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Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FILi.iD 

United States Cou!'t of ApJ)86lf 'i'enth Circuit 

JAN O ~ 1993 

ROBERT L. HOECKER ----------- Clerk 

HELEN PATE; WILLIAM WHITFIELD PATE; 

JULIA RUTH PATE; KIRKSEY MCCORD PATE, 

Plaintiffs-Appellants, 

V. 

UNITED STATES OF AMERICA; DEPARTMENT OF 

THE TREASURY; INTERNAL REVENUE SERVICE, 

Defendants-Appellees. 

No. 92-7044 

ON APPEAL FR.OM THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF OKLAHOMA 

{D.C. No. 89-392-C) 

Submitted on the briefs.1 

G. Michael Blessington, P.C. , Oklahoma City, Oklahoma, for 

Plaintiffs-Appellants. 

James A. Bruton, Acting Assistant Attorney General, William S . Estabrook and Jordan L. Glickstein, Department of Justice, 

Washington, D.C., John W. Raley, Jr., United States Attorney, 

Muskogee, Oklahoma, for Defendants-Appellees. 

Before LOGAN, MOORE and BRORBY, Circuit Judges. 

BRORBY, Circuit Judge. 

1 After examining the briefs and appellate record, this panel has 

determined unanimously that oral argument would not materially 

assist the determination of this appeal . See Fed. R. App . P. 

34{a); 10th Cir. R. 34.1.9. The cause is therefore ordered 

submitted without oral argument. 

Appellate Case: 92-7044 Document: 010110155959 Date Filed: 01/04/1993 Page: 1 
Appellants, whom we will refer to as Property Owners , appeal 

the denial o f their application for reasonable litigation coses 

under§ 743 0 of the Internal Revenue Code (26 U.S .C . § 7430 ) . The 

sole issue presented by this appeal is whether the Government's 

litigation position was substantially justified under§ 743 0 . We 

hold it was not and remand to the district court t o award 

litigation costs including reasonable attorney fees. 

The significant facts are not in dispute. In 1975, Mr. Pate 

purchased a home which he caused to be titled solely in his wife's 

name. Over the years Mr. Pate continued to reside in the home and 

paid most of the costs associated therewith including $70,000 for 

remodeling and retirement of the debt. Commencing in 1983 and 

continuing through 1987, Mr. Pate accrued a tax liability in 

excess of $200,000. His only asset was a 1971 automobile. In 

1984, the wife conveyed the home to the children but reserved a 

life estate. Mr. Pate was legally required to acquiesce in his 

wife's conveyance of title to the family homestead, and did so. 

Mr. Pate continues to live in the house and pays most of the 

costs. The Government filed tax liens against the home asserting 

Mr. Pate had an interest therein. 

Property Owners commenced a quiet title action against the 

Government seeking to quiet title to the home against the tax 

liens. The Government asserted: (1) Mr. Pate retained an 

encumberable beneficial interest in the h ome through the mechanism 

of a purchase money resulting trust; and (2) the transfer of Mr. 

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Pate's interest in the home constituted a fraudulent transfer. 

The district court found in favor of the Government. Property 

Owners appealed and we reversed with instructions t o enter 

judgment for Property Owners. Pate v. United States Dept. of 

Treasury I.R.S. , 949 F. 2d 1059 (10th Cir. 1991) . 

On remand, Property Owners filed an application for their 

reasonable litigation costs, including attorney fees, under 26 

U.S.C. § 7430. The district court denied the application holding 

in part : 

Most of the analysis and authority cited in the Tenth 

Circuit's opinion were not presented to this Court by 

either party. The government position was far from 

frivolous and indeed the Tenth Circuit saw fit to 

publish its opinion in order to establish controlling 

authority on the matter. Were the Government in a 

subsequent case to take the same position, it would not 

now be substantially justified. However, the court does 

not conclude that plaintiffs have met their burden of 

proof as to this litigation. 

