Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03967/USCOURTS-cand-3_05-cv-03967-9/pdf.json

Parties Involved:
Richard O. Stevens
Plaintiff
United States of America
Defendant

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

RICHARD O. STEVENS, Trustee of The

Gloria S. Stevens Trust, and Named

Executor of the Gloria S. Keesey

Stevens Estate,

Plaintiff,

v.

UNITED STATES OF AMERICA, 

 Defendant. 

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No. 05-03967 SC

ORDER DENYING

PLAINTIFF'S MOTION

FOR ATTORNEY'S FEES

I. INTRODUCTION

On September 10, 2007, the Court entered Judgment in this

matter in favor of Plaintiff, Richard Stevens. See Docket No. 47. 

Having prevailed at trial, Plaintiff now seeks to recover his

reasonable attorney's fees. See Docket No. 62. Defendant, the

United States ("Government"), opposes the motion for fees. Docket

No. 64. The Court has reviewed the parties' arguments in full. 

For the reasons set forth herein, the Court concludes that,

although Plaintiff prevailed at trial, he is not entitled to

recover attorney's fees from the Government. The Court therefore

DENIES Plaintiff's motion.

II. BACKGROUND

Plaintiff's mother, Gloria Stevens, died on February 16,

1998. In November of that year, when the estate tax return was

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1

Citations to "I.R.C. § __" refer to the Internal Revenue

Code, Title 26 of the United States Code.

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due, Plaintiff sent the I.R.S. a request for an extension, as well

as a check for $162,109.58. Upon completion of the estate tax

return, Plaintiff concluded that the estate had only owed

$96,627.69, and was therefore entitled to a refund of $65,481.89. 

Plaintiff then began a protracted series of communications with

the I.R.S., including multiple extensions of time to file. The

I.R.S. ultimately refused to refund the requested amount, claiming

that Plaintiff had not requested the refund in a timely manner.

Plaintiff brought suit in this Court pursuant to I.R.C. §§

6511 and 7422, seeking to recover $65,481.89.1 The Court had

jurisdiction under 28 U.S.C. § 1346(a)(1). 

The Government did not dispute that Plaintiff had overpaid,

or the amount by which he had done so. However, the Government

claimed that Plaintiff had not filed a timely request for refund. 

Pursuant to Internal Revenue Code section 6511(a), a taxpayer must

make a claim for refund within 2 years of paying a tax, or within

3 years of filing a return, whichever is later. See I.R.C. §

6511(a). Plaintiff did not file his formal refund claim in a

timely manner, but asserted that his communications with the

I.R.S. on behalf of the estate amounted to an "informal claim".

In the early stages of this dispute, the Court adopted a

four-part test for determining the adequacy of an informal claim. 

See Docket No. 16 at 12. An informal claim is sufficient if it:

(1) "is filed within the statutory period;" (2) "puts the I.R.S.

on notice that the taxpayer believes an erroneous tax has been

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assessed;" and (3) "describes the tax and year with sufficient

particularity to allow the I.R.S. to undertake an investigation." 

Pala, Inc. Employees Profit Sharing Plan & Trust Agreement v.

United States, 234 F.3d 873, 877 (5th Cir. 2000) ("Pala"). 

Finally, while "an informal claim may include oral communications,

it must have a written component." Id.

After twice denying the Government's motions for summary

judgment, the Court held a bench trial on this matter. The

central issue at trial was whether Plaintiff's communications with

the I.R.S. satisfied the third Pala factor. See Findings of Fact

& Conclusions of Law, Docket No. 43, at 6 ("Trial Order"). The

Court found that Plaintiff's telephone calls with I.R.S. Revenue

Officer Nancy Wong, and the letters Plaintiff sent Officer Wong,

were sufficient to establish an informal claim under Pala. Id. at

10. 

III. LEGAL STANDARD

In a suit against the United States relating to the recovery

of a tax refund, the prevailing party may recover reasonable

litigation costs. See I.R.C. § 7430(a)(2). "Reasonable

litigation costs" include "reasonable fees paid or incurred for

the services of attorneys in connection with the court

proceeding." Id. § 7430(c)(1)(B)(iii). The statute defines

"prevailing party" as one which "has substantially prevailed with

respect to the amount in controversy" or "has substantially

prevailed with respect to the most significant issue or set of

issues presented," and which has complied with certain procedural

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requirements set forth in 28 U.S.C. § 2412(d). See id. §

7430(c)(4)(A). However, "if the United States establishes that

the position of the United States in the proceeding was

substantially justified," the other party will not be treated as a

"prevailing party" even where it meets the criteria above. Id. §

7430(c)(4)(B)(i).

The Government's position is "substantially justified" if it

is "justified to a degree that could satisfy a reasonable person." 

Pierce v. Underwood, 487 U.S. 552, 565 (1988). Thus, even where

the Government does not prevail, its position can still be

considered substantially justified if it has a "reasonable basis

in law and fact." Id. at 565, 566 n.2. 

