Claims Court Grants Partnership Award for Litigation Costs

Jacob Earl Christensen, United States Department of Justice, Tax Division, Washington, D.C.,Counsel for the Government.

BRADEN,Judge.

On March 7, 2016, BASR Partnership filed a Motion For Litigation Costs, pursuant to Section 7430 of the Internal Revenue Code. To facilitate review of this Memorandum Opinion And Final Order, the court has provided the following outline:

      I. RELEVANT FACTUAL BACKGROUND AND PROCEDURAL HISTORY.

On October 29, 2013, the court issued a Memorandum Opinion And Final Order, determining that the IRS did not timely issue the FPAA and was time-barred by I.R.C. Section 6501(c). See BASR Partnership by & through Pettinati v. United States, 113 Fed. Cl. 181,194 (2013). On December 26, 2013, the Government appealed. ECF No. 55.

On July 29, 2015, the United States Court of Appeals for the Federal Circuit affirmed the court's Memorandum Opinion And Final Order. See BASR Partnership v. United States, 795 F.3d 1338, 1350 (Fed. Cir. 2015). On September 28, 2015, the Government filed a Petition For En Banc Rehearing. On November 12, 2015, the appellate court denied the Petition. On December2, 2015, the Clerk of the Court issued the mandate of the United States Court of Appeals for the Federal Circuit. ECF No. 60.

On March 7, 2016, BASR Partnership ("Plaintiff" or "BASR") filed a Motion For Litigation Costs,³ with the United States Court of Federal Claims, pursuant to I.R.C § 7430 together with a Memorandum In Support ("Pl. Mem.") and exhibits ("Pl. Mem. Exs. A-D").⁴ ECF No. 61. Therein, BASR requests an award for the following attorney and paralegal fees and costs: (1) $147,326 in attorney fees reflecting the time billed by Sutherland Asbill & Brennan LLP ("Sutherland Asbill") at the statutory hourly rate;⁵ (2) $118,014 in addition to the statutory rate, because of the complexity of this case; and (3) $34,940.69 in paralegal fees and other costs. Pl. Mem. at 7-10.

On March 16, 2016, the Government filed a Motion For Leave To Conduct Limited Discovery Related To Plaintiff's Motion For Litigation Costs, For An Extension Of Time Within Which The Government May File a Response To Plaintiff's Motion, And For An Order Limiting The Time Within Which Plaintiff Must Respond To Discovery. ECF No. 62. On the same day, BASR filed a Response. ECF No. 63. On March 17, 2016, the court convened a telephone status conference to discuss the Government's motion. ECF No. 66, 3/17/16 TR at 1-12. Thereafter, the court entered an Order requiring BASR to "produce the client's fee agreement, a copy of all legal bills sent to the client, and any proof of payment from the client." ECF No. 64.

On April 28, 2016, the Government filed an Opposition To Plaintiff's Motion For Litigation Costs ("Gov't Opp.") with an attached Appendix ("Gov't App. 1-295"), and requested Oral Argument. ECF No. 68.

On May 9, 2016, BASR filed a Reply To The Government's Opposition To Plaintiff's Motion For Litigation Costs ("Pl. Reply"), and exhibits ("Pl. Reply Exs. A-E") and requested that the court deny the Government's request for Oral Argument. ECF No. 70. Therein, BASR also requested "fees for fees," i.e., payment for the reasonable time and costs spent to recover claimed litigation costs. Pl. Reply at 22. Specifically, BASR requested fees for 24.9 partner hours and 59.6 associate hours, or an additional $24,860 in attorney fees, bringing the total request for litigation costs to $325,140.69. Pl. Reply at 23. On May 23, 2016, the Government filed a Motion For Leave To File Sur-Reply and attached a Sur-Reply thereto ("Gov't Sur-Reply"). ECF No. 71. On May 24, 2016, the court granted the Government's May 23, 2016 Motion.

On October 26, 2016, the court convened an oral argument in Atlanta, Georgia, the venue requested by BASR's counsel. ECF No. 73, 10/26/16 TR at 1-74.

On December 1, 2016, BASR submitted a Supplemental Filing ("Pl. Supp. Mem."), requesting an additional $11,879 in litigation costs incurred after the filing of the May 9, 2016 Reply, together with the Declaration of Timothy R. Lavender ("11/9/16 Lavender Decl."), in support of the reasonableness of attorney fees requested, and additional affidavits reflecting the net worth of The Pettinati 1998 Gift Trust For Benefit Of ("f/b/o") William F. Pettinati, Jr. and The Pettinati 1998 Gift Trust f/b/o Andrew Pettinati, and invoices sent to William F. Pettinati, Jr. by Sutherland Asbill for an additional $45,500 in attorney fees accrued since May 9, 2016. ECF No. 74. In sum, BASR requests a total of $337,019.69 in litigation costs. Pl. Supp. Mem. at 2.

On December 7, 2016, the Government filed a Response ("Gov't Supp. Resp."). ECF No. 75.

BASR argues that, as a "prevailing party" under I.R.C § 7430, it is entitled to litigation costs. Pl. Mem. at 2.

On July 12, 2012, BASR made a "qualified offer" of $1 to the Government to settle the FPAA issued to BASR and the effect of those adjustments on BASR's partners' federal income tax liability. Pl. Mem. Ex. A. The Government did not accept BASR's offer. Pl. Mem. at 3. Since the United States Court of Appeals for the Federal Circuit affirmed the court's grant of summary judgment in the underlying case, the tax effect of the FPAA is $0, which is less than the amount of the "qualified offer" made by BASR. Pl. Mem. at 4. As such, BASR is a "prevailing party" within the meaning of I.R.C § 7430(c)(4)(A)(i). Pl. Mem. at 4.

I.R.C § 7430(c)(4)(A)(ii) also requires that a "prevailing party" meet the net-worth eligibility requirement of the Equal Access To Justice Act ("EAJA"), 28 U.S.C. § 2412(d)(2)(B). For partnerships, this amount is "less than $7 million and . . . less than 500 employees." Pl. Mem. at 4 (citing I.R.C. § 7430(c)(4)(A)(ii).⁷ BASR and its partners did not have "a net-worth of more than $7 million nor did they have more than 500 employees at the time this action was filed." Pl. Ex. B (3/7/16 Affidavit of William F. Pettinati, Sr.).

