Tung Dang v. Cir ( 2022 )

FILED
NOT FOR PUBLICATION
FEB 18 2022
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
TUNG DANG; HIEU PHAM DANG, No. 21-70922
Petitioners-Appellants, Tax Ct. No. 21100-17L
v.
MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellee.
Appeal from a Decision of the
United States Tax Court
Argued and Submitted February 8, 2022
Phoenix, Arizona
Before: O’SCANNLAIN and GRABER, Circuit Judges, and FITZWATER,**
District Judge. Concurrence by Judge O’SCANNLAIN.
Plaintiffs Tung and Hieu Phang Dang appeal the tax court’s denial of their
motion for administrative and litigation costs in their collection dispute with the
Internal Revenue Service ("IRS"). Reviewing the tax court’s denial of the motion
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Sidney A. Fitzwater, United States District Judge for
the Northern District of Texas, sitting by designation.
for costs for abuse of discretion, Pac. Fisheries Inc. v. United States, 484 F.3d
1103, 1106 n.2 (9th Cir. 2007), we affirm.
1. Plaintiffs are ineligible for an award of administrative costs. To the
extent that they seek administrative costs for their examination dispute with the
IRS, their request is untimely, and they were not the prevailing party. To the
extent that they seek administrative costs for their collection dispute with the IRS,
they are ineligible because no costs were incurred before the commencement date
for the relevant administrative proceeding. 26 U.S.C. § 7430(c)(2).
2. Plaintiffs also are ineligible for an award of litigation costs. The IRS’s
answer before the tax court conceded that Plaintiffs’ petition was correct, and the
agency immediately sought a remand so that the IRS Office of Appeals could
consider Plaintiffs’ argument as they requested. Accordingly, the tax court
permissibly concluded that the IRS’s litigation position was substantially justified.
26 U.S.C. § 7430(c)(4)(B); see Huffman v. C.I.R., 978 F.2d 1139, 1148 (9th Cir.
1992) ("[I]f the Government concedes the petitioner’s case in its answer, its
conduct is reasonable.").1
AFFIRMED.
1
Appellants’ motion to take judicial notice, Docket No. 13, is DENIED.
2
FILED
Dang v. C.I.R., No. 21-70922
FEB 18 2022
O’SCANNLAIN, Circuit Judge, concurring: MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
The Commissioner has relied on 26 C.F.R. § 301.7430-3 in his briefing and
analysis. While we need not reach the validity of the regulation in the resolution of
this case, I write separately to express my view that such regulation is invalid
because it is not “a permissible construction of” 26 U.S.C. § 7430. Altera Corp. &
Subsidiaries v. C.I.R., 926 F.3d 1061, 1075 (9th Cir. 2019) (quoting Chevron,
U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984)).
The regulation excludes collection actions from the definition of
administrative proceedings, which is contrary to the plain language of the statute.
Specifically, the regulation states that “an administrative proceeding does not
include . . . [p]roceedings in connection with collection actions.”
26 C.F.R. § 301.7430-3(a)(4). But that is at odds with the Congressional command.
The statute explicitly allows for award of costs “[i]n any administrative . . .
proceeding . . . in connection with the . . . collection . . . of any tax, interest, or
penalty.” 26 U.S.C. § 7430(a). Further, it goes on broadly to define “administrative
proceeding[s]” to include “any procedure or other action before the Internal Revenue
Service.” 26 U.S.C. § 7430(c)(5) (emphasis added). Both the explicit enumeration
and the broad definition indicate that collection actions are administrative
proceedings.
In defense of the regulation, the Commissioner claims that because the
hanging paragraph of 26 U.S.C. § 7430(c)(2) precludes the recovery of “reasonable
administrative costs” in collection hearings, it follows that such hearings are not
“administrative proceedings.” See also H.R. Rep. No. 100-1104, pt. 2, at 226 (1988)
(Conf. Rep.) (“Thus, with respect to a collection action, only reasonable litigation
costs are recoverable under this provision.”).
Although I agree with this reading of the hanging paragraph, such argument
disregards the fact that what constitutes an administrative proceeding is relevant, not
only to administrative costs, but to litigation costs as well. Subsection (c)(2) specifies
that accumulation of costs is triggered by the earliest of notice of decision, notice of
deficiency, and letter of proposed deficiency. Because the only document relevant
to collection hearings is the notice of decision—received at the end of such a
hearing—no administrative costs accumulate.
However, by excluding collection hearings from the definition of
administrative proceedings, the Commissioner handicaps taxpayers’ pursuit of
litigation costs. For example, a presumption of no justification attaches if the IRS
“did not follow its applicable published guidance in the administrative proceeding.”
26 U.S.C. § 7430(c)(4)(B)(ii) (emphasis added). In this litigation, the Commissioner
conceded that the IRS failed to observe a published guidance. Nevertheless, while
disputing taxpayers’ entitlement to litigation costs, he argued that no presumption
2
arises because collection actions are not administrative proceedings per
26 C.F.R. § 301.7430-3. Thus, excluding collection hearings from the definition of
administrative proceedings affects not only administrative, but also litigation costs.
Although we did not have to reach the validity of the regulation in resolving
this appeal, I feel compelled to note that 26 C.F.R. § 301.7430-3 is not a reasonable
reading of the statute because it disregards its plain language and affects litigation
costs, in addition to administrative costs.
3