T.C. Memo. 1998-313
UNITED STATES TAX COURT
JAMES TRIPLETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27864-96. Filed August 25, 1998.
James Triplett, pro se.
James W. Ruger and John A. Freeman, for respondent.
MEMORANDUM OPINION
PAJAK, Special Trial Judge: This case is before the Court
pursuant to petitioner's motion for litigation and administrative
costs under section 7430 and Rules 230 through 233. Unless
otherwise indicated, all section references are to the Internal
Revenue Code. All Rule references are to the Tax Court Rules of
Practice and Procedure.
Petitioner's motion was filed on May 7, 1998. Petitioner
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claimed the following administrative and litigation
costs:
Administrative Cost Estimated
1. Long Distance Calls $ 60
2. Costs of study, analysis,
test, project necessary for the
preparation of taxpayer's appeal-
Attorney and CPA costs 7,125
3. Meals, Mileage & Parking 300
4. Postage 50
5. Photocopying Costs -
includes 'to and from travel' to
copy machine facility 2,200
6. Office wages for net worth computation
work 1,500
Litigation Cost
7. Long Distance Calls 45
8. Meals, Mileage & Parking 250
9. Postage 50
10. Computer Research Costs 850
11. Photocopying Costs-
includes 'to and from travel' to
copy machine facility 1,500
12. Filing fee 50
13. Office wages litigation 1,200
14. Total $15,1201
1
Actual total is $15,180.
Respondent's response was filed on June 29, 1998. By order
dated July 6, 1998, this case was assigned to Special Trial Judge
John J. Pajak pursuant to Rules 180-183 for the purpose of
disposing of petitioner's motion.
Neither party requested a hearing on petitioner's motion.
Rule 232(a). Accordingly, we rule on petitioner's motion on the
basis of the parties' submissions and the record in this case.
The underlying issues raised in the petition were settled by a
stipulation of settlement. At the time the petition was filed
petitioner resided in Columbus, Ohio.
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By notice of deficiency, respondent determined the following
deficiency and additions to tax in petitioner's 1981 Federal
income tax:
Addition to Tax
Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6654
$14,172.83 $3,543.21 $708.64 1 $1,085.00
1 50 percent of the interest due on $14,172.83
Under section 7430, a taxpayer may be awarded a judgment for
reasonable administrative and litigation costs if the taxpayer
establishes certain criteria and if respondent fails to establish
that the position of respondent was substantially justified.
Respondent concedes that petitioner substantially prevailed for
purposes of section 7430(c)(4)(A)(i). Respondent maintains that
his position was substantially justified.
In deciding the merits of a motion for litigation and
administrative costs, there are two time periods the Court must
consider. For administrative costs, the Court considers the
reasonableness of respondent's position from the earlier of the
date of receipt by the taxpayer of the notice of decision by the
Office of Appeals or the date of the notice of deficiency. Sec.
7430(c)(7)(B). For litigation costs, the Court considers the
reasonableness of respondent's position from the date the answer
was filed. Sec. 7430(c)(7)(A). Whether respondent's position
was substantially justified turns on a finding of reasonableness,
based upon all the facts and circumstances, as well as the legal
precedents relating to the case. Pierce v. Underwood, 487 U.S.
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552 (1988); Sher v. Commissioner, 89 T.C. 79, 84 (1987), affd.
861 F.2d 131 (5th Cir. 1988). A position is substantially
justified if the position is "justified to a degree that could
satisfy a reasonable person." Pierce v. Underwood, supra at 565.
The Court must "consider the basis for respondent's legal
position and the manner in which the position was maintained."
Wasie v. Commissioner, 86 T.C. 962, 969 (1986). The fact that
respondent eventually loses or concedes a case does not establish
an unreasonable position. Sokol v. Commissioner, 92 T.C. 760,
767 (1989). The reasonableness of respondent's position and
conduct necessarily requires considering what respondent knew at
the time. DeVenney v. Commissioner, 85 T.C. 927, 930 (1985).
In this case, the notice of deficiency was issued on
September 30, 1996, the petition was filed by petitioner pro se
on December 27, 1996, the amended petition was filed on March 3,
1997, and respondent's answer to the amended petition was filed
on April 11, 1997.
Petitioner's 1981 Federal income tax return was due on April
15, 1982. The return was not timely filed. In 1985, one of
respondent's revenue officers spent over 6 months in order to
collect certain taxes owed by entities controlled by petitioner
and to ascertain whether petitioner had filed his own individual
income tax returns. The revenue officer discovered petitioner
had not filed his 1981 individual income tax return. Thereafter,
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petitioner and the revenue officer discussed the unfiled 1981 tax
return. On September 13, 1985, petitioner sent his untimely
original 1981 income tax return dated "9/13/85", which showed no
tax due, to the revenue officer. Petitioner in his cover letter
indicated that the return was recently prepared.
When the revenue officer received petitioner's document, he
found one "Schedule C" business was on a marked-up 1982 Form
1120S, U.S. Small Business Corporation Income Tax Return, and
another on a marked-up 1980 Form 990, Return of Organization
Exempt from Income Tax. Petitioner called and asked the revenue
officer if it was "all right". The revenue officer told him that
the businesses should be reported on Schedules C. Apparently, it
was agreed that the return would be returned to petitioner,
together with the proper schedules for preparing a correct
return. The revenue officer indicated in his records that
petitioner would complete the schedules and file a correct
return. Petitioner failed to do so. The revenue officer did not
retain a copy of the untimely original 1981 income tax return in
respondent's administrative file. Shortly thereafter,
respondent's Criminal Investigation Division (C.I.D.) commenced a
criminal investigation of petitioner.
