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Estate of Antonio J. Palumbo Deceased Pnc Bank, National v. United States of America

April 21, 2011


The opinion of the court was delivered by: Arthur J. Schwab United States District Judge


Before the Court is Plaintiff's Motion for Attorneys' Fees and Costs. This Motion is predicated upon the Court's Opinion and Order of March 9, 2011, wherein this Court determined that Plaintiff was entitled to a refund of the taxes that it paid on $11,721.141.00. See doc nos. 39-40.


A. Prior Procedural and Factual Background

The Estate of Antonio Palumbo and its Executor (hereinafter "Plaintiff") brought this action seeking a refund (plus accrued interest) of an alleged overpayment of federal estate taxes. Plaintiff paid federal estate taxes on an amount -- $11,721,141.00 -- that was ultimately paid to the A.J. and Sigismunda Palumbo Charitable Trust (hereinafter "the Charitable Trust"), a charitable trust created by Mr. Palumbo during his lifetime. This payment was made to the Charitable Trust under the terms of a settlement agreement negotiated (primarily) between the Charitable Trust and Mr. Palumbo's son and intestate heir, although all legatees signed the agreement.

Plaintiff's Complaint alleged Plaintiff was entitled to a return of the taxes paid on the $11,721,141.00 (plus interest), claiming it constituted a charitable deduction pursuant to Section 2055 of the Internal Revenue Code (26 U.S.C. § 2055). Plaintiff filed a Motion for Summary Judgment in this regard advancing law and authority in support of its position.

Defendant countered with its own Motion for Summary Judgment, contending that the $11,721,141.00 amount was paid by operation of a settlement agreement, not by operation of a residuary clause in Mr. Palumbo's Last Will and Testament, and therefore could not be claimed as a charitable deduction from the Estate.

In light of these cross-motions, the sole issue before this Court was whether the sum of $11,721,141.00 qualified as a charitable deduction under Section 2055. This Court first, after reviewing the legislative history to 2055 and the facts presented in the parties' respective Motions for Summary Judgment, declined to narrowly construe 2055. Next, this Court thoroughly analyzed the case law and other authority cited by both parties and determined that:

(1) that the 1999 Will was the last written iteration of Mr. Palumbo's intent; (2) that prior testamentary documentation provided for a residuary estate, and that in all prior documentation, the residuary estate was left to the Charitable Trust; (3) Mr. Palumbo's attorney admitted that he made a scrivener's error when preparing the 1999 Will, in that he failed to include a provision for the residuary estate; and (4) after the dispute over the residuary estate arose, arm's length negotiations ensued which resulted the settlement agreement through which the Charitable Trust received the sum of $11,721,141.00.

Based on the evidence of record, the Court further determined that: (1) there was no evidence to indicate that the testator intended to forego a residuary clause and/or disinherit the Charitable Trust; (2) the testator's attorney admitted to making a scrivener's error when drafting the 1999 Will and failing to include a residuary clause; (3) all settlement negotiations among the legatees over the residuary estate were held at arms-length; (4) all of the legatees signed the settlement agreement which was approved by the Orphan's Court, and (5) there was no evidence of any collusion among the legatees nor any collusion on the part of their respective attorneys. The Court also repeatedly noted that all prior testamentary instruments prepared for Mr. Palumbo contained provisions for the residuary estate to pass to the Charitable Trust, thereby evidencing Mr. Palumbo's intent to devise and bequeath his residuary estate to the Charitable Trust.

Based on all of these key facts and the applicable law, this Court found that the sum of $11,721,141.00 should have been deducted from the gross estate as a charitable donation under Section 2055 of the Internal Revenue Code. See this Court's Opinion and Order, doc. nos. 39-40.

B. Factual Information Relevant to Attorney Fee Request

In light of the Court's Order (doc no. 40), Plaintiff now seeks an award of attorneys' fees and costs as the prevailing party under Section 7430 of the Internal Revenue Code. See Motion for Attorneys' Fees and Costs and Brief In Support, doc. nos. 42-43. Plaintiff timely filed its Motion for Attorneys' Fees and Costs and provided factual information suggesting the precise amounts that were incurred in costs and attorneys' fees stemming from litigating this matter during the administrative proceedings held within the Internal Revenue Service ("IRS") as well as the cost of litigating the matter before this Court. See doc. no. 44. Plaintiff also provided argument suggesting that Defendant's position throughout the litigation was not substantially justified, one of the many requirements that must be met in order for the Court to award attorneys' fees and costs to Plaintiff.

Defendant disputes that an award of attorneys' fees is proper. See Defendant's Brief in Opposition to the Motion for Attorneys' Fees and Costs, doc. no. 45.

First, Defendant contends that attorneys' fees and costs should not be awarded because the real party in interest is the Plaintiff -- not the Charitable Trust -- and the Plaintiff admits that the Estate had a net worth of over $2,000,000.00, which statutorily bars it from recovery. Defendant notes that Plaintiff attempts to circumvent this statutory bar by arguing that the Charitable Trust, not Plaintiff, was and is the "real party in interest" with respect to the issue previously adjudicated and decided by this Court. Defendant counters by arguing that Plaintiff, not the Charitable Trust, is the taxpayer who incurred the tax in the first place and thus is the entity entitled to the refund ordered by this Court, thereby rendering it (Plaintiff) the real party in interest.

Second, Defendant contends that its position throughout this litigation was substantially justified and because Defendant was substantially justified, Plaintiff (and/or the Charitable Trust) is statutorily barred from recovering attorneys' fees and costs.

The final argument advanced by Defendant is that Plaintiff failed to submit any evidence:

(1) substantiating the work actually performed by its attorneys, and/or (2) supporting its claims for fees in excess of the statutory cap on the hourly rate of attorneys.

Plaintiff filed a Reply wherein it cited additional case law supporting its argument that the Charitable Trust, not Plaintiff, was the real party in interest and therefore contends that the $2,000,000.00 net worth bar does not apply to preclude recovery of attorneys' fees and costs. Secondly, Plaintiff reiterates its argument that Defendant was not "substantially justified" in adhering to its position throughout prior litigation. Finally, Plaintiff argues that it submitted plenty of evidence to support both the actual work performed by the attorneys, and the basis for seeking fees in excess of the statutory cap.

This Court after thorough review of the submissions by the parties, the evidence proffered, and the law and authority governing this matter, finds in favor of Defendant.


The pertinent portions of title 26 of the United States Code section 7430 state:

(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 ...

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