1 26 U.S.C. § 7430 authorizes such an award to a prevailing

party in tax litigation against the Internal Revenue Service.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_________________________

No. 94-40005

No. 94-40006

No. 94-40007

(Consolidated cases)

_________________________

M. LANE POWERS,

Petitioner-Appellant,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

____________________________________________________

Appeal from the Decisions

of the United States Tax Court

__________________________________________________ (April 13, 1995)

Before GARWOOD, JOLLY and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

In our opinion in this case, repo rted at P owers v.

Commissioner

, 43 F.3d 172 (5th Cir. 1995), we conclud ed that

taxpayer M. Lane Powers, as a prevailing party, was entitled to the

litigation costs that related to his success on appeal. 1 Of the

issues in dispute in the consolidated appeal, we determined that

Powers had prevailed on the NOL carryback iss ue, on three out of

the four time periods at issue for which th e tax court had not

awarded fees, but that he had lost on the hourly fee issue. We

found that his losses were not of such magnitude so as to deprive2

him of prevai ling party status under § 7430. Thus, we invited

Powers to submit an application for attorneys' fees and costs,

providing us with information on costs expended on his appeal.

The government argues in its opposition to the fee application

that Powers should not be entitled to any thing for his fees on

appeal relating to the net operating loss carryback issue because

its position was not unreasonable on this issue. The

"reasonableness" or "substantial justification" of the government's

position in defending this appeal is an appropriate inquiry under

§ 7430. The mere fact that a taxpayer prevails on appeal does not

automatically entitle him to attorney's fees.

The government argues that it was not acting unreasonably in

challenging Powers on the carryback issue, and that the Tax Court's

finding in its favor on the carryback issue supports its position.

In Huckaby v. Commissioner

, 804 F.2d 297 (5th Cir. 1986), we

observed that a victory in the lower court does not automatically

mean the IRS acted reasonably. The government's position can be

unreasonable if its arguments "rang hollow or were specious or

defied its own regulations ." (emphasis added) Huckaby at 299. In

our opinion in the case at bar, we foun d that the Treasury

Regulations require that the correct section of the I nternal

Revenue Code be cit ed in an election to carry forward a net

operating loss and to waive the right to carryback. Nonetheless,

the government maintained that a proper election had been made even

though the wrong code section was cited in the taxpayer's purported

electi on. Under H uckaby

, we conclude that the government's2 Although our opinion in this case did not expressly state

that we found the government's position unr easonable, such a

finding was both inherent and implicit in view of the fact that we

concluded that Powers was entitled to litigation costs for his

victories on appeal and invited him to submit an application for

these costs.

3 position before the Tax Court and on appeal defied its own

regulation and was thus unreasonable. 2

In his application, Powers requests $20,076.35, or 80%, of a

total expenditure of $25,095.44. He arrives at this figure by

noting that he was entirely successful in cases 94-40005 and 94-

40006 (tax years 1976 and 1977), which primarily involved the NOL

carryback issue. He contends that these two cases represent two

thirds of the appeal, because there were three consolidated cases

on appeal, and that he should receive reimbursement for two-thirds

of his fees and costs for his victory on the NOL carryback issue.

Powers seeks an additional 12.5% of his fees for his partial

success in case 94-40007, representing the 1978 and 1979

litigation. Rounding off these two amounts to 80% would give

Powers the relief he seeks.

The Government strenuously objects to the amount Powers seeks.

They argue that the carryback issue did not constitute two thirds

of the appeal, and that we should not calculate fees in t erms of

the cases appealed from. Instead, we should look at the i ssues on

which Powers prevailed. The government is correct under the case

law and Section 7430. S ee e.g., Heasley v. Commissioner

, 967 F.2d

116 (5th Cir. 1992), and Huckaby v. U.S. Dept. of Treasury

, supra

,

804 F.2d at 300. This view is also consistent with our opinion, in4

which we analyzed the number of issues on which Powers had

prevailed in order to determine whether he was entitled to fees at

all.

This case involved three primary issues: the carryback issue,

the number of hours awarded, and the hourly rate. For purposes of

our analysis, we have assigned each issue equal weight. Powers

prevailed on the carryback issue, entitling him to one third of

total expenditures for his victory on that issue. That issue

represents one third of the total fees, or 1/3 of $25,095.44, which

equals $8,365.15. Powers also won on three of the four time

periods, entitling him to three fourths of the one third

attributable to that issue. One third of $25,095.44 is $8,365.15.

Three fourths of that one third is $6,273.86. Powers should be

entitled to t his amount on the issue of the number of hours. He

lost on the hourly rate issue and therefore recovers nothing for

that issue. Thus, Powers should be entitled to $8365.15 (full

amount attributable to carryback issue) and $6273.86 (three fourths

of the amount attributable to the number of hours issue), for a

total of $14,639.01.

IT IS ORDERED that Powers is hereby awa rded $14,639.01 for

litigation costs on appeal.5

GARWOOD, Circuit Judge, concurring in part and dissenting in part:

I join in all of the Court's per curiam except the portion

thereof dealing with the net operating loss carryback issue. In my

view, the resolution of t his issue presented an extremely close

question, and I am unable to conclude that the government's

position in regard thereto, though it ultimately did not prevail,

was either unreasonable or without substantial justification.