Nordvik v. Commissioner

In October 1989, the Internal Revenue Service (IRS) issued a deficiency notice to Claire and William Nordvik (plaintiffs) regarding the Nordviks’ 1983 through 1986 taxes. Per the IRS, the Nordviks owed approximately $127,000 in taxes and approximately $45,000 in additions to tax (i.e., penalties). The Nordviks filed a petition with the United States Tax Court against the IRS commissioner (defendant) challenging the claimed deficiency. Before trial, the IRS offered to settle the dispute with a $21,004 deficiency for 1984, no deficiencies for 1985 or 1986, and no penalties. The Nordviks stipulated to the IRS’s proposal despite not having received the IRS’s calculation of the proposed deficiency amount. On April 10, 1991, the Tax Court entered an order implementing the parties’ settlement. On April 22, the IRS sent the Nordviks its deficiency calculations, which the Nordviks did not promptly review. When they finally did review the IRS’s calculations, the Nordviks concluded that the calculations were erroneous. The Nordviks and the IRS then engaged in further discussions, but they continued to disagree. With the Tax Court’s permission, the Nordviks made an untimely motion to vacate or revise the Tax Court’s April 10 order in late July. After further negotiations, the Nordviks and the IRS reached a settlement, pursuant to which the Tax Court entered a decision and order on May 12, 1992. Also on May 12, the Nordviks moved for the award of attorney’s fees pursuant to Internal Revenue Code (code) § 7430 for the period between when they agreed to the original settlement and the Tax Court’s approval of the operative settlement. The Tax Court denied the Nordviks’ motion and their motion for reconsideration, ruling that the Nordviks unreasonably protracted the proceedings within the meaning of § 7430(b)(4) by (1) accepting the IRS’s initial settlement without knowing how the IRS calculated the proposed deficiency and (2) waiting 86 days to file an untimely motion to vacate or revise the April 10, 1991, order. The Nordviks appealed.