Ann P. FOUTS, Plaintiff, v. UNITED STATES of America, Defendant., United States District Court, W.D. Michigan, Southern Division., 107 F.Supp.2d 815, No. 5:99-0 V-17., March 30, 2000
Ann P. FOUTS, Plaintiff, v. UNITED STATES of America, Defendant.
United States District Court, W.D. Michigan, Southern Division.
107 F.Supp.2d 815
No. 5:99-0 V-17.
March 30, 2000.
Allan J. Claypool, Foster, Swift, Collins & Smith, P.C., Lansing, MI, for plaintiff.
W. Francesca Ferguson, Asst. U.S. At╜torney, U.S. Attorney's Office, Western District of Michigan, Grand Rapids, MI, for defendant.
MEMORANDUM OPINION AND OR╜DER DENYING
MOTION FOR COSTS AND ATTORNEY FEES
McKEAGUE, District Judge.
On September 8, 1999, the Court en╜tered a judgement and a "Stipulation and Order for Dismissal of Action and Release of Escrowed Funds" holding that plaintiff had substantially prevailed with respect to the most significant issue in this case. On October 5, 1999, plaintiff moved for an award of costs and attorney fees under 26 U.S.C. ╖ 7430, contending she is the pre╜vailing party and defendant's litigation po╜sition was not substantially justified. Plaintiff seeks an award of attorney fees in the amount of $36,916.00 and costs in the amount of $411.77. Defendant United States opposes the motion, contending it was substantially justified in maintaining its position that Ann Fouts' son, John (a.k.a.Larry) Fouts, had an attachable in╜terest in Ann Fouts' property.
Under 26 U.S.C. ╖ 7430, a taxpay╜er who prevails against the government may recover reasonable litigation costs, in╜cluding reasonable attorney fees and costs, unless the government can prove its posi╜tion was substantially justified. It is the government's burden to prove that its po╜sition was substantially justified. 26 U.S.C. ╖ 7430(c)(4)(B)(i) (" . . . . if the Unit╜ed States establishes that the position of the United States in the proceeding was substantially justified"). To prove it was substantially justified, the government must show its position was "justified in substance or in the main," was "justified to a degree that could satisfy a reasonable person," or had "a reasonable basis both in law and fact." See Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988); William L. Comer Family Equity Pure Trust v. Commissioner, 958 F.2d 136, 139-40 (6th Cir.1992) (applying the Pierce definition to the "sub╜stantially justified" inquiry under 26 U.S.C. ╖ 7430). In adopting this standard, the Pierce court explicitly rejected the more demanding "justified to a high de╜gree" standard. In considering whether the government's position is substantially justified, the Court considers all the facts and circumstances and the government's position as a whole.
Plaintiff argues that John Fouts had no attachable interest in Ann Fouts' property because he held the property only as a co╜trustee, as evidenced by the Declaration of Trust instrument. The government con╜tends John Fouts did have an attachable interest in the property by virtue of the deed conveying the property to John Fouts and Ann Fouts as joint tenants. The government further argues the trust instrument is vague and did not evidence the intent that John hold the property only as a co-trustee. In the alternative, the government contends that even if the trust is not ambiguous, the tax lien attached to John's vested beneficial interest in the trust.
State law determines a taxpay╜er's interest in property. Aquilino v. United States, 363 U.S. 509, 513, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960). If it is deter╜mined that state law does create a proper╜ty interest in the taxpayer, then federal law dictates the results. United States v. National Bank of Commerce, 472 U.S. 713, 722, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985). Federal tax liens attach to every property interest held by a taxpayer and can attach regardless of whether that interest is less than full ownership interest or only one interest among several other ownership claims. United States v. Safeco Insurance Company of America, 870 F.2d 338, 341 (6th Cir.1989). See also, Craft v. United States, 140 F.3d 638 (6th Cir.1998). The federal tax lien statute is broad and Con╜gress intended it to reach every interest in property a taxpayer may have. Drye v. United States, __ U.S. __, ═ ___ - ___, 120 S.Ct. 474, 479-80, 145 L.Ed.2d 466 (1999). A tax lien can attach to rights to property and to the property itself. The fact that a taxpayer's right to property may be restricted will not prevent attach╜ment of a federal tax lien. A tax lien can also attach to future and contingent inter╜ests in property. See Craft, 140 F.3d at 644. Therefore, if the taxpayer has any interest at all in the property, a tax lien may attach to that interest.
According to state law, an inter vivos trust creates a present interest in property, although it is an expectant inter╜est. Detroit Bank & Trust Co. v. Grout, 95 Mich.App. 253, 278, 289 N.W.2d 898 (1980). See also Goodrich v. City Nation╜al Bank and Trust Company of Battle Creek, 270 Mich. 222, 231, 258 N.W. 253 (1935) (in an inter vivos revocable trust situation the trust beneficiary has a vested interest in the property and the power to revoke is a condition subsequent which will result in divestment of the interest). A trust settlor's power to revoke does not prevent vesting of title to trust property in the trustee or beneficiary. Id. Under Michigan law, expectant estates are "de╜scendible, devisable and alienable." Mich. Comp.Laws Ann. ╖ 554.35. It has also been held that a beneficiary's interest in trust income was property for purposes of imposing a tax lien. Bank One Ohio Trust v. United States, 80 F.3d 173 (6th Cir. 1996). In addition, restraints on alienation do not prevent a lien from attaching. Id . at 176.
In this case, therefore, it is clear under Michigan law that John Fouts, as an expectant beneficiary of the trust at least, had an attachable interest in the property. It was reasonable, based on the law and facts, for the government to believe the tax lien could attach to John's expectant inter╜est in the trust property of which he was a beneficiary. The government's position that the tax lien could attach to his inter╜est in the property was therefore substan╜tially justified. Attorney fees are not available to a prevailing party under 26 U.S.C. ╖ 7430 if the government proves its position was substantially justified, as it has done in this case. Therefore, plain╜tiff's motion for attorney fees must be denied.
Plaintiffs motion for costs must also be denied. Rule 54(d) provides that costs, other than attorney fees, are generally allowed as of course to the prevailing par╜ty. Fed.R.Civ.P. 54(d). However, "costs against the United States ... shall be imposed only to extent permitted by law." Id. The only authority under which plain╜tiff seeks award of costs against the Unit╜ed States is 26 U.S.C. ╖ 7430, which estab╜lishes a threshold she is unable to meet.
Accordingly, plaintiff's motion for attor╜ney fees and costs must be and is hereby DENIED.
IT IS SO ORDERED.