With respect to other litigation costs, the United States Court of Federal Claims permits recovery under I.R.C § 7430 for "photocopying, courier, travel, transcript/deposition, court filing, fax, and Westlaw expenses." Pl. Mem at 9 (citing Larsen v. United States, 39 Fed. Cl. 162, 170 (1997), appeal dismissed per stipulation, 152 F.3d 945 (Fed. Cir. 1998)). For these reasons, BASR requests $24,585 in paralegal fees (at a rate of $150 hour) and $10,355.69 in other litigation costs. Pl. Mem. at 9-10.

B. The Government's Response.

To the extent that William Pettinati, Jr. paid some of the litigation costs,⁸ not in his personal capacity, but as Trustee of the Pettinati 1998 Gift Trust f/b/o William Pettinati, Jr., the "[c]ourt should reject any attempt by [P]laintiff to re-write history in this fashion." Gov't Opp. at 14. The Sutherland Asbill engagement letter was signed by Mr. Pettinati, Jr. in his personal capacity. Gov't App. 5.⁹ In addition, credit card statements evidence that Mr. Pettinati, Jr., paid his portion of the litigation costs with a personal credit card, not with trust assets. Gov't App. 284-95. To the extent BASR argues that Mr. Pettinati, Jr. agreed to pay legal costs as trustee, instead of in his personal capacity, pursuant to an oral agreement, such an agreement is unenforceable under Texas law. Gov't Opp. at 15. Texas law does not recognize an oral contract to pay for professional services where the contract is not to be performed within one year. See TEX. BUS. & COM. CODE ANN. § 26.01.¹⁰ Since Sutherland Asbill provided legal services for the Pettinatis since April 2011, any oral agreement was unenforceable, because services could and did extend for more than one year. Gov't Opp. at 15.

C. Plaintiff's Reply.

The Government does not dispute that BASR's partners engaged Sutherland Asbill to file this case on BASR's behalf or that the majority of fees paid to Sutherland Asbill were for the legal services regarding BASR's 1999 partnership tax returns. Pl. Reply at 2. But, BASR did not engage nor pay Sutherland Asbill, because BASR has no assets, and under Section 2.5 of BASR's Partnership Agreement, the Managing Partner¹² is entitled "to reimbursement for reasonable out-of-pocket expenses incurred by him on behalf of the Partnership or in pursuance of his duties as Managing Partner." Pl. Reply Ex. A § 2.5. Section 9.2 of the Partnership Agreement also states that "[e]ach Partner shall, to the extent permitted by law, be indemnified and held harmless by the Partnership from and against any and all . . . expenses (including reasonable legal fees and expenses) . . . arising from any and all claims, costs, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Partner may be involved." Pl. Reply Ex. A § 9.2.

The United States Supreme Court has held that, "[i]n applying the Internal Revenue Code, state law controls in determining the nature of the legal interest which the taxpayer has in property." United States v. Nat'l Bank of Commerce, 472 U.S. 713, 714 (1985). BASR was organized in Texas, and Texas law requires that a partnership must reimburse partners who advance legal fees on the partnership's behalf. Pl. Reply at 3 (citing Long, 115 S.W.3 at 228). Texas law also provides that a partner tasked with winding up a partnership's business is authorized to prosecute and defend civil, criminal, or administrative suits on the partnership's behalf. See TEX. BUS. ORG. CODE ANN. §§ 11.052(b), 11.055, 152.703. Partnerships are bound by these obligations, and all partners are liable to contribute funds in proportion to their partner shares to fulfill any obligations that arise as a result. See TEX. BUS. ORG. CODE ANN. §§ 152.704 ("A partnership is bound by a partner's act . . . that is appropriate for winding up[.]"); 152.705(a) ("[T]he losses with respect to which a partner must contribute under Section 152.708(a) include losses from a liability incurred under Section 152.704."); 152.708(a)(1) ("[E]ach partner shall contribute, in the proportion in which the partner shares partnership losses, the amount necessary to satisfy partnership obligations[.]"). Although BASR is "no longer a going concern" several of its partners incurred the litigation costs on its behalf, and each partner is required to contribute to the partnership to cover this obligation. Pl. Reply at 4.

In addition, the Government's "real-party-in-interest" argument is contrary to the provisions of I.R.C § 7430 that allow a partnership to qualify for a fee award. I.R.C § 7430 derives its net-worth requirements from the EAJA, 28 U.S.C. § 2412(d)(2)(B), and that statute provides that a "party" must be either an individual whose net worth does not exceed $2,000,000 or a partnership with a net worth that does not exceed $7,000,000 and does not have more than 500 employees. See I.R.C. § 7430(c)(4)(A)(ii); 28 U.S.C. § 2412(d)(2)(B). By the Government's logic, "a court would always have to test the net worth of all of the partnership's partners -- who will always bear the litigation cost as partners in the partnership." Pl. Reply at 5. "That is not the law." Pl. Reply at 5. In fact, Treasury Regulation § 301.7430-5(g)(5) provides that a TEFRA partnership may recover fees under I.R.C. § 7430, provided that it meets the relevant net worth and size limitations. If the Government's argument is correct, it would make that regulation superfluous. Pl. Reply at 6.

William Pettinati, Jr.'s net worth is irrelevant, however, because he has never been a partner in BASR. Pl. Reply at 8-9. "Although [William Pettinati, Jr.] was a beneficiary of the Pettinati 1998 Gift Trust f/b/o William Pettinati Jr., that trust is a complex trust that reports its own tax liability . . . but not its beneficiaries." Pl. Reply at 9. Therefore, the Trust is legally liable for some of the fees that Mr. Pettinati, Jr. paid to Sutherland Asbill. Pl. Reply at 9.¹³ This is so, because Mr. Pettinati, Jr. "was empowered as trustee 'to commence or defend . . . at the expense of the trusts, such litigation with respect to such trust estates as the Trustee considers advisable." Pl. Reply at 9; see also Gov't' App. 238 (containing Section 4.1(r) of the 1998 Pettinati Trust Agreement). Texas law allows a trustee to "compromise, context, arbitrate, or settle claims of or against the trust estate or the trustee." Pl. Reply at 9 (quoting TEX. PROP. CODE ANN. § 113.019). As such, the Trust is obligated to reimburse Mr. Pettinati, Jr. for the reasonable costs incurred during his term as Trustee. Pl. Reply at 10. In any event, the Government's argument that William Pettinati, Jr. did not pay fees on behalf of the Trust "is absurd," because "William Pettinati Jr.'s only interest in the outcome as this case was, as the [G]overnment recognizes, 'as the beneficiary of the gift trust.'" Pl. Reply at 10 n. 6 (citing Gov't Opp. at 14).

