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Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 

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PUBLISH 

FlL°tJD ~ U ·ted States~~ Appeal! 

m Tenth C1rcu1t 

UNITED STATES COURT OF APPEALS 

MJl.R O 3 1993 

TENTH CIRCUIT 

-----------n.OBERT L. HOECKER 

Clerk ELDON D. and KATHY A. ANTHONY, 

Plaintiffs-Appellees, 

vs. 

UNITED STATES OF AMERICA, 

Defendant-Appellant. 

Nos . 91-1345 

91-1409 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D. C. No. 90-C-1416) 

Paula K. Speck (Shirley D. Peterson, Assistant Attorney General, 

James A. Bruton, Acting Assistant Attorney General , Gary R. Allen 

& Gilbert S . Rothenberg, Department of Justice, Tax Division, 

Washington D. C. and Michael J . Norton, of counsel , United States 

Attorney, Denver, Colorado , with her on the briefs) for DefendantAppellant. 

Darold W. Killmer (Gilbert M. Roman and Diane S. King with him on 

the brief) Fei ger, Collison & Killmer, Denver, Colorado, for 

Plaintiffs-Appellees. 

Before BALDOCK and KELLY, Circuit Judges and CAUTHRON, District 

Judge . t 

KELLY, Cir cuit Judge. 

This appeal arises out of a tax dispute between p l aintiffsappellees Eldon and Kathy Anthony and the Internal Revenue 

Service. The government appeals the district court's swmnary 

t The Honorabl e Robin J. Cauthron, United States District Judge 

for the We stern District of Oklahoma , sitting by designation. 

Appellate Case: 91-1409 Document: 010110176501 Date Filed: 03/03/1993 Page: 1 
judgment refunding interest paid by the Anthonys and awarding 

attorney's fees. Our jurisdiction arises under 28 U.S.C. § 1291 

and we affirm in part and remand for additional findings on the 

fee award. 

Background 

In 1984, the Internal Revenue Service (IRS ) issued a notice 

of deficiency to Eldon Anthony for failure to file tax returns for 

the years 1978, 1979 and 1980. The IRS calculated the deficiency 

at $32,735.64. The Anthonys challenged the petition in Tax Court 

and entered into settlement negotiations with IRS officials. The 

parties settled for $15,367.00 . IRS attorney John Weeda drafted a 

"decision document" and, at Mr. Anthony's request, included the 

following "finality clause:" 

It is further stipulated that this agreement constitutes 

a final civil settlement of taxes due for the years in 

issue. 

Aplt. App. at 45. The document was signed by the taxpayer and an 

IRS representative and entered as an official decision of the Tax 

Court on January 27, 1987. 

The IRS then attempted to collect the agreed upon amount, as 

well as an additional $19,183 . 35 in interest. The Anthonys 

eventually paid under protest and then instituted this suit, 

alleging that the settlement document included interest. Both 

parties moved for sununary judgment and the district court ruled 

for the Anthonys, ordering the IRS to refund the interest amount 

and to pay reasonable costs and attorney's fees. The IRS appeals, 

alleging that the court erred by: (1) granting sununary judgment 

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for the Anthonys, because the document itself as well as extrinsic 

evidence indicate that interest was not included in the 

settlement, or alternatively, at least create a question of fact; 

(2) awarding attorney's fees when the government's position was 

correct, or at least reasonable; and (3) awarding an excessive 

amount of attorney's fees. 

Discussion 

Our review of summary judgment is de novo and we apply the 

same legal standard used by the district court in evaluating the 

summary judgment motion and applying relevant law. Fed. R. Civ. 

P. 56(c); Applied Genetics Int'l. Inc . v. First Affiliated Sec .• 

Inc., 912 F.2d 1238, 1241 (10th Cir. 1990). Summary judgment is 

appropriate if "there is no genuine issue as to any material fact 

and ... the moving party is entitled to a judgment as a matter 

of law." Fed. R. Civ. P. 56(c). We view the evidence and draw 

any inferences in a light most favorable to the party opposing 

summary judgment, but that party must identify sufficient evidence 

which would require submission of the case to a jury. Anderson v. 

Liberty Lobby, Inc., 477 U.S . 242, 249-52 (1986); Hall v. 

Bellman, 935 F.2d 1106, 1111 (10th Cir. 1991). The relevant 

inquiry is "whether the evidence presents a sufficient 

disagreement to require submission to a jury or whether it is so 

one-sided that one party must prevail as a matter of law." 

Anderson, 477 U.S. at 251-52. 

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I. The Decision Document 

The district court ruled that the settlement document covered 

the entire amount of taxes, penalties and interest owed by 

taxpayers for the deficiency. The court found that the term 

"taxes" includes interest, and furthermore that the parties 

intended to include interest in the settlement. The IRS argues 

that the document allowed for the future assessment of interest, 

the parties did not intend to include interest, and the Tax Court 

had no jurisdiction to adjudicate interest. 