IV. DISCUSSION

The sole issue for the Court to determine is whether

Plaintiff was a "prevailing party" as defined in the Internal

Revenue Code. The Government does not dispute that Plaintiff

substantially prevailed with respect to the amount in controversy

or the most significant issue presented, but argues that its own

position was substantially justified. The Court finds that the

Government's position throughout this matter had a reasonable

basis in both law and fact, and was therefore substantially

justified.

The Government's legal position was reasonable throughout

this proceeding. The Ninth Circuit has not established a test for

the sufficiency of an informal refund claim, other than to require

that the claim must have some written component. See Yuen v.

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United States, 825 F.2d 244, 245 (9th Cir. 1987). At the outset

of this proceeding, therefore, the standard governing the dispute

was not clear. The Government urged the Court to follow the

stringent rule set forth by the Fourth Circuit in Miller v. United

States, 949 F.2d 708 (4th Cir. 1991). Under Miller, the written

component of an informal refund claim must be "sufficiently

specific to apprise the I.R.S. that the taxpayer desires a refund

and to pin-point the area of dispute, thereby facilitating an

examination of the claim if appropriate" Id. at 711. The

Government also drew the Court's attention to a Seventh Circuit

ruling which suggests that the informal claim doctrine should be

used primarily to cure technical defects in otherwise-sound refund

claims, such as a clerical error or the failure to sign a form. 

See BCS Fin. Corp. v. United States, 118 F.3d 522, 524 (7th Cir.

1997). These are more exacting than the Pala standard. 

Even after the Court adopted the Pala test to govern this

matter, however, the Government continued to make reasonable legal

arguments. In its Trial Brief, the Government cited cases where,

in similar circumstances, courts had refused to find that

taxpayers had filed informal claims. See Docket No. 35 at 5-6. 

Additionally, certain aspects of Pala are ambiguous, leaving room

for different interpretations of what each factor requires. 

Although the Court ultimately rejected the Government's arguments,

it cannot conclude that those arguments were anything less than

reasonable.

Similarly, the Government's arguments had a reasonable basis

in fact. Pala ultimately tests whether "the Commissioner knew, or

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2Plaintiff first moved for an award of attorney's fees

immediately after trial. Docket No. 48. The Court denied that

motion without prejudice because the Government had appealed the

Court's ruling, and the outcome of the appeal might have affected

whether or not Plaintiff was entitled to fees. Docket No. 54. The

parties then reached an agreement, pursuant to which the Government

dismissed its appeal. See Docket No. 58. Plaintiff then brought

the instant motion, relying on the previously-filed brief.

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should have known, that a claim was being made." 234 F.3d at 877. 

The Government argued that Plaintiff's communications with Officer

Wong were insufficient because Plaintiff never stated the amount

of the anticipated refund, nor provided the detail necessary for

the I.R.S. to conduct a thorough investigation. After trial, the

Court concluded that the communications in question were more than

adequate to put the I.R.S. on notice of Plaintiff's refund claim. 

The Court only reached that conclusion after consideration of

numerous documents and testimony from Plaintiff, his wife, and

Officer Wong. The Government never advanced an unsupportable or

unreasonable theory of the case. Rather, the Court simply

interpreted the evidence differently than the Government did.

Plaintiff's arguments about the unreasonable nature of the

Government's position are unavailing. First, Plaintiff argues

that the I.R.S. was unreasonable in denying the refund claim in

the first instance. First Mot. for Atty's Fees, Docket No. 48, at

2 ("Motion").2

 This is immaterial to whether or not the

Government's position in this matter was substantially justified. 

Plaintiff also claims that the "I.R.S. was fully informed as to

the exact amount of plaintiff s [sic] refund claim of $65481.89

from the time plaintiff filed its 706 Return dated 7/30/02." Id.

This too is immaterial, as the Government only argued that the

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informal claim lacked this information, not that the formal claim

did. Plaintiff concedes this very point in the next paragraph of

his brief. Id. at 2-3. Plaintiff next appears to argue that once

the Court adopted Pala, all of the Government's arguments were

unreasonable. Id. at 3. The Court disagrees for the reasons

described above. Finally, Plaintiff claims that the Government

refused a pre-trial settlement offer after the Court adopted Pala,

and that such rejection was unreasonable. Whether or not the

Government's decision not to settle was reasonable at the time is

a separate inquiry from whether the position it advanced during

this proceeding was substantially justified. Only the latter is

before the Court in the instant motion.

V. CONCLUSION

For the reasons set forth above, the Court concludes that the

Government's position in this litigation had a reasonable basis in

both law and fact, and was therefore substantially justified. 

Plaintiff is therefore not a "prevailing party" for the purposes

of I.R.C. § 7430(a)(2). The Court therefore DENIES Plaintiff's

Motion for Award of Attorney's Fees.

IT IS SO ORDERED.

Dated: July 21, 2008

 

UNITED STATES DISTRICT JUDGE

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