In re Grewe

• Citation: 148 BR 824
• Decision Date: 27 November 1992
• Docket Number: Adv. No. 92-5029.,Bankruptcy No. 89-00930
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Northern District of West Virginia
• Parties: In re Henry Robert GREWE and Cathy Ann Grewe, Debtors. Henry Robert GREWE and Cathy Ann Grewe, Plaintiffs. v. UNITED STATES of America, Defendant.

148 B.R. 824 (1992)

In re Henry Robert GREWE and Cathy Ann Grewe, Debtors Henry Robert GREWE and Cathy Ann Grewe, Plaintiffs. v. UNITED STATES of America, Defendant.

Bankruptcy No. 89-00930, Adv. No. 92-5029.

United States Bankruptcy Court, N.D. West Virginia, Wheeling Division.

November 27, 1992.

Martin P. Sheehan, Wheeling, WV, for plaintiffs.

Patrick Flatley, Asst. U.S. Atty., Wheeling, WV, David C. Hickman, Tax Div., Dept. of Justice, Washington, DC, for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

L. EDWARD FRIEND, II, Bankruptcy Judge.

There are two issues which must be decided. The first is whether the issue of whether to award the debtors attorneys' fees must be decided under the Equal Access to Justice Act (28 U.S.C. § 2412) or the Internal Revenue Code (26 U.S.C. § 7430). The second is whether the Internal Revenue Service shall be held liable for an award of attorneys' fees to the debtors, Henry Robert Grewe and Cathy Ann Grewe, his wife.

FACTS

The parties have stipulated the following facts: The debtors filed their voluntary Chapter 7 petition with this Court on November 20, 1989, and received a discharge of their debts on March 21, 1990. The case was closed on May 15, 1990. On or about February 25, 1992, the District Director of the Internal Revenue Service (hereinafter "I.R.S."), sent the debtors a Notice of Intention to Levy. The notice set forth that the I.R.S. intended to levy as a result of unpaid taxes for the tax period ending December 31, 1980. The I.R.S. was seeking the tax balance, including accumulated interest and penalty, totaling $26,666.02.

The Grewes' bankruptcy discharge included the subject taxes, including accumulated interest and penalty. On March 25, 1992, the debtors moved the Bankruptcy Court to reopen their bankruptcy case, which motion was granted on April 3, 1992. On April 7, 1992, the Grewes filed this adversary proceeding and, on April 8, 1992, served the I.R.S. On April 13, 1992, the I.R.S. recorded a lien in Wood County, West Virginia. In lieu of filing an answer to the hereinbefore mentioned adversary proceeding, on May 20, 1992, the I.R.S. prepared a judgment in this matter conceding the correctness of the debtors' position. The I.R.S. has further agreed to remove the lien which it filed in 1992.

The debtors' motion for costs and attorneys' fees specifically requests an award of attorneys' fees in the amount of $2,964 and an expense reimbursement for $295. Because $240 has been prepaid, the debtors request a total award of $3,019.

CONCLUSIONS OF LAW

Without this Court having to determine whether the matter at bar is a core proceeding (28 U.S.C. § 157(b)), the parties have agreed to allow this Court to make findings of fact and conclusions of law and to submit them to the District Court under 28 U.S.C. § 157(c)(1). Regardless of any conclusion which may have been set forth in the core proceeding issue, this Court must determine under which of two potentially applicable statutes the issue of whether or not to award debtors attorneys' fees must be decided.¹ The two potentially applicable statutes are 28 U.S.C. § 2412 or 26 U.S.C. § 7430. This Court concludes that, of the two statutes under consideration, the attorneys' fee issue should be decided within the penumbra of 28 U.S.C. § 2412.²

Section 7430 of the Internal Revenue Code applies to administrative or court proceedings brought in connection with the determination, collection, or refund of any tax, interest, or penalty under Title 26.³ No proceeding in the case at bar was brought under Title 26. The proceeding in the case at bar is rooted in the I.R.S. violation of a § 524 discharge, not in the determination, collection, or refund of any tax. To find that the proceeding is one in connection with the determination, collection, or refund of any tax on the basis that the I.R.S. filed a notice of intention to levy regarding previously discharged taxes, would be to elevate form over substance. In substance, these proceedings were brought clearly within the purview of a Bankruptcy Code violation and not, as the I.R.S. filing connotes in form, in connection with the determination, collection, or refund of any tax.⁴

Moreover, as stated by the court in In re Conti, 42 B.R. 122, at 128 n. 3 (Bankr. E.D.Va.1984), "an examination of . . . code section 7430 reveals that it is intended to protect the IRS with regard to unauthorized disclosures of tax returns and return information. Nothing in the statute suggests that it would apply to violations of § 362 of Title 11 . . . or that it was enacted to modify a litigant's rights pursuant to 28 U.S.C. § 2412(b)." Following that analysis, nothing in Internal Revenue Code § 7430 suggests that it would apply to violations of Bankruptcy Code § 524. All proceedings in the case at bar were brought within the purview of Title 11, the Bankruptcy Code.

