SCOTUS Reports

Tag: IRC Section 7430

  • Bryan S. Alterman Trust v. Commissioner of Internal Revenue, 146 T.C. 226 (2016): Net Worth Requirement for Trusts Under IRC Section 7430

    Bryan S. Alterman Trust v. Commissioner of Internal Revenue, 146 T. C. 226 (U. S. Tax Court 2016)

    In a significant ruling on trust net worth for litigation costs, the U. S. Tax Court denied the Bryan S. Alterman Trust’s motion for administrative and litigation fees under IRC Section 7430. The court clarified that for trusts, net worth must be assessed at the end of the taxable year involved in the dispute, not when the petition is filed. This decision impacts trusts seeking costs in tax disputes by setting a clear temporal benchmark for net worth evaluation, potentially affecting future litigation strategies.

    Parties

    The petitioner was the Bryan S. Alterman Trust U/A/D May 9, 2000, with Bryan S. Alterman as Trustee and Transferee. The respondent was the Commissioner of Internal Revenue.

    Facts

    The Bryan S. Alterman Trust was involved in a consolidated case with other trusts regarding the transferee liability for Alterman Corp. ‘s 2003 income tax liability. In a prior ruling, the Tax Court held that the Commissioner failed to meet the burden of proof to establish the Trust’s liability under IRC Section 6901. Following this victory, the Trust sought to recover administrative and litigation costs under IRC Section 7430, claiming to be the prevailing party. The Trust’s net worth exceeded $2 million as of December 31, 2003, the end of the taxable year involved in the proceeding, as per the notice of liability issued by the Commissioner.

    Procedural History

    The case originated with the Commissioner issuing a notice of liability to the Trust for the taxable year ended December 31, 2003. The Trust filed a petition with the U. S. Tax Court on March 22, 2010, challenging this liability. The court consolidated the Trust’s case with other similar cases for the purpose of issuing an opinion on the transferee liability issue. After prevailing on the liability issue in a memorandum decision (T. C. Memo 2015-231), the Trust moved for costs under IRC Section 7430. The court required the Trust to supplement its motion to address the net worth requirement for trusts, leading to the final decision on the costs motion.

    Issue(s)

    Whether the Bryan S. Alterman Trust met the net worth requirement under IRC Section 7430(c)(4)(D)(i)(II) for trusts to recover administrative and litigation costs?

    Rule(s) of Law

    IRC Section 7430(c)(4)(D)(i)(II) states that for trusts, the net worth requirement “shall be determined as of the last day of the taxable year involved in the proceeding. ” This provision modifies the general rule found in 28 U. S. C. Section 2412(d)(2)(B), which applies to individuals and requires a net worth not exceeding $2 million at the time the civil action was filed.

    Holding

    The U. S. Tax Court held that the Bryan S. Alterman Trust did not meet the net worth requirement under IRC Section 7430(c)(4)(D)(i)(II) because its net worth exceeded $2 million as of December 31, 2003, the last day of the taxable year involved in the proceeding. Therefore, the Trust was not entitled to recover administrative and litigation costs.

    Reasoning

    The court’s reasoning centered on the interpretation of IRC Section 7430(c)(4)(D)(i)(II). The court rejected the Trust’s arguments that there was no taxable year involved or that the valuation date should be based on the date of the notice of liability or the petition filing. The court emphasized that the statute clearly mandated the use of the last day of the taxable year involved in the proceeding, which was December 31, 2003, as specified in the Commissioner’s notice of liability. The court also noted that this rule prevents manipulation of net worth by trusts to meet the statutory limit. The decision was consistent with prior case law, such as Estate of Kunze v. Commissioner, which interpreted similar provisions for estates. The court did not address other arguments raised by the parties since the Trust’s failure to meet the net worth requirement was dispositive.

    Disposition

    The U. S. Tax Court denied the Bryan S. Alterman Trust’s motion for an award of administrative and litigation costs and entered a decision for the Trust on the underlying tax liability issue.

    Significance/Impact

    This decision clarifies the application of the net worth requirement for trusts under IRC Section 7430, setting a precedent that the evaluation must occur at the end of the taxable year involved in the dispute. This ruling may affect how trusts approach litigation cost recovery, requiring them to consider their net worth at a specific historical point rather than at the time of filing a petition. The decision underscores the importance of statutory language in determining eligibility for costs and may influence future legislative or judicial interpretations of similar provisions for other entities.

