William G. Nordvik Claire N. Nordvik v. Commissioner Internal Revenue Service

Opinion by Judge HAWKINS; Dissent by Judge REINHARDT.

We consider here the circumstances under which private parties may recover post-settlement litigation costs incurred in the tax court. Taxpayers Claire and William Nord-vik (“the Nordviks”) appeal the denial of their motion for such costs, which the tax court based on its finding that the Nordviks had unreasonably protracted the litigation and its conclusion that the government’s position was substantially justified. We have jurisdiction under 26 U.S.C. § 7430 and we affirm.

][. Background

In early 1982 and again in 1984-85, the Nordviks invested in certain energy-producing wind turbines. In October 1989, the Internal Revenue Service (“IRS”) mailed the Nordviks a Notice of Deficiency for the years 1983 through 1986, assessed for the total amount that the Nordviks claimed as tax credits for investments in the turbines and as deductions for business expenses incurred with respect to the turbines, including interest, taxes and depreciation. The deficiencies totaled $127,136 and the additions to tax assessed for negligence and vahiation overstatement totaled another $44,497. The Nordviks filed a petition for redetermination and…

dissenting:

I do not believe that the government’s position was substantially justified; nor do I believe that the Nordviks unreasonably protracted the litigation. Accordingly, I respectfully dissent.

The Nordviks entered into a settlement agreement with the IRS on March 7, 1991, four days before their ease was scheduled for trial. Both sides agreed that the Nordviks would be permitted to count their “out of pocket” costs as the basis for their investment in wind turbines. As part of the settlement agreement, the Nordviks agreed to pay a $21,004 deficiency for the 1984 tax year. That sum represented the amount of unpaid taxes that the IRS represented it had calculated by applying its “at risk” rules. When the IRS subsequently supplied the Nordviks with its figures, they discovered that it had misapplied its rules in calculating the deficiency. The Nordviks protested. More than one year later, the IRS belatedly acknowledged its mistake and agreed that they did not owe any money for the 1984 tax year.

The principal difference between the Nordviks and the IRS centered around the application of 26 U.S.C. § 48 (q), which governs the calculation of the basis of an asset for purposes…

67 F.3d 1489 76 A.F.T.R.2d 95 -6859, 95-2 USTC P 50,564 , 33 Fed.R.Serv.3d 915 , 95 Cal. Daily Op. Serv. 8210 , 95 Daily Journal D.A.R. 14 ,145 William G. NORDVIK; Claire N. Nordvik, Petitioners-Appellants, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee. No. 93-70434. United States Court of Appeals, Ninth Circuit. Argued and Submitted Dec. 14, 1994. Decided Oct. 20, 1995. John P. McDonnell, Myers, Morley, Myers & McDonnell, Los Altos, California, for petitioners-appellants. Curtis C. Pett, Tax Division, United States Department of Justice, Washington, D.C., for respondent-appellee. Appeal from a Decision of the United States Tax Court. Before: REINHARDT, RYMER, and HAWKINS, * Circuit Judges. Opinion by Judge HAWKINS; Dissent by Judge REINHARDT. MICHAEL DALY HAWKINS, Circuit Judge: 1 We consider here the circumstances under which private parties may recover post-settlement litigation costs incurred in the tax court. Taxpayers Claire and William Nordvik ("the Nordviks") appeal the denial of their motion for such costs, which the tax court based on its finding that the Nordviks had unreasonably protracted the litigation and its conclusion that the government's…