Fitzgerald v. US

• Decision Date: 24 April 1992
• Docket Number: Civ. A. No. 90-2829.
• Citation: 789 F. Supp. 177
• Parties: Isabella FITZGERALD, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

789 F. Supp. 177

Isabella FITZGERALD, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 90-2829.

United States District Court, E.D. Pennsylvania.

April 24, 1992.

MEMORANDUM

ROBERT F. KELLY, District Judge.

Plaintiff, Isabella Fitzgerald, brought this action seeking a refund of tax penalties imposed pursuant to section 6672 of the Internal Revenue Code. 26 U.S.C. § 6672. Plaintiff was assessed and paid a penalty tax of $5872.09 plus interest charges amounting to $1,272.11. She was assessed this penalty tax in connection with her job at the North Philadelphia Block Development Corporation (the "Corporation"). The Internal Revenue Service maintained that Plaintiff was one of the persons responsible for the failure of the Corporation to pay trust fund taxes withheld from employees for the periods ending December 31, 1980 and March 31, 1981. Plaintiff filed this action for a refund of the penalty assessment after exhausting her administrative remedies. In April of 1991, the United States decided to concede the case and agreed to a stipulation of an entry of judgment against it. This stipulation was filed on October 2, 1991. Presently before this Court is Plaintiff's Motion for Attorney's Fees filed pursuant to section 7430 of the Internal Revenue Code. After careful consideration of the parties' memoranda and a hearing on said motion, I will grant in part Plaintiff's Motion for Attorney's Fees.

Section 6672 of the Internal Revenue Code insures the Treasury against loss by imposing personal liability on persons whose control over the financial affairs of a business entity requires them to collect and pay over taxes withheld from third parties. Quattrone Accountants, Inc. v. Internal Revenue Service, 895 F.2d 921 (3d Cir.1990). Section 6672 provides that "any person required to collect ... and pay over any tax ... who willfully fails to collect such tax, or truthfully account for and pay over such tax ... shall ... be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over." 26 U.S.C. § 6672. Internal Revenue Code section 7430 provides that:

(a) In general. In the case of any civil proceeding which is

(1) brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, and

(2) brought in a court of the United States (including the Tax Court), the prevailing party may be awarded a judgment for reasonable litigation costs incurred in such proceeding.

26 U.S.C. § 7430(a). Congress has given the court discretion in awarding attorney's fees and costs to a prevailing party in a tax refund action. The first step is to determine whether the plaintiff is a prevailing party. This term is defined in section 7430(c)(4)(A) of the Internal Revenue Code which states that a "prevailing party" is a party which:

(i) establishes that the position of the United States in the proceeding was not substantially justified,

(ii) which

(I) has substantially prevailed with respect to the amount in controversy, or

(II) has substantially prevailed with respect to the most significant issues or set of issues presented....

26 U.S.C. § 7430(c)(4)(A). The United States concedes that Plaintiff has substantially prevailed with respect to amount in controversy. The issue presented before me is whether the position of the United States in the instant case was unreasonable or not "substantially justified." Rickel v. Commissioner of Internal Revenue, 900 F.2d 655, 665 (3d Cir.1990). Plaintiff has the burden of establishing that the position of the United States was not substantially justified.

Plaintiff was hired in 1979 as a fiscal clerk for the Corporation. The Corporation was involved in the insulating and weather-stripping of various homes of the poor in North Philadelphia through a grant which Milton Street, then a state senator, obtained from the Commonwealth of Pennsylvania. This program lasted about 15 months. Plaintiff was assessed the penalty tax in 1986 in connection with her employment at the Corporation during the program period. Her responsibilities as a fiscal clerk included keeping track of workers' time and materials used and filing out reports to the supervising state agencies. She was paid $4.29 per hour. Plaintiff maintains that she was not responsible for the filing of corporate...