Minahan v. Comm'r of Internal Revenue, Docket No. 3146-85 - 3148-85
| Decision Date | 05 March 1987 |
| Docket Number | Docket No. 3146-85 - 3148-85,3203-85 - 3205-85. |
| Citation | 88 T.C. 516,88 T.C. No. 24 |
| Parties | VICTOR I. MINAHAN, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
In Minahan v. Commissioner, 88 T.C. 492 (1987), we held that petitioners are entitled to an award of litigation costs.
HELD: One petitioner is a member of the law firm to which petitioners paid substantially all of their litigation costs; that petitioner is not entitled to an award for the law firm's services. Thomas J. Phillips and Roger C. Minahan, for the petitioners.
Sheldon M. Kay and Nelson Shafer, for the respondent.
Respondent determined deficiencies in Federal gift tax against petitioners for the calendar quarter ended September 30, 1981, in the following amounts:
+-----------------------------------------------------------------------------+
¦Docket ¦Petitioner ¦Deficiency ¦
¦No. ¦ ¦ ¦
+-------+--------------------------------------------------------+------------¦
¦3146-85¦Victor I. Minahan ¦$882,737.74 ¦
+-------+--------------------------------------------------------+------------¦
¦3147-85¦Marilee Minahan ¦882,737.93 ¦
+-------+--------------------------------------------------------+------------¦
¦3148-85¦Estate of Mary M. Walter, deceased, the Marine Trust ¦1,796,800.32¦
¦ ¦Co., N.A., personal representative ¦ ¦
+-------+--------------------------------------------------------+------------¦
¦ ¦Estate of John B. Torinus, deceased, the Kellogg ¦ ¦
¦3203-85¦Citizens National Bank and Louise B. Torinus, ¦592,747.86 ¦
¦ ¦co-personal representatives ¦ ¦
+-------+--------------------------------------------------------+------------¦
¦3204-85¦Roger C. Minahan ¦549,888.83 ¦
+-------+--------------------------------------------------------+------------¦
¦3205-85¦Louise B. Torinus ¦589,725.25 ¦
+-----------------------------------------------------------------------------+
The cases were called from the calendar for trial on March 17, 1986, at which time respondent submitted on behalf of the parties a stipulated decision in each case. Pursuant to these stipulated decisions, the parties agreed that no deficiencies in Federal gift tax are due from, or overpayments due to, petitioners for the calendar quarter ended September 30, 1981. Petitioners thereafter moved this Court to award litigation costs pursuant to section 7430 and Rule 231. 2
The majority in this case has created a third condition for an award of attorney's fees—that the petitioner-attorney must not hold ‘an equity interest‘ in the law firm rendering the services. The majority boldly states that in this circumstance the fee is not a fee but a payment to the attorney-petitioner. There is, however, no finding of fact supporting this conclusion. This judicial legislation by the majority is without justification.
WILLIAMS J., dissenting: In addition to sharing the views of Judge Whitaker, I disagree with the manner in which the majority has allocated the award of litigation costs among petitioners. I believe the majority has committed error in making the allocation without having had a hearing to determine the total amount of reasonable litigation costs incurred by petitioners.
Because the statutory limit is exceeded a petitioner may recover only a proportionate share of his recoverable litigation costs. 1 The majority has allocated a disproportionately larger share of the $25,000 limit to Attorney Minahan. Attorney Minahan is awarded $1,240.00—1008 of his reimbursable share of litigation costs (as determined by the majority). The other petitioners, however, are awarded less than 100 percent of their recoverable costs. Attorney Minahan should be entitled to recover no greater percentage of his reimbursable costs than any other petitioner.
In Minahan v. Commissioner, 88 T.C. ___ (filed March 5, 1987), we held that petitioners are entitled to an award of litigation costs. The issue for decision is whether a petitioner who is a member of the law firm representing petitioners is entitled to an award which includes attorney's fees.
The relevant background findings appear in our opinion in Minahan v. Commissioner, supra.
