BASR Partnership Ex Rel. Pettinati v. United States
130 Fed. Cl. 286
| Fed. Cl. | 2017Background
- IRS issued an FPAA to BASR Partnership (filed by its Tax Matters Partner, William Pettinati, Sr.) for tax years 1999; BASR sued in the Court of Federal Claims under TEFRA.
- The Court granted summary judgment for BASR in 2013 (holding the FPAA untimely under I.R.C. § 6501(c)); the Federal Circuit affirmed in 2015 and mandate issued.
- BASR moved under I.R.C. § 7430 for litigation costs: attorneys’ fees (statutory-rate and enhanced), paralegal fees, and other litigation expenses; total requested ≈ $337,020.
- Government contested eligibility and amount, raising: (a) BASR was not a “party” or the real party in interest (individuals paid fees), (b) BASR did not “incur” fees, (c) the $1 “qualified offer” was ineffective or sham, (d) some costs were not recoverable, and (e) statutory hourly cap should apply.
- Court held BASR is a TEFRA partnership “party,” BASR made a valid qualified offer, BASR “incurred” fees (partnership obligation under Texas law), awarded fees and costs but reduced and adjusted recoverable items and rates; final award $314,710.69.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BASR is a “party” and thus eligible under I.R.C. § 7430 | BASR (the partnership) qualifies as a TEFRA party and meets EAJA net‑worth limits | Government: partners, not partnership entity, are the parties; partnership shouldn’t be treated as the party for §7430 eligibility | Court: partnership is a §7430 party under Treasury Reg. §301.7430‑5 and BASR meets net‑worth limits; held for BASR |
| Whether the $1 settlement was a valid “qualified offer” (so prevailing‑party proof waived) | $1 qualified offer made during qualified‑offer period; judgment ($0 liability) ≤ offer | Government: tax liability not "in issue" at partnership level; FPAA is not a proper ‘‘letter of proposed deficiency’’; offer was a sham | Court: tax liability was “in issue” due to partnership‑level effects; FPAA starts qualified‑offer period; $1 offer not a sham; qualified offer applies |
| Whether BASR “incurred” fees (real‑party‑in‑interest / net‑worth) | Partnership is obligated (Partnership Agreement and Texas law) to reimburse partners who paid fees; thus BASR incurred fees | Government: Pettinatis individuals paid and were real parties in interest; some payors exceed EAJA net‑worth caps; oral trustee agreements unenforceable | Court: BASR obligated under partnership agreement and Texas law to reimburse; therefore BASR “incurred” fees and real‑party‑in‑interest doctrine does not bar recovery |
| Reasonableness and recoverability of fees and costs; whether enhanced rates allowed | Fees, paralegal time, and costs are reasonable; special factors (difficulty/novelty, limited availability) justify $400/$250 rates | Government: issues not complex; market or inability to hire at statutory rate is not special factor; some entries relate to Tax Court/IRS or clerical work and are unrecoverable | Court: allowed statutory fees plus supplemental fees; found issues sufficiently complex to justify enhanced rates ($400 partners/$250 associates); disallowed items for Tax Court/IRS work and purely clerical paralegal time; awarded $314,710.69 |
Key Cases Cited
- BASR Partnership v. United States, 113 Fed. Cl. 181 (Fed. Cl. 2013) (trial court decision granting summary judgment for BASR on timeliness of FPAA)
- BASR Partnership v. United States, 795 F.3d 1338 (Fed. Cir. 2015) (Federal Circuit affirming judgment on statute of limitations)
- United States v. Woods, 134 S. Ct. 557 (Sup. Ct. 2013) (TEFRA partnership‑level determinations may be considered with respect to partner tax consequences)
- Pierce v. Underwood, 487 U.S. 552 (U.S. 1988) (EAJA rate issues and limits on market‑rate considerations)
- Wagner v. Shinseki, 640 F.3d 1255 (Fed. Cir. 2011) (broad discretion in awarding EAJA fees and supplemental fees)
- Jean v. Nelson, 496 U.S. 154 (U.S. 1990) (paralegal fees recoverable when work would otherwise be done by an attorney)
- Unification Church v. Immigration & Naturalization Service, 762 F.2d 1077 (D.C. Cir. 1985) (real‑party‑in‑interest analysis under fee statutes)
- Sealy Power, Ltd. v. Commissioner, 46 F.3d 382 (5th Cir. 1995) (FPAA as functional equivalent of notice of deficiency)
- Estate of Palumbo v. United States, 675 F.3d 234 (3d Cir. 2012) (fees are "incurred" only when there is legal obligation to pay them)
- Phillips v. General Services Administration, 924 F.2d 1577 (Fed. Cir. 1991) (EAJA: fees incurred only with obligation to pay)