# Sarah S. O'Nan

> United States Tax Court · May 15, 2024

URL: https://www.frixlaw.com/law-library/cases/9968967

## Case

- **Court:** United States Tax Court
- **Decided:** May 15, 2024
- **Precedential status:** Unpublished
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

United States Tax Court

T.C. Memo. 2024-57

SARAH S. O’NAN,
Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

__________

Docket No. 5115-17. Filed May 15, 2024.

__________

Harlan S. Louis, for petitioner.

Lauren M. Dynes, Jonathan E. Behrens, and Richard L. Wooldridge, for
respondent.

MEMORANDUM OPINION

COPELAND, Judge: Petitioner, Sarah S. O’Nan, petitioned this
Court after the Commissioner of Internal Revenue (Commissioner)
granted her innocent spouse relief under section 6015(f) 1 but denied her
request for refund of $123,200 under section 6015(g)(1). Following trial,
we held that the Commissioner must refund Mrs. O’Nan all but $3,340
(plus interest) of her requested amount. O’Nan v. Commissioner, T.C.
Memo. 2023-117, at *13. Mrs. O’Nan then timely filed a Motion for
Reasonable Litigation or Administrative Costs (Motion) pursuant to
section 7430 and Rule 231. We must now decide whether Mrs. O’Nan

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
and Rule references are to the Tax Court Rules of Practice and Procedure. Some dollar
amounts are rounded.

Served 05/15/24
2

[*2] qualifies under section 7430 for an award from the United States of
any or all of her legal or administrative costs.

Background

The following facts are derived from our previous Opinion in this
case, the parties’ pleadings, the Stipulation of Facts, Mrs. O’Nan’s
Motion, and the Commissioner’s Response to the Motion. Mrs. O’Nan
resided in Ohio when she filed her Petition.

I. Facts and Holdings

Mrs. O’Nan was married to Jonathan P. O’Nan until his death on
November 25, 2014. In May 2012 the O’Nans bought a home in Ohio
(family home). The deed conveyed legal title to the O’Nans in joint
tenancy with right of survivorship, referred to in Ohio law as a
“survivorship tenancy.” See Ohio Rev. Code Ann. § 5302.20(A)
(LexisNexis 2022). The family home was eventually encumbered by two
mortgages, each securing a different loan evidenced by a promissory
note. Wells Fargo Bank (Wells Fargo) held the primary mortgage,
initially recorded by WCS Lending, LLC, in a deed filed in October 2012
and assigned to Wells Fargo in January 2015. First Bexley Bank (First
Bexley) held the secondary mortgage, recorded in a deed filed in October
2013. While both Mr. and Mrs. O’Nan signed the two mortgage deeds,
only Mr. O’Nan signed the promissory note secured by the primary
mortgage (subsequently assigned to Wells Fargo). The record does not
indicate whether Mr. and Mrs. O’Nan cosigned the First Bexley note or
whether instead only one of them did so.

The O’Nans jointly and timely filed their federal income tax
returns for 2012 and 2013 (years in issue), but they did not pay their
reported tax liabilities upon filing. The Internal Revenue Service (IRS)
assessed the reported liabilities for the two years in issue on November
18, 2013, and November 17, 2014, respectively, while Mr. O’Nan was
still living. After issuing a notice and demand for each tax year, the IRS
filed a notice of federal tax lien (NFTL) against the O’Nans on April 28,
2015, and sent them a notice of NFTL filing that same day. The notice
of NFTL filing stated that the O’Nans owed $24,683 and $90,108 for
2012 and 2013, respectively.

In June 2015 Mrs. O’Nan sold the family home for $895,000. The
title company presiding over the sale remitted the following pertinent
amounts from the sale proceeds: (1) $14,290 in closing costs; (2) $423,020
to Wells Fargo in full satisfaction of its primary loan; (3) $257,955 to
3

[*3] First Bexley in full satisfaction of its secondary loan; (4) $123,200
to the IRS in full satisfaction of its tax lien, i.e., the outstanding tax
liabilities for the years in issue plus interest and penalties (IRS lien
payment); and (5) $76,535 to Mrs. O’Nan.

