United States Court of Appeals

Fifth Circuit



## FILED

August 18, 2003

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 02-61019

_____________________

TERRELL EQUIPMENT COMPANY INC.;

VERNON W. GRIFFIN,

Petitioners-Appellants,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

_____________________

No. 02-61043

_____________________

JANET M. GRIFFIN,

Petitioner-Appellant,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

--------------------- Appeal from the United States Tax Court

---------------------

BEFORE WIENER, CLEMENT, and PRADO, Circuit Judges.

WIENER, Circuit Judge:

After a jury acquitted Petitioner-Appellant Vernon Griffin on

all charges of criminal tax fraud (evasion), Respondent-Appe llee

Commissioner of Internal Revenue ("Commissioner") assessed

def iciencies, additions to tax, and penalties against all

Petitioners-Appellants (“Petitioners” or “taxpayers”)) for the tax

years 1987, 1988, and 1989, the same years involved in the criminal1 See Terrell Equip. Co., Inc., et al. v. Comm’r of Int e rnal

Revenue , 84 T.C.M. (CCH) 259 (2002).

2 Vernon and Janet Griffin were married to each other before

and during the years in question, and Mr. Griffin was President of

TECO during those years. Although the couple separated in 1990 and

later divorced, the Tax Court referred to Mrs. Griffin by her

married name in its opinions, and we will do the same.

2 case. The taxpayers challenged that determination in the United

States Tax Court (“Tax Court”) and ultimately prevailed.

Petitioners then moved for an award of attorneys' fees and costs

pursuant to 26 U.S.C. § 7430 and Tax Court Rule of Practice and

Procedure 231. The Tax Court denied that motion, and it is that

denial that the taxpayers appeal. For the reasons that follow, we

affirm.

I. Facts and Proceedings

The taxpayers in this case appeal a Tax Court order filed

August 27th, 2002, denying them an award of litigation fees and

costs. 1 In that ruling, the Tax Court held that the government’s

litigation position in the underlying civil case was “substantially

justified,” which shields the Commissioner from liability for fees

and costs under I.R.C. § 7430(c)(4)(B)(i). The underlying

litigation related to taxes paid in 1987, 1988, and 1989 by Terrell

Equipment Company (“TECO”), Mr. Griffin, and Mrs. Gri ffin. 2 The

Comm issioner had determined deficiencies, additions to tax, and

penalties for all Petitioners for the years in question. In the

ensuing civil litigation, the Commissioner conceded that the period

of limitations had expired absent a finding of fr aud. The Tax3 See Terrell Equip. Co., Inc., et al., v. Comm’r of Internal

Revenue , 83 T.C.M. (CCH) 1309 (2002).

4 26 U.S.C. § 7483 mandates a 90-day period for appeals of Tax

Court decisions:

Review of a decision of the Tax Court shall be obtained

by filing a notice of appeal with the clerk of the Tax

Court within 90 days after the decision of the Tax Court

is entered. If a timely notice of appeal is filed by one

party, any other party may take an appeal by filing a

notice of appeal within 120 days after the decision of

the Tax Court is entered.

Federal Rule of Appellate Procedure 13 contains the same provisions

for the timing of appeals.

3 Court found that none of the taxpayers had acted fraudulently, and

therefore were not liable for any of the amounts determined by the

Commissioner. 3 After that decision, the taxpayers made a motion

for award of fees and costs, and it is the denial of that award

that they appeal.

II. Analysis

A. Jurisdiction

We have jurisdiction over this appeal pursuant to 26 U.S.C. §

7482(a)(1). The Commissioner contends, however, that we have no

jurisdiction over Mrs. Griffin’s appeal because she filed notice of

that appeal 92 days after the Tax Court entered its decision in her

case. 4 The Commissioner argues that TECO and Mr. Griffin’s timely

appeal does not function to give Mrs. Griffin an extra thirty days

in which to file her appeal, as the second sentence of 26 U.S.C. §

7483 seems to suggest. This is so, according to the Commissioner,

because Mrs. Griffin was not a party to the decisions binding TECO5 200 F. 3d 1268 (10th Cir. 1999).

6 715 F.2d 435 (9th Cir. 1983).

7 Twenty Mile Joint Venture , 200 F.3d at 1275.

4 and Mr. Griffin, even though her case was consolidated with theirs

for trial, briefing, and opinion. The Commissioner cites T wenty

Mile Joint Venture, PND, Ltd., v. Commissione r

, 5 and Davies v.

Commissioner

, 6 to support his argument.

In each of those cases, the situation was similar to the

instant situation: Several actions had been consolidated in the Tax

Court; one appellant timely appealed; and another appealed during

§ 7483's 90 to 120-day window followi ng the decision. In T wenty

Mile Joint Venture

, the Tenth Circuit reasoned that the second

(untimely) filer could not take advantage of the extra thirty days

allowed by § 7483 because the second filer was not a party to the

decision that bound the timely filer, even though both appellants’

cases had been consolidated for purposes of trial and opinion.

Because “the two cases had not lost their individual identities,”

and the timely filing appellant was appealing a separate decision,

the Tenth Circuit held that the timely appeal did not extend the

time for filing under § 7483. 7 The D avies court relied on similar

reasoning to reach the same result, explaining that the appropriate

inquiry is “solely whether the late filer was a party to the same

decision as the timely filer[,]... not to his participation in the8 Davies , 715 F.2d at 437.

