Gina C. Lewis

United States Tax Court

158 T.C. No. 3

GINA C. LEWIS,
Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent

—————

Docket No. 12930-18. Filed March 3, 2022.

—————

P and her former spouse filed joint federal income
tax returns for 2008, 2009, and 2010. The IRS audited and
proposed adjustments to those returns. In December 2016,
P submitted a letter to the IRS that purported to be a
qualified offer under I.R.C. § 7430(g). In it, P offered to
concede 100% of the tax and penalties set forth in the IRS’s
proposed adjustment but reserved the right to claim relief
from joint and several liability under I.R.C. § 6015. The IRS
did not accept P’s offer and later issued a notice of
deficiency. In her petition P claimed relief from liability
under I.R.C. § 6015. In his answer R indicated that he
would consider P’s entitlement to relief from liability under
I.R.C. § 6015 once P provided R with relevant
documentation, such as Form 8857, Request for Innocent
Spouse Relief. P did not provide Form 8857 to R’s counsel
or to the IRS’s Cincinnati Centralized Innocent Spouse
Operations. After reaching a settlement with Intervenor, R
conceded that P is entitled to relief from liability under
I.R.C. § 6015(c) for the years in issue. Concurrently, R
moved for entry of decision reflecting no liabilities for the
years in issue after the application of I.R.C. § 6015(c). P
objected to R’s motion for entry of decision on the ground

Served 03/03/22
 2

that it was an attempt to prevent P’s claim for litigation
costs. P then moved for litigation costs under I.R.C. § 7430.

1. Held: I.R.C. § 6015 provides relief from joint and several
liability, not just collection.

2. Held, further, a qualified offer must “specif[y] the offered
amount of the taxpayer’s liability,” I.R.C. § 7430(g)(1)(B),
and 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,” Treas.
Reg. § 301.7430-7(c)(3).

3. Held, further, an offer that reserves the right to claim
relief from liability for income tax under I.R.C. § 6015 is
not a qualified offer because it does not specify the offered
amount that, if accepted, would fully resolve the taxpayer’s
income tax liability under I.R.C. § 7430(g)(1)(B) and Treas.
Reg. § 301.7430-7(c)(3).

4. Held, further, P’s offer was not a qualified offer under
I.R.C. § 7430(g)(1)(B) and Treas. Reg. § 301.7430-7(c)(3).

5. Held, further, P is not entitled to litigation costs under
I.R.C. § 7430 because respondent’s position was
substantially justified.

—————

Steve Milgrom, for petitioner.

Vincent A. Gonzalez and Emma S. Warner, for respondent.

OPINION

PUGH, Judge: This case is before the Court on petitioner’s motion
for reasonable litigation costs (motion for litigation costs) pursuant to
 3

section 7430 and Rule 231. 1 We conclude that petitioner is not a
“prevailing party” within the meaning of section 7430. We therefore will
deny her request for litigation costs.

Background

The following facts are derived from the parties’ pleadings and
motion papers. These facts are stated solely for the purpose of ruling on
petitioner’s motion and not as findings of fact in this case. Petitioner
resided in California when she filed her petition.

Petitioner and her former spouse, Tim S. Lewis, filed joint federal
income tax returns for 2008, 2009, and 2010. The Internal Revenue
Service (IRS) audited these returns and proposed adjustments and
penalties for petitioner and Mr. Lewis.

On December 28, 2016, petitioner sent to the IRS a letter
(December 2016 offer letter or offer) stating that she was making a
qualified offer pursuant to section 7430(g). She offered the following
terms:

1. To concede 100% of the tax and 100% of the penalties for
the tax years 2008, 2009, and 2010, as set forth on the
attached Form 4549-A dated February 12, 2013.

2. To agree to the immediate assessment of the increase in
tax and penalties set forth on the attached Form 4549-A.

3. This is an offer of assessment, not payment, Mrs. Lewis
reserves all collection rights that she may qualify for now
or in the future, including without limitation, the right to
relief under IRC §6015 (innocent spouse), §6159
(installment agreement), §7122 (offer in compromise),
§6343 (release of levy), §7811 (taxpayer assistance order),
§6502 (statute of limitations on collection), §6325 (release
of lien), collection due process, collection appeals program,
currently non-collectible status, bankruptcy, and any other
current or future law that may serve to reduce the amount

1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
 4

or delay the payment of amounts assessed as a result of the
acceptance of this qualified offer.

The IRS neither accepted nor rejected the qualified offer, and
instead allowed it to lapse.