On May 6, 2015, before the home sale occurred, the IRS had
received from Mrs. O’Nan Form 8857, Request for Innocent Spouse
Relief, in which she requested relief from joint liability with Mr. O’Nan
for the years in issue. In a final determination letter dated February 13,
2017, the IRS, acting pursuant to section 6015(f), granted Mrs. O’Nan
partial relief from joint and several liability for 2012 and full relief for
2013. For tax year 2012 the IRS determined that Mrs. O’Nan remained
liable for $3,340. The determination letter also fully denied Mrs.
O’Nan’s claim for refund of the $123,200 IRS lien payment.

Mrs. O’Nan then filed her Petition contesting the refund denial.
Following trial, we found and held the following:

1. Mrs. O’Nan inherited Mr. O’Nan’s former one-half interest
in the family home fully subject to the IRS’s lien. O’Nan,
T.C. Memo. 2023-117, at *7.

2. When a requesting spouse is granted section 6015(f) relief,
we recalculate her federal tax liability as if she and her
spouse (or deceased spouse) had filed married-filing-
separately returns for the relevant years. O’Nan, T.C.
Memo. 2023-117, at *8 (citing Pullins v. Commissioner, 136
T.C. 432, 440 (2011)).

3. In light of Mrs. O’Nan’s section 6015(f) relief, the IRS’s lien
on the family home did not encumber her original one-half
interest in the family home except to the extent of $3,340
plus interest. O’Nan, T.C. Memo. 2023-117, at *8.

4. Under Ohio law governing survivorship tenancies, there
was a total of $447,500 (i.e., one-half of $895,000) of sale
proceeds attributable to Mr. O’Nan’s former one-half
interest out of which to satisfy the liabilities encumbering
it. Id. at *9.

5. Since Mrs. O’Nan signed the Wells Fargo mortgage deed
but not the promissory note, under Ohio law she was only
a surety for Mr. O’Nan’s obligation under the note. Id.
at *10.
4

[*4] 6. Since the closing costs were split equally between Mr. and
Mrs. O’Nan’s interests, and since Wells Fargo held priority
over both First Bexley and the IRS, only $17,335 of
proceeds attributable to Mr. O’Nan’s former one-half
interest remained for First Bexley and the IRS after Wells
Fargo’s satisfaction. Id. at *12.

7. By a preponderance of the evidence, Mrs. O’Nan was not
the sole signer of the First Bexley promissory note.
Therefore, since First Bexley had priority over the IRS,
none of the IRS lien payment could have come from
proceeds attributable to Mr. O’Nan’s former one-half
interest. Id. at *12–13.

8. Therefore, the entire IRS lien payment came from Mrs.
O’Nan’s separate funds. Pursuant to section 6015(g)(1),
she must be refunded all but $3,340 plus interest. O’Nan,
T.C. Memo. 2023-117, at *13.

II. The Parties’ Administrative and Litigation Positions

On February 13, 2017, the IRS Office of Appeals 2 issued its final
determination letter regarding Mrs. O’Nan’s innocent spouse relief
request. That letter granted Mrs. O’Nan partial relief for 2012 and full
relief for 2013 but stated:

Your refund isn’t allowed under the Internal
Revenue Code (the Code). We can’t refund your payments
or credits if you filed your claim for relief more than 2 years
after you paid the tax, unless you filed your claim within
three years of the date you filed your return (Section 6511
of the Code). Refunds are not available for:

• Payments made with the joint return
• Joint payments
• Payments made solely by the other spouse
• A joint overpayment from another tax year that was
applied to this debt (unless you establish that you

2 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent

Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,
983 (2019). We will use the name in effect at the times relevant to this case, i.e., the
IRS Office of Appeals.
5

[*5] provided some or all of the funds for the
overpayment)[.]