In addition, either the issuance of the FPAA or the Government's Answer commenced the "qualified offer period." Pl. Reply at 13-15. Treasury Regulation § 301.7430-3(c)(3) treats a FPAA as a "notice of deficiency" that serves to start the "qualified offer period." See Treas. Reg. § 301.7430-3(c)(3). For this reason, the United States Court of Appeals for the Fifth Circuit has held that a FPAA is the "functional equivalent of a notice of deficiency." Sealy Power, Ltd. v. Comm'r, 46 F.3d 382, 385-85 (5th Cir. 1995) (holding that a FPAA is the functionalequivalent of a notice of deficiency because it "serve[s] to afford affected taxpayers that the Commissioner has made a final administrative determination of their liability for particular tax years"). Alternatively, the Government's August 10, 2010 Answer began the "qualified offer period," as Treasury Regulation § 301.7430-7(c)(7) provides that the qualified offer period begins when the Government files its answer. BASR adds that the "qualified offer" of $1 was not a "sham," as the Government argues, and there is no basis for the court to exercise its discretion to deny an award. Pl. Reply at 15-18.

D. The Government's Sur-Reply.

The Government counters that BASR's "new theory" that it incurred the litigation costs, because of the partners' legal obligations under Texas partnership law has "no basis in law and fact." Gov't Sur-Reply at 2. First, "[t]he partners, rather than the partnership entity, are the parties in a TEFRA proceeding." Foothill Ranch, 110 T.C. at 99. BASR's Partnership Agreement states that BASR's partners are: William Pettinati, Sr., Virginia Pettinati; and two gift trusts, i.e., the 1998 Gift Trust for William F. Pettinati, Jr., and the 1998 Gift Trust for Andrew P. Pettinati. Gov't Sur-Reply at 2. Therefore, BASR's partners are not single-member LLCs under the Partnership Agreement. Gov't Sur-Reply at 3.

Second, BASR is no longer a going concern and has "zero assets" to reimburse the Pettinatis for their litigation costs. Gov't Sur-Reply at 4 (citing Pl. Reply Ex. C). "[T]he fact that BASR . . . has never reimbursed the Pettinatis for any of the litigation costs . . . and that the Pettinatis have not previously sought reimbursement from BASR, strongly indicates that BASR was never under any obligation to do so under the partnership agreement or Texas law[.]" Gov't Sur-Reply at 4. BASR's Partnership Agreement provides that BASR's partners "have no obligation to make further contribution to the Partnership beyond their initial contributions," and any obligation that BASR may have to indemnify its partners for legal fees is limited "to the extent of any Partnership Assets." Gov't Sur-Reply at 4 n.2.

Moreover, BASR mischaracterizes Treasury Regulation § 301.7430-3(c)(3) to conclude that a FPAA must be treated as a notice of deficiency for purposes of triggering the "qualified offer period," because that regulation specifies that a FPAA must be treated as a notice of deficiency, "only for purposes of determining reasonable administrative costs under section 7430."¹⁵ Gov't Sur-Reply at 6 (quoting Treas. Reg. § 301.7430-3(c)(3) (emphasis added)).

E. Plaintiff's Supplemental Filing.

BASR's December 1, 2016 Supplemental Filing seeks additional attorney and paralegal fees for 24.6 hours spent by a partner at $400 an hour; 6.3 hours spent by an associate at $250 an hour; and 3.2 hours spent by a paralegal at $145 an hour,¹⁶ increasing the fee award by $11,879, or a total of $337,019.69. Pl. Supp. Mem. at 2. Included with the Supplemental Filing is a November 9, 2016 Declaration of Timothy R. Lavender, an attorney and partner at Kelley Drye & Warren, LLP in Chicago, Illinois, who testified that Sutherland Asbill's billing rate for partners, associates, paralegals, and support staff was "respectively quite low," in comparison to other professionals in Washington, D.C., with similar skills, experience, and reputation for tax matters. 11/9/16 Lavender Decl. at ¶¶ 2, 3, 5. In addition, the amount of time spent on this case was appropriate and reasonable. 11/9/16 Lavender Decl. at ¶ 4.

F. The Government's Supplemental Response.

The Government responds to Mr. Lavender's November 9, 2016 Declaration by arguing that the prevailing market rate in Washington, D.C. is not a "special factor" that would justify an increase in the statutory rate. See Pierce v. Underwood, 487 U.S. 552, 571-72 (1988) (holding that, with respect to the EAJA, the local or national market rate for legal services cannot be a special factor used to increase the rate beyond the statutory rate). Thus, Mr. Lavender's Declaration that the rates requested for Sutherland Asbill are lower than the market rate for representation is irrelevant. Govt. Supp. Resp. at 2. Nor does Mr. Lavender's November 9, 2016 Declaration address any "local availability of tax expertise" in Washington, D.C., (where the United States Court of Federal Claims is located), or in Houston, Texas (where Mr. William F. Pettinati, Jr., lives). Gov't Supp. Resp. at 3.

Moreover, the Government argues that the additional litigation fees -- i.e., the fees incurred after the filing of the March 7, 2016 Motion For Attorney Fees -- exceeded the current statutory rate of $200, and that BASR has made no showing that any special factor warrants an enhanced rate in this case. Gov't Supp. Resp. at 3.

G. The Court's Resolution.

Therefore, in this case, the court must determine whether BASR is a "party" under I.R.C § 7430. The next step is to determine whether BASR properly made a "qualified offer." See I.R.C § 7430(c)(4)(E). If each of these elements is established, BASR is entitled to be considered a "prevailing party."

The Rules of the United States Court of Federal Claims ("RCFC") also provides, in Appendix F, that:

Nevertheless, BASR argues that, as a partnership, it should be considered a "party" to this case for purposes of I.R.C § 7430, because of the relevant regulation promulgated by the Secretary of the Treasury. See Treas. Reg. § 301.7430-5(g)(5) (governing TEFRA partnerships seeking administrative fees pursuant to I.R.C § 7430). Treasury Regulation § 301.7430-5 provides that, "in cases involving partnerships subject to the unified audit and litigation procedures [of TEFRA], the TEFRA partnership meets the net worth and size limitations requirement" when its net worth does not exceed $7,000,000 and the partnership does not have more than 500 employees. Treas. Reg. § 301.7430-5(g)(5)(i).