Respondent states that he ‘does not agree that amount of costs claimed are reasonable.‘ Furthermore, respondent's response to petitioners' motion implies, without specific argument, that the actual time billed for the services of petitioner Roger C. Minahan (hereinafter sometimes referred to as ‘attorney Minahan‘) and allocable to his own case are not allowable as litigation costs. Section 7430(c)(1)(A) defines ‘reasonable litigation costs‘ 3 as follows:
(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.
We have previously determined that section 7430 allows an award of reasonable litigation costs measured from the time the civil proceeding commenced. Wasie v. Commissioner, 86 T.C. 962, 967 (1986); Baker v. Commissioner, 83 T.C. 822. 827 (1984), affd. on this issue 787 F.2d 637 (CADC 1986). Under section 7430(b)(1), no more than $25,000 may be awarded ‘with respect to any prevailing party in any civil proceeding‘. 4 Under section 7430(d), multiple actions which could have been joined or consolidated are to be treated as one civil proceeding. Petitioners concede that the single $25,000 ‘cap‘ applies to the instant six cases. (See n. 1, supra.)
It is evident that, in the aggregate, petitioners have incurred and paid substantially more in litigation costs than the maximum amount that we may award (see table 1 in Minahan v. Commissioner, 88 T.C. at 495, and the text immediately following it), and so we do not determine precisely the amount of their expenditures that would qualify as ‘reasonable litigation costs‘ but for the ‘cap‘.
We determine that petitioners, other than attorney Minahan, have met their burden of proof that such fees, subject to the limitations and determinations herein, are reasonable litigation costs within section 7430(c)(l)(A)(iv) and Rule 232. Furthermore, the expert appraisal fee in the amount of $10,000 incurred on November 22, 1985, is determined to be a reasonable litigation cost within the meaning of section 7430(c)(1)(A)(iii), to be shared among petitioners in accordance with their billing arrangement with the law firm.
Attorney Minahan is counsel in the instant case and also is a senior stockholder and president of the law firm. The record indicates that attorney Minahan spent 102 3/4 hours in the matter before the Court, which was billed to petitioners at his prevailing rate of $150 per hour. By agreement between the law firm and petitioners, attorney Minahan agreed to be responsible for 11.8 percent of the law firm's monthly bills, determined at the law firm's prevailing rates. The firm spent an aggregate of 386 hours accumulated by eight of the law firm's attorneys. Attorney Minahan has rendered payment to the law firm regarding his proportionate shares of legal expenses.
We recently held that a pro se attorney may not recover fees for the value of his own services, as lost opportunity costs are not fees paid or incurred for the service of an attorney within the meaning of section 7430. Frisch v. Commissioner, 87 T.C. 838 (1986). In Frisch, the taxpayer did not render actual payment. In the instant case, attorney Minahan did render actual payment to the law firm; however, he is a senior stockholder and president of the law firm. In Frisch, we relied on legislative history which indicates that the determination of what constitutes reasonable fees must focus on fees actually incurred by a taxpayer in a civil proceeding. Frisch v. Commissioner, 87 T.C. at 846. Attorney Minahan has an equity interest in the law firm such that payment to the law firm was in fact payment to himself and not a fee actually incurred. Even if a petitioner- attorney actually renders payment, that does not necessary establish that a fee has been paid or incurred within the meaning of section 7430. We must focus on who the payment was rendered to. In Frisch, even if a payment had been rendered, we still would have held that no fee had been paid or incurred within the meaning of section 7430. Consequently attorney Minahan is not entitled to an award of reasonable litigation costs within the meaning of section 7430(c)(1)(A)(iv) concerning the services of attorneys who are members of or associated with the law firm in which he holds an equity interest.
Because petitioners' aggregate attorney's fees are so great that the aggregate otherwise allowable litigation costs substantially exceed the $25,000 ‘cap‘, the result of disallowing an award of attorney's fees to attorney Minahan is to, in effect, reallocate the disallowed amount among the five other petitioners. This reallocation is to be in the same proportion as the proportionate interests set forth in table 1 in Minahan v. Commissioner, supra, except that attorney Minahan's 11.8 percent is to be eliminated from the calculations.
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