice of determination that the proper method for disputing the determination was to file a petition with this Court.

Petitioner's contention is without merit. We previously have held that this Court lacks jurisdiction to determine the liability of taxpayers with respect to penalties imposed by section 6672. Moore v. Commissioner, 114 T.C. 171, 175 (2000); Medeiros v. Commissioner, 77 T.C. 1255, 1260 (1981); Wilt v. Commissioner, 60 T.C. 977, 978 (1973). In Moore v. Commissioner, supra at 175, we stated: "Section 6672(c)(2) contemplates that the Federal District Court or the Court of Federal Claims shall have jurisdiction to determine a taxpayer's*49 liability for a penalty imposed under that section. The Tax Court does not have jurisdiction". ⁴

*50 The right to question the jurisdiction of this Court cannot be waived by the actions or inactions of a party. David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268 (2000), affd. 22 Fed. Appx. 837 (9th Cir. 2001). Consequently, respondent did not waive the right to challenge our jurisdiction over the underlying tax liability by instructing petitioner that the proper method for disputing the determination was for petitioner to file a petition with this Court.

For the foregoing reasons, we conclude that this Court lacks jurisdiction over the underlying section 6672 penalty in the instant case and that respondent's motion to dismiss must be granted. ⁵ Petitioner, however, is not necessarily without remedy. Pursuant to section 6330(d), petitioner has 30 days to file an appeal with the appropriate U.S. District Court.

*51 Motion for Reasonable Litigation Costs

Section 7430(a) provides that the prevailing party in a court proceeding brought by or against the United States in connection with the determination or collection of a tax, interest, or penalty may recover reasonable litigation costs. ⁶Section 7430(c)(4)(A) defines "prevailing party" as follows:

   (4) Prevailing Party. --

     (A) In general. -- The term "prevailing party"

    ?  mean s any party in any proceeding to which subsection (a)

     applies (other than the United States or any creditor of

     the taxpayer involved) --

        (i) 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, and

        (ii) which meets the requirements of the 1st sentence

        of section 2412(d)(1)(B) of title 28, United States

      *52   Code (as in effect on October 22, 1986) except to the

        extent differing procedures are established by rule of

        court and meets the requirements of section

        2412(d)(2)(B) of such title 28 (as so in effect).

Section 7430(c)(4)(A)(ii) effectively limits the award of litigation costs to parties with net worth of $ 2 million or less. ⁷Stieha v. Commissioner, 89 T.C. 784, 790 (1987).*53 Consequently, to qualify as the prevailing party pursuant to section 7430(c)(4), a party must, inter alia, (1) "substantially prevail" with respect to either the amount in controversy or the most significant issue or set of issues presented, and (2) satisfy the $ 2 million net worth limitation. The taxpayer bears the burden of proving that the foregoing two requirements have been satisfied. Rule 232(e); Minahan v. Commissioner, 88 T.C. 492, 497 (1987).

Section 7430(c)(4)(B) provides the following exception to the definition of "prevailing party":

     (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*54 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.

Consequently, a party that satisfies the section 7430(c)(4)(A) definition of prevailing party is not treated as the prevailing party if the United States establishes that its position in the proceeding was substantially justified. Sec. 7430(c)(4)(B)(i).

"Reasonable litigation costs" include reasonable court costs and reasonable attorney's fees. ⁸ Such costs and fees must be based on prevailing market rates. Sec. 7430(c)(1)(B). Attorney's fees, generally, are capped at $ 125 per hour, with an adjustment for inflation. Sec. 7430(c)(1).

*55 We understand petitioner's position to be that he substantially prevailed with respect to the most significant issue or set of issues presented pursuant to section 7430(c)(4)(A)(i)(II). Without elaboration, petitioner contends that he prevailed with respect to respondent's motion to dismiss or with respect to petitioner's own motion for reasonable litigation costs. Petitioner makes no contention as to whether the position of respondent was substantially justified or whether petitioner satisfied the net worth requirements of section 7430(c)(4)(A)(ii). Petitioner requests litigation costs of $ 5,078.10, which represents 15.25 hours of service billed at $ 325 per hour, together with various miscellaneous costs. ⁹ Petitioner does not contend, however, that special factors justify the payment of attorney's fees at a rate higher than that prescribed by section 7430(c)(1).

*56 We will deny petitioner's motion. The only issue presented by respondent's motion to dismiss for lack of jurisdiction is whether this Court has jurisdiction over the collection of petitioner's section 6672 penalty liability. ¹⁰ See sec. 7430(c)(7). As noted above, petitioner did not substantially prevail with respect to that issue. ¹¹ Furthermore, petitioner failed to demonstrate that his net worth does not exceed $ 2 million, pursuant to section 7430(c)(4)(A)(ii). Consequently, petitioner is not the prevailing party in the proceeding before us.

Even if petitioner were the prevailing party, respondent's position in the*57 motion to dismiss for lack of jurisdiction was substantially justified; as we held above, we lack jurisdiction with respect to respondent's attempt to collect the section 6672 penalty from petitioner. See Moore v. Commissioner, 114 T.C. 171 (2000). Consequently, petitioner is not the prevailing party in the proceeding before us.

For the foregoing reasons, petitioner is not entitled to an award of reasonable litigation costs by this Court. ¹²

Conclusion

We conclude that respondent's motion to dismiss must be granted because this Court lacks jurisdiction over respondent's collection of the underlying section 6672 liability from petitioner. We further*58 conclude that petitioner's motion for costs must be denied because petitioner is not the prevailing party. ¹³ We have considered all remaining arguments and, to the extent not addressed above, conclude that they are irrelevant or without merit.

To reflect the foregoing,

An order and order of dismissal for lack of jurisdiction will be entered, and petitioner's motion for award*59 of litigation costs as amended will be denied.