A. Tax Court Jurisdiction 

The Tax Court is a court of limited jurisdiction and is not 

empowered to decide general questions relating to interest. 

Commissioner v. McCoy, 484 U.S. 3, 7 (1987). Interest generally 

is not determined until after the Tax Court has assessed a 

deficiency. Id. However, the Tax Court's decision in this case 

was merely a proforma acceptance of the parties' stipulated 

agreement. See United States v. International Bldg. Co., 345 U.S. 

502, 504-05 (1953). The Tax Court did not make an independent 

determination of interest due, and the issue is a proper subject 

of this litigation. See Id. 

B. The Document 

A settlement document is a contract and is construed using 

ordinary principles of contract interpretation. See Unite d States 

v. ITT Continental Baking Co., 420 U.S. 223, 235-38 (1975); 

Republic Resources Cor_p. v. ISI Petroleum West Caddo Drilling 

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Appellate Case: 91-1409 Document: 010110176501 Date Filed: 03/03/1993 Page: 4 
Program 1981, 836 F.2d 462, 465 (10th Cir. 1987). Where a 

contract is unambiguous, its terms are given plain meaning, and 

the intent of the parties is determined from the document alone. 

Republic Resources, 836 F.2d at 465; Koch v . Koch, 903 F . 2d 1333, 

1335 (10th Cir. 1990). 

The taxpayers and the IRS each argue that the plain language 

of the document supports their position. The IRS directs our 

attention to a "waiver" clause in the settlement agreement, while 

the Anthonys point to the "finality clause" set out above. We 

find neither clause dispositive, and the Internal Revenue Code 

fails to define interest in this context. 

We next look to the nature of the agreement. Entitled 

"settlement document," the Anthonys argue that it is analogous to 

a "compromise" and therefore constitutes a full and final payment. 

The government prefers that we view it as a "closing agreement," 

which would not include interest. The document does not satisfy 

the Code requirements for either and so remains open to 

interpretation. See 26 u.s.c. §§ 7121, 7122; 14 Jacob A. Mertens, 

Mertens Law of Federal Income Taxation§ 52 (specific forms 

required for closing agreements and compromises). Although we 

have previously held that Congress has set out a statutory 

procedure for the settlement of tax disputes which precludes 

informal agreements, Uinta Livestock Corp. v. United States, 355 

F .2d 761, 765 (10th Cir. 1966), this was not an informal agreement 

but a stipulation by the parties, issued as a decision of the Tax 

Court. The agreement therefore is valid, and we must turn to the 

intentions of the parties to construe the document. 

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The uncontroverted evidence shows that the IRS assured the 

Anthonys that the settlement covered all civil liability. The IRS 

attorney who drafted the document, John Weeda, testified in his 

deposition that he included the "finality clause" because of Mr. 

Anthony's concern that the settlement be "final" and conclude all 

"civil liability." Aplee. Supp. App., doc. 2 at 35, 38-39 . Mr. 

Weeda informed Mr. Anthony that the settlement would "take care of 

the civil aspects" of the case, but not fraud. Id. at 35. In Mr . 

Weeda's notes of a December 4, 1986 telephone conversation with 

Mr. Anthony, he recorded: 

Petitioner also had questions regarding waiver language 

and his concern that IRS not be able to come back after 

him for same years. Referenced him to IRC 7481 [and] 

assured him decision would be final excepting fraud. 

Aplt. App. at 127. Furthermore, in a letter accompanying the 

decision document sent to Mr. Anthony by the IRS District 

Counsel's office, the IRS stated: 

... we have included a clause that states explicitly 

the finality of this agreement for the years in question 

as regards the civil liabilities. We do not believe 

such a clause is necessary but have included it at your 

request and in the interest of settling this matter. 

Id. at 85. 

The IRS responds that the taxpayers should have been aware of 

the addi tional interest, arguing that it rarely waives interest 

and that Mr. Weeda has not waived interest in previous cases. 

These facts, however, are immaterial to the issue of the Anthonys' 

intent. The IRS further claims Mr. Weeda may have informed the 

taxpayers of the additional interest because, although he cannot 

specifically remember doing so in this case, he generally does 

"whenever the issue comes up." Aplee. Supp. App. doc. 2 at 46. 

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The IRS concedes, though, that Mr. "Weeda could not remember with 

certainty telling these taxpayers that interest would be added 

later." Aplt. Reply Br. at 13 . 

Summary judgment is appropriate because the IRS cannot 

produce evidence that would allow a reasonable trier of fact to 

find in its favor. All existing evidence, including deposition 

testimony by IRS employees, supports taxpayers' claim that they 

were assured that this settlement would resolve all civil 

liability. There is no probative evidence of a warning regarding 

separate interest. The government relies on the testimony of Mr. 

