Phillip Lee Allen and Carolyn F. Allen - Page 3




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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          Court of Appeals for the Ninth Circuit, in an unpublished                     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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