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MILLER v. UNITED STATES

April 8, 1993

Robert A. MILLER, et al., Plaintiffs,
v.
UNITED STATES OF AMERICA, Defendant.



The opinion of the court was delivered by: THOMAS A. WISEMAN, JR.

 I

 The Plaintiffs in this case, the Miller family, are judgment creditors of Tony Alamo. The Millers purchased properties formerly belonging to Alamo at an execution sale, and because the United States had encumbered the properties with a tax lien, the Millers brought this suit to quiet their title in the properties. The Court previously granted the Millers, motion for summary judgment, and they are now seeking payment of statutory attorney's fees. Following a fuller explanation of the facts, the Court concludes that the Millers are entitled to statutory attorney's fees, but that their request for costs will be trimmed to account for noncompensable items.

 II

 The Plaintiffs obtained a judgment in Arkansas against the evangelist Tony Alamo and his entities, and registered the judgment in this district. On July 11, 1991, the Sheriff sold properties located at 320, 322, 323 and 325 Broadway, and 1200-1202 17th Avenue South in Nashville, Tennessee, to the Plaintiffs' attorney in an execution sale. The Plaintiffs then encumbered the property with a lien in excess of a million dollars for counsel fees and expenses.

 The Internal Revenue Service filed several notices of federal tax liens on the properties. Most of these were based on jeopardy assessments of income taxes owed by Tony Alamo and his late wife, and the Foundation which they controlled. Two of the assessments (Forms 668(Y)) were based on assessments against the Foundation only of employment taxes allegedly due and unpaid by the Foundation for the period from July 1, 1981, through March 31, 1986. The income tax assessments also asserted claims against Music Square Church and Twentieth Century Holiness Tabernacle as the transferees of the Alamos and the Foundation.

 The Foundation, Music Square Church, and Twentieth Century brought a separate action against the IRS, seeking to remove the tax liens. The Millers intervened in that action. This Court found that the IRS failed to satisfy its burden of demonstrating that the jeopardy assessments were reasonable, and ordered the assessments to be abated. That order disposed of the income taxes assessed against the Alamos, Music Square, and Twentieth Century, but left the employment tax liens in place.

 The Millers then brought this action to quiet their title in the properties by having the employment tax liens abated as well. The Court held that because the employment taxes were assessed against the Foundation, the liens were only valid if the Foundation had rights in the properties on which they were placed. Looking to state law to determine when one has rights in property, the Court concluded that the Foundation lost its rights in the property when a recorded conveyance to Music Square was filed. Under Tennessee law, a recorded conveyance divests the transferor of all right, title, and interest in the property, even if the conveyance was in reality fraudulent. The Government argued that the Court should take judicial notice that the various entities involved were sham corporations whose corporate form should be disregarded, and they cited three other cases in which the corporate forms were disregarded. This Court held, however, that the Government was not entitled to benefit from these rulings, and concluded that because no liens were created in the IRS's favor, the Millers' title to the properties should be quieted.

 The Millers have now filed this petition for attorney's fees under 26 U.S.C. § 7430, and the Government has opposed the petition on several grounds. First, the Government argues that because the Millers are creditors of Alamo, the taxpayer, they are disqualified from being "prevailing parties" under the statute. Second, the Government argues that its position in the litigation was "substantially justified," and that by statute, the Millers are precluded from seeking attorney's fees. Finally, the Government argues that even if they are liable for fees and costs, the Millers' requested fees and costs are excessive. The Court concludes that the objections are without merit, and apart from a minor adjustment in the costs and rate, the Court grants the Miller's petition.

 III

 The Plaintiff's Status as "Prevailing Parties"

 26 U.S.C. § 7430 permits the "prevailing party" in tax determination matters to recover reasonable litigation costs in connection with court proceedings brought by or against the United States. The parties do not dispute that the present case belongs to the category of cases to which § 7430 applies. To be considered a "prevailing party," the Court must find that the Plaintiffs satisfy the definition set forth in § 7430(c)(4)(A):

 (A) In general --

 
The term "prevailing party" means any party in any proceeding to which subsection (a) applies (other than the United States or any creditor of the taxpayer involved) --
 
(i) which establishes that the position of the United States in the proceeding was not substantially justified.

 26 U.S.C. § 7430(c)(4)(A) (emphasis added).

 The Government argues that because the Plaintiffs are judgment creditors of the taxpayer, they are precluded from receiving their attorney's fees. The Plaintiffs argue that they are present in this action as property owners, and not as judgment creditors, and that they should not be discriminated against solely because they are both property owners and judgment creditors.

 The same parties, issues, and arguments have been in this Court before. After abating the jeopardy assessments in the prior action, the Court denied the Plaintiff's request for attorney's fees. As in this case, the Plaintiffs then had argued that "because of the execution sales of the Alamo property and the concurrent transfer of title, they actually hold property and are no longer creditors." Tony and Susan Alamo Foundation, Inc., et al. v. United States, No. 3:90-0901, memorandum op. at 6 (M.D.Tenn., July 31, 1992). This Court held that because the Plaintiffs executed their judgment liens and obtained title to the ...


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