T.C. Memo. 2006-103
UNITED STATES TAX COURT
BRADLEY K. MORRISON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18140-03. Filed May 15, 2006.
William E. Taggart, Jr., for petitioner.
Patricia Montero, for respondent.
MEMORANDUM OPINION
VASQUEZ, Judge: This case is before the Court on
petitioner’s motion for award of litigation costs and related
costs pursuant to section 7430 and Rule 231.1 We see no reason
1
All references to sec. 7430 are to that section of the
Internal Revenue Code as amended and in effect, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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for an evidentiary hearing on this matter. See Rule 232(a)(2).
Accordingly, we rule on petitioner’s motion on the basis of the
parties’ submissions and the existing record. See Rule
232(a)(1). The portions of our opinion on the merits in the
instant case, Morrison v. Commissioner, T.C. Memo. 2005-53
(Morrison), that are relevant to our disposition of this motion
are incorporated herein by this reference.
After concessions2, the issues for decision are: (1) Whether
petitioner paid or incurred any attorney’s fees; (2) whether
respondent was substantially justified in his position before
petitioner made his qualified offer; (3) whether petitioner
unreasonably protracted the proceedings; and (4) whether the
costs claimed are reasonable.
Background
Respondent issued a notice of deficiency to petitioner on
July 24, 2003, determining the following deficiencies in and
accuracy-related penalty on petitioner’s Federal income taxes:
Penalty
Year Deficiency Sec. 6662(a)
1999 $87,780 $17,556
2000 4,075 –-
2
Respondent concedes that petitioner qualifies as a
prevailing party based on the qualified offer made on or about
Apr. 5, 2004, meets the net worth requirement, and exhausted all
administrative remedies.
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Petitioner timely petitioned this Court for redetermination
based on respondent’s notice of deficiency. Respondent filed an
answer with this Court.
Petitioner submitted a qualified settlement offer to
respondent in which petitioner offered to settle the case for an
increase in petitioner’s income tax liability for 1999 in the
amount of $100 and for an increase in petitioner’s income tax
liability for 2000 in the amount of $117. Respondent did not
accept this qualified offer.
The issues for decision in Morrison were: (1) Whether
payments made on behalf of petitioner or disbursements directly
to petitioner by Caspian Consulting Group, Inc.3 (Caspian),
during 1999 and personal charges petitioner made on a company
credit card in 2000 were constructive dividends; and (2) whether
petitioner was liable for an accuracy-related penalty under
section 6662(a) for 1999.
On March 23, 2005, this Court filed a memorandum opinion
finding for petitioner, that the 1999 payments and disbursements
and the 2000 personal charges were loans and not constructive
dividends. Therefore, there were no deficiencies in tax for
petitioner for the years 1999 and 2000 except for the item
3
Petitioner owned 40 percent of the outstanding stock of
Caspian Consulting Group, Inc., a C corporation.
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petitioner conceded before trial.4 Additionally, this Court
found that there is no underpayment of tax for 1999 on which a
penalty may be imposed.
Petitioner filed a motion for award of litigation costs and
related costs. Petitioner seeks to recover either: (1) The
litigation costs incurred from the date of respondent’s issuance
of the notice of deficiency to petitioner through the date of
this Court’s issuance of its opinion, March 23, 2005, and related
costs, or (2) the litigation costs incurred for professional
services from the date petitioner made a qualified offer of
settlement, April 5, 2004, through the date of this Court’s
issuance of its opinion, March 23, 2005, and related costs.
Caspian has agreed to pay all litigation costs incurred on behalf
of petitioner, and Caspian is entitled to be reimbursed out of
any recovery of litigation costs that petitioner receives.
Petitioner also seeks to recover the costs incurred as a
result of bringing the motion for award of litigation costs and
related costs. Moreover, petitioner seeks to recover the costs
incurred as a result of preparing the reply to respondent’s
opposition to petitioner’s motion for award of litigation costs
and related costs.
4
Petitioner conceded before trial that he had failed to
report $227 of income on his 2000 return.
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Discussion
Section 7430 provides for the award of litigation costs
incurred in connection with a court proceeding brought against
the United States involving the determination of any tax,
interest, or penalty pursuant to the Internal Revenue Code. An
award of litigation costs may be made where the taxpayer (1) is
the “prevailing party”, (2) exhausted available administrative
remedies, (3) did not unreasonably protract the judicial
proceeding, and (4) claimed reasonable litigation costs. Sec.
7430(a), (b)(1), (3), and (c). These requirements are
conjunctive, and petitioner has the burden of establishing that
all of these requirements have been satisfied. See Rule 232(e);
Minahan v. Commissioner, 88 T.C. 492, 496-497 (1987).
For the reasons stated below, we find it unnecessary to
address whether the position of the respondent was substantially
justified in this matter, whether petitioner unreasonably
protracted the proceedings, or whether the costs claimed are
reasonable.
Petitioner Must Pay or Incur Fees and Costs
A party’s award for litigation costs is limited to the costs
that the party actually paid or incurred. Sec. 7430(a)(2),
(c)(1)(B)(iii); Foothill Ranch Co. Pship. v. Commissioner, 110
T.C. 94, 101 (1998)(holding that a partner may receive an award
for litigation costs only to the extent such fees paid by the
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partnership are allocable to that partner); Frisch v.
Commissioner, 87 T.C. 838, 846 (1986); Republic Plaza Props.
Pship., T.C. Memo. 1997-239 (holding that a taxpayer is not
entitled to litigation costs where the taxpayer is not obligated
to pay any of the litigation costs at issue); Thompson v.
Commissioner, T.C. Memo. 1996-468 (holding that a wife cannot be
awarded litigation costs that were paid by her husband). We have
defined the word “incur” as “to become liable or subject to:
bring down upon oneself.” Frisch v. Commissioner, supra at 846.
Petitioner concedes that Caspian agreed to pay all
litigation costs incurred on behalf of petitioner, and petitioner
did not pay any litigation costs. Because Caspian, a separate
entity, paid all litigation costs in issue, petitioner did not
“bring down upon” himself any debt. We therefore cannot award
costs to petitioner because petitioner did not actually pay or
incur any litigation costs. See Grigoraci v. Commissioner, 122
T.C. 272 (2004); Foothill Ranch Co. Pship. v. Commissioner,
supra.
To reflect the foregoing,
An appropriate order will
be issued.