In the months before petitioner submitted her offer, the revenue
agent’s activity record reflects discussion of petitioner’s entitlement to
innocent spouse relief under section 6015. Petitioner did not provide any
information to support a claim for innocent spouse relief or submit a
Form 8857, Request for Innocent Spouse Relief, prior to or
contemporaneously with the December 2016 offer letter.

On March 28, 2018, respondent issued a notice of deficiency to
petitioner and Mr. Lewis, determining deficiencies and penalties for tax
years 2008, 2009, and 2010.

On July 2, 2018, petitioner timely filed her petition, and in her
timely amended petition she “elect[ed] the benefits” of section 6015(b)
and (c). In his answer to her amended petition, respondent: “Admit[ed]
[p]etitioner has requested innocent spouse relief in her petition per
I.R.C. § 6015(b)&(c) and [r]espondent will review her request and make
a determination regarding her eligibility for said relief.” Mr. Lewis also
challenged the notice of deficiency at docket No. 12785-18 and
intervened in petitioner’s case pursuant to Rule 325.

Throughout the proceeding, respondent requested that petitioner
submit Form 8857 or provide other information supporting her claim for
innocent spouse relief under section 6015. Petitioner never did.
Nonetheless, respondent’s counsel referred the case to the IRS
Cincinnati Centralized Innocent Spouse Operations (CCISO), which
requested the Form 8857 and supporting documentation from
petitioner. She did not submit Form 8857 and supporting documentation
to CCISO either. Eventually, after resolving the related case with Mr.
Lewis, respondent concluded that petitioner was entitled to innocent
spouse relief under section 6015(c). 2

On December 28, 2020, respondent moved for entry of a decision
that would grant petitioner full relief from joint and several liability
under section 6015(c) for tax years 2008, 2009, and 2010; after
application of section 6015(c), the deficiency and the penalty for each

2 After stipulating to entry of decision in docket No. 12785-18, Mr. Lewis moved

to withdraw as intervenor in this case and we granted his motion.
 5

year are listed as “None.” He also filed a notice of concession “that
[p]etitioner is entitled to relief under section 6015(c) for tax years 2008,
2009, and 2010.” Petitioner objected to the motion for entry of decision
and the notice of concession, claiming that it was a “litigation tactic to
avoid an award of fees and costs that [p]etitioner is entitled to.” 3

Petitioner eventually filed her motion for litigation costs after
being ordered to do so by the Court. Respondent filed a response
opposing petitioner’s motion, and petitioner filed a reply.

Discussion

As relevant here, section 7430 provides for an award of reasonable
litigation costs to a taxpayer in a proceeding brought by or against the
United States involving the determination of any tax, interest, or
penalty. 4 An award may be made where the taxpayer can demonstrate
that she (1) is the “prevailing party,” (2) has exhausted available
administrative remedies within the IRS, 5 (3) has not unreasonably
protracted the proceeding, and (4) has claimed “reasonable” costs.
§ 7430(a), (b)(1), (3), (c)(1); Morrison v. Commissioner, 565 F.3d 658, 661
(9th Cir. 2009), rev’g on other grounds T.C. Memo. 2006-103; Alterman
Tr. v. Commissioner, 146 T.C. 226, 227 (2016). The taxpayer bears the
burden of proving that these requirements are met. Rule 232(e). These
requirements are conjunctive; failure to satisfy any one of them
precludes an award of costs to the taxpayer. See Alterman Tr., 146 T.C.
at 227; see also Minahan v. Commissioner, 88 T.C. 492, 497 (1987). The
decision to award fees is within the sound discretion of the Court. See
Morrison v. Commissioner, 565 F.3d at 661 n.3 (“A decision by the Tax
Court denying an award of attorneys’ fees is reviewed for abuse of
discretion.” (citing Huffman v. Commissioner, 978 F.2d 1139, 1143 (9th
Cir. 1992), aff’g in part, rev’g in part, and remanding T.C. Memo. 1991-
144)).

3 Petitioner refused to sign a stipulation of settled issues or decision document

that stated that she is entitled to full relief from joint and several liability under
section 6015(c) for 2008, 2009, and 2010, for similar reasons. At an impasse,
respondent unilaterally filed his motion for entry of decision and notice of concession.
4Section 7430 also provides for an award of reasonable administrative costs
incurred in connection with an administrative proceeding within the IRS. Petitioner
has not requested such an award.
5 This requirement applies only as to litigation costs. See § 7430(b)(1).
 6

Respondent disputes that petitioner satisfies each of the four
requirements outlined above. We begin with the first requirement—that
petitioner demonstrate that she is the prevailing party—and, in the
light of our resolution of that issue, we need not address the other three.