Treasury Regulation § 301.7430-5 provides the net-worth requirements for both TEFRA partnerships and for partners who are parties to a TEFRA partnership-level proceeding. See Treas. Reg. § 301.7430-5(g)(5) (providing that "in addition, each partner requesting fees pursuant to [I.R.C. § ] 7430 must meet the appropriate net worth and size limitations set forth in paragraph (g)(1), (g)(2), or (g)(3) of this section." (emphasis added)). Paragraph (g)(1) provides the net worth limitation for natural persons, (g)(2) provides the net worth limitations for estates and trusts, and paragraph (g)(3) provides that a "taxpayer that is a partnership . . . . meets the net worth and size limitations" if its net worth does not exceed seven million dollars and it does not have more than 500 employees. See Treas. Reg. § 301.7430-5(g)(1)-(3).

In short, this Regulation provides that either the TEFRA partnership or the individual partners may request litigation costs. See Treas. Reg. § 301.7430-5(g)(1)-(5). Paragraph (g)(3) provides the net worth requirement for the situation where the individual partners are partnerships. See Treas Reg. § 301.7430-5(g)(3) (providing the net worth and size limitations for taxpayers that are partnerships). Paragraph (g)(5) would be superfluous if it only applied to situations where an individual partner seeking attorney fees was a partnership; as the text states "the TEFRA partnership" must meet the net-worth requirements. See Treas. Reg. § 301.7430-5(g)(5). The placement of the article "the" designates that the TEFRA partnership, not only its partners, are subject to the net-worth requirements of I.R.C. § 7430 and may recover for attorney fees as a "party."

Therefore, the court has determined that a partnership that is subject to a TEFRA partnership-level proceeding is a "party" that may request litigation costs, subject to the statutory requirements of I.R.C § 7430, including the net-worth requirements of the EAJA. This interpretation is consistent with TEFRA, because it was enacted to "creat[e] a single unified procedure for determining the tax treatment of all partnership items at the partnership level, rather than separately at the partner level." Keener v. United States, 551 F.3d 1358, 1361 (Fed. Cir. 2009) (quoting In re Crowell, 305 F.3d 474, 478 (6th Cir. 2002)).

As such, BASR was a partnership subject to a TEFRA partnership-level proceeding initiated by Mr. Pettinati, Sr. in his capacity as the Tax Matters Partner. And, both parties agree that BASR meets the net-worth requirements of the EAJA, 28 U.S.C. 2412(d)(2)(B), since it has a net worth of $0 and no employees. Pl. Reply Ex. C (5/9/16 Affidavit of William Pettinati Sr. stating that BASR has "zero assets"). This is less than the $7,000,000 net worth and 500 employee minimums set by the EAJA. See 28 U.S.C. § 2412(d)(2)(B). For these reasons, the court has determined that BASR is a "party" under I.R.C. § 7430(c)(4).

The "qualified offer" rule, however, does not apply in "any proceeding in which the amount of tax liability is not in issue, including any declaratory judgment proceeding, any proceeding to enforce or quash any summons issued pursuant to this title, and any action to restrain disclosure under [I.R.C. § ] 6110(f)." I.R.C. § 7430(c)(4)(E)(ii)(II). In this case, the Government argues that tax liability is not "in issue," because, under TEFRA, partnership-level FPAA review proceedings do not determine the tax liability of any partner. Gov't Opp. at 17. Instead, FPAA judicial review proceedings determine the tax treatment of partnership items. See I.R.C. § 6226(f) ("[The] court . . . shall have jurisdiction to determine all partnership items of the partnership for the partnership taxable year to which the [FPAA] relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item."). The tax liability of individual partners then are determined in subsequent proceedings at the partner level. See I.R.C. § 6230(a)(1)-(2) (providing procedures under which the IRS may make "computational adjustments" to the tax liability of individual partners); see also Woods, 134 S. Ct. at 563 ("Once the adjustments to partnership items have become final [under TEFRA], the IRS may undertake further proceedings at the partner level to make any resulting 'computational adjustments' in the tax liability of the individual partners.").

Although the Government is correct that the partners' final tax liability is determined at the partner level, it is not correct that tax liability was not "in issue" in this case. The partnership-level FPAA review proceeding conclusively determines the tax treatment of all partnership items, determining each individual partner's tax liability:

On July 12, 2012, in response to the IRS's January 20, 2010 FPAA, BASR sent the IRS a letter designated as a "qualified offer," to settle all outstanding claims by the IRS with respect to the applicable tax years for which the FPAA was issued. Pl. Mem. Ex. A. Because the court decided this case on summary judgment, BASR's offer was made more than 30 days before the date the case was first set for trial. The Government argues, however, that this offer was not made during the "qualified offer period" because the FPAA was not a "letter of proposed deficiency" that serves to commence the "qualified offer period" under I.R.C § 7430(g)(1). Gov't Resp. at 20-21.

The Government's argument, however, is contrary to Treasury Regulation § 301.7430-3(c)(3) that provides, for the purposes of determining reasonable administrative costs under I.R.C. § 7430, a FPAA is equivalent to a notice of deficiency that commences the "qualified offer period."¹⁷ In addition, the United States Court of Appeals for the Fifth Circuit has held that "[a] FPAA is the functional equivalent of a notice of deficiency." Sealy Power, Ltd. v. Comm'r, 46 F.3d 382, 385-85 (5th Cir. 1995).

In Clovis I v. Comm'r, 88 T.C. 980, 981 (1987), the United States Tax Court also determined that:

The Government also argues that an FPAA is not a "letter of proposed deficiency," because it is a "notice of a final partnership adjustment" that does not allow the taxpayer "an opportunity for administrative review" before the IRS Office of Appeals. Gov't Opp. at 23 (citing I.R.C. § 7430(g)(2)(A)). But, the Secretary of Treasury has promulgated regulations that provide that a taxpayer still gets the full benefit of the "qualified offer" provisions, even if the taxpayer receives only a "final" notice of deficiency and never receives such notice in proposed form. See Treas. Reg. § 301.7430-7(e) example 14 (explaining that a taxpayer will be treated as making a "qualified offer" even if he only receives a final notice of deficiency). Moreover, the issuance of an FPAA does allow for some administrative review; specifically, the case will be returned to the IRS Office of Appeals if partners opt out of court proceedings by settling with the IRS. See I.R.C. § 6224(c) (governing settlement in TEFRA cases); Rev. Proc. 87-24, 1987-22 I.R.B. 23 (providing procedures pursuant to which the IRS Office of Appeals will consider settlement offers); see also Internal Revenue Manual ("I.R.M") 8.19.12.13 (providing procedures to follow "if the [FPAA] case is later returned to [the IRS Office of] Appeals to settle").

