In BASR Partnership v. United States, 130 Fed.Cl. 286 (2017), here, the Court of Federal Claims held that the partnership in a TEFRA proceeding in which it prevailed after sending a qualified settlement offer of $1 was entitled to recover attorneys fees at the higher than normal attorney fee rate. There is a good story here and practice tip for attorneys interested in recovering attorneys fees should they prevail in tax litigation.
BASR Partnership won the merits decision -- really a procedural decision -- at the trial and appellate levels holding that the fraud of persons other than the taxpayer or someone related to the taxpayer is not sufficient to invoke the unlimited statute of limitations in § 6501(c)(1). BASR Partnership v. United States, 113 Fed. Cl. 181 (2013), aff'd BASR Partnership v. United States, 795 F.3d 1338 (Fed. Cir. 2015), reh. denied. I previously blogged on these decisions, but link here to the one on the appeals decision: Court of Appeals for Federal Circuit Holds that Fraud of the Taxpayer (Or Someone Closer to the Taxpayer than the Fraudster) is Required for Section 6501(c)(1) Unlimited Statute of Limitations (Federal Tax Crimes Blog 7/30/15; 7/31/15), here.
Having won the decision, rather than being satisfied with the substantial victory -- the avoided cost of large tax liabilities for its partners -- the partnership desired to recover attorneys fees. That leads to § 7430, here. Normally, recovering attorneys fees requires that the party seeking recovery be the "prevailing party." The prevailing party is defined in § 7430(c)(4) to be the party who "substantially prevailed" as to the amount and who meets certain financial requirements (in relevant party net worth of less than $7 million). BASR did not fail the financial test. (As noted below, the Government argued that the "real parties in interest" -- the ultimate parties behind the partners -- had net worths exceeding the $7 million limit, but the Court rejected that argument.)
The prevailing party requirement is a bit more nuanced. Certainly, in ordinary parlance, BASR was the prevailing party. It won the whole cahuna, so that the IRS is not able to assess and collect tax from its partners under the TEFRA procedures. But, prevailing party is defined to exclude positions as to which the government was "substantially justified." Given the holding in Allen v. Commissioner, 128 T.C. 37 (2007), the Government position was substantially justified.
But wait, there is an exception to the substantially justified exception. If the taxpayer has made what is referred to as a qualified offer under 7430(g) then the party will be treated as the prevailing party if the judicial result "is equal to or less than the liability of the taxpayer which would have been so determined if the United States had accepted a qualified offer of the party under subsection (g)." See § 7430(c)(4)(E). The result of the BASR litigation is that the Government gets $0 from affected taxpayers which is certainly less than the $1 offered. Hence, bottom-line, the Court award BASR its attorneys fees and at a higher than normal hourly rate. The aggregate award was $314,710.49.