I. Prevailing Party

To be the “prevailing party,” a taxpayer must satisfy certain
net-worth requirements, see § 7430(c)(4)(A)(ii), and must “substantially
prevail[]” with respect to the amount in controversy or “the most
significant issue or set of issues presented,” see § 7430(c)(4)(A)(i).
Respondent agrees that petitioner meets the net-worth requirements
and substantially prevailed with respect to the amount in controversy
and the most significant issue presented.

The taxpayer generally will not be treated as the prevailing party
if the Commissioner establishes that “the position of the United States
in the proceeding was substantially justified.” § 7430(c)(4)(B)(i). The
Commissioner bears the burden of making that showing. Id.; see also
Taxpayer Bill of Rights 2, Pub. L. No. 104-168, § 701(b), 110 Stat. 1452,
1463 (1996) (adding current section 7430(c)(4)(B) to shift the burden of
proving substantial justification from the taxpayer to the Government);
Pac. Fisheries Inc. v. United States, 484 F.3d 1103, 1107 (9th Cir. 2007).

Even if the Commissioner’s position is substantially justified,
under section 7430(c)(4)(E)(i) the taxpayer shall 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 had accepted a qualified offer of the
party under subsection (g).” See Haas & Assocs. Accountancy Corp. v.
Commissioner, 117 T.C. 48, 59 (2001) (holding that the qualified offer
provision of section 7430(c)(4)(E)(i) applies without regard to whether
the Commissioner’s position in the matter is substantially justified),
supplementing T.C. Memo. 2000-183, aff’d, 55 F. App’x 476 (9th Cir.
2003). The qualified offer provision may not apply, however, where the
“judgment [is] issued pursuant to a settlement.” 6 § 7430(c)(4)(E)(ii)(I).

6 As we noted above, petitioner rejected respondent’s proposed settlement and

concession to avoid a conclusion that judgment in this case will be “issued pursuant to
a settlement” under section 7430(c)(4)(E)(ii)(I). See Trzeciak v. Commissioner, T.C.
Memo. 2012-83 (holding that the Commissioner’s concession was a settlement and
distinguishing Estate of Lippitz v. Commissioner, T.C. Memo. 2007-293, 2007 WL
 7

Petitioner bears the burden of proving that she meets the qualified offer
requirements. See Rule 232(e).

We first consider whether petitioner is the prevailing party under
the qualified offer provision, and, after concluding that she is not, turn
to whether respondent’s position was substantially justified.

II. Qualified Offer Requirements

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.

Treasury Regulation § 301.7430-7(c)(3) provides further guidance
on the requirement that the offer “specif[y] the offered amount of the
taxpayer’s liability”:

2780496, in which the Court held that the Commissioner’s concession was not a
settlement because the taxpayer was forced to actively litigate the case prior to the
concession).
This Court and the U.S. Court of Appeals for the Ninth Circuit, to which an
appeal would lie absent stipulation to the contrary, see § 7482(b), have held that a
concession is not a settlement when the Commissioner waited to concede until after
the taxpayer “had effectively presented the case for disposition by the Court,” Knudsen
v. Commissioner, 793 F.3d 1030, 1035 (9th Cir. 2015) (quoting Estate of Lippitz v.
Commissioner, 2007 WL 2780496, at *8)), rev’g and remanding T.C. Memo. 2013-87.
In Knudsen and Estate of Lippitz, that effective presentation included filing Form 8857
and providing additional documentation to the IRS. Here, petitioner refused to provide
such documentation. But respondent does not argue that petitioner did not make a
qualified offer because respondent’s unilateral concession constituted a settlement. We
therefore assume arguendo that the case will not be decided pursuant to settlement.
 8

[(1)] 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. [(2)] 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. [(3)] 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. . . .

Respondent argues that petitioner’s offer was not a qualified offer
because it did not specify an amount “the acceptance of which by the
United States will fully resolve the taxpayer’s liability.” 7 Id. Respondent
emphasizes that petitioner’s offer “merely conced[ed] the assessment of
a tax but reserve[d] the right to later challenge that assessed liability by
raising section 6015 relief.”