  • Goettee v. Commissioner, 124 T.C. 286 (2005): Litigation Costs and the Prevailing Party Doctrine in Tax Law

    Goettee v. Commissioner, 124 T. C. 286 (U. S. Tax Court 2005)

    In Goettee v. Commissioner, the U. S. Tax Court ruled that taxpayers John G. Goettee, Jr. and Marian Goettee were not entitled to recover litigation costs in their dispute over interest abatements with the IRS. The court found that the Goettees did not ‘substantially prevail’ on the central issue of whether the IRS abused its discretion in denying their interest abatement claims. This decision underscores the stringent criteria for taxpayers to be considered ‘prevailing parties’ under the tax code, impacting how litigation costs are awarded in tax disputes.

    Parties

    John G. Goettee, Jr. and Marian Goettee (Petitioners) v. Commissioner of Internal Revenue (Respondent). The Goettees were taxpayers seeking to recover litigation costs following a dispute over interest abatements. The Commissioner represented the IRS in this case.

    Facts

    The Goettees claimed investment credits and losses arising from a partnership in which they held a limited interest. The IRS issued a notice of deficiency disallowing these claims, leading to a settlement where the Goettees paid the assessed deficiencies and additional charges. Subsequently, they sought abatement of interest on these amounts, which the IRS initially denied in full but later partially abated. The Goettees paid the remaining interest liabilities and then petitioned the U. S. Tax Court for review of the IRS’s disallowance of further interest abatements. After IRS concessions, the court determined that the IRS abused its discretion only for a specific period from January 24 through April 24, 1995, but not for other periods. The Goettees moved for an award of litigation costs, which the court denied.

    Procedural History

    The Goettees initially filed a petition in the U. S. Tax Court seeking review of the IRS’s denial of their request for interest abatement under Section 6404(h)(1) of the Internal Revenue Code. The case saw several stages of litigation, including motions for partial summary judgment and motions to dismiss. The court granted partial summary judgment to the IRS for one tax year and denied the Goettees’ motion for reconsideration of the court’s opinion. The case culminated in the court’s decision on the Goettees’ motion for litigation costs, applying the standard of review for determining the ‘prevailing party’ under Section 7430.

    Issue(s)

    Whether the Goettees were the ‘prevailing party’ under Section 7430 of the Internal Revenue Code, and thus entitled to an award of reasonable litigation costs, based on either:

    – Whether they substantially prevailed with respect to the most significant issue or set of issues presented, or

    – Whether they substantially prevailed with respect to the amount in controversy.

    Rule(s) of Law

    Section 7430 of the Internal Revenue Code provides that a ‘prevailing party’ may be awarded reasonable litigation costs in tax proceedings. A ‘prevailing party’ is defined as one who has substantially prevailed with respect to either the most significant issue or set of issues presented or the amount in controversy, and meets the net worth requirements of 28 U. S. C. Section 2412(d)(1)(B). The United States can establish that its position was ‘substantially justified’ to deny such an award.

    Holding

    The U. S. Tax Court held that the Goettees were not the ‘prevailing party’ under Section 7430. They did not substantially prevail with respect to either the most significant issue or the amount in controversy. The court found that the Goettees’ success in the litigation was minimal compared to their overall failure to achieve their requested relief, and thus they were not entitled to an award of litigation costs.

    Reasoning

    The court’s reasoning focused on the Goettees’ limited success in the litigation. They achieved some success on the issue of delay periods and some errors in interest computation, but these were considered trivial compared to their failures. The court noted that the Goettees prevailed on only a three-month period out of over fifteen months in dispute, and on only a few of the numerous errors claimed. The court emphasized that the Goettees’ overall success was less than 5% of what they sought at trial. The court also considered the stipulation by both parties that the most significant issue was whether the IRS abused its discretion in denying interest abatement, and found that the Goettees did not substantially prevail on this issue. The court distinguished this case from others where taxpayers were deemed to have prevailed on significant issues, citing cases like Huckaby and Wilkerson, but found no similar pivotal issue in the Goettees’ case. The court also noted that the requirements of Section 7430 are conjunctive, meaning the Goettees needed to meet all criteria to be awarded costs, which they did not.

    Disposition

    The U. S. Tax Court denied the Goettees’ motion for an award of litigation costs and determined overpayments in accordance with the filed joint Rule 155 computations.