Property Owners appeal this decision asserting the Government's 

position was not substantially justified and the district court 

abused its discretion i n denying their application for reasonable 

litigation costs. 

We review a district court's denial or award of reasonable 

litigation costs sought by virtue of 26 U.S . C. § 743 0 under an 

abuse of discretion standard. See also Cassuto v. C.I.R., 936 

F.2d 736 (2d Cir. 1991); Zinniel v. C.I.R., 883 F.2d 1350 (7th 

Cir. 1989 ) , cert. denied, 494 U. S. 1078 (1990); Berks v. United 

States, 825 F.2d 1262 (8th Cir. 1987). 

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In order to be eligible for an a ward of reasonable litigacion 

costs under 26 U.S .C. § 7430 , the applicant has t he burden of 

establishing: (1 ) the applicant has exhausted all administrative 

remedies available within the IRS; (2 ) the reque s ted award 

cons titutes "reasonable litigations costs" as defined by 

§ 7430 (a ) (1 ) ; and (3 ) the applicant i s the "prevailing party" as 

defin ed by § 743 0 (c) (4) (Al . 

As this case turns upon whether Property Owners have met 

their burden of establishing themselves as the "prevailing party, 11 

we turn our attention to§ 7430 (c ) (4 ) (A). This statute defines 

the term "prevailing party" as one who: (1) establishes the 

position of the United States in a civil proceeding was not 

substantially justified; (2) has substantially prevailed with 

respect to the amount in controversy or with respect to the most 

significant issue or set of issues presented; and (3) has a net 

worth that did not exceed $2 million at the time the proceeding 

was commenced. 2 

The issue thus before us is whether the district court abused 

its discretion in concluding that Property Owners fail ed t o 

establish the position of the United States was not substantially 

2 Section 7430 (c) (4) (A) (iii) provides the applicant must meet 

"the requirements of the [first] sentence of [§] 2412 (d ) (1 ) (B) of 

title 28, United States Code (as in effect on October 22, 1986 ) 

except t o the extent differing procedures are established by r ule 

of court and meets the requirements of § 2412(d) (2) (B) of such 

title 28 (as so in effect) . 11 This latter section sets forth the 

net worth requirement for an individual. 

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justified. The term 

means "justified to a 

"substantially justified" in this context 

degree that could satisfy a reasonable 

person" or having a "reasonable basis both in law and fact." See 

Pierce v. Underwood, 487 U.S. 552, 563-65 (1988 ) , which defines 

the term under the Equal Access to Justice Act; and United States 

v. 2,116 Boxes of Boned Beef, 726 F.2d 1481, 1486-87 (10th Cir. ) , 

cert. denied, 469 U.S. 825 (1984). In determining whether the 

position of the United States was "substantially justified," the 

district court must look at all facts and circumstances as well as 

the legal precedents relating to the case, bearing in mind the 

applicant bears the burden of proof. 

Applying this test, i.e., was there a reasonable basis in 

fact and law for the position taken by the United States, we 

conclude that the district court abused its discretion in denying 

litigation costs to Property Owners. The Government's position 

was not "substantially justified" because although Mr. Pate was an 

unsavory character who had undisputed liabilities and no 

significant assets, under well-settled Oklahoma law he did not 

have a property interest in the house. Furthermore, the fact that 

the district court ruled in favor of the IRS is not dispositive as 

the district court did not apply established Oklahoma law. See 

generally, Huckaby v. United States Dept. of Treasuzy, 804 F.2d 

297, 299 (5th Cir. 1986) (the Government's success at the district 

court is a factor, but it is not dispositive). Likewise, we find 

the district court's stated reasons for denying the application 

for costs to be unpersuasive. Neither party properly briefed the 

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district court , but the Gove rnment is no t thereby r elieved of i t s 

responsibility to adopt positions in litigation that are 

"subs tantiall y justified," that is, reasonably grounded in law and 

fact. Likewise, we refuse t o draw a conclusion about t he merits 

of t he Government' s position from the fact that t he Tenth Cir cuit 

published its opinion. 

