NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

JOHN PURCIELLO AND FRANCES

PURCIELLO, : Hon. I)ennis M. Cavanaugh

Plaintiffs, : OPINION

v. : Civil Action No. 2:11 -cv-41 81 (I)MC)( \lh)

THE. UNITED STATES OF AMERICA.

DEPARTMENT OF THE TREASURY,

INTERNAL REVENUE SERVICE.

Defendant.

This matter comes before the Court upon the Motion ol Plaintiffs John Purcielilo and

Frances Purciello (collectively “Plaintiffs) for Attorney’s Fees, Litigation Costs and Expenses

pursuant to 26 U.S.C. § 7430. Pursuant to FED. R. Civ. P 78, no oral argument was heard. Based

on the following and for the reasons expressed herein, Plaintiffs’ Motion is granted in the

modified amount of $53,307.50

L BACKGROUND’

This Motion for Attorney’s Fees arises from an action brought by Plaintiffs against

Defendant United States of America, Department of the Treasury. Internal Revenue Service

(‘IRS” or ‘Defendant”) to recover tax and other monies that Plaintiffs alleged the IRS had

wrongfully withheld.

The facts from this section are taken from the parties’ pleadings.
Mr. Purciello is a licensed engineer who has worked for several businesses, including

J.A. Purciello Construction (“J.A. Construction”), Marquis Construction (“Marquis”) and FMJ

Associates (“FMJ”). Mr. Purciello served as an officer ofJ.A. Construction and Marquis. but his

duties for FMJ were exclusively sales related. The payroll taxes for J.A. Purciello. Marquis and

FMJ were not paid for March 31, 1998 and June 30, 1998. On February 2,2002, the Purciellos

filed an amended tax return for the fiscal year 2000, which they said entitled them to a refund of

$58,930.

When the Purciellos had not heard from the IRS regarding the status ofthe 2000 rcturn.

they contacted the IRS numerous times, both in writing and by telephone. but continuously failcd

to receive any information. On December 23,2002, Mr. K. Gardner ofthe IRS Taxpayer

Advocates office wrote the Purciellos advising them they were due a refund of $41,893.00 for

the year 2000, but that this sum was being applied to civil penalties from the year 1998.

On April 3,2002, the IRS assessed Mr. Purciello with trust fund recovery penalties for

the first and second quarters of 1998, due to FMJ’s failure to turn over the FICA taxes and

Federal income taxes withheld from the wages of FMJ’s employees (“1998 TFRP Penalties].

For the first quarter of 1998, the IRS assessed $117,891.78, and for the second quarter of 1998

the IRS assessed $50,401.75.

Over the next few years, the Purciellos and the IRS went back and forth attempting to

resolve the tax disputes involving both the 1998 TFRP Penalties as well as an Injured Spouse

Claim filed by Ms. Purciello.

On July 7, 2011, Plaintiffs brought the underlying action against Defendant in this Court.

On June 5, 2012, both parties filed Motions for Summary Judgment. Plaintiffs conceded that

they were not seeking recovery for Mrs. Purceillo’s injured spouse claim. Thus, this Court only

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addressed the arguments relating to Plaintiffs’ recovery for the 1998 TFRP Penalties (the l 998

TFRP Refunds”). Defendant argued Plaintiffs’ claim must fail because no administrative refund

claim was filed within the limitations period. On January 28, 2013, this Court granted Summary

Judgment for Plaintiffs, tnding that Plaintiffs made an informal claim prior to the expiration of

the statute of limitations through their written and oral communications. specitkally in a January

21, 2003 letter sent by Mr. Purciello. Additionally, this Court found that Defendant should be

estopped from arguing that Plaintiffs were not entitled to the 1998 TFRP Refunds because

Defendant had already accepted the merits of Plaintiffs’ position.

Plaintiffs tiled the instant Motion for Attorney’s Fees on May 3, 2013 (ECF No. 32).

Defendant flIed an Opposition on May 20, 2013 (ECF No. 36). Plaintiffs filed a Reply on June

10. 2013 (ECF No. 39).

IL STANDARD OF REVIEW

Pursuant to 26 U.S.C. § 7430(a)(2), in court proceedings ‘brought by or against the

United States in connection with the determination, collection, or refund of any tax,” the

prevailing party is entitled to “reasonable litigation costs incurred in connection with such court

proceeding.” In order to recover attorney’s fees, a party must show that: ‘( I he is the prevailing

party; (2) the award is for ‘reasonable administrative and litigation costs; (3) he has exhausted

available administrative remedies within the IRS; and (4) he has not unreasonably protracte1

administrative or judicial proceedings.” Kilraine v. United States, No. CIV. 07-4778. 2010 WL

324523, at *6 (D.N.J. Jan. 20, 2010).

ill. DISCUSSION

Of the four required elements for the recovery of attorney’s fees. Defendants only dispute

the first two. These elements will be addressed in turn.
A. Whether Plaintiffs are the “Prevailing Party”

To satisfy the “prevailing party” prong, “the taxpayer substantially must have prevailed

regarding the amount in controversy and the most significant issue or set ofissues presented”

and must meet certain net worth requirements. a However, an exception applies ifthe United

States can establish that its position was “substantially justified.” 26 U.S.C. § 7430(c)(4)(B).

Plaintiffs have the burden ofshowing that the Government’s position “was not justified to a

degree that could satisfy a reasonable person or had no reasonable basis both in law and fact.”

Nicholson v. C.I.R., 60 F.3d 1020, 1025-26 (3d Cir. 1995) (internal quotations and citation

omitted).

