Awmiller v. U.S., 91-35913

• Decision Date: 11 June 1993
• Docket Number: No. 91-35913,91-35913
• Parties: -5664, 93-2 USTC P 50,464 Berniece AWMILLER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 930

1 F.3d 930

72 A.F.T.R.2d 93-5664, 93-2 USTC P 50,464

Berniece AWMILLER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 91-35913.

United States Court of Appeals Ninth Circuit.

Submitted June 11, 1993. ^*

Decided August 5, 1993.

Thomas F. Kelly, Kirkland, WA, for plaintiff-appellant.

Bridget M. Rowan, Tax Div., U.S. Dept. of Justice, Washington, DC, for defendant-appellee.

Appeal from the United States District Court for the District of Alaska.

Before FARRIS, FERGUSON and D.W. NELSON, Circuit Judges.

FARRIS, Circuit Judge:

Berniece Awmiller appeals from the district court's denial of her request for attorney's fees under 26 U.S.C. Sec. 7430. We have jurisdiction over the timely appeal pursuant to 26 U.S.C. Sec. 7430(e) and 28 U.S.C. Sec. 1291. We affirm.

The sole issue is whether the position of the United States in Awmiller's tax refund suit was "substantially justified." 26 U.S.C. Sec. 7430(c)(4)(A)(i). The phrase "substantially justified" means "justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 2550, 101 L.Ed.2d 490 (1988); Huffman v. Commissioner, 978 F.2d 1139, 1147 (9th Cir.1992). We review the district court's determination of whether the government's position was "substantially justified" for an abuse of discretion. Bertolino v. Commissioner, 930 F.2d 759, 761 (1991).

Awmiller argues that the government was not substantially justified in pursuing this litigation because it could not show that she was a person responsible for the payment of withheld payroll taxes under Title 26, United States Code, Section 6672. We reject the argument.

Although Awmiller ultimately prevailed at trial, a reasonable person could have found that Awmiller was responsible for the payment of withheld federal payroll taxes. She was Comptroller of the corporation, had cosignatory authority over the corporate checking accounts, and signed a $100,000 promissory note on behalf of the corporation. The government's primary witness, a former president of the corporation, testified that Awmiller had complete control over the payment of creditors.

The district court found that paperwork accessible to the Government and the witnesses accessible to the Government, as well as the mode of operations of the business, made it reasonable to believe that Awmiller had the power to determine whether government withholding taxes would be paid or not. Until the witnesses testified, and one appeared more credible than the other, one could have reasonably predicted that either side would prevail. The court remarked: "I thought that had Ms. Awmiller been less credible and [the Government's star witness] been more credible, the case could have gone the other way, and would have gone the other way.... One never knows until one watches it happen in front of the jury just how bad one's star witness is going to be."

The district court did not abuse its discretion in finding that the government's position was substantially justified.

AFFIRMED.

FERGUSON, Circuit Judge, dissenting:

Berniece Awmiller, a widow and grandmother with a high school education, was hired as a bookkeeper by Diamond E Enterprises, a salmon fishing and canning business. She had no independent authority to direct tax payments or any other payments for the company. As bookkeeper, her principal duty was to monitor the inventory of the fish catch. She was later given the title of "comptroller," but was not given any additional responsibilities or any increase in salary. See Fitzgerald v. United States, 789 F.Supp. 177, 179 (E.D.Pa.1992) (IRS acted unreasonably in relying on a change of title that did not actually alter responsibility or salary). She did not prepare payroll checks and was not involved in payroll accounting. All checks she signed in payment of Diamond E's bills were at the direction of her boss, who had already signed the check.

The Internal Revenue Service made an assessment against Awmiller for $363,740.95 based on its belief that she was a responsible person, under 26 U.S.C. Sec. 6672, for Diamond E's failure to pay federal withholding taxes. The IRS seized all of Awmiller's assets and placed a lien on her house. After Awmiller's retirement in 1987, she lived on her social security benefits alone.

The government's case turned exclusively on a few pieces of equivocal documentary evidence and on the testimony of Alf Nelson, a former president of Diamond E. I believe that the documentary evidence was enough for the IRS to have a reasonable basis in fact and law to begin an investigation of whether Awmiller was a responsible person.

The...