Opinion ID: 626466
Heading Depth: 2
Heading Rank: 1

Heading: Fee Provision Statute

Text: In court proceedings brought by or against the United States in connection with the determination, collection, or refund of any tax, a prevailing party may recover fees and costs incurred in the litigation. 26 U.S.C. § 7430(a). Prevailing party is defined in § 7430(c)(4): (A) In general.The term prevailing party means any party in any proceeding to which subsection (a) applies (other than the United States or any creditor of the taxpayer involved) (i) which (I) has substantially prevailed with respect to the amount in controversy, or (II) has substantially prevailed with respect to the most significant issue or set of issues presented, and (ii) which meets the requirements of the 1st sentence of section 2412(d)(1)(B) of Title 28, United States Code (as in effect on October 22, 1986) except to the extent differing procedures are established by rule of court and meets the requirements of section 2412(d)(2)(B) of such Title 28 (as so in effect). In referencing 28 U.S.C. § 2412(d)(1)(B), the statute incorporates the net worth restrictions set forth in the Equal Access to Justice Act (EAJA). [2] Under the EAJA, the recovery of fees and costs is barred if a party's net worth exceeds the statutory amount. Moreover, the party seeking fees has the burden of proving that it meets the net worth requirements under § 7430. Tax Ct. R. 232(e); Estate of Woll v. United States, 44 F.3d 464, 470 (7th Cir. 1994). Congress included a special rule in § 7430 that applied the net worth requirement to estates. Section 7430(c)(4)(D) states that the $2,000,000 net worth requirement imposed on individuals in 28 U.S.C. § 2412(d)(2)(B)(i) shall apply to an estate but shall be determined as of the date of the decedent's death. The rule appears to codify Estate of Hubberd v. Comm'r, 99 T.C. 335 (1992). [3] At the time Hubberd was decided, § 7430 did not contain a special rule subjecting an estate to the $2,000,000 net worth requirement. The Hubberd court decided that an estate was subject to the net worth requirement set forth in § 2412. Id. at 341. The court rejected the estate's argument that when applying the net worth requirement a court should consider the net worth of the [estate's] beneficiaries, not the net worth of the estate. Id. at 339. The court explained its reasoning as follows: [The Commissioner] determined a deficiency against the estate. This case is brought in the name of and on behalf of the estate by its executor. This action is for a redetermination of the estate tax deficiency. An estate is generally responsible for bearing the costs of its own litigation. It follows that we look to the net worth of the estate, and not of the beneficiaries or the executor. Id. at 340-41 (citations omitted). [4] Unlike estates, charitable organizations exempt from taxation under Section 501(c)(3) of the Internal Revenue Code need not satisfy any net worth requirement to recover fees and costs. Such an organization, however, cannot recover fees and costs if it had more than 500 employees at the time the civil action was filed. 28 U.S.C. § 2412(d)(2)(B)(ii). The appellant cites legislative history in the form of the Conference Report to the Tax Equity and Fiscal Responsibility Act of 1982, the bill that enacted § 7430. The applicable Senate Amendment, which was adopted by the Conference, stated  Third-party costs. A taxpayer may recover costs for a third party incurred by that party on behalf of the taxpayer. H.R.Rep. No. 97-760, 97th Cong.2d Sess. 687 (1982), 1982 U.S.C.C.A.N. 1190, 1450. Here, in addition to seeking fees and costs as a prevailing party under § 7430, the Estate seeks to recover under the qualified offer provision of § 7430(g). A qualified offer under § 7430(g): (1) is made by the taxpayer to the United States within the qualified offer period [which starts on the date that the first letter of proposed deficiency is sent to the taxpayer, and ends 30 days before the date the case is first set for trial]; (2) specifies the offered amount of the taxpayer's liability; (3) is designated at the time it is made as a qualified offer; and (4) remains open during the period beginning on the date it is made, and ending at the earliest of: the date the offer is rejected, the date of trial, or the ninetieth day after the offer is made. If the offer fails to meet the requirements, a party cannot receive litigation fees and costs. McGowan v. Comm'r, T.C. Memo. 2005-80, 2005 WL 826928 at  (2005). Parties seeking to recover under either the prevailing party provision or the qualified offer provision must satisfy the net worth requirements discussed above. [5] Because the resolution of the net worth issue disposes of both issues, we will resolve this case on that ground despite the fact that the District Court did not address it. See Blum v. Bacon, 457 U.S. 132, 138 n. 2, 102 S.Ct. 2355, 72 L.Ed.2d 728 (1982) (It is well accepted ... an appellee may rely upon any matter appearing in the record in support of the judgment below.).