Tax Court in Brief | Mazzei v. Commissioner | Law of the Case, Prevailing Party, and “Substantially Justified”

Share this Article
Facebook Icon LinkedIn Icon Twitter Icon

Freeman Law is a tax, white-collar, and litigation boutique law firm. We offer unique and valued counsel, insight, and experience. Our firm is where clients turn when the stakes are high and the issues are complex.

The Tax Court in Brief – May 2nd – May 6th, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation:  The Week of May 2nd, 2022, through May 6th, 2022

Mazzei v. Comm’r, T.C. Memo 2022-43 | May 2, 2022 | Thornton, J. | Dkt. No. 16702-09

Short Summary: Celia Mazzei, the taxpayer, appealed a Tax Court decision to the U.S. Court of Appeals for the Ninth Circuit. Originally, the Tax Court found Mazzei liable for excise taxes on excess contributions to her Roth IRA. The Ninth Circuit reversed and entered judgment for Mazzei. Then, and pursuant to 26 U.S.C. § 7430, Mazzei filed a motion in the Ninth Circuit for litigation expenses associated with underlying Tax Court litigation. The IRS argued that it was substantially justified in its position in the underlying tax proceeding and thus, Mazzei’s request for fees should be denied or, alternatively, remanded to the Tax Court. The Ninth Circuit summarily denied Mazzei’s motion. Mazzei then filed with the Tax Court, a Motion for Leave to File Out of Time a Motion for Litigation Expenses and concurrently submitted a Motion for Litigation Expenses. Both parties advanced essentially the same arguments as were presented to the Ninth Circuit.

Key Issues:

Primary Holdings:

Key Points of Law:

Insights: This case highlights the Tax Court’s position on the “law of the case” doctrine and its role in deciding § 7430(a) judgments. Essentially, a two-step procedure determines the doctrine’s applicability. First, the taxpayer requests the appellate court for an award of litigation expenses, or that the court remand the issue to the Tax Court for determination. Second, the appellate court expressly or implicitly rules on the taxpayer’s request for expenses. Under these circumstances, the doctrine precludes the Tax Court’s decision-making authority on a later-presented request for the same relief. Thus, litigants must weigh the likelihood of recovery from the Tax Court against the chance of an appellate court being nonresponsive on (or favorable to) the request for an award of litigation expenses. This case also provides insight on the Court’s analysis of a “prevailing party” and “substantially justified” under § 7430 and Treas. Reg. § 301.7430-5. The statute requires the IRS to establish a position that is substantially justified, being one that has a reasonable basis in law and fact. In Mazzei, the Court found a reasonable basis in fact because the underlying Roth IRA transaction factually lacked economic substance. Additionally, the Court noted that a reasonable basis in law can exist when the IRS raises a novel issue. Moreover, the presence or absence of appellate case law plays a role in this analysis. However, the Court does not regard one adverse opinion as dispositive of the IRS’s “reasonableness” in its pursuit.

Tax Court Litigation Attorneys

Need assistance litigating in the U.S. Tax Court? Freeman Law’s tax attorneys are experienced litigators with trial-tested litigation skills and in-depth substantive tax knowledge, having collectively litigated hundreds of cases before the U.S. Tax Court. Our tax controversy lawyers have extensive experience in Tax Court matters involving partnership audits and litigation under both the TEFRA and BBA regimes, international tax penalties, foreign trusts, valuation, reasonable compensation disputes, unreported income, fraud penalties, other tax penalties, and many other matters. We draw on our experience and wealth of tax knowledge to advise and guide clients through the entire tax controversy process, building the right strategy to resolve tax controversies from day one. Schedule a consultation or call (214) 984-3000 to discuss your Tax Court concerns or questions.