Ferguson v. U.S.
| Decision Date | 03 September 2004 |
| Docket Number | No. 4:02-CV-40449.,4:02-CV-40449. |
| Citation | 343 F.Supp.2d 787 |
| Parties | Donald R. FERGUSON, Plaintiff/Counterclaim Defendant, v. UNITED STATES of America, Defendant/Counterclaim Plaintiff, v. Richard Musal and Nicholas P. Miller, Counterclaim Defendants. |
| Court | U.S. District Court — Southern District of Iowa |
Harold N. Schneebeck, Jr., Brown, Winick, Graves, Gross, Baskerville & Schoenebaum PLC, West Des Moines, IA, for Plaintiff.
Laquita Taylor Phillips, Teresa Dondlinger Trissell, U.S. Dept. of Justice, Washington, DC, Jan M. Mohrfeld-Kramer, Ronald L. Mountsier, William S. Smith, Smith, Schneider, Stiles, Hudson, Serangeli, Mallaney & Shindler PC, James R. Monroe, Jerrold Wanek, Garten & Wanek, Des Moines, IA, for Defendants.
Before the Court is Counterclaim Defendant Nicholas Miller's Motion for Litigation Costs; Counterclaim Defendant Donald R. Ferguson's Motion to Modify Judgment and Motion for Attorney Fees; Counterclaim Plaintiff United States' Renewed Motion for Judgment as a Matter of Law; and Counterclaim Defendant Richard Musal's Motion to Reconsider. The motions came on for hearing on August 25, 2004. The Government was represented by Laquita Taylor-Phillips; Counterclaim Defendant Ferguson was represented by Harold Schneebeck and Kelly Helwig; Counterclaim Defendant Richard Musal was represented by Ronald Mountsier; and Counterclaim Defendant Nicholas Miller was represented by Jerrold Wanek and James Monroe. The matter is now fully submitted to the Court for review.
The litigation stems from an IRS penalty in the amount of $1,300,552.09 that was assessed against Donald Ferguson ("Ferguson"), Nicholas Miller ("Miller") and Richard Musal ("Musal") arising from unpaid excise taxes owed by Access Air, a company in which these men held management positions. On May 6, 2004, the Court entered an Order denying Counterclaim Defendant Nicholas Miller's Motion for Summary Judgment, denying Defendant/Counterclaim Plaintiff USA's Cross-Motion for Summary Judgment against Counterclaim Defendant Nicholas Miller, and granting Defendant/Counterclaim Plaintiff USA's Cross-Motion for Summary Judgment against Counterclaim Defendant Richard Musal.
On May 7, 2004, Musal filed a Motion to Amend, requesting that the Court amend the May 6, 2004, Order and allow Musal to proceed to trial on the issue of the accuracy of the IRS assessment amount. On May 18, 2004, the Court entered an Order denying Musal's Motion to Amend, finding that all of the arguments Musal offered in support of his Motion to Amend were presented during the summary judgment stage of the litigation and considered by the Court at that time. The Court further noted that Musal offered no evidence to demonstrate that any manifest errors of law or fact, or any newly discovered evidence, existed. The Court held that relief under Rule 59(e) was not appropriate.
On May 18, 2004, the Court entered an Order denying Plaintiff/Counterclaim Defendant Donald Ferguson's Motion for Summary Judgment.
A jury trial on Ferguson's refund claim and the Government's counterclaims against Ferguson and Miller began on May 24, 2004. At the close of Ferguson's case in chief, the Government moved for judgment as a matter of law on Ferguson's claim for refund. After hearing arguments from counsel on the motion and upon consideration of the evidence produced in the trial, the Court granted the Government's motion for judgment as a matter of law on the refund claim. Thus, the refund case had come to a close, and the trial continued on the claims brought by the Government.
On May 28, 2004, the jury returned its verdict, finding Ferguson to be a responsible person who willfully failed to account for and pay over Access Air's excise taxes for the second and third quarters of 1999. The jury further found that the second and third quarter assessed excise taxes were erroneous and excessive. The jury determined that the amount of the excise taxes owed were $47,521.11 for the second quarter and $48,043.32 for the third quarter. The jury found that Ferguson was not a responsible person during the fourth quarter of 1999. The jury found Nicholas Miller was not a responsible person.
Judgment against Ferguson was entered in the case on June 2, 2004. On June 7, 2004, Nicholas Miller filed a Motion for Litigation Costs, seeking $65,341.75 in attorney fees and costs. On June 17, 2004, Donald Ferguson filed a Motion for Attorney Fees and Litigation Costs, seeking $140,724.36. The Government has resisted both Ferguson's and Miller's motions for litigation costs, asserting that the Government's position at trial was substantially justified.
