8. By letter dated April 25, 1979, three shareholders of HCLS demanded that Batula, in his capacity as Secretary/Treasurer, "produce all books, records, accounts, cancelled checks, invoices, bills, tax records, correspondence, payroll records, etc., and to have them available for inspection. . . ." (Ex. D-A).
9. On April 30, 1979, HCLS had sufficient funds in its checking account to make full payment of the taxes at issue. On May 2, 1979, $10,000.00 was withdrawn from the corporation's checking account by a check to which Batula was a signatory.
10. In the spring of 1979, Batula sought to terminate his involvement with HCLS. By July, 1979, an initial agreement for the dissolution of HCLS was reached but under the terms of this agreement, Batula remained in business with Joseph Snively ("Snively").
11. A subsequent agreement, executed in December, 1979, provided that Snively would purchase Batula's interest in HCLS; Batula never submitted his resignation as Secretary/Treasurer of HCLS. He went to work for Total Linen Care ("TLC"), a corporation formed by Snively. Batula owned twenty percent (20%) of the TLC shares of stock and served as its Secretary/Treasurer.
12. HCLS failed to make full payment of its Federal Insurance Contributions Act ("FICA") taxes and employee income taxes withheld for the periods ending September 30, 1979, December 31, 1979, December 31, 1980, March 31, 1981, and June 30, 1981. The total deficiency is $5,853.07.
13. A final agreement for dissolution of HCLS was signed on December 6, 1979. In the dissolution agreement, Batula authorized payment of $6,000.00 from the funds of the corporation to Walsh Equipment Co. Inc. ("Walsh").
14. In that agreement, Batula, "with full intent to be legally bound" represented that "all payroll taxes and any and all other tax obligations of Linen have been fully paid." (Ex. D-B).
15. On May 22, 1980, Batula co-signed a check drawn on the HCLS account.
16. Batula filed suit against Snively for failure to make payments provided for under their agreement in New Jersey District Court, Burlington County, Docket No. 1181-6869.
17. On October 22, 1981, an Internal Revenue Service ("IRS") officer, Lillian Ford ("Ford"), interviewed Snively, in the IRS Office.
18. At the October 22, 1981 meeting, Snively told Ford that HCLS was a one-man corporation and that he was totally responsible "for every phase of non-payment and filing." (Ex. P-B).
19. On October 28, 1981, Ford interviewed Snively again and Snively told Ford that he alone had signed all the HCLS returns.
20. On November 13, 1981, Ford recommended a 100% penalty assessment against Snively.
21. On March 1, 1982, Ford first became aware of the name of Nicholas E. Batula as a result of a signature card received from First Pennsylvania Bank.
22. On March 16, 1982, Ford called Snively who told Ford that he was fully responsible; he claimed not to understand the reasons for proceeding against Batula.
23. On March 18, 1982, Snively called Ford and told her he would make full payment to avoid involving anyone else.
24. By letter dated May 10, 1982, the IRS informed Batula of the withholding tax deficiency, that it proposed to assess a 100% penalty against him as a "responsible person" for willful failure to pay the tax under Internal Revenue Code § 6672, and that the IRS had determined that the corporation had no property with which to satisfy the underlying tax deficiency.
25. On June 25, 1982, IRS revenue officer Ford conducted an informal interview with Batula. During the June 25, 1982 interview, Batula explained his lack of involvement with HCLS since the summer of 1979, and his efforts to terminate his relationship with HCLS. Batula also told the revenue officer that HCLS still had equipment and other assets. Batula explained to the revenue officer that he was suing Snively and showed her court documents. Ford told Batula that the Government "didn't have the manpower to track down the equipment to which Mr. Batula referred, and that Mr. Batula should try to sell the equipment and turn the proceeds over to the government." (Ex. P-C).
26. Batula refused to sign a Form 4180, "Report of Interview Held With Persons Relative To Recommendation Of 100 Percent Penalty Assessments," prepared by Ford on June 25, 1982.
27. Subsequent to this discussion with the IRS, Batula settled his lawsuit against Snively. HCLS reimbursed Batula for his original investment in the corporation by corporate check in the amount of approximately $2,000 co-signed by Batula.
28. Batula subsequently called Ford and sent her a copy of that agreement.
29. On October 29, 1982, Ford, by memorandum to the Special Procedure staff, recommended that a 100% penalty tax be assessed against Batula.
30. On April 15, 1983, a delegate of the Secretary of the Treasury assessed a 100% penalty pursuant to 26 U.S.C.A. § 6672 (West Supp. 1986) against Batula in the amount of $5,853.07, for failure to pay taxes withheld from the wages of the HCLS employees for the third and fourth quarters of 1979, the fourth quarter of 1980 and the first and second quarter of 1981.
31. Batula did not post bond to stay collection of the 100% penalty as provided in 26 U.S.C.A. § 6672.
32. In June, 1983, the IRS levied against Batula's home. On June 14, 1984, Batula paid the IRS the amount of $6,725.00 so that he could use his home lien-free as collateral for a business credit line.
33. On June 4, 1985, Batula filed this action for refund against the United States. The United States in its answer, served August 5, 1985, did not join Snively.
34. On December 4, 1985, Batula fined an amended complaint adding Joseph Snively as a defendant.
35. On December 4, 1985, the United States took Batula's deposition under oath and agreed to concede the instant case on December 5, 1985.
36. By Order dated April 15, 1986, this court entered a default judgment in favor of Batula and against Snively in the amount of $6,725.00 plus costs. Batula also seeks this amount from the government for attorneys' fees.
Batula moves for an award of attorneys' fees and costs incurred in the administrative process and in this civil proceeding under 26 U.S.C.A. § 7430 (West Supp. 1986). He contends that he was a prevailing party, he exhausted his administrative remedies, and the position taken by the IRS at the highest administrative level was unreasonable so that he was compelled to institute this civil litigation and incur costs and fees.
The government admits that Batula was a prevailing party and that he exhausted his administrative remedies but contends that the IRS's position was reasonable during the course of the administrative proceeding and this litigation. The government also argues that Batula is eligible for an award of attorneys' fees under Section 7430 only for those costs and attorneys' fees incurred in the civil proceeding if the government's position in the civil proceeding itself was unreasonable.
Section 7430(a) of the Internal Revenue Code provides inter alia :
In the case of any civil proceeding which is --
(1) brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, and