T.C. Memo. 2005-202
UNITED STATES TAX COURT
GARY R. DAVIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6343-04. Filed August 24, 2005.
Robert D. Grossman, Jr., for petitioner.
Paul K. Voelker, for respondent.
MEMORANDUM OPINION
LARO, Judge: Petitioner moves the Court under section 7430
to award him litigation costs of $7,893.75.1 Respondent objects
to this motion, arguing: (1) Petitioner did not exhaust his
1
Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code, and Rule
references are to the Tax Court Rules of Practice and Procedure.
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administrative remedies, (2) respondent’s position in this
proceeding was substantially justified, and (3) some of the
requested costs are unreasonable. We ordered the parties to
stipulate the facts underlying this motion, and they have done
so. We decide herein whether to grant petitioner’s motion. We
shall not.
Background
Most facts were stipulated. We incorporate herein by this
reference the parties’ stipulation of facts and the exhibits
submitted therewith. We find the stipulated facts accordingly.
Petitioner resided in Las Vegas, Nevada, when his petition was
filed with the Court.
For approximately the 13-month period ending in or about
October 1999, petitioner and his then wife, Theresa Davis
(Davis), owned and resided in a home in Las Vegas at 4302
Callahan Avenue (4302 Callahan). Petitioner and Davis separated
at the end of that period, and for approximately the next 2
months, Davis resided at 4302 Callahan, and petitioner resided
with relatives. On December 16, 1999, The Gary R. Davis Living
Trust, Gary R. Davis Trustee, purchased a house in Las Vegas at
629 Mariola St. (629 Mariola). Petitioner resided at 629 Mariola
from approximately December 1999 to approximately April 2003.
Petitioner and Davis sold the home at 4302 Callahan on
February 23, 2000, for $525,000.
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On or about April 15, 2001, petitioner filed a 2000 Federal
income tax return (2000 return) using the filing status of
“Single”. Petitioner’s 2000 return was prepared by a certified
public accountant named Gary Campbell (Campbell). Petitioner’s
2000 return reported that petitioner’s address was 4302 Callahan
and that his total income and taxable income were $6,524 and
zero, respectively. Petitioner’s 2000 return reported that
petitioner’s total income consisted of taxable interest of $939,
ordinary dividends of $103, business income of $93,886 (gross
income of $208,170 less total expenses of $114,284), a capital
loss of $3,000, taxable individual retirement account (IRA)
distributions of $3,527, and passthrough losses totaling $88,931.
Respondent processed petitioner’s 2000 return on July 23, 2001.
Respondent received certain information returns relating to
petitioner’s 2000 return. In relevant part, respondent received:
(1)A 2000 Form W-2, Wage and Tax Statement, reporting that
petitioner had received wages of $165,586 and (2)a 2000 Form
1099-S, Proceeds From Real Estate Transactions, reporting that
petitioner had received $525,000 from the sale of 4302 Callahan.
On October 25, 2002, respondent mailed to petitioner at 4302
Callahan a Letter 2201(DO) (examination notice) stating that
petitioner’s 2000 return had been selected for examination.2 The
2
More specifically, the letter was addressed to petitioner
and Davis (then known as Theresa L. Ricci), attention petitioner.
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examination notice was an initial contact letter and did not
offer petitioner an opportunity to meet with respondent’s Office
of Appeals (Appeals). One day before mailing the examination
notice to petitioner, respondent had checked his computer records
for petitioner’s address. Those records listed petitioner’s
address as 629 Mariola. Respondent did not mail an examination
notice to petitioner at 629 Mariola.
Petitioner timely filed (pursuant to extensions) a joint
2001 Federal income tax return (2001 return). Petitioner’s 2001
return was prepared by Campbell and reported that petitioner’s
address was 4302 Callahan. Respondent received petitioner’s 2001
return on October 21, 2002, and processed it on November 18,
2002.
