T.C. Memo. 1999-237
UNITED STATES TAX COURT
MICHAEL H. JOHNSON AND PATRICIA E. JOHNSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 23702-96. Filed July 22, 1999.
Terry B. Bates, Brian J. Seery, and Robert A. Olson, for
petitioners.
Steven M. Roth, for respondent.
SUPPLEMENTAL MEMORANDUM OPINION
VASQUEZ, Judge: This case is before the Court on
petitioners' motion for reconsideration of findings and opinion
*
On Dec. 23, 1998, and Apr. 16, 1999, the Court issued its
opinions (T.C. Memo. 1998-448 and T.C. Memo. 1999-127), which we
incorporate herein.
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under Rule 161 (motion for reconsideration) and petitioners'
motion to vacate decision under Rule 162 and vacate order dated
April 16, 1999 (motion to vacate).1
On January 22, 1999, petitioners filed a motion for award of
litigation and administrative costs and attorney's fees
associated with Johnson v. Commissioner, T.C. Memo. 1998-448.
Attached to this motion was a net worth schedule. On February
16, 1999, respondent filed an objection to petitioners' motion
for award of litigation and administrative costs and attorney's
fees. On March 3, 1999, petitioners filed a motion for leave to
file a reply to objection to motion for award of reasonable
litigation costs (motion to file reply #1). On March 23, 1999,
respondent filed a notice of no objection. On March 25, 1999,
the Court granted petitioners' motion to file reply #1 and filed
petitioners' reply to objection to motion for award of reasonable
litigation costs (reply #1). Attached to reply #1 was a second
net worth schedule. On April 12, 1999, petitioners filed a
statement of errata. Attached to the statement of errata was a
third net worth schedule.
On April 16, 1999, the Court issued an opinion, Johnson v.
Commissioner, T.C. Memo. 1999-127 (Johnson II), in which we held
1
Unless otherwise indicated, all Rule references are to
the Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
year in issue.
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that petitioners were not entitled to an award of administrative
and litigation costs and attorney's fees. We so held because
petitioners failed to prove that they met the net worth
requirements of section 7430 and therefore failed to establish
that they were the "prevailing party". See Johnson v.
Commissioner, T.C. Memo. 1999-127.
On May 14, 1999, petitioners filed their motion for
reconsideration and motion to vacate. On June 2, 1999,
respondent filed an objection to petitioners' motion for
reconsideration and an objection to petitioners' motion to vacate
(respondent's objections). On June 7, 1999, petitioners filed a
motion for permission to file a reply to respondent's objection
to the motion for reconsideration (motion to file reply #2) and a
motion for permission to file a reply to respondent's objection
to the motion to vacate (motion to file reply #3). On June 21,
1999, the Court granted petitioners' motion to file reply #2 and
motion to file reply #3 and filed petitioners' replies to
respondent's objections.
In petitioners' motion for reconsideration, motion to
vacate,2 and replies to respondent's objections, petitioners
argue that in Johnson II the Court misread the case law and that
2
Petitioners' motion for reconsideration and motion to
vacate are virtually identical. The only difference is that one
asks for reconsideration and the other asks for the decision to
be vacated.
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a taxpayer is not required to offer any evidence of net worth
when the Commissioner objects to the taxpayer's affidavit and net
worth schedule. Petitioners also suggest that an evidentiary
hearing is required.
Reconsideration under Rule 161 permits us to correct
manifest errors of fact or law, or to allow newly discovered
evidence to be introduced that could not have been introduced
before the filing of an opinion, even if the moving party had
exercised due diligence. See Rothwell Cotton Co. v. Rosenthal &
Co., 827 F.2d 246, 251, amended per order 835 F.2d 710 (7th Cir.
