Dixson Int'l Serv. Corp. v. Comm'r of Internal Revenue
| Decision Date | 17 May 1990 |
| Docket Number | Docket Nos. 22829-88,1 22832-88. |
| Citation | 94 T.C. 708,94 T.C. No. 43 |
| Parties | DIXSON INTERNATIONAL SERVICE CORP., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
R took several alternative positions in the notices of deficiency and answers, but did not explicitly identify them as such. When these cases were called for trial, the parties filed stipulations of settled issues and requested additional time to make the computations necessary for entry of decisions. Neither the stipulations of settled issues nor the oral representations of the parties made any reference to litigation costs. The stipulations of settled issues involved substantial concessions by both parties. The final computations show that Ps' combined net tax deficiencies, pursuant to the settlements, were $15,447 as opposed to $850,879 as originally determined in the notices of deficiency. After the computations of tax were complete, and approximately five months after filing the stipulations of settled issues, but prior to entry of decisions, Ps moved for litigation costs pursuant to section 7430, I.R.C. 1986. Ps' motions alleged, among other things, that R's position was not substantially justified, and that Ps meet the net worth requirements contained in section 7430(c)(4)(A)(iii). Ps provided no proof to support their net worth allegation.
Barbara E. Horan, for the respondent.
Respondent, in two separate notices of deficiency, determined the following deficiencies in petitioners' corporate income taxes:
This matter is before the Court on petitioners' motions for litigation costs pursuant to Rule 231 2 and section 7430.
Dixson, Inc. and Subsidiaries (Dixson), is a corporation organized and existing under the laws of the state of Colorado. At the time the petition was filed, Dixson had its principal place of business at Grand Junction, Colorado. Dixson International Service Corp. (International), a wholly-owned subsidiary of Dixson, is a corporation organized and existing under the laws of the state of Colorado. At the time the petition was filed, International also had its principal place of business at Grand Junction, Colorado.
On September 6, 1988, Dixson and International filed separate petitions, placing in controversy each adjustment reflected in the notices of deficiency. On May 1, 1989, the parties filed stipulations of settlement disposing of all issues contained in the two notices of deficiency. The parties indicated that they would need additional time to compute the tax effect of their settlement. We ordered the parties to submit decision documents by July 31, 1989, and subsequently extended the due date to September 30, 1989. These documents were never filed. Instead, on October 2, 1989, Dixson filed a motion for award of litigation costs. On the following day, International filed a motion for award of litigation costs in which it adopted and incorporated the reasoning set forth in Dixson's previously filed motion. Inasmuch as International has fully adopted the reasoning set forth in the motion filed by Dixson, we will refer to the two motions in the singular.
Respondent, in opposing petitioners' motion, argues that petitioners' failure to raise the issue of litigation costs prior to settling all other aspects of these related cases precludes petitioners from seeking an award of litigation costs and that, in any event, petitioners are not entitled to litigation costs because their motion was untimely under Rule 231. Respondent also argues that petitioners have failed to prove that they are prevailing parties because they have failed to establish that they substantially prevailed with respect to the amount in controversy, have failed to establish that the position of the United States in these civil proceedings was not substantially justified, and have failed to demonstrate that they meet the Equal Access to Justice Act net worth test required by section 7430(c)(4)(A)(iii). If we find that petitioners are entitled to reasonable litigation costs, respondent argues that the amounts claimed by petitioners are excessive or in some instances do not fall within the definition of ‘reasonable litigation costs‘ under section 7430(c).
Section 7430 establishes the criteria upon which an award of litigation costs is to be based. It does not, however, detail the time and manner in which taxpayers' claims for awards of litigation costs are to be made. Instead, Congress left to the courts the task of developing procedures for claiming litigation costs. Sanders v. Commissioner, 813 F.2d 859, 882 (7th Cir. 1987), affg. an order of this Court.
Respondent contends that the stipulations of settlement filed by the parties on May 1, 1989, settled all issues in these related cases and, therefore, preclude petitioners from seeking an award of litigation costs. Respondent points out that in the course of preparing the stipulations of settlement for presentation to the Court,
Counsel for petitioner[s] did not state that the settlement was contingent on a litigation costs issue in the stipulation of settlement, nor did he raise the issue at calendar call. In fact, the parties both agreed to file decision documents within ninety days, which decision documents could not have been filed if there were to be a dispute as to attorneys fees.
Noting that petitioners' counsel did not even raise the issue of litigation costs until September 28, 1989, respondent contends that petitioners' motion violates the terms of the settlements presented to the Court on May 1, 1989. We disagree.
The stipulations of settlement contain no language stating that petitioners had waived their rights to seek an award of litigation costs. Indeed, the documents do not mention litigation costs. The failure to raise the issue of litigation costs prior to settling all other aspects of a case does not preclude a motion for litigation costs. Even the entry of a stipulated decision will not always preclude a party from successfully seeking litigation costs. In Cassuto v. Commissioner, 93 T.C. 258, 260 (1989), on appeal (2d Cir., April 17, 1990), we vacated stipulated decisions and awarded litigation costs.
We also find no support for respondent's argument that petitioners' motion is untimely under Rule 231. In pertinent part, Rule 231(a) provides:
(2) UNAGREED CASES: Where a party has substantially prevailed and wishes to claim reasonable litigation costs, and there is no agreement as to that party's entitlement to such costs, a claim shall be made by motion filed --
(i) Within 30 days after the service of a written opinion determining the issues in the case;
(ii) Within 30 days after the service of the pages of the transcript that contain findings of fact or opinion stated orally pursuant to Rule 152 (); or
(iii) After the parties have settled all issues in the case other than litigation costs. See paragraphs (b)(2) and (c) of this Rule regarding the filing of a stipulation of settlement with the motion in such cases.
Rule 231(c) provides that where the parties have agreed to settle some issues, but cannot agree on an award of litigation costs, a motion for an award of litigation costs is to be accompanied by a stipulation of settlement. Rule 231 does not prohibit the filing of a stipulation of settled issues prior to a motion for litigation costs. It simply requires that when the motion is filed in a case where all other issues have been settled, a stipulation of settled issues accompany the motion.
In Cassuto v. Commissioner, supra, the taxpayers made a motion for litigation costs after this Court had entered decisions based upon the parties' settlement. We vacated the decisions and allowed the motion to be filed, finding that the taxpayers' attorney did not intend to resolve the litigation cost issue through the filing of a decision document. Cassuto v. Commissioner, supra at 260. Similarly, in Minahan v. Commissioner, 88 T.C. 492 (1987), we allowed the taxpayers to file motions for litigation costs after the entry of stipulated decisions. In the instant case, no decision was entered and the stipulations of settled issues did not address the issue of litigation costs. We find that petitioners' motion for litigation costs was made in a timely manner.
There were two basic issues raised by the pleadings. The first involved an intangible drilling cost (IDC) deduction. On its corporate income tax return for tax year ended September 30, 1977, Dixson claimed an IDC deduction of $1,350,000. Respondent determined that all events fixing Dixson's liability for the IDC had not occurred during the tax year ended September 30, 1977. During...
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