On April 4, 2003, respondent checked his computer records
for petitioner’s address. Those records listed petitioner’s
address as 4302 Callahan. On the same day, respondent mailed a
Letter 915(DO) (30-day letter) for 2000 to petitioner at 4302
Callahan. The 30-day letter informed petitioner that he could
request a conference with the Appeals Office and was accompanied
by two copies of the examination notice. On September 19, 2003,
respondent mailed to petitioner at 4302 Callahan a Letter
1912(DO) that was accompanied by another copy of the examination
notice. The Letter 1912(DO) stated that respondent’s Small
Business and Self-Employed Division had reviewed petitioner’s
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2000 return and detected that respondent had not received
petitioner’s agreement to the proposed changes. The Letter
1912(DO) stated that petitioner should contact the representative
designated on the letter within 10 days or that a notice of
deficiency would be issued to petitioner for 2000. The Letter
1912(DO) referenced and was accompanied by a publication that
discussed the examination process and petitioner’s appeal rights.
On November 14, 2003, after not having received a response from
petitioner as to the Letter 1912(DO), respondent’s district
office closed petitioner’s case and recommended that a notice of
deficiency be issued to petitioner for 2000.
Respondent received petitioner’s timely filed (pursuant to
extensions) joint 2002 Federal income tax return (2002 return) on
October 19, 2003, and processed it on November 24, 2003.
Petitioner’s 2002 return reported that petitioner’s address was
in Las Vegas at 912 Sir James Bridge Way (912 Sir James Bridge).
Petitioner had purchased 912 Sir James Bridge on April 7, 2003.
Petitioner had sold 629 Mariola on April 18, 2003.
On January 15, 2004, respondent mailed a notice of
deficiency for 2000 to petitioner at 912 Sir James Bridge. This
notice determined an income tax deficiency of $107,844 and a
section 6662(a) accuracy-related penalty of $19,740.60. For the
most part, respondent determined in the notice that petitioner
was taxable on the sales proceeds reported on Form 1099-S and was
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not entitled to business expenses, itemized deductions, and
exemptions claimed on the 2000 return. The parties now agree
that the deficiency and accuracy-related penalty are both zero.
Discussion
Petitioner moves the Court under section 7430 to award him
litigation costs of $7,893.75. We may grant this motion if he
meets all of the statutory requirements for such an award. See
sec. 7430(a), (b), and (c); Rule 232(e); see also Corson v.
Commissioner, 123 T.C. 202, 205-206 (2004); Minahan v.
Commissioner, 88 T.C. 492, 497 (1987); Han v. Commissioner, T.C.
Memo. 1993-386. The parties dispute the three requirements noted
supra pp. 1-2. We focus on the first of those requirements;
namely, that a taxpayer exhaust administrative remedies available
within the Internal Revenue Service (IRS) before petitioning this
Court as to the underlying taxable year. See sec. 7430(b)(1).
We conclude that petitioner has not met this requirement.
Section 301.7430-1(b)(1), Proced. & Admin. Regs., interprets
section 7430(b)(1) to require generally that a party participate
in an Appeals Office conference, if one is available, before
petitioning this Court with respect to the underlying year. See
Haas & Associates Accountancy Corp. v. Commissioner, 117 T.C. 48
(2001), affd. 55 Fed. Appx. 476 (9th Cir. 2003). Section
301.7430-1(e)(2), Proced. & Admin. Regs., states in relevant part
that this requirement is met, in that a party’s administrative
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remedies within the IRS are deemed to be exhausted for purposes
of section 7430, if
The party did not receive a notice of proposed
deficiency (30-day letter) prior to the issuance of the
statutory notice [of deficiency] and the failure to
receive such notice was not due to actions of the party
(such as a failure to supply requested information or a
current mailing address to the district director or
service center having jurisdiction over the tax
matter).
We understand petitioner to argue that he has met this
requirement in that, he claims, he did not know his 2000 return
was under examination until he received the notice of deficiency.
According to petitioner, respondent sent all prior correspondence
for that year to an address that, petitioner claims, respondent
should have known was not petitioner’s address. Petitioner
points to the fact that respondent’s records on October 24, 2002,
listed petitioner’s address as 629 Mariola, and he asserts that
this listing required that respondent after that date send all
correspondence (or at least copies of that correspondence) to
petitioner at that address. Petitioner recognizes that
respondent processed petitioner’s 2001 return after October 24,
2002, and that this return reported petitioner’s address as 4302
Callahan. Petitioner asserts that this reporting was an error
that he did not notice but that respondent should have known
about.
