70 F.3d 1261 (4th Cir. 1995), 95-1065, Hurt v. U.S.

• Citation: 70 F.3d 1261
• Party Name: Charles E. HURT; Carolyn Hurt, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant,and COMMISSIONER OF THE INTERNAL REVENUE SERVICE, Defendant. Charles E. HURT; Carolyn Hurt, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee,and COMMISSIONER OF THE INTERNAL REVENUE SERVICE, Defendant.
• Case Date: November 30, 1995
• Court: United States Courts of Appeals, United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 1261

70 F.3d 1261 (4th Cir. 1995)

Charles E. HURT; Carolyn Hurt, Plaintiffs-Appellees,

v.

UNITED STATES of America, Defendant-Appellant,and

COMMISSIONER OF THE INTERNAL REVENUE SERVICE, Defendant.

Charles E. HURT; Carolyn Hurt, Plaintiffs-Appellants,

v.

UNITED STATES of America, Defendant-Appellee,and

COMMISSIONER OF THE INTERNAL REVENUE SERVICE, Defendant.

Nos. 95-1065, 95-1029.

United States Court of Appeals, Fourth Circuit

November 30, 1995

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA4 Rule 36 regarding use of unpublished opinions)

Argued: October 31, 1995.

76 A.F.T.R.2d 95-7815

Appeals from the United States District Court for the Southern District of West Virginia, at Charleston. Charles H. Haden II, Chief District Judge. (CA-93-921-2)

S.D.W.Va.

AFFIRMED.

ARGUED: Bruce Raleigh Ellisen, Tax Division, United States Department of Justice, Washington, DC, for Appellant. Charles Edward Hurt, Charleston, WV, for Appellees. ON BRIEF: Loretta C. Argrett, Assistant Attorney General, Gary R. Allen, Paula K. Speck, Rebecca Aline Betts, United States Attorney, Tax Division, United States Department of Justice, Washington, DC, for Appellant.

OPINION

Before HAMILTON, MICHAEL, and MOTZ, Circuit Judges.

HAMILTON, Circuit Judge:

This appeal arises out of an income tax dispute for the 1986 tax year between the Appellees/Cross-Appellants, Charles and Carolyn Hurt (the Hurts), and the United States Internal Revenue Service (the IRS or the government). After the parties had entered into a settlement agreement, settling the total amount of the Hurts' liability for the 1986 tax year at $30,761.93, the IRS sought to collect an additional $17,241.19 in statutory interest on the settled amount pursuant to 26 U.S.C.A. (I.R.C.) § 6601(a) (West Supp.1995). The Hurts paid the statutory interest under protest and filed a refund suit in the district court. Concluding the settlement agreement contractually precluded the government from collecting the $17,241.19 in statutory interest, the district court granted summary judgment in favor of the Hurts. The government appeals, contending the district court erred in concluding the settlement agreement contractually precluded it from collecting statutory interest. The Hurts cross-appeal the district court's denial of their motion for attorney's fees under I.R.C. § 7430(a) (West 1989). We now affirm the district court in all respects.

I.

On March 2, 1991, the IRS issued the Hurts a notice of income tax deficiency for the 1986 tax year. The notice of deficiency asserted that the Hurts owed: (1) $36,267.44 in additional income tax for 1986; (2) $2,299.55 as a negligence penalty under I.R.C. § 6653(a)(1)(A) (West 1989); (3) $11,286.82 as an understatement penalty under I.R.C. § 6661 (West 1989); and (4) an amount equal to fifty-percent of the interest payable on $45,990.44 as a negligence penalty under I.R.C. § 6653(a)(1)(B) (West 1989). Among the items asserted by the IRS as giving rise to this deficiency were a decrease in the rental loss and an increase in the capital gain attributable to a condominium on Kiawah Island, South Carolina, a gain on the casualty loss of an automobile, and an increase in income subject to self-employment tax.