First, Defendant argues that the fact that Plaintiffs’ Complaint originally sought

$138,765.11, yet Plaintiffs only recovered $67,531, shows that Defendant was substantially

justified in contesting the refund claim. However, just because Defendant may have been

justified in seeking to lower the damages amount does not necessarily mean it was justified in

arguing that Plaintiffs were not entitled to any funds, as it did when it filed its Motion for

Summary Judgment Further, Plaintiffs voluntarily reduced their damages request after they

received more complete information from Defendant before the Sunimary Judgment Motions

were even decided.

Second, Defendant argues that its position that Plaintiffs had not filed an informal refund

claim was reasonable. Defendant primarily asserts that it wasjustified in believing that the letter

sent by Mr. Purciello on January 21,2003 was not an informal claim. However, while this

Court’s Opinion did focus on that letter, this Court also made it clear that it considered all of

Plaintiffs’ oral and written communications together. Defendant also contends that this Court

essentially created new law in granting Summary Judgment for Plaintiffs. (S Def.’s Opp’n at

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ii) (“Prior to this Court’s ruling, no other federal court had ever ruled that the taxpayer’s burden

to state the basis of their refund claim is lowered based on how much they knew at that time “).

The opposite is true - case law shows that it was not reasonable for Defendant to assert that

Plaintiffs did not file an informal refund claim. For example. in Barenfeld v. United States, the

Court of Claims set forth the following standard:

Tt is not necessary that a claim for refund or credit be submitted to the Internal

Revenue Service in any particular form. If a taxpayer submits to the Internal

Revenue Service some sort of written instrument which informs the administrative

agency that the taxpayer believes that he has been subjected to an erroneous or

illegal tax exaction, and that he desires a refund or credit because of such action.

this is sufficient.

442 F.2d 371, 374 (Ct. Cl. 1971), See also D’Amelio v. U. 5.. 679 F.2d 313 (3d Cir. 1982)

(adopting the standard used in Barenfeld). The numerous written and oral communications from

the Purciellos prior to the expiration of the statute of limitations, as a whole, clearly fit within

this framework. Further, certain authorities in Defendant’s Opposition are not applicable to the

instant case. For example Stoller v. United States, 444 F.2d 1391 (5th Cir. 1971) pertains to

formal claims, which are not at issue here. The same problem exists with Defendant’s reliance on

26 C.F,R. § 301.6402—2.

Finally, Defendant argues that its contention that equitable estoppel did not bar its

defenses was substantially justified. This Court disagrees, as Defendant provided Plaintiffs with

a partial refund and thus clearly accepted Plaintiffs’ position that they filed an informal claim.

Accordingly, Plaintiffs have shown that the were the prevailing party.

B. Whether the Award is for “Reasonable” Administrative and Litigation Costs

Plaintiffs’ Motion seeks $45,75 1 .50 in attorney’s fees. pursuant to the statutory limit of

$180 per hour in 2011 and 2012 and $190 per hour in 2013.2 First, Defendant cites twelve time

2 In actuality, the hourly rates for the attorneys who worked on this matter range from $250 to $495 per hour.

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entries submitted by Plaintiffs and claims that they do not pertain to the litigation in this Court.

This Court agrees with Plaintiffs’ assertion that the first nine entries all involve the instant

litigation, as they reflect communications made from Plaintiffs to the IRS in an attempt to

understand the 1RSs basis for refusing to provide Plaintiffs with their refund. Plaintiffs concede

that the last three entries pertain to both the instant litigation and a matter occurring in tax court.

Plaintiffs agree to reduce these entries from 2.2 hours to 1 .1 hours. Thus, this Court will reduce

Plaintiffs’ attorney’s fees from $45,751.50 to $45,553.50.

Additionally, Defendant seeks to have this Court reduce Plaintiffs’ award by 40%

because Plaintiffs made certain concessions during the summary judgment proceedings and

ultimately were rewarded about 45% of the amount that they originally demanded in their

Complaint. This is not a logical request. Plaintiffs voluntarily made those concessions and

reduced their damages request after receiving more complete information Iiom l)efendant.

Defendant is suggesting that the fact that Plaintiffs reduced their damages request by 45%

somehow results in a direct correlation of Defendant being substantially justified in 40% of the

underlying litigation. This is untrue because, as discussed above. Defendant’s arguments that

Plaintiffs never tiled an informal claim and that Defendant was not equitably estopped were

unreasonable. Further, while Defendant argues that Plaintiffs’ fee should be reduced because it

succeeded on Plaintiffs’ innocent spouse claim, Plaintiffs made it clear that they were not

seeking recovery for an injured spouse claim and Defendant conceded in a December 22, 2012

letter that “[pjlaintiffs have unequivocally made clear that said injured spouse claim is not at

issue in their complaint” (ECF No. 22). Additionally. Defendant asserts that Plaintiffl conceded

that they intended to seek the recovery of their administrative costs in the pioceeding beire thic

Court. While this is true. Defendant disagreed that the matter should he litigated before this

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Court and thus the litigation never occurred.

Finally, in their Reply Brief, Plaintiffs request an additional $5,503 in fees incurred from

April through June 2013 for the time spent on the instant I\4otion and on Defendant’s Motion for

Reconsideration. As Plaintiffs have submitted a detailed affidavit and exhibits to support these

additional hours, this Court will grant Plaintiffs’ request and increase Plaintiffs’ reward from

$45.553.50 to $53,307.50.

1 CONCLUSION

For the foregoing reasons, Plaintiffs’ Motion for Attorney’s Fees, Litigation Costs and

Expenses is granted in the modified amount of $53,307.50. An appropriate order follows this

Opinion.

Dennis M. Cavanaugh. L .1.

Date: December

2013

Original: Clerk’s Office

cc: Hon. Mark Falk U.S.M.J.

All Counsel of Record

File

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