## Facts

- Dieter Christoph made a $250,000 lump-sum payment to his former wife, which the IRS treated in a manner creating tax consequences for both the recipient and the Christophs’ joint return.
- Dieter and his current wife, Barbara Christoph, challenged the IRS’s determination in federal court.
- The court entered judgment for the Christophs on the merits, holding the $250,000 lump-sum alimony payment was deductible.
- After prevailing, Barbara Christoph moved for attorney’s fees under 26 U.S.C. § 7430(a)(2), seeking $11,185 (one-half of the couple’s $22,370 legal bill).
- The United States opposed, arguing Barbara did not “pay or incur” the fees, was not a “prevailing party” because the government’s position was substantially justified, and exceeded the $2 million net-worth cap if her net worth were aggregated with her husband’s.

## Issues

1. Whether Barbara Christoph exhausted available administrative remedies as required by 26 U.S.C. § 7430(b)(1).
2. Whether Barbara “paid or incurred” attorney’s fees within the meaning of 26 U.S.C. § 7430(c)(1) when her husband may have paid the bill.
3. Whether Barbara qualified as a “prevailing party” under 26 U.S.C. § 7430(c)(4)(A), including (a) satisfying the $2 million net-worth limitation and (b) defeating the government’s claim of substantial justification.
4. What amount of fees constituted “reasonable fees” recoverable under § 7430 given statutory limitations and the court’s reasonableness review.

## Decision

- The court granted Barbara Christoph’s motion for attorney’s fees in part.
- The exhaustion requirement was satisfied (conceded by the United States).
- Barbara satisfied the “paid or incurred” requirement because fees are “incurred” when a party is legally obligated for attorney services; actual personal payment or proof that she alone would pay was not required.
- Barbara was a “prevailing party” because she prevailed on the significant issues and the United States failed to show its position was substantially justified.
- The court rejected aggregating Barbara’s net worth with her spouse’s for § 7430’s $2 million limitation and found her individual net worth below the threshold.
- The court reduced the requested amount and awarded only the portion it found reasonable under § 7430’s limits and its review for excess or duplication.

## Legal Principles

- A taxpayer seeking litigation costs under 26 U.S.C. § 7430 must prove: (1) exhaustion of administrative remedies, (2) prevailing-party status, and (3) that the amount sought reflects reasonable fees paid or incurred.
- For § 7430, attorney’s fees may be “incurred” based on legal obligation for representation; a prevailing spouse need not prove she personally paid the bill in cash or had independent means to do so.
- “Prevailing party” status requires success on the major issues and is barred if the government proves its position was “substantially justified.”
- The net-worth limitation for an individual under § 7430 is assessed by the party’s own net worth absent a statutory command to aggregate a spouse’s assets.
- Fee awards under § 7430 are limited to “reasonable” amounts, determined by applying statutory caps and reducing excessive or duplicative time.

## Conclusion

The court awarded Barbara Christoph partial attorney’s fees under 26 U.S.C. § 7430 after she prevailed on the tax issue, holding she incurred fees as a represented party, met the individual net-worth requirement without spousal aggregation, and overcame the government’s substantial-justification defense, but limiting recovery to a reasonable amount under the statute.


Christoph v. United States, 931 F. Supp. 1564 (S.D. Ga. 1996)