T.C. Memo. 2006-28
UNITED STATES TAX COURT
DANIEL R. ALLEMEIER, JR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 19320-03. Filed February 16, 2006.
Daniel R. Allemeier, Jr., pro se.
Hans F. Famularo and Loren B. Mark, for respondent.
SUPPLEMENTAL MEMORANDUM OPINION
KROUPA, Judge: This matter is before the Court on
petitioner’s motion for litigation fees and costs pursuant to
*
This opinion supplements our prior Memorandum Opinion,
Allemeier v. Commissioner, T.C. Memo. 2005-207.
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section 7430 and Rule 231.1 The issue is whether petitioner is
entitled to recover $16,5222 for expenses incurred in litigating
his Federal income tax liability for 2001. We hold that he is
not.
Background
The underlying facts of this case are set out in detail in
Allemeier v. Commissioner, T.C. Memo. 2005-207 (Allemeier I). We
summarize the factual and procedural background briefly to rule
on the instant motion. Petitioner resided in Pacific Grove,
California, when he filed the petition.3
On a Federal tax return for 2001, petitioner claimed
business expense deductions for a master’s degree in business
administration (MBA) and other expenses related to his work for
Selane Products (the company). Respondent disallowed the expense
deductions in a deficiency notice dated October 1, 2003, and
determined that petitioner was liable for an accuracy-related
penalty.
1
All section references are to the Internal Revenue Code in
effect for the year at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
2
Petitioner alternatively claims a lower litigation expense
amount of $15,233.28, which he computed based upon the ratio of
deductions granted versus deductions denied (92.2 percent of
$16,522 equals $15,233.28).
3
Petitioner has resided in Las Vegas, Nev., since August
2004.
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We ruled in petitioner’s favor regarding petitioner’s MBA-
related expense deductions and the accuracy-related penalty but
denied petitioner deductions for other claimed business expenses
because petitioner failed to substantiate the expenses in
Allemeier I. Petitioner then submitted a motion for litigation
costs, and respondent filed a response.4 Respondent agrees that
petitioner: (1) Has not unreasonably protracted the court
proceedings; (2) has substantially prevailed with respect to the
amount in controversy and with respect to the most significant
issue presented in the court proceedings; and (3) has met the net
worth requirements as provided by law. Respondent disputes,
however, that petitioner exhausted all administrative remedies,
that petitioner was the prevailing party, and that petitioner’s
litigation fees are reasonable.
Neither party requested a hearing on this motion, and the
Court concludes that a hearing is not necessary to decide this
motion. See Rule 232(a)(2). Accordingly, the Court rules on
petitioner’s motion based on the parties’ submissions and the
record in this case.
Discussion
We must determine whether petitioner is entitled to recover
reasonable litigation costs. A taxpayer may recover reasonable
4
Petitioner filed a reply to respondent’s response that the
Court did not direct petitioner to file. See Rule 232(a). The
reply raised no additional issues.
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litigation costs if the taxpayer establishes that he or she is
the prevailing party, has exhausted administrative remedies, has
not unreasonably protracted the court proceedings, and has
claimed reasonable litigation costs.5 Sec. 7430(a), (b)(1), (3),
(c)(4). A taxpayer bears the burden to prove that he or she
satisfies these requirements. Rule 232(e); Corson v.
Commissioner, 123 T.C. 202, 205-206 (2004).
Prevailing Party
To be a prevailing party, the taxpayer must substantially
prevail with respect to either the amount in controversy or the
most significant issue or set of issues presented, and must
satisfy the net worth requirements. See sec. 7430(c)(4)(A); 28
U.S.C. sec. 2412(d)(2)(B)(2000). The taxpayer will not be
treated as a prevailing party, however, if the Commissioner’s
position in the court proceeding was substantially justified.
Sec. 7430(c)(4)(B). The Commissioner has the burden to prove
that his position was substantially justified. See sec.
7430(c)(4)(B)(i); Rule 232(e).
Respondent concedes that petitioner substantially prevailed
and met the net worth requirements. See sec. 7430(b) and
(c)(4)(A). Respondent contends, however, that petitioner is not
5
Respondent concedes that petitioner did not unreasonably
protract proceedings. See sec. 7430(b)(3).
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treated as a prevailing party because respondent’s position in
the court proceeding was substantially justified.
Substantial Justification
The Commissioner’s position is substantially justified if,
based on all the facts and circumstances and relevant legal
precedents, the Commissioner acted reasonably. See Pierce v.