For these reasons, the court has determined that the date of a FPAA is tantamount to a "letter of proposed deficiency" that commences the "qualified offer period" under I.R.C. § 7430(g)(2)(A)-(B).

I.R.C § 7430(c)(4)(E)(i) requires only that taxpayer's adjudged tax liability be equal to or less than the taxpayer's "qualified offer." I.R.C. § 7430(c)(4)(E)(i) ("A party . . . shall be treated as the prevailing party if the liability of the taxpayer pursuant to the judgment in the proceeding . . . 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[.]"). This statute does not require any minimum amount or define the parameters of a "reasonable" offer, nor does it require that an offer be for a certain percentage of the taxpayer's purported liability. See I.R.C. § 7430(c)(4)(E)(i). Indeed, the Government has offered no amount that BASR could have offered that would have been "reasonable."

In this case, the final judgment of the court not to sustain the FPAA on the basis that the FPAA was untimely issued resulted in $0 of tax liability for BASR's partners. Because $1 is more than $0, the court has determined that BASR's "qualified offer" complied with I.R.C. § 7430.

In this case, BASR "incurred" litigation costs for purposes of I.R.C § 7430, because it has an obligation to pay the attorney and paralegal fees and other costs charged by Sutherland Asbill. The fee arrangement in this case were addressed to and signed by Mr. William F. Pettinati, Sr., Mrs. Virginia Pettinati, Mr. William F. Pettinati, Jr., and Mrs. Karie M. Pettinati. Gov't App. 3-8. The fee agreement did not mention that the fees were being advanced by the Pettinatis on behalf of BASR. Gov't App 3 ("Dear Mr. and Mrs. Pettinati [Jr.] . . . we are pleased to be retained by you. . . ." (emphasis added)); Gov't App 6 "Dear Mr. and Mrs. Pettinati [Sr.] . . . we are pleased tobe retained by you. . . ." (emphasis added)). Under the fee agreements, legal fees were billed to and paid by the Pettinatis. Gov't App. 9-218 (invoices addressed to Mr. and Mrs. Pettinati Sr.); Gov't App. 263-283 (credit card statements showing personal credit card payments to Sutherland Asbill made by Mr. Pettinati Sr.); Gov't App. 284-295 (credit card statements showing personal credit card payments to Sutherland Asbill made by Mr. Pettinati Jr.).

BASR's Partnership Agreement, however, states that the Managing Partner is entitled to "reimbursement for reasonable out-of-pocket expenses incurred by him on behalf of the Partnership or in pursuance of his duties as Managing Partner." Pl. Reply Ex. A § 2.5. In addition, Section 9.2(a) states that,

Moreover, BASR is a general partnership organized in Texas and Section 9.11 of the Partnership Agreement states that "[t]his Agreement shall be governed by and construed in accordance with the laws of the State of Texas, including the [Texas Uniform Partnership] Act." Pl. Reply Ex. A. § 9.11. In addition, the United States Supreme Court has held that "[i]n the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property." Nat'l Bank of Commerce, 472 U.S. at 722 (internal quotation marks and citations omitted). As such, Texas law governs the obligations that BASR owes to its partners.

Section 152.002 of the Texas Business Organizations Code ("TBOC")¹⁸ provides, with respect to general partnerships, that:

In this case, BASR's Partnership Agreement states that the partners are entitled to reimbursement by the partnership for any legal expenses incurred on behalf of the partnership. Pl. Reply Ex. A §§ 2.5, 9.2(a).

But, even if the Partnership Agreement did not expressly provide that the partners were entitled to reimbursement, the TBOC obligates BASR to repay its partners for litigation costs incurred on its behalf. Under TBOC Section 11.052(b), any "domestic entity," i.e., a business organization governed by the TBOC,²⁰ may prosecute or defend a civil, criminal, or administrative action while winding up its business. See TEX. BUS. ORG. CODE § 11.052(b); see also TEX. BUS. ORG. CODE §§ 11.055(b) ("During the winding up process, a domestic entity may continue prosecuting or defending a court action or proceeding by or against the domestic entity."); 152.703(a) ("To the extent appropriate for winding up . . . a person winding up a partnership's business may take the actions specified in Sections 11.052 [and] 11.055."). The TBOC specifically provides that a partnership is bound by obligations undertaken by its partners during the winding up process. See TEX. BUS. ORG. CODE. § 152.704(1) ("After the occurrence of an event requiring winding up of the partnership business, a partnership is bound by a partner's act that . . . is appropriate for winding up[.]"), § 152.705 ("[T]he losses with respect to which a partner must contribute . . . include losses from an [obligation] incurred under Section 152.704."), § 152.708(a)(1) ("[E]ach partner shall contribute . . . the amount necessary to satisfy partnership obligations[.]"). Thus, although BASR is "no longer a going concern," it remains bound by legal obligations undertaken by its partners. Pl. Reply at 4.

Section 9.2(c) of BASR's Partnership Agreement limits indemnification "to the extent of any Partnership assets." Pl. Ex. A. § 9.2(c). In addition, with respect to additional capital contributions to the Partnership, Section 5.1 of the Partnership Agreement provides that "the existing Partners shall be permitted, but shall have no obligation, to make further contributions to the Partnership." Pl. Ex. A. § 5.1. But, the fact that BASR is currently unable to reimburse the partners for the litigation costs advanced on its behalf does not change the fact that BASR is obligated to reimburse is partners. If the court awards BASR the litigation costs sought, BASR will in turn be obligated, under the terms of the Partnership Agreement and under Texas law, to indemnify the partners for the fees advanced upon its behalf.²¹

In the alternative, the Government argues that the "real-party-in-interest" doctrine bars an award of litigation costs. See Unification Church, 762 F.2d at 1082. In Unification Church, three individuals and the Unification Church ("the Church") sought award of attorney fees under the EAJA. Id. at 1079. Under the plaintiffs' fee arrangement with their attorney, only the Church was liable for payment of attorney fees, if the plaintiffs did not recover under the EAJA. Id. at 1082 ("The affidavit of plaintiffs' counsel . . . discloses that, although he was "retained" by the individual plaintiffs to represent them [before the court], his "arrangement" for payment for his services is solely with the Unification Church[.]" (internal citations and quotation marks omitted)). Because the Church was the beneficiary of any fee award, the federal appellate court held that it was the "real-party-in-interest" for purposes of the EAJA. Id. at 1083 ("If we deny fees, the Church will pay the fees. If we award fees, [the Government] will pay the fees. The Church is the beneficiary of any award of fees, not the individual appellants, and thus the Church can fairly be characterized as the real party in interest."). But since the Church had more than 500 employees, it was barred from receiving an award of litigation costs under Section 2412(d)(2)(B) of the EAJA, despite the other named plaintiffs being individuals with a net-worth below the statutory threshold. Id. at 1092.

