Opinion
27884-16S
09-29-2023
GILLIAN MAY EICHER-SCHAADT & BRIAN MICHAEL SCHAADT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Peter J. Panuthos Special Trial Judge.
Pending before the Court is (1) respondent's Motion for Entry of Decision, filed on June 7, 2023, and (2) petitioners' Motion for Reasonable Litigation or Administrative Costs with supporting affidavits seeking reimbursement of $5,000 in attorney fees, filed on June 23, 2023. On June 22, 2023, petitioner filed an objection to the Motion for Entry of Decision and on August 10, 2023, respondent filed a Response to petitioners' Motion for Reasonable Litigation or Administrative Costs with supporting affidavits.
I. Background
The following background information is derived from the parties' filings.
Petitioners timely filed a Petition in this case on December 29, 2016, seeking review of a notice of deficiency dated September 27, 2016, as follows:
| Year | Deficiency | I.R.C. § 6662(a) |
| 2012 | $16,175.00 | $3,235.00 |
| 2013 | $14,918.00 | $2,983.60 |
| 2014 | $19,273.00 | $3,854.60 |
The deficiencies and penalties stemmed from the disallowance of various claimed business expense deductions, claimed real estate losses, and an accuracy-related penalty under section 6662(a).
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times and Rule references are to the Tax Court Rules of Practice and Procedure.
On February 21, 2017, respondent filed an Answer, and the case was forwarded to the IRS Independent Office of Appeals (Appeals). Petitioners filed a Motion for Continuance on December 18, 2017, indicating that they required more time to work with the assigned appeals officer. On August 23, 2019, respondent filed a status reporting, informing the Court that he was conceding the accuracy-related penalty under section 6662(a) for tax years 2012-2014.
On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981, 983 (2019). We will use the name in effect at the times relevant to this case, i.e., the Office of Appeals or Appeals.
On August 22, 2019, attorney Gregory McCauley entered an appearance on behalf of petitioners. Mr. McCauley filed a Motion to Withdraw on October 24, 2019, which was subsequently granted.
On June 13, 2022, the parties advised in a telephone conference that they had reached a basis for settlement. Respondent prepared a Stipulation of Settled Issues, which was sent to petitioners on November 16, 2022, which stipulated that the respondent conceded the Schedule C expenses, Itemized Deductions, and the accuracy-related penalty under section 6662(a) while petitioners conceded the Schedule E real estate losses and part of the real estate taxes claimed as itemized deductions. Petitioners subsequently signed and returned the Stipulation of Settled Issues which was filed on March 8, 2023.
Respondent prepared and sent to petitioners a proposed Decision Document. Petitioners did not sign and return the proposed Decision document. On June 7, 2023, respondent filed a Motion for Entry of Decision on the grounds that the parties had come to an agreement and signed a Stipulation of Settled Issues regarding petitioners' tax years 2012-2014.
On June 23, 2023, petitioners filed a Motion for Reasonable Litigation or Administrative Costs with supporting affidavits. Petitioners indicated the motion was made to recoup legal costs caused by an "exceptionally lengthy audit process spanning nearly nine years" due to respondent's delays.
II. Discussion
A. Motion for Entry of Decision
In the Tax Court, concessions, compromises, and settlements can be memorialized in various ways, including (as here) by the parties' execution of a stipulation of settled issues. "[A] settlement stipulation is in all essential characteristics a mutual contract by which each party grants to the other a concession of some rights as a consideration for those secured and the settlement stipulation is entitled to all of the sanctity of any other contract." Saigh v. Commissioner, 26 T.C. 171, 177 (1956. The agreement manifested by a stipulation of settled issues will not be set aside except as necessary to prevent "manifest injustice," e.g., in the case of fraud or misrepresentation of material fact. See Rakosi v. Commissioner, T.C. Memo. 1991-630, 62 T.C.M. (CCH) 1563, 1565. This Court regularly enforces settlement stipulations (whether written or orally stipulated into the record) unless for reasons of justice a party should be relieved from those stipulations. See McMullen v. Commissioner, T.C. Memo. 2015-219.
The record demonstrates that the terms in the Stipulation of Settled Issues were agreed to by both parties. Petitioners do not object to the stipulations in the document. There is no evidence in the record or reasonable argument put forth by petitioners showing that justice requires that petitioners be relieved from the settlement stipulations. We conclude that petitioners have set forth insufficient reasons to set aside the settlement agreement reached by the parties. Accordingly, the parties' settlement stipulations are binding and enforceable, and we grant respondent's motion for entry of decision
B. Motion for Reasonable Litigation or Administrative Costs
Section 7430(a) authorizes the award of reasonable litigation costs to the prevailing party in court proceedings brought by or against the United States in connection with the determination of, inter alia, any income tax. See Corson v. Commissioner, 123 T.C. 202, 205 (2004). 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 § 7430(b) and (c); Friends of the Benedictines in the Holy Land, Inc. v. Commissioner, 150 T.C. 107, 111-12 (2018). The failure to satisfy any of these requirements will preclude an award of costs. See Minahan v. Commissioner, 88 T.C. 492, 497 (1987). Taxpayers have the burden of proving they have satisfied each requirement of section 7430.
Respondent concedes that petitioners have not unreasonably protracted the proceedings, the amount of costs requested is reasonable, and that petitioners exhausted the administrative remedies available to them.
Section 7430(c)(4)(A) provides that a taxpayer qualifies as a prevailing party if (1) the taxpayer substantially prevailed with respect to the amount in controversy or the most significant issue or set of issues and (2) the taxpayer meets an applicable net worth requirement. See Corson v. Commissioner, 123 T.C. at 206. A taxpayer who meets the requirements of section 7430(c)(4)(A), however, will not be treated as a prevailing party if the Commissioner's position in the court proceeding was "substantially justified". See § 7430(c)(4)(B)(i); Corson v. Commissioner, 123 T.C. at 206.
Petitioners have not substantially prevailed with respect to the amount in controversy or the most significant issue or set of issues. While respondent conceded various business expense deductions and the accuracy-related penalty under section 6662(a), petitioners conceded that they were not entitled to real estate losses as reported on their Schedule E. This item accounted for a significant share of the amount in controversy. As a result, the settlement reached reflected a combined deficiency of $41,317 for tax years 2012-2014. The notice of deficiency, dated September 27, 2016, determined a total deficiency, and penalties at issue in this case for tax years 2012-2014, of $60,439.20. As a result, the parties have stipulated an amount of deficiency accounting for 68% of the original amount proposed in the notice of deficiency. Based on the record before us, we cannot conclude that petitioners have substantially prevailed.
III. Conclusion
Petitioners have not demonstrated that there are sufficient grounds to be relieved from the settlement stipulation. Furthermore, petitioners are not the prevailing party and therefore are not entitled to an award of reasonable litigation costs.
Accordingly, it is
ORDERED that petitioners' Motion for Reasonable Litigation or Administrative Costs, filed June 23, 2023, is denied. It is further
ORDERED that the respondent's Motion for Entry of Decision, filed June 7, 2023, is granted. It is further
ORDERED AND DECIDED: That there are deficiencies in income tax from petitioners and zero penalties due from petitioners as follows:
Year Deficiency I.R.C. §6662(a) 2012 $12,959.00 None 2013 $11,524.00 None 2014 $16,834.00 None