United States District Court, M.D. Pennsylvania
THE ESTATE OF ESTHER M. HAKE, RICKY L. HAKE and RANDY L. HAKE, Executors, Plaintiffs
UNITED STATES OF AMERICA, Defendant
C. Carlson United States Magistrate Judge
now called upon to write the final chapter in this
litigation, and resolve a motion filed by the plaintiffs to
recover attorney's fees and costs from the United States.
(Doc. 50.) This action was brought by two executors to their
late mother's estate, who sued the United States on
behalf of the Estate seeking abatement and reimbursement of a
penalty that was assessed after the executors were late in
filing the estate's tax returns. The executors had filed
the return on the date that their tax attorney advised them
that it was due, after the estate had been granted extensions
of both its filing and payment deadlines. Yet, while the
executors paid the taxes that they believed were owed before
payment was due and in an amount that later proved to be more
than $100, 000 in excess of what was actually owed, they
unquestionably filed the estate's return approximately
six months' late, having been incorrectly advised by tax
professionals concerning the return deadline. For this error
the Estate was assessed a late penalty in the amount of $197,
868.26, and interest of $17, 202.44 was also imposed pursuant
to section 6651(a)(1) of the Internal Revenue Code.
executors pursued an administrative appeal for abatement of
the penalty on August 13, 2013. When that appeal was
rejected, the executors paid the entire balance owed for
penalty and interest. The executors then took steps to secure
a refund of the penalty and interest, and exhausted their
administrative remedies with the Internal Revenue Service,
all of which were unsuccessful. This litigation followed when
the executors filed a complaint on behalf of the Estate on
July 15, 2015. (Doc. 1.)
parties then filed cross-motions for summary judgment, (Docs.
23, 33.), which we resolved in favor of the plaintiffs,
finding that, given the unique and undisputed facts of this
case, as well as the developing law in this field, the
executors' reliance upon the advice of their counsel in
these particular circumstances regarding the applicable
deadlines for filing the estate's return was reasonable,
and, therefore, the imposition of the penalties and interest
was not warranted. In reaching this conclusion, however, we
noted and acknowledged that this legal issue was not free
from doubt. Quite the contrary, we conceded that the
Government's arguments drew substantial support from
emerging case law from other courts law in this field. We
nonetheless found finds that application of authority from
the United States Court of Appeals for the Third Circuit to
the particular facts of this case compelled this outcome.
motion for fees and costs followed. (Doc. 50.) In this motion
the Estate seeks recovery of $51, 378.00 in attorney's
fees, and costs of $1, 471.40, for a total award of $52,
849.40. (Id., ¶12.) The parties have fully
briefed this motion. (Docs. 51 and 53.) Accordingly, this
matter is ripe for resolution.
consideration on this motion, for the reasons set forth
below, we find that the Estate has not established an
entitlement to fees and costs under the controlling statute
which governs such awards in federal tax litigation, 26
U.S.C. §7430. Therefore, the motion for fees and costs
will be denied.
7430 of Title 26, United States Code, governs the award of
costs and fees in any action involving the United States
which relates to the refund of any tax, interest or penalty.
Section 7430 provides in pertinent part that:
(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.
26 U.S.C. § 7430 (a)(1)-(2).
§7430 constitutes a limited waiver of sovereign
immunity, allowing for some financial recoveries against the
United States, it is well-settled that: “the
traditional principle that the Government's consent to be
sued ‘must be “construed strictly in favor of the
sovereign, ” McMahon v. United States, 342
U.S. 25, 27 [72 S.Ct. 17');">72 S.Ct. 17, 19, 96 L.Ed. 26] (1951), and not
‘enlarge[d] ... beyond what the language requires,
” ' Ruckelshaus v. Sierra Club, 463 U.S.
680, 685, 103 S.Ct. 3274, 3278, 77 L.Ed.2d 938 (1983)
(quoting Eastern Transportation Co. v. United
States, 272 U.S. 675, 686, 47 S.Ct. 289, 291, 71 L.Ed.
472 (1927)).” United States v. Nordic
Vill. Inc., 503 U.S. 30, 34, 112 S.Ct. 1011,
1014-15, 117 L.Ed.2d 181 (1992). See e.g Miller v.
Alamo, 992 F.2d 766, 766 (8th Cir. 1993)(c0nstruing
§7430); In re Klauer, 362 B.R. 31, 35 (Bankr.
M.D. Fla. 2006)(construing §7430). Adopting this
analytical perspective we note that for purposes of Section
7430, a “prevailing party” entitled to fees and
costs is defined as:
any party in any proceeding to which subsection (a) applies
(other than the United States or any creditor of the taxpayer
involved)--(i) which--(I) has substantially prevailed with
respect to the amount in controversy, or(II) has
substantially prevailed with respect to the most significant
issue or set of issues presented, and (ii) which meets the
requirements of the 1st sentence of section 2412(d)(1)(B) of
Title 28, United States Code (as in effect on October 22,
1986) except to the extent differing ...