In this case, however, BASR is obligated to pay the litigation costs under Texas law and therefore is the "real-party-in-interest" with respect to the litigation costs, if the court-awarded litigation costs are denied. See Unification Church, 762 F.2d at 1082 (holding that "the court shall consider only the qualification[s] . . . of those parties that will be themselves liable for fees if court-awarded fees are denied."). For these reasons, the court has determined the "real-party-in-interest" doctrine is not a bar to recovery.

Because BASR was the "prevailing party," that "incurred" the litigations costs, the court need not consider the net worth of BASR's individual partners, i.e., William Pettinati, Sr., Virginia Pettinati, The Pettinati 1998 Gift Trust f/b/o William F. Pettinati, Jr. ("the 1998 Gift Trust"), and The Pettinati 1998 Gift Trust f/b/o Andrew Pettinati, when determining whether an award is permissible under I.R.C. § 7430.²²Cf. Gov't Opp. at 9-13 (arguing that, even if BASR could be a considered a "party," it did not "incur" the litigation costs at issue, because the "real-parties-in-interest" were the individual members of the Pettinati family).

In addition, the Government's argument that William F. Pettinati, Jr. paid a portion of Sutherland Asbill's fees "on his own behalf as the interested beneficiary of the Pettinati 1998 Gift Trust for William F. Pettinati Jr." and not as the trustee of that same trust, is irrelevant, because, in the judgment of the court, the fees in this case were "incurred" by BASR, so the court need not consider the net-worth of its individual partners. Gov't Sur-Reply at 3 (arguing that William F. Pettinati, Jr. paid fees on his own behalf, as opposed to as trustee); Gov't Opp. at 13-15 (same). But, in any event, Mr. Pettinati, Jr. was not a partner in BASR; the 1998 Gift Trust was. Mr. Pettinati, Jr. was, as trustee, empowered under the 1998 Trust Agreement to "commence or defend in the sole discretion of the Trustee, at the expense of the trusts, such litigation with respect to such trust estates as the Trustee considers advisable." Gov't App. at 238 (containing § 4.1(r) of the 1998 Trust Agreement). Mr. Pettinati, Jr. exercised that trustee power to defend BASR's 1999 tax returns and the 1998 Gift Trust's tax liability.

The Government objects to fees for the 69.4 attorney hours, and 8.3 paralegal hours, spent on: (1) the September 4, 2012 Motion To Compel (ECF No. 22) that court denied; (2) opposing the Government's successful September 4, 2012 Motion For Protective Order (ECF No. 23); and (3) preparing for a telephone status conference convened by the court on September 6, 2012. Gov't Opp. at 39 (citing Miller, 983 F.2d at 861). In Miller, the federal appellate court disallowed fees for time spent on unsuccessful motions. Id.

Whether a motion was successful affects whether time spent preparing it was reasonably spent, but is not the only factor that a federal court may consider. For example, the United States Court of Appeals for the Fifth Circuit has allowed for recovery of attorney fees under I.R.C § 7430 for time spent preparing an unfiled summary judgment motion, determining it was reasonable as it allowed the attorney to organize his thoughts and trial strategy. See Ragan v. Comm'r, 210 F.3d 514, 520 (5th Cir. 2000) (determining that an attorney could recover fees for time spent preparing an unfiled summary judgment motion because the time spent was not "wasted," and helped him prepare for trial). In this case, it was not unreasonable for BASR to seek or oppose discovery or prepare for a court conference.

Based upon the records submitted to the court and the November 9, 2016 Declaration of Timothy R. Lavender, the court has determined that BASR's attorneys reasonably spent the following amount of hours on this case: 360.1 hours in 2012; 158.5 hours in 2013; 117 hours in 2014; 38.3 hours in 2015; and 44 hours in 2016. Pl. Mem. Ex. D; Pl. Reply Ex. E; see also 11/9/2016 Lavender Decl. ¶ 4 ("Based upon my review, it is my opinion that the time spent by Sutherland [Asbill] . . . was both appropriate and reasonable[.]").²³

Under I.R.C. § 7430(c)(1)(B)(iii), a "prevailing party" may recover "reasonable" attorney fees at a set statutory rate, indexed for cost of living adjustments.²⁴ When fees for the hours spent in this case are calculated at the relevant statutory rate, the court has determined that BASR is owed a total of $133,623 for attorney fees. ²⁵

In this case, BASR has successfully defended the March 7, 2016 Motion for Litigation Costs almost in its entirety, with the exception of the litigation costs incurred in non-United States Court of Federal Claims proceedings. Otherwise, the court has determined that the amount of time spent defending the March 7, 2016 Motion for Litigation Costs was reasonable.

For these reasons, the court has determined that BASR may recover supplemental fees as follows: 24.9 partner hours and 59.6 associate hours spent from February 23, 2016 to May 8, 2016 (Pl. Reply Ex. D); and an additional 24.6 partner hours and 6.3 associate hours, incurred from May 4, 2016 to October 25, 2016 (Pl. Supp. Mem. Ex. A). At the statutory rate for 2016,²⁶ these additional 115.4 attorney hours result in an additional $23,080 in fees, for a total attorney fee award at the statutory rate in the amount of $156,703.

With respect to BASR's first argument, the United States Court of Appeals for the Fifth Circuit has held that the "limited availability of qualified attorneys for such proceedings" factor refers only to attorneys possessing some "unique 'nonlegal or technical' abilities that contribute to the limited availability of attorneys capable of handling the litigation." Cervin v. Comm'r of Internal Revenue, 200 F.3d 351, 353 (5th Cir. 2000). In Cervin, the court rejected the taxpayer'sclaim that expertise in tax law and Texas state law qualified as a special factor justifying an increase in the statutory maximum. Id. In addition, a federal court has construed the "limited availability of qualified attorneys" to mean "an actual shortage of qualified attorneys who could handle the case rather than an inability to retain qualified counsel willing to take on the representation at the statutory maximum hourly rate." U.S. v. Guess, 436 F. Supp. 2d 1143, 1155 (S.D. Cal. 2006) (emphasis added). Therefore, although BASR provided affidavits showing that BASR's partners were unable to locate attorneys willing to handle this case at or below the statutory rate, this does not qualify as a "special factor" justifying an increase in the statutory maximum rate. Pl. Mem. Ex. B (3/7/16 Affidavit of William Pettinati, Jr., explaining that "I was unable to locate counsel, locally or nationally, who would charge less than $200 an hour.").

