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LIBUTTI v. UNITED STATES

October 30, 1995

EDITH LIBUTTI, doing business as LION CREST STABLE, a sole proprietorship, Plaintiffs, against UNITED STATES OF AMERICA, Defendant.


The opinion of the court was delivered by: MCAVOY

 I. INTRODUCTION

 This motion is brought by the plaintiff, EDITH LIBUTTI, d/b/a LION CREST STABLE, seeking reasonable attorneys' fees and litigation costs, including attorneys' fees, pursuant to 26 U.S.C. § 7430. *fn1" This motion is made following a favorable decision in a bench trial, commenced before this court on March 28, 1995. The government has appealed the court's decision in this case to the Circuit Court of Appeals for the Second Circuit.

 II. BACKGROUND

 On July 6, 1994, Edith LiButti, doing business as Lion Crest Stable ("Lion Crest"), brought the racehorse "Devil His Due" to Saratoga, New York to run in the Whitney Handicap on August 27, 1994. On August 25, 1994, the United States Internal Revenue Service ("IRS") delivered a Notice of Seizure and Levy to Devil His Due's trainer at Saratoga. The levy was made against Edith LiButti d/b/a Lion Crest Stable "as nominee of Robert LiButti to the extent of his interest in the thoroughbred race horse named Devil His Due."

 On August 26, 1994, Lion Crest Stable and the IRS entered into an agreement which allowed Devil His Due to run in the Whitney Handicap race. Lion Crest Stable agreed not to file suit against the IRS under 26 U.S.C. § 7426 until August 30, 1994. Any money Devil His Due earned in the Whitney *fn2" was to be held in escrow until: (1) the government permitted Lion Crest Stables to withdraw all or some of the earnings; (2) Lion Crest Stables obtained a court order allowing it to withdraw the earnings; or (3) Lion Crest Stables and the government entered into a second agreement with regard to the disposition of earnings. On September 2, 1994, the plaintiff commenced this action pursuant to 26 U.S.C. § 7426 seeking a permanent injunction barring the IRS from enforcing a levy that sought to seize a thoroughbred racehorse, Devil His Due, to satisfy a tax assessment against Robert LiButti, Edith LiButti's father, and seeking a release of the race winnings of Devil His Due that were being held in escrow by the IRS. The plaintiff claimed that the levy has been wrongfully placed on the horse.

 The court heard a preliminary injunction motion brought by the plaintiff on September 8 and 9, 1994, which essentially sought to lift the levy until such time as the merits of the 26 U.S.C. § 7426 action could be heard. A preliminary injunction was granted which allowed the horse to continue the racing season, but which denied lifting of the levy.

 On October 26, 1994, the government filed suit against Robert Libutti, Joan Libutti (Edith LiButti's mother), and Edith Libutti in the District of New Jersey. The government sought a stay of the Northern District of New York action until final judgment had been entered in the New Jersey action. The court denied this motion.

 A three-day bench trial in this action commenced on March 28, 1995. On August 4, 1995, the court issued a Memorandum, Decision, and Order, and a judgment was filed on August 9, 1995, in favor of the plaintiff. The government has appealed.

 The plaintiff seeks those costs and fees recoverable under 26 U.S.C. § 7430, and asserts compliance with the statutory requirements. The government contends that the plaintiff is not entitled to such costs and fees. It is the government's position that the plaintiff has failed to exhaust the administrative remedies set forth in the Internal Revenue Code, that the plaintiff has failed to meet the net worth requirement set forth in the statute, and that the plaintiff has failed to show that the government's position was unreasonable.

 III. DISCUSSION

 A. Recovery Of Litigation Costs And Attorneys' Fees Pursuant To 26 U.S.C. § 7430

 "In any ... court proceeding which is brought by or against the United States in connection with [actions pursuant to Title 26 of the United States Code], the prevailing party may be awarded ... reasonable litigation costs incurred in connection with such court proceeding." 26 U.S.C. § 7430. To qualify for an award of fees and costs, the taxpayer must show that he/she: (1) is a party as defined in 28 U.S.C. § 2412(d)(2)(B); (2) has met certain procedural prerequisites as set forth in 28 U.S.C. § 2412(d)(1)(B); (3) has exhausted the prescribed administrative remedies to the satisfaction of the court as required ...


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