5

same proceeding or to his inclusion in the same opinion .” 8 As the

cases currently before us were consolidated onl y for purposes of

trial, briefing, and opinion, and separate decisions were entered

in each case, reasons the Commissioner, TECO and Mr. Griffin’s

timely appeal does not garner Mrs. Griffin any additional time

within which to file her own appeal.

In th e instant case, however, none of the taxpayers appeal

decisions of the Tax Court, as its decisions discuss only the

merits of the underlying civil tax fraud case, and were favorable

to Pe titioners. Rather, Petitioners appeal only the Tax Court’s

Order dated August 27th, 2002, which denies all of them an award of

fees and costs. In other words, as regards the denial of fees and

costs, there is no “decision” to appeal, only the lone August 27th

Order, which covers all Petitioners and was timely appealed by TECO

and Mr . Griffin. This case is therefore distinguishable from

Twenty Mile Joint Venture and Davies

. As the Order being appealed

affected all Petitioners, and TECO and Mr. Griffin’s appeal was a

“timely notice of appeal

... filed by one party” as described by §

7483, Mrs. Griffin was entitled to 120 days within which to file

her own appeal. She filed her notice of appeal within that

extended period, so we have jurisdiction over her appeal.

B. Standard of Review

We review Tax Court decisions concerning “substantial9 See, e.g.

, Hanson v. Commissioner

, 975 F. 2d 1150, 1152-53

(5th Cir. 1992).

10 See Loftin & Woodward, Inc. v. United States

, 577 F.2d 1206,

1239 (5th Cir. 1978)(“[C]ase law does not indicate that consistent

and substantial understatement of income is sufficient, by itself

, to support a finding of fraud.”).

11 Petitioners also argue that the Commissioner’s pursuit of

this case was a result of unreasonable IRS settlement policies set

out in the IRS Manual. Petitioners failed to raise this argument

before the Tax Court, however, and we therefore decline to consider

it here. See, e.g.

, Martinez v. Texas Dept. of Criminal Justice

, 300 F.3d 567, 573 (5th Cir. 2002) (explaining that the court will

entertain new is sues raised for the first time on appeal only in

extraordinary circumstances); Stokes v. Emerson Elec. Co.

, 217 F.3d

353, 358 n.19 (5th Cir. 2000) (“Arguments not raised in the

district court cannot be asserted for the first time on appeal.”).

6 justification” under § 7430 for an abuse of discretion. 9

C. Substantial Justification

Petitioners argue that the Commissioner’s litigation position

was not substantially justified because he allegedly attempted to

prove fraud based only on unde rstatement of income, which is

contrary to established case law of this Circuit. 10 Essentially,

Petitioners argue that the Commissioner was aware of this case law,

disagreed with it, tried to change it by pursuing the instant

li tigation, failed, and should therefore be held liable for fees

and costs. 11 The Commissioner responds that his litigation strategy

at trial was grounded on many more indicators or “badges” of fraud

than understatement of income alone, that the Tax Court’s findings

on this issue are amply supported, and that we should therefore

affirm the Tax Court’s denial of fees and costs. We agree with the

Commissioner.12 Terrell Equip . Co., Inc., et al., v. Comm’r of Internal

Revenue , 84 T.C.M. (CCH) 259, 2002 Tax Ct. Memo LEXIS 225, at *14

(2002).

13 Pierce v. Underwood , 487 U.S. 552, 565 (1988).

7 The Tax Court found that the Commissioner “went to trial on

the basis of the theory that multiple badges of fraud existed, and

at trial he attempted to prove that multiple badges of fraud were

present. ” 1 2 Although the Commissioner concedes he argued that

understatement of income alone might be enough to prove fraud in

this Circuit, he asserts that this was a secondary, alternative

argument, an assessment with which the Tax Court agreed. More

importantly, the Tax Court listed thirty stipulations of fact that

it decided could have supported a finding of fraud. Even though

all of these stipulations relate in some way to understatement of

income, many could have supported affirmat ive findings on other

“badges” of fraud.

The government’s position is substantially justified if it is

“‘justified in substance or in the main’ —— that is, justified to

a de gree that could satisfy a reasonable person. That is no

differ ent from [a] ‘reasonable basis both in law and fact’

formulation.” 13 This case presents a close question: Even if, on

a plenary review, we would reach a result opposite the conclusion

of the Tax Court, we would

—— and do

—— affirm that court under the

deferential abuse of discretion standard that is applicable in this

appeal. The Petitioners’ argument depends on the proposition that8

the Commissioner went to trial on a theory that fraud could be

proven based on nothing more than understatement of income. In the

explication of its exercise of discretion, the Tax Court notes

numerous stipulated facts that it concludes could support its

determination that the government’s litigation position was based

on a theory of multiple badges of fraud, and that such a theory was

“justified to a degree that could satisfy a reasonable person.”

Given the stipulations that the Tax Court relied on and the

inferences that can be drawn from them, we cannot say that the Tax

Court’s denial of fees and costs under § 7430 was an abuse of

discretion.

III. Conclusion

For the foregoing reasons, the Tax Court’s denial of

attorneys’ fees and costs is

AFFIRMED.