Baker v. C.I.R.

• Decision Date: 04 April 1986
• Docket Number: No. 85-1199,85-1199
• Citation: 787 F.2d 637
• Parties: , 57 A.F.T.R.2d 86-1106, 86-1 USTC P 9311 Robert Randall BAKER, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 637

787 F.2d 637

252 U.S.App.D.C. 81, 57 A.F.T.R.2d

86-1106, 86-1 USTC P 9311

Robert Randall BAKER, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 85-1199.

United States Court of Appeals,

District of Columbia Circuit.

Argued Feb. 6, 1986.

Decided April 4, 1986.

As Amended April 4, 1986.

David Rodney, for appellant.

Bruce Ellisen, Atty., Dept. of Justice, for appellee. Glenn L. Archer, Jr., Asst. Atty. Gen. and Michael L. Paup, were on brief for appellee. Gilbert S. Rothenberg and Roger M. Olsen, Attys., Dept. of Justice Washington, D.C., also entered appearances for appellee.

Before: ROBINSON, Chief Judge, MIKVA and GINSBURG, Circuit judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

This case arose out of alleged deficiencies in the 1979 and 1980 federal income tax paid by appellant Robert Randall Baker. Ultimately, the Commissioner of Internal Revenue (Commissioner) conceded that the opposition of the United States to Baker's Tax Court petition was incorrect. Baker owed no tax, the Commissioner eventually stipulated; instead, he was entitled to a refund for one of the tax years in question. Baker then moved in the Tax Court for an award of $4,236.40 covering his litigation costs, including an attorney's fee. He invoked section 7430 of the Internal Revenue Code, 26 U.S.C. Sec. 7430, which provides for such awards when the taxpayer "has substantially prevailed with respect to the amount in controversy," Sec. 7430(c)(2)(A)(ii)(I), and "establishes that the position of the United States in the civil proceeding was unreasonable," Sec. 7430(c)(2)(A)(i). ¹

The Tax Court, without holding a hearing, ² denied Baker's motion. Baker v. Commissioner of Internal Revenue, 83 T.C. 822 (1984). We conclude that the Tax Court gave insufficient consideration to Baker's plea that the concession he sought and eventually achieved with the aid of counsel was unreasonably delayed. Baker cites the earlier concessions his co-workers, apparently identically situated taxpayers, achieved without the aid of counsel. Before Baker retained an attorney, he had called these concessions to the attention of the Internal Revenue Service (IRS) office handling his case. He asserts that the officers involved acted arbitrarily in requiring him to pursue a longer, more arduous and expensive course than the one expeditiously traveled by other taxpayers with indistinguishable cases.

If the IRS officers handling Baker's case indeed acted "in a normal and orderly fashion," 83 T.C. at 830, no cost award would be in order. On the other hand, if they were unreasonably intransigent, an award would be warranted. We are not equipped, from the materials before us, to say which description better fits the case at hand. Nor was the Tax Court positioned to make that judgment. The record, in its current state, does not permit an informed determination as to the quality of the IRS officials' conduct--whether it was "normal and orderly" or intransigent and arbitrary--in relation to the concession eventually made by the Commissioner that there was no deficiency. Whether Baker experienced disadvantageous treatment in comparison to identically situated taxpayers and, if so, why, are fact questions the Tax Court left unexplored. We therefore vacate the judgment of the Tax Court, and remand the case for the factual hearing and attendant discovery ³ necessary to a just adjudication whether the manner in which the IRS processed Baker's petition was unreasonable.

I. BACKGROUND

In 1979 and 1980, taxpayer Baker worked at the King Faisal Specialist Hospital and Research Centre (Hospital) in Riyadh, Saudi Arabia. Baker resided in housing leased by the Hospital in an apartment complex called the Sahara Towers. All "Western" employees, Baker included, were required to live in Hospital-provided quarters. Under the custom of the country as well as the Hospital's rules, ⁴ Baker and his compatriots could reside nowhere else.

For tax years 1979 and 1980, section 911 of the Internal Revenue Code provided an exclusion from gross income for certain income earned by a United States citizen living abroad "who, because of his employment, reside[d] in a camp located in a hardship area" (the "camp exclusion"). Pub.L. 95-615, Secs. 202(g)(2), (3), formerly Secs. 202(f)(2), (3), Nov. 8, 1978, 92 Stat. 3100, renumbered Pub.L. 96-222, title I, Sec. 108(a)(1)(A), Apr. 1, 1980, 94 Stat. 223. Section 911(c)(1)(B)(iii) defined a "camp" in relevant part as lodging provided by the employer for the convenience of the employer "furnished in a common area (or enclave) which is not available to the public and which normally accommodates 10 or more employees." A Treasury Regulation elaborated that "a cluster of housing units is not a common area or enclave if it is adjacent to or surrounded by substantially similar housing available to the general public." Treas.Reg. Sec. 1.911-1(c)(1), T.D. 7736, 1981-1 C.B. 412, 414.

