No, not R. C. Sherriff’s 1928 classic war play, but the end of the saga of Arthur I. Appleton, Jr., Petitioner, The Government of the United States Virgin Islands, Intervenor, Docket No. 7717-10,filed 1/31/14.
If you’ve forgotten this seemingly-unending tale of unguided Congressional largesse and confusing statutory enactments in support thereof, see my blogposts “Statute of Limitations? Maybe Not”, 12/28/10, “Missed It, But Better Late Than Never”, 8/24/11, “Somebody Does Read This Blog”, 12/4/11, “Farewell to the Virgin”, 5/22/13, and “The Never-Ending Story”, 6/3/13.
Both I and Judge Julian J. Jacobs, s/k/a Big Julie and hereinafter referred to as HHBJJJJ, have gotten a lot of mileage out of Artie’s four-year mission.
But it looks like it’s finally over. Artie gets summary judgment he owes no tax for three years at issue, but he won’t get his legal fees and admins. IRS is substantially justified.
HHBJJJJ:“A position is substantially justified if it is ‘“justified in substance or in the main’-that is justified to a degree that could satisfy a reasonable person’ or has ‘a reasonable basis both in law and fact.’ Pierce v. Underwood, 487 U.S. 552, 565 (1988); Nicholson v. Commissioner, 60 F.3d 1020, 1025-1026 (3d Cir. 1995), rev’g T.C. Memo. 1994-280. Respondent’s position may be justified even if it is ultimately rejected by the Court. Estate of Wall v. Commissioner, 102 T.C. 391, 393 (1994) (quoting Wilfong v. United States, 991 F.2d 359, 364 (7th Cir. 1993)).
“The issue involved in this case was one of first impression. And generally, when an issue is one of first impression, respondent’s position is considered to be substantially justified if (1) respondent’s position is not contrary to any published decision, and (2) a ‘reasonable person [could not] say that it lacked colorable justification.’ Estate of Wall v. Commissioner, 102 T.C. at 394. However respondent’s position in a case involving an issue of first impression will not be considered substantially justified when that position conflicts with the ‘clear and unequivocal’ language of the statute. Nalle v. Commissioner, 55 F.3d 189, 193 (5th Cir. 1995), aff’g T.C. Memo. 1994-182. If respondent’s interpretation of a statute lacks ‘any ligaments of fact’ and is clearly erroneous as a matter of law, Portillo v. Commissioner, 988 F.2d 27, 29 (5th Cir. 1993) (quoting Portillo v.Commissioner, 932 F.2d 1128, 1133 (5th Cir. 1991)), rev’g T.C. Memo. 1992-99, or if none of the arguments offered by the Internal Revenue Service (IRS) during the various states of litigation has a chance of succeeding, Beaty v. United States, 937 F.2d 288, 292-293 (6th Cir. 1991), respondent’s interpretation is considered to violate the clear and unequivocal language of the statute and hence is not substantially justified. Newman v. Commissioner, T.C. Memo. 2012-74.” Order, at pp. 2-3.
The muddled state of the law got IRS confused. Pardonably, says HHBJJJJ.
“…(B)ecause of the complex interaction between the relevant Code sections and the applicable regulations, forms, and instructions, we found respondent [IRS] did not properly recognize that the Code and the regulations directed petitioner to file his income tax return with the VIBIR to fulfill his Federal income tax return filing obligations.
“We do not believe that a reasonable person would conclude that respondent’s position in this matter violated the ‘clear and unequivocal’ language of the statutes, or was clearly erroneous as a matter of law, or lacked colorable justification.” Order, at pp. 4-5.
Of course, finding “clear and unequivocal language” in the Code and Regulations is rather like finding the Philosopher’s Stone, but let’s pass that one.
Artie relies on a Field Service Advice, but that was (a) later trumped by a Chief Counsel Advice, and (b) “is not a document published for public use or issued to a particular taxpayer, rather it is an internal, nonprecedential document provided to employees for their guidance.” Order, at p. 5.
So colorable equals substantially justified.
And IRS, like its predecessor in the Temple, I tell you, went down justified (at least substantially justified).