In her Petition, filed March 2, 2017, Mrs. O’Nan contended (in
relevant part):

[T]he lien recorded by the IRS in April 2015 was improper.
It was not timely. It was for the tax obligation of another
person [i.e., Mr. O’Nan].

....

According to the IRS, the 2013 assessment was
made on November 17, 2014. By law, the earliest that the
IRS’s automatic lien can arise is ten days after the
assessment (November 27, 2014). Jonathan P. O’Nan
(“Jon”) died tragically on November 25, 2014. Upon Jon’s
death, their home immediately transferred to Petitioner
Sarah S. O’Nan (“Sarah”) by operation of law. So by
November 27, 2014, the home was no longer Jon’s property,
and therefore, it was not available for an automatic
lien. . . . Sarah is deemed to be an innocent spouse.
Therefore, her home equity is not available to pay the tax
debts of her former husband. . . .

Even though the 2012 taxes were assessed and
noticed while Jon was alive, the lien was improper because
by the time it was recorded, Sarah (an innocent spouse)
was the sole owner of the property. Even if the lien had
been recorded prior to Jon’s death, the automatic transfer
at his death would have defeated the lien. A tax lien
recorded against only the deceased spouse does not survive
the death of the taxpayer.

On April 24, 2019, the Commissioner filed a Motion for Partial
Summary Judgment, asking the Court to rule on Mrs. O’Nan’s argument
that a section 6321 lien arises (at the earliest) ten days after assessment
rather than immediately upon assessment (lien argument). By Order
issued June 18, 2020, we granted partial summary judgment to the
Commissioner, ruling that the IRS’s section 6321 lien on Mr. O’Nan’s
one-half interest in the family home arose on November 17, 2014 (i.e.,
the date of assessment). We further indicated that under Ohio law the
lien was not extinguished upon Mr. O’Nan’s death.
6

[*6] In a letter dated June 24, 2020, and addressed to the
Commissioner’s counsel in this case, counsel for Mrs. O’Nan, Harlan S.
Louis, proposed a settlement of the case and supported the proposal as
follows (in relevant part):

The partial summary judgment still leaves open our
contention that the IRS wrongfully took the home sale
proceeds from the equity share of Sarah to pay the tax debt
of someone else (Jon). During Jon’s life, Sarah and Jon
each owned a one-half interest in the real estate. As we
discussed last week, the Wells Fargo promissory note was
in Jon’s name alone. At the closing, Wells Fargo was paid
$423,019.92. This essentially wiped out all of the equity in
Jon’s share. So, when the IRS got paid $123,200.00, this
all came from Sarah’s share. But since Sarah is an
Innocent Spouse, her assets are not available to pay Jon’s
tax debt.

This letter was the first time Mrs. O’Nan conveyed to the Commissioner
her argument that the equity in Mr. O’Nan’s former one-half interest
was insufficient to account for the entire IRS lien payment (equity
argument). Mr. Louis repeated the equity argument in substantially the
same form in a settlement proposal dated January 11, 2021, and
addressed to the Commissioner’s counsel in this case, adding the
following explanation:

The facts are simply these: The foreclosure sales
price was $895,000. Attributing that 50% to Jon’s interest
yields $447,500. The pay-off of Wells Fargo leaves only
$24,480 in Jon’s share to pay debts including those having
priority well before the IRS. So, the $123,200 the IRS
received that day came from Sarah—not from Jon.

(Footnote omitted.) Also on January 11, 2021, Mrs. O’Nan filed her
Pretrial Memorandum, which stated the following (in relevant part):

[T]he IRS was paid $123,200.00 from Sarah’s property—
and not Jon’s property. . . .

....

On September 24, 2012, Jonathan P. O’Nan, as the
sole Borrower, signed a Promissory Note promising to pay
7

[*7] $412,300.00 to WCS Lending LLC (the “Wells Fargo
Note”).