"[A] tax l ien can attach only to a property interest owned by 

the delinquent taxpayer and" the existence o f the property 

interest is determined by state law . Pate , 949 F . 2d at 1060. 

Accordingly, if Mr . Pate d i d not acquire a property interest when 

the property was conveyed in 1975, then the lien was inval id, 

notwithstanding the later transfer to the Pate chi ldren. In 

Oklahoma there is a general presumption in favor of a resulting 

trust when title to real property is taken in one person's name 

but is paid for by another. Pate, 949 F.2d at 1 060 . 

Nevertheless, "there is a well-established exception [that] 

[w]hen a husband purchases property for his wife, not only is the 

resulting trust presumption inapplicable, but the wife is entitled 

to the opposing presumption that the property is hers alone by way 

of a gift or advancement." Id . at 1060 - 61. The Government's 

position was unreasonable because the gift presumption was 

"triggered by" the very circumstances present in thi s case , id. at 

1061, and there we r e no facts in the stipulated record tending t o 

rebut the gift presumption. Indeed, the gift occurred prior to 

any tax liability of Mr. Pate. 

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As this court stated in its earlier opinion: 

The presumption against a resulting trust arising out of 

the 1975 acquisition controls unless rebutted by clear 

and convincing evidence, see Fletcher [v. Fletcher, 244 

P.2d 827, 830 (Okla.1952 ) ]; King [v. Courtney, 122 P .2d 

1014, 1 015 (Okla.1952 ) ); see generally Cacy v. Cacy, 619 

P.2d 200, 202 (Ok l a . 1980 ) (evidence of resulting trust 

"must be clear, unequivocal, and decisive beyond a 

reasonable doubt" ) , and such evidence is lacking in the 

stipulated record here. None of the factual 

circumstances regarding Whit Pate's continued rent-free 

residence in the family home and payment of upkeep and 

remodeling expenses are inconsistent with his wife's 

ownership of the property. 

Pate, 949 F.2d at 1061. 

In this appeal the Government so much as concedes that there 

are no facts tending to rebut the gift presumption. ( "As this 

Court correctly pointed out on appeal, the District Court's 

reasoning was incorrect since under Oklahoma law, when a husband 

purchases property for his wife, the presumption is that the 

property is hers alone by way of gift or advancement." Instead, 

it presses a second theory, first advanced on the earlier appeal, 

that is also clearly foreclosed by Oklahoma law. The Government 

contends that the property was homestead, and that the homestead 

right was a property interest, citing Tillery v. Parks, 630 F.2d 

775, 776 - 78 (10th Cir. 1980), to support this proposition. With 

respect to this argument, we stated in our earlier opinion that: 

"The Government has not cited a single case that reaches a 

contrary conclusion [to Oklahoma law that the homestead right is 

not a property interest]." Pate, 949 F.2d at 1062. Tillery is 

simply not, nor is it arguably, applicable. Tillery merely held 

that a homestead right does not preclude attachment of a tax lien 

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t o an o therwise established interest i n homestead property . 

Because Tillery in no way questioned the establis hed r ule in 

Oklahoma that a homestead interest is not a property right , we 

conclude that Tillery did not provide "substantial justification" 

for the Government's wholly erroneous position in this litigation. 

Although Property Owners have succeeded in establishing that 

the Government's position in this litigation was not substantially 

justified, they have failed to allege and establish that their net 

worth does not exceed $2,000,000 , a prerequisite to the award of 

attorney's fees. Accordingly, we hold the Government was without 

substantial justification for its litigation position in this 

matter and REVERSE the judgment of the district court, we also 

REMAND to the district court to determine whether Appellants 

satisfy the net worth requirement and to calculate and award 

litigation costs, including reasonable attorney fees, if they do. 

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