The Hurts, acting pro se, ¹ challenged the petition in the United States Tax Court. Settlement negotiations ensued, resulting in a signed settlement agreement between the parties, entitled "Stipulation of Settled Issues" (the Settlement Agreement). In the Settlement Agreement: (1) the Hurts conceded the rental loss claimed on the Kiawah Island condominium; (2) a value was set for the condominium as well as the property received in exchange, and a deferral of the gain was allowed; (3) a figure was set for the automobile casualty loss; (4) the IRS conceded an adjustment to partnership income; (5) the Hurts conceded the negligence penalty under I.R.C. § 6653(a)(1)(A) (West 1989); (6) fifty-percent of the adjustments to income and to capital gains was to be used for the purpose of calculating the negligence penalty under I.R.C. § 6653(a)(1)(B) (West 1989); and (7) fifty-percent of the adjustments to partnership income and capital gains was to be used to calculate the I.R.C. § 6661 (West 1989) penalty for understatement of income. The Settlement Agreement did not specifically address statutory interest.

The parties then used the stipulated adjustments to determine the amount of the Hurts' income tax deficiency and the amounts of the various penalties. The parties having set forth the amount of the Hurts' income tax deficiency and the amounts of the various penalties in a second signed stipulation agreement, dated June 8, 1992, the Tax Court adopted the agreement as its decision on June 12, 1992 (the Stipulated Decision). The Stipulated Decision provided for (1) an income tax deficiency of $20,217.52; (2) an I.R.C. § 6653(a)(1)(A) (West 1989) negligence penalty of $1,497.03; (3) an I.R.C. § 6661 (West 1989) understatement of income penalty of $3,637.50; and (4) an I.R.C. § 6653(a)(1)(B) (West 1989) negligence penalty "in the amount of 50% of the interest due on $14,970.26." (J.A. 15). Like the Settlement Agreement, the Stipulated Decision did not specifically address statutory interest.

Subsequently, the IRS sought to collect the agreed upon amounts, which totalled $30,761.93, as well as $17,241.19 in statutory interest under I.R.C. § 6601(a) (West Supp.1995), ² which interest was not specifically mentioned in either the Settlement Agreement or the Stipulated Decision. While the Hurts paid the full amount the IRS sought to collect, they paid the portion constituting statutory interest under protest. Next, the Hurts filed an administrative claim with the IRS for a refund of the $17,241.19, asserting the Settlement Agreement and Stipulated Decision had relieved them of liability for statutory interest. Rejecting this ground, the IRS denied the Hurts' administrative claim on September 24, 1993. The Hurts then instituted this refund suit in federal district court, alleging the government had waived its right to collect statutory interest by entering the Settlement Agreement and Stipulated Decision.

The government moved to dismiss the refund suit pursuant to Federal Rule of Civil Procedure 12(b)(6), alleging the Settlement Agreement and Stipulated Decision did not relieve the Hurts of liability for statutory interest. In support of its allegation, the government attached the declaration of John A. Freeman, the IRS attorney who negotiated the settlement, stating that he and Charles Hurt did not discuss or negotiate the statutory interest due under I.R.C. § 6601(a) (West Supp.1995). The Hurts then moved for summary judgment. Attached to their motion was an affidavit of Charles Hurt directly disputing the IRS attorney's version of the settlement negotiations.

On February 24, 1994, the district court denied the Hurts' motion for summary judgment, and treating the government's Rule 12(b)(6) motion as one for summary judgment, denied it also. The district court then set the case for trial, and the parties submitted a pretrial order. On the trial date, the district court held a hearing, resulting in its granting summary judgment in favor of the Hurts. The Hurts then moved for reimbursement of their attorney's fees under I.R.C. § 7430(a) (West 1989). The district court denied the motion on the ground that pro se litigants may not collect attorney's fees under I.R.C. § 7430(a) (West 1989).

The government appeals the district court's granting of summary judgment in favor of the Hurts, and the Hurts cross-appeal the district court's denial of their motion for attorney's fees.

II.

The principal question we face here is whether the district court erred in concluding the Settlement Agreement and the Stipulated Decision contractually precluded the government from collecting $17,241.19 in statutory interest from the Hurts for the 1986 tax year. We review the district court's grant of summary judgment de novo, applying the same...