John Purciello sure thought he did, and the US District Court for New Jersey gave him summary judgment for legal fees against the IRS, when IRS tried to nail Honest John for TFRPs, even though he was just a salesman and never a “responsible person”.

His Honor Big Julie a/k/a Judge Julian Jacobs, hereinafter HHBJJJJ, tells the story in 2014 T. C. Memo. 50, filed 3/24/14.

There’s a complicated timeline here, but, cutting to the proverbial, IRS lost the file, grabbed Honest John’s tax refund to the extent of $59K, yoicked Honest John around while IRS tried to show he was responsible for the FICA withholdings that his bosses didn’t remit, and when IRS finally caved at Appeals, they told Honest John to file for a refund and then bounced his claim, arguing Honest John’s claim was barred by the SOL.

Judge Cavanaugh in New Jersey District Court wasn’t having any of it. He gave Honest John summary judgment when Honest John sued for the refund. Judge Cavanaugh said IRS couldn’t concede they’d grabbed Honest John’s refund wrongfully, yoick him around and then claim he’s too late asking for his money. And Honest John gets his legal fees, as IRS was no way justified in claiming SOL.

Now Honest John wants his administrative fees for the time he spent with Appeals.

But HHBJJJJ says no. IRS caved, but the magic date is when a notice of decision is issued to a taxpayer, per Section 7430. But IRS claims they caved before they issued a notice of determination, and when they did they agreed with Honest John that he wasn’t a responsible person and that they grabbed his refund improperly (although they claimed it was too late for him to do anything about it).

Now IRS shucked and jived around, but they never issued a notice of determination. Honest John says that shucking and jiving was just to thwart him, but that’s tough, says HHBJJJJ. “At first blush, it would appear that our holding might be inconsistent with that of the District Court, which had awarded petitioner litigation costs. But it is not. In the situation involved in the District Court, the IRS Appeals Office denied petitioner’s request for a refund on the basis that petitioner’s refund claim was untimely, a position the District Court found not to be substantially justified. In the situation involved in this case, the IRS Appeals Office agreed with petitioner, resulting in the IRS’ abating the trust fund recovery penalty assessment, a position all agree was substantially justified.” 2104 T. C. Memo. 50, at pp. 12-13.

Quoting Kwestel v. Commissioner, 2007 T. C. Memo. 135, anent the narrow statutory language of Section 7430(c)(7), HHBJJJJ regretfully denies Honest John his administrative costs: “taxpayers * * * who do a good job at the administrative level of resolving issues and getting respondent to realize the error of his ways are precluded from recovering administrative costs incurred in achieving those favorable results. To the contrary, taxpayers who do not do as good a job at the administrative level and who receive adverse Appeals Office notices of decision or notices of deficiency, but who later convince respondent to concede issues or who substantially prevail in litigation on the issues, are able to seek a recovery of administrative costs. In effect, taxpayers who do a better job at the administrative level of resolving issues raised by respondent on audit are prejudiced in their ability to recover administrative costs under section 7430.” 2014 T. C. Memo. 50, at p. 14.

Honesty and competence of counsel are their own rewards. If that makes sense, you’ll do just fine in Tax Court–if you mess up.