"Section 7430 of the Internal Revenue Code provides for a discretionary award of reasonable costs and attorney's fees incurred in administrative and judicial tax proceedings by a taxpayer who is the prevailing party, has exhausted available administrative remedies, and did not unreasonably protract the administrative or judicial proceedings." Sherbo v. C.I.R., 255 F.3d 650, 652-53 (8th Cir.2001). Miller asserts, and the Government does not contest, that he has exhausted available administrative remedies and he has not unreasonably protracted the administrative or judicial proceedings.
"A taxpayer is not considered a `prevailing party,' and is not entitled to litigation costs, if the government's position was substantially justified." Kaffenberger v. United States, 314 F.3d 944, 960 (8th Cir.2003) (citing § 7430(c)(4)(B)). "The position of the United States is substantially justified if it has a reasonable basis in both law and fact, a determination made on a case by case basis." United States v. Bisbee, 245 F.3d 1001, 1007 (8th Cir.2001) (internal citations omitted).
Miller prevailed on the issue of whether he was a responsible person for the second, third, and fourth quarters of 1999. Miller argues that the Government's litigation position that he was a responsible person was not substantially justified. In support of his argument, Miller points to the arguments he presented at the summary judgment stage of this litigation and again at the trial. In support of its contention that its litigation position was substantially justified, the Government relies on the fact that Miller signed the first quarter's tax return. The Government also relies on the Form 4180 Report of Interview with Individual Relative to Trust Fund Recovery Penalty that was completed by Miller.
"A party shall not be treated as the prevailing party ... if the United States establishes that the position of the United States in the proceeding was substantially justified." 26 U.S.C. § 7430(c)(4)(B)(i). "A 1996 amendment to [26 U.S.C. § 7430] explicitly placed the burden of proof on this issue on the government when it added § 7430(c)(4)(B)." Sherbo, 255 F.3d at 653; see also Bloom v. United States, 2001 WL 1191137, at *3 (W.D.Pa.2001) (); Richards v. United States, 2001 WL 350241, at *1 (D.Mont.2001) (); Bregman, Berbert & Schwartz, L.L.C. v. United States, 1999 WL 1315653, *1 (D.Md.1999) (); Florida Country Clubs, Inc. v. Comm'r Internal Revenue, 122 T.C. 73, 79, 2004 WL 193574 (2004) (same). But see Kaffenberger, 314 F.3d at 960 (quoting Bisbee, 245 F.3d at 1007) ("The taxpayer bears the burden of proving that the government's litigation position was not substantially justified.").
The Government has asserted that Miller was a responsible party that willfully failed to pay. At hearing on the motion, the Government cited to Form 4180 in support of its argument that its litigation position was substantially justified. The Court has searched extensively through the record in this case and discovered that although the Form 4180 was completed by Miller, it has never been presented to the Court and is therefore not a part of this record. The Government's argument is substantially undermined by that failure to adequately create a record. However, the Court notes that even if Form 4180 were a part of the record in this case, the information contained therein fails to establish that Miller was a responsible party. Form 4180 merely provides a list of relevant factors pertinent to a responsible party determination and allows for an individual to check off those functions which the individual performed. Other than the single check mark, no further information is provided to indicate in any relevant detail how these functions were performed. There is also no information showing how the Government concluded, based solely on the boxes checked off on Form 4180, that Miller was a responsible person. Even a cursory review of the relevant law would demonstrate that such factors may indicate an individual is a responsible person in a company for this purpose but that the actual circumstances would demonstrate otherwise; thus, additional investigation is required.
"The Commissioner's position was substantially justified if it had a reasonable basis in law and fact." Cox v. Comm'r, 121 F.3d 390, 393 (8th Cir.1997). "The Commissioner cannot have a reasonable basis in both fact and law if it does not diligently investigate a case." Nicholson v. Comm'r Internal Revenue, 60 F.3d 1020, 1029 (3rd Cir.1995) (quoting Powers v. Comm'r Internal Revenue, 100 T.C. 457, 473, 1993 WL 175413 (1993)) (quotations omitted); see also United States v. Estridge, 797 F.2d 1454, 1458 (8th Cir.1986) (); Matter of Evans, ...
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Colosimo v. U.S.A
...the disbursement of funds and payment of creditors; and (6) she possesses the authority to sign company checks. Ferguson v. United States, 343 F.Supp.2d 787, 798 (S.D.Iowa 2004) Barnett v. IRS, 988 F.2d 1449, 1455 (5th Cir.1993)), aff'd, 484 F.3d 1068 (8th Cir.2007); see also Moulton v. Uni......