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Dennis v. Commissioner (T.C. Memo. 2020-98)

On July 1, 2020, the Tax Court issued a Memorandum Opinion in the case of Dennis v. Commissioner (T.C. Memo. 2020-98). The primary issue before the court in Dennis was whether the petitioners were entitled to reasonable litigation or administrative costs when, after CDP appeals, petition, and remand from Tax Court to Appeals, the IRS conceded all issues.

Brief Background

The IRS screwed this one up, but they were bailed out by pro se taxpayers. Notices of determination were issued for deficiencies arising from the default of a direct debit installment agreement. The petitioners mailed a $7,500 check to the IRS in a timely fashion, and though they were in “violation” of their direct debit obligation, they had not defaulted on the installment agreement.

Appeals did not sustain the proposed levy and directed the IRS to reinstate the direct debit portion of petitioners’ installment agreement; however, they did sustain the lien as properly filed. The petitioners filed their petition, the IRS asked for remand to Appeals, and Appeals was persuaded by Counsel to concede all issues in a supplemental determination which they did. The petitioners amended their Tax Court petition to seek reasonable administrative and litigation fees from the IRS.

Reasonable Costs – Procedure and Award

Reasonable costs incurred in an administrative or court proceeding (related to the determination, collection, or refund of any tax, interest, or penalty) against the United States may be awarded to a taxpayer. IRC § 7430(a). The award shall be made only for reasonable costs, which costs must be allocable to the United States alone. IRC § 7430(b)(2).

To recover costs, the taxpayers must establish that (1) they are the prevailing party, (2) they did not unreasonably protract the proceedings, (3) the amount of the costs requested is reasonable, and (4) they exhausted the administrative remedies available. See IRC § 7430(b); IRC § 7430(c); Friends of the Benedictines in the Holy Land, Inc. v. Commissioner, 150 T.C. 107, 111-112 (2018). The failure to satisfy any one of the conditions will preclude an award of costs. See Minahan v. Commissioner, 88 T.C. 492, 497 (1987).

When an Administrative Proceeding Is Not an Administrative Proceeding

Reasonable administrative costs are incurred by the taxpayer in connection with an “administrative proceeding.” Treas. Reg. § 301.7430-4(a). Critically, however, an administrative proceeding does not include a proceeding in connection with a collection action. Treas. Reg. § 301.7430-3(a)(4). CDP hearings under IRC § 6320 and IRC § 6330 are considered collection actions “unless the underlying tax liability is properly at issue.” Treas. Reg. § 301.7430-3(a)(4); Treas. Reg. § 301.7430-3(b); see Worthan v. Commissioner, T.C. Memo. 2012-263; Dalton v. Commissioner, T.C. Memo. 2011-136, *20-*21, rev’d on other grounds, 682 F.3d 149 (1st Cir. 2012).

Challenging Non-Credit of Payment is Not Challenge to Liability

In Kovacevich v. Commissioner, T.C. Memo. 2009-160, *15, the Tax Court held that questions about whether a particular check was properly credited to a particular taxpayer’s account for a particular tax year are not challenges to his underlying tax liability. See also Melasky v. Commissioner, 151 T.C. 89 (2018), aff’d, 803 F. App’x 732 (5th Cir. 2020). Further, in Kovacevich, the Court distinguished instances in which taxpayers assert they are due refunds from prior years, as these types of challenges are considered a challenge to the taxpayers’ underlying tax liabilities. See Landry v. Commissioner, 116 T.C. 60 (2001). Thus, the Tax Court found that the petitioners were in the same boat as the petitioners in Kovacevich, they failed to challenge the underlying liability in the CDP hearing, and thus it was a “collection” proceeding and not an “administrative” one.

Pro Se Litigants Not Entitled to Attorney’s Fees for Representing Themselves

The Tax Court has consistently held that under IRC § 7430 pro se taxpayers may not be awarded an amount reflecting the value of their personal time in handling litigation, even though fees taxpayers pay to attorneys to handle the litigation would be recoverable. See, e.g., Dunaway v. Commissioner, 124 T.C. 80, 83 (2005). Even an attorney who is representing himself is not entitled to value his time in handling the litigation. Frisch v. Commissioner, 87 T.C. 838, 846-847 (1986). The plain text of IRC § 7430 is limited to actual expenditures. Frisch, 87 T.C. at 845-846.

(T.C. Memo. 2020-98) Dennis v. Commissioner

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