915 F.3d 771
Fed. Cir.2019Background
- The Pettinati family formed BASR Partnership (BASR) as part of tax planning before selling Page Printing in 1999; BASR reported partnership items that reduced partners' tax liability.
- In 2010 the IRS issued a final partnership administrative adjustment (FPAA) to BASR disallowing the tax benefits; BASR (through tax matters partner William Pettinati, Sr.) sued in the Court of Federal Claims, which granted summary judgment in BASR's favor as untimely; the Federal Circuit affirmed.
- BASR (via Pettinati, Sr.) had previously made a $1.00 settlement offer to the Government, which the Government rejected; afterward BASR sought litigation costs under I.R.C. § 7430(c)(4)(E) (the qualified-offer rule).
- The Court of Federal Claims awarded BASR $314,710.69 in litigation costs; the Government appealed, raising five principal challenges about statutory eligibility, whether costs were "incurred," whether tax liability was "in issue," the real‑party‑in‑interest, and abuse of discretion.
- The Federal Circuit affirmed: it held a partnership may be a "party" and receive § 7430 relief in a TEFRA partnership‑level proceeding; tax liability need not be directly calculated at the partnership level to be "in issue"; BASR incurred costs because of contractual indemnity/reimbursement obligations; the real‑party‑in‑interest doctrine did not bar recovery here; and the trial court did not abuse its discretion in finding the $1.00 offer made in good faith.
Issues
| Issue | Plaintiff's Argument (BASR) | Defendant's Argument (United States) | Held |
|---|---|---|---|
| Whether a partnership (BASR) can be a "party" and thus a "prevailing party" under I.R.C. § 7430 in a TEFRA partnership‑level proceeding | Statutes and incorporated 28 U.S.C. § 2412(d)(2)(B) contemplate partnerships as possible fee recipients; partnership participates via tax matters partner | TEFRA treats partners (not the partnership entity) as the parties to partnership‑level proceedings, so partnership cannot be a § 7430 "party" | Partnership may be a party; nothing in I.R.C. § 6226 or § 7430 prohibits partnership being a party; affirmed |
| Whether the amount of tax liability was "in issue" (so qualified-offer rule applies) | Partnership‑level determinations of partnership items affect each partner’s tax liability; "in issue" means "in dispute," not that the amount must be calculated at that proceeding | The qualified-offer rule’s exception bars awards when tax liability amount is not determined in the proceeding; partnership-level proceedings do not determine partner liability amounts | "In issue" has its ordinary meaning (in dispute); partnership-level determination of partnership items suffices; exception does not bar award |
| Whether BASR "paid or incurred" litigation costs under § 7430 | BASR is contractually obligated to reimburse/indemnify partners and thus incurred costs | Partners (not BASR) signed engagement letters, paid invoices, and thus BASR did not legally "incur" the costs | BASR incurred costs because the Partnership Agreement and Texas law created an obligation to reimburse/indemnify partners; affirmed |
| Whether the real‑party‑in‑interest doctrine bars BASR from recovery because partners actually paid and will benefit | BASR is the entity liable under the partnership agreement and TBOC; award benefits BASR (which would otherwise owe reimbursement) | The Pettinatis are the real parties in interest (they paid and will benefit) and their net worth likely disqualifies recovery under § 2412/§ 7430 | Court rejects Government’s application of the doctrine here: BASR remains the beneficiary/liable entity under contract and law; doctrine does not bar recovery; dissent disagrees |
Key Cases Cited
- United States v. Woods, 571 U.S. 31 (2013) (explaining TEFRA’s partnership‑level and partner‑level adjustment scheme)
- BASR P'ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015) (Federal Circuit opinion affirming summary judgment that FPAA was untimely)
- Electrolux Holdings, Inc. v. United States, 491 F.3d 1327 (Fed. Cir. 2007) (statutory‑interpretation principles; start with statutory text and structure)
- Conway v. United States, 326 F.3d 1268 (Fed. Cir. 2003) (noting tax matters partner represents the partnership and partners are deemed parties)
- Pickholtz v. Rainbow Techs., Inc., 284 F.3d 1365 (Fed. Cir. 2002) (discussing when a party has "incurred" obligations)
- Unification Church v. Immigration & Naturalization Serv., 762 F.2d 1077 (D.C. Cir. 1985) (applying the real‑party‑in‑interest doctrine to limit fee awards)
- Nail v. Martinez, 391 F.3d 678 (5th Cir. 2004) (rejecting expansive application of real‑party‑in‑interest doctrine for EAJA eligibility)
- Hohenberg Bros. Co. v. United States, 301 F.3d 1299 (Fed. Cir. 2002) (standard for abuse of discretion review)