....

BancOhio Nat’l Bank v. Powers, 1990 Ohio App.
LEXIS 4689 (10th Dist. Franklin Cty., Oct. 25, 1990). A
spouse (including a former spouse) has no obligation to pay
the debts of her spouse, including a promissory note not
signed by her.

The Commissioner rejected the equity argument in his Pretrial
Memorandum, at trial, and in his posttrial briefs. For instance, in his
Pretrial Memorandum he asserted that “Petitioner’s interest in the
family home was what remained after satisfaction of the mortgages and
respondent’s liens.” Likewise, in his Simultaneous Opening Brief he
wrote:

Because respondent’s lien interests in the property
were fully vested and protected under federal and state
law, petitioner only possessed an equity interest in the
property at issue to the extent that the sale price of the
home exceeded the value of the mortgage loans and
respondent’s vested lien interests, and petitioner did not
provide the funds totaling $123,200 applied in satisfaction
of the 2012 and 2013 liabilities.

In his Simultaneous Answering Brief, the Commissioner cited Cardinal
Financial Co., L.P. v. Filgueiras, No. L-18-1211, 2019 WL 2246074 (Ohio
Ct. App. May 24, 2019), for the proposition that “[b]ecause petitioner
signed the Wells Fargo Mortgage, that mortgage encumbered the
interest in the property at issue [i.e., the family home] which vested with
petitioner upon Mr. O’Nan’s death.”

III. Settlement Proposals

Mr. Louis sent four settlement proposals to the Commissioner’s
counsel during the course of this litigation. The first three proposals
were mailed and dated June 11, 2019, June 24, 2020, and January 11,
2021, respectively. The subject line of each letter read: “Settlement
Proposal (CONFIDENTIAL UNDER RULE 408) Sarah S. O’Nan v.
Commissioner, Tax Court Case No. 5115-17.” Mr. Louis sent the fourth
proposal by email on February 1, 2021, with substantially the same
subject line.
8

[*8] The first proposal stated in part: “We propose that the IRS re-pay
to Sarah the sum of $92,400, plus interest. In turn, Sarah will agree to
dismiss the pending Tax Court case with prejudice.” The second
proposal stated in part: “[W]e propose that from the $123,200 taken, the
IRS pay back to Sarah $92,400, plus interest. In turn, Sarah will agree
to dismiss the pending case with prejudice.” The third proposal stated
in part: “[W]e propose that from the $123,200 foreclosure sale proceeds
received by the IRS, your client pay back to Sarah a settlement payment
of $85,000, plus interest. In turn, Sarah will agree to dismiss the
pending case with prejudice.” The fourth proposal stated in part:

On the high side, we propose that if the verdict at trial
provides for a payment to Sarah in excess of $90,000, we
agree to cap that award at $90,000, plus interest. On the
low side, we propose that if the verdict at trial provides for
a payment to Sarah less than $50,000 (including an IRS
win with no payment to Sarah), we agree to set a floor
payment to Sarah of $50,000, plus interest. And so, if the
court were to award Sarah an amount between $50,000 and
$90,000, the parties would accept that amount.

There is no evidence that the Commissioner’s counsel accepted any of
the proposals, none of which references section 7430 or includes the
phrase “qualified offer.”

IV. Request for Award

After we heard this case and issued our original Opinion, Mrs.
O’Nan requested an award under section 7430 of $86,956.21, comprising
$86,810.50 of attorney’s fees and $145.71 of costs (e.g., court filing fees
and postage). Mrs. O’Nan incurred the attorney’s fees on account of
work performed by Mr. Louis’s firm, Bailey Cavalieri, LLC, between
March 2015 and September 2023. The attorney’s fees were charged at
rates ranging from $155 per hour to $440 per hour, depending on the
position of the person at Bailey Cavalieri, LLC, performing the work.