Underwood, 487 U.S. 552, 565 (1988); Sher v. Commissioner, 89
T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir. 1988). The
Commissioner’s position may be incorrect yet substantially
justified if the Commissioner’s position had a reasonable basis
in law and fact. See Pierce v. Underwood, supra at 566 n.2;
Huffman v. Commissioner, 978 F.2d 1139, 1147 n.8 (9th Cir. 1992),
affg. in part, revg. in part and remanding T.C. Memo. 1991-144;
sec. 301.7430-5(c)(1), Proced. & Admin. Regs. A position has a
reasonable basis in fact if there is relevant evidence that a
reasonable mind might accept as adequate to support a conclusion.
Pierce v. Underwood, supra at 564-565; Huffman v. Commissioner,
supra.
That respondent loses on an issue is not determinative of
the reasonableness of respondent’s position. See Wasie v.
Commissioner, 86 T.C. 962, 968-969 (1986); DeVenney v.
Commissioner, 85 T.C. 927 (1985). It remains a factor, however,
to be considered. Estate of Perry v. Commissioner, 931 F.2d
1044, 1046 (5th Cir. 1991); Powers v. Commissioner, 100 T.C. 457,
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471 (1993), affd. in part, revd. in part and remanded on another
issue 43 F.3d 172 (5th Cir. 1995).
The Court looks to whether the Commissioner’s position was
reasonable given the available facts and circumstances at the
time the Commissioner took his position. See Maggie Mgmt. Co. v.
Commissioner, 108 T.C. 430, 442-443 (1997); DeVenney v.
Commissioner, supra at 930. The Commissioner’s position in a
judicial proceeding is generally the position the Commissioner
took in the answer to the petition. Sec. 7430(c)(7)(A); Huffman
v. Commissioner, supra at 1144-1147; Maggie Mgmt. Co. v.
Commissioner, supra at 443; Grant v. Commissioner, 103 F.3d 948,
952 (1996), affg. T.C. Memo. 1995-374; Sher v. Commissioner,
supra at 86.
Whether Respondent’s Position Was Substantially Justified
In Allemeier I, respondent’s position was that petitioner
was not entitled to an MBA-related expense deduction on two
bases. Respondent argued, first, that petitioner’s enrollment in
the MBA program constituted a “minimum educational requirement”
to continue his employment at the company. See sec. 1.162-
5(b)(2), Income Tax Regs. Respondent argued, second, that
petitioner’s MBA qualified him for a new trade or business. See
sec. 1.162-5(b)(3), Income Tax Regs.
Although we found that petitioner was encouraged rather than
required to obtain the MBA, we find that respondent was
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substantially justified in arguing that the MBA program
constituted a minimum educational requirement. See Allemeier v.
Commissioner, T.C. Memo. 2005-207. Similarly, although we found
that petitioner’s MBA “enhanced” his preexisting skills rather
than qualified him to perform “significantly” different tasks and
activities, we find that respondent was substantially justified
in arguing that petitioner’s course of study qualified him for a
new trade or business. Id.
Accordingly, we find that respondent’s position was
substantially justified.6 Petitioner is therefore not the
prevailing party and may not recover any litigation costs. See
sec. 7430(c)(4)(B). In light of this holding, we need not decide
whether petitioner exhausted administrative remedies or whether
the legal costs petitioner claimed are reasonable.7 See, e.g.,
Kean v. Commissioner, T.C. Memo. 2003-275, affd. 407 F.3d 186 (3d
Cir. 2005); Gutierrez v. Commissioner, T.C. Memo. 1995-569 (where
6
For similar reasons, we also conclude that respondent’s
position regarding the accuracy-related penalty was substantially
justified. See Uddo v. Commissioner, T.C. Memo. 1998-276.
7
We note that petitioner submitted a $15,553 billing
statement for litigation costs from his father, a non-tax
attorney who entered no appearance in this proceeding and is
ineligible to practice before the Court, but petitioner made no
showing that he actually paid or was legally obligated to pay the
fees to his father. See sec. 7430(a)(2), (c)(1)(B)(iii); Frisch
v. Commissioner, 87 T.C. 838, 846 (1986) (taxpayer not eligible
to recover fees when taxpayer had no liability for the fees);
Republic Plaza Props. Pship. v. Commissioner, T.C. Memo. 1997-
239.
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Commissioner substantially justified, no need to address whether
taxpayer satisfied the other requirements of section 7430).
To reflect the foregoing,
An appropriate order
and decision will be entered.