Respondent finished the examination of petitioner's income
tax for the tax year 1981 after the conclusion of the criminal
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investigation and conviction of petitioner for filing a false
income tax return for the tax year 1984.
On November 2, 1995, respondent sent a 30-day letter to
petitioner, which afforded petitioner an opportunity for an
Appeals conference with respondent's Office of the Regional
Director of Appeals.
On December 27, 1995, respondent received petitioner's
protest of respondent's determination of his 1981 income tax
liability. Petitioner failed to raise a statutory period of
limitations defense in his protest. In the Appeals Transmittal
Memorandum and Supporting Statement, respondent's Appeals Officer
stated that petitioner did not raise any tax issues relating to
the period in issue, instead accusing the Internal Revenue
Service and its employees of criminal acts.
Respondent issued the notice of deficiency to petitioner on
September 30, 1996.
We must identify the point at which the United States is
first considered to have taken a position, and then decide
whether the position taken from that point forward was or was not
substantially justified. The "substantially justified" standard
is applied as of the separate dates that respondent took
positions, first in the administrative proceedings and afterwards
in the proceedings in this Court.
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There is no evidence in the record of a notice of decision
by the Office of Appeals. For purposes of the administrative
proceedings in this case, respondent's position is that which was
articulated in the notice of deficiency, issued on September 30,
1996. For purposes of the court proceedings in this case,
respondent's position is that which is set forth in the answer to
the amended petition on April 11, 1997.
We now consider the administrative costs issue. Petitioner
failed to comply with the requirements of Rules 231(d) and 232(d)
even though he asserted in his motion that he had read Rule 232.
He did not provide us with the detailed information required
under the Rules. Thus, we are presented with a motion which on
its face contains mere estimates. Without more, we cannot say
that these costs are reasonable. In fact, we believe some of the
costs are patently unreasonable, e.g., $2,200 for photocopying.
There is no indication in the record that any attorney or C.P.A.
was involved in this case. We have long held that fees
recoverable under section 7430 do not include a pro se litigant's
own time, even if that person should be an attorney. Frisch v.
Commissioner, 87 T.C. 838 (1986). On this record, we cannot find
that petitioner incurred "reasonable administrative costs" within
the meaning of section 7430.
Further, in the notice of deficiency, respondent determined
a deficiency based on the net worth method, made other
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adjustments, and determined additions to tax. Respondent was
entitled to use any reasonable method to determine petitioner's
income. Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989);
Michas v. Commissioner, T.C. Memo. 1992-161. Accordingly, we
find that respondent's administrative position was substantially
justified.
We now turn to the proceedings before this Court. On
March 3, 1997, petitioner filed his amended petition. Petitioner
did not raise the period of limitations issue until he filed his
amended petition, more than 5 months after respondent issued the
notice of deficiency. If petitioner were deemed to have filed a
return in 1985, the period of limitations would have run. See
sec. 6501.
Section 7430(b)(1) provides in pertinent part that: "A
judgment for reasonable litigation costs shall not be awarded
* * * in any court proceeding unless the court determines that
the prevailing party has exhausted the administrative remedies
available to such party within the Internal Revenue Service." To
meet this requirement, a party must disclose to the Appeals
Office "all relevant information regarding the party's tax matter
to the extent such information and its relevance were known or
should have been known to the party" at the time of the
conference. Sec. 301.7430-1(b)(2), Proced. & Admin. Regs. As
set forth above, petitioner failed to discuss his tax issues and
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failed to raise the period of limitations issue during the
conference. Accordingly, we determine that petitioner did not
exhaust his administrative remedies available within the Internal
Revenue Service. Thus, on this basis alone petitioner is not
entitled to the litigation costs requested in his motion.
In his answer to the amended petition, respondent requested
that the determination in the notice of deficiency in all
respects be approved. On June 4, 1997, within 60 days after
answering the amended petition, respondent wrote to petitioner
and requested a copy of the 1981 income tax return that
petitioner had attempted to file through the revenue officer.
Respondent received no answer from petitioner. On July 22, 1997,
respondent sent a followup letter to petitioner. On August 11,
1997, petitioner responded by asking whether respondent had a
copy of the 1981 income tax return. Petitioner did not reveal
that he had the original document in his possession. On November
18, 1997, respondent replied to petitioner's letter, stating that
respondent did not have a copy of the return and requested a copy
of the return from petitioner for the third time. Petitioner did
not provide respondent with a copy of the 1981 tax return until
March 20, 1998, the Friday before the Monday, March 23, 1998,
trial session during which the case was to be heard. Respondent
then conceded the case, even though the exchange of the document
by petitioner at this late date violated the Court's Pre-Trial
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Order. At that time in 1998, respondent determined the 1981
return tendered by petitioner to the revenue officer in 1985
constituted a valid tax return and conceded this case solely on
the grounds that the period of limitations had run. Although
respondent ultimately conceded this matter, we find the revenue
agent had a reasonable basis in fact and in law to question the
return tendered in 1985. Based on these facts, the position of
the United States before this Court was substantially justified.
Further, we also conclude that petitioner unreasonably
protracted the Court proceedings. Sec. 7430(b)(3). Petitioner
delayed resolution of this case in this Court proceeding because
he did not provide the copy of the 1981 return to respondent
until the eve of trial. Among other things, petitioner's action
caused respondent to submit a motion under Rule 91(f), a trial
memorandum, and three motions to quash subpoenas. The Court held
a conference call with the parties and by a March 20, 1998, Order
set respondent's motions to quash subpoenas for hearing on March
23, 1998. All these acts could have been avoided if petitioner
had provided respondent the copy of petitioner's 1981 income tax
return in response to respondent's June 4, 1997, letter.
For all the foregoing reasons, petitioner's motion for
litigation and administrative costs is denied.
An appropriate order and
decision will be entered.