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FITZGERALD v. UNITED STATES

April 24, 1992

ISABELLA FITZGERALD, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.



The opinion of the court was delivered by: BY THE COURT; ROBERT F. KELLY

MEMORANDUM

 R.F. KELLY, J.

 APRIL 24, 1992

 Plaintiff, Isabella Fitzgerald, brought this action seeking a refund of tax penalties imposed pursuant to section 6672 of the Internal Revenue Code. 26 U.S.C. § 6672. Plaintiff was assessed and paid a penalty tax of $ 5872.09 plus interest charges amounting to $ 1,272.11. She was assessed this penalty tax in connection with her job at the North Philadelphia Block Development Corporation (the "Corporation"). The Internal Revenue Service maintained that Plaintiff was one of the persons responsible for the failure of the Corporation to pay trust fund taxes withheld from employees for the periods ending December 31, 1980 and March 31, 1981. Plaintiff filed this action for a refund of the penalty assessment after exhausting her administrative remedies. In April of 1991, the United States decided to concede the case and agreed to a stipulation of an entry of judgment against it. This stipulation was filed on October 2, 1991. Presently before this Court is Plaintiff's Motion for Attorney's Fees filed pursuant to section 7430 of the Internal Revenue Code. After careful consideration of the parties' memoranda and a hearing on said motion, I will grant in part Plaintiff's Motion for Attorney's Fees.

 Section 6672 of the Internal Revenue Code insures the Treasury against loss by imposing personal liability on persons whose control over the financial affairs of a business entity requires them to collect and pay over taxes withheld from third parties. Quattrone Accountants, Inc. v. Internal Revenue Service, 895 F.2d 921 (3d Cir. 1990). Section 6672 provides that "any person required to collect . . . and pay over any tax . . . who willfully fails to collect such tax, or truthfully account for and pay over such tax . . . shall . . . be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over." 26 U.S.C. § 6672. Internal Revenue Code section 7430 provides that:

 (a) In general. 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 tile, and

 (2) brought in a court of the United States (including the Tax Court), the prevailing party may be awarded a judgment for reasonable litigation costs incurred in such proceeding.

 26 U.S.C. § 7430(a). Congress has given the court discretion in awarding attorney's fees and costs to a prevailing party in a tax refund action. The first step is to determine whether the plaintiff is a prevailing party. This term is defined in section 7430(c)(4)(A) of the Internal Revenue Code which states that a "prevailing party" is a party which:

 (i) establishes that the position of the United States in the proceeding was not substantially justified,

 (ii) which

 (I) has substantially prevailed with respect to the amount in controversy, or

 (II) has substantially prevailed with respect to the most significant issues or set of issues presented . . . .

 26 U.S.C. § 7430(c)(4)(A). The United States concedes that Plaintiff has substantially prevailed with respect to amount in controversy. The issue presented before me is whether the position of the United States in the instant case was unreasonable or not "substantially justified." Rickel v. Commissioner of Internal Revenue, 900 F.2d 655, 665 (3d Cir. 1990). Plaintiff has the ...


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