I recently received an email update, found here, on estate planning news that highlighted the October 18th decision by the District Court for Massachusetts in the Estate of Mary Ellen Johnson v. United States, which discussed an executor’s attempt to obtain attorneys’ fees on a refund action that was settled. The court order is available here. I was thinking of including the case in the Roundup, which should be out later today or tomorrow, but the summary got a little long, so it gets its own post. The Court in Johnson summarized various cases that placed percentages on what may be substantially prevailing. The Court, however, did not apply those cases to Ms. Johnson’s estate as the Court found the Service’s position was substantially justified. Section 7430 governs most claims for fees, and prohibits fees when the Service’s position in the litigation is substantially justified under Section 7430(c)(4)(B)(i). The Service does carry this burden, but usually does not have much difficulty showing it was reasonable in both fact and law.read more...
The Court in Johnson held that the two issues the Service conceded were related to the underlying matter that the taxpayer conceded, and it would be difficult to say the Service was not justified on a matter the taxpayer conceded. Interestingly, a taxpayer can prevail on amount or the most significant issue. From the holding, the most significant issue was not in the taxpayer’s favor, but the amount at just over 51% may have crossed the required threshold. Neither really mattered though, as the Court found the Service position was justified.
Given the facts, the decision is not that surprising, but the case does highlight that if you receive 50% or more of the funds in question, you might be deemed to have substantially prevailed. Unfortunately, there is still the matter of the Service’s position in the litigation.
We’ve discussed before the benefit of qualified offers in trying to obtain costs and fees here. The case does not indicate if a qualified offer was made, but I suspect one was not offered. It is possible that such an offer could have helped settle this case sooner, but, since the case settled, the taxpayer would not have been able to us the qualified offer to obtain fees.