Court Opinion

ID: 9488607
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:50:17.166707+00
Date Added: 2024-06-11T17:52:59.269857
License: Public Domain

REINHARDT, Circuit Judge,
dissenting:
I do not believe that the government’s position was substantially justified; nor do I believe that the Nordviks unreasonably protracted the litigation. Accordingly, I respectfully dissent.
The Nordviks entered into a settlement agreement with the IRS on March 7, 1991, four days before their ease was scheduled for trial. Both sides agreed that the Nordviks would be permitted to count their “out of pocket” costs as the basis for their investment in wind turbines. As part of the settlement agreement, the Nordviks agreed to pay a $21,004 deficiency for the 1984 tax year. That sum represented the amount of unpaid taxes that the IRS represented it had calculated by applying its “at risk” rules. When the IRS subsequently supplied the Nordviks with its figures, they discovered that it had misapplied its rules in calculating the deficiency. The Nordviks protested. More than one year later, the IRS belatedly acknowledged its mistake and agreed that they did not owe any money for the 1984 tax year.
The principal difference between the Nordviks and the IRS centered around the application of 26 U.S.C. § 48(q), which governs the calculation of the basis of an asset for purposes of depreciation. The key to resolving the controversy was a previously issued private letter ruling that § 48(q) does not apply to property placed in service before 1983. Since the wind turbine that the Nord-viks depreciated on their 1984 tax return was put into operation in 1982, § 48(q) was clearly inapplicable — as the IRS eventually conceded. The IRS’s attempt, in contravention of its own regulations, to apply § 48(q) to property put in service before 1983 was not substantially justified. In fact, it was not justified at all.
The Tax Court confuses the issue by noting that the Nordviks also offered other arguments in contesting the $21,004 deficiency. Whether or not the government had substantial justification for rejecting those other arguments, the IRS had no justification for refusing to acknowledge the validity of Nord-viks’ argument that § 48(q) could not apply to wind turbines put into operation in 1982. Since the government’s position was not substantially justified, I turn to the issue of delay.1
The majority offers two separate arguments to support its conclusion that the Nordviks unreasonably protracted the litigation: 1) the Nordviks should not have agreed *1496to the $21,004 deficiency without first reviewing the IRS calculations, even though the case was about to go to trial and both sides were under pressure to resolve the ease and avoid a trial; and 2) the Nordviks should have reviewed the IRS calculations more quickly once they received them. In my opinion, these arguments are without merit.
Stripped of its legal embellishments, the majority’s first argument is simply that the Nordviks should not have trusted the IRS to do what it promised to do. While the facts of this case show that to be true, I do not believe that innocent taxpayers may or should be penalized for assuming that the IRS will not contravene its own written policies in calculating a deficiency pursuant to a settlement agreement. The majority states: “Because the Nordviks failed to review the calculations before settling, they ultimately spent several months quarreling with the IRS about the correct interpretation of the initial agreement.” Majority Opinion at 1494. The majority blames the victim rather than the wrongdoer. What it should have said is: “Because the IRS violated its own policies, the Nordviks were forced to spend a year convincing it that it had erred, and laboring to correct the IRS’ mistake.” In this case, had the Nordviks done what the majority suggests and refused to take on faith the IRS’ deficiency determination for purposes of the settlement agreement, no agreement could have been reached in time to avoid the pending trial. That is obvious from the length of time it ultimately took to resolve the matter once the Nordviks learned of the IRS’ error.
In punishing the Nordviks for not challenging the IRS’ calculations sooner, the majority opinion implicitly sets an unreasonable and unworkable standard for determining what constitutes an unreasonable delay. The majority does not and could not contend that the Nordviks filed frivolous motions or engaged in delaying tactics. Indeed, judged against the backdrop of typical litigation today, this case was not marked by unusual delays and certainly not by protracted ones. The majority’s sole basis for concluding that the Nordviks unreasonably protracted the proceedings is its ipse dixit pronouncement that the Nordviks should have acted more expeditiously in challenging the IRS’ flawed calculations.
Not surprisingly, the majority cites no case to support its conclusion.2 Nor does the majority enunciate any general principles that it used, or that lower courts should use, in determining whether or not taxpayers have unreasonably protracted proceedings. In fact, the majority cites only one case in its entire discussion of the Nordviks’ conduct and that case, Estate of Merchant v. C.I.R., 947 F.2d 1390 (9th Cir.1992), is cited for the proposition that the IRS’ positions are generally reviewed for an abuse of discretion. Thus, at the end of its opinion as at the beginning, we are left without any legal explanation of why the majority has concluded that the Nordviks engaged in unreasonable delay and thereby should be forced to forfeit their right to attorneys’ fees.
As evidence of the Nordviks’ responsibility for unreasonable delays, the majority notes that the Nordviks filed an untimely motion for reconsideration 86 days after the settlement became final. The majority, however, places undue and unjustified weight on the Nordviks’ action in filing a motion for reconsideration after the 30-day period for filing such motions as of right had lapsed.3 The *1497tax court allowed the Nordviks to pursue their motion, thereby suggesting that the tax court itself concluded that Nordviks were not guilty of any serious or prejudicial delay. Moreover, an 86-day delay4 is minimal in the context of this, and of most, litigation.
This case began in October of 1989 when the IRS sent the Nordviks a Notice of Deficiency. Eighteen months later, in March of 1991, the Nordviks and the IRS agreed to settle the case. After a written reminder from the Nordviks, the IRS provided the Nordviks with its computations on April 22, 1991. On July 3, 1991, slightly two months after receiving the IRS’ written calculations, the Nordviks sought permission to file an untimely motion to vacate or revise the settlement agreement. By that point, the controversy had been going on for 21 months, and at most a delay of two months — measured from when the Nordviks received the written computation to when they challenged the erroneous computation — can fairly be attributed to the Nordviks.
The controversy was not finally resolved until May 12, 1992, ten months later. The final delay resulted from the IRS’ intransigence in acknowledging its own mistake in calculating the Nordviks’ deficiency, notwithstanding the Nordviks’ best efforts to persuade the IRS of its error. Thus in all, the dispute dragged on 31 months, and at most two months can be fairly attributed to the Nordviks’ failure to act more expeditiously.
Not only was the delay relatively minimal, but the IRS did not present any evidence that the government was harmed by the delay or that the delay caused the government to incur any additional expenses. Given the minimal nature of the delay and the lack of any suggestion that the delay prejudiced the government, I respectfully disagree with the majority’s decision to uphold the tax court’s finding that the Nordviks unreasonably delayed the proceedings. Since there is no evidence that the Nordviks caused protracted delays in the proceedings and since the government’s position was not substantially justified, I conclude that the tax court abused its discretion in denying the Nord-viks’ motion for attorneys’ fees. In fact, in my opinion, the tax court and the majority have this ease backwards. If anyone should be sanctioned for needless and unreasonable delay, it is the IRS and not the innocent taxpayers. Accordingly, I would reverse.

