I have mixed feelings about the Eleventh Circuit’s opinion in Lynne A. Price v. Commissioner. In my tax blogging I have some principles that are entirely irrational, but firmly held. The first is to always root for disabled veterans. A close second is widows. Then there is the more general principle to root for the taxpayer, unless they are really being ridiculous. The Lynne A. Price story initially tripped the ridiculous wire. Fighting and winning a $696 deficiency in Tax Court and then expecting to get reimbursed $6,087 in attorney’s fees that she paid her attorney husband who was also on the case pro se seemed just a tad ridiculous, but when I looked at the whole picture, I felt bad that she didn’t win.
At The Tax Court
The Tax Court case is John S. Winkler and Lynne A. Price docket number 25989-22. The resolution is a stipulated decision. issued November 15, 2024. Here it is:
“Pursuant to the stipulation of the parties filed in this case and the order of the Court filed August 21, 2024, it is ORDERED AND DECIDED: That there is no deficiency in income tax due from, nor overpayment due to, petitioners for taxable year 2019;
That petitioners are not entitled to attorney’s fees under I.R.C. §7430; and
That petitioners are entitled to litigation costs under I.R.C. §7430 in the amount of $60.00.”
A full discussion of the logic of allowing the filing fee but not the intrafamily attorney fees is included in the August order, mentioned above.
“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.”
Lew Taishoff, who blogs the Tax Court with great intensity covered the order giving credit to Mr. Winkler for inventiveness.
‘I’m going to give John S. Winkler & Lynne A. Price, Docket No. 25989-22, filed 8/20/24, a Taishoff “Invention Class Honorable Mention” for John’s careful papering of his bid for his own Section 7430 legals and admins. Judge Travis A. (“Tag”) Greaves does toss John’s bid for legals notwithstanding.’
I asked Mr. Taishoff if the $6,000 seemed reasonable given what was on the docket. He wrote he really couldn’t give a good answer without putting in more time than he cared to, but did indicate that at the standard Tax Court rate of $200 per hour, it seemed a little high.
Appeals Court Agrees
The Appeals Court bought into all the Tax Court’s arguments. Most disturbing was this one.
“We are also not left with a firm conviction that the tax court made a mistake in viewing Price’s payment for her husband’s legal services as “payment back to the same household.” See Minahan, 88 T.C. at 519. While Price claims she wrote the check from “preexisting separate funds,” there is no evidence of her employment or source of assets, and the record otherwise shows that her husband is employed as an attorney and that they filed a joint tax return.”
Married couples have different ways of looking at their assets and Florida is not a community property state, so there is no reason that a payment between husband and wife cannot be real. Of course the other argument that Mr. Winkler’s work was as much for himself as it was for his wife has more merit.
Ultimately, the legal holding is probably right, but it still bugs me. Given the circumstances of the case, I think that the IRS should have reimbursed the couple for the aggravation that they were put through. For that we need to look at their brief on the appeal.
A Needless Notice of Deficiency
On March 19, 2021, IRS sent the couple a request for a copy of their 2019 Form 1095-A as support for their Premium Tax Credit on Form 8962. They faxed the 1095-A to the IRS on April 6. 2021. On August 30, 2021 IRS sent a proposed changed to the 2019 return due to lack of substantiation that a family member had been enrolled in an insurance plan through the Health Insurance Marketplace. That was a credit disallowance of $696. The couple responded by certified mail on September 21, 2021 enclosing copies of Form 8962 and Form 1095-A.
IRS acknowledged the response on April 8, 2022 and August 8, 2022 both times thanking the taxpayers for providing the requested forms. Then on September 7, 2022 IRS mailed a joint Notice of Deficiency in the amount of $696. I’m guessing that there was a concern that there was not much over six months left on the statute of limitations assuming the couple had not extended their 2019 return. Regardless, this puts the taxpayer in a really difficult position.
I remember experiencing something like this and it was kind of awkward. I had a client, a good friend from college, who was a lawyer. It might not be entirely unfair to characterize him as an ambulance chaser. He once told me that he would do somebody’s will or handle their divorce for really short money, if that was all they could afford. Because then he was their lawyer. And anybody can get hit by a car. I tried to explain to him that there were particular circumstances where you needed a tax attorney rather than a CPA, one of those being when you had to prepare a Tax Court petition. (I know about USCTPs, but I have never met one in the flesh). Anyway, I had been dealing with a similar train of IRS notices trying to straighten something out for him, when the IRS unleashed a deficiency notice. My friend flat out refused to hire another lawyer, so I kind of had to help him with the petition. It all worked out with the IRS fixing the mistake before the litigation had to go any further, but given the strict 90-day deadline on a Tax Court petition, I didn’t want to run the risk.
Why It Bugs Me
Mr. Winkler, on the other hand, is an actually tax attorney and Tax Court litigator. And the IRS needlessly forced him to work. Ultimately they agreed that the couple did not owe anything. It seems pretty clear that the statutory notice of deficiency should never have been issued. Taxpayers who unnecessarily jerk the IRS around in Tax Court are subject to penalties. Why isn’t there something going the other way when IRS puts taxpayers through unnecessary tsuris? I do think that Mr. Winkler was entitled to something, but probably not anymore than any other pro se taxpayer who wins on a notice of deficiency that should never have been issued. Regardless, I have to agree with Mr. Taishoff that the Winkler/Price couple at least deserves some sort of award.
For great value in continuing professional education check out the Boston Tax Institute.
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