Opinion
25989-22
08-20-2024
JOHN S. WINKLER & LYNNE A. PRICE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Travis A. Greaves Judge
Pending before the Court is petitioners' Motion for Reasonable Litigation or Administrative Costs pursuant to section 7430 and Rule 231. Therein, petitioners request reimbursement for $6,087 in attorney's fees and $60 for the Court's filing fee.For the reasons set forth below, we will deny petitioners' motion in part, with respect to attorney's fees, and grant petitioners' motion in part, with respect to the Court's filing fee.
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.
All dollar amounts are rounded to the nearest dollar.
Background
Husband and wife petitioners John S. Winkler (Husband) and Lynne A. Price (Wife) jointly filed a return for tax year 2019. On September 7, 2022, respondent issued Husband and Wife a notice of deficiency for $696 related to this return. Following receipt of this notice, on September 11, 2022, Husband, in his capacity as attorney, sent himself and Wife a client engagement letter for his legal services. After respondent later conceded that petitioners actually owed no deficiency, on February 7, 2024, Husband sent Wife an invoice for $6,147 for legal services rendered and a court filing fee paid during the dispute. On the same day, both Husband, in his attorney capacity, and Wife, in her petitioner capacity, submitted a Motion for Reasonable Litigation or Administrative Costs (Motion), requesting $6,087 in attorney's fees and $60 for the Court's filing fee. Days later, Wife wrote Husband a check for the amount indicated in the invoice. In respondent's response to petitioners' motion, respondent asserts that petitioners did not incur these expenses and that petitioners unreasonably protracted the proceedings. Husband and Wife resided in Florida throughout these proceedings.
This check is attached to petitioners' Motion to Supplement the Record, filed March 26, 2024. The Court will recharacterize this motion as petitioners' First Supplement to Motion for Reasonable Litigation or Administrative Costs.
Respondent concedes that petitioners were the prevailing parties and have exhausted administrative remedies.
Discussion
Section 7430 authorizes the award of reasonable costs to parties who (1) are the prevailing party, (2) exhausted administrative remedies, and (3) did not unreasonably protract proceedings. § 7430(b)-(c); Dennis v. Commissioner, T.C. Memo. 2020-98, at *3; Diaz v. Commissioner, T.C. Memo. 2007-317, 2007 WL 3085029, at *2. Parties can request reimbursement for litigation costs incurred or paid as well as administrative costs incurred. § 7430(a). Litigation costs refer to court costs and costs of services including attorney's fees incurred or paid in a judicial proceeding. Id.; Dennis, T.C. Memo. 2020-98, at *3. Administrative costs refer to administrative costs incurred in an administrative proceeding with the IRS. § 7430(a); Dennis, T.C. Memo. 2020-98, at *3. The moving party has the burden of showing each element is satisfied. See Rule 232(e); Minahan v. Commissioner, 88 T.C. 492, 497 (1987). Failure to satisfy any of these requirements precludes the award of costs. See § 7430; Cooley v. Commissioner, T.C. Memo. 2012-164, 2012 WL 2094302, at *4.
The first issue is whether Wife may be awarded the cost of attorney's fees requested. The parties dispute whether Wife incurred or paid these expenses. In determining whether a fee was incurred, pro se petitioners cannot recover the costs of their own time. See Frish v. Commissioner, 87 T.C. 838, 842 (1986); see also Dennis, T.C. Memo. 2020-98, at *4 (stating that petitioners cannot recover for lost opportunity costs-one can only recover the cost of actual expenditures). There are several reasons to justify this restriction. First, an individual appears before the Court as a petitioner or as an attorney-not both. See Frish, 87 T.C. at 846. In other words, there is no difference between pro se petitioner attorneys and pro see petitioner non-attorneys; in either instance a person may fill the role of attorney or petitioner. See id. (stating that a pro se petitioner is "merely a pro se litigant who happens to be earning a living as a lawyer"). Second, to incur an expense, one must have liability to pay it. See id. at 846. Critically, one does not have liability to pay one's own self back. See id.
Because the requirements of section 7430 are conjunctive, we need not discuss other issues such as whether petitioners unreasonably protracted the proceedings with respect to awarding attorney's fees. See Cooley, 2012 WL 2094302, at *5, *9 (finding that when a petitioner has not established that attorney's fees were incurred, the Court need not determine whether other elements of section 7430 are satisfied).
