Estate of William Davidson Merchant, Iii, Deceased, Margaret Norling Merchant, Administrator v. Commissioner Internal Revenue Service

The estate of William Davidson Merchant III appeals from a decision of the Tax Court denying litigation costs under 26 U.S.C. § 7430 . We affirm.

BACKGROUND

This appeal has interesting origins. In 1981, Merchant’s residence was searched without a warrant by state officers, ostensibly on the theory that Merchant, as a probationer, had consented to the search as a condition of probation. The search was initiated after neighbors had reported gunfire in the area. The state officers conducting the search discovered more than $300,000 worth of cash, 80 guns, and evidence of an illicit PCP drug operation in the house. Later that day, they notified the Internal Revenue Service of the discovery, and special agents of the IRS interviewed Merchant in jail that night. The next day, IRS agents participated with state officers in another search of a house, based on a warrant procured with the aid of evidence discovered in the earlier search.

At his resulting trial in federal district court on drug-related charges, Merchant moved to suppress the evidence discovered in both searches. The district court denied the motion, and Merchant was found guilty. Merchant appealed and we reversed, holding…