William L. Comer Family Equity Pure Trust v. C.I.R., 90-2114

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Writing for the Court: Before KENNEDY and GUY, Circuit Judges, and ENGEL; PER CURIAM
• Citation: 958 F.2d 136
• Parties: -789, 92-1 USTC P 50,132, 34 Fed. R. Evid. Serv. 1434 WILLIAM L. COMER FAMILY EQUITY PURE TRUST; William L. Comer; Myra L. Comer; T.R.Y.E.-A Trust; American Way Trust; Financial Freedom Consultants, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Docket Number: No. 90-2114,90-2114
• Decision Date: 02 March 1992

Page 136

958 F.2d 136 69 A.F.T.R.2d 92-789, 92-1 USTC P 50,132,
34 Fed. R. Evid. Serv. 1434 WILLIAM L. COMER FAMILY EQUITY PURE TRUST; William L.
Comer; Myra L. Comer; T.R.Y.E.-A Trust;
American Way Trust; Financial Freedom
Consultants, Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 90-2114. United States Court of Appeals,
Sixth Circuit. Argued Jan. 27, 1992.
Decided March 2, 1992.

Page 137

Gary A. Kozma (argued and briefed), Detroit, Mich. and Robert M. Goldschmid (briefed) Goldschmid & Kozma, Detroit, Mich., for petitioners-appellants.

Abraham N.M. Shashy, Jr., Chief Counsel, I.R.S., Office of Chief Counsel, Gary R. Allen, Acting Chief (briefed), Kevin M. Brown (argued), Deborah Swann, and Gayle P. Miller, U.S. Dept. of Justice, Appellate Section Tax Div., Washington, D.C., for respondent-appellee.

Before KENNEDY and GUY, Circuit Judges, and ENGEL, Senior Circuit Judge.

Page 138

PER CURIAM.

William Comer, et al. ("petitioners") appeal the Tax Court decision denying their motion for litigation costs and sanctions. The Tax Court denied the motion finding that the petitioners had failed to establish that the Commissioner's position was unreasonable or not substantially justified within the meaning of I.R.C. § 7430 (1954). For the reasons stated below, we AFFIRM the decision of the Tax Court.

I.

This is the second time this case has appeared before this Court. The previous decision provides an outline of the facts involved:

Petitioners Myra and William Comer are husband and wife. Mr. Comer established three trusts of which he and Mrs. Comer are trustees. In January 1983, Mr. Comer was notified that the trusts were to be audited for the 1981 tax year....

The petitioners received four notices of deficiency totaling about $18,000 and assessing interests and costs. One notice was for the Comers' joint return and the other three notices were directed to the three trusts: the Comer Family Equity Pure Trust; the American Way Trust; and the T.R.Y.E.-A. Trust.... Thereafter, in June of 1985, the petitioners filed four petitions in the Tax Court.

The petitions were docketed for trial on May 12, 1986. A pretrial stipulation settlement conference was held for two and one-half days in early April. This conference produced the parties' stipulated agreement adopted by the Tax Court in its decisions entered by May 27, 1986. The agreement declared that the petitioners were not liable for any deficiencies, penalties, or interest with respect to the 1981 tax year. Although the petitioners' original petitions sought litigation costs, the stipulated agreement was silent on this matter and does not indicate whether the silence was intended or due to oversight.

On May 30, 1986, petitioners filed motions for litigations costs pursuant to 26 U.S.C. § 7430. Reasonable litigation costs are awardable in a civil tax proceeding brought against the United States in the Tax Court if the taxpayer has "substantially prevailed with respect to the amount in controversy," § 7430(c)(2)(A)(ii)(I) and "establishes that the position of the United States in the civil proceeding was unreasonable." § 7430(c)(2)(A)(i) (1982). The Tax Court denied the motions on June 19, 1986, on two grounds. First, the motions were "untimely" because they had not been filed prior to the Tax Court's decisions, and second, there was no evidence of unreasonable behavior by the government after the filing of the petitions, that is, when the controversy became a lawsuit. Subsequently, petitioners filed a motion to vacate the Tax Court's May decisions in the four petitions solely to enable the petitioners to file timely motions for costs. The motions to vacate were denied on July 2, 1986. Because the petitions raised similar issues they were consolidated.

Comer v. Commissioner, 856 F.2d 775, 776-77 (6th Cir.1988).

This Court reversed the Tax Court's order dismissing the motion for litigation costs, finding that the motion was timely and holding that the reasonableness of the Commissioner's actions prior to the filing of the petitions was also relevant. The decision was remanded to the Tax Court for consideration of whether the government's pre-litigation position was unreasonable. Id. at 776. On remand, the Tax Court held that,

The record shows that when [Comer] eventually did what the agents originally asked him to do, i.e., provide testimony and review the records with them, most of his expenses were allowed. However, Comer did this only in the context of settlement conferences with District Counsel, after the statutory notices had been issued and petitions filed. Had he cooperated initially, none of that would have been necessary or, in our view, would have happened. Comer is the author

Page 139

of his own misfortune and is entitled to no litigation costs whatsoever.

Following the decision of the Tax Court, the petitioners filed this timely appeal. They argue that the Tax Court's denial of their petition for litigation costs was an abuse of discretion. Specifically, the petitioners argue that the Tax Court erred by denying their motion to sequester witnesses, by interfering with trial procedures on the side of the IRS thereby prejudicing the petitioners, in finding erroneous and distorted findings of fact, and in holding that the IRS actions were not unreasonable.

II.

The Internal Revenue Code provides that reasonable litigation costs and attorney's fees may be awarded to the prevailing party under certain conditions. I.R.C. § 7430. In order to be awarded the fees, the taxpayers must prove they are a "prevailing party." Id. A prevailing party is one who can show that the position of the United States in the proceeding was not substantially justified and who prevailed with respect to the amount in controversy or with respect to the most significant issue or issues. I.R.C. § 7430(c)(4).

The standard of review applicable to cost determinations under section 7430 is the subject of a split among the circuits. The Third, Seventh and Eighth Circuits have adopted an abuse of discretion...