1987); see also Traum v. Commissioner, 237 F.2d 277, 281 (7th
Cir. 1956), affg. T.C. Memo. 1955-127. The granting of a motion
for reconsideration rests within the discretion of the Court, and
we shall not grant a motion for reconsideration unless the party
seeking reconsideration shows unusual circumstances or
substantial error. See Alexander v. Commissioner, 95 T.C. 467,
469 (1990), affd. sub nom. without published opinion Stell v.
Commissioner, 999 F.2d 544 (9th Cir. 1993); Estate of Halas v.
Commissioner, 94 T.C. 570, 573 (1990); Vaughn v. Commissioner, 87
T.C. 164, 166-167 (1986); Estate of Bailly v. Commissioner, 81
T.C. 949, 951 (1983); Haft Trust v. Commissioner, 62 T.C. 145,
147 (1974), affd. on this issue 510 F.2d 43, 45 n.1 (1st Cir.
1975). Reconsideration is not the appropriate forum for
rehashing previously rejected legal arguments or tendering new
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legal theories to reach the end result desired by the moving
party. See Estate of Quick v. Commissioner, 110 T.C. 440, 441-
442, supplementing 110 T.C. 172 (1998); Stoody v. Commissioner,
67 T.C. 643, 644 (1977), supplementing 66 T.C. 710 (1976).
In their motion for reconsideration and motion to vacate,
petitioners merely rehash arguments considered and rejected by
the Court in Johnson II. When the Court granted petitioners'
motion to file reply #1, instead of presenting evidence regarding
their net worth, see Estate of Hubberd v. Commissioner, 99 T.C.
335, 341 (1992); Dixson Intl. Serv. Corp. v. Commissioner, 94
T.C. 708, 719 (1990); see also McCoy v. Commissioner, T.C. Memo.
1992-423, petitioners simply provided additional net worth
statements that drastically changed the amount claimed to be
petitioners' net worth,3 which gave the Court reason to question
each statement's veracity. From a review of the record, the
Court is still of the opinion that no evidentiary hearing is
necessary pursuant to Rule 232 and that petitioners have failed
to establish that they met the net worth requirements of section
7430. See Rule 232(a)(2) ("A motion for reasonable litigation or
administrative costs ordinarily will be disposed of without a
hearing"; emphasis added).
3
The first net worth schedule claimed petitioners' joint
net worth was $3,806,248; the second net worth schedule claimed
petitioners' joint net worth was ($3,891,976); and the third net
worth schedule claimed petitioners' joint net worth was
$1,097,312.
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Furthermore, for the sake of completeness, we note that even
if we granted an evidentiary hearing and found that petitioners
established that they met the net worth requirements, petitioners
still would not be entitled to an award of administrative and
litigation costs and attorney's fees. This is so because
petitioners are not the "prevailing party" for an additional
reason: Respondent established that the position of the United
States was substantially justified at both the administrative and
litigation level. See sec. 7430(c)(4)(B)(i).
The substantially justified standard is "essentially a
continuation of the prior law's reasonableness standard." See
Swanson v. Commissioner, 106 T.C. 76, 86 (1996). A position is
substantially justified if it is justified to a degree that could
satisfy a reasonable person and has a reasonable basis in both
fact and law. See Pierce v. Underwood, 487 U.S. 552, 565
(1988);4 Huffman v. Commissioner, 978 F.2d 1139, 1147 (9th Cir.
1992), affg. in part and revg. in part T.C. Memo. 1991-144;
Swanson v. Commissioner, supra at 86. A position that merely has
enough merit to avoid sanctions for frivolousness will not
satisfy this standard. See Pierce v. Underwood, supra at 566.
4
Although the dispute in Pierce v. Underwood, 487 U.S. 552
(1988), arose under the provisions of the Equal Access to Justice
Act (EAJA), 28 U.S.C. sec. 2412(d) (1994), the relevant
provisions of the EAJA are almost identical to the language of
sec. 7430. See Cozean v. Commissioner, 109 T.C. 227, 232 n.9
(1997). We, therefore, consider the holding in Pierce v.
