I have always loved pro se tax cases where taxpayers represent themselves in court. In part, my fascination might be because of the fact that I am a lawyer. Such a case was the recent Tax Court decision, Dunaway, 124 TC No. 7.

It all began when the IRS determined a deficiency of $728 in the Dunaway's 2001 Federal income taxes. It ended with Tax Court deciding the amount of litigation costs that the Dunaways could recover. They were entitled to reimbursement of litigation costs because the IRS conceded its position in its notice of deficiency was not substantially justified.

They asked for $1,570, comprised of a court filing fee ($60), their research time ($1,248.90), John's lost wages incurred when attending a hearing ($88.96), the cost of postage, delivery, and office supplies ($158.64), mileage reimbursement ($10.50), and the cost of parking ($3.00). The IRS conceded that the Dunaways were entitled to recover the $60 court filing fee and $35.06 in postage and delivery costs.

The Tax Court's opinion was extremely interesting for a number of reasons, not the least of which being the cost, time, and effort spent by the court on it. First, the Tax Court pointed out courts have consistently held pro se taxpayers may not be awarded an amount reflecting the value of their personal time in handling the litigation (including any research done). This is despite the fact that taxpayers could recover fees charged by attorneys to handle the litigation in the same way. As a lawyer, I guess I shouldn't laugh at the double standard.

It then rejected the claim of $88.96 for the lost wages because of lack of substantiation. The court allowed the Dunaways $52.51 for postage and delivery costs. Then, we got to the real meat of the decision: the evaluation of the mileage cost of 10.50 and the parking fee of $3.

In this lengthy part of the opinion, the court's conclusion turned on what is the definition of the word "includes" in the applicable statute. It cites a Supreme Court decision that states, "In the context of other nontax Federal statutes, when both words 'includes' and 'means' are used within the same statutory provision, courts have held that the word 'includes' is a term of enlargement and extension and that the word 'means' is a term of enumeration and limitation." The Dunaways were awarded $11.25 (instead of $10.50, because of a recalculation) for mileage, and $3 for parking.

I now have a whole new respect for taxpayers that appear pro se. I always thought they looked silly, but here both the IRS and the Tax Court appear to be the silly ones. Basically, you got the IRS assessing a deficiency that never should have been assessed in the first place, thereby causing taxpayers to incur claimed costs of $1,570.

The IRS then admits it was totally wrong saying "Here's some $95 for all your troubles."

The Court spends considerable time and effort bringing the reimbursement up to just under $127. It basically is saying to the Dunaways that they haven't proved their costs and even if a lawyer couldn't have done a better job, their efforts have no value. The implication of the decision is the court would have reimbursed the Dunaways whatever an attorney would have charged if they used one, which would surely have exceeded the $1,570 claimed costs.

So, the ultimate lesson in this is that the Dunaways would have been much better off--over $800 ahead--if they simply paid the improper tax deficiency of $728 and never went to court. There also would have been the added benefit that the IRS and Tax Court would not have incurred the costs of fighting and adjudicating the litigation costs claim, which is ultimately passed on to all taxpayers.

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