Discussion

I. Section 7430 Overview

Section 7430 provides for the award of litigation or administrative
costs to a taxpayer in a proceeding brought by or against the United
States involving the determination, collection, or refund of any tax,
interest, or penalty. An award may be made where the taxpayer can
9

[*9] demonstrate that she (1) is the “prevailing party,” (2) exhausted
administrative remedies within the IRS, 3 (3) did not unreasonably
protract the proceeding, and (4) has claimed “reasonable” costs. I.R.C.
§ 7430(a), (b)(1), (3), (c)(1) and (2); Bryan S. Alterman Tr. v.
Commissioner, 146 T.C. 226, 227 (2016). The taxpayer bears the burden
of proving that these requirements are met. Rule 232(e). The
requirements are conjunctive; failure to satisfy any one of them
precludes an award. Alterman Tr., 146 T.C. at 227; Minahan v.
Commissioner, 88 T.C. 492, 497 (1987). The decision to award fees is
within the sound discretion of the Court. See William L. Comer Fam.
Equity Pure Tr. v. Commissioner, 958 F.2d 136, 139 (6th Cir. 1992) (per
curiam) (adopting an abuse of discretion standard for review of the Tax
Court’s decisions under section 7430), aff’g T.C. Memo. 1990-316. An
award of administrative costs may include only costs incurred on or after
the earliest of (1) the date the taxpayer received the notice of the decision
of the IRS Office of Appeals, (2) the date of the notice of deficiency
(if applicable), or (3) the sending date of the first letter of proposed
deficiency providing an opportunity for administrative review
(if applicable). I.R.C. § 7430(c)(2). For these purposes, the notice of the
decision of the IRS Office of Appeals is the final written document,
mailed or delivered to the taxpayer, that is signed by an individual in
the Office of Appeals who has been delegated the authority to settle the
dispute on behalf of the Commissioner, and states or indicates that the
notice is the final determination of the entire case. Treas. Reg.
§ 301.7430-3(c)(2). Moreover, a final notice of determination denying
innocent spouse relief is treated as a notice of deficiency for these
purposes. Id. subpara. (3).

Section 7430(c)(4)(A) specifies that an individual taxpayer is the
“prevailing party” if she (1) substantially prevailed with respect to either
the amount in controversy or the most significant issue (or set of issues)
presented and (2) had a net worth not in excess of $2 million at the time
she filed her petition. Alterman Tr., 146 T.C. at 228; Treas. Reg.
§ 301.7430-5(g)(1). However, even if the taxpayer meets these
requirements, she will not be treated as the prevailing party if the
Commissioner establishes that his position in the proceeding was
“substantially justified.” I.R.C. § 7430(c)(4)(B)(i). The Commissioner
bears the burden of proof on this issue. Id.; Rule 232(e). “Substantially
justified” means “justified to a degree that could satisfy a reasonable
person” or having a “reasonable basis both in law and fact.” Comer Fam.

3 This requirement applies only to claims for litigation costs. See I.R.C.
§ 7430(b)(1).
10

[*10] Equity Pure Tr. v. Commissioner, 958 F.2d at 139–40 (quoting
Pierce v. Underwood, 487 U.S. 552, 563–65 (1988)); Swanson v.
Commissioner, 106 T.C. 76, 86 (1996) (quoting Underwood, 487
U.S. at 565). The Commissioner’s position in litigation is generally
established at the time he files his answer to the taxpayer’s petition. See
I.R.C. § 7430(c)(7)(A); Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430,
442 (1997). The Commissioner’s position in an administrative
proceeding is established as of the earlier of (1) the date of receipt of the
notice of decision of the IRS Office of Appeals or (2) the date of the notice
of deficiency (if applicable). I.R.C. § 7430(c)(7)(B); see also Maggie Mgmt.
Co., 108 T.C. at 442 (“The ‘not substantially justified’ standard is applied
as of the separate dates that respondent took positions, first in the
administrative proceedings and afterwards in the proceedings in this
Court.”).

