Special Fee-Shifting Statute In Taxpayer Dispute: Appellate Court Reverses $220,000 Fee Award In Taxpayer's Favor As Against Franchise Tax Board

First District, Division 4 Determines FTB Was Substantially Justified in Defending Case.

     In a lawsuit against the State of California (including the Franchise Tax Board) for a tax refund, a prevailing taxpayer may be awarded attorney's fees unless the State of California "establishes that its position in the proceeding was substantially justified." (Rev. & Tax. Code, §§ 19717(a), (c)(2)(B)(i).) The next case is one where taxpayer garnered a substantial fees award of $220,000 against the Franchise Tax Board in a vigorously contested case in which there was divergent documentary evidence and oral testimony that needed to be sorted out. On appeal, the First District, Division 4 reversed the fee award in Garcia v. Franchise Tax Board, Case No. A122710 (1^st Dist., Div. 4 July 16, 2009) (unpublished).

     The main reason for the reversal was the appellate panel's belief that the fee award was done "in hindsight" rather than looking at whether FTB's position was tenable at the outset of trial. Under the specific facts, the documentary evidence was subject to conflicting interpretations and the evidence was far from conclusive. Due to these factors, reversal was dictated.