Adkins v. United States
154 Fed. Cl. 290
| Fed. Cl. | 2021Background
- Charles and Jane Adkins lost substantial funds in a pump-and-dump securities fraud and claimed a theft-loss deduction under I.R.C. § 165 for 2004, carrying portions back to 2001–2003.
- An IRS Appeals officer (Kaplon) prepared a proposed settlement concluding plaintiffs sustained a 2004 theft loss, but the proposed settlement was never finalized or binding.
- The Adkinses sued in the Court of Federal Claims; the litigation included cross-motions for summary judgment, a three-day trial, two remands, and two Federal Circuit reversals on the timing/interpretation of the Treasury regulation governing year of theft loss.
- On final remand the parties stipulated to the refund amounts and judgment was entered; plaintiffs later sought prejudgment interest (denied) and taxed costs (partially allowed).
- Plaintiffs then moved for RCFC 11 sanctions alleging the government abandoned a settlement and litigated vexatiously; alternatively they sought attorney’s fees under I.R.C. § 7430.
- The Court denied the RCFC 11 motion as procedurally defective and meritless, found the government’s overall position not substantially justified (principally because the Federal Circuit decisively rejected the government’s year-of-loss position), and awarded § 7430 attorney’s fees of $60,800.60 after reductions for vague entries, administrative tasks, paralegal-eligible work, and other adjustments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Are RCFC 11 sanctions appropriate? | Gov’t abandoned an IRS Appeals settlement and then litigated resolved issues; sanctions warranted. | Motion procedurally defective (no 21‑day safe harbor service), and no settlement existed; position not sanctionable. | Denied: plaintiffs failed to comply with RCFC 11 safe‑harbor and, alternatively, no basis to sanction because no binding settlement existed. |
| 2. Are plaintiffs prevailing parties eligible for fees under I.R.C. § 7430? | They exhausted remedies, prevailed on main issues, timely applied, and meet net‑worth limits. | Gov’t contends its positions were substantially justified so fees disallowed. | Granted: plaintiffs are prevailing parties; eligibility satisfied. |
| 3. Was the government’s position "substantially justified" (esp. year of loss)? | Gov’t litigated despite Appeals officer’s proposed settlement and advanced an incorrect interpretation of the Treasury regulation; not substantially justified. | Gov’t had reasonable legal bases (state‑law approach then federal common law, circuit precedent such as Jeppsen), and some wins at trial and initial remand. | Held not substantially justified overall—chiefly because the Federal Circuit emphatically rejected the government’s interpretation of the regulation on year of loss. |
| 4. What amount of attorney’s fees is reasonable under § 7430 (rates/hours/documentation)? | Seek $185,330.40 (higher Laffey rates and contingent amounts); counsel provided billing tables. | § 7430 caps hourly rates (cost‑of‑living adjusted) absent a special factor; many entries vague, non‑compensable, or paralegal/administrative in nature. | Awarded $60,800.60: fees recalculated to statutory capped rates and reduced for vague entries, administrative tasks, paralegal‑level work, improper communications, and other unsupported entries. |
Key Cases Cited
- Pierce v. Underwood, 487 U.S. 552 (Sup. Ct. 1988) (defines “substantially justified” standard)
- Hensley v. Eckerhart, 461 U.S. 424 (Sup. Ct. 1983) (fee applicant burden; reasonableness of hours)
- Adkins v. United States, 856 F.3d 914 (Fed. Cir. 2017) (Federal Circuit vacated CFC judgment and remanded)
- Adkins v. United States, 960 F.3d 1352 (Fed. Cir. 2020) (Federal Circuit reversed on year‑of‑loss regulation and remanded for refund computation)
- Goeller v. United States, 109 F.3d 534 (Fed. Cl. 2013) (court decision referenced re: federal common‑law approach to "theft" issues)
- Chiu v. United States, 948 F.2d 711 (Fed. Cir. 1991) (court may weigh multiple government positions in substantial‑justification inquiry)
- Naporano Iron & Metal Co. v. United States, 825 F.2d 403 (Fed. Cir. 1987) (contemporaneous time records required for fee awards)
- TGS Int’l, Inc. v. United States, 983 F.2d 229 (Fed. Cir. 1993) (permissible alternative billing documentation where sufficiently detailed)