If the taxpayer did not substantially prevail in litigation, or if the
Commissioner’s position was substantially justified, the taxpayer will
still be treated as the prevailing party if the court’s determination of her
tax liability (determined without regard to interest) is equal to or less
than the liability amount for which she offered to settle in a “qualified
offer.” I.R.C. § 7430(c)(4)(E). Section 7430(g) defines a qualified offer as
a written offer that (1) the taxpayer makes to the Commissioner during
the qualified offer period (beginning on the sending date of the first
letter of proposed deficiency offering administrative review and ending
30 days before the date the case is first set for trial), (2) specifies the
offered amount of the taxpayer’s liability (determined without regard to
interest), (3) is designated at the time it is made as a qualified offer for
purposes of section 7430, and (4) remains open during the period
beginning on the date the offer is made and ending on the earliest of the
date the offer is rejected, the date the trial begins, or the 90th day after
the offer is made. However, the taxpayer may not be treated as the
prevailing party on account of a qualified offer if the court’s judgment is
entered pursuant to a settlement or if “the amount of tax liability is not
in issue” in the proceeding. I.R.C. § 7430(c)(4)(E)(ii).

II. Administrative Costs Incurred Before February 13, 2017

As a preliminary matter, we note that Mrs. O’Nan has included
in her Motion a request for several thousand dollars’ worth of
administrative costs incurred before February 13, 2017, the date the IRS
Office of Appeals issued its final determination letter regarding her
innocent spouse relief request and request for refund. Regardless of
whether Mrs. O’Nan otherwise qualifies for an award under
11

[*11] section 7430, she may not recover administrative costs incurred
before the date of the final determination letter. See I.R.C. § 7430(c)(2);
Treas. Reg. § 301.7430-3(c).

III. Mrs. O’Nan’s Settlement Proposals

The Commissioner has conceded that Mrs. O’Nan substantially
prevailed in this case, that her net worth did not exceed $2 million when
she filed her Petition, that she exhausted her administrative remedies,
and that she did not unreasonably protract the proceedings. Thus, if
any of Mrs. O’Nan’s settlement proposals was a qualified offer, we may
award her administrative and litigation costs even if the
Commissioner’s position was substantially justified. See I.R.C.
§ 7430(c)(4)(E)(i).

However, the qualified offer provisions do not apply to “any
proceeding in which the amount of tax liability is not in issue.” I.R.C.
§ 7430(c)(4)(E). This case was instituted to dispute the Commissioner’s
refusal to provide a refund of amounts taken to satisfy the undisputed
tax liability of a third party (viz, Mr. O’Nan). Mrs. O’Nan’s tax liability
was not in issue during the IRS or Court proceedings; in particular, she
never contested the Commissioner’s partial denial of innocent spouse
relief for 2012. Moreover, Mr. O’Nan was not a party to these
proceedings, and in any event his own tax liability was never contested.
Therefore, no “amount of tax liability” was “in issue” when Mrs. O’Nan
brought her refund request before the IRS and then before this Court.

Even if we assume that the qualified offer provisions apply to
these proceedings, Mrs. O’Nan’s settlement proposals did not satisfy all
the procedural requirements under the statute. Specifically, none of her
proposals gave any indication that it purported to be a qualified offer for
purposes of section 7430. None of the proposals used the term “qualified
offer” or “7430,” nor did any of them indicate that Mrs. O’Nan would
seek an award of administrative or litigation costs should it not be
accepted. See I.R.C. § 7430(g)(1)(C) (“The term ‘qualified offer’ means a
written offer which . . . is designated at the time it is made as a qualified
offer for purposes of this section . . . .” (Emphasis added.)); McGowan v.
Commissioner, T.C. Memo. 2005-80, 89 T.C.M. (CCH) 1044, 1045;
Downing v. Commissioner, T.C. Memo. 2005-73, 89 T.C.M. (CCH) 1009,
1016–17, supplementing T.C. Memo. 2003-347.

