Claim for Attorney Fees

The Internal Revenue Service (IRS) asked whether an IRS employee was entitled to reimbursement of legal fees incurred prior to the employee's representation by the Department of Justice (Justice) in a lawsuit which alleged that the employee improperly disclosed confidential information about an individual's tax returns. The record showed that on September 29, 1977, the IRS employee and her husband were sued by an individual taxpayer. On October 26, 1977, a private attorney for the employee filed an answer to the complaint denying the allegations in the complaint. By letter dated October 28, 1977, the IRS Regional Counsel advised the IRS employee as to her possible eligibility for Government counsel. Subsequently, on November 4, 1977, the employee requested Government representation, and the IRS immediately forwarded the employee's request to Justice. Justice responded by letter dated February 28, 1978, offering representation subject to certain conditions. However, the IRS Regional Counsel advised the employee not to accept Justice's conditional offer of representation without the concurrence of the employee's private attorney. After further discussion between the IRS Regional Counsel and Justice, Justice again offered representation subject to certain conditions which were set forth in Justice's regulations concerning representation of Federal employees. The IRS employee accepted that offer of representation and Justice entered an appearance on the employee's behalf. On June 23, 1978, the lawsuit was dismissed with prejudice upon the plaintiff's motion to that affect. GAO held that IRS may not reimburse the employee for legal fees since there was no court finding of liability and, therefore, legal fees were not damages or costs assessed by the court. Additionally, GAO held that the circumstances showed that representation by Justice was not approved until after private counsel was hired and an answer filed. Thus, reimbursement could not be granted on the basis that representation by the Department of Justice was appropriate but unavailable. Accordingly, the employee's legal fees may not be reimbursed by the Government.