worth the battle no matter how righteous the cause.
How unfortunate for Ms. Wade that she did not follow this ancient adage -- this brief brocard -- although in this case it should have been: "Forget the two dollars!" For in her quest to obtain the sum of $ 343, rightly due her from the Internal Revenue Service, arising from her 1981 tax return, she spent several years and incurred some $ 10,000 in legal fees. Letters, telephone calls, conferences and pleas of mercy could not persuade the Internal Revenue Service to alter its position.
Finally, plaintiff instituted suit in the United States District Court in Brooklyn, New York. The government responded not by defending the claim, which was indefensible, but rather by seeking its dismissal on the ground that venue properly lay in New Jersey rather than in New York.
As a result, the matter was then transferred to New Jersey, and after having two federal courts review it, on April 21, 1993, judgment was entered by consent in favor of Ms. Wade and against the Internal Revenue Service for $ 343 plus interest. Plaintiff now seeks recompense for her quest and victory.
Plaintiff Yvonne Wade and her then-husband George Wade filed a joint income tax return in 1981. Certain audit adjustments made in connection with the 1981 return resulted in a refund due to Yvonne and George Wade of $ 774.64. Plaintiff and her husband were divorced in 1989. On October 15, 1990, the entire amount of the refund due on the 1981 joint return was applied, pursuant to 26 U.S.C. § 6402(c), to a past due child support obligation of plaintiff's husband.
Plaintiff then filed a claim for "injured spouse" relief using the required Form 8379, requesting her portion of said refund. The Internal Revenue Service (IRS) Center in Holtsville, N.Y. denied plaintiff's request in a letter dated July 17, 1991. Plaintiff tried unsuccessfully through correspondence with and telephone calls to various IRS personnel to have this decision reversed, and eventually filed this suit in the United States District Court for the Eastern District of New York in August, 1992.
The United States moved to have the case dismissed due to improper venue, on the grounds that the plaintiff resides in East Orange, New Jersey. After a hearing, the case was transferred to this district. The government was granted until March 22, 1993 to answer or otherwise respond. On March 19, 1993, the government conceded to plaintiff's position. On or about March 20, the United States filed an Answer and Consent to Judgment. On April 14, the court informed the United States that it requested a form of Judgment as opposed to an Answer and Consent to Judgment. A Judgment was forwarded to the court on April 14, and was entered against the United States on April 21, 1993, in the amount of $ 343.00 plus statutory interest from October 15, 1990 until paid. The judgment has been paid, and plaintiff now seeks attorney's fees pursuant to 26 U.S.C. § 7430. The government opposes the motion.
Section 7430 provides that a "prevailing party" may be awarded attorney's fees incurred in administrative proceedings and in litigation. 26 U.S.C. § 7430(a)(1) & (2). A "prevailing party" is defined as one who, inter alia, establishes that the "position of the United States" in the administrative proceedings or the litigation was not substantially justified. 26 U.S.C. § 7430(c)(4)(A).
The statute provides specific definitions of the "position of the United States" in administrative proceedings and in litigation. The government argues that under these specific definitions, plaintiff does not qualify for attorney's fees under either the administrative costs provisions or the litigation costs provisions. Plaintiff argues that denying her attorney's fees on the basis of these technical definitions would "elevate form over substance and [lead] to an inequitable result." Plf. Reply at 2. She argues that she is entitled to either administrative costs from the date of the July 17, 1991 denial letter, or to litigation costs from the time she filed suit in the Eastern District of New York on August 26, 1992.
A. Administrative Proceedings
For purposes of awarding fees incurred in administrative proceedings, the "position of the United States" is defined as "the position taken in an administrative proceeding . . . as of the earlier of (i) the date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals, or (ii) the date of the notice of deficiency." 26 U.S.C. § 7430(c)(7).
Plaintiff claims that the processing procedure for Form 8379 excludes the Appeals Office entirely.
Since plaintiff's claim involved a refund, there was no call for a notice of deficiency. Plaintiff argues that although neither statutory trigger for administrative costs was possible in her case, she "undertook numerous non-litigation efforts to resolve the misapplied refund, all to no avail," and that she should be compensated for costs she incurred in the endeavor. Plf. Reply at 1. Specifically, plaintiff requests reimbursement for costs incurred after receipt of the July 17 letter, which she argues sets forth "the position of the United States" in "administrative proceedings" for purposes of § 7430(a)(1). Plf. Brf. at 8; Plf. Reply at 2-3.
