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gain realized in connection with the settlement payment.3 After
their success in litigation, petitioners filed a motion seeking
to recover $46,419.11 of administrative and litigation costs
under section 7430.4 In the second opinion, Allen v.
Commissioner, T.C. Memo. 1999-118, we decided that respondent’s
position was substantially justified under the facts and
circumstances of this case. Accordingly, petitioners’ motion for
litigation costs (attorney’s fees) was denied.
Petitioners appealed the denial of their motion, and the
Court of Appeals for the Ninth Circuit, in an unpublished
opinion, held as follows:
We affirm that part of the tax court’s determination
that the respondent was reasonably justifiable in
believing that the award was taxable, and accordingly
that attorney fees incurred by the taxpayer through the
pretrial discovery and negotiating period were not
reimbursable. It was, however, an abuse of discretion
to deny reimbursement of attorney fees actually
incurred by the trial, which should have been abandoned
by the Commissioner when all parties knew, three days
before trial, that the Commissioner’s witness had
recanted and that the [C]ommissioner could not
reasonably expect to prevail in the ensuing trial.
Accordingly, the order appealed from is vacated and the
cause is remanded to the Tax Court to determine, (1) whether
the taxpayers have otherwise satisfied the requirements of
section 7430 with respect to exhaustion, and not
unreasonably protracting the litigation, and (2) if the
parties do not agree on the amount due for the costs of
3 Because our holding did not result in an underpayment of
tax, we did not have to consider the penalty determined by
respondent under sec. 6662(a).
4 Petitioners were also seeking additional attorney’s fees
incurred to pursue the motion.
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