Underwood, supra, to be applicable to the case before us. See
Cozean v. Commissioner, supra.
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The determination of reasonableness is based on all of the
facts and circumstances surrounding the proceeding and the legal
precedents relating to the case. See Coastal Petroleum Refiners,
Inc. v. Commissioner, 94 T.C. 685, 694-695 (1990). A position
has a reasonable basis in fact if there is such relevant evidence
as a reasonable mind might accept as adequate to support a
conclusion. See Pierce v. Underwood, supra at 565. A position
is substantially justified in law if legal precedent
substantially supports the Commissioner's position given the
facts available to the Commissioner. See Coastal Petroleum
Refiners, Inc. v. Commissioner, supra at 688. Determining the
reasonableness of the Commissioner's position and conduct
requires considering what the Commissioner knew at the time. See
Rutana v. Commissioner, 88 T.C. 1329, 1334 (1987); DeVenney v.
Commissioner, 85 T.C. 927, 930 (1985).
The fact that the Commissioner loses on the merits or
concedes the case does not establish that a position was not
substantially justified; however, it is a factor to be
considered. See Powers v. Commissioner, 100 T.C. 457, 471
(1993), affd. in part and revd. in part 43 F.3d 172 (5th Cir.
1995).
Respondent interviewed many people in order to determine
what had actually transpired between petitioner Michael H.
Johnson (Mr. Johnson) and officials from the City of Lancaster
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regarding the City of Lancaster's condemnation of the property
upon which Mr. Johnson's auto dealerships were located (the 23d
Street property). At the initial interview of Mr. Johnson by two
revenue agents, Mr. Johnson told the revenue agents that the City
of Lancaster had condemned the 23d Street property and that a
school had been built on the property. No school was built on
the property. The Commissioner became aware of this fact
sometime after the interview of Mr. Johnson. This misstatement
by Mr. Johnson reasonably raised respondent's suspicion as to
whether the City of Lancaster properly had condemned the 23d
Street property.
At the initial interview of two Lancaster Redevelopment
Agency (LRA) officials, Steven Dukett (Mr. Dukett) and Mark
Asturias (Mr. Asturias), by respondent, Mr. Dukett and Mr.
Asturias told the revenue agents that the LRA did not threaten
Mr. Johnson with condemnation of the 23d Street property.
Sometime after these initial interviews, in sworn statements, Mr.
Dukett and Mr. Asturias changed their story and stated that they
had threatened Mr. Johnson with condemnation of the 23d Street
property. Respondent was left with the conflicting statements of
Mr. Dukett and Mr. Asturias regarding whether Mr. Johnson had in
fact been threatened with condemnation of the 23d Street
property.
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Respondent also interviewed members of the City Counsel of
Lancaster (LCC) from the relevant time period. Henry Hearns (Mr.
Hearns), a member of the LCC, stated that the LCC had never
discussed condemning the 23d Street property and that the
condemnation was made as a mere accommodation to Mr. Johnson.
Mr. Hearns also provided an affidavit to this effect. Other
members of the LCC told respondent that the City of Lancaster had
threatened Mr. Johnson with condemnation. At this point,
respondent was left with more conflicting accounts regarding
whether Mr. Johnson had been threatened with condemnation of the
23d Street property.
At trial, the Court had to determine the credibility of the
witnesses and reconcile the conflicting documentary and
testimonial evidence. Under the facts of this case, the United
States was substantially justified at both the administrative and
litigation level in positing that neither the LRA nor the LCC had
threatened Mr. Johnson with condemnation of the 23d Street
property or, if there had been a threat, that Mr. Johnson did not
reasonably believe the threat (because the LCC was providing the
condemnation as a convenience to Mr. Johnson).
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Accordingly, we shall deny petitioners' motion for
reconsideration and deny petitioners' motion to vacate. To
reflect the foregoing,
An appropriate order
will be issued.