The restriction against collecting for one's own labor is true when a petitioner-attorney represents his spouse as well. See Dennis, T.C. Memo. 2020-98, at *5. That is, a petitioner acting in his capacity as an attorney cannot recover for time spent representing self or spouse. Id. Moreover, retaining counsel-especially one's spouse-does not establish that a petitioner incurred the cost of attorney's fees. See Thompson v. Commissioner, T.C. Memo. 1996-468, 1996 WL 594106, at *5; see Cooley, 2012 WL 2094302, at *4-5 (finding that an agreement between a petitioner and attorney-spouse to render payment for legal services does not show that costs were incurred). In determining whether an agreement between petitioner and attorney-spouse represents a genuine liability, a single billing statement prepared shortly before filing a motion for litigation costs suggests that the payment was "prepared . . . solely for the purpose of the motion and . . . does not reflect any obligation . . . to pay." Cooley, 2012 WL 2094302, at *5.
Just as retaining counsel does not establish that fees were incurred, simply rendering payment does not establish that a fee was paid. See Thompson, 1996 WL 594106, at *5; Minahan, 88 T.C. at 519. Rather, it is critical to analyze "who the payment was rendered to." Minahan, 88 T.C. at 517, 518, 519 (finding that a petitioner was effectively paying himself when he worked on his own case and later rendered payment to a law firm in which he had an equity interest); see also Thompson, 1996 WL 594106, at *6 (finding that when husband and wife petitioners are represented by the same attorney, it is "questionable" that the wife would be expected to bear the cost of attorney's fees-even if she personally renders payment to the attorney).
As applied here, Husband may not recover attorney's fees related to representing himself. Similarly, Husband and Wife may not recover for Husband's time jointly representing the couple. It is thus immaterial that Husband and Wife agreed that Husband would represent the couple and may have agreed that Wife would pay Husband for attorney's fees. This conclusion is underscored by the fact that Husband sent Wife an invoice for services on the same day that they filed the Motion. Rather than representing a genuine liability, this timing emphasizes that the invoice from Husband to Wife was prepared solely for the purpose of submitting the Motion.
We appreciated that Wife may have paid attorney's fees, however, it was payment back to the same household. This distinction negates any cost she would be expected to bear individually. Accordingly, Wife did not "pay" these fees in the sense required to satisfy section 7430.
Notwithstanding our denial of petitioners' request for attorney's fees, the second issue is whether petitioners may be awarded the cost of the Court's filing fee. Petitioners who fail to establish all the requirements of section 7430 may still be awarded the cost of court filing fees. See Frish, 87 T.C. at 842, 847 (denying a pro se petitioner attorney's fees while awarding that petitioner the cost of court filing fees); see also Mearkle v. Commissioner, 90 T.C. 1256, 1261, 1263 (1988), supplementing 87 T.C. 527 (1986), rev'd, 838 F.2d 880 (6th Cir. 1988); see also Dunaway v. Commissioner, 124 T.C. 80, 80, 84, 86, 94 (2005) (awarding a pro se petitioner reimbursement for actual costs). The justification for awarding actual costs, such as court filing fees, in certain circumstances is that if a petitioner were represented, many actual costs would be included in an award of attorney's fees, and pro se petitioners should also be able to recover those costs. See Dunaway, 124 T.C. at 90- 91. In other words, when awarding actual costs, it should not matter whether a petitioner is represented or appeared pro se. See id.
In determining whether to award court filing fees, the dispositive consideration is which element of section 7430 the petitioner failed to establish. Compare Mearkle, 90 T.C. at 1261, 1263 (awarding court filing fees despite having found that petitioners unreasonably protracted the proceedings), with Kazazian v. Commissioner, T.C. Memo. 2017, 135, at *18 (denying the award of court filing fees where petitioner was not the prevailing party), and Haas & Assocs. Acct. Corp. v. Commissioner, 117 T.C. 48, 53, 62, 63 (2001) (denying the award of court filing fees where petitioner did not exhaust administrative remedies). Here, respondent only contends that petitioners unreasonably protracted the proceedings. However, even if that were so, we find that they may nonetheless be awarded the $60 court filing fee.
Upon due consideration, it is
ORDERED that petitioners' Motion to Supplement the Record, filed March 26, 2024, is recharacterized as petitioners' First Supplement to Motion for Reasonable Litigation or Administrative Costs. It is further
ORDERED that petitioners' Motion for Reasonable Litigation or Administrative Costs, filed February 7, 2024, as supplemented is denied in part, with respect to attorney's fees. It is further
ORDERED that petitioners' Motion for Reasonable Litigation or Administrative Costs, filed February 7, 2024, as supplemented is granted in part, with respect to the Court's filing fee.