T.C. Memo. 1997-384
UNITED STATES TAX COURT
GERALD JACOBY AND ARLENE JACOBY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7073-87. Filed August 21, 1997.
Ira B. Stechel and Thomas J. Fleming, Jr., for petitioner
Arlene Jacoby.
Diane R. Mirabito and Gary W. Bornholdt, for respondent.
MEMORANDUM OPINION
CLAPP, Judge: This case is before us on a Motion for Award
of Reasonable Litigation Costs pursuant to section 7430 and Rules
230 through 232 filed by Arlene Jacoby (petitioner). Gerald
Jacoby (Gerald) is not a party to this motion, and he has reached
a settlement with respondent regarding his liabilities for all
taxable years.
The findings of fact underlying the substantive dispute
between the parties can be found in this Court's memorandum
opinion, Jacoby v. Commissioner, T.C. Memo. 1996-477. The issue
in the underlying case was whether petitioner qualified as an
innocent spouse.
Section 7430(a) authorizes the Court to award reasonable
litigation costs to taxpayers who prevail against the United
States in civil tax litigation. Respondent concedes that
petitioner substantially prevailed with respect to the amount in
controversy and with respect to the most significant issue. Sec.
7430(c)(2)(A)(ii). Respondent also concedes that petitioner has
not unreasonably protracted this proceeding. Sec. 7430(b)(4).
Petitioner has satisfied the so-called net worth requirement set
forth in section 7430(c)(2)(A)(iii). We must decide (1) whether
respondent's litigating position was "not substantially
justified", as that phrase is used in section 7430(c)(2)(A)(i)
(now section 7430(c)(4)(A)(i)), and (2) whether petitioner
exhausted her administrative remedies as required by section
7430(b)(1). If those questions are resolved in favor of
petitioner, then we must decide whether the amount of attorney's
fees claimed by petitioner is reasonable.
We hold that petitioner failed to exhaust her administrative
remedies.
All section references are to the Internal Revenue Code in
effect for the years in issue, unless otherwise indicated, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. References to section 7430 are to that section as
amended by section 1551 of the Tax Reform Act of 1986, Pub. L.
99-514, 100 Stat. 2085, 2752 (effective for proceedings commenced
after Dec. 31, 1985). Section 7430 was amended most recently by
the Taxpayer Bill of Rights 2, Pub. L. 104-168, secs. 701-704,
110 Stat. 1452, 1463-1464 (1996), applicable to proceedings
commenced after July 30, 1996. The parties do not dispute that
this proceeding was commenced before July 30, 1996.
We decide petitioner's motion on the basis of the motion,
memoranda of law, and affidavits submitted by the parties.
Neither party requested a hearing, and we conclude that a hearing
is not necessary. Rule 232(a)(3).
We first address whether petitioner exhausted the
administrative remedies available to her within the Internal
Revenue Service (IRS) as required by section 7430(b)(1).
Respondent contends that petitioner failed to exhaust her
administrative remedies because she never requested an Appeals
conference after respondent issued a 30-day letter on October 6,
1984. Petitioner does not dispute that respondent issued a 30-
day letter. Petitioner makes no argument that the 30-day letter
was never received either by her, Gerald, or their
representative. We find that petitioner has conceded these
matters. Money v. Commissioner, 89 T.C. 46, 48 (1987).
The sole issue in this case was petitioner's status as an
innocent spouse. Initially, petitioner was not aware of her
innocent spouse claim. Petitioner had no representation separate
from Gerald's in connection with respondent's audit of the
Jacobys' U.S. individual income tax returns for the taxable years
in issue, nor did she have separate representation at the time
the petition was filed. Petitioner never contested the merits of
the disallowed tax shelter deductions. It was not until
petitioner obtained separate counsel that she raised her innocent
spouse claim. Petitioner averred her status as an innocent
spouse in an amended petition filed April 18, 1990.
Petitioner had minimal, if any, involvement in respondent's
audit of the taxable years in issue. We found in the innocent
spouse case that Gerald handled the family's financial and
business affairs. Petitioner separated from Gerald in April
1984, 7 months before respondent issued the 30-day letter.
This Court addressed similar circumstances in Burke v.
Commissioner, T.C. Memo. 1995-608 (Burke I), and Burke v.
Commissioner, T.C. Memo. 1997-127 (Burke II). In Burke I, the
Commissioner asserted a joint tax liability against the Burkes.
Mrs. Burke successfully argued that she did not file, or consent
to file, joint returns with Mr. Burke. Burke I is relevant to
the instant case in that Mrs. Burke was not involved in the audit
process leading up to the issuance of the notice of deficiency.
In addition, it was not until the summer of 1993, almost a year
after the Commissioner issued a 30-day letter, that Mrs. Burke
became aware that the IRS was seeking to hold her liable for any
taxes relating to the years in issue. Mrs. Burke did not raise
the issue of whether she had signed the returns until shortly
before trial.
In Burke II, this Court considered Mrs. Burke's motion for
an award of litigation costs and held that Mrs. Burke failed to
exhaust her administrative remedies. The Commissioner issued a
30-day letter on May 15, 1992, which gave the Burkes the
opportunity to request an administrative Appeals conference.
Despite the fact that Mrs. Burke was not involved in the audit
process, we held that Mrs. Burke did not exhaust her
administrative remedies because she failed to request such a
conference as required by section 301.7430-1(b)(1), Proced. &
Admin. Regs.
We see no relevant distinction between petitioner's
circumstances and those of Mrs. Burke as set forth in Burke I and
Burke II. Petitioner, Gerald, and their representative each had
the opportunity to request an administrative Appeals conference;
yet, they failed to do so. Thus, following the rationale of this
Court's opinion in Burke II, we conclude that petitioner failed
to exhaust the administrative remedies available to her because
she did not request an Appeals conference after respondent issued
the 30-day letter.
Petitioner's motion for award of reasonable litigation costs
will be denied. We need not decide whether respondent's
litigating position was "not substantially justified" or reach
the further question as to the reasonableness of such costs.
An appropriate order
and decision will be entered.