Source: http://wakeforestlawreview.com/tag/tax/
Timestamp: 2019-04-22 00:14:09+00:00

Document:
On December 2, 2015, the Fourth Circuit Court of Appeals released its published decision in the civil case National Organization for Marriage, Inc. v. United States. In this case, the Fourth Circuit was asked to decide if the National Organization for Marriage (“NOM”) was a “prevailing party” under 26 U.S.C. § 7430(c)(4)(A). The case turned on how “prevailing party” is defined when the United States is the defendant in the action. Ultimately, the Fourth Circuit affirmed the Eastern District of Virginia’s decision that the plaintiff was was not a prevailing party within the meaning of the statute.
NOM is a nonprofit that advocates on issues relating to marriage in the United States. As a tax-exempt entity, the Internal Revenue Service (“IRS”) requires NOM to file a yearly 990 form, which includes a list of donors who gave in excess of $5,000 during the year. While the IRS is required by law to make a tax-exempt organization’s tax return publicly available, the law also requires the IRS to redact the names of donors. After a request for the forms by a member of the media, the IRS inadvertently released the unredacted forms, thereby releasing the list of donors. Ultimately the list was published both by the Huffington Post, and by NOM’s “ideological opponent,” the Human Rights Campaign.
Despite its attempt to mitigate its damages, NOM faced expensive state election law litigation in California related to information disclosed in the list. NOM also sought its own legal relief. NOM filed suit against the IRS pursuant to 26 U.S.C. § 7431 which provides for damages for the unlawful disclosure of confidential tax information by agents of the IRS. NOM sought statutory damages, actual damages, and punitive damages. NOM also claimed it was entitled to attorney’s fees under § 7431(c).
While the government admitted that NOM should recover its one-time statutory damages under the relevant provision, it denied that it was liable for actual damages or punitive damages. After the District Court entered summary judgment for the government on the issue of punitive damages, citing a lack of evidence of willfulness or gross negligence, the parties agreed to a consent judgment, in the amount of $50,000 to settle the dispute over actual damages. NOM then moved the court for $691,025.05 in attorney’s fees, which the district court denied.
NOM filed an appeal with the Fourth Circuit Court of Appeal seeking attorney fees under 26 U.S.C. § 7431. While § 7431(c) permits the recovery of “reasonable attorneys fees,” § 7430 limits a plaintiff’s ability to collect attorney’s fees if the United States is the defendant in the action. If the United States is the defendant, the law indicates that the plaintiff must be the “prevailing party” before it can recover attorney fees. Further, 7430(c)(4)(B)(i) indicates that a plaintiff, “shall not be treated as the prevailing party … if the United States established that [its] position … in the proceeding was substantially justified.” The district court used this language to reject NOM’s claim for attorney’s fees, finding that the government’s position was substantially justified.
The Fourth Circuit found the objective indicia of the government’s position to be inconclusive. Although the case survived the summary judgment stage, the case was ultimately settled. NOM then asked the district court to look to another district court’s decision for guidance. Ultimately, the Court was unpersuaded by either side’s view, and moved to an independent assessment of the merits of the government’s position.
After conducting its own review, the Court found that the government’s position was substantially justified. Reiterating that the governments position need not prevail to be substantially justified, the Fourth Circuit found the government’s arguments on causation reasonable. Further, the Court viewed the government’s approach to the matter reasonable, in light of the totality of the circumstances.
Although the ‘objective indicia’ of the case was not dispositive, the Court’s independent evaluation of the merits of the government’s position led it to decide that the government was substantially justified in its approach to the case. Consequentially, NOM was not a “prevailing party” within the meaning of the statute, and was not permitted to recover attorney’s fees. The three-judge panel unanimously affirmed the district court’s decision.

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