Therefore, we hold that none of the settlement proposals was a
qualified offer under section 7430, and we must inquire further to
12

[*12] determine whether litigation or administrative costs may be
awarded to Mrs. O’Nan.

IV. Substantial Justification

Because no qualified offer was made, and in light of the
Commissioner’s concessions, our disposition of Mrs. O’Nan’s Motion
hinges on whether the Commissioner’s position during the proceedings
was “substantially justified.” See I.R.C. § 7430(c)(4)(B)(i). Until June
24, 2020 (at the earliest), Mrs. O’Nan’s only determinative contention in
this matter was the lien argument, viz, that the section 6321 lien did not
arise until Mr. O’Nan died and therefore never attached to his interest
in the family home (or, alternatively, that the lien was extinguished
upon Mr. O’Nan’s death). As indicated in our Order of June 18, 2020,
granting partial summary judgment to the Commissioner, the
Commissioner was fully justified in rejecting the lien argument, given
applicable statutory text and caselaw.

Only after our partial summary judgment ruling did Mrs. O’Nan
raise the equity argument, viz, that the equity in Mr. O’Nan’s former
one-half interest in the family home was insufficient to account for the
entire IRS lien payment. The equity argument presupposes that when
a section 6321 lien attaches to property jointly owned by two spouses
and one spouse is subsequently granted innocent spouse relief for some
or all of the tax liability secured by the lien, the lien then encumbers the
relieved spouse’s interest in the property only to the extent of the
liability (if any) for which she was not granted relief. See O’Nan, T.C.
Memo. 2023-117, at *8. We are not aware of any statute, regulation, or
judicial decision that either articulated or clearly implied this point of
law before our original Opinion in this case. Nor can we say that the
Commissioner’s response to the equity argument—viz, that an earlier-
arising section 6321 lien is unaffected by a grant of innocent spouse
relief—was not justified to a degree that could satisfy a reasonable
person. See Swanson, 106 T.C. at 86.

This Court and other courts have consistently held the
Commissioner’s position to be substantially justified, for purposes of
section 7430(c)(4)(B)(i), when his position addressed a question of first
impression that was not clearly settled by existing statutes or
regulations. See, e.g., TKB Int’l, Inc. v. United States, 995 F.2d 1460,
1468 (9th Cir. 1993); Castillo v. Commissioner, No. 18336-19L, 160 T.C.,
slip op. at 6 (June 5, 2023); Estate of Wall v. Commissioner, 102 T.C. 391,
394 (1994) (“This was a case of first impression, and respondent’s
13

[*13] position was not contrary to any published decision. Nor could a
reasonable person say that it lacked colorable justification.”),
supplementing 101 T.C. 300 (1993); Bontrager v. Commissioner, T.C.
Memo. 2019-45, at *6 (“The Commissioner generally is not subject to an
award of litigation costs under section 7430 where the underlying issue
is one of first impression.” (quoting Rowe v. Commissioner, T.C. Memo.
2002-136, 83 T.C.M. (CCH) 1762, 1769–70)); Blanco Invs. & Land, Ltd.
v. Commissioner, T.C. Memo. 1988-175, 55 T.C.M. (CCH) 677, 678
(holding the Commissioner’s position substantially justified when the
question at issue was one of first impression and the relevant statute “is
vague and gives little direction for deciding [the question at issue]”).

Since the Commissioner’s position was substantially justified
throughout the administrative and Court proceedings, we will deny Mrs.
O’Nan’s Motion. 4

To reflect the foregoing,

An appropriate order and decision will be entered.

4 We do not reach the Commissioner’s argument that the amount of legal fees

claimed by Mrs. O’Nan’s is not “reasonable.” See I.R.C. § 7430(c)(1) and (2).

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9968967. Public record. Not legal advice.