Goettee v. Comm'r

*286 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

*20 The issues for decision are:

   (1) Whether petitioners are the "prevailing party" for purposes

   of section 7430 -- in particular:

     *287 (A) Whether petitioners "substantially prevailed" 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*21 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, 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*22 October 26, 1994, and (2) December 14, *288 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 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*23 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 costs ⁴ to a taxpayer who satisfies a series of requirements. Sec. 7430. ⁵

*24 *289 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, 205-206, 123 T.C. No. 10 (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 *290 requirement is satisfied if petitioners satisfy either one of two statutory alternatives.

We proceed to*25 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)).

The parties have stipulated that they "agree that the most 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. Commissioner, T.C. Memo 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'

*26    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 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*27 on the most significant issue presented.*291 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*28 by Respondent in

   performing ministerial acts.

   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. United States, 50 F. Supp. 2d 425, 430 (E.D.Pa 1999).

*292 However, we do not determine*29 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 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*30 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 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)*31 , Proced. & Admin. Regs.

*293 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 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*32 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

*33    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*294 indicates the centrality of the 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*34 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).

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*35 Rule 155 computation.

*295 ______________________________________________________________________________

                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*36 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 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.

*37 We hold, for respondent, that petitioners did not substantially prevail with respect to the amount in controversy. Sec. 7430(c)(4)(A)(i)(I).

*296 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 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*38 in accordance with the filed joint Rule 155 computations.