DocketNumber: Docket No. 12271-12
Citation Numbers: 2013 T.C. Memo. 276, 106 Tax Ct. Mem. Dec. (CCH) 642, 2013 Tax Ct. Memo LEXIS 288
Judges: WHERRY
Filed Date: 12/9/2013
Status: Non-Precedential
Modified Date: 4/18/2021
An appropriate order and decision will be entered.
Ps seek reasonable administrative costs pursuant to
WHERRY,
This case began in 1996 with an audit of petitioners' 1992 tax return. The revenue agent, Beverly Smith, conducted an initial interview with petitioners. She then concluded, on the basis of her personal observations regarding their standard of living and their reported income, that there was a material possibility that *278 petitioners had substantially underreported *290 their income. Ms. Smith therefore expanded the scope of the audit to include the 1993 through 1996 tax years.
At its zenith, the audit encompassed petitioners' 1992 through 2000 tax years and at least two flowthrough entities. In 1999 Ms. Smith, through her group, caused to be issued the first 30-day letter and accompanying examination report for the tax years 1992 through 1996, proposing total deficiencies of $27,832,527 and penalties and interest computed to December 12, 1999, of $30,029,937, for a total amount due of $57,862,464. Petitioners filed a written protest seeking administrative review by the Internal Revenue Service (IRS) Appeals Office (Appeals).3*291 This first appeal did not make it to IRS Appeals because the revenue agent's group manager pulled the case for further development. Rather, petitioners' representatives, Ms. Smith, and Ms. Smith's manager held a two-day meeting, after which Ms. Smith issued a second 30-day letter in October 2000. This letter proposed total deficiencies for the 1992-96 tax years of $55,392,886 and interest and penalties of $68,760,731, for a total amount due of $124,153,617.
Petitioners again appealed, and Appeals returned the file to the Examination Division for further development. In June 2003 Ms. Smith issued a third 30-day letter. This letter proposed total deficiencies of $8,685,302 for tax years 1992 *279 through 1996, with interest and penalties of $10,669,034. Eventually, despite their Herculean effort 4*292 to resolve these cases with the revenue agent and her group manager or at Appeals, petitioners received four statutory notices of deficiency, which determined, in the aggregate, $4,005,096 in tax deficiencies and $1,505,632 in additions to tax and penalties. Petitioners' flowthrough entity, FSW Associates, LTD (FSW), received a notice of final partnership administrative adjustment (FPAA), which increased FSW's income by more than $13.2 million. Petitioners timely petitioned the Tax Court for redetermination in response to all notices.
Petitioners and respondent ultimately submitted stipulated decision documents in each of these five cases, and the Court entered decisions accordingly. Decision in petitioners' case covering the 1992, 1993, and 1994 tax years was entered on May 3, 2011. Decisions in petitioners' other three cases were entered on May 2, 2011. Decision in the FSW case was entered on November 16, 2009. The total of the agreed Federal income tax deficiencies, including all four of petitioners' cases for all years, was $310,877 plus $64,302 in
The parties made no mention of administrative or litigation costs in any of the stipulated decision documents. Petitioners did not file any motion in any of the cases seeking an award pursuant to
On February 12, 2010, petitioners sent a letter to the IRS "to preserve any rights that * * * [petitioners], individually, or the entity, FSW may have for recovery of attorneys' fees as a result of the Settlement and Docket No. 7330-06." On May 2, 2011, petitioners submitted a letter titled "Request for Administrative Fees, Attorneys' Fees and Costs". The IRS never responded to this letter. On May 15, 2012, petitioners filed a petition seeking $734,183.04 in administrative costs plus whatever fees they incur in this litigation.7 Petitioners claimed, inter alia, that they had prevailed with respect to the amounts in controversy and the most significant issues and that respondent's position was not substantially justified.
"Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials."
Petitioners filed their petition pursuant to
*283 The statutory *296 framework for an award of administrative and litigation costs is found in (a) In General—In any administrative or court proceeding which is brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, the prevailing party may be awarded a judgment or a settlement for— (1) reasonable administrative costs incurred in connection with such administrative proceeding within the Internal Revenue Service, and (2) reasonable litigation costs incurred in connection with such court proceeding.
Congress left it up to the courts to develop procedures for claiming costs in such a scenario.
*285 The other avenue to recover at least administrative costs through a court proceeding is found in
Petitioners have at least one major obstacle *300 to overcome. Our precedent is on all fours with respondent's position that res judicata prevents petitioners' recovery. We have held "that the doctrine of res judicata bars an action for *286 administrative costs under
In
Petitioners could have made their claim for administrative and litigation costs in their prior Tax Court proceedings. Because they did not, they are now barred from pursuing this claim. Petitioners' arguments to the contrary—that we *287 should overrule
Petitioners contend that The Court has an interest in fostering respect for the judicial process and accomplishing orderly *302 disposition of its workload. In part, the Court seeks to foster respect for the judicial process through the evenhanded enforcement of its Rules, which are designed to secure the just, speedy, and inexpensive determination of every case. * * * If a party, in the pursuit of its own agenda, is permitted to disregard the procedures established by this Court, unfairness to others and disruption of the Court's processes occur.
