Frisch v. Comm'r of Internal Revenue, Docket No. 9417-83.

• Decision Date: 28 October 1986
• Docket Number: Docket No. 9417-83.
• Citation: 87 T.C. No. 53,87 T.C. 838
• Parties: E. ROGER FRISCH AND MARIE L. FRISCH, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

87 T.C. 838

87 T.C. No. 53

E. ROGER FRISCH AND MARIE L. FRISCH, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9417-83.

United States Tax Court

Filed October 28, 1986.

Petitioner, an attorney acting pro se, prevailed in a Tax Court case involving the valuation of a donated Norman Rockwell print. He then moved for an award of reasonable litigation costs pursuant to sec. 7430, I.R.C. 1954. HELD: Respondent's position in the Tax Court proceeding was unreasonable, and petitioner is entitled to litigation costs. HELD FURTHER: A pro se attorney-petitioner is not entitled to an award for the value of his own services. HELD FURTHER: Petitioner is awarded the sum of $1,860.00, representing expert witness fees and the fee for filing his Tax Court petition. E. Roger Frisch, pro se.

Patrick Turner, for the respondent.

OPINION

PARR, JUDGE:

This matter is before us on petitioners' motion for litigation costs. The issues are: (1) whether the position of the United States in the civil proceeding was unreasonable, and if so, (2) whether a pro se attorney-petitioner may be compensated for the value of services rendered in his own behalf, and (3) what amount of litigation costs should be awarded. The second issue is one of first impression in this Court.

Respondent determined a deficiency in Federal individual income tax against petitioners for 1979 in the amount of $6,506.00, and an addition to tax under section 6653(a) ¹ in the amount of $325.00. Respondent also sought increased interest on underpayments attributable to tax motivated transactions under section 6621(d).

This case was tried in New York City on January 14, 1986. Before trial, respondent conceded an issue related to a mining partnership. The issues tried (charitable contribution deduction, negligence, and additional interest) all turned on the value of a hand-signed Norman Rockwell print donated by petitioners ² to Bates College in December 1979.

Petitioners purchased the print at an auction in New York on March 20, 1974, for $1,150.00. Respondent contended the print was worth $500.00 when donated. Petitioner claimed $6,000.00. Following trial, we rendered oral findings of fact and opinion pursuant to section 7459(b) and Rule 152, and found for petitioners. A decision was entered for petitioners on February 26, 1986. Also on that date, copies of a transcript of our oral findings of fact and opinion were served on the parties by the Clerk pursuant to Rule 152(b). Petitioners then filed their motion for litigation costs and on March 28, 1986, we vacated our decision, ³ and ordered respondent to file a response. No party requested a hearing, and so pursuant to Rule 232(a)(3) we decide the motion without a hearing. ⁴

Section 7430 provides, in pertinent part, that a taxpayer who has substantially prevailed in a civil tax proceeding may be awarded a judgment for reasonable litigation costs, if he establishes that respondent's position in the proceeding was unreasonable. Petitioners have the burden of establishing unreasonableness. See DeVenney v. Commissioner, 85 T.C. 927, 928-930 (1985).

Here petitioners prevailed both with respect to the amount in controversy and to the issues presented. Respondent has not addressed whether petitioners have exhausted their administrative remedies as required by section 7430(b)(2). We find they have. At issue is whether respondent's position was unreasonable. ⁵

REASONABLENESS OF RESPONDENT'S POSITION

The record herein reveals that respondent relied on an appraisal which was thoroughly discredited at trial. The appraisal erroneously implied that prices fell after Rockwell's death when in fact they rose precipitously. It also omitted higher-priced comparables, indicating Rockwell's paintings sold at between $4,250 and $9,000, when sales prices really ranged from $4,250 to $65,000. We are convinced respondent was alerted to these defects in his expert's report and should have investigated further, especially since he had petitioner's appraisal seven months before trial. Respondent's failure to investigate petitioner's claims or to re-evaluate his own position as new facts came to light was unreasonable. See Baker v. Commissioner, 788 F.2d 38 (D.C. Cir. 1986); Golden v. United States, ___ F. Supp. ___ (W.D. Mo. 1986, 86-2 USTC par. 9626). Cf. DeVenney v. Commissioner, 85 T.C. 927 (1985) (respondent's lack of evidence not unreasonable where petitioner did not give respondent sufficient time to follow leads which would have supported petitioner's explanation).