In September 1982, the IRS conducted in Riyadh audits of selected 1979 and 1980 tax returns, including Baker's. At a meeting with the auditor, Baker received a copy of a report that computed proposed tax deficiencies resulting from a disallowance of the camp exclusion he had claimed. Baker did not qualify for the exclusion, according to the IRS, because the apartment complex to which his employer assigned him was located inside the greater Riyadh city limits "adjacent to or surrounded by" housing open to the general public. Under the Treasury Regulation cited above, Baker's quarters thus did not fit within the definition of "camp" housing, even though Baker was not allowed to live anywhere else in the city.

In a letter to the tax auditor in Jidda, Saudi Arabia, dated October 15, 1982, Baker protested the decision to disallow the camp exclusion and stated that he wished to make a written appeal. This letter apparently did not reach the addressee, and on October 26 the tax auditor returned the case file to the Foreign Operations District in Washington, D.C., for issuance of a notice of deficiency. Baker next received a formal notice of deficiency, dated December 10, 1982, asserting deficiencies of $655 for 1979 and $2,534 for 1980, based primarily on disallowance of the claimed camp exclusion for those years. ⁵ An exchange of correspondence followed, in which the IRS provided a written explanation of the adjustments to Baker's returns.

On April 6, 1983, Baker filed a pro se petition in the Tax Court for redetermination of the deficiency set forth in the Commissioner's December 10, 1982, notice. Baker requested that trial of his case be held in Cleveland, Ohio, and responsibility for the case was thereupon transferred from the Washington, D.C., to the Cleveland District Counsel Office.

Baker met with an appeals officer in Cleveland in September 1983 to explore the possibility of settlement. At this meeting, he told the appeals officer that "two of his fellow employees in Riyadh had also been assessed deficiencies under the same essential circumstances as he, but both of these cases had been dismissed by the [Washington, D.C.] Appeals Office." Memorandum Supporting Motion for Litigation Costs at 3, Appendix (App.) at 51. The appeals officer "told Mr. Baker to send him more information about this, but he said that it probably would not matter because each case was decided on its own merits." Id. Because the record is now barren, we assume for purposes of the instant appeal that no IRS officer in Cleveland checked at this point with IRS personnel outside Cleveland and, in particular, that no inquiry from Cleveland was made to the Foreign Operations District in Washington, D.C., although that is the place to which most cases like Baker's would be dispatched. ⁶

In a letter addressed to the Cleveland Appeals Office, dated November 26, 1983, Baker recounted what he had learned by checking with the two King Faisal Hospital co-workers who had been audited in Saudi Arabia at the same time he was and by the same auditor. The auditor had disallowed the camp exclusion in all three cases, but the Washington Appeals Office had allowed the exclusion upon receiving letters from the Hospital's Heads of Personnel and Administrative Services. Baker enclosed identical letters from these officials, along with an additional letter from the Hospital's Housing Services Department confirming his residence in the Sahara Towers during 1979 and 1980. Baker's letter also furnished the names of two officials in the Washington Appeals Office who had been involved with one of the cases the Commissioner had conceded.

The Cleveland Appeals Office received Baker's letter and attachments on December 7 and forwarded them to the Cleveland District Counsel Office, to which the case had been returned for trial preparation. Again, we assume at this junction that no IRS officer in Cleveland so much as picked up the phone to inquire (1) what had been done in Washington, D.C., regarding the King Faisal Hospital workers residing, as Baker was, in housing furnished by the Hospital, and (2) if concessions were made, why the office in Washington, D.C., had made them. See supra note 6.

Having made no headway on his own, Baker retained counsel to represent him in December 1983, and on December 12, the Tax Court notified the parties that the case was set for trial in Cleveland at the session beginning March 5, 1984. Counsel for both parties met on January 12 to discuss a stipulation of facts. Cleveland counsel for the Commissioner was not satisfied with the documents Baker had supplied and requested additional information to back up the claimed camp exclusion, including a map of greater Riyadh, a copy of Baker's employment contract, a narrative description of the taxpayer's living quarters during 1979 and 1980, and narrative descriptions of both the location of the Sahara Towers and the surrounding area as it existed in 1979 and 1980.

Baker provided the requested...