. Taxpayers are not eligible to receive reimbursement for attorney's fees if they have unreasonably delayed the proceedings or if the government's position, although ultimately erroneous, was substantially justified. The Tax Court held that the government's position was substantially justified and that the Nordviks unreasonably protracted the proceedings. The majority opinion holds that the Nordviks caused an unreasonable *1496delay in the proceedings but does not reach the issue of whether or not the government's position was substantially justified. Since I find that the Nordviks did not unreasonably delay the proceedings, I also reach the issue of whether or not the government's position was substantially justified.

. It was the Nordviks who brought the private letter ruling to the INS’ attention. As a matter of law, they cannot be blamed for not bringing the IRS letter to the IRS' attention sooner, for the private letter ruling was in the IRS' possession at all times. See Pohl Corporation v. United States, 29 Fed.Cl. 66, 73 (Ct. of Fed.Cl.1993) (noting that plaintiff "did not unreasonably protract the proceedings by not specifically calling defendant's attention to papers already in its possession”).

. Once again, the majority acts on the basis of its assumptions rather than the law. The majority does not cite a single case that holds that the 30-day window is significant when determining whether or not a litigant unreasonably protracted proceedings. Nor does the majority cite a single case holding that an 86-day delay (or *1497more accurately a 56-day delay) is a prolonged one.

. Really, it is only a 56-day delay since the Nordviks had 30 days according to the rules to file a motion for reconsideration.