    Significance/Impact

    The Goettee case highlights the stringent criteria for taxpayers to be considered ‘prevailing parties’ under Section 7430 of the Internal Revenue Code. It demonstrates the difficulty taxpayers face in recovering litigation costs, even when achieving some success in their claims. The decision reinforces the importance of substantial success in either the most significant issue or the amount in controversy for taxpayers to be eligible for litigation cost awards. This case may influence future litigation strategies and settlements in tax disputes, as it underscores the limited scope for recovering costs in cases where the taxpayer’s success is not significant relative to the overall litigation. Subsequent cases have cited Goettee to clarify the interpretation of ‘substantially prevailed’ in the context of tax litigation.

  • Johnston v. Commissioner, 122 T.C. 124 (2004): Qualified Offers and the Binding Nature of Settlement Agreements

    Johnston v. Commissioner, 122 T. C. 124 (U. S. Tax Court 2004)

    In Johnston v. Commissioner, the U. S. Tax Court ruled that a taxpayer’s qualified offer under IRC section 7430, once accepted by the IRS, forms a binding settlement contract. The taxpayers could not subsequently reduce the agreed liability amounts by applying net operating losses from other tax years, emphasizing the finality and contractual nature of qualified offers in tax disputes.

    Parties

    Thomas E. Johnston and Thomas E. Johnston, Successor in Interest to Shirley L. Johnston, Deceased, as Petitioners, versus the Commissioner of Internal Revenue, as Respondent, in two consolidated cases before the U. S. Tax Court.

    Facts

    Thomas E. Johnston and Shirley L. Johnston faced tax deficiencies and penalties for the tax years 1989, 1991, and 1992. The IRS determined deficiencies and penalties which included significant amounts under sections 6662(a) and 6663 of the Internal Revenue Code. To resolve these liabilities, the Johnstons made a qualified offer under section 7430 of the IRC on January 31, 2003, proposing to settle their liabilities for $35,000 for 1989 and $70,000 for 1991 and 1992 combined. The IRS accepted this offer on February 10, 2003, without negotiation. Subsequent to this acceptance, the Johnstons sought to reduce the agreed-upon amounts by applying net operating losses (NOLs) from the tax years 1988, 1990, 1993, and 1995. The IRS refused to allow such reductions, asserting that the acceptance of the qualified offer finalized the settlement.

    Procedural History

    The cases were initially set for trial but were stayed pending the outcome of the qualified offer. After the IRS accepted the offer, the Johnstons attempted to amend their petitions to claim NOL deductions. The IRS responded by filing a motion for summary judgment to enforce the settlement as it stood without the NOLs. The Tax Court, adhering to its rules, granted the IRS’s motion for summary judgment.

    Issue(s)

    Whether the acceptance by the IRS of the taxpayers’ qualified offer under section 7430 precludes the taxpayers from subsequently reducing the agreed-upon liability amounts by applying net operating losses from other tax years.

    Rule(s) of Law

    Section 7430(g) of the IRC defines a qualified offer as a written offer made by a taxpayer to the IRS during the qualified offer period, specifying the offered amount of the taxpayer’s liability, designated as a qualified offer, and remaining open for a specified period. The acceptance of such an offer forms a binding contract governed by general principles of contract law. The regulation at section 301. 7430-7T(c)(3) of the Temporary Procedure and Administration Regulations requires that a qualified offer fully resolve the taxpayer’s liability for the tax years and type of tax at issue.

    Holding

    The Tax Court held that the IRS’s acceptance of the Johnstons’ qualified offer constituted a binding contract that fully resolved their tax liabilities for the years 1989, 1991, and 1992. Consequently, the Johnstons were not permitted to reduce the agreed-upon amounts by applying NOLs from other tax years.

    Reasoning

    The court’s reasoning focused on the contractual nature of the qualified offer. It emphasized that the purpose of section 7430 is to encourage settlements, and once a qualified offer is accepted, it should not be treated differently from other settlement agreements. The court cited the general principles of contract law, noting that settlement agreements are effective and binding upon offer and acceptance. The court rejected the Johnstons’ argument that they could raise the NOL issue post-settlement, stating that the qualified offer must fully resolve the taxpayer’s liability as per the regulation. The court also noted that the Johnstons could have raised the NOL issue prior to the qualified offer by amending their petitions but failed to do so. The court concluded that allowing post-settlement modifications would undermine the finality of settlements and the purpose of the qualified offer provision.

    Disposition

    The Tax Court granted the IRS’s motion for summary judgment, and decisions were entered under Rule 155, affirming the settlement as agreed upon without the application of NOLs.