Second, petitioners urge us to overturn
Third, petitioners ask us to carve out an exception to
The first alleged difference ignores
Petitioners' second alleged factual difference ignores the fact that no trial was held in
Petitioners' third factual difference is that they engaged in no trial preparation. Presumably petitioners believe that because there was no trial preparation, they incurred no costs and it would be inappropriate to seek the administrative costs in this context. Nonetheless,
Petitioners' fourth factual difference is that their petitions in the prior cases did not include *305 prayers for attorney's fees and litigation costs. That is true because
Finally, petitioners urge us to exercise equitable powers and decline to apply the rule of res judicata in this case. As alleged by petitioners, the actions of the revenue agent, abetted by the group manager, may have been inappropriate, and we in no way condone inappropriate or un-called-for actions. However, those actions, while significantly contributing to petitioners' lengthy audit and substantial legal bills, are not the proximate cause of petitioners' inability to obtain an award of reasonable administrative *306 and litigation costs. Rather, it was *291 the unfamiliarity of petitioners and their advisers with our Rules or their inadvertent failure to follow them. As the Supreme Court noted in reversing a Court of Appeals that had attempted to create an exception to the doctrine of res judicata: The doctrine of res judicata serves vital public interests beyond any individual judge's ad hoc determination of the equities in a particular case. There is simply "no principle of law or equity which sanctions the rejection by a federal court of the salutary principle of
*292 The Court has considered all of petitioners' contentions, arguments, requests, and statements. To the extent not discussed herein, the Court concludes that they are moot, irrelevant, or without merit.
To reflect the foregoing,
1. Unless otherwise noted, all section references are to the Internal Revenue Code of 1986 as amended and in effect for the relevant period. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Because this case is before us on a motion for summary judgment, our recitation of the background is derived from the Court's records in the previous litigation and the filed pleadings, documents, and sworn affidavits of the parties in this case. It does not constitute a finding of facts in the trial setting context. Most of this background is culled from petitioners' opposition because respondent's motion and supporting documents discussed little in the way of the history or facts of the prior deficiency cases. We mention this because the facts, as alleged by petitioners, do not cast respondent in a positive light. These facts, if true, are indicators of intemperate actions by respondent's revenue agent and group manager. However, these facts do not help petitioners because, as discussed
3. All dollar amounts are rounded to the nearest dollar unless otherwise noted.
4. Petitioners attach to their opposition to summary judgment exhibits rife with allegations of improper behavior on the part of the revenue agent. As illustration, petitioners contend that the revenue agent refused to consider proffered and documented explanations and that she made numerous adjustments without any credible factual basis or justification.
5. The IRS no longer has a review staff which might have corrected the apparent overreach by its Examination Division in this case. The IRS instead relies on the revenue agent and the group manager with, in some cases, counsel review to avoid excessive "claims" in examination reports and statutory notices of deficiency.↩
6. Petitioners did attempt to file motions to reopen the prior cases for the purpose of pursuing administrative costs more than a year after the decisions had been entered and had become final, but the Court rejected these filings.
7. Petitioners also have pending a separate petition seeking review of respondent's denial of their request to abate interest.↩
8. Respondent properly raised the affirmative defense of res judicata in his answer.↩
9.
10. In addition, this Court permits a motion for costs filed after dismissal of a case for lack of jurisdiction.
11. The prevailing party can seek costs incurred on or after the earliest of (i) the date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals; (ii) the date of the notice of deficiency; or (iii) the date on which the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent.
12. If the IRS does not respond to a taxpayer's request for administrative costs, the taxpayer may consider that failure to be "a decision of the * * * [IRS] denying an award for reasonable administrative costs."
Edward M. Sanders v. Commissioner of Internal Revenue , 813 F.2d 859 ( 1987 )
Sundstrand Corporation v. Commissioner of Internal Revenue , 17 F.3d 965 ( 1994 )
Heiser v. Woodruff , 66 S. Ct. 853 ( 1946 )
Hart Steel Co. v. Railroad Supply Co. , 37 S. Ct. 506 ( 1917 )
The Manchester Group Subsidiaries, Formerly Torrey ... , 113 F.3d 1087 ( 1997 )
Marilyn Sponza v. Commissioner of Internal Revenue , 844 F.2d 689 ( 1988 )
Sundstrand Corp. v. Commissioner , 98 T.C. 518 ( 1992 )
Federated Department Stores, Inc. v. Moitie , 101 S. Ct. 2424 ( 1981 )
Florida Peach Corp. v. Commissioner , 90 T.C. 678 ( 1988 )