With respect to BASR's second argument, Treasury Regulation § 301.7430-4 provides guidance for the IRS about when to authorize "reasonable administrative costs" under the "difficulty of the issues" special factor, and provides that the following factors should be considered:

The Government, however, insists that BASR cannot recover any supplemental fees at a rate above the statutory maximum, because I.R.C § 7430 requires a separate showing of a "special factor" to justify an increased rate for supplemental fees incurred with respect to the fee litigation, apart from any special factors affecting the underlying tax litigation. Gov't Supp. Resp. at 4 (citing Powers v. Comm'r, 43 F.3d 172, 183 (5th Cir. 1995) (holding that higher rate would not beawarded for supplemental fees, because there was no showing that any special factor justifies an increased rate for litigating the attorney fees motion)).

In this case, the court has determined that the "special factors" to be considered include the "difficulty of the issues," as evidenced by the Government's arguments concerning numerous provisions of the Internal Revenue Code and Treasury Regulations,²⁸ requiring multiple filings and an oral argument. For these reasons, the court has determined that BASR may recover fees at a $400 hourly rate for time spent on this case by partners and a $250 hourly rate for time spent on this case by associates. At these increased rates, BASR's total award of attorney fees is $280,100.

In this case, Sutherland Asbill paralegals organized and proofed court filings that otherwise would have had to have been performed by an attorney. For example, paralegals proofed and cite-checked motions and briefs, electronically-filed documents, and organized case files. Pl. Mem. Ex. C at 4-11. The court has determined this work is a compensable litigation cost under I.R.C § 7430. In addition, BASR is entitled to an additional 3.2 paralegal hours spent to review and revise the May 9, 2016 Reply. Pl. Supp. Mem. Ex. A. BASR, however, may not recover 4.6 paralegal hours related to proceedings before the United States Tax Court and the IRS. Pl. Mem. Ex. C at 4, 6, 7, 8, 9.

With respect to the $150 paralegal hourly rate, the United States Supreme Court has held that, with respect to the EAJA, paralegal fees are recoverable at "prevailing market rates," up to the statutory maximum for attorney fees. See Richlin Sec. Service Co. v. Chertoff, 553 U.S. 571, 587, 590 (2008). The circumstances in this case present no reason to depart from this rule with respect to I.R.C § 7430. See Larsen, 39 Fed. Cl. at 167 ("Although the EAJA and I.R.C. § 7430 differ slightly, the court has [determined] that case law on the EAJA may be instructive in interpreting I.R.C. § 7430, which was promulgated to remedy a gap in the EAJA's coverage of tax suits.").

For these reasons, the court has determined that the $150 hourly rate requested is "reasonable," and BASR is awarded $24,375 in paralegal fees.

Exhaustion requires an appeal to the IRS Office Of Appeals. See Treas. Reg. § 301.7430-1(b) (providing that exhaustion of administrative remedies requires an appeal to the IRS Office Of Appeals). The exhaustion requirement, however, applies only to tax matters "for which an Appeals office conference is available." Treas. Reg. § 301.7430-1(b). In this case, the IRS issued the FPAA because the IRS determined this case concerned a "Son of Boss" transaction. But, the IRS has determined that "Appeals Office consideration will not be available for Son of Boss Transactions." 2004-21 I.R.B. 965. Therefore, BASR has exhausted all administrative remedies.

In addition, BASR did not unreasonably protract the proceeding, and instead attempted to resolve the matter by making a "qualified offer" and then later filing a Motion For Summary Judgment. I.R.C. § 7430(b)(3). And, all of the costs in this case are "allocable" to the United States, because they were incurred after the Government did not accept BASR's "qualified offer." I.R.C. § 7430(b)(2). For these reasons, the court has determined that I.RC. § 7430(b) does not apply in this case.

BASR requests: 497.1 partner hours at a $400 hourly rate, and 411.1 associate hours at a $250 hourly rate. Pl. Mem. Ex. D, Pl. Reply Ex. D., Pl. Supp. Mem. Ex. A. Of these amounts, BASR incurred 18.6 hours of partner time and 56.3 hours of associate time on IRS and United States Tax Court proceedings. Pl. Reply Ex. E; Pl. Me. Ex. D 26-27. As previously discussed, the total of $301,615 in attorney fees requested needs to be adjusted downwards by $21,515 to a total of $280,100. In addition, BASR requests $25,065 in paralegal fees and $10,355.69 in other litigation costs. Pl. Mem. Ex. C; Pl. Supp. Mem. Ex. A. Likewise, the paralegal fees and other litigation costs need to be adjusted downwards by $690 and $120, respectively, to a total of $24,375 for paralegal fees and $10,235.69 in litigation costs.

In sum, the total amount of the award is $314,710.69.

III. CONCLUSION.

For these reasons, BASR's March 7, 2016 Motion For Litigations Costs is granted, in part. The Clerk of the United States Court of Federal Claims is directed to enter judgment in favor of BASR in this case, in the amount of $314,710.69.

IT IS SO ORDERED.

SUSAN G. BRADEN

² The Internal Revenue Code, contained in Title 26 of the United States Code, is referred to throughout this Memorandum Opinion And Final Order as the "I.R.C."

³ I.R.C § 7430(c)(1) defines "reasonable litigation costs" as including:

⁶ I.R.C § 7430(c)(4)(E)(i) provides:

⁸ BASR avers that, on behalf of the trust, William Pettinati, Jr. has paid $134,500 of the total of $337,019.69 in litigation costs requested. Pl. Supp. Mem. Ex. F. The remaining amount was paid by William Pettinati, Sr. and by Virginia Pettinati. Pl. Supp. Mem. Ex. F.

⁹ For example, when signing as trustee, it was Mr. Pettinati, Jr.'s practice to clearly indicate as much in the signature block, which is what he did when he signed the BASR Partnership Agreement as trustee. Gov't App. 256 (signature page of 1998 BASR Partnership Agreement).

