John D. Bermensolo, and Claude J. Bermensolo v. United States

The United States appeals the district court’s grant of summary judgment awarding John D. and Claude J. Bermensolo attorney’s fees under 26 U.S.C. § 7430 after determining that the government had wrongfully levied against a debtor’s bank account in which the Bermensolos held a prior perfected security interest. The government argues that the Bermensolos were not “prevailing parties” within the statutory definition because they were creditors of the taxpayer. We agree and reverse the decision below. FACTS

In 1981 the Bermensolos sold their business, a “Discount Drug” store in Mountain Home, Idaho to Doug and Jolene Misner, retaining an after-acquired security interest in the store’s stock-in-trade. In 1983 the Misners assigned the contract to Emil and Rayanne Stoecker, who agreed to pay the balance of the purchase price.

The Stoeckers thereafter encountered financial difficulties. They incurred federal tax liability and failed to make their payments to the Bermensolos. On January 21, 1985 the IRS filed a notice of federal tax lien against the Stoeckers, and on May 15, 1985 the Bermensolos commenced foreclosure proceedings under their security interest. The stock-in-trade was…