T.C. Memo. 2006-142
UNITED STATES TAX COURT
JAMES O. JONDAHL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13385-02. Filed July 5, 2006.
Jon J. Jensen, for petitioner.
Inga C. Plucinski, for respondent.
MEMORANDUM OPINION
GOEKE, Judge: This matter is before the Court on
petitioner’s Motion Requesting For Reasonable Litigation Costs
under section 7430 and Rule 231.1 The issue is whether
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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petitioner is entitled to the costs of litigating his Federal tax
liability for the years 1990, 1991, 1992, and 1993 after he
conveyed a purported qualified offer in a letter to respondent
dated April 27, 2004. We hold that the letter of April 27, 2004,
was a qualified offer and that petitioner is entitled to his
litigation costs paid or incurred after conveying this offer.
Background
The underlying facts of this case are set forth in detail in
Jondahl v. Commissioner, T.C. Memo. 2005-55. We briefly revisit
some of the factual and procedural background to rule on the
instant motion.
Respondent determined deficiencies in petitioner’s 1990,
1991, 1992, and 1993 Federal income taxes of $25,438, $2,883,
$9,883, and $35,876, respectively. Respondent also determined
fraud penalties under section 6663 for 1990, 1991, 1992, and 1993
of $19,078.50, $2,162.25, $7,412.25, and $26,907, respectively.
Respondent sent a notice of deficiency to petitioner on May 22,
2002. On August 20, 2002, petitioner timely filed a petition in
this Court challenging respondent’s determinations.
On April 27, 2004, petitioner sent respondent a letter
indicating his willingness to settle this litigation and
purporting to convey a qualified offer under section 7430(g). In
part, petitioner wrote:
The taxpayer, as his qualified offer, agrees to
establish as the taxpayer’s liability (determined
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without regard to interest) by agreeing to pay to the
United States $12,000 for tax years 1990, 1991, 1992,
and 1993, collectively. My calculations assume that
the additional liability would be allocated in the
following amounts: $5,000 to the 1991 tax year; $1,000
for the 1992 tax year; $1,000 for the 1993 tax year,
[sic] and $5,000 to the 1994 tax year. This offer is
in addition to the $42,873.24 paid to the United States
on or about December 30, 1997 as restitution in the
criminal proceedings entitled United States of America
v. James Owen Jondahl (D.C. ND; Case No. 3:97-CR-9).
On May 10, 2004, respondent sent petitioner a letter rejecting
petitioner’s “Qualified Offer dated April 27, 2004.” Respondent
also indicated a willingness to “discuss settlement on more
reasonable terms”.2
On June 14, 2004, a trial was held and on March 24, 2005, we
issued Jondahl v. Commissioner, supra. Petitioner’s liability,
including the fraud penalty, for the 1990, 1991, 1992, and 1993
tax years computed pursuant to our holding in Jondahl and Rule
155 is $39,178.50. Petitioner now moves for the award of
litigation costs in the amount of $17,217.50, based on the
qualified offer conveyed in his April 27, 2004, letter.
2
After our decision in Jondahl v. Commissioner, T.C. Memo.
2005-55, petitioner sent respondent a letter requesting
litigation costs based on his qualified offer of Apr. 27, 2004.
At first, respondent informed petitioner that he was not entitled
to litigation costs because “the restitution payment plus the
additional $12,000” was less than the amount petitioner owed.
Subsequently, in a letter dated Aug. 9, 2005, respondent rejected
petitioner’s request for litigation costs because petitioner’s
Apr. 27, 2004, letter was not a qualified offer under sec.
7430(g) and sec. 301.7430-7(c)(3), Proced. & Admin. Regs.
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Discussion
Section 7430(a) authorizes the award of reasonable
litigation costs paid or incurred in a court proceeding which is
brought by or against the United States in connection with the
determination, collection, or refund of any tax, interest, or
penalty under the Internal Revenue Code. The taxpayer must
establish that he: (1) Is the prevailing party; (2) has exhausted
the available administrative remedies; (3) has not unreasonably
protracted the court proceedings; and (4) has claimed litigation
costs that are reasonable. Sec. 7430(a) and (b)(1), (3). The
taxpayer bears the burden of proving that these requirements are
met. Rule 232(e). A taxpayer is generally the prevailing party
if the taxpayer substantially prevailed with respect to either
the amount in controversy or the most significant issue or set of
issues. Sec. 7430(c)(4)(A). Under section 7430(c)(4)(B), even
if the taxpayer meets the requirements of a prevailing party
under section 7430(c)(4)(A), the taxpayer will not be treated as
a prevailing party if respondent’s position in the proceeding was
substantially justified.
