T.C. Summary Opinion 2001-36
UNITED STATES TAX COURT
WM. DENNIS GRAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13062-99S. Filed March 21, 2001.
Wm. Dennis Gray, pro se.
Gerald L. Brantley, for respondent.
PAJAK, Special Trial Judge: This case was heard pursuant to
section 7463. The decision to be entered is not reviewable by
any other court, and this opinion should not be cited as
authority. Unless otherwise indicated, all section references
are to the Internal Revenue Code in effect for the year in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
This case is before the Court pursuant to petitioner's
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motion for litigation costs under section 7430 and Rules 230
through 233. Petitioner claimed $65.76 of litigation costs based
upon the following expenses: $60.00 for the filing fee, $.80 for
the money order fee, and $4.96 for postage.
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 San Antonio, Texas.
In the notice of deficiency respondent determined a
deficiency in petitioner's 1996 Federal income tax of $3,504, a
section 6651(a)(1) addition to tax of $788.40, a section
6651(a)(2) addition to tax of $315.36, and a section 6654(a)
addition to tax of $188.68.
Under section 7430, a taxpayer may be awarded a judgment for
reasonable litigation costs if the taxpayer meets certain
criteria and if respondent’s position was not substantially
justified. Respondent concedes that petitioner substantially
prevailed for purposes of section 7430(c)(4)(A)(i). However,
respondent maintains that his position was substantially
justified.
In deciding the merits of a motion for litigation costs, the
Court generally considers the reasonableness of respondent's
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position from the date the answer was filed. Huffman v.
Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part,
revg. in part, and remanding T.C. Memo. 1991-144. No answer was
required in this case which was tried under the small tax case
procedures. Rule 175(b). Accordingly, respondent’s position for
the purpose of the motion is the position maintained by
respondent during the pendency of the case, which is essentially
that taken in the notice of deficiency.
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. 552, 565 (1988); Swanson
v. Commissioner, 106 T.C. 76, 86 (1996). 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 reasonableness of respondent's position and conduct
necessarily requires considering the facts available to
respondent at that time. Coastal Petroleum Refiners, Inc. v.
Commissioner, 94 T.C. 685, 689 (1990); DeVenney v. Commissioner,
85 T.C. 927, 930 (1985). The fact that respondent eventually
loses or concedes the case does not establish an unreasonable
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position. Sokol v. Commissioner, 92 T.C. 760, 767 (1989).
Petitioner did not file a tax return for his 1996 taxable
year. Respondent received a Form 1099-B from Dean Witter
Reynolds, Inc. (Dean Witter), which reported that petitioner
realized income in the amount of $27,636 from the sale of
stocks/bonds. Respondent issued a 30-day letter to petitioner on
September 11, 1998, noting that respondent had not received
petitioner's 1996 return and computing petitioner's income based
on the Form 1099-B received from Dean Witter. The letter also
asked petitioner to explain why he was not required to file a
return for 1996 or to enclose information he would like the IRS
to consider. Petitioner failed to respond to the 30-day letter.
Respondent issued petitioner a notice of deficiency on May
7, 1999. Petitioner filed his petition on July 28, 1999. In the
petition, petitioner stated: "I have never had an account with
DEAN WITTER REYNOLDS INCORPORATED and I did not sell any
STOCKS/BONDS in 1996".
Respondent sent a letter to Dean Witter on August 25, 1999,
requesting information concerning the 1996 stock/bond sale by
petitioner. On August 30, 1999, respondent spoke with
petitioner, who stated that he had e-mailed an information
request to Dean Witter on August 27, 1999. Petitioner further
stated that he had never had an account with Dean Witter, nor had
he made any sales during 1996. Dean Witter did not respond to
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respondent. Another request letter was sent to Dean Witter by
certified mail on September 27, 1999. When Dean Witter again
failed to respond, respondent on October 26, 1999, sent a third
request letter and suggested that a subpeona duces tecum might be
issued.
On November 15, 1999, a Dean Witter representative called
respondent about a contact at Nations Bank Investment (Nations
Bank), who had the relevant information. Respondent immediately
left a message with Nations Bank. Two days later, respondent
faxed Nations Bank the letters previously sent to Dean Witter.
Since respondent did not receive a reply, respondent again called
Nations Bank, and a representative told respondent they were
working to obtain the information.
Thereafter, a representative of Banc of America called on
behalf of Nations Bank. Petitioner’s account was with Banc of
America. Banc of America at that time did not deal directly in
securities, and it employed Dean Witter as its agent.
On December 6, 1999, respondent finally received a letter
and documentation from Banc of America in response to the
request. The documentation showed that on January 11, 1996,
petitioner received reportable gross proceeds of $27,636.71 from
the sale of a U.S. Treasury note. The documentation also
established that petitioner's basis in the note was $25,000, a
fact not known previously to respondent.
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On December 9, 1999, respondent spoke with petitioner about
the documentation. Petitioner acknowledged that the transaction
was probably his, but he wanted to review his records.
Respondent faxed all the documents to petitioner.
On January 3, 2000, respondent spoke to petitioner, who
agreed to the additional income provided his basis was taken into
account for computation of taxable gain. Respondent asked
petitioner to provide records to substantiate his basis in the
note. Petitioner sent substantiation of the basis to respondent.
Among other things, petitioner's records indicated that the
account was with Dean Witter. Apparently, the revised capital
gain income, taking into account petitioner’s basis, did not
result in a deficiency after subtracting the standard deduction
and the exemption amount. At the call of this case from the
trial calendar on January 31, 2000, respondent reported as a
basis of settlement that petitioner did not have a deficiency in
income tax for 1996 and was not liable for any additions to tax.
The Court entered a decision accordingly.
Respondent contends that respondent's position was
substantially justified and states that if petitioner had been
forthcoming with the documentation in response to the 30-day
letter, then this proceeding in this Court would have been
unnecessary. We agree with respondent.
Whenever there is a factual determination, respondent is not
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obliged to concede a case until respondent receives the necessary
documentation which proves the taxpayer's contentions. Brice v.
Commissioner, T.C. Memo. 1990-355, affd. without published
opinion 940 F.2d 667 (9th Cir. 1991); Currie v. Commissioner,
T.C. Memo. 1989-23. Moreover, after respondent receives
documentation, respondent is allowed a reasonable period of time
in which to analyze the documentation and modify its position
accordingly. Sokol v. Commissioner, supra at 765-766.
In this case, respondent had received information that
petitioner received income from a third party payor. Petitioner
did not respond to respondent's repeated requests for information
about the reported income. Respondent made multiple attempts to
obtain the relevant documentation. When respondent finally
received the documentation, respondent analyzed it and conceded
the case. Based on this record, we find that petitioner failed
to show that respondent's position was not substantially
justified. In fact, respondent was substantially justified.
Consequently, petitioner's motion will be denied.
Reviewed and adopted as the report of the Small Tax Case
Division.
An appropriate order and
decision will be entered.