    Significance/Impact

    The Johnston case underscores the importance and finality of qualified offers in resolving tax disputes. It establishes that once a qualified offer is accepted, it forms a binding contract that cannot be altered by subsequent claims or adjustments, such as the application of NOLs. This ruling reinforces the IRS’s position in settlement negotiations and may impact taxpayers’ strategies in making qualified offers, requiring them to carefully consider all potential adjustments before submitting an offer. The case also highlights the necessity for taxpayers to fully plead their case, including alternative positions, before entering into a settlement agreement.

  • Weiss v. Commissioner, 89 T.C. 779 (1987): When Litigation Costs Are Not Recoverable Despite Lack of Jurisdiction

    Weiss v. Commissioner, 89 T. C. 779, 1987 U. S. Tax Ct. LEXIS 143, 89 T. C. No. 54 (U. S. Tax Court, Oct. 8, 1987), reversed and remanded, June 27, 1988

    Litigation costs are not recoverable under IRC section 7430 when the IRS’s position after the filing of a petition is substantially justified, despite an initial lack of jurisdiction due to non-compliance with partnership audit procedures.

    Summary

    In Weiss v. Commissioner, the U. S. Tax Court denied the petitioners’ motion for litigation costs despite dismissing the case for lack of jurisdiction. The IRS had issued a notice of deficiency without conducting a required partnership-level audit. The court held that the IRS’s position was substantially justified after the petition was filed, as they promptly conceded the jurisdictional issue upon receiving the administrative file. This decision clarifies that the IRS’s position in the civil proceeding, not the initial notice of deficiency, determines eligibility for litigation costs under IRC section 7430.

    Facts

    Herbert Weiss and the Estate of Roberta Weiss were partners in Transpac Drilling Venture 1982-14, a partnership formed after September 3, 1982, subject to the partnership audit and litigation procedures under IRC section 6221 et seq. The IRS issued a notice of deficiency without conducting a partnership-level audit. The petitioners filed a timely petition with the Tax Court, alleging lack of jurisdiction due to non-compliance with these procedures. After receiving the administrative file, the IRS conceded the jurisdictional issue and moved to dismiss the case, which the court granted. The petitioners then sought litigation costs, arguing the IRS’s position was not substantially justified.

    Procedural History

    The petitioners filed a petition on July 7, 1986, alleging lack of jurisdiction. The IRS moved to extend time to answer, which was granted. After receiving the administrative file, the IRS moved to dismiss for lack of jurisdiction on November 3, 1986, which was granted on November 14, 1986. The petitioners filed a motion for litigation costs on January 9, 1987. The Tax Court initially held it had jurisdiction to consider the motion but reserved judgment on the award until the IRS responded. On October 8, 1987, the court denied the motion for litigation costs. This decision was reversed and remanded on June 27, 1988.

    Issue(s)

    1. Whether the IRS’s position was substantially justified under IRC section 7430(c)(4)(A) after the petition was filed.
    2. Whether there was administrative inaction by the District Counsel that gave rise to the position of the United States expressed in the notice of deficiency under IRC section 7430(c)(4)(B).

    Holding

    1. Yes, because the IRS’s position after the petition was filed was substantially justified as they promptly conceded the jurisdictional issue upon receiving the administrative file.
    2. No, because there was no administrative inaction by the District Counsel that led to the issuance of the notice of deficiency.

    Court’s Reasoning

    The court applied IRC section 7430, which allows for the recovery of litigation costs if the IRS’s position was not substantially justified. It clarified that the relevant position is that taken by the IRS after the petition is filed, not the initial notice of deficiency. The court cited Sher v. Commissioner (89 T. C. 79 (1987)) to support this interpretation. The court noted that the IRS’s position after the petition was filed was substantially justified because they promptly conceded the case upon receiving the administrative file, distinguishing this case from Stieha v. Commissioner (89 T. C. 784 (1987)), where the IRS’s lack of diligence was not justified. The court also rejected the petitioners’ argument that the District Counsel’s failure to review the notice of deficiency constituted administrative inaction under IRC section 7430(c)(4)(B), stating that such involvement was not required and the court would not second-guess the IRS’s administrative actions.