¹⁰ Section 26.01 of the Texas Business And Commerce Code provides:

¹¹ The Government cites to Treasury Regulation § 301.7430-4, that explains the standard for when the IRS will pay administrative costs above the statutory rate. Treasury Regulation § 301.7430-4(b)(3)(iii)(E) provides that:

¹² Under the terms of BASR's Partnership Agreement, William F. Pettinati, Sr. is both the Tax Matters Partner and the Managing Partner. Pl. Reply Ex. A §§ 2.1 ("From and as of the date of this Agreement, William F. Pettinati, Sr. shall be the Managing Partner."), 7.8 ("Unless otherwise required by law, the tax matters partner within the meaning of [I.R.C. § 6231(a)(7)] shall be the Managing Partner.").

¹³ BASR avers that, on behalf of the trust, William Pettinati, Jr. has paid $134,500 of the total in $337,019.69 in the attorney and paralegal fees and litigation costs requested. Pl. Supp. Mem. Ex. F. The remaining amount was paid by William Pettinati, Sr. and by Virginia Pettinati. Pl. Supp. Mem. Ex. F.

¹⁴ This amounts to 56.3 hours of associate time at $250 an hour and 18.3 hours of partner time at $400 an hour. Pl. Reply. Ex. E (showing time entries for collection case before IRS and United States Tax Court).

¹⁵ The Government also argues that BASR's computation of costs incurred in connection with the separate proceedings before the IRS and the United States Tax Court was improper, and there were additional costs and fees incurred in connection with those proceedings. Gov't Sur-Reply at 8.

¹⁶ Although BASR previously requested paralegal fees at a rate of $150 an hour (Pl. Mem. at 10), the $11,879 increase asked for in the December 1, 2016 Supplemental Filing results from a calculation of a rate for paralegals at $145 an hour ((24.6 x 400) + (6.3 x 250) + (3.2 x 145)=11,879). For sake of consistency, the court assumes that BASR intended all paralegal hours to be awarded at a rate of $150 an hour.

¹⁷ The Government concedes that Treasury Regulation § 301.7430-3(c)(3) treats the FPAA as a notice of deficiency that commences the "qualified offer period" for recovery of administrative costs under I.R.C § 7430. Gov't Sur-Reply at 6. But, the Government argue that a FPAA is nota notice of deficiency for purposes of the litigation costs that BASR seeks in this case. Gov't Sur-Reply at 6-7.

¹⁸ In 2003, the Texas Legislature adopted the TBOC in order to make Texas business organization law "more accessible and understandable" by "rearranging the statutes into a more logical order" and "eliminating repealed, duplicative, expired, executed, and other ineffective provisions." Adoption Of The Business Organizations Code, 2003 Tex. Sess. Law Serv. Ch. 182, § 1.001 (codified as TEX. BUS. ORG. CODE § 1.001). The TBOC serves to replace "all the existing Texas Statutes relating to nonprofit and for-profit, private-entities" including the Texas Revised Partnership Act, the Texas Uniform Partnership Act, and other Texas statutes governing partnership entities. Daryl B. Robertson et al., Introduction To Texas Business Organization Code, 38 TEX. J. BUS. L. 57, 63 (2002).

¹⁹ TBOC Section 152.002(b) provides a list of statutory requirements that may not be fully waived by the Partnership Agreement, such as the duty of loyalty and the duty of care; these exceptions, however, do not apply in this case. See TEX. BUS. ORG. CODE § 152.002(b).

²⁰ The TBOC defines the term "domestic entity" as "an organization formed under or the internal affairs of which are governed by this code." TEX. BUS. ORG. CODE § 1.002(18).

²¹ In Oral Argument on October 26, 2016, BASR's counsel represented that most of BASR's partners performed their obligations under the partnership agreement. 10/26/16 TR at 8 ("And if the Government is looking for some state law action like a suit or something or some formal agreement, that they performed, they each kicked in their share."). The only partner that did not contribute fees was the Andrew Pettinati Gift Trust, and "that's because the trust has no assets and Andrew Pettinati is destitute." 10/26/16 TR at 9.

²² BASR asserted in the May 9, 2016 Reply that BASR's partners were Bingle Investments, LLC, Falba Investments LLC, Winding Oak LLC, and Watermill Investments LLC. Pl. Reply at 7. This assertion, however, is contradicted by the terms of the Partnership Agreement, that states:

²⁴ For 2012, 2013, 2014, 2015, and 2016, the statutory rate was $180, $190, $190, $200, and $200 respectively. See I.R.C. § 7430(c)(1); Rev. Proc. 2011-52, 2011-45 I.R.B. 701; Rev. Proc. 2012-41, 2012-45 I.R.B. 539; Rev. Proc. 2013-35, 2013-47 I.R.B. 537; Rev. Proc. 2014-61, 2014-47 I.R.B. 860; Rev. Proc. 2015-53, 2015-44 IRB 615.

²⁵ For 2012, 360.1 hours were multiplied by the rate of $180, leading to a total of $64,818. This same process was followed for each of the following years, i.e., 158.5 hours were multiplied by $190, resulting in $30,115 for 2013; 117 hours were multiplied by $190, resulting in $22,230 for 2014; 38.3 hours were multiplied by $200 resulting in $7,660 for 2015; and 44 hours were multiplied by $200 resulting in $8,800 for 2016.

²⁶See Rev. Proc. 2015-53, 2015-44 IRB 615 ("For fees incurred in calendar year 2016,the attorney fee award limitation under § 7430(c)(l)(B)(iii) is $200 per hour.").

²⁷ Although Treasury Regulation § 301-7430-4 governs rate increases for administrative costs paid under I.R.C. § 7430, the Government argues that it should be relied upon for determiningrate increases for litigation costs as well. Gov't. Opp. at 32. This is inconsistent with the Government's position that a FPAA cannot be treated as a "letter of proposed deficiency" for the award of litigation costs, despite Treasury Regulation § 301.7430-3(c)(3) providing that a FPAA can be treated as a "letter of proposed deficiency" for purposes of the award of administrative costs.

²⁸ The number of the arguments raised by the Government was noticed by the court in oral argument. 10/26/16 TR at 26 (THE COURT: "I must say I was surprised at the number of arguments that the Government has raised . . . I've never seen a brief that was this long for a fee argument for the Government.").

²⁹ I.R.C. § 7430(b) provides: