Court Opinion

ID: 6315856
Source: CourtListenerOpinion
Date Created: 2022-02-18 21:00:39.199892+00
Date Added: 2024-06-11T09:01:41.214012
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                                FEB 18 2022
                     UNITED STATES COURT OF APPEALS                         MOLLY C. DWYER, CLERK
                                                                              U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

TUNG DANG; HIEU PHAM DANG,                        No. 21-70922

              Petitioners-Appellants,             Tax Ct. No. 21100-17L

 v.
                                                  MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

              Respondent-Appellee.

                            Appeal from a Decision of the
                              United States Tax Court

                      Argued and Submitted February 8, 2022
                                Phoenix, Arizona

Before: O’SCANNLAIN and GRABER, Circuit Judges, and FITZWATER,**
District Judge. Concurrence by Judge O’SCANNLAIN.

      Plaintiffs Tung and Hieu Phang Dang appeal the tax court’s denial of their

motion for administrative and litigation costs in their collection dispute with the

Internal Revenue Service ("IRS"). Reviewing the tax court’s denial of the motion

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable Sidney A. Fitzwater, United States District Judge for
the Northern District of Texas, sitting by designation.
for costs for abuse of discretion, Pac. Fisheries Inc. v. United States, 484 F.3d

1103, 1106 n.2 (9th Cir. 2007), we affirm.

      1. Plaintiffs are ineligible for an award of administrative costs. To the

extent that they seek administrative costs for their examination dispute with the

IRS, their request is untimely, and they were not the prevailing party. To the

extent that they seek administrative costs for their collection dispute with the IRS,

they are ineligible because no costs were incurred before the commencement date

for the relevant administrative proceeding. 26 U.S.C. § 7430(c)(2).

      2. Plaintiffs also are ineligible for an award of litigation costs. The IRS’s

answer before the tax court conceded that Plaintiffs’ petition was correct, and the

agency immediately sought a remand so that the IRS Office of Appeals could

consider Plaintiffs’ argument as they requested. Accordingly, the tax court

permissibly concluded that the IRS’s litigation position was substantially justified.

26 U.S.C. § 7430(c)(4)(B); see Huffman v. C.I.R., 978 F.2d 1139, 1148 (9th Cir.

1992) ("[I]f the Government concedes the petitioner’s case in its answer, its

conduct is reasonable.").1

      AFFIRMED.

      1
          Appellants’ motion to take judicial notice, Docket No. 13, is DENIED.

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                                                                           FILED
Dang v. C.I.R., No. 21-70922
                                                                           FEB 18 2022
O’SCANNLAIN, Circuit Judge, concurring:                               MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS

      The Commissioner has relied on 26 C.F.R. § 301.7430-3 in his briefing and

analysis. While we need not reach the validity of the regulation in the resolution of

this case, I write separately to express my view that such regulation is invalid

because it is not “a permissible construction of” 26 U.S.C. § 7430. Altera Corp. &

Subsidiaries v. C.I.R., 926 F.3d 1061, 1075 (9th Cir. 2019) (quoting Chevron,

U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984)).

      The regulation excludes collection actions from the definition of

administrative proceedings, which is contrary to the plain language of the statute.

Specifically, the regulation states that “an administrative proceeding does not

include   .    .   .   [p]roceedings   in   connection   with   collection    actions.”

26 C.F.R. § 301.7430-3(a)(4). But that is at odds with the Congressional command.

The statute explicitly allows for award of costs “[i]n any administrative . . .

proceeding . . . in connection with the . . . collection . . . of any tax, interest, or

penalty.” 26 U.S.C. § 7430(a). Further, it goes on broadly to define “administrative

proceeding[s]” to include “any procedure or other action before the Internal Revenue

Service.” 26 U.S.C. § 7430(c)(5) (emphasis added). Both the explicit enumeration

and the broad definition indicate that collection actions are administrative

proceedings.
      In defense of the regulation, the Commissioner claims that because the

hanging paragraph of 26 U.S.C. § 7430(c)(2) precludes the recovery of “reasonable

administrative costs” in collection hearings, it follows that such hearings are not

“administrative proceedings.” See also H.R. Rep. No. 100-1104, pt. 2, at 226 (1988)

(Conf. Rep.) (“Thus, with respect to a collection action, only reasonable litigation

costs are recoverable under this provision.”).

      Although I agree with this reading of the hanging paragraph, such argument

disregards the fact that what constitutes an administrative proceeding is relevant, not

only to administrative costs, but to litigation costs as well. Subsection (c)(2) specifies

that accumulation of costs is triggered by the earliest of notice of decision, notice of

deficiency, and letter of proposed deficiency. Because the only document relevant

to collection hearings is the notice of decision—received at the end of such a

hearing—no administrative costs accumulate.

      However, by excluding collection hearings from the definition of

administrative proceedings, the Commissioner handicaps taxpayers’ pursuit of

litigation costs. For example, a presumption of no justification attaches if the IRS

“did not follow its applicable published guidance in the administrative proceeding.”

26 U.S.C. § 7430(c)(4)(B)(ii) (emphasis added). In this litigation, the Commissioner

conceded that the IRS failed to observe a published guidance. Nevertheless, while

disputing taxpayers’ entitlement to litigation costs, he argued that no presumption

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arises because collection actions are not administrative proceedings per

26 C.F.R. § 301.7430-3. Thus, excluding collection hearings from the definition of

administrative proceedings affects not only administrative, but also litigation costs.

      Although we did not have to reach the validity of the regulation in resolving

this appeal, I feel compelled to note that 26 C.F.R. § 301.7430-3 is not a reasonable

reading of the statute because it disregards its plain language and affects litigation

costs, in addition to administrative costs.

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