Unless You Want to Foot(e) The Legal Bill Yourself

 Bill and Liz Foote really got the boot from IRS, and wound up settling eight years’ of claimed underpayments (which IRS claimed at one point was over $120 million) for $310K plus $64K in additions.

But they never asked for admins and litigations, the Section 7430 paybacks, until it was too late.

Read the sad story in William D. Foote and Elizabeth R. Foote, 2013 T. C. Memo. 276, filed 12/9/13, as told by Judge Wherry, not in the least whimsical today.

Although Bill and Liz sent letters to IRS claiming 7430s, they never timely sought to include the admins and litigations in the settlement stip, or moved to vacate the decision so as to litigate the admins and litigations.

Though the case never went to trial, there was certainly trial prep. In fact, Bill and Liz ran up $734K in claimed admins and litigations.

No dice, says Judge Wherry. The doctrine of res judicata controls, and he gives IRS summary judgment tossing Bill and Liz. Once the stipulated decision is entered, and you didn’t stip with IRS about the admins and litigations, you either move to vacate it and fight about the 7430 allowance of admins and litigations, or lose the claim forever.

And it doesn’t matter that IRS was, to put it charitably, a wee bit aggressive here. “Petitioners attach to their opposition to summary judgment exhibits rife with allegations of improper behavior on the part of the revenue agent. As illustration, petitioners contend that the revenue agent refused to consider proffered and documented explanations and that she made numerous adjustments without any credible factual basis or justification.” 2013 T. C. Memo. 276, at p. 4, footnote 4.

And while he says he isn’t finding facts here, Judge Wherry did note earlier that: … the facts, as alleged by petitioners, do not cast respondent [IRS] in a positive light. These facts, if true, are indicators of intemperate actions by respondent’s revenue agent and group manager. However, these facts do not help petitioners because, as discussed infra, the law dictates summary judgment for respondent.” 2013 T. C. Memo. 276, at p. 2, footnote 2.

Read the Tax Court Rules. “They specify that if the parties agree on a settlement of all issues including administrative and litigation costs, the parties must include in the stipulated decision documents the award of those costs. Rule 231(a); Manchester Grp. v. Commissioner, T.C. Memo. 1994-604, 1994 WL 692750, at *7, rev’d on other grounds, 113 F.3d 1087 (9th Cir. 1997). If the parties have not settled the reasonable administrative and litigation cost issues, the taxpayer must file a motion for costs within 30 days of service of a written opinion determining the issues in the case or service of the pages of the transcript that contain findings of fact or opinion stated orally pursuant to Rule 152. Rule 231(a)(2)(A) and (B). If the parties have settled all issues but the claim for costs, the taxpayer must also file a motion along with the stipulation of settled issues. Rule 231(b) and (c).” 2013 T. C. Memo. 276, at p. 9 (Footnote omitted, but read it; it gives some illustrations of other occasions to ask for 7430 relief).

Even though Bill and Liz have some good equitable arguments, it doesn’t help. Judge Wherry goes with res judicata; once it’s over, it’s over. Move timely or lose.

Finally, a word to the wise advocate: “As alleged by petitioners, the actions of the revenue agent, abetted by the group manager, may have been inappropriate, and we in no way condone inappropriate or un-called-for actions. However, those actions, while significantly contributing to petitioners’ lengthy audit and substantial legal bills, are not the proximate cause of petitioners’ inability to obtain an award of reasonable administrative and litigation costs. Rather, it was the unfamiliarity of petitioners and their advisers with our Rules or their inadvertent failure to follow them.” 2013 T. C. Memo. 276, at pp. 15-16. (Emphasis added).

Read the Rules, guys. If you’re going to practice in Tax Court, or before the IRS, read the Rules.