Under section 7430(c)(4)(E), a party shall also be treated
as the prevailing party if “the liability of the taxpayer
pursuant to the judgment in the proceeding (determined without
regard to interest) is equal to or less than the liability of the
taxpayer which would have been so determined if the United States
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had accepted a qualified offer of the party under subsection
(g).” The qualified offer provision of section 7430(c)(4)(E)
applies without regard to whether respondent’s position in the
matter is substantially justified. See Haas & Associates
Accountancy Corp. v. Commissioner, 117 T.C. 48, 59 (2001), affd.
55 Fed. Appx. 476 (9th Cir. 2003); McGowan v. Commissioner, T.C.
Memo. 2005-80.
Respondent concedes that petitioner has exhausted the
available administrative remedies, did not unreasonably protract
the proceedings, and claims litigation costs that are reasonable.
Respondent instead argues that petitioner cannot be considered a
prevailing party under section 7430(c)(4)(E) because the offer
submitted by petitioner was not a valid qualified offer under
section 7430(g). Respondent argues that the offer was not made
with respect to all of the adjustments at issue and only those
adjustments, did not clearly specify the amount offered, and, if
accepted, would not have fully resolved petitioner’s liability
for the taxable years at issue.3
3
Respondent also argues that petitioner’s motion should be
denied because petitioner did not include an affidavit
demonstrating that he met the net worth requirements set forth in
the Equal Access to Justice Act, 28 U.S.C. sec. 2412(d)(2)(B)
(2000) at the time his petition was filed. Sec.
7430(c)(4)(A)(ii); Rule 231. Petitioner has since filed an
affidavit with supporting exhibits that show his net worth was
$17,221 at the time his petition was filed. We find that
petitioner meets the net worth requirements of sec.
7430(c)(4)(A)(ii).
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A qualified offer is defined in section 7430(g)(1) as a
written offer which:
(A) is made by the taxpayer to the United States
during the qualified offer period;
(B) specifies the offered amount of the taxpayer’s
liability (determined without regard to interest);
(C) is designated at the time it is made as a
qualified offer for purposes of this section; and
(D) remains open during the period beginning on
the date it is made and ending on the earliest of the
date the offer is rejected, the date the trial begins,
or the 90th day after the date the offer is made.
Section 301.7430-7(c)(3), Proced. & Admin. Regs., provides that a
qualified offer “specifies the offered amount if it clearly
specifies the amount for the liability of the taxpayer * * * .
The offer may be a specific dollar amount of the total liability
or a percentage of the adjustments at issue in the proceeding at
the time the offer is made.” Additionally, “This amount must be
with respect to all of the adjustments at issue in the
administrative or court proceeding at the time the offer is made
and only those adjustments.” Id. Finally, the specified amount
“must be an amount, the acceptance of which by the United States
will fully resolve the taxpayer’s liability, and only that
liability * * * for the type or types of tax and the taxable year
or years at issue in the proceeding.” Id.
Respondent argues that petitioner’s offer does not clearly
specify the offered amount for petitioner’s liability because it
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fails to add together the amounts petitioner claims were offered
in the letter. Respondent argues in the alternative that, to the
extent the offer does clearly specify an amount, the amount is
only $12,000.
We find petitioner’s letter of April 27, 2004, to be clear
in its offer to establish petitioner’s liability, including fraud
penalties, for the 1990, 1991, 1992, and 1993 tax years as
$54,873.24. In his letter, petitioner writes “The taxpayer, as
his qualified offer, agrees to establish as the taxpayer’s
liability (determined without regard to interest) by agreeing to
pay to the United States $12,000 for the tax years 1990, 1991,
1992 and 1993, collectively.” In attempting to allocate this
amount in the next sentence, petitioner refers to this $12,000 as
“the additional liability”. In the very next sentence,
petitioner explains that “This offer is in addition to the
$42,873.24 paid to the United States on or about December 30,
1997 as restitution in the criminal proceedings entitled United
States of America v. James Owen Jondahl (D.C. ND; Case No. 3:97-
CR-9).” The suggestion that this offer lacks clarity by virtue
of the fact that petitioner did not explicitly perform for
respondent the simple calculation of adding the $12,000 to the
$42,873.24 is unpersuasive.