We disagree with petitioner’s argument that he has met the
requirement as to exhausting administrative remedies within the
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IRS. Although petitioner notes correctly that respondent
initially mailed the examination notice to petitioner at an
address different from that shown in respondent’s records, the
most critical fact is that respondent correctly mailed both the
30-day letter and the Letter 1912(DO) to petitioner’s most
recently reported address approximately 9 months and 4 months,
respectively, before issuing the notice of deficiency. The
30-day letter (and possibly the Letter 1912(DO)), and not the
examination notice, allowed petitioner the opportunity to confer
with Appeals as to 2000 before the notice of deficiency was
issued. Even if petitioner failed to receive either of these
letters, as he claims but which we decline to find as a fact, it
was not as he claims due to respondent’s lack of diligence; it
was due to petitioner’s own action of reporting 4302 Callahan as
his address on his 2001 joint return.3
3
Although we do not countenance the fact that respondent
mailed the examination notice to petitioner at an address that
was inconsistent with the address shown in respondent’s records,
and thus may have deprived petitioner of an opportunity to settle
this matter at the examination level, an award of litigation
costs does not necessarily follow from that action. A
prerequisite to petitioner’s award of litigation costs is that he
have participated in an Appeals Office conference, unless one was
not available, before petitioning this Court. We find as a fact
that an Appeals Office conference was available in that
respondent mailed both the 30-day letter and the Letter 1912(DO)
to petitioner’s most recently reported address approximately 9
months and 4 months, respectively, before issuing the notice of
deficiency. While petitioner claims to have failed to receive
either of these letters, it was due to his own action of
reporting 4302 Callahan as his address on his 2001 joint return.
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During the approximately 1-year period starting with the
date when respondent processed petitioner’s 2001 return reporting
the 4302 Callahan address and ending with the date when
respondent processed petitioner’s 2002 return reporting the 912
Sir James Bridge address, petitioner’s last known address was
4302 Callahan.4 Cf. Abeles v. Commissioner, 91 T.C. 1019 (1988);
sec. 301.6212-2, Proced. & Admin. Regs. (effective January 29,
2001) (absent “clear and concise notification of a different
address”, a taxpayer’s last known address is the one on the most
recently filed and processed tax return, with exceptions for
updated addresses obtained by respondent from an information bank
of the Postal Service). During that period, respondent sent both
the 30-day letter and the Letter 1912(DO) to petitioner at 4302
Callahan. While petitioner speculates that respondent should
have known that petitioner did not then live there because
respondent had previously been informed that petitioner and Davis
had sold the property, we do not agree. The mere fact that
petitioner and Davis sold 4302 Callahan on February 23, 2000,
does not necessarily mean that petitioner never lived there
afterwards. Such is especially so given the fact that Campbell,
petitioner, and petitioner’s wife who joined with him on the 2001
4
When respondent processed petitioner’s 2002 return,
petitioner’s last known address changed to 912 Sir James Bridge.
Respondent mailed the notice of deficiency to that address in
January 2004.
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return each signed that return declaring under penalties of
perjury that he or she had “examined this return” and that it was
“true, correct, and complete”.5
We hold that petitioner does not qualify for an award of
litigation costs under section 7430. We have considered all
arguments for a contrary holding and find those arguments not
discussed herein to be irrelevant, without merit, or improperly
raised in petitioner’s reply to respondent’s objection. To
reflect the foregoing,
An appropriate order will be
issued, and decision will be entered in
accordance with the parties’ settlement.
5
Petitioner also relies erroneously on the fact that
respondent knew before issuing the notice of deficiency that
petitioner had at least at one time resided at 629 Mariola. As
stated above, the reporting of the 4302 Callahan address on the
2001 return made that address petitioner’s address of record at
all relevant times thereafter.