In reply petitioner argues that her “offer specifie[d] the amount of
[her] liability” because she offered “100% of the tax and the penalties”
for years 2008, 2009, and 2010, and because her “liability in this case,
without regard to innocent spouse relief, is less than what her liability
would have been had [r]espondent accepted the offer.” Petitioner’s
rationale for determining liability “without regard to innocent spouse
relief” is that her offer “was made almost 2 years before she made
innocent spouse relief an issue by pleading it as an affirmative defense
in this deficiency proceeding.” That is, because petitioner raised her
section 6015 claim after submitting her offer, “such relief from liability
is to be ignored for the purpose of determining whether [p]etitioner is
treated as a prevailing party under the qualified offer provision of I.R.C.
§ 7430(c)(4)(E).” See Treas. Reg. § 301.7430-7(b)(3) (discussing
treatment of adjustments raised subsequent to last qualified offer when
calculating liability pursuant to the judgment). Petitioner emphasizes
that her offer “reserved all collection rights including innocent spouse
relief” and that “[w]hen the offer was made, [she] did not know if she

7 Respondent also argues that petitioner’s offer was not a qualified offer

because she failed to provide respondent with “the substantiation and legal and factual
arguments necessary to allow for informed consideration” of her claim for relief from
joint and several liability under section 6015, see Treas. Reg. § 301.7430-7(c)(4),
because she did not file Form 8857 or otherwise provide information about her
entitlement to relief from joint and several liability under section 6015. In the light of
our holding under section 7430(g)(1)(B) and Treasury Regulation § 301.7430-7(c)(3) we
need not address this additional argument.
 9

would ever submit a request for § 6015 relief” because “[h]er husband
. . . was in a position to pay the deficiency, potentially obviating the need
for [her] to claim § 6015 relief.”

III. Petitioner’s Offer

Whether petitioner’s offer is a qualified offer turns on whether
reserving the right to claim relief under section 6015 relates to collection
(as she tries to frame it) or to her underlying tax liability. That question
is answered by the text of section 6015 itself.

Section 6015 provides relief from the general rule under section
6013(d)(3) that spouses filing joint federal income tax returns are jointly
and severally liable for all taxes due. The operative provision in section
6015(b) provides that in certain circumstances, an individual “shall be
relieved of liability for tax (including interest, penalties, and other
amounts)”; likewise, section 6015(c) discusses treatment of an
individual’s “liability for any deficiency which is assessed with respect
to the return.” That is, section 6015 relieves a taxpayer from liability for
tax, not just the collection of tax. Indeed, spousal defenses are listed
separately from collection alternatives as a basis for challenging a
proposed collection action under section 6330(d)(1). See
§§ 6330(c)(2)(A)(i), (d), 6320(c). A taxpayer may also seek relief from
joint and several liability on a joint return by raising the matter as an
affirmative defense in a petition for redetermination invoking the
Court’s deficiency jurisdiction under section 6213(a) (as petitioner did
here), see Butler v. Commissioner, 114 T.C. 276, 287–288 (2000), or by
filing a so-called stand-alone petition challenging a notice of
determination denying a claim of innocent spouse relief, see
§ 6015(e)(1)(A).

Petitioner’s reply concedes that section 6015 provides relief from
liability. She argues that we should calculate her liability pursuant to
the decision to be entered in this case “without regard to innocent spouse
relief” and ignore “such relief from liability” (thereby acknowledging
that section 6015 would otherwise affect her liability), and states that
her spouse’s payment of the deficiency would have “obviated the need
for [her] to claim § 6015 relief.” She gives us no legal basis for ignoring
her reservation of her right to claim such relief in the December 2016
offer letter. Rather, we must read her reservation as a caveat as to
liability. Consequently, her offer flunks the requirement in section
7430(g)(1)(B) that the qualified offer “specif[y] the offered amount of the
taxpayer’s liability.” An offer that reserves the right to claim relief under
 10

section 6015 does not “specif[y] the offered amount of the taxpayer’s
liability” because the amount of liability offered depends on potential—
and reserved—application of section 6015 and cannot be determined
until availability of section 6015 relief is considered (or reservation of
the right to claim it is withdrawn).

Applying the regulations to petitioner’s offer illustrates the
problem. Petitioner offered to concede “100% of the tax and 100% of the
penalties” for years 2008, 2009, and 2010, subject to a reserved right to
claim relief from joint and several liability under section 6015.
Respondent’s acceptance of that offer would not “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”—that is,
petitioner’s federal income tax liabilities for 2008, 2009, and 2010—
because her tax liabilities might be (and were) reduced to zero after
consideration of her reserved right to claim relief from joint and several
liability under section 6015(c). See Treas. Reg. § 301.7430-7(c)(3).