Respondent further argues that if petitioner intended his
offer to be $54,873.24 then he should have allocated that amount
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over the tax years at issue. Instead, according to respondent,
petitioner attempted to allocate only the additional $12,000
(which we discuss in greater detail below). The $42,873.24 was
paid by petitioner in restitution as part of the resolution of
the criminal tax charges for which he was convicted. In the pre-
sentence investigation report prepared by the U.S. Department of
Probation, upon which petitioner was ordered to pay restitution
to the Internal Revenue Service (IRS), petitioner’s additional
income and resulting Federal income tax liabilities for each of
the 1990, 1991, 1992, and 1993 tax years were detailed with
specificity.4 That petitioner did not reproduce the pre-sentence
report as part of his offer letter does not make the offer any
less clear. We find petitioner’s offer to be clear as to the
amount offered as petitioner’s liability--$54,873.24.
Respondent next argues that petitioner’s offer was not valid
because it was not with respect to all of the adjustments at
issue and only those adjustments as required by section 301.7430-
7(c)(3), Proced. & Admin. Regs. Respondent argues because the
$42,873.24 was paid in restitution more than 6 years ago pursuant
to a criminal judgment entered against petitioner, it was not an
adjustment at issue in this case. As discussed above, the
4
The pre-sentence report was specific enough to include
additional income such as petitioner’s receipt of a stereo in
lieu of payment from a client which he then gave to his
girlfriend discussed in Jondahl v. Commissioner, T.C. Memo. 2005-
55 (slip op. at 40).
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$42,873.24 was paid by petitioner in restitution to the IRS as
part of the resolution of his criminal case. A review of the
pre-sentence investigation report shows that the amounts for
which petitioner was required to pay restitution are the very
same adjustments at issue in this case, including, for instance,
the commissions relating to petitioner’s sale of real estate,
payments by Taxman for petitioner’s furniture, and the sale of
petitioner’s crop hail insurance business. Accordingly, we
reject respondent’s contention that the $42,873.24 represents an
adjustment not at issue.
Finally, respondent argues that petitioner’s offer fails
because it would not fully resolve petitioner’s liability, and
only that liability, for the type or types of taxes and the
taxable year or years in the proceeding required by section
301.7430-7(c)(3), Proced. & Admin. Regs. In the offer letter,
petitioner’s counsel writes of the $12,000 amount that “the
additional liability would be allocated in the following amounts:
$5,000 to the 1991 tax year; $1,000 for the 1992 tax year; $1,000
for the 1993 tax year, and $5,000 to the 1994 tax year.” The
problem with this attempted allocation is that the 1994 tax year
was not at issue. However, looking at this allocation in its
context, we find that the inclusion of the 1994 tax year was
nothing more than a typographical error of petitioner’s counsel.
The preceding sentence clearly indicates that the $12,000 was to
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establish petitioner’s liability for the “tax years 1990, 1991,
1992 and 1993”. We do not believe petitioner intended to include
the 1994 tax year in attempting to resolve the matter, nor do we
find that respondent understood petitioner’s offer as attempting
to include the 1994 tax year. Thus, we find the inadvertent
inclusion of 1994 did little to lessen the import of petitioner’s
offer to establish his tax liability (determined without regard
to interest) for tax years 1990, 1991, 1992, and 1993 by agreeing
to pay $12,000 in addition to the $42,873.24 he had already paid
in restitution.
Accordingly, we find that the offer conveyed by petitioner
meets the requirements of a qualified offer under section 7430(g)
and section 301.7430-7(c)(3), Proced. & Admin. Regs. Petitioner
offered to establish his liability, including fraud penalties and
without regard to interest, for the 1990, 1991, 1992, and 1993
tax years as $54,873.24. Because this amount is greater than the
amount of petitioner’s liability as determined by this Court in
Jondahl v. Commissioner, T.C. Memo. 2005-55 and computed pursuant
to Rule 155, petitioner is entitled to his litigation costs of
$17,217.50 incurred after communicating his qualified offer on
April 27, 2004.
An appropriate order will
be issued.