The government counters that the statute should be construed narrowly, and that Congress intended to foreclose recovery of administrative costs where the taxpayer had received neither document specified in § 7430(c)(7)(B), regardless of the administrative interactions she had with the IRS and the position the government took in those interactions. Gov't. Brf. at 5-6.
In support of this argument the government relies on the legislative history of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L. No. 100-647, which amended § 7430 to provide for recovery of attorney's fees incurred in administrative proceedings. Previously the statute had provided generally for fees incurred in "any civil proceeding." Huffman v. Commissioner, 978 F.2d 1139, 1145 (9th Cir. 1992). Courts were split as to whether the "position of the United States" in a civil proceeding was to be determined solely from the government's in-court position, or whether its pre-litigation or administrative actions should also be considered. The TAMRA amendment clearly provides for recovery of expenses incurred in administrative disputes, but limits the award to costs incurred after the position of the United States is established in one of two specified ways. The TAMFA Conference Report states:
the position of the United States is determined as of the earlier of (1) the date of receipt by the taxpayer of the notice of the decision of the IRS Office of Appeals, or (2) the date of the notice of deficiency. If neither is applicable, the position of the United States is that taken in the litigation.
House Conf. Rep. No. 1104, 100th Cong., 2d Sess. 226 (1988), reprinted in 1988 U.S.C.C.A.N. 5048, 5286 (emphasis added). See also Gov't. Brf. at 6 & n.6.
Although few courts have published opinions interpreting the statute as amended in 1988, several courts have adopted the government's reading of this portion of the statute. In Donlon I Development Corp. v. United States, 830 F. Supp. 1315 (C.D.Ca. 1993), 93-1 USTC P 50,339, the United States District Court for the Central District of California denied recovery of administrative costs on the grounds that the case "involved no administrative proceedings that § 7430 recognizes for the purposes of awarding attorney's fees." Id. The Donlon court denied recovery even though the government itself labelled as "mind-boggling" the actions taken by the IRS agent in the pre-litigation proceedings in question. Id. See also Nathaniel V. United States, 92-1 USTC P 50,023 (E.D. Cal. Nov. 26, 1991) (denying fees where IRS chose to issue a notice of penalty rather than a notice of deficiency, despite recognition that strict construction of the statute would enable the IRS to avoid fee provision by electing not to send the type of notice specified in § 7430); Estate of Holmes v. United States, 1990 U.S. Dist. LEXIS 1213, No. 89-2581, 1990 WL 10062, at *2-3 (E.D. Pa. Feb. 5, 1990) (denying administrative fees because case did not involve Office of Appeals decision and concerned refund, not notice of deficiency); Nunn v. Commissioner, 1992 Tax Ct. Memo LEXIS 320, 63 T.C.M. (CCH) 3060, 1992 T.C. Memo 301 (1992) (denying administrative fees because where neither notice of deficiency nor Appeals Office decision have been issued there have been no administrative costs as defined in § 7430).
In light of the specific wording of the statute as amended, its legislative history, and the weight of the case law strictly construing the requirements for recovery of administrative costs, the court concludes that plaintiff is not entitled to recover her administrative expenses because she received neither a deficiency notice nor a notice of decision from the Office of Appeals. The court recognizes the harshness and unfairness of this result, but must nevertheless apply the law as it now stands.
B. Litigation Costs
The government's argument for denying plaintiff's request for litigation expenses, however, is not as clearly grounded in the wording and history of the statute. For purposes of recovering attorney's fees incurred in litigation, the "position of the United States" is defined as the position taken "in a judicial proceeding." 26 U.S.C. § 7340(c)(7)(A). The Third Circuit has not rendered a definitive opinion on what actions may be considered in determining "the position taken in a judicial proceeding." The government argues that "the position taken in a judicial proceeding" is that taken in the United States' answer, and that since the United States conceded plaintiff's position in its answer, its conduct is by definition reasonable.
Gov't. Brf. at 8.
The government relies on the statement of the United States Court of Appeals for the Ninth Circuit in Huffman that generally, the position of the United States in the judicial proceeding is established initially by the Government's answer to the petition." Huffman, 978 F.2d at 1148. Similarly, the Donlon court refused to award litigation fees because the government conceded the petitioner's case in its answer. Even though the government waited 2 1/2 months to concede, the court held that "the position of the United States cannot be measured until it files its answer." Donlon, 830 F. Supp. 1315, 93-1 USTC P 50,339 at 88,327.
As plaintiff points out, however, the Huffman court went on to say:
the Congressional intent behind section 7430 is not served by looking only to the answer to determine whether the government's position . . . was 'substantially justified.' The better approach is to examine the parties' conduct within each stage of the case.