Petitioner argues that the “differences between the amount of an
assessment pursuant to a qualified offer and the amount that a taxpayer
actually pays as a result of adjustments that are not at issue when the
offer was made, do not affect the validity of a qualified offer.” She points
to Treasury Regulation § 301.7430-7(e) (example 4), which discusses
whether a taxpayer may reduce the amount the taxpayer will pay
pursuant to a qualified offer after the offer is accepted by the
Commissioner by applying net operating loss carryovers. Petitioner
states that “[a] future innocent spouse claim is similar to the carryback
of net operating losses.” But unlike net operating loss carryovers not in
issue when an offer is made and applied after a qualified offer is
accepted to reduce payment for the years in issue, the right to relief from
liability under section 6015 that petitioner reserved in her offer affects
the amount of her liabilities—the assessed deficiencies—for the years in
issue; it is not merely a carryover item applied later to reduce payment.

We therefore conclude that an offer that reserves the right to
claim relief from joint and several liability under section 6015 is not a
qualified offer because it fails “to specif[y] the offered amount of the
taxpayer’s liability” under section 7430(g)(1)(B), and would not fully
resolve the taxpayer’s liability. See Treas. Reg. § 301.7430-7(c)(3).
Petitioner’s offer reserved the right to claim relief from joint and several
liability under section 6015, and therefore she did not make a qualified
offer under section 7430(g).
 11

IV. Substantial Justification

Because petitioner did not submit a qualified offer, her request
for litigation costs will fail if respondent’s position was substantially
justified.

The “position of the United States” in a Tax Court proceeding is
that set forth in the Commissioner’s answer. See § 7430(c)(7)(A);
Huffman v. Commissioner, 978 F.2d at 1148; Maggie Mgmt. Co. v.
Commissioner, 108 T.C. 430, 442 (1997). In his answer to petitioner’s
amended petition, respondent acknowledged that petitioner requested
innocent spouse relief under section 6015 and stated that he “will review
her request and make a determination regarding her eligibility for said
relief.”

A position is “substantially justified” if it is “justified to a degree
that could satisfy a reasonable person” or has a “reasonable basis both
in law and fact.” Swanson v. Commissioner, 106 T.C. 76, 86 (1996)
(quoting Pierce v. Underwood, 487 U.S. 552, 565 (1988)); see also
Huffman v. Commissioner, 978 F.2d at 1147. The determination of
reasonableness is based on all the facts of the case and the available
legal precedents. Maggie Mgmt. Co., 108 T.C. at 443. A position has a
reasonable basis in fact if there is such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion. Underwood, 487
U.S. at 565. A position has a reasonable basis in law if legal precedent
substantially supports the Commissioner’s position given the facts
available to him. Maggie Mgmt. Co., 108 T.C. at 443. Treasury
Regulation § 301.7430-5(d)(1) provides:

A significant factor in determining whether the position of
the Internal Revenue Service is substantially justified as
of a given date is whether, on or before that date, the
taxpayer has presented all relevant information under the
taxpayer’s control and relevant legal arguments
supporting the taxpayer’s position to the appropriate
Internal Revenue Service personnel. . . .

Respondent’s position was substantially justified because
petitioner did not “present[] all relevant information under [her]
control,” id., and respondent’s position had a reasonable basis both in
law and fact. A reasonable person could require information such as
Form 8857 or other documentation supporting petitioner’s claim for
innocent spouse relief before making a determination. See, e.g., I.R.S.
 12

Chief Counsel Notice CC-2013-011, 2013 WL 3148998 (June 7, 2013)
(directing the Commissioner’s counsel to seek a CCISO determination
regarding relief under section 6015 in docketed cases with no prior
CCISO review). The submission of Form 8857 or other supporting
documentation to the Commissioner for CCISO review frequently has
preceded evaluation of a claim for innocent spouse relief. See, e.g.,
Knudsen v. Commissioner, 793 F.3d at 1032; Angle v. Commissioner,
T.C. Memo. 2015-92, at *3–4, supplemented by T.C. Memo. 2016-27,
aff’d, 699 F. App’x 703 (9th Cir. 2017); Estate of Lippitz v. Commissioner,
2007 WL 2780496, at *2. And respondent ultimately conceded that relief
was appropriate not on the basis of documentation petitioner submitted
(there was none) but instead the settlement respondent reached with
petitioner’s former spouse.

V. Conclusion

In sum, petitioner is not a prevailing party under section
7430(c)(4) because she did not bear her burden of proving that she made
a qualified offer and respondent bore his burden of proving that his
position was substantially justified. We therefore will deny her motion
for litigation costs.

An appropriate order and decision will be entered.