Weeda, but he cannot remember whether he explained interest to the 

taxpayers and, if so, whether he did so before or after execution 

of the document. Aplee. Supp. App., doc. 2 at 44-47. The 

government has failed to set forth specific facts showing that 

there is a genuine issue for trial . Applied Genetics Int'l, Inc. 

v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 

1990) . 

We are further mindful that an ambiguity is generally 

resolved against the drafter of the document. Milk 'N' More, Inc. 

v. Beavert, 963 F.2d 1342, 1344 (10th Cir. 1992). This rule 

applies to the IRS as drafter of a stipulated agreement. Clapp v. 

Commissioner, 875 F.2d 1396, 1399 (9th Cir. 1989). Although a 

taxpayer is not entitled to a settlement of tax liability as a 

matter of right, Kennedy v . United States, 965 F.2d 413, 418 (7th 

Cir. 1992), where the government enters into an agreement with its 

citizens, it has a duty to act with at least a "minimum standard 

of decency, honor, and reliability .. II Heckler v. Community 

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Health Serv., 467 U.S. 51, 61 (1984). The Anthony's disputed the 

original $30,000 liability and settled with the service for 

$15,000. The service now seeks a judgment in excess of $30,000 . 

We find that the taxpayers must prevail as a matter of law. The 

district court's order granting summary judgment in favor of the 

taxpayer is affirmed. 

II. Attorney's Fees 

The government argues that the district court erred in 

awarding attorney's fees to the taxpayers under 26 U.S.C. § 7430, 

because the position of the service was "substantially justified." 

We review a district court's award of reasonable litigation costs 

to a prevailing taxpayer under an abuse of discretion standard. 

Pate v. United States, 982 F.2d 457, __ (10th Cir. 1993). 

To receive reasonable litigation costs under 26 U.S.C. 

§ 7430, the taxpayer must prove that: (1) all administrative 

remedies have been exhausted; (2) the requested award constitutes 

"reasonable litigation costs" in accordance with§ 7430(c) (4) (A); 

and (3) the taxpayer is the "prevailing party" as defined by 

§ 7430(c) (4) (A). Pate, 982 F.2d at We first address the 

"prevailing party" determination. 

A. Taxpayer as the "Prevailing Party" 

A "prevailing party" is one who establishes that the position 

of the United States in a civil proceeding was not substantially 

justified and who has substantially prevailed in the controversy. 

26 u.s.c. § 7430(c) (4) (A); Pate, 982 F.2d at __ . The government 

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alleges that its position was substantially justified because the 

document did not specifically waive the payment of interest . 

The Supreme Court has defined "substantially justified" as 

having a "reasonable basis both in law and in fact" or sufficient 

to "satisfy a reasonable person." Pierce v. Underwood,, 487 U.S. 

552, 563-65 (1988). In making this determination, the court must 

look at all the facts and circumstances as well as relevant legal 

precedent, with the burden of proof on the taxpayer. Pate. 982 

F.2d at The government's failure to prevail in the 

underlying litigation does not make its position necessarily 

unreasonable, but it remains a factor for our consideration. 

Heasley v . Commissioner, 967 F.2d 116, 120 (5th Cir. 1992). 

Taxpayers argue that the government's position was 

unreasonable because the depositions of its employees should have 

put it on notice that the parties intended a full and final 

settlement, including interest. We agree. The facts indicate 

that the taxpayers repeatedly asked for and received assurances 

from the government that the settlement document would cover their 

entire civil liability. We find no abuse of discretion in the 

conclusion that the government's pursuit of litigation in spite of 

these facts was unreasonable. 

B. Reasonableness of the Litigation Costs 

Finally, the government contends that the district court 

erred in computing the award of attorney's fees. The court 

awarded fees in excess of the $75 per hour statutory rate and for 

time spent prior to the f ili ng of the complaint. The court did 

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not make specific findings as to the fee award. Attorney's fees 

awarded under§ 7430 may not exceed $75 per hour unless the court 

detennines that an increase in the cost of living or some other 

"special factor" requires it. See 26 U.S.C. § 7430 (c) (1) (B) (iii). 

The taxpayer seeking reimbursement has the burden of establishing 

the reasonableness of the fees. Heasley, 967 F . 2d at 123. We 

cannot review the district court's award of fees without a 

reasoned explanation of the award, see Creske v. Corrrrnissioner, 896 

F.2d 250, 252 (7th Cir. 1990); Pierce, 487 U. S. at 571-74, and we 

find no obvious reason for enhanced fees in the record before us. 

We therefore vacate the award of attorney's fees and remand to the 

district court with instructions to set forth its reasons for the 

amount. 

Conclusion 

We AFFIRM the district court's grant of surrrrnary judgment in 

favor of the taxpayers. We VACATE the award of attorney's fees 

and REMAND to the district court for additional findings. 

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