Also, legislative history can often be a source of great assistance in interpreting various statutes or in determining the purpose or purposes for which they were created. When called upon to interpret a statute, a court must first examine the statutory language itself. O'Connor v. U.S. Department of Energy, 942 F.2d 771 (10th Cir.1991) (citing United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981)). When the language of the statute is clear and unambiguous, judicial inquiry is complete and that language controls absent rare and exceptional circumstances. See O'Connor at 773 (citing Rubin v. United States, 449 U.S. 424, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981)). A court should venture into the thicket of legislative history only when necessary to determine a statutory purpose obscured by ambiguity. See O'Connor at 773 (citing Burlington Northern Railroad Company v. Oklahoma Tax Commission, 481 U.S. 454, 107 S.Ct. 1855, 95 L.Ed.2d 404 (1987)). The language of Title 28, § 2412 is clear and unambiguous. Thus, as to the interpretation of the statute, this Court's inquiry is complete. However, this Court will venture briefly into the statute's legislative history. One may glean from the legislative history of the EAJA that the overall purpose of the statute is to place the private litigant and the United States on equal footing as regards the award of costs to the prevailing party in litigation involving the government. O'Connor v. U.S. Department of Energy, 942 F.2d 771 (10th Cir.1991) (citing S.REP. No. 1329, 89th Cong., 2d Sess., reprinted in 1966 U.S.C.C.A.N. 2527, 2528). Based upon the persuasiveness of the courts' analyses in Conti and O'Connor, rather than applying § 7430 of the Internal Revenue Code, this Court finds that Title 28, § 2412 of the United States Code applies here.

Even if 26 U.S.C. § 7430 applied here, the I.R.S. would have this court find that an award of attorneys' fees is not warranted. In making its determination, the I.R.S. looks to 26 U.S.C. § 7430(c)(7) which defines "position of the United States." The I.R.S. believes that its position was the one set forth in the stipulated judgment in which it agreed that the debtors' taxes were dischargeable and, therefore, because its position was the same as that of the debtors', they cannot claim that the I.R.S. position was not substantially justified. The I.R.S. concludes that, because the debtors cannot establish that the position of the I.R.S. was not substantially justified, they cannot be considered a prevailing party within the meaning § 7430(c)(4)(A), and, therefore, are not entitled to an award of costs or attorneys' fees. This Court does not agree. Because language substantially similar to that in 26 U.S.C. § 7430 exists in 28 U.S.C. § 2412, this Court will address the I.R.S. contention in more detail.⁵

This Court follows the analysis of the United States Court of Appeals for the First Circuit and that of the United States District Court for the Eastern District of Virginia. In Kaufman v. Egger, 758 Fed.2d 1 (1st Cir.1985), the taxpayers, as individuals, were in dispute with the I.R.S. The Kaufmans had moved from their Illinois residence to Maine. Two years later, the Chicago district, having notice of the taxpayer's new address, sent a notice to the Kaufmans at their Chicago address that it would audit their 1978 tax return. The Kaufmans never received this notice. Consequently, they did not appear at the appointed time for the audit and the result was an assessment of a tax liability. In October, 1980, the I.R.S. mailed a notice of the tax liability to an address of another couple named David and Barbara Kaufman. Eleven days later, the I.R.S. acknowledged their error in a handwritten memo placed in the Kaufmans' file. During the same period, the I.R.S. was corresponding, regarding other matters, with the taxpayers at their Maine address. By 1983, the I.R.S. had connected the 1978 deficiency matter with the correct taxpayers. It then sent the Kaufmans, at their Maine address, a notice informing them that the I.R.S. was seizing a tax refund from their 1982 return as partial payment for their earlier deficiency. This notice was the first that the Kaufmans had received concerning this matter. Less than two weeks later, the Kaufmans had received yet another notice requesting payment. The Kaufmans instituted an action against the I.R.S. which then stipulated to the entry of a permanent injunction enjoining it from taking any steps to collect any taxes. The Circuit Court of Appeals considered the District Court's award of attorneys' fees to the Kaufmans.

The I.R.S. contended that § 7430 referred only to the governments in-court litigation position. The court in Kaufman acknowledged that courts, in determining whether to award attorneys' fees, are divided on the issue of whether to consider the term "civil proceeding" as including only litigation-related proceedings after a suit is initiated or whether it may also consider pre-litigation conduct. Id. at 3. The court in Kaufman held, and this Court concurs, that because it...