    Practical Implications

    This decision emphasizes that the IRS’s position in the civil proceeding, not the initial notice of deficiency, determines eligibility for litigation costs under IRC section 7430. Practitioners should focus on the IRS’s actions after the petition is filed when assessing potential cost recovery. The decision also underscores the importance of the IRS promptly conceding cases when justified, as this can impact cost recovery. Subsequent cases have followed this reasoning, reinforcing the principle that the IRS’s position must be evaluated post-petition. This case may encourage taxpayers to carefully consider the timing and basis for seeking litigation costs, ensuring they address the IRS’s actions after the petition is filed.

  • Don Casey Co. v. Commissioner, 87 T.C. 847 (1986): When the IRS Must Pay Litigation Costs for Unreasonable Pursuit

    Don Casey Co. , Inc. ; Charles Don Casey, Sole Shareholder of Don Casey Co. , Inc. , Petitioner v. Commissioner of Internal Revenue, Respondent, 87 T. C. 847 (1986)

    The IRS may be required to reimburse a taxpayer’s litigation costs if it unreasonably pursues a case it cannot prove.

    Summary

    Don Casey Co. challenged an IRS deficiency and fraud penalty determination. The IRS alleged unreported income, but Don Casey Co. argued the statute of limitations had run unless fraud was proven. After trial, the Tax Court found no fraud and ruled for the company. The company then sought litigation costs under IRC section 7430, claiming the IRS’s pursuit was unreasonable. The court agreed, granting the motion for costs, emphasizing the IRS’s failure to adequately investigate before pursuing litigation that should have been avoided given the clear legal standards and evidentiary weaknesses.

    Facts

    Don Casey Co. , a silver reclamation business, faced an IRS criminal investigation due to a report of unreported income. The IRS issued a summons for records, which were made available by the company’s attorney. The IRS recommended charging the company’s sole shareholder, Charles Don Casey, with filing a false return, focusing on two unreported sales to a General Motors (GM) subsidiary in March 1980. The company’s general ledger, which was available to the IRS, showed the first GM sale was recorded and included in reported income. The second GM sale’s timing was disputed due to fluctuating silver prices and unclear contract terms. The IRS issued a notice of deficiency in November 1984, asserting unreported income and a fraud penalty. The company contested this in Tax Court.

    Procedural History

    The IRS issued a notice of deficiency on November 20, 1984, alleging unreported income and fraud. Don Casey Co. filed a petition in the U. S. Tax Court, disputing the deficiency and fraud penalty, and asserting the statute of limitations had expired. After a trial, the Tax Court found the IRS did not prove fraud by clear and convincing evidence and ruled for the company. The company then filed a motion for reimbursement of litigation costs under IRC section 7430, which the court granted, finding the IRS’s position unreasonable.

    Issue(s)

    1. Whether the IRS’s pursuit of the litigation against Don Casey Co. was unreasonable under IRC section 7430?
    2. Whether Don Casey Co. exhausted its administrative remedies within the IRS?

    Holding

    1. Yes, because the IRS failed to adequately investigate the company’s records and relied on insufficient evidence before pursuing litigation it could not prove by clear and convincing evidence.
    2. Yes, because the company participated in the IRS Appeals Division hearing and presented sufficient information to argue its case.

    Court’s Reasoning

    The court found the IRS’s pursuit of litigation unreasonable due to several factors. Firstly, the law requiring clear and convincing evidence of fraud was well-settled, and the IRS knew the burden it faced. Secondly, the IRS had access to the company’s general ledger, which showed the first GM sale was reported, yet failed to adequately investigate this before proceeding. The court criticized the IRS for relying on a confidential report and statements from disgruntled former employees without reconciling these with the company’s financial records. The ambiguity in the second GM sale’s contract terms also suggested a lack of clear and convincing evidence of fraud. The court emphasized that the IRS should not pursue litigation based on mere suspicion but must have a reasonable belief it can meet its evidentiary burden. The court also noted the company’s willingness to cooperate with further investigation, which the IRS did not pursue. Finally, the court considered the burden on the company of defending against the IRS’s claims and found the IRS’s conduct unreasonable given the evidentiary weaknesses and the company’s cooperation.

    Practical Implications

    This decision underscores the importance of the IRS conducting thorough investigations before pursuing litigation, especially in cases involving fraud allegations with a high evidentiary burden. Taxpayers can seek reimbursement of litigation costs if they can show the IRS’s position was unreasonable. This case may encourage taxpayers to challenge IRS determinations more aggressively when they believe the IRS has not met its burden of proof. For legal practitioners, it highlights the need to document cooperation with IRS investigations and to challenge the IRS’s position early if it appears weak. The ruling also serves as a reminder to the IRS to carefully evaluate its cases before proceeding to court, potentially affecting how it allocates resources and decides which cases to pursue. Subsequent cases have referenced this decision in discussions about the reasonableness of the government’s litigation position under fee-shifting statutes.

