T.C. Memo. 2000-294
UNITED STATES TAX COURT
TALMADGE AND REATHA SWANAGAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
TALMADGE SWANAGAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 10960-99, 10961-99. Filed September 20, 2000.
Wanda Kamphuis Zatopa, for petitioners.
Jennifer L. Nuding, for respondent.
MEMORANDUM OPINION
LARO, Judge: Petitioners move the Court under section 7430
to award them $1,656.25 in attorney’s fees and $89.20 in court
costs. Respondent objects thereto, arguing: (1) Petitioners did
not exhaust their administrative remedies, (2) respondent’s
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position in this proceeding was substantially justified, (3)
petitioners generally have not established that they paid the
requested costs, and (4) some of the requested costs are
unreasonable.
We ordered the parties to file with the Court a joint
statement setting forth the disputed and undisputed facts
relevant to the subject motion. Following our receipt of that
statement, we now decide whether we shall grant the motion. We
shall deny it. Unless otherwise indicated, section references
are to the Internal Revenue Code in effect for the relevant
years, and Rule references are to the Tax Court Rules of Practice
and Procedure.
Background1
Petitioners were husband and wife during the subject years,
and they resided in Maywood, Illinois, when we filed their
petitions. They filed a 1994 Federal income tax return using the
filing status of “Married filing joint return”. Talmadge
Swanagan (petitioner) filed a 1995 Federal income tax return
using the filing status of “Married filing separate return”.
1
We have found the facts set forth herein from the parties’
statement of undisputed facts. Although the parties have listed
on that statement some disputed facts, we need not resolve the
parties disagreements as to those disputed facts. The undisputed
facts set forth a sufficient foundation on which we may and do
decide petitioners’ motion.
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Respondent, through his District Director, commenced an
audit of petitioners’ 1994 and 1995 taxable years about June
1997. In connection therewith, the District Director requested
certain information; petitioners ultimately provided some, but
not all, of this information to the District Director. The
District Director concluded the audit on July 2, 1998, proposing
certain upward adjustments to petitioners’ income. On that date,
the District Director also mailed to petitioners two 30-day
letters (one for 1994 and one for 1995) listing proposed upward
adjustments of $5,675 and $12,493 to the respective years’
income. The 30-day letter invited petitioners to request an
administrative appeals conference to discuss these proposed
adjustments, providing: “IF YOU * * * wish a conference with the
Regional Office of Appeals [Appeals], YOU MUST LET US KNOW within
30 days.” The 30-day letter explained the procedures for
requesting a conference with Appeals.
Petitioners never requested a conference with Appeals for
either year. Nor did they ever deliver to respondent a written
protest as to the District Director’s conclusions set forth in
the 30-day letters.
On March 19, 1999, respondent issued the notices of
deficiency to petitioners. As to 1994, respondent determined
that petitioners were liable for a $5,383 deficiency and a
$1,070.60 accuracy-related penalty under section 6662(a). As to
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1995, respondent determined that petitioner was liable for a
$14,089 deficiency and a $2,817.80 accuracy-related penalty under
section 6662(a).
Petitioners retained Ms. Zatopa on or about April 5, 1999,
to serve as their representative as to the subject years. Two
months later, petitioners and Ms. Zatopa signed an agreement in
which petitioners agreed to pay Ms. Zatopa $50 an hour in
connection with this proceeding. The agreement also provided:
“If Attorney [Ms. Zatopa] is successful in overturning parts or
all of the Commissioner’s decisions, Attorney will seek to
recover attorney’s fees, if and where permitted under the
Internal Revenue Code, at the rate of $110 per hour from the
Internal Revenue Service.”
On June 15, 1999, Ms. Zatopa petitioned the Court on behalf
of petitioners to redetermine the determinations reflected in the
notices of deficiency. Respondent transferred the case to
Appeals approximately 2 months later, and Appeals settled the
case with petitioners after receiving from them additional
information. Respondent conceded all items for 1994 and all but
a $777 deficiency for 1995.
Petitioner paid Ms. Zatopa $1,325 (26.5 hours times $50 an
hour) for her work on this case.
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Discussion
We may grant petitioners’ motion if they meet all of the
statutory requirements for an award of litigation costs. See
sec. 7430(b) and (c); see also Rule 232(e); Dixson Intl. Serv.
Corp. v. Commissioner, 94 T.C. 708, 714, 715 (1990); Minahan v.
Commissioner, 88 T.C. 492, 497 (1987). The parties dispute the
four requirements noted above.
We focus on the first of those requirements; namely, that a
taxpayer must exhaust administrative remedies available within
the Internal Revenue Service before petitioning this Court with
respect to the underlying year. See sec. 7430(b)(1). We
conclude that petitioners have not met this requirement.
Petitioners never requested a conference with Appeals as to
either 1994 or 1995, although such a conference was available.
Section 301.7430-1(b)(1), Proced. & Admin. Regs., provides that,
where a conference with Appeals is available, administrative
remedies are exhausted only when the taxpayer (1) participated in
a conference with Appeals before petitioning this Court, or (2)
requested such a conference (as applicable herein, by filing a
written protest with respondent) and had its request denied.
We hold that petitioners do not qualify for an award of
litigation costs under section 7430. Cf. Patel v. Commissioner,
T.C. Memo. 1998-306; Jacoby v. Commissioner, T.C. Memo. 1997-384;
Burke v. Commissioner, T.C. Memo. 1997-127. In so holding, we
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reject summarily petitioners’ argument that they need not have
met the regulatory requirements of section 301.7430-1(b)(1),
Proced. & Admin. Regs., in order to recover litigation costs
because the 30-day letter was silent as to this requirement. We
have considered all other arguments for a contrary holding and
find those arguments to be irrelevant or without merit. To
reflect the foregoing,
An appropriate order will be
issued, and decisions will be entered in
accordance with the parties’ settlement.