T.C. Memo. 2004-169
UNITED STATES TAX COURT
ROBERT C. MCKEE AND VALERY W. MCKEE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 4036-03. Filed July 19, 2004.
Donald L. Feurzeig, for petitioners.
Charlotte Mitchell, for respondent.
SUPPLEMENTAL MEMORANDUM OPINION
MARVEL, Judge: On June 3, 2004, pursuant to Rule 161,1
petitioners filed a timely motion for reconsideration of this
*
This opinion supplements our previously filed opinion in
McKee v. Commissioner, T.C. Memo. 2004-115.
1
All section references are to the Internal Revenue Code in
effect at all relevant times, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Court’s Memorandum Opinion in McKee v. Commissioner, T.C. Memo.
2004-115 (McKee I). In McKee I, we denied petitioners’ motion
for reasonable litigation costs because respondent’s position in
the answer was substantially justified and petitioners were not
the prevailing party. See sec. 7430(c)(4)(B)(i). In their
motion, petitioners allege that this Court “committed substantial
errors that were material to the decision in * * * [McKee I].”
This Supplemental Memorandum Opinion addresses petitioners’
allegations of error.
Background
We adopt the findings of fact in our prior Memorandum
Opinion, McKee I. For convenience and clarity, we repeat below
the facts necessary for the disposition of this motion.
In a letter to respondent dated August 9, 2002, on behalf of
petitioners, Roland Potter, C.P.A., addressed certain proposed
adjustments to petitioners’ income tax. Mr. Potter did not
enclose any documents with the letter.
In a notice of deficiency dated March 10, 2003, respondent
determined deficiencies in petitioners’ income tax for the
taxable years 1999, 2000, and 2001. After petitioners and
respondent filed with this Court a petition and an answer,
respectively, respondent held an Appeals Office conference with
petitioners’ representative. According to Appeals Officer Melvin
M. Chinen, the two main issues in the case were: (1) Whether
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petitioner Robert C. McKee was a dealer in real estate whose
sales of undeveloped ranch property parcels would be taxed as
ordinary income; and (2) whether certain losses petitioners
claimed are limited under sections 1366(d), 465, and 469. As a
result of the Appeals Office conference, the parties reached a
settlement. In resolving the dealer in real estate issue,
pursuant to petitioners’ offer, the parties agreed to treat 50
percent of the parcel sales as sales of dealer property, subject
to ordinary income tax, and the other 50 percent as sales giving
rise to capital gains.
Discussion
Reconsideration under Rule 161 is intended to correct
substantial errors of fact or law and allow the introduction of
newly discovered evidence that the moving party could not have
introduced, by the exercise of due diligence, in the prior
proceeding. Estate of Quick v. Commissioner, 110 T.C. 440, 441
(1998). This Court has discretion to grant a motion for
reconsideration and will not do so unless the moving party shows
unusual circumstances or substantial error. Id.; see also Vaughn
v. Commissioner, 87 T.C. 164, 166-167 (1986). “Reconsideration
is not the appropriate forum for rehashing previously rejected
legal arguments or tendering new legal theories to reach the end
result desired by the moving party.” Estate of Quick v.
Commissioner, supra at 441-442.
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In their motion for reconsideration, petitioners assert
that, (1) contrary to our conclusion in McKee I, they had
provided to respondent all relevant information under their
control, and (2) our determination that respondent’s position had
a reasonable basis in both fact and law failed to consider
respondent’s position with respect to a proposed increase in tax
under section 453(l)(3).2 In response, respondent contends that
petitioners’ allegations of error are not based on new evidence
and merely restate and elaborate upon arguments petitioners made
in McKee I.
A. Presentation of Relevant Information
In McKee I, we stated:
The only information petitioners had provided before
respondent filed the answer was the information
contained in Mr. Potter’s letter. In the letter, Mr.
Potter set forth petitioners’ disagreements with
respondent’s proposed adjustment but included no
supporting documents or other proof of his assertions.
Respondent was not required to concede the case on the
basis of Mr. Potter’s letter alone. * * *
Petitioners allege that “the Court was in error in requiring
documents in Petitioners’ possession when Respondent possessed
2
Sec. 453(l) defines dealer dispositions of property for
purposes of reporting income from installment sales. Sec.
453(l)(3) provides that, for installment obligations regarding
timeshares and residential lots as described in sec.
453(l)(2)(B), the tax on payments received pursuant to the
obligations is increased by the amount of interest determined
under sec. 453(l)(3)(B). Carlson v. Commissioner, 112 T.C. 240,
242-243 (1999).
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all of Athgarvan’s[3] tax returns.” According to petitioners,
there were no other relevant supporting documents under their
control.
Although the tax returns reported Athgarvan’s income for the
relevant taxable years, the tax returns were not indisputable
evidence of that income. Indeed, an audit of a taxpayer’s return
is an attempt to ascertain the veracity of the statements made on
the return. Respondent was not required to accept Athgarvan’s
tax returns as fact and concede the case on that basis.
Consequently, we find no error in our conclusion in McKee I that
petitioners failed to provide all relevant information under
their control on or before the date respondent filed the answer.
B. Reasonableness of Respondent’s Position in the Answer
Petitioners’ second allegation of error involves our
conclusion regarding the reasonableness of respondent’s position
on the dealer in real estate issue. In McKee I, we observed that
“The dealer in real estate issue was a close factual issue, as
evidenced by its 50/50 settlement.” Petitioners contend,
however, that respondent actually conceded about 88 percent of
the dealer in real estate issue because of concessions of
adjustments under section 453(l)(3). Petitioners argue that this
3
Athgarvan Enterprises, Inc., was petitioners’ S
corporation.
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Court ignored the conceded section 453(l)(3) adjustments in
determining the reasonableness of respondent’s position.
To the contrary, this Court thoroughly considered
respondent’s position on the dealer in real estate issue.
Respondent’s concession of adjustments under section 453(l)(3)
flowed directly from the parties’ agreement to treat petitioner
Robert C. McKee as a dealer in real estate with respect to only
50 percent of the parcel sales. Moreover, even if respondent
settled 88 percent of the total adjustments related to the dealer
in real estate issue in favor of petitioners, that settlement
would establish only that petitioners substantially prevailed
with respect to the dealer in real estate issue. See Bowden v.
Commissioner, T.C. Memo. 1999-30. Whether petitioners
substantially prevailed does not affect our determination that
respondent’s position was substantially justified. See sec.
7430(c)(4)(A)(i) and (B)(i).
C. Conclusion
We have considered petitioners’ remaining arguments and, to
the extent not discussed above, find those arguments to be
irrelevant, moot, or without merit.
Petitioners have failed to demonstrate unusual circumstances
or substantial errors of fact or law. Accordingly, we will deny
petitioners’ motion for reconsideration.
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To reflect the foregoing,
An appropriate order
will be issued.