  • Wasie v. Commissioner, 86 T.C. 962 (1986): Reasonableness of IRS Position in Litigation and Pre-Litigation Conduct

    Wasie v. Commissioner, 86 T. C. 962 (1986)

    The reasonableness of the IRS’s position in litigation is determined from the time of filing the petition, not pre-litigation conduct.

    Summary

    Marie Wasie, a foundation manager, challenged the IRS’s imposition of excise taxes under IRC section 4941 for her involvement in a self-dealing transaction. The IRS issued a statutory notice to Wasie but not to the self-dealer, Murphy Motor Freight Lines, Inc. , due to impending legislation that would retroactively relieve both parties from tax liability. Wasie sought litigation costs under IRC section 7430, arguing the IRS’s actions were unreasonable. The Tax Court ruled that only post-petition conduct is considered in determining the reasonableness of the IRS’s position and found that the IRS acted reasonably, denying Wasie’s request for costs and fees.

    Facts

    In 1980, the Wasie Foundation sold shares to Murphy Motor Freight Lines, Inc. , which was considered a self-dealer due to a prior donation. The transaction involved payment in cash and debentures at below-market interest rates. The IRS issued a statutory notice to Wasie for excise taxes under IRC section 4941, but not to Murphy, due to pending legislation (Deficit Reduction Act of 1984) that would retroactively eliminate the tax liability. Wasie refused to extend the statute of limitations, prompting the IRS to issue the notice. After the legislation was enacted, the IRS conceded the tax issues, and Wasie sought litigation costs and fees.

    Procedural History

    The IRS issued a statutory notice to Wasie on May 9, 1984. The Deficit Reduction Act of 1984 was enacted on July 18, 1984, retroactively nullifying the tax liability. Wasie filed a petition with the Tax Court on August 6, 1984. The IRS conceded the tax issues in its answer on October 17, 1984. The case was scheduled for trial on September 9, 1985, but was resolved by a stipulation of settled issues, leaving only Wasie’s motion for costs and fees under IRC section 7430 for the court’s consideration.

    Issue(s)

    1. Whether the IRS’s position in the civil proceeding was unreasonable?
    2. Whether pre-litigation conduct of the IRS should be considered in determining reasonableness, and if so, whether pre- and/or post-litigation costs should be awarded?

    Holding

    1. No, because the IRS’s position in the litigation was reasonable given the circumstances, including the retroactive legislation and the IRS’s actions post-petition.
    2. No, because the reasonableness of the IRS’s position is determined from the time of filing the petition, not pre-litigation conduct, and thus only post-petition costs are considered under IRC section 7430.

    Court’s Reasoning

    The court reasoned that the IRS’s position in the litigation was reasonable, considering the retroactive legislation that nullified the tax liability and the IRS’s post-petition actions. The court relied on Baker v. Commissioner, which held that the reasonableness of the IRS’s position under IRC section 7430 is measured from the time of filing the petition. The court rejected Wasie’s argument that the IRS lacked statutory authority to issue a notice to a foundation manager without first issuing one to the self-dealer, interpreting the term “imposed” in IRC section 4941 as not requiring a prior determination against the self-dealer. The court also noted that Wasie’s refusal to extend the statute of limitations prompted the IRS’s actions, and the IRS’s concession of the tax issues post-legislation was reasonable. The court emphasized that the IRS’s position in the litigation was defensive and not unreasonable, especially given Wasie’s attempts to force action against Murphy.

    Practical Implications

    This decision clarifies that the reasonableness of the IRS’s position under IRC section 7430 is assessed from the filing of the petition, not pre-litigation conduct. Practitioners should focus on the IRS’s actions and positions taken after the petition is filed when seeking litigation costs. The decision also reinforces that the IRS can issue a statutory notice to a foundation manager without first issuing one to a self-dealer, as long as the tax is congressionally imposed. This ruling may affect how taxpayers and their attorneys approach litigation against the IRS, particularly in cases involving retroactive legislation and the timing of statutory notices. Later cases have continued to apply this principle, emphasizing the importance of post-petition conduct in determining the reasonableness of the IRS’s position.