In addition, respondent sought answers from petitioner to a long list of informal interrogatories which were not only burdensome but, more importantly, in large part unrelated to the issues in dispute. After the case was calendared for trial, respondent adopted an inflexible attitude which totally rejected any settlement negotiations despite petitioner's sustained efforts to engage in such negotiations in a meaningful fashion. Instead, respondent clung to his original position that the painting was worth only $500, less than half the actual cash price petitioner had paid in an arm's-length purchase five years earlier. Respondent continued to press a claim of negligence up to and throughout trial, when all evidence pointed to the opposite result.

Under these circumstances, we conclude that respondent consistently adhered to a trial strategy designed to persuade petitioner to capitulate DESPITE THE MERITS OF THE CASE. This is unreasonable. The legislative history of section 7430 instructs us to consider as a factor in determining unreasonableness ‘whether the government used the costs and expenses of litigation against its position to extract concessions from the taxpayer that were not justified under the circumstances of the case.‘ H. Rept. No. 97-404, at 12 (1981).

FEES FOR PRO SE ATTORNEY/PETITIONER

Section 7430(c)(1)(A), which permits the award of reasonable litigation costs, reads as follows:

(A) In general.—The term ‘reasonable litigation costs‘ includes—

(i) reasonable court costs,

(ii) the reasonable expenses of expert witnesses in connection with the civil proceeding,

(iii) the reasonable cost of any study, analysis, engineering report, test, or project which is found by the court to be necessary for the preparation of the party's case, and

(iv) reasonable fees paid or incurred for the services of attorneys in connection with the civil proceeding.

Petitioner is an attorney who appeared on his own behalf. He seeks an award of $1,800 for expert witness fees and $6,000 attorneys fees representing his own time preparing his case. Respondent concedes the amount claimed for the expert witness is reasonable, and we so hold.

Although petitioner failed to separately list court costs, we take judicial notice of the fact that the fee for filing a petition in the Tax Court on April 25, 1983, when the petition was filed, was $60. We find as a fact that petitioner incurred this court cost.

We hold that petitioner is entitled to an award of $1,860 in litigation costs representing the services of the expert witness and the cost of filing the petition.

We turn now to petitioner's claim of $6,000 for his own services. We note at the outset that the amount petitioner seeks does not fall under court costs, expert witness fees, or reports. To prevail, therefore, he must bring himself within the language of sec. 7430(c)(1)(A)(iv), ‘reasonable fees paid or incurred for the services of attorneys in connection with the civil proceeding. ‘ Petitioner did not PAY fees to any other attorney. We must therefore decide whether the time spent by petitioner on his own case (when he might instead have been working on a client's case and therefore generating income) is a ‘fee incurred‘ for the services of an ‘attorney‘ within the meaning of the statute. We hold it is not.

Whether a pro se attorney/petitioner may receive attorneys fees for the value of his own services rendered on his own behalf is an issue of first impression under section 7430. ⁶ Neither has this specific issue been decided under The Equal Access to Justice Act, 28 U.S.C. sec. 2412 (1982) (EAJA). ⁷

Petitioner urges us to follow the reasoning of courts which have allowed attorneys fees to pro se litigants under the Civil Rights Attorneys Fees Awards Act of 1976, 42 U.S.C. sec. 1988 (1982). See, e.g., Duncan v. Poythress, 777 F.2d 1508 (11th Cir. 1985), and Ellis v. Cassidy, 625 F.2d 227 (9th Cir. 1980). ⁸

In Duncan v. Poythress, supra, the Court of Appeals reversed the District Court's denial of fees for a pro se attorney-plaintiff on the following grounds:

1. The absence of any express prohibition in the statute strongly suggests that fee awards should be allowed, unless there is legislative history which provides otherwise;

2. An attorney representing himself is precluded from other employment while so engaged and clearly suffers a pecuniary loss while preparing and prosecuting the claims in question;

3. The purpose of the statute is furthered by encouraging attorneys to vindicate important policies;

4. It would be anomalous to reason that the plaintiff could have recovered attorneys fees had she retained other counsel, but that she should be denied recovery for her representing herself.

Because of differences in the language of 42 U.S.C. sec. 1988 (1982) and sec. 7430, which is the subject of the instant case, the majority opinion in Duncan is of questionable precedential value for us. The language of 42 U.S.C. sec. 1988 is as follows:

In any action or proceedings to enforce a provision of »The Civil Rights Act of 1964†, the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs.

We note the absence of any requirement that such a fee be actually PAID or INCURRED, as is required by sec. 7430.

Judge Roney's dissent in Duncan, however, is highly relevant to our inquiry. He focused on the meaning of the word ‘attorney‘:

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